International Forecaster Weekly

Failures In Money Control Becoming More Obvious

Fed makes its own rules, liquidity injections dont work, therapy proves costly, European banks broke, a return to austerity, Markets look for reflation, a broader net for SEC, Fanny and Freddie losses at around 400 billion, state pension death spiral.

Bob Chapman | September 22, 2010

As quantitative easing again gets underway the failure of QE1 becomes more obvious. The crisis worsens and the illusion of any recovery is light years away. Over the past three years almost $13 trillion that we know about has been thrown down a rat hole to bail out banking, Wall Street, insurance and selected elitist entities. The dollar figure is probably much higher. We will never know, because the privately owned Federal Reserve makes its own rules. Everything they do is a state secret. The five successful quarters were only a mirage. The funds have been vaporized among lending and financial institutions worldwide. There has been no accounting and there never will be as long as the Fed is not audited and investigated. We are in an inflationary depression and have been since February 2009. Massive injections of liquidity do not work, nor have they worked for centuries under these conditions. You cannot resurrect an insolvent country in a system that is corrupt. The controllers of the US economy are about to lead the American economy and financial structure into a great dark pit. The US and the world is soon to face a global breakdown deliberately engineered by the forces of darkness.

As usual the Fed was late in applying remedial therapy and that will prove costly. The funding of US debt by foreigners has become very costly and some are jumping ship and some are even using their dollars to buy gold. The game is changing, but will other countries risk a worldwide collapse by not rescuing the US economy? We don’t know but it doesn’t look promising. Monetization is coming and most nations are frozen in the headlights. Washington and NYC have applied pressure over and over again, but their arrogance has not gone unnoticed. There is a pretense of control as unemployment climbs and stability comes more into question. Headlining unemployment, U3, at 9-3/4% is dumb, when anyone with any sense can see U6 and the bogus birth/death ratio. Yes, unemployment is 21-5/8% and for those who want to see the truth it is visible worldwide. Real estate continues to descend, as the consumer reduces debt and consumption.

Much of the public is deeply disturbed and that has been borne out by the primary elections and the success of the Tea Party. People are thrashing around for answers with 14.3% living in poverty, 44 million on food stamps and every day more jobs are lost to free trade, globalization, offshoring and outsourcing. It is not surprising that Tea Partiers and secessionists want to dramatically change Washington and make radical changes in how the one party-two party system works. People have finally had it. They know full well where trillions of dollars went. That the US and European banking system were temporarily rescued. These were the same people who caused the problem in the first place and the public unceremonially is thrown a bone, like some stray dog. It is time for Americans to use their voting power to remove these criminals they voted into office. After January 2, 2011, America will have a lame duck president and a gridlock that will keep congress from creating any further damage. This will only be the beginning as people vent their anger at Wall Street and banking and its den of thieves. This tidal wave of rejection will really manifest itself when the elitist insiders in retribution collapse the stock and bond markets. Mark our words that will happen over the next few years, as will dollar devaluation and debt default. The ball has just started to roll and where it will all end up no one knows. The temple of the Federal Reserve and Wall Street could very well be doomed to destruction. The public now understands that Wall Street and banking own the Fed and they really make all the decisions and are the creators of all inside information. they profit on almost every trade. They cannot lose. They own the game. That is why for the last 18 months there has been an exodus of funds from the stock market to bonds, gold and silver and commodities. Naked shorting is rampant and the SEC and CFTC do nothing about it. Front running, known as flash trading, rigs every trade. More than 70% of trades are computer, black box driven by pros. Is it any wonder gold and silver hit new highs every day, Weiner & Waxman bring legislation to regulate coin dealers, when in fact they want to collect data on coin and bullion buyers. America has turned into a cesspool.

