International Forecaster June 2010 (#2) – Gold, Silver, Economy + More
By: Bob Chapman
Monday, 7 June 2010
Austerity is the new go to word in Europe. Unfortunately Europe doesn’t know the meaning of the word. Greece, Spain and Portugal have already announced big spending cuts, as did Ireland and even the UK. All of the cuts are residual and not worth the volume to take into serious consideration. Cuts of $9.5 billion by the US and $12.3 billion by Germany, are a drop in the bucket. Who do they think they are fooling?
In America there is no restraint – deficits of $1.5 trillion over each of the next two years. This year alone will be $1.6 to $1.8 trillion with $1 trillion a year in deficits as far as the eye can see. This doesn’t sound like restraint to us. We see no responsible behavior here. In America the president says he wants $20 billion in cuts in budget, which is ludicrous and will never happen. Even if passed it would be considered chump change in Washington and NYC. The world is inundated with unsound money – fiat currency. The intelligent are buying gold and silver. The run in India and China is large, but Europe has gone crazy. There is very little supply on the Continent as well as in the UK. The long 11-year first stage of the gold and silver bull market has been completed. The second stage should move up to $2,500 to $3,000. Stage three should take gold to $7,100 to $7,500 based just on real inflation since 1980. The speculative processes have begun as fiat currencies are abandoned.
The Keynesian approach is finally being seen for what it is and that is the creation of money to make the system function, every time the system fails. This creates inflation, which robs individuals of the value of their assets. A subtle and secret tax that most people don’t understand. It is perpetual wealth destruction. This concept of economics is aided by conspicuous consumption, which is incompatible with sound money. This concept of economics, which has been with us for some 90 years, is in the process of ending. How quickly we return to sound money at this point remains to be seen.
The credit crisis, which we are still deeply enmeshed in, is the result such economic policies and has only been masked because the US dollar is the world’s reserve currency. You have just seen the swift market judgment of the euro, which doesn’t enjoy the same protection. This is despite the fact that on August 15, 1971 the dollar lost its hard money advantage by abandoning the dollar’s gold backing. In spite of one recession after another the system survived up until the failures of Bear Stearns and Lehman Brothers. Those failures marked the exposure of a failed system, perpetuated by the use of derivatives.
The solution to this credit crisis was to print more money and issue more credit by the Federal Reserve. Both Bear Stearns and Lehman were not bailed out, because Fed members wanted their assets. They did not recognize the terrible damage that would follow. Then there was the failure of AIG, which they had to rescue, after seeing the aftermath of Bear Stearns and Lehman and the terrible damage to the system that it caused.
We are now beset by a sovereign debt crisis that will prove far more destructive than the previous ongoing crisis. It is now centered in Europe, but in time will engulf the entire world, due to interconnection from country to country of business, trade and the sale and distribution of debt by nations and corporations. In each instance what has happened will eventually bring about grave consequences, irrespective of what Wall Street, banking and Washington have to say. In the US what seems to have been generally overlooked is that in reality only the financial sector has been bailed out and not the general economy. The taxpayers have not been bailed out and they will get to pay for Wall Street and banking’s losses. It sounds like, and is similar to a feudal system. The problem is these half measures are not going to work – they only buy time, which makes the final collapse far worse than it would have been otherwise.
The demise of Europe was a planned set piece. The conditions in Greece were known for many years. For whatever reason, the creation of the elitists the euro, was to be destroyed and perhaps the EU as well. Internal factionalism obviously exists. The euro had become a viable threat to the supremacy of the dollar. Those in power in the US decided the euro and the strength of the euro zone and the EU had to be impaired. The destruction was potentially deliberate. The result is as we have seen, a new crisis that will take a few years to paper over. A rival to US supremacy has been crushed before it could proceed. We believe in this process that 19 nations will go into bankruptcy and that will affect all nations. That is only the beginning as many more will follow. Almost all are buried in upayable debt. They must if they are to survive, and bypass revolutionary changes, cut expenses by 1/3rd, as a beginning. In that process they have to hope that their currencies do not collapse and that their nations do not collapse in turmoil. What has made Europe’s situation worse than the fallout after the Lehman episode is that the Europeans took too long to start moving on the problem, some five months, which is ridiculous. This shows you how muscle-bound politically and financially Europe really is.
Europe’s problem is structural deficits and the US has the same problems – socialist or fascist welfare states. They all lack revenue to fund commitments, so they issue debt, usually bonds to fund today’s benefits, which will never be repaid. The promise of these benefits help keep government in office and power in the hands of the elitists. These benefits entrap the recipients in long-term dependency and servitude. When austerity enters the picture benefits are diminished and so is the politicians and elitists’ power over the people. More often then not there is only a reduction in the growth of programs, no real austerity. That is what is going on now in Europe, England and the US. It doesn’t fool anyone. Is it any wonder citizens are buying gold and silver coins, bullion and shares hand over fist? They envision a currency of lower value and an increased extraction of wealth. The next step is the guarantees fall away and revolution begins. In America, those making under $40,000 a year control 1% of assets. We’d call that a tinderbox. Forty-two percent of income comes from private sources and 28% from government sources. The rest belongs to the rich that clip coupons. This is a perfect example of an economy completely out of whack; a nation of indentured slaves. The Blitzkrieg attack on the US credit crisis has neutralized the problem for now, but just wait awhile. A repeat is in the wings.
