-- Posted Wednesday, 5 October 2011 | | Disqus
The following are some snippets from the most recent issue of the International Forecaster. For the full 35 page issue, please see subscription information below.
US MARKETS
Why would, almost non-yielding Treasuries, be a safe haven, when the government is broke? We would guess that, when a US dollar collapse comes, that owners of such bonds, notes and bills would like to lose equally what everyone else holding these debt instruments loses. We call it a commitment to stupidity. Those that see the folly in such action switch their cash flow to commodities, gold and silver. From a rational point of view such a switch is logical. Needless to say, central bankers, government bureaucrats and politicians get upset when investors engage in such alternatives and proceed to manipulate markets to their own satisfaction to the detriment of the people. We have to wonder what is so attractive about owning debt that pays little or no interest? In order to avoid such a dilemma one must step out of the box and separate themselves from the investment sheeple.
Over the past three years the Federal Reserve has purchased $2.25 trillion of Treasuries, Agencies and mortgage bonds known as toxic waste. We have no idea what the cost of this debt was and what its current value is marked to market. All we know is the Fed has debt on its books of some $3 trillion that they admit too. The Fed operates in secret and when asked difficult questions about its operations it says it is a state secret. Fortunately the court system and Dodd-Frank have uncovered some of these secrets, like a few trillion here they forget to tell us about and $16.1 trillion there that they covered up. These monies, that the Fed created out of thin air, went to transnational conglomerates and the banking and financial sectors in the US, England and Europe. A tight elitist connected group, that for some reason the Fed didn’t want to tell us about. The Fed bailed out temporarily banking in the western world and is still brazenly doing so. The latest caper was a $500 billion swap to again bailout European banks. Of course, three other central banks were supposedly partners in this bailout. If you believe that we have a bridge you’d really be interested in for sale. These people in the Fed and within government are incapable of telling the truth. Yes, the Fed creates reserves, totally without collateralization by buying Treasuries and other securities. No, they are not printing paper money, but what they are doing is tantamount to that. And yes, they do order paper money to be printed from time to time. You might ask yourself if the Fed creates money for banks to use to loan and assist the economy, why do the banks lend the money back to the Fed at an interest rate higher than what they borrowed at? At the same time the economy struggles with inflation at 11.4% and unemployment at 22.8%. These banks have no trouble making funds available for AAA elitist’s corporations, but have cut loans to small and medium sized companies that create 70% of new jobs. We marvel at that kind of thinking. Perhaps banks and the Fed do not want to create jobs. We ask but no answer is forthcoming.
QE 1 and 2 bailed out the financial sectors in the US, UK and England and the US government, but the Fed forgot about the economy in their quest to keep their friends and the system functioning. The stimulus from government debt creation did little or nothing to help the economy. $1.7 trillion thrown down a rat hole≥ Yes, it did elevate GDP temporarily, but that is about it. In fairness it should be noted that qualified corporate and personal borrowers are reluctant to borrow, because they have little faith in the policies of the Fed, which is privately owned, and the government. At the same time these non-borrowers are buying Treasuries. That puts us in a mental quandary. What kind of linear thinking is that?
In QE 2 mortgage rates never fell thus, we surmise that is why the Fed started operation twist. They want 3% to 3-1/2% 30-year fixed rate mortgages. Rates are beginning to fall and those lower rates will attract buyers and allow more to qualify, but it won’t create a demand that will come anywhere near solving the problem, nor will it create construction jobs. Builders are building 570,000 houses a year, and they are having a difficult time selling them with a 3.8 million-inventory overhang. What the Fed is doing is positive, but it takes too long and won’t create lots of jobs. The key is for banks to lend $800 billion to small and medium sized businesses. The funds are available so they should move forward immediately on such a project. What can be said concerning the Fed, Treasury and the administration is they got it all wrong. It is almost like they deliberately failed. Can they really be that stupid? Some of them are, but the rest know what to do. The see what we see, so what is their excuse? Is it as we described it more than three years ago? Is the US economy being deliberately destroyed? We believe after what we predicted and after what we have seen that destruction is the real mission. These parties will drag out the failure of the economy, just as they are doing in Europe and somewhere down the line when they have to or want to they will pull the plug. There are many other preparatory predatory maneuvers in the works by Northern Command, FEMA and a number of other agencies, which are preparing to control us. Ladies and gentlemen most of you do not have a clue, as to what is really afoot.
