QUESTION: Bernie Sanders was basing his whole economic proposal to just keep spending and make everything free. They seem to be teaching this in school now. This macroeconomic theory whereby a country’s spending is only constrained not by revenue in taxes but by inflation when it creates a sovereign currency. It seems too good to be true, but some economists were teaching this to my son. Would you care to comment on this theory?

JH

ANSWER: The problem with what many call “new” or “modern” monetary theory is that it is like sleepwalking. You walk, creating GDP, while you are also dreaming. It reminds me of Shakespeare:

“To die, to sleep–To sleep–perchance to dream: ay, there’s the rub, for in that sleep of death what dreams may come when we have shuffled off this mortal coil, must give us pause.”

This economic theory is the same old incantation — how to prosper with other people’s money. Rome had no national debt and no central bank. It created money to fund itself. In hard times, they used the law to confiscate the property of people as they are doing today with their civil asset forfeitures.

What is missing in this theory is the question of debt. They assume they can borrow without end and never have to account for what they have done. They fail to understand that concept and try to regulate pension funds, which requires them to obtain government debt that they never pay off.

Yes, you can just create money to fund the government and it is confined by inflation. That is a true statement if taken by itself. However, you cannot then borrow with no intention of paying down the debt because the accumulative interest payments will end up representing 100% of the debt. This theory fails for it ignores dealing with the debt.

This theory that they are now teaching kids is not practical. It is only a theory, not a solution. We must first address the entire social system in place because so many people think they are entitled to something. The system as-is cannot be sustained. We have to go through a monetary system reset in which we deal with the debt.

QUESTION: Mr. Armstrong; I have studied you Economic Confidence Model and found it to be extremely accurate in forecasting the business cycle. When I showed it to my professor here at ——— he responded that itis impossible to forecast the business cycle. He would not even engage in a conversation about it. Why are they so intimidated by your work?

Thank you
GM

ANSWER: What you have to understand is that IF it is possible to forecast the business cycle, then that means politics have to change. The entire system is based upon the proposition of vote for me and I will reduce unemployment and bring world peace unless I do not like the people. If you listen to Larry Summers, he states that if you could forecast the business cycle, that would be bad because it would become a self-fulfilling prophecy. He also states that the economy is far too complex, like weather, with way too many moving components that make it impossible to forecast. That means the door is open to manipulate the economy, as he suggested with negative interest rates. When that failed, he then discovered there was the zero interest boundary where people would withdraw their cash from banks and defeat his negative interest tool. He has thus advocated eliminating physical paper money to allow his negative interest rate idea to then work — so he maintains. He ignores, of course, the entire pension fund system.

Many governments want our forecasts so they can understand what is happening. However, they would not publicly state that a recession is coming. Yet, the central banks have been warning that another economic crisis is on the horizon. Therefore, we are dealing with a question of political power. Even in the middle of an economic crash, the president will always come out and make some statement declaring the economy is sound. Can you image if he publicly stated we were going to collapse to 10 cents on the dollar? No matter what they may believe, they MUST speak to try to maintain confidence. Hence, I have called this the Economic Confidence Model because it all depends upon confidence at the end of the day.

Corporate America will suddenly discover that the Democrats are moving substantially to the left and will do whatever they can to further that goal. The Democrats are becoming the new party of anti-corporation/business. They embrace the misguided ideas of Alexandria Ocasio-Cortez who has been joined by Bernie Sanders and Elizabeth Warren. This new agenda is being endorsed by Senate Majority Leader Chuck Schumer.

Schumer would like to outlaw corporations from buying back their own shares unless they pay workers at least $15 an hour, offer paid time off, and health benefits. They try to force the minimum wage higher and act as if companies are the sole source of the problem. Why not eliminate taxation, both state and federal, for people under $15 an hour. Governments never take into account the cost of government itself. You have riots in France when government taxation consumes 46% of total GDP. Schumer has come out and said this is all Trump’s fault because he lowered taxes.

So in other words, if Trump never lowered taxes to get companies to bring back money from overseas, then there would not be buybacks. The money would remain overseas instead of being reinvested in America. They buy their own stocks back and the shareholders then reinvest in other companies. They act as if the money vaporizes. They blame Trump for everything as if buybacks just appeared when Trump took office.

So where are the fact checkers on this one? Oh, they only fact check Trump. Sorry. Didn’t understand the one-sided new free press rule that allows them to freely report only what they want to.

COMMENT: Mr. Armstrong, I just went to see Les Miserables with my wife. I was really moved for it was indeed how history repeats. It just seems we always end up in the same position because government never changes.

PB

ANSWER: Unfortunately, socialistic governments pretend that they are taking your money for your own benefit. The excuses are endless. Nevertheless, they constantly oppress the people by taking an ever increasing portion of their net disposable income, crushing them into the dust. The motives seem to change, but the end is always the same. This is why the Founding Fathers forbid direct taxation. That was such a critical deterrent to prevent revolution. The governments followed Marx at the beginning of the 20th century, and then convinced themselves that they were doing it to care for the people. In the process, they paid themselves pensions that no one else could possibly attain. Forbidding direct taxation was the only possible way to prevent the recurrence of revolution.