The reaction of the public to this crime syndicate will be staggering. Glass-Steagall will return and the wall between brokerage, banking and insurance will be re-erected. The system will be stripped in a way that 1933 and 1934 could never imagine. The system will be purged of malinvestment and banks, brokerage firms and insurance companies that are now broke will be allowed to fail. No more two sets of books. The Fed is responsible for all this debt and failure. It all lies at the feet of those who control the Fed. These are the people who have deliberately collapsed the system for more profit and power and the imposition of their dream of world government. The illusion of wealth that the Fed foisted on the public is over and the public is not ready to fall for it again. The public realizes they and the system are insolvent and they are very unhappy about it. Any effort to revive consumption will be futile. Veiled and overt threats to the public and Congress, as we saw from Henry Paulson and more recently by Ben Bernanke, are not going to work. The public is spoiling for a fight and when that happens a fight is sure to ensue. If these malevolent creatures take down Wall Street and banking you can be sure Paris, On July 14, 1789 will look like a picnic. Our aristocracy had best heed the message or they’ll end up like the 300,000 who lost their heads so long ago. Hell hath no fury like an enraged mob. The elitists had better wake up and stop their games robbery and extortion. They have to come to an end.

European bankers are terrified because they are equally broke. Their pursuit of austerity is commendable, but you do not raise taxes with 1% growth. This way you have austerity coming from both ends. This policy can only end in a very hard landing. They at least are smart enough to know that throwing money at the problem, stimulus, is not going to work. They realize the financial system is going to collapse and they are trying to find ways to ease the pain. Unfortunately there is no way to do so. They’ll take all the money and credit they can from the Fed, but they still believe those running the US from behind the scenes are suicidal. Like so many before them American elitists cannot entertain that their reign of power is over.

Early in 2011 the real fireworks will begin. In spite of stimulus of various kinds the economy will falter and unemployment will grow. The plight of what is really, truthfully, going on in the country and the world will become more manifest to the public via talk radio and the Internet. Government, Wall Street and banking will get little public support. The Fed will start to run into major opposition from foreigners in the funding of debt. As the lender of last resort, the injections of capital needed will grow exponentially.

What we will see is austerity and growing inflation at a level not seen since WWII. The people will become more and more disillusioned with the incompetence and growing impotence of the Fed and the administration. The public will become more and more enraged as they realize who has done this to them and why. That is why talk radio and the Internet will be so important in the future. They are almost the only way the public can learn the truth regarding their plight. More than 15% of Americans are experiencing what citizens experienced in the 1930s. Deficits will go exponential, but will not redevelop the economy. More and more funds will go to the destitute who will find it impossible to find work as our transnational conglomerates continue to move American jobs to foreign lands further crippling the economy. America is in a state of financial and economic collapse that will stretch out over years. Get ready to live like Americans did in the 1930s, 40s and 50s. The world that receives US dollars for its goods and services will no longer want to recycle them for worthless Treasury and Agency bills, bonds and notes. They will dump them on the market one way or another. The dollar now at 81.32 on the USDX will fall to 74, then to 71.18, and eventually to 40 to 45. In that process the dollar and many other currencies will be devalued and their debt defaulted upon. During that process the failure of these fiat currencies will, minute by minute, be reflected in the rising prices of gold and silver in markets that will eventually become free again. In reality no currency needs to be devalued. Gold and silver accomplish that daily. Why do you think since 1988 our government and those who control our government have suppressed gold and silver prices? Gold is the barometer of fear, the only real currency that owes no one anything. Gold and silver are the antithesis of fiat money. They are the only way to restore order out of chaos.

Europe’s problems are not going away. Yields on Irish bonds continue to rise as well as those of Portugal reflecting concern that they may be in a position similar to Greece. In fact the spreads are near the highs experienced last May. Ireland’s yields jumped almost half a point last week. These events can only mean Europe is headed into further financial trouble and those problems will effect bond and share markets worldwide.

