The Telegraph has come out stating bluntly “ECB’s Mario Draghi has run out of magic as deflation closes in.” The confidence level in central banks I have been warning will decline. This is the prerequisite for the Phase Transition that lies ahead. At  the very core of this entire collapse in confidence in all levels of government lies in the socialist philosophy of Marxist-Keynesianism blended with monetary theory.

All the gold promoters who hate my guts and have been insisting I am wrong, actually share the very same theory with Mario Draghi which has proven to be utterly disastrous. They have both assumed that increasing the money supply will produce inflation. On the surface, it sounds logical under the theory of supply and demand. It completely fails because supply may be definable, but demand is dependent upon human emotion. What happened to the hyperinflation that was supposed to engulf the world with quantitative easing? What both camps of gold promoters and central bankers have assumed using this theory, has only exposed their lack of understanding of both history and how the economy functions.

The only thing that matters is CONFIDENCE for that is what controls demand. You can increase the money supply, but it depends upon public confidence whether or not that will produce any inflation whatsoever. The 3rd century is the chaotic period of Rome when the money supply is dramatically debased. Yet strangely, this is also the same period that we find tremendous hoards of these debased coins being buried as as the British hoard discovered in 2007 with some 52,000 coins. So why hoard debased money if it is worthless? It seems to be a paradox indeed.

Between 235 and 268AD, there were 26 emperors. The political instability was pervasive. The collapse in confidence that sets off hoarding was the emperor Maximinus I who declares all wealth belongs to the state becoming one of the earliest Marxists if you will. He pays rewards to reveal anyone hiding wealth just as the IRS pays rewards today for reporting rich who also have money they are not revealing. This set in motion hoarding on a grand scale. This is stage one that destroys an economy. The hunt for money today is falling this precise course of action.

Once money begins to hoard hiding from government, the process is never easily reversed. The trust and confidence in being able to freely conduct business collapses. As government cannot pay the pensions it promises, the government employees become aggressive.  Today we have unions in New York and Chicago demanding the government tax the exchanges to pay their pensions as teachers and nurses having nothing to do with the exchange. During the 3rd century, trrops began hailing generals to be emperor so they would get paid. Then cities who supported a rival are sacked to pay the troops.

We see at this time Rome splits into three. So we have separatist movements as well. Here is a coin issued by Postumus, the first Gallic Emperor. Britain, France, and Spain separated from Rome as taxes rose. The reverse shows Postumus extending a hand promising restoration of order and prosperity. So we then have separatist movements as we are also witnessing today.

During this part of the economic decline, people hoard. They lose confidence in government so they hoard whatever money they have even debased currency. This gives way to inflation ONLY when they lose all confidence in government. Then they spend the money for the tangible assets. Before that point, DEFLATION prevails because they do not know what form of government will survive.

All the increase in money supply will not stimulate demand. We are in the throes of deflation as people just worry about tomorrow. When they reach the point and question the existence of government, then they will spend the debased money to convert it into tangible assets.

Over the past 3 years, Vancouver has seized at its airport $18.7 million in undeclared cash of which 70% has been from Chinese. The hunt for money is really outrageous that it is all about taxes and our property rights have been lost. All governments are acting like common criminals robbing people of their property claiming they have no right to travel with their own money. There is no crime just failing to tell them you have money on you.

The hunt for money knows no bounds. All countries are now engaging in the practice of just confiscating your money saying you have no right to move with your money whatsoever. This trend is very disturbing for where is the crime? If you made money in one country and didn’t pay taxes to them but left, why is it a crime to take your money to another country to spend it? Any excuse will now serve as the reason to justify being a common criminal. It is a shame, but this is how governments are degenerating into the dominant totalitarian states eliminating the most basic element of freedom, property rights. That is the major component that distinguish communist states from capitalism – the right to property ownership in the latter which is denied in the former. So we are supposed to be a free society, yet we are nothing remotely free. Government are trying to be just a little pregnant with communism enough to justify robbing people in the name of justice (just us).

The numbers are in. Banking as indeed seen its peak. Banks in Europe and the US have dismissed 100,000 people last year, the bulk after 2015.75 . The decline is just starting. We are even witnessing the decline in bank employment now in China as well. The high flying jobs in banking have seen their best days. Young bankers use to brag which bank they worked for in New York trying to impress girls. Nowadays, they tend to be silent since bankers are up there in the unfavorable perception with politicians. The bankers have become the most hated profession the world – topping even politicians and physics, so that is saying a lot.

