International Forecaster Weekly

Currency Warfare, Trade Barriers, The People it Hurts

A frayed social net, foreclosure crises caused by banks, few jobs available, standards of living to fall, Open currency warfare, FBI finds more insider trading, Bernanke and quantitative easing, toxic economy still poisoning the system.

Bob Chapman | November 24, 2010

The social net has become a bit more frayed. Soon extended unemployment benefits will cease and 2 million Americans will have to dip into their savings, if they have any. This is an outgrowth of the effects of free trade, globalization, offshoring and outsourcing. We have lost 8.5 million jobs over the last ten years to this destructive process. We have seen more than 42,000 manufacturing plants leave the country as well. There are now more than 17 million Americans unemployed and the U6 official government unemployment figures 17%. If you remove the bogus birth/death ration, the real figure is 22-5/8%. Over that ten-year period we have lost about 5.5 million manufacturing jobs or about 1/3rd of that labor force. As recent as 1985, 25% of output was in manufacturing, now it is close to 11%. America’s physical infrastructure is in a shambles, so that transnational conglomerates can bring us cheap goods to suppress inflation and bring these companies mega-profits, which they keep stored offshore to bypass taxation. They presently have $1.7 trillion in such profits.


This in part has been caused by deficit spending and the creation of money and credit since August 15,1971, when the US left the gold standard.  It is not surprising as a result that 81% of the US economy is considered in poor shape and that the IMF fears a social explosion. You could call this a financial death spiral. There is no question the economy is moribund and the next stage could be dead in the water and that is after QE1 which saw $2.5 trillion enter the economy. The first installment of QE2 is in process and that $600 billion will grow to another $2.5 trillion, to be followed by Q3 and a further injection of another $2.5 trillion. There are those who say QE2 should be eliminated. We wonder if they realize that if it is, that the American economy, and most of the world’s economy will collapse. If we had allowed a severe recession to play itself out in the early 1990s all this would have never happened, but that is not what Wall Street and banking wanted. We should have bitten the bullet three years ago, but the elitists wanted to take the problem at least one step further to be sure the final result would bring about one-world government. Readers, that is what this is really all about.

Video: Nixon on August 15. 1971 discussing amongst other things the decoupling of the US dollar from gold.

We have a foreclosure crisis in real estate of epic proportions caused by the criminal behavior of banks. The use of food stamps reaches an all-time high each and every day. Soon unemployment will be more than 23%. If you want to see where we are headed look at the unemployed figures projected from the 1930s. U3 was 25.2% and U6 was 37.6%. In addition if you use the 1990 methodology the CPI inflation figure is about 4.5%. If you use the 1980 basis real inflation is 8.5%. We have ceased looking at official government figures because very simply, they are bogus and have no connection to reality. The unemployment situation is so bad that millions are filing for disability. That comes after extended unemployment benefits end.

It is not that people do not want to work but that there are simply few jobs available. 8.5 million of our jobs have gone to foreign nations with cheap abundant labor and they won’t return until we erect tariffs on goods and services. As a result 14.3% of adult Americans live in poverty. That is cash income before taxation of $22,000, or less, for a family of five. This does not include existing assets or food stamps or unemployment benefits. This situation is similar to the early 1960s, which was solved by the Keynesian “War on Poverty” and another no-win war. As we recall, the last time fewer Americans were employed in manufacturing was in 1941, when unemployment was 16.2% and we had another war. Incidentally, we do not believe in coincidence. It should be noted that we not only face labor differentials of 90%, but America’s regulatory environment is purely anti-business and anti-growth, as our competitors face no such handicaps. These factors began the exodus and that will continue until there are no jobs and the American economy collapses. The World Trade Organization, WTO, NAFTA, CAFTA and all the other sweetheart deals with other countries have to be eliminated, and they will be purely because soon the US will be strictly in a survival mode. America is left with a service economy and that does not produce wealth. Then there is the declining dollar that has put the US on sale. It has gotten so bad that states, cities and counties are selling off ports, parking meters, bridges and highways. Foreigners are happy to comply in their effort to dump depreciating dollars. In addition unfunded US liabilities are about $90 trillion, plus the current short-term liability of $14 trillion. This is debt that cannot possibly be repaid.

