Armstrong Economics Blog/The Hunt for Taxes
Re-Posted Jul 21, 2017 by Martin Armstrong
QUESTION: Mr. Armstrong; I suppose when you said that the marriage of Isabella and Ferdinand the the final stage of unifying Spain rather than the beginning. Correct?
ANSWER: Yes. The idea of a nation state began to emerge in Europe during the 10th century. This is reflected even in the coinage which to a large extent move from feudal to city state and then finally into nation states.
For example, the nation state concept was taking place in Scandinavia and in England before it really emerged in France and Spain. The first king in England to become dominant was Alfred the Great (871-899). Yet he was still really just the king of Wessex. In the early 10th century the Anglo-Saxon kingdoms, united by Æthelstan (927–939), but then England was conquered and became part of the North Sea Empire of Cnut the Great, a personal union between England, Denmark and Norway.
The Norman conquest of England in 1066 led to the transfer of the English capital city and chief royal residence from the Anglo-Saxon one at Winchester to Westminster, and the City of London was established as England’s largest and principal commercial centre. This was the beginning of England as a nation state.
During the 13th century, Aragon controlled Barcelona before there was a nation state. In the case of Spain, Ferdinand I was the first Castilian monarchs whose reign began in 1037. The list of separate regions and kingdoms of Spain were
Kings of the Visigoths
Kings of Asturias
Kings of Navarre
Kings of León
Kings of Galicia
Kings of Aragon
Kings of Castile
You must understand that we moved from Provinces under the Roman Empire, to feudalism, then city states, and then back to nation states. There is a cycle to everything.
The Second Circuit Federal Court of Appeals overturned the convictions of two former Rabobank traders in the LIBOR London interbank market manipulation scandal saying the men’s Fifth Amendment right against self-incrimination had been violated. Former Rabobank traders Anthony Conti and Anthony Allen, was sentenced to a year and a day in prison by Judge Rakoff who said that he was “mystified” that prosecutors only went after institutions since punishing individuals has a deterrent effect on others in a profession.
Nevertheless, the three-judge panel of the Second Circuit U.S. Court of Appeals in New York dismissed the charges against the two former Rabobank traders who were convicted on conspiracy and wire-fraud charges in November 2015. In a unanimous 81-page ruling, the Second Circuit Judge Jose Cabranes wrote that the two men’s convictions were tainted because a witness against them had been aware of testimony authorities in the U.K. had forced them to provide.
Clearly, this was an excuse since what happens outside the USA is usually considered different since it is the law where the act takes place that determines its legality. Applying the 5th Amendment suddenly applied was not equal protection of the law so it obviously was necessary to protect the New York Bankers personally from any prosecution. The Court of Appeals wrote it was “not harmless beyond a reasonable doubt.”
The ruling is obviously to prevent prosecutions of bankers in New York on a personal level. Judge Rakoff’s observation that he was “mystified” that prosecutors only went after institutions rather than individuals has proven not to be a deterrent to unethical practices in New York, in which he hit the nail squarely on the head.
More than a dozen major banks allegedly rigged Libor to benefit themselves and have paid billions of dollars in fines and settlements. But these manipulations are not changing the trend, it is moving the market within a trend to clip people by electing stops. In this case, Rabobank agreed in 2013 to pay more than $1 billion in settlements to U.S., U.K. and Dutch authorities, including a $325 million settlement with the U.S. Justice Department. Individuals do not have these types of fines that the government can enrich itself. So the fines grow ever bigger and the individuals walk. If individuals are prosecuted, then the fines will decline and the banks can claim they were “rogue” traders to escape big fines.
The Second Circuit had to overturn these criminal prosecutions to maintain the policy of too-big-to-ja
Once the Euro closed above the Weekly Bullish Reversal last week, we have rallied strongly simply on comments from Draghi that a strong Euro is good. It is hard to contemplate his reasoning since this increases the debt burden of Southern Europe and reduces German export competitiveness. His comments that changing police will come September. So we have the 99% bullish sentiment acting still in anticipation.
