International Forecaster Weekly

The Unloading of the Economy Continues

The power and influence of Standard and Poor, stimulus packages have been a bust, Europe mired in toxic waste, the dream of the Euro gone, global growth headed lower, oversold stock markets, the inflationary depression set to continue unabated.

Bob Chapman | August 13, 2011

Markets have certainly fallen quickly. It was only on 12,721 on July 21 and now we are looking at a low close of 11.269 after a 500-point PPT arrangement. There is no question investors didn’t like the bill encompassing debt extension, nor the perceived cuts to be made. That was followed by a long awaited fall-in the debt rating of the US by the S&P. At the same time the financial and economic conditions in Europe worsen with Italy officially joining the ranks of near insolvency. These events were accompanied by calls for the president to bypass the Constitution or to use the 14th Amendment to bring about the debt extension. Under a façade of political wrangling as a cover the real impetus for the standoff became obvious. The whole exercise was not only about debt extension that could have been settled in 15 minutes, but about cutting individually paid for plans, such as Social Security and Medicare, which will eventually lead to a corporatist fascist dictatorship. This super-Congress is very reminiscent of the 13th century “Star Chamber”, the Soviet Politburo, or Adolph Hitler’s 1933 “Enabling Act.”

All and all the credit worthiness of the US government has been changed for sometime to come. Confidence no longer reigns regarding America’s fiscal condition. The US government, American citizens and corporate Americans have grown over the last 20 years not by increased production, but by the creation of money and credit and the borrowing and use of financial expediency. This condition was aided over the past few years by very low interest rates. The only exception being credit card lending by shylock banks. Whether Wall Street and banking realize it or not the transnational conglomerates with tax free incentives have all but destroyed America’s industrial base, and there can be no way back economically until that condition changes. That change can come about with the re-imposition of trade barriers on goods and services that served America so well for more than 200 years. If you look at the situation objectively you will see none of this happened by chance, it was planned this way.

There is little doubt that QE and stimulus 2 have been busts. They may have carried the economy this past year, but 1.3% growth is feeble when compared to the $1.8 trillion spent that we know about. Shipping rates for container ships are off about 10% during a peak time for usage. This leaves only one conclusion and that is trade is slowing down. Europe and Asia are seeing the same situation develop. These shipping rates reflected future business and coming on the heals of this GDP growth rates have fallen from 3.1% since December to 0.4% in March and the growth rate is still falling.

In Asia we have seen China and India increase interest rates a number of times, but like many other Asian countries they have far more inflation than they want. Some inflation is internally generated, but rates have been increased some 10 times to offset the inflation being caused by the monetizing of US dollars received from their exports. That has caused real inflation of more than 15%. The same is true throughout Asia to a somewhat lesser degree.

Europe is still mired in its own waste. They are frozen in the headlights. If they let the six problem countries leave the euro and go bankrupt their dream of a permanently united Europe will be over. Yet, the solvent participants now realize the cost of bailout collectively will be $4 to $6 trillion and that will render all the players insolvent. Like the Asians, Europe is paying an inflationary price for doing business with the US and England. Plus, they have been recipients of trillions of dollars from the US, which they haven’t paid back, to stay afloat. Germany and its citizens have vented their anger at the polls that they want out of this euro mess and the EU. They are tired of picking up all the bills.

The euro was supposed to succeed the dollar as the world reserve currency. That dream is now history. From the very beginning it has been a failure. The Maastricht rule of public debt not to exceed 3% of GDP was laughable from the very beginning and one interest rate fits all was a permanent noose around the euro zone’s neck. Unbeknownst to almost all the Illuminists, their counterparts in NYC have subtlety been undermining the euro for some time. American elitists do not want to give up the US dollar as the world’s reserve currency. In time all fiat currencies don’t work. The euro will fall by the wayside, and eventually the dollar will be backed by gold again to make the dollar acceptable. Those who believe the US will commandeer gold belonging to others to back their currency are mistaken. If they have little or none they will borrow gold and pay interest to do that, while they re-accumulate gold to back their currency. Europe has proven to be no trustworthier than the US in promising to protect their currency and their holders. European socialism and American and British fascism have many things in common, one of which is that neither works. Both have been poor stewards for their citizens and well as for others who own the currencies.

