Bob Chapman | February 18, 2009

The masters of the universe flashing their Ivy League degrees and their doctorates led us to believe that there was nothing they couldn’t handle. They told us they had the experience and academic qualifications to reflate any unfolding bust. The result over the past 20 months has left us further in the hole than when we started.

Credit is barely available to the vast majority of borrowers and at usurious rates considering what banks are paying the Fed to borrow funds. Financial, monetary and economic solutions have not worked. The policy is the Treasury and the Fed throw money and credit at the mess they’ve created. All they have done is bail out the banking, brokerage and insurance communities to the detriment of everyone else. How can we expect the people who caused the problem to solve it? This is the group that created the greatest policy blunders of all-time. They have proven they are not masters of the universe, but boneheads.

The dearth of policymaking competence on the downside of the cycle has been proportional to the financial excesses of the preceding boom. The comparison stands strongly beside the decisions of the 1930s. Thus far inflation has staved off deflation, but how long can that last, and at what ultimate cost? Are we to see dollar devaluation, default and the destruction of the social and political fabric of our nation, as a result of these policies? We are already seeing thousands of our combat troops being shifted from Iraq to bases in our country to be trained in riot control for anticipated social unrest due to the failed monetary, fiscal and economic policies of our elitists. This reflects the abysmal failure of all previous policies. Can you imagine that $12 to $13 trillion has been spent and we are nowhere near solving the problem created by the Fed, the last two administrations, banking and Wall Street? Entities that have never done anything for the American public. The result of such policies is a debt bubble, the result of which will be an extension of the bad policies that brought us failure in the first place. The result will be greater problems further down the road that will end in a severe depression, a massive wealth transfer and significant hardship and perhaps even revolution. The bigger the debt bubble the bigger the outrage and social and political fallout. There is now no way out. The price has to be paid and that price is far greater than it had to have been.

The result has been an even greater proportion of wealth has shifted to Wall Street and banking and their mega-wealthy client base, while the average citizen has been saddled with unpayable, unmanageable debt, and negative net worth. This is accompanied by virtually no savings. The inflated expectations are now disappointment and despair that no TARP or stimulus package can mend. As the citizens’ wealth has been distributed to the rich our Congress makes sure that wealth stays in the hands of the wealthy. If those avenues are not totally successful our court system is brought into play to make sure the right people stay rich if not richer.

This is what profligate monetary policy by the Fed and free trade, globalization, offshoring and outsourcing have brought us. None of these policies have helped Americans. It has left them buried in debt as their jobs moved to China, India and elsewhere and they were forced to lose their $30.00 an hour jobs for $15.00 an hour jobs, if they were lucky. We won’t get any of those jobs back until we erect tariffs on goods and services.

We are now witnessing a shift in policy. The bankers and Wall Street are still being kept afloat via massive capital injections, but we are seeing big government making sure that a pittance of stimulus falls through the cracks, like crumbs from a table, into the hands and mouths of our dispossessed citizens. These paragons of liberalism give us more socialism in place of fascism as an answer. Classically the next step is to raise taxes on the rich and vilify Wall Street and banking for their greed. This is followed by a righteous call for re-regulation. This course is accompanied by the imposition of government influence and control over everything we do.

Lawmakers only have their hands out. They do not care what is going on as long as they are paid off. There is no misunderstanding within the beltway, only greed and the quest for power. The incoherence is deliberate.

Again, the life of the depression is being deliberately extended in order to complete the wealth distribution process. Money has to be sucked from the workers within the economy until the final destructive process begins. The more protracted the depression the greater the suffering and hardship. Soon the distraction of war will begin as it always has in the past. Millions will die in order to reduce what the elitists call ‘useless eaters’. Then will come the new world order and the enslavement of mankind.

If you want to wait for this to happen so be it. If you do not want everything you hold dear to be destroyed you had better start doing something about it now. Otherwise you will be fighting in the streets for your very survival.

It has been 22 months since we called the top of the market. No one was listening and most investors lost 40% of their assets. They listened to the experts; their brokers, CNBC, the genus media and Wall Street and now they face the losses of another 40% or more. Yet they still do not listen. Even newsletter writers do not get it. Only several have made the call and as far as we can see only a few really understand what is going on. The system isn’t being fixed; it is only being extended. The fraud continues via Wall Street, banking and their power behind government. There is now no question that the financial system is insolvent. It is only a matter of time before it collapses.

The financial solution is a purge, but those running this fraud won’t allow that to happen. In the meantime, as we discussed in the last issue, the dollar has cut its ties to gold and silver. Thus the next step is a major breakout. Then both metals will take on a life of their own.

We still believe the economy can be held afloat in spite of its condition for another two years despite the increase in deflation. We still don’t see the elements of collapse, but it is on the way. Be patient, it will arrive and you won’t like it. The elements that brought about this horrible situation are starting to be recognized as the culprits and for the criminals that they are. If we were they we’d quickly go into hiding because we do not give five cents for their chance of survival. Over the next two years the impact of events will be staggering. Wall Street and banking will get their comeuppance from the public, who don’t really understand how really corrupt and deadly they are. The public is not trained to and can never understand how evil and diabolical these people are. They are willing to take down the entire world economic and financial system to bring about their satanic dreams of world government. The average decent mind cannot conceive of something so evil. These are the people who deliberately wrecked our economy via free trade, globalization, offshoring and outsourcing. America cannot ever recover unless tariffs on goods and services are imposed. The plug has already been pulled on manufacturing. Next is consumer consumption, the next three to four years in housing, then Wall Street, banking and insurance.

