Germany To Tax VAT Just Billing People Before they Pay

The German government is desperate for money and what they are doing now is just unbelievable. Germany is looking to order companies to prepay VAT tax before they even collect it.  Companies in Germany will now have to pay the VAT immediately to the government on any amount they have billed to a customer. This is very drastic. Normally, someone who pays a bill in installments would pay the VAT on that amount that they pay. Under this new scheme, the company must pay the full VAT tax before they get the money. Even a sports contract would require paying the VAT on the entire contract which may be for 5 years up-front.

European Banking Crisis

Perhaps this period will be looked back upon as the Draghi Deflation. After nearly 10 years of this failed policy, the European banking industry is contracting on every possible level. The merger of Commerzbank to Merge with French BNP is one possibility. Commerzbank is a takeover candidate or shotgun wedding candidate, for good reasons. Its shares have fallen and are trading now at half their book value. When interest rates rise to bring back deposits, then the bank could perhaps get out of its deep hole. The German government, which has a 15 percent stake after a bailout in 2009, is ready to sell looking to raise cash itself.

The Draghi era of negative interest rates has proven to be a complete disaster. People have withdrawn money and preferred to buy safes. Major banks with branches in the USA have shipped their cash to the American branch and deposited at the Fed in excessive reserves. Meanwhile, with deflation dominating the European economy and rising taxation, the average person is just not interested in borrowing until they see the economy turn around.

On top of these issues, to survive, European banks have been withdrawing from proprietary trading, firing expensive staff with experience, and replacing them with inexperienced kids. Additionally, the low-interest environment and the decline in deposits has resulted in a major contraction in bank branches. As banks also move to online banking, they have been able to reduce staff. In 2016, the banks let go some 50,000 jobs. They were also able to close some 9100 branches throughout the EU, according to the European Banking Association.Consequently, now the banking work force has been reduced to 2.8 million people contracting back to 1997 levels. We will most likely see a further reduction of at least 5% going into early 2018. We will see further mergers and consolidation reducing jobs and branches into 2020.

Commerzbank to Merge with French BNP

According to a the latest spin, the German federal government’s withdrawal from the Commerzbank has left the favored shotgun wedding merger. Commerzbank is the Frankfurt money house which will be merged with the French BNP Paribas. This is being presented as if it were a strong German-French merger which is suggesting that there is a deeper European banking union unfolding. Additionally, they are also going to merge a troubled Italian bank into BNP.

Behind the curtain, the concern is that Commerzbank could not be merged with Deutsche bank because they have the same portfolios that are in trouble. BNP Paribas is about 10 times the size of Commerzbank. Therefore, the real world view is this is just a shotgun wedding rather than a new German-French merger.

Spanish Stock Market Reflects The Bearish Outlook for Spain

The one thing I have always said, markets never lie. The fact that Spain is showing that its government is still fascist is reflected in the performance of the share market. Spain has never exceeded its 2007 high and it is warning that a lower closing for 2017 may just see this market collapse into 2020. We will be looking at Spain closely at the WEC. This chart has been screaming – all is not well in the European project.

Dow High or Low

QUESTION: Hi Martin,

I am confused with the Dow Jones Index, could the index explode up through 23,000 to 40,000 from here or does there need a downward move then explode up through 23,00 (a sling shot).  Could you tell us what you see for the next 6 to 9 months.  Probably the most important investment for us all!
Thank you for all your help!
ANSWER: The cycle is in the basing mode. Therefore, it need not drop sharply. Remaining within the channel is perfectly fine. A Slingshot would be more powerful to retest the bottom of the channel.  The explosion to the upside is still not yet unfolding and we need to be concerned about 2018 and the year-end closing. We will issue a special report to deal with that issue.
Part of the basing is concluding this year from political hell. The German elections are the 24th. Keep in mind that AfD will gain seats for the first time. Merkel has NEVER won a majority and she relies upon the FDP to hold power. The more the FDP declines and seats are taken by the AfD, the more chaos will unfold.

Central Banks Investing in Equities

QUESTION: There is a new trend that central banks are investing in the stock markets Is this true? What is the impact of this move?

ANSWER: Yes. The reason has been rather straight forward. The only game in town has been US government bonds. Many have seen this as a problem the defeats diversification. Consequently, there has been a major effort to attempt to diversify into the private sector when there has been such uncertainty in the public sector. Behind the Curtain many are simply asking of Europe: What the hell is going on? This has been a “euro crisis” that simply never seems to end. What has happened to Greece, Portugal, Italy, Spain, Holland and now even France. Many outside of Europe are simply asking has Europe just lost its mind? Hence, there has been a move to diversify out of government debt by central banks themselves.

