Armstrong Economics Blog/European Union
Re-Posted Oct 17, 2018 by Martin Armstrong
The Italian Government has gone and adopted the controversial draft budget for the coming financial year. Prime Minister Giuseppe Conte said that the budget plan would keep the government’s promises, and keep the public finances in order. The government has now forwarded the draft to the EU Commission in Brussels for consideration. This is where we will see the clash of cultures between the people and austerity that focuses on the debt holders – not the people.
What is unique in this budget is the introduction of a basic income for the poor, an earlier retirement age promised during the elections, and tax relief for the self-employed. The losers will be the Banks who lose tax breaks. In order to finance these costly campaign promises, the government plans a significantly higher level of new debt in 2019 than had been promised by the previous government. Therein lies the clash with Brussels as Italy embarks on a confrontation course with the EU.
Under the EU rules, the upper limit for the debt ratio of no more than 60% GDP is the criteria set by austerity. Italy is already sitting on a debt of more than 130%. Only Greece comes in the Eurozone on an even high percentage ratio. Economy Minister Giuseppe Tria made a public statement that he was confident that he could explain the budget to the European Commission. Italy must increase its spending to get the economy off the ground. The deficit target of 2.4% of GDP is “normal”. He has publicly stated that the “idea that this budget could blow up Europe is completely unfounded.”
The economic guidelines of austerity are completely unreasonable. In joining the Eurozone, the German debt converted with no appreciable impact. In southern Europe, converting their past debts to Euro doubled their “real” past debt obligations. Previously, their currencies naturally depreciated ensuring that debt repayment was always with cheap currencies. Under the Euro scheme, the rise in the Euro from 80 cents to $1.60 imposed a tremendous deflationary wave upon southern Europe from which the damage has been inescapable
Armstrong Economics Blog/Education
Re-Posted Oct 16, 2018 by Martin Armstrong
QUESTION: I too am French and nobody in school ever connected the weather to the defeat of Napoleon even with so many deaths on his failed invasion of Russia. History is interesting, but it seems to be taught based upon some political agenda. What would you recommend for students to study since the formal education system is such a failure?
ANSWER: Yes, when I was in Paris, I was asked if I would debate the top three economic students. I agreed. However, instead of a confrontation for TV viewers, it turned out to be a question session of how to fix the French economy conceding that what they were being taught was wrong.
From a historical viewpoint, I always refer to contemporary writers. However, you must keep in mind that history is very often written only by the victor. We all learn quite a lot about history in school, but it is typically slanted. Nevertheless, it is also true that who don’t know history are doomed to repeat it. However, those of us who know history are also doomed to watch others repeat it. Ever since man has done anything, there has been someone nearby going “huh, maybe I should write this down.”
The way to understand the past REQUIRES a discipline that embraces all the fields of science. Back in the 1980s, I attended a lecture by a Scientist on the findings of the ice core samples from Greenland. When they disp[layed a graf of the energy output of the sun and documented from the ice core samples, I was stunned. I approached the presenter and informed them that their chart projected the rise and fall of empires which matched the Economic Confidence Model.
Back in the 1980s, I knew the model worked, but I could not explain why other than simply saying there were cycles. Suddenly, I saw history impacted by weather. I knew the 1906 San Francisco Earthquake set off the Panic of 1907 due to capital flows and that led to the creation of the Federal Reserves with all its branches that operated independently to manage the capital flows internally within the nation.
By keeping an open mind, I began to look at every field of science for explanations. By putting everything together, the picture became focused and suddenly the light went off. The key is being a diverse explorer. School is the opposite. I would go to Physics class and the professor would say nothing is random. Einstein said he did not believe God played dice with the universe. I then went to economics class and the professor said everything is random so don’t bother trying to forecast something. Because it’s random, that meant government could and should manipulate society to eliminate recessions. They have not succeeded in doing so even once.
Armstrong Economics Blog/Central Banks
Re-Posted Oct 15, 2018 by Martin Armstrong
The European Central Bank (ECB) will NOT aid Italy with an EU rescue program if the country or its banks are in financial turmoil. The Italian government is taking the view that Italy has become an “occupied” country and that Germany has conquered Europe imposing austerity and its view of inflation upon the whole of Europe without firing a shot. While the spin is that the ECB is making Italy a test case to demonstrate that Europe and its mechanisms work, in reality, it is a realization that the ECB cannot save Italy’s financial institutions because austerity has created the greatest economic depression perhaps in economic history.
