Economic Pain For Upholding A Broken System

An excerpt from Bob Chapman's weekly publication.

September 3 2011: Bernanke underestimates exposure, anticipating the demise of the Euro, and its corrupt system, more fallout from Greece will hit Germany, employment grinds to a halt in Amercia, atop of more job cuts, uncertainty at home.

We find it amusing that Mr. Bernanke in his press conference after the FOMC last week said, US bank exposure to Greece was minimal. We guess he forgot part of that $16.1 trillion and the credit default swaps from NYC banks to the tune of $150 billion. In addition we do not see the US and England escaping the fallout from Europe. From the very beginning 1-1/2 years ago we told Greece to default and that it was inevitable. Of course, the Greek government did not do that, because they wanted to hand their Illuminist friends Greek assets on a silver platter - that is public and private assets. When Greece goes eventually the other five will fall as well. Banks all over Europe are at risk even German savings banks, many US money market and pension funds have as much as 60% of their assets in instruments belonging to the six weaker nations. That represents a far greater risk than what Mr. Bernanke had admitted. The biggest question is what will the German Federal Court say? Investors had best check with their funds or advisor, or banks and S&L’s to determine just how hard they can get hit. If the Court says it is ok, then in Germany it has to be voted on. It probably will be rejected and that creates a new set of problems.

Quite frankly we cannot wait for the euros demise. National currencies will return and a great deal of malinvestment will come to an end. It is the best thing for Europe and the world. The mistake of the euro will be over and sovereign nations can return to reality, not some one-world driven philosophy.

As we have said previously many European banks will be insolvent under any kind of default. In addition, US money center banks have written between $90 to $150 million in credit default swaps on Irish, Portuguese and Greek banks. If they default that could take several US banks under as well. We’ll be looking at 2008 all over again. We should have a good idea where this is all headed between the 7th and 15th of September. Even if the purchase of bonds from the weak nations and more bailout money is approved, the underlying problems will still be in place. The entire world is slowing down and those who believe that the US won’t be affected do not have a clue as to what is really going on. The ECB, if allowed to move bad assets off bank balance sheets, and to supply further funds, won’t solve the problems. They will be in the same situation the Federal Reserve is in moving from QE to QE and never attempting to solve the underlying mess created by these banks. Stalling the crisis is not the answer. There never can be enough economic growth for these six nations to reverse the process already well underway. They are insolvent and they will stay that way. The exercise is to keep the banks from failing and allowing the public to pay for it. In this coming year there will be no GDP growth in Europe, the UK or the US. There will be pockets of pluses, but not enough to be meaningful. All six should be allowed to go under along with the banks. Yes, the public and corporations along with the banks and government would become insolvent, but no matter what happens the system has to be purged.

We are already seeing a small example of bank runs in Europe, particularly in Germany where depositors are switching from euros to gold and silver related assets. The run on Greek banks began almost two years ago. That is one of the reasons Eurobank and Alpha Banks merged last week with funding from Qatar. You can all get prepared for more bank runs if circumstances do not work out over the next couple of weeks. Greece is close to such events, which would probably be accompanied by military government, like it experienced in 1974.

After having lived in central Europe for many years, four years of which were in Germany, we sense major changes are taking place. The past WWII occupation will come to an end soon, something that should have happened long ago. Germany has been bled long enough and the time for subsidizing the rest of Europe should end. The actions of the electorate in Hamburg in North Rhine Westphalia in March at the ballot box showed us that German attitudes are changing. They no longer believe they should be funding everyone else’s losses. If Germany cannot control their own destiny and that of the EU and euro zone, they are doomed to bailout Europe forever. Germany should lead Europe because it has the economic power to do so.

What many Europeans do not know and few outsiders know is that the European financial system is corrupt and cannot survive, as we knew it. The question is when will it end, because any resurrection is hopeless? We will have an idea on timing at the end of this coming week as, after the German Federal Court makes its decision on the legality of loans to the ECB for bailouts, and whether the European Central Bank can unilaterally buy bonds as failing nations. In addition, will the German Parliament vote to approve such actions? What the outcome will be no one knows for sure but the system has no provision for failure. The game that has been played allowing reckless lending and expecting hopeless Germans and others to pay the bills and the unconscionable dumping of CDS and MBS known as toxic waste securities on European banks has come back to haunt the Anglo-American establishment, as well as Europe. As we have said over and over again sovereign debt has to be defaulted upon and the system purged. Nations who lent will take large losses and the banks generally will be wiped out. Once Europe is purged the UK and US will follow. The Illuminists are going to find out they are not as smart as they think they are. Nations and banks are going to fall into insolvency and that means in that process debt has to be cancelled.

The current arrangement between the Greek government and other euro zone members has been facilitated. It was done to save the Greek banking system, but does not benefit the Greek people. It just puts more debt on their weary shoulders. Rolling over existing debt and extending maturities does not solve the debt problem, it just throws it into the future.

Greece has been the trigger and if the German constitutional court rules against the legality of the EU’s bailout machinery then the fallout could be enormous. The word is in the Bundestag, the House of Representative, Mrs. Merkel has lost some 23 votes from Bavaria’s Social Christian Union (CSU) and if she now wants passage she will have to depend on the Green’s, who will do anything for visibility. The CSU has also stated that plans put together by Merkel and Sarkozy two weeks ago involving economic government for euro zone states are unacceptable. It involves allowing nations to leave the euro zone and a pooling of debt. It seems any kind of compromise yet crafted so far is unacceptable.

The Cabinet of Germany may have approved new powers for the euro zone’s bailout fund, but the party and Congress don’t look like they’ll approve the proposal. If rejected early elections will be held and the CDU and SCU will lose control of the government. If lending was approved all it does is throw debt into the future for the unborn to pay for. Euro zone leaders may have approved an increase in bailout funds to $635 billion, but who will approve a bailout of banks, or a recapitalization? They caused the problem in the first place. These events are what have caused ever more Germans to doubt the validity of the euro. 76% of Germans say they have little or no faith in the euro, up from 71% two months ago. This is what we have been stating for ten years. Long-term 69% to 71% have never wanted the euro. The poll is not at all surprising. The Germany people are saying we have put up with the euro and euro zone for long enough – we want out now.

If these problems were not enough the European economic growth is faltering and that could prolong the debt crisis. The EFSF and the ECB should not have powers to intervene in the bond market. All that is fascist artificial subsidization that will just end up in another crisis. Just look at what the “President’s Working Group on Financial Marketsâ€