Posted originally on the CTH on April 5, 2023 Sundance
For his opening monologue and first interview tonight, Fox News host Tucker Carlson outlined the ramification of non-western nations now trading in alternative currencies to the U.S. dollar. {Direct Rumble Link Here] As the dollar diminishes in value, and as an outcome of Biden using U.S. treasury bonds as part of the sanction regime against Russia, various non-western nations now perceive holding dollars as exposing themselves to risk.
Carlson is joined by Luke Gromen who accurately notes the dollar as a global trade currency may continue, but foreign nations holding U.S. treasury bonds as an asset will likely start contracting. The result of U.S. treasury bonds returning after maturity with no repurchase, would be an inability of the U.S. to borrow against their sale. This could, perhaps likely will, severely diminish the amount of money the U.S. congress can spend. WATCH:
None of this should come as a surprise to those who have paid attention. Factually, in March of last year, one month after the Russian sanctions were announced, the International Monetary Fund’s (IMF) Deputy Managing Director said the sanctions against Russia are likely to undermine the US dollar’s global dominance as a trade currency. Everyone could see this coming.
(Inside Paper) – March 2022 – […] “The dollar would remain the major global currency even in that landscape, but fragmentation at a smaller level is certainly quite possible,” Gopinath said in an interview with the Financial Times. She went on to say that some countries have already begun to renegotiate the currency in which they are paid for trade.
According to Gopinath, the drastic restrictions imposed by Western countries in response to Russia’s military operation in Ukraine may result in the formation of small currency blocs based on trade between individual groups of countries. Furthermore, the use of currencies other than the dollar or the euro in global trade would result in a further diversification of central banks’ reserve assets. (read more)
The efforts of NATO and the western alliance to crush the Russian currency have failed. The Russian ruble currency has jumped back from the sanctions and is now even stronger than before the sanctions were put into place.
With China and India supporting ongoing trade with Russia, and with Saudi Arabia responding coldly to the U.S. working on a deal with Iran for nuclear weapons, the geopolitical strategy of NATO, G7 and the proverbial western alliance increasingly looks like it will backfire.
Yellow Team -vs- Gray Team: Remember, China just brokered a deal to lessen hostilities between Iran and Saudi Arabia. The fulcrum of that agreement was economics.
Meanwhile in North America, Mexican President Andres Manuel Lopez-Obrador has said he was not willing to join the energy suicide pact pushed by Joe Biden and Justin Trudeau…. A policy break in the trilateral relationship which suddenly, and not coincidentally, aligns with the timing to make Mexico a pariah to the U.S. vis-a-vis a renewed media push on the drug cartel narrative.
BIG PICTURE NOT BEING DISCUSSED – The western politicians followed the climate change instructions of the WEF multinational corporations and banks (Build Back Better) and post-pandemic immediately started reducing energy development. The central bankers then began raising interest rates to shrink the economies of the same western nations to the scale of the now diminished energy production.
The raising of interest rates is now hitting the national and multinational banks impacted by government policy that was following WEF orders. Now the western politicians are stepping in with the government controlled central banks to backstop the national banks and multinationals. Can you see the dynamic?
Team yellow is suffering the consequences of their own ideological policy as enacted. Team grey is not going to help team yellow get out of a crisis team yellow created, which was intended to hurt team grey.
I know a lot of goldbugs hate my guts because I do not constantly only say BUY and I point out that NOT only gold and silver survive the collapse of a currency.
I once had a German client who was a multimillionaire back in the 1970s. When the German government collapsed, he was buying all the old coins that were base metals for scrap. They were nickel and copper and some aluminum. It was presumed that they were all then worthless.
The new government could issue the paper money, but they lacked the metal to strike a whole new coinage. They then announced that the old coinage would retain a value as fractions of the new currency. He became a multimillionaire overnight. I use to enjoy his stories of the transition since he lived through it there in Germany.
His stories of living through such monetary reforms helped me understand the mechanism behind such events. As I have explained, even in times of geopolitical stress, that is the period when we find the greatest number of hoards of even ancient coins.
Just like the stock market, gold has risen and fallen in value. The propaganda about Bitcoin was the same nonsense – the hedge against central banks and a “store of value” when it is simply no different from anything else that trades – it moves up and down. There is NO STORE OF VALUE in human history. Everything rises and falls. That was what Karl Marx was trying to stop – the Business Cycle of booms and busts.
Sorry, I am not a Marxist. There is a cycle to everything and that means that there is a TIME to BUY and a TIME to SELL. The stock brokers in the Great Depression told people to hold. The market always comes back. Others told them to average in. It took 25 years for the stock market to reach the old 1929 high (it exceed the 1929 high in 1954 on the Dow).
I buy gold but in coin form. The one consistent form of value historically has is generally been food if you go that far down the rabbit hole. However, a loaf of bread from 1930 will not do you much good today despite the fact it was just 12 cents back then. Now that was an investment if it would survive 100 years.
Precious Metals will do well, but I would prefer them in coin form. You may know what they are, but it is the other person who has to know before it has any value. That average person must be able to identify that it is real. That will be your problem. You won’t get change for a cup of coffee with a kilo bar of gold.
I have suggested the pre-1965 silver coins for small transactions. But real estate, art, ancient coins, antique cars, rare coins, and the stock market will all have some value being redenominated into whatever new currency emerges and that will depend on the government. The German stock market rose with hyperinflation and was re-denominated in the new currency in 1925. Like most other markets, it rallied and peaked going into 1929. So I’m sorry if the truth hurts. But the stock market will NOT go to ZERO and only gold will rise if the dollar crashes. There is no such period in history that hints at such nonsense. This is propaganda made up by those trying to sell gold and will say anything just like a used car salesman.
