Tag Archives: Monetary Policy

May 3 2016

The Pension Crisis is Starting


Armstrong Economics Blog

Re-Posted May 2, 2016 by Martin Armstrong

Negative Interest Rates

The pension crisis set in motion by negative interest rates will be a major issue in the years ahead. Central banks have really screwed the entire social system and now everyone’s future is at risk. You cannot maintain negative to exceptionally low interest rates to help the bankers and claim it will ignite inflation and reverse the economy when you are wiping out the disposable income of the elderly. The elderly used to be the foundation of the economy for they always would spend when others feared to do so because they did not have to worry about future income.

Keeping interest rates this low is insane. Interest is the cost of money and takes into account the future expectation of inflation. The central bankers cannot inflate the economy when people simply hoard cash in fear of what lies ahead. This is why Trump and Sanders have done so well.

State pension funds, such as in Illinois, are bankrupting governments. One of the first lawsuits was filed by a private group alleging that their pension fund is underfunded and mismanaged as a result. Creating pension funds and then assuming the duty to manage them by a company is a lethal combination with negative interest rates. This will become a major crisis come next year. Trump better pray Hillary wins. The people will probably begin a revolution against her since she is owned by Goldman Sachs.

May 2 2016

Candidate Trump’s “America First” Economic Solutions…


This is a well thought out post and right one! I have a degree in economics received prior to the shift that embraced John Maynard Keynes’s view on economics as presented in his Book “The General Theory.” In general this view which every school now teaches is that Government can control the economy though monetary policy and regulation. This shift to service from manufacturing which Sundance talks about was just starting to be taught in the early 60’s when I was in school and since it had not been fully adopted and since I had the pleasure of reading to works of Milton Friedman who back then had already broken from the Keynesian view I was not corrupted by the government centric view. My military career and business career after college allowed me to experience the real world and also experience the full effect of the policy’s that moved so much of American might out of the country. Being retired now I write on how insane this view is and so I instantly became a Trump fan within days of his announcement. This is no place for a full debate on the merits or demerits of a service based economy but I can tell you with a high degree of certainty that this concept is fundamentally flawed and is at the very core of the problems that we now have. There is no doubt that Trump has it right my only fear is that we elected him too late to stop the train wreck.

May 1 2016

Is Saudi Arabia on the Ropes?


Armstrong Economics Blog

Re-Posted May 1, 2016 by Martin Armstrong

Obama Saudi

There is serious trouble brewing in Saudi Arabia. They have been dumping oil increasing their output by 3.5%. However, the cash is being kept offshore. Rumors have been flight that members of the Royal family may be creating a stash just in case there is major civil unrest which forces them to flee into exile. Obama on his recent trip told the Saudis they should adopt democratic reform. Make no mistake about it. There is trouble brewing in the Middle East. There is no way Obama would have made such a statement publicly if the situation were not grave.

May – August – October are being highlighted as key periods ahead.

SAUDIA-M SAUDIA-FOR-M

May 1 2016

Confused Confidence


Armstrong Economics Blog

Re-Posted May 1, 2016 by Martin Armstrong

confused

QUESTION:

Hi Marty!

I am reading and studying your blogs and Socrates for quite some time and I would really like to thank you for all the insights!

Some days I listen to bloomberg radio for knowing what ‘they’ are saying about the market developments. As I am not an experienced trader as you are, I must admit I don’t understand the ‘collective market behaviours’ e.g. besides all the traps the central banks got themselves into, my normal logical mind tells me that whenever interest rates rise, money gets more expensive, so consequently the only true reason for doing so would be that underlying economic data shows the economy is doing well and can do without ‘help’.

A simple mind like I am tells me that a stock index should rise in case of a well doing economy. Instead I only hear markets fear a interest rate hike. Seems to me that the collective wants interest rates remain low, so stockindex growth driven higher by debt.

