International Forecaster Weekly

Betrayal of the People By Wall Street, Banks, and Government

30 years of relations with china, Most banks wont pass the stress test, tax revenue plunges, large scale layoffs, GM in desperation move with bonds, Shareholders going after Bank of America, more real estate foreclosures, now we pay the price for allowing Wall Street to run rampant.

Bob Chapman | April 25, 2009

This past January, before the new president was inaugurated, in commemoration of the 30th anniversary of the establishment of diplomatic relations between the US and China, a conference was held by the Chinese People’s Institute of Foreign Affairs and the Kissinger Institute on China. Former President Jimmy Carter, Henry Kissinger, Brent Snowcroft and Zbigniew Brzezinski  led the US delegation.

Mr. Brzezinski proposed at that conference that a US-China G-2 be formed. He stated a long list of international problems that China could help the US find solutions for, such as the global financial crisis, climate change, North Korean and Iranian nuclear ambitions, tension in India and Pakistan and the Israeli-Palestinian conflict.

Behind Zbig’s proposals are his perpetual efforts to act to the disadvantage of Russia, so that a western power base can be built in Eastern Europe and down into the Middle East and over into West Asia. This is really what Iraq and Afghanistan are all about. He cited China’s rapid growth of the past 20 years and reminded China that it would have taken years longer without the expansion of US-China trade relations. He said there should be interdependence, yet relations still were those of unending US provocation and hostility.

On the other hand Larry Summers, Mr. Obama’s top economic advisor and director of the White House National Economic Council, has proposed a multilateral approach to deal with multilateral global economic problems that would involve a new grouping larger than the Group of Seven richest nations with advanced economies. This, of course, is in opposition to Brzezinski’s approach.

It looks like Summers has the upper hand at the moment, even though Brzezinski brought Mr. Obama to his present position.

China faces 30 million unemployed workers and inflation that will soon be close to 20% again. Demonstrations are widespread and often lead to violence and death. China, like the US and UK is taking the easy way out for the moment, but in time they will suffer hyperinflation and eventually deflationary depression. That will lead to a major challenge of Chinese Communist leadership.

Among that 30 million unemployed are bright college graduates who have been unable to find work for a year and they will be joined by 7 million more in 2009. Government expects 8% GDP growth in 2008 and 2009, and we see 6% at best. That represents a time bomb of civil disorder for the government. That would only produce six million new jobs each year leaving 20 million unemployed rural migrant laborers out of work for two years at least.

At the top of the heap are the party members that make large incomes and have access to large loans that do not really have to be repaid. The income disparity is enormous as are job opportunities. This has not gone unnoticed by the public, which displays simmering anger, particularly regarding massive corruption and illegal farmland seizures by private developers, who pay off party members to circumvent the law. Government believes things will work out fine, but we do not. One important problem is declining consumer spending that has been prevalent for ten years, which portends a slowing economy. High-income citizens invest and do not consume what they could and the poor cannot do anything other than to exist.

Zbigniew Brzezinski’s   communist answer is for China to adapt a full employment objective and an income policy financed by sovereign credit in order to fund such a program. We find it of interest that he didn’t recommend using US dollars to finance such a project, but to go into debt to do so. Either that or demand payment for exports in yuan. That would, of course, make the yuan stronger and make Chinese goods for export more expensive, which would cut exports and GDP and put more people out of work.

The communists exercising power as a class of aristocracy want to maintain that position without revolution. They want peaceful rising global influence, but they have to remember how they came to power – by killing over 1 billion of their fellow citizens. The average still sees the blood on their hands. World deflationary depression will bring revolution to China and the destruction of communism; just as the Illuminati’s dream of world government will come to no good end.

The Congressional Budget Office, CBO, sees a fiscal deficit of 13% of GDP in 2009 and 10% in 2010, based on a strong recovery from stimulus and other massive spending. At that rate the ratio of government debt to GDP would be 80% by 2018. As a guideline we cite the eurozone Maastricht guideline of fiscal debt limits of 3% of GDP.

Financial history tells us fiscal and monetary profligacy brings about inflation - in today’s case, hyperinflation. Instead of purging the system and facing the music, governments worldwide are increasing money and credit at an exponential rate and lowering interest rates to zero. The outcome is guaranteed. Do not forget those sterilized ominous increases in commercial bank reserves sitting over at the Fed will be converted into faster money growth at a ratio of 10 to 1. M2 is already up 15% and M3, our original version, at about 18%. Do not think for one second that the Fed will reduce the excessive stock of money and credit. They can’t, because if they do the financial system will collapse.

