International Forecaster Weekly

Staggering Deficits In A Depressionary Economy

Depression is now a fact, banks positioning to deal with devaluations of fiat currencies, Digital gold, Washington now under a different sent of elitists, Adjustments postponed mean more difficult times down the road, Foreclosures now soaring, billions for bailouts continue to be dispensed, Time to tax the super wealthy, 

Bob Chapman | March 14, 2009

Our Treasury secretary Timothy Geither on Wednesday warned that the global recession was deepening and urged strong actions by all major nations. That must mean we are in depression.

Federal individual tax payments fell 64% yoy, and withholdings fell 16% yoy. This is a disaster – revenue is totally collapsing. That $2 trillion shortfall fiscal loss for 2009 could be $2.5 to $3 trillion.

We believe the Fed started buying new Treasury instruments directly from the Treasury about four months ago. Recently Fed Chairman Bernanke put us on notice that he was going to use all the tools available to revive economic growth. We believe there will soon be news that the Fed is officially buying US Treasuries from the Treasury.

That means overnight loans between banks will range from zero to 0.25%. The US will almost triple its debt sales this year to over $2.5 trillion. Perhaps next year bonds will be a great short or maybe even later this year.

We are hearing more and more about digital gold as a private-bank solution to potential devaluation of fiat currencies. The May/June issue of the CFR’s, Foreign Affairs magazine, Brenn Steil a senior fellow and director of International Economics, who has been on loan from the parent Royal Institute in London since 1996, says digital gold, “although a niche business at present, gold banking has grown dramatically in recent years in tandem with the dollar’s decline.” Mr. Steil was the Illuminist who drew up the plans for the North American Union and the Amero. If there is digital gold out there somewhere we haven’t heard about it.

The new approach to a world currency obviously will be digital gold. This way they can introduce a one-world currency backed by gold to make it acceptable to the world public. The digital nature means government would know every aspect of your financial life and would control you and your country. The gold storage would, of course, be controlled by the Illuminists. The elitists have come to the conclusion another fiat currency is not going to be acceptable. This is why JP Morgan Chase, Citicorp and Goldman Sachs talk in terms of $2,000 gold and UBS projects $2,500. Historically such benchmarks are usually and normally exceeded by prices from $3,000 to $7,000.

Steil says countries should abandon monetary nationalism and embrace a world currency.

Washington’s latest approach hasn’t worked and the CFR-London Institute approach is in trouble as well.

The Keynesians are beating their chests again in behalf of our elitist superstructure, as to why we shouldn’t raise trade barriers to finally protect workers from foreign competition. They believe trade will play an important part in the world’s recovery. This is the trade at which we lose $2.5 billion a day and that cost American workers more than 6.3 million jobs over the past eight years.

Protectionism has already begun by our friends and allies via subsidies and pushing down the value of their currencies. The US government doesn’t say anything about that because to cheapen currencies the country doing so buys dollars, which are used to buy US Treasuries and the process makes goods cheaper that are shipped into the US, which keeps inflation down.

Russia has already increased import barriers on cars, farm machinery and a host of other products. The EU has reintroduced subsidies on dairy products and Europe, Brazil and India have raised tariffs on imported steel. In England the nationalized banks are giving preference to local loans.

Mr. Obama’s trade representative, Ron Kirk, appears ambivalent about the value of free trade and we understand the Mexican truck program into the US has been scrapped. It looks like the administration will walk away from the South Korean free trade deal because it is unfair. He wants to open a public discourse with the public on whether the trade agreements awaiting ratification, with Colombia, South Korea and Panama, are a good idea. Due to strong labor connections he doesn’t want another round of WTO negotiations.

The days for collective action are really over. China’s exalted trade position is history.

What we are seeing in Washington under a different set of elitists is a continued expansion of the failed policies of the Bush administration. Team A has replaced Team B.

We do not like taxes or higher taxes, but if someone or something has to be taxed it is the wealthy, if for no other reason then they received most of the previous tax breaks. Besides they can afford it.

Our president says he will eliminate the carried interest tax advantages that benefited hedge fund managers, yet in reality there is not much carried interest income left to tax. That means the change he presents is phony.

