International Forecaster Weekly

Deficits Funded With Monetization And Hyperinflation

Old bubble mentality still remains, economic problems not over, banking and Wall Street to blame for our state of affairs, There is now a warning that conditions could come about to extend the current economic troubles for a long time.

Bob Chapman | November 4, 2009

Almost all the excessive hedge fund de-leveraging is over. Banks have continued to hold 40 to 1 leveraged positions, because they cannot exit them without a major economic recovery without going bankrupt. Our government remains trapped in the same old bubble mentality in its activist control banking and policymaking having issued $1.9 trillion in additional debt over the past year. Banks and government still do not see the warning signals. Any sane businessman who views the continued leverage being used by Fannie, Freddie, Ginnie and the FHA has to cringe in horror, as leverage increases daily without end. We predicted six years ago that the government would end up owning all the mortgages in a bankrupt nationalization process and that is exactly what is happening. Mind you this has been going on worldwide in order to deter financial collapse. Papering over the problem is not a solution. We are starting to see governments worldwide begin to raise interest rates and begin to withdraw loans in order to bring back financial normality. Wait until they discover such well-intentioned moves will cause a relapse in economic and financial activity and they begin to slip back into the morass from which they thought they were ascending. If rates are raised and funds withdrawn from the system the world financial system will fall into depression. They know that, but they are hoping hope against hope they are wrong and that it will work. They do not want it discovered that they created this monstrous problem deliberately.

Already we are seeing global leveraged speculation growing. They believe the problems are over and they are wrong, it isn’t over, nor will it be for a long time to come.

They are even moving headlong to destroy the US dollar as the world’s reserve, certainly a reversal of fortune. Since 8/15/71 this same group has been destroying the dollar in their greed for money and power by abandoning the gold standard. They knew exactly what they were doing. It is now official worldwide. The Illuminists have decreed officially that the US dollar is being phased out after they managed to destroy the manufacturing and service base of our economy via free trade, globalization, offshoring and outsourcing. A deliberate attempt to destroy our country and for transnational conglomerates to hide their ill-gotten profits in offshore entities, which pay no taxation to our government.

There is still nothing constrained about what banks and brokerage houses are doing. They are still leveraged and the credit crisis is not over. We may get a respite over the next nine months, but if $2 trillion in stimulus and increased bank loans are not forthcoming, it won’t work. If the money and credit is put into the system they’ll extend another year and if not the house will come tumbling down. Even if they expand that will be negatively affected by selective higher interest rates, withdrawal of government loans and a cutback in money and credit, which is already in process.

All of the foregoing will lead to even more volatility in markets. Economies will not improve for any lasting period of time,. All of this will also be negatively affected by the deliberate attempt by elitists to end the reign of the US and European economies. Get ready for ever lower wages in Western economies and permanent unemployment of 15% to 25%, while the transnational conglomerates and the third world prosper. This pandemonium of change will drive investors away from stock and bond markets and into commodities and gold and silver. Wealth preservation and safety will become the watchword by investing. This in part will be caused by falling stock markets, financial crisis and continued monetary disorder. Making matters worse re-flation has been underway since May. The inflation will manifest itself this coming year, as official inflation numbers hit 5% and real inflation rises above 14%. This game is not for everyone, but like it or not we are all in the game.

In America governmental policy has been dreadful, but more importantly those policies are formulated, paid for and executed, by forces behind the scenes. Elected representatives have done a terrible job, but banking and Wall Street are what have brought us to our present state of affairs. There has been nothing well intentioned that has expired.

Americans are deeply in debt and it will be a long time before those who still have jobs to extricate themselves. Savings at the last look were increasing at a 4% rate, which is certainly much better than minus ½%, two years ago. At this stage the problem of saving means less consumption at a time when buying is badly needed. The country needs double that amount of savings and it would have to be put into government debt, which loses buying power almost every day as the dollar falls in value. A lose, lose proposition for the saver. This is why the government stopped guaranteeing money market funds a month ago, they need the savings to fund government debt. The public sees that and thus government debt is not adequately being funded. As a result the Fed is having to buy that debt with money created out of thin air, which is monetization, which is inflationary. As a result before next year is history real interest rates will rise. Real inflation rates based on the 1980 formula are currently 6-1/8% and have nowhere to go but up. First led by oil prices and then by food prices. Worse yet, the administration has no plans to reduce the growing deficit. In Detroit money was being given away. When asked where it came from one of the recipients said, from Obana’s stash. This is a perfect example of American thinking. What Americans and even professionals do not understand is that those deficits will be over $2 trillion a year as far as the eye can see. The only way to fund such deficits would be by monetization and higher inflation. The stealth tax would essentially fund the deficit and we might add send gold and silver considerably higher. Americans do not understand inflation, but politicians, elitists and the Fed does. The dollar has been the safe haven for more then 100 years. That is no longer true. Proof of that is the difficulty of buying gold and silver coins in Latin America, which has had a long history of inflation. They understand the havoc inflation and hyperinflation brings. There is not a chance that the administration will get its fiscal house in order. That means the Fed will not only continue to buy government debt, but debt consisting of mortgage securities, commercial paper and credit card debt as they are now doing. Such action by the Fed actually encourages government debt. The thought process is, as in the last two administrations; let the next administration deal with it. Both the administration and the Fed will eventually take down the financial system. Even if proposed legislation is passed to give Treasury some power over the Fed it will mean little. Both entities are controlled by Illuminists. In order to save their skins we will be the recipients of crisis probably at first along the lines of what transpired in Argentina in the early 2000s, then eventually into a Zimbabwe or Weimar situation. The future is all there for one to see, especially for those who have studied history.

