Dark Skinny

From Seeking Alpha
Article By Big Jake

Since the economy began sliding downhill in late 2007, mainstream economic and market experts have consistently erred on the sunny side.

As late as June 2008, mainstream consensus held that the U.S. was heading for a “soft landing” and would avoid recession. Several months later, the slump was acknowledged to have started in January 2008, but we were supposed to see renewed growth by mid-2009, with unemployment peaking in the eight-to-nine percent range. A quick “shovel-ready” stimulus bag was supposed to set us back on the road to prosperity.

In January, recovery projections were pushed forward to late 2009. Today, the consensus is for a mid-2010 recovery, with unemployment peaking at just over 10 percent. Clearly, the mainstream has struggled to catch up to reality for well over one year. What are the chances that they finally have it right this time?

Moreover, the mainstream continues to see what is going on as a plain-vanilla recession that will be quelled with some on-the-fly monetary and fiscal tinkering. Washington, we are told, will pull us out of this slump—as soon as the masses can be enticed back to the shopping malls. Then things will return to how they were before. But what if the experts and politicians are wrong not only on their ever-changing recovery timeline, but also on the nature—nay, the very existence—of a recovery?

America’s reigning political-economic ideology has demonstrably failed. Given that its government is obviously fumbling along without a clue, its foreign and domestic credit is tapped out, and its 300 million people are discovering that their hopes for continuous material improvement will never be met, could the U.S. be headed the way of the USSR?

Instead of a recovery as the mainstream envisions it, what if America permanently bankrupts, impoverishes, and marginalizes itself? What if its cherished institutions fail across the board? For example, what happens when the police realize that their under-funded pension plans cannot support a decent retirement? Will they stay honest, or will they opt to survive by any means necessary? These are questions that the mainstream does not even begin to contemplate.

In the interests of providing you with an alternate vision—something outside the mainstream—below are ten predictions for America through the year 2012. This is not boilerplate doom-saying. Rather, I am laying out in highly specific terms what will happen over the next three-odd years. Others have thrown around the term “Depression”, but I am going to tell you precisely what it means for you, your investments, and your community.

When these predictions come true, I expect to be rewarded with a seven-figure consulting gig, a book contract, or a high-level position in whatever administration succeeds the doomed Obama team—that is, if anyone succeeds it at all.

Prediction one. The twenty-five-year equities bubble pops in 2009. U.S. and foreign equities markets will stop treading water and realign with economic reality. Stock prices will cease to reflect the “greater fool” mentality and will return to being a function of dividend yields, which have long been miserable. The S&P 500 will sink below 500. In a bid to stem the panic, the government will enforce periodic “stock market holidays”, and will vastly expand the scope of its short-selling prohibitions—eventually banning short-selling altogether.

Prediction two. With public pension systems and tens of millions of 401k holders virtually wiped out—and with the Baby Boomers retiring en masse—there will be tremendous pressure on the government to get into the stock market in order to bid up prices.

Therefore, sometime in 2010, the Federal Reserve will create and loan out hundreds of billions of fresh dollars to the usual well-connected suspects, instructing them to buy up stocks on the public’s behalf. This scheme will have a fancy but meaningless name—something like the “Taxpayer Assurance Equities Facility”. It will have no effect other than to serve as buyer of last resort for capitulating smart-money types who want to get out of stocks entirely.

Prediction three. Millions of new retirees—including white-collar people with high expectations for a Golden Retirement—will be left virtually penniless. Thousands will starve or freeze to death in their own homes. Hundreds of thousands will find themselves evicted and homeless, or will have to move in with their less-than-enthusiastic children. Already strained by the rising tide of the working-age unemployed, state and local welfare services will be overwhelmed, and by 2012 will have largely collapsed and ceased to function in many parts of the country.

Prediction four. “Quantitative easing” will fail to restart previous patterns of lending and consumption. As the government sends out additional “rebate” checks and takes ever-more drastic measures to force banks to lend, hyperinflation could take hold. However, comprehensive debt relief via a devaluation of the dollar is even more likely. This would entail the government issuing one “new” dollar for some greater number of “old” dollars—thus reducing both debts and savings simultaneously. This would make for a clean slate a la Fight Club.

