We have to come to the reality that from 2019 onward, we are headed into a Pension Crisis that will be serious. Many are starting to yell about the debt crisis. They lump on private debt and yell its a bubble. What they miss entirely is the fact that we face more than a decade of crises that would have been avoidable, had governments been actually managers and central bank had not tried to keep using Keynesian Demand Side Economics that even Paul Volcker warned back in 1978 had failed.

This is by no means prophecies of doom and gloom. Unfortunately, they are prophecies not even of a pessimist, but only facts that are comprehensible simply using a pocket calculator and not even a computer. The Pension Crisis is the end of Socialism. Promises that were made which were never sustainable but were a scheme to win votes. Then the money needed to pay the pension required 8% interest annually. Then the central banks enter the game and mess everything up even more. Instead of DIRECTLY aiding the economy, they lower rates and HOPE that the banks will pass it along. They never did. The banks parked the money at the Excess Reserve Window that the Fed has still not closed.

The cost of pensions is currently stifling Western society beyond belief. Europe itself is ahead of the curve and will crack before the United States. Europe already has between  30% to 40% of the population who have already retired or are about to leave the labor market. They have used the old Roman pension system of the army which was earning an average of 20 years service to qualify for a pension. It was the pensions which contributed to the Decline and Fall of the Roman Empire.

We have to realize that government state pensions are the real crisis. Like California, their solution is always to raise taxes to pay for government pensions. The amount of social insurance contributions and taxes is determined by the cost of providing retirement benefits. The Fed is trying to raise rates, but they fear raising them back to 8% too fast will disrupt the economy. The pressure is building on the ECB in Europe behind the curtain to stop this nonsense of Quantitative Easing that has failed to start with and is now the cause of a massive Pension Crisis for the next 10 years. This condition of a shortfall cannot change immediately and raising taxes to try to solve the problem will only lead to further economic decline.

QUESTION: Hello Martin

I wish all the best for you. The work you make every day to rise up our understanding about the world is amazing and make me feel a huge respect. it is very inspiring. I’m a small customer of your private blog. I don’t know if you answer that kind of request.

I want and I need to understand WHY the dxy was in bull market between march 2000 and feb 2002, from 102 to 113.

you are unbelievable when times come to understand economic history. I can’t find any explanation about this period
M2 supply decreased softly the twin deficit stood around 2% with no hope of getting better and it reversed after 2002 to 8% !!!

Interest rates were declining stock indexes were very bear from the tech turnmoil

Gold was bottoming from 420 to 380 with a reverse pattern during summer 2001. the dxy rise more than 3% after the bottom of gold in 1 year !
how could this DXY get up 10% higher in 2 years ??? what is the secret of history I miss ???? I believe there is something to learn with that period !
kind regards

CD

ANSWER: While the Euro began really in 1999, the physical notes did not come into circulation until 2000. The euro hit its all-time high shortly after its launch at the start of 1999 at that point in history which marked the euphoria of the talking heads on TV and how the Euro would crush the dollar. As always, they talked everyone into buying the high. As we say, buy the rumor and sell the news. That is an INCREDIBLY good market rule.

But The Euro began to slide thereafter, falling to a record low of 82.3 US cents in October 2000. However, both the euro and sterling then recovered at the lows when rumors began that an intervention by the European Central Bank and the Bank of Japan was imminent. In late afternoon trading that day, one euro bought 82.74 and one pound was worth $1.4329. They also spread rumors that Iraq would soon start to price its oil exports in euro and abandon the dollar.

The entire rally has absolutely NOTHING to do with the economic numbers in the United States. The capital inflows to the USA began over FEARS of the Euro. One major central bank was leaking inside info to us to get it out because we were NOT mainstream press and the info was going DIRECTLY to the real institutional money. They were deeply against the Euro because of the faulty design. It was a political creation that nobody in their right mind would have created such a currency under this structure. So the capital fled Europe and this was one of the reasons why the DOT.COM bubble was so big. It was aided by foreign capital fleeing Europe, to begin with.

The economic numbers are nice. But they are NEVER the entire story. Capital can flee one region because of events there and they may be going to a place that is not up to par, but still, it is the best alternative. Capital Flow Analysis which we developed is by far the only way to grasp the full extent of the economy.

QUESTION: Mr. Armstrong; You do not give much credence to the world returning to a gold standard. Didn’t the entire world use the gold standard before?

Thank you for your input

JK

ANSWER: The entire world has NEVER been on the gold standard simultaneously. Asia was on a silver standard while the West was on a gold standard. Above is the first coin struck in Hong Kong in 1866 which was the Hong Kong Dollar. The West struck Trade Dollars during the 19th century to pay for goods from Asia and they were silver – never gold. Here is an example of both the British and American trade dollars used in payments particularly with China.

It is just not practical that we have a monetary system that is based upon a commodity. The true value of money is the productive-capability of its people. China, Germany, Japan, all rose from economic depression WITHOUT gold. They did it with the productive capacity of the people. The produce whatever and sell it to someone else and then get gold or whatever in return. This theory that you have nothing without gold is just stupid. It would mean that no nation could ever rise no matter how good their people are because they lack a natural source of gold.

The collapse of the Turkish lira is a reflection of the collapse in confidence in the government. The same has taken place in Venezuela. China and Japan rose from the ashes, not because of their possession of commodities, but because they could bring their people to bear and produce various items efficiently and cost-effective. It was the people first that produced the economic recovery and then they bought even gold.

HYPERINFLATION has nothing to do with the quantity of money – that unfolds when the CONFIDENCE in the government collapses. You cross that line from normal inflation all nations experience into the realm of a collapse in the faith and trust of government. This is HOW revolutions even unfold. They have nothing to do with the quantity of money.

India’s financial markets are in the throes of this Emerging Market crisis. The Mumbai-based Infrastructure Leasing & Financial Services (IL&FS) is an over 30-year-old infrastructure lending giant that claims to have helped develop and finance projects worth $25 billion in Asia’s fastest-growing economy. The company recently defaulted on debt payments because it ran out of cash. This is illustrating what we have been warning about. As interest rates rise and the dollar, the first casualty will be the Emerging Markets (EM). Because interest rates were driven to absurdly low levels in Europe and the USA, those who need yield ran off to the EM field.

Central Banks cannot manage the economies anymore. We live in a porous global economy. The Fed buying back 30-years bonds to lower real estate loan yields was absurd. The false assumption was that only American owned such debt. But the dollar is the reserve currency. That meant that more than 40% of such debt resided outside the USA. Central Banks can no longer manipulate the economy using the demand side economic models. They drove capital rushing into the EM sector desperate for yield – especially state operated pension funds.

This is why we have a serious debt crisis on our hands. The greenback is STILL going to press higher against the rupee. Just look at the pattern. This is NOT an isolated high. We are looking at a significant rally still on the horizon for the dollar.