Tuesday, December 22, 2015


Alternative Currencies of the Great Depression


QUESTION: Mr. Armstrong, have you ever heard of a short lived Wörgl Experiment in Austria? It was shut down by the Austrian Central Bank they say because it was successful. Have you looked into this experiment they claim defied deflation and inflation?
ANSWER: Yes. This was by no means an isolated instance. True, it was touted as the “Miracle of Wörgl” during the Great Depression. The very similar “experiment”took place in the United States with over 200 cities also issuing their own currency. You have to understand the dynamics of the period. This was the very age of AUSTERITYwhere the assumption was the collapse was a lack of confidence in government so they increased tax collection and cut spending unleashing both deflation and a dwindling money supply. This led many cities to create their own money due to the lack of money in circulation also impacted by hoarding.
The Wörgl Experiment began on July 31, 1932, the very month that the Dow Jones bottomed. The experiment involved issuing of “Certified Compensation Bills”, which was a form of local currency known as Scrip generally, or Freigeld. The monetary theories of the economist Silvio Gesell were applied by the town’s then-mayor, Michael Unterguggenberger. What differed with Gesell’s idea was that the currency would expire. Believe it or not, there are some government’s looking into currency which expires. Europe since World War II issued currency which expired roughly every 10 years. This forced people to bring out the old currency to be swapped and thus prevent hoarding.
The central part of Gesell’s idea was how to stop HOARDING of money. This is why FDR also confiscated gold. He too saw the problem of people hoarding money and not spending it. This is part of every economic decline. If there is no CONFIDENCE in the future, people save more. This is simply human.
Nevertheless, the Wörgl Experiment resulted in a growth in employment largely because you had to use the money. This allowed the local government projects could all be completed, which many called a miracle for it appeared to defy the depression in the rest of the country. Inflation and deflation are also reputed to have been non-existent for the duration of the experiment. But this was simply the result of money expiring so there was no purpose in hoarding “money” shifting it back to “asset” appreciation as in a hyperinflation.
Despite the appearance of success, the Wörgl Experiment was terminated by the Austrian National Bank on the September 1, 1933.

Healthcare Reaching its 51.6 Year Peak in 2017

COMMENT: You have discussed the growing threat of antibiotic resistance several times.  Sadly, I must confess, I am, in part, responsible for this trend.

I am a practicing physician. Last year, I had a lawsuit filed against me for NOT prescribing antibiotics. Since then, I prescribe antibiotics more frequently than ever.  My punishment, for attempting to be a good steward of antibiotic use, has been devastating.

I see the massive increase in costs of healthcare, as well as our nation’s over-regulation and bloated catalog of laws, as (directly and indirectly) caused by excessive litigation.  (In medicine, we sometimes refer to  malpractice suits “the hillbilly lottery,” because of the near randomness of any tort action to actual poor practice.)

In Niall Ferguson’s book, The Great Degeneration, he identifies rampant litigation and the explosion in lawsuits as one of the critical causes of the coming collapse of our society.
Do your data confirm this?   (Mine do.)Thanks.Anonymous

REPLY: This is part of my argument that lawyers should not dominate politics. In the first Congress, there were 91 members in total of which 34 were lawyers or about 37%. In the 112th Congress (2011–2012) with 539 total members, there were 208 career politicians and 200 lawyers accounting for about 75% who have NEVER been on our side of the fence. In the current Congress, 160 of the House of Representatives’ 435 seats and 53 of the Senate’s 100 which is almost 40% which is up slight from the 112th Congress.

There is ABSOLUTELY zero hope of getting real healthcare reform for the driving cost is lawyers suing doctors. As long as bureaucrats and lawyers control Congress, we are screwed. Then there are hospitals that are engaging in outright fraud. Ask to see an itemized bill and you will typically see $30 for an aspirin. Now the latest scam is to cover you only within a network. That means if you were on vacation in the States someplace and needed medical attention, guess what – some companies refuse to pay anything!

Obamacare has been a windfall profit binge for hospitals and insurance companies at the expense of the people. One personal friend signed up for Obamacare and when she went to the doctor she was treated like scum saying you have one of those charity insurances yet she paid $300+ per month.

