QUESTION: Mr. Armstrong, I have been following you for all my adult life and that has exceeded 20 years by now and am shocked to say, I found your article on how things evolve GOLD-Oil-Dollar.  I must say this is a eye-opening evolution you are talking about. Has this always been the case with things changing coming into play and then vanishing?

ANSWER: Absolutely. I have written about how gold vanished from use with the Dark Age following the fall of Rome. Gold did not reappear in coinage for nearly 600 years. The first gold coin to reappear in Britain came during the 13th century issued by Henry III.

The Gold Cups of Mycenae

The same thing took place with the Dark Age in Greece. This is when the Mycenae ruled known as the Heroic Period of which Homer wrote. Scholars thought it was just fiction written by Homer until the ancient city of Troy was discovered. Troy VIIa appears to have been destroyed by war around 1184 BC. However, scholars did not believe the writings of Homer because Homer was born sometime between the 12th and 8th centuries BC. He remains famous for his work The Iliad and The Odyssey. So once again there is about 600 years separating the Heroic Age and the Hellenistic Age.

If we turn to Japan, here too we find that the emperor abused his power to issue money and once again we find money vanish for about 600 years. Each new emperor devalued all previously issued coinage to 10% of his new coinage. People simply refused to accept coins because they were devalued and were no a store of value.

Therefore, throughout economic history we always have long-term structural reform. Do not expect either gold or oil to always be a valuable component. If you go all the way back to a Dark Age, governments collapse as does money because civilization reverts back to a tribal state and then the only value becomes food once again.

Naturally, both the dollar will vanish and oil will ultimately be replaced. Hence, the concept of the “petro dollar” has little to do with the value of the dollar itself. As I have stated before, people who keep talking about oil and the dollar are living in the past. The USA is now a net exporter – not an importer. That has completely reversed from the 1970s and the OPEC embargo. OPEC is just not really relevant any more for they have been unable to manipulate the price of oil.

I have stated many times, we have a counter-trend rally against the dollar as to be expected going at least into the German elections, which could carry on into the first quarter 2018. Nevertheless, ONLY a rising dollar will break the world monetary system. A lower dollar will buy everyone a lot more time because most foreign borrowing is in dollars. When that happens, then we will see the Monetary Crisis Cycle revise once again what we call money. Nothing is ever permanent. Remember that!

QUESTION: Mr. Armstrong; You said at your Frankfurt the ECB policy of negative interest rates is actually creating a wider gap between the poor and the rich. Could you elaborate on that comment?

Thank you. Hop you come back to Frankfurt. You do realize that you get twice the crowds here than anyone.

OT

ANSWER: Lowering interest rates to negative was really brain-dead. The rich can move their move and export it to the USA. The poor, lack the sophistication and cannot export their labor no less their meager savings. The people who drive the economy have different roles. The rich provide the capital and create jobs. The middle class to poor are the people who form the foundation and it is their consumer spending that create the underlying economic growth. Attacking the rich always reduces investment and jobs, but lowering the interest rates to negative causes the rich to leave and the poor to middle class suffer lacking the sophistication export both their labor and savings.

The key message from President Mario Draghi’s press conference of the ECB was ro say he was getting ready to slow its QE stimulus, but he’s not in a rush.

Draghi tried to be as vague as possible, because he is trapped. He knows this cannot go on forever. He realizes that once he stops, the bond market crash and there is a risk that the Eurozone government are forced to pay real interest rates and that will blow out the entire EU budget system. Draghi does not know what to do. He confirmed that the governing council had begun ‘very preliminary’ talks about how the quantitative easing might be changed; how much longer it might run, and how much it might pump into the euro economy. He actually said:

“We will announce when we are ready. We think we are going to be ready for much of what we have to decide in October … if we are not then we postpone.”

This idea of lowering interest rates envisioned by Larry Summers, demonstrates that he knows absolutely nothing about economics. He has only read books and never rolled up his sleaves and had to work in the real world to be able to see what I am writing about. Why economic professors are ever allowed to play with the economy is beyond me. You would not ask someone to operate on your brain if they have never practiced surgery.

