Inflationary Depression will Collapse Socialism Worldwide - Only Safety Through Gold
The inflationary depression still dominates and probably will continue to do so. In time the stimulus will fail to work and the world will slip into total insolvency and deflationary depression. The old M3 is about 3%, but we still have $23.7 trillion floating around. Not only is the US bankrupt, but also so is the rest of the world. It is now only a question of when the dominos will fall. It looks like the first wave in the collapse of the bear market rally is underway. Bonds will follow with higher interest rates and eventually commodities will be hit. Only gold and silver will survive, as the bankers and Wall Street complete their destruction of the world economy.
Holding currencies is also a loser. Eventually the best will fall to gold and silver. There is no possibility that quantitative easing can be curtailed and that means debt will continue to grow exponentially. By way of example in 2007 public debt as a percentage of GDP was 62% and this year it will be 94%; in England 44% to 82%; in the G-20 62% to 85%; in Europe an average of 63% to 85%, excepting Italy at 104% to 120%, and in Japan 188% to 227%. Over the next two years some of these nations are going to default, never mind Ireland, Greece, Portugal, Spain and Eastern Baltic Europe, which are well on the way to being basket cases. Due to current economic conditions these nations cannot generate revenue sufficient to even pay the service on the debt. Revenues are off 11% in the US and they are headed lower. In the President’s budget $100 billion is earmarked for incentives for job creation and $25 billion for the states that are generally incapable of even paying unemployment compensation. Forty states are on the edge of bankruptcy. The President wants to double the aid to education in a totally failed system. Governmental debt is growing at a rate of more than 20%. Then we can pencil in the bailout programs and the bankruptcy of Fannie Mae, Freddie Mac, Ginnie Mae, FHA, AIG and GM. The 19 major banks are still insolvent. They are all keeping two sets of books and mark-to- model, not to market. That means their assets are worth what they say they are. The collapse of the credit crisis is still underway. All the kings’ horses and all the kings’ men cannot put America back together again.
As we have often said the turning point for the dollar and the American economy was on 8/15/71, when the US abandoned the gold standard. That was followed by de-industrialization, free trade, globalization, offshoring and outsourcing, which ripped the industrial heart of America, sending our companies and jobs to foreign lands, so that transnational conglomerates could be, enriched tax-free. The result since 1972, due to inflation, is that two incomes per family are needed to financially survive. A very sad commentary, and the direct result of the actions of government, Wall Street and banking. They ended sound money and gave us corporatist socialism, also known as fascism. The result is presently inflationary depression. The value of our homes have fallen 50% and many are buried in debt. If that wasn’t enough, Congress increased the short-term debt limit this week, adding an additional $45,000 to the debt of every American. We are told by government and Wall Street there is very little inflation when in fact it is double what government says it is.
Ten banks control 70% of US deposits and they are all broke. The FDIC has $93 billion. 2,055 banks are in serious trouble. If 1,000 go under the cost would be $500 billion. The banks have already paid the FDIC fees due over the next three years. The FDIC does have a $500 billion line of credit with the Treasury and we wonder if government dares use it. Of course the banking cartel – monopoly – the Federal Reserve can always print more money and inflate the debt away.
Sources in Washington tell us the administration expects Congress to pass another $150 billion stimulus plan to augment the new budget. That should carry the economy through the election. It is not the $500 billion the White House had in mind, but it is what they will have to work with. Incidentally, half of what government spends is borrowed.
We have warned you before to exit municipal bonds. You are looking at massive unfunded liabilities. These entities have no ability to repay debt under the circumstances.
