As long as the world economy runs hot, fueled by M3 injections by most governments of more than 10%, commodities and precious metals will continue to soar. The question is for how long? We don’t know for sure, but an educated guess is for three more years. Commodities will top out first then the precious metals. There is a sea of money out there and it has to be invested somewhere and the supply of that liquidity is increasing annually by more than 10%. A few years from now after the bond and stock markets have fallen, gold will ultimately be the only game in town. We have seen this happen over and over again over the past 1,000 years as the conspiracy has attempted time after time to implement their version of world government. The reign of the Roman Empire has not been repeated and will not be repeated.
The amount of funds that will enter the commodity markets in 2006 will double and that which will enter the gold and silver arena will more than double, perhaps triple. An attack on Iran would send all commodities and precious metals ballistic. It is not only platinum, palladium, rhodium, gold, silver, zinc, oil and aluminum – it is also iron, up 90%. Coal has doubled to $60.00 a ton. Steel prices are up 35%. In just a five year period wholesale inflation is up 150% and our government tries to tell us inflation is 3 1/2%. They must think we are cretins. One of the interesting aspects of the commodity boom is that in general commodity production has fallen. That’s because of mergers within the industries, which shut down marginal operations. It wasn’t only ore quality – it was also prohibitively higher costs. Thus, in many instances you have less production fueling higher prices. It is very evident in the production of copper and zinc and the shortfall in the production of gold and silver.
In reality hyperinflation has already begun. It’s just no one wants to admit it or talk about it. Far be it for the establishment to tell the truth. That is why the IF exists. It is for true truth seekers. It’s for those who can accept reality and act on it. We are the sonic boom that moves across the landscape while the rest are frozen in place. We will financially survive. The rest won’t. They will be stuck with fictitious liquidity – we will have the world’s only real money, gold. The patchwork system keeping our financial system from failure will end in the immediate year’s ahead. If you look back into the 1960s you will see one crisis after another papered over with money and credit. Well readers, we are headed toward the end of the party, only this will be worse than 1929-41. We are now in high-speed overload. We are crossing from inflation to higher inflation, which will be followed in a year or two by explosive hyperinflation – the critical uncontrollable phase of chain reaction collapse. You may not like what we have to say, but you had best heed our advice.
Due to offshoring and outsourcing over the last eight years, US manufacturing employment is down almost four million jobs, or almost 25%. Eight-five percent of these losses took place in the first three years of the first Bush administration. Needless to say, more have occurred over the past two years. During that five year period only 9% of the net increase in jobs went to American adults. Unemployment for Americans with less than a high school education was 14.3% and for immigrants it was 7.4%. Those who were hurt worst were uneducated blacks.
Again Mexico spends only 5% of GDP on education and the teachers union is ferocious. When ready to retire they sell their positions. Job creation is 600,000 annually, but that is 400,000 short of what they need. Getting into state universities and even high schools is difficult as they are so overcrowded.
Mexican immigration was a top issue on Mr. Bush’s agenda and all he has done is leave the border open and not prosecute businesses that hire illegals. All he has done is persecute those who disagree with him, or his brand of Democracy. Democrats have been bad, Republicans have been worse. We have been beset by some of the worst ever politicians over the past 40 years. Ninety-five percent have a price and it’s disgusting.
The only way to remedy the problem is to vote 95% of the present incumbents out of office. If we don’t you will have the same discontent, demonstrations and riots we saw in the 1960s. We are only a step away. The demonstrations have already begun. The Senate has failed to pass on amnesty and that will ratchet up the demonstrations to a new level of action. In the next phase the rioting begins and that’s when the violence begins. That then is followed by Martial law and a corporatist, fascist, dictatorial government under a cabal of madmen. That will be accompanied by a falling economy and financial chaos. The elitists will blame it on the rioters and the dumb public will believe them. You had best keep your powder dry – you may well need it. The illegal alien problem is no longer about illegals - it is about a power move by One-World government advocates.
Yes, M3 is no longer published, but the components are. Just as important are a number of other credit sources. Among them is Fannie Mae and Freddie Mac, Government Sponsored Entities (GSEs), which can create virtually unlimited amounts of credit. They were the hot iron that was used to restart a failing economy in 2001 by offering cheap and easy credit to the housing sector, assisted of course by the Fed’s 1% interest rates. Their assets are about $3 trillion, but they are responsible for indirect exposure through guaranties of mortgage debt. That takes them to some $9 trillion. We are convinced if the real estate market falls, as we believe it will, that the US government will have to assume these liabilities. Add this to hidden government debt within the 12 Federal Home Loan Banks of $600 billion and the $300 trillion derivatives market, and we are facing some severe problems. It should also be remembered that a very sizable portion of agency debt has been purchased to satisfy the speculative urges of the yen carry-trade that should be at an end by the end of the year. Many foreign central banks and other banks, as we mentioned last week, not happy with yields available have speculated by using the yen carry-trade and then leveraging again. There are all kinds of structured derivatives attached to the debt as well. We remembered when they began trading in derivatives in the early 1970s we wrote an article of which the conclusion was someday they would destroy the financial system. It seems like that day is fast on its way. In this case it is not only the derivatives it’s the overall poor quality of loans in the packages that Fannie and Freddie resell. In addition, embedded in this mortgage creation/securitisation are many opportunities for the creation of well-rated paper, either mistakenly or deliberately overrated. Never mind properly rated paper that goes bad. The potential for hazard is enormous.