With the ECB expanding its quantitative easing program to include corporate debt, European companies are now scrambling to issue as much debt as they can as cheap rates. These issue are selling BECAUSE it is assumed they have a guaranteed bidder being the ECB. At least this part of the QE is far better than buying government paper. Ferrovial Emisiones SA of Spain sold bonds maturing in September 2022. Schaeffler AG of Germany is now looking to sell €2.8 billion euros of securities. The German household product manufacturer Henkel AG actually issued notes with negative yields, which is again the flood of cash trying to buy German paper as the hedge against the collapse of the euro. Things are heating up in Europe on the debt scene.

QUESTION: Why are there so many Fed branches? It seems this is another way for government just to create jobs and pensions.

ANSWER:I wrote several times that the original design of the Federal Reserve would have been a good, stabilizing entity for the economy had the politicians left it alone. At first, to ease recessions and “stimulate” the economy, the Fed only bought corporate paper to provide liquidity directly to the economy.

Then World War I came and this short-lived mechanism was altered. Congress ordered the Fed to buy only government bonds so they could fund the war. They never put that system back in place, so today Quantitative Easing no longer works because the Fed ONLY buys in government bonds from banks who never lend the money out. The Fed embarked on then buying in mortgaged backed securities, again, to help the banks get rid of real garbage. Once more, there was no direct stimulation, for the banks hoarded the cash by depositing it at the Fed in excess reserves.

The second structural change to the Fed came at the hand of Roosevelt, who used the Great Depression as his excuse. FDR usurped all the power to Washington, eliminating the very purpose of the Fed to manage the regional capital flows. Each branch of the Fed maintained an autonomous structure to balance out the regional capital flows, which are ignored today. That meant that each branch maintained its own interest rates to either deflect excess capital (lower rates) or attract capital when there was a shortage in that region (higher rates).

These two primary structural changes to the Federal Reserve have eliminated the government’s power to properly manage the economy. It also feeds the conspiracy theories, for at first the Fed was a private entity funded by the bankers, not taxpayers. So today, people cook up conspiracies because the Fed still has the shareholder structure, but has become a government controlled agency all because Congress made these two changes and never restored the Fed to its original purpose – to act as a rescue fund for banks in trouble WITHOUT taxpayer money. We have SPIC insurance where brokerage houses must pay in for that insurance, which was the same scheme originally designed for the Federal Reserve.

Margaret Thatcher was spot on when she warned that Britain would not join the Euro for the covert maneuvers behind the scenes was to create the federalization of Europe – their real dream to be the United States of Europe. Thatcher was betrayed by her own cabinet because some members also were dreaming to federalize Europe.

Most people have no idea that the idea of creating the euro actually took place back in 1985 and was proposed as well as supported by the the United States. The idea was put forth at the Plaza Accord when the birth of the G5 was established. The idea was that the dollar was too high and that its strength was because it had emerged as the only major world currency. The idea was born that if Europe created a single currency, there would be a rival to the dollar. This was really hatched in France. Germany saw this as a means to an end to expand its own exports throughout Europe by eliminating the currency risk for its manufacture base. Make no mistake, the United States wanted a strong euro to reduce the US trade deficit. The participating countries were USA, Germany, France, Britain, and Japan.

People are generally unfamiliar with the timeline and assume the euro only began in 1999. Margaret Thatcher’s historic speech known as the “The Bruges Speech” was delivered on September 20, 1988. It was at that stage she was taking the position against the federalization of Europe supported at the Plaza Accord just in 1985.

I wrote to the White House objective to this currency manipulation back in 1985. The White House responded disagreeing with our forecast. “The volatility of the exchange rate is also cited as evidence of disarray in international financial markets. We do not believe this to be the case.” The dollar had risen to historic highs in 1985 driving the pound to $1.03, which had been over $7 during the US civil war and $4.86 below World War I.

Nonetheless, the White House disagreed since we were the only people with such a model warning that volatility would rise if they embarked on such a path or coordinated manipulation of currency markets. I was flat outright told back then that nobody else had such a model and until others agreed with our forecast, they could not rely upon a single model. We can see that forcing the creation of the euro has not relieved the long-term bull market in the dollar. All it has done is set the stage for a massive dollar rally as more and more countries being to move to try to exit the EU.

Of course, the volatility has been an integral part of the FOREX markets. The earliest we see for a major monetary reform on par with the 1985 Plaza Accord will arrive in 2018.895 or Friday, Nov.  9,  2018.

We must keep in mind that everything must move to an extreme. In doing so, that is what creates the political reaction. Nothing will change without the chaos. As they say: If is ain’t broken, don’t fix it.

