-- Posted Monday, 16 January 2012 | | 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
Europe continues to predominate the news. At a Monday meeting French President Nicolas Sarkozy won the backing of German Chancellor Angela Merkel on a tax on financial transactions. Britain says it won’t work unless it is applied worldwide. Britain is correct, but is the UK begging the point. Could Britain have wanted the tax from the beginning, as long as it was global? Of course they would, it is a method of taxing investors, for governments along with the IMF, UN and World Bank, which is what these people have been up to for years. We believe a game is being played here to tax financial transactions to fund anything the elitists’ want. We question the geniusness of England as an honest player.
Mrs. Merkel says she is in favor of such a tax. We ask, are not European taxes high enough already? Tax rates or a net basis already exceed 70%. Such a tax is to be presented in February and should cause Mr. Sarkozy’s reelection chance to falter somewhat. The $100 plus billion tax will decrease economic activity, reduce revenue from other taxes and act as a form of austerity on the economies. The wrong tax at the wrong time. Even the French Banking Federation says such a tax would weight on growth, lead to lack of competitiveness and create a heavy handicap for the financing of the French economy.
After having experienced such a tax on securities transactions in the mid-1960s it so outraged investors that they stopped active trading. It wasn’t the amount, which was taxed because it was miniscule; it was the very fact that investors had been singled out for further taxation. The tax is either a red herring to make it look like higher taxes are being considered or they want to engulf the world in such a tax for other reasons, which we previously explained. The amount of money to be raised by such a tax in Europe would be a non-event in Europe’s debt problems.
In the meantime Mrs. Merkel and Mr. Sarkozy are setting new rules for budgetary discipline. A new fiscal compact, which is the old fiscal compact. Austerity and mega-loans from the ECB, both for countries and banks. There will be no real changes, just more debt. This is more obfuscation, because nothing is really being done to solve the debt problems or jump-start the economy. The banks and sovereigns will just borrow more money from the ECB, which borrows money from the Fed, which creates trillions of dollars out of thin air.
In the process the IMF’s Christine Lagarde told Mrs. Merkel and Mr. Sarkozy that the IMF wants Greece to stay in the euro. She and other elitists are rushing a Greek solution ASAP, because of an additional hanging loan. That is true, but it is really all about bringing about a solution favorable to the bankers, before the April election. That is really what the rush is all about.
EU leaders are going to expedite the $638 billion fund so it will be active in June to bail out the six sovereigns with problems.
In Italy we wrote about secessionist desires in 1986. Those desires were never to come to fruition. One group wants Italy cut in half – everything north of Rome would be in the Northern League. Simply the North is sick of subsidizing the South. That could become an important issue in the future of Italy and its debt.
We have always contended that the trade barriers put up by the EU and WTO were very unfair to the US and other economies, particularly Germany’s advantages. That is why we believe the demise of the EU and euro zone are desirable. That would also include the G-20 and the WTO. There should be national currencies and singular trade tariffs. The trade field should be leveled. It has cost the US 12 million jobs in 12 years, a staggering loss. Whether free trade, globalization, offshoring and outsourcing benefited the Germans remains to be seen. The underlying result is free trade has to end. If it does not the US will soon become a third world country. What we have been witnessing over the past 25 years is trade war.
We usually do not predict what the mainstream economists predict, but for 2012 we are, but for reasons other than theirs. The certain recession has been put off for a year or two due to backdoor Fed funding and operation twist, which has allowed bank lending to increase by some 10% over the past several months. That has allowed expansion by small and medium sized firms that create 70% of new jobs to expand. The result is a GDP growth rate of 1-1/2% to 2% in 2012, although if not continually funded this spotty mini-recovery will die as the year-ends, or by the end of the second quarter of 2013.
The European recession underway will end shortly and Chinese exports will increase over the year. The best mainline economists were deceived by not watching what the banks were lending and to whom, and they could not have possibly known that the Fed would loan the ECB $1 trillion. This shows you how dangerous economic forecasting can be eve by the best. Due to this funding the European overhang will not exist and plus growth will return to the EU.
