International Forecaster Weekly

Intervention Is Prolonging Economic Problems For Years

Banks only saved themselves not the economy, Greece singled out in the credit default crisis, the plan for a deflationary depression, every nation is in trouble, Greece now in a situation to default, banks continue to mislead, the floodgates open for lobbyists and special interests, lending costs climb, net neutrality suffers by a court ruling, Internet downgraded by court ruling

Bob Chapman | April 10, 2010

We have seen the Fed and the US Treasury execute policy that has served to bail out the financial industry that created the conditions that have persisted for more than 2-1/2 years. During that period Wall Street, banking and insurance may have been saved, but nothing has been done to solve the problems of the economy. What has been done has only complicated the problems. That has been the injection of money and credit in the trillions of dollars and the manipulation of markets. Throwing money at the problem does not solve it. As a result of this profligacy, saving financial firms and heaping unpayable debt on American citizens, the Fed has in that endeavor managed to destroy the US dollar. The situation is subtle but nevertheless in process and has been for more than seven years. As Ludwig von Mises said almost 100 years ago, “debauch the currency – engages all the hidden forces of economic law on the side of destruction.” The interference of financial forces has led to today’s carnage in the global financial system. As we explained before this was not by chance, but done deliberately.

Under corporatist fascism the state intervenes in behalf of corporate interests and, of course, the public pays the costs. This is true not only in economic and financial matters, but in war as well. All are methods of controlling the public’s wealth as well as their freedom. government control of the population is the result and in that atmosphere the prosperity and wealth is lost.

If government, the Fed, banking and Wall Street wanted to solve today’s problems they would let the depression run its course as was done in the depression of 1920-21. Let the system chastise those who have stepped out of bounds by allowing bankruptcy. In that time period it only took 18 months for the system to sort itself out. It’s when government and the Fed intervene that depressions last for years.

The intercession we have seen in the past 2-1/2 years is a perfect example of what not to do in a depression. It has been the usurpation of government and those who control government that has caused us to wallow in depression. Even though they created this calamity they have to make sure, above all else, that they survive what they have created. These controllers have taken over the markets and the economy and they could care less what the public thinks. If you do not believe that just look at what went on at the CFTC hearings last week. The CFTC had prior knowledge that JPMorgan Chase was going to rig the silver market. They had all the details and did nothing to stop it. When confronted with the details at the CFTC hearings they just change the subject. The CFTC is a government agency working for the government, not the people. It doesn’t get any more blatant than this. We have contended this since August of 1988 and up until 11 years ago no one would believe us – they do now. This is a cabal of Illuminists and even with the great education and advice von Mises gave us he didn’t understand what these elitists were up too. We find it of interest that only a handful of financial commentators and newsletter writers will bring up the subject of the Illuminati. If you do not understand what the elitists are up too you can never get a clear picture of what this is all about. If you don’t understand you have no control of your fate and you may lose your entire civilization. It is not the power of government we have to challenge, but the power of those who control government.

Recently, the fall in consumer spending from 72% of GDP to 69.5% has forced government to replace that spending. This spending is planned to continue for at least 10 more years at more than $1 trillion a year in excess of revenues.

This reminds us of today’s debt poster child, Greece, which the Illuminists have singled out as the nexus of the looming sovereign debt crisis. Greece is to face austerity as 18 other nations with the same problem are still engaged in economic stimulus and the issuance of money and credit. Little do the other 18 know that it won’t be too long before they will be experiencing the same thing. The welfare state is being transformed into the poverty state. The free ride will be replaced by individual independence and self-reliance. The problem is will our masters allow this?

On thing for sure is that sovereign debt problems are pushing up interest rates for all nations. We cannot be positive, due to Fed secrecy, but this week’s auctions had all the earmarks of Fed intervention, especially in the longer end of the market. We are seeing lower debt ratings and it’s only a matter of time before the UK, US and Japan are cut. None of them are reining in spending. Greece has had to do so, as has Ireland. All these still big spenders will have to cut back, but the question is when? Our guess is next year. By the time this is over all nations will have to cut spending. If they do not their cost of borrowing will increase. Unfortunately this will bring about a deflationary depression.

