International Forecaster Weekly

Economic Downturn hits Lenders and Borrowers Alike

Commercial real estate in trouble, lenders will be hit as hard as borrowers, Greece suffers heavily during downturn, Germany wont buy any more greek sovereign debt,  M3 and M4 down to nothing, China remains as largest holder of US debt. IMF comments on US dollar, debt problems in Florida and California, child labor at factories that supply Apple computers

Bob Chapman | March 3, 2010

We are not going to go into the lurid details regarding residential and commercial real estate, but we are going to give you some highlights. We began telling subscribers to sell real estate in June of 2005, long before anyone else. We picked the top just as we did in September 1988 at the top.

Residential real estate won’t hit bottom until 2013 and who knows how long it will bump along the bottom. At the end of the year we have a whole new generation of sub prime and ALT-A mortgages coming due for reset. In addition there are the pick and pay loans that are in trouble, and 52% of problems lie, if you can believe it, in prime loans. Residential real estate countrywide is off 32% with a number of areas off 50% or more. In the next two years that national figure will show losses of 45% to 50%, and the former 30 hot city markets will be off 50% to 70%. We predicted this in November of 2004. All the savings of America for three generations of Americans will be lost, and these same Americans will be saddled with horrendous amounts of debt spawned by our Wall Street controlled Treasury and the Federal Reserve. These are the bankers who have robbed you and will continue to rob you until you are destitute and enslaved.

Over the next four years $1.5 trillion or more in commercial real estate loans will come due. About 50% are in deep trouble. From the top in 2007 their values are off 35% to 40%, so they only have 30% to 35% to go. Losses could be as high as $700 billion. The fallout will affect all banks big and small. The reality of losses will be devastating.

Lenders, mostly banks, already broke, are going to get hit very hard and many will go under. All debt in real estate is in serious trouble. That is why we believe more than 2,000 banks will go out of business over the next 1-1/2% to 2 years. That is why you should have no CDs and only three months expenses in the bank for operating and 6 months for businesses. That money should be in gold and silver related assets.

The only word to describe what has been and is continuing to happen in real estate is catastrophic. By way of comparison the losses in the Lehman collapse were piddling. If you include the derivatives it was about $775 billion. In real estate we are talking trillions. The result was that stock markets lost between 10% and 50% of their value after Lehman collapsed. Irrespective of stimulus, government and Fed loans and bogus earnings, once the effect of losses are realized, the Dow will again test 6,500 to 6,600 and in all likelihood break that level and fall to 4,000 to 4,500, with probably some way to go on the downside. The Lehman and Bear Stearns affairs forced the Treasury and the Fed to feed $12.7 trillion directly into the system with a total commitment of $23.7 trillion says our US inspector general. Not only did the US provide a rescue but so did members of the G-20, all of which are presently trying to withdraw the stimulus that kept deflationary depression at bay. The financial elites, particularly of London and NYC, have been temporarily saved, but that game is not over yet. The withdrawal of trillions of dollars from the world economy will collapse it and the Illuminists are well aware of that. The goal has always been the pauperization of the multitudes worldwide in order to implement world government and the new world order. The enslavement of mankind. That is what this is all about and you had best come to grips with what they intend to do. These people have bankrupted almost every country in the world in this deliberate process. That is why sovereign debt is the next area they have zeroed in on as one of the last main cogs of stability to be destroyed along with the devaluation of most currencies.

Greece in Crisis

That brings us to the deliberate destruction of Greece.  Greece has been the leader in the global shipping industry and so has suffered as global trade has fallen. It has killed their balance of payments. The drop in tourism has also badly hit their economy. This is their part of the price to be paid for the phony war on terrorism. The elitists found Greece to be easy prey along with hedge funds and the likes of Goldman, Morgan and Citi. Their moves set up the initial stages for what will be the deflationary takedown of the world economy financially and economically.

