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.

The pension crisis is going to be the HUGE issue in 2017. Obama is supporting about a 20% reduction in military retirement benefits. This is how such things are done. It is the way lame-duck Presidents leave office doing the nasty things nobody will admit who has to stand for election. So those on their way out do the dirty work. This is just the beginning.

Obama could not get Congress to pass the takeover of private pensions. So what he did was to revise the regulations to allow states to take over private pensions. California may be one of the first states to do this. As the Pension Crisis looms, we will see your worst nightmare become reality. They will MOST LIKELY begin with corporate pensions. Actually seizing private pensions will probably be left for the lame-duck Congress in 2018. Keep in mind that Hillary would support the seizure of private funds to throw in the pool with public pensions to buy more time before it all comes crashing down.

There is a problem that Illinois faces. There is no actual right for a state to go bankrupt. That does not mean that no state has simply defaulted and never paid. A state hasn’t defaulted since Arkansas in 1933 during the Great Depression. However, that was also not the first state to simply not pay. The Sovereign Debt Crisis of the 1840 was just such a situation.

In 1841 and 1842, eight states and the Territory of Florida all defaulted on their sovereign debts. Traditional histories of the default crisis have stressed the causal role of the depression that began with the Panic of 1837, unexpected revenue shortfalls from canal and bank investments as a result of the depression, and an unwillingness of states to raise tax rates. However, these  stylized facts do not fit the experience of states at all very well.

The majority of state debts in default in 1842 were contracted after the Panic of 1837; and most states did not expect canal investments to return substantial revenues by 1841 and did not experience unexpected shortfalls in those revenues. Finally, most states were willing to raise tax rates substantially and did. The relationship between land sales and land values explains much of the timing of state borrowing and the default experience of western and southern states.

Pennsylvania and Maryland defaulted because they postponed the imposition of a state property until it was too late. The United States was the emerging market for Europe and these defaults ruined its credit for decades to come. The Bank of England still has some State debts that were never made good. The Panic of 1837, which had been caused by an over-expansion of banks, caused farmers, planters and merchants to lose their enterprises. This led to a economic contraction that further reduced bank deposits causing bank failures as the depression then settled into the states from which it sprang. States issued bonds to try to bail out the banks and many states ended in default. They did not declare bankruptcy, but instead, simply refused to honor their outstanding bond issues.

When states behave badly, their borrowing costs rise. The United States was the emerging market and interest rates rose in the aftermath of the state defaults. In fact, the historical high in United States call money rates took place in 1899 reaching almost 200%.

Currently, interest rates for the financially troubled state of Illinois are now three times as high as that of California. So interest rates rise as the risk of default mounts. But the Illinois crisis is something new. Its constitution forbid diminishing state employee pensions. So the public pensions are sucking in all the available money resulting in taxes rising, property values falling, and public services being cannibalized to pay pension.