The collapse we see in the distance will bring about social dislocation and Martial law. The Illuminists know this and are laying the preparations now to subdue the people. The question is will our military shoot their own fellow citizens? We believe 90% will not. That 10% that attempt to will be killed by their own troops. That is why at this point we believe we can work with the American military. We expect revolutions worldwide, so we do not expect many foreign troops to interfere. Let’s say Argentina sends 30,000 troops to the US, what a perfect time and opportunity for revolution. The entire world is going to be in a terrible state of affairs.

Wait until the public finally sees evidence that our government is deeply involved in the narcotics trade and that our banks are being kept afloat by laundering the proceeds of the drug trade. Then there is the corporate chicanery and off balance sheet items, the insider trading and market rigging by Morgan and Goldman in conjunction with our government. Wait until they find out the scams in real estate, real estate securities and the phony rating services that were created by the privately owned Federal Reserve. The payback will be long and hard once the people of the world really discover what has been done to them.

The new administration promised change but we haven’t seen much as yet. We have promises of trillions of dollars of spending as credit and lending remains contracted. Yes, the thugs on Wall Street continue to be bailed out and little is done to help the average citizen.

Every day we are told by analysts and commentators that the stock market is doing well – compared to what? The news all around is grim. The only reason the Dow is not considerably lower is because our government is manipulating it. These pundits know there is a “Working Group on Financial Markets,” but they ignore what government is doing. They do not want to appear to be radical to their peers; they want to be acceptable. Either that or they are afraid what government will do if they tell the truth. Then there are those who do not have a clue to what is going on. Some even say that as the lows are retouched, strong buying comes toward the end of the session. They do not seem to understand that this buying display is our government at work. The analysts say it doesn’t really matter if it is the government. Of course it matters. We are supposed to have free markets, not government run fascist markets. These geniuses are chasing cheap valuations in the biggest financial collapse of all-time.

Coming soon is the Obama home bailout initiative of $50 billion. That amount is a pittance; six million residences are expected to go into foreclosure in the next four years, or 1.5 million annually. Instead of spending foolishly and perhaps allowing bankruptcy courts the authority to shrink mortgage debt, the problem should be attacked head on. Putting your finger in the dike doesn’t work - eventually it has to be pulled out.

Back in 2003 we wrote that Fannie Mae and Freddie Mac were broke and that government would take over both GSEs and own half of the houses in America. We were correct. Now in furtherance of that, our president plans to unveil more proposals dealing with the housing crisis. He has already pledged that $50 billion we mentioned and maybe as much as $100 billion. We are sure more money will follow.

Worldwide consumer spending is 60% of GDP and in the US it is 71%. As the value of real estate, stocks and commodities fall people have cutback in spending abruptly as unemployment has risen.

China, due to the trade slowdown over the past year, has lost 20 million jobs, and the US some four million, irrespective of official figures. In Brazil 650,000 just lost their jobs and in Europe unemployment is rising quickly. What do you think all those demonstrations and riots are really about? As a result demand for goods is falling fast. That leaves large inventories and a cutback in production. In every country exports are falling faster than imports by a 35% rate. That should put US GDP off about 4.5% to 5% for the 4th quarter. Exports are dropping worldwide.

If it can be possible, as we mentioned earlier, European banks are in worse shape than US banks. The latest estimates say European banks have had debt of $25 trillion. That is why the pound, euro and US dollar are headed lower versus gold and why there is such a rush for physical gold. We see US banks offside $3.5 trillion. That is quite a difference especially when the nearest private estimate is $1.8 to $2 trillion. We may need four more TARPS. Wait until the public finds out they have been lied to again.

The stimulus package is a Band-Aid to buy time as we mentioned months ago. It replaces spending losses created by unemployment and fills in for lost consumer spending. Government already knows that the latest package isn’t enough and as we earlier forecast next January we’ll get a $2 trillion package. That will be accompanied by another TARP of probably $3 trillion. We know it is impossible to fund such unheard of numbers, so the Treasury and the Fed will monetize it and we will have been Weimarized.

In another comment on 2009 earnings Merrill Lynch’s David Rosenburg sees $28.00 and if he is correct that puts the current S&P at 30 times earnings. That reflects a drop of some 50% in stock prices from current levels at 15 times. It will be much worse if we get to 10 times earnings.

We see the market at 600 to 660 on the Dow. The expected rally, a supposed repeat of 1933, isn’t going to happen because today’s problems are 5-times worse than in that era, besides inflation will be raging. Experts are looking vainly for an upside not for further downside, which will probably be the case. In addition we see world trade tightening further and 40% of earnings for the S&P500 comes from foreign trade. In the 30s we had a gold standard, a trade surplus, little debt as a nation and no credit cards and massive debt. This is a whole different ball game.

As the order system for trading securities worsens and becomes more opaque, as the big brokers and institutional investors, that are its customers, increasingly use “dark pools” where they can trade secretly so they can better screw the public, the case for fairness in markets recedes. Now the NYSE, the New York Stock Exchange, has launched its own effort to join the crooks by competing with the dark pools. The NYSE now provides secret trading. It is called anonymous trading where prices and volumes are hidden. Such secret trading accounts for 8% of the trading in NYSE-listed companies. If you add to that other trading that bypasses exchanges, it means 20% of Big Board stocks change hands in the dark. The anonymity these big hitters have achieved further pushes the average investor out of the market, because he realizes he doesn’t stand a chance at being a winner.

As a result, and reason why the NYSE joined in, is that their volume in listed stocks dropped from 78% on 1/05 to 41% on 1/08. There are some 40 dark pools.