Sep 24 2015

Will Gold Complete the September Rally?

Re-Posted on September 24, 2015 by Martin Armstrong

Gold’s rally into the target weeks for the ECM appear to be linked to the potential crisis in European banking. This has nothing to do with the dollar, fiat, inflation, or whatever. The only reason gold rises is the hedge against real crisis and uncertainty.

Gold may not be sustainable. We really need to see a weekly closing above 1188 to think that there is some sustainability short-term. We need that signal to reach the technical resistance in the mid-1200 level. We have a crisis in confidence and a crisis in German banking during the ECM target on Sept. 30/Oct. 1, which will shake the tree of public confidence on a major global level.

Sep 23 2015

Bubble Bubble Where is the Bubble

RePosted on September 23, 2015 by Martin Armstrong

It is fascinating that when I warn of anything using the word “CRASH” newspapers immediate report it as I am forecasting a crash in the stock market. This demonstrates that there is no consideration that government can also crash and burn – the perfect example of 100% confidence. Yes, if this week simply closes on the Dow below 16280, then we can be looking at that slingshot move I have warned about where in one year, we have a crash and a swing to the upside to new highs. These type of events are the ultimate mind game, but that is how they destroy the majority. As for those who write asking which investment will be safe – the answer is NONE.

While those who distort the events of the Great Depression to sell gold or whatever, keep in mind that commodities peaked in 1919 and bottomed WITH stocks in 1932. Real Estate peaked in 1927 followed by bonds when the Fed cut rates to try to help Europe, then everything reversed and stocks soared in 1929 and then crashed and burned into 1932 bottoming with commodities.

There was NO SINGLE INVESTMENT left standing – ABSOLUTELY NOTHING. So why the charlatans are trying to sell you newsletter with promises of if you just bought this letter you will make 20,000%, keep in mind this is a period of survival we are entering – not wild speculation. If you do not understand the nature of the beast, the beast will have you for lunch.

So what we have to grasp here is that this is a well organized collapse. Each sector will collapse and in turn set in motion the next. If we get this week-end closing below 16280, then we may be headed for a retest of the August low going into October.

This will be the most difficult period ahead to actually forecast so pay attention. We are entering a period of chaos that BEGINS with 2015.75, it does not end there with some crash. THIS IS BEGINNING not the END.

Remember, if the stocks decline into 2015.75, that should push more and more capital into government bonds completing the BUBBLE. This is by no means a BUBBLE in stocks, commodities, or the dollar. This is a peak in GOVERNMENT. This is not even a Kondratieff Wave based upon commodities. This is the 309.6 year cycle in government and unfortunately, the other side of 2015.75 is not looking very pretty. This not about just the collapse of Europe. This is the collapse of Western forms of government that aids the shift in the financial capital of world to China by 2032. These shifts in global economic trends are measured in hundreds of years and unfortunately, we have a front row seat. It’s Just Time.

The Future Rests in the Hands of the Youth

Posted on September 23, 2015 by Martin Armstrong

QUESTION: Hi mr. Armstrong,

I’m aware of your blog for almost a year and try to daily follow your posts. I’m from the Netherlands and also over here government and other officials try to make the people believe that we’re recovering from the economic crisis. There is no mention given about a coming debt crisis.

I as 23 year old student worrying about my future. Classmates and friends experience hard times to find jobs and start a family. In these times it is almost impossible to find a job paying a non slavery salary. Let alone the recent requirements to get a mortgage.

My question to you: how to deal with these developments in these turbulent times? What can i, as student with minimal savings, do to ‘survive’ the coming sovereign debt crisis and to life a fulfilling live?

Just go on with your posts! You’re opening a lot of eyes worldwide.

Best regards,

ANSWER: I have met with students in Paris and throughout Europe. The politicians cannot understand that they are destroying your future. All they can see is their need to retain power, but the high levels of taxes are so burdensome that they are preventing the creation of new jobs. The zero to negative interest rates has resulted in the elderly still working because they cannot afford to retire.

We are reaching the end of this noose around our neck that was placed there by Marx. It is interesting how in the USA they call me a “conservative”, yet in France, they call me a “liberal” because I am against authoritative socialism. The labels change, but the message remains the same.

