fuTuRe sHOcK

Bob Chapman
The Fallen Natures of Men…
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.

What is really disturbing is that credit default swaps in US Treasuries have risen almost 40% since the Fannie/Freddie bailouts. They are now equal to the debt of Thailand and Mexico. It shows you how out of control the Fed and the Treasury are. The big question is when will the foreigners finally see the light and stop buying dollars? It will happen, but we do not know when and neither does anyone else. The US Treasury says it needs $2 trillion this year, which means another increase in the federal debt ceiling. More

Tags: china, congress, deflation, Ford and Chrysler, gm, inflation, japan, US Treasuries, VIX, wall street