International Forecaster Weekly

The Fed Has Even More Tricks Up Its Sleeve

Jackson Hole meeting was a failure, Bernanke the failure, The Fed is on its own plan, a deliberate witholding of funds, a sign of inflation to come, an unleashing of funds to come, elitists desperate for distractions, Fed to blame for its own problems, warnings of stagnation amid restructurings.

Bob Chapman | September 10, 2011

Many people believe the Jackson Hole was a non-event, a failure and it was. QE 3 was not announced, as we predicted. We believe that was being saved for mid-September when the $300 billion rollover in Treasury securities is completed. Mr. Bernanke has failed in a number of respects, the most glaring being zero interest rates for 2-years and no housing recovery. Even purchasing $1.3 trillion in toxic mortgages has only helped the banks. We still do not know what the Fed paid and what these bonds are worth. No matter what happens the Fed has to again purchase about $900 billion more Treasuries this new upcoming fiscal year. There is no way to avoid that and if they have to buy Agencies and more toxic bonds the figures will be higher. Auction failures cannot be tolerated. This will, of course, increase inflation in 2013 and 2014. Sales to consumers and profits will fall as a result.

Not so fast, the Fed still has more monetary ammunition most people haven’t thought about and it lying on its books. It is the funds that belong to member banks, some $2 trillion that banks have been refusing to put to work. We mentioned the beginning of the movement of these funds from the Fed to the banks just recently. Will this persist? We do not know, but we think it will. It is a natural answer to the funding problem, they perhaps had been deliberately held in abeyance. We believe this could in part solve the liquidity problem over the next year or more. The Fed has sent the word out to the banks. It is time to employ our secret weapon. As a result in July and August we saw what is tantamount to monetary stimulus, and do not forget this is monetization, money that has not as yet flowed into the system. That means its usage will be inflationary.

Heretofore, these funds were deliberately withheld from the system to be used at the perfect time. There were plenty of borrowers, but the banks did not lend, because they were told to wait for the right moment. The unleashing of these funds leveraged into the fractional banking system will cause damage and inflation, but they will provide temporary assistance to a failing economy. The Fed also needed some relief as their balance sheet grew close to 25%. The combination of Fed spending for treasuries, bank lending and perhaps some government spending, should reinvigorate the economy temporarily over the next year. Unemployment should decline slightly and consumption and personal debt should grow. We think Mr. Bernanke’s plan will fall far short, because like in the 1930s too much structural damage has taken place. Demand for goods and services will grow, but not as much as anticipated and as long as desired. This unfortunately leads to disruption within the system for no other reason than the previous systemic damage visited upon the economy. We are about to see a respite but not a permanent solution. America is headed for 2nd or 3rd world status and the Fed is trying to get us there as soon as possible.

If you really want to understand how desperate the elitists are you have to take notice of their control of the US media. Every time they can a big deal is made out of every happening, such as the recent tropical storm, Irene, or the BP disaster, or anything to shift attention away from the dreadful state of the economy, unemployment, CPI or anything financially negative. In NYC, Irene, gave Mayor Bloomberg the excuse to make NYC look like a nuclear attack was underway. He ordered the evacuation of NYC, closes off transportation when he knows few New Yorkers have cars. This is how desperate the elitists are. Any distraction is used to take people’s eyes off the real problem. The Bloomberg theatrics were beyond the stage. He threatened to jail anyone who did not heed his dictates. What a meathead. He should have stayed in Medford, MA, where my mother lived near his family in the Lawrence Estates. This shows you how far the elitists will go and how ridiculous they appear, just to use their power. At the end of the farce, the coast had rain and high winds. The interior suffered more. Irene was essentially a phony scare – on a par with their phony financial and economic remedies.

As the corporatist fascist model comes more into play and becomes more obvious Americans are going to take orders from a more progressively authoritarian government that will eventually become dictatorial. These bubbleheads will overact all the way, because their power base is rooted in Wall Street and banking. They use the same concept with these events as they do with the idiotic terrorist threat. The people in political authority in America are control freaks. They are all dummies and they know it, and they’ll be the first ones thrown by the elitist to the wolves. They are a ridiculous tragedy.

The elitists do not care who gets elected the next president. They own them all except Dr. Ron Paul. We are told that to win the presidency one needs $1 billion. This is incredible and it proves why we need a change in campaign laws to harness the power of all those behind the scenes that buy our elected members. No member of Congress votes the way they want too. As soon as elected they are raising funds for reelection and in that process sell their souls.

