Heads Up! Dubai Could Be The Start

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Heads Up! Dubai Could Be The Start

Jim's article has some excellent merit.

HEADS UP: This could be a lot like 1930s depression where another country across the globe slides into the ocean and drags everyone else underwater. 

 

DUBAI DEFAULTS

DUBAI DEFAULTS Chart on page

 

Is this the spark that sets the world on fire? Dubai has been touted as a miracle economy. Guess what? It was another sham built on debt. They built office buildings, malls, and islands. They used debt from European banks. The buildings are vacant and Dubai can't make the payments on the debt. They defaulted. The European banks are [email protected]@@@@. European markets were in free fall today. The Dow futures are down 178. If our markets fall 3.5% tomorrow, that would be 400 points on the Dow. The fact is that Dubai hasn't done anything that the United States has done 1,000 times bigger. The entire world financial system is built upon a foundation of sand and the ocean is coming in. Be prepared.

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Re: ***Heads Up***Dubai Could Be The Start

Yeah gold dropped 60 dollars overnight it has currently retraced 30.

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Re: ***Heads Up***Dubai Could Be The Start
docmims wrote:

Yeah gold dropped 60 dollars overnight it has currently retraced 30.

Yup, looks like people made a flight to (perceived) safety going into securities, most bond yeilds and their underlying currencies were up as a result.

My hunch, it that our market will be popping breakers and Monday the markets will be closed.

My second hunch is that 4 large international banks will collapse, taking banks around the world with them.

The CB's (if they wanted to keep the charade going) should have stepped in and bailed Dubai out, the sum wasn't staggering in the great scheme of things.

I could be a bit of a hyper alarmist here in this call ---- but I've always suspected it would be a country like Poland who tanked, was ignored and 100 years later they'd look back and say, wow, that one little domino started the chain.

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Re: ***Heads Up***Dubai Could Be The Start

Its time to fire up the Hal-9000  and "save" the markets once again. Of course, I hope Hal doesn't turn on the crew of the SS Goldman Sachs . Bring on the drama!

Black Friday? Fighting the Bubble One Default at a Time

A brutal risk selloff as Dubai seems to have sparked the "sudden" realization that, you know, stimulus just ain't going to do it all.

Sovereign CDS spreads have been widening since the news, rescheduled conference calls did little for investor confidence and U.S. equity futures have crashed (midnight ET was exciting!) on the order of 4% with crude futures are down 5%. Treasury futures have spiked in inverted sympathy (flight to safety). Spot gold, which was as high as $1191 hours ago has sunk to ~$1140. Japan has intervened following the Yen's 14 year high mark. The Swiss National Bank is rumored to be intervening continually to un-defend the Swiss Franc. Quite a morning so far, and it's just beginning.

 

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Re: ***Heads Up***Dubai Could Be The Start
JAG wrote:

 

Sovereign CDS spreads have been widening

 

That's all I need to read to remember we have a 600 (possibly 1.6 quadrillion) powder keg we are sitting on top of. Dubai could be the unwanted spark. 

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Re: ***Heads Up***Dubai Could Be The Start

Dubai... Didnt see that coming. Your'e right Davos just another house of cards...  Looking back makes sense. 

Staying alert,  nk:)

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Re: ***Heads Up***Dubai Could Be The Start
JAG wrote:

Its time to fire up the Hal-9000  and "save" the markets once again. Of course, I hope Hal doesn't turn on the crew of the SS Goldman Sachs . Bring on the drama!

ROFL!!!

Yep, need the Hal-9000, some potent "circuit breakers" there, to regulamate dem' der markets.

Thank God for the Plunder Procurement Team too!  Or is that Plunge Protection?

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Re: ***Heads Up***Dubai Could Be The Start

If something like this effects all markets, where do we want to have our money?  (Yes, I know gold but that's not possable with my company run 401K.)  I've heard (from Peter Schift and others) that Asian markets are the best place right now but it looks like an event like this hurts all markets.  Of course, Europe will be hurt the most but it looks like Asia is getting damaged too.