Consumers in great part are living off credit cards, as they try to pay them down. Recently consumer debt fell 1.4%. That means in the intermediate and longer term consumers cannot consume enough to maintain consumption at 70% of GDP. The flip side of that is that 13% of the economy is deficit spending. If government spending was eliminated GDP would fall at a 10% rate.

As a result governments, corporations and individuals are dumping the depreciating dollar. That is what QE2 is all about and that is monetizing US debt, because fewer and fewer people will buy it. The Fed will end buying all the US debt and the dollar will collapse. In February, almost two years ago, we declared an inflationary depression. It’s still going on. There is no growth in America. What is spent is debt by the US Treasury augmented by the Fed. Purchasing power is dropping off a cliff and that means America’s standard of living is falling and will continue to fall. What will America do when the music stops? When no one will no longer buy US bonds? The Fed will buy them all eventually and that process is already under way. What happens if the Congress cuts back spending and austerity begins? That means cuts in many areas and higher unemployment and less consumption. That means a deepening depression. This shows you what few options the government and the Fed really have. They rescued Wall Street and banking and left the economy to shift for itself. If the Fed does not inject over $2 trillion into the economy GDP could shrink by some 18%. This is a consequence the Fed doesn’t dare tell you and the Congress about. That also means the dollar could fall 20% to 50% from current levels. Living standards would then fall a like amount, as government cuts extended unemployment, food stamps, Medicaid, Medicare and Social Security. At the same time persistent inflation will be a drain on purchasing power. This is where this is all headed and Wall Street, banking, the Fed and government are well aware of where this is headed. Where will the welfare come from? As a result there will be social unrest and dislocation. We are already seeing families moving together from one state to another and an exodus of inhabitants from high tax states to states with low or no state taxes and warmer climate. Major changes are already taking place. All kinds of big changes are coming. What can government do when they are committed to $105 trillion in debt and foreigners refuse to any longer fund its debt? Those who own gold and silver related investments will protect their wealth and those who have put food; a water filter and weapons away will have a good chance of survival.

Americans are not alone in this dilemma; many other nations are as well. Even Canada has a debt to GDP ratio of 150% and 60% would be in trouble with just the loss of one paycheck. Like in the US savings are miniscule. There is no incentive to save with 1% interest rates. The funds are either spent or invested in more speculative vehicles as they are in the US and in other countries. Do not forget savings are the lifeblood of the economy.

Open currency warfare is out in the open after having been under cover for many years. It isn’t just the Chinese; it is everyone including the US, and this will eventually lead to trade wars, which is a battle exporters cannot win. Exporters with large US dollar positions are getting rid of them by buying bonds in other currencies, commodities, gold and silver. Many other nations are following their lead, as we explained earlier in reference to SOC, the Shanghai group. You also have Japan making its biggest currency intervention in years. Needless to say, the US blames everyone else when they have been manipulating the dollar for years. Just stop for a minute and think of what the Treasury’s, Exchange Stabilization Fund is all about. It is about currency manipulation. No one is blameless, and if the US had not eliminated tariffs on goods and services we wouldn’t have the problems we are having today. Lack of tariff protection has definitely driven America to the end - not to speak of the loss of 42,000 businesses and 8.5 million good paying jobs, which has resulted in 22-5/8% unemployment. Americans are still not paying attention. They still think the good things in life grow on trees and all they have to do is pluck them off free of charge. They still do not get it. We made gains in the last election from the socialists, but a paltry 100 seats in the Senate and House changed hands. They still are too dumb to understand that the crooks have to be thrown out, not re-elected.

If all of this wasn’t bad enough we have a European debt crisis to make things even more difficult. The euro hit about $1.19 in June and has since traded up to $1.40 and back to about $1.35 as the odyssey of debts hangs over Europe. The low euro made euro exports inexpensive over the months when it was down. That break has ended. We see the euro reversing from $1.40 to $1.30, but that fall won’t be enough to push exports up again. That means no exit strategy, no higher interest rates and back to stimulus again. Greece, Ireland, Portugal and Spain will leave the euro zone and if Germany, France, Holland and Austria want to bail them out, they now know the price tag will be $5 trillion.