The new five-star Movement in Rome and Lega have been on a confrontational course with the EU Commission, as they plan a higher level of new debt to fulfill election promises. The EU Commission, on the other hand, is calling for less spending and the implementation of austerity as demanded by Germany. Italy is already sitting on a debt of around 131% of GDP. The financial markets are nervous for they see a confrontation that could tear Europe apart at the seams. Italy now has to offer investors significantly higher interest rates when placing its government bonds in order to raise money. In addition, the gap to the yield of German government bonds widened. But in reality, stopping the ECB’s Quantitative Easing will result in interest rates rising by at least 300% very rapidly. Italy is getting ahead of the curve BEFORE everything comes crashing down.
The EU rules prohibit the ECB from helping a country unless it has agreed to a rescue program of EU partners. Then, for example, the Euro-watchdogs could buy up Italian government bonds in order to contain a rise in yields. This provides for a monetary policy emergency tool adopted in 2012 – called “OMT”. However, this has never been used before. The ECB, behind the curtain, fears that if they try to use this mechanism and it fails, as our model warns, then the CONFIDENCE in the entire EU system will collapse.
Armstrong Economics Blog/Interest Rates
Re-Posted Oct 14, 2018 by Martin Armstrong
Jeff Bezos of Amazon loses about $80 million for every dollar the stock goes down. No billionaire was hit as hard by the drop this week in the share market than Jeff Bezos. During the Wednesday selloff alone, the Amazon founder and CEO lost more than $9 billion. This is how they measure people’s worth by the value of shares they hold which is NOT cash. If he ever tried to sell everything, the share price would also crash. At the peak, his net worth reached $160 billion, according to Forbes.
The Bloomberg Billionaires Index shows Bezos total net worth is $145 billion, comfortably ahead of Bill Gates, who sits second at $96.3 billion. Gates lost more than $2 billion, while Warren Buffett lost nearly $4.5 billion. When we look at the Arrays, the week coming up as a key target has nothing to do with interest rates – it’s the elections STUPID
Armstrong Economics Blog/Foreign Exchange
Re-Posted Oct 14, 2018 by Martin Armstrong
While the IMF chief Christine Lagarde has come out expressing her fear that not only a trade but also a currency war may emerge that could dampen the growth of the global economy, there are some serious issues that need to be addressed. The problem with misunderstanding currency and its role in the floating exchange rate system can easily engulf even bystanders in this clash of the titans – US v China.
The background behind the smoldering trade dispute between the world’s two largest economies, the US and China, demonstrates that there are serious misconceptions of the role of currency. President Donald Trump has fanned these flames for he too fails to understand the FOREX markets. Trump accuses China of unfair trading practices and theft of intellectual property. The People’s Republic is also accused of devaluing its currency against the dollar, which tends to widen the already high US trade deficit.
The dollar has been rallying against the yuan since the March low here in 2018. Clearly, the dollar is going to rise further for a trade war will hurt China more so than the USA. While we see critical turning points in January and March in 2019 followed by May, we must keep in mind that this pattern of a dollar rally is impacting the entire world. Trump FAILS to understand Capital Flows and his accusations against China is manipulating its currency to beat the USA in trade is NOT justified. Our models are showing the capital flight from China but also from Europe overall which contributed to the US share market rally into October basis the Dow Jones Industrials, which foreign capital buys looking always for the trophies.
We have tremendous Panic Cycles throughout 2019 and we see even the yuan is lining up with the targets concerning BREXIT. This is by no means a Chinese manipulation. What we see ahead in 2019 is anything but a nice steady market projection.
Armstrong Economivs Blog/Economics
Re-Posted Oct 13, 2018 by Martin Armstrong
COMMENT: It really does appear that the IMF is following you and repeating your forecasts. They first said the world economy was booming at the start of the year for the next several years. Now they have revised that forecast and saying we are at risk of a decline. Any comment?
ANSWER: Yes, at the start of this year, the International Monetary Fund (IMF) was very bullish. The world economy’s “broad-based momentum” was their call which produced an upgrade to its forecasts for global growth over the next few years. Now, they have admitted that they were “over-optimistic” and they have cut its projections down to where they were last year. They are warning that “the likelihood of further negative shocks to our growth forecast has risen.” What they have completely failed to take into consideration is the economic meltdown in Emerging Markets coupled with the failure of Europe as a whole under the EU
QUESTION: Mr. Armstrong; Your Global Market Watch picked the high in the S&P as September and called for a waterfall on the monthly level. That was amazing. Yet, with the stock market crash, gold could not even rally above the previous week’s high. If the bonds look like death warmed over, equities crash, then surely gold should have rallied but it could not overcome its own weight. Is gold dead to the world?
