International Forecaster Weekly

Sociopathic Economics, Denial, and the Weakening Dollar

Caligula Bush still in denial about the R word, sociopaths running the economy, the disconnect between news and reality, puffed up markets, fairy tales, three times the jail term for USA

Bob Chapman | April 26, 2008

Caligula remains in denial as the barbarians storm the gates of Rome. Perhaps he actually even believes some of the tripe emanating from the fane-stream media and pundits as well as from the Bureau of Lying (Labor) Statistics. While even the Fed Chairman has at least had the chutzpah to use the dreaded "R" word, Caligula can only characterize our current financial catastrophe as an "economic slowdown." We'd say that's a pretty good candidate for the understatement of the century! Our economy is in a total shambles, hanging on by a thread, while our peerless leader claims we are undergoing an "economic slowdown." He is joined by the rest of his fellow reprobates in our government, in the fane-stream media and on Wall Street who collectively and continually lie and cajole at the behest of their Illuminist masters.

They claim that a strong dollar is in our best interest while they destroy the dollar. They claim inflation is 4%, when it is over 12%. They claim unemployment is 5% when it is 14%. They claim we lost 80,000 jobs last month when most likely we lost over 300,000. They claim our economy is turning around as consumer confidence drops to the lows of the early 1980's and in light of the fact that 70% of our tanking economy is driven by consumer spending. They make it look like the big banks and financial institutions are being bailed out by the Fed when it is really the taxpayers doing the bailing through HUD, FHLB, Fannie, Freddie and hyperinflation. They say banks are starting to show signs of recovery even as their insolvency deepens due to the ongoing destruction of a mountain of quivering derivatives as foreclosures accelerate, as real estate prices plummet, as maniacal bets are unwound and as the bear market in bonds gets underway because rate cuts appear to be subsiding for a short while, at least until the next debacle hits. The old "we're in it for the long term" is being bandied about again by the media morons (aka commentators) to keep the dupes in so the Illuminati can bail out at the top through their dark pools of liquidity while everyone else is left holding the bag.

Our government officials as well as banking and corporate leaders have created a culture permeated with pathological liars and sociopaths. They subscribe to the same situational ethics, which they are teaching to our children so they can grow up to be miscreants like them. Some of them may even believe their own lies, being unable to separate truth from fiction anymore because the lying has been so rampant and pervasive. Some have probably even forgotten what the real truth is, having not entertained it or even thought about it for decades. And who can blame the ones who have, for the real truth is nothing less than terrifying. Their plans call for the depopulation of five billion people by starvation, disease and who knows what else, the destruction of western economies and the beggaring and serfdom of the citizens of the US, Canada and Western Europe, all with the whimsical hope that we can all dance around the One World maypole together some day before they haul us all off to internment camps.

The disconnect that has occurred between what we are told and what we actually experience must be leaving uninformed non-subscribers in a surreal state, where they can no longer reconcile what their eyes see with what their ears hear. You have two choices. You can become a subscriber to the IF, or you can enter "The Twilight Zone."

We thought we would have a little calculation fun in this issue to show you the devastating effects of inflation along with the deflation of real estate. If these calculations do not get you motivated to institute some change, nothing will.

Let's say your a millionaire in the year 2000 when you decide to retire. You have exactly 1 million dollars set aside for your retirement. Assume that on average you invest it conservatively outside of precious metals and commodities at a very generous 5% return after taxes from the beginning of 2000 to the end of 2011. According to Shadowstats, inflation has averaged around 9% from 2000 to 2007, and we expect it to average about 15% for the period 2008 to 2011, which is extremely conservative considering that actual GDP, as opposed to official GDP, is a negative 2% to 3% or so, while M3 is running between 17% and 18%, giving us an inflation spread of about 20% that will soon manifest itself in 2009 and beyond. Even current inflation is already over 12%. So let's see how much money you have left in dollars based on the dollar's buying power in the year 2000 when you get to the year 2011. Some simple math shows that in the year 2011 you would have $1,795,856 in 2011 dollars, but the buying power equivalent in year 2000 dollars would only be a very disappointing $515,309. You're no longer a millionaire by year 2000 standards. In fact, your buying power has been cut in half! And if inflation is not stopped at some point, it will only get worse! Had you only managed a 2% after tax return instead of 5%, you would have $1,268,242 dollars in 2011 dollars, but your buying power in year 2000 dollars is reduced to a stinking $363,913, or about a third of what you started with! Now let's throw in the withdrawals you had to make and the taxes you had to pay along the way, and any thoughts you might have concerning your upcoming retirement get downright depressing. Then try to imagine how you would feel if your original kitty was only $200,000, or $100,000 or, like most people, a measly $50,000 or less. Then you get pauperized! Do you still think consumer spending is going to recover when seniors are beggared? Will unemployment improve when seniors are forced to keep their jobs or face starvation? How will we make room for the next generation when few can afford to retire? What will happen when the tens of trillions in Social Security and Medicare entitlements come due for the baby boomers and cannot be paid by our profligate government?

