Thread: Global Monetary System is in Crisis: Bob_Chapman

The Global Monetary System is in Crisis

Politics / Global Financial System
Oct 30, 2010 - 10:47 AM

By: Bob_Chapman

The recognition of currency war, which has been going on for years, reflects the failure of international cooperation and the failure the G-20 to find a solution of the beggar-thy-neighbor policies of almost every nation. The result has been growing geopolitical dislocation, which G-20 has yet to find a solution for. These efforts, until recently, were turned upside down by the failure of the Copenhagen Summit in the summer of 2009, when it was discovered that global warming was a giant scam.

This was proof positive that global leadership was nothing less than a group of common criminals. Economic and financial failure has brought about global austerity measures, and bickering over trade and currencies as well. As this transpired the economies of the US, UK and Europe slid downward in socio-economic, crisis, which in some cases has degenerated into violent demonstrations.

The US and UK are in economic paralysis due to the major changes anticipated in next week’s elections of House and Senate delegates. The President isn’t even going to be in Washington to witness the massacre of the Democrats. He just refuses to deal with it, as a long line of bureaucratic appointees head back to Harvard, foundations, think tanks, the Council on Foreign Relations and the Trilateral Commission. This as the Chairman of the Fed unveils plan two of quantitative easing, the creation of money and credit out of thin air, which in reality has been going on in the bond market since early June. Another bit of subterfuge dreamed up on Wall Street.

The Fed is monetizing a stimulus plan that the administration is no longer capable of assisting, due to an enraged public. On the other hand, large dollar holders are loudly complaining that the Fed’s policies will cause major inflation and a falling US dollar. Of course, the flip side is if the Fed doesn’t act in this manner the US economy will collapse and with it the world economy. The dumb Chinese, Japanese and oil producers should have long ago accumulated gold and gotten rid of dollars. That was not to be as they in fact enslaved to US leadership by yields and exports. The expenditure of $5 trillion over the next two years by the Fed will only take the US economy sideways at best, and in turn take the dollar to new lower levels. All the insiders know the plan won’t work, but it will buy time, perhaps so they can have another war as a distraction, as they have done many times before in history. Even the public knows it won’t work having been alerted by information pouring out of talk radio and the Internet. The US is already in austerity. Just look at real unemployment of 22-3/4%. This is getting worse not better and that means a change in control in the House and Senate could well bring about a constraining of fiscal and monetary policy.

The US is on a path to socio-political chaos as the dollar falls and the world monetary system comes unglued. Those countries in decent monetary and fiscal condition will pull away from dealing with the US and that has already occurred with Brazil that doesn’t want inflationary dollar investments entering their country, thus, they have implemented a dollar investment tax. The US cannot return to the past. Its leadership lost that opportunity in June of 2003 when they decided to go ahead and take down the economies of the US, UK and Europe in order to force the inhabitants of these countries to accept world government. A main cog in this plan was the implementation of free trade, globalization, offshoring and outsourcing, which has cost the US in just ten years 8.5 million jobs.

There is no chance now of return as countries pull away from US and UK financial markets. These moves will protect these countries for a time, but eventually they will feel the sting of economic failure and instability as trade wars and tariffs become the norm. Washington will cease to be the world leader. The currency and trade wars have only just begun. They could not be avoided by either side. There is about to be a convergence of problems. Things that previously were not connected that will burst forth without warning. That will eventually lead to the implosion of the system.

These factors will be accompanied by social unrest, which we have just seen the beginnings of in Europe. This time of social, monetary and fiscal turmoil will last at least into 2014 before any solutions are put on the table. An easy solution is multilateral revaluation, devaluation and default. This would be very painful, but would stop the power by today’s elites in the US, UK and Europe and the unmasking of their treachery.

Throughout Europe and the US there has and will continue to be a rise in patriotic movements, which those who control governments already have labeled terrorists. These are people like us who bring truth and exposure of facts to the attention of the public.