One of the interesting factoids we have come across is the accounting for the US dollars loss of purchasing power due to inflation over the period of the last 2 years; half of the men aged 30 to 50 years saw wages fall 27%. Today only 63.5% of men actually have a job of any kind. This is the second lowest figure since 1948. The members of that era now shortly are going to be asked to have their retirement cut, which they paid for, to supply the military industrial complex with more money for more wars. As it turns out the Illuminists and their purchased politicians have sold Americans out for the past 100 years.

Mr. Bernanke at the Fed has indicated that the culprit in this financial mess is none other than the US government. He is right in part, but the Fed has caused 90% of these problems. The Fed should have long ago been reabsorbed into the Treasury, especially after observing its performance over the past few years. The lying about what they had been doing in lending something close to $20 trillion and keeping it a secret. Not to be outdone, both the US dollar and the Euro are in serious trouble and both have to find new lower levels. Versus gold and silver, they are both off annually more than 20% versus gold and silver. We expect those performances over time will worsen. In the case of the euro we have to see what is accomplished with Germany and the loans to failing countries. No matter what the outcome both the Fed and the ECB will continue to create money and credit one way or another and in that process achieve little except a temporary solution and substantially more inflation. In Europe, interest rates are 1.5%; in the US they are zero. What does one do for an encore? Very simply, both the dollar and the euro are in a box and cannot get out. If it’s not QE 3 and stimulus 3 at least for the time being it is the banks lending money that was lent to them two years ago by the Fed. All of the Fed’s and ECB’ policies do not work. We know that already. Those who believe that the Fed and the EB don’t know what they are doing are wrong. Both central banks know exactly what they are doing. That is creating a framework for the financial and economic destruction of economies of the US, UK and Europe in order to bring about a New World Order. In order to not allow the system to fail can never heal itself. Insolvent banks were legally allowed to carry two sets of books with the approval of the US government, the Bank for International Settlements, the BIS, and the accounting rules group FASB. What is very important to realize here is that some of these banks that are insolvent own the Fed. As a result they tell the Fed how much money and credit they need, and as a result they flow to the banks in unlimited amounts. This has to end. Banks are holding assets that have little or no value. They hold 3.5 million foreclosed homes in inventory and over the next five years that number will be 8 to 10 million homes worth 20% to 30% less than they are worth today. Yes, the FDIC would cease to insure and government will do what it did in the 1930s, allow you to withdraw only 5% of your balance at a time. Your deposits would essentially be lost perhaps temporarily or maybe permanently. Now you can better realize how really dire the situation is.

Supposedly everyone dislikes the debt extension bill and this is the reason Congress went along with the concept of a “Super Congress.” They do not want to be responsible for its passage. The debt limit will go to $16.7 trillion and there are to be almost $1 trillion in budget cuts. The second stage of cuts would be $1.4 trillion. The cuts over 10 years are only $240 billion a year. These cuts are a drop in the bucket compared to a $1.7 billion annual budget deficit. It will be interesting to see if the second stage includes tax increases. Both parties are failing to understand the country is bankrupt. These small changes are not going to change anything. The endless debate will eventually lead to default and the method of doing so. For two years we have witnessed a fall in purchasing due to the unofficial inflation of 11.2%, and as a result of QE and stimulus 1. We projected 14% by the end of the year last November. Of course, Americans will be interested to see what the Super Congress decides by November. Watchful observes know the debt extension debate could have been solved in 15 minutes. The real goal was to gut Social Security and Medicare and to set up the 2011 Enabling Act patterned on the 1933 Enabling Act in Germany that made Adolph Hitler dictator.

As unemployment unofficially stands at 22.6% American corporate profits account for a larger share of GDP than at any time in the past 60 years. Over the past three years of financial and economic crisis personal incomes fell $270 billion. Record corporate profits have generally happened due to massive layoffs. Employees make up about 70% of costs, so they are the first thing cut. As a result the profits account for the largest share of GDP since 1950, or 12.5%. Wages and salaries are the smallest since 1955, or 55%. Unfortunately, Americans do not read publications such as the International Forecaster, so they do not understand what has been done to them.

No matter how you look at it quantitative easing is a bailout of the financial sector. That even applies to the Fed’s purchase of Treasury, Agency bonds and other toxic waste, because it relieves the financial sector of the responsibility of purchasing these bonds. Those funds are then freed up for speculation in markets. This approach to financial crisis assures the survival and profit of the vested interests.

