International Forecaster Weekly

Dodge the Coming Inflation Bubble

public now paying for the corruption of central banks, injections of money only make people think all is well, the credit flood will drown us, not save us, more bank failures this week, big jet sale for F - 35 Joint Strike Fighter, tariffs for chinese tires 

Bob Chapman | September 16, 2009

What do you do after you have zero interest rates and you have flooded the world with money and credit? The answer is you attempt to fight off higher interest rates and see if you can dodge the inflation bubble that follows. The commitment for this current fiasco to save the world’s Illuminist banks has already caused an official debt responsibility for the US of more than $23 trillion of about 40% of world GDP. That is staggering and it is official. We wonder what the real figure is? It is also wise to remember that the Federal Reserve, and other reserve banks worldwide, all international, are responsible for the carnage we are witnessing.

The public is now paying for their gambling and corruption as central banks, who started this scam, transfer the debt to the taxpayers by buying up toxic garbage, guaranteeing losses and making sure none of the key Illuminist banks don’t go under. The Fed, privately owned, won’t let us look at their books, so we can tell what they are paying for these almost worthless assets. We are told it is a state secret.

There have been some salutary affects, but they are only transitory. As we can see the pace of job losses has slowed and will slow over the next year in anticipation of elections. About 80% of the stimulus package hits before the next election. There will be a slight increase in production and some inventory building. The real question is what will the Fed, government, Wall Street and banking due for an encore? They will most likely demand another stimulus package of some $2 trillion; keep zero interest rates and perhaps go to negative rates and continue to increase M3, money and credit, by 14%. That will neutralize the undertow of deflation and cause higher inflation. This game could last for a few more years, but one thing is for sure, many more are discovering what the game is and they are flocking to gold and silver in a flight to quality to preserve their wealth. If you have any doubts our Treasury Secretary, Mr. Geither, has recently told us the same plan of easing is in effect. The manipulation and losses in fixed assets will continue. The underlying deflation will not go away. The remedy more money and credit and low interest rates will prevail. The manipulation of markets will continue; world monetization is going on full bore not only in the US but in the UK, China, Japan and many other countries as well. They are all working together to bring down the world financial system when it pleases them to institute world government.

A good part of money and credit injections have been into world stock markets to give a semblance of normality and to make people think all is well. At the same time we hear of eliminating this orgy of money and credit, but it gets pushed off further and further into the future, as it forms another speculative inflationary bubble. There is no doubt that a groundswell is forming as inflation begins to appear again, an event that really started in May, five-months ago. As you can see jobs are not being created and that this financial largess is again flowing mostly into financial markets. The inflationary bubble is on the way again worldwide.

G-20 members that are flooding the markets with money and credit think they are doing a great thing saving us. These are scam and propaganda artists. All they are guaranteeing is higher gold and silver prices. Governments issue bonds and central banks in part buy them monetizing the debt. All this in the name of bailing out bankers, insurance companies, Wall Street and the federal government. Reckless spending is ruining almost all world economies. Borrowed money is subsidizing deficit spending in a big way and soon it will turn inflation higher.

We have just seen Treasuries, Agencies and GSE MBS expand $2 trillion over the past year and expect a further $2 trillion expansion for the next fiscal year. The private sector and foreign central banks are simply not capable of financing such deficits. That means credit expansion and monetization has to take place and that will be inflationary.

This past week we again were treated to the “Fed Friday Night Financial Follies.” Chicago’s Corus Bank, under crippled by construction loans for condos, was seized by regulators and its $7 billion in deposits were acquired by MB Financial. This makes 91 failures this year and 416 FDIC insured banks are on the problem list.

Last week the Dow gained 1.7%; S&P 2.5%; the Russell 2000 3.9% and Nasdaq 2.8%. Cyclicals surged 4.3%; transports 5.3%; consumers 2.5%; banks 0.4%; broker/dealers 3.3%; high tech 4%; semis 3.6%; Internets 4.1%; biotechs 0.3% and only utilities fell 0.5%. Gold bullion gained another $11.00 and the HUI index of non-hedging gold and silver shares rose 4.0%. They are now up 40.9% on the year. The dollar fell 1.9% last week to 76.67.

The two-year T-bill fell 3 bps to 0.80%; the 10-year T-notes fell 10 bps to 3.34% and the 10-year German bund fell 1 bps to 3.23%.

Freddie Mac’s 30-year fixed rate mortgage rate fell 1 bps to 5.07%, the 15’s fell 4 bps to 4.50% and one-year ARMs rose 2 bps to 4.64%.

Fed credit rose $6.3 billion. Credit has declined $177 billion ytd, but it expanded $1.181 trillion, or 133% yoy. Foreign holdings of Treasuries and Agencies fell 0.7% to $2.828 trillion. Custody holdings for foreign central banks has risen 17.9% ytd, and 18.1% yoy.

M2 rose $11.3 billion to $8.294 trillion. The narrow money supply is up 7.6% yoy.

Total money fund assets fell $15.4 billion to $3.543 trillion.

We have to laugh at the outrageous lies and propaganda being spewed out over Treasury auctions - the supposed strong demand attached to last week’s auction of Treasury bonds, notes and bills. Some $70 billion were auctioned at a bid to cover of 2.92 to 1. Two to 1 is okay, 2.3 to 1 would be considered very good.

In just the third quarter alone the Treasury has sold $442 billion of notes and bonds after selling $963 billion in the first half of the year, or $481.5 billion per quarter.

