Our first glimpse of the European Common Market came in the late 1950s in Europe where we lived. The evolution came late in the 1950s in the
beginnings of Common Market and the formation of EFTA. That consolidated
during the 1960s along with the miracle of Germany’s recovery. In the
ensuing years more consolidation took place leading up to the European
Union, eventually the end of the Soviet Union, the Maastricht Treaty and
the euro. Most people during those years did not realize that this
amalgamation was really a reconstruction of the centralization of what
was once the Roman Empire.

As we wrote many years ago it was a union doomed to failure. It was an unnatural alliance of tribes that had been in conflict since the beginning of time held in part together by a
currency based upon one interest rate that would fit all. The social
and political ramifications were enormous. The theory of one-interest
rate fits all doomed the alliance from the very beginning, as it was the
vehicle for a major malinvestment of funds. It fostered misallocation
throughout the entire union and even worse was accompanied by a creeping
loss of sovereignty. This is what can happen when economic, financial
and social considerations are harnessed by political stupidity or
perhaps opportunism. As we wrote many years ago these efforts were
doomed to failure.. It was finance and economy run by politically
motivated bureaucrats, most of whom were interested in world government.
The result is what we have today – a Europe on the edge of failure and
breakup. A system that not only wanted to act as a gateway to one-world
government, but one that at least for a time would channel the power of
Germany. The last barrier for Germany was unification done in a way that
cost West Germany a fortune and retarded growth for about ten years.

Now we have a bailout to contend with. Austerity throughout Europe and England in order to find the financial wherewithal to pay the bankers the debt
incurred by five-euro zone nations. Debt created by banks out of thin
air to now be repaid from the hides of not only the nations in trouble,
but by lenders as well from other sovereign states, such as France,
Germany and others.

We believe in the long run central European nations will tend to again diversify and revert back to nationalistic tendencies after having been unsuccessful in union and in a currency union. The
core states had learned that the overly ambitious and poorly constructed
euro had become a dependency trap and the centralization had become a
bureaucratic nightmare. Germany had paid a dear price for German
reunification of East and West Germany. The one for one exchange of the
two marks proved very expensive and addition to the reconstruction of
the Eastern zone, which was 20 years behind the West - an example of
retarded growth. In addition, the work ethic had been lost. From the
German viewpoint it had to be done. The US, and particularly the British
and the French were very happy with the reunification, because they
knew it would retard growth for about ten years, and make Germany less
assertive and less competitive. After that the euro was a millstone
around the neck of the country. Only half of Germans wanted the EU and
68% to this day did not want the euro. In fact, they wouldn’t accept
euros printed by other members of the euro zone.

If you remember the French and the Dutch voted down the EU Constitution, and there was no referendum in Germany. The bought and paid for politicians
voted in their behalf essentially selling them out. As you know a
constitution was illegally shoved down their throats. Without a
constitution first and then a monetary union to follow. There was no
chance the venture could ever work. The outcome was a 27-nation union
run by a 16-nation currency. The collapse of which, as we mentioned
earlier, will bring decentralization and nationalism. This tribalism is
perfectly normal, especially with a commonality of religion throughout
Western and Central Europe. We must say though religion never kept
Europeans from killing each other, as we have seen over and over again.
That, of course, has been the work of bankers, which is another story
for another time.

As a result of these changes coming about Europe will function in traditional ways and prosper even more than before. The weaker countries, that had been subsidized, will again fall behind. That
simply is the way societies work. We believe ultimately all nations
will return to tariffs on goods and services, because Europe and the US
cannot compete with low cost labor, thus the EU and WTO will probably
cease to exist. The leader in such a change could well be England and
the US. Such developments could also bring difficult times for Muslims
and illegal aliens in England and on the continent.

