Posted originally on Jun 8, 2025 by Martin Armstrong
QUESTION: Mr. Armstrong, this feud between Trump and Musk has caused me to wonder about Musk. Then, all of these forecasts are using tools you warned do not work because they rely solely on linear analysis. The Tax Foundation said Trump’s bill would result in a $2.6 trillion increase in the deficit. The University of Pennsylvania’s Penn Wharton Budget Model claimed that the bill would raise deficits by $2.8 trillion. Then Yale’s Budget Lab claimed that over a 30-year window, the bill would add $10.8 trillion to the national debt. None of these organizations even understands that there is a business cycle. I find all of this chatter is no different from the climate change projects, as you said, one degree up this year means that will continue forever, and we will all die in 50 years.
Does Socrates have any view that is more reliable than these fake academic prognostications that are never right even once?
Rich
ANSWER: These forecasts are totally worthless. The CBO’s projections for the federal budget deficit were about $900 billion in 2019, and it was expected to exceed $1 trillion each year beginning in 2022. The deficits for 2020, 2021, and 2022 were $3.1 trillion, $2.7 trillion, and $1.3 trillion, respectively. They are incapable of forecasting. How many millions do these fake forecasts cost? We will do it for 10% of their budget. They are all based not just on linear analysis, but on the classic assumption that all things remain equal. They NEVER understand that there is a natural inherent business cycle.
Socrates examines everything, and nothing ever remains the same. We have a Directional Change in the annual budget in 2026, and then you see the big target is 2027. Just looking at the French government, which is in its 5th Republic. France changes government like the Biden Administration changed the definitions of a woman from women’s rights for abortion to his appointment of Jackson to the Supreme Court, who said she could not define what a woman is. The French government is expected to fall in 2027, potentially taking the EU with it.
When you look at the chart for the annual budget deficit, we peaked with the COVID-19 pandemic in 2020. Look at the 1998-2002 period. We had a balanced budget. I was asked by the Wall Street Journal to write about how this was accomplished. In sum, the manner in which President Clinton (1993-2001) was able to balance the budge was (1) the economy recovered in 1994 with capital pouring into the United States as it fled South East Asia resulting in the Asian Currency Crisis in 1997, (2) US Interest rates rose sharply in 1994 attracting huge capital inflows including those from Japan, and (3) Clinton shortened the maturity of the debt funding it short-term to cut interest expenditure.
The National Debt rose from $4,064.6 billion in 1992 to $5,807.5 billion by 2001. The shift in funding slowed the rate of growth. Interest rates at the Fed dropped by 6.5% in 2000 to 1.75% in 2001. When Clinton took office, the Fed Discount Rate stood at 3.5%. The rise began in 1994, which helped to attract foreign capital, especially from Japan, and it peaked in 2000 with the Dot Com Bubble on the heels of the 1998 Long Term Capital Management debacle that followed the collapse of Russian debt.
However, because Clinton shifted from long-term to short-term, which reduced the interest expenditures, now look at how the debt exploded when the rates went back up to 6.5%. This is what I mean by the Fed can no longer control inflation, for the biggest borrower is the government.
Posted originally on Jun 5, 2025 by Martin Armstrong
This is the first installment for our Institutional Clients concerning the two countries at the greatest risk of DEFAULT – Japan and Germany. We have provided the forecast for Japan’s default and explained in detail the internal battle between the Government, the Bank of Japan, and the Private Sector. This report exposes the truth about who holds what and the threat to instability as Japan also tries to cozy up close to NATO as a diversion for its fiscal mismanagement.
Investors have long fretted about the sustainability of Japan’s government debt as other nations, including Germany, are facing unsustainable fiscal mismanagement across the developed world. Japan has garnered the most attention due to its highest debt load relative to economic output and the heaviest debt-service burden. At the same time, the excuse has been that they are mostly self-funded, and as such, appearances are deceptive. Still, all Western nations are on a collision course with a sovereign debt crisis that will bring them all crashing down when the line at the door stops buying the new debt to roll over the old.
