The inflationary depression still dominates and probably will continue to do so. In time the stimulus will fail to work and the world will slip into total insolvency and deflationary depression. The old M3 is about 3%, but we still have $23.7 trillion floating around. Not only is the US bankrupt, but also so is the rest of the world. It is now only a question of when the dominos will fall. It looks like the first wave in the collapse of the bear market rally is underway. Bonds will follow with higher interest rates and eventually commodities will be hit. Only gold and silver will survive, as the bankers and Wall Street complete their destruction of the world economy.

Holding currencies is also a loser. Eventually the best will fall to gold and silver. There is no possibility that quantitative easing can be curtailed and that means debt will continue to grow exponentially. By way of example in 2007 public debt as a percentage of GDP was 62% and this year it will be 94%; in England 44% to 82%; in the G-20 62% to 85%; in Europe an average of 63% to 85%, excepting Italy at 104% to 120%, and in Japan 188% to 227%. Over the next two years some of these nations are going to default, never mind Ireland, Greece, Portugal, Spain and Eastern Baltic Europe, which are well on the way to being basket cases. Due to current economic conditions these nations cannot generate revenue sufficient to even pay the service on the debt. Revenues are off 11% in the US and they are headed lower. In the President’s budget $100 billion is earmarked for incentives for job creation and $25 billion for the states that are generally incapable of even paying unemployment compensation. Forty states are on the edge of bankruptcy. The President wants to double the aid to education in a totally failed system. Governmental debt is growing at a rate of more than 20%. Then we can pencil in the bailout programs and the bankruptcy of Fannie Mae, Freddie Mac, Ginnie Mae, FHA, AIG and GM. The 19 major banks are still insolvent. They are all keeping two sets of books and mark-to- model, not to market. That means their assets are worth what they say they are. The collapse of the credit crisis is still underway. All the kings’ horses and all the kings’ men cannot put America back together again.

As we have often said the turning point for the dollar and the American economy was on 8/15/71, when the US abandoned the gold standard. That was followed by de-industrialization, free trade, globalization, offshoring and outsourcing, which ripped the industrial heart of America, sending our companies and jobs to foreign lands, so that transnational conglomerates could be, enriched tax-free. The result since 1972, due to inflation, is that two incomes per family are needed to financially survive. A very sad commentary, and the direct result of the actions of government, Wall Street and banking. They ended sound money and gave us corporatist socialism, also known as fascism. The result is presently inflationary depression. The value of our homes have fallen 50% and many are buried in debt. If that wasn’t enough, Congress increased the short-term debt limit this week, adding an additional $45,000 to the debt of every American. We are told by government and Wall Street there is very little inflation when in fact it is double what government says it is.

Ten banks control 70% of US deposits and they are all broke. The FDIC has $93 billion. 2,055 banks are in serious trouble. If 1,000 go under the cost would be $500 billion. The banks have already paid the FDIC fees due over the next three years. The FDIC does have a $500 billion line of credit with the Treasury and we wonder if government dares use it. Of course the banking cartel – monopoly – the Federal Reserve can always print more money and inflate the debt away.

Sources in Washington tell us the administration expects Congress to pass another $150 billion stimulus plan to augment the new budget. That should carry the economy through the election. It is not the $500 billion the White House had in mind, but it is what they will have to work with. Incidentally, half of what government spends is borrowed.

We have warned you before to exit municipal bonds. You are looking at massive unfunded liabilities. These entities have no ability to repay debt under the circumstances.

Southern and Eastern European debt markets have sent currency, bond and stock markets reeling for the past month.  The dollar rally was anticipated by insiders like Goldman Sachs, JP Morgan Chase and Citigroup in their massive long dollar positions. China overdid their stimulus plan of a net $2.2 trillion in the short space of ten months. They now have bubbles in stocks and real estate that will cause real domestic problems. The yen carry trade is close to over, but how big is the dollar carry trade? Have these traders created too much liquidity? We do not know, but we would guess the dollar carry trade is not nearly as large as some believe it is. Corporations are talking about higher profits due to a surging dollar. We doubt that, and we ask how much will US exports be hurt and as a result how much worse will our balance of payments become? It seems like professionals in the bond markets worldwide are mesmerized and are accepting dangerously lower yields just to play the game - that can become a very dangerous one. They think nothing bad could possibly happen, when the debt bomb is so obvious. Junk is junk no matter how you cut it. Even in the so-called better quality issues the 5-year US T-note is yielding 2.15% and the 10s are 3.58%. With inflation in the real world over 7% why would any informed sane investor reach for such losers – never mind the junk? We are in a dead zone and shortly inflation is going to surge again. Oil will move higher, as will commodities. Gold and silver are as well posed to test their old recent highs. The world’s financial problems are not going to go away anytime soon and that is why you have to be in gold and silver related assets.

This past week gasoline prices fell $0.06 to $2.66 a gallon.

There is much talk about how it would have been better to have Paul Volcker as Chairman of the Fed, but pundits forget they are cut from the same cloth and take orders from the same people. Such a change would have been a waste of time for Americans. Volcker was added to the socialist/Marxist entourage of our President to bolster his image and to show the world that Mr. Obama was going to bash Wall Street and the bankers. Do not hold your breath. They control our President. They put him in office with money stolen from you. He is bought and paid for and you paid the bill. Very little will be done in the matter of what goes on in Wall Street and in banking. They have the world by the throat and will continue to have it in their clutches, unless the system is purged, the Fed is done away with and returned to the Treasury and the revolving door between Wall Street and Washington is shut down.

Nothing will come of Volcker’s bank bashing. That was done to make the liberals and others happy. The elitists like running the country and they are going to keep it that way. The looting of America will continue with all of the leverage and outrageous risk, theft, conflicts of interest and the continuation of a criminal enterprise.

Yes, we need Glass-Steagall back. We can thank Phil Gramm and Larry Summers for that change. Look what it has brought us: the same conditions we had in the 1920s that led to our great depression. There are those in their ivory towers and those on Wall Street, that will tell you it prolonged the depression, which is untrue. The depression continued on because of FDR not purging the system or allowing it to purge itself. It would have meant the bankers and Wall Street would have faced bankruptcy, which should have been what should have taken place. Today we have the very same problem. We have to bailout the bankers again. In neither case did bankers and Wall Street follow the sound principles of risk management and leverage. They used leverage of 30 to 70 times deposits. Is it no wonder the system had a credit crisis. They knew what they were doing in a world where 8 to 10 times was risky and sufficient. They did this basically with your money – your deposits. In fact, in today’s two sets of books system and marking-to-model, they are still trapped into leverage of 40 times deposits. This is why the credit crisis is not over. If it was why would the Fed create money out of thin air, lend it to banks and then receive the funds back and pay the banks a higher interest rate than what they were lending at? That last interest payoff comes out of your profits that should have been given to the Treasury. Glass-Steagall would force banking to constrain leveraged lending and bring order to the system.

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THE INTERNATIONAL FORECASTER

WEDNESDAY, FEBRUARY 10, 2010

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-- Posted Wednesday, 10 February 2010 | Digg This Article