-- Posted Monday, 25 July 2011 | | Disqus
The following are some snippets from the most recent issue of the International Forecaster. For the full 34 page issue, please see subscription information below.
US MARKETS
People know higher prices caused by inflation mean they can buy less with their money. What they do not think about is the long-term affect of inflation and how it negatively affects their overall standard of living. Inflation can only be caused by the Federal Reserve by creating money and credit in excess of economic growth. This is what the economy has had to contend with since 2000. That process was begun immediately after the dotcom stock market collapse. That evolved into the real estate bubble and when the second bubble broke the creation of money and credit boomed in order to offset the deflationary result of the real estate collapse. The Fed is still doing the same thing today as they did previously via monetary easing. Of course, that effort is being assisted by zero interest rates. Due to the resultant inflation, created via these policies, the US dollar has come under pressure versus other currencies, but particularly versus gold and silver.
Today we watch the machinations in Congress, which is trying to muster an agreement on the short-term debt extension. Little is said about the long-term debt problem, or about the continuance of money and credit creation and zero interest rates, both of which are inflationary. In this process our President has offered up the previously looted Social Security and Medicare programs. Programs the public has paid for to support them in their final years of life. Those who buy Treasury securities are the biggest losers. Even that 10-year note at 2.92% is losing about 8% of the value of its funds annually. Millions of investors are doing just that. The Fed believes that in order to keep the game in motion interest rates must stay at zero, the impact of excessive creation of money and credit, has to continue and the decimation of peoples savings and dollar purchasing power has to be destroyed in that process. The idea is to let dollar holders take the losses as Congress and the Fed proceed on their merry way destroying our financial structure. Wall Street knows this, but is more than happy to go along with the program and in a slow process investors are switching to gold and silver coins, bullion and shares to offset the loss being foisted upon them.
The next question is one we have entertained many times before. Will government commandeer private pension plans, 401Ks and IRA’s in return for a government guaranteed annuity; will these retirement plans be traded for US Treasuries; or like one bill says, limit the amounts that can be removed and how many times you can remove funds? The only way we know to protect yourselves is to get out of these vehicles, or borrow against them and invest in gold and silver related assets. Those of you who want to cash out and move out of the country had best do so soon. We believe there is a good chance capital controls could be put in place in the US. We previously lived under such currency blocking in the 70s in South Africa and Rhodesia, now Zimbabwe. It is like being in a financial prison. Such restrictions would, of course, be wrapped in anti-terrorism terms, so few will suspect what is being done to Americans. The window of opportunity to leave the US is probably only two years away, or perhaps three years.
Government debt is piling up and the Fed is already buying 80% of this debt, which means other avenues of finance need to be found, to fund government. That is when retirement funds will be confiscated for the greater good and funds will only be able to be sent outside the country with federal government approval. Welcome to our modern police state. You don’t understand currency controls until you have lived under them, as we have. Present Treasury and Agency needs are large, but future bond sales and debt service will be daunting. Remember, unfunded future liabilities or about $105 trillion, a staggering figure. As we go forward all government can do is print more money via the Fed and that means more inflation and the end of what was the American dream.
Recovery has been very elusive. A slight move upward and then trailing off failure. Mr. Bernanke tells us he will use proceeds of the sales of securities to fund Treasury and Agency future purchases, he will roll the paper, so he can continue to fund these markets. Continuing to buy 70% to 80% of these debt securities is a tall order. We do not know when such a policy will end, but it looks like they’d like it to be perpetual. That, of course, is impossible because the economy would move into hyperinflation and the dollar would fall in value.
While this transpires elitists worldwide are lining up getting ready to bid $0.20 to $0.30 on the euro to carve and gobble up Greek assets. Greece passed legislation to participate in the EU, bank and IMF program and now they do not know if the EU members want to bail out Greece or how they are going to do so. This is terrible strategic planning. We produced the figure needed more than a year ago. $4 trillion to bail out the six countries. Now it looks like it will take $4 to $6 trillion. The solvent members doing the lending do not know whether they want to do that, because it could bankrupt them as well. The Dutch, Finnish and German people certainly do not want a bailout. The idea is to buy the airline, airports, electric, gas, water, transportation, highways, banks, islands, seaports and state-owned companies. The Greek people stand dumbfounded as the President, a Communist-Illuminist, gives government assets away to his elitist friends.
