Boston gave us the "Big Dig," Socorro, New Mexico hosts the "Very
Large Array," but from Wall Street and Washington, D.C. we get the
"Big Lie," soon to be followed by the "Very Large Depression." We
think that most of you understand about the potential for a "Very
Large Depression" which we have spoken of in several of our recent
issues, but you may have been wondering about what we meant by the
term: "Big Lie." The "Big Lie" is that the recession which has been
ongoing for two years and which many economists are still downplaying
and are still having trouble admitting to, is just another normal,
mundane downturn in what economists call the "business cycle" and that
we will soon "turn the corner" and be back "in the money" after a few,
or perhaps several, tough quarters. This is the unmitigated tripe we
get from our "fane-stream" media. What planet are these morons
reporting from, we ask? Certainly not from earth, because there is
nothing normal or mundane about this recession. This is a super
recession on steroids. There has been nothing like it in the past, and
there is not likely to be anything like it in the future, a future
that may in all likelihood include the complete and utter destruction
of the worldwide financial system as engineered by the bungling
Illuminati, many of whom will be destroyed by the monster which they
themselves have created. We are all about to attend an encore
performance on the financial stage based on the theme from a novel by
Mary Shelley entitled: "Frankenstein."

Indeed, the current financial debacle is quite unique, very ugly and
totally unprecedented. Truly, this is a Frankenstein monster. All of
our past recessions have been caused by contractions in the money
supply accompanied and partly caused by higher interest rates, which
were implemented to stop unacceptable levels of inflation. This is the
root cause behind the so-called "business cycle," a term which is
really just a euphemism for central bank ineptness, and in the current
case, central bank malevolence which is aimed at the destruction of
the old system so that a new world system can be implemented in
stages, starting with the regionalization of national economies, and
ending with a one world government, economy, religion and
sociopolitical structure which used to be called "feudalism." You
know, the system you learned in your history classes where you have
"lords" and "serfs," the latter category being where virtually all of
us will find ourselves if the Illuminati get their way. The current
debacle, by contrast, has arrived on the heels of an unprecedented
acceleration of the money supply as evidenced by the now unpublished
M3 level of over 16%%, and not on the heels of a contraction in the
money supply as has been the case in the past. And while it may be
true that interest rates were gradually raised over several years,
which may have contributed to the current recession, the raising of
rates started from the ludicrous 1%% level. The Fed thus lowered the
bar on interest rates just as the Bank of Japan did when their economy
tanked almost two decades ago. Here we are eighteen years later, and a
hapless Japan still has not recovered from its financial implosion.
Will we fare any better than they did? No, it will be much worse for
us. Why? Because unlike Japan, we have no manufacturing industry left
to speak of, just for starters, not to mention that Japan now has the
world's largest forex reserves, while we have the world's largest
trade deficit. This dichotomy in foreign exchange between Japan and
the US has happened because Japan produces tangible goods while we
shuffle paper.

So how do we end up in a rampaging recession on the heels of a 16%%
expansion of M3? We'll tell you how.

Normally, economic growth in its healthiest form is created through
mining, exploration, manufacturing and technical innovation, not by
the financial and services industries which produce very little of
anything that has any real, lasting and tangible value. Ideally, the
money supply should be expanded to help fuel this growth in resource
production, manufacturing and research, but the expansion of the money
supply must occur so as to maintain the same ratio of total money
supply to the overall amount of goods being produced and which are
available for both business and personal consumption. If the money
supply grows at a faster rate than the rate of growth for the
production of new goods due to central bank ineptness, or more likely,
due to speculation fueled by the greed of the Illuminati and enabled
by lax policies of co-conspirator central banks (which are owned by
the Illuminati), you end up with more money chasing proportionately
fewer goods. This is where inflation comes from, and the imbalance is
allowed to grow, along with Illuminist profits, until the general
populace cries out. Then comes the contraction in the money supply,
once again exaggerated to produce a recession so the Illuminati can
make a profit shorting everything in site as the contraction occurs.
The recession occurs because the contraction in the money supply is
greater than what is needed to balance the growth in production. And
because the Illuminati know when the expansions and contractions will
occur and where they will occur, they are able to make profits in any
type of market, being the ultimate inside traders who never get
prosecuted because they own the system. This is how they screw the
public ad infinitum. But we digress.

