International Forecaster Weekly

Nonsense From The Central Bank

Nonsense from the Central Bank... unpayable debts... trade deficit with China... GW Bush for dog catcher... the Dubai ports deal... and more

Bob Chapman | March 18, 2006

The world’s central banks would have us believe that they will likely work closer together to try to manage the impact of an expected long-term decline in the value of the dollar. They have already been doing that for a very long time without telling you that. Trial balloons are going up preparing the public for the fall of the dollar. Preparation for what the bankers hope is a gradual shift in the dollar’s role as the world’s reserve currency over the next 4 to 6 years. The bankers know they’ve essentially ruined the American economy via debt, reflected in the current account, fiscal and personal indebtedness. They know dollar holdings eventually have to be liquidated even at a loss. They know US debt is unpayable, and they know for sure the dollar will lose its position as the world’s reserve currency. It has all been planned that way to clear a path for a universal world currency as part of a One World Government. The trick for the bankers is to dump dollars in a gradual manner so as to keep their losses to a minimum and they hope that can be done via coordination. What the bankers are not telling you is that they started dumping dollars five years ago. If you check BIS figures, which you received in the last issue, you see that dollar reserve holdings have dropped precipitously. The big holders are Asian central banks, the US and Caribbean banks that are fronting for Federal Reserve monetization. We can assure you British and other European central banks will extricate themselves in due time but Asian banks will get left holding the bag.

What is going to be pitched to you is that there must be coordination when in fact the coordination has already been taking place behind the scenes for years, just as the manipulation of all markets has been going on for years. Coordination is just another word for manipulation.

The trade figures came out a week ago and there was another surge in the trade deficit with China and the rest of the world. As a result, economic tensions are rising again in Washington as the Capital prepares for the long-delayed visit of President Hu Jintao in late April. The visit comes as there is increasing pressure to find some way to curb the growth of China’s exports, as protectionism finally becomes a factor in foreign policy. The deficit with China is increasing 10% a month. The January trade gap was $17.9 billion and overall we imported $68.5 billion more in goods and services than we exported. Our Treasury is supposedly trying to figure out if China is a currency manipulator. The answer is of course they are, and so is 95% of the rest of the world, including our treasury and Fed. Finally, forced by constituents, Congress is standing up to retaliate as reelection appears in the distance. They have had their wakeup call and they had better react. If they don’t they won’t be reelected. Dubai Ports has taught these immoral crooks a lesson. Congress and our President have sufficiently enraged the American public. Just look at the responses to questions on CNN’s Lou Dobbs show every weekday night. Politics create some very strange bedfellows. Lindsey Graham (R-SC) is an unprincipled lout and Charles Schumer (D-NY) has been wallowing at the bottom of the barrel for a long time, but you have to take what you can get. Remember, your enemy’s enemy is your friend whether you like it or not. They have sponsored pending legislation to impose a tariff of 27.5% on all Chinese imports unless Beijing allows its currency to appreciate. That would make Chinese goods that much more expensive in the US. The bill is short sighted – it should include all the currency manipulators well over 100 of them. Passage of such a bill would destroy WTO, NAFTA and CAFTA, which would suit us fine. Passage of such a bill would force China and others to allow their currencies to float and rise to a market level, but the flip side of that is they wouldn’t have to buy US Treasuries and keep dollar balances. That would mean the US government wouldn’t be able to fund its debt and the dollar would fall 30% to 50% in value against gold and some major currencies. There is a lot at stake here. The problem is whether we impose tariffs or not, the dollar is going down. This would just expedite the process. It would also eventually bring an end to free trade and we would no longer suffer the loss of our manufacturing economy, via offshoring and outsourcing, as it would be less attractive. Severe damage has been done to us by elitist transnational conglomerates, but at least the offshore flow of industry and jobs would cease. Remember, we have implemented tariffs since the creation of our nation and it’s one of the main reasons we prospered.

The half-wit in the White House with the 34% approval rating would probably veto such legislation. It is up to us to make sure that veto is overridden. This dear subscriber is the moment of truth economically for our nation. Incidentally, we believe other bills will arise before November. Tariffs, the occupation of Iraq and Afghanistan and illegal immigration will be the major issues that shape the results of the next election. Our President’s strength previously was his consistent 52% backing on Iraq and Afghanistan, that approval is now 43%. If an election were held today George W. Bush couldn’t be elected dogcatcher and Congress, especially Republicans, know that.

In another example of the duplicitous scum that inhabits Washington, last week we observed Jack Kemp on Meet the Press give all the reasons to back the Dubai Ports deal – most of which were conjecture or lies. What he failed to tell the audience was that the UAE has invested millions in Free Market Global, an energy trading company of which he is chairman. General Tommy Franks, whom Kemp used as his debate reference, is on the advisory board of Free Market Global, and stands to profit from maintaining good relations with the oil-rich emirs. Our nation’s capital is wallowing in scum. It’s all about money. Our sources tell us the Dubai Ports deal was really ramroded by Dick Cheney. All these elitists are interconnected and all of them are there for the money and power. Kemp might also have mentioned his close relationship Samir Vincent in the 21st Century Marshall Plan for Iraq, who was a player in the oil-for-food scandal and who pleaded guilty to illegally lobbying for Iraq. Vincent is a buddy of Frank Carlucci, Chairman Emeritus of the Carlyle Group, the elitists favorite private equity group that has received more than $100 million in funding from the UAE. We reported on Bill Clinton’s payoffs by the UAE last week. There were thousands of beneficiaries to the Dubai Ports deal and no one will now get paid. Let’s hear it for the American people and let’s hope congress turns on this issue and does what Americans want them to do.

