-- Posted Wednesday, 23 November 2011 | | Disqus
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US MARKETS
We continue to write about Europe, because we have too. At the moment and for at least the next several months, it will be the lynchpin and the catalyst that could bring about a financial chain reaction worldwide. In turn Europe poses the biggest risk to the US economy. European direction has changed over the past few weeks to cut loose the six problem nations and any others who cannot stand on their own and reform a core euro zone. Presently Europe is nowhere close to ending its sovereign debt crisis. Germany does not want to use the European Central Bank as a lender of last resort. As riots erupt on the streets of Greece, talks are underway to structure 50% debt write-off that was the heart of the deal structured a month ago. In the meantime lending costs, already astronomical in Greece are relentlessly moving higher in Italy and Spain. The ECB has been active in the bond market as a buyer, but only in a limited way. The French, British and US want the ECB to act like the Federal Reserve overwhelming the market, and monetizing to solve the problems of the moment. The Germans do not want to deal with the inevitable inflation that follows. The extension of the problem, the hallmark of US, UK and French monetary policy obviously doesn’t solve the problem, but eventually compounds it by creating more debt and inflation. This policy has proven over and over again to be a failure in the longer term.
Confusion still reigns in Europe, and as a result the euro has lost 3%. In fact, climbing interest rates have many panicked. Interest rates on the 2-year Italian bills rose 150 bps last week, or ½%, as CDS, Credit Default Swaps, jumped 24%. Yields on Spanish, French and Belgian bonds had the highest divergence in euro history versus the bund this past week as well. As we have pointed out over and over that there is only one safe haven and that is gold and silver related assets. We ask how can the US dollar be perceived as a safe haven as its debt grows exponentially and its credit rating is approaching another downgrading? There has been only one safe haven for 6,000 years and that is gold and if the US government thinks they are going to change that they are mistaken. The money managers and hedge funds continue to chase the same failing currencies and refuses to buy gold, which appreciated more than 20% annually along with silver for the past 12 years. What are these genius money managers thinking about? They are so cowed by the establishment and propaganda they do not dare deviate. That in the face of historically low yields, which when matched against inflation is dreadful. Doesn’t anyone think outside the box?
In America Operation Twist, which has seemed to have faded from memory already has been a failure. How do you solve a debt crisis with more debt? Something the Europeans should take note of. But, they won’t, because that is today’s accepted poison. That in spite of its failure in the past. The end goal of Twist was lower mortgage rates, which really hasn’t happened. Who cares though? There are six million foreclosed homes in sale inventory and that will increase to 8 to 11 million over the next four years. We’d call this an exercise in futility.
Only one thing can solve America’s economic problems and that is tariffs on goods and services and the end of free trade, globalization, offshoring and outsourcing. Any thinking person with a brain realizes free trade has torn the heart out of America. Worse yet, we seem to be the only ones that foryears has brought this issue to the public’s attention. The only thing worse than free trade for America is war.
One of the interesting things about Europe is that German Chancellor Mrs. Merkel says it would be wrong to guarantee sovereign debt. That would ruin the ECB’s credibility. She also says it is illegal, because it violates the EU treaty. We have been telling people that for a long time, but no one wants to listen. Others contend the bank cannot lend directly but the bank can buy bonds in the secondary market. The later they have been doing. The ECB can also lend via the IMF, but violates the spirit of the rules. What banks, bureaucrats, politicians and the US wants the ECB to do is bail out all of Europe just as the Fed has done for more than 3 years, as in the US rescue at any cost. Again, justification for scrapping Treaty rules doesn’t exist in the long run. Throwing money at the problem does not solve it. It simply does not work and the incumbent inflation wipes out any possible gains.
There are six countries that simply cannot compete in the euro zone and they should leave and return to their original currencies. This exit is absolutely inevitable no matter how much money and credit is used. All of these nations are in depression, but no one wants to talk about reality. There are no jobs when you have 30% to 45% unemployment, and with one austerity policy after another there is simply no hope for recovery. Italy, Spain and Portugal are paying close to 7% to sell 10-year bonds. France pays 3%, as the US pays 2%. In all these countries unemployment has worsened over the past year, even with bogus statistics. In the upper levels of interest countries simply cannot service or repay, so why would anyone lend to them, as it turns out these nations in trouble do not want to admit it, but they now know they should have never joined the experiment known as the euro. It is probably that Greece, Portugal and Ireland will leave the euro, but if Spain and Italy are forced to leave it will be very difficult to hold the euro together, Germany or no Germany. The result of euro failure will bring a very dangerous transition period, which could take down the world financial system. European banks, politicians, and bureaucrats think this is some kind of a game. Well, it is not a game.
They had better go to solution quickly, because if the do not they won’t be able to pick up the pieces. The exit of all the countries involved would be a big plus for them. A new currency worth ½ or ¾ the value of the euro would have millions of Europeans and others racing to these countries for vacations, bolstering their economies. If you would like to get an idea of what Europeans think of all this, gold sales are up 135% yoy. These buyers know the situation is insolvable. They also do not think technocrats can solve the problems.