Why did Marxism collapse? Because government cannot create anything new for that requires the freedom to act and imagine which is exclusively an individual trait. Government creates nothing. They are the great destroyer. Companies grow and become bureaucratic. In the process, they terminate the creative genius upon which all companies are found. A creative person is a NON-CONFORMIST. Consequently, they do not suffer regulation and bureaucratic systems. So in come the lawyers and the accountants who then eject the creativity from the board, exactly as Apple got rid of Steve Jobs. Once the creative person is gone, the company begins its slow death. At first, they buy startups and pay huge money to gain creativity. In the end, bureaucracy kills the corporation for the very same reason government destroys the economy and shrinks it, no matter what they pretend.

The is just one aspect that Marx could not see for there is no difference between a corrupt bureaucratic CEO running a company and a corrupt bureaucratic politician. Hence, socialism cannot survive for it lowers the living standard of the whole.

It is nice that we have social programs, but that came at a huge cost. Families were once tight groups for your children were your retirement since they took care of their parents in old age. Today, children no longer save to take care of their parents — that’s government’s job. Consequently, Eastern Europe and Asia (excluding Japan) are far better situated to cope with the future for they do not rely upon government. The distrust of government in former communist areas is many times as much of what you will find in Europe or North America, and indeed the majority rather than a minority. This will greatly insulate those regions from the worst decline compared to Europe and North America.

What you need to do is take back government. You cannot create a solution with the same line of thinking that created the current mess. The future belongs to the youth. Understand the devil you are dancing with. It is time to become politically active and challenge the establishment for that is the only way to save the future.

Many people do not appreciate what Thomas Jefferson defined as part of the entire No Taxation Without Representation issue. True, this began by the fact that taxes were not a right of the king and could only be authorized with the CONSENT of the people, which was given by their REPRESENTATIVES in Parliament. The “representation” was originally by the people for these representatives were NOT career politicians. We have lost ALL representation for politicians have become the career bureaucrats and thus exempt themselves from most of the laws they inflict upon the rest of us. So once again the system has evolved into career politicians whereby we have lost all real representation transforming us into the property of the state to be herded like cattle and taxed to sustain the bureaucrats. This was PRECISELY what led to the fall of Rome. As the bureaucrats (army) were not paid, they would nominal a new emperor and anyone who opposed saw their cities sacked and their inhabitants killed. This would be like Chicago invading New York because the employees of Illinois were broke.

While we may not yet be at that stage in the game since money is intangible for now, thanks to Marx, we are targeting the rich. Of course There was Maximinus I (235-238AD) whose reign lasted about 3.14 years. He simply declared ALL wealth within the Roman Empire belonged to the state (him) and paid rewards for anyone who gave information about someone hiding wealth precisely as governments do today – Germany & France paying bribes to Swiss Bankers to destroy their own country, US International Revenue Service paying rewards for reporting anyone not paying their taxes to such informants all precisely as Maximinis I operated.

Today, Jefferson-Sig we once again have taxation without representation for those in office never represent the people but only government interest. But Jefferson added another dimension. Jefferson saw a national debt as two evils. First there was the fiscal problem of debt and interest. However, there was also a philosophical problem that everyone seems to overlook and this is the origin of the crisis faced by the Youth.
Jefferson explained in a lettered dated September 6th, 1789 he wrote to James Madison stating that “the earth belongs ,,, to the living” and therefore “the dead have neither powers nor rights over it” whereby one’s parents had no authority to impose decisions upon their children and posterity who had no part in making them and that “every constitution,” “every law,” and every public debt should expire within a generation of its enactment. “If it be enforced longer,” he argued, “it is an act of force, and of right.” (PTJm 15:392, 396)

Therefore, I fully agree with Jefferson. You are burdened and your future has been predetermined for you are being taxed without any choice in the matter. You have been stripped of all your rights and your future has been stolen by socialists who wanted to live well by robbing you of your freedom and capacity to determine your own future. For this, you must become politically active. Taxation is evil, and we no longer need taxation since money is no longer a commodity. Money is purely representational dependent upon faith and confidence. Government should not be allowed to borrow, for money should be created for its expense limited to a percent of GDP that cannot be increased except in time of war if ATTACKED – not like a 100 years war to justify taxation.

