International Forecaster Weekly

Economic And Financial Systems Deliberately Destabilized

Gold now the best currency, Madoff playing ball finally, devaluation continues, destabilization of the system continues, no-one is trying to save the economy,  fear keeps many from seeing and saying the truth,many unemployed already out of benefits, names of those who will benefit from stimulus remain undisclosed, trillions out the back door,

Bob Chapman | February 11, 2009

Several months ago we said the relationship between the dollar and gold was over. The days of a lower dollar and a higher gold price are no longer connected in the same way. Gold is now trading on its own as the best of all currencies. The world is headed for zero interest rates and massive increases in money and credit. The rally in the dollar versus other currencies over the past eight months ended a month ago as we forecast. December was the watershed month for gold as it began its present rally, which will soon take it to new highs.

There isn’t a word to describe the tremendous amount of financial creation the US government will need. For that matter many other governments as well. That is why we are seeing competitive devaluations. Nation’s are carrying 64.5% of their foreign reserves in US dollars. It is no wonder they are manipulating their currencies.

The juggling game by the US Treasury and the Fed cannot go on indefinitely. The dollar has broken down and will try to keep its momentum as long as possible. The 2-year Treasury bill has risen from.70% to 1.01% and the 10-year T-note is up from 2.16% to 3.03%. That battle as well seems to be going against the elitists.

We continue to see the spectra of devaluation. It is at least a year away from this vantage point and perhaps two to three years. When it comes it will be all currencies devaluing and defaulting simultaneously, as the elitists attempt to implement a New One World currency.

This correction in Treasuries could bring derivative destruction and cause a meltdown. Such an event would push the dollar down quickly and strongly. As this transpires foreign buyers of dollar denominated assets would flow to a trickle causing terrible disruption. That would cause US and world trade to grind to a near halt. Lenders would be none-existent and we would enter a time frame when all currencies would plunge against gold, devaluation and default would follow, and then the elitists will try to force anew One World currency upon us.

Another key here is can the elitists hold the bond and stock markets up indefinitely along with the dollar and continue to suppress gold and silver prices? We know they cannot, so it is only when do the elitists want to pull the plug? We do not believe that will happen until WWIII has begun, so that they can blame their failure on the war.

Soon as a result of the growing crisis gold and silver will break out to new highs. This will happen over the next two months.

There has been, as we said for the past couple of months, secret issuance of US Treasuries by the Treasury that has ballooned the money supply and that should start to show up in higher inflation in March or April.

Those of you who have listened and have done your homework will reap great rewards.

The psychological affect of what has happened on Wall Street, in banking and in government has been shattering to any thinking person. Our entire economic and financial systems have been deliberately destabilized. No collapse has occurred, but collapse is in motion. The financial and economic collapse is ongoing as witnessed by raging unemployment and massive bailouts. Confidence and trust in banking and on Wall Street is gone and won’t return for sometime to come. Securities, bonds and credit instruments having been discredited no longer supply the mechanism for credit expansion. The dollar and other currencies have barely been able to sustain credibility during this last year, as witnessed by the flight to silver and gold related assets, and particularly by physical possession.

The Fed errors of 2002 and 2003, which were responsible for the housing bubble, are again taking place. As you know these events are being used as a method of extending the system until it is time to implement world government. This is why inflation is being tolerated even though its damage is attempted to be hidden by lies and bogus statistics. As we reflect the elitists should have turned back and accepted recession several times since 1987. They should have allowed the system to be purged, but that was not to be. Their ambition for world government was too strong, too great.

The ridiculously low interest rates and tremendous injections of money and credit guarantee hyperinflation. Again, these are not policy-making mistakes, this has been done deliberately. This today is a rerun of 2003 only this time the result will be terminal. The Government Finance Bubble is going to make the housing Bubble look like small potatoes. Has anyone really considered what all these government guarantees mean? They mean huge amounts of money printing by the treasury and the Fed and a huge additional burden for taxpayers.

There probably won’t be bank runs as in the 1930s. You will wake up one morning and find you are going to receive one new dollar for 10 old dollars and that new dollar will be for all nations, as they all devalue and default.

The key here is business and individuals stop borrowing and finally deflation takes control.

The powers that be are not trying to save the economy. They are extending the timeline, so that total collapse will come when they want it to come. Do not underestimate what is going on. This could well he the worst financial and economic collapse of all time. This is the creation of synchronized stimulus, deficits and reflationary policy making.

What really disturbs us is that so few economists and analysts see what we see. They may, of course, be reluctant to say what they feel for fear of losing their jobs. We do see a few speaking out, but not many. It has to be that, because these are professionals and they are not dumb. Be as it may their silence is defining as our economy is being destroyed and along with it the world economy. They must at least be able to see the stage is being set for a devastating bust.

Massive government spending and reflation is not going to work, history tells us that. One thing that we know for sure is that it could take more than 20 years to recover from this crash. Another will follow the first new stimulus of $780 billion in a year of $2 trillion, and on and on. We are in a new cycle dominated by the printing press. Through all this remember “he who has the gold makes the rules.”

$30 trillion has been lost in world markets over the last 19 months and more than $1 trillion has been lost by banks. Bank losses could be as much as $3 trillion. Global trade has plunged 45%. The elitists are finding inter-connectivity works both ways. Banks have suspended letters of credit, which are used in 90% of trade. There can be no global growth when bankers refuse to or cannot lend. Global growth has ended and as we stated months ago it will be minus 3% to 5% in 2009.

After fleecing people for years Las Vegas is in serious trouble. The offers are what we used to see in the early 1960s. Harrah’s is offering two comp nights even on holiday weekends. There are 14,000 more rooms today than in 2001. All visitors are seeing room rates like those of Motel 6. Then there are free drink credits, 2 for 1-spa admissions and other perks. Finally it is the way it used to be and should be the customers’ rule.