Nothing has yet changed. We are still 500 points away from the start of important resistance. Keep in mind that the ONLY way to break the bank of the monetary system will be a STRONG DOLLAR – not a weaker on. People far too often make a serious mistake and believe that a strong currency reflects a strong economy. Trump wants a lower dollar to reduce the trade deficit, increase sales of US products, and hence create more jobs.

Europe remains caught up in the postwar thinking when the higher the currency the more they were recovering from World War II. A rising Euro is deflationary – not inflationary. It reduces the price of imports from energy to manufactured goods and food.

The counter-trend rally should have been in play going into the German elections due September 24th, 2017. Keep in mind that the Monetary Crisis Cycle begins NEXT YEAR not now. We have the correction in the dollar and the potential pull back in the Dow in dollar terms.

When we look at the Dow in terms of Euros, the peak was the week of 02/27 and we have not yet reached out target to retest the key technical support. This just takes some patience, but we MUST suck everyone in on these counter-trend moves in order to set everything up for the slingshot in the opposite direction next year.

QUESTION: Dear Martin,

QUESTION: Mr. Armstrong; I have followed you for many years. I have to say, I am truly amazed at what your computer projects. You have never missed a move yet. Here we have the rally in gold into September, yet the August high stands in the market, and even Korea went nuts on your target date and your next target for the 11th concerning Korea I do not want to think what is going on.

I understand you say you never pursued this research based upon a preconclusion but bumped into this in the middle of the night. My question is this. Do you think what you have discovered is somehow a mysterious force that just compels things to happen on target? It’s hard for me to put into words. Do you have any idea why all these things happen when you forecast they will happen?

Definitely see you in Orlando.

PH

ANSWER: I get this question a lot. I really do not know what is the answer. We clearly respond to events the same today as humans did in Roman times. Politicians never change and are always greedy and will exploit the people. If this was not true, then we should all be speaking Babylonian.

I can see that is you do X then Y will always follow. But this is some strange complexity that is far beyond what people are willing to expect. The government simply said I manipulated the world economy. Now that’s really nuts. All I have done is comprehend the inter-connectivity and mapped it out with TIME.

There is a very interesting regularity to everything and it is truly predictable. Yet the majority still prefer to blame me (messenger) rather than stop and explore that there is a mysterious order of complexity far beyond comprehension. The consequence of that (Invisible Hand) runs contrary to politicians who try to manipulate society in the spirit of Karl Marx. So if I am right, that means a politicians can not keep their promises for they cannot control the world economy.

The EU has been dictating to the member states but has failed to shoulder common costs for the refugee crisis they did not create. The EU denied Italy to subtract the cost of feeding refugees from their budget restrictions imposed by the EU. Now the Hungarian Prime Minister Viktor Orban called for a payment of €400 million for the Hungarian border fence. What is clear is that “European solidarity” is a one-way street. Everyone must do as the EU commands and pay up to support Brussels, but Brussels will not share the costs of the crisis they have created. This is tearing the “solidarity” apart because it is clearly a one-way arrangement.

QUESTION: Hey Marty,

A Federal Judge Breyer ruled against Wyoming and in favor of Volkswagen (VW) dismissing the claim that because of VW’s manipulation of diesel emissions, they caused environmental damage and should pay damages to the State in addition to individual car owners. Judge Breyer stated that despite the fact that VW was indeed responsible for manipulation. However, since these were carried out during the production of the diesel cars, the Congress had decided that the EPA, rather than the individual federal states, was in the best position to deal with damage regulations.

VW had agreed with Wyoming and most other states in the controversy about claims from buyers. What this suit was focused on getting fines in the billions of dollars from the company based upon alleged environmental damage. This was clearly a political decision because if Wyoming was allowed to proceed, every state and local country would jump on the free lunch and claim they too are entitle to damages that could never be proven since the air is not stagnant over any single State or county.

VW had already agreed to pay $2.9 billion as punishment for the increased pollution caused by its diesel cars. The company had committed $25 billion to meet claims from buyers, dealers, environmental authorities and federal states. In addition, the company has offered to repurchase half a million diesel vehicles. If every single jurisdiction then sued VW, they company would go into bankruptcy.

