Tag Archives: Obama Domestic policy

Jul 7 2017

Country Risk & How it is Critical to Investment Flows


Armstrong Economics Blog/Rule of Law

Re-Posted Jul 7, 2017 by Martin Armstrong

QUESTION: Dear Martin:
How does this affect cash flow to and within the USA? (China Bond market)
Rich
ANSWER: It does not alter anything just yet. Most of the capital outflow from China has been its own people trying to get cash out. They were using BitCoin to accomplish that.
This is a first step in the process. It will take time to develop and the next step will be to maintain a stable and important rule of law. In order to attract capital, there must be a stable and honest rule of law. Once the rule of law crumbles into bias and corruption as we see today, this is part of the risk of investment. Edward Gibbon wrote in his classic, Decline and Fall of the Roman Empire:

“…the intolerable weight of taxes, rendered still more oppressive by the intricate or arbitrary modes of collection; the obscurity of numerous and contradictory laws; the tedious and expensive forms of judicial proceedings; the partial administration of justice; and the universal corruption, which increased the influence of the rich, and aggravated the misfortunes of the poor. “

Book III, Chapter 34

Country Risk is a critical part of international investment. In assisting international companies with decisions where to locate plants or open up operations, the first criteria is always “Country Risk” which is all about the stability of the Rule of Law. How can you invest in any country if there is no reliable legal system to secure contracts or property?

Contract Law began in Babylon. Hammurabi’s legal code required all agreements to be written down. This put an end to false claims. When we talk about investing in Europe, we do not even consider “Country Risk” because it is assumed the Rule of Law is stable.

Consequently, China will surpass the United States and the West because our Rule of Law is collapsing. Courts rule in favor of government routinely and once that happens, no property is secure any more. They are just confiscating cash presuming it is criminal in some way be it taxes or otherwise and they do not have to prove anything. This is demonstrating that the West will not be able to survive long-term without a security of property. Hence, you can see it coming. If China respects property rights, then capital will migrate to Asia and leave the West due to the lack of a Rule of Law

Jul 6 2017

Illinois – Poster Child for the Coming Sovereign Debt Crisis


Armstrong Economics Blog/Sovereign Debt Crisis

Re-Posted Jul 6, 2017 by Martin Armstrong

Illinois House had voted 72-45 to pass a 32% income tax hike as government refuses to address the real issue of a never-ending need for more and more tax revenue to keep state employees rolling in their pensions. The governor vetoed the tax increase and he was overridden.

There is absolutely no hope for Illinois. Just sell its debt for there is no long-term fix for this state or any state for that matter. We are facing a major Sovereign Debt Crisis at the state and municipal level that will eventually bring down governments on a wholesale basis.

The policies of just tax’em til they die and they tax their heirs is coming to an end. Governments will collapse and the only solution is to limit government by a new constitution that it may not consume greater than 15% of GDP on a federal, state, and local level combined. Employment should primarily be outsourced and private entities should bid to run various departments. That will eliminate government pensions, which is the monumental source of the real crisis.

We can do this, but we have to crash and burn first. Government will NEVER simply surrender power without a fight.

 

Jul 5 2017

Arrogance of California Knows No Bounds Governor Brown Still Committing Treason against the Constitution


Armstrong Economics Blog/Politics

Re-Posted Jul 5, 2017 by Martin Armstrong

 

The Governor of California is just insane and out of control. Besides the boasting that California is its own country free to enter into treaties with Europe against the Constitution, now Governor Brown is restricting the freedom of movement of its citizens creating a list of States within the USA that California is imposing a travel ban. Here we have Governor Brown banning travel for which he had the audacity to criticize President Trump. Brown either belongs in a prison for Treason or an insane asylum. The jury should decide. This man is unqualified to be governor and is dangerous.

