QUESTION: Hi Marty,
I have read that Lincoln’s treasury issued “Greenbacks” to help fund the North during the civil war.
1. Was this a direct printing, issuing of paper currency, aka like your “The Solution” ? (Bill Still, creator of the money masters documentary claims such…)
2. Others claim that it was meant all along to be backed by gold, and they point to the Specie Payment Resumption Act of January 14, 1875 as evidence..
So many different conflicting opinions / explanations out there, and was hoping you would tell us all what you believe about the Greenbacks. Thanks once again for all you do!

DC

ANSWER: Paper currency was issued to fund the Civil War beginning in 1861. Demand notes were issued between August 1861 and April 1862 to fund the American Civil War in denominations of 5, 10, and 20 USD. Demand notes were the first issue of paper money by the United States that achieved wide circulation. They were used to pay expenses incurred during the Civil War including the salaries of its workers and military personnel.

There was a reluctance to accept the demand notes, for there was no intent on redeeming them in gold. Instead, the government issued currency that was really a form of circulating bearer bonds. They were interest-bearing notes that had the table on the reverse, expressing the value of the note in terms of interest.

Demand notes became known as “greenbacks,” which distinguished them from the interest-bearing notes that displayed the interest table on the reverse. The demand note only had green ink.

The demand notes were discontinued, and their successors were the legal tender notes. The legal tenders could not be used to pay import duties, which were the taxes imposed at that time (indirect taxation). Demand notes took precedence and were acceptable. As a result, most demand notes were redeemed.

Therefore, the issue of paper money to pay the expenses worked. There was no such promise to repay these notes in gold when they were issued.

COMMENT: Hi Marty

I agree with Trump. Assembling in the U S is not sufficient. We need the supply chain parts (eg manufacturing ) in the US. What do we do when we get in a war with say China – do we submit an order to china for parts to assemble a ship? Does not fly.

Kyle Bass and Bannon have come out speaking about the duty american companies have to our country. They use our legal system, tax system, to date favorable non tariffs and other incentives — where is the pay back to us? The days when our country was simply for sale and being sold out by politicians is gone – or we won’t have much of a country left. We have lost about half of our manufacturing jobs since nafta.

It needs to stop. Too bad if countries whine and cry that we can no longer be taken advantage of
We have been used and abused for a long time…people are sick of it.

thanks for the blog

Alice

REPLY: It is true that parts are shipped and then the final assembly takes place in the USA. But we also have to ask why did manufacturing leave in the first place? I testified before the House Way & Means Committee on this topic back in 1996. They wanted to know why no American companies got contracts in China to do the Yellow River Dam, which went to the Germans. I explained that Americans are taxed on worldwide income whereas Europeans pay taxes on what is earned in their territory. Why should someone pay taxes on income generated outside the USA when they are not using any services in the United States? It turns out that we are economic slaves because whatever we produce anywhere belongs to the government. It is no different from the 19th century – we are still the property of the state.

What we must understand is that American companies began to set up offshore just to be competitive. It was not that labor was $5 an hour v $15. That is the popular image they create to target corporations. The real problem is our tax code looks like the brainwave of a schizophrenic.

On top of that, we had a period of really hostile unions. Just look at New York City. Here is a photo of horse-drawn express wagons, moored ships, and piers at New York City’s South Street Seaport back in 1901. New York City was the largest port for trade. The unions became so corrupt and militant, they simply drove the port to other cities. There is nothing left in New York City anymore.

Then there was the fact that the militant unions took the position that they were exploited so the quality of their work declined. The Germans and Japanese offered quality and that was fair competition which eventually forced changes in the United States. Instead of workers, not much is done by robots. If we are really concerned about jobs, then address the elimination of income taxes which would make American workers more competitive. Restore the Constitution to indirect only.

Many people are confused as to why corporations have been buying back their shares in mass. The latest figures for 2018 are in and they demonstrate that the S&P 500 listed companies spent more on dividends and buybacks in 2018 than they actually made in total reported earnings ($1.26 trillion vs $1.1 trillion). What is really fascinating is that of the 500 listed companies, 444 have bought back their own shares. Buybacks alone have actually come in at 66% of reported earnings over the last five years. Since 2014, buybacks and dividends combined have exceeded the total increase in S&P 500 market capitalization by $1.3 trillion. In other words, buybacks alone represent 87% of the increase in S&P 500 market capitalization during that period.

Buying back shares at this stage has been massive, but companies have been taking advantage of the cheap interest rates. When interest rates collapsed to artificially low levels, it became economically more efficient to buy back the shares at such a low cost, and this, in turn, will increase the dividend yields. This mix of low interest rates has had a reverse impact on equities. There is no question that companies are keenly aware of just how important their buyback programs are to their share prices. As long as interest rates are cheap, then it’s hard to see them stopping unless the cost of borrowing forces them to do so. This is also setting the stage for a shortage in equities when capital begins to realize that there is a huge problem brewing on the public debt side of the balance sheet.

COMMENT: Mr Armstrong, I want to thank you for I listened to the forecasts of analysts who said Europe and Emerging Markets were the best places to invest because the US was overpriced and would crash. I was introduced to you by a friend. I listened. I cut my losses and switched to the domestic market. Your analysis saved my future.

I cannot thank you enough.