QUESTION: Mr. Armstrong; At the cocktail party in Hong Kong I am the one who asked you how China should proceed to make the yuan a reserve currency. You said the rule of law must first protect property and surprisingly you said to issue commodity contracts redeemable in gold. Well, everyone knows whatever you seem to advise China does and very fast. The news is they will now do exactly that. Start a oil contract redeemable in gold. Can you explain why you took this position? You were surrounded at that moment and did not explain in detail why oil should be redeemable in gold.

DK

ANSWER: It was not based upon the rise or fall of gold. The objective is to establish the yuan as a reserve currency until we reach the Monetary Crisis Cycle conclusion. The logical step is to try to boost the yuan as a redeemable reserve currency with stability. You either PEG it to the dollar (unwise for political reasons) or you “LINK” it to gold – but do not PEG it to gold. If you attempt to PEG the yuan to gold, that would fail for you are making the same mistake as Bretton Woods. The only possible way is to “LINK”  it to gold but on a floating exchange rate. That way you are encouraging confidence in the yuan allowing it to be redeemed on a floating basis with gold. Hence, the political risk of the currency is reduced for it could become possible that the currency system breaks apart and politically currencies could be politically frozen and nonredeemable.

This is a long-term structural reform. Do not expect it to be a real game-changer just yet. There will be hype, of course, but we are looking at structural reforms that will take some time. Naturally the hype will claim this is the end of the “petro dollar” for they will use any excuse to call the dollar down. They do not understand that ONLY a rising dollar will break the world monetary system. A lower dollar will buy everyone a lot more time because most foreign borrowing is in dollars. They also are living in the past. The USA is not a net exporter – its a net importer.

The European Central Bank (ECB) is expected to begin reducing its bond purchases gradually tampering its stimulation program of Quantitative Easing (QE). Nevertheless, reliable sources tell of the ECB being extremely cautious fearing what will happen if buyers do not appear and rates begin to rise sharply. The difference between the ECB and the Fed is stark. The ECB owns 40% of Eurozone government debt. The Fed does not even come close.

Obviously, the European financial markets have become addicted to the unprecedented inflow of cheap money even though there has been no appreciable rise in economic growth or inflation as was expected. This raises the question only asked behind the curtain: Will the economy spiral downward if QE ends? The Fed never reached the levels of ECB’s QE program so there is no comparison with the States.

The ECB expects to gradually lower the constant QE purchases of government debt in the Eurozone, which has really kept the governments on life-support. In part, this is why Macron is pushing to federalize Europe in its budgetary and financial markets. There is a fear that there will be severe distortions on the exchanges in the months ahead. What is hoped is that the Euro will decline and make the difficult weaning more tolerable by increasing exports and creating inflation. A lower currency will help to stimulate the Eurozone whereas a rising currency will only add to the deflationary pressures.

The ECB will most likely allow bonds to simply mature rather than sell them back to the marketplace. Any news of the ECB actually selling bonds would send a wave of panic through the European markets. Thus, the only practical way to approach this is to (1) reduce purchases and (2) allow current holding to mature and hopefully they money will be reinvested by the private sector. Accordingly, allowing bonds to simply mature and not the ECB will not reinvest, will eventually lead not to a meltdown of bond purchases but and transfer of buying to the private sector. This wonderful scenario of private reinvestments will not take place at current interest rate levels. It is more likely that the ECB will be compelled to continue to be a major player in the Eurozone bond market for many years to come. They are more likely than not trapped and unable to escape from this life-support system without grave consequences.

The central bank itself, however, is covered by how it reinvests the money from maturing papers. The ECB announced that it would be flexible and as long as necessary. European analysts predict that the majority of funds from matured securities will flow into federal bonds. They hope that Italian and French government securities will also benefit. The ECB has been buying government bonds and other securities on a large scale since March 2015. The purchases of public debt securities were with maturities of two to thirty years. The total program has now amounted to €2.28 trillion.

Draghi has put off any discussion until this month’s meeting at best. The ECB will proceed as slowly as possible. The ECB is expected to reduce its monthly purchases from  €60 billion to €40 billion in 2018, but it will most likely avoid any definitive target leaving it open for fear of market disruptions. His June 2017 speech that the ECB could possibly go a less expansive course because of economic recovery, sent the markets down, not up. The DAX peaked in June with Draghi’s first statement on reversing QE. That result was painful and Draghi has been criticized behind the curtain.