In southern Nevada gambling revenues account for 20% of the regions jobs. Then the support businesses add 5% to net 25%. In the fourth quarter rates fell 7%. November fell 10% yoy and gaming fell 16%.

Corporate layoffs grow daily and there is panic in the air as there should be.

One of the facts stressed by Harry Markopolos beside the criminal part played by the SEC, was the special access afforded with doing business with Bernard Madoff. The scam was known in certain circles for ten years. Many in and out of government were involved including the SEC and the CFTC.

One of the things that should be kept in mind is that the current economic and financial problems are five times worse than in the 1930s. In the 30s, stocks declined 89%. That would be in today’s terms a Dow of 1,260. During that fall in prices there were six rallies that rose more than 20%, which sucked in the unwary. That is why you have to recognize the trend. The economy and the financial conditions continue to weaken due to massive debt and the decreasing value of assets. The Hoover administration had the equivalent of today’s TARP, the Troubled Asset Relief Program in the Reconstruction Finance Corp. Just like today the RFC’s stimulus program and tax cuts created more spending, and the budget deficit increased some 45%. Worldwide other countries were doing the same thing just as they are today. The trick is to rekindle lending. They couldn’t do that in the 30s and they won’t be successful in doing so today.

What our masters of the universe are trying to do is cause devaluation via inflation and it won’t work, because other countries are doing the same. In time they will all agree to devalue simultaneously. During such a scenario gold and silver rise strongly. That means the market and bonds will eventually go substantially lower. That is why as gold and silver rise you should sell bonds and buy more gold and silver coins and shares. When we say the market is going down we do not include gold and silver shares.

This is why the dollar has to go lower versus other currencies and why all currencies will continue to fall versus gold.

The government safety net designed to protect laid-off workers from financial catastrophe is falling short, leaving nearly half the 11.6 million jobless Americans without unemployment benefits.

The shortcomings are fueling the recession as an increasing number of workers fall through the cracks and curtail spending. The trend highlights what economists say is a growing need for a 21st century makeover of a program started in the depths of the Great Depression.

Among the key problem areas:

- There are many more part-time workers now than in 1935, but the program only covers those looking for full-time work.

- Many eligible jobless Americans are shut out because states use an outdated system for calculating their income, making it more difficult to meet requirements.

- Unemployment spells increasingly last longer than the usual 26-week jobless benefits program.

Jobless benefits are essentially mini-financial stimulus packages for struggling American families. Helping laid-off breadwinners continue to purchase goods and services until they find new jobs ultimately bolsters the economy and makes further layoffs less likely.

About $27 billion of the economic stimulus package under consideration by Congress would be used to extend jobless benefits, which vary by state but average about $300 a week. That would cover roughly 3 million Americans through the end of 2009, according to the National Employment Law Project, an advocacy group.

The stimulus bill would also provide $7 billion to the states to encourage them to cover part-time workers and more low-wage workers. These changes could extend benefits to 500,000 people, according to the law project. The package would also add $25 a week to jobless benefits in an effort to further boost recipients' ability to spend.

But more fundamental reforms are needed to address the system's underlying weaknesses, several economists said.

Many of the 5.2 million unemployed Americans without jobless benefits already ran through their 26 weeks of assistance. The program, funded by states through taxes levied on employers, has been no match for a recession that is frustrating the ambitions of even the most qualified job hunters.

This is as we forecast some time ago. Hartford Financial Services Group Inc., the insurer that lost $2.75 billion last year, may be allowed by its state regulator to reduce reserves in an effort to bolster the company’s finances, according to a person familiar with the matter.

Connecticut’s insurance commissioner, Thomas Sullivan, has notified regulators in other states of his intention to let Hartford, based in the city of the same name, change accounting so the company has more cash available, said the person. He declined to be identified because Sullivan’s decision isn’t final.

The insurer yesterday slashed its dividend, reported a fourth-quarter loss and missed its own target for a measure of financial strength called the risk-based capital ratio. Hartford’s stock has plunged 84 percent in 12 months, and the company may have to split its money-losing life insurance unit from the property-casualty business, Citigroup Inc. analyst Joshua Shanker said today.

The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.

The Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation have lent or spent almost $3 trillion over the past two years and pledged to provide up to $5.7 trillion more if needed. The total already tapped has decreased about 1 percent since November, mostly because foreign central banks are using fewer dollars in currency-exchange agreements called swaps. The Senate is to vote early this week on a stimulus package totaling at least $780 billion that President Barack Obama says is needed to avert a deeper recession. That measure would need to be reconciled with an $819 billion plan the House approved last month.

Only the stimulus package to be approved this week, the $700 billion Troubled Asset Relief Program passed four months ago and $168 billion in tax cuts and rebates approved in 2008 have been voted on by lawmakers. The remaining $8 trillion in commitments are lending programs and guarantees, almost all under the authority of the Fed and the FDIC. The recipients’ names have not been disclosed.

“We’ve seen money go out the back door of this government unlike any time in the history of our country,” Senator Byron Dorgan, a North Dakota Democrat, said on the Senate floor Feb. 3. “Nobody knows what went out of the Federal Reserve Board, to whom and for what purpose. How much from the FDIC? How much from TARP? When? Why?”

The US Securities and Exchange Commission says Wall Street financier Bernard Madoff agrees to a proposed partial judgement that would impose a permanent injunction and continue relief previously obtained by the agency in a preliminary injunction order on Dec. 18.

Says Madoff agreed to the partial judgement without admitting or denying allegations in the SEC lawsuit filed in federal court in New York.

Says Madoff's agreement means the amount of penalties and disgorgement will be decided at a later time.