International Forecaster Weekly

A Decade Of Progress Wiped Out By Financial Policy

The corporation is not a person, a government that spends most of what it has, DHS snoops in your safety deposit box, a decade of jobs wiped out, Fed may feel losses, inflation makes itself known again.

Bob Chapman | January 26, 2011

There is nothing dumb about the financial media. They know exactly what they are doing. All they want to do is keep their jobs and in that process they sell out themselves, their families and friends, other people and their country. They know government statistics are bogus, but they won‘t report that, because if they did they will be discharged. There are two sets of alternative figures. One shows inflation at 6.75% and the other 8%. As we have reported before the PPI reflects 13-1/2% to 14%, so how can official inflation be 1.2%? If this is truly the case how can inflation be tame with food and energy prices going through the roof?

What we are seeing are the results of QE1 and QE2 in the form of growing inflation. This is our gift from chairman Ben Bernanke. The recovery he envisions can only be translated into some kind of temporary relief, which is the product of monetary distortion, not recovery. In addition observers see higher sales, but never factor in the growth of inflation. That is why the CPI figures are distorted as much as they are officially by government. This year will be a classic inflation year with prices rising in all sectors. We see current inflation at 6-3/4% and by the end of the year that should be 14%. If you refer back to CPI -U it is 6.2%, the CPI-W 7.8% and the 1980 SGS of 8.9% you can see 14% is a very tame number. If we have to guess in December the official CPI will beat 5-1/2%.

In November of 2004 we predicted housing starts would fall 75% during the coming housing correction, up from 70% during the 1989-92 correction. Thus far the correction is just under 80%. During this past final quarter of 2010 starts fell at a more accelerated pace, which does not auger well for the economy. This slowing will present a formidable headwind for recovery. In 2011 and 2012 we see house prices falling 20%. The promiscuous lending and syndication of mortgages that has so ruined lenders balance sheets will be with us for years to come unless, of course, they do the right thing and declare bankruptcy. Much the same has happened in parts of Europe and is presently occurring in Asia, particularly in China. Monetary and then price inflation has taken hold worldwide because almost all governments have been using the same Keynesian policies. No country will escape the deflationary depression, which is on the way. There will just be degrees of misery.

QE1 and QE2 can be credited for the most part with today’s and the coming inflation. What is deeply disturbing is that the Fed, Treasury and most economists know that throwing money and credit at the problem is not going to work. Is the Fed just hoping that it will work, just this one time, or are they being deliberately destructive? We believe it is deliberate. You make your own choice. The food riots we see worldwide will worsen and in some countries revolution will follow. You will see more of what you just saw in Tunisia, where the president’s wife flees the country due to the upheaval and doesn’t forget to take 1-1/2 tons of gold with her. Upward pressure on prices is caused in part by growing populations of what the Bilderbergers call useless eaters. It is surprising these elitists haven’t as yet begun WWIII. That would help solve that problem.

QE1 was to save the financial sectors in the US, UK and Europe. QE2 is to save the US government. Very little if any of these funds have benefited the public. The direct affect of these rescues is much higher inflation. Unemployment has only fallen from 22-5/8% to 22-1/4% over the past three months. December saw a great acceleration in inflation and that will carry forward for at least two years, as QE3 becomes reality. Real GDP growth is minus 1-1/2% and even with QE2 it will only be 2% to 2-1/4% at a cost of another $2.5 trillion. M3 is down 2-1/2% to 3%, but don’t be deceived there are other ways to increase money and credit. The path of QE2 and then QE3 will lead to hyperinflation. How soon we don’t know, but you can plan on it coming. That is why gold and silver related assets are so important; they are your only refuge.

In order to keep the system from collapsing we have zero interest rates and quantitative easing. This may prolong the agony for the elitists, but it also causes higher inflation. One of the subscribers says she went to a swap meet and there were no bargains. Purchasing power is falling every day.

As an overview of last weeks Hollywood theatrics at the White House between a Chinese dictator in serious trouble and an illegal alien who desperately wanted higher poll numbers. The real meetings were in secret and the rest was a stage play, which included smoke and mirrors. Our sources tell us all over China there are demonstrations and riots, over 35% inflation and a demand for higher wages. That country is in deep trouble as the housing bubble bursts and the stock market falls. Periodically bank reserve ratios are raised, but they have not delivered the desired results. We see the Chinese economy slowing over the next few years as the world economy slows. That could cause 40 million people to be unemployed. They have built whole cities that are empty. They were simply make-work projects. That means the US and other economies will be negatively affected as well. China has serious problems that in time will lead to the sale of US dollars on a major basis.

2011 is going to be a year to remember. It could be the beginning of a major collapse - that is without an untoward event taking place. Almost everything the US and Europe have attempted has not worked. Could it be another Lehman Bros. or Bear Stearns, or a major bank going under? We will see the fall in financial stocks that we have been awaiting for, so long.

