Category Economic Subjects

Sep 8 2016

The Preparation for Seizing Private Pensions


Armstrong Economics Blog

Re-Posted Sep 8, 2016 by Martin Armstrong

401K

The pension crisis is going to be the HUGE issue in 2017. Obama is supporting about a 20% reduction in military retirement benefits. This is how such things are done. It is the way lame-duck Presidents leave office doing the nasty things nobody will admit who has to stand for election. So those on their way out do the dirty work. This is just the beginning.

Obama could not get Congress to pass the takeover of private pensions. So what he did was to revise the regulations to allow states to take over private pensions. California may be one of the first states to do this. As the Pension Crisis looms, we will see your worst nightmare become reality. They will MOST LIKELY begin with corporate pensions. Actually seizing private pensions will probably be left for the lame-duck Congress in 2018. Keep in mind that Hillary would support the seizure of private funds to throw in the pool with public pensions to buy more time before it all comes crashing down.

Sep 8 2016

Can Illinois go Bankrupt or just Default?


Armstrong Economics Blog

Re-Posted Sep 8, 2016 by Martin Armstrong

Bankruptcy

There is a problem that Illinois faces. There is no actual right for a state to go bankrupt. That does not mean that no state has simply defaulted and never paid. A state hasn’t defaulted since Arkansas in 1933 during the Great Depression. However, that was also not the first state to simply not pay. The Sovereign Debt Crisis of the 1840 was just such a situation.

1833MissBond

In 1841 and 1842, eight states and the Territory of Florida all defaulted on their sovereign debts. Traditional histories of the default crisis have stressed the causal role of the depression that began with the Panic of 1837, unexpected revenue shortfalls from canal and bank investments as a result of the depression, and an unwillingness of states to raise tax rates. However, these  stylized facts do not fit the experience of states at all very well.

The majority of state debts in default in 1842 were contracted after the Panic of 1837; and most states did not expect canal investments to return substantial revenues by 1841 and did not experience unexpected shortfalls in those revenues. Finally, most states were willing to raise tax rates substantially and did. The relationship between land sales and land values explains much of the timing of state borrowing and the default experience of western and southern states.

Pennsylvania and Maryland defaulted because they postponed the imposition of a state property until it was too late. The United States was the emerging market for Europe and these defaults ruined its credit for decades to come. The Bank of England still has some State debts that were never made good. The Panic of 1837, which had been caused by an over-expansion of banks, caused farmers, planters and merchants to lose their enterprises. This led to a economic contraction that further reduced bank deposits causing bank failures as the depression then settled into the states from which it sprang. States issued bonds to try to bail out the banks and many states ended in default. They did not declare bankruptcy, but instead, simply refused to honor their outstanding bond issues.

When states behave badly, their borrowing costs rise. The United States was the emerging market and interest rates rose in the aftermath of the state defaults. In fact, the historical high in United States call money rates took place in 1899 reaching almost 200%.

Currently, interest rates for the financially troubled state of Illinois are now three times as high as that of California. So interest rates rise as the risk of default mounts. But the Illinois crisis is something new. Its constitution forbid diminishing state employee pensions. So the public pensions are sucking in all the available money resulting in taxes rising, property values falling, and public services being cannibalized to pay pension.

Sep 7 2016

When they say ‘hoarding’ instead of ‘saving’ you know you’re in trouble


Keynes likened Saving to Hoarding and the only way to have full employment was with zero savings. Of course that meant to investment and the economy with transition itself into a primitive state with no capital. Keynes theory is bogus but the politicians love it as it gives then license to steal all the money.

Sep 7 2016

The Fed Feedback Loop


And now it can only end very very badly!

Sep 6 2016

The Infamous Labor Day Event in Markets


Armstrong Economics Blog

Re-Posted Sep 6, 2016 by Martin Armstrong

Labor-Day 1929

Of course, the 1929 high took place on September 3rd, the day everyone came back on Tuesday following the summer holidays. It has been a long-standing joke that after spending time with the family, they come back and just sell everything without reason.

Labor-Day 1987

The 1987 high was on August 25th just before Labor Day. In both instances, the panic low was October.

DJFOR-W 7-16-2016

The array picked the high for the week of August 15th and we have Directional Changes that were appearing the weeks of September 12th and 19th.

DJFOR-W 9-1-2016

As we move forward in time, the movement of recent trading being to alter some aspects of the array, but the primary targets tend to remain the same. They will differ mostly in intensity. The week of 09/05 was a turning point in the first array being the end of a trend with the lowest bar on the top plot calculated in July. A month later, we see the project for the week of 09/05 start to rise to the strangest target in September.

I have explained before that the plotting in this array is proportional to the hits within this slice of time. Therefore, back in July looking 12 weeks forward, the week of 08/15 was the biggest target. Then as we get closes and the weeks thereafter come into play, the size of the bars will change even if the same number of hits are present should there be another bar coming into this window with more hits.

This is suggesting that we should pay attention this week.

Sep 4 2016

John Maynard Keynes’ “General Theory” Eighty Years Later


After Keynes’ work was published the politicians knew they has a winner for Keynes add the Government to the calculations to determine GDP. That and tell them politicians that savings was bad as you needed to spend every penny if you wanted full employment. Well that was it a license to spend and spend and a theory that claimed it was OK. So what if now we know better, well some of us do, it doesn’t mater the politicians knows that no one is smart enough to realize its a Ponzi scheme and we are at the end where the chickens come home to roost!