QUESTION: Mr. Armstrong; You seem often to be the guy with the level head when everyone else is losing it. Now we have this doomsday day prediction of the end of the dollar come September 27th to 30th, depending on the guru selling newsletters. They are focused on the IMF simply recalculating the SDR to include the Chinese yuan. You have taught me so much this smells like another con job. I think this is once again going down with the lunatics like Porter Stansberry who predicted the “end of America” if I recall in 2010 and in 2011. There were no riots and food shortages and the dollar is still the reserve currency. I think it would benefit many if you would comment on this.  I realize you would probably prefer to laugh and have a drink of scotch you like so much.

Thanks

FG

 ANSWER: Yes, I suppose it’s worth a comment since there are so many people that get sucked into such scams. All of these crazy forecasts of the end of the world have something in common. They are all predicated upon two connected delusions. They typically hate the dollar to start with and this feeds this idea that gold will rise if the quantity of money is increased. This was how they led so many people to lose their shirts from 2011 predicting $10,000 to $100,000 gold all because of Quantitative Easing. This theory is COMPLETELY AND BLUNTLY – BULLSHIT. Here is gold from 1980 to 1999 when it fell intraday from $875 to under $300 while the national debt rose from about $1 trillion to almost $6 trillion. They will never talk about that and whenever they are forced to say something, they call it a bank manipulation intent on keeping only gold down perpetually to of course support the dollar. Bankers do NOTHING out of the goodness of their heart nor patriotism. If there is a buck to be made, they are there. If not, they will never spend billions to keep gold down with no immediate profit.

There is absolutely no empirical evidence whatsoever that their theory has EVER been correct. These people have NEVER traded real money. They have no such experience whatsoever and just make up this nonsense to sell stuff for dollars they say will collapse and become worthless. That alone is curious indeed. Why sell newsletters for dollars who then forecast are worthless in a matter of days?

Whatever the IMF stuffs in the SDR (Special Drawing Right), it has no bearing whatsoever on the reserve status of the dollar, which is entirely based upon (1) geopolitical security, (2) political security), (3) depth of the bond and equity markets just for starters. It is total gibberish and honestly not even plausible. All we heard was how the euro was going to end the dollar as the reserve currency. Well, the IMF put that into the SDR. Why is the dollar still the reserve currency?  It is up there the gold exchanges in New York would collapse because China would start to trade real gold not paper in Shanghai. Ya. Good one. New York is still the main center for gold trading. Shanghai did not end that one either. These people are constantly making up scheme to portray the dollar as worthless. They never look beyond the shores and grasp what is happening globally. They are just ignorant of global events or how the world economy even functions.

Just ask yourself, if the Russia goes into war in Europe, the Middle East erupts in warfare, and China goes into conflict with Japan, where do you want to park your money? When the euro is in complete disarray, the European banking system is really screwed because to be politically correct they had to have a piece of their reserves in all member’s bonds since there was no euro central bond, do you really want to hold you money in euro? An SDR they claim is only for the “financial elite” which again is a complete lie. The rich cannot park their money in SDRs, nor can Apple or any corporation. This is purely a fictitious basket used internally at the IMF for loans to governments in trouble. There are other currencies in the SDR and adding the yuan will not alter the world. It is merely an accounting feature. There are no bonds in SDRs for any pension fund to park money. Give me a break!

These shysters  might as well say send me 10% of your net worth, for it will be worthless anyway, and I will tell you what to do with the other 90% that will be even more worthless if you do not rush and send my the 10% before it becomes worthless.

Look. We are headed into a monetary crisis that will end up resetting the monetary system. There are already proponents in Washington who support ending the dollar as the reserve currency because the Federal Reserve has become the world central bank by default and they have had to surrender domestic policy objectives because of international policy objectives. That means the entire theory of stimulating the economy under Keynesianism has utterly collapsed.

The IMF has been lobbying to have the SDR as the replacement for the dollar so the USA can turn bank to its own agenda. But many are reluctant to hand that power to the IMF, myself included. The IMF is up for sale. It has been highly corrupt and any new reserve basket should be administered by an entirely new agency – not the IMF.

I have been in private meetings behind the curtain around the world arguing for this position. So I know first hand what is going on and who back what and why. The dollar will not collapse because it is not the reserve currency. These people are engaging in pure sophistry. The ONLY way to make that transition is to STOP government borrowing, end the debt, stop the income tax, and do a debt-to-equity swap (see Solution). Socialism is ending. Governments are broke. We either default wiping out all pensions, or we make a transition in an orderly fashion. That’s our choice. I am glad I am not 21 for I get to check out of this world and do not have to live in this chaos that will emerge and that is a totalitarian atmosphere. We fix this, or deal with the consequences.

These stupid sales-jobs that the world will end because the IMF will include the yuan in the SDR is just not even worthy of debate. It is just gibberish.