Inflation/Deflation Reality Check – Understanding the Rules of the Game
QUESTION:
I compliment you on your recent blogs about inflation/deflation. The blogs were instructive, and you had no agenda other than providing your best understanding of the topic. That cannot be said for all of the heavyweight government spokespersons that make public (mis)statements about this most basic economic process.
My comprehension from reading your blog is that the variables for explaining an inflation/deflation trend are money supply, money demand, currency value, money velocity, taxes and technological innovation. Of course, there is the intuitive understanding of an individual experiencing the effects of it.
Research of money supply charts demonstrate an increase in the supply of money after the 2008 financial “crisis.” That makes sense because of all the printing by the US to fund the US stimulus program and the Fed bond buying programs. Yet, there has been no inflation. Demand for dollars from outside the US negated the effect of the increase in money supply.
Research of money velocity charts demonstrate a decrease in velocity since 2010. There seem to be less dollar transactions going forward in time. That effect can be attributable to an increase in regulation, taxation and business’ fear of the next assault by government. Deceleration in the pace of transactions should affect currency value by increasing it. You did indicate that the dollar bottomed in 2012, and the prognosis is for the currency value to increase.
If I am correct in my understanding of the current situation, the downward spiral of deflation will accelerate. Expenditure of capital to expand businesses will decelerate. Automation of labor intensive activities will accelerate displacing lower skilled workers. Opportunities for workers with advanced skills will increase; however, our educational system cannot keep up pace with that demand. Rising currency value will decrease exports creating more pressure on employment and wages. Government will keep increasing the money supply in the hope of reversing the economic trend. That hope will not materialize. The Sovereign Debt Crisis will be the end of the road.
Am I correct in my statements? I thank you again for providing clarity on this poorly explained economic process.
ANSWER: YES! The economy is really a dynamic environment, which is why everything moves up and down. These people who try to draft concrete rules thatIF this THEN that, fail to understand programming – the next statement is ELSE the opposite will happen. Taxes and Velocity are critical. Prices will rise without increasing the money supply if people just start to do things more increasing the velocity. Government fails to see itself that raising taxes DESTROYS the economy for they do not want to hear that since it goes against their self-interest. The socialists preaching “social justice” are just greedy people who want to rob others using law. Why have schools and just pass everyone with the same grade – that would be “educational justice”. Why should Harvard be better regarded than a local community college or someone be given a higher starting wage because of their field or school. Why should lawyers charge $1,000 and hour when minimum wage is $10? All of these things are “unfair” under the same reasoning.
Those who preach the gold standard fail to realize that it has NEVER worked for there is no such thing as a constant check and balance – as much you think things change, they remain always the same in a state of perpetual flux. The gold standard has not restrained government, balanced budgets, or anything of the kind. It has been attempted many times and always fails. There was the Latin Monetary Union of the mid 19th century that also collapsed.
I am not selling something so I have no agenda. I have more than enough money to live so I really do not care and the more you work the more the government targets you. So if you gave all the students the same grade, sooner or latter those who wanted to achieve good grades will stop studying.
My only agenda is to stop the VOLATILITY of this trend for quite frankly I have no desire to live in a world where government constantly wants whatever I produce. I refuse to be their economic slave and that is where we are headed. They started these easy-passes and swore they would never use that info for speeding tickets. A friend went through a toll in Virginia and got a speeding ticket using easy-pass. Every bridge or tunnel they swore the tolls were just to pay for it and travel would be free once paid. NEVER have they every gave up revenue once they have it.
Governments are NOT on some inflation agenda – Empires, Nations, and City States collapse from DEFLATION – never hyperinflation, which takes place following a revolution implying the government will not survive. Under such conditions, ALL tangible assets are the hedge from real estate to gold. AS LONG AS THE SOCIETY survives, a new currency starts with a new government and that is it. Gold is the HEDGE AGAINST government for it is historically the movableasset that will survive when the society does not due to an invasion or the confiscation of all wealth as was the case during a communist revolution.
I do not care what you look at. There is absolutely NOTHING that is everCONSTANT. You cannot point to any relationship as the NORM and perpetual otherwise government would never fall and we should still be speaking Babylonian. Communism tried to creat “social justice” by eliminating the business cycle and all private ownership. Communism could not achieve that Utopian dream. As former Fed Chairman stated, the business cycle has always won. There is no such thing as a one-dimensional permanent relationship and to promote gold on that basis is wrong and it causes people to lose money because it is propaganda. Gold is the “movable” hedge against government when it becomes questionable that society itself will survive intact, break apart in some separatist movement, invasion, or revolution.
