International Forecaster June 2011 (#4) – Gold, Silver, Economy + More
By: Bob Chapman
Monday, 13 June 2011
The lifeblood is being sucked out of America by free trade, globalization, offshoring and outsourcing. Over the past 11 years manufacturing jobs have fallen by 11.7 million and 440,000 businesses have been lost. Those figures should make Americans very disturbed, when it is obvious that American business, and the House and Senate are aiding and abetting in this job destruction, which has not only ended the American dream, but the destruction of the American economy. In essence quantitative easing, the creation of money and credit, are a cover for wealth and job destruction, as are food stamps, Medicaid and extended unemployment. These are short-term solutions.
The dismantling of the American economy came into focus in the late 1970s as major manufacturers began to move production out of the US. As of the past 11 years we have seen an effort first to create a bubble in real estate, which was accompanied by unusually low interest rates and a major increase in money and credit. Once the real estate bubble had broken the deflationary aspects appeared and the Fed had to create ever more money and credit taking the increase up some 18%. Then 3-1/2 years ago the credit crisis began and that prompted the Fed to directly pour trillions of dollars into the financial sector in both the US and Europe. A good part of which was done secretly. Thus, we have seen the creation of money and credit initially to create the real estate bubble and then to offset the credit crisis that it caused. During these periods banks, hedge funds, and other financial institutions engaged in aggressive speculation. Banks leveraged up to 70 to 1, when 9 to 1 was normal and hedge funds over 100 to 1. Banks are still leveraged at 40 to 1 and hedge funds up to 70 to 1.
If you stop and think of it, the very idea that the Fed can create money out of thin air and buy Treasury debt is ludicrous. What kind of a system is that? And, in the process lend trillions of dollars to foreign banks and corporations. Then lie about it and force legal action into the appeal process to cause a two-year delay in exposure of what they have done. We have never been told whether these actions are legally within their venue. We wonder what happens when the remainder of toxic debt has to be bought from the banks, or in addition will the Fed bail out the derivative markets as well? The Fed is already bailing out the commercial real estate market; will they bail out the residential sector as well?
We ask you how can any sane person believe that the Fed will curtail quantitative easing? Over the past two years the Fed has created about $2.7 trillion that we know of. What is the real number and what is the new number going to be? Unfortunately, we may never find out. One thing we do know for sure is that the proverbial printing presses are running 24/7. We do not have to guess, because we already know what will happen when the music stops – collapse.
Mr. Bernanke may have led many to believe that there would be no QE3, but do not be fooled. The Fed and Treasury cannot function indefinitely in a vacuum creating money and credit. It will be especially interesting to see if there will be a short-term debt extension on August 2nd. A defeat by the Republicans could bring debt default and legislation by Congress to go after privately owned 401Ks and IRAs in exchange for government guaranteed annuities. The presentation could be that currently government is being funded with funds from the federal pension plan and it is not fair that federal employees shoulder the whole burden, so let’s commandeer 401Ks and IRAs. It would be the perfect excuse. The legislation has already been prepared and has been ready to go for more than two years. In addition, legislation has been introduced in the Senate to limit accessibility to 401Ks. This is certainly something to ponder.
We do not believe the Fed and the Treasury are going to wait while the economy falters, interest rates are forced higher, or look in the distance to August 2nd. They are much more perceptive than that. We see no gap in assistance to either the Treasury/Agency market, or to the general economy. They are already losing momentum in the economy. That was borne out by dreadful first quarter GDP growth figures of 1.8%. QE3, or subsidy by another name, will cause lenders to contemplate whether they will ever get paid. Such a realization will take a terrible toll on the value of the US dollar, and force gold, silver and commodity prices higher.
One of the things we notice, while on radio is that many people still do not believe the economy is headed for perilous times. They still do not believe it can happen again in America, as it did in the 1930s. They are still detached from reality. We are making far more inroads in other countries then we are in the US. There has been ample evidence over the past four years that America has changed dramatically. We have seen a credit crisis that almost collapsed the financial system, not only of the US, but Europe as well. We have seen the liquidation of Bear Stearns, Lehman Bros., Fannie Mae and Freddie Mac, GM, AIG and many others. We have seen massive unemployment in great part caused by free trade, globalization, and offshoring and outsourcing that continues unabated. The residential and commercial real estate markets have all but collapsed, and there is no end in sight. The new set of circumstances goes on and on. It is human nature to reject reality. No one wants to come to grips with such difficult problems. Few want to believe that Wall Street and banking have destroyed the financial structure of the country and that it has been done deliberately in order to bring about world government. Some Americans are outraged, perhaps 30%, but they have been forced into a dead end, because their representatives and senators in Congress, refuse to act in their behalf. That is because Wall Street, banking and others have bought off 95% of them. This 30% know without the Fed creating money and credit the economy will collapse, the rest are ignorant and oblivious. It is now evident the economy cannot sustain without being subsidized. Thus far trillions have been spent saving the financial sector and the treasury. Little has been spent saving the real economy. It’s as if they wanted it to collapse.
The world’s biggest bond fund is flat US securities and is short Treasuries. Commercial entities endowments, nations and individuals worldwide, are buying gold and silver to protect their assets. These moves are moves of no confidence and we believe they are correct.
