Back in 2011, the government Mario Montis instituted a pension reform deciding the Fonero right. Italy has to impose this reform to reduce its debt to comply with the Maschrict Treaty. The Social Affairs Minister Elsa Fonero, increased in the retirement age completely abolishing early retirement and eliminated indexing pensions to inflation above a threshold income level. These overall stricter pension conditions have been leading sources of the political discontent with government in Italy that led to the political outcome this year. 

Now the newly elected government ran on a platform promising pension reform which is the general expectation in Italy. The five-star movement and the Lega Nord had both advocated for an increase in pensions and a reduction in the age of entry. Of course, to reinstitute that will cost almost 100 billion euros from the outset. The continued cost will probably wipe out Italy entirely. There has been a strong undercurrent of communism there for decades. They will rise up again and demand to go after the rich and this will ensure the economic collapse. There is little hope without reforming the monetary system. The economic pressure will also lead many to move to separate from the EU when that clashes with their domestic social agenda.

We will see the same tactics applied worldwide. Pensions will no longer be indexed to inflation as one means of escaping political liability. The will continue to raise the age and reduce the benefits especially healthcare.

QUESTION: Mr. Armstrong; Do you advise the IMF or are they just taking your warnings and mimicking them? They are now telling everyone in Europe, not the United States, to create a crisis fund. Every Euro country should deposit 0.35% of its GDP there every year into this disaster fund. I find it curious that you are so in the minority as a dollar bull. You warn about what is taking place behind the curtain in Europe. Here we even have the IMF advising to create a crisis fund for only Europe. It certainly seems they either listen to your advice or are following it silently not revealing their source. It has to be you.

MU

ANSWER: I do not advise the IMF. Yes, I have met with some members of the board yes. Nonetheless, I do not advise the IMF. Even if I did I would not be allowed to reveal that under our confidentiality agreements. Nevertheless, there is hardly a government body that is not aware of our model, its track record, and our forecasts among the leading economies of the world.  If I was advising the IMF, they should have begun such a program 20 years ago. This is too little, too late right now. Yes, the IMF is warning Europe, not the USA. That is where the crisis will begin and those who do know will not come out and say so because they are afraid of being blamed for instigating it when it happens

QUESTION: Mr. Armstrong; It appears that now the Bundesbank has adopted your view of rising interest rates. How fast do you see rates rising?

PY

ANSWER: Yes, the Bundesbank President Jens Weidmann has come out and warned that banks should start to make provisions for interest rate risks associated with rising interest rates. The normalization of the interest rates is essential and as always, it is now too little too late. The economic environment is changing much more rapidly than most suspect. It is true that the German banks have increased their equity significantly since the financial crisis. While the central banks are warning that rates are rising, they misjudge the fact that banks are by no means as resilient as they were before the 2007-2009 crisis.

German 10-year rates will start to rise rapidly following a monthly closing above 0.79%. The next stop will be 2% and thereafter, we will see a test of the 4% level. Once we exceed the 2007 high of 4.67%, we will see a rapid rise to the 5.6% area and an annual closing above that will warn of a test of the 8.5%-11% zone and that can be easily by 2020.

QUESTION: The Fed says it will raise rates two or three times more this year. My question is this: If the stock market is crashing, why are they still raising rates?

HW

ANSWER: The Fed is raising rates because they must be NORMALIZED given the pension crisis. They are trying to get then back up and if they could, they would jack them up to 8%. If you can imagine, a pension fund under normal conditions needs 8% annual. Even CalPERS came in at 7% and they were insolvent. Rates are rising because of the pension crisis, not because the economy is really heating up or the stock market is booming. The technical resistance stands at the Downtrend Line at the 3% level. Rates will double to reach that area faster than people suspect.

We have a Directional Change due in May and look at the August/September period where we also have a Panic Cycle. Things are not going to be as smooth-sailing as many believe. We have a very RARE Double Monthly Bullish Reversal at 2.25%. A monthly closing above that level and 5% will be seen in a matter of months.

