Armstrong Economics Blog/Central Banks
Re-Posted Mar 13, 2020 by Martin Armstrong
QUESTION: You said that the Fed does not print money out of thin air on its own. The goldbugs say you are wrong. I suspect that they are wrong not you. You seem to have a much deeper understanding of money than anyone else. Would you clarify this issue?
Thank you very much
PHK
ANSWER: When Congress created the Federal Reserve, a completely new currency came into existence. There were two types of currency issued under the Federal Reserve. The main system currency was simply known as the Federal Reserve notes. Then there was the Federal Reserve Bank notes that were issued by the independent branches.
The Federal Reserve Bank notes are inscribed “National Currency.” The first series to be issued by the indeed the jewel banks of the Federal Reserve was dated 1915 and consisted only of $5, $10 and $20 denominations. They were only issued by the Atlanta, Chicago, Kansas City, Dallas, and San Francisco branches. The obligation of this issue was to pay the bearer on demand only by that specific Federal Reserve branch. The 1915 series stated it was “secured by United States bonds deposited with the treasurer of the United States of America.” The later issue of 1918 stated, “secured by the United States bonds or the United States certificate of indebtedness or United States one year gold notes deposited with the treasury of the United States of America.”
The Federal Reserve notes of 1914 were issued in all denominations from $5-$10,000. They were issued by the United States to the 12 Federal Reserve banks and through them to the member private banks and to the public. The notes were not issued by the banks themselves as were the Federal Reserve Bank notes and the obligation to pay the bearer is borne by the government and not by the Federal Reserve banks. Hence, these notes were not secured by the United States bonds or other securities. Therefore the Federal Reserve notes were not secured by any certified means of backing and were authorized by the government, not the Fed. The Federal Reserve notes simply states, “United States of America will paid to the bearer on demand.”
The difference was substantial. The Federal Reserve Note was directed to be issued to create money which was unbacked even by bonds. This was to create liquidity because people were hoarding money uncertain about the future. This version could be termed helicopter money but it was not authorized by the Fed itself. Only the currency actually issued by the Federal Reserve Banks was backed by government bonds which was a different structure all together.
The goldbugs seem to confuse the authority to create elastic money where they can issue money to buy government bonds injecting liquidity which is not printing money out of thin air but on an elastic basis which is electronic, not printed. The image of the Fed creating helicopter money is not correct when they are simply swapping bonds for cash.
The ECB has the authority to create money out of thin air because it cannot back the currency with federal bonds that do not exist. The ECB has the power to create money without backing whereas the Fed can issue notes only backed by federal bonds. The euros are actually printed by each of the member states and not by the ECB directly. Each note has a code stating which nation state-issued the currency.
Central Banks & Their Erectile Dis-function
Armstrong Economics Blog/Central Banks
Re-Posted Mar 12, 2020 by Martin Armstrong
QUESTION: Marty, you are absolutely a Godsend. Nobody updates during the day of a panic but you. While everyone thinks the increase in the repo and cutting rates would save the market, you play these down as failed attempts. What is your take on this right now?
Your loyal follower for life.
HP
ANSWER: In the midst of this market turmoil, the New York Federal Reserve stepped in midday Thursday and announced a major asset purchase program. It offered $500 billion in three-month Repo operations, $500 billion in one-month Repo operations, and another at least $220 billion in operations with a duration of two weeks or under. This is a joke as was the rate cut. Rates rise in such panics because banks do not want to lend fearing credit risk and borrowers are not interested until the market settles. The rate cut was futile and the proof of the was the expansion of the Repo facility otherwise short-term rates would explode to probably 20%+.
There is nothing the central banks can do and this is becoming more and more obvious to the real money. We are entering a period we could call Central Bank Erectile Dis-function – they cannot keep the markets up & may not want to.
Clash of the Free v Artificial Market in Interest Rates
Armstrong Economics Blog/Interest Rates
Re-Posted Mar 12, 2020 by Martin Armstrong
QUESTION: Marty, I could not help but notice that the array you posted on the Fed also has high volatility at the end of the month and another target the week of March 23. Is this also reflecting the repo crisis against at the end of the quarter?
Thank you for Socrates.
VH
ANSWER: Yes. We will most likely come to another credit crunch at the end of the quarter. This time we have a confrontation between real interest rates, which are rising due to credit risks that is part of the Repo Crisis, and the artificial lowering of rates under Keynesian economics to stimulate demand irrespective of credit risk. We are facing a true clash of the free market v the fake market.