><>Larry

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Re: ***Heads Up***Dubai Could Be The Start

Okay, a question from the peanut gallery:

Why would a Dubai default, which could trigger a domino effect, cause gold to go down? I thought gold was supposed to be a hedge against a crisis or collapse. Shoudn't gold be skyrocketing at this news?

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Re: ***Heads Up***Dubai Could Be The Start

Middle east is rich in Gold.
Might be their only ace in staving off absolute crisis.

Just a thought. Flood the market?

Aaron

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Re: ***Heads Up***Dubai Could Be The Start

"Its time to fire up the Hal-9000  and "save" the markets once again. Of course, I hope Hal doesn't turn on the crew of the SS Goldman Sachs . Bring on the drama!"

Did you notice that HAL is one letter ahead of IBM, useless info but interesting, did ACC do it on purpose?

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Re: ***Heads Up***Dubai Could Be The Start
gregroberts wrote:

Did you notice that HAL is one letter ahead of IBM, useless info but interesting, did ACC do it on purpose?

Yes, that was done on purpose. An easter egg for scifi fans to find in the original book.

 

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"Just a moment... Just a moment...

... I've just picked up a fault in the Global Financial Recovery. It's going to go a hundred percent failure within 72 hours."

More quotes from HAL here...

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Re: ***Heads Up***Dubai Could Be The Start

Apparently they wanted to originally use IBM in the film but when IBM found out the computer was to run amok and murder a bunch of people IBM said "No".

So they shifted the letters back one place and came up with HAL instead.

Mr. Fri wrote:
gregroberts wrote:

Did you notice that HAL is one letter ahead of IBM, useless info but interesting, did ACC do it on purpose?

Yes, that was done on purpose. An easter egg for scifi fans to find in the original book.

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Re: the Spin Team hard at work...

Ahh.... so comforting to know that the spin-meisters are busy and on the case Undecided

Dubai crisis jolts markets, but early fears ease

Quote:

NEW YORK (AP) -- Dubai's debt crisis rattled world financial markets Friday, raising concerns that some banks could further tighten lending and stall the global economic recovery.

The possible spillover effects centered on fears that international banks could suffer big losses if Dubai's investment arm defaulted on its $60 billion debt. Stock and commodity markets tumbled in New York, London and Asia as investors flocked to the U.S. dollar as a safe haven.

But earlier concerns that the crisis might trigger another financial meltdown seemed to ease after some analysts downplayed the risks for U.S. banks, which are thought to have little exposure to the Middle Eastern city-state.

Hmm... barely 24 hours into the event and analysts are already confident that there's little risk to US markets.  You'd think after most of these 'analysts' botched up so badly in predicting events last fall they would be more careful about rushing towards judgement.  It sure must be nice to always get a fat paycheck no matter how badly you do your job....

- Nickbert

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Re: ***Heads Up***Dubai Could Be The Start

What Dubai Means for the U.S.

http://www.tnr.com/blog/the-stash/what-dubai-means-the-us

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Stop Dave, I'm Afraid.

"Dave" for Fed Chairman, Secretary of Treasury, and President!!!!

Doesn't the HAL-9000 sound like FED-speak?

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Re: ***Heads Up***Dubai Could Be The Start

If we go by what happened in previous crises -- Mexico 1994; Asia 1997; Russia 1998 -- the Federal Reserve will respond with another gusher of liquidity, even though rescuing Dubai from a property collapse is not part of the Fed's mandate. But some of its brainless, accident-prone bankster cartel members ARE exposed to Dubai. So, ergo, it becomes Benny's problem.

My best guess is that U.S. stocks are going to respond much as they did to the aforementioned crises -- that is, dip briefly and then scream to new highs on the fiat liquidity flood. Gold, although bullish sentiment is a little overheated, is likely to do the same. After all, Benny's cronies who can borrow 'money for nothin' at zero percent are going to scattershoot it at any and every candidate for asset inflation, or even mere dollar devaluation.

