Posted Mar 25, 2020 by Martin Armstrong
QUESTION: The goldbugs hate you, but they read you. Now they are claiming that the virus will kill fiat currencies. My question is simple. If the government cancels the paper currencies and moves everything to digital, what is the difference? Isn’t that still their claimed fiat currency?
ANSWER: Yes. They refuse to surrender their idea that money must be backed by some commodity. They cannot comprehend that the value of a currency is the total productive capacity of the people. What governments are doing to end paper currencies is in fact destroying the productive capacity of their economies. They will also seize private cryptocurrencies. The object is to force everyone into their digital world that they control to collect taxes that they assume we do not pay.
Do these people think for one second that government would surrender the power to create a currency backed by something? That is austerity which is tearing Europe apart now with DEFLATION! The Wizard of Oz and follow the yellow brick road was about a protest march on Washington during the Panic of 1893. They were against the gold standard because it produced deflation. Remember William Jennings Bryan who delivered his speech – Thou Shalt Not Crucify Mankind of a Cross of Gold?
Armstrong Economics Blog/USD $
Re-Posted Mar 25, 2020 by Martin Armstrong
For those who hate the dollar, the Norwegian central bank declined to comment on the details of a planned US dollar liquidity auction due to take place on Thursday. We are also looking at Denmark’s central bank will auction U.S. dollars to commercial banks and other financial institutions on March 26 together with Sweden and Norway’s central banks. The dollar crisis is monumental. This makes the heads spin around of those who are trapped in their ideas confined by the Quantity Theory of money. They just cannot get their heads around how a currency can rise when the theoretical supply increases. They fail to comprehend that the dollar is the preferred currency in a sea of currency uncertainty.
Armstrong Economics Blog/European Union
Re-Posted Mar 21, 2020 by Martin Armstrong
QUESTION: Marty, the gold buyback quote at ….. is now spot + $20. A week ago the quote was spot + $2. Supply & demand? Shortage of 1 oz random year golden eagles? What’s going on?
ANSWER: Europe has directed bullion dealers not to sell to individuals. You will probably see next week a proposal floated that asks Europeans to turn in their gold and convert it to digital under the claim this is patriotic. There are growing fears in Europe that they will cancel the paper currency and force everyone to go digital. This is why there have been runs on banks in the USA for cash dollars in New York, not for fear that the bank will fail, but a panic to get out of Euros.
There is a rumor that is spreading that Europe will confiscate gold as Roosevelt did, but not to back the currency with gold, but to force all wealth into a digital currency. This would be a game-changer in Europe. I do not see this unfolding outside of the Eurozone. Keep in mind that Europeans are very familiar with canceling currencies. It is ONLY the paper currency which is canceled – not the Euro itself. That is routine in Europe to force people who have the cash to declare it and pay taxes or lose everything. They cannot cancel US dollars, but they have been imposing stricter regulations on gold for the past two years. As I have said, never let a good crisis go to waste.
Armstrong Economics Blog/Regulation
Re-Posted Mar 21, 2020 by Martin Armstrong
QUESTION: Sehr geehrter Herr Armstrong,ich kann mich noch daran erinnern, daß Sie empfahlen ein Konto in den USA zu haben.
Ist diese Empfehlung unter den besonderen Umständen noch aktuell? Was denken Sie über den australischen oder neuseeländischen Dollar oder ein Konto in diesen Ländern?
Ich versuche als Ehemann und Vater ruhig zu bleiben und harre den Dingen die da kommen.
Ich freue mich, von Ihnen zu hören und danke Ihnen schon mal!
Schöne Grüße aus Deutschland und dem Havelland
Dear Mr. Armstrong,
I can still remember that you recommended that you have an account in the United States.
Is this recommendation still current under the special circumstances? What do you think about the Australian or New Zealand dollar or an account in these countries?
As a husband and father, I try to stay calm and wait for the things that come.
I look forward to hearing from you and thank you in advance!
