Posted originally on Jul 12, 2024 By Martin Armstrong
QUESTION: Mr. Armstrong, I find it remarkable that your model has always been correct in predicting the economy’s direction. This latest US inflation number shows that it was subsiding, cooling down to the slowest pace since 2021, right in turn with your Economic Confidence Model. Treasuries rallied on expectations that the Fed might cut rates. It seems so obvious to a blind man that your model has done what no economist has been able to do for decades. Why does academia refuse to credit you for your discovery?
SH
ANSWER: The 1960s was a wild time when I was still in high school. In Economics class, they said everything is random, and there is no definitive business cycle, so we can manipulate the economy to prevent recessions. That was the Keynesian economics. When I went to Physics class, they emphasized that nothing was random. I concluded the someone was not telling the truth and it seemed to be in the Economics class.
For you see, this was the period when the fixed exchange rate was collapsing. It was the end of Bretton Woods, and this was a confusing period for what people call today the “Everything Bubble.” Back during the 1960s, it was the “Everything Crash.” I saw everything rise to a peak and then crash from stocks and bonds to precious metals, real estate, and collectibles. This forged my understanding of the world economy, and everything was connected.
The pressure on Brettone Woods actually began with rising inflation. President Kennedy was forced to remove silver from the coinage starting in 1965. The last silver coins produced came with the peak of that ECM wave in 1964, and by 1968, that saw the first major crash in the gold standard.
Back then, the 1968 financial crisis forced the two-tier gold market where gold began to trade openly in London in 1968.
Gold rallied to $44, finally forcing the first crash in the gold standard. The solution was to allow a two-tier market, where the fixed rate was between countries, and the private market was allowed to float.
I remember well that in 1970, just BEFORE the fixed exchange rate collapsed in August 1971, gold fell on the London market to $34.70 BELOW the official fixed rate after it had risen to $44 in 1969, which forced the first crack in the fixed exchange rate system.
The pressure persisted, but gold fell below the official rate in 1970, and then, by August 1971, President Nixon was forced to close the gold window. In October 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) announced that it was implementing a total oil embargo against the countries that had supported Israel at any point during the 1973 Yom Kippur War.
It was the bias of academia in Economics that followed Marx and then Keynes. In both theories, economists advocated intervention. Thus, economists marketed themselves as all-powerful, and they could direct the government on how to better manage the economy to eliminate the business cycle.
To this very day, academia refuses to accept the business cycle, for they always want to preach EQUALITY and fairness and constantly point to the disparity of wealth as if everyone should have exactly the same. So, they will NEVER accept my research because most of the academics follow these interventionist theories. It’s not something personal, it is just the way academia operates.
Posted originally on Jul 9, 2024 By Martin Armstrong
I have often been asked the question, WHY did the Greek denomination of the stater comply with the 8.6 frequency of the Economic Confidence Model? The silver stater minted at Corinth was 8.6 grams (0.28 oz) in weight, which was divided into three silver drachmae of 2.9 grams (0.093 oz). Its rival city-state was Athens, and their silver didrachm (two drachmae) weighed 8.6 grams (0.28 oz), while their Athenian silver tetradrachm (four drachmae) weighed 17.2 grams (0.55 oz).
What we do know is that the ancient Babylonians calculated the area of a circle by taking three times the square of its radius, which gave a value of pi = 3. One Babylonian tablet (ca. 1900–1680 BC) indicates a value of 3.125 for π, which is a closer approximation.
The Rhind Papyrus (ca.1650 BC) gives us insight into Advanced Ancient Egyptian mathematics. The Egyptians calculated the area of a circle using a formula that gave an approximate value of 3.1605 for π (a 0.6% margin error, extremely good even by modern standards) 4000 years before that value was fixed at 3.14. We know that the Great Pyramid’s estimated dimensions are based on Phi, which only varies by 0.025%. A pyramid based on Pi varies by only 0.1% from the Great Pyramid’s estimated dimensions.