Even the IMF is releasing warnings of falling world GDP, no recoveries and dire warnings of social crisis worldwide and massive world unemployment. What the elitist leadership behind the scenes in the US and Europe do not understand is when you have austerity economies slow down. They do not grow, they stagnate ad have recessions and depressions. Why do you think you are seeing massive demonstrations all over Europe, soon to come to the US as extended unemployment ends? Britain can appropriately be called a dog’s breakfast. In both France and Germany financial institutions are warning their clients that a global collapse could occur over the next two years. Serving high debt is no longer possible and that governments have reached the point of no return. The debt picture has so deteriorated that defense spending has to be cut in a major way.

This is probably your last opportunity to sell stocks and bonds. The only exception is gold and silver shares. Interest rates cannot go any lower and legislatures are unwilling to pass legislation for more stimulus. That job has been laid at the feet of the Fed. There is no one left to save the US or the world economy. The Fed cannot, because it is too busy buying US Treasury and Agency debt. People are getting savvy fast on the secrets of the Federal Reserve. Before long everyone will be aware that the Fed makes money out of thin air. It won’t be long and the Fed will be out of business and rightly so, because it is a criminal enterprise and the public is discovering that via the Internet and talk radio. The free ride for the insiders is coming to an end.

The conclusion of the failure of the Fed is about to be sound money, currency backed by gold. The struggle to suppress gold and silver are about to come to an end and they are about to again find their true place in the monetary establishments of the world. Gold will again become the ultimate world currency and it is proving that now and has proved that over the past 18 months.

Load up now when you can because there may come a time when you cannot easily find gold and silver and their prices will be substantially higher. We have been correct 98% of the time for twenty years and we see no reason for that success to change.

Last week the Dow rose 0.1%, S&P was unchanged, Nasdaq fell 0.1% and the Russell 2000 rose 0.7%. Banks fell 2.3%; broker/dealers were unchanged; cyclicals rose 0.4% and transports rose 1.4%. Consumers were unchanged; utilities fell 0.7%; high tech gained 1.9%; semis rose 1.2%; Internets fell 0.5% and biotechs gained 1.4%. Gold bullion fell $16.00, the HUI gold index fell 1.1% and the USDX rose 0.5% to 78.50.

The 2-year Treasury yield was 0.51%, the 10-year notes rose 9 bps to 2.88% and the 10-year German bund surged 19 bps to 2.70%.

Freddie Mac 30-year fixed mortgage rates jumped 22 bps to 4.39%, the 15’s rose 19 bps to 3.75%; the one-year ARMs were unchanged at 3.26% and the 30-year fixed jumbos rose 9 bps to 5.25%.

Fed credit rose $4 billion, up 4.6% YOY. Fed foreign holdings of Treasury, Agency debt rose $4.9 billion. Fed foreign holdings of debt rose 4.6%. Custody holdings for foreign central banks are up $386 billion YTD, or by 14.8%.

M2 narrow money supply jumped $16 billion to $8.802 trillion, it is up $277 billion, or 3.6% annualized. YOY it is up0 3.3%.

Total Money Market Fund assets fell $4 billion to $2.798 trillion. YTD assets have fallen $496 billion and YOY $541 billion, or 15.2%.

Total commercial paper outstanding sank $50.6 billion to $1.08 trillion. CP has fallen $87 billion YTD, and $184 billion YOY.

America's strapped states and cities took another hit Wednesday, with California seeing tepid demand for its latest bond sale and other governments pulling about $700 million worth of borrowing deals this week as investors continued stepping away from the municipal bond market.  The normally staid market has grown volatile the past week, posting its sharpest selloff in nearly two years, as investors demand higher interest rates to buy paper issued by states, cities and counties to finance their operations.

FBI Visit Exposes Trade-Probe Tactics The FBI's attempt to pressure an independent analyst to record his calls with a client offers a window into how the government is trying to build what could become one of the most far-reaching insider-trading cases ever.

The client that the FBI agents wanted Mr. Kinnucan to tape his calls with is hedge-fund giant SAC Capital Advisors. Last year, a cooperating witness in a separate insider-trading case against Raj Rajaratnam, founder of hedge fund Galleon Group, and 22 others agreed to provide information about SAC.

"Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation, according to people familiar with the matter.