As there are many more debtors than savers in the U.S., the vast majority would support devaluation. The Chinese and other foreign holders of our bonds would be screaming mad, but unable to do anything. Every country that has not found a way out of dollar-denominated reserve assets by 2012 will see its reserves eliminated.

Prediction five. The government will stop pretending that it can finance continuous multi-trillion-dollar deficits on the private market. By late 2010, the sole buyers of new U.S. Treasury and agency bonds will be the Federal Reserve and a few derelict financial institutions under government control. This may or may not lead to hyperinflation. (See prediction four).

Prediction six. As the need for financial industry paper-pushers declines and people have less money to spend on lawyers and Starbucks (SBUX), unemployment will rise until the private sector has eliminated all of its excess capacity and superfluous or socially needless jobs. The government’s narrow unemployment figure (U3) will rise into the high teens by late 2010. The government’s broader unemployment figure (U6) will cease to be reported when it reaches 25 percent—it will simply be too embarrassing. Ultimately, one in three work-eligible Americans will be unemployed, underemployed, or never-employed (e.g. college grads permanently unable to find suitable work).

Prediction seven. With their pension dreams squashed, and their salaries frozen or cut, police and other local government workers will turn to wholesale corruption in order to survive. America’s ideal of honest, courteous, and impartial cops, teachers, and small-time local functionaries will have come to an end.

Prediction eight. Commercial overcapacity will strike with a vengeance. By 2012, thousands of enclosed malls, strip malls, unfinished residential developments, motels, truck stops, distribution centers, middle-of-nowhere resorts and casinos, and small-city airports across America will turn into dilapidated, unwanted, and dangerous ghost towns. With no economic incentive for their maintenance or repair, they will crumble into overgrown, plywood-and-sheet-rock ruins.

Prediction nine. By the end of 2010, tens of millions of households will have fallen behind on their mortgages or stopped paying altogether. Many banks will be unable to process the massive volume of foreclosure paperwork, much less actually seize and resell the homes.

Devaluation (as mentioned in prediction four) could ease the situation for those mortgage holders still afloat, but it would also eliminate any incentive for most banks to stay in the mortgage business. In any case, the housing market in many parts of the country will lock up completely—nothing bought or sold.

With virtually no loans being made, even the government will finally acknowledge that most banks are fundamentally insolvent. A general bank run will only be averted through a roughly one trillion-dollar recapitalization of the FDIC, courtesy of new money from the Federal Reserve.

Prediction ten. As an economy is never independent of the society within which it functions, the next few paragraphs will focus on social and political factors. These factors will have as much of an impact on market and consumer confidence as any developments in the financial sector.

Whether rightly or not, President Obama, having come to power at the dawn of this crisis, will be blamed for it by over 50 percent of the population. He will be a one-term president. In response to his perceived socialization of America, there will be a swarm of secessionist and extremist activity, much of it violent. Militias and armed sects will be more prominent than in the early 1990s. Stand-off dramas, violent score-settlings, and going-out-with-a-bang attacks by laid-off workers and bankrupted investors—already a national plague—will become an everyday occurrence.

For both economic and social reasons, millions of immigrants and guest workers will return to their home countries, taking their assets and skills with them. The flow of skilled immigrants will slow to a trickle. Birth rates will plummet as families struggle with uncertainty and reduced (or no) income.

Property crime will explode as citizens bitter over their own shattered dreams attempt to comfort themselves by taking what is not theirs. Mutinies and desertions will proliferate in an increasingly demoralized, over-stretched military, especially when states can no longer provide the educational and other benefits promised to their National Guard troops.

There will be widespread tax collection issues, and a huge backlash against Federal and state bureaucrats who demand three-percent annual pay raises while private sector wages remain frozen or worse. In short, the “Tea Parties” of tomorrow will likely not be so restrained.

Finally, between now and 2012, we are likely to see another earth-shaking national embarrassment on the scale of the 9/11 attacks or Hurricane Katrina and its aftermath. This will demonstrate conclusively to all Americans that their government, even under a savior-figure like Obama, cannot, in fact, save them.

By 2012, there will be a general feeling that the nation is in immediate danger of blowing up or coming apart at the seams. This fear will be justified, given that the U.S. has always been held together by the promise of a continuously rising material standard of living—the famous “pursuit of happiness”—rather than any ethnic or religious ties. If that goes, so could everything else. We were lucky in the 1930s—we may not be so lucky again.