So ideally, if the money supply increases at the same rate as
production, prices remain stable and so does the economy. At least
this is how it works when you have a healthy economy based on the
production of resources, manufacturing and technical innovation, and a
Fed with its head screwed on straight, together with financial and
services industries which are proportionately smaller in terms of the
percentage of the labor force employed and which are geared to support
the resource, manufacturing and research industries instead of fueling
speculation and creating inflationary paper profits. Unfortunately,
our manufacturing industry has been gutted by the formation of the
World Trade Organization in 1995 as an enhancement to the globalist
agenda for so-called free trade that was started in 1947 under the
General Agreement on Tariffs and Trade, and then by NAFTA and CAFTA
(giving you the "SHAFTA"), increased illegal immigration (slave
labor), the sellout of union members by corrupt trade union officials
and a general screwing by our various and even more corrupt Congresses
and Presidential Administrations over the past 60 years. The
percentage of our work force that is engaged in manufacturing is now
one third of what it was in 1950 and one half of what it was in 1970.
Admittedly, some of the percentage losses of our manufacturing labor
force as a proportion of our total work force are due to increases in
technology, which have reduced the number of workers necessary per
unit of production. But that being the case, where did all those
profits from increased productivity go? Certainly not into the pockets
of the US work force. No, instead the profits went to the very wealthy
who own and run the big transnational corporations and to capital
investments overseas in order to take advantage of slave labor rates
by outsourcing jobs. That way, our workers here in the US get to grind
away at their pitiful minimum wage service jobs instead of receiving
$20 to $30 per hour working at jobs in resource exploration, mining
and extraction, manufacturing and research and development. This has
morphed our economy into a parody of what it once was, and is why we
get a recession despite M3 growth of 16%%.

You see, the only way our economy, and more importantly our disposable
income, can really grow is through our financial and services
industries, which is all that we really have left as a labor force.
Yes, we still have some manufacturing, but it is only about 12%% of GDP
and provides good-paying jobs for far fewer workers than in the past
due to increases in productivity. Total production outside of
services, including manufacturing and mining, is only about 20%% of
GDP, with government spending contributing another 12%%. That leaves a
whopping 68%% of GDP for the service sector. But the real issue of
crucial importance here is not only about how much GDP is produced,
but about how much of that GDP makes its way into the pockets of the
US laborer/consumer as opposed to going overseas to become part of
another nation's forex reserves, to finance foreign capital
improvements or to line the pockets of the elitist rich. And we can
assure you that, due to rampant inflation and overstated production,
the amount of GDP, which is landing in the average Joe's pockets is
getting smaller with each passing minute. Because so much of the
growth burden is in the financial and services industries, and because
these industries produce services which vanish after they are rendered
or produce paper profits which are largely imaginary and highly
inflationary, the only way we can continue to show profits and growth
is by inflating the money supply and then lying about the resulting
inflation. It is all about smoke and mirrors, and is nothing short of
a dog and pony show for the ignorant sheople.

In order for the financial and services industries to grow, you must
expand credit at a much more rapid pace than would be necessary if you
had the benefit of real growth from an economy which has a more robust
manufacturing and resource sector that produces tangible commodities
and goods and includes a much greater percentage of the work force so
that a much larger portion of the money produced by these industries
in the form of wages from higher-paying jobs makes its way back into
the local economy instead of being invested overseas through off-
shoring and outsourcing. Without this abundant credit, a services
based economy will stagnate. Credit is what greases the wheels of our
commerce now more so than ever. And in order to expand credit at the
institutional level, the credit extended must generally be backed by
prime (AAA) collateral. When the dot.com bust occurred, there was a
massive loss of capital in the form of equities, equities that could
be used as collateral for the extension of credit. Also the huge fees
that were earned selling dot.com stocks disappeared, which destroyed
earnings and growth in the financial industry. The huge losses also
put a damper on services since fewer assets means less discretionary
money and less spending, especially on nonessential services, and this
led to greatly reduced earnings and growth in the financial and
services sector and eventually to a recession as the false-flag 911
attacks added to the damages.

