Many people continually talk about the dollar crashing. They say the dollar is supposed to crumble to dust and be dispersed into the wind. The bias against the dollar has been turned into a religion primarily propagated by the gold promoters. Unfortunately, they fail to understand the relationship of the dollar to the world economy. Additionally, they only look at the United States and ignore the economic trends outside the USA.

This report deals with the next monetary reform that many will call Bretton Woods II. What is the future for the dollar? Contrary to what many have been preaching since 1971, the dollar has survived. Right now there remains a dollar shortage, which is one reason the dollar has been rising since 2008 when the euro once stood at $1.60. The report also discusses the transition to digital currencies.

Hoarding Dollars ….. $295

QUESTION: Dear Martin,
You have discussed the structural design flaw in the euro being due to the lack of consolidation of EU countries’ debt, as well as, EU policies that prohibit bank bailouts. Why could EU policies regarding the prohibition of bank bailouts just not be changed to allow for bailouts? If I understand correctly, wasn’t it also the case that the ECB was not legally allowed to buy EU country sovereign debt? That law was either changed or ignored (I’m not sure which) during the European sovereign debt crisis earlier this decade to allow for the ECB to buy sovereign bonds, which then brought down sovereign debt yields.

Correct?
Thank you for helping us all to grow in our understanding of what confronts us.
Sincerely,
WJ

ANSWER: Everything would function so much better if we had rational leadership. The problem is simply that government will NEVER avert a crisis. They must first experience the crisis before they will ever consider changing the policy. Yes, it seems easy to just fix the problem now. However, I can talk face-to-face until my face turns blue. They will NEVER prevent a crisis. Politicians know that they ONLY look authoritative when they respond to a crisis. Nobody will listen if they say they just prevent a crisis. People assume it is just BS.

Add to this reality the problem between domestic and international policy objectives. Politicians run for election, promising to do this or that, which all seems nice for it is presented to be within their power. That is what is under siege. The Federal Reserve has suddenly realized that it has become the central bank of the world. They were intending to lower rates to help emerging markets, Europe, and Japan. Then the Repo Crisis hit and the Fed was compelled to address the liquidity crisis. This was not about “stimulating” the economy, it was about preventing short-term interest rates from rising. In other words, the QE of 2008-2009 was about buying in long-term debt to try to lower long-term interest rates. Here the short-term rates were rising. Traditionally, the only thing a central bank can control is the short-term. The Repo Crisis exposed the fact that central banks are losing control of even the short-term.

Remember the inverted yield curve in the summer of 2019 that everyone said was a precursor to a recession? Ever since the Repo Crisis, the yield curve has steepened dramatically. This is confirming what I have been saying. This was never about stimulation, it was an attempt to prevent short-term rates from rising.

Therefore, the questions become: (1) Will Europe respond and realize that their no-bailout policy will create a worldwide banking contagion and crisis? (2) If they do recognize that they are the source of a worldwide crisis, how long will it take them to respond and reverse their policy? (3) Will they accept responsibility or blame the rest of the world?

Rational people respond completely differently than politicians who cannot publicly admit they were wrong.

QUESTION: Marty, Do you think it will be time to short the bonds with the ECM? Gold had bounced off the Downtrend line instead of electing the bearish reversals and it rallied after the Pi turning point. You said if gold peaked with the bottom of the ECM it could then fall back to retest support. It looks as if that happens, the Fed will lose the battle and interest rates will rise after the ECM. Is this all a set up like the gold rally back in 1979 following the Afghan invasion? It looks too familiar.

HB

ANSWER: Ah, you have a good memory. It would have been much better had gold made a new low, held the 1980 high, and then rallied with the ECM turn in 2020. That would have clearly been a long-term sustainable trend. Bouncing off of the Bear Reversals & Downtrend Line and then rallying with the Pi turning point 2018.89, pointed to a rally into the next ECM (2020.05). I warned that given that pattern we would rally to test the Yearly Bullish at 1432 and at the WEC I warned that a close above that pointed to a rally into the January 18th turning point with the next resistance at the 1585 level.