Southern and Eastern European debt markets have sent currency, bond and stock markets reeling for the past month. The dollar rally was anticipated by insiders like Goldman Sachs, JP Morgan Chase and Citigroup in their massive long dollar positions. China overdid their stimulus plan of a net $2.2 trillion in the short space of ten months. They now have bubbles in stocks and real estate that will cause real domestic problems. The yen carry trade is close to over, but how big is the dollar carry trade? Have these traders created too much liquidity? We do not know, but we would guess the dollar carry trade is not nearly as large as some believe it is. Corporations are talking about higher profits due to a surging dollar. We doubt that, and we ask how much will US exports be hurt and as a result how much worse will our balance of payments become? It seems like professionals in the bond markets worldwide are mesmerized and are accepting dangerously lower yields just to play the game – that can become a very dangerous one. They think nothing bad could possibly happen, when the debt bomb is so obvious. Junk is junk no matter how you cut it. Even in the so-called better quality issues the 5-year US T-note is yielding 2.15% and the 10s are 3.58%. With inflation in the real world over 7% why would any informed sane investor reach for such losers – never mind the junk? We are in a dead zone and shortly inflation is going to surge again. Oil will move higher, as will commodities. Gold and silver are as well posed to test their old recent highs. The world’s financial problems are not going to go away anytime soon and that is why you have to be in gold and silver related assets.
This past week gasoline prices fell $0.06 to $2.66 a gallon.
There is much talk about how it would have been better to have Paul Volcker as Chairman of the Fed, but pundits forget they are cut from the same cloth and take orders from the same people. Such a change would have been a waste of time for Americans. Volcker was added to the socialist/Marxist entourage of our President to bolster his image and to show the world that Mr. Obama was going to bash Wall Street and the bankers. Do not hold your breath. They control our President. They put him in office with money stolen from you. He is bought and paid for and you paid the bill. Very little will be done in the matter of what goes on in Wall Street and in banking. They have the world by the throat and will continue to have it in their clutches, unless the system is purged, the Fed is done away with and returned to the Treasury and the revolving door between Wall Street and Washington is shut down.
Nothing will come of Volcker’s bank bashing. That was done to make the liberals and others happy. The elitists like running the country and they are going to keep it that way. The looting of America will continue with all of the leverage and outrageous risk, theft, conflicts of interest and the continuation of a criminal enterprise.
Yes, we need Glass-Steagall back. We can thank Phil Gramm and Larry Summers for that change. Look what it has brought us: the same conditions we had in the 1920s that led to our great depression. There are those in their ivory towers and those on Wall Street, that will tell you it prolonged the depression, which is untrue. The depression continued on because of FDR not purging the system or allowing it to purge itself. It would have meant the bankers and Wall Street would have faced bankruptcy, which should have been what should have taken place. Today we have the very same problem. We have to bailout the bankers again. In neither case did bankers and Wall Street follow the sound principles of risk management and leverage. They used leverage of 30 to 70 times deposits. Is it no wonder the system had a credit crisis. They knew what they were doing in a world where 8 to 10 times was risky and sufficient. They did this basically with your money – your deposits. In fact, in today’s two sets of books system and marking-to-model, they are still trapped into leverage of 40 times deposits. This is why the credit crisis is not over. If it was why would the Fed create money out of thin air, lend it to banks and then receive the funds back and pay the banks a higher interest rate than what they were lending at? That last interest payoff comes out of your profits that should have been given to the Treasury. Glass-Steagall would force banking to constrain leveraged lending and bring order to the system.
Treasury Secretary Timothy F. Geithner said the U.S. is in no danger of losing its Aaa debt rating even though the Obama administration has predicted a $1.6 trillion budget deficit in 2010.
“Absolutely not,” Geithner said, when asked in an ABC News interview broadcast yesterday whether a downgrade is a concern. “That will never happen to this country.”
Geithner said investors around the world turn to U.S. Treasury securities and dollar-denominated assets whenever they are worried about global stability. That reflects “basic confidence” in the U.S. and its ability to bounce back from the global recession, he said.
Moody’s Investors Service Inc. last week said the U.S. government’s bond rating will come under pressure in the future unless additional measures are taken to reduce budget deficits projected for the next decade.
There is little if anything for governments and central banks to do at this point regarding Greece and others. So solons are trying to euchre the markets with verbal intervention.
Bailing out PIGS is not the major issue. If the EU does a bailout, it will only be a temporary aid because socialism is collapsing on a global basis due to the enormous, unserviceable debt.
Countries accustomed to the undeserved goodies that socialism promised but delivered on borrowed money do not have the political will to cut the unaffordable spending. So in the near future, the market will force the requisite changes.
At some point the borrowed money train will halt and the goodies will disappear, just like in the USSR.
