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2008: THE SYSTEM BREAKS EDITOR NOTE: My Spanish needs work, since ‘Tonterias’ was misspelled in the title, which prompted a couple corrections from Latino readers. Disculpame! Last week’s attempt to smash the Wall Street corrupt trumpets of information earned a special kudo from a veteran NYSE floor trader. Tom said, “What a crock we hear every damn day? I have been on Wall Street 28 years. This is just unreal. What we hath wrought?!?” The year 2008 will be the year that THINGS JUST PLAIN BREAK. It will be a truly deadly year, unavoidably lethal to the USEconomy and especially to the US banking sector. Nothing has been repaired. Some tangible solutions will be offered in the next section, all legitimate in a real world. However, we do NOT live in a real world, but rather in a Fairy Tale world of US Hegemony and Wall Street with a choke hold around the US entire system. Managed inflation is the policy never to be reversed, until total breakdown occurs. Treason is rampant, called simply Power Games. All attempts so far are to shore up the existing system, to enable Wall Street to sell as much of their damaged asset backed bonds to suckers, and to avoid international lawsuits against Wall Street firms. In 2008, an alarming sequence is assured of enormous damage that puts the entire US economic and financial system in a perilous situation. The powers survived the end of 2007, with heavy usage of band aids, rubber bands, and paper clips, but reality continues to itemize a relentless sequence of unfixable, tragic, intractable problems. The pressure points are big banks suffering from insolvency, prime mortgage bonds destined for massive losses, consumers without kitties to rob to keep spending, a worsening housing market from chronic inventory bloat, and deepening problems in the lending industry frozen from insolvency and distrust. Pitch in a global resentment of US fraud and heavy handed tactics, especially from the last couple decades. What a prospect! Almost all of Wall Street firms are bankrupt, but still in control of the financial media. Citigroup is dead in the water, inevitably to enter restructuring without admission of bankruptcy and surely with no formal filing of such. Heck, even Goldman Sachs might be bankrupt, if they ever produced an honest balance sheet. The goal of Wall Street henchmen, who are clearly guilty of the grandest larceny even seen since Rubin opened the door to gold leasing at the USTreasury, is for the (mostly) men in three-piece suits to fleece their elite firms for personal gain as much as possible before their broadly suspected insolvency is recognized as clear bankruptcy. They choked on their own toxic mortgage fecal IN-securities, with the leverage in the derivatives backfiring on them. The hidden factor is new Basel rules on accounting, which in my view seems like a bankruptcy judge ordering Discovery Phase of bank assets during a Bankruptcy Proceeding. True to form, the Wall Street firms continue to operate in defiance, as they created a lunatic new Tier-3 balance sheet item. The greatest feat to date is the Wall Street urged Congressional adoption of the subprime mortgage freeze, dubbed ‘The Teaser Freezer’ in clever tones. A voice tells me that Basel might push for prosecution of Wall Street bankster criminals. My 2008 forecasts will be saved for the Hat Trick Letter, but a preview overview can be listed. First, let us all revel at the Severe Comedy that has become US Presidential Politics. Good looks, meaningless promises, catchy campaign slogans, bulging campaign coffers, these all accompany a truly futile procession of charlatans offering hope. Harken back to November 2006, when a new Congress was elected. They, under new leadership have done not a blessed thing promised to turn the country away from its disastrous course, regarding the war, the economy, taxation, budget allocation, in a follow through mandated by voters. Expect nothing at all in change from any viable presidential candidate, who all seem like midgets. If one revolutionary candidate in particular is elevated by voters, his life will likely meet an early demise, by accident, of course. The hidden secret which just cannot seem to find its way above ground is that Neocons are not Republicans, not Democrats. The current Bush is a known Neocon, a bizarre label to be sure. In my view Clinton was a Neocon also, certainly cut from a different cloth than most traditional Democrats. His central policy was to create the foundation for the Fascist Business Model, wherein the finance sector merged with the state. Two candidates, one on each side, represent uninterrupted Neocon rule and the inexorable march to a military state, the former 911 Mayor and the former First Lady. But mine is not a political pen. Somehow, the name NeoFascist does not sound as appealing to American voters as the mysterious Neocon. Call a spade a spade! Numerous legal executive decrees confirm the label clarification and trend. The pathetic fact of life is that in my travels and conversations with countless American adults, my experiment has been grossly revealing. After almost 40 direct questions on US soil, directly asking “What is Fascism?” to Americans, not one single correct answer. After all, a nation gets the government it deserves. The United States is on a sad but unstoppable march to Third World status, complete with totalitarian rule. Nothing can block the path. One