I was given a lecture in Toronto to our institutional clients years ago and the central bank of Canada came with ten people. It was an interesting session because the audience began to ask me questions about what the central banks were looking at to make their decisions. I would answer and then the audience would immediately turn to see their response. It was a really fascinating session that turned me into this quasi-spokesperson for the central banks. I would respond and usually swat down these absurd theories one after another. The head of the Bank of Canada I knew well and the whole table was unbelievable poker-players. They never flinched nor did you get any read from any body language. When it was over, I went up to them and apologized saying I hoped I did not insult them in any way. They reply was astounding: “Marty, I only wish I could tell these fools we do not look at this stuff!”

People attribute the central banks will also sort of theories you would think they were the all-powerful demigods of finance. Decoding what a central bank says is very important. Yet I find all the commentary to be so off the mark it is laughable. The new word the Fed likes to use is its increasing reliance on “transitory” factors to explain the past six-year problem of being unable to reach the Fed’s 2% inflation target. They explain the failure with “transitory price changes” in some components such as health care and financial services. That was in their minutes from the May 1-2, 2018 meeting. When you look closely, price changes become “transitory” on the downside as well as “transitory” when they move on the upside. Indeed, they love to explain trends as “transitory” for that avoids any permanent trend forecast.

All of this is really just designed to be a distraction. It is the code word they love to explain the “IDK” factor (I don’t Know) because of the weakening business cycle. Step back and plot the growth rate using the Fed’s data since 1947. There was an economic boom between 1960 onward with the “feel good” election of JFK. That peaked in 1978 in nominal dollar terms because we moved to a floating exchange rate system in 1971. Then the dollar soared from 1980 when gold peaked into 1985 creating a massive wave of deflation. As two factors combined, the rise in the dollar and the rise in taxation under the Clintons/Obama, the growth rate has been progressively declining.

Trump sees the trend. His tariff policy is correct insofar as he is trying to address the decline in those areas. However, tariffs are one-sided. He looks at the loss of jobs yet ignores the rise in the standard of living by allowing the consumer to get the best price. If the workers in those areas cannot compete, then lower the taxes for the workers in those industries to enable competition. DO NOT force consumers to pay more for something to subsidize expensive labor. Nobody ever looks at that solution.

The Fed is clearly using code words like “normalize” interest rates BECAUSE they see the crisis brewing in pensions. They are BY NO MEANS raising interest rates because of inflation or expansion in the economy that risks a bubble. The Fed understands the crisis that has resulted from the manipulated low-interest rate policies. They cannot come out and explain the reason rates are rising because we have a pension crisis. So they have used the term “transitory” to explain both ups and downs and “normalize” to warn the marketplace it will continue to raise interest rates and pretend it is about some “transitory” factor you cannot nail down to a hardline explanation.

Deutsche Bank has now been classified as a problem bank by FDIC and has been included in a list of banks to be watched. This is the biggest bank in Europe. It cannot be merged within Germany with Commerce Bank for there is just not enough equity to overcome the derivative losses. The only other candidate is BNP, but that is a French bank. This is where the fairytale of Euroland ends. They wanted to create a single currency, but they were unwilling to actually merge the economies. This is why our sources in Italy argue they are now an occupied country. They are dictated to but and request for help is rejected. This is what the “remain” crowd argue for against BREXIT?

A merger of BNP with Deutsche Bank would mean Germany is subservient to France. That is not “politically” acceptable. The entire “BAIL-IN” scheme was NOT because the government wanted to hold banks “responsible” but because a bailout of banks in one country would be seen as a transfer of money from one country to another. This exposes why the Euro is in serious trouble. There is ONLY the idea of a single currency and then Brussels will dictate what everyone else must do, but Brussels refuses to take responsibility for the debt and banking system of all of Europe.

From the very beginning when the committee in charge of creating the Euro came to our WEC in London, I warned that (1) there would be no single interest rate, and (2) without a debt-consolidation, the Euro would NEVER compete with the dollar and ultimately fail. The success of the USA was primarily (1) a single language, and (2) Alexander Hamilton consolidated all the debts of the member states making it the national debt federally. ONLY federal debt is at reserve status. Whatever California does is on them. Their bankruptcy does not threaten the entire country or the status of the dollar. California is no different from Bangladesh who also can issue debt in dollars. This proves the issue is NOT a single currency. The issue is the STRUCTURE!