The social and political climate has changed over the past few years. We see demonstrations and riots in Europe, Africa and Asia. The international system cannot respond as strongly as it did just a few years ago. The cry by Bilderberg-type governments is that the people must make the banks whole. The people didn’t gamble in international markets, the banks did, but the people are still forced to pay for their mistakes. As we found out with the court forced exposure by the Fed that the fed has poured trillions of dollars in financial entities in the US, and Europe to make it look like they were solvent, when in fact they were all insolvent and still are bankrupt. Citizens are finally realizing that the banks are the problem and that they are being forced to bail them out. The result has been a reduction in world commerce, that is about to worsen, systemic high unemployment that nothing is being done to address and as a result there are socio-economic problems in many countries worldwide. In America they have 44 million people on food stamps and 15.7% of the population already living below the poverty level. What would that figure be like if there were no food stamps or extended unemployment benefits? Would it be 20% or 25%? We don’t know, but we do know that empty bellies bring on revolutions. Tens of millions of Americans, Europeans and British are living on the edge. The world financial situation is out of control and those in charge, who caused it, do not know how to fix it. All of the fundamental imbalances are still there and for the most part are not being addressed. Nations and peoples have been warned. The system is broken and cannot be fixed. Keep your eyes on Ireland late in February, it could provide the catalyst for a new round of defaults and the breakup of the euro zone. In many countries retirees have had their social benefits frozen or cut and inflation is eating them alive. Politicians and elitists just turn their backs on the problem, as the rich spend with wild abandon. It reminds us of 1788 France just before the revolution. Deliberate blindness won’t solve the problem – it only makes it worse. The time is fast approaching when all these problems will bubble up and explode. It is only a matter of when. The elitists should remember that a collapse of the world banking system threatens their hold on financial and political power and that failure will include their unmasking, which will bring on the wrath of the mobs.

As they have many times before elitists have gone a step too far. They miscalculated in June of 2003, the point of no return. The Talk radio beamed all over the world and the internet would inform all who were willing to listen that trouble was on the way and who caused it and why. Recent moves behind the scenes, like those of the Rothschilds that they have some serious problems. They seem to think we do not know what they are up to, but we do know what they are doing and we will do everything possible to thwart their efforts. Perhaps that is why they are subscribers. Their efforts to keep people separated will fail. It will be difficult for everyone but in the end we will have learned a good lesson.

Increases in money and credit affect an economy like increases in oil prices. It will take a year to two years for the full impact to be realized. It is like all the price inflation that is in the pipeline. Yes, we have the deflationary undertow, but remember the Fed and other central banks have to create far more inflation than they need, because if they do not and deflation takes hold the whole game is over. The wealth affect created by stimulus one and now two and QE1 and QE2 are about to take their toll in the form of higher inflation. It is not just food and energy everything will be affected. One sure sign of this is that gold bullion sales machines are starting to appear all over the world. Then the question arises will the Fed go for QE3 with real inflation abounding? Of course they would. They have no other way out.

Here is a government that spends 60% more than they have coming in via revenues. This year we do not have inventory buildup to help GDP and there are sure to be at least $50 billion cut from public spending. The dollar has fallen from 86 on the USDX to 78 over the past year. Exports are more competitive, what is left of them, but imports are more expensive and that is inflationary. This year the growth in business spending will probably be half of what it was in 2010. All these tax increases we see and the higher cost of goods will cut into consumption this year and 10% drop in the value of homes could also cut consumption by 1% of GDP. The increased cost of energy and food just at current levels will cut $100 billion from consumer spending on other items. States cannot spend money they do not have. There will be many bankruptcies, cuts in personnel and cuts in civic spending. Ten million are working part-time that will increase as well overall unemployment. Real wages have fallen for three of the past four months and that will continue as long as we have 30 million illegal aliens in the country and free trade, globalization, offshoring and outsourcing. GDP growth will be 2% to 2-1/4%, not 3% to 3-1/4%. On the plus side JPM says business lending is picking up. It rose $800 million over the past five weeks. In the US top corporations are holding $1.9 trillion in cash, but if they are unwilling to spend some of it the economy cannot recover. Then there is the issue of the additional $1.9 billion sitting in offshore accounts that major corporations want to bring to the US, but not at 35% taxation, but again at 5-1/4%. That is so they can buy stock in their companies on the stock market, which would drive the market higher and allow their officers to cash in their options and make billions. The hook of course is that part of those funds would supposedly be used to create jobs, and to buy Treasury and Agency securities, so that the Fed would not have to purchase as much. At best another temporary fix and little is really being spent to help the economy and unemployment. We may have extended unemployment for the next 20 years at the rate we are going.

As the above transpires consumers continue to pay down debt. They are taking out loans against equity in their homes, while there is still some equity left. Those types of loans by banks are four times more than commercial loans. Even that type of loan is slowing down. Money velocity is still moribund with M3 at about a minus 1% to 1-1/2%. QE has not improved employment or the economy, nor the real estate market. It has saved the financial sector in the US and Europe, funded Treasury and Agency debt and caused further speculation.

As a reflection of this mismanagement, inflation increases, as does the price of commodities, gold and silver. This saps consumer confidence and reduces spending. As the year progresses, thanks to the Fed and its owners - the major money center, legacy banks, the casino known as the market will hold firm. The stock and bond markets are the only two sectors that have not as yet been ravaged. Once they fall the bottom falls out. That is why you have the manipulation you do. It happens in all corporatist fascist societies. Why do you think commodities and gold and silver are at or near up to 30 year highs.