We have exceed the 2016 high of of 11616 intraday reaching 116574. The Quarterly Bullish Reversal stands at 11694 and this is the key area to watch. Exceeding that allows the rally to reach the Downtrend. With this middle target on our objective reached, technically we have an outside reversal to the upside which has cleaned out the stops. This is setting the stage for the Monetary Crisis that begins in 2018. The higher we move in one direction, the worse it swings in the opposite.
We times timed the Frankfurt seminar with this move as well as our meetings with institutions over the next two weeks.
QUESTION: I read that the income tax violates the Fifth Amendment against self-incrimination. It seems logical on the surface, but nobody has gotten away with that that I have ever heard. Would you can to comment of how they got around this issue?
ANSWER: The way to get around such issues is to be a word smith and break it down to the absolute minutest detail. That is what the Supreme Court did back in United States v. Sullivan, 274 US 259 (1927). They essentially avoided the application by saying that there was no right against self-incrimination to simply write things on a form to thus avoid filing anything. They did not decided whether you could raise the 5th Amendment as to a specific item. Let’s say you are a drug dealer and your income is all illegal. To declare that you made money as a drug dealer would raise that issue. But it does not prevent you from filing a form in general.
“If the form of return provided called for answers that the defendant was privileged from making he could have raised the objection in the return, but could not on that account refuse to make any return at all. We are not called on to decide what, if anything, he might have withheld. Most of the items warranted no complaint. It would be an extreme if not an extravagant application of the Fifth Amendment to say that it authorized a man to refuse to state the amount of his income because it had been made in crime. But if the defendant desired to test that or any other point he should have tested it in the return so that it could be passed upon. He could not draw a conjurer’s circle around the whole matter by his own declaration that to write any word upon the government blank would bring him into danger of the law”
I personally disagree with the Supreme Court which has held it does not violate the Equal Protection Clause to charge disproportionate levels of taxation. In a recent case where some people were given tax amnesty and others paid the tax, the Supreme Court used another rule to escape the logic of a constitutional violation. They wrote in Armour v. Indianapolis (2012):
“This Court has long held that ‘a classification neither involving fundamental rights nor proceeding along suspect lines … cannot run afoul of the Equal Protection Clause if there is a rational relationship between the disparity of treatment and some legitimate governmental purpose.’”
Class warfare is the essence of socialism/communism. There is no other discrimination throughout history that has resulted in the slaughter of more lives than class warfare. It has been responsible for killing tens of millions of people far more than race or religious discrimination. To ignore this is ethically dishonest by the Supreme Court and is clearly a ruling in favor of government because it seeks to extort money from people in violation of equal justice for all
The key to the future is understanding (1) the past and (2) how everything functions. Sure there is a risk of a Dark Age after 2032. Hopefully, we can learn from the past to push things in the right direction at least for once. For whatever reason, the people who like to run government are the least qualified. They seem to be people who just like to order others around.
Since they have typically never had a job in the real world, they remain clueless about how to really deal with society no less the economy. This last crisis is the classic example. We have people in power who do not understand the past no less how things really function. As a result, someone comes up with this idea of lower interest rates to stimulate demand and NEVER even once do they review history and asked – Hey; did this every work before?
I find it truly amazing that I can even write about how lowering interest rates failed to stimulate the economy for almost 10 years in Europe, and yet people want to argue that somehow I am wrong. They never review the past and offer only opinion often taught in school as if that makes it absolute doctrine. Interest rates NATURALLY drop in a recession/depression because demand declines as people lose confidence in the future.
You cannot reverse a recession/depression by lowering interest rates. Until people BELIEVE they can make a profit in the future, they will never borrow as long as the horizon appears dark as dismal.
This solution from the 2007-2009 crisis of lowering interest rates has undermined the Pension funds. This has set the stage for the collapse in government as pensions being to fail first in the state/province level of government and municipalities.
I’m sorry. This is not Nobel Prize winning theories here. All you have to do is just open your eyes, shut your ears to propaganda, and look at the history. Just ask what happens and let the charts show you without political bias.
