Bob Chapman
International Forecaster
May 27, 2010

Europe is rescuing its economy in the same way that the Federal Reserve has attempted to same America’s financial system and economy. They have used an unprecedented aid and stimulus package to offset
massive fiscal deficits. In the US a deflationary depression was avoided
at least temporarily and that is what is now being attempted in Europe
with the guidance of the Federal Reserve.

This kind of program was implemented during the 1930s when we are told that unemployment was 25%. During the late 1930s the program failed to pull America out of depression. Unemployment in 1939 was 17.4% and
in 1940 it was 16.2%, hardly the results hoped for and anticipated. The
result was WWII. We are headed in the same direction today, as the
Middle East and Asia smolder ready at any time to burst into flames.

In the US liquidity was unleashed on a massive scale and that is what will happen in Europe. It is the only way they can keep the system functioning.

We Are now closing in on the next planned world war as a result. When and where we can only guess, but it surely is on the way, the same way it was in the late 1930s. War is a distraction and it succeeds in
culling the population. It is also a cover-up for massive financial and
economic problems that have resulted from the financial elite looting
the system.

The system is not being fixed and deliberately so. The elitists do not want it fixed. They want a collapse. This is the only way they can force people to accept world government.

The groundwork was laid after WWII, as it was right after WWI. The 1960s brought inflation and on August 15,1971 the gold standard was abandoned. That is all that was needed to get the game underway. That
inflation lasted some 50 years and is in the process of coming to an
end. Many say they do know where it will end, but if they studied
history they’d know exactly where it would end. It will end with the
deliberate collapse of the financial and economic system and war, the
way it always has. This time the conductor is the Federal Reserve, which
is currently on the way to being a financial and monetary monopoly with
the assistance of our well paid off representatives and senators. The
massive reflation you have witnessed over the past almost three years is
a steppingstone toward a final solution and world government. As a
result we see collapses in some areas and booms in other areas. In the
end all markets will fall, some more than others. Debt overwhelms the
system worldwide, which is a form of perpetual entrapment.

No currency will be able to withstand the onslaught. In the final analysis only gold and silver will be left standing. Currently, as soon as the most recent credit expansion runs its course, and that should be
by yearend, another reflationary wave will be upon us, that is unless
those who are controlling this debacle, decide that this is when we slip
into an irretrievable deflationary depression.

What is really interesting to us is that we read thousands of reports a week and almost everyone of them follows the same lines, believing the line dished out by governments, Wall Street and banking and other
financial entities and the mass media. The control of the media is bad
enough, yet these never mind independent journalists refusing to go to
the core of the real problem and expose who is causing all these
problems. What it does is cause fine researchers to be consistently
wrong because they do not understand the real underlying historical
problem. Unfortunately, most of them will pass away, never understanding
what the problem was all about.

We understand the reflation that took place between 2001 and now. The big question is will it continue? Appearance say yes, but Europe even with an initial $1 trillion aid program will probably see low inflation,
perhaps the UK being the exception. The US could stay the same, but we
do not think so. Without stimulus by either Congress or the Fed the US
would collapse economically. You can expect something but we do not know
what as yet. Everyone looks for a middle ground, but we seldom see
that. We see a world, and particularly in Europe and the US, where
people are unhappy with the system, where wealth is in decline and signs
of recovery are not to be found, as more and more jobs are shipped to
the second and third worlds. Leadership is dreadful, composed of
Illuminists and those controlled by them. We live in a politically
unstable world that gets nastier each and every day. No one wants
austerity or realistic solutions. Throwing money at these problems
accomplishes nothing. We see no signs of commentary in regard to the end
of free trade, globalization, offshoring and outsourcing, which
continues to drain jobs from the US and UK. Fiscal restraint simply
doesn’t exist. Most of the jobs created are by the federal government.
Taxes are continuing to rise. Officially we are told deficits will be
$10 trillion over the next ten years. America is being set up for a
financial collapse. Today’s debts are unplayable, never mind those of
the next ten years. America and Europe will hit the wall – there is no
avoiding it. They are in denial as severe problems approach. There are
no easy solutions left. America and Europe have never seen anything like
this before, even in the 1930s. This leaves those with wealth left in a
quandary. Yields on bonds are terrible and the rest of conventional
investments are risky at best. The dollar may have rallied from 74 to 86
on the USDX, but it and all other currencies have fallen versus gold, a
trend in place for 11 years, that shows no signs of ending. The stock
market is losing its footing and real estate is still descending. At the
same time our purchased congress is about to give the privately owned
Federal Reserve a financial monopoly, when it should be terminated. If
that happens the looting by elitists will continue apace. We certainly
are not optimistic regarding the future and that is why we continue to
recommend gold and silver related assets.

