QUESTION: Hi Martin,

Recently you wrote: “Recently, this has manifested in laws that have attacked foreign investment in real estate, which is not the “hot” money that blew up the world in 1997. ”

I live in Vancouver where real estate prices are completely divorced from local wages. If it is not hot overseas money that is driving our real estate market then what is? Your analysis is appreciated as always.

Nick

ANSWER: It is foreign money pouring into Vancouver seeking to park in a world that is in economic and political chaos. This has been accelerated by the decline in the C$, which has made the prices appear cheap in other currencies. When you look at our Canadian Real Estate Index in terms of different currencies, you can see that it has been attracting capital. The problem is rather clear. Foreign capital buys the trophies. Others may raise the price of houses because they see the high-end rising, but it is not foreign capital that is bidding for the average home in general. The problem comes when they put in punitive laws that become permanent because of a trend based entirely upon currency.

QUESTION: You commented that the central banks had a difficult position when they were on the gold standard compared to post-1971. Could you explain that difference?

Thank you for the education. Its better than any classroom.

EJ

ANSWER: The United States created the Federal Reserve in 1913. Prior to World War I, central banks were long-established in Europe like the Bank of England in 1694. What you have to understand is that BEFORE World War I, the central banks of Europe were faced with two duties because there was the gold standard.

1.) The first was to defend their currency’s parity with gold and thereby the entire edifice of the international gold standard. This required raising interest rates and keeping the total volume of money and credit under control, often with contractionary effects.

2.) The second responsibility was to act as a lender of last resort for their banking system by supplying emergency liquidity. This necessitated an expansion of credit and a lowering of interest rates.

Post-1971, the central banks were no longer required to intervene to maintain the exchange rate relative to the gold standard, which is more or less similar to Hong Kong managing the peg to the dollar today.

Paul Volcker raised interest rates insanely into 1981 to stop inflation, but he ignored the consequences that would have on the value of the dollar on world markets. This was the stone that hit the standing pool of water which then at the 1985 Plaza Accord suggested that Europe create a single currency. One mistake is never corrected and never acknowledged. They constantly create a new scheme to solve the last one they created.

COMMENT: You and Maggie could have solved BREXIT in a week!

HS

REPLY: She would have done precisely that. Of course, they staged a coup against her to take the UK into the euro. She was not against the EU as long as it remained a trade union. We had discussions on that subject. Maggie said at the Bruges Speech:

“We have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level with a European superstate exercising a new dominance from Brussels.”

While some people are claiming she would NEVER have had a referendum, that is total nonsense. Her Poll Tax was to make people have a stake in government and then they would vote and pay attention. That was her true motive behind that step which nobody understood and it backfired on her.

She was against the euro and the federalization of Europe; she would MOST DEFINITELY move to exit the EU under these terms. She would NEVER have agreed to surrender the sovereignty of Britain.

The idea of the euro was born at the Plaza Accord in 1985. The purpose was to create a single currency to compete against the dollar. It was James Baker’s idea that if there was a single European currency, then the dollar would not be the main currency and it would not rise excessively. Nigel Lawson was a big supporter of joining the euro at that time. The entire Plaza Accord and then the Louvre Accord were all about managing the dollar value in FOREX markets.

Using her Bruges Speech and trying to twist things around that she would have been against a referendum and would be in the remain camp is TOTAL nonsense. We had deep discussions about the problems with the euro. The commission designing the euro came to our WEC in London. I met with them about the structural design of the euro. I think I knew where this went all wrong and I knew where Maggie stood. She also respected that I was one of the leading currency specialists on the subject with real experience and not just theories.

QUESTION: Dear Sir,

In connection with official and real interest rates:

For us, the ordinary people, how can we benefit or lose from this situation? As it seems on first site that it simply deals with big boys (gvmnts, banks, etc)

Thank you

SM

ANSWER: Our client base is probably the most diverse in the financial world. There is a split between the fake rates of government and the real-world rates of the private sector. The little guy has NEVERmaterially benefited from the decline in interest rates because the banks never lowered the rates they charge consumers in proportion to the decline in official rates.

The consumer-level actually sets the tone for the big boys. Governments are hopelessly caught in a crisis drowning in debt and there is no possible way we can climb out of this without major problems and structural reforms.

Understanding we have a Sovereign Debt Crisis is the first step in framing your strategy. Stay away from government debt.

Next, understand that the broader trend will be toward higher interest rates. If you are a borrower as in a mortgage, that means you want to lock it in and do not sign up for any floating rates where you have to pay. If you are a lender, then you do not want to lend out at fixed rates.

Understanding there is a debt crisis, this means you need to develop a strategy of moving to the private asset classes.

The big boys will follow consumer trends. The government will try to convince everyone that they have control. This is simply a game of poker where you can bluff and win with a losing hand if you are good enough. That is the trick governments have been playing on everyon