It should be noted that many prime rated mortgage accounts of big hitters who haven’t made their mortgage payments for several months have not been contacted by their lenders – banks. The reason is upkeep, inventory and real estate taxes – all of which banks will have to assume if they take over the house. That means default rates are much higher than statistics show. These good loans now have a 50% default rate for subprime and ALT-A loans and prime loans will soon reach that level. We are seeing a complete looting of the system before they collapse it. Our corporate structure and are government are being run by crooks.

Regarding the stress test, it is apparent that most major banks won’t pass the test. They are insolvent and will have to be nationalized. It is no wonder the market was manipulated up to 8200 on the Dow, which was in anticipation of such news. This is a dire situation because banks will be forced to adhere to a higher fee structure. Banks will also have to set aside more funds to meet the requirements of the FDIC. The banks have no cushion for such legitimate demands. What are they going to do when the jumbo and prime loan defaults hit 50%?

Wells Fargo, as many others did committed fraud in their earnings statement. Wait until next quarter. They have 41% of their mortgages in California and 50% of their portfolio is in pay-option ARMs, which are entering a bulge period of resets and are widely considered to be the most toxic of the first lien mortgages.

As tax revenue plunges for all government entities, billions in additional debt will have to be funded. That means higher real interest rates.

The spending on unemployment insurance and other safety-net programs is rising exponentially as unemployment gets set to exceed 20%. Who pray tell will buy all this debt? The Fed, of course, as monetization flourishes. It is a nightmare as government spending has risen 33% in just six months.

Sadly and tragically we predicted all this chapter and verse. As the charlatan Timmy Geithner tells us, “Never before in modern times has so much of the world been simultaneously hit by a confluence of economic and financial turmoil such as we are living through.” No kidding Dick Tracy. Where were you nine years ago when we predicted all this? This guy is dumber than dumb. If you want to know who is to blame you need not go any further than our Illuminist banks and Wall Street.

Treasuries continue to sit on the 200 DMA and we have auctions for 2, 5 and 7-year paper coming next week. If that line is broken they’ll be lots of selling. If the offerings are larger than expected you can anticipate heavy Fed involvement in the market.

Large-scale layoffs rose again in March: 2,933 more mass layoffs of 50 or more workers. This brought the total number of people who lost their jobs in this manner to 299,388, the highest on a record that dates to 1995.

Since the recession officially began in December 2007 (it began in February 2007), layoffs now total 31,414 since the start of the recession.

In desperation GM wants to exchange $1 billion in bonds for common stock. If they cannot pay interest on bonds or redeem them what good is common stock? This is an attempt by derivative writers to avoid paying much more in credit default swaps. They will only have to wait 39 days to see what is going to happen.

The Federal government is now spending about double what they are collecting in taxes.

Bank of America CEO Ken Lewis was told by Ben Bernanke and Hank Paulson to shut up about the “material adverse change,” that took place at Merrill Lynch before their merger. This is called strong-arm tactics in the underworld. Lewis was told if he did not follow orders his board would be disbanded and the management team would be fired. That is extortion as well. Lewis should have pulled the plug on this riff raff, but he didn’t have the guts to do so – what a wimp. He shafted the shareholders.

The bottom line now is BoA will be sued by every shareholder for accepting such a losing deal forced on them by government and for accepting this deal and not disclosing material information and lying.

There will now be a run on Bank of America because the liability is unpayable.

NY State AG Andrew Como has released a letter that will lead to lawsuits against BoA, Lewis, Bernanke and Paulson for fraud. The rats are trapped in a corner and are turning on each other.

The frugality trend has just begun, which will take us back to a lifestyle much like that of the 1940s and 1950s. the vast populace hasn’t gotten it yet. People do not view the current recession as a major economic phenomenon or as a major event. They believe government won’t let it happen, they will save us. They are incapable of thinking the unthinkable.

Unemployment of almost 20% is producing a downward spiral of negative growth. 85% of Americans have no clue as to what lies ahead. Until the system is purged there will be no recovery.

It will be interesting to see how little Timmy deals with Goldman Sachs’ TARP desertion. NYSE data shows Goldman traded 5 times as much volume for themselves compared to customer and agency orders in program trading. Huge short interest stocks were the largest market gainers and the cost to borrow shares to short have soared and it is almost impossible to get stock, because illegally the brokerage houses have called in share loans on financial stocks. How’s that for rigging the market?

