International Forecaster Weekly

Hyperinflation, Bailouts and Moral Hazard

Watching the future of America as debts pile up,Unloading US dollars could be detrimental to the economy, efforts to manipulate gold continue, 100 billion in losses already written off, South America heats up the Cold War, Saudi walks out of OPEC,  

Bob Chapman | September 13, 2008

  "By the pricking of my thumbs, something wicked this way comes."  This line from Shakespeare's play, "Macbeth," comes to mind when we consider the future of America as we watch our government continue to take on debt after debt after inane debt, heaping more and more responsibility for the financial obtuseness of its privileged elite on its hapless peon taxpayers, profligately spending, borrowing, bailing out and inflating us into some sort of nightmarish, moral hazard oblivion.  Welcome to our new Banana Republic, a country that is now characterized by nonstop hyperinflation, bailouts and moral hazard - and which will soon decline into another Great Depression.  The nationalization of Fannie and Freddie has set us on a path from which there can be no return, carving out for us a much wider and deeper swath of financial death and destruction of a magnitude never dreamed of by even the most pessimistic among us.  Our economy is now in a temporary state of suspended animation by use of an economic act of smoke and mirrors, with the Sword of Damocles waiting overhead, waiting to chop us into tiny pieces.  The implications are dire.  And worse yet, this has all been planned for a while now, having been decided by the Illuminati soon after they watched their precious system burn to the ground right before their eyes a year ago in August.  Hence, you heard Goldman Sachs pronounce late last year:  "Short Gold for 2008."  They knew this was coming last year, because these evil reprobates planned it to happen that way.  They knew the jig was up when their subprime plot was exposed by analyst Meredith Whitney of Oppenheimer & Co.  They knew the implosion of Fannie and Freddie would happen eventually when the fraudulent mortgages started to go bad, but it happened far sooner than they had wanted or expected, and caught them with their pants down.  So, what was supposed to be a future plan to merge our mortgage lending system into their growing corporatist, fascist, financial structure, was moved from the back burner to the front burner, and now you all see the results in spades.

What we may be witnessing here is a combination of internecine warfare between American and European branches of the Illuminati, mixed in with financial warfare between countries that are not yet totally owned and controlled by the Illuminati, like China and Russia, and those countries which are under the Illuminist yoke, like the US, Canada, Europe and Japan.  Note that the Middle East countries like to play both ends to the middle, by pitting the Europeans against the Americans, or Illuminist dominated nations against non-Illuminist nations, which often adds clouds of confusion to events going down on the international front.

The European Illuminists are livid with their American counterparts, who have systematically weakened the dollar to shore up the trade deficit by making European exports more expensive after dumping hundreds of billions worth of fraudulent real estate derivatives into the European sector, derivatives which continue to implode at an ever-accelerating rate and which may act as a catalyst to lead Europe into depression as well.  Their gripe on the derivatives is legitimate, but they know the dollar should have weakened long ago against the euro, so they are blowing smoke about dollar weakness and the American Illuminists know it.  Nevertheless, the European Illuminists are demanding, by way of apology for the derivatives debacle, that the dollar be strengthened to save their staggering economies from imploding, and that the GSE debt which they own a lot of, especially via their OPEC clients, be nationalized to ensure payment when Fannie and Freddie implode.  They know that the final vaporization of Fannie and Freddie is now only a question of "when," not "if."

The Japanese are caught in the middle between the Americans and the Europeans who want revenge, and their economy is being destroyed because of it.  While the Japanese are benefiting from the GSE bailout because they own lots of GSE bonds, the weakening of the euro and the dollar against the yen is destroying their export economy and the yen carry trade and leading them into depression as well.  

