International Forecaster April 2011 (#1) – Gold, Silver, Economy + More
By: Bob Chapman
Sunday, 3 April 2011
The seeds of today’s monetary problems were laid at Bretton Woods, NH in 1944, as a combination of socialists, communists and fascists laid the groundwork for the IMF, the World Bank and the eventual elimination of gold from the monetary world. The Federal Reserve’s role was to bring that about from behind the scenes.
In the intervening years in order to move toward those goals the banking system run by the privately run Federal Reserve, allowed banks, some of which were run by the owners of the Fed, such as JPMorgan Chase, Goldman Sachs and Citigroup, were allowed to run rough shod over the system, always knowing they would be bailed out by the public. These banks have had and continue to have a license to steal under the illegal Federal Reserve Act. Over and over again these banks, Wall Street, insurance companies and transnational corporations have been bailed out of their speculations under the aegis of too big to fail. The excuse has always been that it must be done to protect the public. These entities got to keep the gains and the public got to share in the losses. The public and 95% of those working on Wall Street and banking didn’t have a clue to what was really going on. The Fed and other major central banks were not only playing this Fed game domestically, but internationally as well. Over those years the Fed had been designated the lender of last resort. We saw them in action over the last 3-1/2 years during what was termed the credit crisis. The Fed’s job was to bail out not only the US banking system rent asunder by bank speculation in the mortgage market, but to also bail out the buyers of such mortgages, known as MBS and CDOs, sold to British and European banks and other financial entities, which had purchased 60% of the toxic waste. If you notice not one of these lenders or buyers ever filed a civil or criminal suit against these purveyors of what has become to be known as toxic waste. We can only speculate, but we believe the dumping ground for this mortgage garbage was preset and that some of the buyers if not all were guaranteed by the Fed that if problems arose they would be bailed out and one way or another made whole. The Fed attempted to hide what they were doing and a lawsuit has finally forced them to divulge, who received funds created by the Fed, some $13.8 trillion, why and what collateral was accepted for such loans and have such loans been repaid. Another program called TARP was set up by the Treasury to bail out Wall Street, banking and transnational conglomerates all involved in this tight little circle of anointed corporations. This bailout program was accomplished by Treasury Secretary Paulson. He told Congress if the funds were not forthcoming for the insiders to bail themselves out via speculation based on inside information, then he would see to it that the financial system was brought down and destroyed. The highhanded ruse or extortion worked and these miscreants received their funds from the public Treasury, as well as from the Fed.
Gold backing for the US dollar was part of the result of the confereence at the Mount Washington Hotel in Bretton Woods in that July of 1944. We have to interject here that in 1946 or 1947 I climbed Mt. Washington and once I reached the hotel it started snowing. Yes, snowing in August. The group of us from the camp quickly raced back down through the forest to better climes, which the snow failed to reach. Thus, 2 or 3 years after that historic meeting, I briefly visited that hotel, of course, not knowing what had taken place there.
This UN Monetary and Financial Conference, which included the International Bank for Reconstruction & Development, which became the World Bank, which was to make loans to the rubble that was to be Europe in 1945, and to which those economies, promote monetary cooperation and fix exchange rates, and eventually to eliminate the use of gold, as the backing and basis for international currency exchange, replacing gold with a fiat paper standard controlled by the Federal Reserve. The discipline of gold was to eventually be phased out of the system, so that the fed could create money out of thin air. This would be a perpetual tax on Americans as their currency dropped in value versus gold over the years. Currencies would no longer be exchanged in terms of their gold value. This was called a gold exchange standard. The public could not exchange US notes or Federal Reserve notes for gold, but nations could. The value of currencies versus one another, all of which were backed by gold was set by supply and demand. If a nation created too much currency the value of their currency would fall versus gold and other currencies. This method of monetary policy had previously been set into law by the passage of the Federal Reserve Act. The concept was to eventually have a world bank that would create a fiat currency for all nations that would supersede all other currencies. That, of course, is still underway today as elitists strive for a one-world currency and a new-world order. These concepts were promulgated and put in place by well-known Fabian socialist John Maynard Keynes, who as we reflect back was the author of an economic system that was corporatists fascist and the then Treasury Secretary, Harry Dexter White, who was a communist. It took 27 years, and on August 15, 1971, President Richard Nixon removed the US dollar from the gold exchange standard. That is how the fiat dollar was generally planned and that is why we have non-gold Federal Reserve notes today, instead of a gold backed currency.