The spike up in gold is clearly reminiscent of the Russian invasion of Afghanistan on December 24, 1979. That was under the pretext of upholding the Soviet-Afghan Friendship Treaty of 1978. As midnight approached, the Soviets organized a massive military airlift into Kabul, involving an estimated 280 transport aircraft and three divisions of almost 8,500 men each.

Currently, our system resistance has stood at 1585 followed by 1620 with technical resistance in the 1575-1595 level. We most certainly have to be concerned if gold peaks with the ECM. This will not be a good omen and I agree it is reminiscent of the pattern of 1980. The interest rates the exploded and peaked in May 1981 with the top of the ECM back then.

With the Repo Crisis and the Fed desperately trying to prevent interest rates from rising, which was opposite back in 1979-1981, we still have to be very cautious about how all the markets line up on our model for this turning point. Back then, gold peaked on its own cycle on January 21, 1980, while the interest rates rallied further peaking with the top of the ECM precisely – 1981.35.

We will do the gold report after the ECM turn.

QUESTION: Mr. Armstrong and thank you for what you are doing for us regular people. For my first ever question for you, would you please explain as simply as possible exactly what the REPO market is and how it works and how it affects our multi-faceted financial world.
I am truly grateful for your work and communication.
GLH

ANSWER: The REPo Market is where banks will post AAA securities and borrow against them for the night. Normally, the big banks like J.P. Morgan provide over $300 billion in liquidity daily which allows banks, hedge funds, and institutions to raise cash for the night. When the banks withdrew from lending into the Repo Market, the Fed was compelled to inject cash and thereby lending into the Repo market to prevent the short-term interest rate from rising as it did to 10% on September 17th, 2019.

A Reverse Repo (RRP) injects the purchase of securities with the agreement to sell them at a higher price at a specific future date. The party selling the security to raise cash in the market agrees to repurchase the securities (repo) from the lender at a future point in time which is known as a Repurchase Agreement (RP). Repos are classified as a money-market instrument, and they are usually used to raise short-term capital.

This is not a market that is open to the public. However, it is the basic market where everything else is factored on top of this rate. If the Fed did not intervene, then short-term rates would rise and instead of the consumer paying even 20% on a credit card, it would have jumped as must as 10%.

QE was where the Fed was trying to lower long-term rates after the mortgage-backed crisis hit in 2007 so they were buying 30-year bonds. This is the short-term which has nothing to do with QE. Here the Fed is trying to prevent short-term rates from rising rather than lowering long-term rates which they can only “influence” since the Fed posts only short-term rates like the discount rate (wholesale rate) which banks can borrow at.

Here the economy is not declining and unemployment is back to the 1960s. All the talk about QE makes zero sense for these people do not understand what is taking place and it takes professionals in the field to grasp this issue and they cannot speak since they are under confidentiality agreements.

QUESTION: Marty, you laid out gold’s forecast back in October 2018 which has been amazing long-term. While you said if gold would rally after the Pi turning point from a bounce off the downtrend line, then it should rally into the bottom of the ECM. Will you now publish the gold report? I know you have been really busy. But it would be nice to hear from you. Socrates has been bullish since that turn back in 2018. That has been great. It would be nice to see a report with gold in all the currencies.

Happy New Year
LM

ANSWER: Yes it is getting time to do the Gold report. Let us see if that forecast proves correct since we are approaching the target.

COMMENT: Marty, just wanted to say thank you for Socrates. It has been great on gold and even in the miners it has distinguished the lagers like Barrick from Newmont without worry of who is getting paid to pitch what stock.

Can’t wait for the sector overviews.

Happy New Year

PB

REPLY: It is tracking over 1,000 instruments each day. I do not have the time to write about everything. I am working on the sector overview. That should be ready with the turn in the ECM. I am so glad people are getting the hang of Socrates. I do have an expiration date and have no desire to write forever.

HAPPY New Year to All.

“Manipulating the World Economy” is now available on Amazon for pre-order. Amazon expects the book to be in stock on Christmas day, but you can purchase your copy of the book today. We do not control when Amazon lists the book and we have no idea how long it will last in stock. The price was kept low at $95 to enable everyone of all means to be able to purchase the book. This is already the second edition – 466 pages completely illustrated in full color.