Kidnapping for Profit


COMMENT: I read your piece on taking the profit out of prostitution to end kidnapping young girls. That has been a huge problem in Eastern Europe and girls were even getting kidnapped in Western Europe on vacation. Here in Italy, there was a huge problem of kidnapping people and demanding money from their families. The government passed a law that if a family member was kidnapped, they froze the accounts of the family to prevent people from paying. At first, it seemed cruel. But once it was no longer profitable to kidnap people, it stopped. I think your idea would probably work.

VSZ, Rome

REPLY: When they tried prohibition in the USA, it did not stop people from drinking. What it did do was establish the Mafia in the USA. Suddenly booze was profitable. When prohibition ended, the Mafia was well funded and expanded into other ventures. When you make anything illegal, it becomes tax-free and there is the incentive to expand whatever that business might be. We are talking about human nature. During a crisis, legal goods are suddenly going for a premium. They call it price gauging which is illegal in Florida but it still goes on in a storm.

They are now warning Americans traveling to some parts of Mexico for they are starting the same scheme – kidnapping people for ransom. If there is a profit to be made from any illegal activity, it will be exploited. It does not matter what the subject might be from drugs, booze, to prostitution. Just follow the money.

Why Parliamentary Political Systems are Dangerous


COMMENT:  Hi Martin, reading your article about the SPD imposing Marxism on Germany is horrifying. To see established political parties so greedy that they’re willing to partner with fringe parties to maintain control is nuts.

We’re currently seeing this in British Columbia where the Liberal party lost its majority due to a government formed by new Democrats and the Greens. Now, this handful of green party MLAs wield enormous powers. They’re impeding the expansion of kinder Morgan’s pipeline to Vancouver, despite FEDERAL regulatory approval.

How can so few, be so greedy, as to crush the economic activity and benefits that this creates for thousands of workers? Bring on the crash and reboot, I’m sick of this.

Mike C.
Calgary

REPLY: This is what is wrong with the Parliamentary System. There should be a run-off with a second election between the two top candidates. This is what they do in France. The systems employed in most other countries allow fringe groups to get control. Do not forget that Hitler won during the 1932 German election less than 36.8%. This is what is wrong with such political systems. You would think that we have learned our lessons from the past by now.

Gold v Dollar


QUESTION: Hey Martin
You always say that us in Europe better get our money out while we still can.
I know that you recommend bank account in US but that isn’t always so easy.
As some kind of alternative, what do you think about storing some gold in Asia ( Hong Kong, Singapore etc.)

I am no gold bull and I understand that you take the risk of gold still going under 1000 dollars but in the long game you always say that the tangible asset survive.

mainly I like this option because it’s easy to set up, relatively cheap and I don’t have to report it.

If you could find the time to give me the possible down sides in this and that way keep me from doing a big and costly mistake I would really appreciate that.
J.P

ANSWER: What you have to keep in mind is timing. Many people like to refer to the Great Depression as their guide. Keep in mind we were on a gold standard so the rise in the dollar meant a rise in gold. As the Sovereign Debt Crisis hit in 1931, first the capital fled to the dollar. Then when the dollar was the last one standing, pressure on the dollar began as people assumed the US would default like everyone else. That did not happen, by FDR devalued the dollar relative to gold moving it from $20.67 to $35.

There are already 13 nations in default of their national debts. If interest rates go up 1%, we will see another almost 30 join the default list. Takes interest rates up 2.5%, and the list will soar to probably 100 nations in default.

The first crack in the world monetary system will ONLY be caused by a strong dollar – not a weaker one. First, you get the dollar rally, then you get the dollar collapse. So keep this in mind. If you buy gold and then see a decline, will you panic and sell the bottom, which is typical? That becomes the game.

There are other places to have dollar accounts. But the USA is not part of the reporting system back to Europe. Most other places are.

The Failure of Human Judgment


QUESTION: You have said it is a waste of time to try to persuade a government to act in advance of a crisis. Nobody seems to even come close to you with experience and contacts. Still, do you think it is possible to ever change that reality?

PL

ANSWER: Sadly no. The only possible way to change it would be to eliminate career politicians and people would serve one term as originally intended. People make a judgment in the own self-interest. Then you have the problem of human judgment. The majority is always wrong in markets as I have stated many times. But that decision-making process is wrong in so many other fields that also require a judgment.

The author of Harry Potter, JK Rowling, told her readers on Twitter that she received “loads” of rejections before she finally got published. She said she was rejected 11 times before someone took a chance on her. This is the fate of human judgment in so many fields far too often because people also judge others by themselves. Some women were angry that I dared to say that not all prostitutes were forced. They judge others by themselves. There are people who have always slept around and others who value celibacy. We are all not the same. Likewise, Goldbugs cannot accept that gold is not money because that is their view and the rest of the world is wrong.

