Louvre Accord v Plaza Accord


QUESTION: I notice you often cite the *Plaza Accord* when on the topic of central bank currency manipulation. That accord was signed in 1985 with an aim to devalue the USD. Could you write a little on the *Louvre Accord” signed just two years later, in 1987, with an aim to reverse the unwanted effects of the *Plaza Accord*. Thanks – cheers,

TGM

ANSWER: The Louvre Accord was an agreement, signed on February 22, 1987 in Paris, that aimed to stabilize the international currency markets and halt the continued decline of the US Dollar caused by the Plaza Accord. The agreement was signed by France, West Germany, Japan, Canada, the United States and the United Kingdom. Italy declined to sign the agreement.

The G7 meeting of central bankers and finance ministers in Paris announced that the dollar was now “consistent with economic fundamentals.” The announced that they would only intervene when required to ensure foreign exchange stability. The objective was then to manage the floating currency system. Democrats gained control of Congress in 1986 and immediately called for protectionist measures. The dollar depreciation agreed to in 1985 at the Plaza Accord, failed to really improve the trade perspective. In 1986, the trade deficit actually rose to approximately $166 billion with exports at about $370 billion and imports at about $520 billion. The object of manipulating currency to try to create jobs and alter trade flows proved to be completely false.

My concerns warning that volatility would increase made back in 1985 were materializing. What they did not understand was the lowering the dollar in value also led to a shift in capital flows and the selling of US assets. Foreigners were suffering loses by financing U.S. trade through purchasing United States Treasury bonds in an attempt to ease the trade deficit criticism. We were advising Japanese to buy gold on the New York COMEX, export it, and then resell which would also make it appear that the US exports were increasing. However, the lower dollar was then resulting in the importation of inflation into their own nations.

We can see that first of all the dollar had already begun a decline prior to the Plaza Accord in August 1985. By the time we arrived at the  Louvre Accord, you can also see that the dollar continued to decline. The attempt to manipulate the foreign exchange markets proved to beyond the capacity of the G5 which had been expanded to G7 and today is now G20. We can see the capital flow data between the USA and Japan began to move in early 1984 establishing the trend that nobody seemed to pay attention to at that moment.

The price action of the dollar clearly proves that the central banks lacked the power to truly influence the markets. The trend had begun prior to the Plaza Accord and it continued to decline following the Louvre Accord.

Understanding Cycles


Cycle targets that we provide are TURNING POINTS. This means an event normally takes place at that time be it a high or low. If ideally something should produce a low but does not and produces a high, it is typically extending the cycle to the next TURNING POINT. It looks at this time that the next important turning point is the week at the start of Sept. There is of course the Fed meeting. But then there is trouble among debt ridden nations and then there is Iran.

Keep in mind that for some strange reason, geopolitical events tend to also happen in the Aug/Sept time frame. Besides war, there was even 911. On 28 June 1914, Archduke Franz Ferdinand of Austria was assassinated. World War I began officially 28 July 1914 and lasted until 11 November 1918. It was August when things really got underway. World War II began when Germany attacked Poland on September 1, 1939. Most stock market crash events take place after highs in early Sept such as 9/3/1929. Even the 1987 Crash 10/19/1987.What it is about this time of the year who knows. Where December is the time to be jolly, Sept is the time for chaos. Never look for a particular event high/low. It is a TURNING POINT that sometimes can invert and produce the opposite largely because everything is connected. It is always an action/reaction.

Cycle of Knowledge


QUESTION: Hello,

I am a French Astrophysicist and I end up watching with great interest a TV story about Martin Armstrong. As a scientist I am really curious and keen to build new connection between our way of describing the Universe and the bias introduced by our own vision and history. Hence I was wondering if the algorithm that Martin has developed was ever tested on human knowledge discovery or if this is something that could be interesting to do.

