QUESTION: Mr. Armstrong; First I want to thank you for coming to Europe this year. It has been some time since your Berlin Conference. My question is simple. How can the ECB tell countries to reduce their debt when as you say nobody ever pays off the debt? Is this just fantasy or do they really believe what they are saying?

Looking forward to Rome.

WVM

ANSWER: The sheer demographics warn that more people will move into retirement, increasing expenditures at a faster pace than there are younger generations to compensate. This means that expenditures will rise and revenues will decline. Even if we were talking about governments that actually did pay off debt, they would still not be able to do so once we pass 2020.

Insofar as do they really believe their own nonsense? I am afraid they do. They have not yet reached the point where they will come to terms with the fact that this is a fictional world in which they dream of endless powers and they will prevail in the end. We have gone past the point of no return. We now require structural change and FAST!!!!!!!

We are beginning to witness the impact of state taxes on decision making. California’s high taxes led to the San Francisco Giants losing Bryce Harper to the Philadelphia Phillies. The 26-year-old professional baseball star agreed to a 13-year, $330 million deal with the Philadelphia Phillies because the bottom line net of what California would take was insane. I know several IT firms that are experiencing the same loss of talent all because California already has the highest state income taxes in the country.

Governments are only looking at their own survival, and to hell with the people. There is a major shift in migration and California now has more people fleeing the state than desiring to move there. Taxes are a major component and they define the bottom line. We witnessed the AOC effect, as she proudly chased Amazon out of New York. Her approval rating took a turn for the worst after chasing 25,000 jobs out of the city.

REPLY: This is going to be really an interesting WEC. Whatever can go wrong in the world is going wrong. It is becoming the perfect financial storm as we head into the bottom of the Economic Confidence Model. We have politicians only looking at saving their own power blind to the implications of their actions on a global scale. There are even rumors now that Recep Tayyip Erdoğan will claim some manipulation of the election by another country in a vast conspiracy if he loses and he will refuse to leave office.

The British Parliament has rejected Prime Minister May’s BREXIT plan for a third time. This now leaves them to come up with a plan that Brussels must accept by April 12th or face a hard exit. On top of that, the phone here is melting down with questions about how “hard” is a “hard-landing” going to be from various political sources. Central banks are shifting already to once again stimulate. This is not looking very good, to say the least. Ten years of stimulation has been a complete failure in Europe. We have major political and banking turmoil and financial chaos looking ever more serious for May.

QUESTION: Re Solution to a new monetary system::
In the “Solution” presented it was suggested that the existing US bonds be required to invest in companies in the USA. Does the govt just print the money for the bond values to give to the companies? If the companies receive the bonds, how are they liquidated otherwise?

KB

ANSWER: It becomes a debt for equity swap. The debt must be retired. It is replaced with just the creation of money. Now people will yell that is hyperinflationary. Not true. Since 1971, government debt is acceptable for collateral when you trade your accounts at a broker. It is simply cash that pays interest. It is already part of the money supply. What you are implying is really old school economics that believe increasing the money supply will be inflationary. This is just not the case. Even after 10 years of Quantitative Easing, we still have deflationary trends in pockets like Europe and Japan.

Some wrongly believe that you are just increasing the money supply. Pre-1971, when bonds were not allowed to be collateral, then yes, it was less inflationary to borrow than to print. However, since the debt is already cash that now pays interest post-1971, it is just a swap. Huge distinction.

Interest expenditures will soon exceed that of the military. This solution will reduce the cost of government, and thereafter, you outlaw any possible right to borrow once again.

While many believe that the off-exchange trading platforms in Bitcoin bypass fiat central banks, there are developments in the legal world that warn of regulation is headed into the field with a vengeance. There were three important recent actions in federal courts that illustrate the interplay among the Securities and Exchange Commission (SEC) & Commodity Futures Trading Commission (CFTC) federal regulators seeking to expand their jurisdiction into the virtual currency world. This movement to expand their jurisdiction does not come from Congress. Instead, they charge people and create legal precedents and this is how most “law” is actually made. Clearly, these actions illustrate that they are moving into the virtual currency arena. The three cases are:

• On September 26, 2018, Judge Rya W. Zobel of the U.S. District Court for the District of Massachusetts handed down an important decision in a case alleging the fraudulent sale of a virtual currency called My Big Coin (MBC).² In denying the defendants’ motion to dismiss, Judge Zobel confirmed the CFTC’s sweeping assertion of authority to police virtual currency markets under the antifraud and manipulation provisions of the Commodity Exchange Act (CEA) and its implementing regulations.

•  On September 11, 2018, Judge Raymond J. Dearie of the U.S. District Court for the Eastern District of New York denied a motion to dismiss the United States’ indictment for fraud under the Securities Exchange Act of 1934 (Exchange Act) in connection with the sale of virtual currencies claimed to be backed by real estate and diamonds.³ In denying the defendants’ motion to dismiss, Judge Dearie found that the virtual currencies at issue could reasonably be considered investment contracts and thus securities

• On September 27, 2018, the SEC and the CFTC filed parallel complaints in the U.S. District Court for the District of Columbia against an online trading platform and its CEO offering swaps based on underlying securities and commodities funded with bitcoin, alleging violations of the federal securities and commodities laws. 

My biggest concern is that it will be a tiny step for mankind to declare off-exchanges to be illegally operating without registration and it would not be too far behind for they to be criminally prosecuted for also money laundering just like any bank for the failure to report every individual trading on these platforms. I would suspect we will see the further expansion into the virtual currency world by the SEC, CFTC, and DOJ long before we see any real legislation from Congress. They will ALWAYS pick the worse cases to make law and then apply it to everyone.