FATCA’s impact is NOT causing a dollar collapse, but a rise in the dollar. Americans have been thrown out of everywhere. They have been forced to bring their money home. Likewise, the deflationary trend in Europe functions the same way forcing capital back. Emerging markets are collapsing as capital is forced to pull back.
I know Obama’s secret agenda is to go back to the 70% tax rate prior to Reagan and hunt people down for taxes like wild animals in a tax-safari. We have become the prey – the tables have been turned, the treasury has been plundered, and the future is no longer in sight. Governments are hunting capital down on a global scale and cannot understand that they are completely destroying the global economy. Civilization is born from cooperation where there is a synergy creating the sum that is greater than individual parts. We prospect because of everyone with their self-interest fill in the gaps making society function. Lawyers cannot do that by law with central planning any more than revolutionaries were able to accomplish that in Russia or China.
This is VERY serious stuff. These people in power are tearing apart the very string that binds us together as a global community and our economy. They are attacking who we are to fill their own pockets no different from someone breaking into your home in the dark at night and taking whatever they desire at gun point.
I thank God I am not 23 for there may be no future left.
Survival is understanding the rules of the game. You do not sit down and play poker if you do not understand a full house beats a pair. Using fake ideas to sell something is a serious distortion for it prohibits people from really understanding the danger we face.
Global Market Watch April 7th, 2014
Panic Cycles of March/April
The Panic Cycles have been hitting going into the end of March/early April. This is generally showing shifts in trend near-term but more so that capital is really getting confused where to go. Panic Cycles are defined in the Array as either an outside reversal up/down or large move in one direction. We will be splitting these two models out as well as volatility rather than blending them together. This will help ascertain are we looking for just an outside reversal in near-term trend or a breakout/breakdown.
The Gold Panic Cycles hit on March 17th and the Weekly came in for that week in general. This was the traditional outside reversal to the downside. This pattern warns of weaker prices ahead.
In the US share market, this came latter and hit on Friday. The critical support to watch is 1841 on a daily closing basis and 1824 on a weekly closing basis in cash.
The Man Who Thought He Was King And Wants to Rule The World – Harry Reid’s July 1st 2014 Anti-Freedom Act
QUESTION: Mr. Armstrong; there is a lot of hype from the gold bugs that the dollar will collapse July 1st because of the new FATCA reporting requirements. Is there any truth to this for I cannot see how this is possible with all the geopolitical events. And the banks have been chasing Americans out in advance since 2011. I know you will give us a straight answer on this.
Thank you for all your help
DF
ANSWER: You are correct – this is TOTAL and COMPLETE NONSENSE that is once again being spun by gold promoters to trap unsuspecting investors trying to convince people the dollar will collapse and I suppose we all use yuan and rubles. They have taken a serious issue that is collapsing the world economy and spun it into a story to sell gold as always.If anything, it will cause a capital contraction back into the USA and that is behind a dollar rally – not collapse.
FATCA was passed back in 2011 and introduced by one of the most dangerous Democrats on Capitol Hill – Harry Reid. He is as much a Marxist and so extreme left he makes the perfect bookend to match McCain who never saw a county he would not invade. FATCA was passed back in 2011 and ever since Americans have been thrown out of banks on a worldwide basis. I have reported how FATCA is destroying the world economy – not the dollar. It should be noted that, FATCA was not subject to a cost/benefit analysis by the House Ways & Means Committee because nobody dared to look at what they KNEW was unconstitutional and treatedALL American citizens as economic slaves. So there was ZERO analysis of its impact upon the domestic or world economy. It was stuffed in the bill and sponsored by Senator Harry Reid of Nevada. So if you want to know the man that thought he was king of the world and obviously does NOT represent the American people – this is the guy.
There is also a serious problem with the reporting requirements, including penalties, that apply to all US citizens, including those who are unaware that they even have American citizenship since the USA considers ALL persons born in the USA are citizens and even if born overseas by one parent that was American. Under international law, FATCA is clearly a violation for it is imposing requirements on institutions outside the USA over which they have NO territorial jurisdiction. FACTA considers the entire world belongs to the IRS.