Sep 20 2015

The FED is now TRAPPED Between the ROCK and the HARD PLACE

Yellen Is Trapped in the Worst Nightmare Ever

Posted on September 20, 2015 by Martin Armstrong

Yellen has inherited a complete nightmare. Thursday’s decision to delay yet again the long-awaited liftoff from zero interest rates is illustrating that the world economy is totally screwed. There is a lot of speculation about why the Fed seems so reluctant to “normalize monetary policy”. There are of course the typical domestic issues that there is low inflation, weak wage gains in the face of strong job growth, a hike will increase the Federal deficit and then there is the argument that corporations that now have $12.5 trillion in debt. All that is nice, but with corporate debt, our clients are locking in long-term at these levels, not funding anything short-term. Those clients who have listened are preparing for what is to come unlike government which has been forced to shorten the average duration of their debts blind to what happens when rates rise, which will be set in motion by the markets – not Yellen.

Fed is really caught between a rock and a very dark place. Yes, they have the IMF and the world pleading with them not to raise rates for it will hurt other debtors who borrowed excessively using dollars to save money. The Fed is also caught between domestic policy objectives that dictate they MUST raise rates of they will bankrupt countless pension funds and international where emerging markets will go into default because commodities have collapsed and they have no way of paying off this debt that has risen to about 50% of the US national debt.

By avoiding the normalization of interest rates (hikes), the Fed has encouraged government to spend far more than they realize because money is cheap. This will eventually light the fire under the economy helping to fuel the Sovereign Debt Crisis. There appears to be no hope for the Fed and they will be forced to raise rates only when they see asset inflation in equities. Then they will have no choice. This is the worst possible mess and the longer they have waited to normalize interest rates, the worst the total crisis is becoming for they will have zero control over the economy and once that is seen, holy Hell will break lose.

Sep 18 2015

There is no end to the ways the Government can Confiscate your Wealth

Sovereign Debts: How Defaults May Unfold

Re-Posted from Armstrong Economics Posted on September 18, 2015 by Martin Armstrong

In the Middle East, the banks are trying to convince the Gulf States to begin issuing debt even if there is no need to borrow, simply so they have a market to trade. Governments should never listen to bankers for this always becomes a conflict of interest with respect to national debts. The sooner government wakes up to the Sovereign Debt Crisis, the soon their particular country will be saved.

When you say we are entering a “Sovereign Debt Crisis”, people automatically assume that debt will just default. Governments NEVER like to admit a mistake, so an outright default may be limited to the emerging markets the further you move away from the core economies. What may also take place is the mandatory conversion of debt extending the maturity. You may buy 90-day paper and suddenly wake up to find that the government has converted 90-day paper into 10-year bonds. Always remember, they have the tanks and guns — never forget whom you are dealing with.

In Italy, the period 1919–1922 was one of very little progress on debt and deficit reduction. Despite a levy on wealth that was introduced to tax the rich, as always, the tax faced tremendous opposition as well as implementation difficulties. Consequently, Italian fiscal deficits remained high, and inflation increased along with the money supply rather significantly. The Italian government engaged in a mandatory debt conversion, known as “conversione forzosa” during 1926, which they would again impose during 1934. They forced debt holders to extend their debt by lengthening the maturity. This seriously impacted the full faith and trust in the Italian government. During the post-1926 years and then again after 1934, the mandatory conversione forzosa effectively was seen as a partial default by the government, which made it extremely difficult and costly to borrow on a short-term basis thereafter.

You must be careful in the post-2015.75 era. Owning even short-term government paper can result in a conversione forzosa, which is the usurpation of capital by sheer force. This is one form of default that people need to realize has also been a means of default. The City of Detroit suspended all debt payments between 1937 and 1963. Britain entered a moratorium in 1931 on its debt, resuming years later.

Consequently, defaults, suspensions, moratorium, and conversione forzosa are different types of defaults whereby you lose access to your capital. There are many different flavors of a Sovereign Debt Crisis.

Sep 12 2015

An Analysis of the Market last Week and What the Next Month may Bring

Re-Posted from Armstrong Economics Posted on September 12, 2015 by Martin Armstrong

It was a mixed session for Asia yesterday after what has been a very volatile week. The talk remains as to what China’s next move would/should be and “if” the FED were to move next week. Not just in Asia has this been the most awaited FED decision in years but it has been the hot topic just about everywhere. It was a clearer picture for core European Stock Indices with all closing lower on the day with 1% declines. The US did open lower but has rallied back up.