Thank you for a great system
ANSWER: No, gold is not dead to the world. I am preparing a special gold report for it is time to ascertain the projections for the future. Keep in mind, this hunt for money has seriously altered everything. Gold, once upon a time, was the alternative to cash. But you cannot legally store it in a safe deposit box. You cannot hope on a plane with it. About all you can do is dig a hole in the backyard. Gold is not the complete alternative it once was
Armstrong Economics Blog/Climate
RE-Posted Oct 12, 2018 by Martin Armstrong
An independent audit of the key temperature dataset that is being used by climate models has exposed more than 70 problems with the data which render it “unfit for global studies.” Problems include zero degree temperatures in the Caribbean, 82 degree C temperatures in Colombia and ship-based recordings taken 100km inland. The audit has concluded that the studies are deliberately exaggerating temperatures to support a theory of global warming utilizing global averages that are far less certain than what is being forecast.
The audit has revealed that “that climate models have been tuned to match incorrect data, which would render incorrect their predictions of future temperatures and estimates of the human influence of temperatures.” Furthermore, the Paris Climate Agreement adopted 1850-1899 averages as “indicative” of pre-industrial temperatures is “fatally flawed.” The entire Paris Climate Agreement has an agenda to eliminate effectively the advancement of society and attempt to reset the clock to the pre-Industrial Revolution. This entire theory that before the Industrial Revolution, our planet’s atmosphere was somehow pristine and uncontaminated by human-made pollutants has been also proven to be completely bogus. Bubbles trapped in Greenland’s ice has revealed that we began emitting greenhouse gases at least 2,000 years ago. The Romans even constructed the first aqueduct was built in 312 BC because there was a serious problem with water pollution. Seneca (c 4BC-65AD), the adviser to Nero, wrote in 61AD: “No sooner had I left behind the oppressive atmosphere of the city [Rome] and that reek of smoking cookers which pour out, along with clouds of ashes, all the poisonous fumes they’ve accumulated in their interiors whenever they’re started up, than I noticed the change in my condition.”
This new audit argues even the most simple basic quality checks had not been done on the HadCRUT4 data which is managed by the UK Met Office Hadley Centre and the Climate Research Unit at the University of East Anglia. The audit exposed that estimates were made of the uncertainties arising from thermometer accuracy, homogenization, sampling grid boxes with a finite number of measurements available, large-scale biases such as urbanization and estimation of regional averages with non-complete global measurement coverage.
The audit has exposed the dishonesty in this entire scheme and it appears to be directed at the goal of reducing the population. Anomalies it has identified include at St Kitts in the Caribbean, the average temperature for December 1981 was zero degrees, normally it’s 26C. For three months in 1978, one place in Colombia reported an 82 degrees Celsius average – hotter than the hottest day on Earth. Then in Romania, one September the average temperature was reported as minus 46°C, which has never happened. The data showed that supposedly ships would report ocean temperatures from places up to 100km inland. The paper also points out that the most serious flaws identified was the shortage of data. For the first two years, from 1850 onwards, the only land-based reporting station in the Southern Hemisphere was in Indonesia. Then there were ship observations at the time but Australian records had not started until 1855 in Melbourne, behind Auckland which started in 1853. This data appears to have been just made up.
According to the HadCRUT4 calculation of coverage, it was almost 1950 before there was data from even half of the Southern Hemisphere was available. Yet they claim global warming has taken hold for 100 years prior. Then the Paris Climate Agreement takes the HadCRUT4 average from 1850 to 1899 as an “indicative” temperature or pre-Industrial Revolution. There is absolutely no possible way the data set being used to support all this Global Warming is even valid for any forecast.
Armstrong Economics Blog/Stock Indicies
Re-Posted Oct 11, 2018 by Martin Armstrong
US stocks have plunged this week from the high of the week of 10/01 which has been the biggest rout since February. Meanwhile, investors remain jittery, to put it mildly, and confused as people try to attach a fundamental reason for the decline mixing in the recent jump in interest rates and the potential harm tariffs could cause tech companies. But our sources overseas are more concerned about politics. The Democrats are vowing to raise taxes and lower health care costs which they created in the first place.
The NASDAQ peaked in August and our model had called for an August high would be followed by a low into this period. So nothing unusual has transpired other than foreign buyers have backed off concerned about what happens if the Democrats take the House. The S&P500 peaks in September and the Dow peaked in October with the dollar illustrating once again the international capital flows are different from domestic.
The interest rates have been rising since the 4th quarter of 2015. To suddenly claim that is the reason for the decline merely reflects the problem that they need to point to something to explain a move that cannot be attributed to anything but the political uncertainty on the horizon.
We will update Tonight on the Private Blog with the specific numbers.