Both parties are very comfortable with staggering deficits in a depressionary economy. Tax revenues are collapsing and we are monetizing debt, and that is the worst thing possible you can do.

The key to recovery in America is tariffs on goods and services and until that happens there will be no recovery. The system has to be purged of over-valued; misallocated assets and the value of all assets have to be adjusted to reality. The value of the dollar must fall and gold must be allowed to rise to reflect current circumstances. The longer we allow the elitists to postpone their adjustments, the more difficult it will be in the future. The Obama plan has to be stopped now or our society will collapse.

US commercial paper outstanding rose $3.9 billion last week versus a $44.2 billion fall the prior week. Asset backed CP fell $4.9 billion versus $2.0 billion. CP outstanding was $1.484 trillion versus $1.480 trillion. ABCP totaled $717.2 billion versus $722.1 billion. Unsecured financial CP rose $8.2 billion versus a fall of $35.9 billion.

The Fed Flow of Funds report showed household borrowing contracted at a 2% annual rate in the previous period. Home mortgage debt fell at a 1.6% pace, the third consecutive quarter of declines and consumer credit dropped at a 3.2% rate.

During the month, foreclosure filings were 390,631 properties, or one of every 440 US housing units. Nevada, Arizona and California had the highest totals.

State attorneys general are preparing for a surge of prosecutions of financial fraud, and there are hints the Obama administration’s budget will add to the effort.

Today scumbag Madoff went to jail; Fannie Mae requested $30 billion more to keep from collapsing; we found out Merrill Lynch lied to Congress and GE’s credit rating fell to AA+ from AAA. What thieving crooks. Where is the SEC to file charges – nowhere to be found? Didn’t you know they are a political appendage of our government and the elitists?

It seems our government has become a subsidiary of Israel. Charles W. Freeman, Jr. was forced to step away from an appointment to chair the National Intelligence Council, after pro-Israeli lobbying interests smeared Mr. Freeman with a barrage of libelous distortions of his record. The Israeli lobby has veto power over the appointment of people who dispute the wisdom of their views. More proof Zionists run Washington. The result is that the American public is not allowed to discuss, or our government to consider, any option for US policies in the Middle East opposed by the rulers of Zionist Israel.

Freeman previously had referred to Israel’s “high Handed and self-defecting policies stemming from the occupation and settlement of Arab lands, which he called inherently violent.

This forced resignation shows the Israel lobby is even more dangerous, powerful and sinister than had been previously thought to be. This is a mob not an illegal lobby made up primarily of Zionist neocons, aided and abetted by purchased public servants, who have killed freedom of speech. American intelligence is controlled by a foreign power – Israel.

In Italy siding with the government, the Constitutional Court said prosecutors used classified information to build their case and caused that evidence to be thrown out of court. New indictments will be sought by the prosecution in the case of 26 American CIA personnel who kidnapped in an “extraordinary rendition.” ABU Omar was imprisoned for four years, tortured, and eventually released. The court in Italy, like US courts, is a disgrace. There is no justice in either country.

VA affairs Secretary Eric Shinseki has confirmed that the Obama administration is considering a plan to make veterans pay for treatment of service-related injuries with private insurance. We don’t believe the legislation will pass but the very idea that it has even been discussed is an insult to every American. Such legislation would violate a sacred trust. What can these horrible people think up next?

While Americans flock to get food stamps and live in tent cities our Treasury Secretary Tim Geithner has unveiled a sweeping plan to give other nations hundreds of billions of more dollars to bail out economies in crisis in Europe. Europe refuses to act so we are expected to bail out the world. Your children and grandchildren get to pay for it. Our Secretary would make another $100 billion available to the IMF as Japan has recently done plus hundreds of bullions, if not trillions more to bail out the world, at your expense of course. The lead call is for nations to create money and credit of 2% of GDP and to have zero interest rates to stimulate their economies, which will create major inflation.

Geithner wants the G-20 to provide $500 billion in additional loans, as EU finance ministers in Brussels said no this week.

Completed U.S. foreclosures soared 67% in February over January, putting them at their highest since the start of the foreclosure crisis, according to foreclosure-listing service

The surge to 121,756 comes just a month after the firm said foreclosures fell sharply in January, leading to speculation that the market might be seeing a turnaround. It also comes amid rapidly rising unemployment and continued tightness in the credit markets, which makes it tough for consumers to refinance existing loans.

