Tag Archives: BRICS

Apr 9 2019

Fear of Inflation & Sterilization


Armstrong Economics Blog/Economics

Re-Posted Apr 9, 2019 by Martin Armstrong

QUESTION: Mr. Armstrong; you were friends with Milton Friedman. Do you agree with his view that the Great Depression was caused in part by the Fed refusing to expand the money supply? Isn’t Quantitative Easing expanding the money supply yet it too has failed to create inflation. Would you comment on this paradox?

Thank you for your thoughtful insight.

P

ANSWER: Yes, this certainly appears to be a paradox. This results from the outdated theory of economics which completely fails to grasp the full scope of the economy and how it functions. This same mistake is leading many down the path of MMT (Modern Monetary Theory) which assumes we can just print without end and Quantitative Easing proves there will be no inflation. They are ignoring the clash between fiscal policy carried out by the government and monetary policy in the hand of the central banks. This is a major confrontation where central banks have expanded the money supply to “stimulate” inflation. Governments are obsessed with enforcing laws against tax evasion and it is destroying the world economy and creating massive deflation.

In 1920, Britain legislated a return to the gold standard at the prewar parity to take effect at the end of a five-year period. That took place in 1925. Britain based its decision in part on the assumption that gold flows to the United States would raise price levels in Britain and limit the domestic deflation needed to reestablish the pre-war parity. In fact, the United States sterilized gold inflows to prevent a rise in domestic prices. In the 1920s, the Federal Reserve held almost twice the amount of gold required to back its note issue. Britain then had to deflate to return to gold at the pre-war parity. Milton saw that the Fed failed to monetize the gold inflows, fearing it would lead to inflation. So what we had back then was the opposite roles. This predates income tax being applied to everyone so there was no hunt for taxes on the part of the government. The scale was tipped because the Fed was imposing deflation by sterilizing the gold inflows.

Conversely, following World War I, France had counted unrealistically on German reparations to balance its budget. When they did not materialize, it used inflation as a tax to finance expenditures. In 1926, France pulled back from the brink of hyperinflation. Unlike Britain, France’s inflation had put the old parity hopelessly out of reach. Consequently, France returned to gold but at a parity which undervalued the franc. Fearing inflation, France sterilized its gold inflows to prevent a rise in prices declining to monetize the gold.

Therefore, all the theories behind MMT are once again wrong for they are only looking at one side of the equation. Today, simply stashing money in a safe deposit box is illegal and considered to be money laundering. The government can justify itself in confiscating your assets even after you paid your taxes.

Therefore, in the ’30s, Milton’s criticism of the Fed was justified because there was no massive hunt for taxes from the fiscal side. Today, we have the fiscal policies hunting capital resulting in a contraction economically (declining in investment) while you have QE just funding the government – not the private sector. It is a different set of circumstances today v 1930s.

 

Apr 7 2019

Erdogan Demands Recounts


Armstrong Economics Blog/Turkey

Re-Posted Apr 7, 2019 by Martin Armstrong

Turkish President Recep Tayyip Erdogan and his Justice and Development Party (AKP) have demanded recounts in 39 districts that they lost and have prevailed on eight. There has been great concern that Erdogan’s AKP will not accept defeat at the hand of any vote. Many fear there is an undercurrent of tyranny rising behind the curtain.

Categories: Turkey
Apr 5 2019

Most British Now Just Want to Leave with NO DEAL – Get out while they can the polls show


Armstrong Economics Blog/BRITAIN

Re-Posted Apr 5, 2019 by Martin Armstrong

Perhaps there is some new plague that only affect politicians on a global scale. It seem no matter what country we look at, it is simply going completely insane. Americans rarely understand Parliamentary politics in London for it is not unusual for Trump to meet with Chuck and Nancy in the White House. In British politics, there is no pretend bipartisanship where there are meetings between the parties. The structural difference in a Parliamentary system is that the ruling party controls everything and the opposition party might as well just go on holiday.

Here the mere fact that Prime Minister Theresa May is meeting with the head of the Labour Party is earth-shattering to say the least. It illustrates that May will not compromise for it is very clear that she will not yield to her own people and is attempting to force the EU demands down everyone’s throat.