Louvre Accord v Plaza Accord

QUESTION: I notice you often cite the *Plaza Accord* when on the topic of central bank currency manipulation. That accord was signed in 1985 with an aim to devalue the USD. Could you write a little on the *Louvre Accord” signed just two years later, in 1987, with an aim to reverse the unwanted effects of the *Plaza Accord*. Thanks – cheers,


ANSWER: The Louvre Accord was an agreement, signed on February 22, 1987 in Paris, that aimed to stabilize the international currency markets and halt the continued decline of the US Dollar caused by the Plaza Accord. The agreement was signed by France, West Germany, Japan, Canada, the United States and the United Kingdom. Italy declined to sign the agreement.

The G7 meeting of central bankers and finance ministers in Paris announced that the dollar was now “consistent with economic fundamentals.” The announced that they would only intervene when required to ensure foreign exchange stability. The objective was then to manage the floating currency system. Democrats gained control of Congress in 1986 and immediately called for protectionist measures. The dollar depreciation agreed to in 1985 at the Plaza Accord, failed to really improve the trade perspective. In 1986, the trade deficit actually rose to approximately $166 billion with exports at about $370 billion and imports at about $520 billion. The object of manipulating currency to try to create jobs and alter trade flows proved to be completely false.

My concerns warning that volatility would increase made back in 1985 were materializing. What they did not understand was the lowering the dollar in value also led to a shift in capital flows and the selling of US assets. Foreigners were suffering loses by financing U.S. trade through purchasing United States Treasury bonds in an attempt to ease the trade deficit criticism. We were advising Japanese to buy gold on the New York COMEX, export it, and then resell which would also make it appear that the US exports were increasing. However, the lower dollar was then resulting in the importation of inflation into their own nations.

We can see that first of all the dollar had already begun a decline prior to the Plaza Accord in August 1985. By the time we arrived at the  Louvre Accord, you can also see that the dollar continued to decline. The attempt to manipulate the foreign exchange markets proved to beyond the capacity of the G5 which had been expanded to G7 and today is now G20. We can see the capital flow data between the USA and Japan began to move in early 1984 establishing the trend that nobody seemed to pay attention to at that moment.

The price action of the dollar clearly proves that the central banks lacked the power to truly influence the markets. The trend had begun prior to the Plaza Accord and it continued to decline following the Louvre Accord.

Understanding Cycles

Cycle targets that we provide are TURNING POINTS. This means an event normally takes place at that time be it a high or low. If ideally something should produce a low but does not and produces a high, it is typically extending the cycle to the next TURNING POINT. It looks at this time that the next important turning point is the week at the start of Sept. There is of course the Fed meeting. But then there is trouble among debt ridden nations and then there is Iran.

Keep in mind that for some strange reason, geopolitical events tend to also happen in the Aug/Sept time frame. Besides war, there was even 911. On 28 June 1914, Archduke Franz Ferdinand of Austria was assassinated. World War I began officially 28 July 1914 and lasted until 11 November 1918. It was August when things really got underway. World War II began when Germany attacked Poland on September 1, 1939. Most stock market crash events take place after highs in early Sept such as 9/3/1929. Even the 1987 Crash 10/19/1987.What it is about this time of the year who knows. Where December is the time to be jolly, Sept is the time for chaos. Never look for a particular event high/low. It is a TURNING POINT that sometimes can invert and produce the opposite largely because everything is connected. It is always an action/reaction.

Cycle of Knowledge


I am a French Astrophysicist and I end up watching with great interest a TV story about Martin Armstrong. As a scientist I am really curious and keen to build new connection between our way of describing the Universe and the bias introduced by our own vision and history. Hence I was wondering if the algorithm that Martin has developed was ever tested on human knowledge discovery or if this is something that could be interesting to do.