The same for example in the case of oil. With my simple mind global economies aren’t as healthy as the financial markets might imply. So in short lower demand and risk of even demand lowering. Instead of a lower price eg. crude oil futures, the futures contract keeps on rising. I am wondering what the fundamentals are that drive up these prices?

Could you give some insights on the real fundamentals that drive markets as from a real- economic perspective I can’t figure it out!

Thnx Marty!

R

Confidence-wide

ANSWER: The fundamentals flipped after the shift from a private to public wave following 1929. Under the pre-1929 economics of laissez-faire, the government did not attempt to manipulate society with monetary policy. They attempted to lower U.S. interest rates to deflect capital inflows back to Europe, but they did not practice manipulating interest rates domestically to try to manage the economy. Therefore, raising interest rates before 1929 was often seen as bullish because it showed there was a demand for borrowing money due to economic expansion.

Today, the fundamentals are interpreted through the eyes of Marxism. Raising interest rates is now considered a punishment to society intended to deter them from borrowing. Yet, deflation involves declining interest rates due to the lack of interest to borrow. Some say that higher rates are bad for stocks, but they are solely looking at it as a punitive measure that will cost people more to borrow. You even have people cheering gold with lower interest rates.

None of this makes any sense economically. Nonetheless, we are looking at a sharp rise in stocks and gold along with rising interest rates, which will confuse everyone. Interest rates are the manifestation of expected inflation. If you think inflation will be 10%, you will lose money if you lend it at 5%. Interest rates are the price of expected inflation alongside the perceived risk.

Therefore, everything will take off to the upside and the majority, whom will be following the Marxist version of fundamentals, will feed the rally because they will be short. This view of fundamentals will eventually flip back, but only when the public at large sees this flip and goes with it. That is the point of no return where confidence in government collapses.

ECM-1970-2084 - R

Why ReportI should point out that these fundamentals tend to apply only to the investing class. I remember 1981 when interest rates reached their peak. My mother and her sister went out and bought bank CDs at 20% for 10 years. They did not ask me. They made the decision on their own and said they would never see that much interest again. They are countless others changes the trend and made that peak in the Public Wave 1981.35. This class of people act out of common sense and do not listen to the fundamentals applied in the investing class. This is the real group of people who are the movers & shakers. The rest of us are trying to figure out what they are doing. Keep in mind that within the investing class, they always try to assign some fundamental to explain something. Everyone wants to know WHY. I named by debut report on the ECM back in 1979 – “WHY”.

German 1918 Revolution

German Hyperinflation WheelborrowTake gold for example. How long have they been saying the dollar is fiat yet gold has not advanced to the same degree as the Dow since 1970. It is one of those fundamentals they always throw at you which become sophistry. Sounds logical and they mix in Germany with wheelbarrows of money, but omit the fact it was a Communist Revolution in 1918 where Germany invited Russia to come take their country wanting to join the Russian Revolution of 1917. Who would keep money in a bank under such conditions?  There was a collapse in confidence.

Apr 25 2016

Asset Recycling – Robbing Pensions to Cover Government Costs


Armstrong Economics Blog

Re-Posted Apr 25, 2016 by Martin Armstrong

Pension-Crisis

Part of the Pension Crisis we face thanks to negative interest rates destroying pension funds, then we have a temping pot of money government just cannot keep its hands out of. Governments are turning to “asset recycling” which includes even Canada. The federal government of Canada, for example, is looking at a potential source of cash they can rob to reduce the cost of government by shifting Canada’s mounting infrastructure costs to the private sector. They want to sell or lease stakes in major public assets such as highways, rail lines, and ports. In Canada, they sneaked in a line hidden in last month’s federal budget which reveals the Liberals are considering making public assets available to non-government investors, like public pension funds. They will sell the national infrastructure to pension funds robbing them of the cash they have to fund themselves. This latest trick is being called “asset recycling,” which is a system designed to raise money for governments. This idea is surfacing in Europe as well as the United States especially among strapped cash States.