Next week’s long-awaited Federal Reserve meeting may not spur a wild market reaction, even if the central bank hikes rates for the first time in almost a decade. Economists are about equally split on whether the long-awaited move will come, though futures market trades are pointing to at least one more month of the Fed delaying its 0.25 percentage point.

The key that is really important is the trend. There is no question our model has been pointing to 2015.75 as the change in trend for interest rates. The Fed has been backed into a corner for unless interest rates rise (“normalization”), retire funds are doomed. The Larry Summer approach is of course one that benefits banks, not the population. He envision punishing people for saving money with charging them a tax (negative interest rates) to keep hoarding cash.

Therefore, we are not looking a just a 0.25% hike in rates, we are looking at reality hitting the Fed in the face. Do they take the irresponsible approach of Larry Summers? Or perhaps they realize you cannot punish people for existing and trying to save for a rainy day. The Fed will raise interest rates for they have no choice. If not next week, they can do it at any meeting monthly and they can call an emergency meeting any time as well,

Sep 12 2015

A Serious Proposal for a different method of funding government operations suitable for a technology based economy

The Federal government never has enough money and over the past decade they have created enough money, Dollars, that there is a title wave of them about to hit us; we need a different system that the politicians can’t subvert. This short post is a way to achieve that.

The following figures are taken directly from the following government reports: Bureau of Economic Analysis (BEA) monthly report of the GDP of the United States; Monthly Treasury Statement; the Bureau of Labor Statistics (BLS) monthly employment situation; The Monthly Statement of the Public Debt of the United States and the Department of Defense (DOD) Active Duty Military Strength Report. The Monthly Treasury Statement data is reformatted to calendar year format the government fiscal year format which runs from October to September so we can compare apples to apples.

First the Facts for 2014:

#1 The federal government currently spends almost $4.0 trillion a year ($3.885 trillion) of which some is derived from taxes & fees ($3.096 Trillion) and some is borrowed ($789.5 Billion). More on this subject later since the official GDP figures are different; so we use $3.2 Trillion here instead of the actual $3.9 Trillion, to be consistent with BEA numbers (explained later).

#2 There are some 151,012,000 people working for a living including ALL categories (the BLS does not count farm, self-employed and the military). This figure is the average for the calendar year 2014.

#3 If we assume there are 2,000 hours worked per year per person that equates to 302 billion hours worked per year. This is the only assumption used here and since many workers are part time this maybe an overstated number. Whether it is or not doesn’t matter to the discussion of the concept. It would only matter if implemented.

# 4 Therefore, if we divide the $3.2 Trillion spent by the Federal government by the 302 billion hours worked by all the citizens, that gives a ratio of $10.56 of federal spending per hour worked.

Now here is the concept:

The idea is based on an economic principle that my advanced econ professor taught me my senior year at Ohio University which is, basically just a form of a thought experiment. The principle is that if we make a change and the result of the change shows a result that is the same as before the change, then there was no real change in the output only a change in how we got there. The assumption then is that it makes no difference which method is used.

What follows is for federal spending only, state and local could also be added to this but that is too complex for this brief overview. This does include ALL revenue going to the federal government no matter the reason or program including social security.

#1 We eliminate ALL personal federal taxes and fees and ALL business taxes and fees as well which then reduces the governments’ income to zero (all borrowing is also eliminated).

#2 Simultaneously we reduce individual pay rates by the exact amount of the taxes they pay. For example if you were making $25.00 per hour but only taking home $20.00 per hour the change we make would be that you would now be making $20.00 per hour but paying no taxes so your take home would be the same as before $20.00 per hour (no change).

#3 Businesses would be required to reduce prices such that their income would be unchanged in a similar manner. So the net economic effect on the economy from this change (initially) would be zero since private and corporate spending would be exactly the same (no change).

#4 To compensate for this loss of revenue the federal government would be allowed to create fiat money (no real change from what they do now) at the rate of $10.56 per hour worked by the citizens. And since there would still be 302 billion hours worked by the citizens (no change) they could spend $3.2 trillion dollars (no change).

$5 The result is that there is still the exact same amount of money in the economy in both the current system and the new system. All we did is change the method of how it got from the worker to the government.

