International Forecaster Weekly

Financial Crisis Only Squandering Our Future

Big rise in monetary base, trillions in loans all over the world that will never be repaid, many nations very exposed in monetization crisis, all currencies to fall against gold, writers running naked, larger corporate failures to come, American condition to worsen, resentment already smoldering around the world, taxpayer money still being squandered on bankrupt Wall Street...

Bob Chapman | December 3, 2008

The monetary base has again risen dramatically over the past few weeks up 38% yoy, the largest increase since 1939. You can expect all the major central banks to do the same thing, as this was a large part of what G-20 was all about.
Those of you, as we mentioned over the past several weeks, who don’t believe loans are loosening up are wrong, they are. Consumer and bank lending has grown by an annualized rate of close to 50% in the last six months. As this unfolds we see demonstrations in Iceland where the currency has been crippled, inflation is 18% and no one trusts government, bankers and politicians anymore. European banks will take a $75 billion hit on this fiasco. Incidentally Danske Bank sees Iceland’s inflation hitting 75%. That could well cause the overthrow of the government. The Iceland experience could be the forerunner for America three years from now. It could be preceded by Pakistan, Argentina and a number of other countries. Just last week Argentina confiscated pension plans worth $26 billion. Our House of Representatives has discussed a similar plan.
Then there are the loans all over the world in trillions of dollars that will never be repaid. They’ll be monetized and American taxpayers will again pay the bill. The prime targets for trouble are not just the ones you notice among the major countries, but all over the world, especially in Eastern Europe and Latin America - things are going to be every bit as bad. Deficits in Eastern Europe are close to 10% of GDP whereas 3% is normal.
Cross border lending by European and UK banks to emerging market countries accounts for 22-1/2% of respective GDPs compared to 4% for US banks and 5% for Japanese banks. Europe has $3.5 trillion of debt outstanding to these financially 3rd world countries whereas the US has only about $500 billion.
Most exposed is Austria. Those loans make up 85% of their GDP, most of it in Eastern Europe. They are the largest holders of debt in the Ukraine and Hungary - two very weak banking systems.
Italy’s public debt is now the third largest in the world behind the US and Japan. At 107% of GDP it is twice the Maastricht limit. When Italy joined the Eurozone they were hardly qualified to do so and we said so at that time. They lied about their finances and everyone looked the other way. Their problems are shown in their bond yields, which are 1.08% more than similar German bonds. This predicament probably will force Italy and perhaps Austria out of the euro.
British bank exposure is primarily in Asia and Latin America. Sweden is exposed in the Baltic.
Spain is the largest lender in Latin America. That is indeed dire news when the domestic economy is in such trouble. They have lent $830 billion in Latin America.
Today worldwide banks are very interconnected and in the current environment that is very bad news, because eventually problems in one sphere will affect other spheres, making all currencies fall against gold.
Then there are the de-leveraging hedge funds of which over the next year could see 1,000 or 50% of their number, close down or go bankrupt. Hedge funds just sold about $600 billion in assets to meet redemptions and to reduce assets to conform to lower lending by lenders. For now that selling is over with. We could see a reoccurrence in February if credit lines are cut again, or if redemptions rise again. That $600 billion represents 30% of hedge fund assets. We expect the market to move lower earlier in the year so we could expect another $300 billion liquidation in February or March. We are assuming credit won’t be cut further. We see present leverage at 1.4 to 2 to 1.
Hedge funds, banks, brokerage houses and insurance companies were and are big players in the writing of CDS, credit default swaps, some $50 trillion to $60 trillion worth. Most of this derivative commitment is not hedged. The writers are running naked. If we have a string of corporate failures such as GM and Ford, etc., which is very possible, the system will collapse. That is possible and probable.

