Bob Chapman | March 11, 2009

The Masters of the Universe have lost control. The stock market, which had held up for so long has not only broken 7,268 as we forecast, but we broke 6,600 easily this past week. Economists, analysts and newsletter writers still do not get it. Stockbrokers are telling clients you do not have losses until you take them. What do they say when the Dow breaks 4,000? By then most of these so-called professionals will be out of jobs. Most of them really believe King Obama will stabilize the economy and the financial system as they go about deceiving themselves and their clients who are getting more panicky than ever.

The biggest scam in history is being played out. The propaganda has people simply buried in the market and they will never get out. In fact we as yet have had nothing like a selling climax. The entire savings of those in their 60s, 70s and 80s are being wiped out before their eyes. We do not know of one pension plan; mutual fund or hedge fund that got out of harms way.

Now after horrendous damage has been done the House Financial Services Committee wants to prohibit banks and mortgage lenders from shifting all the risk on loans they originate and sell to investors.

Washington policy makers only belatedly have recognized the perils associated with unregulated credit and derivatives and speculative finance. That is because their main source of campaign funds has been banking and Wall Street. Within the beltway money buys everything. The best way to start this movement is to reenact Glass-Steagall, which Phil Gramm was mainly responsible for destroying in 1999.

The termination of CDS, credit default swaps, would be a good place to start. They are at the heart of the devastating bust we are in the midst of. Wall Street chooses to call CDS financial innovation, when in fact it is experimentation. Then, of course, we have CDO’s, collateralized debt obligations, ABS’s, asset based securities and commercial paper, all are easy methods of creating credit and laying it off on others along with phony ratings. The rating agencies were complicit having taken orders from the Fed and conspiring with the banks and brokerage houses. One of the great mysteries of all this fraud was how buyers of this toxic waste were bamboozled. None of the experts and attorneys in the firms of all these buyers saw anything wrong and then after they were defrauded no one has brought a civil or criminal complaint. Needless to say, the buyers had to all be in on the fraud as well. This was a method of destroying the financial system deliberately. The analysts and economists try to put logic and a slide rule to all this and it is impossible. That is because the fraud had many players and they are not going to tell you about it.

Few will come to the conclusion we have because they do not understand the end goal of these Illuminists. Logic says, these people wouldn’t destroy their own system, but logic doesn’t apply. Look at financial history and you will see it has happened over and over again. That is not coincidence, it is planning.

Washington, the SEC and the CFTF were not created to protect the public, but to protect Washington, banking, Wall Street and market manipulation. The financial sector cannot be allowed to misrepresent product, lie and supply an endless amount of debt instruments of dubious quality. These, as has been proved, are not liquid stores of value. That includes government debt as well. Washington, in conjunction with banking and Wall Street, believes controlling and cultivating and manipulating markets is their job to supposedly protect the public when in fact it is to protect their profits in corporatist fascistic fashion. That is because they believe they know better what is good for you than you do. The cradle to grave concept of world government.

One thing we can say for Sir Alan Greenspan is that he was totally bought and paid for. He was the Illuminists’ main destructive mechanism. He controlled interest rates and credit and money supply. He pushed very hard for securitizations, derivatives and what passes for contemporary finance.

Fannie Mae and Freddie Mac were broke five years ago and should have been disbanded, but being a political football they were allowed to function until they couldn’t anymore. Then the taxpayers were allowed to cover their debts. This was part of Washington’s backstopping the system and the Greenspan put. The GSEs, Fannie and Freddie, had to be kept afloat to create the real estate bubble to collapse the economy. They were used to stem lack of market liquidity and create the perception that plenty of money and credit were always available. This led to housing inflation.

Debt issuance led to continuously liquid markets via CDS issuance, credit default swaps. The fallacy that securitization would provide borrowers endless quantities of inexpensive finance was learned to be just that. Today we have many writers on the wrong side of trades, and they have been running naked, so they have to short the stocks in a desperate attempt to stem mounting losses. This puts major pressure on the individual equities and the overall market. This will lead to more future de-leveraging as borrowers and lenders face a death spiral together. This will force firms into bankruptcy and send the general market lower.

The interesting thing about government, the Fed and Wall Street is that everything is always done in behalf of the people and the system. They break down or destroy the system from time to time and the same elitists claim to be putting it back together again. Within that system lays massive fraud and manipulation. As a result it is of little wonder that outsiders call for a new reserve currency. A currency based on a basket of other fiat currencies, which is not a step forward. Then there are some who want a system based on commodities, particularly on oil and then those like us who want a gold based currency again, as we had prior to 8/15/71. The US dollar is dying a slow ignoble death. In time it will die via devaluation and default, but we believe it will be accompanied to this end by simultaneous devaluation and default by all nations and the quest for a world currency unit. As it becomes evident that the dollar is headed back down seriously from its current perch then inflation will rise as will gold and silver, as well as interest rates. This is absolutely bound to happen.

Our government, Wall Street and banking are perpetually engaged in fraud. We ask what do you call nationalization such as Fannie Mae and Freddie Mac five years after they were insolvent? Then the continual fraud of issuing mortgages to those who are unqualified to have them insured by Fannie, Freddie and the FHA. Our CFTC, SEC and other government agencies all looking the other way as massive fraud is committed by JP Morgan Chase, Goldman Sachs, Citigroup and others. The distortion of interest rates to satisfy the profit motives of the leaders of Wall Street, the control of Washington by banking and Wall Street and interest rate swaps that have destroyed the professional bond market. The criminality associated the money laundering out of the invasion and occupations in Iraq and Afghanistan. Hundreds of billions are missing and billions have been laundered from heroin sales. Then there are the recent Madoff and Stanford scams, both engineered by people in and out of our government. If you’ve noticed there has been nothing in the press recently of where all the money went. As we told you before the Madoff funds went to Israel. We’ll keep you abreast on the Stanford scam. The next fraud could be US property being given to foreign governments in exchange for worthless bonds from the US Treasury, Fannie, Freddie and the FHA.