Markets are looking for re-flation. Whether this is the case in Europe remains to be seen, but it sure is manifesting itself in European and US stock markets. European bond markets are showing pressure, but as yet it doesn’t seem severe. It looks like the markets are looking for a negative event and that could be in Greece in the form of a forced, change of government. In addition, we believe the markets are positioning themselves for a weaker dollar and to them that means gold and silver and commodities are headed higher. Most internationals believe that global government policy makers have the situation financially under control, when nothing could be further from the truth. Just how long do they think the public will tolerate severe austerity accompanied by inflation in the US and England and to a lesser extent in Europe? Greece could again prove a catalyst for problems that could spread worldwide.

Leverage is certainly in play in world markets, but not nearly to the extent that it once was. No one has a handle on the degree of leverage, but in time we believe we will find it was a fraction of what occurred 2-1/2 years ago. On the other hand, world speculators are convinced there will be quantitative easing in the US, which they believe will definitely be followed in England and Europe. Contagion continues in many phases. We might even call it a lemming process. Europe feels they have seen the worst and they Are wrong. Europe has many problems that have not been solved including the near bankruptcy of five major nations. Do not forget as well that Germany has said that is it. No more bailouts. Close to $1 trillion was enough. We believe far more will be needed. If Germany sticks to its announcements that could be the end of the euro, which is back trading above $1.30, having bottomed close to $1.19. Don’t forget as well the 8-month rally on European exports is over due to this higher euro. Bond dealers keep telling us the worst is over, but they do not have a very good track record, so we look at their statements skeptically, just as we do the dog and pony show called CNBC.

We see danger in liquidity borne prices of stocks and bonds. Even speculative paper is selling at its fastest pace this year. There are obviously those who think otherwise as gold, silver and commodities move higher. Investors are chasing yields and it is the worst possible thing they can do. That always leads to a quality trap and losses. We learned our lesson on that count many years ago.

The Fed and the Treasury have created an intolerable situation for those who need income. Retirees in their 70s and 80s should not be forced to chase yields.

Deflation certainly has been an underlying factor in the US economy for the past seven years, only to be offset by money and credit creation. The issue is very complex and it is a constant question and understandably so. The entire world has offset deflation with inflation over that period. There is no question in our minds that higher inflation is in the offering and the antics of the Fed could very well lead to hyperinflation, before deflation finally wins out over a broken system. The path we are following may be fascinating, but it will also be devastating. A robust inflationary bias burns off very quickly. Inflation once used, as an instrument of control has to be continued indefinitely. If it isn’t the system collapses into deflation. Even moving currencies around by treasuries’ is not easy in a $4 trillion daily market. Look at Japan last week they spent $500 billion to weaken their currency and got next to nowhere. This is a strong indication of the limits of power of governments’ in currency markets. Government controls of markets are nearing an end.

We do not have exact figures of the Fed’s intervention in the MBS, CDO, GSE and Treasury markets it has to have been at least $2.2 trillion over a one-year period plus the last stimulus package, which puts the number at $3 trillion. Unfortunately it looks like that will have to be done all over again for another year and perhaps two years. You say, where does it all end? Well it doesn’t – it just gets worse as purchasing power falls at least 7% a year, wages remain stagnant and unemployment rises, as government and the Fed cannot stem deflation even by creating $3 trillion, or so, a year. This should give you an idea of the trouble we are in. In this process unfortunately the dollar is being destroyed. Just think of what will happen if China, Japan and Korea have to sell or want to sell dollars? Are we to see competitive monetization? Of course we are. Alliances are one thing and reality is another. As we said 17 months ago what you are seeing is a battle between the US dollar and gold for supremacy and gold has already won. Those who realize and understand this know where we are headed. Those who do not could lose it all.

This past week the Dow rose 1.4%, S&P 1.4%, Russell 2000 2.4% and Nasdaq 3.4%. Banks rose 0.6%; broker/dealers were unchanged; cyclical 2%; transports 0.7%; consumers 1%, as utilities fell 0.9%. High tech rose 3.4%; semis 5.6%; Internets rose 3.2% and biotechs 1%. Gold bullion rose $28.00, as the HUI jumped 2.8%, and the USDX fell 1.6% TO 81.40. The 10-year notes fell 5 bps to 2.74% and the 10-year German bunds rose 3 bps to 2.43%.

