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Japan Rebuilds While The Fed Tears Down


Bob Chapman

In today’s world there is always plenty to write about and today is no exception

As far as we are concerned QE3 is on the way accompanied by almost zero official interest rates. QE1 was to bail out the financial sectors in the US and Europe and QE2 was to bail out US government debt. That is why the Fed has purchased 70% to 80% of Treasuries. Previous debt and the $1.6 trillion of new debt created this year means someone has to buy that debt and there are very few buyers.

That means the Fed has to buy most of paper with funds created out of thin air in this monetization process. Those tremendous amounts of funds will most certainly increase inflation. This policy is never ending unless default becomes inevitable. That is why money and credit has to be created indefinitely until hyperinflation occurs and the system eventually collapses.

It is no surprise then along with economic, financial, social and political instability that there has been a steady movement into gold and silver related assets and commodities. As long as stimulus of one form or another continues to be used the problems won’t be solved and these investment vehicles will move higher and higher. Every time money and credit are created with no collateralized backing, such as gold and silver, the value of these aggregates in circulation falls, and such an endless cycle guarantees the demise of the currency and the rising value of gold and silver.

Recent tragic events in Japan has brought some unexpected developments, which for the time being could lift the economy from depression at least on a temporary basis. Funds committed aggregate just under $1 trillion not the official $309 billion. We believe the funds could be raised initially in the following way: $300 billion from the postal savings plan; $300 billion from yen bonds sold in the international market and $300 billion from the liquidation of US government and other US dollar denominated securities. That is for cleanup and infrastructure. Then Japanese insurance companies, as well as foreign insurers, have to raise billions more to pay off the insured.

In Japan’s quest to reconstruct the region affected demand for commodities will increase putting added upward pressure on commodity markets. Not only for base metals and materials, but for food stuffs as well, due to contamination and the disruption in material and food distribution. Needless to say, these problems will create inflation, something not seen in Japan for almost 20 years. Trade surplus will become trade deficit and result in a balance of payments deficit. This tragedy could cost Japan its converted position in the top 5 industrial nations of the world. These events will probably as well lead to the end of the yen carry trade, which has funded speculation worldwide for many years. It will affect exports, but also the purchase of US Treasuries. The recent effort, illegal and unprecedented, by G-7 countries to rescue the yen was in reality a move to purchase US Treasuries being sold by Japan. Yes, the yen fell from $.76 to $.81, but that is a transitory move. Central banks and governments didn’t want upward pressure on real interest rates, the Fed having to buy all that paper, or the possibility of default by the US. Short term the bailout worked, but now the Fed has to buy the bonds from G-7 members over a period of time putting further pressure on the Fed balance sheet and create more monetization. What you saw was a cleanup operation akin to QE2 that might be termed a QE3 for the Fed. Insiders and others in bond markets in the G-7 know what went on but the public doesn’t. It is not surprising that the dollar has been under downward pressure recently. Such currency dilution and depreciation can only lead to further upward pressure on gold and silver in the coming months. You might call the situation global monetization caused by the G-7. This as well will be a catalyst for global price inflation in the coming months, something most people are currently unaware of. This outpouring of money creation will probably take six months to a year and one-half to show up in the form of inflation. It will enlarge the inflation problem of QE2 and stimulus 2. The operation to devalue the yen in the marketplace and mop up Japanese sales of treasuries will go on until Japan has enough fluid cash to get reconstruction underway. Japan’s unfortunate plight might be a diversion, but it will prove to be an expensive one for all the countries involved. What is going on in this area will probably only be recognized by a handful of professionals. Most investors and the public will never know what transpired. This procedure could well have set the scene for hyperinflation in 2013. If QE3 becomes reality it can only be worse. Of course, this sets the stage for hard times for citizens of G-7 countries and others and it will send gold and silver considerably higher.

The Fed has for years, and the Treasury as well via the Exchange Stabilization Fund, been intervening in the currency markets. It is part of the legal function of both entities under the Executive Order, signed by President Ronald Reagan, known as “The President’s Working Group on Financial Markets.” The ESF is a legal subsidiary of the Treasury Department created in the 1930s to smooth currency markets. It is used frequently and could have as much as $1 trillion and when used with leverage can affect currency markets for several days in a row. It was used illegally in 1995 to assist Mexico when its economy was about to collapse. Two weeks ago for the first time in a long time, the Fed admitted intervening in currency markets, something they and the ESF do every day via JPM, GS and Citi. the last time we saw open Fed currency activity was 10 years ago in behalf of a falling euro. These are the kind of things government and the privately owned Fed get away with and the public never knows, because the media refuses to expose what they are up too. Another perfect example is the rigging of the gold and silver markets. Overwhelming evidence of such manipulation is presented every day and the media refuses to carry it. The bottom line is once QE 2, intervention and QE3 meet, inflation will go right through the roof.