Throughout history, the solution to every crisis sets the stage for the next crisis. This is what happens when we have unqualified people running the joint.
The key to making money to secure your future is to shed all bias and just let the markets dictate the outcome.
A number of people have asked about Elon Musk’s reference to us already being cyborgs and the possibility of humans being transformed into house cats dominated by Artificial Intelligence. I have been involved in developing AI since the 1970s. In coding the Socrates systems, I have not found it to turn me into a house cat. To the contrary, I have learned much more about the world using the systems.
Back in the early 1980s, I appeared on FNN (Financial News Netwrok) which was a finance and business news TV network in California that operated throughout the USA until it was bought by and merged with CNBC in 1991. I appeared on air with Walter Bressert and the computer forecast was that the British pound would fall from $2.40 to $1 going into 1985 following the Economic Confidence Model at that time. That forecast was done by the computer although I did not explain the scope of Socrates back then because it was too far ahead of the curve. The computer also forecast that the British economy would divert from Europe and move counter-trend aligning itself more with the United States. That forecast it made back in 1981. I had to develop a natural language in order to speak with it because I thought that forecast was insane and wrong. When I coded the ability to inquire how it was making its decisions, that is when it began to teach me. It picked up the discovery of the North Sea Oil fields which began to change the UK from a net oil importer to self-sustainable. The Gullfaks oil field was discovered in 1978 with the Snorre Field in 1979, followed by the Oseberg oil field and Troll gas field which were also discovered in 1979. The capital flows had been altered and then it made sense.
The idea of interfacing humans with a neural net is possible, but this is clearly something that would need to be approached with caution. It is once thing to have a unit in the house like Amazon or Google where we can ask questions and something that taps into your brain. The danger there is who control the neural net. Government could then use the net to control people. I would never submit to something of that nature.
Artificial Intelligence cannot take over the world with its own evil mind. My fear would be that someone steps in to direct it to control various things or people for their benefit.
We are getting close to unleashing Socrates. The hold up has been in the delivery rather than in the analysis. We have had some problem with pushing the results up to the cloud, which we hope to solve. The Pro version wrote this as of Friday concerning the Dow Jones Industrial Index. Note that while we are making new highs, we are losing momentum and breaching the bottom of the Breakout Channel. The support has been rising sharply so caution is now warranted. Note also beware the week of 07/24.
ANALYSIS UPDATED AS OF THE CLOSE OF Fri. Jul. 14, 2017: This market has been making a new historical high this month on Fri. 14th at 2168153. Closing support on a weekly basis now lies at 2133300. A weekly closing below this level will signal a short-term correction is beginning. From a technical trading risk perspective, long positions should be exited if this level is broken on a weekly closing basis.
From the view of a position trading perspective, the market has exceeded the previous high made back in June at 2153503 reaching 2168153. So far we have a very dramatic event breaking last year’s low 1545056 and exceeding last year’s high of 1998763 making and outside reversal to the upside. The technical resistance stands at 2172761 with technical support resting at 2148041 and 2100653. Any long position should use a protective sell stop on a monthly closing basis at 2055344. Remember this is just a trading suggestion given it is merely a trading observation rule. Buy or sell signals take place on Reversals and Cycles.
QUESTION: Dear Martin,
I am an reader of your blog and attendee of some of your conferences. I am quite impressed about the timing of your forecasting arrays. In particular, May 1 you published the arrays for DJIA (attached) where you showed two clusters of volatility: the weeks of 15 May and 26 June. I was really stupefied when I witnessed two vicious drops in XIV (an ETF replicating the inverse of 60 days expected implied volatility of S&P500) precisely in the weeks you indicated. The best model academia has come up with for modelling volatility is a Stochastic Volatility Model with Jumps, where returns of the underlying (index) are random, their volatility is random (mean reverting though) and infrequent jumps also occur randomly. In fewer words forecasting volatility is just impossible for academics, but not for you.
Do you see any more clusters coming in the summer? Are you going to give access to forecasting arrays through ask-Socrates soon?