No matter what the tangible object might be,
it will rise and fall with the business cycle. It always has, and it always will.
QUESTION: Governments create their own sovereign fiat currency, to facilitate trade, among other reasons. So counterfeit is punishable, in some countries, by death, & at minimum, incarceration. Currency is supposed to be sacrosanct, created under the most exacting conditions. So what to do when your own gov’t engages in what is essentially officially endorsed counterfeit? I mean, the “money” has become almost meaningless, unless you’re on the receiving end. For non-insiders like me…buy PM.
HS
ANSWER: I have trouble with this misinformation always about the only money is gold and paper dollars are worthless fiats, which have rebuilt the world many times over since 1861 and the introduction of the paper dollar.
The propaganda of the goldbugs which has led so many to lose so much has been this nonsense that gold is the hedge against inflation. When the gold coin was money during the 19th century, it rose and fell in purchasing power no different than any paper currency. These people sell fiction like a used car salesman just to sell their product. It honestly does not matter what money is. It always is just a derivative of barter. I give you this for that. You will accept paper money because you know that others will accept it from you. A woman tried to spend a $20 gold coin at Walmart and they refused to accept it because they did not know what it was. She then took them to the back and exchanged them for $20 bills.
Try going to Starbucks and spending a $20 gold coin and asking for change. Unless the salesperson knows what it is, they will refuse.MONEY has always been nothing more than a belief system. That’s all!
FIAT simply means by arbitrary decree. Just because a currency is gold or even silver, does NOT make its value intrinsic. Governments have debased their coinage and reduced the weight declaring its value shall be whatever they say. I have written about how Japan did that and eventually, the people refused to accept Japanese coins and they stopped minting them for 600 years.
The Romans reduced the weight of their silver coinage from 6.5 grams to 4 grams and only because they defeated the Greeks, the Roman monetary system became standard.
During the American Revolution, people accepted the Continental Currency. Money has always simply been predicated upon what people will accept.
Gold has no value whatsoever unless the other person also believes it has value. Gold or silver has no value intrinsically any more than a paper dollar or a bag of rice unless there is an unspoken agreement among people that it is a valuable medium of exchange.
This is the truth. All else is propaganda. Money has been many things throughout thousands of years from seashells to cattle and even slave girls.
Saint Patrick in the 5th Century AD upon his arrival in Ireland, found that MONEY was expressed in human slave girls. He wrote in his Confession,“I think that I have given away to them no less than the price of fifteen humans.” This passage shows something very important. First, MONEY is not defined as the Medium of Exchange exclusively. It also serves the purpose of a Unit of Account. This becomes the true function of MONEY even more so than what it is. MONEY is a language of value.
FIAT is when the government dictates what something is and that will be Digital Central Bank Currency. But if everyone accepts it, then it becomes the medium of exchange.
QUESTION: Hello Martin, Been reading your writings with keen interest for over 15 years now since while you were incarcerated. My question is: The way you paint a picture of the past economies going back hundreds and thousands of years through the discovery of coinage hoards is brilliant. How will a future “Martin Armstrong” from say 500 to 1,000 years from now be able to utilize that methodology of discovering the history of this era when we’re largely a computer digital transaction society? (Especially if government-planned digital currency takes over?) Thanks. Jerry S.
ANSWER: I know the crypto-people do not like my view that digital currency is entirely dependent upon the power grid and once money is in any official exchange, it will be subject to government regulation. Just look at Tik Tok. The government wants to ban it because they CANNOT get into the data and who is saying what. It has nothing to do with China. They are not interested if you paid the babysitter next door, but Congress is. They have backdoors into everything – not Tik Tok. That has become the hub for many threats to their form of society called the dreaded CONSERVATIVES.
Reading historical accounts of things would never provide the real picture. The coinage has been the breadcrumbs that lead to the truth. I can see the real level of debasement, and when put together with historical accounts, we can get a real picture of history. We must also respect that some periods are black holes and the coinage is what turns on the light.
For example, it is the coinage that enables us to confirm much of history and I believe we will see the future follow the past. The wife of Augustus, Livia, the first empress of Rome, was a very powerful woman. The real power behind the thrown. I suggest watching the series – Domina. It is far better than any fictional story. It was his mother, Livia, who pushed him to be Emperor.
Livia was renowned for her intelligence but was also one of the most beautiful women in Rome. Tiberius was not her favorite – that was his brother Drusus. Tiberius had a son with his first wife Vipsania who was born in 14BC. Livia compelled Tiberius to marry Augustus’ daughter Julia as a way to the throne. Augustus was not fond of Tiberius for he was simply unsocial. His marriage to Julia was like a mixture of oil and water. She sought sexual parties and ignored Tiberius and was finally exiled by her father.
Frome the coinage, we can confirm that Tiberius responded to a major earthquake that destroyed much of Asia, modern-day Turkey. Tiberius issued coins for the aid of Asia. We also know that he waived all taxes for 5 years and donated 10 million sesterces for relief. What politicians would ever system taxes as a tool of relief today?
Augustus’ heir was to be Germanicus (15BC-19AD) who was the son of Nero Claudius Drusus, the younger brother of Tiberius, and Antonia, who was the daughter of Mark Antony and Augustus’ sister Octavia. He was married to Agrippina, Sr, who was the daughter of Agrippa and Augustus’ daughter Julia. Agrippina seems to have been the independent-minded woman who blamed Livia for the death of her husband.