We are currently facing a new crisis in the US in the mortgage markets and in their securities, which has been aided and abetted by a disintegrating legal system. This comes to real estate at a time when it is on life support. The states cannot be of much assistance because most of them are broke, which is another distinct problem.

The US has already abdicated its role of world leader. Even leadership from Wall Street and banking is dreadful. Worse yet there is no one to take its place, as the world lies adrift in a sea of trouble. The atmosphere is explosive because no one wants to give up anything. The financial markets will all eventually fall and the flight to gold and silver as the only real money will gain acceptance, as we predicted long ago. Americans and others have failed to see the future and they’ll pay dearly for not paying attention.

One of the interesting developments of the new currency wars is a concept that, the nations that will be the most successful, are the nations that devalue the fastest. One of the things nations miss is that the cheap currency that propels exports; also raises the costs of imports. Another fallout is others won’t want to own your currency and if you devalue a currency enough it becomes worthless, or nearly so. A good example of that was in the 1930s where only tariffs were successful. As a rule those tariffs were not steep. The threat, of course, is that nations get mad at one another and war follows.

What these nations have been doing is similar to quantitative easing, or simple fiat creation of money and credit. These actions are the antithesis of sound money.

The Forex, foreign exchange market, trades $4 trillion a day and its projected to trade $10 trillion daily in the next couple of years. Money flows are already wild to say the least. Many foreign currencies have been rising versus the dollar. Some nations such as Brazil have already instituted capital controls by putting taxes on foreign purchases of local sovereign debt. Those not into the foreign game are buying US Treasuries, gold, silver and commodities.

The FOMC and the Fed, even though they know it won’t work, are becoming more and more accommodative. You will get some idea of their plan next week. The result will be a falling dollar, which is not really monetary policy, but grasping at straws in the wind. You will find nothing of sound money here and as a result markets will ultimately not survive. Remember, we could return to the circulation of gold and silver. 76 years ago gold coins were widely circulated and silver was in everyone’s pocket just 47 years ago. It is not impossible. It could happen again over the next few years.

It was just two weeks ago that the dollar revisited 76.54 on the USDX. It had rallied over the past four months from 76.88. It is currently about 77.28. Every time it tries to rally it gets knocked down again. That is a long way from 89 where it was seven months ago. One thing is for sure, as long as we have ill-fated policies such as QE2 the dollar will continue to fall.

We also found it of interest that Bill Gross of PIMCO found the Fed has taken Charles Ponzi one-step further. He says, “Has there ever been a Ponzi scheme so brazen?â€

Fed Strategy The Wrong Way For Growth

An excerpt from Bob Chapman's weekly publication.

October 27 2010: Financial follies continue, more bank closures this year than last, pension liabilities exceed revenues, continued troubles in the economy, no real interventions in currency market, PIMCO predictions.

As the Friday Night Financial Follies continues regulators on Friday shut down two small banks in Florida and two in Georgia, lifting to 136 the number of U.S. banks that have fallen this year as soured loans have mounted and the economy has sputtered.

With 136 closures nationwide so far this year, the pace of bank failures exceeds that of 2009, which was already a brisk year for shutdowns with 140. By this time last year, regulators had closed 106 banks.

The pace has accelerated as banks' losses mount on loans made for commercial property and development. Many companies have shut down in the recession, vacating shopping malls and office buildings financed by the loans. That has brought delinquent loan payments and defaults by commercial developers.

The 2009 total of bank failures was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three succumbed in 2007.

The growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, and its deficit stood at $15.2 billion as of June 30.

The number of banks on the FDIC's confidential "problem" list jumped to 829 in the second quarter from 775 three months earlier, even as the industry as a whole had its best quarter since 2007, making $21.6 billion in net income. Banks with more than $10 billion in assets only 1.3 percent of the industry accounted for $19.9 billion of the total earnings.

The FDIC expects the cost of resolving failed banks to total around $52 billion from 2010 through 2014.

It was about three months ago that we took a lonely stand in predicting QE2. We had seen the strong activity of the Fed in the repo market since June and attempts by bankers to lend to better quality rated small and medium sized businesses. The Fed stoked a sliding economy and the banks had only mixed success.

