Why the Quantity of Money Theory is DEAD Wrong


Money Theory

COMMENT: Bill Gross says you are wrong and helicopter money is coming and the Fed should print trillions to buy government bonds. Any comments?

REPLY:Gross is not making a forecast without self-interest. Gross’ “helicopter money” calls for the Federal Reserve and U.S. Treasury to engage in another round of quantitative easing (QE) by printing trillions of dollars to buy government bonds. This is his Hail Mary play intended to boost the economy. How will that stimulate the economy? He runs Janus’ bond fund. It will only bail him out of losses on bonds.

Printing money to create “stimulation” is a fallacy. It has never worked. The theory of the quantity of money increasing or decreasing is pure nonsense. This typical one-dimensional thought process is incapable of understanding complexity.

Fed Velocity of Money May 1 2016

LongBranchNJ-DepressionScrip

The missing element is the velocity of money. If people hoard money without spending, then increasing the quantity of money will fail to produce inflation. Creating inflation, such as what Japan saw one month before raising the sales tax, demands that people see the price of goods rising so they spend the money faster because they fear it will cost them more tomorrow. Why did Roosevelt confiscate gold and devalue the dollar? People were hoarding money. There was such a shortage of money, more than 200 cities began to issue their own money known today as Depression Scrip.

This idea of “helicopter money” is rather pathetic and fails to dive deep into how the economy functions. Irrespective of the quantity of money, the velocity of money is what always distinguishes deflation from inflation. You could increase the money supply and nothing would happen. Alternatively, you could leave the money supply unchanged and people would suddenly lose confidence in government, causing the velocity to increase thereby producing inflation. This is not an opinion. This is the simple evidence that emerges from correlating everything. Above is the Fed’s latest chart on the Velocity of Money. It peaked with the Economic Confidence Model high in 1998. Despite the increase in money supply, the velocity has been declining. First, we have see pervasive tax increases reducing the disposable income so people have less to spend as government consumes everything. Then, you have price deflation thanks to the internet. Countless stores have closed because they cannot compete with the internet. That reduces jobs and we have over 60% of the people graduating college cannot find jobs in the field they obtained a degree. Bernie’s idea that education should be free will be a disaster for it will will only subsidize a system which is failing to begin with. What the Clinton’s did to students should be reversed that they should be allowed to declare bankruptcy on student loans. We have to undo this mess created by subsidizing education that is pointless.

Trapped
Clearly, you are trapped in your one-dimensional world within this theory of the quantity of money. There is more to everything than this simplistic reduction of how the world functions to a single cause and effect. You have good days and bad days, but are they always due to the same exact cause? All this talk about “helicopter money” means nothing. Inflation only emerges when people DO NOT HOARD cash and spent it faster because they fear it will buy less tomorrow. There is ZERO evidence that has emerged with QE at any stage. It is pure sophistry.

Welcome to the world of complexity. It takes just a bit more thought and unbiased investigation to see how things really work.

We became the largest global advisory firm for one reason. A Swiss banker explained it to me. He said everyone used us because we did not care if the dollar went up or down. I am a trader. I can make money in either direction. I refused money management roles of equities funds when I would be barred from flipping everything into a short. Long-only positions were stupid and dangerous to me. So stop trying to prove me wrong and take a fresh look at the evidence. If you do, you might learn something that saves your family’s future. It’s your choice. There is just more to this game than one cause and effect. It’s called complexity.

13 year old Children going to Jail for Possessing a Counterfeit Note in School


$2 bills

Houston police call the police and accuse little girl trying to buy her lunch with a $2 bill. The government teacher assumed it was counterfeit because she never heard of a $2 bill. The police big an investigation going to her mother who then said she was given it in chance at a store. The police then go to the store to investigate who gave them a $2 bill. All this wasted time because the government employees involved never heard of a $2 bill.