Japan’s fiscal mismanagement is not significantly worse than that of others. The pandemic, climate change, sluggish growth, and financial crises, accompanied by a lack of confidence, have led to an increase in government debt for many wealthy countries. At more than 250% of GDP, Japan’s gross debt stands out. Combined with sluggish growth and a shrinking population, many financiers and economists see it as an existential risk. The real question this report addresses is the real story behind the curtain, and when does this come to a head?
Posted originally on May 31, 2025 by Martin Armstrong
QUESTION: Marty, There seems to be a growing trend with States approving gold and silver coins as acceptable payment methods. You have always said that it would be coins and not bars. However Florida now states that the silver must be 99% pure. How will this affect the pre 65 constitutional coins like dimes, quarters and half dollars generally referred to a junk silver? Junk silver coins will of course be worth more if the price of silver increases however it appears that one may not be able to use them for any daily transactions. Would one be better off selling their junk silver and converting it to silver rounds immediately? What does Socrates or Socrates Jr think on this topic as it is certainly a new wrinkle. Thanks ! JimJ
ANSWER: I understand the act, and it only illustrates my point that when it comes to a silver bar, 99% of the people out there would NEVER know the difference between that and a bar of Nickel. That’s what I said; I prefer the pre-1965 silver coins because the average person can easily identify the date. They are ALREADY legal tender. So they are not demonetizing the silver coins.
The Roll of 20 – 2025 $1 American Silver Eagles are 99.9% silver. However, they are denominated as $1. This may be more confusing to the average smuck on the street. Personally, I have bags of silver coins, and I have a hoard of $20 gold coins that came from a central bank, which found them tucked away in the basement vault. They are all uncirculated 1924 Saints. This was a private offering.
Posted originally on May 30, 2025 by Martin Armstrong
Happening now: @GovRonDeSantis is in Apopka to sign HB 999 which “sets in motion #Florida’s full recognition of gold and silver as legal tender, giving Floridians the freedom to use precious metals for everyday transactions alongside traditional currency.”https://t.co/fRkQpDJE7Dpic.twitter.com/dOMajgwAsj
Florida Governor Ron DeSantis has declared gold and silver legal tender. HB 999 maintains that these precious metals may be used in payments if they meet specific purity standards. The bill goes into effect on July 1, 2026, but many are confused as to what this will entail.
As stated in the legislation: “Legal Tender; Revising the sales and use tax exemption for certain coin or currency; specifying that a person who claims the sales tax exemption bears the burden for determining whether the gold coin or silver coin meets a specified definition; providing a presumption regarding the purity requirements of gold coin and silver coin, etc.”
“We are the first large state to step up and to get this done,” DeSantis said. “And this is right out of the Constitution of the United States. So this legislation will authorize money services business like check cashers or PayPal to transmit and accept payment in gold and silver.” State Rep. Bill Bankson sponsored the bill with the goal to “eliminate the tax burden and make it a functional means of transaction between willing parties.”
To begin, Florida is not the first state to declare gold and/or silver legal tender. Utah passed the Utah Legal Tender Act of 2011, which declared coins of either metal legal tender. Oklahoma passed Senate Bill 862 in 2014, recognizing U.S.-minted gold and silver coins as legal tender and exempting them from taxation. Kansas and West Virginia have similar policies. Texas has recognized these coins as legal tender and enacted legislation to protect them from state seizure. Wyoming treats gold and silver as currency and has exempted it from sales tax. South Carolina and Louisiana have similar policies.
Florida’s approach is a bit more structured. Gold coins must be at least 99.5% pure and silver coins at least 99.9% pure to qualify as legal tender. The weight and purity must be imprinted on the metal with the name or symbol of the mint refiner. Both will be exempt from sales tax. The state government may choose to accept silver and gold coins for payments on taxes, dues, charges, and debts. Yet, these transactions must be done electronically, and the coins will be held by a public depository while processing. A regulatory regime will be established to handle coinage, process insurance, record-keeping, licensing, and consumer disclosure agreements, which the Office of Financial Regulation will oversee.