Greece’s debt to GDP is estimated to be 120%, far worse than Russia’s debt when they defaulted 12 years ago – some $430 billion. German banks hold a great deal of the debt for not only Greece, but for Spain, Ireland and Portugal, some $700 billion worth. As you know all of these countries are in trouble financially, as well as England, which will sell more than $300 billion in bonds this year, all of which will be monetized. This will create more British inflation to be added to the current 3.5% official inflation now in place. Real inflation is double that and it is going to get much worse. It is no wonder British interest rates are 1% higher than German rates. Last year the Bank of England monetized almost all the liquidity they injected into the British market. As the year wears on liquidity will get tighter as borrowed liquidity is to be returned to lenders. For all eurozone banks that number is about $600 billion, which came from the Fed, although they won’t admit it. This is one of the main reasons Ron Paul wants to audit the Fed. That is to expose the Fed’s illegal role in US foreign policy. The weakness in the pound, as we pointed out in previous issues, along with the dollar and other currencies, has lost 2/3’s of its purchasing power, as we pointed out again and again for 6-1/2 years. That measurement is versus gold. How much longer do you believe others will hold pound, euro and US dollar paper, not long? Dollar Forex holdings have dropped from 64.5% to 60 ¾% in just the last year. Global monetary and fiscal problems worsen every day and there is no end in sight. We know there is something very big underway when Warren Buffett, who’s firm recently paid a $100 million fine for accounting fraud is dragged out frequently to tell the people things are going to get lots worse. Charlie Munger said the same thing last week as further warnings are fed to the public.

Germany is playing a key role in all of this, particularly in Europe. Germany never saw a bubble in its stock market nor in its housing market. Germans have been frugal doing what any sane society should have done. They never had cheap credit, soaring salaries or big government goodies like those countries on the edge; Greece, Spain, Ireland, Portugal and Italy. It must be said though that part of German success was exporting to theses bubble countries. The cry now from purchased economists is Germany must buy in order for the rest of Europe to economically survive. Others are envious of Germany’s trade surplus, which is the second largest in the world after Saudi Arabia. That surplus is what is used by the rest of the eurozone nations to stay solvent. Definitely a 2-edged sword. Is it any wonder 67% of Germans have for 11 years wanted to dump the euro. Germany was forced to take on Greece and Italy knowing they did not qualify and Ireland was subsidized into the zone and should have never been allowed to join. Germany is being penalized holding down salaries to the point of stagnation and cost cutting, whereas the other players simply ran economically and fiscally wild. Germany will not join the culture of debt and cannot be expected to pay for others profligacy.

In a recent poll German banks said they will not buy more Greek sovereign debt. Greeks are demonstrating in the streets because the party is over and they want it to continue forever. Greece’s problems are somewhat similar to those of the states in the US. An economic depression, large budget deficits and giant falls in revenues. Costs have to be cut and people have to be laid off. Like in Greece, California, New York, Pennsylvania, New Jersey and other states are running out of money. Greece wants Germany to help and now 67 years after the war wants its gold returned, some $70 billion. Germany couldn’t deliver the gold if it wanted too, because the US refuses to return their gold, probably because they secretly sold it to suppress gold prices. At the same time the states in the US are selling municipal bonds like mad to stay afloat with yields of only 3%. The problem is we have an unsound credit system. Last year the Fed bought 80% of Treasury debt and monetized it. In addition, they bought $1.2 trillion in MBS and Agencies at least half of which was monetized. The system in the eurozone and in the US is impaired and nothing is being done to fix it. It’s one band-aid after another. All these nations can think of is reflation. The wrong path and example still exists. Trillions in deficits as far as the eye can see to underpin the stock and bond markets and make it appear that there is economic recovery, when in fact the world is going deeper into the hole. The stability of asset prices, incomes and corporate cash flow and revenues for government are a mirage. It is a classic Ponzi scheme.