FATCA requires foreign financial institutions (FFI) of broad scope – banks, stock brokers, hedge funds, pension funds, insurance companies, trusts – to report directly to the IRS all clients’ accounts owned by US Citizens and US persons (Green Card holders).
Everyone has known this was coming since 2011. Hedge funds in Switzerland refuse to accept Americans as do banks. The impact has long hit because everyone has anticipated the beginning of the reporting starting July 1, 2014. FATCA will require FFIs to provide annual reports to the Internal Revenue Service (IRS) on the name and address of each US client, as well as the largest account balance in the year and total debits and credits of any account owned by a US person. The risks are far too great for all FFIs so the solution has been to refuse to do business with Americans. Reid has been destroying more domestic jobs for Americans than anyone in history.
Domestically, FATCA added 26 U.S.C. § 6038D (section 6038D of the Internal Revenue Code) which requires the reporting of any interest in foreign financial assets over $50,000 after March 18, 2010. FATCA also added 26 U.S.C. §§ 1471–1474 requiring US payors to withhold taxes on payments to foreign financial institutions (FFI) and nonfinancial foreign entities (NFFE) that have notagreed to provide the IRS with information on US citizen/green card holder accounts. FATCA also added 26 U.S.C. § 1298(f) requiring shareholders of apassive foreign investment company (PFIC) to report certain information. This means an American cannot even own 10% of any foreign company. Reid is absolutely ruthlessly insane.
If an institution does not comply, the US will impose a 30% withholding tax on all itstransactions concerning US securities, including the proceeds of sale of securities on that institution’s entire business PRESUMING they have American clients (guilty) without any proof whatsoever.
In addition, FATCA requires any foreign company not listed on a stock exchange or any foreign partnership which has just 10% U.S. ownership to report to the IRS the names and tax I.D. number (TIN) of any US owner. Americans have been kicked out of everywhere already for the past 3 years.
FATCA also requires US citizens and green card holders who have foreign financial assets in excess of $50,000 (higher for those who are bona-fide residents abroad) to complete a new Form 8938 to be filed with the 1040 tax return, starting with fiscal year 2011.
This is what I have been writing about. They have destroyed the VELOCITY of the entire global economy. How is this supposed to hurt the dollar? It isDEFLATIONARY causing a shrinkage of the world economy and it is forcing Americans into the US stock market domestically. How are domestic citizens going to sell the dollar? Where is the money supposed to go? It cannot leave the country and Obama will impose more currency controls very soon. The only way to invest overseas is at a domestic broker in the USA. The implication they will run to gold, well this has been known for 3 years now. The big money cannot go into gold – it is a tiny fraction of the total economy and gold pays no interest that institutions requireINCOME on investments.
So no – this is more hype. July 1st has been anticipated already – the damage has been completed.It is creating massive DEFLATION since it will make the economic decline far worse and it is one factor that has caused the decline in the emerging markets – Americans have been sent home packing. Thank you Harry Reid – you and Hollande of France should be great drinking buddies – you think the same – confiscate anything earned by people who work and hand it to people who do not but vote to keep your ass in Washington.
BTW – thank you so much Nevada for infecting the world with this crazy Marxist. Even Hitler respected the sovereignty of Switzerland and did not invade them simply because Germans had accounts there. Reid respects no borders nor does he respect the Constitution or International Law. He believes he can rule the world and this is the essence of old world IMPERIALISM. Unfortunately, he is of the crowd of antiquated people extreme left and right we need to purge the system of to save the day after tomorrow.
Russia’s Goal to Resurrect its Empire by 2020 & Rain of the Parade of a United Europe
Putin has bluntly stated that the fall of the Soviet Union was the greatest tragedy of the 20th century and he was to see it resurrected (minus communism) by 2020. Russia clearly has its eyes set on bigger goals than just Ukraine. It is using the issue of ethnic Russians need their protection in places like Estonia, Latvia, and Ukraine for starters. - Putin is old school and he sees size as a show of strength rather than economics. He grew up in communism so that is what he knew – raw power. Putin actually dreams of doing more than just raining on the EU parade – he wants to dismantle it and smells their blood for Europe is decaying from within for the same Marxist reasons that Communism fell – central planning. It is ironic that today, there is more economic freedom from government regulation in Russia that is Europe. The real problem is the oligarchy rules the economy rather than bureaucrats. Putin will rip apart the territorial status quo created in Europe in the aftermath of the fall of the Soviet Union.
