International Forecaster October 2011 (#3) – Gold, Silver, Economy + More
By: Bob Chapman
Monday, 10 October 2011
Saving the euro, the euro zone and the European Union obviously is far more important to Europe politician’s and their masters than any national interests. After having lost seven elections in a row the Christian Democratic Union and their partners in Germany still voted 523 to 85 for an extension of money and power to the European Financial Stability Facility, the EFSF. We would say the yes voters stand a good chance of defeat at their next elections, especially when 75% of Germans were at odds with the vote. The big loser was the CDU partner’s, the Free Democratic Party that under the constitution must garner 5% of the vote to stay eligible. The power position of the CDU could well be in jeopardy.
The Bundestag committed $590 billion to the EFSF of which Germany will provide $283 billion or almost half to resurrect euro zone economies. What did come from all parties is that they will refuse to commit one more pfennig to bailing out the six wayward countries. They opposed any effort to leverage the allocated total, there would be no Eurobonds, and they voiced opposition as being implacably opposed to moving decisions on monetary and fiscal policy out of the hands of sovereign states. There should be no expansion of policy to the EFSF under any circumstances. The next question will be how long will the funds last? Probably six months to a year and then the problem starts all over again.
The German government is already in the process of protecting its banks and we are told contingency plans are in the works to return to the Deutschemark. The possibility of six sovereign defaults accompanies by bank failures looms in the distance. Considering the condition of other European banks, and the possibility that three major French banks may be purchased by China, we could see disruption in the global banking system. The advocates of world government wanted all world banks interconnected and now that control connectively will act as a lynchpin to possibly destroy the entire system. As these preparations are made the euro continues to sink in value versus other currencies, particularly what should under normal circumstances be a weak dollar. The dollar again has become the best of the worst. The very fact that Germany is building a reserve of Deutschemarks has to spell the possible end of the euro. In the meantime there will be new challenges to the legality of the recent financial rescue package passed in Germany and that could take years to resolve. Without German euro zone participation the euro will cease to exist. Although the plan is for further unification of the EU the chances of that happening is slim and none.
The importance of Greek failure and default and a 60% haircut of Greek debt are important, as Greece finally succumbs, but not priced into the markets is that Germany will return to the D-mark. Incidentally, we predicted this 12 years ago and many times since. If that becomes reality for those who choose to remain in the euro, they can expect an ever-falling currency. Overall we cannot imagine a euro without German involvement. Secretly the Germans have already made the decision. This is another situation Germany was forced into as a result of defeat in WWII. That era is soon going to end – the payback era. That means all foreign troops should be removed from Europe as well. As an aside with all this going down the Swiss had to have known what was in the works. What made them devalue the franc and set its value by coupling with the euro? That has to be the worst decision in 170 years. The Swiss may have missed the boat but the Germans are attempting to save themselves financially and economically. You are going to see a whole new Germany that will no longer be held down by what happened between 1939 and 1945. We believe Germany is on the cusp of taking care of domestic institutions and problems and protecting the German investor, not others in other countries who have abused their assistance. Their support for their own banks has already begun, and the Landbanks and some other banks may have to be taken over by the government until the mess is sorted out and that could take years. At least six countries are going under and all their debt will be worthless or near worthless. Once one goes they will all go. If Greece doesn’t get its next tranche of funds it will happen quickly. If they get their bailout funds it could be six months to a year before default. Not without their problems, while this is transpiring, the US will probably nationalize Bank of America, which is beset by many lawsuits they cannot win. In addition US banks are still 25% or 35% exposed to European sovereign and bank debt, plus the $150 billion in CDS sold to European banks. Overall US banks have major exposure in Europe.