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.

QUESTION: Mr. Armstrong; I find it amazing that you were the only analyst I found who consistently called the bull market in the Dow until January. You have forecast even weather. You have so many correct forecasts there is nobody who even comes close. Then there is your War Cycle that turned up in 2014. You warned that 2018 is where it would start to pick up steam. You have also said it is in the west rather than with Korea. The newspapers are starting to talk about war with Russia. Is everything still on track?

MS

ANSWER: Unfortunately yes. The NATO Secretary-General Jens Stoltenberg has constantly been pushing for a confrontation with Russia, He has been moving military installations to the Russian border while Putin has been forced to pursue buffer zones around Russia. The European Member States have been instructed that they should construct roads and bridges that will allow tanks to freely move throughout Europe. Interestingly, it was the construction of the roads in Turkey that allowed Cyrus the Great of Persia to invade and conquered the entire Anatolia region. So what on the one hand would allow Europe to deploy tanks against Russia, would also allow Russia to take Europe much easier. Indeed, in Poland, there is a motorway leading east to the Ukrainian border that is rarely used.

What you must understand is that the West NEEDS a war desperately as a distraction from the collapse of Socialism. NATO has been looking for any excuse to turn this into a confrontation with Russia. The crazy thing is that war has changed. Neither side wants to “occupy” the other as was the case with Napoleon and Hitler. So why are we preparing for war? What is the objective?

Turkey needs a war and they are becoming much more aggressive because the currency is collapsing. Yet Turkey is a NATO member who is threatening Greece another NATO member. Turkey is strategically moving closer to Russia than Europe. At the Ankara summit, the impression was clear that Turkey was on his side of Russia. This has fundamentally changed the situation on the Black Sea and indirectly also in Eastern Europe. In the east of the Black Sea, that is also Russia’s southern border.

Russia had included the Crimea peninsula. It gave it to Ukraine when it was part of the Soviet Union. Russia took it back because it was strategic and you can bet that the USA would have done the same had Japan tried to take Okanowa. The Russian Black Sea Fleet has been located in Crimea for more than two centuries. There was no possible way Russia would have given that back to Ukraine. The West knew that and have used that excuse for sanctions against Russia knowing full well that they were turning up the heat that could easily lead to war.

NATO has signed numerous agreements with Ukraine providing it with arms and has in all but name made it a NATO member. NATO continues to portray Russia as an aggressor when it knows that Crimea was part of Russia until 1954 when it formally gave it to Ukraine to manage, But the dominant language spoke in Crimea remains Russian – not Ukrainian. NATO is also encouraging Romania and Bulgaria to create fleets to confront Russia using the Crimea crisis as justification.

Russia, unlike China, lacks a strong domestic economy for it has been much like the Middle East – counting on commodity exports. However, as commodity prices have declined, this has weakened the Russian economy and here too Putin will need a war to overcome the economic decline ahead. NATO is an organization that can no longer be defined and it seeks to hold onto old world philosophies to justify its existence. NATO needs a war to ensure its own funding. If Russia has no real designs to invade and occupy Europe, then why do we need NATO?

The Prince Eugene of Savoy (1663-1736) was considered even by Napoleon as one of the seven greatest strategists in military history. He was also plagued by a rumor that he was really the illegitimate son of King Louis XIV of France which he perpetually denied. Yet, Louis XIV was always ashamed of such offspring and he restrained Eugene’s ambitions as if he was perhaps his son so that after 20 years of living in Paris and at Versailles, he left France and offered his talent to the kings of Europe. He fought for Leopold I (1640-1705), Holy Roman Emperor who was fighting the Turks. He distinguished himself in the siege of Vienna in 1683 and his military career was born.

Yet the Prince of Savoy was a man who observed patterns. This helped in in military strategy, but it also allowed him to see the function of government. He came to comprehend that standing armies would be easily used. It was his observations that kings would go to war BECAUSE they had standing armies that they paid for even if they did nothing. The Prince explained that there should be no armies and that would reduce war by itself. He passed on this brilliant insight to Montesquieu, who the Founding Fathers of the United States understood and thus created the right to bear arms which became the Second Amendment to the United States Constitution which is under attack today. In Switzerland, you enter military service to be trained, and then you take your gun home ready to be called upon if there is an invasion.

Unfortunately, NATO by itself needs a war. As the budgets get tighter and tighter, funding is shifted to social programs. NATO will then layoff people and lose its power base. It needs to demonize Russia as much as possible and to even provoke a confrontation to justify getting more money. Of course, it seeks to provoke a confrontation for money but it assumes there will not be World War III because neither side desires to occupy the other. So exactly why do we need standing armies today is simply a political issue. However, maintaining such a military power also ensures that it will eventually be used.

If the reason for war is no longer occupation but more like a brawl between two drunks in a bar, they do we need standing armies especially when we can just push a button? It is sad to say that now we will see tensions rise from 2018 onward into the peak of the cycle.