Tag Archives: Monetary Policy

Jul 21 2016

Front-Running Now a Crime?


Armstrong Economics Blog

Re-Posted Jul 21, 2016 by Martin Armstrong

DOJ

The US Department of Justice has arrested Mark Johnson who was the global head of foreign exchange trading at HSBC as well as a former colleague, Stuart Scott. The two traders are accused by the US government of using inside information to profit from a $3.5bn currency deal. Of course, inside trading only is a crime in stocks – not commodities, futures, or currency. The US Department of Justice (DoJ) accuses these traders of “front-running” and opens Pandora’s Box..

The implication of this new aggressive tactic means in reality, Goldman Sachs can be shut down entirely with probably every other cash market maker in New York City. Anyone who now looks at a client’s position and adjusts the prices or trades ahead of an order in anticipation, is committing a crime according to this latest case allegations. This would easily be applied to any analyst who has positions in something and then tells people it will rise. Is that now front-running? Buying before you put out a recommendation? It may no longer be simply to say you have positions in that instrument. This too, under this new interpretation, would constitute “front running” which they are calling a criminal act. Obviously, if you want to tell the world what to do, you better not have a trading account. These interpretations can change a lot.

Meanwhile, the U.S. Department of Justice also filed lawsuits seeking to seize dozens of properties tied to Malaysian state fund 1Malaysia Development Berhad (1MDB), saying that over $3.5 billion was misappropriated from the institution. The lawsuits, filed in Los Angeles, seek to seize assets “involved in and traceable to an international conspiracy to launder money misappropriated from 1MDB”. The alleged offences were committed over a four-year period and involved multiple individuals, including Malaysian officials and their associates, who conspired to fraudulently divert billions of dollars from 1MDB.

The Malaysian lawsuits did not name the  Prime Minister Najib Razak, but they did name his step-son Riza Aziz. They also named Malaysian financier Low Taek Jho and the Abu Dhabi government officials Khadem al-Qubaisi and Mohamed Ahmed Badawy Al-Husseiny.

The DOJ probably has no clue that Goldman Sachs is deeply involved in this fund. They will not like where the breadcrumbs might lead.

In both of these cases, there is a great departure of business as usual. You can bet that the NY bankers will be pouring money into Hillary’s campaign at this point and may even start going to church on Sundays.

Jul 20 2016

Why Are Italian Banks Breaking Europe?


Armstrong Economics Blog

Re-Posted Jul 20, 2016 by Martin Armstrong

BadBank

QUESTION: Mr. Armstrong, why are Italian banks in worse shape than most other countries. What happened to the bail-in program of the ECB? Can you explain why Italy is threatening the entire banking system of Europe?

ANSWER: The bail-in policy of the IMF and ECB was directed at the idea that the rich would pay, even if that meant paying for pension funds. But in Italy, stock ownership is distributed predominantly among individuals. Therefore, politicians were unwilling to deal with the crisis. Forcing bank holders of shares and bonds to take a haircut meant the middle class would be scalped, and that meant political unrest. Italy never cleaned up its banks, and as such, it has been a growing problem with about €360 billion in underperforming loans. This is nearly 18% of all loans in Italy. They are dealing with this in the typical manner of forcing haircuts on those who have been stupid enough to invest in banks in other countries that amazingly go back for more pain and suffering. In Italy, this may lead to a pitchfork revolution.

LongBranchNJ-DepressionScrip

This is not unusual. This was also the core crisis that created the Great Depression. In that case, foreign governments issued bonds in dollars in small denominations and the New York bankers sold them to the general public. The crisis emerged because this was a Sovereign Debt Crisis in 1931. Hence, there could be no bailout domestically within the United States to protect foreign bonds sold to domestic mom and pops.

As the economic depression deepened in the United States during the early 30s, which also was when the Dust Bowl unfolded, farmers had less and less money to spend in town and could not pay their loans. Banks began to fail at alarming rates in the Mid-West as farmers could not repay, and in the East, the default on foreign government bonds wiped out savings and caused depositors to withdraw funds. During the 20s, there was an average of 70 banks failing each year nationally. During the first 10 months of 1930, 744 banks failed. By 1934, 9,000 banks had failed in all. It’s estimated that 4,000 banks failed during the year of 1933 alone. By 1933, depositors saw $140 billion disappear through bank failures.

This is what made the Great Depression so great. Banks saw bad loans soar and mom and pops who bought foreign bonds were wiped out. The combination of these events led to the massive collapse in the capitalization of the economy. More than 200 cities had to issue their own money for there was a shortage of money and banks.

Euro Crisis - 1

When mom and pops hold the bonds and shares of the banks, the option of a haircut is greatly diminished. The risk that we now see in Europe is the further deflationary pressure of the collapse of capitalization of the European financial system. This is not something that can be resolved by the ECB. When a country surrenders its currency, it is indistinguishable from a gold standard if they lose the ability to devalue to offset the crisis. The pressure would normally have been offset by the collapse of the Italian lira. That being extinct, the pressure becomes a contagion that will spread throughout Europe.