One of the striking things about the Fed is that it pays no heed to what politicians, foreign countries and other detractors say. Their only real mission is to keep the financial sectors in NYC, London and Europe solvent and operating. There are no other considerations, except printing trillions of dollars to keep the stock market up. During QE and Stimulus 2 MZM went ballistic sending the Dow close to 11,800. As you can see the Dow and major financial players, including the government, are helped by little falls through the cracks to the taxpayers. Higher inflation ensued higher gold, silver and commodity prices, as the dollar again came under downward pressure. That effect is still in process and it will extend through next year, because just through the end of the year real inflation will be 14% and official inflation 5.5%. These are about the same numbers we saw three years ago just prior to the credit crisis. During the intervening years 2-1/2 interest rates from the Fed to the banks remained at zero and we are told by the Fed that they will remain there for 2 more years. As a result of this myopia approach wages have hardly grown, unemployment has continued to rise and consumer purchasing power has fallen about 10% year-on-year. Overall second quarter growth was 1% and first half GDP growth was 0.7%. A year earlier we predicted 1% to 1-1/2%, so we were close. 98% of forecasters were way off target, but that often happens to lemmings. None in Wall Street, banking or government has a care about the American worker, who is earning much less than 11 years ago, or retirees who have to find a way to exist on 1% or 2% yields on their meager savings. Those rates are costing them almost $400 billion a year in lost income, and now Congress is in the process of cutting Social Security and Medicare after they looted those trusts. Speculators, banks and hedge funds get richer and the old and poor starve, or cut back on prescriptions, which help keep them alive, so we can fund more off balance sheet wars for profit.

The economy cannot stay profitable and the financials can’t stay profitable and write off their lead debt with more than $2 billion in assistance annually. Nothing has been fundamentally done to solve the underlying economic, financial and economic problems. The rich get richer and the crime syndicate that runs America screws the public.

These are the same people who rig every statistic released by government and even some issued privately. Those who own the Fed know long ahead of time what statistical releases will be and we believe often they craft the results. A blatant example is the July release of a 0.8% increase in consumer spending. A month or so from now the figure will probably be revised lower, as usual. It is a game they play to goose the stock market and make illegitimate profits. They never go to jail for what they do. You cannot prosecute a wink and a nod. Statistics are crafted for the market and result in large gains in the market and a hive of profit for traders. The stock market is an integral part of financial and economic policy. For the insiders only the stock and bond markets mean anything. This must stay up or the public loses confidence and once that happens the economy comes unglued. The binding of statistics no matter how observed is an important part of manipulation. These people can justify anything as sociopaths. 86% of those polled said the economy is in poor shape, yet consumer spending is up 0.8%. Give us a break. Even the Conference Board says consumer confidence fell from 59.2 in July to 44.5 in August and government expects us to believe consumption rose 0.8%.

Many layoffs lie ahead as corporations continue to cut back. Their earning gains mainly come from layoffs and productivity gains are terrible. The future is again clouded and full of pitfalls.

Inventories at U.S. wholesalers rose more in July than a month earlier, boosted by automobiles and computer equipment, as sales stagnated.

The 0.8 percent increase in inventories followed a 0.6 percent rise in June, Commerce Department figures showed today in Washington. Economists projected a 0.7 percent gain, according to the median forecast in a Bloomberg News survey. Sales were little changed in July.

Weaker demand gives distributors less reason to build up stockpiles, a sign production may cool and contribute less to the recovery. At the current sales pace, wholesalers had enough goods on hand to last 1.17 months, the longest since October 2010.


Bank of America Corp officials have discussed slashing roughly 40,000 jobs during the first wave of a restructuring, the Wall Street Journal said, citing people familiar with the plans.

The number of job cuts are not final and could change. The restructuring aims to reduce the bank's workforce of 280,000 over a period of years, the Journal said.


Plaintiffs in a case accusing 11 firms, including KKR & Co. and Blackstone Group LP (BX), of conspiring to rig the market for leveraged buyout deals can expand their investigation, a federal judge ruled.

The plaintiffs, including a Detroit police and fire pension fund, can seek information on 10 additional deals, U.S. District Judge Edward F. Harrington said in a ruling Sept. 7. He didn’t identify the transactions, which are described in a fifth amended complaint filed under seal. The firms argued that adding the deals would be “unduly burdensome and prejudicial,” according to court papers.

The lawsuit, initially filed in 2007, claims the firms conspired to drive down prices in the largest leveraged buyout deals in violation of federal antitrust laws. The case previously was limited to 17 transactions. Harrington gave the plaintiffs until April 17 to seek the information.

Among the deals in question is Neiman Marcus Group Inc.’s $5.1 billion buyout by Warburg Pincus LLC and TPG Capital Inc., SunGard Data Systems Inc.’s $11.3 billion takeover by seven private-equity firms and Aramark Corp.’s roughly $8.3 billion purchase in January 2007. Three plaintiffs are also shareholders of Freescale Semiconductor Inc., which was taken private by a group including Blackstone and Carlyle Group. TPG and Carlyle are also defendants in the suit.