Now let's take an example of what happens to the most valuable asset of most Americans --- their home. Assume that you bought a house for cash in the beginning of the year 2000 for $500,000 and that its value peaked at the end of 2006 at exactly $1,000,000, a very generous doubling in value for one of the hotter areas. The assumptions about inflation are the same as in our first example. At the end of 2006, you have made a nice 10.4% annual return, keeping you just ahead of inflation. There is only one problem. The value of $1,000,000 is based on a real estate bubble propagated by rampant fraud and speculation. Now watch what happens to your position as the real estate speculation that has been driving the markets unwinds and the Fed's policies send us into hyperinflation. Note that up until the time the value of your home had peaked all you have managed to do is maintain the buying power of your home's dollar value, so you have made little progress. Now, because you were in one of the hotter areas, you get a 40% haircut by the time the market bottoms at the end of 2011. Where will you be then? Well, in nominal dollars, your house is worth $600,000, so it looks like you are still ahead, right? WRONG! In order for you to have the $500,000 in buying power that you had in the year 2000, you would have to have $1,742,502 at the end of 2011! Your $600,000 in 2011 dollars is worth only $172,166 in year 2000 dollars! Now let's throw in 12 years worth of maintenance to keep up the value of your home and pile on 12 years of interest on a jumbo mortgage as well as real estate taxes, and you've lost your freaking shirt! So much for the big ATM trimmed with shrubs and shutters that we used to call "the place where we live!"

To support the stay-puffed marshmallow Dow and other general stock indices, the cretins on Wall Street have alternately weakened the yen against the dollar and the euro, but not against both since that would send gold and silver on a rampage. They have maintained their margin of market-crashing power against the upcoming precious metals rally, and rattled their sabers to keep oil well bid so they can crash oil along with the general stock markets when the flow of money out of treasury and corporate bonds ignites the upcoming metals rally. Yen-hits on the general stock markets will take the yen once again to sub-100 levels against the dollar and oil could be pounded to sub-100 levels also. Large specs which do not prepare for these obvious PPT manipulations deserve to get slaughtered. Raucous physical demand will overcome all PPT manipulations. The Fed meeting on April 30 will most likely produce the expected .25% cut in the funds rate, so it will be a nonevent. Perhaps the Fed will leave the discount rate unchanged to increase their spread to .5%. With all the toxic waste it is receiving in return for treasury securities, they need all the help they can get. Money is now flowing out of bonds as rate cuts decelerate, at least for the time being, and a lot of the money is flowing into oil and natural gas while the PPT keeps the general stock markets from crashing and the fane-stream media takes us into Wonderland to meet Alice, and then to the house of the Three Bears to meet Goldilocks and her three fury friends. Note the theme on fairytales, which is all we get from the boneheads in our government, in the media and on Wall Street. The precious metals and their related stocks look to have reached a bottom or are very close to doing so. Gold held again at 876-877, a possible double bottom, and the resource shares rallied on Friday after being mercilessly pounded the rest of the week, also a bullish signal. COMEX open interest remains low, allowing for plenty of upward mobility. Liquidity is now high as bonds are abandoned. You will soon see a switch out of oil and natural gas into the metals sector, and especially into gold and silver. Large specs who do not take advantage of the leverage potential in the juniors deserve to go bankrupt and die from a severe case of terminal stupidity. Run up the juniors, then the physical metals, until you take over ownership of the casinos. Then you can move safely into futures and clean up. Make your own rules. Do not play by theirs.

Bank of America will stop making or significantly curtailing several types of mortgages. They will halt making option adjustable-rate mortgages, drastically cut back on low-documentation loans and limit prepayment penalties. Countrywide, which Bank of America took over was the leading lender of option ARMs, which are ARMs that allow the borrower to choose from among several payment plans each month, sometimes paying so little that loan balances rise rather than fall. As far as no-documentation loans are concerned, they will no longer be written. Borrowers will be forced to verify income and assets. They are also talking about voiding prepayment penalties. It will be lots of years before Bank of America works itself out of what it has inherited.

Last week mortgage applications fell to the lowest level in four months, declining 14.2%. The MBA Purchase Index fell 6.4% and its refi gauge fell 20.2%. Refi’s dropped to 49.2% from 53.5% of total applications. The 30-year fixed rate mortgage jumped to 6.04% from 5.74%. The 15’s rose to 5.6% from5.27% and the one-year ARMs fell to 6.93% from 7.02%.

John Dugan, who oversees 1,700 national banks as comptroller of the currency said, bank failures could rise above historical norms - between 1987 and 1992 several hundred banks went under.

Ambac Financial Group the bond insurer lost 93% of its stock value this past year, posted a wider loss than analysts estimated after $3.1 billion in charges for subprime-mortgage securities.

America has less than 5% of the world’s population, but it has almost a quarter of the world’s prisoners. The US courts put as many people as possible in jail. There is a multitude of so-called felonies that wouldn’t even warrant jail in most nations. Putting people in jail has proven not to be the answer.

Criminologists and legal scholars in other industrialized first-world nations say they are mystified and appalled by the number and the length of American prison sentences. The US has 2.3 million people behind bars, which is plain stupid. China has four times as many people as the US and has 1.6 million in jail. The US has 751 people in jail for every 100,000 in the population and if you only count adults, it is one in 100. Russia has 627 per 100,000; England 151; Germany 88 and Japan 63. The median is 125, about a sixth of the American rate.

America has an extraordinary incarceration rate: higher levels of violent crime, harsher sentencing law, racial turmoil, a special fervor in combating illegal drugs and lack of a social safety net. People want tough justice and judges oblige. The gap between American justice and the rest of the world is enormous and growing. In America 500,000 people are in jail on drug-related offenses. Sentences are usually triple in the US what they are in England and Canada. America has a highly politicized criminal justice system and for America it works. Longer sentences mean criminals are among the public less and that reduces crime.

In a bombshell disclosure before testimony began in the Antoin “Tony” Rezko trial, a federal prosecutor said a former Rezko confident was prepared to testify that another friend of Rezko was trying to pull strings with While House political director Karl Rove to fire US Attorney Patrick Fitzgerald and kill his investigation into Rezko. This case has a long way to go.

Former President Jimmy Carter has accused Secretary of State Condi Rice of not telling the truth about warnings she said her department gave Carter not to speak to Hamas before his Middle East trip. Carter calls the Gaza blockade a crime and atrocity.