In the EU, because the debts were never consolidated, then the failure of one brings down the whole because each member state is RESERVE status. The 50 states and municipalities in the USA can issue whatever debt they want in dollars and their status economically is no different than Bangladesh, Brazil, of Beruit issuing its debt in dollars.

There is the EURO CRISIS as Brussels has tried to be half-pregnant. That is why the Euro is doomed! It is STRUCTURE one for all (sometimes to a point) but one can take down all

QUESTION: Mr. Armstrong; I listened to your interview with Greg Hunter on USA Watchdog. For the first time, I really understand that debt is money that pays interest. That is the real money supply which is leveraged. It is the interest that keeps expanding the debt and forcing taxes higher and higher until it can’t expand anymore. Is this the end game?

I only hope when this house of cards comes tumbling down, you will be there to help.

Please keep up your

PL

ANSWER: We will see interest expenditures exceed military next year in the USA. Only then will people perhaps begin to pay attention to what I have been saying. Can you imagine that the debt of all nations is about to explode with the slightest uptick in interest rates? We will be going over this issue at the WEC. Just look at Italy when rates soared from 0.3% to 2.5% in a single day. When I say interest rates can rise DRAMATICALLY, this is no joke. The Quantitative Easing in Europe and Japan have destroyed their bond markets. The central banks buy everything. The Bank of Japan bragged how they bought 97% of the new debt. Hello! That means there is no market!

People always ask me why I do what I do meeting with political governments around the world and I do not charge them a dime! The answer is simple. If I took money from them, then I would be beholding to them. Strangely enough, they call me because they know I will tell the truth. The research we put out is NOT for sale to the highest bidder to be manipulated to support some agenda like they do in everything else right down to Global Warming. Yes, there are governmental agencies that pay for Socrates. That is different from meeting with me personally.

I am called (1) because there is no conflict of interest and (2) our computer is tracking the entire world and its forecast cannot be manipulated. So do you want to call someone who you pay to fashion studies to support whatever political agenda you have today? Or do you really want to know when the shit will hit the fan?

Paper money used to pay interest during the civil war. Nothing has really changed. Debt is now just money that pays interest. We have returned full circle

I do not know how else to say this. Cryptocurrencies are an ASSET CLASS and they are something to TRADE. All this stupid nonsense that they will revise the world monetary system with no pain and governments will be brought to the knees without firing a shot, I really do not know who makes up this nonsense. They clearly do not look at history nor do they understand human nature. We WILL crash and I hope the BURN then becomes possible where we get reasonable reform without the totalitarianism that is so common.

Cryptocurrencies are a trading vehicle – that’s it! It will by no means produce sweeping reform without the crash and burn. New ideas are adopted ONLY after a crash and burn. They called Keynes a nutjob and his ideas would be inflationary because the prevailing view was austerity. ONLY after the Great Depression did they turn to Keynes – NOT before.

As for the smartass remark, I am “too old” to understand the new age, I have been a programmer my whole life and what we have developed is still far ahead of the current norm. The last time I heard that remark was when I was an adviser to Temple University. Merrill Lynch was trying to see the way to leverage your returns which ended blowing up Orange County California and resulted in lawsuits of over $2 billion from various sources back in 1994. The scheme was to buy 30-year bonds, short 10-year against them, and capture the difference. Then leverage $1 million into $10 million and the tiny spread would double the interest rate on the original capital. The Temple Board told them I had to approve it. The analysts/salesmen flew in, showed me the scheme, I rejected it and warned them that if interest rates rose, the trade would explode in their face. Their losses would be reversed leveraged. They went back to Chicago, reworked the numbers, flew back and said see it would be a break even. I laughed, told them they assumed they would be able to get out of a trade that went bad without volatility. That was a fool’s game. I explained that this was the trust fund for the university they wanted to speculate with. I would not approve it. They then told the board I was “too old” to understand the “new way” to make money.

