by Bob Chapman
October 26, 2009
The International Forecaster 2009-10-24
The G-20 finance ministers meet in Scotland on
November 6th and 7th (2009), and they will all be bleating about the
fall in the dollar. France started this week, and the others will follow.
Their currencies are rising in value and they do not like it.
We expect other nations to follow, Mexico and Brazil in imposing a 2% tax on
incoming funds and others will print their currencies and buy dollars to
reduce the value of their currencies and at the same time buy US Treasuries
that are decreasing in value. That will neutralize any benefit from the
In addition, they will all scream for a strong
dollar policy. By the time the meeting begins the dollar should be between
71 and 72 on the USDX, the dollar index. The weaker dollar means dollar
debt will be cheaper to pay back. The big question is how long will it
take for the dollar to fall to 40 to 55?
We are often asked how does today compare with the 1930s in tax revenue and
government spending? In 1930-31 tax revenue fell almost 53%. It increased
250% in 1932 and tripled in 1938. Yet, growth during the 30s went nowhere.
In spite of an increase of 45% in government spending during those years by
1940 GDP had not returned to the levels of 1930.
In 1939 unemployment was still 17.2% and in
1940, 16.4%. This is the same monetary policy being used today that was used
during the 1930s. Keynesian monetization that does not work. The only reason
the depression did not continue is that FDR arranged another war, otherwise
the depression could have continued indefinitely. The debt bubble of the
1920s only lasted seven years.
Our present debt bubble actually began in 1978,
was purged in 1982-83 and began again in 1986. It was killed in 1989 and
resurrected in 1994. The bubble of 2000-2001 was replaced by our current
real estate bubble in 2003, which is now in the process of deflating.
privately owned Federal Reserve engineered all this.
The current fiasco was accompanied by a shortfall in tax collections to
government spending from 2003 to 2007. 2008 held its own due to cooking the
books and 2009 fell almost 18%. Unless further tax increases are implemented
you can expect 2009 to fall short as well. Thus, if taxes are not increased
the American economy will collapse.
This is harsh and tax increases will come at
just the wrong time. It can in part by temporarily covered by
hyperinflation, but that would be a transitory solution. 62.8% of foreign
reserves are in US dollars, so as the dollar depreciates foreign debt
decreases. The flip side is that there is major imported inflation,
particularly in the cost of goods and services.
Present government stimulation is not going to work. It didnít work in the
1930s and Japan has found out to its dismay that since 1992 it didnít work
for them either. Why should it work in America? The debt that has been so
wantonly created is still going to be there and if taxes are not raised or
costs cut, it will be even larger.
Our government, Wall Street and many Americans are basing their future on
stimulation and recovery and it isnít going to happen. This supposedly is
how government is going to generate its tax revenue. All we can say is good
At the G-20 and G-7 we hear about an exit strategy. A strategy that doesnít
exist. Others may raise taxes but we can assure you the US and UK will be
the last to do so. They are currencies in disparate trouble. The dollar will
find its real value somewhere between 40 & 55 on the
USDX. The dollar will become a third world
currency and as a result gold will climb to $2,500 to $3,000.
The G- 20 let us know that they would be replacing the G-7 and G- 8. This
desperation of power to developing countries would expedite the transfer of
wealth from Western nations in the third world via carbon taxation in order
to lower standards to meet those of the lower tier countries. This is being
done to force the first world to accept world government.
In his address to the conclave US Treasury Secretary Tim Geithner
told attendees that the US was going to legislate sweeping changes to the
financial system under the guise of creating greater protection for
consumers and investors and to promote a more stable financial system that
would relieve taxpayers of the burden of the financial crisis.
The members still want to complete the Doha trade talks that have
been bogged down for four years. What the WTO is really trying to accomplish
is extreme financial deregulation under the cover of trade agreements, which
would undermine genuine regulation and would make the entire world a free
trade zone to be further looted by transnational conglomerates.
The force behind WTO deregulation is the EU and
they are pushing the worst aspects of the plan.
The WTO has an agreement called the FSA, the Financial Services Agreement
that explicitly applies to more than 100 countries and mandates major
deregulation. Mr. Geithner worked on this plan during the Clinton
administration, so his regulation statements are meant for public
consumption only. Incidentally, the WTO-EU rules are virtually unknown to
the US Congress.