Jawboning the Fed on Cutting Rates
Armstrong Economics Blog/Interest Rates
Re-Posted Mar 11, 2020 by Martin Armstrong
COMMENT: Hello Martin, I see President Trump is still calling for interest rate cuts from the Fed. I know he is a businessman and with the current situation is he making the right call with all his business knowledge? ( not sure the reason for the name-calling?)
Trump presses ‘pathetic’ Fed to cut rates more
CN
REPLY: Unfortunately, President Trump is still caught in the old school way of thinking in his belief that the Fed lowering rates will somehow magically stimulate the economy. The major thing that we have to respect about Trump is that he will listen and change his mind, unlike career politicians. The Fed cut rates and nothing happened, not because they did not cut enough, but because cutting rates does not work to begin with. The Fed cut rates dramatically during the Great Depression with no effect. If the Fed goes negative, the government debt will get trapped like that of Europe and the Fed cannot raise rates without blowing itself up.
I have been doing updates for the Repo Crisis. We are facing an unbelievable crisis ahead and Trump does not understand the international dynamics behind the curtain. While the Fed cut rates, it was forced to expand liquidity in the Repo market or else we are looking at Repo rates taking off like a rocket ship because the issue is not borrowing right now, it is all about credit risk.
European Banking Crisis
Armstrong Economics Blog/Banking Crisis
Re-Posted Mar 11, 2020 by Martin Armstrong
QUESTION: Mr. Armstrong; You have warned that the European bank stocks were in real trouble. They have really collapsed. But you do not comment on them that often. Is there a reason for that?
DJ
ANSWER: Socrates is writing reports on over 1,000 instruments every day. It is impossible for me to comment regularly on everything. Plus, Socrates is supposed to be replacing me. That said, they are covered as the index and individually on Socrates. You can see for yourself that they have not been able to recover and here we have really crashed and burned. I think this simply confirms what I have been saying. Keep in mind that even I am human. I have said plenty of times, whenever my opinion differs from Socrates, it is usually wrong.
The Repo & Fed Crisis
Armstrong Economics Blog/Gov’t Incompetence
Re-Posted Mar 10, 2020 by Martin Armstrong
QUESTION: Hi Martin, I have been reading your blog with interest for six years now and recently I subscribed to Socrates. Thanks for all the insights.
I have a question regarding the repo crisis and interest rates. Socrates correctly predicted the start of the repo crisis back in September. When will the Fed give up or scale back intervening in the repo market? When do you/Socrates expect rates to rise as you have been predicting?
Thanks. W
ANSWER: The Fed is trapped. It cannot exit the repo market or else short-term rates will rise sharply. By lowering rates when the credit risks are rising, we create a real nightmare for the Fed. Credit risks are rising as many fear that some will be unable to make debt payments and states/provinces will suffer sharp declines in tax revenues. All of this points to rising interest rates — not lower rates. We have a real paradox forming here which is a completely new nightmare scenario all because of the ECB and BOJ are trapped into negative interest rates which have undermined the entire Keynesian Model.
The Fed cut rates but the market6 still crashed. This is reflecting the underlying collapse of Keynesian Economics.
The Reason for the Crash
Armstrong Economics Blog/World Events
Re-Posted Mar 10, 2020 by Martin Armstrong
QUESTION: Why is the US Dollar tanking during this Coronavirus outbreak? Would have thought it was a safe haven. And why is the Japanese Yen increasing? Why is Japan considered a safe haven?
M
ANSWER: This has nothing to do with the Coronavirus. The capital flight began with the concern that Bernie was leading the pack and it appeared that he would be the candidate against Trump. That was the #1 concern of capital and this is why the Dow was the first to peak out reflecting the international political concerns and why we warned of a sharp rally in the Euro. The Coronavirus has been whipped up into a real panic to the point it has seriously impacted the global economy. Even we were forced to cancel our Shanghai WEC and we were holding a special training session in Berlin for Pro Subscribers which also had to be canceled. The jury is still out on the Frankfurt WEC.
This really seems to be something created by the press like the Spanish American War because of the fake news by Pulitzer and Hearst. They simply wanted to sell newspapers when the sinking of the US ship Maine was never an act of war by the Spanish but an accident. This is why Pulitzer tried to reshape his image after death taking his blood money and creating the Pulitzer Prize. It is ironic that the most prestigious prize in journalism is named by the father of Yellow Journalism.
We really do not have hard evidence to confirm that we are looking at such a major crisis or pandemic concerning the Coronavirus. This may simply subside in April with the normal flu season. We have to cross that bridge when we come to it. But the speculation is unbelievable and the press has scared the hell out of everyone that they are creating a global recession and forcing political change. I get a lot of emails that say I am wrong and 50% of the population will die. I hope I am one of them because I am sick and tired of losing more and more rights with each passing claimed crisis.