The recovery that is supposedly underway is nothing more than a parallel movement born of false stimulus, that will last several months and will become a beacon for another such plan in 2010 funded by Congress and increased bank lending. In all, the plans could buy an extension of economic peace of perhaps two years, six-months of which have already passed.

World trade is not going to increase in any meaningful way and the dollar will not experience a snapback in value. World trade has been growing for three or four months and no dollar rally has materialized. Foreigners are obviously sellers, not buyers. They obviously do not as yet buy the recovery scenario. How can we have recovery with unemployment rising from 21.4% and real disposable personal income falling 3.4%. One-time stimulus or inventory items represented 92% of quarterly growth.

Does that sound like recovery to you? Of course not. The only people who believe this ridiculous lie are academics, banking, Wall Street and government. The man on the street sees it quite differently, because he sees the unemployment. He knows his income is buying less in spite of government lies. Fifty-eight percent believe the recession/depression has a long way to go. Less than 20% believe we are on some sort of a bottom. Sixty-four percent believe we are still in a bear market rally and more and more believe that government is intervening in the market.

The government is issuing about $250 billion a month in Treasury bills and notes and bonds and that figure increases each month. They tell us the bid to cover is 3 to 1; 2 to 1 is normal, but forget to tell you a good part of that participation is from foreign central banks that are buying Treasuries with swap funds or from primary dealers who assume no risk because the Fed guarantees their risk and profit. In order to assure a smooth auction both silver and gold are taken down, and they rally the dollar. These are temporary actions, which in this case included a lower gold price to help gold commercials on the Comex extricate themselves from in the money options. These are the deceitful actions that even most professionals do not understand. As we predicted gold and silver flattened out and have now resumed their upward movement to $1,200 or $1,250 an ounce where the elitists will make their next stand. After having tested $1,030 this past Wednesday, on Tuesday it’s trading at $1,061 as we predicted. It will now break above $1,070, as silver moves toward $20.00. It is currently $16.41. As usual the CFTC stands by and does nothing as our government rigs the market. Between the CFTC and the SEC there is regulation, except for those who are connected or are elitists. The Fed now shows a balance sheet approaching $3 trillion and that could be $5 to $6 trillion by the end of 2010. That should be enough to take the dollar to 50 or lower on the USDX. At all costs be out of the dollar. Without the existence of the “Working Group on Financial Markets,” gold would already be $2,500 to $3,000; silver at $50 or more and the dollar at 50 to 60. It will all come to pass, just be patient. Let’s see what they pull out of the hat in January when the FASB decrees no more mark-to-model and no more two sets of books. It will be very interesting. Then there is a well Basil II and III to deal with. 2010 will be a nightmare year for financial institutions if their edicts have to be followed. The stock market will truly get slammed. Front-running, naked shorting and black box trading are the order of the day as condoned by our SEC, an elitist appendage. We wonder how investors will view 2010 as some 1,000 banks go under. That is not very reassuring. The intent from its very inception is the nationalization of the US banking system. The Fed busted these banks deliberately to bring us closer to a one-world banking system run by the incompetent IMF, or World Bank. Not only does the investor not understand what is going on but neither do the professionals. It is the socialization of losses for the giant financial houses – banks, brokerage houses and insurance companies. Worse yet they are all broke. It’s like real estate, both residential and commercial, an act of planned destruction to destroy the savings of average Americans and to take down more lenders in a planned demolition of the lending and banking industry. This didn’t just happen; it was planned that way. These moves were planned to deliberately take the US and Europe to its knees financially and economically to force them to accept world government. That is what the coming Copenhagen conference is all about. Those who would sound the bell of truth have been compromised - our economists, analysts and the media almost all who are controlled by the Illuminati. They are all afraid to speak out, because they will lose their jobs and perhaps be banned forever from employment in their chosen fields. This is how the system works, by coercion and intimidation. This silence brings us to the doorstep of great inflation similar to those of Argentina, Zimbabwe and Weimar Germany. It as well includes the abandonment of the dollar as world reserve currency and the introduction of a world trading currency to be followed by a one-world currency. According to the Financial times interview with George Soros last week China has been chosen by the elitists as the successor to America. Including its communist government. You didn’t think that that abandonment of the gold backed dollar on 7/15/71 was an errant event did you? It was the beginning of the planning for the future death of the dollar and the beginning of a complete fiat world of money, whose value was guaranteed by the worst bunch of thieves in history.