Since July much has happened. Gold, silver and commodities have risen as has the dollar, the market and bonds. We now purportedly have a currency war that will lead to tariffs on goods and services and we have been beset with Foreclosuregate.

In Foreclosuregate the federal government is trying to cover up the damage and put it off until after the election. The states’ attorney generals’ have different ideas. Even if mortgages were traded electronically the law demands that there be a paper trail. The initial events in this discovery process has already unveiled that banks used the same mortgages to fill different loan packages. They were sold multiple times, which, of course, is fraud. Furthermore the MERS system is unlawful. As a result Bank of America has demanded the FDIC pay them for faulty or bad mortgages. Evidently the practice of multiple mortgage use was widespread. The entire system is rife with fraud, due to lack of lawful, proper, legal documentation. That had led banks to arrange mortgages to totally unqualified borrowers just to be able to securitize and sell those AAA rated mortgages. The banks made major amounts of money and the Federal Reserve arranged for the taxpayer to pay the bill. The banks carried fractional banking to a new level in their deliberate fraud. In fact, there is even the possibility that the mortgages were never really securitized. There probably never was any paper work and what there was perpetuated fraud. In addition there is also the possibility that LPS, a foreclosure-outsourcing firm, fabricated documents and committed forgery as well.

Bankers made outsized profits via fraud. The question now is, who is going to jail? Government will jail the little guys as always and the big fish will swim away. Let’s hope this time it is different.

Even the NY Fed wants to financially pursue Bank of America and Fannie Mae and Freddie Mac want to pursue Wells Fargo for burying them with toxic waste known as CDOs, ABS and MBS. If many mortgages are forced back to the creators, that will force the banks into insolvency or another public bailout, we will call TARP2. This kind of action will send the public into spasms and it could lead to major demonstrations. They are sick and tired of the financial world being bailed out and the public getting nothing.

This scandal comes as residential and commercial real estte keeps falling in value, putting many more banks on the edge of failure. That is borne out by Gary Shilling who believes housing prices will fall another 20% and the number of underwater mortgages will increase from 23% to 40%, or that half of Americans will deliberately default. We, as has Mr. Shilling, been uninvited guests predicting a major fall in housing since June of 2005.

The propaganda, lies and disinformation the American public has been subjected to, is without precedent and they are finally listening. Wall Street, banking, insurance and their government are the enemy. The amount of disinformation being presented to the average American goes on 24/7, never ceasing in magnitude by a totally controlled major media. If it wasn’t for talk radio and the Internet the public would already be enslaved totally. Needless to say, today in Orwellian fashion people such as us are treated as terrorists, because we deal in the truth and government does not like that, because it exposes them for what they are, criminals. In the end the truth will win out and they will pay for their crimes.

The minions of the powers behind government were successful in passing a health care bill, which will begin in two years. Those earning more than $200,000 as a single or $250,000 married will pay an extra 0.9% in FICA taxes for Social Security. After that level you will pay 3.4% on your income. Within 20 years most taxpayers will pay these rates due to inflation.

The AMT is not indexed for inflation, thus the alternative minimum tax will continue as a heavy burden.

Most people do not realize, unless they are victims that the first 50% and then 85% of Social Security benefits are subject to taxation. In 2000, just 22% were above that level. It is now 39%. In 50 years, 85% will be taxed. Where we ask is the tax revolt? By that time the age to collect SS will be 70. By that time taxes on the wealthy will rise from 39.6% to 36% for the top two brackets. In just ten years those in the 15% bracket will graduate into the 25% bracket. The 28% group will be in the 36% bracket. Is it any wonder there is an exodus of citizens from America to foreign places with more forgiving tax rates? Incidentally, they won’t be going to Europe where rates are 70%, if you include the VAT, the value added tax. That legislation holds, health care reform, 16-tax increase for those of you who were not paying attention.