Greetings from Germany and Havelland
ANSWER: Yes. The risk is in Europe that they will also impose capital controls. There is a SERIOUS Risk they will compel the digitization of even gold in Europe as well as cancel the currenc7y. Caution is advised next week
Armstrong Economics Blog/Economics
Re-Posted Mar 20, 2020 by Martin Armstrong
There is no question that the fundamentalists #1 Golden Rule has been when stocks crash, run to bonds. We are entering the collapse in public confidence and this is BEYOND the central banks despite the massive attempts to intervene. Keynesianism is DEAD!!!! We have entered uncharted territory which is the darkest fears of academics for they know nothing about such scenarios. I rushed to try to get Manipulating the World Economy because this was critical given what Socrates was projecting for 2020 and the correction. (3rd edition is at the printers, 2nd edition may still be on eBay).
The bond markets are offering no refuge this time for the flight to quality. The diversification strategies, real value investors, and correlation desks have all lost the most money during this crisis all because the #1 Golden Rule has crumbled and fallen to the ground in a pile of dust. The traditional 60% in shares and 40% in fixed income has collapsed. There has been a worldwide panic to dollars both among institutions as we see in the FX markets, but in the physical world of cash dollars have been vanishing as hoarding skyrockets. There have even been shortages of physical dollars in New York City. Paper dollars have been hard to find in Europe and in many places they are now selling for a premium.
The failure of the bonds to provide the alternative in a stock crash confirms that Keynesian Economics is dead and monetary policy has lost its stimulative power because of this insane negative interest rates. Real rates rise in times of a crisis as illustrated by the call money chart showing dramatic rises in rates pre-Federal Reserve and pre-Keynesian Economics. The central banks have been trying to PREVENTthe rise in short-term rates taking place in the Repo Market since September 2019.
The central banks have been fighting a losing battle against the normal forces of how capital moves during a crisis. During a crisis as this, interest rates rise with the perception of a rise in credit risk. The central banks have been trying to create a bear market in interest rates in the middle of a bull market where rates would instinctively rise
All of those clinging to the Quantity Theory of Money from politicians, analysts, goldbugs, and central bankers, you have to wonder how many times must they all be wrong in assuming an increase in the supply of money must be inflationary. That theory has proven to be suitable for a bedtime story for children. Academics, who has fostered this theory, lack any trading experience. Sorry – all things DO NOT REMAIN EQUAL!
This has not been a market crash sparked by the black swan event using a novel virus that central bankers cannot defend against, this has been an orchestrated overreaction with ulterior motives. There is NO amount of money that can be poured into the economy to reverse the trend as long as people’s confidence in the future has been destroyed by the media. This is no different from how the media created the Spanish American War accusing the Spanish of attacking an American ship that never happened. They name the prize for good journalism after the father of fake news.
This is the destruction of capital formation. The entire Quantity Theory of Money is bogus and has never held up if you simply investigate the history. The old theories of debasing money which led to the start of that theory was during an era when coins were precious metal and they exchanged in value among nations on their metal content. That was the Latin Monetary Union. The same amount of metal established the foreign exchange rate among nations. However, as debasement took place and wars suspended the precious metal standards, money revealed its hidden nature – political power.
The true nation of money was always international confidence in the government. India would imitate the gold coins of Rome because people trusted the Roman coinage. Gold carried a premium over its metal content based upon political power. The ancient coinage demonstrated that money was NOT the pure intrinsic value of the metal, but the confidence in the political state issuing that coinage.
We find the very same trend 600 years earlier when Athens was the financial capital of the world. Silver was imitated in the form of Athenian Owls, which was the first worldwide currency to appear. Athenian Owls were imitated in Europe to Africa. Once again, these were not counterfeits but imitations. The metal content was some time of an even higher grade. This confirmed that the premium of currency was created by the political stature of the issuer.
This is what we are witnessing right now – the Panic to the Dollar. You must understand that this is a long historical documented reaction. The rush to dollars right now is as old as recorded history. The currency of the dominant financial capital of the world will always trade at a premium in times of crisis.
