International Forecaster March 2008 (#6) - Gold, Silver, Economy + More
International Forecaster March 2008 (#6) - Gold, Silver, Economy + More By: Bob Chapman, The International Forecaster -- Posted Sunday, 30 March 2008
The following are some snippets from the most recent issue of the International Forecaster. For the full 24 page issue, please see subscription information below.
US MARKETS
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The derivative securities known as "toxic waste" that are in the process of taking down the entire worldwide financial system and that were created by the obtuse "financial engineering" efforts of the halfwit Illuminists who came up with this scheme, were characterized by Warren Buffet some years ago as "financial weapons of mass destruction." The mortgage-backed securities known as MBS's, which took on various forms such as CDO's, CMO's, SIV's and other subprime, and now Alt-A and prime, alphabet derivatives, form the part of the WMD arsenal known as "neutron bombs."
That is because the assets used to secure these neutron bomb derivatives remain standing after they explode, but the investors which own them are vaporized by the explosion. These various mortgage-backed derivative assets were created to sate the unbridled avarice and greed of the Illuminati, and were characterized by fraud from top to bottom, from beginning to end, in the biggest flimflam operation of all time. And now the Fed is acting as the general contractor for the massive salvage operation, as the balance sheets of the banks, investment banks and brokerage houses continue to deteriorate due to neutron bomb detonations and psychopathic levels of leverage which have been notably attained by hedge funds with the help of wild-eyed bankers and which are inherent in the fractional reserve banking system itself, a system which amounts to little more than a classic Ponzi scheme. The "Perfect Storm" is developing rapidly as the Fed sets the stage for the financially oriented remake of the movie by that name starring George Clooney. There are three major factors that are coming together that are going to raise the payload of these neutron bombs to a level such that nothing will survive the Daisy Chain of mega-explosions that are on the horizon. Those three factors are a hyperinflationary recession, elevated interest rates of the double digit variety and ever-decreasing home values resulting from massive defaults and foreclosures. These are the main areas where the "financial engineers" grossly underestimated the potential for trouble that might cause their derivative creations to fail. These three factors all feed on one another and are going to whip up a storm powerful enough to propel the US and large parts of the world into the greatest economic depression of all time.
Here is an example of how these three factors, as well as other factors, feed on one another under the current scenario. The unaffordable rate resets on ARM's and declining home values encourage mortgage defaults and erode collateral values on mortgage-backed derivatives, which lead to asset devaluations and resulting bank insolvencies as well as a tightening of credit and increases in interest rates to remove risk and to compensate for increased risk, respectively, which in turn leads to a decrease in demand for homes due to fewer qualified buyers and higher loan costs, which prevents current homeowners from trading up, which causes declines in homebuilding and employment in the building trades and in businesses that benefit from the homebuilding business, which then reduces wages and consumer demand, which fuels recessionary forces, which causes the Fed to lower interest rates and expand money and credit to avoid a recession, which in turn fuels inflation as the money supply expands exponentially, which further erodes real wages and consumer spending, which further reduces the demand for housing and the number of qualified buyers and which further fuels the recession and erodes real estate values, causing the Fed to expand the supply of money and credit and to lower rates even more, resulting in ever-greater inflation to the point where the Fed must raise rates to stop us from becoming the next Weimar republic, which increases the cost of doing business and decimates corporate profits while increasing the cost of owning a home and causing further price reductions for real estate, which decreases demand for real estate, increases loan defaults and further fuels the ever-deepening recession, which causes the stock markets to crash and burn, and on, and on, and on, ad nauseam. This is where we are headed, and until the failures are allowed to happen and the system is cleansed, it will only continue to get worse. The longer and harder the Fed tries to prevent a recession, the longer and deeper the resulting depression. And if the Fed tries to put all the losses onto the backs of taxpayers, this will ignite hyperinflation and the whole country will implode like the Weimar Republic did and there will be a revolution, which the Illuminists will not survive. They have completely blown their plans. Their own greed and hunger for power has destroyed them.
