Bob Chapman | November 12, 2008

Recently the fane-stream media was asking how our free enterprise system of capitalism could have failed us so utterly. How, they asked, could we have gotten into this disaster if bad investments were properly weeded out in a timely manner by the markets, and were not allowed to accumulate to such devastating levels of toxicity, as they should have been in such a system? These people are either morons, or liars, or both. This is not the failure of a free enterprise system of capitalism because our economy is no longer based on a free enterprise system of capitalism, and has not been for at least two decades. Any pretense of a free enterprise system of capitalism ended when, in the aftermath of the Stock Market Crash of 1987, which crash was orchestrated by the Illuminati during Paul Volcker's term at the helm of the Fed to provide the excuse needed, President Reagan signed an Executive Order forming the President's Working Group on Financial Markets, also known as the Plunge Protection Team, or PPT, which has, ever since, totally and completely dominated and manipulated virtually all markets worldwide on a 24/7 basis. The PPT's authority and mandate are illegally abused on a daily basis. This group of Illuminist players, which include Caligula, as President, Hanky Panky as Treasury Secretary, Buck-Busting Ben as Fed Chairman, and firms like Goldman Sachs as financial henchmen, are supposed to step in during a crisis. They are not supposed to be sticking their nose into everyone's business on a daily basis worldwide. We have become the envy of Russia and China, because Illuminist control over our markets exceeds their control over their command economies by an order of magnitude. We have perfected the corporatist, fascist business model via the Illuminati, who form our shadow government of puppet-masters. Russia and China are still amateurs. Everything that Russia and China have learned they have learned from us. That is because we helped to create them and make them what they are today. They are the best enemies that money can buy. After all, the Illuminati need various and numerous scapegoats on whom they can pin the blame for all the fallout caused by their malevolent, despicable and nefarious operations. They need victims to sacrifice on the alter of world government.

By using the Fed's repo pool to provide tens of billions of dollars to fund their operations whenever needed, the PPT once destroyed the ruble and the Russian economy, and has parked over two trillion dollars worth of latent US inflation, in the Chinese and Japanese economies alone, via treasury and agency debt purchased by these nations with their surplus trade dollars that they have gained through illegal currency manipulations that have been allowed, and even encouraged, until recently, by the PPT. The PPT has allowed them to artificially devalue their currencies to achieve unfair trade advantages so the Fed can hide the inflation it has caused through profligate growth of the money supply from the US sheople. The Chinese, Japanese and EU trade surpluses have also been created and fostered by the free trade, globalism, off-shoring, outsourcing, and both legal and illegal immigration agendas which have brought our auto industries to their knees and have sent our manufacturing industry and our good-paying jobs overseas. And soon that PPT-fostered dam of US debt is going to break along with all the other treasuries and agencies dammed up worldwide, thus totally Weimarizing us and destroying the dollar and its reserve status. Such an event is what will pave the way for a regional, and later a world, currency. That, in turn, is how the evil and despicable Illuminati will bring us into world government. They will control the world's supply of money, and thus they will be able to do as they please when it comes to political control, ala Rothschild: "Permit me to issue and control the money of a nation, and I care not who makes its laws." That line of reasoning can be extended from control of a nation's money supply, to control of the world's money supply, and thus leaders worldwide can be made into Illuminist puppets as has been done to most of the leaders of Western Civilization already.

A free enterprise system of capitalism also requires an underlying system of laws by which the game may be played fairly by all parties, and a legal system by which differences may be fairly adjudicated. Without a system of rules and proper enforcement devices, the fallen natures of men will take over and any sense of freedom and fairness in markets is thus lost. Our laws and judicial system have been completely and totally perverted because our politicians and judges, with few exceptions, are all bought-and-paid for or are compromised by the skeletons in their closets, which are usually large and numerous. The US Constitution is thus ignored, and is treated as if it were nothing but worthless piece of paper, like our fiat Federal Reserve notes. A cadre of malevolent elitists make all the rules, and then break them at will, holding only non-elitists accountable because they control the system of laws, and the system for enforcing those laws. That is not a basis upon which any free enterprise system of capitalism can be based. That is type of system that underlies crony capitalism and a corporatist, fascist police state, which is what we now have. So don't blame our current debacles on what started out as our free enterprise system of capitalism. That dream is long since gone, discarded on the scrap heap of history.

