Myths v Reality – Milton Friedman

Universal Basic Income

The idea of some Universal Basic Income has been around for a long time. Here is Milton Friedman on his proposal of a Negative Income Tax. There will always be welfare for there are people who cannot work for some disability and others who prefer not to work and game the system. Even programs where the state directly pays for the food rather than food stamps or restricts the food stamps to certain products, the ingenuity of some people cannot be underestimated. They will sell the products they get for cash. There are signs on the streets buying needles and strips from people who are diabetic and get them for free from the state. There are instances where a woman has a child and tells the state she has no idea who the father is yet a night he shows up and leaves when a case worker is due to arrive. These are abuses of the system that no matter what we try to do, there will be people who figure out how to work the system. So there will NEVER be 100% compliance no matter what system we devise.

Manipulating the World Economy will be also available in Russian, German, and Chinese

We are looking at having it Translated into several languages. We hope this English version will be available by October in hardbound. I really hope this will help change the debate for what lies at stake is the future for us, but more so our posterity.


манипулируя мировой экономикой


Manipulation der Weltwirtschaft



Manipulating the World Economy

A lot of questions have been pouring in from how much to will there be a kindle version. I am not sure of the cost yet. That depends on the printer. It will be full color and extensively illustrated. It covers everything you wanted to know about what is going on with the central banks. There will be a documentary film next year on this subject matter.

The price will be for general circulation worldwide. As soon as it is available, we will let everyone know.

Is the Fed the Only Means of Creating Money?

QUESTION: I am confused. Is it true that only the Federal Reserve can create money and not the Treasury?


ANSWER: It all depends upon your definition of money. If you are asking about paper currency, then the answer is yes. If you are speaking of “elastic money,” which really is just book-entries, then that is also truly confined to the Federal Reserve. If you are including in your definition of money all government borrowings, then that is the prerogative of the Treasury. Now, if you are talking about leveraged book-entries where a bank is lending out money so two accounts will show an entry for the same money or close to it, then that is private banking lending. The definition is fluid. It depends greatly upon what you are calling money.

Will Basel-III Changing Gold’s Status as a Reserve Asset for Banks Change the Future?


The Bank of International Settlements under Basel-III changed the status of gold as a reserve asset effectively on April 1, 2019. Gold used to be viewed by the banks as a risky asset and classified under “Tier-3”, which meant it was considered risky and could only be carried on the books at 50% of the market value for reserve purposes.  Naturally, gold has historically been classified as a Tier 3 asset because its value fluctuated. To the extent that the value was reduced for reserve status by 50% ensured that there was little incentive for banks to retain gold as a reserve asset regardless of their beliefs.

Since the BIS reclassified gold as a “Tier-1” asset, its value is now no longer reduced but is reflected as 100%. Now people assume banks will run out and buy gold. The problem is that it is not a fixed price on the balance sheet but it is regarded only as a 100% of market value.  While some claim that this makes Gold a “riskless” asset in the eyes of world banking authorities, they fail to note it is market value. Cash does not fluctuate $1 is still $1 regardless of what it buys.

Banks are NOT in a mad rush to buy gold and shift their reserve asses when they cannot employ gold in the banking business. True, there was once upon a time when banks cherish gold reserves but that was when gold was fixed on a standard. It will by no means increase confidence in any bank or the system as a whole. Gold remains illiquid insofar as a reserve asset is concerned.

While there is no incentive for banks to load up on gold even if it is a Tier-I asset from a banking and economic standpoint since we are not on a gold standard and its value will fluctuate unlike cash reserves, There is another reason why a small portion would make sense to retain in gold outside of the United States especially in Europe. The reserve status that is Tier-I in Europe would be bonds of all member states of the EU. There is obviously a risk in that respect.

These standards, collectively called Basel III, compare a bank’s assets with its capital to determine if the bank could stand the test of a crisis. Capital is required by banks to absorb unexpected losses that arise during the normal course of the bank’s operations. The Basel III framework tightens the capital requirements by limiting the type of capital that a bank may include in its different capital tiers and structures.

Because not all assets have the same risk, the assets of a bank are weighted based on the credit risk and market risk that each asset presents. For example, take a government bond may be characterized as a “no-risk asset” and given a zero percent risk weighting. On the other hand, a subprime mortgage may be classified as a high-risk asset and weighted 65%. So Basel III considering government debt as “no-risk” is a little foolish when we look into the years ahead.

Gold will offer a neutral bank with respect to government debt holdings, but it will still not provide a stable base of an asset since it will fluctuate rather than the immediate currency base. Gold will offer a hedge against sovereign debt among European banks more so than America.

Interest Rate & Currency Pegs


I went over three blogs this morning (both public and private); they are The FED Between a Rock & a Hard Place, Manipulating interest rates & Public vs Private Interest Rates. A common theme of the FED possibly pegging interest rates and inflation. My question is: If the FED is induced to peg rates at artificially low levels and the traditional method of combating inflation is raising rates, something must give, so are metals and commodities getting ready for “prime time?”