And then there are the non-Illuminist nations who have lots of dollar-denominated treasuries and agencies as well, bought with trade surpluses made possible by artificially lowering the value of their currencies against the dollar through illegal currency manipulations.  This has made them very powerful economically, and has greatly helped to power up their economies, especially Russia and China.  The Illuminati are now picking fights with them in poorly executed attempts to embroil them in pointless, expensive and what they hope will be unwinnable wars.  The purpose of these bogus, false-flag conflicts is to reduce the dollar reserves and drain the power of non-Illuminist nations, thus leveling the playing field.  That playing field is now out of kilter on account of the doltish, bonehead, Illuminist schemes to implement free trade, globalization, off-shoring, outsourcing, and both legal and illegal immigration.  Such schemes have been used in a pathetic attempt to improve the prospects for world government, but have instead greatly hindered the efforts to establish world government by weakening the Illuminist centers of power vis-à-vis the non-Illuminist centers of power.

These non-Illuminist nations have undoubtedly threatened to burn the US to the ground, not via a nuclear war, but via hyperinflation to be unloaded on the US by the sale and repatriation of its treasuries and its agencies, and by the refusal to finance its ever-burgeoning deficits by shunning future purchases of these instruments.  They have threatened to turn off the credit spigot and bring the US economy to a screeching halt, thus leading it on a short path to deep depression, if the US continues to weaken the dollar, and fails to make good on its agency paper which would otherwise be vaporized by the subprime fraud.  They are also sending a message about the bogus, false-flag wars and conflicts that the Illuminists are trying to pick with them, and Russia has threatened to start a new Cold War, if necessary.  It is hard to sympathize with the Russians and Chinese after what they did in the aftermath of WWII, but nevertheless these endless wars for profit and geopolitical power have got to stop before we end up burning the earth to a cinder in a senseless world war of self-extermination.  The Illuminati will likely get their world government all right, once the earth has been reduced to a toxic, uninhabitable, burning lump of fused atomic elements.  Congratulations, morons, if and when that happens.

So the Illuminati have been forced by these circumstances to re-strengthen the dollar, and to bail out the GSE bondholders.  They made the other nations wait until the time was right, meaning that they wanted to implement this appeasement at a time of their choosing, the objective being to make America look strong economically right before elections to keep their incumbent henchmen in power.  They also managed to wedge in an oil/food/commodity profit extravaganza for the tanking fraudsters along the way, with a nice little temporary trade deficit reduction thrown in for good measure via the weakened dollar.  Hence, just before elections, the dollar has been pushed up, and the GSE's have been nationalized.

This is what they get for making us into a debtor nation in a foolish attempt to sacrifice their base of power on the alter of world government.  They thought they could do this while maintaining the balance of power.  We have news for them.  They have failed utterly.  The destruction to their power base is not the controlled demolition they had hoped for to push us into a corporatist fascist system All they have managed to do is destroy their base of power, and now they are running around like chickens with their heads cut off, fomenting wars, conflicts and other schemes, while appeasing the many nations they have angered and bloodied along the way, in a pathetic attempt to restore the balance of power.

Gold and silver had to be crushed, otherwise their moves would have been exposed as financially unwise and toxic, and the Fed would look like an institution of imbeciles.  Oil and commodities had to be tamed in the process as would happen in any case by virtue of a strengthening dollar, and this has helped them to give the sheople the appearance of improvement on the inflation front to benefit incumbents, even though inflation is still raging.  Naturally, the stock markets had to be supported as well in keeping with the ruse, and the PPT henchmen must be exhausted from the unbelievable manipulations we have witnessed over the past few months.  The elitist have gone completely berserkers with the latest run of market fraud, and they are going to pay for this raging fraud later when the class action lawsuits are implemented and the discovery exposes their machinations.  Look at the open interest on the USDX futures.  The previous record during a dollar rally of 58,595 contracts was set on December 14.  This Thursday, the USDX futures posted a gargantuan 94,021 contracts, shattering the previous all-time high by 35,426 contracts, an increase of more than 60%.  That is how desperate they are.  Oil has briefly dipped below 100, to 99.99, and the dollar spiked through 80 to a high of 80.395, and now suddenly, as we predicted might happen, everything has reversed and gold and silver are starting to rally again.  Let's see if this is this new trend is going to continue, or if the Illuminati have some October surprises in store for us to benefit incumbents.  Keep loading up, because the prices you are getting now on gold, silver and their related shares will never be seen again.  If you do, you will be a very happy camper in 2009.