The first Greek calculation of π was done by Archimedes of Syracuse (287–212 BC), who was one of the greatest mathematicians of the ancient world. Archimedes approximated the area of a circle by using the Pythagorean Theorem to find the areas of two regular polygons. Since the actual area of the circle lies between the areas of the inscribed and circumscribed polygons, the areas of the polygons give upper and lower bounds for the area of the circle. Archimedes knew that he had not found the value of π but only an approximation within those limits. This way, Archimedes showed that π is between 3 1/7 and 3 10/71.
Even when we look at the coinage of Syracuse, located in Sicily, we see the same standard. This is a Dekadrachm, which is 10 drachms of 4.3 grams each. We have no ancient text to resolve this mystery. It certainly appears that the coinage was based upon this understanding of Pi.
It remains a mystery why their monetary system was established at 8.6 grams. No accounts indicate why they chose this weight. I can only say that perhaps they intentionally made this a Pi derivative.
Prehistory is the period of human history between the first known use of stone tools by hominins c. 3.3 million years ago and the beginning of recorded history with the invention of writing systems. There has long been a problem with academia in every field. Once they establish a belief, they simply defend it to the last dying man. They have done that with Historia Augusta insisting that it was fake because they did not hear of certain names of Roman Emperors during the 3rd century AD. Coins, such as Saturninus and Proculus, were discovered, which clearly established that academics were wrong. To this day, even Wikipedia claims its authenticity is questionable. “The true authorship of the work, its actual date, its reliability and its purpose have long been matters for controversy by historians and scholars…”
The NETFLIX show of Graham Hancock and his Ancient Apocalypse is an excellent show where he presents his “pseudoarchaeological theories” about the alleged existence of an advanced civilization active during the last ice age. What I can say is that Scientists have recorded five significant ice ages throughout the Earth’s history: the Huronian (2.4-2.1 billion years ago), Cryogenian (850-635 million years ago), Andean-Saharan (460-430 mya), Karoo (360-260 mya) and Quaternary (2.6 mya-present). In addition, there have been about a dozen major glaciations that have occurred over the past 1 million years. These appear to be natural cyclical events that also align with the Earth’s passage around the universe. The largest such event peaked around 650,000 years ago and lasted for 50,000 years.
Hancock’s theory of civilization prehistory being destroyed by the last Ice Age, also appears to align with the legends of the Great Flood that in the Bible is said to be Noah. That most recent glaciation period or Ice Age, reached peak conditions some 18,000 years ago before giving way to the interglacial Holocene epoch 11,700 years ago. There are accounts of a great flood that appear in virtually all the earliest recordings of history.
The story of Noah’s Ark landing in what is a region of Turkey known in ancient times as Phrygia is even celebrated on Roman coins. The Ark depicted on this coin from the 2nd century AD even has the name inscribed “NOAH” on the vessel in Greek. It is entirely possible that this story dates back to the 10,000 BC era and represents the previous civilization of which Hancock has concluded existed.
What we do know is that the ancient is often built upon the ruins of the previous. The ancient city of Troy has several layers. The orientation and dispositions of the Sphinx, the Giza pyramids, and the Nile River relative to one another on the ground accurately reflect the constellations of Leo, Orion (specifically, Orion’s Belt), and the Milky Way, respectively. That does NOT mean that they were constructed 10,000 BC, but something was there previously. The Sphinx does show what appears to be water erosion marking from that period when the area was tropical. It cannot be ruled out that it was originally a lion recarved by the Egyptians thousands of years later.
About eight civilizations collapsed, with the exception of Egypt post-1250 BC. This was caused by a major shift in climate that led to droughts, which resulted in widespread famine that inspired migrations/invasions. This event of 1177 BC was the Bronze Age equivalent to the fall of Rome, for they both were followed by a Dark Age.
Many have attributed this collapse of the Bronze Age to the Sea Peoples, which were most likely northern Mediterranean mass migrants due to the colder climate in Europe. Cline has assembled a nice assembly of sources but missed the climate change. He assumed there was a migration southward. However, we can see that the first dip to the cold came about 1,800 years ago. We can see that the all-time high temperature was about 3,300 years ago.