New Rules Let Bank Increase Capital Reserves By $4 Billion: The increase could make a critical difference in the federal government's evaluation of the company's ability to withstand a deepening recession, accounting experts said.

After the FASB change, which allows banks to substitute their own judgment in some cases, Wells Fargo decided market prices were too low by more than $4 billion, and it returned that amount to its capital pool.

Something was curiously absent from Wells Fargo's triumphant first-quarter earnings material: Any statement that the bank would try and quickly pay back government capital. 49% of Wells Fargo's $119 billion of core home-equity loans are now on properties where the combined loan-to-value ratio is over 90%, up from 43% in the fourth quarter. With risks like these, don't expect Wells Fargo to repay the taxpayers anytime soon.

The starkly different fates of the neighboring banks show how the U.S. government's approach to dealing with the industry's worst crisis in a generation has shifted. The decision to allow only one of the two banks to survive has fueled criticism that regulators are picking winners and losers, without disclosing their criteria for making the calls. That, in turn, has shaken the confidence of bankers and private investors trying to decide whether to wade into the troubled sector.

With spending on unemployment insurance and other safety- net programs rising, the deficit is already at a record $956.8 billion six months into the fiscal year. To help close that gap, the Treasury Department has more than quadrupled borrowing, pushing the government deeper into debt.

“Tax receipts are just collapsing,” said Chris Ahrens, head of interest-rate strategy at UBS Securities LLC in Stamford, Connecticut, one of 16 primary dealers required to bid at Treasury auctions. The need to sell more debt “is a big issue in the Treasury market and it is ongoing. The surging budget deficit is the primary cause.” The government will have to sell $2.4 trillion in new bills, notes and bonds in fiscal 2009, according to UBS.

When Warren Buffett speaks, it’s usually worth paying attention. This time, the Oracle of Omaha is voicing concerns about the ability of some battered local and state governments to pay off their debts.

The WSJ notes that hedge funds are competing with end-users for homes. This boosts home sales data but it is a distortion of reality because the homes are not moving into ‘end user’ hands.

The Fed monetized another $7B (3s & 4s) on Thursday. The Treasury auction $8B of TIPS. Who’s the patsy?

Morgan Stanley notes that with 40% of S&P 500 reporting earnings, 77% of non-financial companies have met or beat earnings expectations but only 28% have met or beat revenue expectations, Cost cutting is the theme for Q1. But as we have cautioned, cost cutting will be more difficult in coming quarters.

Gold is back above $900. Though most of the western world is ignoring the Taliban’s attempt to take over Pakistan and its nuclear arsenal, some people are acutely aware of the gravity of the situation.

The Fed’s balance sheet surged to $2.2 trillion due to its monetization of $94.5B in securities for the week ended on Wednesday. The Fed bought an astounding $75B of mortgage-backed securities (MBS).

Last month West Coast real estate rose 3.6% says CNBC, as foreclosures rose 80% in California.

As American citizens bailout the financial system we see bonuses being handed out to incompetents, who caused the problems – companies like Merrill Lynch and AIG should not be giving bonuses. Politicians have expressed outrage but nothing will be done about it. We have also found out government was complicit in the hiding of the Merrill Lynch bonuses. It shows you what kind of government and financial institutions we have. At any price fellow Illuminists have to be bailed out or falsely rewarded. At AIG alone derivative traders received $165 million in taxpayer funds. It is no coincidence that Senator Obama received $103,000 from AIG – his biggest campaign contribution. Treasury’s Tiny Tim Geithner engineered all this even when he was at the NY Fed. Then there are the bonuses for Fannie and Freddie employees who lost $100 billion. these were performance bonuses and did not have to be paid – government paid them anyway. Adding frosting to the cake, 12 of the TARP recipient companies owe millions of dollars in back taxes, out of 23. We wonder how much is owed by the other 450 companies?

There is no question that Wall Street, banking and government have betrayed the American people. The question is how long will it be before Americans forcibly take their government back? All 3 branches, Executive, Judicial and Legislative are controlled from behind the scenes by Illuminists.

We are all now paying for the sellout of Congress that began years ago. The main cogs in this horrible machine were the 1999 passed the Gramm-Leach-Bliley Act, which eliminated The Glass-Steagall Act and the 1995 Private Securities Litigation Reform Act, both of which allowed Wall Street to run rampant.