Agrippina, Sr. was such a disruption politically that Tiberius was compelled to banish her like her mother in 29AD where she eventually died of starvation in 33AD. Her son, Caligula, seems to have inherited her insanity, and her daughter Agrippina, Jr, as well. She is actually the first woman on Roman coinage displaying her name. Livia’s portrait would be used but always styled as some goddess.
Of course, her son Caligula has warranted films exclusively devoted to his. He is famous for insulting the Senators by making his horse a senator. Caligula was born in 12 AD. He was named as Tiberius’ heir in 37AD and it has been long suspected that Caligula smothered Tiberius to death to take the throne. He was notorious for his depravity and cruelty. He was assassinated by the Praetorian Guard on January 24th, 41AD.
The Praetorian Guard needed an emperor or there was no point in them being the Praetorian Guard. They turned to Claudius and made him emperor. You can see from his coinage the image of the Praetorian Guard camp on the reverse announcing that he was made emperor by the Praetorians.
There is a great series of these events done years ago by the BBC. It was based on the book I Claudius and the series bares the same name – I. Cludius. That too is a worthwhile series that was produced decades ago.
In fact, Agrippina Jr, sister of Caligula, was not only the mother of Nero who ordered her killed for her dominance, but she married he uncle Claudius to secure the throne for Nero. Once again, we find her portrait on coins alongside her son, Nero, which also reflected her dominance and effective rule of the empire. Some have likened her to Hillary Clinton for her cunning and effective rule behind the curtain.
To ensure Nero would become Claudius’ heir, she poisoned Claudius’ son – Britanicus. It shows what a bad apple can do to the whole lot. Many have pointed to the fact that it was the dominance and cunning of the women that brought down the Julio-Claudian Dynasty.
Nevertheless, the coinage not merely confirms history, but also provides a window through time for us to see how human nature never changes, and as such, the future becomes merely a repetition of human contrivances.
To answer the question if future historians will be able to do what I have done if the currency is eliminated and we have just electronic digital currency, I believe the answer lies in the past. We can see something rather astonishing right here during the reign of Tiberius (14-37AD).
Augustus/Octavian (heir to Julius Caesar) became the first emperor of Rome following the defeat of Cleopatra and Mark Antony in 30 BC. He was granted the title Augustus in 27BC by the Senate for saving Rome from the proxy war of Cleopatra who used Mark Antony to try to conquer Rome. However, because he was the first emperor, it appears that he blanked the empire with coinage to justify his position as emperor, not king, which was really the same thing. There are over 500 different silver denarii types. I have never even heard of a collector assembling each type.
Against that backdrop, being indeed a reluctant emperor and forced into an unhappy marriage, it is understandable that being an unsocial workaholic, the circumstances most likely drove Tiberius deeper into seclusion. He rarely left Rome. In fact, he would not even attend the gladiator games. This is the extent of his coinage – two types. That’s it! Instead of the proliferation of coinage under Augustus, spending was curtailed and we can determine that from the coinage, not contemporary accounts. This led to a SHORTAGE of money, and in such a recession. That became the Financial Panic in 33AD.
Because of the shortage of money, this is where we find the first time that the private sector began to issue its own coinage. Some have claimed they were some sort of token. But they are confined to this period of Tiberius where there was a Financial Panic and a shortage of coinage compared to the reign of Augustus.
During the Great Depression, because there too the austerity measures of the government created a shortage of currency. Thus, over 200 cities in the United States began to issue their own currency for local use.
Likewise, during the Civil War, there was also a shortage of money There is a whole array of private coinage during that event. Then there was the hard time that followed the Panic of 1837, Again we have private coinage surfacing. The same again took place with the Panic of 1873.
In Japan, because of the corruption of the government always devaluing the currency of the previous emperor, the Japanese finally just stopped accepting the coinage of their own government. The economy reverted to one of barter and they used the coinage of China. Japan lost the authority to even issue coinage for 600 years until the Meiji Era.
Cryptocurrency will fade with the collapse of governments. It will be too dependent on a unified power grid. If history is any guide, we will return to a barter system combined with perhaps old identifiable coinage that the average person will recognize. That is one reason why I do not recommend bars of silver or gold, but the old coinage. Bags of pre-1965 silver coins in the US or similar in Europe and Canada where the average person can look at a date and accept it whereas they cannot tell the difference between a var of silver or nickel.
Do not make the mistake of judging others by yourself. You may know was a bar of silver is, but that will not help you if the other person does not. There are videos on YouTube where people are offered a silver bar or a chocolate bar and they take the chocolate. Not everyone knows what you may know. Keep that in mind.
So at the end of the day, we will have to rebuild society from the ground up post-2032. A currency need not be backed by anything. Its value is ALWAYS based upon a belief system. The same is true with gold and silver. They had no utility value, only as jewelry from the outset. They were valued because at first, the kings reserved gold only for their adornment.
Orichalcum, brass, is the legendary metal mentioned in the story of Atlantis in the Critias of Plato. In fact, orichalcum was considered second only to gold in value and it held a greater value than even silver. It was said to have been mined in many parts of Atlantis in ancient times. These ingots of orichalcum were discovered in a shipwreck that had sunk 2,600 years ago, off the coast of Gela in southern Sicily. The ingots are an alloy consisting of 75–80% copper, 15–20% zinc, and smaller percentages of nickel, lead, and iron. In other words, they are brass. Because the color is closer to gold, this was highly prized.
