QUESTION: Mr. Armstrong; When I first brought this topic up at our board meeting about the split in interest rates between private and public, there was skepticism because such a proposition had never taken place in the short-term memory of our perception of history. I explained your theory and the rest of the members listened only because it was you saying this. That skepticism has now vanished. It is painfully obvious that the events in repo market have proven your theory was correct that the real rate has risen and the Fed has been forced to intervene to try to prevent real rates from exploding. Is this what the future holds? The free market will undermine the central banks?

KH

ANSWER: I understand what I have warned about is not in any textbooks we were ever handed in school. During a liquidity crisis in which we have begun post-Labor Day, the shortage of money forces real rates to rise and that can be very dramatic. Don’t forget that it was the REPO market which brought down Lehman and Bear Stearns.

In 1899, there was a major liquidity crisis when call money rates soared touching 200%. The Federal Reserve did not exist at that time, but the Bank of England (BoE) did. There was a surge in stocks and the BoE feared speculation. Their discount interest rates were 3% in February 1899. They intervened and doubled the interest rate to 6% in November 1899. This set off a major panic. The British investors in America were forced to sell assets to take money home to meet the liquidity crisis created by the BoE. This created a global contagion and the US market plunged into a massive liquidity crisis as well as imported thanks to the BoE.

The USA had no central bank so the call money rates were a totally free market. The week of December 4th, 1899, saw the US share market collapse opening BELOW the previous week’s low and plunged 20% in just two weeks. On December 18th, 1899, the call money rate touched 200% in the midst of this liquidity crisis.

When I say we have put together the largest database on a global scale of the world economy, I am not kidding. I fully understand that nobody has ever heard of a split in the interest rates between public and private that can be at odds with one another. But in assembling all of this data and allowing the global correlations to unfold, we actually have a shot at understanding how the economy truly functions and where we are headed. All of the economic theories we were taught in school have FAILED!!!!! Quantitative Easing for more than 10 years has utterly failed to produce inflation despite the vast increase in the supply of money. That alone stands as a witness that Keynesian Economics does not work.

I have learned both from my clients around the world which taught me to view the world from their perspective based upon their currency. Socrates has taught me so much by showing me the correlations that no one else has ever dreamed of. This combination has resulted in a different perspective that I fully UNDERSTAND will often go against the established norms.

As for what lies ahead, the Free Markets will dictate the trend. The central banks have lost control of the world economy and they have become the source of the problem. They are trapped. As time passes, you will come to see the full force of the Free Markets. BTW – it was also the Free Markets which defeated Communism. They are doing the same with socialism.

QUESTION: Mr. Armstrong, I have a question: First you remarked that capital is terrified if Labour takes Parliament. I believe Labour won Parliament the first time in the twenties. Did that set off the sterling crisis of the thirties? It seems as though nobody really wanted to record the history of the Sovereign Debt Crisis of 1931. I think you are right. It would have undermined the rising socialism of the era. Was there a link between Labour and the fall of the pound as the reserve currency back then?

Thanks

WK

ANSWER: There is no question that if Jeremy Corbyn became Prime Minister, that would lead to the pound falling below par. In the aftermath of World War I, the US dollar’s growing dominance began to reduce sterling’s importance as a reserve currency. There was a massive run on sterling thanks to the win of the first Labour government taking office on January 22, 1924. They held it only between January 22 and November 4, 1924. The socialism which was engulfing Britain led to rising union strikes and militancy which really began in 1925 in the coal industry and then in 1926 a six-month coal strike began and a general strike which only accelerated unemployment. These events undermined the British Economy as there was no way the pound sterling would possibly remain as a reserve currency after Labor retook control between June 5, 1929 and June 7, 1935.

This is why capital is sacred to death if Labour took hold of Parliament under Corbyn for he is even more extreme than anyone ever was in Labour historically. The economic slide under the Labour government culminated in a massive run on sterling in 1931 and capital was pouring out to the United States. The Gold Standard broke down globally between 1930-1933 as Europe was clearly turning more socialistic at the time. The pound remained floating until 1939 and the outbreak of World War II.

World War II saw The Nazi strategy of forging British currency in an effort to undermine their effort to fund their defense. The Nazi government was counterfeiting British notes in massive quantities. By 1943 the Germans were producing 500,000 banknotes a month. Fake pound notes were causing major headaches for the Bank of England. To counter the fraud, the Bank introduced at that time a metal thread during the war to differentiate its issue from Germany’s, and they stopped producing higher denomination notes

COMMENT: Marty, you have made many unbelievable forecasts in so many markets around the world. But your forecast that we would see a liquidity crisis after Labor Day and dollar hoarding is at the top of the list. There is nobody who saw this coming. Your computer can see things nobody can. Looking forward to Orlando this year. Two more board members are coming because of this forecast.