The dollar's pop on the Dubai-induced flight to safety is likely to be just a brief bear-market rally. A country which is borrowing, printing, bombing and fighting on credit is headed for a currency crack-up. The U.S. can no more afford to up the stakes in Afghanistan than Togo can afford to invade Iceland. So I say, short the dufus-dollar till the pips squeak. This ain't a serious country no more, and neither is its comic-book scrip currency.

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Re: ***Heads Up***Dubai Could Be The Start

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Re: ***Heads Up***Dubai Could Be The Start
machinehead wrote:

So I say, short the dufus-dollar till the pips squeak. 

Hey MH,

Aren't you afraid that everybody and their Momma are on the same side of this ABD trade? When this ABD trade reverses do you want to be running with the herd?

Thanks in advanced....Jeff

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Re: ***Heads Up***Dubai Could Be The Start

I dunno Davos.....looks like one BIG mess to me.

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Re: Stop Dave, I'm Afraid.

"I know I've made some very poor decisions recently" ~ BSB-2009 Foot in mouth

JAG wrote:

"Dave" for Fed Chairman, Secretary of Treasury, and President!!!!

Doesn't the HAL-9000 sound like FED-speak?

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Re: ***Heads Up***Dubai Could Be The Start

idoctor, It looks like Peter has is wrong.  At the end of the second video (recorded a week ago) he says that in the next crisis they will flee the dollar, not run to it.  Yet, in this crisis,  people are going to the dollar.  Am I missing something here?

 

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Re: ***Heads Up***Dubai Could Be The Start
earthwise wrote:

Okay, a question from the peanut gallery:

Why would a Dubai default, which could trigger a domino effect, cause gold to go down? I thought gold was supposed to be a hedge against a crisis or collapse. Shoudn't gold be skyrocketing at this news?

It did initially.  That's what drove it up to 1195.  Jim Sinclair explains it:  

"Overnight news out of Dubai has sent global equity markets reeling and generated a safe haven flow into the US Dollar as carry trades are unwound and a flight away from risk occurs. Dubai has asked for a 6 month moratorium on its debt obligations, which for all practical purposes is a type of default. Needless to say, this came with little to no warning and has sent the markets into quite a tizzy.

Gold shot higher on the news and touched a record $1,195 before some light long liquidation connected with carry trade unwinding got underway. Look for it to be well bid on any setbacks in price as this sort of news is extremely disturbing. After all, we are talking about the financial hub of the Middle East. Imagine the repercussions that would occur should London have announced this sort of news and you can understand why stock markets were pummeled overnight.

Stocks have been floating higher and higher for the reasons described yesterday (increased profits due to expense cutting plus easy money and lots of liquidity) but this is the kind of news that could cut off all such rallies right at the knees. The reason – it creates fear and uncertainty, two of the prime ingredients in a selling binge. If Dubai could go under, then who or what might be next becomes the nagging question hanging over the markets like the proverbial sword of Damocles.

We are in a period in which we could experience price swings across the markets of the magnitude which will parallel those that we witnessed as the Japanese Yen Carry trade was unwound last year. Huge leveraged bets employing the Dollar as the borrowed currency have set up a situation in which billions of Dollars in one way bets are once again on the table. These idiots never learn as their greed will be the ruin of them all but unfortunately, it is always the innocent and those who play by the rules who get caught in the crossfire generated by the pond scum hedge fund community.

Be careful out there and be thankful that you own gold. Things are coming unraveled at an alarming speed. Just imagine the kind of losses that are now on the books of those banks who hold Dubai sovereign debt. Then again, that should not be a problem. The Central Banks can just print them some more money to replace those losses. Heaven help us all…. "

Fear not and hang on to your gold.