We see very little progress in Europe as Chancellor Merkel plays the political game of advancing one-world government. There is only one week left in November and by December 7th all the players’ wont return until January 6th, so little can be accomplished. First it was summer vacation now it is Christmas and New Years. These are not serious people. All they think about is their giant socialist payouts in a system that is bound to fail. In a crisis such as this there can be no breathing space.
How about those under their second, austerity program? There will be no Christmas for them. Riots are proceeding apace in the streets of Greece, a county like Ireland that was sold down the river by their politicians. All of this is going to get far worse before it gets better, when the breaking point comes the operative procedure is revolution.
Germany does not want to throw good money after bad. They’ll take their losses but they won’t make the same mistake again. Who do you think is buying all that gold? It is mostly Germans. They are dumping euros for gold. What does that tell you? Obviously many see failure.
These times remind us of the state of things in Berlin in 1944, after the attempt on Hitler’s life. Had it not been for majors Skorzeny and Remer the entire government would have unraveled right there and then. The situation is as terse and perilous today as it was then.
America is not without equally massive problems, which have had Europe as a cover for almost a year. This coming year will not be good for either the US or Europe as their respective positions melt down. Is it any wonder smart people are fleeing to quality and safety in gold?
This has to fit into the category of laughable. Top Trilateralists, Bilderbergs and former Chief of Goldman Sachs International, tells the Italian parliament that he will step down as PM in the 2013 elections. That is if they have a government. He will meet in Strasburg with German and French leaders that control the Italian economy. He will explain to his fellow Bilderbergs how he will lower Italy’s GDP of 120% of GDP, or better yet they’ll probably give the marching orders. The operative phase is now doing what is socially responsible for Europe. Italy is paying 6.75% interest on debt, which is not sustainable and students are marching in the streets under a banner, “Save the schools, not the banks.” Will Italy or Greece bow to austerity? We do not think so. Monti may live to see the next election. If he pushes too far the Black Hand will do its work. Americans do not understand the Italian mind and the word vendetta.
Europe and the US expect a new recession that is already in process. Those that think a European recession will not affect the US are mistaken. Germany, the largest force within Europe is being told by Mrs. Merkel that there should be more control from Brussels and that Germans have to give up sovereignty to accomplish that in realm of financial affairs – namely allowing the EU to handle the fiscal affairs of each state. This reflects the one-world utopian view of a future Europe and its enslavement to bureaucrats and technocrats. Sarkozy and new PM Cameron are now singing the same song.
What is being presented as a breakthrough is in reality a point of no return. Once you accept you will be wrapped in a bright and shiny package and sealed into world government forever. We see strong parallels with these demands, reminiscent of communism and fascism. Like in 1933 in Hitler’s Germany they had the Enabling Act and its group bypassing the duly elected, then we saw it in the politburo, new we see it in the Super-Congress that 12 members enabling body in the US and Mrs. Merkel has proposed a Group of 8 like the groups before it that will run the EU and be accountable to no one except the dictator. Representative national governments are rendered meaningless. Assisting the group will be the European Central Bank, the IMF and the European Commission. There you have it, the future of Europe and following close behind will be America. Again, only a few are paying attention to what is really going on.
World markets, due to this crisis, will begin to fragment and with that the state of debt will begin to be discounted on the yield side of bonds. Nations like the US can expect a move toward a 30% discount in the value of their currencies as well. More and more dollars will be sold exacerbating America’s debt problem and that will force real interest rates higher. Europe’s problems will trigger these events. Both in Europe and in the US there is no real grasp of the real problems and their solutions.
We expect the ECB to buy bonds in the market in support of those markets, just as the Fed does in the US. The public will pay for those bond bailouts. Thus far the Fed has already given Wall Street about $15 trillion to make good on losses. The magnitude of losses in the US, UK and Europe are staggering and the public does not yet know the extent of those losses. What is worse these sectors have much more debt to write off. In their gambling spree the public is allowed to take all of the loans. As the debt piles up austerity continues.
A reflection of that is in Greece when the leadership are the Bilderbergers and Illuminists and the final goal is to sell off state assets until all of Greece, which will be followed by the rest of Europe’s insolvent countries, will be sucked dry by parasitic bankers. The relentless pressure goes on for Germany to for these losses to take the bankers off the hook. In other words the bankers in part get paid and economies are kept perpetually on the verge of insolvency, so they have to continue to borrow money. This is why as well that recovery remains out of reach and employment will worsen.
The episodes of 2008 are going to be repeated in a much larger way in 2012. Most of the big players on Wall Street are bank holding companies, so that cannot aid Wall Street. In Britain, can the British taxpayer continue to pay for financial sector failure? Already there is talk of pension cuts. Too big to fail is perpetual.
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THE INTERNATIONAL FORECASTER
WEDNESDAY, NOVEMEBER 23, 2011
11/23/11 (7) IF
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