The Greeks rarely used orichalcum for coinage in the Hellenistic world. It was used experimentally by Romans under the reigns of Octavian and Mark Antony. Where we begin to see orichalcum used in the coinage consistently is dated to the monetary reform of Augustus (23 BC). It was then that he introduced sestertii and dupondii were struck in orichalcum (Cu-Zn alloy) rather than silver and bronze. The sestertius of the Republican era was a tiny silver coin of about 0.7 grams. Later, the monetary reform Nero made during 63–64 AD, introduced the use of orichalcum to the denomination of the as, semis, and quadrantes.
Following the Civil War with the death of Nero, orichalcum was replaced in the coinage with bronze. It is highly likely that someone figured out how to make orichalcum and its premium just collapsed. Counterfeiters had long figured out how to mix wrap a coin in silver and strike it to make it appear it was silver, but also to use chemicals to cause the silver to appear on the surface. We cannot rule out that someone had figured out how to make brass and thus it lost its premium.
The value of any currency is entirely based on belief. Once the ancients figured out that orichalcum was just an alloy and could be made, then it no longer seems as more valuable than silver. Even cryptocurrency is worthless. Its entire valuation is simply based that others believe it has some value. Money at its most basic core during a financial crisis is predicated upon its utility value. Hence, in Japan, bags of rice became money. It is unlikely that even cryptocurrency will survive the transition post-2032. Precious metals ONLY in the form of some recognizable coin will be accepted like the Japanese accepted Chinese coins. Barter will return as it always has. That will most likely be in the form of food.
QUESTION: Mr. Armstrong; Who is being irrational? The markets or the analysts?
KE
ANSWER: That’s simple. It is the analysts. The markets are ALWAYS correct. When you have bank failures unfolding, people will withdraw money out of caution. It is the very same reason there are ancient hoards of coins. You find coins in times of economic stress and uncertainty. This is a purely RATIONAL human response to uncertainty. It consistent for thousands of years. For any analyst to claim the markets are acting “irrationally” only proves they should look for another profession.
Sir Thomas Gresham began his career in 1543 working at Mercers’ Company at the age of 24 years old. He left England for Antwerp/Amsterdam which was the financial center of the day much like Wall Street. That was where he became a merchant businessman which was where banking existed in those days. He became an agent for King Henry VIII in the Antwerp/Amsterdam market. He became a trader and in so doing, he began to observe how capital moved.
The interesting aspect was that he was called in as a sort of crisis manager as I have been during financial upheavals. In 1551, Sir William Dansell, who was King’s Merchant there in the markets, ended up putting the English Government into a financial crisis thanks to his mismanagement. The English turned to Gresham for advice since he became quite astute at trading. They adopted his proposals. It was then that Gresham proposed a very ingenious tact. He advocated a FOREX intervention to push the pound higher on the Antwerp change. His intervention proved so successful that in just a few years King Edward VI had discharged almost all of his debts. By pushing the pound higher, he was able to repay the previous debts by devaluing them.
Therefore, the English Crown sought Gresham’s advice in all their finances until Mary came to the throne in 1553. Gresham was instantly pushed aside for Alderman William Dauntsey, who lacked trading experience and quickly sent the Crown into financial stress. Gresham was called back to deal with the mess once again.
Under Queen Elizabeth’s reign (1558–1603), he continued as a financial agent of the Crown and also became the Ambassador Plenipotentiary to the Governor of the Netherlands. This was the period of civil unrest in Antwerp which compelled him to return to England in 1567. This is also when the English had the founding of the Royal Exchange to compete with the Netherlands. It was Gresham who made the proposal to build, at his own expense, a bourse or exchange. This demonstrated that Gresham was a trader and understood how capital flowed. Apart from some small sums to various charities, Gresham bequeathed the bulk of his property (consisting of estates in London and around England giving an income of more than 2,300 pounds a year) to his widow and her heirs, with the stipulation that after her death his own house in Bishopsgate Street and the rents from the Royal Exchange should be vested in the Corporation of London and the Mercers Company, for the purpose of instituting a college in which seven professors should read lectures, one each day of the week, in astronomy, geometry, physic, law, divinity, rhetoric and music.[1] Thus, Gresham College, the first institution of higher learning in London, came to be established in 1597.
Gresham’s Law (stated simply as: “Bad money drives out good“). He concluded this from his observations that foreign exchange back then was based on the metal content and weight of the coinage. Therefore, as debasement took place, people would hoard the old coinage of higher quality and spend the debased. Thus, the bad money drove out the good and actually shrunk the money supply in circulation.
He urged Queen Elizabeth to restore the debased currency of England. In so doing, you got to repay old debts with debased currency. Governments to this day practice that same trick. Repaying a 30-year bond today the bondholder cannot buy what the money was once worth 30 years ago. The interest does not really compensate for the loss of purchasing power over long periods of time.
QUESTION: Hi. I do not understand why you keep advocating over and over how the depositors should be bailed out over 250k. It makes no sense from a moral hazard perspective. It is fact that should they do that, in spite of depositors signing agreements acknowledging that deposits over 250k would not be guaranteed, the Fed will also need to cancel all outstanding debt instruments, whose borrowers also signed an agreement that if they don’t pay they lose the asset. The moral hazard is so severe as to bloody the eyes. Why do you keep endorsing the bailout which will have to be at least initially funded by taxpayers even if they get the money back? The money to shore up bank reserves in exchange for collateral has to come from somewhere. What is the real fear, that people will move deposits direct to T-bills and in so doing, set up funding for a US CBDC? Please address the moral hazard aspect of your position. So far, I’ve heard nothing to defend the immorality of it.