The latest polls show that the majority of British have had enough. They just want to exit the EU without any deal whatsoever. There is absolutely NOTHING top gain from am EU deal. Britain will be the major loser and it will surrender its sovereignty in the process.

This is going to make for an extraordinary interesting WEC in Rome. Our model has been projecting political chaos but even this has scored I believe new record high in political incompetence. PM May was against BREXIT from the outset. She has refused to negotiate a fair deal for Britain and in the process she is dooming her own country.

Apr 4 2019

Trudeau Demands Compliance – Exiles Wilson-Raybould and Philpott From Political Party…


Re-Posted from The Conservative Tree house on April 3, 2019 by 

Political events in Canada are revealing new levels of leftist collectivism.  The fallout from the SNC-Lavalin bribery/corruption scandal continues to expose just how far the modern left will go in order to demand absolute compliance and protect their political interests.

[Backstory Here – and Here – and Here – and Here]

Yesterday Canadian Prime Minister Justin Trudeau banished former Ministers Jody Wilson-Raybould (statement here) and Jane Philpott (statement here) from the Liberal Caucus, for non-compliant behavior. Both women exposed how Trudeau demanded the Attorney General drop a criminal prosecution to serve his political interests.

Today Ms. Raybould and Ms. Philpott responded to the heavy handed tactics during a press conference.  The former Attorney General stated: “I knew something very dangerous and wrong was going to happen.”  Canada is FUBAR.

Jody Wilson-Raybould

✔@Puglaas

Reflecting on what PM has done, my thoughts are w/ my constituents in , my dedicated staff & volunteers, my family & friends & all Canadians who believed in a new way of doing politics. I will take the time to reflect & talk to my supporters about what happens next. (1/2)

12.3K

Twitter Ads info and privacy
3,395 people are talking about this

Justin from Canada delivered remarks last night announcing the banishment of Ms. Wilson-Raybould and Ms. Philpott while informing the liberal caucus they now have an obligation to attack the exiled cabinet ministers as enemies. WATCH:

.

There are predictable parallels here…

Apr 4 2019

Basel III – IMF – Liquidity Crisis


Armstrong Economics Blog/Banking Crisis

Re-Posted Apr 4, 2019 by Martin Armstrong

QUESTION: As of today, Basel III comes in effect. Rumour goes that in a couple of months, there will be a lot of turmoil on the market and it would be the start of the implementation of an SDR like thing where people would lose 20-30% of their value and get stuck with this new currency. You have mentioned before this was in the pipeline but no timing was given. Is it really this close or is it for 2020-2022?

PT’S

ANSWER: The IMF has been pitching Washington to let their SDR become the new reserve currency. They claim this would eliminate the problem of the Fed having to worry about external influence v domestic. Let me say that this will NEVER eliminate the issues of international capital flows. The fixed exchange rate of Bretton Woods never prevented that problem and it was that very issue that brought it crashing down. Until we are ready to begin teaching the meaning of a floating exchange rate system and abandon Keynesian economics, I do not see this problem ever being eliminated.

Basel III is separate from the IMF and its purpose is capitalization of banks — not the reserve currency of a dollar v SDR. Basel III was agreed upon by the members of the Basel Committee on Banking Supervision in November 2010, and was scheduled to be introduced from 2013 until 2015. However, implementation was extended repeatedly to March 31, 2019, and then again until January 1, 2022. The Committee replaced the existing Basel II floor with a floor based on the revised Basel III standardized approaches. This revised output floor is to be phased in between January 1, 2022, and year-end 2026, thereby becoming fully effective on January 1, 2027, if the banking system can survive that long to begin with.

The Basel III leverage ratio framework and disclosure requirements (“the Basel III leverage ratio framework”) was supposed to be raised to protect banks from failures. Many were required to raise more capital. The Net Stable Funding Ratio (“Basel III NSFR standards”) was to be applied to participating banks. Moreover, the committee is monitoring the overall impact of Total Loss Absorbing Capacity (TLAC) and banks’ holdings of TLAC instruments. Capital requirements for market risk as well as the committee’s finalization of post-crisis reforms were all supposed to be back-tested. Additionally, profit and loss (P&L) accounts related to the revised internal models-based approach (IMA) for calculating minimum capital requirements for market risk more specifically.