You can see we have made major changes but nothing has really changed, we just changed the method of how we got from there to here. So therefore we are in accordance with the economic principle we started this section with being true.

I think you can see the benefits to this kind of system and, of course the devil is always in the details; however I believe I have considered most of them and they are not major obstacles. I do agree that this would take a lot of re-education to the public but I think it could be sold especially after 2017.
The major benefits are:

#1 The federal government can only spend more money when there are more people working more hours. That is an incentive to promote growth not dependency.

#2 No one has to worry about paying federal taxes so all purchasing and investment decisions are based on economics not tax avoidance. This makes for a much more efficient economy.

#3 The federal budget is always in balance. No need to borrow money and this also forces international trade to be in balance since the government doesn’t need to borrow from foreigners.

#4 Lower prices for products produced here would make the US more competitive and since the take home income is the same internal growth would be immediate.

#5 We end up with a labor based currency which is a improvement over what we have which is debt based. It also takes gold out of the equation except possibly for international trade since the current system we have of pegged rates does not work. However, that is a different subject for other papers.

#6 There are no downsides other than some federal agencies would no longer be required, such as the IRS and the FED. So actually the federal government would need less money.

The Equations:

The equations shown after this discussion are used in national income accounting to calculate Gross National Product (GDP). To show how this works we present an example using the real numbers for 2014. Again this is a simple macro model and the details are much more complicated then what is shown here. However, that doesn’t matter since the principle is valid and all the details can be worked out.

Note the BEA does not count borrowed money and transfer payments are not shown as growth. The BEA’s G also includes state and local spending much of which is transfer payments from the federal government. This means that the BEA figures for “government” used to calculate the GDP are not the same as shown by the United States Treasury for federal spending and borrowing. We will use the BEA figure of $3.2 Trillion instead of the actual $3.9 trillion pulled from the economy by the federal government for 2014 in this exercise.

GDP = Y = C + I + G + (X – M)

GDP = Y = $17.7 = $12.1 + $2.9 +$3.2 + ($2.4 – $2.9)

Where C (consumption net of taxes C_N) can be defined as gross income (C_g) less federal taxes (T_F) or C_N= C_G– T_F

Where I (investment net of Federal borrowing or I_N) can be defined as gross investment (I_G) less federal borrowing (B_F) or I_N = I_G – B_F

Where G (government) can then be defined as government taxes (T_F) + government borrowing (B_F)

X is exports

M is Imports

Y = C_N + I_N+ G + (X – M) or

Y = C_N + I_N + T_F+ B_F + (X – M)

After the proposed change

C_G = C_N

I_G = I_N

G = Hours worked (H_W) * $10.56

GDP = Y = C_N + I_N + G + (X – M)

GDP = Y = C_N + I_N + 10.56 * H_w+ (X – M)

GDP = Y = C_N + I_N + (10.56 * .302) + (X – M)

GDP = $17.7 = $12.1 + $2.9 +$3.2 + ($2.4 – $2.9)

Obviously nothing has changed since in either the old method or the new method The GDP = $17.7 trillion. Properly packaged, presented and sold by someone would solve many of our problems and doesn’t hurt either conservative or liberal principles.

Notes and Comments:

Federal Spending is very different from what is generally shown or known, for example: The Monthly Treasury Report for 2014 (adjusted to a calendar year) Shows the Federal Government spent $3.585 Trillion dollars derived from $3.096 Trillion from taxes and fees and $667 billion from borrowing. However the National Debt during the same period went up by $789 Billion so there was additional cash needed for changes in payables and obligations and capital projects of $122 Billion. Therefore the federal government actually spent/used $3.885 Trillion in 2014 or 21.95% of the GDP.

Also as previously mentioned transfer payments to the states and cities i.e. block grants do not show as being Federal spending in GDP analysis. That is unfortunate since the federal government has strings attached which give them control of the money and that will get much worse after 2016 when the full force of the Affordable Health Care Act goes into effect.

The purpose of the quick review of my idea is to show that economically and monetarily this system works. It works because economics is about people and what motivates them. In one sense Karl Marx was right labor is the ultimate source of value, he was wrong in how to use that principle and that wrongness has lead to much suffering in the world as we tried to absorb his idealist thoughts (socialism) into the real world.

This proposed system is a method of merging both Adam Smith and Karl Marx while rejecting John Maynard Keynes completely.