The one-world, new-world order concept could very well be laid to rest unless, of course, the elitists decide to start another world war. One
thing is for sure the misallocation of assets would end. No more
one-interest rate fits all, and no more subsidies. Banks and sovereigns
are also going to find out that the debt owed by these five countries is
going to have to be restructured. If it is not lenders are going to
realize they face a general default. This is going to become a financial
and political reality. Responsible reaction is not a luxury these
nations can afford and remember that the lender is 80% responsible for
the loan. They crafted the terms and created the loan from nothing. A
70% haircut on debt would be workable, but it would engender lenders
taking losses of $1.4 trillion. Sovereigns such as Germany, France and
Holland could handle the losses, but lesser countries and banks might
not be able too. Then again, they should have thought about that when
they made the loans. The blame question also arises due to former
actions by regulatory powers that did everything short of forcing banks
and insurance companies to buy questionable debt. It shows you how
insidious the history of these loans have been. This is why strong
centralized control does not work. In some situations they were selling
quality paper to buy junk as directed by bureaucrats in Brussels. The
result is the reality is all there. The fallen nations cannot pay
without a 30 to 50 year depression. That means they won’t be doing much
business with the healthier states, which would tend to spread the
depression. That means a big meeting is coming, which would and should
include the UK and US, and as we forecast months ago, default and
devaluation will go forward. Such an arrangement won’t stave off
depression, but it will shorten it. The big losers will be lenders,
solvent nations and individuals. The latter because their wealth will
fall by 2/3’s, as their currencies are devalued and they enter
structured default. If you are unconvinced just look at the
deteriorating pricing of debt reflecting default in Europe. As example
is the debt of Greece. It is an established fact. The Greek, euro zone
and EU approach has been incremental or the death of 1,000 cuts. If the
players were smart they would restructure and cut Greece loose from the
euro. No, they are not doing that and what we find is the PM selling off
the Greek Islands to Bilderberger friends throughout Europe. The key
for Greek survival is no euro and back to a low valued drachma.

This time Northern Europe does not need zero interest rates. It was low interest rates in the PIIGS countries that caused these problems initially. The
way for the ECB to remedy that is to raise interest rates, but they
can’t do that. The US and the Fed would be all over them. The
alternative is to have the ECB allow each nation’s central banks to set
their own rates. That would work, but power would be taken from the
European Central Bank, so they won’t want to do that. As a result the
euro will then collapse from within. A breakup of the euro would relieve
stronger members of having to buy debt from suspect countries and those
funds would be invested in new products, real estate and expansion -
things that increase profits and lead to less taxes and more stable
government. The longer it takes to remove the 5 PIIGS from the euro zone
and get rid of the euro the better off all of Europe will be. In spite
of looming unpayable debt the stronger European countries will do very
well after a period of adjustment. They will be no longer shackled by
political bureaucrats from Brussels.

Markets in Europe will return to their historical tribal roots and live naturally. Most countries will be far more prepared to enter a new free market and be comfortable doing so.
This would include decentralization and diversity. Getting rid of the
euro and the EU will be the best thing in years that has happened to
European countries. Needless to say, this won’t go over very well with
the New World Order crowd. They will again have been unsuccessful.

The MBA says refinancing requests jumped 9.2% for the week ended July 2nd the highest level since May of 2009, lifting applications by 6.7%, the most
since October 2009. Purchase mortgages fell 2%. For June, purchase
applications fell 15% vs. May and 30% vs. April. The fixed rate 30-year
mortgage was 4.68%. Refinancing accounted for 78% of applications, the
highest in 15 months.

Total mortgage delinquencies rose 2.3%, as the 30-day failures rose 10%. Deterioration ratios increased with 2.5% loans as well.

Richard Russell says: …as I've said a thousand times, Fed Chief Bernanke will absolutely not accept deflation. Even while he's keeping short rates at zero and
flooding the system with over 2 trillion of new Fed Notes, the "economic
poison" of deflation is creeping into the economy. 

What can Bernanke
do about it? According to ex-Professor Bernanke, "Deflation is always
reversible under a fiat money system." In a speech a few years ago, Ben
Bernanke laid out the plan -- "US dollars have value only to the extent
that they are strictly limited in supply. But the United States has a
technology called a printing press (or today, its electronic equivalent)
that allows it to produce as many US dollars as it wishes at
essentially no cost. By increasing the number of US dollars in
circulation or even by credibly threatening to do so, the US government
can also reduce the value of a dollar in terms of goods and services,
which is equivalent to raising the prices in dollars of those good and
services. We conclude that, under a paper-money system, a determined
government can always generate higher spending and hence positive
inflation." 

Think of it. What Bernanke is telling us is that the
government can create inflation simply by continuing massive quantities
of dollars, the euphemistic "quantitative easing." 

And in the event
that quantitative easing doesn't create the desired inflation, the Fed
has another trick. The Fed can buy all manner of debt including foreign
debt and use it as collateral. In other words, Bernanke sees no limit to
what he can buy in order to jack up the Fed's balance book. 

Shrewd
gold-accumulators are well aware of all of the above. As the
deflationary and deleveraging forces press on the US economy, the
Bernanke Fed is ready to devalue the US dollar in its ("whatever it
takes") battle to hold back deflation. 

With these thoughts in mind,
I'm thinking of buying more bullion gold in the near future, this in
view of the current correction in the gold price. 

