US MARKETS           

The madness continues as we continue into the blow-off phase of monetary expansion. The biggest blow-off in monetary history. As you know, M3 has expanded 9.4% over the past 26 weeks, which is double normal expansion. At the same time, the issuance of additional liquidity is taking place in asset-backed securities. We believe M3 is a much better guide of monetary creation then M1 or M2. It tells the whole story and we’ve believed that for the past 45 years. The Fed isn’t the only issuer of monetary aggregates. You have GSE’s, such as Fannie Mae and Freddie Mac, S&L’s, insurance companies, money market funds, finance companies, brokerages, captive private finance units like GE and GMAC, special purpose vehicle such as CDO’s, MBS and ABS, all of which are an integral part of the money and capital markets. They receive liabilities from one another and in turn expand assets, creating money and liquidity, in a perpetual expansion process solely separate from the Fed. In addition, the Fed can arrange credit expansion through adjusting bank reserve positions, a proxy for credit growth. Significant growth is accomplished through the expansion of non-monetary liabilities. As you can see, there are a number of avenues to monetary expansion, which few are aware of and if the expansion of money and credit is not clearly explained, few understand what is transpiring within the financial system. This is, of course, deliberate to keep the populace in the dark. The Fed and other elitists do not, under any circumstances, want the public to understand what is being done to them. Over the past 4 years, the expansion of money and credit has for the most part ended up in speculative investments. The bear market rally in the stock market and, of course, the housing bubble. These are not productive investments. Thus, they will not have sustainability and in the final analysis lead to ever more damaging corrections.

            The increase in debt as a result of abnormally low interest rates and phenomenal credit growth is at massive levels, which are absolutely unsustainable. The center of the excesses is in the mortgage market, which has created an enormous unbalancing in the credit system, which has put the economy into an unbalanced state, which eventually means when the correction comes it will pull the entire economy with it.

            As that debt manifestation gets further and further out or whack so does our current account deficit and our budget deficit. They are all being accommodated worldwide by low interest rates and universally accommodative central banks that are pushing massive liquidity into the world monetary system. Those excesses are being monetized by higher commodity, gold, silver, real estate and stock prices. The problem is gold is the only real money so eventually all the other asset classes will fall as inflation manifests itself or when it tops out. First will be stocks, real estate and commodities, then silver. Gold will correct perhaps 30% while the others are hit for 70%. That is when gold will assert itself again as real money. Yes, we will get deflation, but not now. We are getting inflation first again. Your wages and savings are being stolen from you by your government in a stealth manner. Inflation is 9.5% and when government tells you it is 3.5% or 5%, they are lying. That is why you should appear to vote in November and throw 90% of the incumbents out of office. The answer to why this is happening is the monetary system is broken and the Fed and other central banks cannot fix it, so they are buying time via inflation. They know there will be a debt collapse and it has always been our opinion that all this was planned this way. That is to bring about the collapse at the exact time that the final move to world government takes place. Inflation is with us and price stability is history. The only war being waged against inflation is higher interest rates, which in turn will bring about deflation. As rates climb the ability of government, corporations and consumers to service debt and at the same time expand the economy will be impossible. Foreigners will withdraw their funds from US assets, the dollar will fall and depression will commence. That is a debt collapse and that is what comes after inflation and hyperinflation. Where the fine line between inflation and perhaps hyperinflation and debt collapse is no one knows. It is too hard to call. We can promise you both are devastating. Today, we are at an extreme in the stock market that continues to be held up by the Fed and probably will continue to be held up into the election. The real estate and bond bubbles that are held up by low interest rates, which will manifest themselves also after the elections to the downside will accompany the market in there decent. The credit and mortgage bubble cannot endure and can only bring about monetary disorder and chaos. Those who believe the Fed can stop the deluge are mistaken. Their powers to change monetary fortunes are limited. There have been 25 years of runaway systemic excesses and we do not believe the Fed can continue to hold the system together. Once the glue melts in the mortgage finance sector, the explosion of liabilities owed to foreign creditors risk the collapse of the dollar and its function as world reserve currency, which would perfectly suit the elitists who want a one world monetary system. What about $250 trillion in derivatives, those instruments of mass destruction? The demise of derivative writers will be the final plug that will be pulled from the world financial system. LTCM in 1998 was a dress rehearsal. Today, the derivative monster is even more leveraged and any significant deleveraging will precipitate a systemic liquidity crisis in addition to all the foregoing. How can you help a system that operates in secret without transparency or regulation? All together, it is a system with no restraints. There is no guide or anchor. There is no gold standard, reserve requirements, lending restrictions or real control. Fiat money and credit flies by the seat of its pants. Today’s credit and debt are not liquid when fed by derivatives, which are as fiat as most of today’s currencies. We will see what we will see over the next few years, though keep in mind all the foregoing are the facts, and we cannot see much financial happiness in our future. If we mix in the totalitarian aims of the elitists and their dream of world government, we can only see conflict and chaos.

