Default and Devaluation Going Forward for EU and US and Property Values Plunge

Our first glimpse of the European Common Market came in the late 1950s in Europe where we lived. The evolution came late in the 1950s in the beginnings of Common Market and the formation of EFTA. That consolidated during the 1960s along with the miracle of Germany’s recovery. In the ensuing years more consolidation took place leading up to the European Union, eventually the end of the Soviet Union, the Maastricht Treaty and the euro. Most people during those years did not realize that this amalgamation was really a reconstruction of the centralization of what was once the Roman Empire.

As we wrote many years ago it was a union doomed to failure. It was an unnatural alliance of tribes that had been in conflict since the beginning of time held in part together by a currency based upon one interest rate that would fit all. The social and political ramifications were enormous. The theory of one-interest rate fits all doomed the alliance from the very beginning, as it was the vehicle for a major malinvestment of funds. It fostered misallocation throughout the entire union and even worse was accompanied by a creeping loss of sovereignty. This is what can happen when economic, financial and social considerations are harnessed by political stupidity or perhaps opportunism. As we wrote many years ago these efforts were doomed to failure.. It was finance and economy run by politically motivated bureaucrats, most of whom were interested in world government. The result is what we have today – a Europe on the edge of failure and breakup. A system that not only wanted to act as a gateway to one-world government, but one that at least for a time would channel the power of Germany. The last barrier for Germany was unification done in a way that cost West Germany a fortune and retarded growth for about ten years.

Now we have a bailout to contend with. Austerity throughout Europe and England in order to find the financial wherewithal to pay the bankers the debt incurred by five-euro zone nations. Debt created by banks out of thin air to now be repaid from the hides of not only the nations in trouble, but by lenders as well from other sovereign states, such as France, Germany and others.

We believe in the long run central European nations will tend to again diversify and revert back to nationalistic tendencies after having been unsuccessful in union and in a currency union. The core states had learned that the overly ambitious and poorly constructed euro had become a dependency trap and the centralization had become a bureaucratic nightmare. Germany had paid a dear price for German reunification of East and West Germany. The one for one exchange of the two marks proved very expensive and addition to the reconstruction of the Eastern zone, which was 20 years behind the West – an example of retarded growth. In addition, the work ethic had been lost. From the German viewpoint it had to be done. The US, and particularly the British and the French were very happy with the reunification, because they knew it would retard growth for about ten years, and make Germany less assertive and less competitive. After that the euro was a millstone around the neck of the country. Only half of Germans wanted the EU and 68% to this day did not want the euro. In fact, they wouldn’t accept euros printed by other members of the euro zone.

If you remember the French and the Dutch voted down the EU Constitution, and there was no referendum in Germany. The bought and paid for politicians voted in their behalf essentially selling them out. As you know a constitution was illegally shoved down their throats. Without a constitution first and then a monetary union to follow. There was no chance the venture could ever work. The outcome was a 27-nation union run by a 16-nation currency. The collapse of which, as we mentioned earlier, will bring decentralization and nationalism. This tribalism is perfectly normal, especially with a commonality of religion throughout Western and Central Europe. We must say though religion never kept Europeans from killing each other, as we have seen over and over again. That, of course, has been the work of bankers, which is another story for another time.

As a result of these changes coming about Europe will function in traditional ways and prosper even more than before. The weaker countries, that had been subsidized, will again fall behind. That simply is the way societies work. We believe ultimately all nations will return to tariffs on goods and services, because Europe and the US cannot compete with low cost labor, thus the EU and WTO will probably cease to exist. The leader in such a change could well be England and the US. Such developments could also bring difficult times for Muslims and illegal aliens in England and on the continent.