Benchmark borrowing costs have been coming down worldwide and as in Japan the world will be flooded with interest free money. Zero interest rates are on the horizon, which means we could be in for a protracted recession/depression, as Japan has experienced since 1992. What all these countries know is that Japan never was able to recover and stayed in depression for years. Had it not been for an undervalued currency and export markets left wide open to them in the US and then China, they would have collapsed long ago. Now that everyone is in the same recessionary boat those opportunities are only open to them in a limited way. Now every country in the world faces the same problem and the same results.

The world public is cutting back on spending and are now paying off debt and saving irrespective of the return on capital. The mindset has changed and could remain that way for years. It is called a race to zero rates.

Toward that end England just cut rates 1.5% to 3%, the biggest cut in 16 years and the ECB cut rates ½% to 3.25%. Reductions also took place in Denmark, the Czech republic and Switzerland. The Bank of Japan cut to 0.3%. It is its first cut in seven years to 0.2%. South Korea cut for the third time in a month. We see contraction in the world economy, probably to an overall growth rate of 2% in 2009. In the US, Western Europe and Japan we are looking for negative growth of 3% to 5%. Experts are predicting 3% inflation in Europe and the US. They obviously overlooked the massive amount of money and credit being created by central banks along with zero interest rates. The world economy hasn’t had negative growth since 1945, so you can see the world is in for a real wakeup call. It will be interesting to see if banks lend when rates approach zero. If they don’t you can expect mass nationalization. The current problem is that market rates are above where central banks have their rates and that isn’t going to change anytime soon. Eventually governments will have to guarantee all loans.

Credit standards for loans to companies and individuals have been tightening for 16 months and it is getting even tighter.

Millions of workers are losing their jobs worldwide as economies retrench. Joblessness is the highest in 14 years in the US.

As rates fall lenders are not passing on the savings to borrowers when they do lend.

Central banks are betting that negative real interest rates will induce people to spend rather than save money that is declining in value. What they are now facing is a full-blown recession. The mindset has changed. People are frightened and rightly so.

Thus, banks will loosen up and lend and some companies and people will borrow. That will delay the inevitable for 2 or 3 years. Then when all the cards are played we’ll enter depression.

Officially the economy lost 651,000 jobs in three months, unofficially the figure was more than double that. That is because our government lies about its statistics and counts part-time workers. These figures were accompanied by equally dreadful auto and retail sales. These kinds of figures should have shown up eight years ago, but they were delayed by the real estate bubble and the massive creation of money and credit. Now, in spite of a massive infusion of money and credit by central banks to banks, financial firms and some elitist transnational corporations, household, corporate and municipal borrowers have been frozen out, as have the leveraged speculation community. The Wild West atmosphere of Wall Street is over, but the massive damage it created will linger on for years. The criminally rated mortgage securitizations are finally dead forever.

First the Fed tried selective bailouts. Then they tried throwing money at banking, Wall Street and even general corporations. Thus far neither have worked, but they have kept deflation at bay. You have seen the hundreds of billions of dollars poured into our economy and foreign economies, but speculators and risk takers are still having to liquidate holdings and de-leverage, because lenders are cutting back loans, or just won’t lend. These actions by lenders has caused a $10 trillion collapse.

The bottom line is yes banks are doing very little lending, but the entire lending apparatus is not moving funds from one place to the other. This is called disintermediation. The market segments are close to frozen and there is no end in sight. In addition, there has been a loss of confidence in the derivatives market.

We believe the banks will lend within the next three to six months. We’ll then have a recovery in the economy, which will be short lived. That will bring temporary relief, monetize funds, increase inflation substantially and that will send gold and silver substantially higher.

Lawrence H. Summers was forced out of the Harvard presidency for formulating a personality cult, displaying supreme arrogance, being dismissive of most everyone and being biased against women. As Clinton’s Treasury Secretary he rejected warnings from Brooksley Born at that time head of the CFTC regarding the regulation of derivatives. Summers called her up and scrammed at Ms. Born, who resigned as a result and who has since proved to be correct, and Summers wrong. Summers is one nasty piece of work.

Others being considered for Treasury Secretary are former Fed Chairman Paul Volcker, who would be an excellent choice. The question is can he handle the job as he did 25 years ago. He is in his 80s. Another possibility is Timothy Geithner former head of the NY Fed, a protégé of Henry Kissinger.

Summers is calling for more economic stimulus packages - essentially give a-ways – that won’t work. They are stalling measures.

We see that sales of weapons have boomed over the last three months and particularly since the election. One large wholesaler sold 20,000 AR-15s in just several days.

Another factor generally overlooked is the growing inequality in US cities that could lead to widespread social unrest and a major increase in deaths. The cities most vulnerable are Washington, DC, Atlanta, New Orleans and Miami. This inequality has economic and political consequences that could well destabilize society.