In Japan, the Prime Minister is seeking new power to declare the Coronavirus an emergency to give him more dictatorial power. In the US, Trump has asked Congress for emergency spending and seeking a payroll tax cut to help workers. In Italy, the entire country has been put on lockdown. We are looking at really pushing the envelope for governments under the banner of free societies.
Meanwhile, we have others claiming paper money should be terminated because it can spread the Coronavirus. This is becoming reminiscent of the 911 crisis which they used to justify Homeland Security and we all now have TSA inspecting what we have and confiscating cash if you have over $10,000 even on domestic flights. The conspiracy theories can be made up almost on an endless cycle in and of themselves.
Now the market is crashing based on the impact of the Coronavirus insofar as its economic impact. We do expect that the 1st quarter numbers will reflect a recession in may areas. Capital is being pulled back because there is a major liquidity crisis unfolding which has forced the Fed to now expand the availability of money to support the overnight Repo market.
We have a perfect storm of events unfolding which is the prelude to the entire Monetary Crisis and the Mother of All Financial Crises coming directly at us. This is going to be a major financial upheaval that will separate the men from the boys. Those who trade emotionally will not survive. We are looking at major confusion and swings that will get the best of most people.
We ourselves are looking into doing a webinar as an alternative to training sessions we have been doing for pro clients in various places around the world.
A Real Fact Check on the Trump Tax Cuts
Armstrong Economics Blog/The Hunt for Taxes
Re-Posted Mar 9, 2020 by Martin Armstrong
While the Democrats love to yell at the rich for always getting richer, in 2016, there were 541 US billionaires with wealth totaling about $2.4 trillion. In 2019, there were 607 US billionaires with wealth totaling about $3.1 trillion. Of course, this is based on stock market valuations and is not cash in the bank. There is no doubt that the wealthiest Americans have gotten wealthier under Trump, though others have also gained.
According to the Federal Reserve, the combined wealth of the top 1% of American households, which includes all members of Congress, increased 18% from the fourth quarter of 2016 to the third quarter of 2019 — from $29.18 to $34.53 trillion. However, the combined wealth of the bottom 50% of households actually increased 55% from $1.08 trillion to $1.67 trillion. In truth, there were far more people who have benefited from the Trump Tax Cuts than what the Democrats ever will admit.
That is a REAL Fact Check!
South America – Economically & Politically on Fire
Armstrong Economics Blog/South America
Re-Posted Mar 9, 2020 by Martin Armstrong
South America has been intertwined with socialism and corruption. Political stability and economic recovery for South America have been a wish that has seemed to be always very elusive. But the hopes and dreams have never been fulfilled. In many countries, politicians with sole claim to power are pushing to power, heavily indebted countries are facing bankruptcy, the rich are getting richer, the poor are poorer, demonstrators and police are fighting bloody street battles. An entire continent is in turmoil — South America is on fire! There appears to be a political-economic crisis that is coming to a boil.
Today, South America appears to be unraveling economically and politically. It was only a decade ago when its future seemed bright and all we heard was about investing in emerging markets. Its economy was growing whereas poverty and income inequality were in decline. Yet, the economic boom came on the back of commodities. The abundance brought by high commodity prices even allowed counter-cyclical policies at the time of the US subprime crisis. As always, foolish investors pour in money without regard to historical problems with repaying debt.
As the economies implode and political chaos rises, commodity production will decline over the next two years and this may set things up for the commodity boom into 2024 based on a SHORTAGE OF SUPPLY rather than outright demand.
2022 & Repo Crisis
Armstrong Economics Blog/Economics
Re-Posted Mar 9, 2020 by Martin Armstrong
QUESTION: Mr. Armstrong I Hope your health is holding up with all the viruses. My first question is Feb 13 the Fed printing money increased by 13 billion however it is buying short term debt as in 1-day debt how long can they keep this up it is a fake stimulative of the stock market right?
The second question Do you still see something happening to Trump in 2021 ?
Thank you
S
ANSWER: The year 2022 looks to be more of an issue for the president. I do hope Trump is there for 2021, because I fear a career politician will not understand the Repo and Monetary Crisis. They will do whatever the Deep State instructs them to do. The Repo Crisis is in no way similar to people’s understanding of the crisis. I am not concerned about the amount of money. They are going to be forced to be the market-maker in Repo permanently.
Centinel2012 