Sweden to GM/Saab: Drop Dead!

Finally, a nation with a little backbone…a little integrity…a little good sense.

And guess what, it’s that dreary socialist refrigerator – Sweden. Asked to bailout its GM-owned automaker, Saab, the country’s Prime Minister just said ‘no.’ Good for him…

“Voters did not pick me to buy loss-making car factories,” he explained.

But it’s a time of contradictions, paradoxes and oxymorons. Up is down. Right is left. In is out. Good is bad.

The socialists are the only ones protecting the free market, now. Americans are scuttling it with every chance they get. The stocks of capitalist companies are going up in communist China…but in America, they’re going down. Since November, the Shanghai index has outperformed the S&P by 75%.

And back in the United States, projects that were considered too marginal to justify spending money a year ago are now thought to be indispensable. And the IOUs of the biggest spendthrift on the planet are the hottest item on the market. Ten-year Treasury notes are now priced to yield only 2.99% – just as the Obama administration announces a $1.75 trillion budget deficit.

Even crooks and criminals are flummoxed. A guy walks into a big downtown bank. He points a gun at the teller and says: “Give me all your money.”

The teller replies calmly: “You don’t understand. This is a bank. We don’t have any money.”

The only people with money now are the people who never earned any…the people who print the stuff.

But back to China:

All the things that used to convince pundits that China was hopeless now persuade them that it’s the hope of the entire world. “China’s autocrats can announce a stimulus – and get on with it,” writes John Authers, admiringly, in the Financial Times. They don’t have to beg and bicker with the dunderheads in Congress. They can just do it.

And China’s banks are more solid, too. “China’s are in good health, with both loans and deposits rising. American counterparts are not.”

But our irony cup runneth over when we read Auther’s next comparison:

“Finally, there is confidence in officialdom.” The markets have lost confidence in Tim Geithner and the rest of the feds, he says. “Meanwhile, hope…is pinned on the audacity of Chinese officialdom and is ability somehow to keep their economy on course.”

Everything is so topsy-turvy, dear reader, we think we’re going to throw up.

The whole world now turns its weary eyes…not to that bastion of free-market leadership, the United States of America, but to a country that has only had a quasi-free-market in goods and services for less than a quarter century…a country still run by Maoists. It is to them that we supposedly look to save the world economy!

What a great time to be alive! Practically every headline makes us want to reach for a drink. And we’re finally getting to see something that we only read about in the history books…yes, we’re going to find out what makes a depression so great.

Bankruptcy filings in the United States were up 37% in February, over the year before. House sales plunge, say the papers. Auto sales plunge, say the websites. Joblessness soars, says this morning’s news. Corporate America laid off 158% more workers this February, as compared to a year ago. Since the beginning of the year, layoffs are running 191% ahead of the same period in 2008. Almost a half a million people have lost their jobs so far this year…and there are 10 months left to go.

The Dow gained 149 points yesterday. Our “Crash Alert” flag is still flying…but the Dow is probably going to rally for the next few days.

Gold, meanwhile, continues its correction. It fell to $906 yesterday. Goldbugs, don’t despair. Have faith. The commies aren’t going to pull the world economy out of its tailspin. The bailouts and boondoggles in the West aren’t going to do it either. Buying gold is still the smartest long-term decision that you can make for your portfolio…

Remember, this is a depression, not a recession. Both America and Chinese economies have lived in a grand, symbiotic delusion for the last 10 years. America believed it could let the Chinese do all the sweating and saving. China believed it could make money by selling to people who couldn’t afford to buy. Now, both economies need perestroika. Both need to be refocused. China will turn its economy towards domestic consumption…and military spending, no doubt. America will have to accept a lower standard of living with fewer imports.

These adjustments take time. The last time the world went through a depression was in the ’30s. Every major economy – except Britain – fell backwards…all of them losing more than 20% of GDP. It took three years before they hit the bottom. Then, some bounced back quickly – Germany and Japan – thanks to military spending. Others – the United States and France – barely bounced at all.