What the business media fails to mention is the Fed’s currency swaps. The Fed swapped dollars for five major currencies. Thos nations’ central banks are using that $500 billion to buy Treasuries.

We have a new site to visit to check out your bank. Go to and go to bank performance reports.

Last Friday three more bank failures joined the FDIC Friday Night Financial Follies, taking the total to 92.

As you know we believe the Fed has five major banks buying US Treasuries with the dollars they received in the latest $500 billion currency swap. Now we hear from Rob Kirby and Ellen Brown that Bernanke is using hedge funds in the Cayman Islands to secretly buy huge sums of US Treasuries. Caribbean banks are doing the buying. Others believe the Fed is the direct buyer and has been for some time. We give these reports great credence, because the Chinese, Japanese and Europeans are not buyers and have not been buyers for some time.

Joe Stiglitz, Nobel Prize winning economists says, “The US has failed to fix the underlying problems of its banking system after the credit crisis and the collapse of Lehman Bros. To big to fail banks worldwide have become even bigger. The problems are worse than they were in 2007 before the crisis.” It is an outrage he says. We say it should be noted that when TARP money was proposed that voters were 100 to 1 against the bank bailout. This is why the new PM of Japan says, “We are not a colony of Washington.”

In one of his first major decisions on trade policy, President Obama opted Friday to impose a tariff on tires from China, a move that fulfills his campaign promise to "crack down" on imports that unfairly undermine American workers but risks angering the nation's second-largest trading partner.

The decision is intended to bolster the ailing U.S. tire industry, in which more than 5,000 jobs have been lost over the past five years as the volume of Chinese tires in the market has tripled.

It comes at a sensitive time, however. Leaders from the world's largest economies are preparing to gather in Pittsburgh in less than two weeks to discuss more cooperation amid tensions over trade.

The tire tariff will amount to 35 percent the first year, 30 percent the second and 25 percent the third.

Although a federal trade panel had recommended higher levies -- of 55, 45 and 35 percent, respectively -- the decision is considered a victory for the United Steelworkers union, which filed the trade complaint.

"The president sent the message that we expect others to live by the rules, just as we do," Leo W. Gerard, president of the union, said Friday night.

China's government and its tire manufacturers, as well as tire importers and some U.S. tire makers with plants overseas, had strenuously objected to the measure.

"The President decided to remedy the clear disruption to the U.S. tire industry based on the facts and the law in this case," the White House said in a statement released Friday night. [This is the first shot in the beginning of a major trade war. The reason for the action is fundamentally sound and the Chinese are dumping dollars as fast as they can. So there is nothing to be lost in this decision at this time. Hopefully it will lead to tariffs on goods and services legislation in the near future so that America can again compete in world markets and that we can end free trade, globalization, offshoring and outsourcing once and for all. This will save our economy. Bob]

Senate negotiators closing in on a comprehensive health care bill have whittled away all but the most contentious issues and one of those loomed large yesterday: coverage for illegal immigrants.

The negotiators thought they had settled the issue, but that was before Representative Joe Wilson of South Carolina shouted “You lie!’’ at President Obama when the president said in his speech to Congress that illegal immigrants wouldn’t be covered under his health plan.

That led the senators to revisit the issue to make sure they have provisions in place to enforce prohibitions against illegal residents getting federally subsidized coverage.

“What we are trying to prevent is anyone who is here illegally from getting any federal benefit,’’ said Senator Kent Conrad of North Dakota, a member of the “Gang of Six’’ of three Democratic and three Republican members of the Senate Finance Committee.

The White House says that Obama does not want illegal immigrants to be able to buy insurance through the new purchasing exchange he proposes. White House press secretary Robert Gibbs said yesterday that the administration will work with lawmakers on language to enforce that.

The House health bill expressly prohibits federal subsidies for illegal immigrants, but critics note that there are no enforcement mechanisms or language on how to verify whether someone is in this country legally.

“Without a verification requirement it’s essentially like posting a 55-mile-per-hour speed limit and not having any highway patrol on the road,’’ said Ira Mehlman, spokesman for the Federation for American Immigration Reform.

Democrats in two House committees defeated amendments that would have required verification of legal status, saying such measures create barriers to legal residents getting the health coverage they need.

The Senate negotiators are facing a deadline early next week to produce a bipartisan deal. If they don’t succeed, committee Chairman Max Baucus plans to go it alone with a Democratic bill.

The Federal Deposit Insurance Corp. urged banks that are sharing losses with the agency to temporarily reduce mortgage payments for unemployed borrowers as part of a broader effort to curb home foreclosures.

The banks, which bought failed lenders, should reduce the loan payment to “an affordable level’’ for at least six months for homeowners who are without a job or underemployed, the FDIC said yesterday in a statement released in Washington.

President Obama to OK Israel's plans to receive seventy-five US F-35 fighters, indicating a desire to be able to penetrate into Iran and Syria, a report says. They will buy (be given) another fifty F-35 jets soon after. The total cost will be over $15 billion in 2009 dollars.

The F-35 Joint Strike Fighter (JSF), made by Lockheed Martin, is expected to be one of the most-advanced fighter jets in the world, said the Russian news agency, quoting a passage from a Jerusalem Post article.

Last week, Tel Aviv forwarded an 'official request' for the F-35 stealth fighter jets to the US Department of Defense, hoping to replace some of its older F-15 and F-16 fighter jets with the new model.

Several days later, there were reports that the two sides had reached an 'understanding' over the purchase after some initial disagreements.