Kind Regards,


ANSWER: Absolutely. There is cycle to knowledge that I have also encountered and found fascinating. We reach period of knowledge and then we seem to lose it all and reboot. Society before the Dark Age knew the Earth was round and not flat.  For example, if we look at the ancient Greeks, the knew the Earth was round and not flat. They burned people like Giordano Bruno (1548–1600) alive at the stake for claiming the world was round and it revolved around the sun instead of the other way around. The Greek philosopher Aristotle (384-322 BC) argued in his writings that the Earth was spherical, because of the circular shadow it cast on the Moon, during a lunar eclipse. Another reason was that some stars visible from Egypt are not seen further north. Aristotle wrote:

The evidence of the senses further corroborates this. How else would eclipses of the moon show segments shaped as we see them? As it is, the shapes which the moon itself each month shows are of every kind — straight, gibbous, and concave — but in eclipses the outline is always curved: and, since it is the interposition of the earth that makes the eclipse, the form of this line will be caused by the form of the earth’s surface, which is therefore spherical.

Again, our observations of the stars make it evident, not only that the earth is circular, but that it is a circle of no great size. For quite a small change of position to south or north causes a manifest alteration of the horizon. There is much change, I mean, in the stars which are overhead, and the stars seen are different, as one moves northward or southward. Indeed there are some stars seen in Egypt and in the neighborhood of Cyprus which are not seen in the northerly regions; and stars, which in the north are never beyond range of observation, in those regions rise and set.

All of which goes to show not only that the earth is circular in shape, but also that it is a sphere of no great size: for otherwise the effect of so slight a change of place would not be so quickly apparent. Hence one should not be too sure of the incredibility of the view of those who conceive that there is continuity between the parts about the pillars of Hercules and the parts about India, and that in this way the ocean is one.

(Aristotle, “On the Heavens,” Book II, Chapter 14, The Works of Aristotle, Oxford University Press; pp. 297-298.)

Aristotle, on the other hand, disagreed with the Atomic theory developed by Democritus (460—370 BC) in 465BC. He believed that instead of being matter being made of tiny particles (atoms) that they were all fundamentally air, fire, water, and earth. The Atomic theory was actually first proposed by Leucippus (c 5th cent. BC), and was then adopted by Democritus. The Atomic theory stated that “The universe is composed of two elements: the atoms and the void in which they exist and move.” According to Democritus atoms were miniscule quantities of matter, which he believed could not be destroyed, differ in size, shape and temperature. They were also in constant movement yet could not be seen with the naked eye. He believed that there are an infinite number of atoms.

Then there was the Alexandrian philosopher Eratosthenes (c. 276BC–195/194BC) who actually estimated how large the Earth was. Eratosthenes learned that on midsummer day (June 21) in the town of Syene in southern Egypt, the noontime Sun was reflected in a deep well for it was directly overhead on that one day. Eratosthenes in Alexandria which was about 5000 stadia north of Syene. In Alexandria the Sun on the corresponding date did not quite reach zenith (perfectly overhead), and vertical objects would cast a short shadow. Hence, Eratosthenes calculated that the direction of the noon Sun differed from the zenith by an angle that was 1/50 of the circle, that is, 7. 2 degrees. With this realization, ,Eratosthenes estimated the circumference of the Earth to be 250,000 stadia.

 I have stated before that after Rome fell, the financial capitol of the world moved to Constantinople in Turkey. After the Byzantine Empire fell, that financial capitol moved to India. It was because of the importance of India that Columbus set sail on a mission to India based upon a wrong calculation of the size of the earth. Columbus relied upon the calculations of the earth from Ptolemy. Ptolemy influenced Strabo who in turn reduced the 250,000 Stadia of Eratosthenes to 180,000, and then stated that half of that distance came to just 70,000 stadia, making India reachable by sailing West. So India has played a very important role for Europe bumped into the Americas by trying to sail to India.

This is only one example of how there has been a cycle to knowledge. It is by no means linear. Knowledge is built from experience. Thus, we have to go through the business cycle to advance. This was in part included in Schumpter’s explanation of the business cycle that there are waves of innovation. He did not see what I see studying history that there is also a peak and then a decline to the level of knowledge as well and it is not linear as Schumpter imagined from a small data set.

China a Different Breed of Government

QUESTION: Why do you say China will replace the West when their government is still the communist party?

ANSWER: China is no more communist than Donald Trump. There is a cycle of life through which we all pass including governments. China revolted against communism. The government may retain that name, but they are no communist in that sense of the word.

I have explained before that Russian communism was concerned about what you thought where as China adopted the tall poppy policy. If Stalin thought you would be a threat to his power you were killed. In China, you could think what you wanted provided you did not step up publicly.

China is not at the same place in the cycle of life as we see in Europe and America. Therefore, China is on the rise and will replace the West which is burdened with socialism they cannot possibly afford.  China learned its lessons and is moving forward despite the name of the government party.

If things got worse in the West, I would apply to China for political asylums.