The one-world, new-world order concept could very well be laid to rest unless, of course, the elitists decide to start another world war. One thing is for sure the misallocation of assets would end. No more one-interest rate fits all, and no more subsidies. Banks and sovereigns are also going to find out that the debt owed by these five countries is going to have to be restructured. If it is not lenders are going to realize they face a general default. This is going to become a financial and political reality. Responsible reaction is not a luxury these nations can afford and remember that the lender is 80% responsible for the loan. They crafted the terms and created the loan from nothing. A 70% haircut on debt would be workable, but it would engender lenders taking losses of $1.4 trillion. Sovereigns such as Germany, France and Holland could handle the losses, but lesser countries and banks might not be able too. Then again, they should have thought about that when they made the loans. The blame question also arises due to former actions by regulatory powers that did everything short of forcing banks and insurance companies to buy questionable debt. It shows you how insidious the history of these loans have been. This is why strong centralized control does not work. In some situations they were selling quality paper to buy junk as directed by bureaucrats in Brussels. The result is the reality is all there. The fallen nations cannot pay without a 30 to 50 year depression. That means they won’t be doing much business with the healthier states, which would tend to spread the depression. That means a big meeting is coming, which would and should include the UK and US, and as we forecast months ago, default and devaluation will go forward. Such an arrangement won’t stave off depression, but it will shorten it. The big losers will be lenders, solvent nations and individuals. The latter because their wealth will fall by 2/3’s, as their currencies are devalued and they enter structured default. If you are unconvinced just look at the deteriorating pricing of debt reflecting default in Europe. As example is the debt of Greece. It is an established fact. The Greek, euro zone and EU approach has been incremental or the death of 1,000 cuts. If the players were smart they would restructure and cut Greece loose from the euro. No, they are not doing that and what we find is the PM selling off the Greek Islands to Bilderberger friends throughout Europe. The key for Greek survival is no euro and back to a low valued drachma.

This time Northern Europe does not need zero interest rates. It was low interest rates in the PIIGS countries that caused these problems initially. The way for the ECB to remedy that is to raise interest rates, but they can’t do that. The US and the Fed would be all over them. The alternative is to have the ECB allow each nation’s central banks to set their own rates. That would work, but power would be taken from the European Central Bank, so they won’t want to do that. As a result the euro will then collapse from within. A breakup of the euro would relieve stronger members of having to buy debt from suspect countries and those funds would be invested in new products, real estate and expansion – things that increase profits and lead to less taxes and more stable government. The longer it takes to remove the 5 PIIGS from the euro zone and get rid of the euro the better off all of Europe will be. In spite of looming unpayable debt the stronger European countries will do very well after a period of adjustment. They will be no longer shackled by political bureaucrats from Brussels.

Markets in Europe will return to their historical tribal roots and live naturally. Most countries will be far more prepared to enter a new free market and be comfortable doing so. This would include decentralization and diversity. Getting rid of the euro and the EU will be the best thing in years that has happened to European countries. Needless to say, this won’t go over very well with the New World Order crowd. They will again have been unsuccessful.

The MBA says refinancing requests jumped 9.2% for the week ended July 2nd the highest level since May of 2009, lifting applications by 6.7%, the most since October 2009. Purchase mortgages fell 2%. For June, purchase applications fell 15% vs. May and 30% vs. April. The fixed rate 30-year mortgage was 4.68%. Refinancing accounted for 78% of applications, the highest in 15 months.

Total mortgage delinquencies rose 2.3%, as the 30-day failures rose 10%. Deterioration ratios increased with 2.5% loans as well.

Richard Russell says: …as I’ve said a thousand times, Fed Chief Bernanke will absolutely not accept deflation. Even while he’s keeping short rates at zero and flooding the system with over 2 trillion of new Fed Notes, the “economic poison” of deflation is creeping into the economy.

What can Bernanke do about it? According to ex-Professor Bernanke, “Deflation is always reversible under a fiat money system.” In a speech a few years ago, Ben Bernanke laid out the plan — “US dollars have value only to the extent that they are strictly limited in supply. But the United States has a technology called a printing press (or today, its electronic equivalent) that allows it to produce as many US dollars as it wishes at essentially no cost. By increasing the number of US dollars in circulation or even by credibly threatening to do so, the US government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those good and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

Think of it. What Bernanke is telling us is that the government can create inflation simply by continuing massive quantities of dollars, the euphemistic “quantitative easing.”

And in the event that quantitative easing doesn’t create the desired inflation, the Fed has another trick. The Fed can buy all manner of debt including foreign debt and use it as collateral. In other words, Bernanke sees no limit to what he can buy in order to jack up the Fed’s balance book.

