-- Posted Sunday, 21 March 2010 | | Source: GoldSeek.com
The following are some snippets from the most recent issue of the International Forecaster. For the full 27 page issue, please see subscription information below.
US MARKETS
There was no turning back after June 2003. The last bubble was in the process of being created. The collapse of real estate, both residential and commercial, had been put in place and their fateful journey had begun. The credit expansion had begun and there would be no stopping it until it had run its course. Currently the credit crisis is in its initial 30th month with a possible end in sight. If quantitative easing is withdrawn, money and credit is dramatically reduced and interest rates are increased, deflation will start to make headway. In today’s circumstances we have a sovereign debt crisis, which is worsening. You put all this together, and in the absence, further stimulation of one form or another, the world could easily fall into a deflationary depression.
Socialist and fascist governments run America and Europe and they are falling further and further into the collectivist trap every day. Everyone wants to be rescued from their mistakes and that simply can’t happen. In the meantime to finance this illusion they both go deeper and deeper into debt.
Europe is far more advanced into the socialist destructive process. The euro zone is headed toward dissolution and perhaps the European Union as well. We will have the answer on the euro zone within two years. The beginning of the end has begun with Greece’s problems and the reluctance of Germany to bail that country out. Due to this reticence Germany has been threatened by other members of the euro zone and the EU, which was more than dumb. What they do not understand is what they have put into motion can’t be stopped. The euro and the euro zone was a political creation doomed to failure from its very beginning. The masters of Europe, the “Black Nobility” are watching their euro zone being destroyed, as well as its mission to usher in a one-world currency and government. Germany doesn’t want to cooperate, so they are being referred to as fascists again. Reality is snapping at their heels and they do not like it. Political control of Europe held by the Bilderbergs is slipping from their grasp and they are not happy about it. In Germany and in other European countries the people are speaking out against the control of their countries by Illuminist agents or the speculators who have run their countries into debt and into the ground as they have in America as well. You have to remember as well that there are 19 countries close to or already in a state of bankruptcy and there is little hope of reversal in any of them. The collapse of these countries is inevitable; it is only a question of when. The havoc being blamed on speculators has foundation, but the profligate governments put in power by the elitists are what really laid the groundwork for failure and that we believe was done deliberately.
Socialism in Europe is nothing new. It began with paternalism in the 19th century and it has held the people in bondage ever since.
The re-imposition of what has been known historically as British mercantilism, presently known as free trade, globalization, offshoring and outsourcing has laid waste the production of goods and services in the US and to a lesser degree in Europe. Politicians and corporate opportunists have been very willing to expedite the demise of American and European manufacturing, all but totally destroying their economies. Yes, the emerging world will escape the brunt of the economic onslaught, but only by degree. No on can escape what is coming. Keep in mind 60-1/2% of all countries’ foreign exchange reserves are in dollars and at least 20% have to be in euros. As both currencies fall in value versus other currencies, purchasing power is lost by the holders. In addition these conditions are part of the cause of all currencies falling against gold. In the end even non-participants suffer from the debt, dislocation and socialism. The theory of decoupling does not work. The third and second worlds are not going to prosper as the US and Europe collapse and to think so is very short sighted.
Financially and economically the previous two administrations were a disaster and the current one in many ways is even worse. We still have two very expensive occupations and one current war, the cost of which is conveniently off budget.
Corruption reigns in the House and the Senate and budget deficits are the largest in history. There is little incentive or even available funds to invest, as higher taxes will be proposed after the next election in November. The spending is endless and you will pay higher taxes to pay for it. The hole that this Congress and administration is digging will finally destroy America financially - bills that are no longer payable - debt far beyond America’s ability to pay it back. The welfare state is upon you.
Sovereign debt will become overwhelming over the next two years. A new class of junk bonds will overwhelm debt markets, as the big hitters, China and Japan, stop buying and slowly move into commodities and gold and silver to protect themselves. Banking and Wall Street have deliberately taken down the financial system and further enriched themselves in the process leaving the American taxpayer with unpayable debt.
In addition, we are saddled with $1.35 quadrillion in derivatives of which trillions are in naked credit default swaps.
Debasement is the order of the day. Markets do strange and unusual things as our government blatantly manipulates all markets 24/7 via “The President’s Working Group on Financial Markets.” Some markets such as gold and silver are deliberately suppressed and the world’s stock markets defy gravity staying up perpetually with no logical means of support. You won’t hear this on CNBC or mainstream media, but it is the reality of what is really going on in the financial world.