The Standard & Poor’s downgrade of US government debt means that debt is no longer risk-free. There no longer is political will to stand behind US obligations. That is because for a long time the dollar has been a punching bag for US politicians and those who control them from behind the scenes. The American position regarding the dollar is untenable and unsustainable over even the intermediate term and those who control the US government know that. In fact, it is part of their plan to bring the American economy and financial structure down in order to put Americans on their knees and to force them to accept World Government. That is what this is really all about. Those evaluating business and finance have forgotten that they are art forms that cannot be permanently controlled by scientific computer programs. There still is the human factor and in the end that factor will prevail. Creditworthiness and risk go hand in hand and in this life absolutely nothing is risk free. Dollar and euro holders are going to find this out, as these currencies continue to fall in value versus gold and silver as they have for the past 11 years.

That fact that Moody’s and Fitch have not downgraded US debt is significant. It tells us S&P did what they did to force large cuts in Social Security and Medicare, because Congress has refused to do so. S&P has said you either cut much more of these two programs or we will downgrade you again in November. It is hard to image that S&P, an appendage of Wall Street, banking and corporate America, can hold a gun to the head of the US government. That is possible because those who control S&P control the government and our very lives. That is S&P’s role in this subtle attempt to deprive American workers of what is justly theirs and is what they have paid for. S&P does not mention that all the funds, revenues, deposited since June of 1935, and in the case of Medicare since 1969, have been misappropriated and stolen. It is the legal job of government to now issue debt to fill those trusts so that they can function and complete their jobs, not to cut the benefits. It has been the work of the Council on Foreign Relations, the Trilateral Commission and the Peterson Foundation to destroy Social Security and Medicare, as we have known it for years. It is no secret; just access what they have said and what they have done to bring this about. What S&P has done to force this issue is being trumpeted that it doesn’t matter what S&P says – it will be business as usual. We understand why S&P had done what it has done and it should not affect the rating of US debt. Those who believe this and that US Treasuries are a governmental gold standard are sadly mistaken. Just look at the performance of gold – you have your answer. US debt is not worth the paper it is written on and that gold is the only currency – not the dollar or any other fiat currency.

It wasn’t that long ago that Deutsche Bank quietly sold off some $80 billion in Italian bonds and when the Italians discovered it they were outraged.

The only reason those bonds have rallied is because the EBC, the European Central Bank, have been large buyers. These two sovereigns have about $1.4 trillion in bonds in the marketplace that have to be absorbed. That takes out approximately half of funds available in the European Financial Stability Facility. That means the other sovereign EU members have to come up with more funds to fill the backup mechanism. Germany may say it is supportive of cleaning up the bond market in these issues, but the German people are not supportive. The politicians are running the show and that is bad. Few of them know anything about finance and monetary policy. All most of them know how to do is collect their paycheck.

The ECB really did not want to get involved in such a rescue, which is debt monetization that will lead to ever-higher inflation. The same has been going on in England, the US and other countries. These policies explain the systemic problem of many nations, which have nowhere to turn to except the creation of money and credit to temporarily keep their economies going. Underlying price and commodity inflation already have inflation between 5% and 16% dependent upon which nation you look at. Collectively it is a global problem, which leads to monetization. When you put it all together you get higher gold and silver prices. Gold at this writing is trading at $1,800 and silver close to $40.00. We would expect a move to $2,000 to $2,200, some backing and filling and a move to $2,500 to $3,000 by the end of February, as we earlier predicted. Silver is being suppressed by JPM, GS, HSBC and Citi and its progress will now be slower. Those criminals are being aided by the CFTC, the Fed and our government. At $3,000 gold, silver should trade $80 to $100. Sadly the technical geniuses have missed the market again and their readers have again lost billions.