Americans do not understand the significance of what is happening in Europe. Greece may have accepted the EU aid plan, but the people haven’t and an election is looming, which probably means a different
government. In Spain a lender fails and other banks are merged with the
help of the Bank of Spain. Spain misses its budget projection and the
same happens in Greece. Global markets are in part responsible for what
is happening in US markets. As long as the euro falls and these problems
persist there can be no real recovery in the US or Europe. Being
interconnected is having disastrous consequences. A US recovery
unfortunately is in the hands of European politicians, who all take
their marching orders from the illuminati. What is happening in Greece
and will happen in 17 other countries will also happen in the UK and the
US. The US market is falling already off 1,400 Dow points just as we
said it would be and we see it much lower. Due to the closeness of
policy what is happening in Europe will affect the entire world. The
dominoes are in fact falling. European and British foreign debts are now
being studied with the same focus as subprime bonds and the results are
going to be the same, a massive credit crisis. The PIIG nations
represent about 4% of world GDP, but they could take the entire system
down. Germany has put a key piece into the support program and the Fed
has contributed a massive swap arrangement giving Europe unlimited
access to unlimited dollars. The euro will allow a sideways movement in
GDP growth, but will also bring higher inflation as unemployment grows.
This, of course, is why we need a war. No matter what, Asian goods are
going to become more expensive worldwide. Defaults are a sign of a
coming calamity just as they were in the 1930s. In addition, Germans are
very unhappy bailing out Southern Europe and they do not like being
forced into participating in austerity that to them is unnecessary, at
least for Germany.

This is another holding action to gain time until the elitists can get another war going. This is another bank bailout by taxpayers and the German people don’t want to participate.

There is still no question in our minds that Greece was a setup to lead to a deflationary collapse later and the Greek people refused to listen. As a result it is now apparent that Greece is even worse off
than the elitists imagined. We do not see European bailouts going any
further. The result is the US and UK will follow. Financial Europe is
history. You should all keep in mind that this is child’s play. Wait
until England and the US go down, perhaps before the end of the year.

As this transpires the NY Fed President, William Dudley, tells us households are still de-leveraging.

He tells us the banking system is under significant stress. There is small and medium-sized banks that have significant exposure to commercial real estate loans.

He sees significant headwinds ahead. We call that an under statement.

As banks sought bids for $10 billion in toxic waste the Fed is attempting to sell the same kind of garbage. Anything they do not dump they will have monetized and that is inflationary.

Total US debt just hit $12,987,823,000,000, $13 billion from lucky $13 trillion. As next week the US Treasury is auctioning off another gross $140+ billion in Bonds, we will pass this totally irrelevant
resistance level on May 25, when Timmy issues another $42 billion of 2
Year Notes

http://www.treasurydirect.gov/instit/annceresult/press/preanre/2010... The next important support level of $14 trillion will be surpassed around the time the Democrats get destroyed in the mid-term elections,
while the statutory debt limit of $14.3 trillion will likely have to be
raised in January 2011 by a new republican majority, an action which
will promptly reduce popular republican support following their
landslide election victory, thus starting the pointless
D->R->D->R etc cycle all over again. Also, at approximately
that time headlines that US debt is now 100% of GDP will bring the US
bond vigilantes out of hibernation and will send US interest rates
soaring, assisted by Ben Bernanke’s most recent announcement that the
Fed will is once again “forced” to purchase another $1.5 trillion in
treasuries and mortgages.