As a result of Japanese misfortune it will probably take five years or more to sort out the problems of the land of the rising sun. Their export trade and finances will suffer and they’ll experience inflation, something they have not seen since the late 1980s. How many US Treasury bonds they’ll have to sell remains to be seen. We are guessing at $300 billion. Japan and the US and world monetary system has to be saved. Proof of that, at least for now, is the G-7 operation itself. Why bother to do such a rescue if you want the system to collapse? Obviously it is not yet time for something like that to happen. In addition, the Soros group of Illuminists wouldn’t be meeting to form a new world reserve currency, if the intention was to destroy the system, at least at this time. It is also obvious by their actions that Japan’s problems are going to be solved at a great financial price, which will require massive amounts of commodities. That will eventually fuel higher commodity prices, which will add to inflation and send gold and silver higher. That will be accompanied by the final phasing out of the yen carry trade, which has to be in its final stages. That incidentally will in part end much speculation that has been the result of that trade over the past ten or more years. Many forces are at play in what could become a currency war. There are no currency controls worldwide, because there is no gold backing to anchor the systems. As a result particularly since 8/15/71 everyone has been rigging their currencies for trade advantage. Some of that self-interest will prevail even though it shouldn’t. It is similar to kicking someone when they are down. On the other hand the G-7 are pushing the yen down to make it look like they want a level playing field, which really is not the case. They do not want the Japanese economy to collapse, nor do they want the dollar to collapse, at least not quite yet. As a result of these machinations the dollar could become the next carry trade due to its almost zero interest rates. Such a development would in finality destroy the US dollar as the world’s reserve currency. A phasing out of the yen carry trade and an unsuccessful attempt to arrest the strength of the yen will bring major losses to players, mainly banks and hedge funds, who get trapped in the trade. There will be liquidation and forced liquidation of yen positions and the sale of bonds and securities worldwide as trades are unwound. That will put great downward pressure on all markets except commodities and gold and silver. There are few bank and hedge fund long positions on gold and silver and their shares, so little to be liquidated. This is not going to be another 2008 de-leveraging.

All commodity costs are moving higher via demand, bad weather and disasters and a flight to quality – to something real that can be used or sold, not a piece of paper. The price of everything as a result will go much higher and people in the third and second worlds will die because they cannot afford to buy food, something that fits right in with the illuminist mantra of eliminating 60% to 80% of the world’s population. Food prices have risen more than 30% over the past 1-1/2 years and we expect that exponential rise to continue up another 30% during 2011 and thereafter. Bad growing weather is a factor, but the biggest factor is quantitative easing and stimulus, which create inflation and drive sound money advocates into commodities, gold and silver.

We find it ironic that the G-20 should rail against the US in their employment of QE2. Was it not the Fed that 2-1/2 years ago bailed out UK and European banks? It like the pot calling the kettle black, or is it misdirection and political posturing? Not that the Fed is not taking down the system – it is – but the other 19 are co-conspirators, especially countries like China that refuse to revalue their currency by 35%. Each in its own way is to blame. It looks more like political theatre as servant of the Rothschilds, French President Nicolas Sarkozy takes China’s side, when China is doing all the same monetary things that the rest are doing. This gang has committees for committees. The bottom line is nothing is supposed to get accomplished. The real agenda comes from behind the scenes. The meetings are a façade. The Black Nobility and other Illuminists call the shots from deep within their inner sanctums. Yes, the big banks are the problem, but they also take orders. If you step out of line you are eliminated. Look at what happened years ago to Deutsch Bank President Alfred Heerhousen. He was cut down in a hail of gunfire, by Red Brigades that were controlled by the Illuminists. Ask Henry Kissinger who had the same group do away with the ex-Italian president. This is a hardball league. If you step out of line you are eliminated or suicided.