The Fed has informed us that part of the way to salvage a badly damaged financial system is to allow more inflation. What they do not tell you is that barriers by countries to keep dollars out of their economies and currency wars are going to impose higher inflation levels than in the past. It means the Fed won’t have the luxury of exporting inflation.

That is something the Fed does not want to discuss, as they prepare to inject more than $2 trillion additional into the economy in this coming year. Actually that exercise began this past June. You were not informed, because you did not have a need to know. It is part of our secret government.

For the curious, most people, even on Wall Street don’t realize that as a result of the Merrill Lynch-Bank of America merger, the bank owns 34% of Black Rock, which is worth $11.5 billion. Black Rock is also the owner of 5.35% of BofA shares, worth $6.6 billion. This creates a conflict of interest. This pits them both against PIMCO and the NY Fed in their MBS differences.

The Dow gained 0.6%, S&P rose 0.6%, the Russell 2000 was unchanged and the Nasdaq 100 added 0.3%. Banks rose 1.7%, broker/dealers 2.3%, cyclicals 0.5% and transports rose 1.3%. Consumers gained 0.7%; high tech gained 1%; semis were unchanged; Internets rose 1.9% and biotechs 2.4%. Gold bullion fell $40, the HUI gold index fell 4.3% and the USDX gained 0.5% to 77.36.

The 2-year T-bill fell 1 bps to 0.35%; the 10-year T-note was unchanged at 2.56% and the 10year German bund rose 10 bps to 2.47%.

The Freddie Mac 30-year fixed rate mortgage rates increased 2 bps to 4.21%, the 15’s rose 2 bps to 3.64%; one year ARMs sank 13 bps to 3.30% and the 30-year fixed jumbos rose 1 bps to 5.24%.

Fed credit fell $9.4 billion and Fed foreign holdings of Treasury and Agency debt jumped $14.1 billion to a new record $3.281. Custody holdings for foreign central banks increased $326 billion YTD, or 13.7% annualized. Year-on-year it is up 13.6%.

M2 narrow money supply increased $3.9 billion to $8.757 trillion.

Total money market fund assets fell $17 billion to $2.782 trillion. Year-to-date assets are off $512 billion.

We have seen the Fed subtly inject money and credit into the system since early June. That is five months of deception. Easing is obviously here to stay. Mr. Geithner requested certain caps on trade surpluses by not allowing them in excess of 4% of FGDP, which was shunted aside. This is a request for a soviet style command economy. Just another wacky idea. This means the only avenue left is an increase of $8 trillion in QE2. A deliberate reduction in the value of the dollar, zero interest rates, double-digit fiscal deficits and inflation and massive monetization of fiscal debt. That means real trouble for dollar holders. It is no wonder that countries are already erecting barriers to dollar investment in their countries by taxing incoming dollar investments. There has been little productive investment to rebalance a maladjusted economy. How can there ever be rebalancing without tariffs on goods and services. This is what free trade, globalization, offshoring and outsourcing have brought us. Yes, the US is a basket case when we are looking at a possible $500 billion current account deficit this year. This is the result of policies that has all the earmarks of a banana republic. That result has been followed to enrich transnational conglomerates. How can you compete when you have de-industrialized and put 8.5 million people out of work?

The US wants foreign currencies to appreciate versus the dollar and that is not going to happen, thus, the dollar will be brought down to 40 to 55 on the USDX where it currently reflects 77.00.

As this transpires funds will continue to flow into gold, silver and commodities. This massive liquidity will not be welcome in foreign countries. The continual monetization will be frightening, but in this round a good part of the inflation will stay in the US leading to much higher inflation as foreign barriers are erected. Hold on to your seatbelts it is going to be a wild ride.

Bloomberg (John Gittelsohn and Jody Shenn): “Shoddy mortgage lending has led bankers into a two-front war, pitting them against U.S. homeowners challenging the right to foreclose and mortgage-bond investors demanding refunds that could approach $200 billion. While federal regulators and state attorneys general have focused on flawed foreclosures, a bigger threat may be the cost to buy back faulty loans that banks bundled into securities. JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. have set aside just $10 billion in reserves to cover future buybacks.â€