It turns out, the police routinely are called in an prosecute children who may be passing a counterfeit as if they were the person counterfeiting the note. If the police can charge a children with a fake note as being a forger, they face 10 years in prison. A seventh grade student was arrested for merely possessing a counterfeit $10 bill.  He was put in handcuffs, thrown into a squad-car, the hole 9 yards. He was charged with a felony and then sent to an alternative school before he was given a fair hearing and found guilty of anything.

British Protest Note

 

British Protest Note EnlargementFrom 1697 until 1832, the act of forgery or even the use of forged notes was punishable by DEATH. This satirical note was designed by 17th century cartoonist George Cruikshank in protest to the rising number of pretend forgers who were sentenced to death and hanged. Standard features of the Bank of England notes are replaced by gruesome ornaments such as skulls, a hangman’s noose, with ships for transportation to British colonial prisons in Australia.This surrounds the image of Britannia feeding on infants.

The crime was mere possession. If you accepted a note and did not know it was counterfeit, it was a death sentence. In Texas, police are charging children with felonies for the same mere possession of a counterfeit note.

The practice of hanging so many people finally led the Bank of England to offer the convicted the option of a “plea bargain” in the form of a guilty plea by a prisoner. So to avoid death, people would plead to a crime they did not commit, the same practice as today with 98% of cases involving plea deals. In this case, you took the deal and received a sentence to 14 years “transportation,” meaning the prisoner would be exiled to British colony prisons in America or later Australia. These were the first “slaves” bought by American plantation owners. It was forbidden in the US constitution as indentured servitude. Therefore, history repeats because the abuse of government never changes. Today, even the possession of a wad of cash is presumed to be guilty and subject to confiscation.

The Absence of Randomness = Hidden Order


DNA

QUESTION: Mr. Armstrong; I found your comments and observation that there is nothing which acts in a pure state of randomness. Do you believe absolutely everything is predetermine?

Bulls-BearsANSWER: Even now, investigations into DNA will tell you what your traits are and what disease you will develop. Everything is determined by a predetermination which is coded within the fabric of the Universe. Nothing can be purely random. If that were the case, then what is there to stop our planet from suddenly revolving around Jupiter? We confuse events by focusing on the actors. The press attributes so much to Trump, but fail to understand that the people are selecting Trump and Bernie not because of them personally, but because they are angry at the system. As long as others and the press personalize things and try to attack Trump for something he has said, they completely miss the point.
I have explained that markets rise and fall. This is the mechanism by which everything functions. When one side becomes dominant, it provides the fuel to the opposite direction exactly following the same movement of a pendulum. They will demand it is a manipulation of some sort and there have been investigations since the Panic of 1907 which all began on the that same notion. They have never found that mythical short position even once. It is not pure randomness. It can be observed, studied, and replicated, If I am correct, then this disturbs government, How can a politician run for office promising change when they cannot change anything that alters the trend? The absence of total randomness = hidden order waiting to be discovered,

800 Leaked Pages From TTIP Trade Deal Might Doom Treaties Prospects…


Any trade agreement is by definition anti- free trade. The true definition of free Trade is transaction between parties where there is zero influence by anyone else. Pegged exchange rates and monetary policy and the IMF and ANY government based agreement regarding the movement of goods and services between counties is by definition something that prevents free trade. If we really wanted free trade the best way would be to ban the sale of treasury bonds of any kind to anyone not a US citizen or a US based corporation; to band the transfer of any such instruments to anyone not entitled to buy them directly from the Treasury. This action would force currency exchange rates to move more in line with free market principles. I would also make it harder for the federal government to finance debt but that would be a very good thing.

The Pension Crisis is Starting


Negative Interest Rates

The pension crisis set in motion by negative interest rates will be a major issue in the years ahead. Central banks have really screwed the entire social system and now everyone’s future is at risk. You cannot maintain negative to exceptionally low interest rates to help the bankers and claim it will ignite inflation and reverse the economy when you are wiping out the disposable income of the elderly. The elderly used to be the foundation of the economy for they always would spend when others feared to do so because they did not have to worry about future income.

Keeping interest rates this low is insane. Interest is the cost of money and takes into account the future expectation of inflation. The central bankers cannot inflate the economy when people simply hoard cash in fear of what lies ahead. This is why Trump and Sanders have done so well.