The elitists’ corporatist fascist model is not working very well. The Fed, the Bank of England and Western banks have serious problems and throwing money at the problems is not working. Of course, do they want the solution to work? This depression they have deliberately created is not working the way they envisioned it would. In fact they are having trouble keeping it under control. We have just seen what is called a “black Swan” event. An earthquake, an untoward event, which ostensibly came from out of the blue. We’ll surmise that until we have empirical evidence that man did not create it. These are the kind of unplanned events that throw the elitist plans off kilter. It throws the direction of neo-liberal capitalism in several different directions. This is the system so prevalent in Europe, where profits are privatized and losses are socialized and become a debt that has to be paid by the people. This system, which we now have in America, keeps Wall Street and banking in power. This is accomplished by bailouts when the anointed corporations get themselves in trouble as we see in America today and in Europe as well. The state in our case by the privately owned Federal Reserve losses are monetized and appear in part in the form of higher inflation. It also comes in the form of public debt that has to be repaid by the taxpayer. Eventually the debt consumes the host.
As a result it is only a matter of time before the system unravels. The fractional banking system does not work and never has worked. The players who run the system know that. History is replete with instances of failure, which are well known to elitists. The collapse of the Lombard System in 1348, the year of the plague, and the collapse of the Hanseatic League in the early 1600s, are but two of scores of failures, most of which were deliberately planned. Fractional banking for those of you who do not know what it is, takes place when a lender lends more money than he can collateralize. The rule of thumb over the centuries has been to lend no more than eight times assets. Today that number is 40 times as assets. That is why most major western banks are broke. Any major untoward event could presently collapse the current system. In addition, some 10% of the basic assets of these banks are worthless. These banks are still in serious trouble in spite of receiving trillions of dollars in bailout funds of one kind or another. What happens when interest rates rise, which they must? The banks will be in trouble, as inflation rages. If that wasn’t bad enough contagion could also affect the banking system. That is when one bank borrows from another and then cannot get their funds back. That happened 3-1/2 years ago and the Fed stepped in and secretly guaranteed deposits. In this process of saving Wall Street and banking the public is put at enormous risk, which is a pattern used over and over again over the centuries.
These events naturally lead us to the dollar, which for months has had little sustainable strength either fundamental or technical. The run to 89 on the USDX ended in failure, and the recent strength at and near 75 was tepid at best. The recent intervention by the G-7 to weaken the yen, which has moved from 76 to 83, was really a backhanded attempt to stage a dollar rally, especially when you consider the absorption of Japanese Treasury sales, which is really what the exercise was all about. Needless to say, the NYC elitists needed the Japanese problem like they needed a hole in the head. The baggage the US dollar has is overwhelming. The government is being 70% to 80% financed by the Fed, which creates money and credit out of thin air. The federal deficit for the fiscal year will be $1.7 trillion. The US has two occupations and two ongoing wars costing billions of dollars a month. Municipalities and states are in dire financial straights and the economy would collapse without quantitative easing and stimulus. A rather sad state of affairs. Incidentally, we called the recent bottom on the dollar, but more importantly, we called the top at 89. Dollar and Treasury bond weakness will be exacerbated by the Middle East and North African revolutions and the ultimate result will be the demise of the petro dollar, which has always been the underlying strength to the dollar. The US, UK and France guaranteed safety for the oil producers, they denominated oil in US dollars, and they deposited their profits in NYC, London and Paris for management. The policy may well be at an end. If so that will be the end of regional purchases of US T-bonds. Thus, the loss of Chinese, Japanese and Gulf purchases will cancel out 70% of US Treasury purchases. These events could very well lead to the collapse of the Treasury bond market essentially leaving only the Fed as a buyer. As we predicted months ago the second half of 2011 will bring an implosion of US Federal debt, municipal and state debt, British debt and a collapse in EU debt and the beginning of the end for the euro. Along with 14% inflation gold and silver will rocket upwards.