In January, California Attorney General Xavier Becerra announced the state would no longer fund employee travel to four states – Kansas, Mississippi, North Carolina and Tennessee. Now, with Alabama, Kentucky, South Dakota and Texas added to the list after each passed laws California officials described as discriminatory towards the LGBT community. So in other words, any state that disagrees with California should be put on the their Travel Ban.

Freedom of movement under United States Constitution is governed by the Privileges and Immunities Clause which states, “The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.” This issue was decided back in 1823 in an appellate decision Corfield v. Coryell, 6 Fed. Cas. 546 (1823). The freedom of movement for American citizens has been judicially recognized as a fundamental Constitutional right.

Additionally, the Commerce Clause of the Constitution, empowers Congress “to regulate commerce with foreign nations, and among the several States” not Governor Brown. Once again, he is usurping federal powers and overruling the Constitution. He is simply out of control.

Let’s put this in perspective. He yells that Russia deprived him of Hillary because they were trying to “influence” the election. Well, imposing sanctions on other states who disagree with California is trying to also “influence” the people of those states to kneel before the altar of Governor Brown who seems to want to dictate to the world how they should live. Governor Brown is imposing sanctions on other states for disagreeing with the will of California which is the same policy of the West imposing never ending sanctions on Russia for taking back the Crimea, which was their’s to begin with? California has no right whatsoever to impose any sanction upon another state within the USA nor restrict the movement of any citizen to travel among the states. He cannot impose any sanction against another state for disagreeing with his flavor of laws. His view that other states are anti-Lesbian/Gay infringes upon their freedom of religion when they do not outright discriminate against the LGBT community.

Governor Brown seems to have lost it. His arrogance is off the charts and this is just unacceptable. He is lucky I am not president. I would cut off all federal funding for California until they comply with the constitution.

What’s next? Governor Brown imposes requirements upon cars to be electric and bans all citizens from driving to California with a car that does not meet California standards in accord with Paris? Just secede, invite Hillary to be the President of California, and be done with it. Those who disagree with Brown’s politics, the West Coast of Florida  still has the sunsets, no income tax, and far less regulation.

Jul 5 2017

Just Give the Government Your Money & Shut-Up


Armstrong economics Blog/Corruption

Re-Posted Jul 5, 2017 by Martin Armstrong

COMMENT: Dear Marty

I’m doing business w companies in Holland.

So I go there with a colleague to visit one of the factories outside Amsterdam. We rent a car and drive there. Everything is fine and all. No problems with traffic, finding our way or so …

After leaving Amsterdam back home it takes about 4-5 months we get a speeding ticket? We ask for proof us speeding, like a photo or so, but they do not even answer. It goes so far they send it to a collector agency here in Sweden and we call them asking for proof of some sort us speeding when driving in Holland. But they cannot help us. They say they only collect and if we will not pay they will register us in Sweden for this. So we pay. We do not want our business to get soiled.

After this it takes 6 months and we then get – from Holland – a speeding ticket for going the other way when driving to our business meeting???!

Obviously this is a scam!!! We did not pay and have no intention paying either.

So what do you think happens then? When going for a new business trip and we have a short stop at Schiphol airport – my colleague gets stopped in customs switching planes? (He was the one driving when we got the tickets) They arrested him for not paying the speeding ticket …. But luckily they let him go but said if he visited Holland again they would arrest him for sure and there would be a trial. So no business with Holland anymore. And no visits either.

Too bad ….

 

 

/C

 

ANSWER: Yes, the same process is happening in Italy, France, and Germany. It is indicative of governments going broke. They cannot see that they are destroying civilization because of their mismanagement.

These European governments are sending tickets with no explanation or proof and demanding fines of else. They are exploiting tourists and destroying their own vital business. Why travel on vacation to someplace you will be harassed? They turned over a ticket I got in Rome to a collection agency and I too told them no way. This is the biggest scam going on in Europe became they have speeding cameras and no police ever pull you over for anything. There is no explanation. No photo. No evidence. NOTHING! Just send us money or else they just threaten you with jail time and absolutely no proof of anything. They are far worse than the Mafia.