HA

REPLY: I was a hedge fund manager. I used to manage a fund for Deutsche Bank (Track Record). The reason analysis is so bad is because of regulation. We have the SEC & CFTC and the regulations between them are incompatible. You could never have a fund domestically where you would actually hire a fund manager who made that decision for you. Because of the regulation, you had fragmentation. Funds that sold Munis, other tech, others IPOs, high growth, etc., etc. etc. There was no domestic fund that would make those decisions for you because there was no single entity that served as the regulator as is the case outside the United States. Too many chiefs and no Indians, as they say.

The offshore hedge fund began, not a real hedge, but as a fund where the manager made the decision and could invest in anything. Today, hedge funds have lost their way. The idea that they would offer an alternative strategy that would move opposite to standard funds was really a sales job. Often, hedge funds have not performed because of biased domestic views. That was NEVER the way I managed the fund. I was named “Hedge Fund Manager of the Year” back in 1998 because my strategy was to make that decision on a global scale of what to be in and out of. I was not trying to lose money deliberately as a hedge when the market rallied and I saw its mirror image. I never got that idea of a hedge fund nonsense. My job was to pick the winners on a global scale and avoid the danger areas like Russian back in 1998.

If we look at the world in REAL VALUE terms, that means we MUST look at everything filtered through currency. Here is our index of the world. We take Europe and Asia, combine the indices and then replot them in dollars. This clearly shows that we ABSOLUTELY MUST include currency into the analysis. We can see that the US share market has dramatically outperformed everything else in the world.

I had to always consider geopolitical risks. Knowing when there was a risk of war or political uprising was important. Understanding the trends in weather was critical, as was evident from the Great Depression. Even keeping an eye on earthquakes and correlating that to the global economy was also obvious from hist – e.g. the 1923 Japan Earthquake and the 1906 San Francisco Earthquake that eventually contributed to the creation of the Federal Reserve. The realization that the world economy was dynamic meant we had to respect the various different influences each factor played in the outcome of the whole.

Yet, none of this would be possible without also considering capital flows and currency movements. The currency became the means for capital to vote on a global scale as to who it trusted and who it did not. Here we can see that the British pound reached $9.97 in 1864 against the dollar. It fell to $1.03 in 1985. The trend of the currency cannot be ignored.

Here are the share markets based in euros. All peaked in 1999 to 2000, except Spain which entered the euro late. How any analyst could recommend Europe two years ago was just nuts. This demonstrates that they do not understand international capital flows or the importance of the currency in making such forecasts.

Now, look at the European share markets that are NOT in the Eurozone. They have all made record highs. The difference has been the currency and regulations pouring out of Brussels with self-interest in maintaining the European Project, even though it has failed.

This is not my opinion v everyone else. This is simply looking at the facts, not propaganda, and letting the fact lead to the conclusion.

QUESTION: Hi Martin ! always wondered What would be the outcome of Fannie/ Freddie going private ? they have been trying this for years, but now looks like they are giving it another try and may be successful under the guise of ” protect the taxpayer ” …. what do you think will be the ramifications especially for real estate REITS and MREITS as well as homeownership going forward .

Thank you

JD

ANSWER: Fannie Mae and Freddie Mac are two companies that are in the longest conservatorship perhaps on record. Because the law governing these agencies is separate from banking conservatorship law, judges have largely done nothing about Fannie and Freddie shareholder complaints to date. The government’s 2012 net worth took all of the money that they said was worthless back in 2008-2011 that was on the balance sheets. Keep in mind that FHFA was acting as conservator when this was all agreed.

Fannie Mae and Freddie Mac will be allowed to retain capital, but the Senior preferred securities purchase agreement will be amended and the lawsuits will be settled in order for the companies to go to the public markets and raise new money via selling new equity to investors. They would like to do an IPO by 2020. After the balance of the senior preferred gets written off, the warrants will be exercised and the junior preferred will likely equitize some or all of their shares to help facilitate the recapitalization of Fannie Mae and Freddie Mac. There will be risks that include higher capital requirements, a shorter timeline to recapitalization, more CRT/STACR deals, more regulation and/or lower guarantee fees.

Moreover, we face a period where the interest rate is going to enter a major divergence. Central banks will be forced to create interest rate caps on sovereign debt, assuming people will buy them at these low rates of under 3%. This all hinges upon confidence. When we begin to see economic stress in the sovereign markets, such as in Europe with the ECB unable to stop QE, sovereign rates will become merely artificial and irrelevant. The ECB moved to negative interest rates but that did not lower private interest rates.

Expect divergences as we move forward into the next cycle which will peak in 2024. Expect wild movements ahead on the yield curve as well.

QUESTION: Marty, at the Rome WEC you put up that chart that showed historically private sector yields have gone below public. That really demonstrated your point on this shift from public to private. Now with Deutsche Bank on the ropes, here in Denmark, even mortgage bonds are going negative. Is this the real panic you were speaking about with the EU elections?

I’m coming to Orlando too. This is getting really dangerous here.

KA

ANSWER: Yes. Just look at this from a practical standpoint. If the government is the culprit and the crisis in banking is driven by this policy of Austerity, then you want to put your money where you just preserve it. This is what I was talking about. When confidence in government collapses, people turn to the private sector. It makes perfect sense that some capital will shift domestically into private mortgages for they are at least backed by property. If they go bust, you get something. If government defaults, you get nothing.

At some point, the government must address the structural reforms I outlined in the report we handed out – the Fate of Europe.