International Forecaster Weekly

Return To The Draft

Return to the draft... the end of Social Security... Child slave labor at Wal-Mart... the end to class-action suits... RFID and DNA to identify every citizen... Review of some of our Forecasts... Fascism under the pretext of fighting terrorism... ides of March... Pentagon Comptroller Dov Zakheim resigns, unable to find 1 trillion... robot warriors, bringing back the nukes, and more....

Bob Chapman | February 21, 2005

According to an internal Selective Service memo made public under the Freedom of Information Act, the agency’s director met with two of Defense Secretary Rumsfeld’s undersecretaries in February 2003, precisely to debate, discuss and ponder a return to the draft. It did not point to a general draft at that time, but of a possible draft of men and women with certain special skills such as, medical personnel, linguists, computer network engineers, etc. We may have a magnificent force but the Army and Marines are perilously over extended. Unfortunately, the volunteer foundation is beginning to crack. Half of our frontline fighting force is composed of “weekend warriors” from the Reserve and National Guard of which 100,000 enlistments have been involuntarily extended. Young reserve officers and enlisted men are retiring in droves. In order to get reenlistments they are offering anyone $30,000 to reenlist. Our military is maxed out in a war and occupation that has dragged on for two years. We are called conspiracy mongers because we report the truth. The elitists will supply us with another event and we will have a draft to meet the needs of our Middle East quagmire or to staff our internal Gestapo Fatherland Security. Men and women 18 to 34 are being lined up as future cannon fodder.

As we told you last week, little had changed except overall things were worse. That is why at $410 to $414 gold and at $127.5 on the euro that the correction has run its course. We were correct. The Dow was up 1% last week on generally lousy news. The AP/ISOS poll consumer confidence was a disaster. Our President wants to destroy Social Security. He lies about reducing the budget deficit and the state of the war. Spending is increasing not falling. The thing that will fall in 2005 is corporate earnings as inflation rises. A $66 billion increase in M3 in just three weeks is very large as bank and real estate lending goes bananas. Foreigners and foreign central banks continue to cut back on purchasing US assets. When will they start selling? We even have to ask the Europeans not to raise interest rates to buy Treasury paper and support the dollar. The Chinese are being extorted to revalue the yen or we will hit them with 27.5% tariffs. These are not good omens as we approach the “ides of March.” It is not good and could get lots worse. Our government has no solutions. All they and the Fed do is spend and create liquidity in a world awash in debt and liquidity. The UK and Australia have inverted yield curves, which portend inflation and recession. We are only 0.78% away. Short rates are rising and long rates have been falling. Over the past 18 months, the spread between two and ten year yields have relentlessly been closing. The platitudes of the administration and the Fed are starting to fall on deaf ears and before the year is out things will be a lot more difficult. We expect soon that gold and silver will return to test their recent highs and move higher. The game is only getting underway.

Wal-Mart will pay a $135,540 fine to settle federal charges that it used 24 children in Connecticut, Arkansas and New Hampshire, who operated 18 dangerous machines. Our interpretation is slave labor. In 3/2000, Wal-Mart was fined $205,650 for using child labor in Maine.

Handing Mr. Bush another legislative victory, the Senate overwhelmingly approved a measure that would sharply limit the ability of people to file class-action lawsuits against companies. Adopted 72 to 26 it now goes to the House. The measure would prohibit state courts from hearing many kinds of cases they now consider, transferring them to federal courts. The measure would affect pending cases. The measure has been attacked by civil rights organizations, labor groups, consumer organizations, many state prosecutors and environmental groups, who say it, will sharply curtail cases and provide new protections for unscrupulous companies. Many federal and state judges have criticized the bill, saying it would strip states of an important role in judging such contest and it will add a considerable number of cases to already overburdened federal dockets.

We believe we could be drawing close to a time when we will have another terrorist event in one of our major cities. Of course, the Iranians will be blamed for the event and it will be used as the excuse to implement a new Selective Service Draft. A draft for men and women with no exemptions.

The new American police state is taking form in a law that will require all citizens to possess electronic identification cards in order for them to travel or to conduct affairs with government officials. The issue will force states to issue all adults federally approved electronic ID cards, including driver’s licenses. Federal employees will refuse identification that does not comply, curbing use of airplanes, trains, national parks and any area controlled by the federal government. The House approved the bill HR418 by a 261-161 vote. This compares very favorable with Nazi Germany in the 1930s, extreme control over US citizens at home and abroad, a police state. Next, they will demand parents relinquish rights over their children to the state along, of course, with RFID tags.