hundred years ago, H.L.Mencken called the USGovt the best government that money can buy, and deemed the American landscape attractive like any circus. Nothing has changed, only the depth and severity. THE SYSTEM FAILS, BREAKS, FREEZESThe year 2008 will start with a resumption in the disorder breakdown buzz, a resumption in the gold climb, and new chapters in big bank bankruptcy throes, and eventually a nearly complete loss of respect and integrity in the US Federal Reserve. The word ‘Bankruptcy’ will not be used until a big bank actually files for bankruptcy. The ring of the word Bankruptcy is more accurate, since it implies Hemorrhage, another great word. The collateral damage will include most bond insurers going bust, but holding firm to ‘AAA’ ratings in pure corrupt manner. The collateral damage will include most homebuilders going bust. However, the centerpiece of 2008 woes will be the PRIME MORTGAGE BUST, felt much like the stage falling through the floor in the Victorian Theater. The decline in housing prices will continue to push prices down another 5% to 10% in the new year, killing off prime mortgage portfolios and their bonds. The bust will take down the entire US banking system, which is now reeling and tipsy, like a punchdrunk boxer after enduring ten rounds of a pure beating, bloodied, wobbly, dizzy, blurred in vision. The mortgage debacle will extend to the commercial property arena, the degree of which will be uncertain. The people have been misled for almost a full year on the mislabeled mortgage debacle as a subprime phenomenon. That is the exposed tip of the iceberg, since it is total mortgage debacle problem. In 2008, the avalanche of failed mortgages of innovative adjustable variety will occur, with California providing the epicenter of failure and most publicized wreckage. US lending institutions once took pride in their absurd innovation in mortgage products, like fully borrowed down payments, like paying less interest than accumulates, like the borrower having no income or job. Next they will be embarrassed at the systemic stupidity and universal ridicule. In the 1970 decade, we suffered STAGFLATION in an ugly era. In 2008, we will suffer a much more powerful bout of stagflation, with continued USEconomic recession (in third year for those based in reality), rising price inflation (already running over 10%) sure to attack even the doctored Consumer Price Inflation. In fact, 2008 might see progress with the CPI adopting the house price component and putting off the owner equivalent rent, all boasted progress. The mirrored central damage will be to the USEconomy, from both an exhausted household consumer and a lending climate reluctant to supply urgently needed credit. The dependence upon consumption will be unmasked as fatally flawed finally. Households will fail on car loans and credit cards as an echo to mortgages, resulting in severe loss of independence and freedom. One can live in a house for free, but not ride a car or carry plastic for long without consequences. To compound the problem of credit supply, Wall Street burned our allies by cheating them blind. Expect a backlash felt in the year 2008, including international ugly lawsuits and unexpected Wall Street broken glass like a seven year delayed Krystalnacht. The entire banking system will go bust in the Untied States this year, in a highly visible manner, as the entire world watches in total horror. The nation in custodial duty for the world reserve currency, the USDollar, will suffer a failed banking & bond system, which undoubtedly will result in a grotesque USEconomic recession. It is just a bit late in its arrival. The parade of disasters will be mindboggling, offering little respite. Even the Plunge Protection Team, armed with $1500 billion in black bag money, pilfered largely from Fannie Mae in the two districts harboring the home towns for the sitting presidents from 1988 to 2000, will not be capable to stem the tsunami of stock market sell orders. They might focus attention on the biggest and baddest corporations, but the banking stock index collapse reveals how the PPT could only hold up the S&P500 index, but not their buddies in big banks. SADLY, 2008 IS THE YEAR THE SYSTEM JUST PLAIN BREAKS. People will run for cover. People will react with increasing anger. They will bristle with anger and frustration, even spark isolated riots, from rising food prices, rising gasoline prices with spotty supply, lost jobs from rising costs and outsourcing, lost homes from predatory lending followed by foreclosures. People will suffer realize that finances are not safe in banks, as bank runs spread amidst the fear in isolated cases, and some stock accounts are frozen unavailable amidst financial service conglomerate bankruptcies. The time honored Glass Steagall Law made impossible the merger of banks, brokerage houses, and insurance firms, for a reason. As banks fail, insurance and stock brokerage will be put at risk. The removed rule used to forbid shorting stocks on a downtick, but now will also render the system vulnerable. 