The problem simply is that no matter what all central banks do they cannot stop or stave off financial collapse. No matter how much money and credit they create and how low they take interest rates, the world is facing a depression of epic proportions. The forced injection of liquidity into banking systems is severe and it can only become greater until the bubble breaks. There is now savings to build on and why would anyone save with almost zero interest rates? The only place your funds are safe is in gold and silver assets, there is nothing else. Every second that more money and credit is created your currency is worth less. A lower interest rate penalizes savers and producers. Low interest rates and major creation of money and credit eventually kill an economy. There is no incentive to save and produce.

Our new president will provide what is needed with the help of Congress during this process to create a welfare state, where the state will provide. That is not difficult when control of banking, Wall Street, money and a great part of major corporations are nationalized. Government will distribute and redistribute money and credit as the new one world government is created.

A reflection of dollar creation was that foreign official purchases of US Treasuries fell from $10.1 billion in July to $4.8 billion in August. Even Japan sold $7.5 billion worth.

It was 4 years ago we forecast $750 billion in homeowner losses. Now Bloomberg is talking about $855 billion. Where were they four years ago? Subscribers who wanted to sell should have done so 3 to 3-1/2 years ago. The Bloombergs of this world and the rest of the mainline media missed it all. And, that wasn’t coincidence, it was deliberate, the people who run things knew what was coming.

Yes, inflation has temporarily eased from 13-5/8% to 12-1/2%, but wait a few months. It will move back up again. Inflation isn’t going to slow down – how can it with the tremendous flow of liquidity. In the third quarter federal spending grew at 13.8% to help inflation along.

Considering all this Mr. Obama has promised us the process of redistributing income. He has said he will propose a tax on worldwide income of American multi-nationals who are hiding their wealth offshore at 35% the world’s second highest. He would institute a windfall profits tax on oil companies and would increase capital gains taxes to 20% next year. There is plenty of reason for the stock and bond markets to react in fear with the VIX at an all-time high of 89.5. The VIX is a contrarian indicator. When it is where it is today it is telling you the markets are headed down. Don’t get fooled by historic averages and declines. This bear market stands alone by itself as some thing very special. The Dow could easily fall over 70% this time from its high of 14,100 into the 3,800 to 4,200 zone. The 8 cartel banks cannot keep on engineering recovery rallies.

It is impossible to keep this balancing act going indefinitely. Home prices still have a long way to go on the downside and the correction will probably overshoot to the downside. This, of course, will add more and more foreclosures. In addition, the industrial sector is collapsing simultaneously. Factory activity has fallen 20% over the past two months, the lowest since 1982, and factory orders are the lowest since 1980. Vehicle sales have collapsed and that sector makes up 13% of America’s payroll. We are looking at prolonged stagnation and the demise of GM, Ford and Chrysler. What else could you expect of the American economy? Free trade, globalization, offshoring and outsourcing have stolen five million American jobs and it still continues to do so. The Fed and our banks along with Wall Street have destroyed our financial system, what else would you expect to happen? Just to show you the affect of all the US slowdown, Japan a big exporter to the US showed a 37.5 down from 45.4 in September, the lowest on record, after contracting for nine straight months. Toyota’s US sales fell 23% and Honda’s 26%. Not to be left out China’s manufacturing index is off to 45.2, the lowest level since its inception in June 2004. Manufacturing accounts for 42% of GDP. It is no wonder China is going to inject $586 billion into its economy. 67,000 Chinese factories have already been shut down in just the first half of the year. It looks like 100,000 will bite the dust by the end of the year.

London’s interest rates already at 3% are headed to 2% by February. That would be the lowest interest rate since 1694. Bank of England governor Mervyn King sees the economy entering waters that haven’t been seen since Charles Dickens. October house prices fell 2.2% mom, the 9th successive decline and off 15.75% yoy. In the last four months Brits saw homeowners with negative equity rise to 335,000 from 250,000. By 2010, one million could be in that boat. The UK has the same problem as the US, Spain and Ireland, plunging home prices and a credit crisis. Even though the pound has fallen 24% versus the dollar, their export orders fell to 43.5, the lowest since September 2001. When you see numbers like that you know imports and exports are freezing up. Now you can see why we again see war on the horizon.

The third quarter showed us that disposable income dropped at an 8.7% rate, the steepest on record dating from 1947. Consumer spending fell 3.1%, the first drop since the last quarter of 1991. Durable goods spending fell at the sharpest rate since 1991. Spending on non-durables fell at the sharpest rate since 1950. Wait until the 4th quarter figures are released in late January.