Stepping away from the Ouija board, we also notice that so far in April, the Treasury has rolled another unsustainable amount of Treasuries: $397 billion, of which $$359 billion is in Bills.

Lyndon LaRouche issued the following statement today in response to the vote in the U.S. Senate to end debate on the so-called Financial Reform Bill:

“The issue is if somebody tries to push this bill through without Glass-Steagall and the Cantwell-Lincoln amendment to close the Dodd loophole on derivatives, then the U.S. citizenry won’t accept any
decision from this Congress as legitimate. The citizenry will not
recognize the Congress or its authority. They will view it as a corrupt
institution which must be purged. We are in a mass strike mode. If
congress rigs the process to ram through the President’s demands, the
citizenry will revolt against Congress and the President. And they will
do so based on the authority of the Constitution of the United States of
America. The people of the U.S. won’t stand for this. The authority of
the Constitution is in my hands and I am exerting it. I am confident the
people of the United States will support me in this. Those who disagree
don’t understand the people of the United States and their
temperament.”

Senator Scott Brown yesterday drew scorn from former admirers who had hailed the Massachusetts Republican as a new voice for the conservative cause but now say he has abandoned them by joining Democrats to advance
President Obama’s plan to overhaul the financial system.

As quickly as they had latched onto his campaign four months ago, they repudiated him yesterday through a flurry of blog posts, editorials, and Facebook messages.

“His career as a senator of the people lasted slightly longer than the shelf life of milk,’’ said Shelby Blakely, executive director of New Patriot Journal, the media arm of the Tea Party Patriots, which
includes various Tea Party groups around the country. “The general mood
of the Tea Party is, ‘We put you in, and we’ll take you out in 2012.’
This is not something we will forget.’’

But Brown also won praise from Democrats and some political observers for taking what they view as a shrewd step toward securing reelection in a state that typically has preferred its statewide Republican
officeholders to be moderate. They said it also showcased his effort to
make good on his vow to be independent and not always hew to the party
line.

Federal prosecutors won’t bring charges against former American International Group Inc. executive Joseph Cassano related to the insurer’s collapse, according to a person familiar with the
investigation.

The Justice Department found after a two-year investigation that there was insufficient evidence to charge Cassano, who was the former chief executive officer of AIG’s Financial Products division, the person
said.

The Justice Department and civil investigators from the Securities and Exchange Commission were examining comments made in 2007 by Cassano and other AIG executives. They were probing whether executives
misrepresented the value of AIG’s portfolio of “super senior”
credit-default swaps, which insured bond losses tied to the U.S. housing
market. [So what else is new.]

Nervous lawmakers anticipating an unstoppable flood of corporate and union money into the fall political campaigns have found one way to fight back: by loosening the rules for the major political parties,
allowing them to exert more influence of their own.

Little-noticed language in campaign finance bills would help parties and their candidates get around restrictions on working together on political campaigns — essentially allowing parties to tap into their
deep well of funds to more directly help their favored candidates.

Another provision would require broadcasters to offer political parties the same low advertising rates they give to candidates.

The measures are part of a package of changes introduced in Congress after the Supreme Court’s rejection in January of longstanding restraints on direct corporate and union spending.

The US Chamber of Commerce has said it is preparing to spend $50 million on midterm elections, an early sign of a corporate media blitz to come.

Powerful unions are also planning massive spending on the fall campaigns. Officials from the American Federation of State, County and Municipal Employees have told The Hill newspaper that the union plans to
top $50 million in spending, while the Service Employees International
Union reportedly plans to spend $44 million.
Six investment banks including UBS AG, Citigroup Inc. and Deutsche Bank
AG agreed to report European dark trades executed on their internal
systems as the industry comes under closer regulatory scrutiny.

Starting today, the banks, which also include Morgan Stanley, JPMorgan Cazenove Ltd. and Credit Suisse AG, will report European equity trades matched in their internal crossing engines to Markit Ltd. At the
end of the trading day, Markit will collate, check and validate the
data and publish the aggregated trading volume the next afternoon, said
the Association for Financial Markets in Europe, which represents the
banks.