Geithner was the one who closed the deregulation deal for the Clinton
entourage as lead negotiator. He knows all about the existing agreements. He
was directly instrumental in the destruction of Glass-Steagall.
The whole new crowd in the Obama administration
was responsible for setting up what has become the destruction of our
The present US course is to re-regulate and that is in direct opposition to
what the WTO and the EU want. There will be quite a fight over this change
of direction by the US, especially over the WTO, Understanding on
Commitments in Financial Services, which is severe deregulation. The bottom
line is Doha, the FSA, WTO and the EU have to be stopped.
More deregulation is now politically unaccepted
by Americans who have lost so many jobs. There obviously are two factions
within the Illuminist structure fighting this out. In fact, the FSA was
largely written by American Express and AIG. These are some of the inner
workings behind the scenes that you never hear about. Things are never what
they seem to be.
The Treasury will have major issuances next week.
On Monday alone they will issue $116
billion in new notes and bills, 2, 5 & 7-year paper; plus another
$30 billion in bills and $7 billion in
Tuesday will see $44 billion in 2-year
On the 28th, $41 billion in 5-year notes
and on the 29th, $31 billion in 7-year notes
That totals $182 billion and that is
Domestic investors are selling the rally in
domestic stocks at an accelerating rate while continuing to invest overseas,
and in the emerging bond bubble.
Donítí be deceived by Wall Street and Washington, the worst remains ahead
for the economic and systemic-solvency crisis. There are no meaningful signs
of business recovery, with the current depression likely to evolve into a
great depression, in conjunction with the collapse of the value in the US
dollar and a hyperinflation. Risks are high for these crisisís to explode in
the year ahead. The general outlook is not changed says economist John
Mortgage application fell for a second straight week with refinance loans
decreasing 13.7%, the lowest since 9/11/09.
Barclays Capital hosted a private meeting yesterday with:
How concerned are they about any new regulations
on the financial industry? Not much.
In a copy of the notes Barclay is putting out on
the meeting, and obtained by
EconomicPolicyJournal.com, Goldman told
Barclay that it is educating the regulators.
Barclay advised that senior Goldman management
are spending an,
"exorbitant amount of time thinking about
potential regulatory and policy outcomes and educating regulators and
policymakers on the intricacies of financial markets."
The only picture I can conjure up is Blankfein
and company educating, Gene Sperling ("Counselor" to Geithner) who
last year took in $887,727 from Goldman Lee Sachs (Geithner's "right hand
man") who reported more than $3 million in salary and partnership income
from the hedge fund Mariner Investment Group (started by Brace Young former
Goldman partner) and Gary Gensler (Head of CFTC) former Goldman
U.S. home prices fell 0.3% in August
from July, a regulator said, the first monthly decline in four
The Federal Housing Finance Agency on
Thursday said that for the 12 months ended in August, prices dropped
The index is 10.7% below its April 2007
On a monthly basis, prices rose 0.3% in
July. The last time prices had gone down was April, by 0.5%.
In a sign of tough times for the jobs market,
the number of U.S. workers filing new claims for jobless benefits fell more
than economists expected last week, the U.S. Labor Department said in its
weekly report Thursday.
Total claims lasting more than one week,
Initial claims for jobless benefits rose
by 11,000 to 531,000 in the week ended Oct. 17. The previous week's
level was revised from 514,000 to 520,000.
Economists surveyed by Dow Jones
Newswires had expected only a slight increase of 4,000.
On a more positive note, the four-week moving
average of new claims, with aims to smooth volatility in the data, dropped
slightly by 750 to 532,250 from the previous week's revised figure of
533,000. That is the lowest level since Jan. 17.
Public must learn to 'tolerate the inequality' of bonuses, says Goldman
Sachs vice-chairman Bankers' soaring pay is an investment in the economy,
Lord Griffiths tells public meeting on City morality. One of the City's
leading figures has suggested that inequality created by bankers' huge
salaries is a price worth paying for greater prosperity.
In remarks that will fuel the row around excessive pay, Lord Griffiths,
vice-chairman of Goldman Sachs International and a former adviser to
Margaret Thatcher, said banks should not be ashamed of rewarding their
Speaking to an audience at St Paul's Cathedral in London about morality in
the marketplace last night, Griffiths said the British public should
"tolerate the inequality as a way to achieve greater prosperity for all".
