Behind the curtain, there is a growing concern about a serious banking crisis beginning once again in Europe. Many governments are talking about the crisis behind-the-curtain and we are now beginning to see steps that are being taken to end the TO-BIG-TO-FAIL policies that dominated the 2007-2009 Crash.

The United States is looking at a new radical bank rescue policy where the government is proposing to revise a central pillar of the idea of bailing out banks creating new financial regulation with a new Chapter 14 bankruptcy procedure. They are looking at eliminating the risk of taxpayers’ costs to bail out banks. They are investigating the means for an orderly resolution so that the taxpayers do not have to bail out the banks. This development is causing some concern among the high-flying Wall Street banks, for if that is the case, then another crisis as 2007-2009 will result in even Goldman Sachs closing. The proposal looks to shift the burden to the shareholders and creditors of that bank. This means depositors who are thus creditors.

In Australia, we see similar legislation being proposed. This is the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017. This also authorizes bail-ins bringing an end to the bailout.

While the stock market crashed as the pundit looked in their bag to try to come up with an excuse, they blamed rising inflation and interest rates. Yet, nobody is really paying attention to the underlying trend. The cost of carrying debt has been rising gradually and there are noticeable measurable impacts that the pundits are of course oblivious to since they have to explain every day’s movements and not the real trend.

Already, the 10-year rate is piercing above the 2.6% area. There is an impact on the currency once people begin to comprehend the trend. The 10-year German bond rate is 0.70%, and this has been maintained by the ECB buying 40% of European government debt to no avail for nearly 10 years.

The real crisis comes when they realize that the ECB will not be there to buy government debt. The bidders will demand a higher yield so rates will rise very rapidly.

Meanwhile, the Fed will pursue higher interest rates as they need to be normalized to help pensions funds that are rapidly collapsing. This idea of a lower dollar will raise the price of imports and with tariffs, inflation in consumer products will rise.

Mueller is still not ending his investigation. Why should he? He would have to go get a real job in the private sector. Keep the investigation alive to pay the light bills. He shows no sign of embracing unemployment. His pretend indictment is dancing between raindrops, indicting people in Russia knowingly there will never be a trial. We cannot count him out yet as a factor that will undermine the economic confidence.

So we stand at the threshold of rising rates that will then feed into the market and create a bid for the dollar it appears after March.

I have warned continually that the Sovereign Debt Crisis will unfold not so much by people selling government debt, but by the lack of people buying new debt. The greatest peril is when there is NO BID for the new issues because all governments are operating a PONZI scheme. The sell new debt to pay off maturing debt. Currently, holders of Indian government debt have been dumping 4.7 billion rupees ($73 million) of government bonds on average every day this year, according to data from the Clearing Corp. of India. Last year, their net daily sales totaled 368 million rupees.

The Sovereign Debt Crisis emerges when the government is unable to raise enough cash to pay off the maturing debt. India has crossed that threshold so as we have warned, the Sovereign Debt Crisis will begin from outside the USA and spread to the core. This is how all Empires, nations, and city-states collapse.

QUESTION: Mr. Armstrong; You previously mentioned that we can grow crops inside warehouses without the sun or soil. How did mankind survive the last mini Ice Age wit dropping temperatures as we have seen in recent winters here in Europe?

LW

ANSWER: With each cycle, we tend to improve upon technology. Being able to grow food inside will be an important advance for us during this cycle. You can set one up in your basement.

Previously, there was the invention of the fruit wall which appeared around the beginning of the Little Ice Age that ran the course of about 200 years from about 1550 to 1850.

The invention of the fruit wall saved society. They built walls which reflected sunlight during the day essentially using solar energy to improve growing conditions. These walls also absorbed solar heat, which in turn was slowly released during the night, preventing frost damage. They created a warmer microclimate 24 hours per day.

Fruit walls also protected crops from cold blasts of winds from the north as we are experiencing today. They eventually began to construct wooden canopies to shield the fruit trees from rain and hail. They would also use mats suspending then from the walls in case of bad weather. I remember my grandfather loved figs and he had fig trees he would wrap during the winter to protect them in New Jersey. In Europe, these fruit walls were used as far north as England and the Netherlands.

Conrad Gessner (1516 – 1565) was a true Renaissance man. He was a Swiss physician, naturalist, bibliographer, philologist, zoologist, and a botanist. He wrote of the effect of the Fruit Walls which then popularized them in Europe.

The French began to improve the technology by pruning the branches of the fruit trees in such ways that they could be attached to a wooden frame on the wall.

The French botanist Charles Lucien Bonaparte (1803 – 1857) is credited with building the first practical modern greenhouse in Leiden, Holland, during the 1800s to grow medicinal tropical plants. The French called their first greenhouses orangeries since they were used to protect orange trees from freezing. Today, Holland grows more food in greenhouses than any other country.

Today, the next step forward is growing food in warehouses without the sun or earth.

Credit Karma is reporting that of the first 250,000 tax filings, less than 100 people reported owning any cryptocurrency. Credit Karma is reporting that only 0.04% of cryptocurrency-traders are paying taxes to Uncle Sam.

The dangerous aspect here is the IRS got over 20,000 names from the exchanges and they will match their accounts to tax returns. Anyone who thinks this is an alternative currency that circumvents taxes and the central banks will have a new reality after April 15th. They will know everyone who has bought or sold any cryptocurrency.

The Japanese government once again reduced its holdings of US government bonds during December 2017. In total, Japan sold bonds worth $ 22.5 billion. This is not a huge amount. Nevertheless, this puts the total stock of US debt at about $ 1.06 trillion, which is the lowest level since 2012. Japan used to be the largest holder of debt externally. However, it has fallen to number two just behind China.

By contrast, the Chinese government increased its holdings by about $8.5 billion in December to $ 1.18 trillion. The acquisitions in the entire year 2017 were as extensive as last 7 years ago. Naturally, the hard-money biased reporting paints this as an imminent crash in the dollar. What they fail to understand is that helping to lower the dollar is a tactic to ease trade friction

QUESTION: Hi Martin,
I just finished your new NYSE Boom/Busty report. This is excellent work and as always extremely fascinating. Thank you for continuing to share these profound views with us.
My question relates to your view that we are looking at a complete collapse of Quantitative Easing and that will likely see a massive capital flight to the dollar and the major safe haven will be EQUITIES. In the context of this possibility, are you able to comment on how this may relate to Real Estate. Your ECM seems to be calling for Real Estate to top out and structurally fall in 2032. Is it not possible that with the collapse of QE and potentially economies that we will see more negative rates in the short end and with the government powers to seize assets in bank accounts, would it not be prudent to have zero cash in hand and hence we see a massive capital flight to Real Estate too? Or will the collapse of QE lead to significantly higher rates across the curve and hence blow all leveraged exposure sky high?

Many thanks as always,

David

ANSWER: The problem with real estate has been that its value depends upon lending. This was what the government did as part of the New Deal by creating 30-year mortgages. This was a scheme to get prices up by extending the period people could pay off the loan. Typically, the duration was 5 years previously.

The collapse in Quantitative Easing will have the effect of causing rates to rise on the long-term. However, there will be a shift toward private assets and this will help to a large extent. However, keep in mind that many institutions will be trapped and unable to shift to private assets. Many boards will not understand the shift and still believe, wrongly, that unsecured government debt is best.

Prices of real estate will decline in proportion to the decline in mortgage availability. We are already witnessing banks beginning to withdraw from lending on real estate.

I have provided the guide-posts for what is to come. This will be an interesting future.