The German government has heat coming from both sides, the banks and the people. If there is default the other five countries will default. That means the banks are insolvent. Germans do not care. The banks can fend for themselves. The Germans want to put this ten-year experiment behind them and take their losses. If bailout and asset sales are pursued will that bring on revolution. No one can say for sure, but probably. The easy way out for the people is a military coup and that may be the way to exit.
Swapping out the debt into 30-year bonds could work, but could the outrageous interest be paid? How can it be with falling revenues and austerity? Few countries can pay back interest and debt when it is over 150% of GDP. Resetting the bonds is a waste of time and a subterfuge to again buy time. There is no easy way out of this mess.
The US continues to export some of its inflation and that has caused some nations to raise interest rates to combat this unwanted plague. QE 1 and 2 and stimulus 1 and 2 will have over 2-1/2 years will have injected well over $3.4 trillion into the economy.
Those who have left world stock and bond markets have gravitated into commodities and gold and silver. These purchases of oil, cotton and food stuffs have in part caused their prices to move higher with resultant inflation worldwide. There is little to think that these problems are going to stop anytime soon. The release of 60 million barrels of oil this month has done little to subdue oil prices.
Interest rates at zero percent increase profits for large corporations, because they are the anointed that can get loans and such a policy increases inflation as well. This policy has been responsible for higher stock markets and to some extent higher bond markets. Again, the wealthy were the major recipients of this largess. The Fed is ever mindful of deflation, which is not presently a problem due to 10.6% inflation. Their problem is holding the economy together and that means more and more money and credit. After the $300 billion rollover is completed in August, QE3 will have to begin in September. The affect of this policy is that commodities will more higher, gold will test $2,000 and silver $60 to $70. The Fed’s game of monetization is proving costly as inflation strangles Americans. This phenomenon has spread worldwide in varying degrees. Worldwide that promotes a move into gold and silver.
Over in Europe bond yields generally are climbing especially in the six countries having financial problems. Greek two-year notes are yielding 35%. The $2 trillion bond market for these countries’ securities climbs higher and higher, which means the service cost of present and future debt will kill any recovery before it begins. The fault in all this has been very imprudent bank lending and the fervent desire to keep the euro, euro zone and EU from collapsing. Unfortunately, you cannot have both. The almost 1-1/2 years of hesitancy has cost all of Europe dearly. They should have abandoned their dream of a one-world currency and government when these problems began. In fact, the only country that should have been admitted to the euro zone was Spain. But no, they had to have world government. The result has been the solvent countries have to pay all the bills and the experiment was a failure.
In America what should have been done in 1990-1992 and 2000 to 2002 was to purge the system. That wasn’t done because looting the system and the move to world government were more important. As a result of European, British and American problems gold and silver, which were and still are way under priced, were boasted upward. Here we are 1-1/2 years later and not only have Greek problems not been solved, but five other counties are in the same predicament. Nothing has been done because the real solutions do not fit the one-world criteria. These Illuminists do not get it, the game is over and you lost. It is just a matter of time before your whole financial edifice collapses. That resistancy has turned Greece into a pied piper. The signs of failure are all spelled out in bond yields, like tealeaves. The conclusion for all six countries is eventually default and it cannot turn out any other way. The sovereign lenders now realize that. Any attempt to guarantee bonds by the EU to bail out their bonds simply won’t work. It might buy them a year or two, but their inability to service debt will become manifest. Today there is a crisis and if these nations do not default now, they will default later.