State pension funds, such as in Illinois, are bankrupting governments. One of the first lawsuits was filed by a private group alleging that their pension fund is underfunded and mismanaged as a result. Creating pension funds and then assuming the duty to manage them by a company is a lethal combination with negative interest rates. This will become a major crisis come next year. Trump better pray Hillary wins. The people will probably begin a revolution against her since she is owned by Goldman Sachs.

Candidate Trump’s “America First” Economic Solutions…


This is a well thought out post and right one! I have a degree in economics received prior to the shift that embraced John Maynard Keynes’s view on economics as presented in his Book “The General Theory.” In general this view which every school now teaches is that Government can control the economy though monetary policy and regulation. This shift to service from manufacturing which Sundance talks about was just starting to be taught in the early 60’s when I was in school and since it had not been fully adopted and since I had the pleasure of reading to works of Milton Friedman who back then had already broken from the Keynesian view I was not corrupted by the government centric view. My military career and business career after college allowed me to experience the real world and also experience the full effect of the policy’s that moved so much of American might out of the country. Being retired now I write on how insane this view is and so I instantly became a Trump fan within days of his announcement. This is no place for a full debate on the merits or demerits of a service based economy but I can tell you with a high degree of certainty that this concept is fundamentally flawed and is at the very core of the problems that we now have. There is no doubt that Trump has it right my only fear is that we elected him too late to stop the train wreck.

Is Saudi Arabia on the Ropes?


Obama Saudi

There is serious trouble brewing in Saudi Arabia. They have been dumping oil increasing their output by 3.5%. However, the cash is being kept offshore. Rumors have been flight that members of the Royal family may be creating a stash just in case there is major civil unrest which forces them to flee into exile. Obama on his recent trip told the Saudis they should adopt democratic reform. Make no mistake about it. There is trouble brewing in the Middle East. There is no way Obama would have made such a statement publicly if the situation were not grave.

May – August – October are being highlighted as key periods ahead.

SAUDIA-M SAUDIA-FOR-M

Confused Confidence


confused

QUESTION:

Hi Marty!

I am reading and studying your blogs and Socrates for quite some time and I would really like to thank you for all the insights!

Some days I listen to bloomberg radio for knowing what ‘they’ are saying about the market developments. As I am not an experienced trader as you are, I must admit I don’t understand the ‘collective market behaviours’ e.g. besides all the traps the central banks got themselves into, my normal logical mind tells me that whenever interest rates rise, money gets more expensive, so consequently the only true reason for doing so would be that underlying economic data shows the economy is doing well and can do without ‘help’.

A simple mind like I am tells me that a stock index should rise in case of a well doing economy. Instead I only hear markets fear a interest rate hike. Seems to me that the collective wants interest rates remain low, so stockindex growth driven higher by debt.

The same for example in the case of oil. With my simple mind global economies aren’t as healthy as the financial markets might imply. So in short lower demand and risk of even demand lowering. Instead of a lower price eg. crude oil futures, the futures contract keeps on rising. I am wondering what the fundamentals are that drive up these prices?

Could you give some insights on the real fundamentals that drive markets as from a real- economic perspective I can’t figure it out!

Thnx Marty!

R

Confidence-wide

ANSWER: The fundamentals flipped after the shift from a private to public wave following 1929. Under the pre-1929 economics of laissez-faire, the government did not attempt to manipulate society with monetary policy. They attempted to lower U.S. interest rates to deflect capital inflows back to Europe, but they did not practice manipulating interest rates domestically to try to manage the economy. Therefore, raising interest rates before 1929 was often seen as bullish because it showed there was a demand for borrowing money due to economic expansion.

Today, the fundamentals are interpreted through the eyes of Marxism. Raising interest rates is now considered a punishment to society intended to deter them from borrowing. Yet, deflation involves declining interest rates due to the lack of interest to borrow. Some say that higher rates are bad for stocks, but they are solely looking at it as a punitive measure that will cost people more to borrow. You even have people cheering gold with lower interest rates.