This is why I no longer recommend renting any car in Europe. It is just cheaper to hire a driver for a trip or use taxi/Uber. Then they are harassing Americans pulling you over looking for cash. In the late 1970s, I went through Checkpoint Charlie in Berlin. They forced you to buy East German marks at 1:1 with West German. Then you got into town and nobody you taken them. Even the government run hotel demanded West German marks.

I left with the same amount of East German marks I was forced to buy. I was just going to keep them as a reminder. Then trying to get back through Checkpoint Charlie, the last station of several they went through how much money you had on you. The woman pulled a rope and bell went off and two guards came and grabbed me by the arms and took me to a shed at the beginning. They took all my money and told me to sit. Waiting for over an hour, I got up and asked can I go. He then handed me a slip and said they only confiscate and I had to take that to the central bank the next day to get my money back. I then remarked – “And you say you are not capitalist?” I then had to start over and go through all the stages to get out. They kept the money.

Welcome to the new world we are emerging into. They are all the same. Just give them the money and shut-up.

Jul 5 2017

China to Open Bond Market to Foreign Investors


Armstrong economics Blog/China

Re-Posted Jul 5, 2017 by Martin Armstrong

QUESTION: Mr. Armstrong; it is becoming obvious that China follows your advice to the last letter. That makes sense when you were the western adviser they flew in to Beijing during the 1997 crisis. You told them to bypass the primary dealers and demand to buy US debt directly and they did within 30 days. Everything you have advised they have done and now they have opened the bond market to foreign investors. Is this the step that makes China surpass the West?

ANSWER: Yes. It is a process. Europe would not listen to my warning that unless they consolidated the debt of all member states, then the euro could never compete against the dollar. In order to the Chinese yuan to become an actual reserve currency, there must be a bond market that is secure into which foreign capital can park. This was the missing link in Europe.

The fools who pretend to be analysts and kept saying that the Yuan will defeat the dollar by merely trading commodity in yuan terms, are truly without any comprehension of how the world economy function since they have no experience in the field whatsoever. You can price oil in yuan, but without a bond market, you instantly transfer your profits to dollars to park in Treasuries.

Without a viable bond market, no currency can become the reserve currency and compete against the dollar. It does not matter what you price in yuan, it still requires a trustworthy place to park your money.

Jul 2 2017

Financial Flagellation – Illinois Budget Deadlines Passes Without Action…


Re-Posted from The Conservative Tree House on July 1, 2017 by

Utilizing some Bloomerberg and Zerohedge reporting – treeper SeekerofTruth provides a nice recap of Illinois financial self-flagellation.  Charging head-first into the abyss:

SeekerOfTruth – June 30 came and went and the Illinois legislature did nothing. So the courts have stepped in now.  Bloodbath coming. Fun to watch if any news outlets would report on the story. The bloodbath of decades of liberal policies and corruption.

“From Horrific To Catastrophic”: Court Ruling Sends Illinois Into Financial Abyss.

By the end of Friday – the last day of the fiscal year – Illinois legislators failed to enact a budget, and while negotiations continued amid some glimmers of hope and lawmakers planned to meet over the weekend, the failure marked a continuation of the historic impasse that’s left Illinois without a full-year budget since mid-2015, and which, recall, S&P warned one month ago will likely result in a humiliating and unprecedented downgrade of the 5th most populous US state to junk status.

Then came the begging.

According to Bloomberg, on Friday Illinois House Speaker Michael Madigan, a Democrat who controls much of the legislative agenda, pleaded with rating companies to “temporarily withhold judgment” as lawmakers negotiate. “Much work remains to be done,” the Democrat said on the floor of the House Friday, before the chamber adjourned for the day. “We’ll get the job done.”