            The Congressional Budget Office says the Bush administration has shifted federal tax payments from the richest Americans to a wide swath of middle-class families. It found the wealthiest 20%, whose incomes averaged $182,700 in 2001, saw their federal taxes drop from 64.4% to 63.5% this year. The top 1%, earning $1.1 million, saw their taxes fall to 20.1% of the total from 22.2%. Those with incomes from around $51,500 to $75,600 saw their taxes rise from 18.7% of all taxes to 19.5%. Essentially, the tax cuts are going to the rich and, of course, as usual, the neocons had a different set of numbers. We won’t consider their interpretation because they will be about everything the CBO isn’t. For the bottom 20% of households, the combined Bush tax cuts averaged $250 each. The middle 20% received $1,090 while the top 1% gained $78,460 each. The tax cuts this year will boost the income of millionaires by 10.1%, while middle-income families see a boost of 2.3%. There it is. Anyone making under $75,600 a year would have to be crazy to vote for Bush. He hasn’t treated them fairly.

            As we predicted, George the Lesser, plans to pull 70,000 to 100,000 troops out of Europe and Asia, so they can fight in the Middle East. Of course, the changes are needed to fight the fabricated war on terrorism. Seventy thousand will come from Europe, Germany, and 30,000 from Asia, South Korea. Of course, Germany and South Korea don’t want to see the change. It means lots of lost income. We should have moved those troops out in the 1960s.

            The American public sees no trouble on the horizon. Sales of RVs are up 15% and towables are up 14.9% in the first five months of the year. Who cares if you get seven miles to the gallon. One of the reasons is that people are so turned off by the terrorist situation at airports that they won’t fly anymore.

            To help cover the costs of incarceration, corrections officers and politicians are more frequently billing inmates for their room and board, an idea popular with voters. Inmates are billed $8.00 to $56.00 a day, depending on the ability to pay, which has to be unconstitutional. When they are released, the sheriff’s office goes to court to collect the unpaid bills, seizing cars or putting some people back in jail. Incarceration has become a profit center for politicians. We are not pro-prisoner, but they do have constitutional rights. Again, is this ethical and constitutional? It certainly further impoverishes inmates, making it impossible to reenter society and not revert to crime. This is as far from rehabilitation and certainly constitutes unusual punishment. In fact, the billing can be so onerous that it would create involuntary servitude. Upon being jailed, money is taken from the accused, put in an account and officials draw fees from that account for costs before the alleged perpetrator has been tried and convicted. That is simply unjust. This issue should quickly go to the Supreme Court so guidelines can be clear. This is either constitutional or it isn’t.

            The neocon dictators in Washington have told Japan they must revise their pacifist constitution if it wants a permanent UN Security Counsel seat. You have to have a warmonger classification to belong. Being a peacekeeper just isn’t good enough. You will change your constitution. Seventy percent of Japanese legislators are against changing Article 9, which prohibits aggressive warfare.