Giving any credit to the Fed to staving off deflation is ridiculous. If they had not increased inflation over the past 12 years we would have collapsed. The Fed was responsible for the housing collapse and deflation along with Wall Street and the international banking cartel. It is like 1929 to 1933 all over again, but this time the Fed supplied liquidity they didn’t contract it, which incidentally they know doesn’t work either. They know only purging the system works and they will get around to that sooner or later. Do not forget as well, that quantitative easing saves Wall Street, banking and government, but it also creates gains in the stock and bond markets, which creates great profit possibilities and speculation. As a result of those markets staying up the economy looks prosperous, when in fact the results are fed by monetary creation. As a result this money and credit extension creates inflation and gold, silver and commodities gain in value. This kind of performance has cost the Fed dearly as consumer confidence has nosedived. If you add in Ron Paul’s exposure of the Fed we now see citizens understanding what we are talking about. In the 1960s and onward if you handed someone a pamphlet explaining what the Fed is they’d tell you they didn’t believe it, or you were crazy. Not anymore, the public now understands who runs our country and who is screwing us. 2010 has been a rocky year, but the US and UK were lucky, because Europe’s problems served as a cover for their problems. Yes, problems of an intense nature still abound in Europe and will for some time to come. Yes, Europe is a hopeless cause, but so are the UK and US. It is just that Europe will be the first to bite the dust. Just look at consumer confidence in all three regions, it is terrible and understandably so. The American Congress has an approval rating of 9 and the President 35. Perhaps the public is finally getting the message that the elitist do not care one bit about you. QE 1 and 2 were about saving the rich and the government nothing less. Unemployment is worse not better as Wall Street pulls their gigantic bonuses and people are actually starving in America. The working poor and the middle class are looking at house prices down 40% to 50% and 20% more is in the offering. Those on the top have gotten all the benefits; the rest got little or nothing.
How many times must the Fed be told before they get it that they are pushing on a string? Unfortunately they are well aware of that. What do you think of people who continue to enrich Wall Street and themselves, as retirees have their Social Security frozen and are facing massive cuts in SS and Medicare? People who paid in all their lives to be cheated out of their health care and retirement. Americans who receive 2% on T-notes in a world of over 11% inflation; all because Wall Street, banking and transnational corporations are too big to fail. Worse yet, savers are forced into 10-year and 30-year debt to obtain a higher yield. We could see the 10-year notes at 1% to 1-1/2% and the 30-year bonds at 2.5% to 3%.
Banks have ongoing problems. Some are carrying two sets of books with government, BIS and FASB approval. They are also loaded with cash and are having a hard time lending it at a profit due to low interest rates. US banks are about 35% exposed to UK and European problems, having chased higher yields. Then there are the multiple exposures due to sovereign downgrades including the US. We still contend S&P’s US downgrade was to cripple Social Security, Medicare and to impose the enabling super committee to bypass Congress and allow the creation of dictatorship in the US.
Federal deficits had been a way of life in America for years. Why was now picked to downgrade US credit? This act by S&P has brought pressure on almost all-sovereign debt. In a perceived flight to quality US debt is selling at all time highs. We believe in time investors will find there was little safety in any sovereign paper. A good example is Swiss debt, which was devalued, via the recent devaluation of the franc unilaterally by the Swiss government. In spite of official manipulation there is only one safe harbor and that is gold and silver related assets. There is little doubt among the most sophisticated that confidence gets weaker daily. Realists know there is no way back to the halcyon days prior to 2000. State and municipal debt is almost 10% of GDP and munis have rallied in the past year. What can buyers be thinking about? On top of this almost every government continues to add to debt via quantitative easing or other similar artifices.