The collapse of the Bronze Age was mostly complete by about 1100-1000 BC. Our computer has identified a 1720-year cycle beginning in the Dark Ages with the fall of Rome in 476 AD when the last pretend Emperor reigned (Romulus Augustus (575-476AD)). Our model highlighted the cycle between the Dark Ages of 1720 years, which brings us to 1244 BC — right on target for the beginning of the collapse of civilization.
All other civilizations collapsed, with the exception of Egypt post 1250 BC, but even that was greatly diminished. In school, they taught the linear version of the Sea Peoples who invaded to destroy. That storyline has long been way too simple, and Eric Cline brought a new perspective, linking it to drought and famine and the Sea Peoples, which he believed was more of a mass migration southward.
However, in addition to that, there is a major cycle on a fractal basis, which is 3096 years. Our computer has projected that there would have been a warming period of about 10,465 years again, which would have probably coincided with the thaw of the last Ice Age, which may have produced the Great Flood.
The Tropic Belt has been gradually moving northward since 1970. There is debate over what is even causing that. Nevertheless, we now understand that even the Tropic Belt is subject to cyclical movement, which may also explain the shift from a lush green environment as late as 6,000 years ago, which then turned into a desert in the Sahara. Curiously, this is about the length of recorded history. This, too, may be contributing to the illusion of global warming created by man.
All I can say is that the monetary system to have aligned with our 8,6 ECM frequency might be that this was ancient knowledge that has also been lost. They did not have TV back then and spent much time mapping the heavens. They may have discovered that Pi was indeed the secret cycle of the Universe.
Posted originally on May 20, 2024 By Martin Armstrong
It is crucial to understand correlations as EVERYTHING fluctuates! There is absolutely nothing that remains constant. You MUST understand that correlations are NOT one for one, and often show changes in advance of turns. It is a lot to keep track of but this is why I try to post a global view to help you see the world around you. It is a necessary way of thinking to survive the future of our own follies.
When I was trading going into the high in interest rates at the Fed in 1981, each time the Fed raised rates the markets reacted less and less. When the final rate hike came, the markets moved UP, not down, showing that the trend was over. Interest rates DO NOT peak and bottom with the markets. There are advances and lags.
It is very frustrating to always try to sort out misconceptions created by analysts and the talking heads on TV. Just do a simple correction by comparing two charts. The DOW bottomed in March 1980. Gold peaked on January 21, 1980. The Fed kept pushing rates higher into May 1981. The Dow rallied with the last year of rising interest rates.
I stated many years ago that real estate would RISE with the first uptick because people would ANTICIPATE rates rising so they better rush to lock it in now. The people with interest rates under 3% lucked out, but some simply understood the trend. They do not throw in the towel on the first uptick. They disregard the nonsense spouted out by the talking heads on TV that create false images of why markets are moving as they do.
I noted to pay attention to rates in Europe. Germany was able to sell short-term debt at NEGATIVE yields. Why? Because Europeans are moving money in preparation for the collapse in the debts of Southern Europe. Some think if the Euro cracks they will end up with Deutsche Marks or Swiss. This is the same driving force sending money to high end real estate and the Dow. It is the MOVEMENT of capital that causes these trends and each confirms the other. It cannot be one thing in isolation.
Corrections DO NOT work one-for-one. Here, we see the call money rates from the NYSE. It would be nice if it were as stupid as the talking heads make it sound. We have tested every possible relationship. We have employed more computing power and capital to figure out what makes the world tick than anyone ever. That is why the NY banks & government want us to shut up. Just look at this chart. The stock market DOES NOT even peak with the same empirical level of interest rates with each crisis. It would be nice to say if rates hit 8% the market will peak. Sorry – that will NEVER happen. It is the spread between expectations of profit and the empirical level of interest rates.
It is not that I manipulate the world economy. We just spent a great deal of money to deconstruct it. Guess what – the world is not flat. There is a whole new way of economics and looking at how the world actually functions. Eureka! Try observing instead of dictating how the world should operate to support some hair-brain theory. Those who want me to shut up because what we discovered does not fit with their theory or belief that the government can control the economy by regulation are no different than those who killed Bruno or imprisoned Galileo for life.