It is obvious that the FDIC lacks the capital to back up its claims of the rescue of the American banks. IndyMac was a $10 billion problem, but the other ten failures this year were much smaller. This, like in the instance of Fannie Mae and Freddie Mac, will cause our government soon to bail out the FDIC with funds that do not exist. They will have to create more debt in order to accommodate our banking system pushing government further into the hole. Incidentally, the Federal Reserve faces the same problem. No one has the money to meet the guarantees. That is what we just found out in the cases of Fannie and Freddie.

Our government will have to sell more bonds to accommodate these financial demands and they become the obligation of American taxpayers. That is immediate monetization of those funds, which will be highly inflationary.

Just to give you a prospective of banking health, they have already written off more than $100 billion. They made $5 billion in the second quarter down from $30 billion plus quarters in recent years. The FDIC reports that the total assets of 8,451 institutions it insured fell to $13.30 trillion from $13.37 trillion in the first quarter, the largest drop since 1987.

Most of the above losses were due to CDOs, SIVs and ABSs, plus the failure of loans and mortgage loans. They do not reflect the deterioration of the financial condition of the bank’s customer bases. There are many who are not current on their loans and banks are starting to write off other loan losses. As a result loan loss reserves are lower for the month and consecutive quarter leaving banks with 88.5 cents for every $1.00 in non-current loans.

Banks are lying about their financial positions. They are hiding losses on and off balance sheets. The bad FDIC list isn’t 117, it is more like 2,000 but they won’t tell you that. They lie about everything as well. That is frightening but worse more frightening is the fact that the FDIC has one-cent in reserves for every dollar it is responsible for. Worse yet, there are $4.1 trillion of uninsured deposits in banks. That is in addition to $8.6 trillion covered by only one-cent per dollar. If that doesn’t frighten you, you are just plain dumb.

Then you look at Lehman’s books and you find they are bankrupt and the South Korean government agrees with us. Incidentally no one in the US media carried the government of South Korea’s comments.

Half the investment banks, brokerage houses and insurance companies are insolvent. Just wait – you will find out.

All we see is patchwork, smoke and mirrors and political expediency. Lies, lies and more lies.

Iraq and Afghanistan continues and the possibility of a cold and hot war with Russia is a possibility.

After looking at the events of the past three months we believe the Cold War could be a put up job involving Russian collusion with the Illuminati. We just don’t know for sure yet.

The financial system is falling apart, which is part of the disintegration process. All these other events are distractions to obfuscate the fact that the game is over. It is only a question of when does the bottom fall out.

Follow our advice and get your excess capital out of banks, even brokerage houses are safer. Buy gold and silver coins and shares and Swiss franc government bonds. If you do not you may lose everything.

Warren Buffett’s Berkshire Hathaway has told its subsidiaries to stop insuring bank deposits above the amount guaranteed by the FDIC, which deals a major blow to the financial services industry as it tries to calm anxious customers. Now what does that tell you? It tells us it is panic time, as Warren and his gang of traders run for the hills.

Their subsidiary KBS is one of only a handful of firms, which offer bank deposit guaranty bonds. This shows you how worried Mr. Buffett is about future bank failures. This is insurance beyond FDIC insurance for accounts over $100,000. At Columbian Bank and Trust, which went under, 610 accounts worth $46 million was covered by KBS and it caused them to lose money. Buffett has no further confidence in the banking system, so he is pulling out. That should be a lesson to those of you who have more money in banks than you need for current operations.

Now that American taxpayers have taken over Fannie and Freddie, Bill Gross is a seller. He is telling people on CNBC that mortgage paper is an attractive investment, while he is a seller.

Don Coxe is chairman and CEO of Harris Trust in Chicago and is one of the most respected mainline investment authorities in the US. We quote him here in regard to market manipulation by the US Treasury and the Fed. “This has done more damage to my personal wealth than anything in the last 20 years. I have too much respect for how US authorities engineered the collapse in commodities, a move that was necessary to shore up the global financial system to be bitter. My attitude is – goddamn it, they’re good – it was brilliant.” This guy is mainstream and doesn’t realize they have engineered a catastrophe. There are no longer any free markets.