They are afraid they will not be able to access their assets. Will they be able to remove their funds from banks anytime they want? Banks change the rules at will. They do what they want. Recently in France its biggest bank cut cash withdrawals by 50%. That can be done in America as well. There are laws that allow such restrictions. Do not forget the bank has loaned out your deposit and then some. The average bank today has lent 40 times its deposit base. That is called fractional banking and the historical lending rate is 9 to 1. As you can see banks are way over extended. They function by deceiving the public and there may soon some time when you can only get part of your funds or perhaps none at all. In the case of bankruptcy or major bank bankruptcies the FDIC would have to request funds from the Congress and Treasury; funds they do not have. Their only alternative would be to print money, which would cause more inflation and dilution. Purchasing power would fall as would the dollar and inflation would rise further. That means you only keep three months operating expenses in the bank and do not own CDs. Banks today are very vulnerable, as are other thrift institutions. Many are already bankrupt and are being kept afloat by the Fed. Many are keeping two sets of books. If you were to do that you would go to jail. Remember, that when banks fail and the FDIC pays off it is you the taxpayer that is bailing out the depositor.
We find it amazing that voters tell their congressmen not to vote for bailouts, and the legislators go right ahead and vote for them in defiance of their constituents, and then the idiots reelect them. American voters, as a majority, still do not get it. They still do not understand that representatives and senators are paid off via campaign contributions and lobbyists. Constituents do not count. The bankers know exactly what to do to continue to run the country.
The banks have spent years via the Bank for International Settlements (BIS) interconnecting central banks in order to move forward in unison on every issue. A good example is creating a world of fiat currencies. The situation where all banks move in unison on all issues has created an unexpected problem. They are all simultaneously insolvent. That has created a call to increase unused reserves by 3%. The banks are howling as a result, because profits will fall along with bonuses. The BIS sees serious trouble ahead for these systemically important financial institutions.
They are going to have to lower their leverage exposure as well. These are the banks and other financial institutions that we have been told are too big to fail. As we saw this week the CEO of JPMorgan Chase clashed over this issue with the Chairman of the Fed, Mr. Bernanke, pointing out the loss of profits. JPM was correct, but the BIS realizes almost all UK, US and European banks are in serious trouble and they perceive that the entire European sector could fail if Greece goes into partial or full default. They know Ireland, Portugal, then Belgium, Spain and Italy will inevitably follow. The BIS knows the major economies are either in an inflationary depression such as in the US and UK and a recessionary recession as in Europe. The serious problems exist, because there is no banking control other than the BIS. The Fed, Bank of England and the ECB act as they please usually in unison with one another changing the rules arbitrarily as they go totally ignoring regulations and almost always in secrecy. The Fed has acquired more regulatory power, but it cannot really use it because the member banks that own the Fed control it. These are the people and institutions that instruct the Fed, as to what they should do. Talk about incest. The Fed has always been a failure, and will continue to be, as long as their functions are controlled by these Fed shareholders. If for no other reason this is why the Fed should cease to exist and their role be returned to the Treasury, where it rightfully belongs under our Constitution. There can never be regulation and control under the current system, which gives the owners a license to steal. The leverage we have witnessed in the markets has to come to an end, because the financial sector is totally irresponsible. Just look at recent history and their creation known as the credit crisis. What this is all leading up to today is another untoward event. An event the bankers did not think could happen. That event could be the default of Greece, and the terrible financial fallout that would follow. That is why the BIS is calling for more reserves. They see what could happen. The punchbowl is being removed and the banker owners do not like it at all. The BIS saw the failure of Basel III, which contained capital controls and improvement and stronger minimum capital ratios. The outcome was it was ignored and in fact most financial institutions are carrying two sets of books. If you did that you would go to jail, yet, the banks are allowed to so. Incidentally, they intend to do that for the next 50 years as they write off bad debt and the US, UK and European governments, the BIS and the FASB have approved such insanity. We believe the Fed will back down on increased capital ratios just as the BIS did and when that unexpected event takes place the bottom will fall out of the financial system. The bottom line is these greedy bankers continue to stretch risk to unfathomable lengths and there is no way back. They do not know what they are doing, and they have completely compromised the system, kicking the can down the road isn’t going to be good enough.
The answer is stronger regulatory control, but that can never happen because the bankers own the Fed. The situation is worse when you see how these central banks are all interconnected and the danger it presents. This is what world government is all about and you can see why it cannot work. The US and world financial systems are at a dangerous crossroads and there is no real attempts to correct the problems. The attempt to strong arm Greece thus far has not worked and we do not believe it will work. The tables have been reversed. It is now Greece in the driver’s seat. The opposition party now realizes, as do many Greeks that the banks really are between a rock and the hard place. Either Greece is offered extension with excellent terms and no collateralization, or they will just default and in the process take down Europe’s financial structure.
Those who understand these sophisticated problems have also considered that perhaps the bankers want to take the system down in order to insert a new one-world banking system. This economic and financial chaos would also force the citizens of Europe and the US to accept world government on terms they would never have imagined possible. We will see what happens. No matter what happens things are going to get very nasty. Failure is distinctly in the air and you are its victims.