None of this makes any sense economically. Nonetheless, we are looking at a sharp rise in stocks and gold along with rising interest rates, which will confuse everyone. Interest rates are the manifestation of expected inflation. If you think inflation will be 10%, you will lose money if you lend it at 5%. Interest rates are the price of expected inflation alongside the perceived risk.

Therefore, everything will take off to the upside and the majority, whom will be following the Marxist version of fundamentals, will feed the rally because they will be short. This view of fundamentals will eventually flip back, but only when the public at large sees this flip and goes with it. That is the point of no return where confidence in government collapses.

ECM-1970-2084 - R

Why ReportI should point out that these fundamentals tend to apply only to the investing class. I remember 1981 when interest rates reached their peak. My mother and her sister went out and bought bank CDs at 20% for 10 years. They did not ask me. They made the decision on their own and said they would never see that much interest again. They are countless others changes the trend and made that peak in the Public Wave 1981.35. This class of people act out of common sense and do not listen to the fundamentals applied in the investing class. This is the real group of people who are the movers & shakers. The rest of us are trying to figure out what they are doing. Keep in mind that within the investing class, they always try to assign some fundamental to explain something. Everyone wants to know WHY. I named by debut report on the ECM back in 1979 – “WHY”.

German 1918 Revolution

German Hyperinflation WheelborrowTake gold for example. How long have they been saying the dollar is fiat yet gold has not advanced to the same degree as the Dow since 1970. It is one of those fundamentals they always throw at you which become sophistry. Sounds logical and they mix in Germany with wheelbarrows of money, but omit the fact it was a Communist Revolution in 1918 where Germany invited Russia to come take their country wanting to join the Russian Revolution of 1917. Who would keep money in a bank under such conditions?  There was a collapse in confidence.

Is the Supreme Court Acting Unconstitutional?


US Supreme Court

QUESTION: 

Dear Mr. Armstrong,
Re: The Ted Cruz/John Kasich Conspiracy and your comments about the Constitution and USC
In your opinion, might it be a crime to deny registered independents the right to vote in a primary?
Pennsylvania, one of only 11 states remaining with this law, is a prime example.
Thank you for a life devoted to the education of those with inquiring minds,
JS

ANSWER: Absolutely. Because we have created these “primary” elections even though they are for delegates, once the state creates such a right, it cannot deprive you of it without violating your civil rights. Now here is the REAL MONUMENTAL problem. Does the Supreme Court even act constitutionally or has it also denied citizens the right to absolutely behead as declared by the Constitution itself? We hear all this yelling about the Republicans blocking Obama’s Supreme Court nominee. I specialized not just in history, but the rise and fall of nations and how this unfolds. I also studied law intensely and lawyers will often call me on constitutional questions. Why? When you go to law school, you spend very little time on the Constitution. The bulk of law concerns statutory law which is everything written and passed by Congress from civil rights to Obamacare. Very little cases end up challenging the constitutionality of a statue – merely the unconstitutional acts of government’s agents such as police and politicians.

I am going to make a statement here I have made to Constitutional Lawyers that makes their eyes pop-out and say – OMG! The Supreme Court has ABSOLUTELY no right to exercise discretion to hear any case. They must in fact hear EVERY case presented to them for that is dictated by the Constitution and cannot be circumvented by either a statute written by Congress or by its own rule making practice. The Supreme Court receives approximately 7,000-8,000 petitions for a writ of certiorari each Term (year).  The Court grants and hears oral argument in about only 80 cases in a country of over 300 million. That is outrageous and denies the people the constitutional guarantee of a tripartite government with each branch acting as a check and balance against the others. Let’s review what the structure of government crafted by the Founding Fathers created.

