International Forecaster Weekly

Currency Theft, Raises In Interest Rates Will Signal The End Of The 'nice Decade'

Currency theft, raises in interest rates will signal the end of the 'nice decade' ... we would all be better off if the Fed were dead ... and the slump in demand for corrugated cardboard cartons are an excellent economic indicator of outsourcing ......

Bob Chapman | October 27, 2003


Sir John Templeton, 92, who we last interviewed five years ago when we were living down the street from him in the Bahamas, expressed basically the same views recently that we discussed and agreed to not that long ago. He says avoid US stocks, sell off excess residential real estate, and buy Australian, New Zealand and Canadian bonds. He sees the dollar losing 40% over the coming months as we do, down a total of 70% over a net two-year period. The major corrections will be versus the yen and the yuan. This will force the Chinese and Japanese, who own 36% of all US foreign debt, to sell their bonds and mortgage obligations and take their money out of the country. We have expressed all of the above and we add it will take down the world financial system. You had better have gold and silver and shares or you will not financially make it out the other side. The world is about to find out that financial engineering doesn’t work.

Empires are not built on debt. The US debt position is not sustainable. It is only a matter of time before Asia and the Muslim world divests itself of dollars, forcing our government to pay increasingly punitive premiums to attract foreign investment to cover the rising risk of dollar depreciation. This in the form of higher interest rates will curb US economic activity and have deflationary global repercussions by increasing the debt service load of all countries. This is the catalyst for a flight to quality, which is gold and silver. The one-year eurodollar contract says the Fed will raise rates by 1.25% over the next eleven months and if you go to December 2004, they see rates 1 11/16% or 1.70% higher and if you look at December 2006 projections, you will see Fed funds rates up 4% at 4.96%. That means 30-year mortgage rates at 7% to 7 1/2% and rates at 10% in 2006.

What the Eurodollar rate is really saying is that the real market is going to be reflecting those rates not the Fed. Real interest rates are out of the Fed’s hands. There are those that say the Fed won’t raise interest rates in an election year. The Fed will not have to raise rates; the market will do it for them. The Fed as of late has been restraining the growth of M-2 and M-3. Will they continue? We don’t know, but if they were to continue the stock market would collapse along with the economy and deflation and depression would set in.

We believe in the months ahead the Fed will restart its money machine. If it doesn’t it is game over. Our opinion is assisted by 33% of manufacturers saying that production is not likely to regain pre-2001 levels and that is because transnational elitist conglomerates have outsourced so much of basic manufacturing and production. In fact, 44% do not expect production to return to 2001 levels in the foreseeable future, due to offshore competition and loss of industry. Pro forma third quarter earnings were up 6% yet; there is no job growth. Seventy-two percent have no pricing power, yet 25% of business is saying they are paying higher prices. What growth there is emanates from credit expansion and spending home equity. Thus, once interest rates move up what little recovery there is will end. A stimulus led recovery can only be of short duration and there is little hope of lower energy prices to push the economy.

We are already seeing the result from the tax cut which means 2004 will be a stillborn dud. What pundits do not understand is that the Fed can influence not control interest rates. Both interest rates and the bond market with higher rates are pricing in a flight to quality and a flight from the dollar and US debt. That, of course, includes Ginny Mae, Fannie Mae and Freddie Mac with 40% of their guaranteed loans, which are sub-standard. These entities, even worse yet, are doing what the S&L’s were doing in the 1980s that is lending long and borrowing short. This carry trade leverage ends with higher interest rates, and then they lose money. That is why these agencies use trillions of dollars in derivatives, for which they pay heavy premiums.

The bottom line is Fannie and Freddie have been used to fuel the economy to take it out of recession and in the process have amassed enormous debt, which the public will end up paying out or we’ll simply go bankrupt trying to do so. Some say this market will not be allowed to collapse. Yes, the Treasury will step in and get the Fed to print money to bail them out. That increases debt, the dollar falls lower, and real interest rates go higher. That cannot stop it. It is too big a debt for any entity to handle. The real simple question is why should the taxpayers take all this risk for private gain and to manipulate the economy?

As we continue into the arcane world of debt and interest rates we find Bank of England Governor Mervyn King has warned of a decade of higher interest rates, signaling disaster for borrowers. His words, not ours. He said the “nice decade” was coming to an end, and record low interest rates would soon be a thing of the past. To retain the unrivalled degree of stability we have achieved during the nice decade will be an even more difficult challenge for the future. The last 3 1/2 years of low rates have not been seen since the 1940s. Interest rates will have to rise and monetary stimulus will have to be reduced. This means it is in the interest of the Bank of England to take the froth out of the housing market. Some analysts in London are looking for a 1/2% increase rates to 4% prior to the end of the year. We include this in this section because if UK rates are going to rise 1/2% prior to year end there is a good chance US rates will follow. The UK has the same outsourcing problem as the US. 10,000 jobs a month are still being lost in manufacturing and high quality, well paid jobs are becoming an endangered species and the government must act before they become extinct. It sounds like the US doesn’t it?

