-- Posted Thursday, 17 August 2006 | Digg This Article
The following are some snippets from the most recent issue of the International Forecaster. For the full 25 page MidWeek Reading, please see subscription information below.
August 16, 2006 MidWeek Reading
THE INTERNATIONAL FORECASTER
P. O. Box 510518, Punta Gorda, FL 33951-0518
An international financial, economic, political and social commentary.
Published and Edited by: Bob Chapman
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Recently the European Central Bank and the Bank of England raised interest rates. That is important, but more important is the fact that the Bank of Japan and the Bank of Canada failed to do so. We might add that belatedly the Bank of South Korea raised their rates as well. The economic numbers leave a question as to whether the BofJ will raise rates soon, although they drained the banking systems of funds and then added some back. The ECB says they have more hikes to come. Japan is a question mark and the Fed cannot easily raise rates with an election pending and the Republicans and incumbents in serious trouble.
As we said in our previous issue if the Fed was really serious about sorting out the monetary system it would take interest rates to 10% or reduce money and credit to 3-1/2%, or a combination of both. Needless to say, they are not serious because they donít want to pay the price. The debt structure cannot take it, even a combination of both. That is why we see the smoke and mirrors and the coordination with other central banks. The Fed has bought them all to the brink, because they have maintained low interest rates and increased money and credit over the last year by 9%. They are aiding and abetting the Fed. They are all maintaining artificially low interest rates, which is augmented by their fiat money creation. At the same time they have allowed the US Treasury to suppress commodity prices and those of gold and silver to create the illusion that nothing is amiss. This is what the decision was at the G-10 Conference in May. That is why Hank Paulson of Goldman Sachs was brought in to run the show. They are very aware that inflation is in double digits. Even India and Russia elevated their interest rates.
During May and June gold fell 25%. It was overextended and it was a perfect opportunity to show investors there really wasnít any inflation. The $180 correction in gold was expedited by a 500-ton secret gold sale by the US from gold they had on deposit with the IMF, which was sold through the Bank of England. This is the same tactic they used to drive down gold in October 1987. We know Ė we were in London watching it happen. After a fresh appraisal investors have returned to gold retracing half of the losses realizing the central banks are not going to get serious about reversing inflation, because they cannot. They cannot have a restrictive monetary policy without causing at least a recession or depression. Last week we published an approximation of M3. The first figures published since last March and the Fed has not cut back the flow of new money and credit one bit. If you look at the ancillary figures we publish each week you can come to no other conclusion than that the Fed has aggregate growth at about 12% and has given no indication they are going to stop the liquidity flood anytime soon.
We also believe monetary authorities have no problem with crude oil at $75.00 a barrel. Ex-wars, invasions and occupations oil would be selling at $50.00 a barrel, perhaps less. Oil companies, the main five elitist world oil giants, are making a fortune for their owners, they do not want lower oil prices. A cessation of wars and slightly higher interest rates along with lower money and credit creation would affect a slowdown and oil would fall to a natural demand level. It also should be kept in mind that it is the stated intention of the US-Israeli axis to wage war with Iran and Syria and occupy both countries in order to control Iranís oil and cement a bloc of countries as a geopolitical base as well as a source of captive oil production and immense profits for transnational conglomerates and other assorted criminal elements, such as the Bush crime family. We might add it is only a matter of time before Venezuela ceases selling oil to the US. That is why bases are being set up in South America surrounding Venezuela. The US knows eventually they will have to invade the country in order to keep the supply of oil flowing into the US. We also believe that if Iran is sanctioned, due to requests from either the US or Israel, that both Iran and Venezuela will cut off oil to the US and cut off oil to world markets. That would send oil up to at least $120.00 a barrel. If conflict with Iran becomes reality, oil could go to $200 a barrel because no shipping would be able to travel through the Straits of the Gulf of Hormuz. That would take gold well over $1,000 an ounce. That could be some time in coming, because Israel was unsuccessful in removing Hezbollah from Lebanon and they now have to settle for a peacekeeping force.
It is evident Fed Chairman Bernanke is trying to keep the housing market from crashing and the Republicans and incumbents, most of whom are in the elitists pocket, from crashing and burning in November. Otherwise heíd still be raising rates. Thus, it is continued stagflation. Official inflation is 5.4%, productivity is 2.7%, wages are up 3.5% and GDP is up 2.5%. This is hardly inductive to non-inflationary growth. Worse yet is real inflation is over 10% and unemployment is 13.2%. All of the above point toward a weaker economy and a weaker dollar. What is about to soon follow is an attack on the dollar with it testing 80 on the dollar index, and a revival, a resumption of the commodity and gold and silver bull markets.
There are two basic factors that will foil economic growth in America. The first is a slump in housing construction and real estate prices. Construction created 30% of the new jobs over the past five years. We believe those jobs will be lost over the next four years. Real estate prices are flat in some areas, up slightly in others and off up to 15% in other areas. We are fourteen months into the correction and we are following the path that England took. Starting next month we will see more construction cuts, more foreclosures and defaults and further cuts in real estate prices.
The other factor is consumption, which is not as yet headed down. Falling house prices, higher unemployment, and persistent higher gasoline prices and inflation will cut into consumption in September. Itís an evolutionary movement so donít expect it to happen overnight. It will be a prodding process. The Fed has entered the realm of pushing on a string. Plenty of money and credit, but few spenders and borrowers. The psychology is already in place emanating from the housing market. Once the housing slump is upon us we can count on a fall in demand for durable goods as well. That leads to excess capacity and layoffs.
Free trade and globalization has made the world more interdependent and that means more than ever that when the US has a recession so will the world. This leaves us with serious limits to monetary easing unless the Fed and other central banks move to hyperinflation, which we view as an excellent possibility. Fiscal policy cannot be eased further among G-7 countries because they all face serious fiscal imbalances. We already see CEOís of transnational conglomerates confidence sharply down as they see rising protectionism coming and a fall in consumer and business confidence.
As the dollar falls against other currencies it makes it difficult to compete, thus a falling dollar acts as a deflationary force against Europe and Asia and certainly makes gold more attractive. The reality of global recession hasnít sunk in yet. People hear what they want to hear, not the difficult voice of reality. At some point soon the US current account deficit will become unsustainable, probably terminated by a falling dollar. We already see diversification out of the dollar. Who wants to get caught holding the bag? The biggest losers will be Japan, China, England and the Middle East oil producers. The flight of foreign capital has already begun and it will accelerate. The dollar-based recession has already begun, it just hasnít been recognized yet. It will not be different this time. The warning signs are all there...
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-- Posted Thursday, 17 August 2006 | Digg This Article