The Other Side

3d_text_perspective_10915This is the other side of 2015.75 which was the peak in government (socialism). Everything from that point forward is a confirmation that these people are in crisis mode. They are rapidly destroying Western Culture because they are simply crazy and they people who vote for them blindly are out of their minds. They are destroying the very fabric of society for they cannot see what they are doing nor where this all leads. Once the wipe out the security of the future, this is how government crumble to dust to be swept away by history. We deserve what we blindly vote for.

Apr 23 2016

Failure of Abenomics


Armstrong Economics Blog

Re-Posted Apr 23, 2016 by Martin Armstrong

Abe Prime Minister Shinzo

Abenomics (アベノミクス Abenomikusu ?) in Japan are the economic policies advocated by Shinzō Abe since the December 2012 general election, which elected Abe to his second term as Prime Minister of Japan. Abenomics is based upon “three arrows” of fiscal stimulus, monetary easing and structural reforms. This has been a complete failure as the economy continue to implode. The Bank of Japan hinted possible proposals to take rates even further negative and the likelihood banks passing these levels on to the general public.

IBJYVJ-Y 4-23-2016

The dollar rallied against the yen right on target for 43 months (8.6 / 2), and has declined about 8.6 months from the high in June of 2015. It appears to be on target and the latest suggestion of further negative rates being passed on by the banks will most likely cause a flight from the yen besides admitting Abenomics has failed. This has also contributed to the Dow Jones Industrial Average rising and holding last year’s low distinct from the S&P500 and NASDAQ.

Apr 21 2016

What Are Tangible Assets


Armstrong Economics Blog

RE-Posted Apr 20, 2016 by Martin Armstrong

Assets Tangibile

QUESTION: Hi Martin,

In your April 20 blog post, you stated “You are better off with tangible assets for the transition when it comes.”

Please explain what “tangible” assets are, and what “non-tangible” assets are, assuming these also exist.

Thanks for the wonderful education,
M.

ANSWER: Tangible Assets are non debt related – fixed assets in general. This includes commodities, equities, and real estate. The commodities include non-perishable such as gold, silver, platinum, copper, etc.. The agricultural commodities are not really sustainable on a long-term basis. The primary advantage to silver and gold is that they are the same commodity in different nations where as you have even difference between Texas and Brent crude oil. Real estate varies depending upon location. You definitely have two problems. First, there is the risk of tax increases, and Second, there is the geopolitical risk in some areas. Equities (shares in public corporations), serve well and blue chips have never defaulted. Even if a company goes bust, you get something back. When government debt goes bust, you get nothing.

Apr 20 2016

Illinois is Brooke and Cannot Pay the Politicians


Armstrong Economics Blog

d Posted Apr 20, 2016 by Martin Armstrong

Muger Leslie

I have warned that Illinois is on the brink of bankruptcy. Now, Illinois Comptroller Leslie Geissler Munger says she will delay monthly paychecks for lawmakers and statewide officials since there isn’t enough money to pay the state’s bills and other services should come first. This is really interesting. What will happen next when the politicians cannot get paid?

Apr 18 2016

Negative Interest Rates Destroying the World Economy


Armstrong Economics Blog

Re-Posted Apr 17, 2016 by Martin Armstrong

Negative-Rates

QUESTION: Mr. Armstrong, I think I am starting to see the light you have been shining. Negative interest rates really are “completely insane”. I also now see that months after you wrote about central banks were trapped, others are now just starting to entertain the idea. Is this distinct difference in your views that eventually become adopted with time because you were a hedge fund manager?

Just curious;

Bob

Summers-Larry-CareerANSWER: I believe the answer is rather simple. How can anyone pretend to be analysts if they have never traded? It would be like a man writing a book explaining how it feels to give birth. You cannot analyze what you have never done. It is just impossible. Those who cannot teach and those who can just do. Negative interest rates are fueling deflation. People have less income to spend so how is this beneficial? The Fed always needed 2% inflation. The father of negative interest rates is Larry Summers. He teaches or has been in government. He is not a trader and is clueless about how markets function. I warned that this idea of negative interest rates was very dangerous.