When you judge others by yourself, you will never arrive at an objective decision. This is why the majority will ALWAYS be wrong in just about anything that requires human judgment. So eleven publishers rejected Harry Potter. What does that say about human judgment?

Tennessee Waffle House Shooter, Travis Reinking, Captured…


2:10 p.m. – Authorities say they have arrested a man suspected of storming a Waffle House restaurant in Nashville and fatally shooting four people with an assault rifle.

Authorities announced that 29-year-old Travis Reinking, was taken into custody Monday. Other details were not immediately available. (Via AP)

Nicaragua Protests Over the Collapse of Social Security


At least 10 people have died in Nicaragua during this week’s violent protests over the government’s planned changes to the social security system. Nicaraguans began protesting on Wednesday against measures that increase worker contributions and lower pensions. The economics of Marxism has completely failed and the decline in the birthrates spells doom for most pension models.

This has been a direct confrontation with Ortega, a former Marxist guerrilla who has had to face the reality of Marxism as did Russia and China. Protestors in Managua threw rocks and set fires in unrest that started Wednesday, and police responded with tear gas and rubber bullets. Late on Saturday, local media stated that a reporter was shot and killed during a live broadcast from Bluefields, a town on Nicaragua’s Caribbean coast that has been hit by the violence.

This is the CIVIL UNREST that will rise up around the West as socialism continues to collapse. The taxes must rise and the benefits must decline and even that will not keep the social systems in place for more than two years. We will have to face a complete revision of the monetary system. How that is approached will determine if we have violent confrontations with government and the rich are dragged from their homes and hanged as has so often taken place in the past.

Europe v America


QUESTION: Why is Europe still in an economic crisis among its banks while the US banks are obviously beyond the crisis days of 2008-2009?

Thank you for your insight.

HT

ANSWER: The bad loans in the states were really dumped into Freddie Mac, is a public government-sponsored enterprise created in 1970 to expand the secondary market for mortgages. The main difference between Fannie and Freddie boils down to who they buy mortgages from. Fannie Mae primarily purchases mortgage loans from commercial banks, while Freddie Mac primarily buys mortgages from smaller banks that are often called “thrift” banks.

The bad real estate loans were stuffed into Fannie and Freddie so the bad debt was not in the banks. In Europe, the bad loans are still on the books of the banks. Hence, the European banking crisis was not been addressed and this is the primary difference between American v Europe.

Low Inflation with Low Unemployment?


COMMENT: Good day Martin;
Regarding: Market Talk- April 11, 2018
On the Fed minutes, you stated: “Interesting as they admit they are confused as to why unemployment is so low yet there is still no inflation.
I will accept the challenge and take a stab at it.

As you have stated many times trade is summed in dollars, not amount of goods. The USD has lost 7.0% in 2017 while imports have increased roughly 9.0% y/y in dollars. China, Mexico, and Canada make up 45% of U.S. imports, but all three countries’ currencies have been in lockstep weakening while other EM currencies have strengthened. Retail Sales increases y/y are up 4% since 2011 which may be due to a strengthening labor market but not enough to raise margins on the products sold.
Did I pass the test? Please grade.
RH

REPLY: I give you an A.  Everything is interlinked and we have to look at the full-spectrum. Typically, inflation unfolds when there is CONFIDENCE in the future. Hyperinflation takes place when CONFIDENCE in government collapses. We are dead center. There is no real CONFIDENCE in the future so people are spending less and saving more (hoarding) so there is no mad rush to go buy something today for fear it will rise in price tomorrow. As long as people remain unsure about the future, they will also be in the saving mode.

Add to this human tendency concerning the impact of taxes. What government refuses to look at is the bottom line. The more they raise taxes, the less disposable income the individual has in every class. Even those who are in the lower class where they do not see a tax increase are still impacted because wages will not rise when employers have to pay more in taxes and products will rise in price and tax increases are passed along. Therefore, if you earn $100 and take home $80 before a tax hike and now you take home $70, your disposable income is reduced and inflation is suppressed

Can Governments Dictate to the Free Markets?


QUESTION: Martin,
Thank you for your work and I really enjoy reading your blog. I had a conversation with someone in the hedge fund world and thought he had a very good thought/point on government bonds. He suggested that to prevent a collapse, the government would mandate that retirement accounts hold a certain percentage in government bonds. It will be a way to tax or force a purchase of debt. Maybe you have commented on this before and I missed it, but what do you think of that possibility? Pensions, 401k, and IRAs will have requirements to get the preferential tax treatment.

Thanks again for your insights.

