I have been warning for years at the World Economic Conferences that interest expenditures will reach the point that they will crowd out everything else. Well at last, as we enter 2019 and the War Cycle heats up, interest expenditures will now EXCEED even military spending. Welcome to the SOVEREIGN DEBT CRISIS. I have also stated for years that we elect people to run a government with absolutely NO QUALIFICATION whatsoever. There were people who want Oprah to run for President because she is (1) black and (2) a woman. This is the standard of expertise far too many people apply when it comes to politics. I have also made the analogy that this is like asking a cab driver to conduct open-heart-surgery on you because he smiles nice and holds a good conversation.

Historically, society has always gone through a major debt crisis. Perhaps that is why the Bible talked about a debt jubilee where debt is simply forgiven every 49/50 years. One question that jumps out at us is rather blunt. Does the Old Testament Debt Jubilee present a solution to our modern financial crisis? The mere fact that this is in the Bible suggests that there must have been major debt crisis even before the Bible. We do know that Hammurabi’s Law Code imposed regulation on interest. It also imposed Contract Law and required people to reduce agreements to writing that were witnessed. By implication, such a law must have meant that one person said he lent money and the other denied it. We have legal records that have survived from Babylon which even demonstrate they had an active futures market where people bought a crop for future delivery creating even options.

One of the earliest Debt Crisis in recorded history that is well documented by contemporary writers was the Debt Crisis in Athens of 354BC. Corruption between government and the bankers is nothing new. The banks were the Temples since money was donated to the gods who had no use for it. Typically, the government would borrow from this hoard of Temple money to fund wars. The priests became the bankers. In Athens during 354BC, there was one of the early banking crisis events involving what we would call the Secretary of the Treasury so to speak and his banking friends. The money grew to a vast sum in the Temple which kept all these donations in the Opisthodomos. The Temple was not earning interest on its hoard of money which just sat there funding the lavish lifestyle of the priests. The treasurer agreed to lend the money to personal banking friends who would then pay the treasurer interest that he could then personally put that in his pocket. When the banking crisis hit and there was a liquidity problem, the banks could not repay the loans to the Temple.

Most of the loans were going to real estate. When the business cycle hit and real estate turned down, people could not pay their debts and could not sell the property in a down market. Suddenly, the bankers could not repay the priests so they then tried to cover up their scheme by setting fire to the Opisthodomos. Nevertheless, the scheme was detected and the Treasurers of the Temple of Athena were seized and imprisoned, about 377-376BC. In 1989, government ministers of Crete pulled the same scam. They were depositing government funds in the Bank of Crete and interest was being diverted to themselves. It was the failure of the Bank of Crete that exposed the scam (See NY Times, 9/21/89, A14; 9/27/89, A3). So you see, history repeats like a Shakespeare play – just the actors change over the centuries while the storyline remains unchanged.

Obviously, debt and contracts have been around for thousands of years. Is there a dramatic and simple way out of all this? Some argue that there is a “debt jubilee” they take from the Old Testament book of Deuteronomy, the concept derives from the biblical injunction for a day of rest one day out of every week, a “sabbath” day. There appears to be a fractal system which is laid out in the Bible. The next injunction is for a Sabbath year every 7th year. Here, people are to not work. The next injunction appears on the year after the 7th of those sabbatical years, i.e. the 50th, (one year after the 49th). This is where we find there would be a jubilee year during which any slaves would be emancipated and everyone would return to their land and family to live off of natural providence. A clear implication of this teaching is that all obligations, including debt obligations, would be forgiven in the process. I do find it curious that this lines up fairly closely with the Economic Confidence Model (ECM) and its 6 waves of 8.6-year intervals which build up to major events every 51.6 years. Is the Bible saying that there is a debt crisis every 50 years where the solution is to default on all debts? The next 51.6-year target on the ECM will come in 2032 and our model does show that the West will yield the crown of the Financial Capital of the World to China. So does the Biblical Debt Jubilee suggest we “should” forgive all debts at the 50th interval of the 7th year or does it forecast that debts will be forgiven simply because everything will crash at that point?