Sep 3 2016

No Matter What Century, It’s Always Politics


Armstrong Economics Blog

Re-Posted Sep 3, 2016 by Martin Armstrong

July-August

If you look at the calendar, the months that have 31 days are January, March, May, July, August, October, and December. The only two months with 31 days back-to-back are July and August. Why? July was named for Julius Caesar. Augustus, meaning “father of the nation,” died on August 19, 14 AD, and was probably poisoned by his wife. So they named August after him before his death. But of course, August had 30 days and that would be slighting Augustus relative to Julius who had 31 days. So the solution was obvious. They took the extra day from February which was only named for a feast day known as the Februarius or Februa, the feast of purification, and renamed the month with 31 days equal to July.

January was named for the god Janus and March was named for Mars. You certainly didn’t want to make them angry. May was named Maius taken from the Greek Maia, or the goddess of spring. June could not be touched since that was named after the goddess Juno, the queen of the gods. July’s original name was quintilis or the fifth month in the early Roman calendar, so renaming that for Julius Caesar did not offend anyone. August was originally named sextilis or the sixth month in the early Roman calendar. September was the seventh month in the early Roman calendar and October was the eighth. November was named the ninth month and December (decimal) the tenth month.

Therefore, February was an easy month to take days from since it was named after a feast and nobody had to offend the gods

Sep 2 2016

Apple May Send Cash Back to USA Thanks to EU Commission


Armstrong Economics Blog

Re-Posted Sep 2, 2016 by Martin Armstrong

applesilver

Running for ExitTim Cook, the head of Apple, said that the company may send billions of dollars back to the US next year in 2017 in response to the EU Commission retroactively changing tax deals. Apple struck a deal with Ireland and agreed to locate there for taxes. Now the EU Commission is saying individual member states may not undercut anyone else on taxes to gain jobs for their own population. Apple entered into the agreement and paid the taxes to Ireland. Now the EU Commission says Apple must pay almost $15 billion more in taxes because Ireland undercut other members. Bureaucrats do not understand human nature and assume that people must obey and cannot see that this may destroy their own economy. The EU Commission cannot see reality. What they have done with Apple is set in motion a race to now exit Europe.

running_with_moneyCook made the comments in an interview with Irish media expressing the blunt fact that Apple may now simply repatriate cash back to the USA. He did not specifically say how much cash Apple might take home from foreign countries. Nevertheless, Cook’s comments are a direct response to the arbitrary position of the European Commission demanding Apple needs to pay Ireland $14.5 billion in additional tax penalties because the deal was less that they would have charged. Cook has publicly stated that this EU demand was “total political crap.”

Back during the S&L Crisis, we had clients who wanted to buy the failed S&Ls. I warned them that they should not get involved for they were dancing with the devil. Two clients did not listen. They bought the S&Ls they believed were cheap. Then as the crisis kept getting worse, the government changed the capitalization requirements. These two clients suffer complete losses because by then changing the capitalization AFTER they bough the entities, they themselves were then declared insolvent and the government retook the S&L based upon retroactively changing the requirements.

Big GovernmentYou cannot win. Once government has their foot in the door, game is over. You are dealing with people who generally hate your guts because to them, everyone in the private sector are rich and corrupt. They are jealous that those in the private sector have everything and they have to work for government.

Think back to high schools. Recall the bullies who stole people lunch money and enjoyed pushing others around. Look them up today. Chances are they work for government.

In Philadelphia, they spent a tone of money to create the convention center. We booked it for our conference. It was owned by the city. They could not even run that like a business, The demands kept getting worse by the day. They said I had to buy terrorist insurance covering the convention center, the city of Philadelphia, and the State of Pennsylvania. When I called my agent he thought it was joke. Then the film crew coming from Germany was told they could not film because they had to use only local unions. Add to this insanity, anyone coming to the WEC by car and wanted to park in their garage had to prove they had car insurance. It became impossible. No garage demands you prove you have car insurance to park.

Only people working for government can make up such crazy nonsense. We called the Marriott and they were free. With 2 weeks to go we had to move the conference. The Marriott asked, was it the terrorist insurance? You cannot deal with government. It simply is beyond all reason. The EU will send foreign companies packing and they will blame the greed of corporations rather than their own stupidity of retroactively change tax deals without notice.

Aug 31 2016

It’s Time to Turn Out the Lights in Illinois


Armstrong Economics Blog

Re-Posted Aug 31, 2016 by Martin Armstrong

Illinois Road Tax

The roads in Illinois are in decay. This may be the first state to go bankrupt. The question is not if, but when. State unions are so greedy that they are destroying the very state. This is exactly how Rome fell — government employees against the people.

Seven states have constitutional provisions that state employee pensions must come BEFORE everything, including debt payments. Since the legislature in New Jersey was Democrat, they fought Governor Christie on pension reform. Their solution? On the ballot in November, there will be a provision to amend the state Constitution to put employee pensions before everything else. The people are generally kept ignorant of what that means to property taxes and the future of the state. Therefore, the average person will say, “Sure, I should get my pension, so they should also.”

Turn out Lights

Illinois should declare bankruptcy. It is simply inevitable. There is absolutely no hope for Illinois whatsoever. Every year they will have to pay more and more. If the state who manages the pension money loses, well, the taxpayers have to cover those losses as well. The governor tried to stop the downgrade of expectations for earnings in the pension fund from 7.5% to 7%, which means they have to raise taxes and/or cut service by almost a half-billion.

It’s time to just turnout the lights in Illinois. Welcome to the Sovereign Debt Crisis. This is the contagion you will finally start to hear about, but only after the elections. Why spoil the party?