Knowledge advances by observation. Stagnation emerges when people try to suppress advances because they want to remain in control. The Goldbug press refuses to quote me just like the NY establishment press that supports the bankers. They both have self-interests to support and hate anyone who says they are wrong. There is no difference from the Pravada of the old Communist Party that never acknowledged opposition.
COMMENT: Mr. Armstrong, I have been impressed by your Economic Confidence Model. You said there would be no recession until after 2024. You were really the only one who said that. Now Bloomberg reported that the forecasters who “were first out of the box to predict a US recession” are now hedging their bets. They mention Deutsche Bank Vice Chair of Research Peter Hooper and Fannie Mae chief economist Doug Duncan. However, Nomura Securities International senior economist Aichi Amemiya still says a recession is coming, but “it’s getting to be a close call.”
Not one of the significant houses seems ever to get it right. I just wanted to say your model shines a light on the whole analysis field. I can’t wait for your Geometry of Time.
DF
REPLY: Thank you. It has been a most interesting experience. As I said, this is something I bumped into. I did not go looking for such a model. It was something that found me, as many say it was my destiny, even growing up in a house with the address of 314 South Lippincott Ave, in Maple Shade, New Jersey.
These are the books I am trying to get out this year. The Geometry of Time will be next year. The Mark Anthony book should be on Amazon and Barnes & Noble in a couple of weeks. That is, using the coinage to demonstrate what the real story is behind Cleopatra. She was certainly not black as NETFLIX presented to rewrite history for the WOKE agenda. This is very similar to the USA using Ukraine in a proxy war to destroy Russia. Here, Cleopatra funded a war that the coinage was so massive; it still accounted for 20% of the money supply 100 years later.
The Modern Analysis is nearly finished. This goes precisely to the subject you have brought up. This is a reference book on my version of technical analysis, which is different from the mainstream, but it goes into the whole problem of analysis used by academics, which is blinding us to the reality of our actions.
The De-Dolarization demonstrates how this entire nonsense that hyperinflation is caused by just increasing the money supply, which is like saying the Great Depression took place simply because the stock market went down. Here too, the lack of any real investigative analysis has doomed the Eurozone because of the distorted view of the real cause of hyperinflation.
The Geometry of Time will be the companion to Modern Analysis for the 21st Century. This will deal with cycles from the how to the why. It has been academia’s refusal to embrace cyclical analysis and any form of technical analysis that prevent any worthwhile forecasting. This is why people like Larry Summers admit they cannot forecast the economy’s future.
Watch the video above or click here to view the latest interview.
Martin Armstrong returns to the Outer Limits of Inner Truth Podcast to discuss: what Socrates is saying about the 2024 election, the likelihood that CBDCs will not succeed based on what happened in Africa, the fall of Western Civilization, where the elites want to take humanity, and how to preserve your liberty in these trying times.
All we hear is the same claims that the dollar is dead and it will be totally worthless any day now. Over the last few weeks, all we hear from the majority now is that the dollar is finished. Virtually every page you turn or site you visit claims the death of the dollar. They are calling this the de-dollarization of the world economy and that the future of the US dollar as well as the American empire itself is now collapsing. The general claim is that the group of economically-aligned nations known collectively as BRICS is a major threat to the greenback. That was the same story we heard about the Euro back in 1997.
As their scenario goes, the BRICS [Brazil, Russia, India, China, and South Africa] have moved to form an anti-dollar colation and Saudi Arabia is considering jumping on board. They insist that once that happens, the “petrodollar” will die and cease to be a reserve currency.
This is then followed by the forecast that the economy will suffer and that any bounce in exports will be short-lived simply because the dollar will be dead for the long term. Of course, this has been the favorite forecast that they keep putting out since Bretton Woods collapsed. They were wrong back then for the dollar rose between 1972 and 1976 against the British pound, with the collapse of Bretton Woods. To try to explain why the dollar did not collapse, that is when they claimed that the dollar was backed now by oil rather than gold. That was just an excuse as always to cover up their wrong forecast.