Extract from “China - The Hope of the World Economy”
Author: Bill Bonner

In 1910, in a quiet backwater in Georgia at The Jekyl Island Hunt Club, there was a meeting whose simple purpose was the formation of US The Federal Reserve. Those who attended were: Senator Nelson Aldrich (Nelson Rockefeller’s maternal grandfather); A. Piatt Andrew, Economist and Assistant Secretary of the Treasury; Frank Vanderlip, President of the National City Bank of New York; Henry P. Norton, President of Morgan’s First National Bank of New York; Paul Moritz Warburg, a German who was partner in the New York banking house of Kuhn, Loeb Co.; Benjamin Strong, an aid to J. P. Morgan.

The Federal Reserve was incorporated in 1913 and has been creating a completely unnecessary National Debt ever since. In simple terms, the Fed creates money as debt. They create money  and credit out of thin air by nothing more than the ruse of “fractional lending” and a book entry. Whenever the members of the Fed make any loans, that debt money is the US money supply.

THE TEN ORIGINAL MEMBER BANKS OF THE FEDERAL RESERVE

All owned by the Rothschilds

Rothschild Bank of London
Warburg Bank of Hamburg
Rothschild Bank of Berlin
Lehman Brothers of New York
Lazard Brothers of Paris
Kuhn Loeb Bank of New York
Israel Moses Seif Banks of Italy
Goldman, Sachs of New York
Warburg Bank of Amsterdam
Chase Manhattan Bank of New York

Please note that The Rothschild family owns and runs all the above so-called “American Banks”. Therefore you could safely assume that the Rothschild family both runs and controls the whole of the American Banking System. Indeed, Rothschilds is an old European family which has dominated the European banking system for centuries. So not even an American runs the US banking system - a European family cartel manipulates it completely with impunity.

By 1850, the House of Rothschild represented more wealth than all the families of Europe. Shortly after William Patterson formed the Bank of England(est. 1695),  its control passed to Nathan Rothschild and here is how he did it:

Nathan Rothschild was an observer on the day the Duke of Wellington defeated Napoleon at Waterloo, Belgium. He knew that with this information he could make a fortune. He later paid a sailor a big fee to take him across the English Channel in bad weather. The news of Napoleon’s defeat would take a while to hit England. When Nathan arrived in London, he began selling securities and bonds in a panic. The other investors were deceived into believing that Napoleon won the war and was eyeing England so they began to sell their securities too. What they were unaware of is that Rothschild’s agents were buying all the securities that were being sold in panic. In one day, the Rothschild fortune grew by one million pounds. They literally bought control of England for a few cents on the dollar. The same way the Rockefeller’s went into Japan after World War 2 and bought everything 10 cents on the dollar. SONY=Standard Oil New York, a Rockefeller Company.

Nathan Mayer von Rothschild(1840-1915), 1st Baron Rothschild, once boasted:

“I care not what puppet is placed upon the throne of England to rule the Empire on which the sun never sets. The man that controls Britain’s money supply controls the British Empire, and I control the British money supply.”

Frederick Morton wrote in his book, The Rothschilds:

“…the wealth of the Rothschilds consists of the bankruptcy of nations.”

But the Fed staunchly maintains that they are a private institution who’s only function is to serve the US government and its citizens. Well of course they do !! So, purely out of interest, lets look at those Financial Institutions that Hank Paulson (ex-CEO of Goldman Sachs) and Ben Bernanke have “saved” in the recent TARP bail-out:

• Morgan Stanley
• Citibank
• Wells Fargo
  
• Goldman Sachs
• Bank of America
• Merrill Lynch
• State Street
• Bank of New York

Every single one of these institutions is either related or has interests and connections to the original Fed forming cartel of 1910, ultimately run by the Rothschilds family. These financial institutions have all been saved as a priority by their cartel buddies within the Fed brotherhood. How many Mainstreet banks (that’s ordinary non-Investment Banks) have been saved or helped by the Fed? I would suggest that the Fed brotherhood’s Wall Street tentacles and influence spreads long, dirty and deep into the very heart of the US political infrastructure - which is the only possible explanation that could adequately explain their inexplicable untouchableness and apparent freedom of agenda.