At the same time global growth is headed lower. That has set the stage for lower earnings to go along with monetary and financial turmoil and that has led to lower stock prices and abnormally higher bond prices. This adds to the reasons that gold trades more like a currency than a commodity. That is a fact that goes back 2-1/2 years. From our viewpoint gold has already defeated the dollar as the world reserve currency. Gold is now the store of value, not the US dollar. Gold owes no one anything making it a pure currency. As things evolve over the next five years you will discover this truth. That also means the dollar has less and less affect on gold perhaps now only 20% influence. There is no question that economic activity is abruptly slowing worldwide

It gets more apparent that S&P’s lowering of the US debt rating was done to force giant cuts in SS and Medicare, and to institute the unconstitutional Super Congress, that the Illuminists expect to use to implement a dictatorship. This move is similar to what Adolph Hitler did in passing the Enabling Act of 1933. Thus, we name this effort the Obama Enabling Act.

The latest discussion in Europe and elsewhere is will France have its credit rating cut and the answer is probably yes. State-owned banks and the Bank of France have loads of bonds from the insolvent six sovereigns. In addition internal debt has been rising strongly and budget deficits are out of control. Maybe Marina LePen just might beat Sarkozy in the next presidential election. A French rate cut would send Sarkozy’s approval numbers down sharply and such an event would neuter the EFSF, because the backbone is the AAA ratings of France and Germany. We also wonder how the French public feels about Sarkozy’s previous large sales of gold to keep his very unsuccessful government going? Events similar to Britain’s Gordon Brown’s sale of half of England’s gold at $275.00 an ounce. Look at what that has cost British citizens. Another question arises and that is are the French banks and French government using two sets of books? Many in banking, brokerage and governments would like us to think the US rate downgrade is inconsequential, when in fact it is very detrimental. Let US professionals who do not know what the Illuminists are up too purchase assets. They lose lots of money. Denial is a strange disease.

The stock market is oversold on a short-term basis. Long ago we called for support at Dow 10,300 to 10,500 and that is probably where it will bounce from, but the snap back will not be of any consequence, perhaps 500 to 700 points. After that the market will break down to perhaps 8,500.

Next year it will be obvious that there never was a recovery. 2012 is going to be a very bad year especially for the Fed. Congress won’t pass a stimulus 3, so the Fed will have to create $2.5 trillion to cover Treasury debt and to add stimulus to the economy. If they do not do that GDP growth will fall to zero to minus 5%.

The economy has been in an inflationary depression for 2-1/2 years and next year it will be worse. We might even go into the election with the Dow at 6,500. Few understand how dangerous the situation really is.

It is less then comforting to know that corporate insiders are selling shares at a rate ten times larger than insider buying levels.

What you are seeing is far worse than 2010 without massive de-leveraging. The economic deterioration is far worse and it s now global. These are problems that the Fed can never solve and they know it. Next year’s earnings per share could fall from $113 to $60.00. How do you improve profit margins in an inflationary depression, as consumption falls from 70% of GDP to the long-term mean of 64.5%? People are already up against the wall. Consumer credit rose $15.5 billion in June, three times more than expected. They are using credit to spend and pay bills and except for income and wages they are broke. This is not a positive outlook.


Goldman Sachs Group was sued by the National Credit Union Administration, which accused the Wall Street firm of violating federal and state laws in the sale of securities to now-failed corporate credit unions.

NCUA is seeking damages in excess of $491 million from Goldman in the lawsuit filed yesterday in California, according to a statement. The suit is the fourth in a series aimed at recovering almost $2 billion from “sellers and underwriters of questionable securities,’’ NCUA said in the statement.

“NCUA continues to carry out our responsibility to do everything reasonable in our power to seek maximum recoveries,’’ NCUA chairwoman Debbie Matz said in the statement. “Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions.’’

Stephen Cohen, a spokesman for New York-based Goldman, declined to comment on the NCUA lawsuit.