I have further warned that our elected officials could not even run a bubblegum machine as a business. When they spend all the money they took in on themselves, they have nothing left to buy more gum to refills the machine. Their solution is just to raise taxes and refill the machine and spend it all again on themselves with lavish perks and pensions. The Sovereign Debt Crisis is alive and well. This is now when it is going to begin to surface to where it will become more obvious to people around the world. Indeed, I am off to Europe today for this very reason with two weeks of meetings. The risk is beginning to become obvious as interest expenditures will crowd out everything other areas of spending. Governments will try to keep the debt revolving by raising taxes and this will only further reduce both the economy and our living standards. We are being walled-in by our own debt with no place to go except default if we do not act NOW!!!!!!!

QUESTION: BitCoin has crashed and it looks like it will never be what people dreamed as some replacement for the dollar. Are bubbles always involving some failed product? A dream that is just unrealistic like the Tulip bubble?

JE

ANSWER: No. There have been many, many, many “bubbles” throughout history. Some have been just crazy like the Tulip Bubble and others have been outright frauds like the Panic of 1825 which was a stock market crash following the same idea as the South Sea and Mississippi Bubble of 1720. This time, it was again a new emerging market country that was completely just a fraud. It was a wild speculative investment in Latin America, that was all about an imaginary country of Poyais. The stock market boom became a bubble and banks caught up in the euphoria made risky loans all on this imaginary new market.

QUESTION: Mr. Armstrong; For the past two WEC events you have warned that the Sovereign Debt Crisis will strike first outside the USA and the rise in the dollar and US interest rates will push emerging markets into default. Since you also said that pension funds had rushed into emerging market debt to get higher yield not available in USA and Europe, then this will also feed into the pension crisis. I recently read here in Germany that almost 100 nations are on the brink of a debt crisis. Only now people are starting to talk about it. Do you still see this as a catalyst for a strong dollar along with war?

I am really looking forward to this year’s WEC.

LR

ANSWER: The Sovereign Debt Crisis is on schedule to be noticed starting here in 2018. We have 13 governments now who are already in default of their debt payments. There are more than 100 nations who are on the verge of a debt crisis. The rise in US interest rates and the strength behind the dollar pushes these nations over the edge. I have been warning that this trend would emerge as part of the turning point back in 2015.75. It will now intensify as we head into 2020. China’s debt to GDP is more than TWICE that of the United States. DEBT is our worst enemy and there are no viable solutions coming forward because anything implied by others is tinkering with the current system. There is no solution is valued circles, other than mine, which calls for the complete revision of the debt system. Everything being proposed so far is tinkering with raising taxes and reducing benefits as well as raising the age for pensions.

I fear that all we can do is protect ourselves. Nobody is willing to listen to me. When they will, it will be too late. Hence – the crash & burn becomes unavoidable. Nobody will scrap the system before it crashes. It is against human nature.

Mario Draghi is by no means going to stop his Quantitative Easing program. All my sources behind the curtain express fear what will happen when Draghi leaves. Who will buy the government debt and who will keep subsidizing the governments of the Eurozone? Draghi has not merely declined to end Quantitative Easing, he has pledged to continue to reinvest in debt which it matures because he knows there will be no bidders. The ECB is exceeding 40% of all Eurozone debt on its balance sheet. There will be no bid for Eurozone debt and even the German bunds are reflecting weakness.

Draghi has publicly even distanced the ECB from the monetary policy considerations of Austria’s central bank chief Ewald Nowotny, a board member. Nowotny told Reuters interview on that future of bond purchases would decline and possible interest rate moves to the upside were coming. The ECB came out and publicly stated that the views of Governor Nowotny did not represent the view of the Governing Council. This is confirming our sources which have been stating that Draghi realizes he is trapped and he is trying to hold it together until he leaves so he will not be blamed for the mess he has created in the world economy after he leaves in 2019. I hate to tell him, but I do not think he will win that race out the door before chaos hits.

QUESTION: Marty; You so casually mentioned that Britain closed the share market during World War I and that such a risk exists in Europe. Can you elaborate on this at all?

