Economic Meltdown:
The Final Phase
By Giordano Bruno
Neithercorp Press
-
07/18/2010
In the financial
life of every culture built upon
faulty monetary policy, there are
points at which the thin thread of
economic faith; the thread that ties
the entire failing system together,
the thread made tangible by the
hopes (and sometimes ignorance) of
the general populace, finally snaps.
From Ancient Rome, to
Weimar
Germany,
to
Argentina,
to modern day
America,
no society fueled by unsustainable
debt and fiat inflation can duck the
‘Fiscal Reaper’ for very long.
The
U.S.
alone has survived since the early
1970’s (after Nixon removed the last
vestiges of the gold standard) on
nothing but questionable credit
practices and baseless optimism, but
there is a limit to the power of
fantasy. This is
a fact that most mainstream
financial analysts and some in the
American public refuse to grasp.
Mere belief in the enduring
nature of the marketplace is not
enough; the fundamentals must also
support that belief.
Today, we face an
atmosphere in which the fundamentals
are fiercely opposed to the publicly
promoted perception of the economy,
and it is moments in history like
this that present a clear primer for
total collapse. Financial disaster is bad enough
when it is at least partially
anticipated. When
the masses are caught completely
unaware and unprepared in the midst
of misguided conviction, this leads
to the worst kind of tragedy:
the ironic and Shakespearian
kind. To avoid
this brand of tragedy is one of the
primary reasons why we in the
Liberty Movement do what we do.
We may not be able to stop
the current crisis from developing,
but we can create awareness, and
through this we can lessen the
cultural shock, and thereby lessen
the impact.
Mainstream economists
crowed about the “invincible” rise
of globalism and the unstoppable
U.S.
financial juggernaut for years while
more level headed and intelligent
men tried to warn the public of
danger. The
initial derivatives collapse in 2007
/ 2008 should have put all of these
pathetic establishment cheerleaders
to shame, not to mention out of
work. Yet three
years later, amazingly, we are
asked, even expected, to continue to
look to such sad and useless people
for predictions on market stability
that always turn out absolutely
inaccurate, and advice on savings
and investment that they are not
equipped to give.
I suppose we should
not be surprised by the continued
lifespan of MSM parrots and puppets.
They may not be helpful to
the average American, but they are
very helpful to international banks
and the globalist companies that pay
their salaries. They distract and confuse us.
They comfort when they should
caution, and contradict when they
should pay heed. Our financial house is burning from
the bottom floor up, and they assure
us that the warm orange glow is just
the dawning of a new and beautiful
day. We are told
to “look to the future”, a return to
normalcy is “just around the
corner”. Never
would they dare to weigh the cold
hard factors of the present, or the
ruse would be up. Whether they are aware of it or not
the lies media pundits perpetuate
set the stage for even greater
upheaval, to the detriment of most,
and the benefit of only a handful.
In this article, as
we have in so many others, we will
examine those lies, as well as the
truths they are meant to hide.
The most important truth of
all being, that not only are we not
in the middle of a recovery, but
that the final phase of the economic
meltdown is about to commence…
Distractions, Half-Truths, And
Outright Lies
“We will not
have any more crashes in our time.”
- John
Maynard Keynes in 1927
“I see
nothing in the present situation
that is either menacing or warrants
pessimism… I have every confidence
that there will be a revival of
activity in the spring, and that
during this coming year the country
will make steady progress.”
- Andrew
W. Mellon,
U.S.
Secretary of the Treasury
December 31, 1929
“[1930 will
be] a splendid employment year.”
- U.S.
Dept. of Labor, New Year’s Forecast,
December 1929
“While the
crash only took place six months
ago, I am convinced we have now
passed through the worst — and with
continued unity of effort we shall
rapidly recover. There has been no
significant bank or industrial
failure. That danger, too, is safely
behind us.”
- Herbert
Hoover, President of the
United States,
May 1, 1930
Most of us were not alive to witness
the throws of the Great Depression,
but for many, the quotes above sound
strangely familiar.