In April, the Chairman of the Fed, Mr. Bernanke, will lay down policy laid out for him for the next year as the G-20 takes their orders. In recent Brussels talks we saw German Chancellor Merkel step out of line in the advanced funding for the six-nation bailout due to the humiliating losses politically in her home state in Germany for the CDU. The German people do not want to bail out the PIIGS and they want out of the euro and the EU. Germans do not want to be told to do anything much less how much trade surplus they’ll be allowed to have. That to any thinking person is dumb. Germans are being told to subsidize the rest of the EU, because they cannot compete and refuse to work hard. Then Mr. Trichet, head of the ECB, the European Central Bank, said commodities prices and inflation have to be controlled. Well the answer is simple. Stop creating so much money and credit. If the ECB or the Fed does that the whole system will collapse. The flight to commodities and gold and silver are the natural path to protecting one’s assets that are in danger due to the policies of the Fed and the ECB. Wages will not rise, but unemployment and inflation will due to their unworkable policies. They all are caught in the web of free trade and globalization. The old British mercantilism whereby transnational Illuminist conglomerates get richer via 3rd world slave labor and the manufacturing bases of advanced high wage countries are destroyed, which is meant to force the people in the losing countries to accept world government.

We can go a long way to solving trade imbalance policies by forcing nations to stop rigging their currencies and forcing labor costs down. That is most easily dealt with by erecting tariffs on goods and services. We can also stop transnational American based conglomerates from holding their profits tax-free offshore. Then getting Congress to allow them to return profits to the US at 5-1/4% not 35% costing American taxpayers hundreds of billions of dollars. Such policies are in the process of destroying America and elevating China to a premier position among nations. This has happened, because our politicians are bought and paid for.

As we mentioned earlier Germany is no longer playing the Anglo-American game. We earlier cited the refusal to increase bailout aid and the proposal to cut proposed aid. That was followed by an abstention on the UN Security Council vote to impose a no-fly zone over Libya. The cohesion that bound the US, UK, France and Germany may well be breaking apart. The dominance of Deutsch Bank in German affairs could be coming to an end. There were two very paramount moves by Germany. Merkel and the CDU sold out the German people and now the anger of the voters is manifest in the CDU’s losses in Hamburg. German elitists are in serious trouble. Germany’s underwriting of the debts of the inefficient and corrupt welfare states of the south are over and that event signals the end of the euro and perhaps even the EU. In the next election the CDU and Merkel will be out of power and the helm will be handed to the Socialists. After having lived for a long time and having observed it for more than 50 years we expect a revolt against elitist rule in Germany. German banks and banks across Europe are in serious trouble and have been for 3-1/2 years, and as we shall see this week, by court order, who was bailed out in Europe and why.

Real estate price declines in Spain, Ireland, Portugal, Greece and Italy have not as yet seen their bottoms. The resultant fallout should take most of Europe’s banks under, unless the ECB and the Fed provide unlimited extension of funding. It will be interesting what new rabbit will be pulled out of the hat. All over Europe we see higher unemployment as a result and that means more social problems. Spain is the key. House prices will fall further – a minimum of another 50%. Its problems are similar to the housing crisis in the US. Banks are stuck with a massive inventory of unsold homes. The banks and the government, just like in the US, will continue to lie as they have about every statistic. National unemployment has been over 20% for some time and about 40% among the youth. The last figure we saw was 38%.

We lived in both Spain and Portugal and at the moment the latter is in very serious trouble. Portugal is a smoking bubbling volcano and could well be close to eruption. When you have roamed Europe as we have for so many years you starkly see the folly of the amalgamation of the European Union. Countries, and whole sections of countries are enormous and can never hope to be melded or reconciled. Based on these assumptions alone the EU will eventually break up. The collapse of six economies will eliminate the euro and then trade tariffs will finish the job off. How can countries in the group of 6 pay 8% to borrow funds, pay back their interest and principal and still have a growing economy? It is impossible and European elitists know that. They are doing anything to buy time, so the collapse does not come on their watch. The struts holding up European banking are broken and all the money and credit in the world are not going to change that. The bankers planned a collapse and that is exactly what they are going to get. It is like the never-ending story that finally is about to end worldwide. The public in many nations have finally discovered that the bankers have been fleecing them for centuries and that is about to end. G. Edward Griffin’s “Creature from Jekyll Island” is being distributed worldwide. Even though it is about the privately owned US Federal Reserve System it applies in every country. All nations have been doing the same thing or something similar. Finally that game is going to be over and the back of the elitist-banking cartel will be broken.

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