ANSWER: Behind the curtain the system of pegging rates, as I have stated, is viewed substantially differently than QE. The rates on the U.S. debt will be pegged, but not the Fed funds rates. They will be able to raise rates to the marketplace, but the bonds will be “pegged” like the Swiss attempted to “peg” the franc/euro.

This is a hybrid interest rate system that would eventually collapse as all pegs do. But it will allow, initially, for a bifurcation of rates.

They REALLY REALLY REALLY REALLY REALLY do not want me to talk about this publicly.

This is feeding into what we see coming for the next wave. They realize QE has failed. They cannot allow rates to rise as it would blow out the budgets.

This is not a long-term solution. The interest rate peg collapsed in 1951 due to Korean War inflation

Public v Private Interest Rates & Sovereign Debt Crisis

QUESTION: Dear Martin I have a question for the blog. There has been forecasts for a sovereign debt crisis but recently you have discussed how various governments may manipulate govt bond interest rates down as has happened in Europe and Japan. If Europe and Japan are anything to go by then this could go on for some time. If govts are successful in this, does this mean that there may not be a sovereign debt crisis?

ANSWER: The Sovereign Debt Crisis involves crossing the line where the private sector no longer trusts government debt. We have begun to cross that lines in Europe and Japan where the central banks are buying the debt in bulk. There have even been German auctions of bonds where there was no big.

Yes, the central banks can artificially keep government interest rates low, but that is only possible when they are the buyers.

We are experiencing already interest rates rising in the peripheral governments where their central banks do not engage in QE – namely emerging markets. We will witness private rates rise for that is a free market. However, from the government side of the table, the Sovereign Debt Crisis among the developed countries engaging in QE has unfolded as NO BID. They can artificially keep rates low ONLY because the central banks buy the debt – nobody in the private sector would buy 10 years paper at 1% to 3% when they need 8% to break even in pension funds.

Also, pay attention to the state/provincial debt where they do not have the ability to buy their own nonsense. The manipulation of rates will be at the federal level, not in the state/provincial and municipal levels of government.

So, pay attention to the bifurcation in rates that is unfolding between PUBIC v PRIVATE.


The Fed is Between a Rock & a Hard Place

QUESTION: Dear Mr Armstrong,
Not sure if I am understanding it correctly. Is the FED currently between a rock and a hard place? The FED is not able to cut rates (implement QE) due to the current pending/ongoing crisis of the US pensions, and they cannot raise interest rates as it’s going to cause more USD liquidity stress. However, rates are still going to rise as they have lost control of the interest rates. May I know is it possible for them to change the rules and allow pension funds to invest in the equity markets like how the Japanese are doing it so that they can achieve the higher returns for the pensions as well as hoping to keep interest rates as low as possible? Then this will be part of the energy (funds) pushing US equity markets to all-time highs?

Appreciate the daily education.

Warmest Regards,

ANSWER: The Fed realizes that QE has been a complete failure. What they are looking at is the 1942-1951 period when the Treasury ordered the Fed to create a peg and support the bond market at benchmark rates of interest thereby installing caps. This is slightly different than QE which buys in debt on a wholesale basis. The Fed may try the peg and this will result in a bifurcation of interest rates where private sector rates will rise and public rates will become fixed even on the 2 to 10-year paper. I believe they will come under pressure to try to prevent the national debts from exploding, which will introduce yet another crisis of inflation. By trying to peg the rates, when the market smells a rat, they will end up in a position of having to monetize the entire debt. We have some very interesting times ahead.

Gold & The Hedge Against Government

QUESTION: Hi Martin,

You have mentioned repeatedly that gold is a hedge against political uncertainty. For the past several years the price has hovered at the cost of production and exploration is virtually non-existent as capital has dried up.

Nevertheless, the world is a political mess as far as the eye can see. So, it seems odd that gold is not bid more aggressively.



ANSWER: The only time gold has rallied significantly is when the CONFIDENCE in government declines. That was the case during the post-1976 era for people saw inflation as running away. That was because of OPEC creating STAGFLATION meaning it was cost-push inflation that eventually converted to demand-push inflation by mid-1979. I understand that all of these gold-bug analysts have been preaching hyperinflation for decades. The whole Quantitative Easing (QE) was supposed to create $10,000 gold years ago. Here, after 10 years of QE, gold remains trapped in a consolidation.

Gold will be the hedge against political uncertainty and government ONLY when the people reach that critical point of losing faith in government. We are at the 35% level where people believe the government is the number one problem. When that crosses the 45% mark, things will start to become different. This has nothing to do with the quantity of money. Most millennials use their phones to buy things or credit cards – not cash. The idea of gold as a store of value has faded between generations. The worst thing you could do is judge the world by what you believe. Everyone will act only on their own reasoning and belief system.