Let's boil the whole
thing down to three sentences. 

(1) The Fed will not tolerate the
growing forces of deflation. 

(2) To combat the deflationary forces,
the Fed will devalue the dollar by printing trillions more of Federal
fiat money.

(3) Once it is realized that the Fed is on the path to
devalue the dollar, there will be a panic to buy and own gold.

The Baltic Dry Index plunged 4% on Thursday, the 31st straight daily decline.

With Congress tied in political knots over whether to take further action to boost the economy, Fed leaders are weighing modest steps that
could offer more support for economic activity at a time when their
target for short-term interest rates is already near zero. They are
still resistant to calls to pull out their big guns -- massive infusions
of cash, such as those undertaken during the depths of the financial
crisis -- but would reconsider if conditions worsen.

Top Fed officials still say that the economic recovery is likely to continue into next year and that the policy moves being discussed are not imminent. Here
comes $5 trillion over the next 2-1/2 years.

The above Washington Post story appears to be a ‘plant’. Suspected planters include politicians facing November elections, solons fearing revolution and Street
operatives facing poor 2010 performance.

Inventories held by U.S. wholesalers rose for a fifth consecutive month in May, but sales fell for the first time in more than
a year.

Wholesale inventories increased 0.5% while sales dropped 0.3%, the Commerce Department said Friday. It was the first decline for sales since March
of 2009.

The May sales decline is the latest sign that the economic recovery could be losing momentum as it enters the second half of this year. Weakness in sales
could discourage businesses from boosting their orders. That would
translate into a slowdown in factory production.

Wal-Mart’s Sam’s Club chain is teaming up with a lender to offer loans of up to $25,000 to its small business members.

The program is one of several moves the retail giant has made to offer bank-like financial services to customers, in part to help them spend. It also comes as the retailer tries to improve
profitability at its warehouse-club chain.

The division of Wal-Mart Stores Inc., which is based in Bentonville, Ark., is testing a program with Superior Financial Group, one of 13 federally licensed
nonbank lenders, and will offer $5,000 to $25,000 loans to members who
qualify. They don’t have to spend the money at Sam’s Club.

Sam’s Club members who apply for a small business loan during the pilot will receive $100 off the application fee, a 20 percent discount, and a discount on interest
rates.

Businesses can pay $35 for a membership to Sam’s Club that includes three annual membership cards that allow them to shop at 600 Sam’s Clubs in the
United States.

The loan program isn’t Wal-Mart’s first attempt to offer financial products. In 2007 it tried to establish a bank, but dropped the bid after heated
debate over whether the world’s largest retailer should be allowed to
gain the added financial power of a federally insured bank.

Here's another headwind for a sputtering job market: State and local governments plan many more layoffs to close wide budget gaps.

Up to 400,000 workers could lose jobs in the next year as states, counties and cities grapple with lower revenue and less federal funding, says Mark Zandi, chief economist
for Moody's Economy.com.

The development could slow an already lackluster recovery. Friday, the Labor Department said employers cut 125,000 jobs, mostly because 225,000 temporary U.S. Census workers completed their stints.
The private sector added 83,000 jobs, fewer then expected, as the
jobless rate fell to 9.5% from 9.7%.

Layoffs by state and local governments moderated in June, with 10,000 jobs trimmed. That was down from 85,000 job losses the first five months of the year and about 190,000 since June 2009.

But the pain is likely to worsen. States face a cumulative $140 billion budget gap in fiscal 2011, which began July 1 for most, says the Center on Budget and Policy
Priorities.

While general-fund tax revenue is projected to rise 3.7% as the economy rebounds in the coming year, it still will be 8%, or $53 billion, below
fiscal 2008 levels, according to the National Association of State
Budget Officers.

Meanwhile, federal aid is shrinking. Money for states from the economic stimulus is expected to fall by $55 billion, says the National Governors
Association. And the Senate last week failed to pass a measure to
provide states $16 billion for extra Medicaid funding, an initiative
that would have extended benefits from last year's stimulus. The House
approved $25 billion in enhanced Medicaid funding.

A lot of property owners aren't selling properties these days because they won't accept prices offered in the current market as 'fair'. By fair they
usually mean equal to or higher than their purchase price. They'd rather
just sit on their property until they can break even.

Yet this phenomenon has caused some property observers, such as ourselves, to wonder whether these reluctant sellers were distorting the true, lower, value of properties
across the U.S.. If they were forced to 'mark to market', then their
properties would all show price declines.