Greece was chosen as the poster child to bring about deliberate long-term planning to take the world into a deflationary depression. Since December, Greek long-term interest rates have doubled and in that process the euro has fallen from $1.51 to $1.33. That is about 12% in four months. A lower euro is justified, but is a 12% rise in the dollar justified? We do not think so. America and Britain’s problems are dire as well. Interestingly while Greece’s rating was lowered the US debt limit rose to $14.3 trillion to keep the country running until after the November election. It was only six months ago that US T-notes yielded 3.3%. This past week they hit 4%. Last November we predicted 5% by the end of 2010 with a 6-1/4% to 6-1/2% 30-year fixed rate mortgage. Don’t be so smug, every nation that has been and is spending beyond its means will essentially have to devalue and default.

We ask how can it be that higher rates are viewed as a risk premium in Greece and as a sign of recovery in the US? In the end all rates are going higher, because every nation is in trouble. Greece has had a mixed past fiscally and for timely repayment of debt.

Why does the Fed insist on holding the short end rates down if a recovery is in progress? Why are they secretly buying bonds and notes on the long end? We will tell you why, because they know this recovery won’t last unless rates stay low, there is more stimuli and that the Fed increases money and credit – that is why. This is a false recovery – a mirage. The public consumption versus GDP has fallen from 72% to 69.5%, and that gap has been filled by government spending as borne out by a projected $1.8 trillion fiscal deficit for the year ended 9/30/10. The US record of fiscal management is no better than that of the Greeks. As the financial world comes tumbling down America’s Democrats have passed a multi-trillion dollar health plan. What is more irresponsible than that? There are 18 more nations ready to follow Greece and there is no way of reversing that. In Europe, the recovery is failing. Mainstream media is telling us that higher rates are fine. Who is fooling whom? Remember all the king’s horses and men couldn’t put Humpty Dumpty back together again. That is an apt description of sovereign debt today. It will get lots worse before it gets better.

This brings us back to Greece. When we covered the beginnings of the euro zone 10 to 12 years ago we knew, as did everyone in Europe, that both Greece and Italy had fudged their books to enter the zone. The other and more powerful and solvent nations knew neither nation should have been admitted – they simply didn’t qualify, but the other members wanted the business, so they looked the other way. The result is what you see today. Germany doesn’t want to lend money to Greece at 3%, but will at 6.50%, which to us is academic. Either way they will probably never get paid back. That is why Germany and France wanted an IMF solution. That is so they could spread the problem among all the nations of the world when in fact they were in part to blame for letting Greece into the zone in the first place. Now we have another liquidity crisis. Commerzbank, and others, are pulling repos with Greek banks, which is akin to what happened to Bear Stearns and Lehman Brothers. German banks are sellers at the worst possible time. This is starting a cascade of asset liquidation to go along with a deposit run. These lenders do not believe Greece is going to make it. Even if they do Greece won’t be able to meet minimum collateral requirements as put forth by the ECB by the end of the year. By the looks of things Greece will have a budget deficit this year of 12.9% of GDP. The economy has shrunk by 2% year-to-date. This is putting further pressure on bonds even as the Greek government says they will cut the deficit to 8.7% of GDP next year and to 3% by 2012.

There are many in Europe that believe Greece will default. That is because you cannot have growth and austerity simultaneously. Just to stay even Greece needs a 5% budget surplus, which is impossible under the present circumstances and with European recovery failing. That includes a 30% cut in public spending, which is not attainable with massive demonstrations in the streets. Thus, default cannot be avoided.

That brings us to the cold hard facts, and the inevitability of default. The key to destruction was planted some time ago when Greece accepted the solutions of Goldman Sachs, all of which were illegal. They helped the Greek government cook the books in violation of ECB rules. They defrauded lenders and relieved Greek citizens of their tax money.

Greece should default. They should have never been in the euro in the first place. They are in part victims of their own vanity and greed, but on the other hand they are victims of the economic terrorists at Goldman Sachs. Greece doesn’t want the IMF and we don’t blame them. It means economic slavery for the next 20 years, just so creditors can be paid off. Greece is broke and that means they should declare bankruptcy just as so many countries have done before them. Banks should temporarily be nationalized, Greece should leave the euro zone and the drachma should be reissued in exchange for euros. Criminal charges should be brought against Goldman Sachs and the Greek officials that broke the law. That means that the Goldman Sachs’ loans do not get repaid and hopefully that will take Goldman Sachs under. In fact the Greek government should consider throwing Goldman Sachs out of the country except for those who are jailed awaiting their criminal trials.