Freddie Mac’s 30-year fixed rate mortgage rates increased 2 bps to 4.37%. The 15’s fell 1 bps to 3.82%. One-year ARMs fell 6 bps to 3.4% and 30-year fixed rate jumbos fell 5 bps to 5.32%.

The Fed credit expanded 2.7%. Fed foreign holdings of Treasuries fell $11.1 billion.

Homebuilder sentiment from the NAAB/Wells Fargo Housing Market Index was unchanged at 13, unchanged from last month, the lowest since March 2009. This survey is very subjective.

We saw the FDIC Friday Night Financial Follies again with one bank going under.

A Florida judge has found JPMorgan Chase, as servicer for Fannie Mae, committed fraud by foreclosing withholding a mortgage. This is big news and sets a precedent. This stops banks in their tracks if they do not have the mortgage paper.

GMAC mortgages has halted all foreclosures in 23 states. This and the JPM action could take many lenders under because they do not have the mortgages, they sold them.

Corporate executives are more likely to end up in court for their employees’ misconduct now that Congress has handed broader powers and more money to the U.S. Securities and Exchange Commission, former agency officials said.

Since the start of the financial crisis, lawmakers, investors and judges have criticized the agency for giving bosses a pass while accusing companies of wrongdoing, as in recent cases involving Citigroup Inc. and Bank of America Corp. The Dodd-Frank regulatory act lowers the bar for filing fraud lawsuits against individuals and authorizes the SEC to double its spending within five years.

“The SEC is going to cast a much broader net to include people on the edge of a fraud,” said Steve Crimmins, a former trial attorney at the agency who’s now at law firm K&L Gates LLP in Washington. “There will be legions more SEC cops on the beat and that will mean a lot more activity.”

Under Dodd-Frank, which was signed into law in July, the SEC can sue an individual who “recklessly” aids a fraud even if the person isn’t aware of the wrongdoing. Previously, lawyers had to show the person knowingly assisted the misconduct. The law also allows the agency to sue senior officers, directors or other people directly or indirectly accountable for the fraud.

Robert Khuzami, the SEC’s top enforcement official, is scheduled to answer for the agency’s progress tomorrow before the Senate Banking Committee after Senator Ted Kaufman, a Delaware Democrat, told him in December he was “frustrated” that regulators hadn’t been able to prosecute more executives and bankers.

Citigroup Inc. said Friday it is selling its student loan business and about $32 billion in related assets to Discover Financial Services and the student lender Sallie Mae, Citi's latest move to focus on its core consumer banking business.

The big banking company has been looking for a buyer for its 80 percent stake in the Student Loan Corp. for some time as it refocuses it operations. Citi was one of the hardest hit banks by the recession and credit crisis.

Citigroup Inc. said Friday it will take a loss of about $500 million loss on the deal in this year's third quarter.

Discover has agreed to pay $600 million for the Citi stake in the Student Loan Corp. and will also acquire $4.2 billion of private student loans.

Sallie Mae will get $28 billion of assets, adding another 1.3 million new customers.

The complex deal comes amid rapid change in the student loan market, after a law this year consolidated the federal student loan program and largely cut private lenders out of the process. By making loans directly, and ending federal guarantees of private student loans, the government hopes to save money. That has left private lenders seeking alternatives to making loans, and trying to sustain their business by acting as servicers collecting payments on loans the government makes.

Larry Summers, director of the White House's National Economic Council, is expected to leave that post in November, Bloomberg News reported Tuesday, citing three unidentified people close to the matter. Summers has already discussed his future plans with President Barack Obama, according to one of the sources cited by Bloomberg. Summers' departure would leave Timothy Geithner as the last of Obama's original economic team still standing.

Bad news is good news for stocks because the Fed and solons are determined to rig stocks and other financial markets to prevent any serious decline. This is why we have been advocating: “Wait & Watch”.