As stimulus assistance moves to its peak in March retail sales continue to slightly improve, although results are still in negative territory in spite of more than $800 billion being injected into the economy. The best description that can be applied is a stabilizing sideways trend. Unfortunately as stimulus exhausts itself, sales and the general economy will be hard put to continue even slight improvement. When those with money to spend were polled those with income twice the average have cut buying by 13% from January to February and 19% y-o-y. Those with the means have to spend, if they do not there can be no recovery. As you can see that is not happening. Dropping home values and layoffs at the top of the ladder have decimated the prime mortgage market and with it spendable income. A 19% drop in spending is a normal reaction to these unfortunate events and we can expect more of the same unless the Fed stops removing liquidity and more stimuli are added. The problem is we cannot do this indefinitely, because the debt markets are unwilling to fund such foolish expenditures. Why do you think your government wants your retirement plans; Social Security, Medicare and Medicaid are already broke. People have contributed and worked a lifetime only to be screwed by their government, which has become a den of thieves. Unemployment is 22-1/8% and it is headed higher. We predicted 2-1/2 years ago, when personal consumption was 72% of GDP, that consumption would revert to the long term mean of 64.5%, and so it will. If the elitists follow what we think is their current plan, we see even lower figures over the next several years. A shift is taking place that will influence spending for years to come. We are about to revisit the economic mindset of the 1950s and 60s. The rich and well-to-do will continue to cut back and the social climbing affluent will all but disappear. You can’t eat pretensions.
In regard to unemployment it is deceitful for government to trumpet U-3 at 9-7/8%, when their own U-6 shows unemployment to be officially 16-7/8%, including the birth/death ratio, which is totally bogus. That means the real unemployment rate is 22-1/8%.
Most observers have zeroed in on the budget deficit of $1.6 trillion. Equally as important is servicing old debt as well as new debt. Refinancing for the Treasury is a problem. The two biggest holders of US debt continue to buy less or none, just rolling current commitments. In February, Japan was a net seller of $300 million and China sold $5.8 billion worth. The big question is will the Fed have to continue to buy 80% of issuance as they did this past year? That certainly will continue to stoke inflation. Over the next five years $1.2 trillion of old debt has to be refinanced, which includes $526 billion in 2012.
The stampede of homeowners from underwater and foreclosed residential real estate is gaining momentum.
A group of 14 senators have accused China of currency manipulation. This could start a trade war and force the US to implement tariffs on goods and services.
Even if all this gets refinanced everyone else will get crowded out and interest rates will have to rise, especially if America’s triple A rating is lowered. That shuts out medium and small companies and individuals, which will get little or nothing. How will commercial mortgages get refinanced, some $60 billion in just two years. These are huge numbers. It is no wonder the government wants to exchange guaranteed annuities for your pension plans. As you can see the next few years will be very difficult.
For the week of March 17th, the commercial paper market fell $22.4 billion to $1.122 trillion.
The President’s Working Group on Financial Markets is trying to block financial reforms being proposed by Sheila Bair’s FDIC. This is what Brooksley Born went through 12 years ago.
Tariffs on goods and services are in the way. 130 Congressmen are co-sponsors of a bill to take action against China and its currency policies. There are hundreds of nations that have been doing the same thing for years. This currency manipulation bill has been a long time in coming. Not only China, but also most of the rest of the world has taken unfair advantage of America by creating an unlevel playing field. This has been exacerbated by free trade, globalization, offshoring and outsourcing. China has to come to terms with the deal they made and that was to take on depreciating dollars for major market penetration. The US received inexpensive goods and low inflation in return. There is nothing resilient about China’s economy, especially if tariffs are erected. The downside for the US is most goods and services in the US would be more expensive than they would be otherwise, but unemployment wouldn’t be over 22%, it might be 8%. This is the way we operated for 200 years and we became the strongest nation in the world.
We should not be afraid to upset China and others; we have ourselves to think about, not some country that is essentially a slave labor camp run by a totalitarian government. It is an unnatural situation for America to import 35% of their clothing from one nation.
America and many other nations will devalue over the next few years and that should solve the dollar and debt problem, not only for the US, but for many other nations as well. Those events will allow those nations to rebuild to bring more balance to the world economy. Yes, interest rates will rise and we will be back in the 1950s and 1960s again but that is fine; Americans can handle the challenge. This all can be more easily accomplished by getting rid of the Federal Reserve and its monopoly on monetary policy, by turning their mission back to our Treasury where some transparency can exist.
The more Treasuries that other nations don’t buy the quicker America moves toward devaluation and default, which will take the whole world down with it financially. A nation cannot long survive financially when America continues to produce massive deficits. Soon 50% of US tax revenues will be needed to service debt. A nation cannot survive with such a burden. This is why we are convinced tariffs; devaluation and default are on the way not only for the US but for most other countries as well. There is no other way out.
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THE INTERNATIONAL FORECASTER
SATURDAY, MARCH 20, 2010
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