NCUA claims that Goldman misrepresented securities in offering documents, causing the credit unions to believe the risk of loss was minimal when in fact it was substantial, according to its statement. The regulator previously filed a complaint against JPMorgan Chase & Co. and two against Royal Bank of Scotland Group PLC.

The complaint against Goldman relates to the collapses of the US Central and Western Corporate federal credit unions, two of the five liquidated under NCUA conservatorship, the regulator said in the statement.


US workers were less productive in the spring for the second quarter in a row, a trend that may not bode well for hiring.

Productivity dropped 0.3 percent in the April to June quarter, following a decline of 0.6 percent in the first three months of the year, the Labor Department said yesterday. It was the first back-to-back decline in productivity since the second half of 2008.

The drop in productivity helped push unit labor costs up 2.2 percent. That follows a 4.8 percent rise in labor costs in the first three months of this year, the biggest increase since the last three months of 2008.

Rising labor costs reduce corporate profits. Labor represents the largest expense for most companies. When workers are less productive and cost more, companies are less likely to add jobs.

Productivity measures the amount of output per hour worked. Higher productivity is generally a good thing because it can raise standards of living by enabling companies to pay workers more without raising their prices and increasing inflation.

Still, productivity gains can be painful in the short run if they are a result of job cuts. That’s what happened in the recession, when productivity rose sharply as companies laid off millions of workers and figured out how to do more with less. Employees worked harder and companies invested in labor-saving technology and machinery.

A slowdown in productivity growth is bad for the economy if it persists for a long period. It can be good in the short term when unemployment is high, if it means companies are reaching the limits on how much output they can get from workers.

If economic growth increases later this year, less productive companies may have to step up hiring. But the gains are unlikely to be large. Many economists forecast growth of roughly 2.5 percent in the final six months of the year. That’s barely enough to keep up with population growth.

Economists say a drop in productivity when economic growth has declined is a troubling sign. That probably means companies hired too many workers earlier this year, based on the assumption that growth was picking up. The result: weaker output from a larger workforce.

“If demand remains weak, there’s a danger that businesses may try to boost productivity by cutting jobs,’’ said Paul Dales, an economist at Capital Economics.

The productivity trends are a sharp reversal from last year, when worker efficiency grew and labor costs fell. Productivity rose 4.1 percent in 2010. Labor costs, meanwhile, dropped 2 percent, the biggest decline on records dating back to 1948.


The Federal Reserve said D. Nathan Sheets quit as the central bank’s chief international economic adviser after almost four years in the position and a day before policy makers meet.

The Fed, in a statement today in Washington, didn’t say why Sheets, 46, is leaving the institution. As director of the Division of International Finance, Sheets briefed Chairman Ben S. Bernanke and other officials on economic developments outside the U.S. and represented the Fed at international meetings.

Steven B. Kamin, a deputy director of the division, will serve as acting director, the Fed said. Sheets is leaving as European leaders take action to avert a widening of the continent’s sovereign debt crisis and U.S. officials gauge reaction to the Aug. 5 downgrade of the country’s AAA credit rating by Standard & Poor’s. The Federal Open Market Committee meets tomorrow in Washington.

“Nathan has provided invaluable insight and stellar leadership at a time of great volatility in the world economy,” Bernanke said in a statement. “We thank him for his dedicated service and wish him well.”

Sheets is using annual-leave days between now and his official departure date of Sept. 9 and won’t attend tomorrow’s FOMC meeting, said David Skidmore, a Fed spokesman.

The departure means al three of Bernanke’s top staff advisers have left their positions or announced their departures in the last 13 months. Brian Madigan, former director of the Division of Monetary Affairs, retired last year, while the Fed said in May that David Stockton, director of the Division of Research and Statistics, is retiring Sept. 30.

Sheets, who like Bernanke earned a Ph.D. in economics from the Massachusetts Institute of Technology, joined the Fed as an economist in 1993. As division director since September 2007, he led a staff of about 120.


Treasury 30-year bonds dropped as speculation Federal Reserve policies will stoke inflation sapped demand at the $16 billion offering of the securities.