FO ANSWER: Do not confuse a bank depositor with (1) an investor in a fund, or (2) bank shareholders & Management. A bank depositor is NOT an investor. The $250k is by NO MEANS sufficient for small businesses. They need to keep large amounts on hand for payroll etc. You do business and accept credit cards and they deposit that into your bank account.
Bank depositors are unsophisticated average people. The sophisticated investor moves their, money to a hedge fund or money market fund and fully understands that there is a risk associated with that investment. The bank depositor accepts no risk on any investment the bank makes. It does not give them, a piece of their profits. That goes to shareholders. It is a bailout of the entity and thus the shareholders which presents the moral hazard perspective.
If deposits in excess of $250 are NOT covered, you wipe out small businesses, they cannot pay employees and the ripple effect will be the total destruction of the entire economy. Your house will become worthless for its value will drop to only what someone can pay in cash.
There is a HUGE difference between investing and losing and simply depositing your money in a bank because we are moving to an electronic monetary system that there will be no way for a depositor to even demand money from a bank. Some are restricting wires to $3,000 and limiting the amount of cash one can withdraw. There is also not enough paper currency to facilitate bank withdrawal on a grand scale. Bank robbery will come to an end without cash.
None of that will unfold if a hedge fund fails. We must look deeper into this entire question.
QUESTION: Hello Martin, I have been reading you since your handwritten and from memory letters were getting out from your incarceration. You are truly an amazing man sir. I realize that both the Kondratieff and the Brenner cycles are mostly just coincidental to market cycles today but my question is are both the Kondratieff and the Brenner cycles still accurate for agriculture goods and the farm economy to this day? Thank you for your consideration of this question as well as for all the good you have done for mankind. Thank you. Respectfully, Mark
ANSWER: I think your question is very important. I have in my library Brenner’s actual publication. They are very rare, to say the least. Overlaying Brenner onto Wheat, we can see that during the 20th century, they did not work. The question then became why?
People are far too often confused when observing a market. They think that that instrument itself possesses some inherent trading character all by itself. I have often said that when I went to Economics class, the professor said there is no definable business cycle because everything is random. Then I went to Physics class and was told that nothing is random. I came to the conclusion that it was the economics professor who was wrong.
In Physics, we have two separate principles that are far too often confused as the same. The Uncertainty Principle was articulated by the German physicist Werner Heisenberg (1901-1976). It states that the position and the velocity of an object cannot both be measured exactly at the same time, even in theory. The very concepts of exact position and exact velocity together, in fact, have no meaning in nature. Effectively, if we increase the precision in measuring one quantity, we are forced to lose precision in measuring the other.
The Uncertainty Principle has been frequently confused with the Observer Effect whereby the disturbance of an observed system by the act of observation takes place as the result of utilizing instruments that alter the state of what is being measured. To put this in common terms, let’s say you take a gauge to test the tire pressure on your car. The very act of measuring the air pressure results in some air escaping. Hence, the act of observing changes the actual pressure in the tire even minutely.
This is one of the most fascinating aspects of Physics. Here is my favorite cartoon explaining an important aspect of cyclical analysis as well.
So what does this have to do with analysis in markets? What are we actually observing? The innate object be it gold, wheat, or the stock market. If a tree falls in a forest and nobody is around, does it make a sound? That all depends on your definition of a sound. If you define “sound” as requiring it to be heard by a person or animal, the answer is no. Yet is that the proper definition?
This brings us to Kondratieff and Benner waves. Were they actually measuring commodities, or were they measuring the cyclical interference of climate, war, and 70% of the GDP being confined to agriculture? We clearly have a problem with the human interpretation of an observation. We are then confined by our own prejudices formed in life. If we have NEVER read about war or experienced war, then is it possible to look at the 19th century and realize that there was an interference in the market behavior by war?
This is why fundamental analysis always fails. Claims that this is the guy who forecasts whatever based upon his opinion or fundamental analysis is simply nothing more than a broken clock is also correct twice a day. The vast array of fundamentals that are taking place simultaneously can never be sorted out by any human being. It depends upon the experience of the observer. I have often explained that people focus only domestically and often on whatever the Federal Reserve wants us to do. They do not see that in turn the Federal Reserve is influenced by international events. Thus, those who focus domestically, are blind to global trends. This is primarily why I developed Socrates for it is humanly impossible to monitor absolutely everything. No human being can do this and then it is impossible to sort out the fundamentals in advance – only hindsight. Many have ignored the fundamental approach and turned to Technical Analysis. Then the third branch is cyclical analysis focused on TIME.
Cyclical Analysis must also incorporate physics to achieve accuracy. Otherwise, someone who then identifies some cycle of 25 units and says see, it worked 5 times in a row, will lose the house for that relationship will change. This is the question of the Kondratieff and Brenner cycles. Kondratief saw broad cyclical trends throughout history. But they were averages and he did not seek a definitive time frequency. Brenner focused on sunspots and agriculture for he was a farmer and saw the cyclical patterns unfolding before him.