We have not seen a market selling climax, so pressure will remain on the market for sometime to come. All the fairy tale rallies – the “Working Group on Financial Markets” creates will not last. 2009 will see many bankruptcies. Investors have not capitulated, nor do many really understand the severe gravity of our economic and financial problems. 95% of investors, the public and Wall Street still do not get it. One of the reasons is government’s phony statistics. They believe the government. They would not think of thinking outside the box. That is where the problem lies. If you do not think outside the box you are doomed. Bear Stearns, Fannie and Freddie and AIG were just tips of Icebergs. Bear and AIG were supposed to be the best of the best. If they got in trouble what is going to happen to the rest of the players? Pros and investors are in denial. They just are unwilling to accept that all the things they knew, there whole lives are going to change for the worse for a long time to come. The worst of the financial crisis is not behind us. It is in front of us. That will be exacerbated by the coming economic crisis. We’ve had two major manipulated rallies in the past month. That isn’t unusual in a bear market with or without government manipulation. Some hedge funds have a liquidation cut off of 12/31/08, so any rally will be used for some unusual selling. That will put a lid on any real upside action.
Sixteen months ago the US financial system went into a state of collapse and the rest of the world is caught in the same trap. No grandiose plan by anyone has been offered or concocted to save the economy and the financial system or the economy. All the so-called solutions have not and will not work. More debt and increased taxes won’t work. As a result, governments worldwide are under attack - an extension of religious warfare in India, demonstrations in Iceland and Thailand and justified smoldering resentment. Our management, corporate, financial and governmental is corrupt and is a failure as it is in most other countries. Your assets are not safe from anything. 2009 will see bedlam in every sector of every economy in the world. Your best shot at financial survival is in gold and silver related assets, as we start the second of four phases of the biggest bull market in history.
That leads us to the US government bond market, which is suffering a crisis of confidence and it couldn’t have happened at a worse time. Here is our Treasury and the Fed bailing out Illuminist Wall Street, banking and corporate America via bonds and other money and credit for distressed assets worth an average of $0.25 on the dollar. This has force Treasuries to record low yields at least temporarily. The one-month bill is yielding 0.2%. How can anyone of sane mind buy those bills with inflation at 12-1/2% and our nation is bankrupt. We recently saw a recommendation by a money manager, brokerage firm recommending US Treasuries. They have to be out of their minds. Everytime bonds are issued it makes the issuer less solvent, our currency less viable and the borrower a major loser. That is why people worldwide for the past six months have been cashing in dollars and other currencies for gold and silver bullion and coins. Some see what is in our future.
As we stated recently the bond settlement system has broken down. Fails to deliver in Treasuries are now over $2 trillion. Broker/dealers have stopped delivering bonds and holders are now afraid to lend them into the repo market for fear they’ll never be returned and potential buyers sit on the sidelines fearful of handing over their money to a counterparty that at best might not deliver a bond on time, or at worst might go under.
This is another reason that US Treasuries are no safe haven. There is a lack of functionality in the Treasury market and if not soon connected it could lead to negative investor perception. If that happens the Treasury will find it increasingly difficult and expensive to raise money and to roll over maturing debts. That will cause interest rates to rise as government is manipulating them lower negating their attempts to jump-start not only the economy, but the world as they both head into depression. The situation is so far advanced that 10-year TIPS are pricing in zero or netative average inflation for the next ten years, which, of course, is insane and shows you the extent of bond market manipulation by the Fed to keep interest rates low in order to keep mortgage rates low enough to allow refinancing and new buyers. Our government has savaged the TIPS inflation spread in order to keep their scam going and to give retirees no return on their Treasury investments. Anyone who buys US Treasuries is insane or stupid.
Delivery needs to be enforced. If it isn’t it is over. It’s a situation similar to the SEC not enforcing the law on naked shorting. This game of Wall Street, banking and government always winning is over. You cannot have 8.6% of all treasuries outstanding failing in the first five months of the year, compared with 1.2% in the first five months of 2007. Now the figure is $2 trillion.