The massive liquidation going on among hedge funds who have never understood the Quantity Theory of Money is taking us into the end game where there is no shelter in bonds, but only cash. The statement of Ray Dalio that “cash is trash” illustrated the arrogance of that philosophy constructed on the false Quantity Theory of Money. The typical flight to quality running to government bonds has failed and the rush is to simply cash.
If you look at the markets and not the headlines, as the U.S. stocks collapsed in panic on Wednesday by 5%, turn to the TLT $17 billion exchange-traded fund that tracked long-dated Treasuries. That very day saw its second-worst day ever in the middle of a panic. That was NOT supposed to happen, according to the Quantity Theory of Money believers. If we simply trade by the numbers and not dogma, we saw both equities and bonds plummet. Those who have been focused on cross-asset correlations, none of this was supposed to be even possible. Even gold plunged alongside equities and government bonds. We entered the new reality where Keynesian Economics has collapsed and there is nothing to replace it.
The staggering losses that will come out this quarter because of the fund managers who have all been based on the Quantity Theory of Money warns that we may yet face the shocking revelation of just how much capital was destroyed. Even those who relied upon a risk-parity index that was supposed to create a diversified systematic strategy as it allocated money based on volatility levels has been blown out of the water. I did a presentation at one of the largest investment houses in the world, and I answered the question if I believed in diversification models. My reply was NO! Why invest in something I expect to lose money in as insurance when I can do the proper analysis and determine where to invest.
While the European Central Bank tried to claim that it had NOT run out of ammo announcing an emergency bond-buying program worth €750 billion euros, all this does is keeps the government on life-support. The greatest risk at this time is to dump money into government debt. Even gold has not proven to be a better option in the long term as hedge funds have lost so much money in other areas, they have been forced to liquidate gold simply to raise cash.
This Keynesian Model of lowering interest rates has completely failed and it has acted counter-trend to how the capital functions in a panic – the top priority becomes credit risk. The closer the yield of fixed moves toward zero, the more negatively skewed bonds become. Bonds have simply become a tremendous risk for they are becoming not a place to hide, but a place to obtain a guaranteed loss. The risk of negative-yielding debt is that their prices will collapse 20%-60% as capital in the free market looks at credit risk and what level of return is necessary to prevent hoarding of cash.
Armstrong Economics Blog/Socialist
Re-Posted Mar 20, 2020 by Martin Armstrong
QUESTION: You champion companies that then dominate the system which is the foundation of capitalism. Is this not against the people you seem to support?
ANSWER: No business that is guaranteed by the government is capitalist. That is self-evident in education, insurance, and even medicine. Once the government gets involved to supposedly guarantee something, claiming they are doing so to help the people, corruption expands and the people will always pay more.
All new businesses begin as a monopoly. Someone first has to invent the idea. It is the competition that then takes place that is the core of capitalism — freedom. Once some industry turns to the government for some advantage, then competition is reduced and that ceases to be a capitalistic system. There are some things that need to be monopolized. Take utilities or trains. In both cases, you have to have a single network of delivery. If there were five utility companies all delivering electricity and they had to run their own network of lines, the street would be littered with cables and then what do you do with the poles? Who owns them? The same problem existed with railroads. If a company had to pay each individual railway for the use of their rails for say 10 miles, there becomes a point where the competition prevents economic expansion. This tends to apply only where there is a common delivery network that must be shared.
This is why socialism and communism fail. They try to create common networks that then curtail competition and prevent economic growth. Look at medicine. They compare the US to free medical care in Canada or the UK. But when people in Canada need serious treatment, they come to the USA. The best doctors leave for America because they can make a lot of money. In the UK, they are government employees. The only way to have medicare for all is to nationalize medicine and then the entire system becomes like the Veterans Administration. In the USA, the government is subsidizing the medical profession and politicians always demand nationalizing health insurance rather than looking at the system and the corruption within the system where hospitals overcharge for everything. That is again anti-capitalistic.
There are those who point to big corps and how they own government and then call that capitalism. Sorry, that is just corruption and it is to PREVENT competition to rig the game in their favor. That is ALWAYS the downside of any republic. Once you allow career politicians, they inevitably sell their power to the highest bidder. You will never have a government of “We the People” as long as you have a republic without term limits. I strongly suggest you review your definition of “capitalism” for nowhere in there is the justification for bribery. That defeats the entire system for it is no longer a free market.