The Illuminati had to figure out where they could come up with more
collateral that could be used to secure credit, generate fees to
replace those lost in the dot.com bubble and increase consumption of
both goods and services. The only straw that was left for the grasping
was the real estate industry. The problem was that everyone who could
afford a home already owned one and the baby boomers were aging while
the population was stagnating or even contracting. So how could they
drive real estate prices up to provide the increase in value necessary
to provide new collateral to support the extension of more credit to
keep the financial and service industries bubbles growing? Answer:
Subprime loans. These newfangled loans would make houses more
affordable (albeit short term until the rate resets, lies and frauds
came home to roost) and draw in a whole new subset of first-time
homebuyers. These first-time homebuyers are what get the whole market
moving, because current homeowners cannot move up without them. Once
the market is set in motion, the increase in mortgage sales creates a
fresh source of collateral, which is then packaged into bonds and
sold, with the proceeds being rolled over to provide more funding for
mortgage loans. Real estate values rise due to the increase in demand,
which in turn increases the value of the collateral and gives the
impression of greater security, thus increasing the desire to invest
in mortgage bonds. Also, as prices move up, potential profits draw in
speculators, thus driving prices up even further. Unfortunately,
however, this new industry had many problems. For instance, how do you
cover up the fact that these new buyers are not creditworthy and
really can't afford any kind of mortgage at current prices? How do you
push prices up when they are already higher than most people can
afford? And how do you package the toxic waste into AAA bonds which
can then be used as institutional collateral or bank reserves in order
to grease the big credit wheels which keep the services and financial
sectors moving? But not to worry, the Illuminists would just cover
them over and sweep them under the carpet with lies, lies and more
lies, from soup to nuts. No down payment, no income or asset
verification, lies on the loan applications, false appraisals,
adjustable rate teaser loans, negative amortization pick-a-pay loans,
securitization of mortgages into bonds that were given false AAA
ratings, etc., etc., etc., were some of the solutions to the problems
posed. The Fed, being a private bank at the hub of the Illuminist
conspiracy to destroy our economy and rob us of our sovereignty,
conspired with all these Wall Street reprobates and did nothing to
regulate or to oversee these flimflam operations. As part of that
conspiracy, the Fed drove interest rates down to ludicrous levels,
with the funds rate being lowered to an unbelievable 1%%. This rate
drop also raised bond values, thus increasing the value of existing
collateral and reserves of various financial institutions, further
greasing the extension of credit. Toxic waste was falsely rated and
dumped on dupe clients and off-shored to SIV's thanks to the repeal of
Glass-Steagall by sociopath "Slick Willie" Clinton. Naked credit
default swaps and interest rate swaps, now with notional values in the
many hundreds of trillions and tens of trillions, respectively, were
used to insure investors against bond losses due to payment defaults
and interest rate fluctuations, driving rate spreads to all-time lows
and driving the use of leverage to levels normally reserved for
psychopaths. Everyone had a big party. That party is now over.

