QUESTION: Marty,
Sometime you compare today’s financial markets and economy to what was going on in the mid to late 1920s . Woodrow Wilson is even referenced concerning the flight of capital and of course that flight came to the United States.
You also say that the global markets and economy are unlike anything in modern history. I can only assume that you are referring to the artificial bond yields and prices due to central banks buying so much of the sovereign debt.
How is this period that same as the late 1920s and how is it different?
I am a huge fan of your work. Thanks for the blog and for Socrates!
NM

ANSWER: There was a flight of capital to the United States pushing the dollar higher for World War I. Woodrow Wilson was president 1913 – March 4, 1921. Wilson introduced a comprehensive program of domestic legislation at the outset of his administration, something no president had ever done before. Willson took a rather interesting view of tariffs. He argued that the system of high tariffs

“cuts us off from our proper part in the commerce of the world, violates the just principles of taxation, and makes the government a facile instrument in the hands of private interests.”

Tariffs were really an additional tax on consumers which Trump does not understand for he is looking only at jobs which is typical. Tariffs benefits only the producers by rewarding them with a higher income than the free market would provide. However, the other side of the coin on this issue was that Wilson also created the income tax. The Revenue Act of 1913 reduced the average import tariff rates from approximately 40% to about 26% and the revenue shortfall was to be be made up with income taxes.

Wilson created the Federal Reserve in 1913. He also moved for major legislation seeking antitrust legislation to enhance the Sherman Antitrust Act of 1890, which was really a response to the consolidation of railroads. The politicians saw mergers as destroying jobs rather than creating an efficient railway system. Wilson was also against the position that the USA should own colonies, and thus he promoted the independence of the Philippines. From 1914 until early 1917, Wilson’s tried to keep the USA out of the war in Europe. That did not sit well with the hawks in Congress.

All of that said, on the one hand we have Trump against war, as was Wilson, but in favor of tariffs as a tool to win free trade ignoring that they are really a consumer tax and protectionism for overpaid jobs. It was Wilson who told the Fed they had to buy US government bonds to prevent the yield from rising, which is sort of the problem we still have today. The Fed was originally designed to stimulate buying corporate paper directly when banks would not lend. Now the Fed stimulates by supporting government buying bonds from the banks who in turn still do not lend to support the economy in a crisis. The very idea why we needed the Federal Reserve has been completely reversed.

The primary difference today is the debt. The capital shifted into the USA and we see divergences between the highs and lows centered around World War I, whereas the 1929 and 1932 lows take place in both British pounds and dollars. For the World War I commodity boom, the US high was November 1919, whereas the British pound high was January 1920.

There was a major debt crisis in Europe, but not the United States. This is what wiped out Britain as it lost the crown of the financial capital of the world to the USA. This time, the debt crisis is systemic. The currencies are showing divergences as they did pre-World War I. But we have a socialist crisis whereas Western economies are collapsing unable to fund all the promises, as was the case with Communism in 1989-1991 in China and Russia. The central banks only keep governments on life-support and there is no direct stimulation of the economy. Every lesson from the past has been forgotten. We have put all the eggs in one basket (government) and we have politics in meltdown as republics are collapsing and the left v right is becoming much more intense which will, as always and without exception, lead to violence, civil unrest, separatist movements rising, and could result in revolutions which increases the risk of international war as politicians need a distraction from their failed domestic agenda.

It is just now our turn to rock & roll.

This will make for a very interesting WEC this year in Orlando.

QUESTION: Hi Martin
I recently stumped upon a documentary on Netflix about you and your model.
I then went on and watched some YouTube videos.
To me it makes totally sense that taxation does not work, but how can we change it. Do we need to become politicians?
We have a very high tax in Denmark. Base level around 39 percent and top level around 60. So it’s eminent to cajnge this in Denmark.
We have a quite new political party here called Liberal alliance. They promote a flat tax of 40 percent, and I think that makes sense…. But, they had such bad election and are so tiny now, they have no influence.
Everyone say we need taxes to have welfare. So how do we go from 60 to 0 percent in tax without sacrifice our welfare. And how do we convince people that it Wan work….. It will be some very tough months or years once the tax is not flowing to the hospitals etc?
I hope you can elaborate on these things.
DB

ANSWER: In building the model, I assembled data on everything I could find and then put it all together to see how and what made the world tick. I investigated tax rates to see how civilizations operated. I investigated what types of governments worked best and what always collapsed into oligarchies, then tyrannical entities, before collapsing into dust.

I read many contemporary historians directly rather than the modern interpretation of events, which have NEVER been unbiased. I discovered that inevitably people interpreted the past with a modern context. I found one of the funniest to be when they named the city of Philadelphia after the Greek meaning “brotherly love.” The founders were devoted Christians, and in their view, they loved their brother as they loved themselves. However, the real meaning in Greek meant incest — the brother was fooling around with his sister. Understanding the meaning in which words were used is critical to understanding history. You can NEVER read it in terms of a modern context.

The Romans generally had a 7% tax. They also had welfare. The difference was that they had NOcentral bank and NO national debt. They controlled the mines and simply minted coins to fund the government and its programs. The Romans controlled the mine Rup Tinto in Spain, which they won from Carthage in the Punic War. The amount of silver they mined from that location funded the government for decades.