European politicians in spite of 75% opposition from citizens have chosen bailouts to save the euro and the EU. It is an unnatural anthropological association, which was rushed into and a common currency with no way of most participants achieving public debt of 3% of GDP. As has been discovered over the past ten years one interest rate cannot fit all. Heretofore there has been no central control. The ECB controls external monetary policy and a totally separate policy controls all 27 domestic policies and 10 nations still use their own currencies. You might call it a broken jigsaw puzzle. In drawn process saving the euro will destroy the solvent EU nations. Taxes will be increased along with debt and austerity will be applied crippling EU growth. Debt of 87% of GDP will rise and eventually strangle the region. The proponents of world government will bury Europe until it collapses and think nothing of it. Europe is headed into depression as the economies slow. Those of you in Germany, the Netherlands, Finland, France and Austria had best batten down the hatches and get your assets into gold and silver shares, coins and bullion, because the euro cannot now ever recover.
In the US, M2 is growing again mirroring the biggest increase since 1980. Stress tests are a farce and worthless. Everyone marks to model, not to reality. The Greeks under the gun are pulling funds out of banks, stuffing euros under the mattress and buying gold and silver coins, bullion and shares. How do we know that? We know it because we have lots of Greek subscribers who are doing just that. Some of the largest Greek banks have merged and written off bad debt - a practice that will continue. It could be that private owners of Greek debt could under the EFSF regime get only 40% for their bonds. The austerity measures and higher taxes being implemented in Greece won’t work. Government debt to GDP in this coming year will be 172% of GDP. That is what we forecast two years ago and that is where Greece is headed.
As you can see worldwide, those who save in currencies continue to lose their wealth. If it is not devaluation versus gold and silver it is default. As well, as long as interest rates remain near zero financial and economic distortions will continue. Those who recommend CD’s, annuities and Treasuries, guarantee annual loses of 10% in return for perceived safety that is non-existent. Just look at recent actions by the Swiss National Bank in unilaterally devaluing the safest currency in the world the Swiss franc. What they did was foolish and they’ll pay a high price for their stupidity.
In spite of low interest and terrible annual losses people will continue to save in a historical way. As they lose their purchasing power to inflation they will finally catch on and use gold and silver related assets for savings. That in the face of the US government attacking gold and silver at random. The last three attacks, over the past three months, only slowed down the relentless march to higher prices. The pool of savings to buy gold and silver coins, bullion and shares grows daily. Only 0.8% of Americans own these investments. You can imagine where prices will be when 15% participate, as they did in 1980. Under the circumstances we have explained how government and Wall Street pretend that unemployment will fall 50% and GDP will rise more than 5%, unless money and credit creation rises by more than $1 trillion annually. The results will be greater debt, higher inflation and higher gold and silver prices.
One thing is for sure the desperation of central bankers has reached new heights and will continue to do so. They will now do anything to hold their system and power together. As a result investors are at their wits end in both the stock and bond markets, as well as in simple savings. They generally have lost faith in the system and are caught in the headlights. Needless to say, retreating to the US dollar and US Treasuries nis not the answer unless you want to be a guaranteed loser. Again, as much as your government manipulates markets, the only safe place to be is in gold and silver coins, bullion and shares and if you are not you will probably lose almost all the wealth you have, as did owners of wealth in 1933. The US government has given you a golden opportunity to again buy at bargain basement prices. Gold is off about $300 from just three weeks ago. Take advantage of it now, because it is going to go right back up again.
EUROPE
European governments are close to resolving Finland’s demand for collateral to underpin bailout loans, removing an obstacle to Greece’s second rescue package, three people familiar with the discussion said.
Finance ministers meeting in Luxembourg today are considering whether the proposal is acceptable to all 17 euro countries. The goal is a package with relatively unattractive terms so that Finland would be the only country to force Greece to put up collateral, said the people, who declined to be identified because the talks are private.
Under the proposal, Greece would put up collateral in exchange for Finland’s guarantees to the European Financial Stability Facility, the people said. Finland in turn will forgo potential earnings from the Greek rescue deal, such as profits earned by the EFSF and the collateral might have junior status in case of a default, the people said.
Finnish Finance Minister Jutta Urpilainen said euro finance chiefs will discuss the collateral issue today, “but can we find a solution, that’s impossible to say. We are trying to find a solution that everyone can accept.”