All of that said, the crisis we have is a LIQUIDITY Crisis. This time it has been created especially by the European Central Bank (ECB). By keeping interest rates negative and punishing banks for having cash, they have (1) lent into real estate to get higher yields but this type of asset cannot be sold easily, (2) buying emerging market debt to get a high-yield like Turkey. Turkey was the favorite of Spanish Banks and the capital controls that Turkey did before the election sent shivers down the spine of institutional investors. The ECB has driven banks into these markets that are notoriously illiquid. This means that under Basel III, banks will not have the liquid assets to support their capitalization requirements. It becomes more likely that the Basel III requirements will be suspended or else there will be a wholesale collapse of the banking system.

Apr 3 2019

PM May to Join Left Against Her Own Party?


Armstrong Economics Blog/BRITAIN

Posted Apr 3, 2019 by Martin Armstrong

Anyone who wants to understand why the dollar is the only game in town, all they need do is look at the politics in Europe. It is just absurd. In Britain, Prime Minister Theresa May simply REFUSES to abandon her BREXIT plan no matter how many times Parliament votes against it. She survived a no-confidence vote last year so nobody can oust here until December and she refuses to resign. She has made a real disgrace of how Parliamentary politics operates.

PM May will now ask the EU for another extension to the BREXIT deadline of April 12th to “break the logjam” in Parliament. She is now turning to meet with Labour leader Jeremy Corbyn, who is the closest thing to a communist in the West, to join with the extreme left in hopes of saving her plan.  May has insisted that her withdrawal agreement would remain part of the deal.

In all my years of politics, I have never seen such absolute stubbornness on the part of any world leader to the point that she will alienate her own party. There is no question that this will outrage Tory Brexiteers. Boris Johnson has come out beside himself saying that now Labour will decide the fate of Britain.

Under the terms of hard borders and remaining in the customs union, Britain under May has rejected the democratic process entirely. She is tieing the fate of Britain to that of the EU, which in an of itself is in dire straights. If we needed any explanation as to why the British pound will collapse in the future, all we need do is look at this dynamic-duo May-Corbyn for the answer.

If you need any explanation as to why the dollar continues to be the currency to which everyone is fleeing, you have it in spades. Putting the fate of Britain into the hand of Corbyn is like putting Alexandria Ocasio-Cortez (AOC) in the office of President

Apr 2 2019

Liquidity Crisis


Armstrong Economics Blog/Socrates

Re-Posted Apr 2, 2019 by Martin Armstrong

QUESTION: I have attended the last 2 conferences and you have said the “liquidity” in the stock market will become tighter coming into 2020 and that there will be less stocks available to buy. Does that have something to do with this inflow of capital from Europe as people become more aware? I read your article about the Emerging Market crisis with great interest and remembered what you said. Is there more information you can share with us on this topic?

CDH

ANSWER: Since Quantitative Easing has failed, capital was driven into non-traditional investments to simply try to earn income. There were institutions buying farmland just to lease it out to get 5% annual income. Others ran off into Emerging Markets. Spanish banks are heavily invested in Turkey. The problem is that this trend has caused a liquidity crisis insofar as capital has been invested in assets that are not liquid. Add to this corporate buybacks that are reducing the supply of stocks available.

All I can say is thank God for Socrates. There are so many global trends emerging that by themselves are confusing and would be impossible for a standard domestic analysts to forecast from a personal interpretation perspective. The combination of investment shifts into real estate, Emerging Markets, and corporate buybacks have created an interesting risk factor for liquidity during a financial panic.

 

Apr 1 2019

Turkey Elections


Armstrong Economics Blog/Turkey

Re-Posted Apr 1, 2019 by Martin Armstrong

Turkish President Recep Tayyip Erdogan and his Justice and Development Party (AKP) have won every vote since the party first came to power in 2002, but this time, the party had risked losing Ankara and faced a tough fight in Istanbul. Erdogan’s AKP appeared destined for defeat in the capital Ankara and faced a dead heat in Istanbul after Sunday’s local election delivered a blow to a party in power for a decade and a half. With 99% of the ballot boxes counted, the joint opposition candidate for Ankara mayor was winning with 50.89% of votes and the AKP on 47.06% at last count. Meanwhile, in Istanbul, Turkey’s largest city and economic capital, the race for mayor was deadlocked with the AKP candidate claiming victory with 48.70% of votes, but his opponent on 48.65% also claimed that he had won.

