International Forecaster Weekly

The Global Squeeze Underway

The global squeeze underway... No-fly lists... insider sell-out... fiat problems... the economy... CIA cleans house... monetary hedonics, censorship hiding the truth about Islam in Iran, and more in the International Forecaster....

Bob Chapman | November 20, 2004

The world is being squeezed by financial reality. No country wants its undervalued currency to appreciate. The dollar is headed down and foreign profits are being squeezed as their economies slow down. The Chinese yuan and the Japanese yen are pegged by their governments, so, as the dollar falls so does their currencies. The euro is not pegged so it receives the most punishment. The Chinese, Japanese and others have been creating more of their currencies in order to buy dollars and dollar related assets to keep this subterfuge alive. The result has been climbing inflation in their countries. Thus, we are now deeply enmeshed in an era of competitive currency devaluations. The result in gold has appreciated some 17%, just over the past six months taking it to a new recent high.

All indications are that the Dow is in its final run as are bonds. Creeping interest rates, will tell the story. The squeeze is on as the Fed is finally forced to raise interest rates in order to continue to attract foreign investors, largely central banks to fund our current account deficit. We believe real interest rates are again about to head higher. As that takes place, stocks, bonds and real estate will head lower. Interest rates must also go higher to allow the dollar to decline at a measured pace. The Fed does not want plunges and panic. Watch the ten-year US Treasury rate. The recent low yield was 4.06%; as we begin the new week, it stands at 4.18%. Six months ago, it was 4.85%. We see .65% move back to 4.85%, which would send the 30-year fixed mortgage to 6.4%. This increase in rates will get the ball rolling.

Our government has ordered that airlines turn over personal information about passengers who flew within the US in June, in order to test a new system for identifying potential terrorists. The system, which we reported on some time ago, dubbed, “Secure Flight,” will compare passenger data with names on two government watch lists, a “no fly list” made up of people who are known or suspected to be terrorists, and a list of people who require more scrutiny before boarding planes. The public says it is an invasion of privacy. Airlines support the plan. Our fascist government marches on.

We may have a Fed-PPT inspired rally in the stock market, but foreign interests are not very pleased. The dollar continues to slip lower and the ten-year Treasury note has not been rising. We just have seen the Fed raise rates again one quarter percent to 2.00%, and we are told to expect another 25% rise, to 2.25% in December. The real proof of foreign attitudes will be revealed over the next few months and at the next Treasury auction. Will foreign central banks continue to purchase Treasury paper at a rate of $2 billion a day along with other US assets? We do not believe so, even with higher rates. Foreign participation has been falling since last June. Not only does government refuse to stop adding to its deficits, but also consumers continue to bury themselves deeper into debt. On the other hand, American corporations are hoarding cash and paying down debt in a manner not seen for 35 years and at the same time corporate insiders cannot sell their company stock fast enough.

Corporate America is voting with their feet and are getting as solvent as possible, as fast as possible. Corporate insiders two weeks ago sold about $30.00 worth of their own company shares for every $1.00 of purchases. This is hardly a vote of confidence and, believe us; this does not go unnoticed by foreign central banks and investors. They have access to the same research that we do. What would you think if you saw insiders dumping their shares week after week? Over the last month, the ratio is 35 to one.

How can anyone in their right mind want to buy a deeply indebted fiat currency? Our currency lost its gold backing on 8/15/71, a gift from Richard Nixon, who told us we are all Keynesians at heart. We wrote at that time that the act would bring about destruction of the dollar and the US economy, and we also predicted free trade and globalization, as it is called, to bring about world government. We wish we had not been right. Once our fiat currency became reality, the elitists and politicians knew they had a license to steal. Daily theft of your assets by subtle daily devaluation via perpetual inflation. Sure, it is irresponsible and immoral, but our elitists and politicians could care less. Unfortunately, payback time is just around the corner. The ingestion of foreign liquidity will soon end and once that occurs, we will be on the certain road to bankruptcy. This is why it is so very important that you get out of debt and acquire gold and silver related assets.

Not only do we have a fiat currency, but we have massive fiscal and monetary deficits along with the currant account deficit. There is no end in sight to this deterioration. That is why gold and silver have to go higher. Why do you think foreigners are dumping dollars and buying gold? Russia just announced they are selling dollars, securities, and assets denominated in the US currency. They are not the only ones. The governments of India and China are doing the same. They do not want to get caught holding a currency that is about to fall another 30% and does not have gold backing.

If the Bush Republican election victory did anything, it gave validation of Bush administration policies. Americans have sanctified and taken on the responsibility of all the evil and bloodshed this lunatic has caused. George and the neocons were globally isolated and now 300 million American have chosen to join this evil elitist cabal.