So the last time I was “too old” to understand the “new way” to make money was when I was 45. Human nature is always the same. When they have to say I’m “too old”, it means they have no legitimate argument to put forth. Such transformations of this magnitude take decades. NOT a single one of the big IT companies are doing ANYTHING with cryptocurrencies. Just trade it and be happy. Why put out this nonsense how it will change the world in a matter of weeks or months why that is absurd. They rejected Keynes. It took the collapse of the world monetary system before that adopted Keynesianism. There is NO POSSIBLE WAY that cryptocurrencies will just change the world without a CRASH & BURN.

QUESTION: I am just a little guy who invests in mutual funds and a few stocks. Ever since I started reading your blog, I have felt a sense of comfort in knowing that eventually, everything will work out because all this has happened before. It is also nice not to feel like I am swinging blindly. Thank you for the peace of mind you have given me.
For a guy like me, is there a date that I should pull all my money out of the US stock market and invest in a mutual fund that is specific to China and the far east?

Or is it not that simple?

KB

ANSWER: Not yet. We have to first get through this readjustment through the Monetary Crisis Cycle. China will rise, but it is just not quite ready for prime time. Just stay away from bonds right now. Interest rates can soar faster than anyone can imagine. We see Italian rates rise from 0.3% to 2.5% in a single day. I have tried very hard to explain that sometimes it is the private sector in trouble, and at other times, the crisis is in government. You have the dollar soaring. So be mindful that the US stock market has not broken out in US dollars and the consolidation for the first half is not yet finished. Of course, if you are not US$ based, chances are you are now watching the US share market make new record highs.

COMMENT: I spoke this “pretend” analyst who use to be a goldbug and is now a cryptobug. Boy does he hate you. I really had to laugh for he said your computer is a fraud and your forecast on the euro was only correct because you organized it with central banks. I asked him who write more than 500 reports on every market around the world each and every day? He said you did with staff. I asked him, how many people would it take to do that? He had no answer.

I probably would have lost an equal amount in BitCoin buying it at the high based on his emails. Thank you for opening my eyes to see everything globally. It really has helped.

GHH

REPLY: I know. I use to get real hate mail from the goldbugs. Not it is the crypto people. Here is the S&P500 express in various currencies. You will note that the market is consolidating in US$ terms, but it is starting to breakout and make all time new highs in various currencies. This is what I mean that each and every one of us will act according to our own self-interest. That is Smith’s invisible hand.

I promised I would not leave anyone behind. Nevertheless, we do not do ANY advertising and prefer to keep the individual readership small. Our bread & butter is institutions. They, on the other hand, prefer no interviews with mainstream media and to shun advertising, It is a difficult road to following through the raindrops.

QUESTION: Mr. Armstrong; FX Street named you forecaster of the year for your Swiss franc euro peg forecast that also nobody else saw coming. I remember you were named here in Canada as Economist of the Decade for your calls during the 1980s with the 1987 crash and the crash in Japan. I by no means want to be on the opposite side of Socrates. My question is this. You have said that 2018 is just the beginning. This is all coming unglued very rapidly. Is this the Monetary Crisis Cycle and how the world will be torn apart is just a few years?

EM, Vancouver

ANSWER: Thanks for that magazine article. Can’t believe you saved it that long. Yes, when I say we can see a monetary reset as soon as 2021, this is no joke. There are critical points in a number of markets that I will reveal in Singapore. These are the lines in the sand. Once we cross them, there is no going back. This is a global systemic collapse. I cannot emphasize how serious this is going to be.

As long as you understand what is coming and we can draw that line very clearly without personal OPINION, then you will be just fine. Those who constantly believe in fairytales, well that will be a different story. I am not trying to sell you any investment be it land, gold, cryptocurrencies, or stocks. This is about INDEPENDENT research computer driven by just the facts – no agendas.

This is NOT some new age of KNOWLEDGE or Artificial Intelligence ruling the world. Those are complete nonsense. We have to crash and burn before we every reach some new age of reform.