China & the Hidden Debt Crisis in the Provinces


The Sovereign Debt Crisis in China among the provisional governments is alive and well. The off-balance sheet government liabilities in the regions amounted to an estimated 40 trillion yuan which is almost $6 trillion. Some are calling this a “gigantic credit risk” which is a hidden liability. This represents 60% of  GDP which bypasses the debt-to-GDP ratio set by the central government on the provinces. They have created financial vehicles called LGFVs. Beijing has focused on shadow banks, regulatory loopholes, and hidden bad loans. They have curbed the shadow banking and brought the BitCoin outflow down. However, the Beijing government has only been able to reduce the credit risks associated with LGFVs marginally. The current view is that it will take China up to a decade or more to deal with the problem of LGFVs, as we enter this debt crisis cycle between 2019 and 2021, the pressure will build much sooner.

Nevertheless, we see that this debt crisis is what is holding back China short-term. Once this adjustment is addressed, we will still see China emerge as the Financial Capital of the World after 2032.

The Greek Dark Age & Climate Change


QUESTION: Mr. Armstrong; You mentioned that the environment was the primary cause of the Greek Dark age between the Heroic and Hellenistic periods. Can you elaborate on that at all?

Thank you. They do not seem to connect the dots as you say in school

MG

ANSWER: What is most interesting is the fact that they do not connect the dots which are so glaring for that period of time. The Bronze Age Collapse was a Dark-Age in the Near East, Asia Minor, Aegean region, North Africa, Caucasus, Balkans and the Eastern Mediterranean. This encapsulated the transition from the Late Bronze Age to the Early Iron Age, which was violent, sudden, and a major setback for civilization as a whole. We seem to focus on the fall of Rome, but not the catastrophic collapse of the Bronze Age.

The political economy of city-states that dominated the Aegean region and Anatolia region (Modern Turkey), simply disintegrated much like Rome whereby people abandoned cities and formed small isolated village during the Greek Dark Age. This takes place about 51.6 years following the cultural collapse of the Mycenaean kingdoms, of the Kassite dynasty of Babylonia, of the Hittite Empire in Anatolia and the Levant, and of the Egyptian Empire. We also see the political-economic destruction of Ugarit and the Amorite states in the Levant. Over in the Luwian states of western Asia Minor, we also see a collapse in civilization. There was also a period of tremendous political-economic chaos in Canaan (Israel). This wholesale collapse of all of these city-states resulted in the collapse of trade routes as we saw with the collapse of Rome. This also manifests in the reduction of literacy in much of the known world.

Hattusa became the capital of the Hittite Empire in the 17th century BC. The city was destroyed, together with the Hittite state itself, around 1200 BC, as part of the Bronze Age collapse. The site was subsequently abandoned. Modern estimates put the population of the city between 40,000 and 50,000 at it’s the peak. The dwelling houses which were built with timber and mud bricks have vanished from the site, leaving only the ruins of the stone built temples and palaces. The lost city was rediscovered at the beginning of the 20th century in central Turkey by a German archeological team. One of the most important discoveries at the site has been clay tablets, consisting of legal codes, procedures, and literature of the ancient Near East.

In the first phase of this fascinating period, we witness the complete violent destruction, and abandonment of cities such as Hattusa, Mycenae, and Ugarit. This all takes place within just one 51.6 year wave of the Economic Confidence Model at the end of the 13th century and the beginning of the 12th century BC. Civilization seems to collapse on a grand wholesale basis with almost every significant city in the eastern Mediterranean world is then destroyed, many of which were never again to ever be occupied again.

Assyria and Elam appear to survive the Bronze Age Collapse and then even Elam is nearly completely destroyed by Nebuchadnezzar I who revived Babylonian Empire briefly before he in turn suffered a series of defeats by the Assyrians. After the death of their leader, Ashur-bel-kala in 1056 BC, then we see Assyria began an economic decline for about 112 years. – but by the end of the 12th century BC as it really fell back to just a city-state but it did survive the Bronze Age Collapse just greatly reduced by around 1000BC.

By the end of the ensuing Dark Age that engulfed the entire region, the former Hittite Empire appears to be broken apart in separatist movements and what eventually emerges is independent city-states in Cilicia and the Levant (Syria). This period seems to be great migrations as people began to move south due to climate change. Bu the mid-10th century BC, we see Aramaeans moving into the Levant and the Philistines then settle in southern Canaan where the Canaanite-speaking Semites. From 935 BC after the worst of the collapse in sunspot activity, Assyria began to reorganize and once more expand outwards reestablishing the Neo-Assyrian Empire (911-605 BC), which the Egyptians even feared. Phrygians, Cimmerians, and Lydians arrived in Asia Minor, who were Greek in origin. The Colchians (Georgians) also emerge at this time. The various people of this region appear to reform civilization with the warming becoming the Iranian peoples such as the Persians, Medes, Parthians, and Sargatians. These groups all appear in Ancient Iran soon after the Sunspot low. In the Aegean, this is the reappearance of the Classical Greece Era.

This is the period of the Great Migration South as I call it. They are known as the Sea People who invaded Northern Africa which corresponds to the colder climate up north. The Sea Peoples remain unidentified and have remained a source of much speculation. In the archaeological record, the Philistines first appear in the early 12th century BC with the Bronze Age Collapse. Their arrival is signaled by artifacts that belong to what is clearly an extraordinarily different culture from other local populations at the time. Their pottery closely parallels to the ancient Greek world. They also use Aegean rather than a Semitic script. They also eat pork as well as the occasional dog. Several passages in the Hebrew Bible describe the interlopers as coming from the “Land of Caphtor,” or modern-day Crete. Keep in mind that Crete fell to Mycenae who also conquered Troy after Thera erupted and destroyed much of the Minoan economy. I believe the Sea People were of Mycenae in origin.

There is a lack of contemporary historical explanation documenting this period. However, correlating it with the weather, it appears that we are dealing with a Climate Change where the Earth entered into a very cold period and crops failed forcing a migration south.

 

Canadian Oil Falls to Under $20 a Barrel Because of Environmentalists


What is Wrong with Formal Education


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?

PG

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.

The ECB on the Verge of Collapse?


 

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.

It Ain’t Interest Rates – It’s the Elections Stupid!


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

Currency War – The Misguided Understanding of the FOREX Markets


 

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.

IMF Warns Their Forecast Was Wrong


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?

HK

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