Dark pools, which allow investors to buy and sell securities away from regulated exchanges so they don’t have to disclose positions, are at the center of a regulatory storm as U.S., European and U.K.
securities watchdogs scrutinize market structure, responding to the
worst financial crisis since the Great Depression.

Regulators disagree on how much trading banks carry out in dark pools. The U.K.’s Financial Services Authority says dark pools account for 1.25 percent of trades, whereas the Federation of European
Securities Exchanges, which represents exchanges, estimates the figure
is closer to 40 percent. The lack of reliable information on volumes and
pricing of securities in dark pools has posed a problem for regulators
trying to keep pace with market innovation.

of OTC trading,” said John Serocold, managing director of AFME. The move provides “verified data where previously there has been only speculation and by giving a clear indication of the actual levels of
trading in crossing engines.”

A measure of the U.S. money supply, created but abandoned by the Federal Reserve, has turned negative in the past year and signals disinflation or outright deflation, according to economists who track
the figure.

The CHART OF THE DAY shows M3 has shrunk 5.4 percent in the past year, an indication the economy may face deflationary pressure as fewer dollars chase the same amount of goods, according to economists Paul
Ashworth and Paul Dales at Capital Economics Ltd. in Toronto. They began
compiling a measure of M3 after the Fed discontinued it in 2006.

“Sharp falls in the money supply tend to go hand in hand with very, very low rates of inflation if not deflation,” Dales said. The decline in M3 “suggests there is perhaps greater downward pressures on inflation
than M2 suggests.”

The core inflation rate rose last month by 0.9 percent from April 2009, the smallest increase since January 1966, after a 1.1 percent year-over-year advance the prior month.

The Fed reports two measures of the money supply each week. M1 includes currency held by consumers and companies for spending, money in checking accounts and travelers checks. M2 adds savings and private
holdings in money-market mutual funds. M3 encompassed M2 along with
large time deposits, repurchase agreements, Eurodollar accounts and
institutional money-market mutual funds.

M1 and M2 have risen as the Fed boosted bank reserves by creating new money to purchase up to $1.43 trillion in housing debt.

M3 has fallen along with bank lending, as banks chose not to use the increase in reserves as leverage for new loans. Many types of account balances have declined, including those tracked by M3. One such
component, institutional money fund balances, fell to $1.94 trillion in
April from $2.52 trillion a year ago.

The Fed stopped measuring M3 in 2006, saying it “does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary-policy
process for years.” The Fed said the costs of collecting the measure
outweighed the benefits.

Defaults on apartment-building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter, almost twice the year-earlier level, as more borrowers failed to repay debt approved near
the market peak, said Real Capital Analytics Inc. in a report.

Defaults on so-called multifamily mortgages rose from 4.4 percent in the fourth quarter and from 2.4 percent during the same period in 2009, the New York-based real estate research firm said today.
Commercial-mortgage defaults also rose in the first quarter for loans
against office, retail, hotel and industrial properties, Real Capital
said.

“Apartment defaults are leading other commercial real estate,” Sam Chandan, global chief economist at Real Capital, said in an interview. “Banks tended to make more aggressively underwritten apartment loans
earlier during this last cycle. Credit and pricing reached their peaks
for office properties and other commercial assets later.”

The global recession cut demand for U.S. apartments, office space, retail shops, hotels and warehouses during the past two years as jobs disappeared and consumers cut spending. Defaults on apartment-building
mortgages surpassed the previous record, set in 1993, for the past three
consecutive quarters.

The U.S. savings-and-loan crisis drove apartment-building defaults to 3.4 percent in 1993. Defaults on other types of commercial property debt peaked at 4.6 percent in 1992, according to Real Capital.

The proportion of defaults on office, retail, hotel and industrial properties rose to 4.2 percent in the first quarter of this year, the company said.

U.S. apartments may lead a rebound in commercial real estate as vacancies peak in 2010 and the economy adds jobs, property research firm Reis Inc. said May 19. Reis estimates apartment vacancies will peak at
8.2 percent in 2010, the highest level since the firm began tracking the
number in 1980. The number should start to decline in 2011, Reis said..