Earlier we predicted five years from now Michigan, Ohio, Indiana, Quebec and Ontario would be former vehicle producers. One of the reasons that will happen is because Chinese carmakers are planning on flooding our auto market with low cost vehicles in the future. More than 50% of our industrial base has been shipped overseas over the past 20 years and now the backbone of America’s industrial economy is in the process of being destroyed. In two years, we will begin to see the flood of exported Chinese cars, an event similar to the Japanese car invasion that began 30 years ago. We cannot compete with slave wages. We were able to keep our high standard of living with trade barriers and tariffs and if we do not return to them we will have no way of life left. Do not forget China is still a Marxist state and the Chinese still do not honor patent rights. The companies that are owned by the Chinese government will be dumping cheap cars in our country. In just seven years, beginning in 2007, 250,000 autos will hit our market. That is as many as Daimler-Chrysler produces. In 2010, the Chinese plan to sell one million cars in eight to twelve models, which would make their market presence larger than Fords 2000 production. You do not need a road map to see where this is going. It will just about wipe out American industry as we have known it. Readers, this is where free trade and globalization is taking us. If we do not stop it, our nation is doomed.

Dov Zakheim resigned as Pentagon Comptroller and CEO after he was unable to find $1 trillion, but as usual, our media has overlooked the incident. This while the IRS duns poor Americans for $152.80. The GAO says the Defense Inventory System cannot find 56 planes, 32 tanks and 36 Javelin missile command launch units. Zakheim is a longtime Bush associate.

In Medicare, Bush outspent Lyndon Johnson by adding a $1.2 trillion to our debt via subsidized prescription drugs. Thus, Bush has spent more on armaments, education and health care than any liberal within memory has. The man has plunged us further into debt than any President in history.

We are headed toward a financial train wreck on a totally unsustainable policy that is calculated to bring our country financially and economically to its knees and deliver us into a second world status.

One hundred eighty-two billion dollars was removed from Social Security last year, which means the real debt was $609 billion not $427 billion. It should also be noted that China bought $200 billion in US Treasuries last year, which means they funded almost 50% of the US budget deficit. The minute China, and for that matter Japan, stop buying, the Fed will have to buy the government debt - those Treasury notes will cause immediate monetization, higher inflation and higher interest rates. The Fed, the Federal Reserve banks and the commercial banks are the buyers of last resort. The recession that follows will affect the entire world, as will the collapse of the dollar. Japan has effectively stopped buying Treasury paper since 3/04. China is the buyer of last resort.

We could be witnessing 1994 all over again. In 1994, we projected an 8-3/8% 30-year bond. We hit the nail on the head and our prediction of bonds getting killed was right on. That was accompanied by a ten-year note yield of 7.75%. Back then Sir Alan Greenspan was raising rates in the face of inflationary pressures but as he did that, he also drove Fed credit and reserves up by double-digit amounts. We believe he will do the same thing again. If we are correct, long-term rates will move higher ahead of short-term rates. That has been the way it has been since 1950. The best comparison we have is between now and the 1930s. That is if we have a higher curve. We have now, as then, a corporate predisposition to hold cash and eschew capex and hiring. We have three added factors today, colossal debt far beyond anything experienced in the 1930s; outsourcing, which is something that did not exist in the 1930s and which happens to be deflationary and a collapsing dollar. The dollar was under pressure in the 1930s and that is why FDR illegally confiscated gold. He was paying off America’s debts. The markets still believe the Greenspan put is still in operation. He is phasing it out and he has told the professionals just that. Unwind those carry trades. We can expect interest rates at least another 1% higher this year and at the same time see M3 rising over 10-12%. The higher rates are needed to protect the dollar and keep it from breaking 80 on the dollar index and the increase in aggregates will be needed to stop a consumer debt contraction. If they do not do both simultaneously, yes and one offsets the effect of the other, and delays facing the problem then we will have debt contraction and recession/depression. Thus, in spite of higher rates we will have higher inflation via more excess liquidity, only this time we will not get a repeat of 1995-6 because the economy is already over extended beyond what can be controlled. Needless to say, gold and silver will move higher. Sir Alan leaves the Fed in 2/06, after that the deluge.

It is the opinion of the United Nations that even though the US Senate has not ratified the Kyoto Treaty it is binding on the US since it is the will of the world body. The UN, regardless of non-ratification, believes the Treaty is in force. If the US government agrees to this, it is treason as explained under the Constitution.