One focus of the criminal investigation is examining whether nonpublic information was passed along by independent analysts and consultants who work for companies that provide "expert network" services to hedge funds and mutual funds. These companies set up meetings and calls with current and former managers from hundreds of companies for traders seeking an investing edge…prosecutors and regulators are examining whether Goldman Sachs Group Inc. bankers leaked information about transactions, including health-care mergers.

Andy Kessler op-ed in WSJ echoes our view: What's Really Behind Bernanke's Easing? My guess is that the Fed chairman knows that we still have too many banks overstuffed with toxic real estate loans and derivatives.

Like it or not, banks are still weak, and another panic may be on its way. Bank of America is the best example. As of Sept. 30, its balance sheet claimed a book value (assets minus liabilities) of $230 billion. But the stock market values the company at just $118 billion. Who's right? Usually the stock market is ahead of bad news and write-offs. Citibank is selling at 20% below its book value.

This suggests central bankers are nervous about real-estate loans and derivatives on bank balance sheets. In 2009, even with TARP money injected directly into their balance sheets, banks faced a $75 billion capital shortfall. Mr. Bernanke orchestrated a stock market rally so they could sell equity for much needed capital.


US banks face $100bn Basel III shortfall - Barclays says the top 35 US banks need $100B to $150B in equity capital to comply with the new Basel III global bank regulations; and 90% capital shortfall concentrated in the six largest banks.


Few Businesses Sprout, With Even Fewer Jobs

Fewer new businesses are getting off the ground in the U.S., available data suggest, a development that could cloud the prospects for job growth and innovation.

In the early months of the economic recovery, start-ups of job-creating companies have failed to keep pace with closings, and even those concerns that do get launched are hiring less than in the past. The number of companies with at least one employee fell by 100,000, or 2%, in the year that ended March 31, the Labor Department reported Thursday.


Home ownership may be falling out of reach for more Americans as lenders toughen their standards for Federal Housing Administration-insured loans beyond what the agency itself requires. Mortgage lenders have raised the minimum credit score on FHA-insured loans that they will buy to 640 from 620. About 6.3 million people fall within that range, according to FICO, which created the formula for the ratings.

Gap Inc., J.C. Penney Co. and other U.S. retailers may have to pay Chinese suppliers as much as 30% more for clothes as surging cotton prices boost costs.  ‘It’s a little terrifying to deal with cotton suppliers now,’ said Vicky Wu, a sales manager at Suzhou Unitedtex Enterprise Ltd., a closely held, Jiangsu province-based clothes maker that counts Gap and J.C. Penney among its clients.   Cotton futures in China have surged more than 70% this year.

The nation’s Republican governors and governors-to-be met for the first time since the Nov. 2 election that gave their party control of 29 statehouses, promising to address budget deficits by chopping the size of government.  ‘Why do you exist?’ Pennsylvania Governor-elect Tom Corbett said that he would ask every state agency… New Mexico Governor-elect Susana Martinez said she would reduce the public payroll by 5% through attrition to deal with a deficit she said recently nearly doubled to $452 million.

Foreclosures on prime fixed-rate mortgages in the U.S. jumped to a record in the third quarter. The inventory of homes in foreclosure financed by prime fixed-rate loans rose to 2.45% from 2.36% in the previous three months.

Washington state may collect $1.2 billion less in taxes than forecast over the next 31 months because of a sluggish economy, a state council said.

New York City, facing a $3.3 billion deficit in next year’s budget, will cut its workforce by more than 10,000 over the next year-and-a-half, Mayor Michael Bloomberg’s budget office reported.


A bill to extend federally-funded benefits for long-term jobless workers failed to pass in the House of Representatives Thursday. To pass the House, the bill needed to capture two-thirds of the votes 258 lawmakers voted in favor of the extension, while 154 voting against it. The bill would have extended special federal unemployment insurance benefits through February, calling for $12.5 billion in emergency spending. Without an extension, long-term jobless workers will start losing benefits in coming weeks, with about two million cut off by the end of the year.


An Illinois sheriff who halted foreclosure evictions last month because some bank employees weren't following the proper procedures said Friday he's been forced to order his deputies to carry them out, but he will continue investigating the matter and could charge banks and their employees with crimes.