However, the complexity of the market and economic behavior is much like the double-slit realization. A single particle moving through a single slit produces a linear output. But when a second slit is introduced, then cyclical waves emerge. This illustrates the complexity. Each market is like a separate particle in that cartoon. By itself with a single slit, the outcome tends to be linear as expected. But adding that second slit produces complexity and cyclical wave interference. Thus, in analysis, we must consider the entire global basket of particles to approach the cyclical waves and interference.
There are so many layers to price activity each displaying a unique frequency. This once again comes down to human interpretation and can the analyst even see the complexity. Our arrays are the best shot at accurate cyclical forecasting and there are 72 models inside that – not a simple one-time frequency of a linear cycle. It is the computer that projects the outcome, not any human interpretation. Then you have to have a database that is unprecedented to back-test the entire analysis. Without recreating the monetary system of the world, it would be impossible for the computer to forecast war, the collapse of communism, or the 1929-style even in Tokyo in 1989.
Fundamental analysis can ONLY be used to explain AFTER the fact – not to forecast the future. Consequently, the Kondratieff and Brenner cyclical waves are not accurate in trying to predict the economy or the next great crash in markets. We must respect that they observed the top layer of cyclical activity, but behind that mask was climate change coming out of the last ice age, the wave of innovation that brought the Industrial Revolution which diminished the commodity influence, and war.
It is not that their work was wrong. They were the leaders in cyclical analysis and pointed the way. It simply required more exploration to understand the complexity and wave interference from the impact of everything, everywhere. The analysis of Benner failed during the 20th century because what he was observing was the complexity of the times and one really needed to sort out each and every component that produced the wave structure during the 19th century to be able to accurately forecast the 20th century.
COMMENT: Marty, I began following you in 1985. That is when everyone was using the Kondratieff Wave and admitted it averaged 45 to 60 years. They were all predicting another Great Depression. You were the only one right back then as well. I remember your advertisement in the Economist saying a new Private Wave was beginning. The ECM has called every turn ever since and even to the very day.
Now the Brenner Chart is floating around all because it points to 2023. The 1999 turning point which was supposed to be the high, was not just off from the stock market and the 2000 Dot-Com Bubble, but 1999 was low in gold. The 2019 target was also off for it was 2020 which was a low.
I think both the Kondratieff and the Brenner cycles have caused more harm than good in furthering cyclical analysis. You are right. They were commodity based not economic-based.
I just wanted to share my observations because people need to understand the difference.
Jeff
REPLY: Oh yes. I remember 1985. It was high in the dollar and the British pound hit nearly par dropping from $240. Yes, we took the back cover of the Economist for 3 weeks during July 1985 to announce the start of inflation and the Private Wave. I was shocked that people held on to those advertisements and we would get letters even 2 years later.
The Kondratieff and Benner cycles were constructed during the 19th century. You cannot create a model on Wheat and then try to use it to trade Copper. Sometimes it will line up, and other times it will not.
Both Kondratieff and Brenner waves were not just based on commodities/sunspots, but they were in turn influenced by war and climate, unbeknownst to either. Kondratieff and Brenner followed agriculture/commodity prices when agriculture accounted for 70% of the GDP pre-20th century. That only began to decline from 1850 forward, dropping to 40% by 1900 as the Industrial Revolution emerged with the invention of the steam engine. Then there was climate change. The Little Ice Age bottomed in the 1600s.
Then there was the volatility in weather that also impacted the commodity prices. This too has contributed to the inaccuracy of both waves. During the late 18th to early 19th century, it was still very cold and the ground would freeze down a couple of feet preventing winter crops. The ground froze to a depth of 2 feet according to John Adams. When John Adams set out to travel to Philadelphia, it was bitterly cold and there was a foot or more of snow that covered the landscape that had blanketed Massachusetts from one end of the province to the other. Beneath the snow, after weeks of severe cold, the ground was frozen solid to a depth of two feet. I grew up near the Delaware River. NEVER in my lifetime did I ever see the river frozen as you see in paintings of Washington crossing the Delaware River. In a letter to his wife, John Adams wrote:
“Indeed I feel not a little out of Humour, from Indisposition of Body. You know, I cannot pass a Spring, or fall, without an ill Turn — and I have had one these four or five Weeks — a Cold, as usual. Warm Weather, and a little Exercise, with a little Medicine, I suppose will cure me as usual. … Posterity! You will never know, how much it cost the present Generation, to preserve your Freedom! I hope you will make a good Use of it. If you do not, I shall repent in Heaven, that I ever took half the Pains to preserve it.”
On September 8, 1816, Jefferson described the weather in a letter to Albert Gallatin:
“We have had the most extraordinary year of drought and cold ever known in the history of America. In June, instead of 3¾ inches, our average of rain for that month, we had only 1/3 of an inch; in August, instead of 9 1/6 inches our average, we had only 8/10 of an inch; and it still continues. The summer too has been as cold as a moderate winter. In every state North of this there has been frost in every month of the year; in thisstate we had none in June and July but those of August killed much corn over the mountains. The crop of corn through the Atlantic states will probably be less than 1/3 of an ordinary one, that of tobacco still less, and of mean quality.”
Obviously, the Kondratieff and Brenner Waves did not understand the external forces. The climate was impacting the food supply, there were also wars. This is why their waves have not been consistent. If we extend the K-Wave 54 years from the commodity high in 1919, that brings us to 1973 which missed the end of Bretton Woods in 1971 by 2 years, but it was near the OPEC Oil crisis, which was imposed in retaliation for helping Israel in war. The Dow Jones Industrials peaked in January 1973 and crashed into December 1974. The Brenner wave did not bottom until 1978.