The largest increase in cost for Obamacare among the 37 states was in Oklahoma, where the benchmark plan’s premium rose by an average of 36%. Other states with premium increases of more than 25% were Alaska, Montana and New Mexico. This is becoming totally insane. On average, medical insurance under Obamacare rose nationally 7.5% in a year. Yet Democrats cheer it and MSNBC demonizes anyone who dares to criticize the plan.

Healthcare of GDP

This has been supported by lawyers and hospitals – not private doctors who are being driven into groups to survive herded like cattle by lawyers. Looking at healthcare costs as a percent of total GDP, this single industry and grown in cost out of proportion to everything else but education. What do the two have in common? Both are subsidized so they have no natural check and balance. Guess what? We reach 51.6 years on this cycle in 2017. The entire system starts to collapse. Once upon a time you had a personal physician.

Now you have government and lawyers milking that relationship sucking every penny they can out of it until you have no viable livelihood left for taxes and healthcare take more than 75% of your income. Only when people cannot afford to pay will costs ever come down. Obamacare seeking to at first criminally prosecute anyone who did not have health insurance illustrated how nuts things have become. The Republicans at least forced the Democrats to remove that one replacing it with a fine. Can you image being thrown into a prison cell with a child molester for not being able to pay for health insurance?

EU Destroying Olive Trees Without Evidence?

Olive Trees
QUESTION:  Hi Mr. Armstrong! Thank you for all that you do in keeping me sane by making sense of certain things that I can not seem to comprehend. Here’s one matter that still boggles my mind and heart. I am from the Adriatic coast of Montenegro and have a passion for everything associated with olives. Our neighbors in southern Italy are frustrated with actions taken in order to eradicate a disease which has effect their olive trees. Assuming that public prosecutors (farmers) are correct in accusing that scientist of corruption, why would the EU persist in eradicating such majestic olive trees and causing hardship to olive farmers across southern Italy?
Happy holidays!
ANSWER: The case is typical. There is no documented evidence that the disease impacting olive trees can be reduced by cutting down trees or what even causes the problem. Unfortunately, all you need to do is follow the money. It has been very common to use law to go after competitors. Politicians are rarely honest and even if they think they are doing the right thing, they lack the expertise to even understand the crisis and rely on the very people who have some gain to extract from the action.

Market Talk – December 21st, 2015

Trading Community
In Asia, the Nikkei opened heavy on the back of a weak US closing on Friday, the continued sell-off in OIL prices and then also gave up ground after Toshiba stock declined 9.8%. Meanwhile in China, reports were running around the street that additional stimulus were soon to be announced and so encouraged a firmer Shanghai Exchange (+1.7%).
Meanwhile, in Europe despite all core markets trading in the black for a majority of the day not one could hold on to the advance and all closed in the red (DAX-1%; FTSE -0.3% and CAC -1.3%). Worth a mention here today is the weak Spanish IBEX 35 (-3.62%) today after the weekend election proved inconclusive.
In the US it was typical Christmas trading with low volume, little news and an order driven market that made the days highs in the final 30 minutes of trading. Major institutions typically engage book squaring for year-end and prefer not to report huge positions when avoidable.
Oil remains under pressure with WTI almost trading with a $33 handle at one stage this morning. The spread between WTI and Brent (Brent last seen $36.16) continues to tighten with global supplies easily out-matching a weak global demand. Gold saw a healthy rise today (last seen $1078 +1.4%) but you had a plethora of reason’s/excuse’s to choose from weak US data, a stronger US$, concerns of the speed of FED rate rises, weak oil price and finally the large option expiry at year end.
In the US Bond Market today we did see a little more curve flattening but again only small. We will be producing next year a special report on the Yield Curve Flattening we were forecasting at the Berlin Conference. The front end seems to have found its comfort level with little or no movement throughout the day. Two year notes closed 0.955% with a 2.5bp range and 10’s closing almost unchanged at 2.19% despite a small sell-off (down to 2.21%) by the close we returned to close unchanged. 2/10 curve closed tonight 123.5bp. Germany 10yr Bund closed +0.5bp at 0.555% the spread closed +163.5BP.

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