Shrewd gold-accumulators are well aware of all of the above. As the deflationary and deleveraging forces press on the US economy, the Bernanke Fed is ready to devalue the US dollar in its (“whatever it takes”) battle to hold back deflation.

With these thoughts in mind, I’m thinking of buying more bullion gold in the near future, this in view of the current correction in the gold price.

Let’s boil the whole thing down to three sentences.

(1) The Fed will not tolerate the growing forces of deflation.

(2) To combat the deflationary forces, the Fed will devalue the dollar by printing trillions more of Federal fiat money.

(3) Once it is realized that the Fed is on the path to devalue the dollar, there will be a panic to buy and own gold.

  The Baltic Dry Index plunged 4% on Thursday, the 31st straight daily decline. 

           With Congress tied in political knots over whether to take further action to boost the economy, Fed leaders are weighing modest steps that could offer more support for economic activity at a time when their target for short-term interest rates is already near zero. They are still resistant to calls to pull out their big guns — massive infusions of cash, such as those undertaken during the depths of the financial crisis — but would reconsider if conditions worsen. 

          Top Fed officials still say that the economic recovery is likely to continue into next year and that the policy moves being discussed are not imminent. Here comes $5 trillion over the next 2-1/2 years.

The above Washington Post story appears to be a ‘plant’.  Suspected planters include politicians facing November elections, solons fearing revolution and Street operatives facing poor 2010 performance. 

A lot of property owners aren’t selling properties these days because they won’t accept prices offered in the current market as ‘fair’. By fair they usually mean equal to or higher than their purchase price. They’d rather just sit on their property until they can break even.

Yet this phenomenon has caused some property observers, such as ourselves, to wonder whether these reluctant sellers were distorting the true, lower, value of properties across the U.S.. If they were forced to ‘mark to market’, then their properties would all show price declines.

Well some people are learning the bad news, even without selling:

But Dan Berwitz, a sales representative for a computer company who paid $204,000 for a unit in the Monteverde in 2007, has mixed feelings about the deal. He is pleased that the sale will bring financial stability to his building, but he isn’t happy that the bulk-sale buyer plans to sell the units far below what he paid, in some cases as low as $100,000. “But unfortunately, right now, there’s nothing we can do,” he said.

Condo Developer LLC, a Delaware-based company, in late spring closed on the $25.9 million auction sale of 165 units in the Vue at Lake Eola, a 375-unit luxury condo complex in Orlando, Fla., that had been operating under bankruptcy protection. The Vue, which has floor-to-ceiling windows, 20-foot ceilings and a rooftop terrace, cost $340 per square foot to build, but this latest purchase price works out to about $126 a square foot.

Note the above is even way below construction cost.

The new owners plan to sell the condos, one at a time, at a price of about $225 a square foot, at a profit of about $75 a square foot, when factoring in carrying costs including maintenance and real-estate taxes.

Bulk sales such as these will help establish a bottom for the market, especially if buyers discover that they can earn profits re-selling them. The sad news is that this bottom may be far lower than many current owners realize.

A pair of columns yesterday, by Eugene Robinson in the Washington Post, and John Crudele in the New York Post, are reflecting a broad acknowledgement that Lyndon LaRouche is absolutely right in focusing on the human tragedy unfolding, as President Obama presides, Nero fashion, over the total disintegration of life in America, as we have known it. Crudele, in a regular Post column titled “Gaga over recession worry,” slammed the Obama economic team for lying throught their teeth about the so-called private sector job-creation, which is a total fabrication. Crudele cited the Friday fraudulent job stats released by the Bureau of Labor Statistics, and noted, “President Obama quickly rushed to the cameras—as politicians often do—to explain that even with the May dip we should be grateful that we’ve had five straight months of job growth. You shouldn’t be grateful. In fact, you should be angry—not only about the poor performance of the job market but also because you are being conned.” Crudele reported what EIR has been exposing for years: “During those five months of alleged job growth, the Labor Department was pulling a statistical trick—one that didn’t work last year and probably won’t work this year. The department included in its calculations 728,000 jobs that it thinks—but can’t prove—were created by newly formed companies that are beyond their ability to survey.”