Greece’s debt is about $500 billion, but Italy’s is $2.5 trillion. As we said 1-1/2 years ago $4 trillion will be needed to bail out these countries and it cannot be forthcoming because it will destroy the solvent lender nations as well. Of course, the bankers, who control all the EU governments, want the countries to pick up the bill for the entire fiasco. The BIS, the Bank for International Settlements, the bankers’ bank, is demanding that these banks come up with more than $100 billion to cover trading losses and bond losses connected to the six insolvent countries. We certainly wouldn’t have any money in European banks. Why, because they are doomed? That is why the Swiss franc, gold and silver are moving higher. If you believe those bank stress tests you probably believe in the tooth fairy as well. Only eight banks out of 90 failed. What do they think we are, stupid? Interestingly no possible default was figured into the mix. These tests were like the same dog and pony shows we saw 11 years ago when these countries qualified for membership by producing bogus books with the help of Goldman Sachs, JP Morgan Chase and Citigroup. We have a long memory something that inconveniences the elitists. Rates are rising and there is little the bankers and politicians can do about it.
In Spain the banks are offside $800 billion. Official unemployment is 21.3% and joblessness for those 18 to 35 is 43.5%. Can you imagine what the real numbers are? Spanish interest rates are rising and we could see the entire banking sector taken over by the government. That is what Francisco Franco would have done. The entire banking system just like in the other five problem countries, have been cooking the books. The next demand by all these banks will be to let the public pay the debt; they owe it to themselves.
Congress has done irreparable harm to themselves, which will make reelection very difficult for many of them. All the subterfuge, acting and smoke and mirrors that has accompanied the debt extension discussions is going to lead to serious future problems.
$500 billion is going to be saved by magic. The CPI is going to have a new configuration, one that will take it even further from reality. This gang of 6 have to be complete morons. The cuts would have six months deadlines. The Senate once was an August body, now consists mostly of flimflammers. The President says he really likes the plan. He would say that because it is a total abdication of responsibility. Just plain irresponsible. The approach is further distorting the CPI’s expansion of the long used substitution. It works like this. You go to buy steaks at $4.00 a pound, and that is too expensive for your inflation racked budget, so you buy chopped beef for $2.00 a pound. That supposedly represents a $2.00 per pound savings, which is used to lower the CPI. This is how the gang of 6 intends to save $500 billion. That kind of thinking is simply criminal.
Tax loopholes will be closed, Social Security and Medicare will be capped in the midst of roaring inflation and tax brackets will be adjusted to increase the tax bite. This exercise is called Cut, Cap and Balance. HR 2560 only perpetuates the status quo. The sad fact is there is no balance in this idea. There is no real attempt to cut anything, except Social Security and Medicare, so the military, industrial complex can continue to reap profits ad kill off our young in undeclared no-win wars, only designed to plunder countries. Of course, the excuse for this is the global war on terror, which has never and does not exist. Wars are to be endless and perpetual in the search of peace.
There is no attempt to limit spending and taxes. Spending needs to be cut dft#5 drastically, but that won’t happen. We could cut spending by 1/3rd over five years, but politicians won’t do that because their campaign contributions will stop and they will have to return to collecting garbage. We need a balanced budget amendment, but we won’t get one. Thus, we can look forward to business as usual in Washington. The theme is delay the inevitable.
Does Europe have a deal on Greece? We are not quite sure because of the needed approvals and the lack of details.
European financial institutions via bond exchanges and buy backs will commit $715 billion and it will cut the debt load.
The aid package will, if approved, be $157 billion and those financial institutions that own Greek bonds would contribute $72 billion through 2014. That means the banks are only exposed for 21% of their assets in Greek bonds.
There is still the giant threat that Greece cannot cut its debt of 143% of GDP and will endure perhaps 25 to 50 years of depression. Considering these terms Greece could blow sky-high.
The drive by the EU could falter due to the same EU disagreements that stopped similar efforts in the past. Bond purchases by the European Financial Stability Facility, which is the EU’s rescue fund, will need a mutual agreement of member states. As we have said for a long time, if six countries get in trouble the bill will come to $4 to $6 trillion. What is interesting is the politician’s said the Greek package won’t be replicated.
This European Monetary Fund says banks will reduce Greek debt by $20 billion by exchanging bonds and potentially much more, through a buyback program still to be outlined by governments. The bonds that banks and others will exchange will be fully collateralized by AAA-rated zero-coupon securities with a 30-year maturity, as well as 15-year bonds. Governments will guarantee any defaulted Greek debt offered as collateral during money market operations.
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THE INTERNATIONAL FORECASTER
SATURDAY, JULY 23, 2011
07/23/11 (7) IF
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