Bob Chapman: A Monumental Event Taking Place in Europe

A monumental event is taking place in Europe, of a scope that makes the credit

crisis in the US of the past almost three years, look small by comparison. Those in the

financial community do not understand the ongoing detrimental effect it will have on

the entire world economy. It certainly will make European goods and services from the

euro zone at least 12% cheaper for export than they have in the past. The flipside of

that is imported goods, particularly energy, will be more expensive and that means

higher European inflation. We see Iran and China making announcements that they

will use dollars rather than euros in trade in the future. We guess they forgot the euro

members may have lots of problems, but the euro still has about 7% gold backing,

something the US dollar and all other currencies do not possess. This is not an excuse

to own euros, but it has fallen from $1.50 to $1.19 and that is a sizeable correction.

Those who are short the euro and have been since last October, and long the dollar,

will want to take some profits. It is also in the best interest of all that the euro doesn’t

fall any further at least at this time. The same holds true for Greek bonds, as well as

those of Ireland, Spain, Portugal and Italy.

For the past ten years we have written about the German subsidy program that

has supported the southern tier members, known as Club Med members. This subsidy

of hundreds of billions a year is no longer supported by Germany, besides from the

very beginning the Germans polled showed 70% never wanted to be in the euro zone,

and have the euro. They wanted their Deutsche mark. In fact, for years Germans

refused to accept euros printed by other euro zone members. Germany is tired of

being the whipping boy of Europe. It has been 65 years since the end of World War II,

and It is time for reparations to end, and it is time for illuminist controlled politicians and

bureaucrats to step aside. Some talk of a northern tier currency. We certainly do not

see that happening. We lived in Germany for a long time, and we speak German and

we believe we have outside insights that few have of the psyche of the German

people. As a result within two years we see a return to national currencies in the 16-

euro zone nations. The Illuminist experiment is in its final years and its failure could

destroy the EU as well. Another element few consider is the end of duty free trade in

the zone and future trade implications within the EU. We still believe the crisis is far,

far, from over. We think England could break away from the EU and the WTO and

erect tariff barriers, which would be followed by the US in order to effect economic

recovery. Both countries have lost millions of jobs to free trade, globalization,

offshoring and outsourcing. This means big changes. We also believe that the holding

of foreign profits in offshore locations by transnational conglomerates will end. That

means more taxes for England and the US and the end of tree trade as it has been

practiced since the 1980s. The attempt to destroy the world economy in order to bring

about world government has failed and its creators know that. They are trying to find

ways to extricate themselves without getting sued, prosecuted and in some instances

hung.

For the time being German politicians have prolonged the elitist program, but

they won’t be in office and power long. Germans do not want to bail out Europe and

they won’t do so. Don’t forget the German courts still have to rule on whether this

bailout is legal. We do not believe it is and this time the court will rule in favor of the

law and its citizens. This is why Germany acceded to the aid package. Germans are

bright, well educated, hardworking and efficient. They know a unified Europe is not in

their best interests.

We believe within six months Greece will leave the euro zone, return to the

drachma, default on its debt, and start to clean up its problems. If it doesn’t it will

become a third world country. This is what we advocated on Greek TV, radio and in

special interviews with the largest newspaper in the nation. Perhaps the debt will be

handled as Argentina did ten years ago, at 30 cents on the dollar. Greeks have to pay

their taxes. There has to be major governmental changes. The Bureaucrats, politiciansMo

and bankers who caused these problems have to be brought to justice, and that

includes Goldman Sachs, and punished for their acts, so Greeks and others can see

the Greek people are serious about cleaning up their problems. The country has to

become competitive and that means a low valued drachma. In addition there is no

reason for Greece to bail out European bankers who were in part responsible for this

mess in the first place. The aid plan, like TARP, is designed to only bail out domestic

and foreign bankers, not the Greek people. Default would put the blame where it

belongs, on the bankers. This would cause panic and dislocation across Europe and in

London, but let the chips fall where they may. It is not the function of European

taxpayers to bail out European banks.

The change and timing is coming and it will be crucial and the switch to the

domestic currency has to be simultaneous and secret until it happens. The rest of the

euro zone debtors will follow. The nightmare of the euro zone will be over and the

banks will have to absorb the losses or go under. We said from the very beginning of

the crisis this was inevitable and so it will be. Assets should not be sold off. That will

prove to be a nightmare for Greece. If they want to compromise they should default on

only 70% of the debt. European banks would be very happy with such an outcome.

A cheap drachma would draw tourism and make their goods cheap in foreign

markets, but spending would have to be balanced with revenues. There will be high

inflation, but that is a cheap price to pay for freedom. This course would exempt

Greece from years of servitude to EU bankers and the IMF. More than anything else

Greece has to clean up its economy. If they do not they will have the same problem a

year from now. There is some consolation and that will be that the rest of the PIIGS

and Austria may join Greece in default. The means other solvent euro zone partners

would be in trouble as well, as well as their banks. Again, as a result we do not see an

alternative block currency, but individual currencies.

