Events in the last decade displayed a vigorous effort to defend the USDollar. The rogue nation of Iraq sold crude oil in Euros for three years, until they were liberated. Its tyrant was a scourge to be sure. Weapons of financial mass destruction seem to have replaced the traditional type, the new variety being derivatives, mortgage bonds, and even sovereign bonds from weak nations. Newer weapons from the United States feature extended hands from clearing house fronts that snatch and grab segregated private accounts, and backdoor raids of exchange traded fund precious metal. Other devices include the loosening of Qaddafi gold. The clergy of Tehran has been skimming from oil revenue for years, complete with hidden Swiss accounts.

The USGovt has attempted to isolate Iran. Price inflation inside Iran has turned acute. The corruption among Western leaders is much the same, the devices different with bond fraud, market rigging, hidden monetization, and phony economic statistics. The Iran mongrel will not easily be put on a leash. The Hat Trick Letter does not delve much into geopolitics and military weapon analysis, but the next generation Sunburn and Onyx missiles that Russia has supplied to Iran stand out as significant in their ability to neutralize great opposite forces. The annual belligerent war posturing against Iran seems more serious in recent months. Yet the entire reduced theater seems chock full of standoff factors.


During the 2002 to 2005 period, the Shanghai Cooperative Organization (SCO) aroused a considerable amount of publicity. It was originally a cultural exchange group between Russia and China, led by the surviving republics of the Soviet Union. Its agenda grew to include security matters. Then later still, commercial trade and commodity supply entered the picture, as the resource rich nations lacking in economic development banded together. The added twist was the inclusion as guest SCO members such nations as renegade Venezuela, Iran, and others. The SCO opposition movement never faded away, as it coalesced behind the scenes. SCO became a hidden movement to build fortifications in opposition to the USDollar. Its main thrust has been gold accumulation in the shadows, surely a Russian & Chinese directive. Lately, add oil sales settlement outside the USDollar, a risk filled path.

The key to comprehension on SCO matters is to realize that all countries in the Shanghai Coop are working vigorously to bypass the USDollar, and all are increasing their gold done in much more secrecy. The proposal to end usage of the USDollar in bilateral Russian-Iran tade came from Moscow, not Tehran. One can be absolutely certain that Kremlin leaders are as stiff spined and resilient. They remember all too well the Yeltsin years and the Western oil company role. The proposal to switch to the Russian Ruble and the Iranian Rial was raised by Russian President Dmitry Medvedev with his Iranian counterpart, Mahmoud Ahmadinejad, at a meeting in Kazakhstan. Wayward Iran has replaced the USDollar in its oil trade with India, China, and Japan. At the cusp of developments is a potential deal that could bring an important linkage between crude oil and commodity trade settlement outside the USDollar, with provision for funding the European bank rescue fund, the European Financial Stability Facility. The bypass of the USDollar in trade is likely soon to be engrained in the financial system. The global revolt continues.

The German newspaper Bild am Sonntag had said Klaus Regling (CEO of the European Financial Stability Facility) is pushing to increase guarantees to up to 30% for investors external to the EuroZone, the amount confirmed by a fund official. Although the guarantees were non-existent a year ago, EFSF officials have stressed that state guarantees had always been planned to range from 20% to 30% range, and furthermore, such offering should not be interpreted as a deepening of the endless debt crisis. Clearly, the guarantees provide incentive to attract foreign funds. The nations with big foreign reserves like China have turned their noses up at Europeans in the latest rounds. The Beijing leaders want more on the table. Think industrial collateral. Think access to central bank gold. Think official bypass of the USDollar in trade settlement.


Iran and Russia have replaced the USDollar with their own native currencies, thus solidifying trade ties. The proposal for replacing USDollar with Ruble and Rial was raised by Russian President Dmitry Medvedev in Kazakhstan during a sidelines meeting of the Shanghai Cooperation Organization meeting. Many Iranian entities are using Ruble currency for their trade deals. The Kremlin leaders stand against unilateral sanctions on Iran conducted outside the UN Security Council. The central bank in Iran is working feverishly to to circumvent and overcome plans to isolate it and cut off income. The sanctions directed by the USGovt cut off from the US financial system foreign firms that do business with the central bank in Tehran. Many even in the West believe that the move would prove futile. The means to avoid the sanctions is to conduct trade settlement outside the USDollar, where the USFed would not act as processor. The peripheral impact is felt with intermediary entities such as Turkey's Halk Bank, which will likely choose to step aside and not risk being stepped on by American boots. During the last two years, Iran has been replacing the USDollar with other currencies in its trade with the outside world. Replacement of the USDollar in its oil trade is a high priority. Recent provisions have been made by India to open Rupee accounts with two major Indian banks. Workarounds are the order of the day.


In defiance, Japan and China have embarked on a trade deal that directly bypasses the USDollar in settlement, another platform dismantled. They will promote direct trade in Yen and Yuan currency without USDdollar usage, to build a market for the exchange, and to cut costs for companies. The real surprise was the announced plan for Japan to buy Chinese bonds in the current 2012 year, confirmed by leaders in late December. Some shock waves are coming to the FOREX markets, where King Dollar is at risk. The primary motive behind the bilateral trade deal is to reduce currency risks and trading costs. Currently, about 60% of trade transactions between the two nations are currently settled in USDollars, a practice to be reduced. China is largest trade partner to Japan, bigger than the United States. China already purchases Japanese debt securities. In turn, Japan holds $1.3 trillion of FX reserves, the world's second largest war chest. They wish to purchase Chinese debt securities. The list of imminent investors in Chinese debt is growing, from Austria to Thailand to Nigeria.


Back in the spring months of 2009, the Jackass penned a public article called Dollar Death Dance that was well received. When the system was going through an implosion phase, the demand for USDollars rose sharply. The gradual powerful pathogenesis toward monetary system collapse continues, the focus having shifted to Europe. The US$ demand came from banks required to cover their US$-based debts, made attractive by ultra-low official US interest rates, the first offered among central banks. Also, the ruinous derivative trade suffered a shock wave, its settlement almost exclusively in USDollar terms. The next phase is underway, the second song to the Dollar Death Dance. The woes in Europe are translating into more US$ demand, as funds flee European sovereign bonds turned toxic, as funds flee big European banks meeting reserves requirements, as funds in money markets return to US shores.

The USDollar is due for some extreme shocks. Some might not think so, given the Euro depression in sentiment and the rattling of big European banks. Word has come that in late February and late March, some important adjustment events are due to kick in, enough to knock over the tables in the temple. Conjecture is wide open and ripe for imagination. For the USDollar to continue its catbird post in global trade is inconceivable. The elite controllers will do their best to keep the USDollar in its dominant post. But the rest of the world, especially on its Eastern locales, is working in the other direction. As a sage contact told me last week, There is a clear swing in power to the East, not to return Westward in our lifetime. The primary victim of that pendulum swing, a powerful Paradigm Shift, is the USDollar. The consequent beneficiary will be Gold, and its squire Silver. A complete list of forecasts will not be given here, since too dangerous and ugly. The world financial system will not survive in its current form. The system will probably hold together until late 2012, or early 2013 after the US presidential elections, another controlled event subject to outsourcing.


By Jim Willie CB
Editor of the HAT TRICK LETTER
Hat Trick Letter