Sep 8 2015

A Question of Money – Interest – Bankers

Re Posted from Armstrong Economics Posted on September 8, 2015 by Martin Armstrong

QUESTION:

Mr Armstrong, interesting article today, the story of the store of value (at least long term) has always confused me. One can look at saving accounts also as an asset as it yields the interest payment and one relinquishes the access to the money. No difference to bonds.

But your article causes some questions: as you stated before the FED buying bonds does not increase real money supply, so what caused the decline of purchasing power of money in the asset class of equities? Is it that the manipulating of interest rates distorted the actual confidence and time preference in the economy which can be measured by the velocity?

You posted earlier that the velocity has declined. People do not want to invest but save which is not an option for big money as it doesn’t yield any or very little return. Hence enterprises buy back shares and smart money has no other option.

Interest rate hike by the FED, eventually increasing retail participation, a cooling world economy, sovereign debt crisis and the flight to the Dollar. The outcome of your computer, a rise in US stock markets including a possible phase transition, seems comprehensible.

The only thing what leaves me with amazement is what do they really intend? I don’t believe that the families who run the banking system, operating for centuries in money business, do not understand that. I can only assume that for being protected by government the banking cartel buys the governments time and keep financing the deficits.

Best regards,

ANSWER: The problem in so many areas is that we can focus on one issue, but the answer is a complexity of variables. The history of interest rates has been provided on this site. Interest rates in a developed economy reflect the “option” value on the expected decline in purchasing power of money. If I expect it to decline by 5%, then I expect a profit and say want 8%. You in turn will pay the 8% only if you think you also can make a profit above 8% perhaps 10%+.

In an UNDEVELOPED economy, we transpose the depreciation risk of money with risk in general. Lacking any developed economy, one will lend only based upon the risk of getting repaid. Therefore, without a legal system, the risk is either the person or the political climate. When we look at the history of interest rates, I demonstrated that the rate of interest even within the Roman Empire increased the further you moved away from Rome. Hence, the lowest interest rates are in the dollar and they rise in other countries based upon perceived political risk. Greece’s interest rates are significantly higher than those in Germany. This is a reflection of political risk, not simple the future inflation rate in the Euro.

The Fed did not increase the money supply with QE easing and we have see that 9 months of QE in Europe has also failed to create inflation. What happened to the whole theory of the quantity of money impacting inflation? The problem lies in the definition. When US government debt was illegal to borrow against using it as collateral, then issuing debt DID NOT increase the money supply. When that was changed and you can post TBills as collateral to trade, then there is no longer a difference between debt and money.

The US government did not issue paper money after the Revolution until the Civil War. To encourage people to accept it (CONFIDENCE), it paid interest. In reality, this was a form of circulating bond. The term “greenback” referred to the issues that did not pay interest and were not purportedly backed by silver or gold. You turned it over and it was just green ink with no promises.

So the Fed buying in bonds did not increase the money supply and it failed to create inflation as expected BECAUSE it merely swapped bonds (money paying interest) with non-interest paying money (electronic entries). The bankers then complained so the Fed created the Excess Reserve Facility, where banks have nearly $3 trillion in cash. The SF Fed argues Milton Friedman said they should pay interest on reserves. That was only on the required reserves. The creation of the Excess Reserves totally negated the entire idea of stimulating the economy for the banks never lent the money out. It became a giant swap of bonds for cash deposits at the Fed which it then had to pay 0.25% interest.

So now turning to the VELOCITY of money, a decline here demonstrates that people are HOARDING cash (rising in purchasing power as assets decline), as well as banks (Excess Reserves). We have companies buying back their own stock further shrinking the supply of equities also fueling the deflationary spiral. The Excess Reserves at the Fed show just how much banks are hoarding cash.

Therefore, we can see the deflationary trend and the contraction right here. The US share market has been at the high-end of trading, but it did not breakout beyond our second target which was the 18500 on the Dow. The market indeed doubled as we warned coming out of the hold in the 6,000 level passing 12,000, which is the MINIMUM requirement to start a Phase Transition. We nearly tripled by the 2015.75 target beating our minimum doubling requirement, but this was still not a Phase Transition. Why? Retail participation has been at record lows in stocks. This is a bubble in government debt and why we are at 5000 year lows in interest rates.