As a result of European problems and other negativeness, the Dow lost some

7.9% in May and S&P 8.3%, the worst performance since 1940. Even sovereign debt

in the US, Germany and Japan is close to zero, as countries in trouble are reflecting

high yields. The Dow is trading at levels last seen in 1999. This means if you were in

the market during that period you lost money, or at best came out even. Even with the

recent dollar rally the dollar has lost 30% of its value proving to be a terrible

investment. That wipes out all US treasury gains.

If the US did not have the stimulus package and the infusion of aggregates by

the Fed real unemployment would not be 22-3/8%, but 23.75%. The effects of stimulus

are over and we will soon be sliding back into depression, albeit now an inflationary

depression. We are looking for GDP to be even to minus 2% in the third quarter. If you

subtract the stimulus, GDP rose 1.3% in the first quarter. The reason for lower GDP

growth in the third and fourth quarters is the end of inventory growth.

Keep in mind that average employments per firm have been negative for 28

months. You cannot increase employment without lending to small and medium sized

firms and the continual drain from free trade, globalization, offshoring and outsourcing.

As you know, the recent jobs report was a disaster and it is going to get much worse.

Those small to medium sized firms create 80% of new jobs. That means a Dow test of

6550 in the not too far distant future. If no stimulus occurs and the Fed continues its

drawback of funds consumers will spend $1 trillion less. This is chilling and it is on the

way.

The latest word out of Washington regarding retirement plans is forced

universal coverage, which both parties, in service to their elitist masters, will make sure

by 2013 that all old plans will be taxed and effectively frozen out. That will be

accomplished by the phase out of tax deductions in order for revenues to increase, so

that pending retirees will be forced to fund America’s tremendous debt.

In the process corporate and personal contributions and deductions for all

plans will be ended. As a result there will be no retirement plans, deductions will be

gone and tax revenues will rise. There will be no grandfathering, a lesson taught to us

by the 1986 tax reform act that destroyed eight million millionaire Americans.

Investment stopped, and in 1989 real estate collapsed and we still haven’t recovered.

This is part of the Sovietization of the economy – make everyone dependent

upon the state. It is even conceivable that benefits will be retroactively taxed. That

would be to harvest ever larger revenues while our nation lives in poverty.

Needless to say, all corporate contributions will end. The taxes will be

outrageous because tax rates will have increased. Plan termination will be massive

and government may impose terminations of plans, so it can continue in an orderly

manner.

We are still several years away and if the incumbents are not kicked out of

office this is how things will end up.

Those of you in qualified plans, that can, should borrow the maximum against

their plans. Those of you in voluntary plans should phase out your investments and

pay taxes and penalties starting now and over the next three years, putting the

proceeds into gold and silver shares and coins. This is the only way you can protect

yourselves. You have to begin to liquidate. If you have coins take delivery (a part at a

time) and put them in your safe at home. Those of you with gold and silver shares

have them transferred to a personal account to avoid commissions. Do not delay –

start your exit plan now. If you wait you will pay higher taxes or even excess profits

taxes. This is what government did in 1986, although they were eventually rescinded.

That will not be the case this time. Government wants all your money if they can get it.

That is why they are chasing down every asset you have, even those of American’s

living offshore. You have to understand you are dealing with a totalitarian government

– a corporatist fascist government.

The stock market has begun to slide and an event such as WWIII could send it

precipitously lower. Do not wait for it to happen, get out, with the exception of gold and

silver shares. Real market interest rates cannot go lower, they can only go higher. That

will send bond prices lower. Thousands in real estate will get buried as well. Those

who believe that government will confiscate all your assets had best leave the country

while the getting is good. There is no question consternation, anger and frustration is

rising in many cases bordering on financial desperation.

At this stage we do not know the exact form this raping of the American public

will tax as the box opens and the trap is set. It might be mandatory, but probably will

be voluntary for starters. There may be a mandatory 5% tax on gross income,

ostensibly for a government guaranteed annuity. That is from a government that is

bankrupt. Any retirement funds still held will be taxed. Incidentally all this research and

the pushing of this plan were put together by the Rockefellers.

The funds will be used to in part to reduce the deficit but most will be used to

bankroll bankrupt programs such as Social Security, Medicare, Medicaid, federal

retirement programs and union, state and municipal plans – a redistribution of wealth

from those who worked and saved to those who didn’t. Those of you who keep plans

and then they expire will see 50% of the funds that are left go to the government.

This is only part of the beginning of our next nightmare.