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International Forecaster February 2011 (#4) - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster

-- Posted Sunday, 13 February 2011 | | Source:

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.


The discontent and seeds of rebellion existed for a long time in Egypt as it has in many other countries. The major powers of the world were content with Mr. Mubarak, especially the US, which gave him $60 billion over 30 years and allowed him to move $70 billion over that period into secret bank accounts in England, Switzerland and Europe, while Egyptians lived on the edge of starvation over that time frame. Both the US and UK never saw a dictator they didn’t like. This was their dictator, as was his predecessor. Mubarak did exactly as he was told including doing everything Israel desired. Mubarak represented stability even though his subjects barely survived. Most of the aid sent by the US was used to keep the military and Secret Police strong to enforce his powerful hold over the people. Thus, the US was happy to have such a “moderate” in power. He helped keep Egypt and Israel in a sea of tranquility in the desert. Mr. Mubarak was a model dictator.


Hunger and tyranny only last for so long and then one way or another they come to an end. You might say that the rebellion in Tunisia against another dictator was the catalyst or forerunner of what happened in Egypt. That Tunisian rebellion had all the earmarks and planning of a CIA, MI6, Mossad operation. This was to be where it would all begin. We had seen many such operations over the past 50 years. In both countries the groundwork was all there, poverty, lack of proper food and spiriling food and other costs. All of the change agents were on the scene coordinating the well prepared uprising. The president and his entourage left the country of course accompanied by 1-1/2 tons of gold. Mubarak in Egypt was better prepared. He had been moving out the wealth of the starving Egyptian people systematically for years having been well schooled by his handlers in London and Washington. This planned uprising was not what the planners had expected, particularly in Egypt. More violence was expected. Mubarak is out, although he hangs on to the visages of power, but the real problem for these planners is that their chosen successor, Mr. Suleiman will not be accepted by the people. This is the man who ran the CIA’s retention operation in Egypt and oversaw the torture of innocent people. We can understand why they would not want such an inhuman person to lead them. Just more of the same. There are 25 million young men under 20 years old in Egypt. Does the military want to attempt to kill them? We do not think so. Those are insurmountable odds. People in Egypt are fed up and threatening them with death for demonstrating in the streets in the worst thing the Vice President could have done. The gauntlet has been thrown down to the people and that was a very bad idea by those who prefer force to persuasion. It seems the current government doesn’t at all understand that it’s their job to safeguard the people not to threaten them.


If you have any doubt as to who planned this episode we refer to secret meetings in Washington set up to decide who was going to replace Murbarak and how quickly it could be accomplished. That was a week ago and no headway has been made by the US, because all of their replacements are unacceptable to the people. After causing this fiasco the US and UK find they have lost control, at least for the moment, in their effort to retain Egypt aa a client state. We think that this diversion is going to be very expensive for both parties. They jeopardized power over Egypt to distract Europeans and Americans from their terrible economic and financial situations. The choice has turned out to be a very poor one and even if they cobble together a solution the relationship with Egypt will never be the same. Who ever planned this caper should have their head examined. That said, the discontent was obvious and the US stepped in for what they saw as an opportunity to distract fears in the US and Europe over the financial situation there and it backfired. Part of the American colonial empire could be lost here in a foolish gamble. This is all about power and the misuse of power, as well as the subjugation of 80 million people. America was a partner in Egyptian despotism long before Murbarak came to power 30 years ago. Blowback has begun and short of sending US troops in the US has lost the game. The risk reward for the US in this operation was without foundation. The odds had to be 20-1 it would be a loser and it looks like it is going to be. The White House has admitted their plan is out of their control and much worse the world sees control is slipping away, just as they see the US, UK and European control of the financial nightmare slipping away.


You might ask why did all this happen in Tunisia and Egypt? It was a distraction pure and simple and an expensive one. The elitists behind the scenes are trying to find a way to deal with the eminent collapse of the municipal bond market as hundreds of municipalities choose bankruptcy. Newt Gingrich, neocon Bilderberger, wants to pass legislation to allow states to go bankrupt. That would allow the states to dispense with all or part of their pension and benefit obligations changing their financial obligations dramatically. The concept is horrible for people who worked all their lives for a pension.


The freshmen “Tea Party” representatives have just given the elitists a staggering blow; this group defeated the permanent passage of legislation to make the Patriot Act permanent. Obviously the elitist money machine was unsuccessful in buying them off. We at last see a glimmer of hope that the people’s voices will be heard. Washington may be changing, but we’ll have to see what the future brings.