Now top the conspiracy. “The only thing what leaves me with amazement is what do they really intend? I don’t believe that the families who run the banking system, operating for centuries in money business, do not understand that. I can only assume that for being protected by government the banking cartel buys the governments time and keep financing the deficits.”

Banking establishments are some of the WORSE investors throughout history. They always go bust and it is government that devours them every single time. Yes, the government has been protecting the bankers for they have also been fueling the debt assisting governments to borrow. Therein lies their own demise. EVERY major banking house have been destroyed by this very same flirtation with power. They are like moths attracted to the flame of a candle, hoping to dance by the light never realizing their wings may get burned.

The cycle has change. The wheel of fortune has completed its revolution. Governments are turning against the banks and looking to electronic currency. The days of rumored banking conspiracies is coming to an end as it always has. The banks will be a giant short. When the Sovereign Debt defaults become a contagion, the banks will not be supported by government.

Sep 7 2015

Money: What Is It? What is Interest? What is the Wealth of a Nation?

Re-Posted from Armstrong Economics Posted on September 7, 2015 by Martin Armstrong

Angela Merkel and IMF chief Christine Lagarde can laugh it up as Europe burns down. The whole crisis stems from antiquated ideas that center on what money actually is. If you do not grasp what the true function which money actually provides within the economy, then you will be unable to get anything else right either. This entire idea of austerity is the crazy notion that money somehow should be a store of value. This is up there on the list of myths with those who also argue that markets decline because of shorts rather than comprehending that eventually longs do also sell.

Money is the OPPOSITE of assets and has always been historically. This is incredible important to understand far more than you may realize. If you want money to retain its purchasing power/value, you are creating a false image of how the economy functions. For Germany to be politically obsessed with the days of hyperinflation and constantly attempt to impose austerity, they are adopting the anti-asset position and that is the source of deflation.

Interest is actually supposed to be a measure of expected inflation and is essentially dealing in options. Whatever the rate of interest, the lender is expecting that the money will buy the same amount of assets upon repayment plus some profit in excess of the interest rate. Bankers want the same purchasing value back upon repayment plus their profit which is the entire purpose of lending money. Yet historically, the boom and bust cycle is the rise and fall in the purchasing power of money as measured in terms of assets. That is what is rising and falling – the purchasing power. When the purchasing power of money declines and assets rise, we call this a BULL MARKET. When the purchasing power of money falls, we call this a BEAR MARKET.

I have written many times that there is no magic level in interest rates that will cause the stock market to fall. As a market rises (BULL MARKET), interest rate MUST rise for that is the option on money and its future purchasing power upon return. Thus, it has NEVER BEEN the direction of interest rates that determines the direction of assets, for they are historically linked and must be. Only a fool, indoctrinated by Marxist-Keynesianism, cannot grasp that the economy cannot be manipulated by interest rates. This is why doing empirical studies of these two factors on a correlation model reveals simply that the stock market HAS NEVER peaked with the same level of interest rates twice in history. The level of interest rates is indistinguishable from a option premium on the future expectation of that particular asset.

The Federal Reserve keeps talking about the “normalization” of interest rates. They will not come out and explain what I am doing right now because it would expose that the emperor is naked. The Fed sees that negative interest rates proposed by the legendary banking advocate Larry Summers who may have been an agent from Hell sent to Earth to wipe out the economy, are highly destructive and amount to a tax on money. Negative interest rates can only be totally destructive to all asset classes and furthers deflation to the extreme. People then would hoard money outside of banks to avoid the tax and this leads government on their quest to eliminate physical money and embrace the age of electronic money. That changes the entire game and embraces economic totalitarianism.

These people are fundamentally destroying everything because they are clueless about what is really money. Both China and Japan rose from the ashes without gold, proving that the wealth of a nation is not its gold reserves, but the total productive capacity of its people. Returning to a gold standard will not provide some magical check and balance where assets still rise in value yet gold/money would retain its purchasing power. They are totally lost in the rambling of their own mind. When gold was used as money, it rose and fell just as anything else that has ever been money proving it does not matter what you use for money, the same result will always emerge – money is on the opposite side of money. If you cannot grasp this fundamental realization, then you are doomed to screwing up the economy and society big time.