Pundits and government
officials of our fateful era have
taken to spewing the same kind of
nonsense on a daily basis, and one
begins to wonder if they are TRYING
to top the ridiculous statements of
their forebears in an attempt of
ultimate mockery. Today, not only are we told that
“green shoots” abound, but that if
those green shoots fail, it will
only be because we did not “believe”
hard enough in their existence!
http://www.telegraph.co.uk/finance/comment/jeremy-warner/7864373/Will-the-world-suffer-a-double-dip-recession-Only-if-we-talk-ourselves-into-it.html
It is this kind of
idiocy that led us to the state of
affairs we are in now, and it is the
same idiocy that will leave millions
of Americans in extended financial
ruin in the near future.
The absurd idea that
prosperity is driven merely by blind
optimism must be put to rest if we
are ever to rebuild.
Transparency, the pure and
unadulterated truth, must be present
in every aspect of government and
finance without question for a
culture to succeed.
No longer can we operate in a
system built upon the premise that
the American people must be kept in
the dark “for their own good”.
The essence of the
recovery argument lay in
unsubstantiated rhetoric, skewed
statistics, and the over-promotion
of news items that in reality are
very minor economic indicators.
Wall street reform has been
heralded as a fix-all, yet the
language of the legislation does
little to nothing in reigning in the
toxic derivatives trading practices
that fomented the housing bubble,
nor does it take any measures
against the root cause of the
mortgage crisis; the private Federal
Reserve Bank, which artificially
lowered interest rates and lending
standards during the 1990’s knowing
full well that this would amass
pockets of poisonous debt securities
throughout the economy.
International banks have not
been truly punished for their
practices of market rigging and
faulty accounting, nor will they be.
The recent and laughable
lawsuit settlements of AIG and
Goldman Sachs prove that no bankers
will be held accountable, only
penalized with fines that amount to
little more than pocket change to
these monstrous global corporations:
http://www.sec.gov/news/press/2010/2010-123.htm
http://www.cbsnews.com/stories/2010/07/16/ap/business/main6685538.shtml
This means that the
conditions which triggered the
initial collapse have not been
mended in any way.
Absolutely nothing has
changed since 2007.
Americans have only been
temporarily shielded from the
effects and the particulars of
continuing financial corruption.
For instance, it has been
revealed that the SEC itself has
known since at least April that
Citigroup has been hiding assets and
debts on its books by counting
Repurchase Agreements as actual
sales. For those
of you not familiar with such
slight-of-hand, this is the same
kind of accounting trick that led to
the fall of Lehman Brothers:
http://www.reuters.com/article/idUSTRE66F0NV20100716
Citigroup claims, of
course, that these Repurchase
Agreements are only a small part of
their operation and will not affect
their ability to function.
The problem is that like
Lehman Brothers and Citigroup, it is
probable that most global banks have
used false accounting procedures to
hide the true measure of their
leveraged capital.
It certainly is not in their
best interest to reveal the whole
truth, so why would they?
Due to the continuing dilemma
of hidden and unreported bank debts,
it is only a matter of time before
we witness yet another credit
implosion, followed by even more
taxpayer funded bailouts, and even
greater stress on the stability of
the U.S. Dollar.
While empty promises
of reform and the hidden accounting
practices of banks have kept markets
malleable for the moment, it is
really the exaggeration of consumer
spending and retail gains, along
with rigged unemployment reports
from the Labor Department, that have
kept the false recovery wheel
spinning for over a year.
Any profit or production
increase by almost any company has
been held up as a rallying cry for a
bull market, even though in most
cases these companies increased
profits by cutting their labor
force, and increased production by
forcing their remaining employees to
work harder for the same amount of
money. They did
not expand profits because the
U.S.
consumer is spending once again with
wild abandon as has been suggested
every time new quarterly profit
reports are released.
After a year of this
misrepresentation of the facts,
finally, the truth is starting to
come out.