The latest insult to American consciousness is a proposed cut in the budget deficit of $33 billion. That isn’t even cosmetic. In a budget with a $1.7 trillion deficit that isn’t even chump change. Can you imagine what the rest of the world is thinking? Try to sell treasuries under those conditions? The House is totally out of touch with reality. It takes its orders from Wall Street and banking. That has never been more obvious.
Hundreds of municipalities will fail in 2011 as well as some states. Austerity will continue for the average American citizen. That means GDP will fall from 70% by consumers to 68.5% with more bad news to come next year. All of these events have already, as displayed recently, begun to end the safe-haven status of the US dollar. Not only will the dollar be under pressure, but also so will the sale of Treasuries. It is possible the dollar could go to 65 on the USDX and the Treasury market could collapse. The plight of the dollar has not gone unnoticed. In 2001, the dollar’s share of official global foreign-reserves was 71.5%. At the end of 2010 it was 61.3%. Those moves do not instill confidence in the dollar.
We have contended for a year that a major meeting will be held with all countries attending to revalue and devalue currencies each against one another, there would be a multilateral default of some kind and a new devalued international world reserve currency backed by gold. That new currency could be the dollar. The status of old debt would be clear. How domestic debt would be handled remains to be seen. The collateralized gold backing would be today $6,000 and silver perhaps $300. The problem is that is now. The figures a year or two from now could be $8,000 and $400, who knows? All we know is the trend is clear.
We have generally given you one side of a difficult equation. The other side is who will be the winners and the answer is commodities, gold and silver. In light of the very large short positions held by HSBC and JPM, and the fact little effort is being made to cover, many investors have been buying silver and taking delivering. That has led to higher silver prices, which puts these banks into a loss position in the billions of dollars. We are told as a result of being in this position HSBC, advised a major silver producer to sell their inventory so the sale would suppress prices and allow HSBC to do some short covering. The company was the large Mexican producer Penoles and the driving force in the sale was investor Carlos Slim, who is a front man for the elitists.
Talk abounds that India, Mexico and China all may head toward the re-monetization of silver. It could be all three countries may retire some of their bank notes and substitute silver coins for future use. This would line up with recent agreements between China, Russia and India trading in their own currencies rather than dollars.
On another note, this activity in silver can only make one imagine that gold backing may come to these currencies in the near future. We can assure you that they will not accept any new world reserve currency that is not 25% gold backed.
As we have noted for some time corrections in gold and silver have been short-lived lasting only for a few days or a week and then they rally strongly in spite of major paper suppression by the “President’s Working Group on Financial Markets.” The elitists have to be scratching their heads. They raise margin requirements repeatedly and they have little effect. Today’s players don’t buy 5 or 10 contracts; they buy in the hundreds and thousands. In this exercise in futility the main players increased their net short positions by almost 30 million ounces in just months. The gold and silver suppression cartels have some major problems. They cannot cover without driving prices higher, particularly in silver. Our guess is they’ll go to default between $50 and $60 silver and pay off in cash, as silver races higher. The longs will, of course, get screwed and the action could take out silver and gold trading on the Comex and LBMA in London, and wipe out the options, derivatives and GLD and SLV. We’ll see what happens, but it won’t be good for the elitists. For some time Comex members have been paying large bonuses in cash to keep longs from taking delivery and now we are seeing growing premiums on funds such as the Sprott Silver Fund reflecting a $45.00 or $50.00 silver price. We believe that the ETF, SLV, has less than 30% of its inventory in physical silver and that is why it trades at a negative premium. They hold options, futures and derivatives and if Morgan goes into default, which we believe they must, SLV and for that matter GLD, may both be out of business and their shareholders left high and dry and broke. A word to the wise should be sufficient. SLV and GLD are frauds. On the Comex sellers are paying 30% to 80% premiums for long contract holders not to take delivery. This is certainly not normal. JPM and HSBC may not pay off long silver contracts in cash. They may just default and you may just become an unsecured creditor. These two banks do not have the silver. It is rumored that JPM is naked short 3.3 billion ounces of silver or 4 times annual silver output. At today’s silver prices JPM could be offside more than $60 billion. Those are the figures we’ve been using for some time. $60 silver means no more JPM. That is why we believe they will default.