Lehman Brothers’ losses were far more than expected and they may go under. They failed to purge their balance sheet as Merrill Lynch did. Richard Fuld released a convoluted, manipulated quarterly report filled with accounting chicanery that would make Mr. Ponzi proud. The true write-down should have been $7.8 billion. Business for the first nine months of the year fell 28%, reflecting a rapid deterioration of their ability to conduct trading and investment banking. Other houses are avoiding doing business with them. Their commercial and residential mortgage paper of $50 billion is probably worth $25 billion, or more. They want to sell 55% of their investment management business, which is deteriorating as markets implode and investors leave the market. If the Fed does not rescue Lehman they are toast.

S&P has re-rated Washington Mutual to negative from stable. Debt market players are now assessing liquidation of WaMu and they believe that on a liquidation basis, best case, that debt holders are covered at slightly more than 60% of the total amount of debt outstanding. This means bankruptcy. Move any accounts you have at WaMu out of there now.

The WSJ reports that 1,082 businesses and some individuals filed for Chapter 11 in August, up 38% from July. The average this year to date has been 745. Goldman Sachs in an effort to preserve capital and reduce exposure is telling hedge fund clients that the terms of current margin-lending agreements will have to be renegotiated when the current credit facilities expire.

Fitch says debt liabilities equal $1.6 trillion, or 11% of GDP, with guarantees of $3.48 trillion, or 48% of GDP after the government takeover of Fannie and Freddie.

 The phony dollar rally will end and only one investment will remain gold and silver. The dollar is way over-bought (over manipulated), and gold and silver are way over-sold (manipulated.) the world is in deep trouble and there is only one place to be and that is in gold and silver related assets.

Ron Paul has rejected John McCain’s appeal for his endorsement. Paul said: “the idea was that he would do less harm than the other candidate.”

Bolivian President Evo Morales ordered the expulsion of the US Ambassador, Philip S. Goldberg, accusing him of fostering divisions in the Andean nation.

The drop in Phoenix home resale prices extended to 16 months in June and is approaching the record of 17 months of decline posted in the early 1990s.

Home prices fell 22.8% from June 2007. It was the fourth monthly double-digit drop.

House prices in Fort Myers, Florida have fallen from $250,000 to $143,000, which means, as I pointed out last month that they might be on the bottom price wise in that area.

An Iraq plan to award six no-bid contracts to Western oil companies has been withdrawn. The companies were Exxon Mobil, Chevron, Shell, Total, BP and several smaller companies. The deals under-mined the efforts of Kurds, Sunnis and Shiites to reach agreement on a hydrocarbon law and a revenue sharing agreement.

Bank of America agreed to buy back $4.5 billion in auction-rate securities from its customers nationwide in a settlement brokered by Massachusetts. They neither admitted or denied the fraud allegations. Its pay the investors and fines and again no one goes to jail.

Saudi Arabia has walked out of OPEC. It said it would not honor the cartel’s production cut. It was tired of the rants of Hugo Chavez of Venezuela and the oil minister of Iran.

Saudi said it would meet the market’s demand. If this situation continues OPEC is dead. You can see the hands of the Illuminists all over this.

Freddie Mac said Thursday the 30-year fixed-rate mortgage average fell from the previous week to 5.93% with an average 0.7 point for the week ending Sept. 11. In the previous period, the average was 6.35%, and the year-ago average was 6.31%. "Interest rates for 30-year fixed-rate mortgages are down almost 0.6 percentage points over the past 4 weeks, which will help to spur home purchases and loan refinancing in coming weeks," said Frank Nothaft, Freddie Mac chief economist. "Lower rates have occurred at an opportune time, as the July pending sales data from the National Association of Realtors were off 3.2% from June. The Mortgage Bankers Association reported that refinance applications are up 18% over the past 3 weeks through Sept. 5, indicating that refinance activity has already begun to pick up."