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Re: ***Heads Up***Dubai Could Be The Start

The more I read about Dubai the more I think that this it the tip of a very large iceberg. And I'm not certain it is just a financial iceberg. If I recall correctly Bush lobbied hard in the mid 2000s to sell control of our ports to Dubai. If the ports run anything like ATC I can just imagine the far reaching ramifications that could possibly result.

I've started another thread on this. Hope there are some supply chain and port guru's on this site!

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Re: ***Heads Up***Dubai Could Be The Start

The "start" of the collapse (transfer of all the wealth from the people to the banking system) began the moment banks gained 100% control over the creation of the medium of exchange as interest bearing loans because once time and interest kicked in on that borrowed money the debt grew greater than the money supply.

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Re:Dow Jones 2138.44

Anyone happen to notice the error in the Kitco feed that is linked on the left hand side of the CM homepage that shows the DJIA at 2138.44?

I hope it's not a sign of things to come...

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Re: ***Heads Up***Dubai Could Be The Start

Dubai's Fantasy Island Gamble in the Persian Gulf Comes to an Ugly End

 

What’s the difference between the United States and Dubai? The US is a playground for the wealthy just like Dubai, but at least America hasn’t declared bankruptcy – yet.

Yesterday Dubai World, which is the investment arm of the Dubai emirate, asked its creditors to accept a six month freeze on interest due on its debt. That’s an admission Dubai is out of cash to make payments on its debt, and that it is de facto defaulting on this debt. It just isn’t using that word because it doesn’t want to trigger lots of nasty court claims from its creditors grabbing on to any collateral they can.

Dubai may not be able to avoid sovereign bankruptcy because not all of its creditors may agree on a debt payment moratorium. It only takes one aggressive lender to file a court claim and begin a mad rush to attach Dubai World’s assets, including its world-famous man-made Palm Islands. Still, that lender has a high likelihood of winding up with sand; most of the hotels and condominiums expected to be built on these islands are half-complete and already in a moratorium of their own because there is no money to finish them.

Therein lies problem number one. Dubai massively over-built office towers, hotels, apartments, condominiums, and retail complexes, all of them for the world’s nouveau riche who were expected to flock to this desert shopping paradise. Dubai offered the world exclusive shopping privileges at stores like Cartier, Bulgari, Bentley autos, and Versace because that is all it had to offer. Dubai ran out of oil a while ago, and beyond that it has sand and a dreadful desert climate that forces people to live their lives at night if they wish to leave their apartment.

Dubai gambled that it could turn itself into the Beverly Hills of the Persian Gulf now that it has no oil. It lost its gamble. The people who could afford a $10,000 purse have taken a big beating in the financial crisis and recession, and they are embracing a more moderate and discreet spending lifestyle. Dubai not only has half-finished buildings, it has many completed buildings uninhabited, like Miami and Las Vegas and other overbuilt desert mirages.

The second problem is how Dubai went about building its modern Garden of Earthly Delights. It did it with the poorest people in the world, Muslims from India, Pakistan and The Philippines desperate for work and lured by false promises of fantastic pay. The trade in workers used to build Dubai was as scandalous as the sex trade, with poor people expecting good money and a chance to prosper, only to find their employer had trapped them in a tenement one hour from Dubai out in the desert, with wage deductions so large that the worker will never have an opportunity to work back the “loan” the employer claimed to incur to bring the worker out to Dubai in the first place. At its peak two years ago, Dubai was estimated to have a population of millions, of which 18% were true Emirati citizens, the rest being unable to live in Dubai or afford any of the luxury goods in the stores they built. The city had taken on a bizarre Southeast Asian feel because of its immigrant population, to the point that tourists complained the only food you could buy in Dubai was curry.

