QUESTION: Mr. Armstrong, I think I am starting to see the light you have been shining. Negative interest rates really are “completely insane”. I also now see that months after you wrote about central banks were trapped, others are now just starting to entertain the idea. Is this distinct difference in your views that eventually become adopted with time because you were a hedge fund manager?

Just curious;

Bob

ANSWER: I believe the answer is rather simple. How can anyone pretend to be analysts if they have never traded? It would be like a man writing a book explaining how it feels to give birth. You cannot analyze what you have never done. It is just impossible. Those who cannot teach and those who can just do. Negative interest rates are fueling deflation. People have less income to spend so how is this beneficial? The Fed always needed 2% inflation. The father of negative interest rates is Larry Summers. He teaches or has been in government. He is not a trader and is clueless about how markets function. I warned that this idea of negative interest rates was very dangerous.

Yes, I have warned that the central banks are trapped. Their QE policies have totally failed. There were numerous “analysts” without experience calling for hyperinflation, collapse of the dollar, yelling the Fed is increasing the money supply so buy gold. The inflation never appeared and gold declined. Their reasoning was so far off the mark exactly as people like Larry Summers. These people become trapped in their own logic it becomes irrational gibberish. They only see one side of the coin and ignore the rest.

Central banks have lost all ability to manage the economy even in theory thanks to this failed reasoning. They have bought-in the bonds and are unable to ever resell them again. If they reverse their policy of QE and negative interest rates, government debt explodes with insufficient buyers. If the central banks refuse to reverse this crazy policy of QE and negative interest rates they will see a massive capital flight from government to the private sector once the MAJORITY realize the central banks are incapable of any control.

The central banks have played a very dangerous game and lost. It appears we are facing the collapse of Social Security which began August 14th, 1935 (1935.619) because they stuffed with government debt and robbed the money for other things. Anyone else would go to prison for what politicians have done and prosecutors would never defend the people because they want to become famous politicians. We will probably see the end of this Social Security program by 2021.772 (October 9th, 2021), or about 89 weeks into the next business cycle. These people are completely incompetent to manage the economy and we are delusional to think people with no experience as a trader can run things. If you have never traded, you have no busy trying to “manipulate” society with you half-baked theories. So yes. The central banks are trapped. They have lost ALL power. It becomes just a matter of time as the clock ticks and everyone wakes up and say: OMG!

We have government addicted to borrowing and if rates rise, then everything will explode in their face. Western Civilization is finished as we know it just as Communism collapsed because we too subscribe to the theory of Marx that government is capable of managing the economy. Just listen to the candidates running for President. They are all preaching Marx. Vote for me and I will force the economy to do this. IMPOSSIBLE! We have debt which is unsustainable the further you move away from the United States which is the core economy such as emerging markets. Unfunded pensions destroyed the Roman Empire. We are collapsing in the very same manner and for the very same reason. We are finishing a very very very important report on the whole pension crisis issue worldwide.

Next week, China will begin its competition with London & New York and attempt to create the equivalent of the London gold fix but in Chinese yuan on April 19th. Of course the gold bugs are misrepresenting this as some dollar killer. Top Chinese banks, alongside Standard Chartered and ANZ, will be among 18 members to join a new yuan-denominated gold benchmark that signals China’s biggest step towards making the yuan convertible. By creating a yuan based gold fix, this is a back-door to floating the yuan itself. It will allow for arbitrage in currency so you can go long or short gold in dollars and the opposite in yuan and you have then created a yuan contract.

For years, these people spinning stories such as how “paper gold” was evil, failed completely to comprehend how the market even functions. OPEC nations who could not earn interest religiously, bought gold and then sold it forward. They were not interested in gold, it was the means to earn interest without calling it interest. This is what gave gold the liquidity that other commodities did not. It was an interest play for decades. Creating a yuan based gold fix is once again not about gold but about a test for floating the yuan. Sophisticated players will use this for the currency and China will monitor the trading as a test case for floating the currency. This is the small step forward. China has to float its currency or it will NEVER make it to the big leagues. Capital has to freely be able to move in and out without applying for permission to enter and leave.

So now these people spinning this story show their ignorance. They say no dollars allowed, as if this is some war that will destroy the dollar. China dollar reserves are over $3 trillion. Why would they try to make those reserves worthless? If they wanted to hurt the dollar, then convert the $3 trillion into something else. But what? Rubles? Gold is not easily transportable for international settlements among nations and are such is such a tiny fraction of world capital flows (less than 1%), that converting it gold would isolate their economy. These claims only reveal their lack of comprehension of how the economy even functions.

Those who are screaming gold will now go to $64,000 an ounce for this is making the yuan a gold backed currency, only demonstrate how ignorant they are when it comes to international finance. It was during the 19th century when the Silver Democrats tried to fix the silver at 16:1 relative to gold seriously over pricing it relative to where it traded in Europe. That resulted in silver being attracted to the USA and gold fleeing the country. This is why the USA entered a 26 year depression and ended up virtually bankrupt when J.P. Morgan had to arrange for a gold loan in 1896 to save the country. Here is the English magazine Puck showing America drowning in silver by their stupid attempt to overvalue silver relative to gold because the miners paid off the Democrats just as the bankers do today.

If China even dared to attempt to make gold some absurd price well above the world price, they would be bankrupted in a matter of weeks. Everyone would sell their gold to China and return with dollars. You could then just wait for the collapse and buy back the gold at the world price. Any attempt by any government to FIX THE PRICE or gold far above the world price is precisely converting gold to FIAT defined as dictating the price disconnected from reality of the free market.

So anyone claiming gold will rise to some absurd number, just ask them will they buy it from you at 10% or 5% of that number now and ask them how much do they want? I could easily deliver any quantity at 10% or 5% of such a price of $30,000, $50,000, $64,000, or $100,000. I will be glad to sell them an option at those prices. As the TV show use to be say: Let’s Make a Deal. The question really is; Do they honestly believe this BS? Or are they paid by people to try to sell dreams like swamp land in Florida?