The reason we are in recession now despite a 16%% M3 level is obviously
not because of a contraction in the money supply, which was
implemented by the Fed to stop inflation as has been the case with
past recessions. The real reason we are now in recession is that the
value of the asset base, mainly real estate, that was used as
collateral to support the massive, moronic and insane issuance of
credit for the past six years has been completely and utterly
destroyed, and because our productivity and growth have been crushed
by rampant inflation that has been caused by the unprecedented growth
in the money supply. Therefore, the current recession cannot be ended
by lowering interest rates and increasing the money supply because a
contraction of the money supply was not the root cause of the
recession. In fact, the lowering of interest rates while the money
supply is being increased will only exacerbate the recession by
destroying the value of the dollar and by igniting hyperinflation that
will totally annihilate what little productivity and growth remain in
our economy. And may we add that thanks to the Bush-Clinton-Bush
Administrations, since 1990, our real per capita GDP has been CUT IN
HALF by rampaging and falsely reported inflation that has by far
outpaced our rate of growth and productivity

...

THE INTERNATIONAL FORECASTER

WEDNESDAY 3/12/08 (0312-08(1)_IF

P. O. Box 510518, Punta Gorda, FL 33951-0518

An international financial, economic, political and social commentary.

Published and Edited by: Bob Chapman

E-Mail Addresses:

international_forecas...@yahoo.com

if_dist...@yahoo.com

CHECK OUT OUR WEBSITE

www.theinternationalforecaster.com

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http://www.blacklistednews.com/view.asp?ID=5848

http://biz.yahoo.com/cnbc/080310/23557115.html

http://www.cnbc.com/id/23595031/for/cnbc/

http://www.thenation.com/doc/20080324/ehrenreich

------------------------------------------------------------------------------------

An upside-down mortgage is a mortgage for which the home owner owes
more on the mortgage than the home is worth.

According to a report on the CBS TV "Early Morning Show" on March 10,
if house prices fall another 10%% nationally, 20 million households
will be in an upside-down condition.

As of the year 2000, at the last census, there were 83 million
residential properties. Almost 68 million were owner-occupied. Of
these 68 million properties, 67%% had a first mortgage. So, about 45
million homes had mortgages.

If the 20 million figure is correct, then about 43%% of all mortgage-
owing households would be stuck with underwater mortgages. But this
assumes conditions of 2000, before the really maniacal phase of the
bubble took place.

The source of this estimate was not identified on the broadcast. It
may be wildly pessimistic, but I doubt it. Millions of home owners
have borrowed on their home equity since 2000. When people have sold
their homes at a profit, they have moved up - more expensive homes,
more debt.

Lenders will not lend money to families whose collateral is a home on
which the mortgage owed exceeds the market value of the home. This
will put a crimp in consumer spending. It will make the transition to
a new capital structure - the recession - that much worse.

There are three other factors to consider. First, the actual sale
prices of these homes will be lower than the listed prices - maybe
substantially lower. It already takes almost a year to sell a home
nationally. This delay period is going to get longer. Those who need
to sell will take lower prices.

Second, the appraisal agencies are in panic mode, fearful of lawsuits
for overinflated prices. They are cutting appraised values. This is
possible for them because, with liquidity gone, homes are staying on
the market far longer. Appraisers are assuming the worst regarding
market value. The appraised value is the "sold today" value. That is a
discounted value.

Third, it costs $50,000 to foreclose on a house. Incredible, isn't it?
The lenders made loans on the assumption that they would not have to
foreclose to get the properties back. Now that assumption is seen as
naïve. Owners can live rent-free simply by paying property taxes.

The recession has only just begun. The number of abandoned homes is
rising. The holders of these now-dead mortgages cannot get renters in
fast enough. Weather and vandalism and crackheads are now threatening
the collateral of the loans even before foreclosure.

Will home prices nationally fall by 10%%? There are no signs today that
they will not fall this year through 2009 because of ARM mortgage
interest rate re-sets. At the margin, home prices will fall, which
will force appraisers to lower appraised value, which will lower what
lenders are willing to lend.

I think 10%% is a low-ball estimate.

BUT IS HOUSING REALLY A BUBBLE?