Retail stocks are
beginning to shed value as they take
hits from decreasing sales and
profits, meaning, the cost cutting
strategy has run its course and
retailers are still losing money:
http://www.bloomberg.com/news/2010-07-14/sales-at-u-s-retailers-fell-for-a-second-month-in-june.html
http://finance.yahoo.com/news/Dim-retail-sales-hurt-economy-apf-3335262562.html?x=0&sec=topStories&pos=9&asset=&ccode=
Service sector
employment has remained stagnant.
The excitable talk that
started at the beginning of this
year of a hiring resurgence has now
faded:
http://www.reuters.com/article/idUSTRE65M2WK20100706
The bottom line; the
TRUE unemployment rate of around 20%
has become perpetual, and some
economists are even suggesting that
we accept it as a standard.
The American public is now
coming to realize that healthy job
creation is a very distant goal, one
that the government alone has no
ability to achieve, bailout or no
bailout:
http://www.bloomberg.com/news/2010-07-13/americans-in-70-majority-see-frozen-unemployment-as-budget-deficit-widens.html
On the international
scene, news from
Europe
has gone abruptly quiet.
After months of blaring
reports on the Greek sovereign debt
crisis, and the imploding Euro,
suddenly, we are told that the
situation is stabilized?
But how? What measures were taken and how did
they affect a balancing of the EU
economy? The fact
is, no measures have been taken.
No effective adjustments have
been made. The
MSM has only muted the reports, and
for many Americans, out-of-sight
truly is out-of-mind.
Greece
is still right where it was six
months ago, and the debt to GDP
ratios of EU member countries
continue to rise.
The mere mention that
Spain’s
Aaa credit rating was coming under
review for a possible downgrade
jolted stocks at the beginning of
July. The review
is not set to conclude for three
months, but the market reaction
shows that some of the larger
investment firms are keenly aware of
the weakness in
Spain,
and the chance that it will become
the next in a long line of Greek
style implosions:
http://www.businessweek.com/news/2010-06-30/spain-s-aaa-on-downgrade-review-at-moody-s-as-note-sale-nears.html
Portugal’s
credit rating was downgraded by
Fitch in March, and now it has been
downgraded by Moody’s as well:
http://www.huffingtonpost.com/2010/07/13/portugals-credit-rating-d_n_644093.html
And, the IMF and the
EU have suspended a review of
Hungary’s
funding program while the country is
in the midst of meltdown.
This means
Hungary
will no longer have access to the
$25.1 billion loan package made
available by the IMF to see them
through the crisis.
Frankly, I think all
countries are much better off not
taking money from the demon spawn
over at the IMF, but many of the
citizens of
Hungary
may not see it that way.
The suspension of the loan
package almost ensures a national
default:
http://www.reuters.com/article/idUSTRE66G0RT20100717
Most European
countries are in the same
predicament as
Greece
to varying degrees,
Greece
just happened to be the first to
fall. The
combined weight of sovereign debts
in all EU countries is now
threatening the very framework of
the European Central Bank itself.
The ECB is now facing higher
interest rates, which means
increased funding costs that they
cannot afford without inflating the
Euro:
http://www.bloomberg.com/news/2010-07-07/trichet-faces-threat-of-higher-market-rates-as-debt-crisis-hurts-economy.html
What is this leading
to? A situation
we have been warning about for
years; either the default of
numerous EU member nations, or the
inflationary collapse of the Euro.
In each case, the EU will
eventually be forced to turn towards
the only avenue left available to
them; the IMF and full austerity
measures. This,
of course, was the plan all along….
We have just covered
the broader problems in the world
economy that have been obscured by
the establishment media in order to
perpetuate a false sense of security
in the masses. However, these are simply ongoing
problems that some may dismiss as
“par for the course”, troubles that
could go on for years without
causing immediate damage to
America
itself. Other
recent events, though, now show that
the likelihood of a final phase
meltdown of the
U.S.
economy may begin before the end of
this year.