Our elitist globalists are in the process of destroying our financial system to eliminate the nation-state system and impose a global, corporatist, and fascist dictatorship over the entire world.

You subscribers understand this and now perhaps as much as 25% of our fellow citizens do as well thanks to the Internet and alternative radio.
This time it’s just not Germany and Italy that is to become fascist, it is the whole world if the Illuminists and Europe’s Black Nobility has its way. As part of the Venetian style banking system and the concentration of corporations into cartels, the project is able to finance itself. It also causes concentration of military and police power under a federal mandate such as Homeland Security to keep the people in line. Thus we are to have a world system run by banks, finance and insurance companies and corporate cartels. This is what is to replace the sovereign state. We saw the Illuminists try this in the Western nations in the 1920s and 1930s. In the US the driving force was Morgan & Dupont who tried to implant a fascist government. They were stopped when exposed by General Smedley Butler in 1934.
The next modern move to fascism began with GATT that was to usher in the WTO in 1986 to develop modern British mercantilism today known as free trade, globalization, offshoring and outsourcing. During that time frame the corporatist fascist movement was again set in motion by Bilderbergers in 1968 at Mont Tremblant, Canada.
The planning was by George Ball, an Illuminist mover and shaker in those days, who was a senior banker at Lehman Brothers. He was a key top member of the Illuminati. He called for the World Company.
The approach has been implemented and it will show you how far ahead the Illuminists plan. The name changed to globalization in the process.
The process has now reached the stage where debt from banks, finance houses, insurance companies and Illuminist corporations is being transferred from their balance sheets to those of government, which are the people. During this process the physical economy is simultaneously being driven into the ground, recession begins and depression follows. De-industrialization is then complete and the economy collapses along with the financial system. No longer a major producer and only a service provider the economy has a massive account deficit to be funded by foreigners.
This the Illuminists hope will return the world back to the 17th century’s mercantilist, rentier-financial feudalist model. This is where the elitists want us to go so get ready for it by protecting your assets by owning gold.
Conditions are going to get considerably more difficult for Americans. In 2 years 25% to 38% of all Americans will be out of work and waiting outside homeless shelters and food pantries. Many will be the elderly or single women and children. The question is will welfare and food stamps still be available?
Many former manufacturing centers already are experiencing 20% unemployment due to the deliberate elitist policy of transnational conglomerates of free trade, globalization, offshoring and outsourcing. The financial meltdown has been and will continue to plunge the working class into levels of destitution worse than those seen in the “Great Depression.” As a prelude to this banking, Wall Street and our government squanders taxpayer money on idiotic schemes to prop up bankrupt Illuminist banks, Wall Street, insurance companies and select Illuminist corporations. In that process faithful workers are thrown onto the street with no further way of making a living. They are losing their homes, jobs and vehicles and some are living under bridges.
Our Treasury and the Fed are holding trillions of dollars in almost worthless assets. Each day billions of taxpayer dollars are being thrown into a black hole. The biggest bank and insurance companies in America are bankrupt, Citicorp and AIG. Retail sales are falling and the entire automotive industry is bankrupt. Real unemployment is 14% and long-term unemployment is 18%. We’ll lose about 1.5 million jobs in 2008 to go along with the 5 million lost in the previous 8 years. In inner city areas young male unemployed is 30% to 50%. Twelve million homes are worth less than their mortgages and millions more will either lose their homes or simply walk away. Another one-third of homeowners face foreclosure in 2008.
As Wall Street, banking and corporate America are bailed out the USDA’s Emergency Food Assistance Program has cut its donations to the poor from $240 million to $59 million. Social assistance programs have been laid waste in Medicaid and education. Tax revenue continues to plummet in every state, almost all of which have been terribly managed. States have imposed hiring freezes, cancelled raises and are cutting back expenses. In many states such as California and New York unemployment insurance funds are running out.