The first auction of the debt since Standard & Poor’s cut the U.S. credit rating on Aug. 5 drew the lowest level of demand since February 2009. Today’s auction produced a yield of 3.750 percent, compared with the average forecast of 3.622 percent in a Bloomberg News survey of eight primary dealers.

“People didn’t show up for this one,” said Scott Sherman, an interest-rate strategist in New York at Credit Suisse Group AG, one of the 20 primary dealers that are obligated to participate in U.S. auctions. “Increased worry about inflation has to get priced in to the long bond given the Fed’s accommodative stance. For now, there will be apprehension to buy that far out on the curve at these yield levels.”

The current 30-year bond yield increased 21 basis points, or 0.21 percentage point, to 3.73 percent at 1:30 p.m. in New York, according to Bloomberg Bond Trader prices. The price of the 4.375 percent securities maturing in May 2041 dropped 4 6/32, or $41.88 per $1,000 face amount, to 111 18/32.

At today’s auction, the bid-to-cover ratio, which gauges demand by comparing total bids with the amount offered, was 2.08, compared with an average of 2.64 at the past 10 sales.

Indirect bidders, a class of investors that includes foreign central banks, bought 12.2 percent of the bonds, compared with 37.8 percent at the July 14 sale and an average of 39.8 percent for the past 10 auctions.


After the disappointing FOMC Communiqué, no QE3, stocks tanked. But someone forced S&P futures 64 points higher in the last hour (+37 last 30 min) of NYSE trading. GS was the rumored major domo.

Stocks were greatly oversold on a short-term basis but Tuesday’s manipulation smacks of desperation.

Perhaps out of necessity the Fed is following the recommendation of former Fed Governor Robert Heller.

In 1989 Heller suggested that when stocks crash the Fed should buy S&P futures to support the stock market instead of flooding the system with credit because the easy money causes too many problems.

The NY Post’s John Crudele [Posted: 12:00 AM, August 9, 2011]: How to 'fix' a market

Back in October 1989, a guy named Robert Heller, who had just quit his post as a Fed governor, suggested that the government should purchase stock index futures contracts to calm the markets in times of distress. "The Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole," Heller wrote in an op-ed piece in The Wall Street Journal after saying the same thing in a little-noticed speech. "The stock market is certainly not too big for the Fed to handle."…

Heller suggested that the stock market be rigged before the Fed does all the dangerous things it has already done -- like adding too much liquidity to the monetary system. That, he said, would be a bigger mistake than forfeiting our innocence by propping up stocks. A couple more days like yesterday, and the riggers will be at work.

With the Fed’s tool box near depletion, did the Fed or some solon take John Crudele’s advice from his column on Tuesday and have some stooges manipulate SPUs higher? This is similar to the operation that was used to resurrect the stock market and financial system on October 20, 1987. Back then the Missiles, the Major Market Index Futures, were manipulated higher…Someone should investigate.

Here is part of an email that we received yesterday afternoon: GS is standing in SP pit buying nonstop. The use of GS to buy, if true, suggests that the manipulator knew that traders suspiciously scrutinize GS for unusual activity that leads to profits. Ergo, traders will eagerly become complicit in the operation.

If the Fed now feels that it must manipulate the stock market higher because QE is no longer effective and might be harmful, we are in a very, very dangerous situation. But desperate times demand desperate measures. Someone should investigate yesterday’s activity.

The Fed will not ‘carry’ SPUs on its balance sheet; it will use stooges, probably a huge hedgie or two.

The candidates are any operator that is or has been friendly with Ben or key NY Fed officials.

In October 2007, Bernanke hosted private meetings with select hedge funds and large investors. One fund had poor performance for the year but its October gain was so large that it turned its year positive, IWRC.

Note to credible journalists: Check Fed records for past Fed meetings with hedgies or big funds. Apparently yesterday’s market rig wasn’t limited to SPUs. BAC unloaded paper on taxpayers.