The Signs Of
Final Phase Collapse
It is difficult to
write about economic indicators of
collapse for many reasons, but the
primary issue is one of relativity.
Most Americans alive today
have never suffered through an
extended depression and few if any
have ever witnessed a full fledged
meltdown of a country’s finance and
infrastructure. Therefore, many people in this
country have no point of reference
with which to compare and contrast
the events of the new millennium.
The unfortunate reality is,
when a society enjoys an extended
period of affluence, they often
become conditioned to take
prosperity for granted.
They become unable or
unwilling to interpret warning signs
of a collapse until the event is
already near its end, and they have
lost everything.
The signals listed
below I believe are truly the last
straw, the final alarm before the
global financial system spirals
completely out of control.
It is impossible to say
exactly when this larger secondary
breakdown will occur, however, when
one studies the economic disasters
of the past, these same primers tend
to appear preceding very fast moving
financial decay.
Secondary
Real Estate Bubble:
If you think you’ve seen a
catastrophe in the real estate
market so far, just wait another six
months. Now that
the government home buyer tax credit
has ended, we are starting to see
how much the real estate market
really was being propped up by
taxpayer dollars. Mortgage bond yields have plummeted
to their lowest level on record
while bond sales have slumped, all
in anticipation of another massive
round of mortgage defaults:
http://www.bloomberg.com/news/2010-07-13/mortgage-bond-yield-spreads-that-guide-home-loan-rates-approach-record-low.html
http://www.bloomberg.com/news/2010-07-05/property-bonds-slump-most-since-march-09-on-default-risk-credit-markets.html
Sales of new
U.S.
homes have plunged to the lowest
level on record:
http://www.bloomberg.com/news/2010-06-23/sales-of-u-s-new-houses-plunge-to-lowest-level-on-record.html
And, nearly 1 in 3
homes sales in the first quarter of
2010 were foreclosures at rock
bottom prices:
http://news.yahoo.com/s/nm/20100630/us_nm/us_usa_housing_foreclosures
Home foreclosures are
on track to reach 1 Million or more
by the end of 2010, and home
seizures have risen 38% as banks
process a backlog of mortgage
defaults. This is
despite efforts by banks to reduce
foreclosure numbers by modifying
loans and attempting short sales of
properties:
http://news.yahoo.com/s/ap/20100715/ap_on_bi_ge/us_foreclosure_rates
http://www.bloomberg.com/news/2010-07-15/u-s-home-seizures-rise-38-to-record-as-banks-process-forclosure-backlog.html
This is nothing
compared to the nightmare that is
brewing in the commercial real
estate market. Commercial real estate transactions
have collapsed by 90% as many people
are aware:
http://www.mybudget360.com/commerical-real-estate-collapse-90-percent-from-peak-next-taxpayer-bailout-4-times-size-of-credit-card-market/
However, most
analysts tend to overlook retail
land occupancy rates.
Commercial property vacancies
have hit a ten year high:
http://www.reuters.com/article/idUSN0610302020100707
In the past, owners
of commercial real estate have
enjoyed extra credit and loan
extensions from banks because
financiers hope that by supporting
the commercial market through the
downturn they might retrieve profits
once the economic uncertainty has
ended and businesses start making
money again. But
what happens when the downturn does
not end? Banks
are only going to extend loans for
so long before they pull the plug,
even on commercial borrowers.
It would seem that the time
has come for the commercial real
estate bubble to finally burst.
Why are these recent
problems in the real estate market
an indicator of a final phase
collapse in the near term?
The issue is one of prolonged
instability. The
recession / depression that we face
today should have transpired
sometime in the early 1990’s, but
the engineered low interest rates
supplied by the private Federal
Reserve during that decade created
the property value boom.
Any American could buy a home
regardless of whether or not they
could actually afford it, and anyone
with a home could then use it as
collateral for enormous credit
lines. This new
artificial debt bubble prolonged the
collapse for around fifteen years.