Why do I think it's a bubble? Because it has these characteristics:

1. Funded by extensive leverage (debt)
2. Carry-trade: borrowed short and lent long
3. Widespread belief that it is not a bubble
4. A huge percentage of borrowers
5. Faith that the government can protect debtors
6. Economists deny it is a bubble

The Federal government and its licensed agency, the Federal Reserve
System, have combined to create the ultimate economic bubble: the
residential housing market. Other national governments have done the
same thing. The housing bubble is now international, but especially in
English-speaking nations.

The U.S. government has created an economic illusion, namely, that the
two government-sponsored enterprises (GSE's), the Federal National
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage
Corporation (Freddie Mac), are agencies of the U.S. government. They
are not.

One piece of evidence for a bubble that I take seriously is provided
in the 2007 annual report of Freddie Mac. The Chairman began his
lengthy message with this admission, signed on February 28, 2008.

In 2007, our sector suffered the most severe housing correction
since the Great Depression. In my 35 years as an economist, central
banker, regulator and businessman, I have never witnessed a situation
quite like this one - in which a housing bubble has played such a
central role in bringing the world's largest economy to the brink of
recession.

But this is a concealed bubble. This makes it unique. How is it
concealed?

1. No market index for housing in general
2. Extensive reservation demand: owners won't sell
3. Illusion that GSE's are legally protected by the Federal
government

The Federal government created both organizations, then let them
become private, profit-seeking corporations. They both can borrow at
below-market rates because of their special relationship with the
Federal government. The question is this: To what extent will Congress
be pressured by constituents to bail out these forms in a true freeze-
up in the mortgage credit markets?

This is a crucial question. These firms together own 40%% of all
mortgages in the U.S. The total value of these mortgages is equal to
the total annual production, including government, of the United
States - over $11 trillion.

The Investopedia site provides these insights into the two
organizations.

Both companies have a board of directors made up of 18 members,
five of which are appointed by the president of the United States.

To support their liquidity, the secretary of the Treasury is
authorized, but not required, to purchase up to $2.25 billion of
securities from each company.

Both companies are exempt from state and local taxes.

Because of these ties, the market tends to believe that the
securities issued by Fannie Mae and Freddie Mac carry the implied
guarantee of the U.S. government. In other words, the market believes
that if anything were to go wrong at Fannie Mae or Freddie Mac, the
U.S. government would step in to bail them out. This implicit
guarantee is reflected by how cheaply they are able to access funding.
Fannie Mae and Freddie Mac are able to issue corporate debt, known as
"agency debentures," at yields lower than other institutions.

The idea that $2.25 billion could do anything to bail out a pair of
companies holding mortgages with over $4 trillion gives some idea of
the bubble mentality of investors in the two organizations. That
Congress would add to this credit line in a national crisis is
politically obvious. That Congress could and would pony up an extra
trillion dollars is something else again.

WHAT IF THE GSE'S LOCK UP?

The GSE's primary role is to provide liquidity in the secondary
mortgage markets. Loan originators sell the mortgages to the GSE's.
What happens if investors in these agencies decide that these two
behemoths are too illiquid to continue to make purchases of mortgages?
That will end the mortgage market's liquidity overnight.

In the first week of March, the interest rate spread between agency-
backed mortgage bonds and T-bonds reached the highest level in 20
years. Twenty years ago, the United States was in the middle of the
S&L crisis.

Meanwhile, non-GSE lenders have ceased to lend. In 2000, the GSE's
accounted for 40%% of mortgages. According to the Housing Wire site,

Both Fannie Mae and Freddie Mac accounted for a record 76.1
percent of new mortgage-backed securities issued in the fourth
quarter, a number than industry sources say is likely to reach well
above 80 percent to start 2008. Some have even suggested that the GSEs
may end up owning as much as 90 percent of the lending market before
this year is out.

The American housing market is now almost completely dependent on two
non-government agencies that are widely regarded as government
agencies. These two agencies are facing the most risky market in their
history.

William Poole, president of the Federal Reserve Bank of St. Louis,
offered this assessment on February 29: "I am more skeptical of the
financial strength of the GSEs, and believe that we could see
substantial problems in that sector." He is concerned about the fall
in home prices in cities such as Phoenix, San Diego, Las Vegas, Miami,
and Detroit. These declines have not been offset by increases in other
cities.