Yes, I have warned that the central banks are trapped. Their QE policies have totally failed. There were numerous “analysts” without experience calling for hyperinflation, collapse of the dollar, yelling the Fed is increasing the money supply so buy gold. The inflation never appeared and gold declined. Their reasoning was so far off the mark exactly as people like Larry Summers. These people become trapped in their own logic it becomes irrational gibberish. They only see one side of the coin and ignore the rest.

Central banks have lost all ability to manage the economy even in theory thanks to this failed reasoning. They have bought-in the bonds and are unable to ever resell them again. If they reverse their policy of QE and negative interest rates, government debt explodes with insufficient buyers. If the central banks refuse to reverse this crazy policy of QE and negative interest rates they will see a massive capital flight from government to the private sector once the MAJORITY realize the central banks are incapable of any control.

alarm_clockTime ClockThe central banks have played a very dangerous game and lost. It appears we are facing the collapse of Social Security which began August 14th, 1935 (1935.619) because they stuffed with government debt and robbed the money for other things. Anyone else would go to prison for what politicians have done and prosecutors would never defend the people because they want to become famous politicians. We will probably see the end of this Social Security program by 2021.772 (October 9th, 2021), or about 89 weeks into the next business cycle. These people are completely incompetent to manage the economy and we are delusional to think people with no experience as a trader can run things. If you have never traded, you have no busy trying to “manipulate” society with you half-baked theories. So yes. The central banks are trapped. They have lost ALL power. It becomes just a matter of time as the clock ticks and everyone wakes up and say: OMG!

Roman-Army

We have government addicted to borrowing and if rates rise, then everything will explode in their face. Western Civilization is finished as we know it just as Communism collapsed because we too subscribe to the theory of Marx that government is capable of managing the economy. Just listen to the candidates running for President. They are all preaching Marx. Vote for me and I will force the economy to do this. IMPOSSIBLE! We have debt which is unsustainable the further you move away from the United States which is the core economy such as emerging markets. Unfunded pensions destroyed the Roman Empire. We are collapsing in the very same manner and for the very same reason. We are finishing a very very very important report on the whole pension crisis issue worldwide.

Apr 17 2016

Bundesbank Bank’s Thiele Against Electronic Money


Armstrong Economics Blog

Re-Posted Apr 17, 2016 by Martin Armstrong

Thiele Carl-Ludwig

The Bundesbank (German Central Bank) has come out opposed to eliminating cash. During the pre-Euro years, the Bundesbank was providing us with inside info on the Euro preparations because they were outright against it. Those who always hate central banks do not realize that they are not always what it seems. The Bundesbank is now clearly positioning itself against the drive to eliminate cash. Carl-Ludwig Thiele said this past week at an event in Berlin that the attempt to abolish and criminalize cash is out of line with freedom. He said that citizens should continue to decide how and in what form they want to use their money.

Thiele’s main arguments were:

  • Every citizen has the right, with his money to proceed as he wants. If action is taken at this point in the right to freedom of the citizen, it must be well-grounded. And so the question arises: How does a cash limit restrict crime in other countries? Thiele said he was not aware of any support where a cash limit, such as Italy or France, prevents crime. Crime should be correspondingly lower than in countries with no upper limit on cash, but that is simply not the case
  • The arguments that are made against cash and cash payments, are unconvincing, Thiele said. He went on to argue that cash protects the privacy of the population. That benefit is not a reason to twist into a benefit for criminal ignoring the majority of honest citizens. The right to informational self-determination and respect for private life is a valuable asset which should not be watered down or abandoned. “Cash is coined liberty” – this modified Dostoevsky quote has not lost any of its validity.