Feb 03, 2010By: Bob Chapman
China saw the error of its ways in overstimulating its economy and halted bank lending. The Senate majority refusing to seat the new Senator Brown passed a tremendous increase in short-term government debt. Goldman Sachs and others thumbed their noses at the rest of America and distributed giant bonuses as the country wallowed in depression and 22.5% unemployment. Finally we have Paul Volcker proclaiming the end of too big to fail and stopping banks from trading their own accounts.
These announcements are just another diversion. If firms could not trade their own accounts they might as well close their doors. Then came the President’s “State of the Union” message, which was just more party line fantasy. If he’d been smart he would have waltzed down the middle and played populist. Imbued with their own power the Democrats have again destroyed themselves. Far more important than all this is something more salient and that is how is the US and other nations are going to service their debt and raise more funds in a depression?
The quest for money and solvency continues as Iceland, the Baltic States, assorted European states and now even Japan. Tagging along are the UK and US, both of which may have lower credit ratings by the end of the summer. There has to be credit creation to accommodate these sovereign needs. Any slowdown of credit for the system will strangle the system.
How can the US conceivably extricate itself from debt? That is $1 to $2 trillion deficits annually as far as the eye can see. It is already bogged down in an occupation in Iraq and a war in Afghanistan that stretches into Pakistan. That is all off budget, but it stretches already to more than $1 trillion. Then there is the phony, phantom war on terror the cost of which is unknown. That is the future. We are told we are in a recovery after two years of stimulus. We do see small signs of such in sectors, but unemployment stays high. If we could trust government statistics we’d have an idea of where we really are. Hoping that we’d believe 4th quarter GDP growth was 5.7% is ludicrous. The last figures for the 3rd quarter were adjusted downward twice from 3.6% to 2.2%. In Wall Street parlance that is called painting the tape. We have seen two of the largest stimulus packages in history and have really very little to show for it, in as much as the Treasury and the Fed have poured $12.7 trillion into the financial system, putting the public on the hook for $23.7 trillion. The Fed may have cut the creation of money and credit to the bone, but the US and world financial system runs on credit. Without that credit the system will collapse. This is why the addition of Paul Volcker to the immediate scene is not going to change things much, that is unless the elitists want to go into worldwide depression.
The current Democratic administration is now doomed to failure. The only way they were able to pass an increase of $1.9 trillion in the debt limit was to not seat the new Republican Senator from Massachusetts, Scott Brown.
We call that politics at its lowest level. Now we are saddled with a new limit of $14.294 trillion, or $25,000 of debt for every American. Like the Republicans, the Democrats just won’t stop spending. Of course if they do stop the system will come to a halt. All we are left with is a deficit task force, which will work in secret, that has to be voted on by all members of both houses, and the reports findings won’t be available until after the November election. This is another phony distraction to keep the public looking in the wrong direction. There will be no vote on the issue in 2011; it is a ruse.
The administration says it will cut non-defense discretionary spending by about 13%, but they just increased such spending by 17%. We might ask why didn’t they just rescind the increase? The reason is there can be no deficit reductions. In fact, if there is not more stimuli added then the economy will dip back into depression. This is the same mistake FDR made in 1937, and as a result America had to create another war to save itself from collapse. FDR’s methods are what are being used today and as in the 1930s, they won’t work today. Both are Keynesian nightmares created to put ultimate power into the hands of the elitists so they can force the world to accept world government. The tactics being used now are the same as in the 1930s, a 2-stage depression to be followed by a WWIII. We are now seeing the 1934 type rebound, that could last a few years, if enough stimuli are supplied. Deficits do not produce a solid recovery; they create a transitory recovery. Business knows this and as a result they won’t commit to expansion. They have no confidence in such plans, because they know once stimulus stops the economy will fall back again.
They are also aware that stimulus is inflationary, just as monetization is. As far as the stock market is concerned we could be seeing a replay of 1936. Taxes had already risen by 5%, the deficit fell by more than 50% and the Fed cut back on M3 and raised reserve requirements, all of which was simply too much for the economy to handle. It receded and unemployment rose again. The Fed and the administration are well aware of this and that is why deficit cuts will not come and why more stimuli will be added. The economy is not back to any kind of “normality,” if in fact such a thing exists. We keep on hearing employment is a lagging indicator, when that is untrue. The only thing true about the unemployment numbers is that they are bogus.
Just as they did 73 years ago the Fed is contemplating removing reserves from the system. They already know what that will result in, so why would they do such a thing? Could it be that they want a repeat of 1937?
The administration is cutting very little and has no easy way to raise taxes to increase revenues. In addition after losing three straight special elections they’ll be in no mood to raise taxes with November nine months away. As we said earlier the whole Democratic Party is in serious trouble making them lame ducks. Any sort of tax increases will be cloaked in subterfuge. There is no hope of any budget changes for the better. The Democrats and many republicans are doomed and that is good.
What we have experienced over the past several years has been an orgy of securitization and leverage not previously experienced in modern times. That was accommodated by ridiculously low Fed interest rates. These conditions along with unregulated derivative creation led us to our present state of affairs along with mammoth consumption of mortgages by Fannie Mae, Freddie Mac, Ginnie Mae and the FHA. We were subjected to unbridled monetary and fiscal abandon.
Such unbridled greed came close to bringing down the entire financial system, which American taxpayers have been allowed to pick up the bill for. After all this we see absolutely no regulation in sight and the SEC and the CFTC continue to protect the titans of Wall Street as government looks on in total disinterest. This, of course, omits the Executive Order borne criminality, which has turned our free markets into controlled and manipulated fascist markets. People say what can I do? You can start by throwing almost every incumbent out of office and buy pressing the Senate relentlessly to pass the bill that includes an audit and investigation of the Fed. If you do not do these things you will end up living on your knees enslaved, as will generations to follow. Too big to fail has to be stopped along with moral hazard. Limits have to be put on leverage. The world of derivatives has to be unraveled. If we do not have serious financial reform the markets will continue to self-destruct. How can we conceivably allow hedge funds to remain offshore and unregulated? The FDIC is a joke and perpetually under-funded.
Full article HERE