As of the second quarter of
2010, though, this credit source has
been exhausted completely.
There is officially nothing
left to support the general economy
(except, of course, fiat inflation).
The effects of this lack of
national capital should become very
visible by the end of this year.
Unemployment
Visibility:
It did not come as a surprise
to this researcher that the jobs
market began to crumble once again
in June and July, but it did come as
a surprise to some.
We’ve talked on numerous
occasions about how the Labor
Department hides the true level of
unemployment from the public, and I
won’t beat that poor dead horse any
further. Suffice
to say, real unemployment counting
the U6 measurement is around 20%.
The length of the average
American’s unemployment has reached
incredible levels.
Many millions have remained
jobless for 6 to 12 months.
In response, the Federal
Government has extended unemployment
benefits several times over the past
year. While this
has been painted as a necessary
action to save the livelihood of
jobless citizens, it is less about
“compassion” from the government and
more about obscuring the effects of
unemployment until they are ready to
let the cradle fall.
That time has come.
Congress has not
renewed extensions of benefits as of
this month, and it looks as though
they do not plan to do so again.
Barack Obama (or his
handlers) have tried to turn this
issue into another false left /
right paradigm argument, claiming
that it is the Republicans that are
to blame for the loss of
unemployment benefits.
This is a distraction from
the real matter at hand.
The truth is, the ENTIRE
government is responsible for the
disruption of benefits due to the
unchecked and insane deficit
spending BOTH parties have enacted
over the years. Extending benefits again would add
billions if not trillions to the
already unsustainable
U.S.
debt and cannot be continued
indefinitely.
Unemployment benefits
hide the visible scars of national
job loss. Now
that millions of Americans have run
out, expect to see those scars in
all their terrible glory.
Expect homeless numbers to
skyrocket. Expect
crime to skyrocket.
Expect suicides to skyrocket.
Expect all the problems that
were once muted and hidden to now
parade across the street where you
live. Expect
things to deteriorate from the
comparably nice, polite, and civil
situation we have currently.
Expect things to get ugly.
Municipal
Debt Implosion:
As we have been warning about
for the past couple years, municipal
bonds are in dire straights.
Cities and some states are
ready to implode and they are ready
to implode now. Look for city defaults to rise to
record levels in the next year.
California
and
Illinois
are broke, make no mistake.
When
Arnold calls
for state employee pay to be reduced
to minimum wage and
Illinois
lets $5 Billion in bills go unpaid,
there is no turning back:
http://www.bloomberg.com/news/2010-07-14/california-may-cut-pay-illinois-holds-bills-to-bar-downgrades.html
Municipal Bond
Defaults now continue at triple the
typical rate:
http://www.bloomberg.com/news/2010-07-16/municipal-bond-defaults-continue-at-triple-the-typical-rate-lehmann-says.html
This not only sets
the stage for statewide
bankruptcies, it also threatens to
bring down large holders of
municipal securities, such as
Citigroup and U.S. Bancorp:
http://www.bloomberg.com/news/2010-07-06/u-s-banks-risk-untold-problem-as-muni-holdings-climb-to-25-year-high.html
Usually, muni-bonds
are used by investors as a tax haven
and hedge to weather credit storms
like that which we are seeing now,
yet, investors in the past few
months have begun dumping their
municipals like a bad date.
I believe we will begin
hearing about state defaults before
the end of the year.
The Dollar?
Stick A Fork In It, It’s Done:
As we recently predicted, the
dollar has broken its traditional
relationship with the stock market.
Usually, when investors pull
their money out of stocks, they then
place it in dollar based securities
as a safe haven. This causes the dollar to increase
in value. In the
past few weeks, though, the dollar
has plummeted at the same time as
stocks! This
means investors no longer trust the
dollar as a safe haven investment
during a market crisis.
As we have said for years,
when this signal happens, the dollar
is ripe for meltdown.