Kind Regards,

IA

ANSWER: Absolutely. There is cycle to knowledge that I have also encountered and found fascinating. We reach period of knowledge and then we seem to lose it all and reboot. Society before the Dark Age knew the Earth was round and not flat.  For example, if we look at the ancient Greeks, the knew the Earth was round and not flat. They burned people like Giordano Bruno (1548–1600) alive at the stake for claiming the world was round and it revolved around the sun instead of the other way around. The Greek philosopher Aristotle (384-322 BC) argued in his writings that the Earth was spherical, because of the circular shadow it cast on the Moon, during a lunar eclipse. Another reason was that some stars visible from Egypt are not seen further north. Aristotle wrote:

The evidence of the senses further corroborates this. How else would eclipses of the moon show segments shaped as we see them? As it is, the shapes which the moon itself each month shows are of every kind — straight, gibbous, and concave — but in eclipses the outline is always curved: and, since it is the interposition of the earth that makes the eclipse, the form of this line will be caused by the form of the earth’s surface, which is therefore spherical.

Again, our observations of the stars make it evident, not only that the earth is circular, but that it is a circle of no great size. For quite a small change of position to south or north causes a manifest alteration of the horizon. There is much change, I mean, in the stars which are overhead, and the stars seen are different, as one moves northward or southward. Indeed there are some stars seen in Egypt and in the neighborhood of Cyprus which are not seen in the northerly regions; and stars, which in the north are never beyond range of observation, in those regions rise and set.

All of which goes to show not only that the earth is circular in shape, but also that it is a sphere of no great size: for otherwise the effect of so slight a change of place would not be so quickly apparent. Hence one should not be too sure of the incredibility of the view of those who conceive that there is continuity between the parts about the pillars of Hercules and the parts about India, and that in this way the ocean is one.

(Aristotle, “On the Heavens,” Book II, Chapter 14, The Works of Aristotle, Oxford University Press; pp. 297-298.)

Aristotle, on the other hand, disagreed with the Atomic theory developed by Democritus (460—370 BC) in 465BC. He believed that instead of being matter being made of tiny particles (atoms) that they were all fundamentally air, fire, water, and earth. The Atomic theory was actually first proposed by Leucippus (c 5th cent. BC), and was then adopted by Democritus. The Atomic theory stated that “The universe is composed of two elements: the atoms and the void in which they exist and move.” According to Democritus atoms were miniscule quantities of matter, which he believed could not be destroyed, differ in size, shape and temperature. They were also in constant movement yet could not be seen with the naked eye. He believed that there are an infinite number of atoms.

Then there was the Alexandrian philosopher Eratosthenes (c. 276BC–195/194BC) who actually estimated how large the Earth was. Eratosthenes learned that on midsummer day (June 21) in the town of Syene in southern Egypt, the noontime Sun was reflected in a deep well for it was directly overhead on that one day. Eratosthenes in Alexandria which was about 5000 stadia north of Syene. In Alexandria the Sun on the corresponding date did not quite reach zenith (perfectly overhead), and vertical objects would cast a short shadow. Hence, Eratosthenes calculated that the direction of the noon Sun differed from the zenith by an angle that was 1/50 of the circle, that is, 7. 2 degrees. With this realization, ,Eratosthenes estimated the circumference of the Earth to be 250,000 stadia.

 I have stated before that after Rome fell, the financial capitol of the world moved to Constantinople in Turkey. After the Byzantine Empire fell, that financial capitol moved to India. It was because of the importance of India that Columbus set sail on a mission to India based upon a wrong calculation of the size of the earth. Columbus relied upon the calculations of the earth from Ptolemy. Ptolemy influenced Strabo who in turn reduced the 250,000 Stadia of Eratosthenes to 180,000, and then stated that half of that distance came to just 70,000 stadia, making India reachable by sailing West. So India has played a very important role for Europe bumped into the Americas by trying to sail to India.

This is only one example of how there has been a cycle to knowledge. It is by no means linear. Knowledge is built from experience. Thus, we have to go through the business cycle to advance. This was in part included in Schumpter’s explanation of the business cycle that there are waves of innovation. He did not see what I see studying history that there is also a peak and then a decline to the level of knowledge as well and it is not linear as Schumpter imagined from a small data set.

New Zealand & the Hunt for Taxes


QUESTION:  Hi Martin,

Firstly I appreciate your insight into world events. I don’t see anyone else coming even close to what you do.