He added that he knew what inequality felt like after spending his childhood
in a mining town in Wales. Both his grandfathers were miners who had to
retire from work through injury.
With public anger mounting at the forecast of bumper bonuses for bankers
only a year after the industry was rescued by the taxpayer, he said bankers'
bonuses should be seen as part of a longer-term investment in Britain's
"I believe that we should be thinking about
the medium-term common good, not the short-term common good ... We
should not, therefore, be ashamed of offering compensation in an
internationally competitive market which ensures the bank businesses
here and employs British people," he said.
Griffiths said that many banks would relocate
abroad if the government cracked down on bonus culture.
"If we said we're not going to have as big
bonuses or the same bonuses as last year, I think then you'd find that
lots of City firms could easily hive off their operations to Switzerland
or the far east," he said.
Goldman Sachs is currently on track to pay the
biggest ever bonuses to its 31,700 employees after raking in profits at a
rate of $35m (£21m) a day.
The Centre for Economics and Business Research (CEBR) said today that
City bonuses could soar to £6bn this year. The chairman of the Financial
Services Authority (FSA), Lord Turner, who was also present at
the meeting, called once again for a global tax on financial transactions.
He said that such a so-called "Tobin tax" could
redistribute bank profits to help fight world poverty and climate change.
"The role of regulation is to bring a
concordance between private actions and beneficial results," he said.
The aging Mr. Volcker (he is 82) has some
advice, deeply felt. He has been offering it in speeches and Congressional
testimony, and repeating it to those around the president, most of them
young enough to be his children.
He wants the nationís banks to be prohibited from owning and trading risky
securities, the very practice that got the biggest ones into deep trouble in
2008. And the administration is saying no, it will not separate commercial
banking from investment operations.
Mr. Volckerís proposal would roll back the nationís commercial banks to an
earlier era, when they were restricted to commercial banking and prohibited
from engaging in risky Wall Street activities.
team, in contrast, would let the giants survive, but would
regulate them extensively, so they could not get themselves and the nation
into trouble again. While the administrationís proposal languishes, giants
like Goldman Sachs have re-engaged in old trading practices, once again
earning big profits and planning big bonuses.
Mr. Volcker argues that regulation by itself will not work. Sooner or later,
the giants, in pursuit of profits, will get into trouble. The administration
should accept this and shield commercial banking from Wall Streetís wild
Volcker scoffs at the reports that he is
ďI did not have influence to start with,Ē he
said. [In other words, Paul has been used.]
Ninety percent of institutional investors
believe that the S&P500 will rise to 1,200 by the end 2011 according to a
survey by The Markets. 75% then expect it to hit 1,500 by the end of 2013,
and 75% believe that the market already bottomed earlier this year. The
survey covered 103 investors in 20 countries.
US solons are trying to replicate the Ďworst recovery since the Great
Depressioní that occurred during
Bush IIís reign. The same policies are being implemented with
the same bubbly results. Multi-national corporations are making money due to
dollar debasement but the average Americanís income and living standards
continue to be debased with the dollar. Job and income growth is putrid.
The U.S. Treasury has raised $1,269.85 billion in new cash this year selling
Treasury securities. The
Federal Reserve has purchased $298.064
billion in Treasury securities, or 23.5 percent of the new cash raised in
2009 by the Treasury. [less than $2B left in Fedís QE quiver]
The world has been flooded by liquidity unleashed by the central banks of
overdeveloped economies. Now it is spurting up elsewhere.
There are signs of asset booms in countries as
far afield as:
Eventually, these will turn to busts.
In the past, capital controls often smacked of desperation. But the crisis
has lifted the stigma of such interventions. Indeed, policies that cool down
hot money can be cast as the kind of prudential and anti- cyclical measures
now in vogue. In the developing world, faster-than-expected recoveries and
rising interest rates could foment a vicious carry trade. Capital controls
could yet make a comeback.
Speculative net long positions on New York's Comex market hit another
all-time high 253,955 lots in the week to October 13, suggesting growing
risks for these long positions to be cleared and putting downward pressure
Barack Obama sees worst poll rating drop in 50
The decline in Barack Obama's popularity
since July has been the steepest of any president at the same stage of
his first term for more than 50 years.
The Friday Night FDIC Financial Follies
is with us again. The number of U.S. bank failures in 2009 ran past the
100-level mark late Friday, when regulators shut down six banks.
Partners Bank of Naples, Fla.
