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International Forecaster August 2010 (#1) - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster



-- Posted Wednesday, 4 August 2010 | | Source: GoldSeek.com

The following are some snippets from the most recent issue of the International Forecaster.  For the full 36 page issue, please see subscription information below.

US MARKETS

The Keynesians are on the edge of implementing more quantitative easing (QE) as we predicted they would.

 

No sooner had the ECB President Trichet proclaimed that “stimulate no more – it is now time to tighten,” when the President of the St. Louis Fed informed us that to avoid the Japanese outcome we must extend the QE program through the purchase of treasury securities. It looks like Europe’s Illuminists want to take a different tact than those in the US. After 15 months of reducing money and credit from plus 17% to minus 9.6%, the Fed now believes they have plenty of room to run those numbers back up to 17% again. One of the more interesting aspects of Mr. Bullard’s commentary is that call to have the Fed buy more treasuries, when in fact he knows all about the Fed’s buying of Treasuries and Agencies for the last 18 months clandestinely. People like Bullard must think we are dumb. In addition this is exactly what the Japanese did. They engaged in QE. The difference is they borrowed in yen domestically rather than on the world market. Most of Japan’s debt is owed to Japanese citizens.

 

For the past 30 years policymakers have based their commitments on interest rates, rather than money supply, which they now refuse to publish. At zero rates the Fed certainly does not have much room for adjustment except for minus rates. Current rates make the alternative gold extremely attractive as a currency. Gold owes no one anything. Dollar creators owe owners trillions. Thus, we see no possible choice. Gold today is the world’s premier currency and has been for the past 15 months. The dollar’s recent rally against a host of equally fiat currencies was just a man-made interlude. The rally versus the USDX was short lived. A move on the USDX from 74 to 89 and back to 81.66 completing a head and shoulders formation that on a long-term basis spells doom for the dollar. Anyone with any sense was selling the rally. Why would anyone with brains accept a 2.9% yield on a 10-year T-note, with real inflation in excess of 7%? World professionals look at the same numbers we do. What will dollar denominated buyers do when the yield is 2.5% or even 2% - hold the depreciating paper for ten years? In the meantime where do you think the Dow rally from 9800 to 10,500 came from? The insiders knew ahead of time what the Fed was about to do. That means Fed announcements and actions have already been discounted in stock prices by the elitists with inside information. Is it any wonder the dollar is falling and more inflation is just around the corner? The public hasn’t caught on yet, but what we are seeing is a replay of the summer of 2007. The dollar and the market fell and gold, silver and commodities rallied. We could easily have a repeat performance.

 

Wall Street and Washington continue to tell us a recovery is underway, when in fact that is not true. A second QE is underway and the sacrifice will be higher inflation, a lower dollar and higher gold and silver prices. What will be interesting will be if we have QE3, 4 and 5, etc.? Can it be pulled off? We do not know and neither does the Fed. What we do know is the elitists can have war on demand. You just saw that in Iraq and Afghanistan. When will the war begin and with it deflationary depression? Incidentally, all the polls for sometime have shown that Americans believe that inflation is still with us and do not believe government statistics. They also have fresh in their minds the failed monetary policy of the Fed and the fiscal disaster of the last two administrations and the current administration. The housing bubble supposedly was created to counter deflation and turned out to be an ongoing disaster. The public also is not unaware of the perpetual secrecy in both government and at the Fed and they know it is just a cover and they do not like it at all.

 

The Fed is about to really reignite inflation. If they do not the whole world financial system fails. Price levels can in no way be controlled nor can inflation by issuing phony numbers. Just like the industry and companies deliberately set earning’s goals lower, so as we just saw 75% of “estimates” were surpassed. People are not stupid. The Fed is really flying by the seat of its pants and so far has kept the financial system afloat. The question is can they continue to do that and what is the price we will have to pay? We have already seen what stimulus did in 2002 and in 2006 when government admitted inflation was 5-1/4%, but in reality was 14-3/8%. That was achieved by the doubling of mortgage credit over a 4 to 6 year period. The tactics of those years, as we predicted, has left our economy and the world economy in much worse condition. No one wants anything to happen on their watch, whether it is in corporate America, Wall Street or in government.

 

Market perceptions and expectations are for ever higher inflation. That means QE inflation will continue to be with us until we have a Weimar like event and then the game will be over. Inflation is now looked upon by most as an occupational hazard, which is accepted, because the alternative is too horrible to contemplate.

 

Under these rules monetary expansionism becomes a religion and bubbles become normal - all the time avoiding the solution, which is to purge the system of inflation and malinvestment.