The only politician throughout history who truly understood this fact of life was Julius Caesar. To solve the debt crisis, he realized that the value of money rose above what it once had purchased and the price of assets reflected in terms of money had declined. He realized that say when a banker lent you money to buy a home say $100,000, and the market crashes, a $100,000 can perhaps buy two houses. The banker then reaps a huge profit demanding full repayment. Caesar’s solution? He appointed a board to revalue all assets to the point when the debt was entered. He then attributed all previous interest payment to reduce that capital borrowing and therein settled all accounts. He revitalized the economy and ended the debt crisis.

Money is merely a reflection of its purchasing power. It has NEVER been historically a store of wealth and cannot possibly be under any circumstances where assets rise in terms expressed in money. For assets to rise in terms of money, that means money must decline in purchasing power. This is rather simple to understand. Money is simply a medium of exchange that fluctuates in purchasing power rising and falling based upon human activity. We are lost in understanding the future because we cannot understand the past and the role of money no less debt and interest rates, which are merely an option on the future expectation of the purchasing power of money.

The wealth of a nation is the total productivity of its people. If I have gold and want you to fix my house, I give you the gold for your labor. Thus, your wealth is your labor, and the gold is merely a medium of exchange. So it does not matter whatever the medium of exchange might be. You will give your labor provided you know someone else will accept the medium of exchange from you in purchasing something else. It is the labor of the people and their productive capacity that creates the wealth of any nation. Germany rose from the ashes in Europe to be the strongest economy without gold all on the back of the total productive capacity of its people. The same is true for Japan and for China. Where corruption prevailed as in Russia and they relied upon selling a commodity rather than the productive capacity of its people, then its economy has not soared as did China, Japan, or Germany. This also explains the third world status of South America and Africa. When a country exploits is natural resources to gain wealth rather than educating its people, its long-term viability will diminish with the reduction in the supply of its natural resources or in the case of oil, against rising cheaper alternatives. We do not get this fundamental principle correct, we will destroy our economies with excessive taxation, which in turn, reduces the total productive capacity of its people.

Jul 7 2015

Germany & France Still Demand Repayment

Re Posted Posted from Armstrong Economics on July 7, 2015 by Martin Armstrong

German Chancellor Angela Merkel and her French counterpart Francois Hollande have called on Greece to make “serious” proposals. There is no such thing as debt forgiveness, as the German’s received in 1953. Merkel sold the euro under the pretense that there would be no bailout for southern Europe; any money lent must be repaid. So it does not matter that the underlying structure cannot support that expectation. Her personal career now depends upon that event, no matter how unreasonable.

Greek PM Alexis Tsipras is due to address a summit of Eurozone leaders on Tuesday. However, he is ignoring his own mandate: end austerity. He continues to try to negotiate with the EU when it is clear that the same line of thinking that created the crisis will not provide a solution. This entire Euro Crisis will spread between now and October; things are going to get worse before they get better. So do not expect the euro or the markets to understand this instantly. They do not yet comprehend the depth of this crisis.

May 18 2015

The evil that is the Federal Reserve

In 1963 Milton Friedman and Anna Jacobson Schwartz published “A Monetary History of the United States 1867-1960″ which should be mandatory reading for any serious work in macro economics especially relating to monetary policy. In Chapter 7 and running for 120 pages is a description of the period 1929-1933 which he calls The Great Contraction. After reading this Chapter of this book of 859 pages there can be no doubt in any rational mind that the FED “caused” the economic collapse that we call The Great Depression.
There is little doubt that the FED also caused the 2008 collapse in the financial markets when the Housing bubble that they created burst. They are now working on a sovereign debt bubble that will be even worse than any that have occurred in the past. The FED needs to be eliminated.

JunkScience.com

James Longstreet ‘splains what I keep pointing out.

I consider some of the mouthpieces for the Fed to be despicable for what they condone be done to people with pensions and fixed incomes.

I could start with my familiar targets on the right, Larry Kudlow, Bob McTeer. They run cover and blow smoke for a gang of thieves working for the plutocracy, the players in the Stocks and Bonds game.

Here are some of my previous critiques:

http://junkscience.com/?s=mcteer+federal+reserve

To the terrible disadvantage of the citizens who aren’t players.

http://www.americanthinker.com/blog/2015/05/federal_reserve_implies_indirect_tax_on_savings.html

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Centinel2012

De Oppresso Liber

Tag Archives: Monetary Policy

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