Now some other facts about the the Fed:

• The Fed, as a private US institution, pays no corporate or any other income tax at all to the US government.
• The Fed is allowed to look after US prices and the money supply - “at their own discretion”.
• The Fed charges interest to the US government for every single Federal Note it produces. This charge, in the form of seignorage, is then passed on to the US citizens as an invisible “inflation tax”.
• The Fed has NEVER been properly audited.
• At their top-level meetings, the Fed keeps no written records or memoranda.
• The Fed, as a private institution, is headed by an American banking cartel which, in turn, is under the complete influence of the European-based Rothschild banking family.

As a result of The Fed’s unstoppable financial activity and due to all the rash debt they have caused within America so consistently over the years, 22 cents in every single US dollar is now foreign owned through all their self-serving and mutifarious debt instruments. If these debt instruments were being used properly, then surely the US National Debt would be coming down wouldn’t it ?  But instead, it becomes painfully evident that the Fed uses these foreign loans, multiplied hugely by the practice of “Fractional Reserve Lending” to further create  credit, leading to unstable and untenable mountains of corporate, personal and financial debt. The US Fiscal Debt is currently running at about $60 trillion now, which is 6 X the reported National Debt and about 15 X GDP. These comparisons become even more ridiculous when compared against the dollar notes in circulation - which is approximately $600 billion. The Fiscal Debt is therefore 100 X more than the dollar notes in circulation !! Is this the measure of a strong economy ? Remember that  the total production of the world economy amounts to $60 trillion alone. David Walker, ex-Comptroller General of the government GAO has said that in order to pay back this US Fiscal Debt, every citizen in America would have to pay its government $480,000 just to break even.

In these current hard economic times, it seems that the forefathers of the  American Constitution had some real vision. In 1826, the second bank’s charter was soon to expire and presidential candidate Andrew Jackson - an avid and honest constitutionalist - campaigned fiercely against a central bank which was owned and operated by the international banking element. Here is Jackson’s opinion of those bankers:

“You are a den of vipers. I intend to wipe you out, and by the Eternal God I will rout you out…If people only understood the rank injustice of the money and banking system, there would be a revolution by morning.”

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References:

The Federal Reserve History and Conspiracy

The Federal Reserve: History of Lies, Thievery, and Deceit

David Walker Interview on CBS(Youtube)

In a recent and significant article from Reuters entitled “China PM calls on Russia to Fight Crisis Together”, concerning a meeting of government heads between China and Russia in Moscow, Chinese Minister Wen Jiabao explained:

“We need a new [World Financial] system whereby developing nations will have a stronger say,” he added. “We need to diversify the global currency system, to support its stability through the use of different currencies.”

Wen visited Moscow just three weeks before Russian and Chinese leaders are due to take part in an emergency summit in Washington, called to discuss measures to end the current turmoil and to reshape the global financial architecture. Both Russia and China blame the economic crisis squarely “..on the inefficiency of the existing financial infrastructure focused on the U.S. dollar”.

“Reforming the global financial infrastructure … is an important thing and most timely now,” Wen said.

Russian Prime Minsiter Vladimir Putin suggested that switching, at least partially, to the rouble and yuan in mutual trade could help both countries to weather the crisis. He added:

“At the moment the world which is based on the dollar is suffering serious problems … The situation on the global financial markets remains difficult,” he told the forum.

“In such conditions, we need to think about improving the payments system for bilateral trade, including the use of the national currencies,” he said.

“This will help stabilize our national economies, stabilise finance and stabilise capital markets,” he added.

Both China and Russia have met to effectively decide what can be done about the volatile dollar, in preparation for a World Financial Conference in three weeks time in Washington. From their comments it is clear that both Russia and China are tired of the dollar’s unstable and erratic behaviour, and have clear intentions of perhaps decoupling from the dollar and diversifying their reserves into other  currencies. Currently, China holds $1.9 trillion dollars and Russia holds $500 billion in their dollar reserves.

If China and Russia as well as other countries do decide to sell off their reserves and with a consequent lesser demand for the dollar in commodity purchases, then all those greenbacks will come back home to America. The US government will no longer be able to sell its huge Fiscal Debt abroad in such vast amounts anymore - which would be economically catastrophic for the US government, leading to possible inflation or even rampant hyperinflation and bankruptcy.