This past week the Dow slid into our next support zone at 6,575. We believe that zone is 6,000 to 6,600. That should hold from now until June then there may be a technical summer rally of short duration and then it is downward again. In the fall we should travel into the 3,800 to 5,500 area.

The keys are consumer spending, savings and whether consumers liquidate or increase debt. By the looks of it there will be increased savings and less consumerism as hundreds of thousands of retail outlets shut down. There can be little progress toward an increase in productive capacity when there are few buyers due to economic conditions and the unemployment that has followed. As you know foreclosures are hitting new highs. The stimulus plan is a political palliative and only banks and brokerage houses are participating in TARP. It won’t be long before mortgage delinquencies are over 8% and foreclosures over 3.5%. Twenty percent of American mortgages are in negative equity. undreds of billions are missing and billions have been laundered from heroin sales. Then there are the recent Madoff and Stanford scams, b oth engineered by people in and out of our government.

As this unfolds taxes will be increased in the middle of a depression. Only a madman would make such a move.

Expansion of the defense budget of over $20 billion is more madness. These moves do not encourage confidence in an already falling economy. Banks, brokerage firms, insurance companies and corporations will continue to fail. The Hartford and Lincoln are already in trouble and Prudential and Met Life could follow. If you do not think we are in trouble just look at Treasury default swaps, up from $5,000 to insure to $100,000 today for $10 million. What people just do not understand is that if they are not in gold and silver related assets they will lose between 60% and 95% of their wealth just as Americans did in the 1930s and this time it is five times worse. Even if silver and gold never went one cent higher you will be winners because gold and silver held their value while everything else failed. We do not believe they will stay frozen. We believe gold and silver will move much higher.

Crime will continue on Wall Street, in banking, government, insurance and among other elitist corporatios until the dead system collapses. Then we can pursue these thieves legally, hopefully before the mob reaches them. Then we can jail them and relieve them of all their ill-gotten wealth.

The cost of wars and occupations are killing us and the elitists will soon expand into WWIII. That is to impose a Selective Service draft, remove more useless eaters and to keep the public’s attention on terrorism and survival rather than economic and financial catastrophe. Standby, we haven’t won yet, but we will.

Despite the fact Wall Street and banking are insolvent the dollar is up 20% since last summer. That is in spite of having entered depression. This summer we will probably complete most of the de-leveraging caused by the end of the carry trade and the exodus from hedge funds. That is why the yen and the dollar have risen. That is why the official loss of 1.3 million jobs so far this year has not moved the dollar downward. US unemployment by our calculations is 17.8%, not the official 14.8%.

Europe has extended $2.03 trillion in loans to Eastern Europe, of which 2/3’s are in euros and Swiss francs. Those Eastern currencies are off 17% to 30% versus the euro and 30% to 50% versus the Swiss franc. All currencies are in trouble hence the stampeded into gold and silver.

“ One of the reasons we had to rescue AIG was the fact that it was going to bring down Europe,” says Rep. Paul Kanjorski. Lawmakers have been trying to find out from the Fed and the Treasury who the counterparties are and have been told it’s a state secret. We have a dictatorial government with no transparency or accountability. Not only were the Europeans not wiped out but also their toxic waste was taken off their hands at no discount. In that way the American taxpayer was allowed to take the losses. No wonder there have been no civil or criminal actions against American banks, raters and brokerage houses. They were guaranteed against loss.

For those who tell us economic growth is turning positive GDP fell in the fourth quarter 16% in Singapore, 20% in South Korea, 12% in Japan, 8% in Germany, 6% in the euro zone and 6.2% in the US. That does not sound like recovery to us. Depression is upon us and it will last for years. All over the world manufacturing indexes are in free fall, as are income, GDP, consumption, imports, exports, employment, home buying and overall capital expenditures. Emerging market economies are collapsing. There will not be any wishful decoupling. Trade flows in Asia show exports off about 45% in Japan,

Taiwan and Korea. In China imports are off 40% more than exports.

Stimulus programs are not going to bring recovery. It is like pushing on a string. We do not have illiquidity. We have insolvency, which is accompanied by overcapacity.

Of the $800 billion US stimulus only $200 billion is being spent in 2009. Most of it will be spent in the election year of 2010. Half of the tax cut will be saved, not spent.

China may spend $480 billion this year, but they are still dependent on exports of 40% of GDP. They have massive overcapacity and inventory. China is in serious trouble.

Unemployment is headed higher for the next two years and wages are headed lower as illegal aliens do jobs for less. There is no end in sight and that means less consumption. Payrolls for temporary employees are off 25% yoy, having declined for 26 months in a row. In the 1980s it fell 33% peak to trough. Small business paychecks are off 4.25%. Worse yet, because of politicalization, no one believes in the Obama stimulus.

We suspect that when the Dow hits 4,000 and the average pension fund will have assets to cover 30% to 40% of benefits. That said they will probably cut payouts by some 50% or more. This should occur in a year or two. In 2 to 3 years public pensions and Social Security will be cut an equal amount. You should start adjusting to these probable realities now by investing what you have in gold and silver related assets.