This past week the Dow declined 0.7%; S&P fell 0.4%; the Russell 2000 fell 0.5% and the Nasdaq 100 fell 0.3%. Banks rose 1.7%; broker/dealers lost 0.7%; cyclicals dipped 0.4% and transports rose 1.8%. Consumers fell 0.4%; utililties 2.5%; high tech 1.0%; semis 1.4% and Internets 1.2%; biotechs rose 1.5%. Gold bullion fell about $3.00 and the HUI lost 1.6%. The USDX fell 0.4% to 80.31.

Two year T-bills fell 14 bps to 0.73%, the 10-year T-notes fell 16 bps to 3.62% and the 10-year German bunds fell 18 bps to 3.10%.

Freddie Mac’s 30-year fixed rate mortgage rose 8 bps to 5.05%; one-year ARMs fell 8 bps to 4.15%; the 15’s rose 7 bps to 4.40% and the 30-year fixed rate jumbos rose 2 bps to 5.88%.

Fed credit expanded $5.2 billion to a record $2.269 trillion. Year-on-year it is up 19.4%. Fed foreign holdings of Treasury and Agency debt rose $5.6 billion to a record $2.965 trillion. Custody holdings for foreign central banks rose 14.9% y-o-y.

M2, narrow, money supply jumped $40.7 billion to $8.523 trillion, it is up $14.6 billion y-t-d, and 1.3% y-o-y.

Total money market deposits rose $5 billion to $3.166 trillion. Year-to-date it has declined $128 billion, with a one-year drop of $722 billion, or 18.6%.

Total commercial paper outstanding rose $16.4 billion to $1.154 trillion, y-t-d it is off 8.9%, or by $16.1 billion, and y-o-y it is down 24.3%, or $370 billion.

Markets are trying to lead us to believe that Treasury, the Fed and Wall Street will use credit effectively to lead us out of our current depression. In Europe the weak countries within the eurozone continue to suffer the inability to create money and credit to try to extricate themselves. They are in a far different kettle of fish.

Now that M3 in the US and Europe and M4 in England have been brought to almost zero levels any possibility of recovery is remote. Some academics believe inflation should be acceptable at higher levels, in particular the IMF. Of course that idea is akin to giving matches to arsonists. Grossly negligent doesn’t even begin to cover this kind of insanity. Governments want higher inflation to cover their debt and let the public pay for it through reduced purchasing power. This does not bring prosperity and growth, only a temporary fix. Much akin to what a drug addict goes through. The elitist bankers and Wall Street want monetization because it keeps the game going. Neither the players or the media think the European sovereign debt crisis is a disjointing event. The lack of foreign participation in sovereign debt offerings doesn’t seem to phase them as well. Just another trouble to be dealt with. If trouble ensues they will just call in the Fed to monetize the problem. Contagion never enters their minds. This is why gold continues to rise in value in every currency. Foreign governments are well aware that the Fed is monetizing debt. We can see that in the drop off of indirect participation. Can you imagine the stupidity of use of the household category to state purchases? Since when do housewives buy millions of dollars worth of treasuries? There are 17 nations that are on the verge of bankruptcy. We do not know when the Brotherhood of Darkness will decide to bring this charade to an end, but it should be before the end of next year and perhaps lots sooner.


The dollar may be stronger against the euro, but that status will soon show up in a drop in exports and a worsening of the balance of payments deficit. For every action there is a reaction. That will kill any possible economic recovery. Europe may export more, but they will face higher inflation. The only solution for the US and Europe is tariffs on goods and services and until that happens neither will be able to compete. Needless to say, many problems and challenges lie ahead. We cannot expect any help from the current Congress. The answer is vote out of office as many incumbents as possible in November. If you do not there will never be a recovery and you will end up enslaved by Wall Street and banking.

Construction spending fell for a 3rd straight month to its lowest level since June 2003. It dropped 0.6% after falling 1.2% in December.

The ISM Index of factory activity fell 56.5 in February from 58.4 in January. Prices paid were 67.0. January’s ISM was 58.4 and prices paid were 70.

Two more banks hit the dust in the FDIC Friday Night Financial Follies. We are in a race to the bottom. Over the next two years 1,000 to 2,000 banks could go under.


