QUESTION: Dear Martin Armstrong

QUESTION: Marty, I have followed your Global Market Watch and it is really amazing. I notice on IPE gas it came up and warned it was about to breakout to the upside. You said this is purely a pattern recognition system. Are there patterns that precede events and this is what your model is picking up on?

ANSWER: In many fields there are these sudden Phase Transitions which are extreme events. I have explained that sailors always told of rogue waves that rise up from calm waters and sink ships. The rogue wave appears out of nowhere in the eternal sea of global economics just as it does the oceans of the world. They are caused by the synchronization of many trends suddenly coming together to produce a giant wave.

There is an instability inside a gas turbine that suddenly appears, or a sudden extinction of a previous ecosystems – mass extinctions of which there have been five so far with another one due probably at the end of the next 309.6 year cycle in the 2300-2400 time period.

These extreme Phase Transitions or extreme events occur without warning to the untrained eye. It’s often impossible to predict when such bursts of instability will strike in markets where there are a huge amount of variables from news to players from a human perspective. The GMW identifies key patterns that precede an extreme event. The framework is being applied to all markets and economies and allows us to see things through complexity that the human eye will never see.

We need to open the door to the future but that is only possible by understanding the past. Paul Volcker back in 1979 in his Rediscovery of the Business Cycle “Not much more than a decade ago, in what now seems a more innocent age, the ‘New Economics’ had become orthodoxy. Its basic tenet, repeated in similar words in speech after speech, in article after article, was described by one of its leaders as ‘the conviction that business cycles were not inevitable, that government policy could and should keep the economy close to a path of steady real growth at a constant target rate of unemployment. … But it was not until the events of 1974 and 1975, when a recession sprung on an unsuspecting world with an intensity unmatched in the post-World War II period, that the lessons of the ‘New Economics’ were seriously challenged.”

It gives me no please to point out all out problems. My objective is straight forward. If we understand what is unfolding and why, then we can apply the correct solutions rather than turn toward more government authoritarian control. Make no mistake about this, we are in a battle for our freedom. This era of “New Economics” was set in motion by Karl Marx who advocated that government could control the economy and thus create Utopia. While Russia embraced the Communism of Marx, the West adopted his position trying to be just a little bit pregnant. We rejected everything that Adam Smith discovered and the Invisible Hand, rushing into Socialism for it empowered government rather than the private sector and Laissez–faire.

Our crisis therefore originates with government. Of course we need government which provides a stable rule of law and is benevolent rather than authoritarian. This is a battle to the death of Marxism which in all its various flavors empowers government which seeks to turn people against one another in order to retain power. Because government just keeps growing consuming an ever larger portion of GDP, it has sharply reduced economic growth which is now colliding with the new age of technology reducing employment. Constantly arguing class warfare and pretending that they can raise the minimum wage as if this will somehow benefit society, only furthers the dangers we face ahead. The rising taxation upon labor creates the incentive to replace workers with robots. Even the government is trying to replace soldiers with robots. This is a trend that is on all sides. Russia has its robot soldiers, and the USA has been following suit. Using drones carrying machine guns is a dangerous development for they can be turned against the people in civil unrest. Those who think that would never happen need only look at Barcelona where the Madrid government just sent in 16,500 soldier to invade Catalonia  and stop any Independence Referendum.

Unfortunately, we are in a battle for our freedom and that of our posterity. Governments are broke. Everything is moving against them from every possible angle. They borrow with no intentional of paying anything off and are blind to the trend they have been caught up in. How can we make them see that this is not going to work nor will it end nicely?

We need to stop the borrowing, we need to drastically reduce the size of government and various departments should be PRIVATIZED because government is incapable of managing anything. At least then any pensions offered would actually be there for private companies cannot default and then refuse to prosecute themselves as does government. There is simply no checks and balance when prosecutions are a political decision and judges are political appointments. When paper money first began, it paid interest to entice the people to accept it. Then we adopted the idea put forth in this New Economics was that government could “stimulate” by borrowing and that would be less inflationary than printing. This became the Quantity of Money Theory, which has been proven to be complete wrong.

While Draghi has expanded the money supply for almost 10 years, deflation has prevailed.  This entire idea of borrowing would be less inflationary is just insane. We have reached at time 70% of the entire national debt was composed of accumulative interest expenditures. So the money never went to build roads, schools, or help the poor as politicians pretend. So we are only fooling ourselves. Taxes have risen as deficits expand because government thinks inflation is the danger. They have been systemically reducing the standard of living and job creation.

Until we are ready to review this theory of “New Economics” and deal with it, our future is doomed. If we cannot start a dialog, there is no hope. The press is bought and paid for and is no longer truly free to protect our rights. There is hope, but only if we start to push the right issues.

The German government is desperate for money and what they are doing now is just unbelievable. Germany is looking to order companies to prepay VAT tax before they even collect it.  Companies in Germany will now have to pay the VAT immediately to the government on any amount they have billed to a customer. This is very drastic. Normally, someone who pays a bill in installments would pay the VAT on that amount that they pay. Under this new scheme, the company must pay the full VAT tax before they get the money. Even a sports contract would require paying the VAT on the entire contract which may be for 5 years up-front.