They sold that story to Newsweek and now the dollar rally was because of oil which replace gold. Suddenly the dollar became de facto backed by oil. They needed an explanation to explain why all the old theories were wrong. They sold this theory and it made the front cover of Newsweek. Everyone said YES! That must be the reason. OPEC priced oil in dollars! Naturally, everything was priced in dollars because, under the fixed exchange rate of Bretton Woods, everything from wheat and corn to copper and gold was all priced in dollars.
Now they are saying the American empire is threatened by the potential commercial real estate collapse and the BRICS anti-dollar venture. So they are forecasting a great depression-style crash is possible in the not-too-distant future. They spin this to forecast the end of the America Empire. The London FT, always anti-American/Pro WEF, reports that the dollar as a reserve currency has declined from 73% in 2001 to around 55% by 2021. Yet the FT did state an obvious fact:
“But if you are a reserve-rich central bank elsewhere that isn’t going to be a lot of comfort. Moreover, would you really feel more comfortable in, say, the renminbi? Even if it was fully convertible and liquid, would you honestly feel more sure that Beijing will behave lawfully than DC? The dollar still looks like the proverbial least dirty shirt in the closet.”
COVID actually has played a major role in shifting the world economy. In 2020, the US economy was 24.75% of the world’s GDP. By the start of 2022, it had fallen marginally to 24.15%. What these dollar-forecasting jockeys do not understand, is that if they were correct and the dollar collapsed, then the very BRICS would collapse even further. Economically speaking, when the United States gets a head cold, the rest of the world catches ammonia. You can’t have it both ways. The strength of the dollar is not gold or oil, it is the American consumer.
The risk to the entire world is runaway inflation thanks to Biden pouring untold amounts of money into the black hole known as Ukraine. The Neocons, who control Biden, are planning to launch a war against Russia and China before 2024. This will only continue to accelerate inflation. That reduces the spending power of the American consumer and in the process, the US economic growth declines in real terms and with it, the rest of the world plunges into recession.
While Macron has figured it out that the Neocons are in charge of US foreign policy and he is telling Europe to stop being the puppet of the USA, that all sounds nice but Europe is marching into war with Russia. NATO is firmly in control of the American Neocons and they need war or face losing power. With Trump in the lead, they must stop him at all costs for he is anti-war, would haul the Neocons out by the necks, and defund NATO, as well as stop the climate change agenda.
The US dollar in the global economy has been supported by the size and strength of the US consumer-based economy. Its stability and openness to trade and capital flows without restrictions and it has never been canceled, are the major foundation of the dollar in addition to strong property rights and the rule of law. That is why Russians and Chinese buy US property for they are secure in their ownership of US property which cannot always be guaranteed outside the US.
Consequently, the depth and liquidity of US financial markets remain unmatched. For institutions parking billions, the United States represents a large supply of extremely safe dollar-denominated assets. Are they really going to switch to China or buy debt from Brazil? Not a single institutional client will take that bait.
China has been divesting of dollar reserves because it KNOWS that the American Neocons want war. You do not fund your adversary who intends to wage war against you. China cannot shift reserve assets to Europe or Japan. They have been buying gold because it is geopolitically neutral territory. They are NOT buying gold as an investor thinking it will rally. That is irrelevant. If gold drops 25%, that does not translate into them becoming a seller.
The dollar in international reserves stood at 60+% at the start of 2022 against the US share of GDP at 24.25%. This comparison belittles the argument that the dollar is finished. Eventually, the US will lose the wars it is starting and the dollar will be replaced perhaps as soon as 2028. The IMF is already licking its lips and rubbing its hands together eager to get control of the reserve currency. But they too will collapse. We have a Directional Change next year and a Panic Cycle in 2025. So buckle up.!
Remember one thing, even with the debasement and collapse of the Roman Denarius between 260AD and 268AD, it still took 224 years for Rome to completely collapse. When war breaks out, capital flight will still be to the dollar. It will not be to public assets, but private. The United States is still supporting the entire world economy. The BRICS need the US consumer to keep their economies functioning. All this talk of the dollar being finished is really nonsense. That day will come, but when the US consumer no longer buys.
Remember 1997? The Euro was going to dethrone the dollar. They claimed the new EU will be a bigger economy than the US. The problem was, they lacked a consumer economy, and low taxes, and they routinely canceled their currency to force people to pay taxes. It is always the same story over and over again.