February's increase occurred despite the fact that several major banks along with government mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) have imposed temporary halts on foreclosures.

Pre-foreclosure filings, which are an indicator of future completed foreclosures, jumped 27% to 207,703, beating the previous monthly high from December by 9%.

California, which is considered the epicenter of the housing crisis and has been one of the hardest-hit markets, saw foreclosures soar 67% from January. The total is still down 25% from September, however, when the state's index peaked and state legislature adopted a law to slow foreclosures.

Florida's foreclosures rose 42%, while Arizona's more than doubled. President Alexis McGee said if foreclosures continued unabated, "we could end up with another about 1.2 million homes back in lenders' hands by year-end." She added she was hopeful that President Barack Obama's plan to turn the tide of foreclosures would take hold.

Late last month, government data showed existing-home sales tumbled to a nearly 12-year low in January, as prices took a double-digit drop. That's after sales posted a surprise gain in December.

Treasuries were little changed after the second of three auctions that will raise $63 billion this week as the U.S. borrows unprecedented amounts to restore growth and service record budget deficits.

The government sold $18 billion of 10-year notes at a yield of 3.043 percent, the highest in four months. The yield on the 30-year Treasury bond touched 3.7622 percent, the highest since Nov. 25. The Treasury will auction $11 billion of 30-year bonds tomorrow.

Private equity company Blackstone Group LP (BX.N) CEO Stephen Schwarzman said on Tuesday that up to 45 percent of the world's wealth has been destroyed by the global credit crisis.

"Between 40 and 45 percent of the world's wealth has been destroyed in little less than a year and a half," Schwarzman told an audience at the Japan Society. "This is absolutely unprecedented in our lifetime."

But the U.S. government is committed to the preservation of financial institutions, he said, and will do whatever it takes to restart the economy.

The hard-hit hedge fund industry will shrink back to 2005 levels of around $1 trillion (728 billion pounds) this year as cash-needy investors, rocked by the Bernard Madoff scandal and further performance losses, get a chance to exit.

There is little relief from redemptions in sight for funds as U.S. institutional investors pull out cash to meet commitments to private equity, while portfolios that had locked up investor money last year will shortly see disillusioned investors leave.

"I think we'll have two quarters of significant redemptions," Chris Manser, global head of fund of hedge funds at AXA Investment Managers, told Reuters.

"Because of Madoff and very difficult performance a lot of funds will be receiving high levels of redemptions."

Hedge funds saw outflows of $152 billion, or 9 percent, in the fourth quarter of last year, according to Hedge Fund Research, bringing down total assets in the freewheeling industry to $1.4 trillion at the end of the year after performance deteriorated in the second half.

Since December's redemptions, investors have been able to weigh up full-year numbers, which show a record loss of 19 percent.

The performance rebound some managers were hoping for has failed to materialize -- the average fund is down 0.59 percent in the first two months of the year.

Investors pulled out a total of $11 billion from hedge funds in February as stocks worldwide tumbled amid signs a global recession is deepening.

Redemptions were about a third of the value in January, after the industry lost about $400 billion from its June peak to December through market losses and withdrawals, a preliminary Eurekahedge Pte report showed. The February figures were based on 41 percent of funds that disclosed estimates by March 10 to the Singapore-based research firm.

The Eurekahedge Hedge Fund Index tracking more than 2,000 funds worldwide declined 0.5 percent last month, bringing its year-to-date loss to 0.4 percent. February’s drop compared with a 10 percent slide in the MSCI World Index, which tracks stocks in 23 developed nations.

“It’s only natural that the redemptions are easing after what we saw last year,” said James Fiorillo, managing principal at Tokyo-based investment advisory firm Ottoman Capital Japan. “The fact of the matter is hedge funds have taken a lot of risk off the table now, and that’s why they are slowly starting to outperform.”

The hedge-fund industry shrank more than 20 percent to $1.5 trillion at the end of December from a peak of $1.9 trillion in 2008 as the credit crisis crippled returns, prompting investors to withdraw funds. The global hedge-fund index slid 12 percent last year, the most since Eurekahedge first published the figures in 2000.