“The game is over. It is now only a question of when.”- Bob Chapman
International Forecaster September 2011 (#1) – Gold, Silver, Economy + More
By: Bob Chapman
Monday, 5 September 2011
We find it amusing that Mr. Bernanke in his press conference after the FOMC last week said, US bank exposure to Greece was minimal. We guess he forgot part of that $16.1 trillion and the credit default swaps from NYC banks to the tune of $150 billion. In addition we do not see the US and England escaping the fallout from Europe. From the very beginning 1-1/2 years ago we told Greece to default and that it was inevitable. Of course, the Greek government did not do that, because they wanted to hand their Illuminist friends Greek assets on a silver platter – that is public and private assets. When Greece goes eventually the other five will fall as well. Banks all over Europe are at risk even German savings banks, many US money market and pension funds have as much as 60% of their assets in instruments belonging to the six weaker nations. That represents a far greater risk than what Mr. Bernanke had admitted. The biggest question is what will the German Federal Court say? Investors had best check with their funds or advisor, or banks and S&L’s to determine just how hard they can get hit. If the Court says it is ok, then in Germany it has to be voted on. It probably will be rejected and that creates a new set of problems.
Quite frankly we cannot wait for the euros demise. National currencies will return and a great deal of malinvestment will come to an end. It is the best thing for Europe and the world. The mistake of the euro will be over and sovereign nations can return to reality, not some one-world driven philosophy.
As we have said previously many European banks will be insolvent under any kind of default. In addition, US money center banks have written between $90 to $150 million in credit default swaps on Irish, Portuguese and Greek banks. If they default that could take several US banks under as well. We’ll be looking at 2008 all over again. We should have a good idea where this is all headed between the 7th and 15th of September. Even if the purchase of bonds from the weak nations and more bailout money is approved, the underlying problems will still be in place. The entire world is slowing down and those who believe that the US won’t be affected do not have a clue as to what is really going on. The ECB, if allowed to move bad assets off bank balance sheets, and to supply further funds, won’t solve the problems. They will be in the same situation the Federal Reserve is in moving from QE to QE and never attempting to solve the underlying mess created by these banks. Stalling the crisis is not the answer. There never can be enough economic growth for these six nations to reverse the process already well underway. They are insolvent and they will stay that way. The exercise is to keep the banks from failing and allowing the public to pay for it. In this coming year there will be no GDP growth in Europe, the UK or the US. There will be pockets of pluses, but not enough to be meaningful. All six should be allowed to go under along with the banks. Yes, the public and corporations along with the banks and government would become insolvent, but no matter what happens the system has to be purged.
We are already seeing a small example of bank runs in Europe, particularly in Germany where depositors are switching from euros to gold and silver related assets. The run on Greek banks began almost two years ago. That is one of the reasons Eurobank and Alpha Banks merged last week with funding from Qatar. You can all get prepared for more bank runs if circumstances do not work out over the next couple of weeks. Greece is close to such events, which would probably be accompanied by military government, like it experienced in 1974.
After having lived in central Europe for many years, four years of which were in Germany, we sense major changes are taking place. The past WWII occupation will come to an end soon, something that should have happened long ago. Germany has been bled long enough and the time for subsidizing the rest of Europe should end. The actions of the electorate in Hamburg in North Rhine Westphalia in March at the ballot box showed us that German attitudes are changing. They no longer believe they should be funding everyone else’s losses. If Germany cannot control their own destiny and that of the EU and euro zone, they are doomed to bailout Europe forever. Germany should lead Europe because it has the economic power to do so.
What many Europeans do not know and few outsiders know is that the European financial system is corrupt and cannot survive, as we knew it. The question is when will it end, because any resurrection is hopeless? We will have an idea on timing at the end of this coming week as, after the German Federal Court makes its decision on the legality of loans to the ECB for bailouts, and whether the European Central Bank can unilaterally buy bonds as failing nations. In addition, will the German Parliament vote to approve such actions? What the outcome will be no one knows for sure but the system has no provision for failure. The game that has been played allowing reckless lending and expecting hopeless Germans and others to pay the bills and the unconscionable dumping of CDS and MBS known as toxic waste securities on European banks has come back to haunt the Anglo-American establishment, as well as Europe. As we have said over and over again sovereign debt has to be defaulted upon and the system purged. Nations who lent will take large losses and the banks generally will be wiped out. Once Europe is purged the UK and US will follow. The Illuminists are going to find out they are not as smart as they think they are. Nations and banks are going to fall into insolvency and that means in that process debt has to be cancelled.
The current arrangement between the Greek government and other euro zone members has been facilitated. It was done to save the Greek banking system, but does not benefit the Greek people. It just puts more debt on their weary shoulders. Rolling over existing debt and extending maturities does not solve the debt problem, it just throws it into the future.
Greece has been the trigger and if the German constitutional court rules against the legality of the EU’s bailout machinery then the fallout could be enormous. The word is in the Bundestag, the House of Representative, Mrs. Merkel has lost some 23 votes from Bavaria’s Social Christian Union (CSU) and if she now wants passage she will have to depend on the Green’s, who will do anything for visibility. The CSU has also stated that plans put together by Merkel and Sarkozy two weeks ago involving economic government for euro zone states are unacceptable. It involves allowing nations to leave the euro zone and a pooling of debt. It seems any kind of compromise yet crafted so far is unacceptable.