This will lead to depression for Greece, but they will face that with every other country shortly anyway. This problem is not just one in Greece, but it is worldwide. What we are seeing here is planned demolition of the world economy to force its inhabitants to accept world government. That is what this is all about.

Above all Greece’s citizens should stay calm and not get violent. It is the last thing they want to do. The entire world is soon going to face the same problems. Starting a civil war is the last thing they should do. They can work the problems out, as painful as they are going to be. Violence will only give the enemy the opportunity to subject Greece to further tyranny - the tyranny of the bankers and those who want world government.

There is talk of a coordinated Greek bailout. We can promise you it is only to buy time, so that within a couple of years the world can devalue and default simultaneously. Any arrangement will only be temporary. What Greece and others face is not going to go away anytime soon.

As you know we do not encourage margin accounts and any of you that have them should terminate them. Let us tell you a little trick brokerage houses are using that is illegal. Let us say you have a cash account and a margin account – Let’s say in your margin account you have AEM, GG, MFN and SSRI. When the brokerage firm wants to cover their shorts or lend your stock, they illegally transfer the cash account stock to the margin account. In order to keep them from doing this you close the margin account, because when you sign a margin agreement you allow hypothecation, which allows the lending of stock in that margin account.

Ten-year T-notes rallied from 3.97% to 3.87%, as the $21 billion sale, part of this week’s $82 billion supply, had a bid-to-cover of 3.72 to 1 versus an average of 3.87% at the last ten auctions. Indirect participation, foreign central banks, was 43% versus 40.6%.

February consumer credit fell $11.5 billion, as January figures were revised to $10.6 billion from $5.0 billion.

The Financial Crisis Inquiry Commission head, Robert Bowen, told the panel he and other Citigroup executives were violating the banks own risk management standards starting in 2006. Sixty percent of the mortgages bought and resold were defective and Robert Rubin knew all about it and let it continue.

The taxpayer will absorb at least $14.5 billion in GM/Chrysler pensions obligations via the Pension Benefit Guaranty Corp., PBGC. Inside domestic actuarial assessments were in tooth fairy land. Incidentally, most big company pension plans are under funded by 50%, using 8% to 9% returns as the projected normal return. Wait until the Dow visits 3,000 or 1,000, then you will see the roof blow off. The pension bomb will hit over the next few years.

Our intelligence source inside Fed meetings tells us the Fed is in secret meetings with some of the big builders, who are negotiating contracts to build small bungalows for families that have lost everything. They will join FEMA camps and be one-bedroom, one-bath and a combo kitchen and dining room.

He also said 60% of builders will go broke by yearend. All you who are short the builders that we have recommended you short – stay short. A few select builders will pick up the pieces and then be nationalized. The plan is to nationalize builders, autos, banks, etc. the true decline in housing starts before this is all over will be 90% if you omit government construction.

Initial jobless claims rose last week 18,000 seasonally adjusted to 460,000. The so-called experts expected 435,000. They were way off by 25,000.

The 30-year bond auction bid-to-cover was 2.73 versus an average of 2.55. Demand was considered decent. They sold $13 billion worth at 4.77%. The directs took down a massive 25.48%, close to the record of 29.65%. That tells us the big buyer was the Fed.

Freddie Mac reported the 30-year fixed rate mortgage at 5.21%, some 10 bps lower than the MBA.

Wholesale inventories rose for more than expected to the highest level since 10/08, up 0.6% in February.

Major banks have masked risk through sleight of hand for five quarters - WSJ
Data from the New York Fed shows a group of 18 banks have lowered their debt levels by an average 42% just before reporting it, then allowed the levels to rise as the next quarters get underway. The practice is legal, if misleading. The data only looks at outstanding net repo borrowings, but the article says it evidences the risks institutions take to trade. Though all the banks are called "major," only five are named as being in the data: Goldman Sachs (GS), Morgan Stanley (MS), JPMorgan Chase (JPM), Bank of America (BAC), and Citi (C).