QUESTION: Marty, You are the only worthwhile analyst. You were alerting us a year ago that the IMF was creating its own digital currency. We have all these people claiming this will kill the dollar just as they proclaimed the euro when that was created. It is also well known that you were called in about revising the world monetary system numerous times. I heard that you were called in on this one and refused to assist them. You warned back in May of 2021 that the IMF was creating a new reserve digital currency.
Is this all part of the rise of the United Nations, World Bank, and IMF all becoming this one world government? I that why you declined to get involved?
LW
ANSWER: I am not at liberty to speak to issues where I am solicited. Suffice it to say, I took no part in creating this currency. This is part of what I have been warning about digital currency. They can restrict its use and anyone who thinks that somehow Bitcoin will be some independent white knight rushing in to save the day, they have drank too much of the cool aid.
Look, try depositing $10,000 in cash. Watch what happens. I have a friend who owns a bar in a college town. He takes in a lot of cash because the customers often do not have credit cards. Some banks did not even want to accept an account from him. Others required inspection and monitoring because cash CAN BE a way to launder money. Europe has been restricting cash to transactions capped at €1,000.
There is serious talk of restricting purchases for cash or CRYPTOCURRENCY and the way they enforce it is precisely restrictions on businesses and noncompliance means you are out of business when no bank will accept your account. That eliminates business in credit cards as well. This is why I say, they will create a black market through their sheer authoritarianism. Human rights will no longer be respected. This is point 8 of Schwab’s Agenda.
Back in 1980, the press was all over my firm. NPR came in with cameras rolling and could not believe we had just paid a woman $6,000 for a heavy silver serving plate. We had lines all day long at all my locations in addition to the fact I was making markets for all the stores nationwide. Whatever they bought that day they sold immediately;y to us and shipments were coming in from everywhere. I had a team just handling that and we would bundle it all up and send it out in Armored trucks to be refined at Engelhard which was 30 minutes away.
Because of all the publicity, the IRS came in and declared me to be a bank under the theory that Nixon only closed the gold window and gold was never demonetized. Sure, it was a novel theory that just because I was one of the 3 largest gold dealers in the country, that made me a bank without applying for a banking license. They claimed I had to report every transaction of $10,000 or more buying for selling. They sent in their stormtroopers and began going through every transaction. They then went out and audited over 3,000 clients. I decided to retire. That was it. I was not about to become a rat on everyone that walked in the door.
The point is this. They can declare everyone mining cryptocurrency to be a bank. Already, the Infrastructure Investment and Jobs Act of 2021 (IIJA) requires any transaction of $10,000 or more to be independently reported to the IRS. The government can declare you to be anything. You can fight them in court and you will lose and it will take years. In the meantime, you will have to comply. They can do ANYTHING they want. It is then your burden to argue that what they are doing is illegal. Good luck. We are no more living in a free country than Russia or China. The government can do anything it desires. It will always be your burden to say they are acting unconstitutionally.
You will NOT be able to travel internationally with even gold coins. You may not even be able to hop on a plane domestically with gold or cash. Over the past several years, a common question for U.S. taxpayers across the globe is whether or not a foreign-based virtual currency such as Bitcoin that is held overseas is reportable for FBAR (Foreign Bank and Financial Account Reporting) or FATCA (Foreign Account Tax Compliance Act) purposes. The Treasury was already pushing since 2021 for any transaction of $10,000 or more in cryptocurrency must be reported to the IRS.
Whether you are a visitor to the United States or a U.S. citizen arriving in the United States, you must complete one or more entry forms.
At the end of the day, they want their pound of flesh and they want absolutely everything to be restricted and monitored. Welcome to the new law of totalitarianism.