That has been the proposition that antiquities were being looted to fund terrorists. There really has been no direct evidence of any such terrorist market in antiquities. A long-awaited report by the World Customs Organisation (WCO) (WCO itr-2016-en)  has finally emerged which focuses on the trafficking of cultural property for the first time. The claims have proven to be completely unsubstantiated that trafficking of cultural property comes third after trafficking of drugs and weapons raising big money and it is a source to fund terrorism.

There have been videos circulating around claiming that ISIL has been engaged in archaeological digs that are carried out professionally. These reports circulated around back in 2015 and got everyone up in arms. There has been no evidence to surface that demonstrates the allegations have any validity. When these videos were even taken and exactly where has not been proven. The allegations assert they are on the border in Syria. They could be anywhere.

The WCO figures show the following quantities seized for each category in 2016 and the number of seizures:

• Drugs: 1 million kilos of cannabis, 180,773 kilos of cocaine, 99,000 kilos of khat, approx. 200,000 kilos of opiates, psychotropic, and other substances. Total c.1.5 million kilos. A number of seizures: 45,000.
• Weapons & Ammunition: number of pieces seized 2.5 million. Number of seizures: 4500.
• Cultural property: 8343 objects seized, of which antiquities were 6,600 (about 70% coins) Number of seizures: 146 (of which antiquities – mostly coins, seals, and jewels – were only 70).

In other words, the number of seizures clear demonstrates that drugs accounted for 90.6% of seizures. Weapons and ammunition accounted for 9.1%, while the cultural property was only 0.3% (of which antiquities accounted for 0.14%).

As the WCO report also clearly illustrates that trafficking in cigarettes to avoid taxes was 4768 seizures with a value of 3.5 billion. Counterfeit goods accounted for 35,000 seizures with a value of $200 million, and exotic animals and plant parts came in at 2,225 seizures with 750,000 items. The entire theory that terrorists were funding their operations by looting antiquities has been proven to be non-existent.

QUESTION: Dear Mr. Armstrong: Many times you were warning about CalPERS. What is your scope on 401k via employers, RothIRA, Simple IRA, and SEP that investing in at Vanguard or Fidelity? Should we continue to contribute? Will these types of retirement plans be in peril as CalPERS ? Can our government get involved in these plans? Thank you very much for your expertise and service.

Best Regards

TN

ANSWER: Actually, the way a liquidator would view the task would be – if the funds were deployed into an asset (Vanguard or similar fund) then it is the “clients/accounts money” and not the institution! Therefore, the investment would hold better regulatory standing than if the funds were deployed rather than simply sitting in cash held by CALPER’s!

Additionally, a major fund such as Vanguard or Fidelity would defend their business in court if a state dared to try to seize it. The likelihood of that type of action being successful is somewhere BELOW -1%. The only was a Vanguard or Fidelity would be at risk is should the FEDERAL government go after it – not a state. Again, the likelihood of that is not very high and I would put that at a 15% chance. That would be the type of action taken by a Democrat under the pretense that they are going after the evil rich. But keep in mind, Democrats boast but behind the curtain, they are loading the trunks of their cars with as much loot as they too can carry off. That type of action would be in a major economic crisis that would threaten their political standing.

The bottom-line is that a private fund is FAR SAFER than a state-run fund. CalPERS is partly in trouble because the politician told it to invest in ENVIRONMENTALLY friendly ventures. So the “political” agenda overruled the economic purpose of actually making money.

Politicians should NEVER control investment decisions – N E V E R ! ! ! ! ! ! ! ! ! ! !

The Latvian Financial Supervisory Authority is concerned announcing a resolution plan for the crisis bank ABLV that is threatening a contagion risk of further closures of financial institutions in the country with a predominantly foreign customer base. There is a serious risk of a contagion unfolding that will also force consolidation and mergers in the industry as a whole. The financial system of the Baltic country has seen a run with customers withdrawing about 500 million euros in deposits in recent weeks. There are about ten banks in Latvia who have been serving primarily foreign customers. Concerns and a decline in confidence unfolding in Europe as a whole over the banking system as a whole may force a change in the business model of Latvian banks where they must return to a reliance upon domestic deposits rather than foreign.