This is what we are showing in so many elections globally on the docket. We seem to be living in a world that is fed up with governments as is in general, and the disillusionment is growing. The global population appears to be almost evenly divided and this is posing a major problem. Erdogan suffered a severe setback on the weekend as his ruling AK Party was set to lose control of the capital Ankara for the first time in a local election and he appeared to concede defeat in the country’s largest city, Istanbul.

This trend is also associated with civil unrest and it appears that this disenchantment will manifest insofar as neither side will be willing to accept defeat. Indeed, we do live in interesting times. Even when Erdogan won the presidential election in 2018, he did so only by 52.5%. This is indicative of the problem we face. The public is nearly evenly divided no matter what country we look at.

Mar 30 2019

D’oh Canada – Jody Wilson-Raybould Has Tapes of Being Pressured to Take Legal Action Based on Politics….


Re-Posted from The Conservative Tree House on March 29, 2019 by 

Oh boy, if you’ve been following the Justin Trudeau scandal surrounding the SNC-Lavalin bribery and corruption case, well, things just got more interesting.  Former Justice Minister, Canadian Attorney General Jody Wilson-Raybould, has stated, repeatedly, she felt pressured by Justin Trudeau to interfere in a criminal prosecution to help a business based on politics.  [Backstory Here – and Here – and Here]

Obviously Ms. Wilson-Raybould knew Trudeau was putting her in a legally precarious position because she took the unprecedented step of recording a conversation with Trudeau’s aide, Michael Wernick, while he was applying the pressure.  LISTEN:

CANADA – […] The recording shows Trudeau aide Michael Wernick telling the Justice Minister Jody Wilson-Raybould that Trudeau “is determined, quite firm,” in finding a way to avoid a prosecution that could put 9,000 jobs at risk.

It also shows Wilson-Raybould, who was also attorney general, saying she regards the pressure as “inappropriate.”

[…] Wilson-Raybould was demoted from her role as attorney general and justice minister in January as part of a Cabinet shuffle by Trudeau. She has testified that she believes she lost the justice job because she did not give in to “sustained” pressure to instruct the director of public prosecutions to negotiate a remediation agreement with SNC-Lavalin.

Wilson-Raybould said in a written submission that she took the “extraordinary and otherwise inappropriate step” of secretly recording a phone call with the country’s top public servant in December because she feared the conversation would cross ethical lines and she wanted an exact account.

“This is something that I have never done before this phone call and have not done since,” she wrote. (read more)

Mar 29 2019

Are 95% of Bitcoin Trades Fake?


Armstrong Economics Blog/Cryptocurrency

Re-Posted Mar 29, 2019 by Martin Armstrong

 

QUESTION: Mr. Armstrong; I love the fact you always stand in the middle. Do you believe that 95% of Bitcoin Trading is fake?

Thank you

KL

ANSWER: I did not conduct that study. It does sound a bit high. However, manipulation has been a historical problem in the commodity world. As I stated before, the manipulations were common practice in commodities during the 1970s. It was brought to Wall Street when Phibro took over Solomon Brothers in the early 80s. By 1991, they were charged with manipulating the US government bond market. How did they do that? The very same way these allegations of fake Bitcoin trades are taking place. You put in bids to pretend the market is deep and so you buy ever increasing the price.

Do I personally believe there is fake trading in Bitcoin taking place off-exchange? Absolutely. Would I assume that 95% is fake? I would question that high of a number. I would have to review their criteria for classifying a trade as fake. I would probably place it at the 50%+ level but not 95%. That is just my opinion based upon historical levels of manipulations in commodities.

For example, I knew the Hunt brothers as clients in the early 1970s. Only a few months before the high, the world suddenly knew what they were up to. That info was spread by the dealers to get everyone in the retail market to rush in and buy silver with claims it was heading to $100. But the dealers, I believe, bribed the CFTC and the exchange into raising margins to be long on silver and making shorts required to put up a fraction of that margin requirement. The dealers shorted silver, the public lost, and they bankrupted the Hunts. They made so much money that they then began to buy Wall Street.