The Cabinet of Germany may have approved new powers for the euro zone’s bailout fund, but the party and Congress don’t look like they’ll approve the proposal. If rejected early elections will be held and the CDU and SCU will lose control of the government. If lending was approved all it does is throw debt into the future for the unborn to pay for. Euro zone leaders may have approved an increase in bailout funds to $635 billion, but who will approve a bailout of banks, or a recapitalization? They caused the problem in the first place. These events are what have caused ever more Germans to doubt the validity of the euro. 76% of Germans say they have little or no faith in the euro, up from 71% two months ago. This is what we have been stating for ten years. Long-term 69% to 71% have never wanted the euro. The poll is not at all surprising. The Germany people are saying we have put up with the euro and euro zone for long enough – we want out now.
If these problems were not enough the European economic growth is faltering and that could prolong the debt crisis. The EFSF and the ECB should not have powers to intervene in the bond market. All that is fascist artificial subsidization that will just end up in another crisis. Just look at what the “President’s Working Group on Financial Markets” has done to the US bond market. It has guaranteed 10% losses at this point annually. Who would want to own such bonds? You would have to be an idiot to make such an investment. Don’t buyers in the US realize real inflation is 11.2%? That is what will happen in Europe if the ECB and the EFSF are allowed to intervene. Like in America, the friends of the banks will bypass Congress. The court may say Germany was right in engaging in bailouts, but Parliament should have been consulted more. The problem goes well beyond that. The German people want out of the euro and they do not want more bailouts. If the EFSF is ratified you could see demonstrations and rioting throughout Germany. This could push Germany and Europe over the edge.
We can remember in our early issues writing about the Maastricht Treaty and how it would never work. The basis was a limit of 3% public debt of GDP, a hurdle totally unachievable for a number of participants. As it has turned out we were right almost all participants never achieved the guideline. The idea was that German support for the euro would be endless. We believe that open-ended commitment is coming to an end. Subsidies shared by other strong economies, have turned out not to be the answer, because six members abused the trust. One interest rate could never fit all and anyone who has studied economics knows that. Europe got caught up in an impossible dream that simply turned out to be a dream and not reality. When these six economies saw the very low interest rates they not only used them, but they abused them. These low rates transformed the six nations boomed. Then came the disconnects that led to today’s problems. Germans have now reached a stage where they now realize the EU and the euro zone system does not work. Yes, Germany gained more in the exchange than others and they believe it is time to call it a day.
Germany cannot be faulted for their attitude and conclusions. They have freely subsidized the EU many times, and they were forced by the French, British and US to pay all the costs of German unification and they accepted of Reich marks for Deutsche marks, one for one, when it should have been 20 to 1 and they paid for the cleanup of eastern Germany, which is still ongoing. German leadership acceded to the first Greek bailout 1-1/2 years ago, which we thought was a mistake inasmuch as any clear thinking professional knew that Greece was doomed financially. The crumbling edifice known as the European financial Security Facility, EFSF, a stopgap procedure is now being used again to act as a conduit for a second bailout. The result is that all over Germany the majority of voters do not want any more bailouts. Of course, German leadership thinks otherwise. Like all countries Germany’s voters have been sold out to the bankers and one-world government. Will that happen once again? We do not know, but we are going to find out shortly. The guarantees for the bonds to raise bailout funds in exchange for austerity programs are done and will be unsuccessful. How can you grow and bring in added tax revenue to pay interest to the bankers when you are cutting back and laying off. It is the old IMF nostrum used to keep nations in financial captivity since WWII. Such a program prohibits these nations from growing out of their problems. $400 billion has already been wasted and now more good money will be thrown after bad. The need for funds is so great that the EU Council of Ministers had to increase the term of the bonds from 7.5 years to 40 years. In addition interest rates on the bonds were lowered. That is because the borrowers cannot repay the loans. The German $640 billion program does not sit well with the public. When it is found that is not nearly enough money. That is part of the reason German voters want to cut further aid immediately. This is in spite of the fact that Germany controls and runs the fund. This additional German sacrifice has put it in the driver’s seat in Europe and enhances it geopolitical potential. It took 66 years, but Germany is leading Europe again.
Next week the Germans vote on the proposed new bailout package, that is their representatives do. If passed it will signal Germany will bail out the rest of Europe indefinitely. This in no way will solve any problems. It will be subsides in perpetuity. German’s are very deeply concerned regarding the sellout of their country to fund banker loans and bonds. In fact a vote to continue the largess could easily prompt demonstrations, riots and major civil unrest. The public is ready to act. They refuse to be penalized for the financial profligacy of other nations, including France. If such legislation is passed Angela Merkle will be political history and the CDU, the Christian Democratic Union will be out of power for the next 20 years or more. If Merkel and the other bureaucrats and politicians, who are owned by the bankers, fails in getting it passed the entire western banking system will collapse. Germans know a refusal of the bill will destroy what is left of the financial structure and they obviously are willing to accept that. They rebuilt Germany over the past 66 years and they figure they can do it again. Lack of a bill and bailout of $4 to $6 trillion will purge and cleanse the system. This is what should have been done to the system three years ago when the credit crisis began. The western world had chances to easily purge the system in 1990 and again in 2000, but the bankers, Wall Street and the City of London were making too much money looting the public. The re-inflation that the US, UK and Europe have been going through won’t work, and will end up in financial and economic collapse. This is what gold and silver are telling us. The game is over. It is now only a question of when. The fraud has been exposed, so it is only a question of when the majority in the world figures it out. Most professionals do not even understand that for 66 years every country has been devaluing their currencies, so they can compete with giants of industry and in that process have destroyed their currencies. Now you can better understand why the intelligent are buying gold and silver related asserts. You had best listen or you will lose almost everything you have.