Latvia’s third largest financial institution, ABLV, is about to collapse after being accused by the US of being involved in money laundering by customers from neighboring Russia and Ukraine. The bank denied the allegations but simply making those allegations by New York prosecutors can have a devastating impact upon foreign banks. A run on the bank began after the allegations were made public. The European Central Bank (ECB) came to the conclusion that the bank was facing collapse. The European Agency for the Settlement of Marged Banks (SRB) classified the bank as non-systemically important and left it to its fate. In Latvia, loans are provided mainly by Scandinavian banks located in Sweden. Many Latvian banks have specialized in financing themselves mainly through deposits of foreigners rather than domestic Latvian citizens. The crisis brewing stems from the fact that about 40% of Latvian bank deposits come from abroad. Allegations of money laundering by the US authorities have been sending foreign depositors into a state of panic.

The risk that this presents is self-evident from the Banking Crisis of 1931. The failure of Credit Anstalt, which was partly owned by the Rothschilds, sent a wave of panic throughout the entire banking system. Once the rumor was that the Rothschilds had failed, all banks began to get hit. This resulted in the Sovereign Default of 1931.

We can see here looking at the foreign bonds that were listed on the New York Stock Exchange and how they just defaulted going to zero. Therefore, the question is not whether the Latvian banks are essential to the country, a collapse can still have a profound contagion impact simply because people are losing confidence in the banking system as a whole.

There is no such thing as letting these banks go because they are “not essential” with respect to Latvia.

We are dealing with a matter of PUBLIC CONFIDENCE that is just not something that is very solid right now.

The man who is killing the Euro as a viable currency is none other than Donald Franciszek Tusk who is a Polish politician who has been the President of the European Council since 2014. He is the living example why politicians MUST be prohibited from making any decisions whatsoever regarding economics and finance. These people have ZERO qualifications in the field yet rise to the top of politics and then assume positions based entirely upon politics – not economics.

The crisis that is pending for the Euro is all about political control. The desire of British banks to achieve free access to the European Single Market even after Brexit and this was rejected by the EU. Council President Tusk spoke out against maintaining the British-European financial center in London after Brexit. He fails to comprehend that NEITHER the French nor the Germans possess the infrastructure no less the expertise to maintain global markets in the Euro.

Tusk claims that Britain is trying to be like Norway which has free access but pays dues as a member of the EU for free access. On the other hand, Tusk characterizes British desires and trying to blend the Canadian position, which only has a free trade agreement, with full access like Norway but pays no dues like Canada. Meanwhile, France is taking the position that they want to fill the shoes of the London financial markets who have never been able to create deep markets.

This hardline position against the financial markets of Britain remaining as the core trading center for the Euro is extremely dangerous. The Euro holds a minimal position among the reserves of central banks. The exact composition of the foreign-exchange reserves of China is a state secret. Nevertheless, based upon reliable sources, about two-thirds of Chinese foreign-exchange reserves are held in U.S. Dollars. The rest is composed of Japanese Yen, British pounds with less than 15% residing in Euros.

Brussels is far more interested in punishing Britain than in securing a strong and viable market for the Euro. With respect to a banking center, the primary competitors running second and third are Switzerland and Luxembourg. Never the less, France and Luxembourg are seeking to gain from blocking Britain as they seek to strengthen their positions against Britain. Luxembourg has the EU President Jean-Claude Juncker in their corner, who traditionally has a good relationship with the banks in his home country of Luxembourg. Ironically, while Germany is the largest economy within the Eurozone, by contrast, it relies heavily on trade in goods and financing rather than banking. We have a conflict of interests here where Germany actually need the free market in London for trade deals whereas France and Luxembourg are more interested in capturing business from Britain.

Meanwhile, Brussels needs control so they can maintain the outlawing of shorting government bonds and make no mistake about it, they will prohibit shorting the Euro when it goes against them as well. The danger of politics making the decision over such an issue is that any free market in the Euro will suffer. This is becoming a high stakes financial poker game. Even the President of the Swiss bank UBS, Axel Weber, has come out warning against a withdrawal of the euro clearing from London. “We have to be very careful that we do not shoot any own goals on the subject of Brexit.”

If the EU blocks Britain from euro clearing, this will be the end of the Euro. Politics will present far too great a risk for the Euro to survive going forward.