            The government, Pension Benefit Guaranty Corp., told UAL they must contribute to their pension plan. UAL says they already have a financing plan that omits the plan and they say if they have to contribute to the plan there will be no financing and they will go bankrupt. The problem with UAL and all these millions of other pension plans is the government allowed them to fall into arrears. It is like the millionaire who goes bankrupt and owes his wife and children $500,000 in child support. You cannot collect and putting him in jail is stupid. Then the family becomes financial wards of the state. You have to hit arrearages immediately and make the companies and those errant husbands stay up to date. If you do not, you lose control. The PGC is already $12 billion in the hole. The $8.3 billion for United would put them $20 billion in the hole and this is in a recovery economy. Can you imagine what it will be like three years from now?

            The National Highway Traffic Safety Administration published a regulation that would forbid the public release of some data on unsafe motor vehicles, saying that publicizing the information would cause substantial competitive harm to manufacturers. We know that is hard to believe but it is true. After being barraged with complaints, the neocons said, that they were trying to balance the needs of consumers with the competitive needs of business. The only President more favorable to industry in recent history was Herbert Hoover.

            The Pension Benefit Guaranty Corp believes defined benefit pension plans are under-funded by $450 billion and PBGC is in the hole $12 billion. The $450 billion is probably understated by 50% because as companies head toward bankruptcy they stop payments and the stock and bond markets could take a dump cutting more off value, perhaps up to 50%. Corporations are hiding their pension fund liabilities and Congress knows it and refuses to do anything about it. In fact, they have given them a two-year reprieve, which will only lead to more avoidance. We believe the only way corporations can be brought into compliance is proof of funding, segregation of assets and criminal penalties for willful fraud and that is what we are seeing now. The PBGC insures pension benefits of $1.5 trillion and has to pay current and future benefits to nearly one million people in more than 3,200 terminated plans. They paid out $12.5 billion in 2003 and will pay $3 billion in 2004. Their reasonable possible exposure to future liabilities they say is $83 to $85 billion as of 9/03 up from $35 billion in 2002. Other than bankruptcy, pension problems also emanate from the average male worker who lives 18.1 years in retirement compared with 11.5 in 1950. They will live even longer in the future. As you can see, pension plans are in trouble and we see worse trouble in the future. We are in a bear market and that means the 8% return pensions expected are not going to be there and as interests move higher bonds and real estate investments will also bring lower returns. If corporations fund pensions properly then profits will plunge and take stock values even lower. This is a pension bomb, make no mistake about it. S&P 500 companies are already under-funded by $300 billion, which makes the PBGC $450 billion figure very suspect. There is no question this is going to be a time bomb and that is why many retirees and early retirees are taking lump sum payments. That removes them from the clutches of the corporation. PBGC usually pays out 20% to 50% of the liability, so retires take a major hit. It is all actuarially unsound and the corporations and Congress know that. There you have it and it isn’t pretty.

            George W. Bush has to be the most deceitful politician in history. In September, he unveils his “New Freedom Initiative.” This is straight out of Orwell or a horror movie. It proposes to screen every American, including you, for mental illness. To this end, he has established a New Freedom Commission on Mental Health, ostensibly to study the nation’s mental health delivery service. The staff, of course, is comprised of America’s legal drug dealers, who will be the main beneficiaries of the invasion of privacy. He has even included our children. Now in your guts you know he is nuts. Schools will do the screening. The teachers are not for the most part qualified to teach, how can they possibly determine if your little June or Johnny is truly insane? Then there are the medications, millions of them. At the top of the list is Ritalin and anti-depressants. As we reported before when discussing this, he is using the Texas Medication Algorithm Project, or TMAP, as the model medication treatment plan that “illustrates an evidence-based practice that results in better consumer outcomes.”  The program enriches drug companies and allows government to take people like us and put us into mental institutions to shut us up. This is all modeled on the Soviet system and parts of the Nazi protocols. People like us, hard cases, will be lobotomized and then liquidated. This is a political/pharmaceutical alliance to promote the use of newer, more expensive anti-psychotics and anti-depressants. Private insurers would then be forced to pick up the costs, which will be passed on to you in the form of higher premiums. Needless to say, all those involved are heavy contributors to the Bush campaign. Essentially this amounts to class warfare, a homicidal dream by fruit loops in the White House. This is another cog in the wheel of deliberate influential destruction of the American people. It is all about control and profits. At all costs, we have to get these lunatics out of the White House. Vote independent and often.

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