Banks including JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) may pay more to resolve claims over their alleged roles in the collapse of a $2.3 trillion mortgage- backed securities market if sophisticated investors are allowed to sue as a group along with less savvy ones.

Class-action status allows investors to pool financial and legal resources, giving them greater leverage to win larger settlements or verdicts. The banks, however, have a court ruling on their side that may help fend off such blockbuster cases. It says class status is barred because some investors are too sophisticated -- in fact, because some of them are other banks, including JPMorgan.

“It is possible to be both an alleged perpetrator and victim at the same time,” said Jacob S. Frenkel, a former U.S. Securities and Exchange Commission lawyer now in private practice in Potomac, Maryland. “It’s unprecedented that you have the most sophisticated institutions as victims, to be in a position where their losses are so great that they have sued.”

The ruling by U.S. District Judge Harold Baer Jr. in Manhattan, favoring defendants Royal Bank of Scotland Group Plc (RBS) and Ally Financial Inc., held that investors may not sue as a class in part because some of them are being sued over the same claims. Last month, that ruling was countered by two judges in Baer’s courthouse, both of whom ruled that investors in home- loan backed securities may sue as a class.


A U.S. judge who is reviewing the Bernard Madoff trustee’s $59 billion anti-racketeering lawsuit against Italy’s UniCredit SpA (UCG) and Austrian Sonja Kohn said “it is now settled law that RICO cannot be applied extraterritorially.

U.S. District Judge Jed Rakoff, explaining an earlier decision to take over consideration of the issue from a bankruptcy judge, said he would determine “the precise contours” of the Racketeer Influenced and Corrupt Organizations Act and how it was used by the liquidator of Madoff’s firm, Irving Picard.

Rakoff will take into account recent rulings by higher courts that RICO doesn’t apply to actions that mainly involve foreign actors and foreign acts, he said in a court filing yesterday in Manhattan.

“The court agrees with UniCredit that this relatively new doctrine will require significant interpretation of RICO,” Rakoff said.

Picard named UniCredit and its Bank Austria unit in a December complaint against Bank Medici AG founder Kohn and dozens of other Austrian and Italian parties. He alleged they were part of an international “illegal scheme” masterminded by Kohn to feed money to Madoff’s Ponzi scheme. The trustee demanded $19.6 billion -- his estimate at the time of all principal lost by Madoff investors -- while using RICO to seek triple the amount.

‘Hollow’ Claims

UniCredit in July asked Rakoff to dismiss Picard’s “hollow” racketeering claims, saying 49 of the 57 parties accused of racketeering were foreign, and Picard’s suit focused on actions abroad. Bank Austria said it was “under a cloud” because of Picard’s “mammoth” claims, almost equal to one- sixth of Austria’s gross domestic product.

Picard has denied his suit is extraterritorial, saying the “illegal scheme” was hatched in New York and injured the New York-based Madoff estate. A proposed new complaint against UniCredit would add 23 defendants and “newly discovered information regarding the wrongdoing,” he said last month.


Demand for U.S. home loans fell for a third straight week last week although mortgage rates fell to or near record lows, an industry group said on Wednesday.

The Mortgage Bankers Association's seasonally adjusted mortgage applications index, which includes both refinancing and home purchase demand, dropped 4.9 percent in the week ending September 2.

The MBA's seasonally adjusted refinancing application index fell 6.3 percent while its gauge of loan requests for home purchases climbed 0.2 percent.

Fixed 30-year mortgage rates averaged 4.23 percent, down from 4.32 percent the prior week and the second lowest rate since the group began its survey nearly 22 years ago.

Fifteen-year loan rates averaged 3.41 percent, down from 3.49 percent a week ago to a new survey low.


Claims for U.S. unemployment benefits rose last week, a sign the labor market is struggling to gain traction more than two years after the recession ended.

Jobless claims rose by 2,000 to 414,000 in the week ended Sept. 3, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected a drop in claims to 405,000, according to the median forecast. The number of people on unemployment benefit rolls and those receiving extended payments fell.

Companies are stepping up the pace of firings, raising the risk that consumer spending will slow further. Job growth stagnated last month and the unemployment rate held unchanged at 9.1 percent, the Labor Department reported last week. The Labor Department said there was no national effect from Hurricane Irene.


