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Crooks, Criminals, Morons and a “Wet Noodle” Economy

Crooks, Criminals, Morons and a “Wet Noodle” Economy
Bob Chapman

Mr. Bernanke, Chairman of the Federal Reserve, a private corporation, would have us believe that, quantitative easing is the only way to save the US economy and to reverse the unemployment problem. He conveniently forgets to tell you that he authored a paper in 1988 with Mr. Michael Baskin that concluded that what Mr. Bernanke is doing with QE does not work. He told watchers of “60 Minutes” that the jobless rate would have been far higher; something like it was in the “Great Depression” at 25%.

If Mr. Bernanke had taken time to have his minions do the research, he would have found that U3 at the peak of the “Great Depression” was 25.2% and U6 was 37.6%. As we write U3 is 9.8% and U6 is 17%. If you strip out the bogus birth/death ratio, real unemployment on a U6 basis is probably close to 22-3/8%, as yet, considerably less than in the 1930s, but impressively unacceptable. As those interested now know over the past three years the Fed has bailed out financial firms and many other corporations with funds provided indirectly by the US taxpayer. Little of this largess has fallen into employment and as a result unemployment has risen. It lies in the face of reality for Mr. Bernanke to tell was that QE2 will create employment when QE1 certainly did not.

What Mr. Bernanke has done is add fuel to the fire, which has given us one of the greatest financial scams of all time.

Part of the Fed’s cover is the fiscal irresponsibility of government, which in 2010 created $2 trillion in net liabilities, as federal benefits rose. That was the result of the Financial Report of the US, which rightly applies corporate-style accrual accounting. That includes interest on debt and federal benefits payable when they are incurred. This method illustrates the mounting liabilities of government entitlement programs, such as Medicare, Medicaid and Social Security. 2010’s cash budget may have narrowed to $1.294 trillion from $1,417 trillion in 2009, but the real number was $2,080 trillion.

We have discussed bogus government statistics for more than 20 years, especially over the past ten years. Growth projections for the year are hard to make when the numbers are what government wants them to be. The result is no nonsense it is premeditated fraud. It is called cooking the books and if it weren’t for John Williams our nation would be in the dark, as to what government is up too.

The term now being used within government is information management. In the inflation sphere when the desired result is needed in their basket of goods, and one element is rising, it is replaced with one that is not. This is a field where the goal is continually moved to suit those in control. As a result, the CPI has become useless. Substitution and hedonics are the name of the game. Thus, the pretension of no or lower inflation can be projected, then inflation supposedly is not an issue when in fact it is. This is the Fed’s fake justification for low or no interest rates. Using the 1990 inflation formula inflation is about 6-3/4% and using the 1980 formula the figure is 8-1/4%. That shows you the temerity and the arrogance of government and the Fed, which is well aware of what is going on.
The same fraud is committed in employment figures by the underestimation of real numbers of workers unable to find work. Then there is the notorious birth/death ratio, the ratio of the birth of new businesses and the death of old businesses and their net effect on the hiring and firing of workers. These government statistics are completely bogus. By way of example, U6 is 17%, but if you withdraw the B/D ration unemployment is 22-3/8%.

The heralded number by government and the mass media is the U3 figure of 9-3/4%, which is only the short-term unemployment number, certainly a false reflection of real unemployment.

As we noted in the last issue if consumers are saving and reducing debt how can consumption figures be growing? Does this mean that in order to maintain growth all the piggy banks have been emptied and all the cash has been removed from under the mattress? Of course not, it is because government figures are fake. Later they are revealed to be so, but that is too late. The desired psychological affect has already taken place. The lie of more consumption forces others to follow suit in what is termed the herd mentality.

The current method of quantitative easing will be as unsuccessful as was QE1 and what is worse is the government and the Fed are well aware of this. The elitists are buying time as they have for the past three years.
Government and the Fed engage in subterfuge, lies and psychological warfare to get the herd to buy generally on credit to increase consumer spending.

The government has said Blackwater was not in New Orleans. We are told that photographs exist that proves they were there. A Blackwater assault team were deposited on the roof of one of the buildings to stop looting and resurfaced with six dead bodies. The police were ineffective and in some instances were seen looting as well. The denial still exists, but someday this photographic evidence will surface and George Bush will have the heat turned up on him a little higher.

The effort by the American voter this past election was woefully inadequate, only some 95 incumbents were removed from office and 1/3rd of them resigned a 14% change, net in both Houses, when 6% normally are defeated.

In the lame duck session, Democrats and liberal republicans completed one of the worst congressional sessions in history. Worse yet, most of the crooks are returning in January for more of the same. They are in service and controlled by their money masters from behind the scenes and they will pass anything they are told to pass. The repeal of “Don’t Ask Don’t Tell” could be a disaster for our military. It is already bad enough that up until now few women re-enlist due to aggressive lesbian activity, but we have been told by excellent sources that 1/3rd of officers and non-coms are intending to complete their enlistments and leave the service, especially those with 19.6 years of service, who would have otherwise stayed for 30 years. That is a big sacrifice for them because of the much higher pension payout.

Scumbag Senator Robert Bennett of Utah, who was defeated in the primaries, paid off his handlers by delivering a missile treaty that allows Russia to renovate its system while America disarms.

As we expressed previously an extension of the Bush tax cuts without the breaks for the rich would have been sufficient, but the Republicans and Democrats loaded the bill with pork, making it another stimulus program and at the same time politically expedient. Rather than have to vote for such largess in a separate bill they attached all of their pet measures.

The Dream Act lost but you can bet it will be back in many forms in the near future.

The Omnibus Spending Bill was laid over for the next session, but the controllers behind the scenes will make sure it includes everything they want.