Cook County Sheriff Tom Dart said he is only ordering evictions to resume because county prosecutors told him that he was legally bound to carry out foreclosure eviction orders signed by a judge.

"For the people who have been involved with this and think now that because the (Cook County) State's Attorney's office has ordered me to go ahead with the evictions that everything's fine. No, we are going to be looking at you for criminal violations," Dart said. "You may have got through one storm now, the other one is coming."

Dart singled out Bank of America, JP Morgan Chase and GMAC/Ally Financial last month for problems with eviction notices. He said Friday that investigators continue to find problems with bank employees signing off on foreclosure documents they haven't read, although he did not single out individual companies.

"When we asked a month ago send me an affidavit to say that everything was done legally, not one organization, law firm handling these cases, not one of them sent in one document," Dart said. "Not one, and they had over a month to do it."

The sheriff said that if anything, his office's investigation has shown the problems that prompted the moratorium were even more widespread than he first thought.

"We are being overwhelmed with abundant evidence that there are irregularities," he said, adding that just a cursory investigation by his financial crimes unit has shown problems in eviction order after eviction order. "Irregularities are going on all over the place here. It's the norm."

Tom Kelly, a spokesman for Chase, said that steps have been taken to ensure that foreclosure documents don't have any problems in anticipation for the resumption of evictions later this month.

Gina Proia, a spokeswoman for Ally Financial, said her company has been examining foreclosure documents carefully and has not found any cases of inappropriate notices being sent.

Taxpayers will pay the bulk of a $55 million settlement with Cook County Jail inmates who won a federal lawsuit over illegal strip-searching practices.
            Cook County commissioners approved the settlement Tuesday morning. It includes $45 million from the county’s coffers and another $10 million covered by the county’s insurance. According to county records, as many as 400,000 inmates could step forward to claim a piece of the settlement. County officials said payouts for each individual could hover around the $1,000 mark. While the $55 million is expected to be approved by a federal court judge, a hearing is expected to determine the fairness of the settlement standard procedure in such cases, according to Cook County Assistant State’s Attorney Pat Driscoll.

 In August 2009, a federal jury ruled that Cook County Jail employees broke the law in the way they conducted strip-searches of inmates between 2004 and 2009.
The jury found that the strip-searches were unconstitutional because they were discriminatory against men, that the strip-searches were used as a form of sexual degradation and that they constituted an unreasonable search. That includes the discontinued practice of strip-searching men side by side in groups.
Body-scanning machines are now at the jail, which houses 10,000 inmates.
            Strip-searches are now used only when there’s “significant probable cause’’ that contraband was found, a sheriff’s spokesman said. 


BOCA RATON - Former New York City Mayor Rudolph Giuliani's consulting firm and the company that decontaminated anthrax-infested buildings in Washington will team up.

Sabre Technical Services, which decontaminated two post offices and the Hart Senate Building after other anthrax attacks in 2001, will join Giuliani Partners to create Bio-ONE.

The building was owned by American Media Inc., the publisher of the National Enquirer and other tabloids, when it became the site of the nation's first anthrax attack in October 2001. Anthrax spores sickened and killed Sun photo editor Robert Stevens, the first of five Americans to die of anthrax from spore-tainted letters. No arrests have been made.

FBI investigators believe the anthrax came into the building with a letter and spread when anthrax-laden papers passed through photocopy machines.

The building has been quarantined ever since.


Mayor of London Warns George W Bush-War Criminal: Bring Book Tour to Britain and Never See Texas Again --George W. Bush can’t fight for freedom and authorize torture By Boris Johnson 15 Nov 2010 It is not yet clear whether George W Bush is planning to cross the Atlantic to flog us his memoirs, but if I were his PR people I would urge caution. As book tours go, this one would be an absolute corker. It is not just that every European capital would be brought to a standstill, as book-signings turned into anti-war riots. The real trouble from the Bush point of view is that he might never see Texas again. One moment he might be holding forth to a great perspiring tent at Hay-on-Wye. The next moment, click, some embarrassed member of the Welsh constabulary could walk on stage, place some handcuffs on the former leader of the Free World, and take him away to be charged. Of course, we are told this scenario is unlikely... But that is what torture-authorizing Augusto Pinochet thought. And unlike Pinochet, Mr. Bush is making no bones about what he has done.