In New Zealand we are facing an election and taxation is a big topic. Labour on the left has appointed a new, young, female leader who has wide appeal. She is hedging on Labour’s taxation policy but it’s known they favour capital gains taxes – business, property, inheritance, you name it. I saw an article that Illinois is experiencing massive flight of wealth due to taxes. Will people run out of options for places to go or is the world in general headed towards mass taxation?

Thanks for your time.

PJ

ANSWER: Yes,  Jacinda Ardern is a desperate attempt to raise Marxism to its former glory. The Labour Party fell to below 30% in the polls so they put a young girl up front to gain votes. It is also true that Illinois is a complete disaster. I wrote about how they should just dissolve the state because they cannot even go bankrupt on their government pensions. It is true that every five minutes someone leaves Illinois. The most recent poll revealed that 47% of people in Illinois wanted to leave the state. Property values will collapse in Illinois because there is a mass exodus and no buyers unless they are oblivious to what is taking place. This is how Rome fell from a population of 1 million to 15,000. People just walked away from their property.

Marxism has destroyed the world economy and caused the deaths of countless millions of people all for a theory that has never worked. We are facing the darkest hours in this collapse of socialism. Make no mistake, there are plenty of people who have been brainwashed to believe it is the rich causing this rather than the greed of politicians. It is the government pensions in Illinois that has destroyed the State. They prefer to say the rich do not pay their fair share but government always needs more and more. So that “share” never ends until it reaches 100%.

This will come to a head most likely in violence and it is highly likely it will erupt in civil unrest and even war over the course of the next few years. Unfortunately, this is the Crash & Burn. It is just not sustainable. Economic growth declines and the standard of living for everyone collapses. It is just how we give birth to the next era.

Can Our Model Forecast Private Companies & Industries?


 

QUESTION: Hello. I am a business consultant working for a global consulting company and have a client that is in the transportation sector that would benefit from your research. I have been advising the client with regard to their business and IT strategy, however would also like to introduce them to Armstrong and possibly subscribe to your services.

A few questions first:
1) Are your models customizable to facilitate forecasting of domestic fuels consumption?
2) If yes, what is required to initiate a discussion around this type of service?
3) Would it be possible to speak to a person regarding your standard services and any custom modeling?
Kind Regards,
KR

ANSWER: Yes. We are re-instituting on the Institutional Level the ability to input even the sales of any company and the model will then provide the full forecast with timing and price projections. Therefore, it can be tailored to any company and industry.

Where has the Outflows from the US$ Gone for the Past Year?


QUESTION: Re: Am i certain about the Strong Dollar?

Hi Marty, great blog posts and response. I think after reading this blog posts, the question on everyone’s mind is, what is causing the outflow of capital from the USD? And where is capital concentrating in right now? Is it the Euro? The Bunds? Gold?
And when do you see the outflow will stop and reverse?
Thank you
Regards
Rm
ANSWER: There has been outflows to Emerging Market debt by pension funds in the States for the past year. They have been trying to compensate for the lower interest rate returns by going more risky. We have been call on this issue more than once.
Then there has been the expectation that the ECB will end QE and Europe will boom. We can see that the DAX for the past year has risen in dollar terms. We have seen a tremendous outflow into the European share markets, but not so much into the debt issues.
Gold has been minimal because that is the retail side, not a target for institutional money. They need income, not storage fees. They will participate in gold stocks, but not stockpile bullion.

