Italy Seizes Missile from Far Right Activists


The tensions in Europe continue to rise as the entire refugee issue has led to a major polarization within Europe. In Italy, the BBC reported that an anti-terrorism police unit in northern Italy seized an air-to-air missile and other sophisticated weapons during raids on far-right extremist groups who were combat ready. The missiles belong to Neo-Nazi propaganda groups and they originated from the Qatari armed forces. The civil unrest that our computer has been forecasting on a global scale is here to stay and is heating up as we head into 2024.

Nigel Farage’s BREXIT Party is Now #2


Nigel Farage’s new Brexit Party is now the second largest in Britain. The Conservatives still topped the YouGov poll with 24% of the vote, but they were boosted by the prospect of Boris Johnson, who is a Brexit believer, as the next Tory leader. The prospects for Europe remain up in the air as Brussels still refuses to reform and is looking to punish Switzerland as an example for Britain. But trying to exclude the London markets as a place Europeans can invest will cause a major economic decline for Europe rather than London.

Agricultural Loans Declining Right on Target


One of the most fascinating observations I have made over my career has been that the banks always lend at the top and contract lending at the bottom in every market. Going into 1980, banks were calling me to ask if I wanted to borrow money. Recently, I got a phone call from my bank asking, once again, if I would be interested in a loan. This to me is merely a confirmation that we are approaching a major turning point.

When I look at lending into the agricultural sector, the big Wall Street banks are once again perfectly in line with the cycle. They peaked in loans to farmers back in 2015, and have been declining ever since going into 2020. Bank lending to the agricultural sector peaked with the ECM and we will see it bottom in 2020. Our model will be correct in forecasting the next wave, which will be a cost-push inflationary wave. As the agricultural sectors come back to life, thanks to shortages, then the bankers will be willing to lend once again. The banks are the PERFECT indicator of how not to run a business. They make decisions emotionally and always get the economy dead wrong (i.e mortgage-backed securities peaked in 2007)

The US Treasury Does Have the Constitutional Right to Mint Coins


QUESTION: Marty, You are wrong. The US Treasury can create the money as the Constitution says it can. Article I, Section 8, Clause 5. The Congress shall have the Power to coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.

To coin is used as a verb. At the time the Constitution was written, to coin money meant to create or to make money. Today’s Dictionary defines to coin as a verb meaning to make or to invent.
Why did you fail to mention this in your Blog today?
TD

ANSWER: Yes, you are correct. I suppose I was referring to the 99.99% of the money supply rather than the coins put into circulation by the US Treasury. President Nixon only closed the gold window in 1971. He did not demonetize “gold” as money under the Constitution. Yes, technically the US Treasury can coin money, but it coins today’s coins. The Fed does not do that. The coinage it creates is minimal in comparison to the overall scheme of things. Since 1913, the printing of currency has been delegated to the Federal Reserve. Prior to 1913, the Treasury issued the paper currency which was backed by coins.

This was the last issue of paper currency issued by the United States Treasury in 1913, the year that the Federal Reserve Act was passed.

Note that in 1934, the Fed actually issued $10,000 bills

EU Refuses to Negotiate Fairly with Britain – Demands of a Customs Union


QUESTION: Mr. Armstrong; could you explain this whole Customs Union issue in BREXIT? Some see it as a great idea, others say it is surrendering sovereignty to Brussels.

SN

ANSWER: A customs union, some claim, would help businesses that send goods back and forth to the European Union. So it would be of interest to Britain’s manufacturers, particularly the automobile industry. They also claim that it might ease complications of the much-hated Irish backstop plan, which is intended to eliminate the need for hard border checks between Northern Ireland and the south.

However, a customs union would allow goods to flow easier, in theory, but it would not allow for frictionless trade. It would keep the tariffs Britain pays on goods that cross the border equal to those that countries in the European Union pay currently but at a huge cost. The goods being traded will still need to meet the same product standards that apply throughout the EU. That is the key.

Turkey is a member of a customs union with the EU, but it is not a member of the EU bloc itself. Therefore, trucks are held up for hours as guards check for permits and make sure the products being transported are in compliance with regulations set in Brussels. They would do the same with a vengeance with Britain. A customs union would not cover trade in services, finance, trading, like legal counsel and information technology, which are by far the largest sector of the British economy – not trucks going back and forth.

The devil is in the detail of a customs union. The EU demands that to be in a customs union they must surrender their sovereignty to Brussels and will be prohibited from making their own trade deals. That means Britain could not enter trade deals with China or the United States simply because it does trade with the EU. This defeats the entire understanding of BREXIT.

 

France Refuses any Negotiation on BREXIT & Demands to Punish Britain


Paris is adamant that the EU should not renegotiate the Brexit deal. The French want to punish the British at all costs, and that means at the expense of their own employment and markets. Amélie de Montchalin, France’s minister for European affairs, said, “If the UK wants to leave the EU, and in an orderly way, the withdrawal agreement is the deal on the table, which has been negotiated for over two years. We’ve also said that the political declaration on the future relationship is open to discussion if the prime minister had a majority.”

France’s position is to end trade by blocking trucks from Britain through the ports of Calais and Dover. They are more interested in punishing Britain than anything else. They refuse any negotiation whatsoever. British trucks will not be able to board ships in Dover in a no-deal BREXIT scenario if they do not have the correct customs paperwork, following a deal between the Port of Calais and Channel shipping lines. Any excuse will prevent trucks from delivering anything to Europe.

Thailand the New Safe Haven?