American United Bank of Lawrenceville,
Hillcrest Bank Florida of Naples, Fla.
Flagship National Bank of Bradenton,
Riverview Community Bank of Otsego,
Bank of Elmwood of Racine, Wisconsin
Banks in Georgia account for one-fifth of all
U.S. banks to close this year.
It is the worst year on record for U.S. bank
failures since 1992. In this cycle, Georgia has been hit hardest, with 20
failures, followed by Illinois with 16, California with 10 and Florida with
nine. The White House Friday highlighted a new multi-million-dollar
technology fund for Muslim nations, following a pledge made by President
Barack Obama in his landmark speech to the Islamic world.
The White House said the US Overseas Private Investment Corporation (OPIC)
had issued a call for proposals for the fund, which will provide financing
of between 25 and 150 million dollars for selected projects and funds.
The Global Technology and Innovation Fund will "catalyze and
facilitate private sector investments" throughout Asia, the Middle East and
Africa, the White House said in a statement.
Eligible projects would advance economic opportunity and create jobs in
areas like technology, education, telecoms, media, business services and
clean technology, the White House said.
OPIC said sample projects could help foster the development of new computer
technology or telecommunications businesses, or widen access to broadband
Proposals must be submitted by the end of November, and managers of funds
that make a final short list will make presentations in Washington in
Final selections will
be announced next June
In his speech to the Muslim world in Cairo last June,
argued that "education and innovation will be the currency of the 21st
century" and that under-investment was rife in many Muslim nations.
As well as the fund, Obama also said he will host a summit on
entrepreneurship this year to deepen ties between business leaders in the
United States and Muslim communities around the world.
In his speech on June 4, Obama vowed to forge a "new beginning" for Islam
and America, promising to purge years of "suspicion and discord."
In what may be one of the defining moments of his presidency, Obama laid out
a new blueprint for US Middle East policy, pledged to end mistrust, forge a
state for Palestinians and defuse a nuclear showdown with Iran.
Naked shorting is still rampant, as the SEC does nothing to protect the
public. The government is coddling the big Wall Street firms, as
crime runs rampant. This makes armed robbers and drug dealers look like
White-collar crime is devouring our society.
These are the crooks in $3,000 suits.
Today the White House stepped up its attack on
Fox News, announcing that the network would no longer be able to
conduct interviews with officials as a member of the Press Pool.
The Pool is a five-member group consisting of
ABC, CBS, CNN, Fox News and NBC organized by the White House
Correspondents Association. Its membership is not subject to oversight
by the government.
Before an interview with "Pay Czar" Kenneth Feinberg, the
administration announced that Fox News would be banned from the press pool.
This marks the first time in history that an administration had attempted to
ban an entire network from the press pool.
To their credit, the other networks objected. They told the White House that
if Fox were banned, none of the other networks would participate. The White
House relented, but in an apparent act of petulant retaliation, it
restricted each network to a two-minute interview instead of the standard
Interestingly, this behavior completely contradicts an opinion rendered
Tuesday by White House spokesman
Robert Gibbs when
questioned by ABC's Jake Tapper.
White House Press Secretary Robert
Gibbs: We render opinion based on some their coverage and the
fairness of that coverage.
Tapper: That's a pretty sweeping
declaration that they're not a news organization. How are they different
from, say another, say ABC, MSNBC, Univision?
Gibbs: You and I should watch sometime around 9 o'clock tonight
or five this afternoon.
Tapper: I'm not talking about their opinion programs. Or issues
you have with certain reports. I'm talking about saying that thousands
of individuals who work for a media organization do not work for a news
organization. Why is that appropriate for the White House to say?
Gibbs: That is our opinion.
Carol E. Lee, Politico: Does that mean the White House doesn't
believe they should be part of the press pool?
Gibbs: The press pool is decide by the White House Correspondents
Lee: So you have no opinion on
whether they should be...
Gibbs: I'm not going to delineate for the White House
Correspondents Association how the pool is conducted. That's not my job.
So the administration contradicted itself within
48 hours. That's about twice as long as normal.
Perhaps the White House will next try to pull Fox News' press pass. That
would be entirely consistent with the Hugo Chavez-style of government
that President Axelrod and his advisers are trying to install.
I'm patiently waiting for the ACLU to stand up
for freedom of the press and complain to President Obama about quashing
Fox's First Amendment rights.