Luxembourg Finance Minister Luc Frieden said any collateral arrangement should be available for all countries in the single- currency region. “I don’t think one country will be considered privileged vis-a-vis others,” he said in an interview in Luxembourg.
‘Waive Your Rights’
“We will have an instrument that will be adequately priced,” Frieden said. “In other words, if you take that collateral, you have to waive your rights to something else. I consider this as a minor technical issue that is about to be solved.”
Deals on collateral have been close before. Finland reached an arrangement with Greece on Aug. 16, only to see it rejected by other euro countries.
Greece still faces hurdles to winning the 109 billion-euro ($146 billion) follow-up package, including doubts over its ability to squeeze additional savings out of a population weary of two years of budget cuts and tax increases.
Finland’s plea for collateral prompted Slovakia, Slovenia, Austria and the Netherlands to consider demanding similar treatment, adding to the nuisances that dogged Europe’s effort at crisis-fighting unity.
The collateral clash pitted Greece against AAA rated Finland, home to a euro-skeptic movement that catapulted to third place in April elections by opposing further bailouts.
While the party now known as “The Finns” didn’t make it into the ruling coalition, it captured the Finnish mood and hardened the stance of new Prime Minister Jyrki Katainen in the euro-rescue bartering.
Bank of France Governor Christian Noyer said he’s “open” to the idea of using borrowed money to enhance the capabilities of a European rescue fund as policy makers turn their focus to the next steps to contain the region’s sovereign-debt crisis.
“It would be unrealistic to expect an increase in the EFSF itself,” Noyer said in a speech today in Tokyo, referring to the European Financial Stability Facility. “But I am personally open to any scheme that would allow existing commitments to be leveraged to provide greater intervention capacity.”
Thousands demonstrated in Portugal Saturday against the government's austerity measures amid projections that the economic situation is far worse than expected.
Government and private sector workers rallied in Lisbon and Porto, following a call by the country's largest trade union federation to speak out against policies it says have devastated "jobs, workers, pensions and social rights."
"No to price rises" and "No to the destruction of health care", read banners hoisted by demonstrators marching through central Lisbon.
Rally organisers, who said they had charted dozens of buses to transport protestors from around the country, did not immediately provide an estimate of the turnout.
In April, Portugal became the third eurozone country after Greece and Ireland to request an emergency bailout from the European Union and the International Monetary Fund to deal with its mountain of debt.
In exchange for the 78 billion euro ($106 billion) the country agreed to impose reforms demanded by its creditors, including tough budget cutting measures.
Prime Minister Pedro Passos Coelho's right-of-centre government, which unseated the Socialists in a June vote, has promised further austerity, which is favoured the EU and IMF, but loathed by those on the streets Saturday.
"No to the IMF's interference," read another banner, which included the line: "We are saying no to this programme of aggression."
Last month, Portugal unveiled plans for a slimmed-down central administration that included the axing of 1,700 managerial posts from the state administration and 137 public companies.
Demonstrator Rafael Lourno, who works at the finance ministry, told AFP the public sector job cuts and privatisation plans government claims are needed to manage its debt amounted to "a frontal assault against the rights of workers."
While holding a megaphone, Lourno pointed to specifically to a plan to reduce severance pay to 20 days per year worked, down from 30 days.
"I am fighting not only for my rights but also for the rights of my children and grand-children," said a retiree, who came to Lisbon on one of the chartered buses.
Earlier this week, Portugal said its economy could contract by a more than anticipated 2.5 percent of gross domestic product next year because of a far gloomier global economic outlook.
In a statement issued ahead of the rally, the CGTP argued that it is the government's policy decisions that have hampered economic recovery.
But parliamentary affairs minister Miguel Relvas said Saturday that the austerity "track" Portugal is on "is not reversible."
"We are going to continue to ask for sacrifices from the Portuguese people," he said.
The government said Friday that it will announce by mid-October a new set of austerity measures for the 2012 budget.
"The people are quite disheartened. They no longer believe in anything and have given up," a demonstrator in his thirties told local TV as he boarded a Lisbon-bound bus earlier Saturday.
"But they are starting to see the need to demonstrate against the policies of the government."