Marshall John Chief Justice - 1Chief Justice Marshall held in the landmark case Marbury v Madison, 5 US 137 (1 Cranch) (1803) in which he declare the role of the Judiciary branch; “It is emphatically the province and duty of the judicial department to say what the law is.” id/177. At the very beginning of the nation, the Supreme Court justices rode “circuits” meaning each justice heard cases in their assigned circuits traveling around the country. Article III, Section I of the Constitution expressly states: “The judicial power of the United States, shall be vested in one Supreme Court, and in such inferior courts as the Congress may from time to time ordain and establish.” The Constitution only guaranteed the Supreme Court no other! It gave the option to Congress to create inferior federal courts around the country, but this was by no means mandatory. The implications of this are quite profound for it means that Congress can close all the federal inferior district and appellate courts, but it cannot close the Supreme Court. The tripartite structure of government requires the Supreme Court – not inferior courts. Justice Reynolds explained this succinctly.

“The accepted doctrine is that the lower federal courts were created by the acts of Congress and their powers and duties depend upon the acts which called them into existence, or subsequent ones which extend or limit.”

Gillis v California, 293 US 52, 66 (1934)

Your absolute constitutional right to be heard is being DENIED. That right is being circumvented by demanding you go to a district court judge, then appeal to that circuit court, and then apply to be heard as one of the 7,000+ petitions when they only accept 80. What if a child cannot speak to their father who will only communicate to them by some nanny. Is there a relationship bond between the father and the child? Of course not. Inferior courts are under NO OBLIGATION to apply even a uniform legal code. Each have their own rules and precedents are unique to each circuit. There is absolutely no guarantee to EQUAL PROTECTION OF THE LAW when these circuit courts are free to do as they like.

Chief Justice Marshall also held in 1821 a very important decision holding:

“If the constitution does not confer on the court, or on the federal judiciary, the power sought to be exercised, it is in vain that the act of Congress purports to confer it…” 

Cohen v Virgina, 19 US 264 (6 Wheat) (1821) id/324

Therefore, regardless of the fact that Congress reduced the power of the Supreme Court eliminating the constitutional status of the court by injecting their discretion to decide if they want to hear a case in the Judiciary Act of 1925, that act is totally unconstitutional for no statute can amend the constitution. Any statute or rule created by Congress, a political party (Republicans right now), or whatever, it cannot circumvent the Constitution – PERIOD!

Judge Richard Owen

Owen Changing Transcripts

The inferior federal courts have become a joke. They are there to defend the government, not the people. In my own case, I confronted perhaps the most corrupt judge in New York City; Richard Own. He had the audacity to actually alter the transcripts in court changing the words people would say to support the government. I submitted an affidavit outlining whole sections he removed. There were so many people who showed up in court that day and lawyers were telling me I was crazy because you cannot accuse a judge of a crime. I responded, they all say he does that. They replied; yes, but you cannot say that in public. There were so many people there he became nervous. He admitted changing my transcripts but denied he ever made any material changes. The whole place went silent. When he refused to step down I appealed and the Second Circuit refused to even hear the case. Like police, they just all protect each other. Without a circuit court taking that appeal, I was denied the right to even petition the Supreme Court on that issue.

There is no honest rule of law in the United States. We are no different from some backwater court or a third world country. This is in direct contradiction of the rule of law. The federal court exists to protect individual citizen’s rights under the federal constitution and laws for it has been acknowledged that this is in fact the core purpose of their creation. (see Bivens v Six Unknown Named Agents, 403 US 388 (1971); Bell v Hood, 327 US 678 (1946), Marbury v Madison, 5 US 137, 177 (1803). Good luck. There is absolutely no right to anything because the inferior courts all know the odds of you getting to the Supreme Court are virtually zero.

In Marbury v Madison, Chief Justice Marshall also stated bluntly: “The very essence of civil liberty certainly consists in the right of every individual to claim the protection of the laws.” id/ 5 US at 163. Chief Justice Earl Warren  stated in 1967: “It is a judge’s duty to decide all cases within his jurisdiction that are brought before him, including controversial cases that arouse the most intense feelings in the litigants.” Pierson v Ray, 386 US 547, 554 (1967). None of this has any force of law unless the Supreme Court is returned to its constitutional role mandating that right to be heard.

