*Merrill Lynch put out a sell recommendation on JP Morgan Chase this morning with no explanation.

*Word is beginning to circulate that JP Morgan has become a systemic risk problem. That same word is they don’t know how to fix the problem. On that score heralded CEO James Dimon, who was aware of the gold price suppression while CEO at another bank (not Citi), said the other day that the Bear Stearns takeover had become more difficult than he thought it would be.

*The reason is something brought your way Café contributors for years: their hundreds of trillions derivatives book. It has begun to blow up according to my source, something MIDAS and the GATA camp have pounded the table about for a LONG time.

*The problem includes gold, silver, the interest rates and currencies, according to my source.

*The totality of the problem DWARFS the Madoff $50 billion nightmare … supposedlymakes it look like a walk in the park.

*Deutsche Bank, a defendant in Reg Howe’s lawsuit against The Gold Cartel (as was JP Morgan and Chase Bank) is also having trouble with their derivatives book.

JP Morgan closed down $2.34 to $28.60.

Morgan is the Fed's bank. The Fed is already stretched the limit. What a daisy chain mess here.

PERHAPS, this is why the dollar is getting pounded the past few days. Who else has heard what we just have. Perhaps this why US short dated Treasuries are hanging around zero.

The information I sent your way yesterday was re-confirmed today. The lack of trust in the financial world over counterparty risk is "accelerating." This is forcing "remaining contracts" of all kinds, especially in the Over The Counter markets, to be "settled."

What is stressed to me is that it is a "currency" problem … so I did my best to nail that down. It has to do with the dollar, US interest rates, AND gold and silver, which represent a SUBSTANTIAL part of the JP Morgan derivatives book … and it is TRILLIONS and TRILLIONS … the magnitude of the problem is that large.

JP Morgan, the Fed’s bank supposedly can’t handle it, so the US Government is stepping in … and the only way the Fed can handle the GROWING problem, is to PRINT money. BUT, they can’t PRINT the money fast enough.

And yes ... this a major reason why the dollar is suddenly falling apart. If I, WE, know … much of the BIG MONEY has to know and they are dumping dollars as fast as they can, ergo the dollar is TANKING, and will continue to tank.

The Madoff mess, and $50 billion catastrophic loss, could not come at a worse time for the US Government and JP Morgan. Our government knows they CANNOT let Morgan fail and they are going all out to prevent that from happening. However, the Madoff scandal, and loss of capital, has those fearful of counterparty risk problems accelerating their exit from dealings with Morgan and other US institutions, in which they have dollar based, counterparty contracts. It is so bad that word to me is that the US cannot "waste time" on the relatively insignificant Madoff "disintermediation" nightmare, the JP Morgan problem is so MONSTROUS … because disintermediation is spreading like a horrible, malignant cancer and the numbers are mounting daily.

So, what are we left with? Bernanke’s helicopter drill is NOW in effect. The problem is Bernanke needs B-47’s or some gorilla plane like that. We have talked about this sort of scenario in MIDAS for some time. Well, we are here for sure and it is in play (Bill H and others have been all over this).

What will be critical for JP Morgan to stay afloat is for the Fed to be able to print money fast enough to meet the demand of those closing out contracts with Morgan.

The bottom line: HYPERINFLATION is upon us, or the eve of hyperinflation is.

As far as I know, no one else out there is delving into the JP Morgan mess. The insiders are trying to keep this horror show as quiet as possible.

One more thing, I asked my source about "settling" in regards to gold and silver contracts. Let the shorts cover I said. To cover anywhere near here, after THEY forced the prices down and caused billions of dollars of spec losses, would be more than just a travesty of justice, It would open the potential for hundreds of billions of lawsuits for what would be clear cut fraud by the concentrated shorts who took the market down the past many months. It is one thing to have gold go $1500 bid overnight (or in a few weeks) and silver go $30 bid, and then declare a force majeure (unable to deliver for unforeseen reasons) after letting the free markets play out until there is a legitimate reason WHY something HAS be done. It is another to force settlement of gold and silver contracts in what Dennis Gartman calls a BEAR MARKET!