U.S. companies would lose their ability to secretly finance political advertising run by organizations such as the U.S. Chamber of Commerce under a bill being considered by Democratic lawmakers.

The proposed legislation is a response to a Supreme Court ruling that allows corporations to spend unlimited amounts of their own money on political ads. The Jan. 21 decision triggered concern that companies would funnel unprecedented sums of cash into the Chamber’s decades-old system of anonymously funded pro- business campaigns.

President Barack Obama criticized the court opinion in his Jan. 28 State of the Union address, saying it would “open the floodgates for special interests.” The bill, which may be introduced as early as next week, would require nonprofit groups, unions and trade associations including the Chamber to identify who pays for ads designed to sway opinion on candidates for federal office.

“The Chamber is going to end up with at least one very undesirable element: The public is going to know exactly which corporations are the major funders,” said Craig Holman, who handles campaign finance issues for Public Citizen, a Washington group that supports more regulation of political giving.

The nation’s biggest business lobbying group, the Chamber spent $47 million on so-called issue advertising last year, mostly on health-care policy, according to Kandar Media’s Campaign Media Analysis Group in Arlington, Virginia. The Chamber has said it plans to spend $50 million on candidate- focused ads alone this year.

An additional $144 million of Chamber spending went for lobbying last year, more than five times that of the second- largest spender, Exxon Mobil Corp. That spending isn’t affected by the court ruling or proposed legislation.

Apartment rents rose during the first quarter, ending five straight quarters of declines and signaling the worst may be over for the hard hit sector.

Nationally, effective rents, which include concessions such as one month of free rent, rose 0.3% during the quarter compared with a 0.7% decline in the fourth quarter of last year and a 1.1% drop in the first quarter of 2009

Either the WSJ or the BLS is lying or making an error. The BLS has ‘shelter’ down 0.5% in January and unchanged in February and OER unchanged in February and down 0.1% in January. Did ‘rents’ soar in March?

The ‘rent’ story also underscores the difficulty in formulating economic forecasts. The quality of economic data is highly questionable. The data is unreliable, crafted, contradictory, etc. People tabulating economic data or their masters always have agendas but now there is the desperation factor.

Here’s some more contradictory economic evidence: Job Openings in U.S. Decrease to 2.72 Million Job openings in the U.S. fell in February for the first time in three months, a sign employers will be slow to expand staff even as firings subside

Births Drop 2% in U.S. After Peaking in 2007, CDC Report Says

How will the US pay for [my] Baby Boomers’ entitlements in coming decades if the birth rate falls? When there are fewer new entrants in any Ponzi scheme, the scam blows up.

The Treasury’s daily tax data shows that ‘withheld income and employment taxes’ jumped $8.5B in March. Considering that the average US job pays between $40k (per BLS) and $45k (Census Bur), each job contributes about $1000 per month in withheld taxes. Because that would be millions of jobs, some other factor is at work. We believe it is Wall Street bonuses that produced the bulge.

When the monthly statement for March is available, we will be able to discern the composition of withheld taxes. Then we can see how much was job gains and bonuses.

The United States should consider raising taxes to help bring deficits under control and may need to consider a European-style value-added tax, White House adviser Paul Volcker said on Tuesday.

The pension plans at General Motors and Chrysler are underfunded by a total of $17 billion and could fail if the automakers do not return to profitability, according to a government report released Tuesday.

Mortgage applications in the U.S. declined last week as the biggest jump in mortgage rates since June led to a fifth straight drop in refinancing.

The Mortgage Bankers Association's index fell 11 percent in the week ended April 2. The Washington-based group's refinance measure plunged 17 percent, while the purchase gauge rose 0.2 percent.

The average rate on a 30-year fixed mortgage rose to the highest level since August as the economy showed signs of strengthening. The end of a tax credit for homebuyers and rising foreclosures this year represent hurdles to a sustained recovery in housing.

"We're concerned there won't be a lot of underlying demand for housing once the tax credit is gone," Adam York, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said before the report. "It's going to be a long slog."

Today's report showed the average rate on a 30-year fixed mortgage rose to 5.31 percent from 5.04 percent a week earlier, the mortgage bankers group said. At the current 30-year rate, monthly payments for each $100,000 of a loan would be $555.93, up $35.50 from a year earlier, when the rate was 4.73 percent.