From a well-known Chinese blogsite called Global Voices, here are some Chinese comments and opinions concerning the dollar situation and the current financial crisis:

“1. Americans dare not put money in the banks.
2. The downfall of financial industry would drive people away from the bonds Wall Street issued, thus its financing capability would be very much undermined…
5. The dollars are going to devalue so that its status as a global currency would come to an end.
6. As the largest and second largest holders of U.S. Treasury bills, Japan and China would be marred due to the slumping dollar value.
7. Major nations in the world might endeavor to displace their crisis by the method of war, and a new world war with the massive use of nuclear weapons is inevitable…..”

“We should know that China could play a positive role in the crisis as the largest holder of dollar reserve. The problem is, since U.S has long been giving troubles to China and trying to impede the reunification of China. Should we pay back the bad with good?”

“Yes, we should help it. But it should be conditional. Though it’s not moral to bargain that way, we don’t have to feel guilty to do so with Americans, since that’s the way they treated us. We can bargain on Taiwan and Tibet issues. What good chips!”

“So as you guys say, America should never fall, and the entire world ought to uphold the power of U.S so that it can spend others’ money to pay and order goods from other countries.”

“China is like working for U.S, a boss who someday says he has run out of money, the company going to collapse. However, China says,”No, you can’t fall, or I will be starving without a job.” Then the boss says,” OK, then please lend me some money, so that I can keep the company, and you can keep working for me.” What a logic!”

The Washington G20 Summit in three weeks time should prove very interesting.

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Survey - Canada Rated World’s Soundest Bank System

In a report from Reuters yesterday, here are the latest “safe bank” ratings. This article presents ratings of both weak and rock solid banks and rates the banks per country. It’s an interesting read. Needless to say both America and UK are way down there in the ratings now…

“Canada has the world’s soundest banking system, closely followed by Sweden, Luxembourg and Australia, a survey by the World Economic Forum has found as financial crisis and bank failures shake world markets.

But Britain, which once ranked in the top five, has slipped to 44th place behind El Salvador and Peru, after a 50 billion pound ($86.5 billion) pledge this week by the government to bolster bank balance sheets.

The United States, where some of Wall Street’s biggest financial names have collapsed in recent weeks, rated only 40, just behind Germany at 39, and smaller states such as Barbados, Estonia and even Namibia, in southern Africa.

The United States was on Thursday considering buying a slice of debt-laden banks to inject trust back into lending between financial institutions now too wary of one another to lend.

The World Economic Forum’s Global Competitiveness Report based its findings on opinions of executives, and handed banks a score between 1.0 (insolvent and possibly requiring a government bailout) and 7.0 (healthy, with sound balance sheets).

Canadian banks received 6.8, just ahead of Sweden (6.7), Luxembourg (6.7), Australia (6.7) and Denmark (6.7).

UK banks collectively scored 6.0, narrowly behind the United States, Germany and Botswana, all with 6.1. France, in 19th place, scored 6.5 for soundness, while Switzerland’s banking system scored the same in 16th place, as did Singapore (13th).

The ranking index was released as central banks in Europe, the United States, China, Canada, Sweden and Switzerland slashed interest rates in a bid to end to panic selling on markets and restore trust in the shaken banking system.

The Netherlands (6.7), Belgium (6.6), New Zealand (6.6), Malta (6.6) rounded out the WEF’s banking top 10 with Ireland, whose government unilaterally pledged last week to guarantee personal and corporate deposits at its six major banks.

Also scoring well were Chile (6.5, 18th) and Spain, South Africa, Norway, Hong Kong and Finland all ending up in the top 20.

At the bottom of the list was Algeria in 134th place, with its banks scoring 3.9 to be just below Libya (4.0), Lesotho (4.1), the Kyrgyz Republic (4.1) and both Argentina and East Timor (4.2).

RANKINGS

1. Canada

2. Sweden

3. Luxembourg

4. Australia

5. Denmark

6. Netherlands

7. Belgium

8. New Zealand

9. Ireland

10. Malta

11. Hong Kong

12. Finland

13. Singapore

14. Norway

15. South Africa

16. Switzerland

17. Namibia

18. Chile

19. France

20. Spain

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124. Kazakhstan

125. Cambodia

126. Burundi

127. Chad

128. Ethiopia

129. Argentina

130. East Timor

131. Kyrgyz Republic

132. Lesotho

133. Libya

134. Algeria

SOURCE: World Economic Forum Global Competitiveness Report 2008-2009.”