-- Posted Wednesday, 23 November 2011 Source: GoldSeek.com
The following are some snippets from the most recent issue of the International Forecaster. For the full 34 page issue, please see subscription information below.
US MARKETS
We continue to write about Europe, because we have too. At the moment and for at least the next several months, it will be the lynchpin and the catalyst that could bring about a financial chain reaction worldwide. In turn Europe poses the biggest risk to the US economy. European direction has changed over the past few weeks to cut loose the six problem nations and any others who cannot stand on their own and reform a core euro zone. Presently Europe is nowhere close to ending its sovereign debt crisis.
Germany does not want to use the European Central Bank as a lender of last resort. As riots erupt on the streets of Greece, talks are underway to structure 50% debt write-off that was the heart of the deal structured a month ago. In the meantime lending costs, already astronomical in Greece are relentlessly moving higher in Italy and Spain. The ECB has been active in the bond market as a buyer, but only in a limited way. The French, British and US want the ECB to act like the Federal Reserve overwhelming the market, and monetizing to solve the problems of the moment. The Germans do not want to deal with the inevitable inflation that follows. The extension of the problem, the hallmark of US, UK and French monetary policy obviously doesn’t solve the problem, but eventually compounds it by creating more debt and inflation. This policy has proven over and over again to be a failure in the longer term.
Germany does not want to use the European Central Bank as a lender of last resort. As riots erupt on the streets of Greece, talks are underway to structure 50% debt write-off that was the heart of the deal structured a month ago. In the meantime lending costs, already astronomical in Greece are relentlessly moving higher in Italy and Spain. The ECB has been active in the bond market as a buyer, but only in a limited way. The French, British and US want the ECB to act like the Federal Reserve overwhelming the market, and monetizing to solve the problems of the moment. The Germans do not want to deal with the inevitable inflation that follows. The extension of the problem, the hallmark of US, UK and French monetary policy obviously doesn’t solve the problem, but eventually compounds it by creating more debt and inflation. This policy has proven over and over again to be a failure in the longer term.
Confusion still reigns in Europe, and as a result the euro has lost 3%. In fact, climbing interest rates have many panicked. Interest rates on the 2-year Italian bills rose 150 bps last week, or ½%, as CDS, Credit Default Swaps, jumped 24%. Yields on Spanish, French and Belgian bonds had the highest divergence in euro history versus the bund this past week as well. As we have pointed out over and over that there is only one safe haven and that is gold and silver related assets. We ask how can the US dollar be perceived as a safe haven as its debt grows exponentially and its credit rating is approaching another downgrading? There has been only one safe haven for 6,000 years and that is gold and if the US government thinks they are going to change that they are mistaken. The money managers and hedge funds continue to chase the same failing currencies and refuses to buy gold, which appreciated more than 20% annually along with silver for the past 12 years. What are these genius money managers thinking about? They are so cowed by the establishment and propaganda they do not dare deviate. That in the face of historically low yields, which when matched against inflation is dreadful. Doesn’t anyone think outside the box?
In America Operation Twist, which has seemed to have faded from memory already has been a failure. How do you solve a debt crisis with more debt? Something the Europeans should take note of. But, they won’t, because that is today’s accepted poison. That in spite of its failure in the past. The end goal of Twist was lower mortgage rates, which really hasn’t happened. Who cares though? There are six million foreclosed homes in sale inventory and that will increase to 8 to 11 million over the next four years. We’d call this an exercise in futility.
Only one thing can solve America’s economic problems and that is tariffs on goods and services and the end of free trade, globalization, offshoring and outsourcing. Any thinking person with a brain realizes free trade has torn the heart out of America. Worse yet, we seem to be the only ones that foryears has brought this issue to the public’s attention. The only thing worse than free trade for America is war.
One of the interesting things about Europe is that German Chancellor Mrs. Merkel says it would be wrong to guarantee sovereign debt. That would ruin the ECB’s credibility. She also says it is illegal, because it violates the EU treaty. We have been telling people that for a long time, but no one wants to listen. Others contend the bank cannot lend directly but the bank can buy bonds in the secondary market. The later they have been doing. The ECB can also lend via the IMF, but violates the spirit of the rules. What banks, bureaucrats, politicians and the US wants the ECB to do is bail out all of Europe just as the Fed has done for more than 3 years, as in the US rescue at any cost. Again, justification for scrapping Treaty rules doesn’t exist in the long run. Throwing money at the problem does not solve it. It simply does not work and the incumbent inflation wipes out any possible gains.
There are six countries that simply cannot compete in the euro zone and they should leave and return to their original currencies. This exit is absolutely inevitable no matter how much money and credit is used. All of these nations are in depression, but no one wants to talk about reality. There are no jobs when you have 30% to 45% unemployment, and with one austerity policy after another there is simply no hope for recovery. Italy, Spain and Portugal are paying close to 7% to sell 10-year bonds. France pays 3%, as the US pays 2%. In all these countries unemployment has worsened over the past year, even with bogus statistics. In the upper levels of interest countries simply cannot service or repay, so why would anyone lend to them, as it turns out these nations in trouble do not want to admit it, but they now know they should have never joined the experiment known as the euro. It is probably that Greece, Portugal and Ireland will leave the euro, but if Spain and Italy are forced to leave it will be very difficult to hold the euro together, Germany or no Germany. The result of euro failure will bring a very dangerous transition period, which could take down the world financial system. European banks, politicians, and bureaucrats think this is some kind of a game. Well, it is not a game.