Amazing!

PVB

REPLY: This is what I have been saying. You cannot forecast something you have never witnessed that has not taken place before. It takes a computer with a vast database to see things unfold according to historical patterns, but in markets that event has never existed before.

We have a liquidity crisis unfolding because of massive uncertainty. In October, Draghi leaves and Lagarde enters who believes the answer is to eliminate cash. This is causing dollar hoarding and there are more $100 bills in circulation now with 70% of the physical money supply being hoarded OUTSIDE the USA. Even Australia is hunting money aggressively. They are even proposing nano-chips in $50 bills and up to track hoarding. So smart Australian’s won’t hoard A$ — they will use foreign currencies. Dah?

I mean what I say that the central banks areTRAPPED!!!!! People have NO IDEA what we face. The system is unraveling but not even those in government have understood how it was interwoven to begin with. This is all part of how we are heading into a major Monetary Crisis Cycle and I fear they will misunderstand it once again and create more stupid laws that will bring the entire house of cards down by the time we reach 2032.

If you just play out what has taken place in socialism, there will be $400 trillion of unfunded liabilities by the time we get to 2032. That cannot be dealt with and I suspect we will see more authoritarian usurpation down the line.  This is also why I have stated, my fear is NOT Trump, it is what comes AFTER Trump!

Governments have functioned on vote for me and I will rob someone else for you legally with a pen. This is how ALL Republics die. The very purpose of civilization was that coming together created a synergy that was beneficial for all. When government has always turned against one class for the benefit of another, the purpose of civilization ceases to exist and you revert back to separatism. Read “Atlas Shrugged.” When that was published, all the socialists hated it.

“When you see that in order to produce, you need to obtain permission from men who produce nothing; when you see that money is flowing to those who deal not in goods, but in favors; when you see that men get rich more easily by graft than by work, and your laws no longer protect you against them, but protect them against you. . . you may know that your society is doomed.” 

“Atlas Shrugged” – Ayn Rand

• p. 413 ; Francisco d’Anconia to Bertram Scudder

They say it is wrong to discriminate for race, religion, sex, or sexual orientation. But it’s OK to discriminate against anyone who disagrees with those in power or those with socialistic agendas if they have material wealth above average. This type of discrimination is perfectly fine because it suits their agenda. They cannot survive without trying to live off of other people’s money. What happens when the productive class refuses to produce? When “Atlas Shrugged,” it all comes crashing down.

Do you know that when Ayn Rand published that book, she received the worst reviews ever. The press was socialistic agreeing with FDR. Despite having the press trying to prevent people from reading it, fearing the book would be against their socialistic philosophy, “Atlas Shrugged” has been ranked as #2 in the most influential books just behind the Bible. People like Bernie Sanders and Elizabeth Warren refuse to listen. They want to create utopia for themselves, convert the productive class into slaves, and expect them to work without enjoying the fruits of their own labor.

So buckle up. We are going to witness things many never even thought were possible. This may be the real confrontation between good & evil.

QUESTION: Hi Marty!
Thanks for all your great work, I’ve been following you for many years and you are a true inspiration.
I have some questions about the precious metals market. There has been some talk about a “monetary reset” in the future, how do you see it play out and what role do you think precious metals could have if there is a reset?
In the short term, we see silver and gold making a pullback now. Will the trend continue upwards or is this the start a downtrend?
Many thanks!
Marc

ANSWER: There will NEVER be such a reset that returns to a gold standard. There is absolutely no likelihood of that happening, for it would mean that socialism has come to an end. There could be no unfunded promises, pensions, etc. It is just total nonsense.

Moreover, absolutely EVERY attempt to fix or peg currencies throughout the centuries has FAILED!!!!In reality, these attempts have been an attempt to smooth out or eliminate the business cycle. Even Karl Marx wanted to eliminate the business cycle and thought confiscating everyone’s assets would kill it. Communism failed, for the business cycle CANNOT be defeated even at gunpoint.

I have warned that the immediate rally in the precious metals was NOT a breakout. I warned that there would still be one more decline to retest support. The critical factor is when the GENERALpublic loses confidence in the government. That is more likely to take place AFTER the turn in the business cycle in January 2020.

Bretton Woods and the gold standard failed because they tried to fix or peg the dollar to $35 an ounce of gold, but then they spent freely and waged the Korean and Vietnam wars. This is what I mean. You cannot create any fixed exchange rate or peg and then expect the economy to relinquish its cyclical nature. It has NEVER happened, and it will NEVER happen in the future