The election prompted the selling of dollars by central banks and others who are seeking to cut their losses as dollar holders. They know the US government has no cash and must raise the debt ceiling by 11/18/04 or sharply curtail government operations. The Treasury said they had to postpone a four-week debt auction. Next quarter, they will have to borrow $147 billion. Word is the 2005 budget deficit will be close to $600 billion. If you add in $300 billion stolen from Social Security and Medicare, you are close to $900 billion in deficit. They know the budget deficit is totally out of control and can only get worse. Debt is 3.5% of GDP. Even during the Great Depression, debt only reached 2.6% of GDP. Are you getting the message? Mortgage debt has doubled relative to disposable income over the past 25 years. Household debt has gone from 65% to 95% of disposable income in 2000, to 114% in mid 2004. The only way to attempt to stop this dollar carnage is for the Fed to quickly raise interest rates 3-4%, but they will not do that because the economy will collapse. The correction is now out of the Feds hands. We will not ever again believe there will be ordinary, normal selling. This is what you are now beginning to witness. Credit expansion is over as is the rise in the real estate market. Liquidity is about to dry up and borrowing is about to begin to decent. This is every man for himself time. Ultimately, this all will result in the dethronement of the dollar as the world’s reserve currency, a depression, the end of free trade and globalism, which is wonderful, and a complete purging of elitist elements in our society. Protectionism will affect Asia, particularly China and Japan, the most. It will slow trade considerably after they were forced to absorb 30% in additional losses in dollar holdings. There is no question China would go after Taiwan and we will end up at war with China, a nuclear war. This will be preceded by a massive dollar sell off that will destroy the current world financial structure. We also expect that the US will impose currency controls and all dollars held outside the US will be frozen and they will not be allowed to re-enter the US until some later date. As this becomes an obvious future event for those who take the time to really understand what is going on, people like you and I will have all our assets in non-dollar denominated assets. That is why you have to take those steps now. Get out of residual real estate and all dollar assets, some will be comfortable selling their private residences, some will not. Get totally out of the US stock and bond markets, the only exception will be gold and silver shares or gold and silver coins, and take delivery of coins. Buy euro and Swiss franc denominated treasuries and CD’s, and have assault weapons, with at least ten 30 shot clips and 1,000 rounds of ammo per weapon. Purchase weapons at gun shows and via you local newspaper. If you need a broker for coins, gold and silver shares, treasuries, or CD’s, contact us and we will let you know who to go to. Incidentally, you can also buy and take delivery of actual euros and Swiss francs. Expect interest rates to return to 20% again, as they did in the early 1980s. During this period of chaos, 35% of Americans will be unemployed. Dollars may not be the median of exchange within the US. Long ago we passed the point of no return and there is no way back. There is the possibility that the debt ceiling will be $8.5 to $9.0 trillion rather than $7.9 to $8.1 trillion. If that happens, it means all stops will be pulled out to keep the system alive and functioning and that the elitists will be going for broke. They may even eliminate the ceiling and if they do that, it is a sure sign that absolutely anything goes.

Porter Goss, CIA Director, has made new appointments and massive amounts of resignations are taking place in the agency because senior officials are being treated disrespectfully. The agency may be a lot of things, but they falsely took the hit for 9/11. Their assessment was correct. The fault was with its leadership, namely George Tenet, who was in bed with the neocons. There now are no morals or incentive in the agency. Former Attorney General John Ashcroft says federal judges are jeopardizing national security by issuing rulings contradictory to President Bush’s decisions on America’s obligations under international treaties and agreements during war, Ashcroft said, “Courts are not equipped to execute the law. They are not accountable to the people.”

Larry Lindsey predicted that invading Iraq would cost over $200 billion. The White House said $60 billion tops, etc. We are presently talking $261 billion with no end in sight, plus the Pentagon wants emergency war funding of $70 billion. Iraq and Afghanistan are costing us $200 million a day. $21 billion was allocated for reconstruction yet, only $1 billion has been spent in that effort. Incidentally, $10 billion was given to Israel and Turkey to get them as allies in the wars. We have 1,250 dead along with 800 plus mercenaries and over 26,000 combat wounded and 7,000 amputees, whose medical costs will go on for years. Our President has misjudged just about everything.

The new head of the CIA, Porter Goss, has begun purging anyone in the CIA not loyal to Caligula Bush. It is just like it was in the 30s, under Stalin and Hitler. Welcome to fascist America.

Washington and Wall Street live in a fantasy world of hedonics. Can you imagine how bad the PPI figures really must have been? They came out on Tuesday morning in a nightmare scenario, up 1.7% for October climbing at the fastest rate in 14 years, just as we predicted. Do they really expect us to believe inflation is 2.7%? Even the dumbest of Americans know they are liars. These figures should stun Wall Street professionals and force them to take a hard look at gold. They know the BLS figures are bogus. If the government admits inflation is up 4.4% over the past four months, they have to at least suspect inflation is over 9%.

KPMG has refused to sign off on Fannie Mae’s third quarter earnings report, causing Fannie to miss the deadline for regulatory filing. Fannie is under investigation by the SEC for having improperly accounted for derivatives. It looks like a $9 billion loss for the quarter. Fannie finances 25% of US homes, of which, over 50% of those loans are sub-par. CEO Franklin Raines and CFO Timothy Howard had to give testimony to Congress recently relating to accounting fraud and other management misdeeds. The Justice Department is also conducting a criminal investigation in the behavior of Fannie’s officers. This scandal could expedite the correction in the housing market.

Shirin Ebadi received the Nobel Peace Prize in 2003. He wants to write a book that would help correct Western stereotypes of Islam, especially of Muslim women as docile, forlorn creatures. Sixty three percent of Iran’s university students and 43% of its salaried workers are women. This is an example of what really goes on in the Muslim world that you never hear about. Mr. Ebadi has found out that in America, it is nearly impossible for him to write such a book for Americans. The Treasury Department’s office of Foreign Assets control continues to regulate the import of books from Iran. Thinking intelligent people of this world reject such laws and actions. It equals Soviet and Nazi literature and book burning. Readers should be allowed to judge for themselves the value or worthlessness of the contents of a book. Thus, Mr. Ebadi has filed a lawsuit against the Treasury Department, joining a suit filed in September by several American organizations representing publishers, editors and translators. Welcome to the American police state.

As we predicted, Lord Conrad Black has been charged with fraud by the SEC. We predicted this two years before the law and shareholders finally caught up with him.