We have recently heard from Spain and the news is not good. Next we imagine is England, which is close behind Japan and Greece in the debt hit parade. They like the others, Greece, Portugal, Ireland and Spain are about to under go austerity and at the same time increase taxes. That may look good, but it is a deadly combination, that can only lead to deflation, depressions and collapse. You can even throw in France for good measure. For those of you who do not know France is in serious trouble.
A rare occasion indeed as we reported in our last issue – the head of the “Black Nobility” of the Illuminati, the Queen of England, has made sure the first piece of legislation to be introduced into Parliament by the new government will be a bill abolishing ID Cards, which the Labor government had introduced. The Queen wants freedoms and civil liberties restored. These plans were years in the making and for them to be pulled is a very important reversal of policy. The elitists have to be in serious trouble for this to happen. We already have ideas why and we will keep you abreast of what we find out.
There is no question that over the almost last three years that the finance of the global recovery has been unsound, unstable and unsustainable. The Fed and other central banks and fiscal deficit spending gave banks, insurance companies, Wall Street and hedge funds leverage that some had just recently cashed out of. When the Dow was 6,550 we projected a technical and short covering move to 8,500, not knowing that the Fed was going to create more than $13 trillion in additional credit. The idea was to drive the stock markets higher and so they did. The poster child was the TARP (Troubled Asset Relief Program), which out of $700 billion some $600 billion is outstanding – money at near zero interest rates to leverage and gamble with. That is why world stock markets rallied far beyond where they should have – in the Dow the gap between 8,500 and 11,200. Why would government want to do that? Because it was the only place left to create wealth to keep the financial structure from collapsing. Needless to say, the “Plunge Protection Team” was employed continually over that 14-month period. That liquidity is still out there trying to hold the market up to keep the public believing all is well, when in fact all is not well. The Dow is at 10,000 and poised to go lower. Bonds are at all-time highs and interest rates have nowhere to go but up, resulting in bond losses. The banks, insurance companies, Wall Street and hedge funds are again de-leveraging, but this time the big losers won’t be the hedge funds, it will be the banks, such as JPMorgan Chase, Goldman Sachs, Citigroup and Deutsche Bank. This has been the result of extraordinary stimulus in the financial sector. After this past month’s 1,200 point Dow drop panic is setting in. Once the dollar triple tops to complete a head and shoulders at 89 the bottom will come out, particularly in the dollar carry trade.
What has happened is the market rallies ran into another reality, the sovereign debt problem, generally emanating from Europe. We also had the fall in Chinese markets and a punctured real estate bubble in China. $2.1 trillion wasn’t enough to rebuild the Chinese dream. In fact, as we speak more money is pouring from their Communist government into what will eventually be a failed economy. De-leveraging is underway worldwide – again. What this is all about is making money for the financial structure and it has little or nothing to do with helping the US economy.
The debt crisis in Greece, and the rest of the PIIGS, plus England and the US, is not going away anytime soon. Bank de-leveraging has a long way to go. In Europe everything is done by committee, so no one gets blamed for any failures. A slow, bumbling stupid process that seldom brings positive results. Politicians and bureaucrats do not understand markets. They only know how to perpetuate themselves, thus Europe has compounded the problem and missed the boat. They do not even understand that the gambling and derivatives are gambling without funds, and if the player loses, innocent parties are destroyed.
We believe the Greeks will default on their debt. It will be interesting to see who gets paid and who does not. European debt markets are upside down. It is really a sight to behold. Many bankers and governments made dreadful decisions and now they will have to pay the piper. Then there will be contagion, which will run rampant through Europe and spread worldwide. Will the euro hold at $1.20? Probably but it is a guess. It is up to the criminals in NYC who created this monster. As you have already seen the banks and hedge funds were on the wrong side of these markets, and have taken heavy hits. Wait until you see the second quarter numbers late in July, they’ll be terrible. Worse yet, banks are still leveraged 40 to 1. The European stock markets continue to fall and the only reason the Dow is not at 8500 is that the US government is holding it up and other indexes as well. Liquidity has dried up and were it not for money creation by the Fed, Europe would be in a state of strangulation.
The flipside is the US benefits, as the dollar strengthens, which if you noticed is not worth the paper it is written on. It is like 1998 to 2000, all over again, in spite of LTCM. These events just did not happen – they were created. This is all the work of Wall Street and the Fed.
As you can see, the benefits of dollar revaluation and euro devaluation are at least temporarily coming to an end. If the dollar does not now break out to a new high we could see a sharp correction, as gold takes over as the world’s only real currency.