Today’s monetary and fiscal policies are far more stimulative then those of the 1920s, which led to the worst and longest depression in US history, a tribute to the evil machinations of the Federal Reserve. It has resulted in enormous debt leverage by individuals, corporations and our government. The government, of course, is in the lead with $45 trillion in overall debt commitment with a current account deficit of 5.1% of GDP or over $500 billion, and a fiscal deficit of $374.2 billion plus, or some 4% of GDP.

The expansion of monetary aggregates by the Fed and Fannie Mae and Freddie Mac has been some $7 trillion. This has stalled recession and supposedly will supply the economy with enough fuel for 4% growth, which has yet to appear and probably will not appear. Even if we are wrong and 4% growth is attained, we are looking for 2 1/2%, the massive injection of liquidity is bound to inflict serious harm to the US and the world economy. The Fed, of course, defies reality keeping over night rates at 1% so banks can make the loans they choose to make, which of course includes stock brokerage and investment banking loans, which they use to help the “Plunge Protection Team” rig the markets.

In the last five years financial and non-financial debt increased 51% to $32 trillion, three times annual GDP. Our federal government is adding $1.8 billion in debt a day. That is $657 billion a year in debt per year. That figure will be $650 to $700 billion next year if prescriptions are added to Medicare. Low interest and mortgage rates have allowed borrowers to bury themselves in debt. In the last quarter by almost $400 billion in mortgage debt and another $40 billion in credit card debt. That is about $1.5 trillion annually or 15% of GDP. In spite of this, the economy is still stagnant and once interest rates rise and debt begins to decline, the economy will plummet. Foreigners are financing this tremendous debt and as the dollar declines, foreigners are going to be very unhappy with the American government.

One day they’ll say the dollar must decline and the next day they say they still have a strong dollar policy. Of course, it is all lies to suit the situation at any given moment. No central banking system can continually inflate its currency and rig interest rates in defiance of market conditions indefinitely. If it continues there will be hyperinflation, if it stops the deflation and depression will begin. Either way the dollar will decline and foreign debtors will be left holding the bag. They will needless to say turn sellers of US Treasury and agency securities, which will drive interest rates ever higher. It is a tragedy that even college graduates are unaware of the cause-and-effect relationships of monetary and fiscal policies and the tremendous effect they have on our lives. On the other hand, if they understood would they have the discipline and strength to accept what was proper for their financial lives? Could they stand the inconvenience and occasional pain? Withdrawal can be a very painful experience. Then again, our so-called experts have lied to and deceived us for their own benefit. That is why the Federal Reserve has to be done away with and why our government must then issue US Notes redeemable in gold or silver.

Since 1913, our monetary policies have been a disaster except for the elitists, which it serves. The elitists’ policies and the profligate political leadership of the past have put into action a calamitous chain of events that are in the process of destroying our financial system. Our intellect tells us we unfortunately must be pessimists, prepare you for the coming depression, and help you survive it financially and physically intact. We may see the dollar totally destroyed and that is why it is so very important you own gold and silver coins and shares.

Economists speak in terms of changes in policy at the Fed. The Fed is the problem. You have to think outside the box. You have to demand the end of the Fed, its duties to be assumed by the US Treasury. The Fed has no more objectivity than the Treasury. At least at Treasury what they do can be controlled by law. No one except the Fed controls the Fed and the Fed controls our lives.

Today in order to stop the financial massacre we are facing we must reascend into protectionism. It would save our economy and preserve us from third world status. Moreover, if you think that cannot happen you are very mistaken. This is what this is all about, the neutralization of America as a world power. The system, as we now know it, has to be purged and that includes free trade and globalization. Who cares if exporters to America, like China and Japan, get hurt. We have supplied them with an excellent living for a long time. So what if they put tariffs on our goods. They will be the losers, not us. Besides, we export so few products today it would be no great loss. Tariffs imposed by the US would bring all those industries and outsourced jobs home where they belong not in the back pocket of some transnational corporation headquartered in Bermuda or Barbados.

Those who favor a gradual abandonment of monetary policies and an orderly readjustment of unhampered market conditions are living in a make believe world. There is absolutely no chance of that happening. The Fed is in a mode of planned destruction in order to implement world government. The Fed is a main part of our problem and it can never be the solution. Foreigners should take notice because this is the same Fed that wants you to take 70% losses on your dollar holdings. This is the same group of insider elitists who have gotten you to sell all or almost all of your only real asset, gold. Wake up world, you are getting screwed. Unless, of course, you like allowing Americans to live in luxury as you lose your assets on loan to those voracious consumers.

If you were smart, you would be selling any dollar denominated investment you have. You are being cheated by a bunch of elitist crooks that are manipulating the dollar, other currencies, interest rates, the stock and commodity markets and gold and silver prices. We ask you how can you do business with such criminals? A depreciating currency is planned theft. After the fall, the only answer is a return to a gold exchange standard, where US notes are issued and every citizen can go to the bank and exchange dollars for gold as well as foreign creditors. Without that the elitist criminals will just start the entire process over again.

The CEO of International Paper, that dominates corrugated box manufacturing, does not expect a strong upturn in the economy and Secretary of the Treasury, Snow, told the Times of London that US interest rates are set to rise this year. We know Queen Hillary is running for President, but please tell us she cannot get nominated. What a revolting development that would be.