Over the past year we have recounted numerous times that there has been no restructuring of the US economy or Europe for that matter. All that has been done is that sovereigns have absorbed trillions of dollars in private sector debt and crappy paper and issued trillions of dollars of debt to support more stimuli and crappy paper absorption.
If we have entered a new crisis phase in which sovereign nations have to bailout out other sovereign by issuing more debt, the final crisis stage will occur when the market revolts against the debt of the nations that bailed out other sovereigns. This is checkmate.
The usual suspects trumpeted the better than expected House Survey in the January Employment Report. However, we found an anomaly in the survey that suggests a sloppy book-cooking gambit.
The Household Survey shows an increase of 541k jobs and a gain of 111k in the pool of available workers. This produced the decline to 9.7% in the politically sensitive unemployment rate…Part-time workers increased 252k, which is more than half of the 541k gain. www.bls.gov/news.release/empsit.t09.htm
Here’s what makes the Household Survey job gain very suspicious. The entire gain is attributed to one category, ‘Women, 20 years and over’, which increased 529k…’Men, 20+’ declined 1k!
‘Self-employed’ declined 128k; so women weren’t starting businesses. www.bls.gov/news.release/empsit.t08.htm
Teenage male jobs (16+) increased 18k. Teenage women jobs declined 5k…“White Women” accounted for 495k of the 529k gain. White men are +31k. www.bls.gov/news.release/empsit.t02.htm
The Household Survey increase in jobs is NOT supported by withheld taxes, which show a 7.2% decline for January. Tax data measure real money going into workers’ hands.
The Household Survey’s highly improbable increase in only female employment suggests faulty methodology (malfeasance), some unqualified adjustment or a clumsy attempt to craft a better employment report for political expediency (fraud). The reasonable conclusion is the Household Survey job gain in January is bogus.
Please note the in the Household Survey people are counted as employed even if they received no income or had sustained absences from work. You can imagine what ‘personal reasons’ does to the data.
One last concern about the Household Survey in January Employment Report, from the lips of the BLS: Also, household survey data for January 2010 reflect updated population estimates…The change in population reflected in the new estimates results primarily from adjustments for net international migration, updated vital statistics and other information, and some methodological changes in the estimation process.
The BLS claims that the ‘population control’ adjustment reduced the Household Survey by 243k. This means that without the new adjustment 784k jobs would’ve appeared. If 529k job growth is dubious by tax data, January job growth of 784k would be side-splitting.
The BLS admits that December 2009 Household jobs have to be lowered by 243k…Ya think the BLS is doing this to confuse or frustrate people?
The NFP benchmark revision was -930k for the year ended last March; 824k was expected.
December NFP was revised sharply lower, to -150k from -85k; and the past five months through December were revised 245k lower! Yet there are pundits calling the January Employment Report ‘good’. Some wrote that the report confirms the positive trend in employment!
Once again, we see the trend of revising past month economic data lower. This has been occurring for the past few years. You’d think more people would inveigh against the scheme.
The U6 unemployment rate, which incorporates part-time for economic reasons and discouraged workers declined sharply from 17.3% to 16.5%. Non-agriculture ‘Part-time for economic reasons’ declined 962k. Where’d they go? If you have not looked for a job in the past 12 months, you become a non- person to the BLS and disappear from the U6. www.bls.gov/news.release/empsit.t08.htm
Further stimulus or jobs programs are anathema for most politicians because recent polls show the number issue is no longer jobs; it’s the budget deficit/debt.
Rasmussen: Americans Reject Keynesian Economics [Good thing the Ivy League employs them.]
While influential 20th Century economist John Maynard Keynes would say it’s best to increase deficit spending in tough economic times, only 11% of American adults agree and think the nation needs to increase its deficit spending at this time. A new Rasmussen Reports national telephone survey finds that 70% disagree and say it would be better to cut the deficit.
In fact, 59% think Keynes had it backwards and that increasing the deficit at this time would hurt the economy rather than help. To help the economy, most Americans (56%) believe that cutting the deficit is the way to go… Eighty-three percent (83%) of Americans, in fact, say the size of the federal budget deficit is due more to the unwillingness of politicians to cut government spending than to the reluctance of taxpayers to pay more in taxes…
What is occurring in the US is not a peasants’ revolt. Last year, numerous European clients asked us why there was no public turmoil or demonstrations. Our response was: Normally when the economy turns lower, the impact starts at the lowest demographic rung and then works its way up the ‘food chain’, just like what occurred in real estate with sub-prime.