 

You cannot make commentary on monetary and fiscal policy unless you understand that there are forces that control government from behind the scenes. If you do not strongly factor that in and the goal of world government you do not have a chance of figuring out what really is going on. Economists and analysts continue to avoid these factors and are doomed to being wrong 2/3’s of the time. We are in the same trap that Japan is in, and we will be lucky to do as well as they did since 1992. It will be an inflationary policy as usual. What else can it conceivably be? If we have inflation we get another temporary reprieve. Thus, most people are inflationists. They do not want to face the music. Who wouldn’t want inflation as apposed to standing in a bread line?

 

This could very well be Keynesianism’s last hurrah. This may be the last inflationary episode, because those hundreds of ships cannot sit in the Middle East indefinitely. The re-issuance of massive amounts of government debt cannot and will not solve the problem. At this juncture there is no way that a devastating outcome can be avoided and those pulling the strings are well aware of that. No one will escape economic and financial pain. The degrees will just be different. Worst of all very little effort is being devoted to solving the problem and creating employment and prosperity. That is because our planners know the effort is futile. The real solution is to cut government expenses by 30%, stop deficit spending, lower taxes and let the problem solve itself, which entails a deflationary depression. Instead we are headed for a terrible fate and it was planned that way. This didn’t just happen.

 

As we have discussed before there is a massive misallocation of capital due to the Fed’s interest rate policy. The government pretends inflation is close to zero when in fact it is much higher. That is caused by government manipulation. We just saw the same thing in GDP figures, which are explained elsewhere in the issue. This obfuscation isn’t fooling anyone. This inflation is caused in part by low interest rates and monetization by the Fed and to some extent by fiscal profligacy. The high inflation has been used for seven years to offset high deflation and it has not been too difficult to make inflation and GDP appear normal on the surface by just lying about the statistics. The problem the Fed has is that it must always create more inflation than deflation for fear they’ll lose control of the game and deflation, which once in command is impossible to stop. Underneath this game is a boiling cauldron of instability that could break loose at any time raising havoc with the system.

 

This effort at normality allows gold to perform as a safe haven under both inflation and deflation. It is irrelevant whether it is inflation or debt duress. Gold moves upward to protect the owners of gold as others perceiving the same problems purchase gold as a safe haven. This effort of the last 11 years has effectively over the past 15 months allowed gold to become the world’s premier currency as the dollar wallows in debt. Capital destruction has overtaken the dollar leaving it second best. Just look at the USDX run of the dollar from 74 to 89 to 80. It proved to have little staying power versus other currencies and particularly a very sick euro. We see dollar denominated asset prices continuing to fall. Look at real estate, both residential and commercial, if you need visible proof. Then we have the misguided fighting for perceived safety in US Treasuries as the dollar plunges in value against a number of other things of value, such as currencies and gold. Capital destruction has been in process for years, but many do not seem to notice, or don’t want to notice, as the world financial system slowing implodes. Even with all the propaganda and bailouts banking, the center of this problem still is far from retaining public confidence. We do not see it returning until a new system is in place. Just saving the financial world is not enough. The whole system has to be saved and those in power, which can do that, refuse to do so. Negative return is what it is – a loss of purchasing power that can only be offset by owning gold. You cannot go on indefinitely with negative returns in spite of government lies to the contrary. The road we believe the monetary powers have chosen is one that ends in hyperinflation. That is why no matter how hard the Treasury and the Fed try to resuscitate the system, it cannot be done and every effort to suppress gold is met with failure. The fiat dollar is collapsing and they cannot stop it.

 

As we said 11 years ago no matter what happens gold and silver are a lock for higher prices. At that time gold was $260 and silver $3.50. We have been dead on and have never wavered, because the game is not over, and as long as the public allows such a corrupt monetary system, it may never be time to exchange gold for anything. You do not worry about the end game, and the exit. We will know when that event occurs, and it may never occur. You just want your assets in the game. Why, because you have no other alternative. We see no other positive alternative in the face of a breakdown in sovereign debt and rampant inflation. QE will be a backbreaker sending inflation right through the roof. This will be the end of sterilization and the beginning of monetization by banks, which are sitting on more than $1 trillion and it will begin soon. This will begin another round of monetary debasement, which will further lower the value of the dollar. There can be only one reason that bankers have leveraged the way they have and have wrecked the financial system. They have done so at the major banks deliberately, by again using QE of $5 trillion. A new level of breakdown is being established that will bring sovereign debt into closer focus as gold and silver reflect this monetary mismanagement.

...

THE INTERNATIONAL FORECASTER

WEDNESDAY, AUGUST 4, 2010

080410(1) IF

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-- Posted Wednesday, 4 August 2010 | Digg This Article | Source: GoldSeek.com



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