Well some people are learning the bad news, even without selling:

But Dan Berwitz, a sales representative for a computer company who paid $204,000 for a unit in the Monteverde in 2007, has mixed
feelings about the deal. He is pleased that the sale will bring
financial stability to his building, but he isn't happy that the
bulk-sale buyer plans to sell the units far below what he paid, in some
cases as low as $100,000. "But unfortunately, right now,
there's nothing we can do," he said.

Condo Developer LLC, a Delaware-based company, in late spring closed on the $25.9 million auction sale of 165 units in the Vue at Lake Eola, a 375-unit luxury condo complex in Orlando, Fla., that had
been operating under bankruptcy protection. The Vue, which has
floor-to-ceiling windows, 20-foot ceilings and a rooftop terrace, cost
$340 per square foot to build, but this latest purchase price works out
to about $126 a square foot.

Note the above is even way below construction cost.

The new owners plan to sell the condos, one at a time, at a price of about $225 a square foot, at a profit of about $75 a square foot, when factoring in carrying costs
including maintenance and real-estate taxes.

Bulk sales such as these will help establish a bottom for the market, especially if buyers discover that they can earn profits re-selling them. The sad news is that this
bottom may be far lower than many current owners realize.

San Jose has budget troubles and is considering selling assets to help
balance the budget. Mercury News reports www.mercurynews.com-www.mercurynews.com">San
Jose considering plan to sell water system.

San Jose officials are considering leasing or selling the city's water system. Mayor Chuck Reed says the idea could help balance the budget. A sale could bring in $50
million or more—but also higher water bill for some residents.

One potential buyer is the private San Jose Water Co., which supplies 1 million people in San Jose and neighboring communities. The company's president sent the mayor a
letter of interest in April but noted a sale would mean increasing some
water bills—possibly by 29 percent.

A sale also would require a public vote.

San Jose's Structural Problems

San Jose needs to fix structural problems first because one-time fixes will not address the root cause of its budget woes: union wages and pension
benefits.

I suggest San Jose outsource its entire police and fire departments to cut costs. If that does not work, then bankruptcy seems like a fine option.

A JPMorgan employee named Kevin Dillon filed a "whistleblower" lawsuit against the bank last Thursday, says the Greenwich Times.

Now all sorts of claims about what happened to him while he was working at the Greenwich JPM office are coming out of the woodwork.

The most significant of Dillon's claims, of course, is that JPMorgan mistreated him after he whistleblew on Highland Capital, a hedge fund.

He says that treatment and compensation towards him chaged significantly after he sent an email to senior bank managers saying that JPM was
"failing to follow basic accounting protocol in handling some of
Highland's expense accounts."

But one of Dillon's stranger claims is that his supervisor bragged about his massive gun collection and how he could f$&* up anyone who messed with him.

From the lawsuit, provided as an example of "alarming behavior":

The wide array of guns he possessed and described to (Dillon) the violent acts he would commit if anybody crossed him or his family.

We think it's more alarming that someone bragging about their toys freaked Dillon out so much. It's a strange mind that jumps from "this guy is telling me about his sick
guns" to "clearly he's theatening me and saying that if I bring up this
hedge fund one more time..."

Highland Capital thinks this guy is a weirdo too.

"Highland Capital Management is not a defendant in the case and unfortunately, appears to be a pawn in a lawsuit by a disgruntled JP Morgan employee against JP Morgan,"
they told Greenwich Times.

According to United Arab Emirates Ambassador to the U.S. Yousef al-Otaiba, efforts to prevent Iran from going nuclear by use of military force are better
than that country actually going nuclear.

The ambassador made the assertion earlier this week during a conversation with Jeffrey Goldberg ofsans-serif""> The Atlantic at the 2010 Aspen Ideas Festival, a world leadership conference based in Colorado. Though Goldberg notes
the candid interview sparked a flurry of comments once it was published
in full on his blog, he believes
al-Otaiba's straightforward position on the Iran nuclear program is the
status quo for many Arab states. The idea of a group of Persian Shi'ites
having possession of a nuclear bomb frightens Arab leaders like nothing
else, and most will gladly endorse foreign intervention.

Asked if he wanted the U.S. to stop the Iranian nuclear program by force, al-Otaiba said, "Absolutely, absolutely. I think we are at risk of an Iranian nuclear program far
more than you are at risk." The threat posed to his country, he added,
was even more extreme due to simple geography: "I am suggesting that I
think out of every country in the region, the U.A.E. is the most
vulnerable to Iran ... so yes, it's very much in our interest that Iran
does not gain nuclear technology."