The third problem might be called Dubai’s moral hazard. There are seven emirates that comprise the United Arab Emirates located in the former Trucial States along the southern coast of the Persian gulf. Not all of these have oil, and only the capital city – Abu Dhabi, which is an hour northwest of Dubai by car – has any significant reserves. Abu Dhabi, Sharjah and the other Emirates look like traditional Arab towns of the area, and have none of the high-rise glitz of Dubai or its money losing novelties like a ski resort. They have all looked at Dubai’s adventure in skyscraper over-abundance as at best a lesson in poor taste, and at worst a profligacy of sinful proportions.

Despite this, the emir of Abu Dhabi has always bailed out his fellow-emir in Dubai, with billions of dollars of loans and guaranties. Dubai has incurred about $80 billion in debt to build its fantasy along the desert shore, of which $59 billion was taken down by Dubai World. Around two-thirds of all this debt was bought by local interests, and the rest by foreigners. The foreigners always thought – and were told this in Dubai – that Abu Dhabi would make sure this debt was repaid, because it always had. Until today, when Abu Dhabi has said “enough is enough.”

This is a momentous decision that has shocked and disturbed the global investing community. Is Abu Dhabi teaching Dubai a lesson? Does Abu Dhabi have its own cash problems? Has Peak Oil reached the emirates faster than anyone outside appreciates? Whatever the reasons, in refusing to back Dubai for a penny more, Abu Dhabi has taken its own calculated gamble that reneging on United Arab Emirates debt by one of its members will not hurt the others in the long term. In the short term, Abu Dhabi must have known that the collapse in UAE debt ratings, plus a sharp increase in prices for credit default swaps used to protect against a UAE bankruptcy, would be inevitable.

Stock markets, bond markets, credit default swap markets, currency exchanges, and even gold and oil have all taken a beating in the past two days as investors realize the world doesn’t work the way they thought. There still are unexpected default risks out there even in unlikely places, and the deflation rippling through property markets worldwide has not abated. Those who lent to Dubai – including some of the biggest banks in the world, who are already severely stressed by bad debts – are going to lose billions of dollars even if Dubai merely postpones interest payments for six months as requested. Many investors now expect much worse than that, though.

So here we have a country that used to have oil which has now run out of the same. It has turned to massive amounts of debt to sustain not only its existing lifestyle, but to build a fantasy land of McMansions, luxury malls, trophy office buildings and theme parks for the wealthy. It has nothing anyone wants to buy and consequently stocks the shelves of its stores with goods from other countries it buys on debt. It has done all this using impoverished labor that works under a modern form of indentured servitude, in which the typical worker incurs excessive debts of their own that can never truly be paid off by their earnings. It creates an enormous income disparity between its privileged few and the huddled masses kept out of sight.

Sound familiar? When do you think global investors will start connecting these dots and ask: exactly what is backing the debt of the United States that has flooded the markets in the past nine years under Bush and Obama? At least Dubai had a presumed rich uncle in Abu Dhabi that would come to the rescue, even though now everyone realizes that was a very costly mistaken assumption. In the case of the US, the United States was the rich uncle everybody else looked to in order to solve global problems. Now that rich uncle has gone crazy in its own orgy of gambling, whoring, and over-indebtedness.

Except there is no one – absolutely no one – who can come to the United States’ rescue. And if you want to believe that the US would never, ever ask for a little extra time to pay back its debt, or ask for it to be restructured in some way, or debase its currency with inflation in order to throw its debt burden on to those who have financed it, that is your affair. Just remember there are millions of individuals, funds, corporations, and governments around the world who have bought US Treasuries. It only takes a few to wonder long and hard enough about just how safe and secure these Treasuries are to cause a stampede out of them, at which point the US is exposed like Dubai as a naked supplicant in the global market, begging for alms and a little forgiveness for past sins.

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Re: ***Heads Up***Dubai Could Be The Start

DTM,

     Great article! Watching the Dubai construction boom on print and tv over the years always left me scratching my head in disbelief. Where are they getting their potable water to support all that hedonistic display of skyscrapers in the desert and man-made isles in the sea?