Putin is no fool and he may be as brilliant a strategist Than Napoleon ever was. With Russian activists, Putin may be able to take Eastern Ukraine without firing a shot. Russia’s annexation of Ukraine’s Crimea peninsula was easy and could be contained. Invading Eastern Ukraine would not be so easy. There will be enough Ukrainians in those regions to resist Russian troops. That can get messy even though he could occupy all of Ukraine is 3 to 5 days. However, oppressing opposition will be another problem that could tie up his troops for some time. Ukraine has a population of 45 million, about the size of Spain. It is about 4 times the size of Greece and is bigger than Poland. Estonia is only 1.2 million and Latvia is about 2 million. Belarus is less than 10 million. So you can see, Ukraine is the prize for it is nearly 1/3rd the population of Russia, which is about half the size of the USA in population yet more than double that of Europe.
This is why our computer was targeting Ukraine as the flash point. Russia presents a major threat to the security of the European continent as a whole. Europe is collapsing and incapable of mounting a defense to stop Russia. This will be increased even more after 2015.75.
Eastern Ukraine is also a much larger territory than Crimea that had clear geographical limitation to its territory. Russia was already there with its port. Putin knows that Crimea is his to keep, and that no Western government is likely to challenge this newly acquired Russian province on a military basis.
Putin’s primary goal is to prevent Ukraine from joining Western economic and security structures such as the European Union and Nato. This is his first priority. He wants to keep Ukraine in some state of suspended animation since it has his pipelines to Europe. He needs at minimum to maintain Ukraine as a buffer zone. He can accomplish that much by persuading the West to accept what Moscow calls the “federalization” of Ukraine. In this way, Russia demands that there is the creation of a federal Ukraine that maintains the regional sovereignty thereby the regions will have the vote on “Ukraine’s foreign policy direction” in addition to the local sovereignty. This way the East can block any union with Europe or NATO. This is an interesting strategy, but it will likely fail and in the end war will be likely.
| Country | Population |
| Russia | 143,455,000 |
| Europe: 105,400,000 | |
| Germany | 81,840,000 |
| United Kingdom | 64,231,000 |
| France | Europe: 63,702,000 |
| -66,616,416 | |
| Italy | 61,789,000 |
| Spain | 46,958,000 |
| Ukraine | 45,461,000 |
| Poland | 38,548,000 |
| Romania | 19,858,000 |
| Netherlands | 16,795,000 |
| Belgium | 11,162,000 |
| Greece | 10,758,000 |
| Portugal | 10,609,000 |
| Czech Republic | 10,519,000 |
| Hungary | 9,894,000 |
| Sweden | 9,595,000 |
| Belarus | 9,460,000 |
| Austria | 8,477,000 |
| Switzerland | 8,075,000 |
| Bulgaria | 7,261,000 |
| Serbia | 7,203,000 |
| Denmark | 5,612,000 |
| Finland | 5,436,000 |
| Slovakia | 5,413,000 |
| Norway | 5,077,000 |
| Georgia | 4,942,157 |
| Ireland | 4,662,000 |
| Croatia | 4,258,000 |
| Bosnia and Herzegovina | 3,847,000 |
| Moldova | 3,486,000 |
| Lithuania | 2,956,000 |
| Albania | 2,783,000 |
| Macedonia | 2,066,000 |
| Slovenia | 2,062,000 |
| Latvia | 2,011,000 |
| Kosovo[6] | 1,826,000 |
| Estonia | 1,283,000 |
| Montenegro | 620,000 |
| Luxembourg | 542,000 |
| Malta | 419,000 |
| Iceland | 324,000 |
| Jersey (UK) | 100,000 |
| Isle of Man (UK) | 87,000 |
| Andorra | 75,000 |
| Guernsey (UK) | 63,000 |
| Faroe Islands (Denmark) | 48,000 |
| Liechtenstein | 37,000 |
| Monaco | 36,000 |
| San Marino | 32,000 |
| Gibraltar (UK)[7] | 30,000 |
| Åland Islands (Finland) | 29,000 |
| Svalbard and Jan Mayen(Norway) | 3,000 |
| Vatican City | 800 |
| Total | 737,791,800 |