The 5 Factors Behind Capital Flows


QUESTION: Hi Martin,

Well from myself and your family we thank you for sticking with us in this time as you have mentioned you could be doing other thing for yourself but like a brother you are sticking with us even when you know we will rise and repeat most likely, but in the same but different we hold hope for humanity. My question is can we get a large movement in confidence in currency without any major move in the physical instrument. Can the US dollar not have a hard drop before going back up on the basis that the confidence was effected more than the instrument it does not look like a linear relationship but more ying and yang where the ratio can be anywhere at any time but together are complete.Thanks Brother
Peace Out
LP

ANSWER: The driving forces behind capital flows center upon CONFIDENCE that manifests within five critical areas. Each area provides one major component which in turn has subdivisions. The 1987 Crash in the stock market took place because the G5 kept saying they wanted the dollar down by 40% to help trade. The morons failed to realize that if you lower the dollar by 40% to make you exports cheap to sell more, you simultaneously cheapen all assets. The Japanese had bought 33% of the US National Debt to try to easy trade friction, but then faced with a 40% loss on currency, they sold. This inexperience of those in government is just beyound contemplation. What the Plaza Accord was doing was trying to lower the value of the dollar to reduce the cost of American labour in international terms. This was the lethal combination of FOREX and LABOUR manipulation.
  1. FOREX
  2. LABOUR
  3. INFLATION
  4. SECURITY
  5. TAXATION

INFLATION is actually the major component of interest rates. The future value of money must incorporate a profit over the inflation rate in order to make a loan feasible. TAXATION is critical for capital will move like water to the place that is most advantageous for a real rate of return. You cannot tax investment at 90% and expect people to take a risk.

SECURITY is both economic (rule of law) as well as war. For example, capital fled to the USA from around the world during World War I and II. Therefore, economic justification does not always come into play when SECURITY issues rise to the top. The dollar is also the reserve currency because capital is not yet comfortable parking in Russian or Chinese debt and they are in US debt.

Canadian Perspective


QUESTION: Hello Marty. I so appreciate your blog and Socrates, which is helping me steer through these crazy markets. I’m a Canadian taking care of all my family’s investment accounts, and knowing what’s coming down the road, I’m very concerned I’m going to take a misstep, especially with my children’s accounts. I haven’t been doing this long enough to have experienced a monetary crisis anywhere. What I can’t get my head wrapped around is what to do longer term from the Canadian perspective. We all have both USD and CAD funds in our accounts. I plan to increase the USD portion while the CAD is down. I’m also buying US investments in CAD (unhedged) to catch the rise in currency. But when the USD peaks and the crash and burn begins, my assumption is Canada has a boom in metals commodities while oil crashes due to lack of demand and we also go into recession due to lack of exports to the US and so lower employment. So what is a Canadian’s smart move when the USD peaks……cash out our USD investments and turn back to CAD and invest in commodities, etc. or would I be better off staying in the USD and buying inverse etfs and commodity stocks/etf’s that aren’t available on the TSX? Just trying to get a handle on what ultimately happens to Canada in all this. Thanks so much for any insight you may have on this topic.

ANSWER: We are in the staging process right now and that means we must push everything to the limit. In the case of the C$, that major point remains well above the market at 8840 level. It will require a monthly closing above that level to reverse the trend creating a bull market for the C$.
In order to create these big moves, we absolutely must push everything in a counter-trend move to its extreme in order to trap everyone and that provides the fuel for the next great wave. Everyone gets so convinced about any trend with just a brief rally like euro, pound, C$, gold or oil.  This is how markets suck people in to lose money. Trends are defined not by a single market, but by a group of markets that all are interlaced and confirm one another. This is the entire purpose of allowing access to our Global Market Watch so you can visually see the global trend unfolding together.
We are approaching the point-of-no-return when people wake up and begin to lose confidence in government. Until that happens, we remains treading water. The Dow has not broken out until the Phase transition begins. This is also why the metals rally but fail to really make impressive new gains

More Strange Gold Reasoning


QUESTION #1: Marty,

___ ________ makes the argument that if “the government” raised the price of gold to $5000/oz it would start and inflation that would wipe away the debt.

 

Don’t they have to ensure convertibility as well? He kind of skips over that. And isn’t that pegging the dollar to gold, and no peg holds? At that price the dollar would become incredibly cheap, and world demand for it would soar to arbitrage trade into goods, I would think.

 

Anyway, how does his proposal compare to the 1934 and 1971 devaluations.

 

Cheers,

EM

ANSWER:  This proposal is insane and it would not work anyhow. In 1934, it was the link of gold to the dollar that CAUSE deflation. When Roosevelt devalued the dollar, then inflation took place. If you suddenly fixed gold at $5,000, so what? He would be doing the opposite by creating deflation and then the national debt would become payable in gold.