Recently we ran the numbers of Barak Obama’s major contributors, which was Wall Street, banking, corporate America and the University of California – Berkeley, a long time nest of far left and communist causes. This is whom Obama is beholden too, not the American people. Obama will expedite the economic collapse by doing very little to help the people as America slips to second-world status. He will continue the occupations in Iraq and Afghanistan and continue to spend vast amounts on security in the name of the scam called terrorism. His Cabinet is a rehash of Clinton Illuminists. The elites remain solidly in power, so much for change. This while the average American is desperate.
Next comes the social and moral collapse as desperate people do desperate things. Crime is about to skyrocket. This is why you need weapons in your home to defend your family. They’ll soon come a time when everyone will be carrying arms, laws or no laws. Your nation is in the process of crumbling physically and morally as our politicians in Washington, bought and paid for, tends to the needs of the elitists.
Mr. Obama has $67 billion more to spend at the Pentagon but less to spend on Americans. War is profitable for the generals and the corporations and it keeps incumbent politicians in office. It does nothing for the average American but kill off its young. Washington and Wall Street continue to be rewarded for incompetence and greed. We are simply collateral damage in what the elitists believe is a world with too many useless eaters.
The US military expects to have 20l,000 uniformed troops inside the US by 2011 trained to help state and local officials respond to terrorism, nuclear attacks, civil insurrections, or for domestic catastrophe. This, of course, is in violation of the Posse Comitatus Act, but that is not a bar to our government. They just refer to the Patriot Acts, which they say overrides the Act. The Cato Institute and the ACLU disagree. They consider the placement of military for such purposes an expansion of executive authority.
These 20,000 troops represent a 7-fold increase in five years.
Our Defense Secretary Robert Gates in moving toward merging the active-duty military and reserve components into an “integrated total force” (a merger), calling for wide-ranging personnel policy changes, codifying the reserves’ homeland defense role and adequately funding oft-overlooked reserve equipment requirements. As you can see Gates has his own full-time military personnel. He wants Congress to “mandate that the National Guard and Reserves have a lead role in and form the backbone of DOD, Department of Defense, operations in the homeland.” We were surprised he didn’t say fatherland.
There is no question that Americans have been short-changed by banks, brokerage firms, insurance companies, financial services, the Fed and by their government. The risks previously borne by these services have been heaped on consumers. These industries have screwed the public for years, but the last eight years have been disastrous for consumers and a money fest for these financial advisers and that is about to come to an end.
It used to be in the 1980s the financial sector of US corporate profits was 10%. In 2007, it was 35%. The theory promulgated by Wall Street that financial innovation would suddenly give customers the ability to manage risks was a lie and catastrophically false. The bottom line is the brokers and bankers got rich and the investors lost.
Lots of bad news on Monday as defaults on privately insured mortgages rose 35% in October, topping 80,000 for the first time. This is up from 59,308 yoy, and surpassed September’s record of 76,776.
A.P. says the Bush administration backed off on proposed crackdowns on no-money down, interest-only mortgages years before the economy collapsed, as the big lenders put pressure on the White House. Action was delayed for a year. They were all in on the rape of the American homeowner.
Despite the positive twist put on shopping statistics over the Black Friday weekend total holiday sales for the four days were up 2.2% to $470.4 billion. This is the weakest in six years.
Lured by 70% discounts retail buyers came out in greater numbers than expected this past holiday weekend. That was 172 million shoppers, a 17% increase yoy and up from expert estimates of 128 million. Online sales were off 4% yoy.
OPEC left Cairo last weekend without an agreement to further reduce production to push prices up. The next meeting is in Algeria and Russia, Mexico and Norway will join the OPEC meeting.
NYC had to pay back $80 million to companies who overpaid their taxes this past year. The City estimates a shortfall of more than $4 billion over the next two years.
New York State paid out $60 billion in total in corporate refunds during the fist 10 months of 2008, up from $581 million yoy.
In all corporate taxes make up $5.4 billion of total taxes paid to the city, or 14%, and $6 billion of total taxes paid to the state, or 15.6%.
