International Forecaster Weekly

The Great Sea Of Liquidity, Created By The Fed

the great sea of liquidity, created by the Fed... and how to keep dry despite... the Berlin conference that you never heard about....

Bob Chapman | May 27, 2006

If you thought 1929-1941 was bad, our coming financial problems will be much worse. Today’s speculation and leverage is 100 times more powerful. The trigger this time could be the yen carry trade and other carry trades and the derivatives involved.

Due to the giant sea of liquidity created by the Fed and more recently by other central banks, today’s leveraged speculations are financing gross and unsustainable distortions, such as over consumption and global asset inflation. The underlying credit fundamentals are simply dreadful. This was not an issue in years of crisis in the immediate past. There is a huge risk associated with financing serial current account deficits and asset inflation with market-based leveraged speculations. This is not only a problem in the US, but also a global problem.

The vulnerability of the US dollar and the fact that elitist forces have decided it must be devalued significantly, curtail Fed Chairman Bernanke’s options and flexibility. The credit system or machine as you can see from the weekly figures we publish, is already in overdrive and is gaining upward momentum in an effort to counter financial disruption. The issuance of money and credit to stave off the inevitable crash will only exacerbate the flight out of dollar securities, which has already begun. In time this will happen to all unsound currencies as the move into gold, the only real money expands. It is in motion now and has been for almost a year by professionals, 98% of pros haven’t made that move as yet, and 95% of the public never will. What the mainstream media doesn’t tell you is that a lower dollar means higher US inflation, which will be exported throughout the world by anyone who handles dollars. This and the yield protection factor is why interest rates will not go to lower levels again for years to come. This will freeze the Fed in its tracks. Seeing this, Bernanke will have to raise interest rates to protect the dollar as best he can. That will stifle the economy and add to inflation. If he doesn’t do that they’ll be a further run on the dollar. Accompanying this is the consequence of current leveraged speculation far, far worse than in 1999. This leveraged speculation is rife throughout the entire world, so everyone will be affected. That is followed by debt instrument volatility and instability throughout the entire financial system.

    Any bubble we have today is not really a bubble of the recognizable source, but a dollar liquidity bubble. Real estate isn’t the problem. The problem is the easy dollar liquidity that allowed a real estate bubble to happen. Low interest rates are pounced upon when offered – that is only normal. Yes, we are headed toward crisis and have been since 1989. The recession opportunity to purge the system was lost due to the greed of the elitists in the early 1990s and now we have a problem to deal with of monstrous proportions. Another question is, can we deal with it without going into chaos? All we know after 47 years in the markets is that you should get out of debt ASAP. Cut up and pay off your credit cards, revolving charges and pay off your vehicles. Excess funds should be used to purchase gold and silver related assets. They are the only things that will retain value.
    It has been two months since the Peace Institute Frankfurt addressed, “The Nuclearization of the Broader Middle East as a Challenge for Transatlantic Policy Coordination.” A who’s, who of elitists attended to discuss the most important question of our time – nuclear proliferation in the Middle East.

    Dr. Tim Guldimann, the former Swiss Ambassador to Iran presented the International Crisis Group’s (ICG) concrete proposal for solving the conflict, which was endorsed at the conference by Zbigniew Brzezinski, national security adviser under President Jimmy Carter and developer of what is the elitist master plan for the Middle East. It was at this Berlin conference that you never heard about, that it was disclosed that the administration said they had evidence of Iran’s rush to nuclear weapons and that George and the neocons had already decided to use the military option against Iran.

    Iran’s representative said they would not give up their right to the entire nuclear cycle, including enrichment of uranium. Not only because of the Nuclear Non-Proliferation Treaty, which Iran had signed, allows this, but also because Iran does not want to be dependant on outside sources for nuclear fuel. The nuclear program has been there for almost 50 years, and there is no way it will be dismantled.

    ICG said if sanctions were to be imposed, or a military option implemented, it would lead to total disaster. ICG proposed, in the first phase lasting two-three years, Iran would suspend its enrichment activities until the IAEA, International Atomic Energy Commission, were able to clarify all open questions. Iran would also suspend plutonium activities, and its parliament would ratify the additional protocol to the NPT, which the government has signed, allowing for invasive inspections. The second phase would ensure that no undeclared nuclear activities had been conducted. Iran would be allowed a low enrichment scheme with a certain number of centrifuges. The low enrichment uranium produced would be delivered to the Bushehr plant as fuel rods, and intrusive inspections would protect against possible diversion. Israel objected and demanded that Iran recognize Israel as a precondition to talks.