This is the price of a single currency, but without full federalization politically. This combination of events renders the crisis insurmountable and the outcome can only be the destruction of the euro and the single monetary system. The danger here is that the politicians in Brussels will fight to save their personal power at the expense of the entire continent.

Jul 20 2016

Donald Trump Puts Reinstatement of Glass-Steagall Act Into 2016 Republican Party Platform…


I have a degree in economics and although I did nt take that road in privet life and have kept up with the field and the field move with the banking as it gave the idealists a way to get more money to cover up what they were doing to main street. This move my Trump is significant as Sundance writes here. Read this post several time and save it as it is a key point in saving the country.

Jul 18 2016

Taxation Without Representation or Even Residency


Armstrong Economics Blog

Re-Posted Jul 18, 2016 by Martin Armstrong

Tax Robbery

QUESTION: Mr. Armstrong; The taxation of the internet seems to be rising. At the same time it appears as though this could really harm the economy by reducing competitiveness of small companies trying to comply with collecting taxes of so many different states. Have you looked at this as a possible factor in creating the next economic depression?

Thanks

BV

ANSWER: Absolutely. There is a tremendous clash of jurisdictions and governments are fighting for more and more taxes to pay government pensions. It has turned into a them against us confrontation and he who makes the rules typically wins until he provokes revolution. Most revolutions are ALWAYS over taxes as was the American and French Revolutions. The Supreme Court ruled in Quill Corporation v. North Dakota 504 U.S. 298 (1992) that there was nothing inherently unconstitutional about requiring out-of-state retailers selling over the internet to collect state and local sales taxes on orders shipped to in-state residents.  The only question was whether imposing such a requirement would cross the line from an acceptable burden on interstate commerce to an unreasonable one. That the Court did not decide. They claimed that technology had greatly eased the burden of collecting taxes for multiple jurisdictions, however, the Court concluded that Congress should make the call.

The ruling demonstrates how courts cannot be trusted to defend our liberty when those judging are appointed by the political machine. What if every state applied taxation based upon the same methodology that the Feds do. Lets say you were born in New York but moved to San Francisco. New York could then claim that since you were merely born there, you owe taxation to them on your income yet you use no services. California then imposes income tax on the theory you are a resident using services. Now you owe income taxes to two States plus the Feds. This would destroy the freedom of movement rapidly. Those who leave the United States suffer the same fate and owe taxes to the USA for the simple reason of their birth.

If the Congress enacted such a law demanding everyone on the internet are tax collectors for every possible taxing authority, the economy would collapse. Then cities could demand the same thing so places like Philadelphia or New York City that impose additional sales taxes of some kind would jump on the wagon and everything would collapse. Now you can see how revolution is born. Those in power always want more without regard for the consequences. This is why I have argued we MUST eliminate income taxes at the federal level and states must be restricted to their territory. No state has the right to impose any duty upon a non-resident of their jurisdiction – PERIOD. Forcing small business to collect taxes for every state would destroy small business and compels them to be quasi-government employees with criminal penalties for failure to comply, without any compensation.

Jul 13 2016

The 2015.75 Crisis Moving into 2020.05


Armstrong Economics Blog

Re-Posted Jul 13, 2016 by Martin Armstrong

Crisis

The world financial crisis that is unfolding post-2015.75 is different from that which followed the 2007.15 peak in the ECM. As stated countless times, each event is a crisis in a different sector. The 2007.15 crisis was the over-leverage in real estate that the bankers created. This time, we are looking at the demise of governments. Under normal conditions, bond prices would be falling with interest rates in the public sector rising. We still see this unfolding in the peripheral markets. The markets where central banks have been buying government bonds to try to stimulate the economy has utterly failed and created a crisis beyond contemplation. We are looking at the collapse of government’s ability to issue debt as we move forward into this cycle. The only buying will be central banks at the end of the day – totally insane.

Bailout-R

The Sovereign Debt Crisis of the 1840s was the demise of the states, thanks to Andrew Jackson shutting down the Bank of the United States. This led to a banking crisis with individual states trying to support their banks. Because the states could not create money. The states issued debt to bailout the banks, but the crisis was far too massive, and as a result, the banks took down the state governments, which had no choice but to permanently default on their debt. This time, governments are trying bail-ins and this is causing confidence to collapse. Why should people trust banks at all? Once they hoard cash; that is it. The velocity of money implodes and you end up with an economic depression.

Draghai Euro CrisisTo answer all the questions about whether this will be covered at the World Economic Conference — of course. And to answer why we did not hold one in Berlin, yes, our models were warning about significant civil unrest in Europe as a consequence of the complete fiscal mismanagement of the ECB. It appears that the negative interest rates are totally insane. This is the complete incompetence of those who think they know how to manipulate society from Larry Summers to Mario Draghi.

These people will never admit a fatal mistake. Thus, we have to stand by and what Rome burn.