The government now says that China did not lose its place in December as the largest foreign holder of U.S. Treasury debt.

The Treasury Department said that under annual benchmark revisions released Friday, China's holdings of U.S. Treasury securities stood at $894.8 billion at the end of December, keeping it in first place ahead of Japan.

On Feb. 16, the government reported data that showed China had been surpassed by Japan. However, the government said in the new report that those figures did not account for purchases by Chinese investors in such places as Britain.

When those purchases are taken into account, the government said that China's holdings in December grew by $139.4 billion above what was reported on Feb. 16.

That increase put China back into first place as the top foreign holder of U.S. Treasury securities at $894.8 billion followed by Japan, now back in second place, at $768.8 billion.

The revised figures represent the annual revisions Treasury makes based on a more detailed report of the actual foreign holdings of the Treasury debt. That survey revised the figures through June 2009, and those more accurate figures were used to update the monthly reports through December 2009.

The revised figures did show that China reduced its holdings in December compared with November, a drop of $34.2 billion. However, with the more accurate assessment of the actual ownership of the securities, the levels of China's holdings were much higher than expressed in the report two weeks ago.

The replacement of China by Japan as the largest foreign holder of Treasury securities when it was reported two weeks ago had raised worries that China was carrying through on comments it made about diversifying its holdings based on rising concerns about America's soaring federal budget deficits.


Dominique Strauss-Kahn, the head of the International Monetary Fund, suggested Friday the organization might one day be called on to provide countries with a global reserve currency that would serve as an alternative to the U.S. dollar.

"That day has not yet come, but I think it is intellectually healthy to explore these kinds of ideas now," he said in a speech on the future mandate of the 186-nation Washington-based lending organization.

Strauss-Kahn said such an asset could be similar to but distinctly different from the IMF's special drawing rights, or SDRs, the accounting unit that countries use to hold funds within the IMF. It is based on a basket of major currencies.

He said having other alternatives to the dollar "would limit the extent to which the international monetary system as a whole depends on the policies and conditions of a single, albeit dominant, country."

Strauss-Kahn, a former finance minister of France, said that during the recent global financial crisis, the dollar "played its role as a safe haven" asset, and the current international monetary system demonstrated resilience.

"The challenge ahead is to find ways to limit the tension arising from the high demand for precautionary reserves on the one hand and the narrow supply of reserves on the other," he said.

Several countries, including China and Russia, have called for an alternative to the dollar as a reserve currency and have suggested using the IMF's internal accounting unit.

Strauss-Kahn said the IMF also needs to do a better job of tracing how risk percolates through the global economy.

"Here it will be essential to improve our ability to monitor several dozen large complex financial institutions that make up the `plumbing' through which global capital flows," he said, while leaving national regulators the job of monitoring the solvency of individual institutions.

The Supreme Court ruled Wednesday that investigators may resume questioning a suspect who invoked his Miranda right to a lawyer after the suspect has been out of police custody for 14 days.

The 7-2 decision scales back a 1981 Supreme Court decision intended to protect suspects from police badgering to talk and to safeguard the rights established in the 1966 Miranda v. Arizona ruling.

A ‘wall’ of junk debt maturing in the next four years will increase the risk of corporate defaults in the U.S., according to Bank of America Merrill Lynch.  More than $600 billion of high-yield bonds and loans are due to be repaid between 2012 and 2014. Almost 90% of loans outstanding mature in the next five years.

The default rate for commercial property mortgages held by U.S. banks more than doubled in the fourth quarter and may reach a peak of 5.4% at the end of next year, according to Real Capital Analytics Inc.  The default rate for loans on office, retail, hotel and industrial properties surged to 3.8% from 1.6% a year earlier. The default rate for loans on apartment buildings climbed to 4.4% from 1.8%.

New York’s budget deficit for this year may be $2 billion, or 43% wider than projected earlier this month by the Division of Budget, comptroller Thomas DiNapoli said. 

Debt problems in the States.