The Fed continues to buy all the new Treasury bonds and others in circulation. This is a policy that cannot continue indefinitely because it will lead to hyperinflation. Europe has similar problems. The healthier countries have pledged $1 trillion to rescue the spend thrifts. There is a problem, as we sited last May, and that is that they are going to need $3 trillion plus to accomplish rescue - a sum that will bankrupt solvent European states and bring depression to the entire region. Yes, China and Japan have ridden to the rescue in an effort to dump Treasuries and buy the euro bonds of Greece, Portugal and Spain. This is an exercise in futility. Do the Chinese and Japanese intend on coming up with $2 trillion? We don’t think so, and if they did, by selling treasuries, the US dollar would collapse. Another short-term stopgap measure doomed to failure.


By early May Congress has to pass an extension of the debt limit. The Republicans do not want a new extension unless there are major cuts in the budget deficit. In the interim solutions presented to Treasury Secretary Geithner have been found by him to be unworkable. Things are going to come to a head in this game of chicken. Wall Street and banking want the extension, so their game of looting can continue. No extension means financial chaos, which had to come sooner or later. Monetization of debt is inflationary and destructive. The quicker we bite the bullet the better.


That should have happened three years ago. We have reminded you of the problems faced by the US, UK and Europe, because they were the reason for the distractions in Tunisia and Egypt. They are extremely serious problems indeed, but the risks for distraction were too high and now we are witnessing that in a scenario where the US, UK   and Israel could lose a key element of control in the Middle East. We will soon find out who wins – the people or the elitists.


Switching over to China we find a country with long experience in using money of all kinds. Copper, iron and paper – they tried it all. About a thousand years ago government took over control and issuance of paper money. Today China still likes to create money and in fact the increase in M2 has been close to 20%, that is similar to what the US Fed was doing a couple of years ago. The US and others have stopped doing so, but China continues on its merry way. China has followed such a course for hundreds of years, as has Europe. They all know that from long experience that the creation of superfluous amounts of money and credit lead to inflation, hyperinflation and economic and political chaos, yet they all do the same thing over and over again with the same tragic results. Obviously many people in China are aware of monetary history and they are purchasing gold and silver at an ever-increasing rate.


Today in China inflation rages, but it varies from province to province. Some areas have a net 5% inflation and some average 35%. Subscribers returning from China have varying and differing accounts of what is happening there financially. China like the US has negative real interest rates, particularly when matched up with real inflation. The government says inflation is 4.6%. That should average out to about 12% and we might add that is a guess. Either way, whatever it is, it is not good.


Ongoing inflation such as China is experiencing will perpetually lead to an accelerating purchasing of gold and silver. That has been part of Chinese culture for centuries, as a result demand has been unbelievable. This year China could import 1,000 tons of gold, which is hard to believe, when China is the world’s top gold producer. That is because the government has been purchasing production for a number of years and at the same time has been buying gold and silver in international markets, usually by using a go between. Gold and silver have not been the only refuge for the average Chinese. They have been accumulating other physical assets, food, commodities and real estate. Illiquidity in today’s overpriced real estate market has forced more and more money into food, gold and silver. China is faced with the same runaway inflation as the US and like the US they do not know what to do about it. They have become enmeshed in a Keynesianism trap from which there is no escape. Very simply, food prices have gone through the roof and this is only the beginning. What is stunning in both cases, China and the US, is that they both know what the end result will be. It’s a matter of history, yet they both still march toward financial oblivion.


In China and the US we see the producer price index at more than 14%. Are the producers, manufactures and distributors going to let these price increases eat into profit? We do not believe so. Prices are advancing at about 8% a month, although for now we do not expect that to continue.


On another note, if in fact higher food prices caused revolt in Tunisia, Egypt, Yemen and Jordan could it be that such conditions could cause worldwide revolt? It is possible and it is probable. Most certainly it is possible in China and perhaps in the US as well. We are often asked on radio programs what will finally wake the people up and spur them to action, and we have always said empty bellies. Thus, a classic syndrome is developing worldwide – a syndrome of revolt and we are now witnessing the beginning of it. Food prices are going substantially higher, because of floods and drought and the flight from currencies to some thing real such as commodities and gold and silver. All of what you are seeing is classic response. Just read history – it is all there, but then again only 8% of Americans are readers today – how sad.


In the late 1970s gold and silver prices rocketed due to 14-3/8% official inflation. That is in the process of happening again. Yes, the run in both metals over the past 2-1/2 years has been due to a flight to quality to gold and silver – the only real money in the world. This segment or phase for gold and silver will be propelled by inflation. This time it will make the 1970s look like child’s play. Just do not forget history is fully on your side. The upside in gold and silver is a lock.




02/12/11 (4) IF


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