Thank you for all you contribute to society

OD

ANSWER: The entire period leading into World War I was a period of extreme socialism. This is when the world was enamored with Karl Marx. That lasted until the Russian Revolution in 1917 and the murder of the Czar and his family. The Romanov family were shot, bayoneted and clubbed to death in Yekaterinburg on the night of 16-17 July 1918. This demonstrated the hatred that Karl Marx unleashed upon the entire world. Only then did people in the West begin to look at this Marxist rebellion as something serious rather than a fashionable liberal change of mind.

Most people are ignorant about how the world economy functions no less its history. They assume that today this is a “Global Market” for the first time in history. That notion is completely wrong. Prior to World War I, the world economy was open and global. It was this openness of global financial markets prior to the war that led to the closure of stock markets. Europe will do the same so beware. It is important to understand what took place because history will REPEAT going forward in Europe.

Before World War I, financial capital was free to move from one country to another without exchange controls.  All the major countries of the world were on the Gold Standard. People assume this meant that money was real and stable. That is just propaganda for the world currency markets were still arbitraged despite the gold standard. The differences in exchange rates were arbitraged back then through the buying and selling of international bonds that were listed on the world’s stock exchanges.  Russia would issue a bond that was then listed on the St. Petersburg stock exchange as well as the major world stock exchanges in London, New York, Paris, Berlin, and Amsterdam.  Differences in exchange rates between countries were arbitraged according to the shifts in CONFIDENCE with respect to nations by buying and selling bonds in different markets. In reality, this made European stock exchanges a single, integrated market which they claim they are trying to accomplish today with the Euro

To the shock of most people, even back in 1914, currency flowed between countries with lightning speed thanks to the telegraph and international banking.  Even during the Napoleonic wars, money moved, but it was slower in that physical metal and coin needed to be transported by ship or train from one country to another.  By 1914, the Transatlantic cable stretched across the ocean connecting North America and Europe. This reduced the communication from 10 days to 17 hours with the first communication taking place on August 16th, 1858.  By the Roaring ’20s Bull Market, stockbrokers were on ships so you could trade while traveling between New York and Europe.

Therefore, arbitrage kept the currencies in check through the bond markets predicated upon CONFIDENCE. Because traders throughout the world could sell bonds and shares instantly, this is why the European governments shut down the markets. This was the check and balance based upon CONFIDENCE in their governments. On July 31st, 1914, the New York Stock Exchange closed its doors for the longest period in exchange history due to the political pressure for fear that European bonds would be sold there. The New York Stock Exchange remained closed until November 28th, 1914, when bonds began trading once again. Here is a chart of the bonds listed on the NYSE that crashed during the Sovereign Debt Crisis of 1931. That was the end of the formal bond arbitrage.

Europe feared massive selling and foreign investors would try to repatriate their money which would aid an enemy. Effectively, the free markets shut down and this was a political directive. In London at that time, individual trades were made on a daily basis, then carried until Settlement Day when trades were matched and crossed.  Brokers would make up the surplus or deficit on their accounts by settling outstanding trades with cash.  As long as there were no significant swings in stock or bond prices, brokers had sufficient capital to settle their accounts.  However, since traders relied on credit, large swings in prices could and would bankrupt many of the brokers, worsening the financial panic. This was one more concern that the brokers themselves had fearing volatility and thus supported the closures during World War I. Trading became a black market off exchange.

We have the largest database ever constructed when it comes to the global economy. Research has been carried out with one simple rule – let’s see what happened. Instead of beginning with a predetermined theory, we approached the global financial history with a view to learning how it worked rather than trying to prove a point. Markets speak to us when we listen. They show the trend and are not arbitrary. We have all been connected globally for a very long time. Capital has moved around the world based on fear and opportunity from ancient times.

At this year’s WEC. we will be also looking at how the markets speak to us and what are they saying this time about the years just ahead. Here is a chart of the Russian share market where we have created an index to expose how capital functioned and behaved going into the Russia Revolution. There was a period of two years with compressed consolidation following the 1911 high in Russia just prior to the move with the second attempt at a Russian Revolution. The market always reveals what is to come.