QUESTION: Hi. I do not understand why you keep advocating over and over how the depositors should be bailed out over 250k. It makes no sense from a moral hazard perspective. It is fact that should they do that, in spite of depositors signing agreements acknowledging that deposits over 250k would not be guaranteed, the Fed will also need to cancel all outstanding debt instruments, whose borrowers also signed an agreement that if they don’t pay they lose the asset. The moral hazard is so severe as to bloody the eyes. Why do you keep endorsing the bailout which will have to be at least initially funded by taxpayers even if they get the money back? The money to shore up bank reserves in exchange for collateral has to come from somewhere. What is the real fear, that people will move deposits direct to T-bills and in so doing, set up funding for a US CBDC? Please address the moral hazard aspect of your position. So far, I’ve heard nothing to defend the immorality of it.
FO ANSWER: Do not confuse a bank depositor with (1) an investor in a fund, or (2) bank shareholders & Management. A bank depositor is NOT an investor. The $250k is by NO MEANS sufficient for small businesses. They need to keep large amounts on hand for payroll etc. You do business and accept credit cards and they deposit that into your bank account.
Bank depositors are unsophisticated average people. The sophisticated investor moves their, money to a hedge fund or money market fund and fully understands that there is a risk associated with that investment. The bank depositor accepts no risk on any investment the bank makes. It does not give them, a piece of their profits. That goes to shareholders. It is a bailout of the entity and thus the shareholders which presents the moral hazard perspective.
If deposits in excess of $250 are NOT covered, you wipe out small businesses, they cannot pay employees and the ripple effect will be the total destruction of the entire economy. Your house will become worthless for its value will drop to only what someone can pay in cash.
There is a HUGE difference between investing and losing and simply depositing your money in a bank because we are moving to an electronic monetary system that there will be no way for a depositor to even demand money from a bank. Some are restricting wires to $3,000 and limiting the amount of cash one can withdraw. There is also not enough paper currency to facilitate bank withdrawal on a grand scale. Bank robbery will come to an end without cash.
None of that will unfold if a hedge fund fails. We must look deeper into this entire question.
In 2010, Barron’s wrote a piece on me effectively laughing at my forecast that the share market would rally to new highs. What seems to inevitably unfold is this notion that whatever the event might be in motion, the mere thought of a reversal in trend appears impossible. When the press disagrees with Socrates, I know it will be the press who is wrong. And because they end up being wrong, of course, they cannot print a retraction so they will just pretend you do not exist rather than admit – Sorry, we were wrong. The Dow made that new high above 2007 by February 2013. That was 64 months from the October 2007 high.
I have been in the game for many years. With each event, it appears to be like Groundhog Day. They pop their heads out and declare they do not see their shadow, so the entire world will disintegrate and that is always based upon opinion. It is never backed by real analysis. Just the standard human trait of assuming whatever trend is in motion, will remain in motion.
Being an institutional adviser, I have never had that luxury. We have had to deal with some of the biggest portfolios in the world. They want accurate forecasting, and it has to be long-term – not day trading. They are not interested in the typical headlines of doom and gloom that the press love to print with every financial event simply to get readership. That is all they care about. It has been the financial version of the fake news.
When we step back and look at this favorite fundamental that people beat to death to predict the end of the world, the national debt, and the collapse of the dollar. Little did they know that the increase in National Debt during the 2007-2009 Financial Crisis was supposed to bring down the sky and end the existence of the dollar. We can see the sharp rise in debt simply made a double top with the Financial Crisis of 1985.
It was that previous 1985 Financial Crisis that set in motion the Plaza Accord which brought together the central banks creating what was then the G5 – now G20. Of course, like every government intervention, the side effect was the 1987 Crash and their attempt to reverse their directive at the Plaza Accord became the Louve Accord. When the traders saw that failed, the collapse in confidence led to the 1987 Crash.
It has always been a CONFIDENCE game as I pointed out with the 1933 Banking Holiday previously. In this case, the failure of the Louvre Accord which came out and said the dollar had fallen enough, once new lows in the dollar unfolded and the central banks could not stop the decline, led to financial panic by 1987 which manifested in the 1987 Crash.
This chart shows the quarterly change in the National Debt since 1966, Here you can see the 1985 and 2008 Financial Crises were on par. Neither one ended the dollar no less the world economy. So when I warned the share market would rally and make new highs and Barron’s laughed in 2010, I said the same thing after the 1987 Crash and people laughed.