In addition, the percentage of sub-par paper has increased in the syndications. The percentage of ARM, option ARM, 0%-down, low doc or no doc mortgages and interest-only loans is climbing. Used home inventory is a record, new home inventory is at 6.3 months and that’s with supposedly low unemployment, high GDP and profit growth. Something is wrong here. This can’t be. That’s because our government is lying again. We are talking tens of trillions of dollars in real estate that could go bad plus all these securitisations and derivatives. If that isn’t a can of worms we don’t know what is.
We are looking at credit extension never before seen outside the traditional fractional reserve banking system. Money pulled out of housing in cash outs and equity loans, to keep the financial system from collapsing. We are talking somewhere around $2.5 trillion. The loans were made when there was more than sufficient equity. What happens in a 40% correction? You guessed it, mega trouble. On top of this we are looking at a recent history of massive abuse in interest rates and delinquency ratios. The performance of 2005 mortgage debt is bad and it was worse in 2003 and 2004 paper. Lots of delinquencies and defaults. You can then add in financial engineering and structured finance for which there is no barriers. We truly question how the banking industry finds these securities attractive when their previously purchased holdings remain mired in red ink.
We expect as home equity dissipates this year homeowners who are living far beyond their means will increase equity loans. That’s as long as their positive equity is in tact. In case you didn’t know it today’s wages cannot keep up with today’s spending. 30-year fixed interest rates will soon be 7%, so the price to borrow money is getting more and more expensive. As you can see, there are no credit expansion rules anymore, not from government or the Fed. This is credit without bounds. It’s no wonder gold and silver are galloping into the sunset. The Fed is encouraging credit creation because when it stops everything crashes. They need that credit when the current account deficit approaches $1 trillion this year. This all has to have a negative affect on the US dollar, which foreigners are still buying in order to keep their currencies from appreciating. In doing so they are guaranteeing themselves 50% or more losses. That’s what we estimate the ultimate damage will be. That means we all go down the tubes together. Foreigners are holding $4 trillion, and that ivory tower meatball Ben Bernanke calls the dollar tidal wave a global savings glut. Why doesn’t he and his other purchased hacks tell the truth – Americans have no savings. That is why Americans have the debt they have. There will soon come a day when this financial madness will end. We cannot help but mention credit default swaps. That market only grew 40% last year from $12 trillion to $17.5 trillion. These are purchased to shield the buyer from credit exposure. These CD’s are totally unregulated. Due to the enormity of the beast the industry is talking about cash settlement. That will be a classic. One way to stop this derivative madness is just raise interest rats. It’s that simple. Just like in 1995 when Sir Alan Greenspan talked about irrational exuberance all he had to do was raise margin requirements. We published that fact as did Randy Forsyth in Barron’s, but no one wanted to listen. All these carry-trade plays and derivatives are in the trillions of dollars and much of it is beyond our country. It’s in the Caribbean. The Swiss are aware of the dangers and rates just rose again last week and they will again in future weeks to keep the Swiss franc from becoming a carry-trade punching bag.
Just four firms, Morgan Stanley, Goldman Sachs, Bear Stearns and Merrill Lynch have in excess of $3 trillion in liabilities due to credit extension. Can you believe they have less than 4% of equity to assets - just a giant Ponzi scheme. We are sure this is why in part M3 is no longer being published.
As we have said for a long time our government overstates economic growth and employment and understates inflation. We have been stating for four years inflation is more than 10%. In the latest from economist John Williams he says inflation is 8%. If the same CPI were used today as was used when Jimmy Carter was President, Social Security checks would be 70% higher. In addition, federal obligations of the government at the end of September were $51 trillion - over four times the level of GDP. He says real unemployment is 12%. We say 13%, but we won’t argue.
Today the magnitude of credit exceeds that in any previous period of difficulty.
Margin credit is back up to the top numbers of the dot-com telecom bubble.
Ninety-five percent of the people in politics in Washington are on the take. The entire city is choking on ill-begotten gains. Our politicians are financial mercenaries doing the bidding of corporate America. Congress no longer works for its constituents, only for itself. Due to free trade and globalization, unemployment is 13%, wages in the form of disposable income are falling and 45 million of our fellow citizens have no medical coverage. Our aspirations for privacy and freedom are gone and we soon will become a total police state. Working conditions deteriorate, we fight for clean air and water and the 20% of our citizens with retirement plans have no idea whether they’ll ever collect their hard earned retirement. It costs $1 million to win a seat in Congress, yet less than 1/2 of 1% of all Americans made a political contribution of $200 or more to a federal candidate in 2004. We call that distain. Congress belongs to the highest bidder. There were 16,342 lobbyists in 2000 and 34,785 in 2005, sixty-five lobbyists for every member of Congress. Expenses of special interest who buy our Congressmen, Congresswomen and Senators are $200 million a month. Republicans own the government – lock, stock and barrel. They have turned the war on terrorism into a cash cow. Our country is run by racketeers. Abramoff and Scanlon stole over $100 million, and then there is Ralph Reid who preached against gambling, but received a $4 million fee to help protect Indian gaming interests. The US Family Network is a money-laundering machine. The Democrats are as bad as the Republicans. Throw them all out of office.
AT&T provided NSA eavesdroppers with full access to its customers phone calls, and shunted its customer’s internet traffic to data mining equipment installed in a secret room in its San Francisco switching center, according to a former AT&T worker cooperating with a lawsuit against AT&T. All the facts are there and in place, AT&T will lose big time.