2008 IS THE YEAR THE SYSTEM JUST PLAIN FREEZES. CONFUSION WILL REIGN SUPREMEThe year 2008 will bring with it a level of confusion never seen before in the nation’s history. Economists will be found befuddled, scratching their heads, dazed, and without solutions. Politicians will be confused as to what to advocate, unsure what is potentially effective. The entire argument of ‘Inflation vs Deflation’ will turn into a crazed debate, with ignoramuses spouting all manner of drivel without knowledge of what inflation is, how it is caused, the frustration in producing it intentionally, and the broken apparatuses no longer able to function when their levers are pulled. When inflation is not only misunderstood but also indoctrinated in heretic fashion, the concept becomes a gathering large cloud intended for confusion of the masses. When the banking system is seized up as it is, the mechanisms to spew money into the system fail to function. When banks distrust each other more than individuals for their claimed collateral, the system fails to distribute money, even at lower interest rates. Issuing loans to individuals will fall to a low spot on priorities. A huge event occurred in 2006, that being the flip of housing into a deflating asset. A huge event occurred in 2007, that being the flip of mortgage bonds into a deflating asset. As the entire risk price model system continues to disintegrate, the powerful teeth of deflating assets held by banks will render the banks themselves as utterly impotent agents to stir inflation. Ironically, as credit derivatives are sold off, the USDollar might actually benefit. Many writers talk about USFed Chairman Bernanke as stepping soon to the table with a mission to drop money from helicopters. Wow, are they ever popping some stupid pills?!? The events in the last four months have taught anybody with a lucid brain, a keen eye, and an active pulse (which eliminates the majority of investors) that the US Federal Reserve has become far more than a little bit IRRELEVANT. The banking system is so broken over here that the London LIBOR has become strained to the hilt. The hapless clueless hidebound USFed cannot recognize the problem of insolvency within the banking system, and cannot treat the problem with lower interest rates. That will certainly not stop them from cutting rates, since Goldman Sachs, acting as lead sled dog among the Wall Street harnessed team, has ordered them to do so. If lower rates will not solve the bank problem, why are we given lower rates? Simple, because it supports the stock market from an ugly bloody crash. The system cannot afford for stock assets to flip into a deflating asset. The confusion to reign in year 2008 will center on the challenge to actively produce price inflation, while leaning upon broken banking entities. Confusion will reign from requests to Bernanke to ‘do his helicopters thing’ when the winds of deflation will be so great that the cash drops are scattered into the deflation vortex. The desperate urgings made to Bernanke miss the lessons of the last four months. His primary perceived plan is to rescue the Wall Street banks, probably with far more redemptions, monetizations, and refunds delivered in basements and back rooms than the public will ever know. Such is the nature of the Fascist Business Model, to take care of the large corporations whose interests are merged with the USGovt, payola for the partners. The irony of the massive infusions of money, either with USFed injections or foreign capital infusions, is that they are extremely focused to rescue the ailing banks from insolvency. Except that they only rescue the ailing banks from illiquidity. Add money into an insolvent picture, account for it as an equity stake, and nothing is accomplished on the insolvency side. The new partners only have a larger share in the bankruptcy, better described as a vampire, walking dead. The system is not activated, no jobs produced, no new loans granted. The confusion in 2008 will culminate in the ratcheting upward of the official rescue attempts, measures, freezes, adoptions, initiatives, and eventual grand platform, as my forecast has steadily called for. Each plan will be recognized as insufficient and limited, thus motivated the next desperate measure. The Grandiose Resolution Trust Corporation will be granted broad powers, and rule for a full decade, with a possible cabinet appointment creation. Another ugly irony is festering. Neither the Administration and Congress is willing to press forward to initiate ANY broad rescue just yet, since the first pig in line would be the Wall Street thieves, thugs, and conmen whose fingerprints are all over the mortgage bond debacle laced with criminal fraud. So the entire banking system will continue to slide into quicksand. Once politicians enter the picture, the problem worsens, no exception. GOLD WILL RISEMeanwhile, gold will rise for many reasons, few being the traditionally recognized ones. Gold will rise from gradual recognition that the banking system is destroyed. Gold will rise from the perceived need to generate price inflation, whether such efforts are successful or not, an expectation concept. Gold will rise from the Competing Currency Wars, as nations urgently print more money to stave off recession and grotesque asset deflation. The slowdown will hit China also, which has begun to hike prices but which will find itself saddled with overcapacity. Gold will rise primarily because the global money supply is rising at an astronomical rate, think Weimar, go global. Gold will rise because the smart ones will realize that the Untied States might seek war as a diversion amidst the crisis. Gold will rise from in response to failures in most policy initiatives, perceived symptoms to systemic breakdown. Gold will rise as the global revolt against the USDollar continues, with