By: Bob Chapman - The International Forcaster

Government debt will be in the vicinity of $1.5 trillion this year. Ever since May 16th short-term debt has been frozen at about $14.3 trillion. Up until May 16th the year-to-debt fiscal debt was $783.135 billion. That means if no August 2nd agreement is reach, $275 billion will be needed up to August 2nd, a total of about $700 billion will be needed by 9/30/11, the end of the fiscal year. Those funds are to come from federal pensions, Social Security and Medicare. How will these funds be paid back? We do not know, but we would guess there could be legislation to commandeer private pensions, 401Ks and IRAs. On the other hand an alternative is for the Fed to create $700 billion and buy the Treasury debt. That alone, with normal funding, could reach over $2 trillion. That means they would have to create another additional $850 billion to keep the economy from slipping into a great dark pit. That means additional net funds that would have to be created out of thin air of close to $3 trillion. That means mega inflation 2 to 3 years down the line. In addition the US debt to GDP should be more than 100% by the end of the fiscal year 9/30/11.

We guess the Fed can keep interest rates near zero until borrowers finally get fed up with low returns and a loss in principal, as the dollar deteriorates. It was four years ago when rates were 5-1/4%. Rates in time will return to that level and cause economic and financial devastation. We can also assure you Treasury buyers are not driving rates down and bond prices up, the Fed can take full credit for that. Those who seek safety in low interest Treasuries are giving up purchasing power. In today’s markets there is no such thing as safety.

There are those that believe it is time to start to raise interest rates and that the time for stimulus is past. They are probably correct, but the problem is the economy cannot stand on its own. Although deflationary depression will come eventually to force it now would mean a great war or series of wars would now have to begin.

It also has become self-evident to the populace or at least half of Americans that we cannot keep amassing debt and boosting the economy with stimulus. Their fears are reflected via much higher inflation and major unemployment, both of which are worsening daily. They have experienced three years of this, so to be told by the President, the Fed, the Treasury and Wall Street that what they are experiencing is transitory, reaches deaf ears.

Another grandstanding act by the President and his handlers was the latest release of oil from the Strategic Petroleum Reserve - only enough to replace one days worldwide consumption. This was supposed to show the administration’s concern that Americans were paying too much for gasoline and inflation was cutting their purchasing power. Their attempt was a failure, but the sale brought in badly needed cash to fund the growing deficit. We believe that was really what the exercise was all about. The move also had its negative affects on the commodity and gold and silver markets, at least for a few days. The failure of these financial and economic false flag operations shows you the underlying weakness of the financial and economic structure and the strength of commodities and gold and silver. Every move Wall Street and banking makes lasts only days or a week, then it is right back to the forceful underlying trend. We believe these elitists are now starting to question whether what they are doing will work. An example was the massive naked short covering not seen in years in gold and silver. JPM, HSBC and others lost the battle in silver and capitulated by covering. This was a major event. They knew the RICO class action lawsuit against them was about to be announced, so they covered a good portion of their shorts that were being used to suppress silver prices. Gold reacted by rising almost $35.00 and closing up $32.60 and silver rising $2.25 and closing up $1.80. The professionals know what this means. The cartel has suffered a huge defeat and if JPM and HSBC lose in court, which they should, it will cost the elitists tens of billions of dollars. The question is how will they arrange to transfer the losses to the public, or will the losses be big enough to take JPM and HSBC under. Only time will tell, but the result will be less control over gold and silver markets and a slight move back to free markets. They cannot take too many losses like this. What it shows you is that these people can be beaten and that we will win this war against these criminals.

Over the past few years, lenders have cut back on lines of credit, which has made many Americans unable to access affordable credit. The engine that has driven the economy for many years, cheap available credit, has come to an end and accessibility will become more difficult in the future. A few years ago we noted the availability of credit was beginning to be reduced and in time would reduce consumption. Over those ensuing years many Americans are no longer in the credit system because they cannot meet lending or regulatory qualifications. This is a direct reflection of 22.6% unemployment and massive home foreclosures. The unemployment numbers are even worse than meet the eye. The statistics define the private sector too broadly. In May, the distortion continued with private businesses adding 83,000 jobs of which 34,000 were in health care, social services and education, which are all subsidized. Thus, the real addition was 49,000. Over the past two years 980,000 jobs were added, 7.7 million jobs lost and of 8.4 million jobs lost so far in the inflationary depression only 291,000 have been added. If you cover 11 years instead of five years, 11.7 million have been lost. Real private sector employment was 83.1%. In 12/09 the number was 83.8% and in 1950, 86.2% or a 3.6% drop.

The government needs to revive domestic manufacturing, because foreign nations deliberately devalue their currencies and pay slaves wages. The only thing that can change this is tariffs on goods and services. Thus, tightened lending standards and horrible unemployment keep homebuyers from buying into that monstrous inventory for sale. Never mind buy buying a house, those unemployed cannot open a bank account nor do they own a debit or credit card. Credit scores may have risen to 696, the highest in at least four years, but it doesn’t help the unemployed. The other underlying cause is that consumers simply have too much debt, even though delinquencies have fallen 30% in two years. Those with jobs are doing ok, but persistently higher inflation is eating big chunks of their power to consume.

What America is seeing today is a flat lining economy. When the credit crisis began, and it is not over, real GDP fell 4%, vs. 25% in the early 1930s. Can you imagine where the economy would be without the bailout of the financial sector, government and to a lesser degree the economy? We are talking about perhaps $5 trillion that we know about. If you take away unemployment, extended unemployment, food stamps, Medicaid and various other social services, we could be in the same spot today as we were in the 1930s. We have been without recovery for almost five years. At least the Great Depression had recovery in 1933 and 1934. We may not have a WWII on the horizon, but we sure have many perpetual wars for perpetual peace. Today the excuse is rogue states and terrorists, which are just excuses to have more undeclared wars.

We have to laugh at noted economists who continue to bleat about unemployment in the 1930s that was 25% and today it is only 9.1%. In the 1930s U3 was 25.2% and U6 was 37.6%. Today U3 is 9.1%, U6 is 16.3% and if you extract the birth/death ratio it is 22.6%. There were two recoveries in the 1930s, but both aborted. Over the past few years we have seen transitory gains and actually very little result for some $4.3 trillion in spending. Even so-called conservative economists use government-generated statistics, which they know are bogus. How can they hope to come up with the correct answers for future economic and financial problems? In addition most do not get involved in geopolitics, which severely hampers prospectives and projections. Along those lines those who wish for lower commodity prices are engaging in wishful thinking. Not only do we see fire, draught and floods, but we also see geopolitical dislocation and a flight from stock and bond markets to the safety of commodities, gold and silver. That is not going to end anytime soon.

Economists still see recovery without tariffs, recovery, which always eludes them. For several years workers have worked to a maximum of their ability and they still can compete with the emerging world, due to almost zero interest rates. Employers when confronted with a choice of hiring more employees choose to move the work to offshore locations. Attitudes such as this seal the fate of working Americans.

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