The dollar decline against the Thai Baht is starting to impact both a trading perspective as well as economic. Thailand’s central bank is worried about the decline in the greenback against baht. They fear that the U.S. keeps a watchful eye out for signs of unfair currency policies. Indeed, the bureaucrats are clueless with respect to currency trends and prefer to chalk it up to the political manipulation rather than free market movement. Bank of Thailand officials intensified verbal intervention trying to create resistance in the baht as Senior Director Don Nakornthab announcing he was “worried” last week about the monetary authority and how they were thinking about how the dollar can be supported. He also came out and spoke of a possible interest-rate cut.

The baht has climbed 8.3% against the dollar in the past year and has been the best performer globally, It’s viewed as a safe haven given Thailand’s history of current-account surpluses and near-record foreign reserves. However, Thailand has also become a destination for many people seeking shelter from the West. Those seeking to retire have found a safe place to hide and the capital inflows have been rather strong. Thailand has also been regarded as a safe-haven from many within Asia as well, and that includes Japanese.

Trump’s Federal Reserve nominee Judy Shelton & Gold


QUESTION: Hello

Where do you guys see as the next World economic conference in 2020?. Will there be another one in Asia? or Europe?

Also, I wanted to try to give this question to Marty, although I never had the luck to get his response… more than once. “Trump just announced to nominate Judy Shelton as the next candidate for the Fed chairmanship. Judy has been promoting to peg the dollar to gold and going back to Gold standard once again, What do you think about this?. Is it possible for the Fed to go back to Gold standard?. I thought we’ve much more issues when we had Gold standard, why are they keep pushing for this agenda?.”

Thank you.
CK

ANSWER: We have not yet decided where to hold the next overseas WEC. Given the seriousness of things developing in Europe, we may hold it in Germany. This is still in question.

President Trump’s Federal Reserve nominee Judy Shelton has long been a proponent of free trade and once advocated for an open border with Mexico back in 2000. Shelton would not be the first free trader to get a top job from Trump. Larry Kudlow, the president’s top economic adviser, is a longtime friend of Shelton and has been a “free trader” who initially criticized Trump’s calls for tariffs. Trump explained to him that free trade will never exist without using tariffs as a negotiating strategy. Indeed, Trump offered to drop all tariffs with Europe if they would do the same — France refused. Trump’s prior Fed nominee, Stephen Moore, also fits this pattern of free trade. I have known Steve over the years and he backed out because of the onslaught of personal threats and attacks against him and his family by the left. Herman Cain also dropped out of consideration for similar reasons.

Last year, Shelton called for a “new Bretton Woods conference,” akin to the 1944 meeting that established the post-war economic order, perhaps to be held at Mar-a-Lago, where a return to the gold standard could be considered. “We make America great again by making America’s money great again,” she wrote in the journal of the Cato Institute. This nostalgia with a return to the gold standard is really insane. The very reason Bretton Woods collapsed was that you cannot fix or peg the dollar to gold while you continue to create dollars without restraint. You would think a third grader would figure that out, but those in power seem to understand less about reality for they spend too much time talking among themselves.

Yet the idea that every US dollar should be backed by a small amount of actual gold may seem to be a popular idea and enthusiasm for a return to the gold standard has become more prominent since Trump’s most recent nominees to fill the vacant Federal Reserve governorship have endorsed a return. The problem with this idea is that the entire socialistic agenda has to come to an end. You cannot run deficits perpetually and we can not continue to accumulate debt with no intention of ever paying anything off.

The only way to return to a gold standard is to abandon the entire political agenda currently. When the left is advocating the Modern Monetary Theory of endless creation of money, the gold standard represents the extreme in the opposite direction. We die by hyperinflation on the one side or deflation on the opposite. Both will lead to the destruction of Western Civilization as we know it.

I fully agree that we will be forced into a new Bretton Woods meeting probably 2021/2022. But make no mistake about it, a serious political reform will be required.

 

Inverted Yield Curve


The yield curve has been inverted for the last month. An inverted yield curve occurs when long-term government debt yields fall below rates on short-term notes and bills. For stock market investors, an inverted yield curve is typically a sign that equities could peak before an economic recession will follow. It also can be a precursor to a bear market in stocks, where equities fall 20% or more from highs which is the typical forecast. Some have pointed to the escalating China trade war. Investors, the claim, are worried that the China trade war and U.S. tariffs will slow global economic growth.

The 10-year Treasury note yield fell to 2.24% in early trading on May 29. Yields on three-month Treasury bills rose to 2.35%, well above the 10-year rate. The 10-year Treasury note fell below 2% on June 25 following the release of weaker-than-expected consumer confidence data. The three-month note traded at 2.13.%. Ten-year rates stood at 2.69% at the start of 2019. On June 4, 10-year Treasury notes slipped to 2.1 in midday trading, its lowest level in 20 months.

But much the real trend driving the inverted yield curve is capital inflows seeking long-term yields. Much of the capital has moved in from Europe. In addition, the amount of money in fixed-income exchange-traded funds passed $1 trillion last month, an ascendance that has reshaped the market in which countries and companies raise money to pay their bills. This has also altered the yield-curve. These forces have changed the dynamics of the marketplace and the traditional inverted yield curve does not necessarily mean what it once did and more than central banks use to be in control of the economy or money supply.

When Bonds Become Money


QUESTION: You said the “crash is in the debt markets”. Can you please explain how that will evolve?
Liz M.

ANSWER: Once upon a time before 1971, there used to be a difference between debt and cash. Government bonds were not acceptable for collateral. You could not borrow against them. You had to liquidate them. This is why they once believed that it was LESS INFLATIONARY to borrow than print. Today, you can buy TBills and post them as collateral to trade futures contracts.

When paper money was beginning during the American Civil War, the government issued compound interest currency. In reality, this was merely currency that paid interest. Therefore, they were a hybrid where they were actually bonds that circulated as if they were a currency. We have returned to that whereby TBills are a street name and are good collateral so they have become the equivalent of bearer bonds that merely serve the purpose of currency.