If the U.S. were to choose not to intervene, the ambassador believed many Middle Eastern countries would opt to form an allegiance with Iran, purely for security measures. At present, the
U.A.E. is considered one of America's key allies in the Arab world.

"There are many countries in the region who, if they lack the assurance the U.S. is willing to confront Iran, they will start running for cover towards Iran," he said.
"Small, rich, vulnerable countries in the region do not want to be the
ones who stick their finger in the big bully's eye, if nobody's going to
come to their support."

The national apartment vacancy rate stood at 7.8% at the end of June, according
to Reis Inc., a New York real-estate research firm. That was down from
the 8% vacancy rate during the first quarter, which was the highest
vacancy rate in 30 years.

Rents gained by 0.7% during the seasonally strong April-to-June period, the biggest quarterly gain in two years.

This is still near the record vacancy rate set last quarter. This decline fits with the recent survey from the NMHC that showed
lower apartment vacancies.

Note: the Reis numbers are for cities. The overall vacancy rate from the Census Bureau was at a near record 10.6% in Q1 2010.

By cutting rates to near zero, the Federal Reserve helped forestall economic collapse. Yet with the recovery flagging, some worry
that super-loose monetary policy may actually turn the Fed into an agent
of deflation…

Ronald McKinnon, a Stanford University economics professor, argues that near-zero rates gum up the interbank market, which crimps lending
growth. He reasons that bigger banks aren't lending to smaller ones
because the derisory yield on offer doesn't compensate them for lending
to potentially risky counterparties. That is a particular problem, he
says, because many small businesses borrow through lines of credit.
Banks won't extend these unless they know they can tap the interbank
market at a later date. The amount of inter-bank loans outstanding was
about $160 billion at the end of May, down 60% in a year, according to
Fed data.

A Federal Reserve fully attuned to the easy money demands of the Democrats and megabanks clearly has no plan to lift interest rates from their
near-zero level. The rationale is: "Why should we?... let's examine the
assumption that the Fed is financing an economic recovery. In fact, it
is mostly financing a massive expansion of a federal government that's
borrowing an unprecedented $1.5 trillion annually. Easy money keeps the
government's interest cost on this pile of IOUs low. The recovery comes
second, and last week's dismal job growth indicated that it is
increasingly feeble.

Super-low interest rates also ensure that the big banks, fated to be wards of the government if the new financial reform becomes law, will have generous margins between their borrowing
costs and lending revenues. This will enable them to further pad their
balance sheets…

One of the most articulate critics has been Jeremy Grantham, chief executive of GMO, a Boston-based asset management company. In a recent
speech he complained that under the Fed's near-zero interest rate
policy, low returns on savings are forcing retirees to take greater
risks to try to gain a better income.

Mr. Grantham wrote in his latest quarterly newsletter, issued during the spring market rally, that Fed Chairman Ben "Bernanke is begging us to speculate, and is being mean only to
conservative investors like pensioners, who cannot make a penny on their
cash. Collectively, we forego hundreds of billions of potential
interest, but at least we can feel noble because we are helping to
restore the financial health of the banks and bankers, who under these
conditions could not fail to make a fortune even if brain dead."

Yves Smith and Rob Parenteau in a NY Times op-ed: Over the past decade and a half, corporations have been saving more and investing less in their own
businesses. A 2005 report from JPMorgan Research noted with
concern that, since 2002, American corporations on average ran a net
financial surplus of 1.7 percent of the gross domestic product — a
drastic change from the previous 40 years, when they had maintained an
average deficit of 1.2 percent of G.D.P. More recent studies have
indicated that companies in Europe, Japan and China are also running
unprecedented surpluses.

The reason for all this saving in the United States is that public companies have become obsessed with quarterly earnings. To show short-term profits, they avoid investing in future
growth. To develop new products, buy new equipment or expand
geographically, an enterprise has to spend money — on marketing
research, product design, prototype development, legal expenses
associated with patents, lining up contractors and so on.

Rather than incur such expenses, companies increasingly prefer to pay their executives exorbitant bonuses, or issue special dividends to shareholders, or
engage in purely financial speculation. But this means they also
short-circuit a major driver of economic growth.

A prime reason for corporation cash hoarding is a bleak view of future prospects.

All State just increased our homeowners’ policy by 26.7% (no claims). Home prices are in decline; replacement and repair costs are down due to surplus construction
workers and supplies.

Our agent says they are being hammered by policyholders complaining that their home values are down but their premiums are up. The underwriters
tell the agents replacement & repair costs are higher.