Robinson was much more blunt about the social costs of the Obama swindles. “The good news is that unemployment has fallen to ‘only’ 9.5 percent. The bad news is that the jobless rate is down only because so many people have given up hope of finding work. Perversely, the jobless who aren’t actively looking for jobs are not counted as ‘unemployed.’ Perhaps there should be a new category: ‘mired in existential despair.’” Robinson blasted both major political parties for “spinning and counterspinning” that “drives people crazy. And why shouldn’t it? The employment numbers aren’t just a monthly set of partisan talking points. They represent actual lives. They represent mortgages that might not be paid and college educations that have to be deferred; they tally mental health crises and broken marriages. Those sterile, emotionless figures speak of pain and anxiety. They mock our faith in the American dream.”

For all the administration’s tough talk on the oil gusher in the Gulf of Mexico, the signs are already there that this crisis will actually play out like the financial crisis — complete with BP’s being declared “too big to fail.” Once again, politics and posturing will govern the response to catastrophe — at the expense of both free-market discipline and the rule of law — creating a bigger disaster for the economy and the environment. Oil and credit both grease the real economy. But the economy won’t work right if oil or credit is too expensive — or too cheap. As became obvious in 2008, credit was too cheap and plentiful for the last decade or so. Financial-engineering innovations had seemingly made the risk of borrowing and lending vanish. This illusion made mortgages and other loans cheaper than they should have been — and people lent and borrowed too much. Likewise, in oil, deepwater-engineering innovations made drilling in difficult territory seemingly less risky than it was. This illusion also kept oil prices cheaper than they should have been. 

Sure, prices seemed high — but each dollar lost today or next year from an idle fisherman or an empty beach is part of the price of replacing oil we’ve already used. 

The private sector is supposed to incur any losses if it screws up. But in the “inconceivable” financial crisis, the government stepped in — and then moved in as a permanent partner. Sure, President Obama’s now saying about BP, “We will make sure they pay every dime.” He also pledged months ago that big banks would repay “every single dime” of bailout money. 

In fact, there’s an excellent chance Washington will do as it did in the financial, housing and auto-industry crises — and decide that BP is “too big to fail.” This time, it won’t be to prevent panic but to keep peace among allies and to keep oil prices low. You see, the British public is outraged at us — for being mad at BP, one of Britain’s crown jewels and a huge taxpayer. 

As The London Evening Standard editorialized Wednesday, “One in every six pounds that UK institutions earn in dividends is derived from BP . . . We can understand American anger but [Obama's] punitive approach to BP will help no one.” 

The UK’s new prime minister, David Cameron, centered his campaign on weaning Britain’s economy off finance — and BP is one of the nation’s marquee non-finance companies. If losses for the cleanup and damages overwhelm BP’s ability to pay up, the Brits won’t stand by and watch as shareholders and maybe creditors — “not fat cats but British pensioners,” notes the Standard — lose. Nor will the British stand by if a US company like ExxonMobil tries to sweep in and buy up BP’s best assets on the cheap. Once BP stops this gusher, Obama will be tempted to work with the British government to devise a creative solution out side of American financial and judicial systems. That is, British taxpayers would pump a limited amount of money into BP for a “victims’ compensation fund” to be doled out by American politicians, who will enjoy the power. Congress, in turn, would protect BP or its non-American acquirer — and the British government — by capping claims. BP’s disaster will be a key test of our economic future: Do we still have rules that we respect? Or are arbitrary exceptions going to become the new rules for a protected economic class? 

If America’s market and legal systems aren’t adequate to deal with the modern economy, if we can’t allow fair rules to govern everyone, then we might as well become the Middle East or Russia — where Big Government and Big Business dispense favors and punishments in secret. Allowing the system to work helps the environment, too. 

At some oil price, more “green” energy like solar power becomes economical — and Americans started to buy smaller cars when prices neared $150 two years ago. But if the pols protect investors from the full cost of oil-industry disasters, we’ll never know the real economic price of oil. If politicians seize the “opportunity” of this crisis to govern oil through arbitrary one-off deals, just as they have with finance, the markets for two of the economy’s critical resources will be just as polluted as the Gulf waters.