I do not have any information on the GSEs that the market does not
also have. Nevertheless, in assessing the risk of further credit
disruptions this year, I would put the GSEs at the top of my list of
sources of potentially serious problems. If those problems were
realized, they would be a direct result of moral hazard inherent in
the current structure of the GSEs.

But can't the Federal Reserve intervene and bail out these agencies?
He doesn't think so. "As I have emphasized before, the Federal Reserve
can deal with liquidity pressures but cannot deal with solvency
issues."

Solvency issues are at the heart of this recession: the solvency of
home borrowers and, by implication, the solvency of Fannie Mae and
Freddie Mac.

The FED can always monetize both organizations' inventory of
mortgages. This would solve the solvency problem of both
organizations, if such insolvency ever threatens their survival. Poole
has not yet discussed in public this fall-back position of the Federal
Reserve.

Consider this anonymous assessment of what we are now facing.

"Imagine a sinking ship with only two lifeboats, and that the
sinking ship would need closer to 50 lifeboats for everyone on board,"
said one source, a manager at a large independent lender who asked not
to be named. "Those two lifeboats may be the best on the planet, but
it won't matter much if everyone tries to pile onto them, which is
exactly what's happening right now."

http://www.garynorth.com/snip/515.htm

In his 13-page message to Freddie Mac shareholders, the chairman tried
to make the best of a $3 billion loss, compared with $3 billion profit
in 2006. He ended with a note of optimism: rising long-term demand for
homes.

As Freddie Mac shareholders, you have shown extraordinary patience
in an extraordinary time. But let's remember that for all that has
changed, very important long-term aspects of demography and demand
have not changed - and are positive.

This is true. There is demand. People want to buy homes. The question
is: Who is going to lend money to them at rates that have prevailed
under the Greenspan era? Where are the GSE's going to get lenders to
forfeit access to their money for 30 years at 6%%?

America remains a growing developed nation: one with relatively
high rates of birth, immigration and household formation. Long-term
demand for housing finance will remain strong. And now, having built a
firm foundation, Freddie Mac is positioned like very few other
companies to benefit from the inevitable recovery of housing in this
country.

But when will this recovery take place? After what percentage of
decline in housing prices? Are they headed back to where they were in
1995? If not, why not? He ended with these words:

So thank you for your fortitude and confidence in Freddie Mac.
During this difficult time for housing and the economy, rarely have
they been as needed or as beneficial for our nation. Yet also, from my
perspective, rarely as well justified.

Fortitude and confidence are indeed great things, as General Custer no
doubt remarked to his troops.

From my perspective, I see a lot of Indians.

CONCLUSION

We are now facing the previously unthinkable: a real lock-up of the
mortgage market, followed by a sharp decline in housing prices. This
would produce dramatic capital losses. It would reverse the wealth
effect. The wealth effect is the emotional effect of a person's equity
any party of his portfolio. He feels richer. He spends more. He saves
less.

The poverty effect reverses this mentality. He spends less. He saves
more.

The transition period is what we call a recession. Capital values in
formerly booming markets fall rapidly. There is a rush for liquidity
and safety.

We are seeing this in T-bill rates, which have been under 1.5%% this
month. This does not compensate investors for losses to inflation and
income taxes. When people move to T-bills below the FedFunds rate,
they are scared. This includes bankers who are borrowing from the FED
at 3%% and lending to the Treasury at 1.5%%. They are taking a beating
on their profit and loss statements, but not so great a beating as
their balance sheets will take if they hang onto the mortgages that
they are unloading on the FED at the TAF (term auction facility)
window.

The housing bubble has burst where it was most prominent. There is no
sign that housing prices have begun to rise there. When they do, and
when this lasts a year, the rest of the country will be able to
breathe more easily. That is not now.