But in the US, the entitlements, the food stamps, the unemployment benefits and community grants are still flowing. They real impact has been on the middle class and merchant class. That’s why the Tea Party and non-incumbent Republicans are surging in popularity. It’s also the reason that most American do not want any more stimulus, bailouts or increase in government deficits/debt.
U.S. companies’ sales are expected to rise for the first time since the third quarter of 2008, but it may be too soon for investors to cheer the turnaround as proof the economy is about to take off.
The 7 percent estimated increase in fourth-quarter sales for corporations in the Standard & Poor’s 500 index is largely tied to gains in the financial sector; without that, sales would be up just 2 percent, Thomson Reuters data showed.
A COURT-APPOINTED investigator is this week expected to shine fresh light on the role of JP Morgan and other financial institutions in the events running up to the collapse of Lehman Brothers, the American investment house…
It will focus on whether JP Morgan, Lehman’s main short-term lender, dealt a fatal blow to the bank by increasing collateral demands on loans in the days immediately before its demise…
According to one source, the estate, which represents the interests of all the bank’s creditors, is planning to launch a $17 billion (£11 billion) claim against JP Morgan…it could trigger multi-billion- dollar claims from Lehman’s creditors and bondholders. One bondholder said: “This is just the first move. We will be going after JP Morgan for a long time.”
The investigation will also look at whether the Federal Reserve got preferential treatment as a creditor. Before Lehman filed for bankruptcy, the Fed lent it $46 billion in cash and securities. This was repaid promptly while other debts running into tens of billions of dollars have been left to be resolved in court.
Well before the federal government bailed out A.I.G. in September 2008, Goldman’s demands for billions of dollars from the insurer helped put it in a precarious financial position by bleeding much- needed cash. That ultimately provoked the government to step in.
The S.E.C. wants to know whether any of the demands improperly distressed the mortgage market, according to people briefed on the matter who requested anonymity because the inquiry was intended to be confidential…In addition, according to two people with knowledge of the positions, a portion of the $11 billion in taxpayer money that went to Société Générale, a French bank that traded with A.I.G., was subsequently transferred to Goldman under a deal the two banks had struck.
Goldman stood to gain from the housing market’s implosion because in late 2006, the firm had begun to make huge trades that would pay off if the mortgage market soured. The further mortgage securities’ prices fell, the greater were Goldman’s profits…
A November 2008 analysis by BlackRock, a leading asset management firm, noted that Goldman’s valuations of the securities that A.I.G. insured were “consistently lower than third-party prices.”…
It is unclear how much Goldman bought through the French bank, but A.I.G. documents show that Goldman was involved in pricing half of Société Générale’s $18.6 billion in trades with A.I.G. and that the insurer’s executives believed that Goldman pressed Société Générale to also demand payments…
The government would soon settle the yearlong dispute between Goldman and A.I.G., with Goldman receiving full value for its bets. The federal bailout locked in the paper losses of those deals for A.I.G. The prices on many of those securities have since rebounded.
Hank Paulsen, in an excerpt from this book, admits that he played both the financial terrorism and political blackmail cards on John McCain. [Were other key officials and executives threatened?]
Hank in the WSJ on Saturday: We’d devised TARP to save the financial system. Now it had become all about politics—presidential politics…I spoke with John McCain, who had just returned to Washington. The call did nothing to ease my mind. “We have to protect the American taxpayers,” he told me, pointing out that nothing would get done in Congress without the House Republicans. They didn’t like our proposal and I needed to listen more carefully to them, he said.
“John, our system is on the edge,” I told him. “WaMu barely got bailed out today. Several other institutions are on the brink. If we don’t get something done soon, this economy is going to collapse.”
I was so concerned that McCain would do or say something rash that I resorted to a veiled threat: “I’m not a politician, but if you or anyone else does something that causes this system to collapse, it is not going to just be on me. I am going to go and say what I think to the American people.”
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