In fact, on the very day of the low, I said this was it and that we would rally back to new highs by 1989. That was perfect and the market responded to the Economic Confidence Model (ECM) which has been published back in 1979. This was more than simply forecasting the 1987 Crash and the very day of the low. It clearly established that the ECM had revealed that there was a secret cycle behind the appearance of chaos even in economics.
Larry Edelson was actually a competitor at the time. But Larry respected that the forecast from the model was far beyond what people would ever expect. If we are ever going to advance as a society, we have to stop the bullshit and understand HOW markets trade and WHY. Larry did that. He understood that the model was something larger than just personal opinion.
Even those claiming to be using the K-Wave cannot make real forecasts. The basis of Kondratieff’s argument came from his empirical study of the economic performance of the USA, England, France, and Germany between 1790 and 1920. Kondratieff took the wholesale price levels, interest rates, and production and consumption of coal, pig iron, and lead for each economy. He then sought to smooth the data using an averaging mathematical approach of nine years to eliminate the trend as well as shorter waves. Kondratieff thus arrived at his long-wave theory suggesting that the economic process was a process of continuous waves of boom and bust.
Kondratieff’s work was compelling and contributed greatly to the Austrian School of Economics that first began to develop the concept of a Business Cycle. The general central principle of the Austrian Business Cycle Theory is concerned with a period of sustained low-interest rates and excessive credit creation resulting in a volatile and unstable imbalance between saving and investment. Within this context, the theory supposes that the Business Cycle unfolds whereby low rates of interest tend to stimulate borrowing from the banking sector and thus then result in the expansion of the money supply that causes an unsustainable credit source boom which leads to a diminished opportunity for investment by competition.
Here is a chart of the business cycle that was created by a farmer named Samuel Benner. Benner based his work on Sunspots, which actually incorporated solar maximum and minimum that today’s Climate Change zealots refuse to consider. Nevertheless, someone manipulated Brenner’s work and created a chart to try to influence society handing it in with a wild story to the Wall Street Journal published this cycle on February 2nd, 1932, when the market bottomed in July 1932. Still, nobody knew who had investigated this phenomenon in 1932.
When I was doing my own research reading all the newspapers to understand how events unfolded, I came across this chart. I found it interesting that during the Great Depression people were reaching out and some began to embrace cyclical ideas. The problem with both Kondratiff and Brenner was that the period they used to develop their cycles was the 19th century because the real Industrial Revolution was unfolding and in the 1850s, 70% of the civil workforce were all in agriculture. Consequently, if you constructed a model based entirely upon one sector, it would work only as long as that sector was the top dog.
Being a historian buff, it quickly hit me that NOTHING remains constant and that the economy will ALWAYS evolve, mature, and then crash and burn. Where agriculture was 70% of the workforce in 18590, it fell to 40% by 1900, and then down to 3% by 1980.
Just look at energy. The earliest lamps, dating to the Upper Paleolithic, were stones with depressions in which animal fats were burned as a source of light. In cultures closer to the sea, they began to use shells as lamps which they would burn at first animal fat. Clay lamps began to appear during the Bronze Age around the 16th century BC and the invention quickly spread throughout the Roman Empire. Initially, they took the form of a saucer with a floating wick.
We even find Roman oil lamps as luxury items crafted out of bronze. There are collectors of terracotta oil lamps for there is a vast variety of motifs. There is everything from dolphins, and various entities, to erotic oil lamps, which may have been used in brothels. The point is, if you constructed a model on oil, you would have surely accomplished similar results to Kondratief and Brenner.
Then of course, just as the energy moved from animal fats to vegetable oils, by the 19th century it returned to whale oil which was extracted from the blubber. Emerging industrial societies used whale oil in oil lamps and to make soap. However, during the 20th century, whale oil was even made into margarine.
Then the discovery of petroleum and the use of whale oils declined considerably from their peak in the 19th century into the 20th century. Ironically, it was fossil fuels that probably saved whales from extinction. Hence, now we are entering a period where they deliberately want to end fossil fuels and move to solar and wind power. Obviously, just a cursory review of energy reveals the problem of basing a model on the current energy source or major economic industry. Things change with time.
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