Another 54 years from there will bring us to 2027 while the Brenner Wave targeted 2019 and projects the low in 2023. Wheat peaked in March 0f 2022. So you can see if any of these targets were to actually work on time, it tends to be more of a coincidence rather than an accurate forecast. So I can see what you say that they have perhaps led some to think cyclical research is snake oil. It is so important to understand that you cannot create a model on potatoes and then use it to trade the Dow. We must understand the nature of markets to comprehend what we are really looking at in the first place.
There is a cycle of industrialization as well. Rome began as an agrarian society and moved toward trade, which brought them into conflict with Carthage. We see this cycle even in their coinage. The first silver coins of Rome were struck using the monetary system that was Greek in origin from the days of Athens and Alexander the Great. Only after the Second Punic War did Rome create its own monetary unit which was a debasement (reduction in weight) from 6.5 grams to 4 grams. That reflected both the inflation due to war, but also the rise of Rome whereby they no longer cared about complying with the Greek standard but set out to establish the Roman standard. To this day, many denominations still retain derivatives of the word “denarius” such as in the Iraqi Dinar or the French denier. The Germans called it the pfennig and the English adopted that as the penny.
Rome itself became more like New York and grain was imported from Egypt. As agriculture became more of an import, Rome blossomed like New York in the arts and culture. It built the massive port of Ostia which was celebrated on the coinage of Nero (54-68AD) securing the food supply.
The shift toward industrialization in the Roman Empire also resulted in a decline in birth rates for children as we see in modern times. Large families were needed in an agrarian society, but not so much in a developed society – hence the family laws of Augustus. We see the same patterns repeat throughout history.
The first known Clean Air Act occurred in 535 AD by Emperor Justinian in Constantinople. He proclaimed the importance of clean air as a birthright. “By the law of nature these things are common to mankind—the air, running water, the sea.” Even Cicero wrote about pollution in the ancient city of Rome. This went hand and hand with developed societies and urbanization.
Joseph Mois Schumpeter (1883-1950) was an Austrian economist, educated in Vienna. He taught at Czernowitz, Graz and Bonn. In 1932, he moved to Harvard where he taught until his death. Among Schumpeter’s writings is Theory of Economic Development (1912), Business Cycles (1939), Capitalism, Socialism and Democracy (1942), and History of Economic Analysis (1954).
Schumpeter developed a theory of trade cycles and growth; he argued that abnormal profit was the entrepreneur’s reward for innovation. He predicted, however, that the scope for innovation would be declining in the course of capitalist development as competitive market structures were replaced by monopolies. He believed that capitalism would gradually evolve into socialism. Like Malthus, he could not look into the future and see all the technological advancements that would constantly create waves of new innovation.
In 1939, it was actually Schumpeter who suggested naming the cycles “Kondratieff waves” in his honor. To explain the Kondratieff Wave, Schumpeter called them waves of innovation that result in waves of creative destruction. Each wave of some new innovation destroys the last. Cars wiped out horses & buggies. The internet is wiping out local stores, and the post office, as technology has introduced streaming that has wiped out VCRs and DVDs, and even movie theaters. The cryptocurrency advocates promote the end of central banks and paper currency.
There has always been a cycle of innovation. That was one of Joseph Schumpeter’s main theories to explain the business cycle. For example, first, there was the Canal Bubble that peaked during the Panic of 1825. There was the invention of the telegraph followed by the telephone. The ancient Romans had invented the first version of the Pony Express and could get a letter from Britain to Rome in about 7 days. That too was celebrated on the coinage of Emperor Nerva(96-98AD).
This age of communication with the Pony Express and stagecoach travel was followed by the invention of the steam engine. That gave birth to the railroad boom which lasted from the 1860s and peaked in 1907. It was on May 10th, 1869, when the Union Pacific and Central Pacific railroad lines joined 1776 miles of rail at Promontory Summit, Utah Territory connecting the East and West by rail. The Railroad Barrons became famous millionaires and that innovation boom peaked initially with the Panic of 1893, but the final rally in the railroads peaked in 1907. Thereafter, the combustion engine took over for the next wave of innovation giving birth to the automobile took over and peaked in 1929, tractors, and air travel.
On January 1, 1914, the world’s inaugural scheduled flight with a paying passenger hopped across the bay separating Tampa and St. Petersburg, Florida. Planes were used during World War I, but after the war, there were thousands of unemployed pilots and a surplus of aircraft along with an appreciation for the future significance of this new technology.
It was after World War I that civilian airliners began to emerge. The Fokker Trimotor built in Europe by the Dutch with an 8-12 passenger capacity was the most popular airliner in the 1920s. It had a range of about 600 miles. World War II was coming into play when the USA built Douglas DC-3 with a capacity of 28 passengers. It had a range of nearly 1500 miles. The DC-3 made its maiden commercial flight in 1936 between New York and Chicago and thus the airline stocks were the big innovation for the rally into 1937.
It was 1938 when televisions first began to be commercially available. It would be after World War II when this became the next real innovation boom. It was 1954 when color RCA TV C-100 systems were sold across America. By 1960, there were four debates between John F. Kennedy and Richard Nixon that were broadcast and changed the manner in which presidents would campaign. By 1969, Neil Armstrong walked on the moon for the first time as millions of American viewers watched live on network TV.
Of course, we have the internet boom in 2000, etc., and there is a clear cycle of innovation that Kondratieff and Brenner could not see before even the invention of the combustion engine that led to tractors changing agriculture forever. There is a difference between when something is invented and when it becomes commercially viable.