One of our Illuminist masters of the universe at Black Rock is Peter Fisher who said the US Treasury should consider selling 100-year bonds to ease the federal government’s borrowing costs as it faces a budget deficit expected by us to exceed $1.3 trillion.
That is a great idea. Lay off your responsibilities on children being born four generations from now. A typical Wall Street solution.
Commercial property borrowers are having trouble borrowing money and the commercial-mortgage-backed securities market is comatose. Worse, the market is loaded with foolish loans made between 2005 and 2007. Most of these loans do not mature until 2010, but they overhang the market. What loans that are being made are 15% above benchmark interest rates.
Money investors believed the Treasury Department would bail them out but it is not going to.
Illegal aliens are finding ways to circumvent the state’s employer-sanctions law by turning to the underground cash economy. Some provide services or sell items. Others borrow the identity of citizens or legal residents to get jobs.
This is depriving the state and federal government of tax revenue and they are not happy about that.
Zbigniew Brzezinski is already comparing Barah Obama with John R. Kennedy.
Rumors abound in the farming community that in January and February some of the grain companies that bought wheat at $10.00 a bushel may not be able to pay for it.
Major grain operations are already facing huge losses. Wheat and corn prices have fallen some 50%. If they default, farmers are going to the wall. If they pay the commodity buyers go to the wall.
The result of this is another huge bump up in the price of food. March delivery will be in the stores by June and with it another big upward spike in food prices. Hedging could moderate the effects, but after what we’ve seen with hedge funds and derivatives blowing up, we are very skeptical that any real help will be found there. This is not a zero sum game when writers are naked short. This could bring on a severe recession in the form of acute stagflation.
A UN study has concluded that South Korea and Japan have the most effective education systems. It was based on testing what pupils actually know and what they are able to do. The US ranked 18th, Germany 19th. Furthermore the US finished low in each test and in adult literacy. The bottom line is stupid people do not stay free very long.
One of the problems is that 45% to 50% of school budgets is devoted to teachers, textbooks and other basic instructional cost. The rest goes to buildings, liquidating debt and administrative salaries.
Over the last decade administrative costs have risen 50%. Teacher pay increases have been miniscule at 36%. In the Chicago area superintendents received an average income of $114,000 and 27 of them received more than $200,000. One was over $300,000. Johnny cannot read but the super retires at 55 handsomely to collect for the next 30 years. This is a tragedy, but like most everything in our society today there is no outrage. There will be but unfortunately it will come when one-third of Americans are in detainment camps.
Bankrupt electronics chain Tweeter yesterday converted its case to a Chapter 7 liquidation, abruptly shuttered its stores, and fired more than 600 employees at 70 stores across the country, days before the company was set to close for good.
    Investors in the $4 billion Templeton Foreign Fund already have lost more than 50 percent of their money this year and now they’ll be forced to pay taxes on as much as $1 billion of gains from the sales of investments.
    Shareholders of Templeton Foreign, run by Franklin Resources Inc. in San Mateo, California, have plenty of company. Franklin said 33 of its 106 stock and bond funds will have capital gains. Fidelity Investments, the world’s largest mutual- fund manager, expects 135 of its 212 funds to make the distributions, based on data as of Nov. 15.
    Money managers have had to sell profitable holdings this year as customer redemptions increased, resulting in short- and long-term capital gains. The result means tax bills for investors in the worst year for financial markets since the 1930s.
    “It feels like a sucker punch for investors to pay taxes on gains when you’ve lost so much money,” said Christopher Davis, an analyst at financial researcher Morningstar Inc. in Chicago.
    The last time investors were hit with capital gains during a losing year was in 2001, when they paid $9.9 billion in taxes on fund distributions after the collapse of the Internet bubble, according to Lipper & Co., a Denver-based financial-research firm. In 2001, the Standard & Poor’s 500 Index declined 13 percent, compared with 40 percent this year.