You cannot forecast volatility in any of its flavors without interfacing TIME in every other aspect of this dimension. Creating flat models like a stochastic take one aspect of a market and then attempts to extrapolate the future based upon this single tool only to fail. We have a stochastic model you can plot and the interesting thing is it is never consistent since sometimes it’s peaking in advance to a turn and at other times after the turn. They never forecast a flash crash or anything on that nature. This Fourth Dimension is extremely complex. Far beyond any one dimensional model can map.
Even those claiming to be using the K-Wave cannot make real forecasts. The basis of Kondratieff’s argument came from his empirical study of the economy’s performance of the USA, England, France, and Germany between 1790 and 1920. Kondratieff took the wholesale price levels, interest rates, production and consumption of coal, pig iron, and lead for each economy. He then sought to smooth the data using an averaging mathematical approach of nine years to eliminate the trend as well as shorter waves. Kondratieff thus arrived at his long-wave theory suggesting that the economic process was a process of continuous waves of boom and bust.
The problem with his data was that it properly reflected the beginning of his study. But as the Industrial Revolution took place, agriculture, which was 70% of the economy in 1850, fell to 40% by 1900 and eventually to 3% by 1980. His model failed because there was a cycle to the economy as well which he did not take into account. We moves from a commodity based system, to industrial, and now to primarily service. As we move further down this road, we can see that economic growth has declined for government has growth too big and is now consuming 40% of GDP compared to less than 10% at the beginning of his work. Then we now have the internet displacing jobs in stores (service industry) just as the invention of automobiles displaced the horse and buggy. There is a cycle to change as well and this is absent from the K-Wave.
Under Marxism, seizing control of all private assets was supposed to eliminate this boom and bust cycle. Kondratieff suggested that changes in technology, wars and revolutions, and the emerging of new countries as well as the surges in the production of gold was the cause of this business cycle. (see his 1935 English Translation not someone else’s commentary on his work)
Anyone claiming to be using the work of Kondratieff to forecast the business cycle is most likely creating a smoke-screen since we can even see from the chart, that his original wave varied greatly both in time duration 47 to 63 years, as well as intensity. Moreover, Kondratieff himself explained the cause was shifts in production, war, and great booms and busts in the discovery of gold. So the K-Wave offers no reliable method to forecast the economy, yet it stands as a testament to the existence of a complex business cycle.
Kondratieff was by no means the first to discover the business cycle. There were many others trying to investigate the complexity of the business cycle.
Nevertheless, Kondratieff explained that the cause was complex and not a single thing. Any attempt to create a one-dimensional model will fall flat on the drown.
The pro-version should be available by September. I am pushing the staff as hard as I can.
This upcoming seminar in Frankfurt Germany will deal with both the short-term and long-term. This has been the Year from Political Hell, and it will not end until after the German elections. With the ECB finally throwing in the towel admitting (but certainly not publicly) that nearly 10 years of low to negative interest rates has utterly failed to reverse the deflation. Now with the expectation of higher interest rates, the optimism is returning on schedule in Europe as virtually 99% are touting that deflation is over and let the good times roll.
Of course, the greatest error with currency is the general public view it as a share price. They assume that the higher the Euro the stronger the economy becomes. Yet historically, the exact opposite is always true because currency is the medium of exchange which sits on the opposite side of the scale with tangible assets. Deflation is when assets decline because the currency rises in purchasing power.
When we look at the historical highs in the U.S. dollar, we can see the peaks are not marked by economic booms, but the economic depressions/recessions. The first peak in the dollar was World War I, then 1931 and the Depression, then 1949 post World War II, then 1985 and the steep recession that prompted the birth of the G5.
The rise in the euro and the decline in the dollar is part of the set-up before the Monetary Crisis begins in 2018. You must always swing to the opposite direction of the eventual trend. The lowered dollar is EXACTLY what Trump wants to increase US exports in theory to create more jobs. A higher dollar will reverse all the aspirations of Trump.
The real question become which target can the Euro reach before reversing the trend in 2018? Are we looking at the 116 level again or 125-128? This will be the topic for the upcoming Frankfurt Seminar on July 22nd. We reached our minimum target of 114.
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