Today The Destruction of Money

By Bob Chapman, January 12th, 2011.

Economy still stagnant despite money injections, US and Europe wont be able to repay most of their debts, free trade, globalization and the phony terrorism all linked together, little or no gold left in the US treasury, Wall Street cuts Treasury holdings, Fed balance sheet wont balance for some time to come.

The U6 number fell to 16-7/8% from 17% last month, thus, the real unemployment number is 22-1/4%, off 3/8 of 1 percent in two months.
The average duration of unemployment heads back up to a new record 34.2-weeks and when the share of the unemployed ranks looking for a job without success rises 2% to 44.3% you have a problem. It is hardly a winner. The workweek was unchanged at 34.3-hours. The employment rate was 58.3%, the same level it was at late in 1983. In order to re-ascend to peak employment levels 11 million jobs would have to be created. That cannot happen as the transnational conglomerates execute free trade, globalization, offshoring and outsourcing. That would be 2.75 million jobs annually over the next four years. Still millions of illegal aliens are streaming across our borders to find work and push American citizens out of their jobs.

There has been a decline in the number of jobless claims, but layoffs of state, country and city employs has added to the jobless, some 20,000 a month. Even with all the funds being injected into the system, the economy is still stagnant. The municipal layoffs will become acute in the last quarter of the year and carry over into 2012, as more and more towns, cities and states seek protection from bankruptcy.

Personal income is stagnant, as are hours worked, as inflation increases robbing workers of purchasing power, thereby negatively affecting consumption. Adding to this discouraged workers hit a record high of 1.32 workers. If it were not for extended unemployment benefits we might just be approaching revolution. You can throw in food stamps as well for 44 million Americans; 16% of the elderly are below the poverty line and 15.7% of the public is in the same boat.

Last week the Dow rose 0.8%, S&P gained 11.1%, the Russell 2000 gained 0.5% and the Nasdaq 100 jumped 2.7%. Banks gained 1.3%; broker/dealers gained 2.0%; utilities 0.9% and the high-tech 2.5%; semis 3.4%; Internets 3.1% and biotechs 0.8%. Gold bullion fell $51.00, the HUI lost 7.2% and the USDX gained 2.6% to 81.08.

The two-year US-T bill was unchanged at 0.59%, the 10-year T-note rose 3 bps to 3.33%, and the 10-year German bund fell 9 bps to 2.87%.

This year foreign governments will finally realize that Europe and the US won’t be able to repay most of their debts. In Europe, during the first 6-months of the year, countries will be stressed to pay back debt. All of the funding necessary won’t be available and the six with debt problems will need more assistance from the more solvent EU countries, the ECB and the IMF. There will be negotiations concerning how to solve this problem throughout the remainder of the year. The damage to European countries will be staggering. Not only will the debtor countries be hanging on by a thread, but due to a massive funds outflow the solvent countries will be in trouble as well.

In the US the problems of municipalities will finally start to be addressed as federal funding and loans are ended. We warned of the possible bankruptcy of municipal insurers, AMBAC being the focus of our concerns. At that time, three years ago, we recommended the sale of municipals and have done so since.

These predictions came to fruition in December 2010 when AMBAC went bankrupt.

In the final quarter of this year both the European and American problems will be exposed full force. This will bring about a worldwide financial crisis as the true depths of the problems are fully revealed. The impact on western finance will be more devastating than the Bear Stearns and Lehman Bros. collapses. At this juncture the timing is difficult, but that time frame seems reasonable.

Our prediction of QE2 and perhaps QE3 last May proved to be correct. Others didn’t begin to catch on until August. We projected another form of government stimulus and it came in the subtle form of a pork tax package. The renewal of the Bush tax cuts. That ended up being $868 billion. That means the Fed or someone will have to come up with about $1.6 trillion to keep the economy from keeling over and going sideways. We projected a full expenditure of $2.5 trillion in exchange for a 2 to 2-1/4% growth in GDP.

As we write European and US debt is expanding at a fast clip. The service of this debt is being exacerbated by lack of a recovery, which began in the Treasury market in June. During the past six months banks have tried to increase lending to middle and small sized companies, but there have been few who wanted to borrow. This lack of growth has impeded tax revenues for both the federal government and state entities. The fall in the stream of funds has forced major new borrowing by both groups. This trap mitigates against drawing savings from foreign countries. This limitation has started to force real interest rates higher as we have recently seen with the US 10-year note whose yield jumped from 2.40% to 3.50%. This in turn has forced interest rates on 30-year fixed rate mortgages to more than 4.8%.

Beneath the surface both in the US and Europe all matter of things are being done to keep both entities afloat. What is being done is being done without the consent of the people. Politicians are terrified and are doing as they are being told. The financial community and central banks are making all the decisions. In order to cover-up what is going on they simply lie about everything. These Sherpa's working behind the scenes fashioning a solution are preparing for debt settlement and some sort of a stabilization fund.

As we have predicted in the past we see a meeting of all countries, as opposed to unilateral action by Europe or the US. A meeting along the lines of the Smithsonian talks in the 1970s, the Plaza Accord of 1985 and the Louvre Accord of 1987, where all nations will revalue and devalue and default multilaterally 50% to 66%. Everything will be on the table. By doing it this way it becomes a simple business transaction and not a situation where everyone is ostracized. This will be detrimental to currencies, bonds and shares. Commodities and gold and silver and the shares will appreciate as they did in the 1930s and the late 1970s. It’s a hard road to take, but it is the only one open to the elites.

One of Ayn Rand’s disciples, one Alan Greenspan, spent his entire time as Chairman of the Federal Reserve destroying money. Ms. Rand warned of destroyers appearing among men who would destroy money. As she said, “This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Paper is a check, drawn by legal looters upon which an account which is not theirs.