California Governor Arnold Schwarzenegger fired all the state pension board trustees’ members who voted against his proposed scrapping of the pensions and their replacement by 401(k)’s to which the state would contribute very little. In the process, he called nurses, teachers and legislators punks, as he collected $100,000 each from elitist financial, business and legal fixers in the state. The money will be used to finance referendum campaigns to scrap the pension plans, cut teachers pay, put automatic cuts in the state budget, year after year, and take legislative redistricting out of the hands of the legislative. Such referendums in a Democrat state could cost California’s 20 Republican federal representatives their seats. Believe us, they are really concerned. They believe Arnold has, in a short time, gone many steps too far.

AIG has received subpoenas from NYAG Eliot Spitzer and the SEC relating to policies sold that helped smooth corporate earnings. AIG is run by the Maurice Greenberg crime family.

The leader of the Pentagon’s new espionage unit Col. George Waldroup has abruptly resigned. This Strategic Support Branch has enormous potential for misuse especially if Congress is cut out.

Budget numbers presented by President Bush show a budgetary land mine that will blow up right after the next presidential election. The real massive financial commitments will rise dramatically after Mr. Bush leaves office. If passed, the privatization of Social Security would cost $79.5 billion in the last two Bush budgets but over the following five years, the committed cost would be $135 billion a year a total of $675 billion. These are the members behind the smoke and mirrors.

We cannot make up our minds. We do not know whether today’s Washington is more like 1905, a great year for assassination or 1924 in Munich. This past week, the Sunni leader in Beirut was very professionally assassinated. The question is was it the CIA, Mossad, both or a private contractor who works for one or both of them. What a great world we live in.

Well-known Civil Rights Defense Attorney, Lynne Stewart, has become the latest victim of the Bush administration’s assault on human rights as we descend into the depths of dictatorship via the torture chambers of Abu Ghraib and Guantanamo and internally via the Patriot Acts. Ms. Stewart was targeted by former Attorney General John Ashcroft, because of her determined defense of Muslim Cleric Omar Abdel Rahman, and because of her long career of defending the civil rights of Americans. This is part of a pattern of illegal detentions, denial of access to attorneys and torture. The administration claims the right to incarcerate anyone without notifying them of the charges against them, all under the pretext of fighting terrorism.

Now the administration wants to make it a crime to offer legal assistance to anyone targeted by them.

It is imperative we fight back against this obvious attempt of the US government to silence dissent and install fear in those who would challenge the government and its lies and unconstitutional behavior. We urge you to contact your elected representatives and give them an earful.

The end of the housing bubble could mean substantial losses in home value for millions of Americans says Housing prices, adjusted for inflation, are up 36% since 1995 the steepest boom in at least 50 years. As interest rates rise, some buyers who stretched their purchasing power with adjustable rate loans and interest only mortgages could face financial problems. They see trouble ahead.

New construction on US houses unexpectedly rose by 4.7% to an annual rate of 2.159 million the highest in 21 years. Building permits rose 1.7%. The South showed the largest gains up 18.8%, the West was flat and the Northeast fell 23.9%, they also fell 12.5% in the Midwest.

We will soon have robot soldiers, perhaps within ten years. The military plans to invest tens of billions of dollars in automated armed forces. The costs of that transformation will help drive the Defense Department’s budget up 20%, from $419.3 billion to $502.3 billion in 2010, excluding the cost of war. The annual costs of buying new weapons, is scheduled to rise 52%, from $78 to $118 billion. Robots could possibly save many lives but can we afford them with our debt.

Next week Mr. Bush will have a showdown with Senate Democrats by re-nominating 20 failed judicial nominees, many of whom have been denounced by critics as right-wing extremists. The Republicans even want to change the Senate rules to prevent anymore procedural hurdles known as filibusters against judicial nominees. Only 51 votes are needed to change the rules of the total 100 votes. You would think Bush would have submitted a compromise, but he is too arrogant to do that.

American Funds, the biggest seller of mutual funds, violated securities regulations for three years by illegally paying brokerage firms $100 million in kickbacks in exchange for the brokerage firms pushing their funds. The fines will be paid and of course, no one goes to jail.

Our Energy Secretary Samuel Bodman has said the Nevada nuclear Test site’s ability to resume actual underground warhead detonations must be enhanced. This, in spite of the fact that downwind in Utah since the 1950s thousands have been scourged with disease and death due to radioactive fallout. Bodman has appeared before the Senate Armed Services Committee requesting $2 billion in the next fiscal year for the nuclear weapons stockpile stewardship program, which verifies that America’s aging atomic arsenal remains operational. What they are also doing is computer simulation or potential bunker busters, which were used in Afghanistan.