B

ANSWER: The USA is the least of the problem. The huge crisis is in Europe. Many nations already mandate the majority of pensions must invest in government bonds. Even the US Social Security system is 100% in government bonds. The problem is that interest rates are at historic lows. Pensions need 7% to 8% on to remain solvent. Forcing 100% of all pensions into government bonds will not prevent the crisis coming. The pensions will still collapse.

This is why Europe is trying to take the Euro market away from London. They know it will crash so they want it within their control so they can outlaw shorting the Euro as they have done with Eurozone debt.  What they are doing is reverse the free market and politicians desire to isolate the Euro as if it were the Russian ruble during the Soviet era.

Instead of facing our problems and dealing with it, they are really moving to control and regulate the free market to remove its freedom. Despite the fact that the currencies of China and Russia during the communist period were not free markets, communism still collapsed. You cannot prevent the economy from ignoring the economics of reality. Regulation will always fail.

The Theory of Inflation is Completely Wrong


QUESTION:

Dear Mr. Armstrong

Firstly, thank you for your insights and forecasting. I am not really in a position to properly capitalize on them, but all information is useful.

The Labour government of New Zealand is conducting a taxation review. They have called for submissions and although I realize mine won’t make a jot of difference to the outcome I will try.

In a recent blog, and more as a footnote than content, you alluded to a system whereby income taxation was abolished, and the government printed the money for it’s expenses. Would you please flesh the concept out a little with regard to the checks and balances and effect on foreign exchange?

I have spent some time thinking about an all-encompassing transaction tax to replace all taxes that are not punitive (eg. tobacco and alcohol). I assume you would think this terrible, but I have not read any arguments as to why this would be so, only “it would be terrible”.

Your thoughts on this would be most helpful and appreciated.

Kind Regards

R

ANSWER: The assumption that an increase in the money supply is the root of all inflation is simply a theory that does not stack up to history. If we look at the Roman Empire, between 241BC and 68AD, the death of Nero, the Roman monetary system for that segment of 309.6 years was incredibly stable. The government minted the coinage and used it to pay its expenses. In today’s terms, we would say the government just printed money rather than borrowing it. Indeed, the Roman government had no central bank nor did it have a national debt.

Because the coins were struck from dies that were made by hand, there are subtle differences that allow us to determine how many dies were in use at a given time. We know from testing how many coins can be struck from one die before it breaks on average. By multiplying that number by the known dies, we can them determine the introduction of new money into the economy took place on an annual basis. During the Republican period, there was a moneyer who was in charge of minting the coins. We still have this tradition today.  Here is a new $1 bill with Steven Mnuchin’s signature as Secretary of the Treasury the same as the Roman coins were signed by their moneyer for that year. (see above denarius). Traditions from Rome remain in place still today with the signature of the treasurer being the moneyer.

 

The Roman denarius was the most secure currency in the world at that time for 309.6 years before any debasement begins under Nero in 64AD. The reason for that debasement appears to be linked to the Great Fire which destroyed much of Rome and the rebuilding costs were tremendous. Since there was no state borrowing, Nero began the debasement of the coinage reducing the weight of the gold Aureus and the silver was reduced from 97.5% purity to 93.5%. He was increasing the money supply by issuing more coins with the same amount of silver.

 

Therefore, all the research that I have conducted demonstrates that inflation is by no means tied to the increase in the money supply, which is the entire reason nations borrow today. They think borrowing rather than printing is less inflationary. That is not true if the debt can be used as money.

The debt they create is simply now used as collateral for loans and it is, therefore, increasing the money supply with a two-tier system whereby the debt is simply money that pays interest. That is actually how the United States reintroduced paper money to fund the Civil War. The entire term “Greenback” referred to paper money issued that no longer paid interest so all that was on the reverse was green ink and no table of interest payable on the currency depending on how long you held it. In other words, paper money was reintroduced in the USA as a form of circulating bond.

At times, the national debt of just about every major nation today has reached 70% of which is attributed to accumulative interest expenditures. As interest rates rise, the national debts will explode and because of this bogus theory of inflation tied to an increase in money supply, they will then raise taxes to try to reduce deficits. This will further create a Great Depression as deflation surges. The more people do not trust the government, the more they will hoard their wealth and fear to invest.

The ECB has engaged in quantitative easing for nearly 10 years without producing corresponding inflation. People will HOARD money if they have no faith in the future defeating the theory that an increasing in the money supply will produce inflation. Only when people no longer trust the government and flip believing that prices will rise, then they will spend the currency now for it will buy less tomorrow. It boils down to what people simply believe will happen tomorrow.

This entire crisis we face is very predictable yet there is nothing we can do to prevent it from crashing our economies. All hyperinflations take place when the confidence in government collapses.