The unfolding debit card scam that rocked Citibank last week is far from over. This is the first time ever mass theft of PINs, the worst consumer scam in history. It has forced Citibank to reissue debit cards and block PIN-based transactions for users in Canada, Russia and the UK. The scandal has hit Bank of America, Wells Fargo and Washington Mutual, as well as smaller banks, all of which had to re-issue debit cards in recent weeks. This is the worst hack in history. The thieves hacked into the system and made off with data stored on debt cards’ magnetic strips, the associated PIN blocks and the key for that encrypted data. The problem is that retailers improperly store PIN numbers after they have been entered, rather than erase them at the PIN-entering pad. Worse, the key to encrypt the PIN blocks are often stored on the same network as the PINs themselves, making a single successful hack a potential goldmine for criminals: they get the PIN data and the key to read it. This allowed the thieves to crank out counterfeit debit cards and they then emptied accounts at ATMs. They stole at least 200,000 records. The banks believe Office Max was penetrated. The answer is to use the debt card at the ATM and use cash to buy. The problem is at the point of sale so do not use your debt card at points of sale.

The fourth quarter of 2005 was a humdinger for the US credit system. Total Credit Market Debt was $3.827 trillion, up 10.1% versus the third quarter. Debt growth was up more than $500 billion compared to 2004’s record of $2,818 trillion. TCMD expanded $3.340 trillion in 2005 to $40.230 trillion. As a comparison Annual total Credit Market Debt growth averaged $1.237 during the 1990s. You would have to go back to 1986 to surpass 2005’s 9.5% rate of expansion in non-financial debt. At a record $2.295 trillion, non-financial debt expanded at more than three times the nineties average $710 billion. Total household borrowings expanded 11.7% during 2005, the largest since 1985. Total business debt expanded at the fastest pace 7.8% since 2000. State and local debt grew 10.6% during 2005 and government borrowings expanded 7.0%.

Total mortgage debt expanded an astounding $1.470 trillion in 2005, up 14%. That is five times the average annual mortgage debt growth during the 1990s. TMD ballooned 29% in just two years to $2.708 trillion, and more than doubled in seven years, up 107%. TMD increased to a record 96% of GDP during 2005, up from 67% to begin year 2000, and 51% in 1982. Household mortgage debt expanded a record $1.133 trillion, or 14.1%, up from 2004’s record $992 billion growth and the 90s average of $230 billion. Commercial mortgage debt expanded a record $266 billion, or 15.6% to $1.968 trillion. This is ten times the $26 billion nineties annual average commercial mortgage debt growth.

Financial sector credit market debt rose 8.2% from 2004’s 7.4%. Bank credit expanded 10.1%. That is a 2-year gain of 20.3%. Bank mortgages grew 14% and 31.1% for two years. Corporate bond holdings increased 22.8% and 43% in two years.

In structured finance growth was 8.1%. GSE contracted 2.3%, MBS was up 3.8%, but ABS was up 28% for the fourth quarter and 26.7% for the year to 43.059 trillion. ABS was up 46.5% for two years and 130% so far this decade. 70% of ABS holdings are mortgages up from 42% in 2002.

Securities broker/dealer assets rose to $299 billion, or 16.2% or a total of $2.144 trillion. Their assets rose 33% in two years and 61% in three years. Money markets grew for the first time since 2001, increasing $130 billion or 6.8% annually to $2.011 trillion.

Foreign holding of US financial assets surged $1.318 trillion to $11.154 trillion for a two-year gain of 33%. Of total credit market holdings the two-year gain was 42%. Treasury holdings increased $298 billion to $2.198 trillion, absorbing essentially all of 2005 issuance of $307 billion. Agency holdings vaulted $172 billion to $934 billion, significantly more than new agency debt issued during the year of $51 billion. We see this as market support. Corporate bond holdings rose $351 billion to $2.103 trillion while equities increased $86 billion to $2.304 trillion.

Household liabilities expanded 12.9% for the fourth quarter and increased $1.181 trillion, or 11.0% for the year to $11.916 trillion. Liabilities were up 24.1% in two years and 50.7% in four years. Assets surged $5.038 trillion, or 8.5% to a record $64.023 trillion. Real estate holdings jumped $2.803 trillion to 14.9%. They were up 57% in four years. Household net worth jumped $3.875 trillion to a record $52.107 trillion. That increase was down from a 2004 gain of $4.418 trillion. In three years net worth inflated by 33%. Net worth in 2005 was 417% of GDP, up from 1995s 351% and 1985’s 335%.

We are in an era where credit growth, current account deficits, leveraged speculation and derivatives do not matter. The Fed is deliberately destroying the financial system and it is being assisted by free trade and globalization. The result of the new paradigm will be like a nuclear explosion far beyond what anyone can imagine. De-leveraging internationally has begun with the end of the yen carry-trade. The only safe place from this insanity will be gold and silver related assets.