Bank-Of-US

Princeton Bank ProofWe have no rule of law today all because of an unconstitutional Act of Congress known as the the Judiciary Act of 1925 (43 Stat. 936). This barbarous act reduced the workload of the Supreme Court of the United States and in effect denied the right to be heard by all citizens. From that moment on, your constitutional rights all became discretionary. Congress and the Supreme Court held you have the inferior courts. This is the same chaos created when Andrew Jackson closed the Bank of the United States and every bank began issuing their own money which all defaulted in the 1840s. Without a central bank controlling the inferior banks, we destroyed the financial system. The Judiciary Act of 1925 did the same to our constitutional rights. I was personally release ONLY because I won that lottery and the Supreme Court ordered the government to respond signally I made that cut – one of the 80 out of 7,000+.

The inferior courts are statutory, not constitutionally required, and as such exist at the pure discretion of Congress. We have 94 U.S. judicial districts which are organized into 12 regional circuits. They are not bound to a single unified rule of law or rules and that results in the denial of equal protection of the law. The ONLY court secured by the Constitution is the Supreme Court. That’s it folks! If you cannot be heard in that court, then you are denied your Constitutional right to Due Process of Law. Therefore, someone in the 9th circuit in California will be treated differently from the 2nd Circuit in New York. The Supreme Court is supposed to settle such differences, but it is not obligated to do so. This is what the Judiciary Act of 1925 pulled off – the undermining of our entire Constitution.

Previously, the Judiciary Act of 1891 created the United States courts of appeals and rendered a small part of the Supreme Court’s jurisdiction “discretionary” subject to grant of writ of certiorari. This began the process of reducing the workload of the Supreme Court, yet it remained obliged to rule. In December 1921, Chief Justice William Howard Taft appointed three justices to draw up a proposal to further reduce the obligation of the Supreme Court to hear cases. This became the Judiciary Act of 1925. It was Chief Justice Taft who pushed the passage of this bill in 1925, which rendered the majority of the Supreme Court’s workload discretionary.

Taft WilliamThe Judiciary Act or 1925 was clearly unconstitutional since Congress could not reduce the jurisdiction of the Supreme Court. Yet, William Howard Taft (1857 – 1930) served as the 27th President of the United States (1909–1913) and then became the 10th Chief Justice of the United States Supreme Court (1921–1930). It was Chief Justice Taft who lobbied with Congress to effectively reduce the role of the Supreme Court. This is up there with Goldman Sachs sending in Robert Rubin as Secretary of Treasury to eliminate Glass-Steagall which was enacted because Goldman Sachs lost more money than any public trust during the Great Depression. The Supreme Court was involved and has NEVER ruled on the constitutionality of the Judiciary Act of 1925.

Asset Recycling – Robbing Pensions to Cover Government Costs


Pension-Crisis

Part of the Pension Crisis we face thanks to negative interest rates destroying pension funds, then we have a temping pot of money government just cannot keep its hands out of. Governments are turning to “asset recycling” which includes even Canada. The federal government of Canada, for example, is looking at a potential source of cash they can rob to reduce the cost of government by shifting Canada’s mounting infrastructure costs to the private sector. They want to sell or lease stakes in major public assets such as highways, rail lines, and ports. In Canada, they sneaked in a line hidden in last month’s federal budget which reveals the Liberals are considering making public assets available to non-government investors, like public pension funds. They will sell the national infrastructure to pension funds robbing them of the cash they have to fund themselves. This latest trick is being called “asset recycling,” which is a system designed to raise money for governments. This idea is surfacing in Europe as well as the United States especially among strapped cash States.

The Other Side

3d_text_perspective_10915This is the other side of 2015.75 which was the peak in government (socialism). Everything from that point forward is a confirmation that these people are in crisis mode. They are rapidly destroying Western Culture because they are simply crazy and they people who vote for them blindly are out of their minds. They are destroying the very fabric of society for they cannot see what they are doing nor where this all leads. Once the wipe out the security of the future, this is how government crumble to dust to be swept away by history. We deserve what we blindly vote for.