… However, in a “shocking” development, just hours remaining before the midnight deadline to pass the Illinois budget, and Illinois’ imminent loss of its investment grade rating, federal judge Joan Lefkow in Chicago ordered Illinois to come up with hundreds of millions of dollars it owes in Medicaid payments that state officials say the government doesn’t have, the Chicago Tribune reported.

Judge Lefkow ordered the state to make $586 million in monthly payments (from the current $160 million) as well as another $2 billion toward a $3 billion backlog of payments – a $167 million increase in monthly outlays – the state owes to managed care organizations that process payments to providers.

Friday’s court ruling, which meant that the near-insolvent state must pay an additional $593 million per month, may have been the straw that finally broke the Illinois camel’s back.

“Friday’s ruling by the U.S. District Court takes the state’s finances from horrific to catastrophic,” Comptroller Susana Mendoza, a Democrat, said in an emailed statement after the ruling.

As a result of the court decision, “payments to the state’s pension funds; state payroll including legislator pay; General State Aid to schools and payments to local governments — in some combination — will likely have to be cut.”

Also, without a budget that includes borrowing to pay down the bill backlog, Illinois by August will run out of money for key expenses for the first time since the stalemate began, according to Comptroller Mendoza. That means school funding, state payroll, and pension payments could be affected, she said. There won’t be enough money for these mandated or court-ordered payments.

she said that payments to bond holders won’t be interrupted (more below).
As noted above, Mendoza said that this won’t jeopardize debt-service payments, however she probably should have added “for now.” For now, Illinois hasn’t missed any bond payments and state law requires it to make monthly deposits to its debt-service funds.

===> Missed bond payments and the state goes into default. If bonds are moved to junk status many bond funds will have to sell the bonds because many mutual funds do not allow any or much junk rated bonds in the fund.

PS. This is the real number 1 news story in the country right now. And almost nobody even conservative sites are reporting on it. Muh Russia narrative needs to be replaced with Illinois policy and legislative failures as the number 1 story all over in the country. Illinois is the not so shiny example of the policies that the MSM so longs for and preaches as good every day.

Nothing will likely be done until this does become a national story and people see just how stupid Illinois people are. Right now they can save some face but not if this becomes headlines all over. This is no longer a kick the can further down the road situation. They only have until the end of summer until the can falls into the abyss. Then schools will not open and more importantly Teachers Union people will not be paid.

Bond payments missed and the state instantly goes into debt default and that activates financial legal processes.  (link)

They’d better get things straightened out quick, they’ve got a library to help fund…

Jul 2 2017

The Euro & Optimistic Fool


Armstrong Economics Blog/Euro €

Re-Posted Jul 2, 2017 by Martin Armstrong

COMMENT: Marty; I see what you mean that it does not matter what the fundamentals are, markets move based upon what people belief be it right of wrong. To what the euro rally reminds me of the DOT.COM bubble. Blue skies forever.

REPLY: Yes. Human nature is such that we act always in anticipation of future events. This is why professional traders have always said – buy the rumor but sell the news. Markets simply MUST push to the extremes in both directions. That sucks the fools in to always buy the high and sell the low. That reminds me of the 1940 song Fools Rush In (Where Angels Fear to Tread) by Frank Sinatra.

Only the smart ones go on to try to analyze why they lost and learn from their mistakes. The majority, will not buy that instrument again and look for some other investment to reach the “blue skies forever” as you put it.

Jun 30 2017

Are Bail-Ins Supported by Free Market Philosophy?


Armstrong Economics Blog/Banking Crisis

Re-Posted Jun 30, 2017 by Martin Armstrong

QUESTION: Mr. Armstrong; Reading between the lines, it seems that you support bank bailouts at taxpayer expense. Is this not counter to free market philosophy?

KE

ANSWER: Yes it is contrary to free market philosophy. However, it is the only reasonable solution at this moment in time without structural reforms to the financial system. If we accept the bail-in that Europe just did in Spain selling the bank for one euro, the reality of that decision compels me to advise clients NOT TO OWN any bank shares. Seizing a bank and auctioning it off for one euro when its value, if liquidated, would have been significantly higher is in itself anti-free market.