For example, the FAX machine was actually invented by the Scottish inventor Alexander Bain (1811–1877) who was famous for being the first to patent the electric clock and was also involved in installing the telegraph lines between Edinburgh and Glasgow in Scotland. He could see in his mind’s eye that the Morse Code of dots and dashes invented several years earlier by Samuel Morse, could take an image and transmit it by reducing it to a binary image. He envisioned the first fax machine. In 1846, he was able to reproduce graphic signs in laboratory experiments. He applied and received a British patent #9745 on May 27, 1843, for his “Electric Printing Telegraph”, but it took more than 100 years to actually become usable. We have embarked on the next wave of innovation that includes quantum computers and Artificial Intelligence.
Consequently, when you are looking at long-term cycles, a few hundred years is not enough data. If Kondratieff were alive today and based his study on just the current system, he would be focusing on services rather than commodity-based economies. Agriculture has fallen to just 1.41% of the civil workforce.
It is simply vital to grasp the very nature of the data that you are intending to use to create models, which is itself in its own cycle of innovation. This is why the Economic Confidence Model is totally different. It is NOT panic on any single sector. It is based on the boom and bust movement irrespective of the sector and it embraces the entire world, not a single economy. Back-testing revealed that not only did the Roman Monetary System collapse in just 8.6 years, but this cyclical frequency appears throughout the ancient monetary systems globally.
There is a lot more hidden behind the cloak of what people think is just chaos.
It is refreshing when you actually find a journalist who is honest and is not being included by the Neocons to put out their propaganda. Her review of Credit Suisse is a worthwhile read. Especially when this is not over yet and the winds of finance are now turning toward questioning Deutsche Bank.
Izabella Kaminska is senior finance editor at POLITICO Europe.
Over the span of 10 days, the global financial system was once again shaken.
And as we witness the fallout, so far it appears contained. Stock markets are up, bank stocks seem stabilized and government bonds are in high demand. Officials reassure ad nauseam that the financial system remains strong and stable.
But the truth is, even if so, what happened in this period of time has changed the financial system forever — and worryingly, most people haven’t even noticed.
Governments and central banks would have you believe that in both cases, private sector solutions were found to resolve the failures. No taxpayer funds were used.
But that is likely not true.
In the United States, growing calls from the country’s top billionaires and hedge fund bosses to guarantee the full extent of customer deposits would, if acted on, deliver a backstop that must be underwritten by public funds. That’s the case even if costs are distributed among whatever healthy banks remain later. The sums involved are eye-watering — by some measures up to $17 trillion of unfunded liabilities.
If the rule is passed — and all indications are that it will be — this would finally make the implicit explicit: that the financial system was never really rescued following the 2008 financial crisis but merely put on life-support. And that has now failed, which means socialization of the losses beckons.
Over in Europe, things are potentially worse. This time, it wasn’t the storming of the Winter Palace Hotel in Gstadt that seized the means of financing but something far more mundane: an untidy bank resolution for Credit Suisse, which relies far too heavily for comfort on Swiss National Bank (SNB) guarantees.
As one former top British central banker told POLITICO, “They could have used bail-in; it would have worked; and banking would become part of a capitalist market economy” — a reference to the loss-absorbing processes regulators came up with after 2008 to ensure bank failures didn’t have to draw on public resources ever again. “The only stable equilibrium is one where bank resolution works, or socialism,” he added.
But the resolution didn’t work. And investors are belatedly realizing this.
Key to this reality is that Credit Suisse was a bank considered to be in good condition and solvent by all regulatory measures. As one bank analyst told POLITICO, going by the assets, you would never have seen the problem coming. Even the SNB and financial markets regulator FINMA said so as recently as last week.
The SVB Private logo is displayed on an ATM outside of a Silicon Valley Bank branch in Santa Monica, California | Patrick Fallon/AFP via Getty images
So were the regulators lying? Or is the accounting somehow fundamentally broken?
What we know for sure is that markets questioned the numbers, and this was evidenced by a run on the bank’s deposits, equity and bonds. And the discrepancy poses a big problem going forward, as it knocks trust in the accounting of all similarly assessed banks, which, thanks to international accounting standards, means pretty much all of them.
Credit Suisse’s sale to domestic rival UBS at cents on the dollar of what regulators claim the underlying assets are worth presents another problem too. If similar assets are lurking in UBS’ own balance sheet — and chances are that is the case, as the assets in question are probably government bonds — they might have to be written down to a similar degree. This is probably why UBS needed the guarantee from the SNB to be doubled to 100 billion Swiss francs to do the deal.
In light of this, Switzerland now faces an even larger issue: If UBS were to become stressed — and it very well could due to this discrepancy — there’s no private sector pathway for resolution left. The country now only has one major bank and, thus, only two possible pathways to deal with a failure — nationalization or acquisition by a foreign buyer with enough cash to keep the valuation of all the consolidated assets at a price that brings everything back to par. And there are few of those in the Western hemisphere.
With a full foreign acquisition off the table due to global discord, this leaves only an unthinkable solution for the home of Swiss private banking — the dawn of a type of finance more commonly seen in communist countries, where banks are directed by the state to allocate funds to activities they prioritize. Combined with a central bank digital currency, this would reduce banks to mere proxies of the state, with uncertain consequences for efficient capital allocation and inflation.
How things would unfold from then on is unclear. The only thing we can be sure of is that nothing in banking, or capitalism, may ever be the same again.
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