The average rate on a 15-year fixed mortgage rose to 4.54 percent from 4.34 percent a week earlier. The rate on a one-year adjustable mortgage climbed to 7.03 percent from 6.88 percent.

Refinancing Share As lending costs climbed, the share of applicants seeking to refinance fell to 58.7 percent, the lowest since August, from 63.2 percent.

The government extended a credit for first-time buyers in November and expanded it to include some current owners. With the credit's deadline looming at the end of this month, contracts to buy existing homes in February rose 8.2 percent, the largest gain since October 2001, the National Association of Realtors said this week.

Earlier reports showed purchases slumped. Sales of existing homes, which track closings, fell in February to the lowest level in eight months, the National Association of Realtors reported March 23. Sales of new homes fell the same month to the lowest level on record, the Commerce Department said March 24.

Google Inc., Skype Technologies SA and companies that have pressed for free flow of Internet traffic suffered a setback when a court ruling undermined the government’s role in overseeing the Web.

In a decision yesterday, the U.S. Court of Appeals for the District of Columbia Circuit said the Federal Communications Commission didn’t have authority to regulate Internet management practices by Comcast Corp., the largest U.S. cable company.

Backed by companies including Google, FCC officials have pushed for rules that bar network owners such as Comcast and AT&T Inc. from limiting Web traffic. Regulators now will have to redouble efforts to assert control over the Internet, said Christopher Libertelli, director of North America government and regulatory affairs for Skype, a provider of calling via the Web.

“We’re trying to set up a framework so that the government has the tools to intervene should they find conduct that harms consumers,” Libertelli said. The decision puts “the Internet, a critical part of American business, into a no-man’s land.”

Comcast’s victory may intensify debate over the role network owners can play in managing information flow over the Web. Companies such as Comcast have said regulators shouldn’t burden them with more rules and that competition will ensure an open Internet. Advocates of so-called net neutrality, including Google, Skype and Inc., say Web service providers can’t be left to favor some kinds of traffic over others.

In the action voided by the court yesterday, the FCC had censured Comcast for blocking subscribers using peer-to-peer software often used to view videos. The FCC decision had been hailed by consumer groups as a step toward keeping Web traffic free of obstruction from corporations.

The downgrade primarily reflects the continued erosion of the city's historically better-than-average willingness and ability to quickly rebalance its budget mid-year. This is a particularly important rating factor for Los Angeles since its balance sheet has typically been relatively weak for the rating level. The downgrade also partly reflects the likelihood that the city's general fund reserves at the end of the current fiscal year could be materially weaker than we had previously expected, now that an expected transfer from the Department of Water & Power may be reduced. The loss of these DWP funds would, at a minimum, make the city's planned rebuilding of its budgetary reserves over the next few years more difficult, if only because it would likely be starting from a weaker position. Given the likely difficulty in rebuilding reserves according to the city's three-year plan--particularly in the current economic environment--our rating outlook for the city's general obligation and general fund ratings remains negative. The current long-term ratings and outlook also reflect our expectation that the city's near-term, general fund liquidity challenges will be addressed in a timely fashion, most likely with a transfer from the city's general fund budget reserve, currently estimated at $199 million. While we believe it highly unlikely that the city would fail to take the necessary steps to shore up its general fund liquidity, failure to do so would put significant downward pressure on the rating.

Rising demand and reduced supply drove supermarket prices for 16 basic foods up 6.2 percent in the first quarter, led by gains in staples such as cheese, vegetable oil and eggs, the American Farm Bureau Federation said. The average cost of the items for a typical consumer each week rose to $45.54 from $42.90 in the fourth quarter of 2009, the group said today in a report, citing an informal survey.

The BLS has food prices up 0.2% in January and 0.1% in February. So if the BLS doesn’t show a huge increase in food prices for March, either the BLS or the American Farm Bureau Federation is in error or lying.

February consumer credit tanked $11.5B; -$0.7B was expected. January was revised to $11.5B from $5B. Federal credit, mostly student loans jumped $14B in January. Ergo ex-student loans, Jan was down.

For 2008, an estimated 46.7% of US households paid no federal income tax. Given the millions of job losses and lower income due to part-time or wage cuts, the number should be closer to 50%.