'Rising costs hamper desal market': Saudi minister   11-8-2009

The reduction of costs offered by new technologies in the desalination market has been offset by rocketing prices, argued a Saudi minister at the launch of the International Desalination Association’s World Congress, which is taking place in Dubai this week.

Abdullah Al Hussayen, the Saudi minister of water and electricity, told delegates that while the international desalination market was expanding by as much as 15% a year, increased material and labour costs were preventing the sector from reaching out to poorer sections of the world’s population.

The proliferation of statistics on the current water situation worldwide belies the notion that we have a firm grasp of the extent and impact of the shortfall in potable water and sanitation,” Al Hussayen indicated.....

 

Dubai water and power needs will almost double by 2011

9-27-2009

..The imminent shortage of water resources in Dubai has been compounded by the real-estate boom, with new construction projects taking a larger share of resources.

"This is increasingly alarming since this region is already the driest in the world," Fady Juez, the managing director of Metito, told the first Middle East Water and Wastewater Management Conference in Dubai. "The good news is that MENA countries are sensing the need to find alternative solutions so they are able to meet the increasing demand for fresh water."

 

 

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Re: ***Heads Up***Dubai Could Be The Start

I think this could well be the start of another major bout of global deleveraging, but I hesitate to call it just yet.  This weekend will likely give the central banks time to coordinate some heavy-handed responses, some hidden and some visible.  If they get Dubai's creditors to play along with their schemes they might have a chance to forestall massive deleveraging.  At least until the next "BearStearns/LehmanBrothers/Iceland/Dubai/etc." comes along in the next couple weeks or months, and then the one after that, and the one after that.... with so many points of critical weakness in the global economy, I have every confidence that they'll screw it all up eventually.  Wink

- Nickbert

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Re: ***Heads Up***Dubai Could Be The Start
Damnthematrix wrote:

Sound familiar? When do you think global investors will start connecting these dots and ask: exactly what is backing the debt of the United States that has flooded the markets in the past nine years under Bush and Obama? At least Dubai had a presumed rich uncle in Abu Dhabi that would come to the rescue ...

Except there is no one – absolutely no one – who can come to the United States’ rescue.  It only takes a few to wonder long and hard enough about just how safe and secure these Treasuries are to cause a stampede out of them, at which point the US is exposed like Dubai as a naked supplicant in the global market, begging for alms and a little forgiveness for past sins.

Precisely. The largest single liability account on earth, to my knowledge, is the Federal Reserve's 'custody account,' now approaching three trillion (with a 'T') dollars. 

Ever heard of 'due diligence'? How could a 'duly diligent' sovereign investor place funds with an entity (the Federal Reserve) which cannot submit an auditor's opinion? If the sovereigns who have invested in this bloated slush fund try to redeem their deposits, where is the Fed going to get that much cash in a hurry?

I have a sneaking feeling that an unintended consequence of Ron Paul's Fed audit bill may be to blow the custody account sky high. Like Fannie, Freddie, and other 'government sponsored' catastrophes of the recent past, the Fed's custody account is an overgrown, unregulated monster with opaque, flaky accounting, conflicts of interest, self-dealing, and probably not enough liquid cash reserves to meet a sudden demand for redemptions.

When somebody with some sense finally says 'Let me out!' [of the custody fund], the resulting almighty bang likely will jolt the financial world off its axis. In flooding the market with T-bills to raise case for redemptions, the Fed inadvertently will reveal for all to see that the U.S. is essentially financed with the sovereign equivalent of short-term commercial paper. And in a blind panic, no one takes down commercial paper. Plus, a huge portion of those redeemed dollars would be sold to buy other currencies. Dollar down! Dollar down!

When it's reported that Timmy G. and Benny B. have escaped the capital in a helicopter, en route to the Bush ranch in Paraguay, you'll know it's over for this looted-shell, Potemkin empire.

SurprisedGOT GUNS, GOLD AND GRUB? Surprised

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