Central banks across
the world are beginning to abandon
the U.S. dollar:
http://wallstreet.blogs.fortune.cnn.com/2010/07/09/central-banks-start-to-abandon-the-u-s-dollar/
Despite the
uncertainty in
Europe,
the dollar has still sunk against
the Euro faster than it has in the
past year:
http://www.bloomberg.com/news/2010-07-17/dollar-weakens-most-in-14-months-versus-euro-on-signs-of-economic-slowdown.html
In 2008, I predicted
that
China
would radically re-engineer its
economy, changing it from an export
based hub to a self sustaining
consumer hub. I
predicted that they would depeg the
Yuan from the Dollar after this move
was done, and following that, they
would dump their vast holdings of
U.S. treasuries, causing the dollar
to lose its world reserve status,
destroying its value, and creating
hyperinflation in prices here in the
U.S. So far, the
first two events have already
occurred.
China
has depegged its currency from the
dollar and is allowing it to begin
appreciating. They have also almost finished
converting their economy into a
consumer system while continuing
exports through the ASEAN trading
bloc:
http://www.nytimes.com/2010/06/25/world/asia/25china.html?_r=1&ref=global-home
The Yuan is now being
globalized by the Chinese in an
effort to strengthen its base and
make it viable as a reserve
currency:
http://www.reuters.com/article/idUSTRE66427920100705
Some analysts have
suggested that the globalization of
the Yuan could take years, however,
this is not necessarily so.
If the U.S. dollar were to
collapse, or the Euro, or both, the
Yuan suddenly would look extremely
viable as a reserve currency.
I believe this is exactly
what will happen, and, I believe
China
will begin depleting its U.S.
Treasury holdings in the next 6
months.
Interestingly, some
in
China
have gone out of their way to deny
that such plans are in the wings,
and the MSM has helped to facilitate
this fallacy:
http://www.reuters.com/article/idUSTRE6660VC20100707
Set aside the fact
that others in
China
are calling for the government to
dump U.S. Treasuries:
http://www.reuters.com/article/idUSTRE66I05U20100719
Now would be the
perfect time considering the
dollar’s recent rise due to the
problems in the EU.
A bond dump at this time
would mean
China
could reap maximum profits before a
final monetary breakdown. China is
reverting to a consumer hub and is
no longer relying on exports to the
U.S.,
so the idea that they have any
reason whatsoever to continue
holding onto U.S. Treasuries is
absurd.
The final key to the
coming Chinese treasury dump, I
feel, is in the relationship between
China
and
Germany.
Germany
is really the primary pillar of the
EU, without it, the EU could not
exist. A barely
publicized visit by German
Chancellor Angela Merkel on July 15th
may be the final piece of a
long escalating financial
relationship between
China
and the stronger countries of the
EU:
http://news.xinhuanet.com/english2010/china/2010-07/14/c_111953600.htm
A Chinese / German
financial alliance could create a
core economic “shell” which might
withstand an anticipated
disintegration in the
U.S.
and some of the more indebted
European nations. I do not expect the dollar as we
know it to survive past 2011.
The Line Has
Been Crossed
I have never seen so
many indicators of total meltdown,
when compared to past economic
collapses throughout history, as I
see today. Not to
sound melodramatic, but I’m really
not certain if I will be writing
these financial analysis articles
for much longer. I suspect that before the year is
out there will be no more need,
being that every facet I have laid
out over the years will become
glaringly obvious to everyone.
As I have stated so
many times, we may not be able to
stop these events from unfolding,
but we can determine their final
outcome. Prepare
for the worst, because I have no
doubt you are liable to see it
before the next few years are done.
Stand by your principles.
Never compromise your conscience.
And above all else, survive.
No ending culminates without
the graces of a new life, one full
of possibility. It is up to you, the staunch and
independent American individual, to
see that that possibility is
realized regardless of any obstacle
or enemy. A
fiscal catastrophe will not stop us,
it will not break our spirits, it
will not enslave us.
It will only strengthen our
resolve to remain forever defiant,
and forever free. |