US official debt is now over 100% GDP and above the debt ceiling. Making things more difficult the US President is asking the Congress for even more debt. Austerity spoken of over the past six months has obviously been forgotten.
Keep in mind that the US banking system has been borrowing almost interest free money for three years and now the UK and Europe are doing the same thing. The money injected into the system by the Fed has not been sterilized and projects continued high inflation. The method to keep the system from collapsing being used by the US and UK is now openly being used by the ECB. Then again what else would one expect from Illuminist Mario Monti? This mode of holding the system together has brought more skeptics on to the scene. They are in a minority, but they are now there and moving into gold and US Treasuries. These professionals do not like what they see, but they can only use countermeasures for the time being. The US Treasury is having an easy time of it as funds escape Europe to this perceived haven. They are looking for safety that only resists in gold. They are finding that out. The international monetary system has been nationalized by these central banks collectively, and the moving force is the Federal Reserve. The entire system cannot now function without periodic injections of money and credit. As an example at least 50% of US Treasuries over the past 3-1/2 years have been purchased by the Fed. The buy-sell relationship between the Treasury and the Fed is a fiction. They are both one and the same thing and are all controlled by Wall Street and banking.
Either German Chancellor Merkel has other agendas, that we have yet to figure out, or every plan she has put forth is fatally and fundamentally flawed. There has been no attempt to lower debt levels. Almost all proposals since last April have been failures. Looming in the distance is March in Greece. If an agreement is not reached on a 65% debt loss then hedge funds that bought this debt will step away, not engage in settlement and let those who sold the credit default swaps take the losses and pay the hedgies. Those are the NYC legacy banks that do not have the billions backing the CDS. This would be very traumatic to the banks and the entire banking system. The only solution we see to pay these losses is for the Fed to step in and pay the bank losses and collect the loan later. That is another bank bailout, more monetization and more inflation.
The new plan is centered on the ESM, the European Stabilization Mechanism, which as far as we know has not been totally approved by member nations. This fiscal agreement would require government budgets to be balanced or at a maximum be in deficit 0.5%. This would bring about spending caps, but the flip side would be a falling economy. That would leave the growth factor to the banking sector, which would accomplish this by making loans. They certainly have the funds to do that, but will they do that? This ESM takes away all fiscal and budget decisions from the member states handing it over to an unelected, appointed committee. In that process all these nations lose their sovereignty. These nations have to be out of their minds. Better yet, their leadership is totally controlled by elitists who want world government. The nations have a record of breaking agreements like they didn’t exist, so perhaps the new ESM won’t work. The result has to be economic slowdown and perhaps downward pressure on credit ratings. The four countries in real trouble, Greece, Ireland, Portugal and England have already tried this unsuccessfully, and as a result all they have done is throw more money at the problem. All this austerity brings less revenue and less ability to service debt. Treasury Secretaries and politicians know this, but do it anyway, because they do not know what to do. Sanctions for missing criteria won’t be punished. They were not before when almost all members exceeded 3% of GDP for public debt. The bottom line is there was no control before and there will not be any in the future. These incompetents stagger from one problem to another in their futile endless search for world government. The EFSF will transition into the ESM by July with funding of $640 billion, which we assume most of which will be created out of thin air and monetized. We remind you that these are the funds that will supposedly be used to assist the six bankrupt sovereigns. The IMF is to distribute the funds after certain criteria is reached.
Europe just goes deeper and deeper into the hole, as decisions are made to leave the euro by some members. 2012 will be a very tough year and 2013 will be tougher. In the meantime European banks must come up with $147 billion in marking their bond holdings to the market. We ask where will that come from? From the Fed of course in that $1 trillion swap and the fractionalization thereof. The Fed swap funds are a magic potion to save the day. What about the future? Who cares as long as the system functions and banking, Wall Street and the City of London can keep looting what is left of the system.
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THE INTERNATIONAL FORECASTER
SATURDAY, JANUARY 14, 2012
1/14/12 (4) IF
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