QUESTION: Mr. Armstrong; Thank you for an excellent conference. I have been attending since 2011. Each time you deliver a different conference and they are always better than the last. I could not help to notice on Zero Hedge they ran a piece about a Harvard University’s visiting scholar at the Bank of England who claims:

“We trace the use of the dominant risk-free asset over time, starting with sovereign rates in the Italian city states in the 14th and 15th centuries, later switching to long-term rates in Spain, followed by the Province of Holland, since 1703 the UK, subsequently Germany, and finally the US.”

Besides claiming to calculate the 700-year average real rate at 4.78% suggesting that rates will rise sharply when your models are 5,000 years, the two ridiculous statements are a 700-year average as if this really means something in the near-term when rates have been below that for nearly 10 years, and second the statement that he traces “the dominant risk-free asset over time.” You have demonstrated that moving averages are not valid in forecasting and that government routinely defaults.

You forecast at the conference that rates would rise very rapidly as we move into the Monetary Crisis Cycle. When I returned home to Greece, the latest news here is that so many people do not even have the money left to pay taxes. Is this part of the first stone in the water that sets off the waves of the Monetary Crisis Cycle?

ANSWER: It is very nice to trace 700 years and come up with the average of 4.78% by switching to the dominant economy as the financial capital of the world moved. However, starting the study in the 14th century skips the crazy part. There was the Great Financial Crisis of 1092 in Byzantium. This was really a watermark event that set in motion the decline thereafter. This study of moving from Spain to Holland, UK, Germany, and then the USA, is interesting, but regionally biased.

The fall of Byzantium resulting in the financial capital of the world moving to India – not Spain. That is why Columbus set sail trying to get to India, which was the financial capital of the world after Byzantium.

We hit a 5,000 year low. The Reversals we provided at the conference show we are looking at a near doubling in rates when we cross that number.

Trump’s tax reform to cut the corporate income tax rate from 35% to 20% will be a huge boost for the economy and place tremendous pressure on the rest of the world. But already we have Republicans playing games for personal careers. They want to postpone the cut for corporations until 2019 AFTER, of course, the 2018 mid-term elections. As always, they are afraid that the Democrats will point to the rich and regain seats.

The longer they delay, the greater the economic decline. This may be the fundamental behind our model which targeted November for a temporary high. Nonetheless, our Energy Models have peaked on the Daily level suggesting that we are still not really in a serious overbought position. That implies a correction is possible, but not a major crash and change in long-term trend.

The Trump Tax Reform is in part inspired by the Flat Tax idea of lowering the rate and eliminating deductions. Alimony, or spousal support, is often part of divorce agreements when there’s a big discrepancy in earnings between the two parties and the marriage has endured for more than just a few years. The idea of some “gold-digger” marrying a rich guy and then walking off with 50% of his wealth is really the stuff of fictional legend. Things acquired before a marriage are not suddenly 50% of the potential “gold-digger’s” new found wealth.

What is interest is the whole problem with alimony. In 2015, according to the data from the Internal Revenue Service, an estimated 598,888 taxpayers claimed the alimony deduction on their Form 1040. Those deductions came off the top of one’s income. The IRS reported that total of more than $12.3 billion was deducted in 2015 for alimony payments.

Here is where the problem comes in. The IRS tries to match the deduction for on the opposite side the spouse must declare it as income and that is subject to tax. According to a 2014 Treasury report, when they tried to match the deductions they discovered there was about 20% less being reported on the receiving end.

Under the elimination of deductions, alimony payments may disappear. That will seriously impact divorce settlements going forward and may result in others going back to court to ask for reductions. What may come to light is those spouses who have not been declaring the alimony. Could become interesting.

I had a friend who remained married and lived together he said because (1) it was too expensive to get divorced, and (2) nobody wanted custody of the children who were draining the resources in perpetual school loans.

QUESTION: Dear Mr. Armstrong, I had stopped watching TV a decade ago. Then one late night in August 2015, for no particular reason, I switch on some Swedish channel, and voila! I see The Forecaster. It shattered me… I’m your faithful follower ever since. If anyone deserves a Nobel in Economics – or Peace – it is you, Sir. I hope that day will come.

Now, I have a few questions for you. The problem of overpopulation; what is the future for struggling, abandoned Ukraine; is there an end for the Russian Empire? If you will have time and wish to comment any of these, I will greatly appreciate your thoughts. Many thanks for your shared generosity, Sir.
All the best to you and your family,
AM

ANSWER: Nature has its way of solving overpopulation. Viruses constantly mutate and antibiotics cannot fight a virus. It was the Black Death which wiped out 50% of the population of Europe on average. It has always been cyclical. Then we have war, which also thins the herd. Cycles will take care of that issue.

Ukraine will survive. Its biggest problem is corruption. You can change the head of state, but the body remains. You will see another revolution as the economy turns down and again they will overthrow the establishment.

All empires die. Both Russia and the United States will not look the same 50 years from now. The global economy is shifting toward China. They will become the financial capital of the world after 2032.

The world will survive. It will just keep on going. The politics changes and everyone gets their 15 minutes of fame. Sweden used to also be a great power against Russia

There is a butter shortage in Europe that has seen prices soar by 300% without speculators. The problem can be traced to the end of milk-production quotas in April 2015 directed by the EU that led to a glut early last year in Europe. Centralized planning just never gets it right. Setting regulations requiring the production of butter is just something politicians are never good at. Once the quotas were eliminated, the artificial prices dropped drastically and then farmers stopped producing.

Now with the collapse in production, a shortage took place and then prices have soared. The timing was rather special because, on a global perspective, milk product exporters were curbing their own output in the United States and stopped selling abroad. The higher domestic demand was sparked by New Zealand, the world’s biggest dairy exporter, had experienced lower production due to droughts.

The French like their croissants that require butter. The French stores have refused to pay three times more for butter so even the French farmers have been selling to the rest of Europe. France has gone into a massive butter shortage by at least 30% of the demand cannot be met.

These days, US President Donald Trump is pushing his number one agenda of his term in office – major tax reform. Trump has been meeting with some of his own party senators seeking approval for the planned tax reform he is hoping will be signed by the end of December at the latest for a Christmas present. The negotiations on the details are in the final stages. If the reform is very real indeed, and make no mistake about it, this would be a tremendous triumph for Trump and for the nation as a whole. Trump has the potential to take the United States counter-cyclical (cycle inversion) that would actually put a tremendous amount of pressure on the rest of the world.

There are some who are concerned about removing the tax deduction for state income taxes. Deducting state income taxes from your Federal taxes has been quietly talked about behind the curtain for some time. It was also one factor in my own relocate out of New Jersey to Florida. The elimination of the deduction for state and local taxes will be a major death blow for the high taxed states like California, New York, New Jersey, Connecticut etc..

The states have been effectively double-dipping. I remember when the New Jersey state income tax was put in. The politicians said it would cost you nothing because you could deduct it from your federal taxes. Essentially, it was the way for the state to covertly get more money that they were not accountable for. That game is coming to an end. If Trump eliminates that deduction, then and ONLY then will the people start to hold the states accountable for the first time EVER! Repealing it would increase federal revenue by $1.3 trillion over the decade

Deductions would remain for mortgage interest and charitable contributions. Additionally, the standard deduction would nearly double to $12,000 for individuals and $24,000 for married couples.