Armstrong Economics Blog/Forecasts
Re-Posted Mar 20, 2020 by Martin Armstrong
COMMENT: You mention Dalio saying cash is trash. Did you happen to see them ask Tudor Jones about those comments only an hour after in Davos as well? He pretty much ignored the question as they are “friends” but you could tell he disagreed. I’ve watched other interviews with both of them together and is painfully obvious Jones is a trader and looks at the world through capital flows (yes obviously followed you for years) while Dalio is the traditional fundamental analysis type. Jones also talked about the coronavirus being a curveball that could interrupt the markets, while the reporters didn’t even believe him, at that point in time.
ps I will forward your letter on to John James candidate for US Senate against the incumbent democrat Peters
REPLY: Yes, Paul actually bought hundreds of copies of the Greatest Bull Market in History back in 1986 and handed them out to all his clients. There is a SUBSTANTIAL difference between fundamentalists who try to reason the world and you cannot do that. A trader cares not if a given market rises or falls – it’s just a trade. I have told the story of how I went to lunch with the CEO of one of the biggest Swiss banks in Geneva. I was going to open our first office overseas in 1985 and I knew there was underlying American resentment in many places throughout Europe. I had a list of various names we came up with like European Advisers or something like that. He asked me to name one European analyst. I was embarrassed because I couldn’t. I apologized and said I sure there were, but just never met any.
He laughed and said there were none. If he was British he was also bullish the pound. The same with the French or Germans. He then explained to me why everyone used my firm. He said you do not care if the dollar rises or falls. We became the largest FOREX adviser because the analysts who worked for banks could never take a bearish position on their currency because the European politicians always used it as the proof they were doing a good job post-World War II because the currency rose in values reflecting the booming recovery.
A trade calls a currency, the Dow, gold, or whatever be it up or down because it is just a trade. I warned at the WEC in Orlando that the market was ripe for a correction come the January turning point on the ECM because it had risen 11 years.
Fundamentalists assume markets move only on events. That is not true. The market moves and the commentators try to find the explanation. It simply declined because it was tired and everyone who thought of buying had already bought it. Thus, a correction was ripe. That does not negate the long-term and new highs again just as we saw from the 1987 Crash or the 2009 low.
This is why you should NEVER give your money to a fundamentalist to manage. NEVER!!!!!
National Economic Council Director Larry Kudlow discusses what economic options the U.S. government has to mitigate and assist businesses and individuals dealing with the financial impacts of coronavirus.
Note to Mr. Kudlow: Do not trust Dr. Anthony Fauci.
Fauci is a purposeful panic seller. His goals are not the administrations goals.
Armstrong Economics Blog/Central Banks
Posted Mar 15, 2020 by Martin Armstrong
The Federal Reserve will return to its origin and it will do what it was originally designed to do. They will lend now on commercial paper rather than just government. As everyone knows, this has been my strongest recommendation and criticism of Quantitative Easing. The Fed was originally designed to create Elastic Money buying corporate paper to prevent a recession and job losses. World War I saw government interfere and directed the Fed should be buying government debt.
Injecting cash into the banks FAILED because the banks lacked the confidence to lend money. They turned and placed money at the Fed in Excess Reserves. Not that that bottomed in September 2019 with the Repo Crisis and is back on the rise again as banks are not lending.
Lowering rates FAILED because people will not borrow if they lack confidence in the future, Hence, Europe and Japan have destroyed their government bond markets and now they talk about nationalizing companies and eliminating paper money while seizing cryptocurrencies. They have no monetary power left in the central bank. All they can do now is turn draconian and seal the fate of their economic future.
The Fed will take a different path and lend directly to corporations because the bankers will hoard the cash and NEVER help the economy. This has been my #1 recommendation to save the economy and the central bank.
This is the REAL Crisis – not the coronavirus which has been at best the catalyst to set everything in motion for the monetary crisis and the Mother of All Financial Crises.