Greece To Miss Deficit Goal, Cabinet Okays Job Cuts Greece sees 2011 deficit at 8.5% of GDP vs 7.8% target:
--Greek cabinet approves plan to place 30,000 workers in labor reserve
--New austerity measures for 2011, 2012 total EUR6.6 billion
--Economists say further austerity measures will deepen recession
Deutsche Bank AG (DBK) scrapped its profit forecast and announced 500 job cuts and further writedowns of Greek bond holdings amid a “significant and unabated slowdown in client activity” in the wake of Europe’s debt crisis.
The bank also said “costs relating to an indirect tax position” weighed on third-quarter results. Deutsche Bank, which had targeted 10 billion euros ($13.2 billion) in operating pretax earnings this year, still expects a profit for the quarter ended Sept. 30 and “robust” earnings for the full year, according to a statement today.
German Finance Minister Wolfgang Schaeuble ruled out Germany contributing any more money to the beefed-up EU bail-out fund than the 211 billion euros approved by parliament, in an interview published Saturday. "The European Financial Stability Facility has a ceiling of 440 billion euros ($590 billion), 211 billion of which is down to Germany. And that is it. Finished," he told the magazine Super-Illu.
Economy Minister Philipp Roesler said on Friday that Germany's parliament would not be willing to leverage the crisis fund for stricken euro zone states, after struggling to give strong support for boosting its firepower. With the ink still wet on changes to the European Financial Stability Facility (EFSF) to raise its real lending capacity to 440 billion euros and enable it to buy bonds and prop up banks, Europe's partners and financial markets are already demanding more far-reaching measures to stop the Greek crisis spreading. Some policymakers have proposed the EFSF could be used as collateral for borrowing or to guarantee a first portion of losses on sovereign debt… ‘The German Bundestag (lower house of parliament) always has the last word,’ Roesler told broadcaster ARD. ‘I do not see any willingness there to change the upper limits or increase the liabilities through other ways such as leveraging.
NEIN, NEIN, NEIN, and the death of EU Fiscal Union Judging by the commentary, there has been a colossal misunderstanding around the world of what has just has happened in Germany. The significance of yesterday’s vote by the Bundestag to make the EU’s €440bn rescue fund (EFSF) more flexible is not that the outcome was a "Yes"…
The significance is entirely the opposite. The furious debate over the erosion of German fiscal sovereignty and democracy – as well as the escalating costs of the EU rescue machinery – has made it absolutely clear that the Bundestag will not prop up the ruins of monetary union for much longer.
Horst Seehofer, the leader of Bavaria’s Social Christians, said his party would go "this far, and no further"…
The best-read story in today’s Handelsblatt is the mounting rebellion against the EFSF in the Bundesrat, the German senate representing the interests of the regions…Mr Wulff said Germany itself risks being engulfed by escalating debts. Who will “rescue the rescuers?” as the dominoes keep falling, he asked.
The global financial system is on the edge of a new credit crunch as the cost of insuring the bonds of banks across the world hits new highs, analysts have said.
Credit default swaps on lenders as far afield as China and Australia, countries that until recently seemed immune to the chaos, have doubled in the last two months to levels not seen since the financial crisis.
In Europe, French and Belgian government officials are due to meet on Monday to discuss the crisis enveloping Dexia as speculation mounts about a possible break-up of the Franco-Belgian lender.
Former European Central Bank chief economist Otmar Issing, one of the architects of the euro, said Greece’s exit from the 17-nation monetary union is inevitable. ‘There is no other way,’ Issing told Germany’s Stern… according to… the magazine. With Greece’s debt forecast to reach 160% of gross domestic product next year, the country needs to renege on at least 50% of its obligations and ‘that can’t happen within the monetary union,’ Issing is quoted as saying… ‘The bitter truth, unfortunately, is that the Greeks have lived beyond their means for years and will now be set back many years by their artificially inflated living standards,’ Issing said.
Denmark’s banking crisis is deepening as the new government’s plan to impose a tax on lenders threatens to deplete capital at a time when most of the country’s banks have no access to funding markets. ‘The banks are under severe stress,’ said Jesper Rangvid, professor of finance at the Copenhagen Business School