The bailout conducted by the Fed was absurd. The theory that they just lend money to banks when in trouble is seriously flawed under the current system. Bill Clinton repealed Glass-Steagall and in doing so he seriously altered the banking system completely. The 1007 crash took place because banks no longer engage in relationship banking but have flipped everything to transactional banking. They make the loan, package it into a security, and then sell it off. The banks say this makes them stronger. Fine, I accept that principle. But then handing bankers trillions to “stimulate” the economy failed because they did not lend the money out and parked it at the Fed in excess reserves. They stopped securitizing debt and would not lend because of risk.

The problem is how our government operates. If they are trying to “stimulate” the economy then they need to cut taxes. You must put money directly into the hands of the people – not the banks who do not lend to the average person. This is why quantitative easing has failed. Mario Draghi needs to get out and really see how the economy functions live.

Under the current terms of the bail-in, I must advise clients to sell bank shares and stay with industrial shares. You can flip the coin. Both sides are anti-free market.

Jun 30 2017

Tell as Lie Often Enough it Becomes the Truth – How Lies Now Defeat Gold & Dollar


Armstrong Economics Blog/Gold

Re-Posted Jun 30, 2017 by Martin Armstrong

A flood of comments from central banks this week has been signalling that the era of easy money is coming to an end. Of course, the nonsense spouted out by the Gold Promoters that hyperinflation was coming has left 10 years of continually wrong forecasts yet the pretend analysts have done far more damage to the marketplace that is only now revealing itself. Note carefully, that gold has declined WITH the dollar. Something else the promoters said would never happen.

Gold had soared to reach record highs at $1,920.30 an ounce back in 2011 on the propaganda of hyperinflation coming because of Quantitative Easing (QE). Now with QE coming to an end, why buy gold? We see the same nonsense setting the euro up ripe for the slaughter. The prospect of QE ending at the European Central Bank (ECB) has been sending the euro up, yet once again to the delusion that all will be reversed and higher interest rates will save the Euro.

The German 10-year government bond yields hit five-week highs and the Euro a 14-month peak as investors geared up for the prospect of the ECB scaling back its massive monetary stimulus program. Comments from ECB’s chief Mario Draghi on Tuesday were seen as opening the door to monetary policy tweaks, while Bank of England Governor Mark Carney also raised the prospect of a UK interest rate hike in the coming months this week. This has all sent the dollar down as the fools rush in where no wise-man would dare go.

Now higher interest rates have miraculously flipped into bullish news. The problem is, the economy has not changed. Higher rates will not reverse the deflation in Europe. The idea is that higher rates will bring capital back to Europe. Nobody is addressing what comes next

Jun 29 2017

India Taxing Gold (Hunt for Taxes)


Armstrong Economics Blog/Gold

Re-Posted Jun 29, 2017 by Martin Armstrong

India has been fighting the gold trade for the past few years. They have sought to highly restrict it to prevent the net capital outflow. They even attempted to impose a 18% tax. As of July 1st, 2017, India is imposing a tax on gold bullion be it in coin or bar form of 3%. Gold jewelry in India is subject to a 5% tax. Many families have been rushing to buy gold jewelry in particular before the tax comes at the end of the week, Gold has played a traditional role in Hindu weddings. The “wedding season” actually begins only in the winter, but the advent of the tax is causing a mad rush. We saw the same human response in Japan the monthly prior to the imposition of the sales tax.

Narendra Modi has not merely tried to outlaw cash as much as possible last November, he is also responsible for the introduction of new taxes on the trading of physical gold. Modi has been very repressive in his policy objectives. Over the past few months, several complaints have been filed that financial officials of the government confiscates gold stocks of citizens without giving reasons .

Modi is trying to force India into the 21st century to comply with G20 objectives of eliminating all cash to enable a more efficient tax collection effor