The debasement began in 64 AD under Nero when Rome experienced the great fire and Nero had to rebuild the city. As the new silver was declining, we find the debasement. It was not an issue of vote for me and I will give you this or that. The debasement begins because the government funded itself with new money and the sources were running dry.

The problem we face is that it would have been far less inflationary to print the money than borrow it. We have a debt crisis that cannot be paid and the accumulative interest expenditures rose to reach at times even 70% of the national debt. Now that they have discovered NEGATIVE interest rates, they think they discovered a new way to tax people indirectly. They think we are too stupid to realize this is even a tax.

But fear not. We are heading into a Monetary Crisis of untold proportions. If the governments do not listen, they will create the biggest civil unrest in all of history. This is the collapse of socialism, for they have promised everything, funded nothing, and cannot keep raising taxes without causing the economy to collapse. This will undermine their entire tax system.

There are ways to deal with this crisis if we have the courage to first admit that we have a crisis. That is step one.

COMMENT: Chicago is at it again. The new mayor, Lorie Lightfoot, is proposing a sales tax for high end professional services such as accounting, legal and investment banking. Can you imagine how fast the business district will be vacant!
VL

REPLY: Chicago is rather doomed. The teachers wanted to put a tax on all trading in Chicago to pay for their pensions. These people have no concept of competition. Here is a postcard from 1909 showing that New York City was once the biggest port in America. There is NOTHING left because of the unions and corruption. Shipping simply left.

These people have no clue how the economy works. You cannot extort people. They will simply leave

QUESTION: Do you think that Cambridge Analytica actually had any influence in creating BREXIT given the controversy that they were hired but then not? Can such influence actually change elections?

DK

ANSWER: As Nigel Farage noted at our Rome WEC in early 2019, our computer forecast BREXIT when nobody else did. Our computer does not even look at polls nor does it have any way of influencing the masses. Its sole input is economic trends globally which includes all the various trading free markets. That said, the real question is are we deluding ourselves that the media or firms such as Cambridge Analytica can even influence people to start with?

I have told the story how at the very day of the top in interest rates back in 1981, my mother and her sister went to the bank and bought 10 year CDs paying 20%. They never asked me. There was never a discussion between me and them regarding interest rates. All on their own they went to the bank and locked in money for 10 years. I then asked them why they made that decision? They said at 20%, they didn’t think they would see that high of a rate again.

The average person is driven more by what they see and feel on the street than in the news. All the stats show that less than 60% of adults even bother to watch the news. It has been declining with about 50% of U.S. adults now get news regularly from television, which is down from 57% a year prior in early 2016.

Our computer forecasts the start of what we called Big Bang that began 2015.75. That was more than just the beginning of crazy negative interest rates and the start of the Sovereign Debt Crisis, which is becoming painfully obvious at the state and local levels. The crisis will expand into the federal levels probably around  2021-2022 in Europe and then Japan. Back in 1985, we also warned that the 2016 election would be the first time a third party could possibly win the presidency. Well, that was clearly the Trump Revolution. How was this forecast even possible? The start of this Economic Confidence Model wave was 1985.65. Add Pi, 31.4 years, and we come to 2017.o5 to the day that Trump was sworn in.

This pi interval is where political change often takes place. In the wave which peaked in 1929, the start was 1882.45; add pi and we arrive on November 6, 1913. That was the precise day that Mohandas Karamchand Gandhi (1869-1948) began the decline of the British Empire.

By the end of World War I which began the next year, the United States had displaced Britain as the financial capital of the Western world.

The next wave began 1934.05 (January 17/18). It was precisely the 17th when the German salute of raising the right hand was introduced by the Prussian Economic and Labour Ministry. Then on the 24th of January, Alfred Rosenberg became the ideological supervisor of the Nazi Party. It was Rosenberg who pushed the anti-Semitic and racial ideologies using what Hitler had written in ‘Mein Kampf’ as the basis for his ideas.

While Hitler expounded his own ideas, there is little doubt that he was influenced by some of Rosenberg’s beliefs. Hitler would not achieve full dictatorial power until after the death of Hindenburg in August 1934. It took just 17 days thereafter when Hitler combined the office of President and Chancellor while the army swore a pledge to Hitler personally rather than to the nation.

These Pi intervals mark the beginning of a political change. Manipulating the people does not create these changes. It is the economics behind the events. The harsh reparation payments on Germany and punishing the people for their leaders in World War I only set the stage for Hitler. It is ALWAYSeconomics which create political change. It was 1933 which not only brought Hitler up in Germany but FDR in the USA and the New Deal as well as Mao in China.

The computer in its forecasts would never be able to accomplish these results if it relied upon opinion polls which are often wrong. The way to influence people is economics. CNN and its fake news are preaching to those who would never vote for any Republican. The pools were all manipulated for both BREXIT and the 2016 election. Our computer is the ONLY forecast that got both correct without human opinion – just economics. Why do you think the press will NEVER report our forecasts? They want opinions not a computer.

What I have learned is straight forward. Given a specific time interval, humans will simply respond in the same manner consistently. Government abuses their power and over-tax and over-regulate in a quest to maintain control. In that process, they inevitably seal their own fate and thus governments die by their own hand. There is simply no exception. Undermine the economy and everything else will change accordingly.