Florida’s state pension system, manager of $112 billion is set to decide next week on the size of its first investment in hedge funds.  Executives of the fourth-largest state retirement program in the U.S. will make the move amid a 7% shortfall in its ability to pay future benefits, the first in 13 years. Wisconsin’s pension also plans its initial allocation this year, while Boeing Co.’s probably will raise its holdings.  Public and private pensions are increasing hedge-fund commitments after slowing the flow of cash at the end of 2008.

Mr. Dimon told investors at the Wall Street bank's annual meeting that "there could be contagion" if a state the size of California, the biggest of the United States, had problems making debt repayments. "Greece itself would not be an issue for this company, nor would any other country," said Mr. Dimon. "We don't really foresee the European Union coming apart." The senior banker said that JP Morgan Chase and other US rivals are largely immune from the European debt crisis, as the risks have largely been hedged.

California however poses more of a risk, given the state's $20bn (£13.1bn) budget deficit, which Governor Arnold Schwarzenegger is desperately trying to reduce.

Earlier this week, the state's legislature passed bills that will cut the deficit by $2.8bn through budget cuts and other measures. However the former Hollywood film star turned politician is looking for $8.9bn of cuts over the next 16 months, and is also hoping for as much as $7bn of handouts from the federal government.

Earlier this week, John Chiang, the state's controller, said that if a workable plan to reduce the deficit and increase cash levels is not reached soon, he will have to return to issuing IOU's, forcing state workers to take additional unpaid leave and potentially freezing spending.

Last summer, California issued $3bn of IOU's to creditors including residents owed tax refunds as a way of staving off a cash crisis.

"I can't write checks without money; that's against the law. My main goal is to keep the state afloat, but I won't be able to do it without the help of new legislation," said Mr. Chiang.

Child Labor in Apple factories

At least eleven 15-year-old children were discovered to be working last year in three factories which supply Apple.

The company did not name the offending factories, or say where they were based, but the majority of its goods are assembled in China.

  Apple also has factories working for it in Taiwan, Singapore, the Philippines, Malaysia, Thailand, the Czech Republic and the United States.

Apple said the child workers are now no longer being used, or are no longer underage. "In each of the three facilities, we required a review of all employment records for the year as well as a complete analysis of the hiring process to clarify how underage people had been able to gain employment," Apple said, in an annual report on its suppliers.

Apple has been repeatedly criticised for using factories that abuse workers and where conditions are poor. Last week, it emerged that 62 workers at a factory that manufactures products for Apple and Nokia had been poisoned by n-hexane, a toxic chemical that can cause muscular degeneration and blur eyesight. Apple has not commented on the problems at the plant, which is run by Wintek, in the Chinese city of Suzhou.

A spokesman for Wintek said that "almost all" of the affected workers were back at work, but that some remained in hospital. Wintek said n-hexane was commonly used in the technology industry, and that problems had arisen because some areas of the factory were not ventilated properly.

Last year, an employee at Foxconn, the Taiwanese company that is one of Apple's biggest suppliers, committed suicide after being accused of stealing a prototype for the iPhone.

Sun Danyong, 25, was a university graduate working in the logistics department when the prototype went missing. An investigation revealed that the factory's security staff had beaten him, and he subsequently jumped to his death from the 12th floor of his apartment building.

Foxconn runs a number of super-factories in the south of China, some of which employ as many as 300,000 workers and form self-contained cities, complete with banks, post offices and basketball courts.

It has been accused, however, of treating its employees extremely harshly. China Labor Watch, a New York-based NGO, accused Foxconn of having an "inhumane and militant" management, which neglects basic human rights. Foxconn's management were not available for comment.

In its report, Apple revealed the sweatshop conditions inside the factories it uses. Apple admitted that at least 55 of the 102 factories that produce its goods were ignoring Apple's rule that staff cannot work more than 60 hours a week.

The technology company's own guidelines are already in breach of China's widely-ignored labour law, which sets out a maximum 49-hour week for workers.