Any ugly news or negative technical development in stocks (i.e. Hindenburg Omen or breach of key support) is immediately countered by POMOs or some other intervention – both direct and indirect (i.e. sending in stooges to juice SPZs, etc.)

Koch Industries Lawyer to White House: How Did You Get Our Tax Information?

Abuse of the IRS was one of the articles of impeachment against Richard Nixon.

Naked short-sales of shares and government bonds would be limited and some over-the-counter derivatives trades forced through clearinghouses, under European Commission proposals to safeguard financial markets.  Frequent traders of some OTC derivatives in Europe will be forced to use central clearinghouses to close sales, while naked short-sellers would be required to submit proof they can access the underlying security to settle a trade designed to profit from falling prices, under two separate initiatives.

The financial crisis will accelerate the shift of economic power to emerging economies as their recovery outpaces that of developed countries, the Centre For Economics and Business Research said.  Nations in the Organization for Economic Cooperation and Development will account for 66% of the world’s gross domestic product by 2015, compared with 77% in 2004. ‘The focus of global economic activity will shift increasingly to countries like China, India, Russia and Brazil and to a lesser extent Mexico, Canada and Australia.

Efforts to tame America’s ballooning budget deficit could soon confront a daunting reality: Nearly half of all Americans live in a household in which someone receives government benefits, more than at any time in history.  At the same time, the fraction of American households not paying federal income taxes has also grown—to an estimated 45% in 2010, from 39% five years ago, according to the Tax Policy Center… A little more than half don't earn enough to be taxed; the rest take so many credits and deductions they don't owe anything.

The American dream of owning a home has lost some of its allure after years of falling home prices and owners facing financial ruin.  A new survey by Fannie Mae shows the number of people who say they consider housing a safe investment continues to decline, falling to 67% in July from 70% in January and 83% in 2003.

Parking garages serving the new Yankee Stadium in the Bronx are headed for default on $237.6 million of tax-exempt bonds due to low usage in the face of cheaper alternatives.

US home seizures reached a record for the third time in five months in August as lenders completed the foreclosure process for thousands of delinquent owners, according to RealtyTrac Inc.  Bank repossessions climbed 25% from a year earlier to 95,364, the most since the data provider began keeping records in 2005. ‘We’re on track for a record year for homes in foreclosure and repossessions,’ Rick Sharga, RealtyTrac’s senior vice president, said. There is no improvement in the underlying economic conditions.

Taxpayer losses from the government seizure of failed housing finance giants Fannie Mae and Freddie Mac could reach nearly $400 billion, but likely won’t top that level as some had feared, the firms’ federal regulator said To offset some losses, the Federal Housing Finance Agency is seeking billions of dollars in repayment from banks that sold bad loans to the firms, acting director Edward J. DeMarco said.

US lawmakers will grapple today with how to end the bailout of Fannie Mae and Freddie Mac after two years and almost $150 billion, and who pays the bill for bad loans made during the housing boom.  Regulators who seized control of the two mortgage lenders in 2008 are under pressure to stem losses for taxpayers and recoup money from banks that sold faulty loans to Fannie Mae and Freddie Mac -- all without hindering the housing market’s recovery.

US state pensions such as Illinois, Kansas and New Jersey are in a ‘death spiral,’ with assets at many insufficient to cover benefits, payouts consuming a growing portion of resources and costs rising twice as fast as investment gains.  Less than half the 50 state retirement systems had assets to pay for 80% of promised benefits in their 2009 fiscal years. Two years earlier, only 19 missed the mark. Illinois covered just 50.6% of benefits last year, the lowest so-called funded ratio. In 2007, none exceeded the threshold. The growing burden prompted Colorado, Minnesota, Michigan and other states to trim benefits for millions of teachers and government workers… The largest Illinois pension, the $33 billion Illinois Teachers’ Retirement System, paid $3.7 billion of benefits in the year ended June 30, 2009. That’s 13% of its assets at the time, up from 8% two years earlier.