Jul 12 2016

German Fear of Inflation is Causing Collapse of Europe


Armstrong Economics Blog

Re-Posted Jul 12, 2016 by Martin Armstrong

German Hyperinflation Wheelborrow

Germany’s obsession with anti-inflation policies inspired by the Hyperinflation of the 1920s is so misguided that it is not threatening to collapse all of Europe. Former ECB banker Lorenzo Bini Smaghi has now even called to rescue the Italian banks with European taxpayers’ money. He is correct in warning that the insistence of Germany on the prohibition of state funding bailouts could evolve into a threat to the entire European financial system. The ECB is desperately trying to support the euro, but a strong currency only promotes deflation – not recovery.

German 1918 Revolution

The German hypeinflation was the result of a collapse in confidence because of the 1918 Communist revolution in Germany. Nobody would lend the government money after they invited the Russian communists to take over Germany. This had NOTHING to do with printing money. That was the result of the collapse in confidence, not the original cause.

This misguided interpretation of the German hyperinflation is causing the exact same response. People are hoarding cash, not investment, and banks are collapsing. Deutsche Bank says it need 150 billion euros. This is a full blown sovereign debt crisis that will tear Europe apart. Negative interest rates are accelerating the process.

Jul 11 2016

Banking Panic in Italy


Armstrong Economics Blog

Re-Posted Jul 11, 2016 by Martin Armstrong

Italy

We have reports from readers in Italy that ATM machines are being emptied. A run on banks is beginning in Italy.

Jul 11 2016

The Euro on the Brink of Disaster


Armstrong Economics Blog

Re-Posted Jul 11, 2016 by Martin Armstrong

Euro Sinking

 

Euro HangingWe are looking at the collapse of Europe unfold much faster than anyone suspected. I have been warning that the Continental EU banks are in serious trouble. The negative interest rates have devastated Europe. While trying to stimulate borrowers who are not interested without an opportunity to make money, the ECB has wiped out savers, pensions, and sent cash into hiding contracting the European economy – not stimulating it. I have also warned that it is the EURO which is in serious trouble and that BREXIT was the only way to save Britain from being dragged down under as the Euro sinks.

The Italian banks are collapsing and the crisis is now risking bringing down the Italian government. If they do not bailout the banks, the people will be in revolution. If they bailout the banks, they can only print Euros. The is starting to illustrate what I have been warning about. The EURO is in effect like a gold standard. When crisis hit, everyone had to suspend the gold standard for World Wars I and II and then upon the fall of Bretton Woods. The currencies were tied to gold which they could not increase its supply. This is the same crisis now with the EURO. Despite the EURO is really just electronic/paper, its quantity is still fixed by the EU membership. No single member state can just increase its supply unilaterally. That would be like trying to maintain a gold standard and one nation revalued its gold to three times that of what everyone else uses. That becomes impossible. The Silver Democrats nearly caused the bankruptcy of the USA for overvaluing silver relative to the world in the 19th century.

This is why the euro CANNOT SURVIVE. You have sovereign states with their own crisis and that demand measures separate and distinct from other members. This is how the euro system will break. It is extremely urgent that you understand the crisis ahead. This is what will send capital fleeing into the dollar. True, some will buy gold. That is generally retail investors. Pension funds and institutional investors will buy US government bonds, dollars and park them at the Fed, or jump in with both feet into the US stock market.

By the time this mess comes unraveled, we will see the world completely change. We are probably looking at a major world monetary reform come as early as 2018. The speed with which this is unfolding is rather incredible

Jul 8 2016

US Government Preparing for Massive Civil Unrest


Armstrong Economics Blog

Re-Posted Jul 8, 2016 by Martin Armstrong

Weapons

The Federal government is arming every agency from the IRS to the State Department for domestic purposes. This is clearly a response to what they know is coming. There is no question that they are preparing for an uprising. They know that socialism is collapsing. Rather than reform the political economy, they are digging in their heels and getting ready to fight the civilian population. Many are starting to investigate this very unusual trend. This is very alarming. They are watching Europe and know any trend that starts there, always come here — not just fashion.

The non-prosecution of police is resulting in widespread civil unrest where merely people in uniform are seen not as “pigs” as in the 1960s, but the enemy no different from an invading army. Now 5 officers are dead and 6 were injured in a Dallas protest. The police involved in Baton Rouge had four previous “use of force” complaints filed against them. As long as police are not prosecuted, then the bad ones will risk the lives of all because they will all be seen as the enemy. It is time to beginning prosecuting police who act abusively or we will risk civil war.

Jul 7 2016

Banks Trying to Figure Out What Lies Ahead


Armstrong Economics Blog

Re-Posted Jul 7, 2016 by Martin Armstrong

LondonStkExchange

The big US banks — JPMorgan Chase, Goldman Sachs, Bank of America, Citigroup and Morgan Stanley — have large operations employing tens of thousands of people in the UK. They have historically set up their regulated businesses in Britain and then used its right to “passport” into the rest of the 28-member bloc. Lawyers are warning that after BREXIT, they would likely need a new legal home base, so they are preparing to shift at least some work to cities such as Dublin, Paris and Frankfurt.

Meanwhile, Continental banks in Europe are in trouble. The bad loans continue to pile up and the economy simply cannot recover with negative interest rates. What is ironic here is that UK banks are not in the euro so their reserves are not falling off the cliff as those banks using the euro as its base currency. The UK banks are safer than those in Continental Europe – the ultimate irony.