In the past decade, the number of seniors in the labor force has grown nearly 60 percent, according to the Bureau of Labor Statistics. By 2018, the number of workers 65 or older is projected to climb to 11 million, from 6.5 million today.

So employers face a dual challenge. They have to keep older workers productive and then, when those workers do leave, find qualified people to replace them. In 22 industries among them engineering, agriculture, real estate and health care more than three in 10 workers are 50 or older, according to a 2007 study from the Sloan Center on Aging & Work at Boston College. “Companies are not very long-term-oriented,” he added. “They don’t spend much time worrying about what might be coming down the pipe in the future.”

“It’s been mitigated a little because of the economy, but I think it’s a huge problem for us,” Redlo said.

In Texas, home to Dow and the Lockheed unit, public schools have de-emphasized vocational education, said John Ray, dean of information and community resources at Brazosport College. “Today, you don’t have students with experience in working with their hands,” Ray said.


The U.S. trade deficit narrowed more than forecast in July as exports climbed to a record, offering a bright spot for an economy at risk of a bigger slowdown.

The gap shrank 13.1 percent, the most since February 2009, to $44.8 billion from a revised $51.6 billion shortfall in June, Commerce Department figures showed today in Washington. Exports rose as companies shipped more capital goods and automobiles overseas.


Solyndra LLC, the bankrupt solar- panel maker that was backed by the Obama administration, is being raided by the Federal Bureau of Investigation today, an agency spokeswoman said…

The company, whose $535 million federal loan guarantee was criticized by Republicans, filed bankruptcy on Sept. 6, six days after shutting down its factory and firing 1,100 people.

According to White House visitor logs, between March 12, 2009, and April 14, 2011, Solyndra officials and investors made no fewer than 20 trips to the West Wing. In the week before the administration awarded Solyndra with the first-ever alternative energy loan guarantee on March 20, four separate visits were logged.


Republicans stupidly cling to trade agreements as a means to boost the US economy. This is a staple crony capitalism policy. How did GATT work out? What about MFN for China? Anyone want to defend how NAFTA helped the US economy?

All trade agreements of recent vintage have induced US large corporations to boost foreign production and cut US jobs. US corporations and solons’ main rationalization for the trade pacts has been to proclaim that the trade pacts will bring lower priced goods to the US. This only benefits those that have jobs…Fair trade pacts, quid pro quo, should be the standard.


Rate on 30-year fixed mortgage hits 4.12 pct., 15-year falls to 3.33 pct.; both records Fixed mortgage rates fell this week to the lowest levels in six decades. But few Americans can take advantage of the rates to refinance or buy a home…Record-low mortgage rates have done little to energize the depressed housing market…

Yet sales of new homes are on pace to finish the year as the lowest on records dating back a halfcentury.

The pace of re-sales is shaping up to be the worst in 14 years. Many Americans are in no position to buy. High unemployment, scant wage gains and large debt loads have kept them away.

Others can't qualify for the lowest rates. Banks are insisting on higher credit scores and 20 percent down payments for first-time buyers. Many repeat buyers have too little equity invested in their homes to meet loan requirements.


Bernanke reiterated his Jackson Hole speech/August Fed communiqué yesterday. The Fed has a range of tools to employ and will use them “as appropriate”; substantial fiscal tightening would hurt the economy.

As we expected, stocks sank on [advance copy of] Bernanke’s speech because he didn’t suggests or announce a new Fed stimulus scheme. He reiterated the few lame ‘tools’ that remain for the Fed.

Ben again said, and he’s been saying this for years, he expects inflation to moderate in coming months. Initial Jobless Claims unexpectedly increased to 414,000 (405k expected); and as usual the previous week was revised higher to 412,000. Continuing claims (3.717m) were 11k worse than expected; the previous week’s claims were revised higher by 12k, to 3.747m.

The US trade picture brightened in July because exports were $6.2B better more than June and imports declined $0.5B from June. This will induce analysts to boost Q3 GDP forecasts.


At a Bloomberg conference on global inflation yesterday, Ex-St. Louis Fed President William Poole went off on Bernanke, slamming him for “paying too much attention to equity prices.

I would describe the decision on August 9 as being simply unprincipled…All the academic research, including research within the Federal Reserve makes policy dependent on the state of the economy, not the state of the calendar. [In other words, Bernanke and his ilk are playing politics.]

BN: William Poole, former president of the Federal Reserve Bank of St. Louis, said the Fed won’t be able to offset the damage to the economy from fiscal tightening. “I think it is very, very unfortunate the Fed is going down this path,”…Poole said Bernanke should give a speech devoted to the “problems of fiscal policy” and make it clear that the Fed alone can’t fix all that ails the economy.