Tag Archives: Crash and burn

Jul 7 2017

Country Risk & How it is Critical to Investment Flows


Armstrong Economics Blog/Rule of Law

Re-Posted Jul 7, 2017 by Martin Armstrong

QUESTION: Dear Martin:
How does this affect cash flow to and within the USA? (China Bond market)
Rich
ANSWER: It does not alter anything just yet. Most of the capital outflow from China has been its own people trying to get cash out. They were using BitCoin to accomplish that.
This is a first step in the process. It will take time to develop and the next step will be to maintain a stable and important rule of law. In order to attract capital, there must be a stable and honest rule of law. Once the rule of law crumbles into bias and corruption as we see today, this is part of the risk of investment. Edward Gibbon wrote in his classic, Decline and Fall of the Roman Empire:

“…the intolerable weight of taxes, rendered still more oppressive by the intricate or arbitrary modes of collection; the obscurity of numerous and contradictory laws; the tedious and expensive forms of judicial proceedings; the partial administration of justice; and the universal corruption, which increased the influence of the rich, and aggravated the misfortunes of the poor. “

Book III, Chapter 34

Country Risk is a critical part of international investment. In assisting international companies with decisions where to locate plants or open up operations, the first criteria is always “Country Risk” which is all about the stability of the Rule of Law. How can you invest in any country if there is no reliable legal system to secure contracts or property?

Contract Law began in Babylon. Hammurabi’s legal code required all agreements to be written down. This put an end to false claims. When we talk about investing in Europe, we do not even consider “Country Risk” because it is assumed the Rule of Law is stable.

Consequently, China will surpass the United States and the West because our Rule of Law is collapsing. Courts rule in favor of government routinely and once that happens, no property is secure any more. They are just confiscating cash presuming it is criminal in some way be it taxes or otherwise and they do not have to prove anything. This is demonstrating that the West will not be able to survive long-term without a security of property. Hence, you can see it coming. If China respects property rights, then capital will migrate to Asia and leave the West due to the lack of a Rule of Law

Jul 6 2017

Illinois – Poster Child for the Coming Sovereign Debt Crisis


Armstrong Economics Blog/Sovereign Debt Crisis

Re-Posted Jul 6, 2017 by Martin Armstrong

Illinois House had voted 72-45 to pass a 32% income tax hike as government refuses to address the real issue of a never-ending need for more and more tax revenue to keep state employees rolling in their pensions. The governor vetoed the tax increase and he was overridden.

There is absolutely no hope for Illinois. Just sell its debt for there is no long-term fix for this state or any state for that matter. We are facing a major Sovereign Debt Crisis at the state and municipal level that will eventually bring down governments on a wholesale basis.

The policies of just tax’em til they die and they tax their heirs is coming to an end. Governments will collapse and the only solution is to limit government by a new constitution that it may not consume greater than 15% of GDP on a federal, state, and local level combined. Employment should primarily be outsourced and private entities should bid to run various departments. That will eliminate government pensions, which is the monumental source of the real crisis.

We can do this, but we have to crash and burn first. Government will NEVER simply surrender power without a fight.