The 1971 closing of the gold window by Nixon cut the link to gold ending Bretton Woods and then inflation unfolded. This is why Europe is in trouble for they keep trying to create a strong Euro which means assets decline and that produces deflation.

I just do not get the reasoning of these people. They clearly have no real world experience. They want to forecast markets without ever leaving their bedroom.

QUESTION #2: I have been bullish on gold until recently. It seems that to cheer gold we have to cheer the end of the world. If that is our fate for us all, then gold won’t matter. As you said, a $1,000 in gold in 1980 is worth $1350 today less storage fees. A $1,000 in the Dow back then is $22,000 plus all the dividends. Do you really think gold will ever go up? With North Korea fading out, what reason do we even have for gold? Deflation dominates the world and taxes keep going higher and higher so there is less disposable income. It does seem gold is on its deathbed. Any comment?

ANSWER: All of that is true. We have to wait for the next cycle. Tax reform is absolutely critical to the future. The next cycle things will chang

The Confusion in Gold


QUESTION #1: [_____] says that the dollar will collapse because with the debt ceiling gone – no more buyers of Treasuries in the markets and only the Fed Reserve buying – inflation goes to the wazoo. All over USA. care to comment?

ANSWER: Total nonsense. The USA debt of $20 trillion is a tiny fraction of global debt at $160 trillion. This entire theory does not hold up. Just where is all the money going to run? Gold? Institutions do not buy gold and cannot function with gold, which is not legal tender for even paying your taxes. The only thing that matters is the general public confidence. When the average person on the street no longer trusts government, that is the tipping point.

There is a whole series of people given a choice between a bar of chocolate and a bar of silver. They take the chocolate. Kids line up in Starbucks and pay with their phone – not even cash. Not until you shake the confidence of these people will you see the explosion in markets. That is what took place in the late 1970s. I was there. OPEC created the image of wholesale inflation. People were hoarding toilet paper.

QUESTION #2: What will Fed Balance Sheet Shrinkage do to Gold?

ANSWER: The opposite of what people think. Shrinking the Balance Sheet will be anti-inflationary to the standard reasoning and thus gold should collapse with deflation. However, the Fed has turned away from QE because pension funds are at serious risk. They have run off to emerging markets and bought very long-term paper desperately trying to get their yields up. As the stock market rises because there is no alternative, the Fed politically will be forced to raise rates. They will end up creating inflation with rising rates that will blow interest expenditure through the roof.

QUESTION #3: Since we bounced off the reversal again, obviously this still does not negate a break of $1k and then the slingshot up. But it just seems as if gold is on its deathbed. If nuclear war could not get it to exceed last year’s high, is there anything left in this bag of fundamentals we have been hearing about forever?

ANSWER: I understand. This is what the Reversal System is good at. We stopped within a dime of that number. What will be will be. We are running out of fundamentals to keep buying gold. It’s like the fake news about the storm in Florida that a 15 foot wall of water would destroy the coast. It never came and many people are really angry at the media. How many times can they do this before people no longer listen. Gold is a confidence game – plain and simple. This number is just incredibly important far more than most people dare to consider. I will be doing the gold report soon. It is very critical at this point.

GCNYNF-GMW 9-16-2017

COMMENT: Marty, thank you so much for the past several years of WEC. You have taught me to keep my head in times like this. I bought the gold on the GMW and then sold it against the reversal with a stop just above as you did with the yen in 1998. I had two friends who were buying at the high expecting gold to breakout when I was selling. It was two against one. The majority must be wrong.

Thanks!

See you in Orlando.

ANSWER: The number of long positions verse net shorts in gold reached about 5:1 and you saw what happened – it simply bounced off of the reversal and did not exceed last year’s high. I am always amazed at how people get so bullish and say I am wrong and then within 2 days they lose their shirt. As they say, you can lead a horse to water, but you cannot make him drink. Some people judge the next 10 years by a few days of price movement. That is how the market separates traders from fools