Note how carefully the Administration and Congress are to avoid, minimize and/or delay implementing any bailout schemes that smack of major moral hazard as we come up for elections. The reprobates in our government are trying to keep the economy from imploding by use of the Fed and its profligate supply of money and credit, the PPT and its despicable manipulations that make a mockery out of so-called "free markets" and a stimulus plan that they hope will give the economy a shot in the arm to keep it alive long enough to get past elections. That is because they want to reelect incumbents so that the ingrained and rampant corruption of our bought-off and/or compromised government officials can continue on with business as usual. That is why we recommend getting rid of all incumbents and limiting terms of office. The non-stop institutionalized corruption will continue as long as incumbents are allowed to continue in power. The new people will be corrupted too, but it will take some time do this and in the meantime we might actually get them to do something which actually benefits US citizens. We can assure you that all the major bailouts that involve high levels of moral hazard will accelerate after elections, so get rid of all incumbents who are already talking about buying toxic waste and writing down mortgage principal, much of it at taxpayer expense as they have the Federal Reserve, the Federal Home Loan Bank Board, the Federal Housing Administration, and GSE's Freddie and Fannie nationalize the despicable, greed-induced and needless fruits of fraud that Wall Street has vilely perpetrated against investors worldwide. Everything we hear from Wall Street is a request to bail them out after they have destroyed our country and probably the worldwide financial system along with it. This is the most despicable group of businessmen and politicians ever assembled in the history of the world that we have running our government and our financial system. They are traitors all with few exceptions. And the financial devastation that has occurred on their watch, even that which is just showing on the surface, is worse than anything we have ever seen in over 50 years of following and/or commenting on financial markets. The truth that lies beneath is far worse than any of us can even imagine in our worst nightmares, and has already become an unstoppable juggernaut that the Fed and all the central banks of the world are powerless to prevent. Only gold, silver, commodities and their related stocks have the capability to save you from the forthcoming devastation from a hyperinflationary recession. And only gold coins and bullion, stored food, weapons and ammunition will be of any use in the upcoming destruction of America that will be wreaked by the coming Very Large Depression.
Note how the Fed has cut a whopping 3% off its funds rate, yet mortgage rates have declined a quarter to a half of one percent. That shows you how useless the Fed's cuts are. They only benefit the banks, and now the big investment houses, who are trying to produce profits with increased margins and spreads on funds they have borrowed short and loaned long. This is an exercise in futility. First, everyone is afraid to lend. Due to a lack of transparency and regulation, and now a lack of confidence, and due to the depth and breadth of the losses which we can assure you the denizens of Wall Street know better than anyone else, you need one of those white bandanas with a red sun that we alluded to above in order to prepare yourself for the likely consequences of making a loan to any bank, investment bank or brokerage house on Wall Street. They are all in over their heads and are trying in vain to hide the damage.
They have to leak it out eventually or face criminal charges later. Second, the losses are mounting at a much faster rate than profits or equity injections can replace. This is due to levels of leverage that have often been associated with insanity. And because of the very small pool of borrowers that any player can trust, there are few loans from which profits can be made. Third, mortgage rates will rise as defaults mount due to risk reassessment regardless of what the Fed does, and if the rates stay too low too long the whole world will flee US treasuries and then the dollar gets taken to the woodshed - and we mean big-time! That leads to hyperinflation as the Fed has to monetize bonds to fund the lost purchases of treasuries that have been funding our trade deficits. Then rates must be raised to prevent hyperinflation, probably into double digits as we have been forecasting now for many months. There is no way out for the Fed. And fourth, we also note that many ARM's are tied to the LIBOR rate which is currently much higher, rather than to the prime rate which loosely follows the Fed funds rate. So a large portion of ARM's are dependent on what the BOE and the ECB do, which right now looks like holding pat to keep the Germans from bolting. Ah, the tangled webs we weave when we practice to deceive!
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