the current focal point being the Persian Gulf nations who must defend themselves from the ravages of inflation. The entire price inflation argument is somewhat a straw dog, in a loose sense. The USDollar decline has prompted costs to rise, not wages, the result being economic dampers cast across the US landscape. This prompts monetary inflation motivation. Remove China and price inflation could be easily generated. However, the system cannot succeed in producing price inflation without killing the USTreasury Bond complex altogether, as long-term rates would rise to smash and upend the credit derivative pyramid. More evidence that the USFed is the most irrelevant player at the table. Gold will rise as the globe finally reckons that the USFed, traditionally the most powerful among the central bankers, is IMPOTENT, TOOTHLESS, AND IRRELEVANT. The chaos in the financial sector will be matched by growing chaos in the beehive of the USEconomy, the business complexes, the neighborhood communities. Watch for lawless behavior to rise, as chaos envelops the system. Watch for civil disobedience to crop up, as high crimes among Wall Street bankers and USGovt leaders go unaddressed. In the year 2008, the bylines will be 1) BREAKDOWN, 2) CHAOS, 3) FUTILITY OF TOOLS, 4) ABSENCE OF OPTIONS, 5) CONFUSION. Gold will rise as the bylines hit the press & media strewn with these messages. The system breaks in 2008. Denials will be laughable. GOODBYE TO MANYThe year 2007 said goodbye to quite a long list of notables. The music world lost Dan Fogelberg, Porter Wagoner, Ike Turner (beat me), and Tommy Newsome, plus opera stars Luciano Pavarotti and Beverly Sills. Hollywood and the entertainment sphere lost Joey Bishop, Joel Siegel, Charles Nelson Reilly, Jack Valenti, Tom Poston, Ingmar Bergman, Merv Griffin, Robert Goulet, Yvonne DeCarlo, Tom Snyder, Jane Wyman, and Marcel Marceau. The political arena lost LadyBird Johnson, Art Buchwald, Tom Eagleton, Henry Hyde. The writing world lost Sydney Sheldon, Norman Mailer, Kurt Vonnegut, and historian Arthur Schlesinger. The sports world lost Phil Rizzuto (the Scooter), and recently Sean Taylor (Washington Redskins). Also lost were restauranteur Bob Evans, spirited Jerry Falwell, and astronaut Wally Schirra. The bizarre corner lost Tammy Faye (Baker) Messner, Leona Helmsley, Anna Nicole Smith, and Evil Knievel. Closer to home, my family lost my mother Maureen, who coined the name Jackass for me, due to my persistent outspoken, stubborn, and mischievous manner. She called me ‘My Charming Rogue’ affectionately. She is missed deeply, her effect felt. THE SOLUTIONS ALWAYS THERE Greed is powerful, especially when subjected to those in charge of the world reserve currency for several decades. Rescinding the Bretton Woods Accord, wherein the USDollar was tied to gold, unleashed Pandora’s Box of financial evils. The abusive usage of monetary inflation as a remedy for excessive debts is perhaps the most pernicious destructive phenomenon in the last century. In a vicious disguise, monetary inflation kills entire industries, fleeces savers dry, transforms asset managers into casino players, and causes pervasive cost inflation, all of which impoverishes a nation. Tragically, all nations who hitched their monetary wagon to the Untied States risk tremendous damage from shared inflation wreckage. See Saudi Arabia, the entire Persian Gulf, even Hong Kong. Europe will not be spared either. The competing currency wars renders all as victims. The last deaths occur with the nations whose currencies rise, since they enjoy a rush of investment and enjoy reduced costs, but their export trade is harmed badly. Over dinner tables when the Hat Trick Letter was inaugurated, my father repeatedly asked me what solutions could be offered. A literature professor not versed in financial matters, he grew weary of incessant talk by me on the unfixable nature of the current system. My pragmatism owes to his constructive nature. My constant reply was that the system would resist all solutions, since they would cause severe pain for both the system and its leaders, the Ruling Elite. My sassy reply was that a solution article would be an exercise in futility. My offering was ten solutions, which even he realized were totally impractical in today’s day and age. Now, four years later, my list seems comical and totally outside the real of possibility. For humor and completeness, as much as a treatise on the many sins committed by our economic and banking chieftains, here is my list. HOW
TO FIX THE USECONOMY & FINANCIAL SYSTEM: OK, YOU TELL ME, DOES A SINGLE ITEM HAS MORE THAN AN INFINITESIMAL CHANCE ??? Happy New Year. Be sure to take cover during a truly deadly year upcoming. The country might not be recognizable by the time the 2009 page is turned.
Jim Willie CB is the editor of the “HAT TRICK LETTER” Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise like a cantilever during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by heretical central bankers and charlatan economic advisors, whose interference has irreversibly altered and damaged the world financial system. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy. A tad of relevant geopolitics is covered as well. Articles in this series are promotional, an unabashed gesture to induce readers to subscribe. The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
Jim
Willie CB is a statistical analyst in marketing research and retail
forecasting.
