Saudi Arabia cuts ties with USA, but OPEC is not what it once was, while JPMorgan is fined for selling dodgy Credit Swaps.

For anyone who is interested, here is the text of the judgement by the CTFC against JPMorgan for their massive selling of dodgy credit swaps. This is only one of the many cases that JPM is trying to settle right now, with a total price tag of around $16 Billion USD. However, there still seems to be no serious suggestion of Jamie Dimon even being fired, let alone charged with anything. 

As if that were not bad enough, the CTFC has shut down it's investigation into JPM's manipulation into the Silver market, probably because they realise that if JPM was removed from the market, Gold and Silver would very quickly return to their 'real' values (which I estimate would be something like $60 for Silver and $3000 for Gold) 

From the point of view of the White House, however, JPM is doing the country a service by suppressing the Gold and Silver price. Eventually though, it will all end in tears, since China is using the rigged price to buy up enough Gold to launch a Gold-backed Yuan, which will in my opinion, be the final death knell of the USD as a world reserve. As far as a timetable though, who knows? The Chinese do not want the value of the USD to crash until they have divested themselves of a majority of their dollar holdings, so this situation could go on for years. The only major hiccup seems to the USA's insistence of shooting itself in the foot every time it needs to borrow more money.

The other major news story of the moment is the downgrading of US debt by the Dagong Credit Rating Agency and the formation of the Universal Credit Rating Group, who has appointed former French Prime Minister Dominique de Villepin the chairman of its International Advisory Council.

The rise of these 2 new credit agencies should not be underestimated. Both are very much focused on the BRICS countries and South East Asia as many countries are attempting to reduce USD risk following the 'phantom taper' which caused major sell offs in the Malaysian Ringgit and had a similar effect in many emerging market currencies. As a result, a multitude of new bi-lateral currency deals have sprung up in the last week, with South Korea signing two major currency swap deals, one with Malaysia worth $4.7 Billion [ article here ] and another with the UAE for $5.4 Billion [ article here ].

Another very important feature of these bi-lateral swap deals is that the trade balances between each country are netted at the end of the trading year and the difference is settled in Gold. This means that countries now have a real reason to hold Gold, in the same way that they used to have to hold USD. I believe that these deals will be very bullish for Gold as the USD gets squeezed further and further into a corner.

Adding to this massive abandonment of the USD is Saudi Arabia, who just today announced that they were severing ties with the USA because they failed to bomb Syria and because they dared talk to Iran. [ article here ] Although this could just be a threat, the last time that the US and the Saudis went toe to toe was in 1973 when OPEC [ wiki article here ] imposed an oil embargo on the USA. However, if we look carefully at the members of OPEC, it's quite doubtful whether they would actually vote to block oil sales to the USA, especially since in 1973, OPEC was joined by Egypt, Tunisia and Syria in the embargo. [ wiki article on 1973 oil shock ].

The current member of OPEC are:

Country	Region	Joined OPEC[25]	Population (July 2012)[26]	Area (km²)[27]	Production (bbl/day)
Algeria	Africa	1969	37,367,226	2,381,740	2,125,000 (16th)
Angola	Africa	2007	18,056,072	1,246,700	1,948,000 (17th)
Ecuador	South America	2007[A 1]	15,223,680	283,560	485,700 (30th)
Iran	Middle East	1960[A 2]	78,868,711	1,648,000	4,172,000 (4th)
Iraq	Middle East	1960[A 2]	31,129,225	437,072	3,200,000 (12th)
Kuwait	Middle East	1960[A 2]	2,646,314	17,820	2,494,000 (10th)
Libya	Africa	1962	5,613,380	1,759,540	2,210,000 (15th)
Nigeria	Africa	1971	170,123,740	923,768	2,211,000 (14th)
Qatar	Middle East	1961	1,951,591	11,437	1,213,000 (21st)
Saudi Arabia	Middle East	1960[A 2]	26,534,504	2,149,690	8,800,000 (1st)
United Arab Emirates	Middle East	1967	5,314,317	83,600	2,798,000 (8th)
Venezuela	South America	1960[A 2]	28,047,938	912,050	2,472,000 (11th)
Total			369,368,429	11,854,977 km²	33,327,700 bbl/day

Now, if we take out the countries involved in the Arab Spring (Algeria), countries that the US has invaded (Iraq, Iran and Libya) and countries that the US is protecting (Kuwait, Nigeria, UAE). We are only really left with 2 Latin American countries, Ecuador and Venezuela and 2 Gulf states that are backing the Syrian rebels, Qatar and Saudi Arabia.

Therefore, an OPEC style embargo of the kind that happened in 1973 is now impossible. I am sure that some would argue that this is a direct result of US foreign policy, especially when you consider that they were involved in the invasion of three of the countries on that list.

I think that Saudi Arabia may have realised too late that it's oil grip on the US was slipping and their refusal of a seat on the UN Security Council smacks of pique, however, they do have one major weapon that they could use on the USA, which is to start accepting other currencies for their oil. I am sure that this is the actual threat behind Saudi posturing. This would no doubt have a negative affect on the USD as world currency, but as I have already written, it is under attack from all sides. The White House may have realised that collapse is inevitable and are simply positioning themselves for a more favourable outcome once the USD finally crashes.

Needless to say, the crash of the USD reserve system would finally set the precious metals market free, as every country would have to hold a Gold reserve to balance trade. I do not know exactly how long it will take, but I am convinced that from a fundamental perspective, the US is screwed. The only real way to avert it's economic destiny would be to start World War 3, which they would almost certainly lose, (if they could find someone to lend them the money) since although the US spends more on it's military than the rest of the world combined, the amount of waste in the system is immense. I do not know for sure, but I think a case could be made for saying that as much as 50%, or even more, of the US's military budget is wasted, diverted or embezzled, meaning that it's military is much weaker than most people would imagine. The widespead use of private contractors in the military have only increased this problem in my opinion, since they are essentially just hiring contractors to do things that the Army could already do itself, for 100 times the price and getting a shoddy result.

On another note, the seizure of Silk Road, the Tor shop where you could buy anything you wanted has resulted in the USG now being the holder of approx 0.22% of the world BTC supply.BTC suffered a fall when Silk Road was seized, but is now valued at nearly $200 each. It is quite painful for Silver stackers like myself to see the value of BTC double in a couple of months, while the JPM keeps the price of Silver at rock bottom. In my opinion, Bitcoin is here to stay and has no real conceivable upside limit. It could easily reach $1000 as the USD crashes.