The 1% financial transaction tax and the grab for IRAs and 401Ks didn’t surface, but there is always next year.
The performance by the Republicans was simply terrible. Let’s hope the soon to be arriving freshman and women have some great new ideas. The Grand Old party is just that, old tired retreads.

Then there was the passing of S510, the “Food Safety Bill,” the Patriot Act for food. That is to allow transnational conglomerates to take a greater percentage of food production. Politicians, being the vermin that they are, passed this bill in the dead of late Sunday night. These are the scum you elected.

Net Neutrality was an end run through the FCC, which has no legal authority to do so. We expect the House and Senate will reverse this edict.

Over the last two years gold has been moving higher in a set pattern of segments establishing support at each interval of about $150.00 higher in price. Consolidations have taken about three months. That means that January is primed for the next upward move, probably to $1,600 to $1,650.

Since July, silver has followed the same pattern from $23.00. Its consolidations have only taken three weeks. This last week of 2010 could see the beginning of its next move, or at least by the first week in January. The next consolidation area should be at $33.00.

One has mixed feelings about the rise in oil prices. They are inflationary and that assists gold and silver prices, but in the longer term they are a real damper on the world economy. We do not really want to see oil at $100 or higher, because the long term affects could help plunge the world economy into depression.

We found it of interest that Goldman Sachs repaid its TARP borrowings to keep it from insolvency by borrowing from the Fed. This would have never been known but for the Bloomberg lawsuit. When the sub-rosa deal was exposed, Goldman said, the Fed forced it to take TARP funds. The truth is Goldman was operating with $25 billion of undisclosed public loans. In addition, the Fed relieved Goldman of more than $30 billion in toxic MBS to help clear its books. As a result, profit grew and bonuses rose to hundreds of millions of dollars.

Recently Bloomberg, which via the Appeals Court, forced the Fed to relinquish who money had been lent to, what collateral was received, has sued the ECB, European Central Bank, to force disclosure of Greece swaps. They must divulge how Greece for years used derivatives to hide its fiscal debt, which helped cause Greece’s and other sovereigns to become mired in a debt crisis. We are told that the moving party to this conspiracy was Goldman Sachs. In due time we will see if this is correct.

The outgoing Larry Summers, who ran the administration’s market manipulations for the “Working Group on Financial Markets,” implied that the Fed erred in 2008, when it concentrated on inflation, and not the national GDP, as markets flashed warning signals. Expectations were falling and inflation was slowly being reversed and the cost of that mistake was significant. What Mr. Summers is saying is that the Fed blew it and it was not his fault or that of the administration.

As oil prices rise economies come under pressure. This was the case in Shanghai this past week. If oil stays about $90.00 a barrel for 3 to 6 months it will have a very negative affect on economies, particularly those such as China, which is a major importer. This has come about as China raises bank reserve requirements, which is tantamount to raising interest rates.

This level of oil prices sucks $60 billion out of the economy and sends it to oil producing nations. As a result New Zealand will see 2010 GDP growth of minus 0.2% versus earlier projections of plus 0.1%. Japan sees a 1.5% GDP gain versus a 3% estimate of the past year. If the price stays at $90, the damage will be extensive for the year ahead.

Globally money managers have been sellers of bonds having raised equity exposure to 54%, the highest in ten months. Bonds fell to 34%.

A buoyant Christmas sales season was very surprising. We wonder what these big spenders will do when the bills come in late in January? They will have to deal with higher gas pump prices as well.

Thus far there have been little progression in reducing unemployment. Most jobs created are part-time. That forces government to provide more stimuli and create more debt. We even hear Social Security cash flow may be plundered in the process. At the same time there is downward pressure on wages and salaries, as inflation increases at a 6-3/4% clip, and savings fall again. That is accompanied by thrift shop second-hand sales, which are up 13% yoy, the strongest in five years.

30-year fixed rate mortgage interest rates are well over 5% and as a result applications have fallen 18.6%, the worst drop in a year.

If oil prices remain above $90.00, the affect will be detrimental to the economy.

In 2011, analysts and economists are in for a big surprise. The economy is not going to grow as much as they think it will. If retail investors continue to withdraw funds from stocks and bonds, those funds will go into commodities and gold and silver. Where else can it go? Going to real estate at this level is suicidal.

Bullish market sentiment continues to climb up to 58.8% last week from 55.8%. This is the highest reading since 2007, before the market tanked. Investors think the market is bulletproof due to QE2. They should take a harder look at Europe and the possibility that Germany, France, Holland and Austria could go broke bailing out Greece, Ireland, Portugal, Spain, Belgium and Italy. Many are missing the worldview. Professionals are too optimistic. It should also be of interest that dividend yields are the lowest since 2000. By any measure the general market is overvalued. Just to show you with the number of rallies in the market since 2003 it has still performed poorly versus gold. When we started recommending gold shares and coins in 2000 it took 40 ounces of gold to buy the Dow. Today, it takes 8 ounces. That is a compounded return of 19.6% annually over the past ten years. It doesn’t get much better than that. Now P/E ratios are at almost 23 times, whereas 15 times is normal. Once the market hits a low P/E’ will range from 6 to 12 times earnings. Do not forget as well that there are record residential home inventories, some 80% above normal close to four million homes. We are still looking at an average correction of some 25% from here and a bottom that could last 8 to 30 years.

The IMF gold overhang is gone, so it is only a matter of time before gold resumes its upward march along with silver. You cannot be a winner if you are not in the game. Do not forget that gold could close out the year up 30%. We do not see those kinds of gains in bonds or shares with the exception of gold and silver shares. The stock may be up, but without trillions of dollars of stimulus from the Congress, the administration and the Fed, the market and the economy would look like a wet noodle.

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