Bob Chapman | May 18, 2004

The economy did not create 300,000 jobs in April. It created 18,000. The outlook for higher wages is gloomy as inflation heats up because cost squeezed employers have coerced workers to keep raises small in the months ahead. In the first quarter salaries rose just 0.6% and gained only 0.3% in April as inflation shot ahead at an annualized 9% to 10%, not the 3.2% our government lies about. This is without a doubt the slowest wage growth in 50 years. This bears out the government’s bogus figures. This is not slack it is a gaping hole in the economy. The FED and the Bush neocons have boosted the employment figures to mislead the public into believing we are having a full recovery and the sacrifice for that is an increase of ¼% in the prime rate by the FED, which should have been executed six to nine months ago. Companies have improved earnings in the S&P by over 26% in the first quarter by cutting costs, not increasing wages, outsourcing and layoffs. They still have not regained real pricing power as prices for energy, insurance, raw materials and just about everything else has risen. There are millions of Americans still out of work because of the massive amount of production and services shipped out of the US as well as outsourcing. That ongoing problem makes employees fearful to ask for a raise that may put them out on the street. It is an abject climate of fear. Even unions are accepting less for fear their jobs will end up in China or India or with some illegal alien who is forced to work for $4.00 to $5.00 an hour. In Mexico, incidentally, a person works for $10.00 to $20.00 a day, if he is lucky. It is no wonder these poor souls are coming in waves over our border. At the same time, CEO’s number one priority is cost reduction. The swelling profits are there but they are being passed on to shareholders not to the workers. Once we head into recession and depression, you are going to see major worker unrest. That should begin in late 2005.

UBS, the Swiss banking giant, has been fined $100 million for laundering money and transferring US currency to Cuba, Libya and Yugoslavia. These countries are under US trade restrictions. When UBS was discovered executing these illegal acts they lied about it and tried to cover up the transactions. The litany of crime goes on and as usual not one of these elitists goes to jail.

The Japanese and Chinese have not been buying US Treasury paper and for that reason alone we believe that rates have to go higher. Perhaps in June but at least by August 85% of derivatives as a result will have to be adjusted and that is not going to be easy. As interest rates climb they will have to be adjusted over and over again. There will be mistakes and they will bring crisis. They may even take down the financial system. Domestic debt is $22 trillion. Government debt is over $7 trillion. The cost of carrying debt will increase profoundly. Every click up in rates brings Fannie Mae and Freddie Mac closer to bankruptcy; then there is the collapsing real estate, stock and bond market. It is going to happen and the only safe refuge will be in gold and silver. Bill Gross the biggest bond manager says you will lose money in bonds as rates rise. Warren Buffet is in cash, in euros, out of the dollar and in silver and gold. How many times do you have to be warned? Stay in or buy gold and silver related assets.

Early in May FED governor Pool said, while there is no crisis evident for the obligations of the housing government sponsored enterprises, their capital positions were “undesirably thin” and leave the firms “unnecessarily vulnerable to surprise shocks.” He said, “Clear procedures for closing either company in a crisis should be established. Should a crisis occur, it will take hold so quickly that GSE obligations will in a matter of hours, or days, become illiquid. While any holder of GSE debt can exit, not all holders can exit at once.” “There is no question but that a crisis affecting either Fannie Mae or Freddie Mac would have widespread effect because these firms are so large.” After those statements by a top FED official you do not need a roadmap to tell you a major crisis is anticipated. Our guess is in the second half of 2005. By then the 10-year Treasury note will have risen from 3.65% to 7.25% an increase of 3-5/8%. Thirty-year fixed rate mortgages will have risen from 4-5/8% to 8.25%. At those rates 15% or more of homeowners could easily go bankrupt taking Fannie and Freddie down with them. Interest rates up 3-5/8%, inflation up 13%, just like in 1980, and a plunging dollar all spell much higher gold and silver prices.

When you continually, year after year, issue massive amounts of money and credit you have to expect inflation and in this case a following deflation. Unsound monetary and fiscal practices not only destroy the value of currency, but also it eventually destroys sovereignty. These policies rob a society of its assets. It leaves none unscathed. The dollar will fall another 35% to 40% versus the euro and 300% versus gold in order to offset the dollar’s fall as inflation rises. For dollar holders this is wealth confiscation, plain and simple. If the FED stops massively inflating in the fall inflation will be over by the end of 2005. If they continue to pursue their policy of massively inflating, the only outcome can be hyperinflation similar to Weimer Germany in the early 1920’s, followed by a deflationary collapse. Debt is so large now in the US that it is impossible for them to spend their way to recovery and prosperity. The Vietnam War and massive spending by Lyndon Johnson set the stage for a fiat currency. In August 1971, Richard Nixon was forced to abandon the gold backing on the US dollar. That was the beginning of the beginning of the end for our now fiat dollar. We might add we have called the beginning and end of every gold and silver rally since 1960. There are only a few brokers and newsletter writers that can make that claim. The entire problem is even more complicated when you add in the cost of two new wars and occupations. Both are financed by deficit spending, which adds to inflation, questions the value of currencies and causes a loss of confidence in government; to say nothing of the needless loss of human life. As we forecast, these wars and our phony terrorism will go on for years to cover a collapsing world economy.

This is not hard to predict, just read history. War will be a cover for inflation and eventually deflation. If these wars are protracted, we could see inflation levels of 50 to 100%. It has happened before and surely can happen again.

We are witnessing the twilight of an age; an age of growth and prosperity unknown in the history of mankind. A prosperity that is being deliberately snuffed out by the elitists who rule our nation from behind the scenes. Gold and silver are facing the biggest bull market in history as a result of their machinations. You can bet all that gold not bought by India, China and the Middle East is being bought by the elitists. The crooks at Citigroup will pay out $2.65 billion to settle a class-action lawsuit brought by purchasers of WorldCom stocks and bonds. It is expected they will end up paying out over $6.7 billion over Enron and the rest of the lawsuits. Shortly the crooks at JP Morgan Chase will pay out $2 billion for fraud as well. In order to conform to the WTO our Senate passed a bill giving corporate tax breaks of $170 billion so international elitist conglomerates could move their offshore tax havens back onshore.