Will Floridians see people using silver coins to check out at the grocery store? No. The law entails that payments in gold and silver coinage are entirely optional, and no person or business is required to accept them in payments. Merchants will not be required to attain knowledge on metal purity or have scales behind the cash register. The difference now is that businesses are allowed to accept them if they choose to do so. There are numerous tax benefits to choosing metal over cash.
If John Doe wants to purchase a boat from a dealership with gold, for example, the dealership must voluntarily accept the coinage but is in no way obligated to do so. Then the dealership has the burden of verifying the spot price of gold or silver rather than the state. However, if you go to a bank to cash a check, the bank will have the ability to offer clients payments in gold or silver coinage rather than cash. Another aspect to consider is that Florida will no longer add a sales tax on transactions in gold and silver, lowering the cost for businesses and consumers by around 6%.
This signals the ongoing loss of confidence in the federal government. States are rebelling against federal mismanagement and offering residents alternatives to move off the grid. People tend to hoard gold and spend paper. Gold and silver are not practical as daily commerce but are a symbolic store of wealth. We are entering a phase where sovereign debt will become toxic, and states will begin to prepare for the inevitable chaos coming from Washington.
originally on Posted May 30, 2025 by Martin Armstrong
The US economy contracted by 0.2% from January through March of 2025. This is the second Q1 estimate provided by the US Commerce Department, with a third on the way on June 26.
Imports surged into the US during Q1 as corporations aimed to avoid incoming tariffs. The 42.6% uptick in imports marked the fastest pace of goods arriving in the US since Q3 2020. Business investment rose 24.4% in Q1, with business inventories adding 2.6 percentage points to overall GDP. Federal government spending fell by 4.6%, the largest drop in three years, but a deduction from overall GDP calculations.
Real consumer spending rose by 1.2%, albeit far less than the 4% posted during Q4 2024 and revised down from the first reading of 1.8%. Other reports indicate that Americans are spending far more on the essentials like utilities, health care, and housing. The Fed’s preferred inflation measure (PCE price index) rose 3.6%. Persistent inflation has led to cautious consumer behavior and a decline in demand for goods, contributing to the overall weakened reading for Q1.
Discretionary retail fell by 3% this quarter to 23% as consumers are less likely to purchase items like clothing, furniture, and electronics. Durable goods experienced a significant decline of 19%. The University of Michigan’s survey noted that decreased confidence has caused the demand for big-ticket items to decline. A lot of the demand we did see in Q1 was spending to offset anticipated tariffs. Autos, for example, rose by 11% YoY in March alone, and Q1 saw an overall 4.8% in auto purchases. That trend is not expected to continue as consumer sentiment is low.
April’s 2.3% CPI reading was the smallest annual increase since 2021, yet still above the 2% target set by the Fed years ago. The Fed isn’t fighting inflation. That phase is over. What they’re really fighting now is a collapse in confidence in the bond market, the dollar, and in the entire public sector. There will be no soft landing as once anticipated, as we are currently in a stage of stagflation.
Meanwhile, Fed Chair Jerome Powell met Trump at the White House on Thursday to declare that rate decisions would be based on “careful, objective, and non-political analysis.” “I’ve never asked for a meeting with any president, and I never will,” Powell said. “I wouldn’t do that. There’s never a reason for me to ask for a meeting. It’s always been the other way.” Trump invited Powell to the White House to encourage him to cut rates at the June meeting. The markets were pricing in a rate cut in June but now that does not seem as likely.
Trump fails to realize that the Fed is attempting to preserve confidence in the US, primarily in the debt market. We are witnessing cash deficits of over $1 trillion per quarter. Moody’s recently downgraded the US and no longer believes that Treasuries are a certain bet. The government is broke and the Fed must maintain the illusion of solvency.
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