Its Taxation & Deflation
QUESTION: Mr. Armstrong; Thank you so much for taking the time to explain what is often complex subjects in a common sense manner. You seem to be more concerned about deflation than inflation and I can see how this obsession with raising taxes is very deflationary. My family’s healthcare costs have more than doubled under Obamacare. I do not see where this has helped at all. Then you try to buy this Obamacare because I am being cancelled and you are told they are closed for the year. This is a real joke and the media just preaches how great it is. I am starting to feel we live in the old Soviet Union and the press is so untrustworthy it is not even funny. It looks to me that this type of taxation is more lethal to the economy than this idea of hyperinflation. This this what you are telling us for it certainly feels that way on this end?
Thanks again;
ER
ANSWER: You are correct. The two greatest evils are actually TAXATION andDEFLATION insofar as eroding the disposable income reducing the economic growth. Just look at from a practical perspective. The Mafia comes in town and says you have to give them 50% of what you earn. You feel this is unfair and unjust. Now replace the word Mafia with government. There is no material difference. Claiming what government does is somehow not as evil as a criminal shaking you down is just nonsense. How they spend what they take from you is irrelevant. It is the point that they are taking from you in the first place that reduces your disposable income and that is deflationary.
Established governments collapse in a deflationary spiral and these are set off by rising taxation that produces a massive contraction in net disposable wealth. Yes, there can be a debasement of the currency, but this has its limitations within an established government. Examples of Germany and Zimbabwe are governments that lose the ability to even borrow or pretend to owe anything. They typically have already defaulted upon their outstanding debts that are normally of a pre-existing political government. In the case of Zimbabwe, they lost the ability to even issue currency as people simply adopted the currency of foreign nations.
We are dealing with established government who to sustain power will default on outstanding liabilities by changing the terms – no double dipping, raising age qualifications and removing any indexing to inflation. They will raise taxes and hunt down capital wherever it hides.Rome kept raising taxes so much, people just walked away from real estate. As government declines, security declines and the police become the criminals. In the case of Rome, armies began sacking Roman cities to pay for their unfunded pensions.
All of these trend produce the vicious spiral of rising taxation and deflation. This is our greatest danger – not hyperinflation.
Political Corruption – China Fires 900 Bureaucrats
Behind the fall of Communism are some very interesting trends that are not understood very well in the West. The stark difference between Russia and China was the attitude toward the people. In Russia, Stalin was paranoid about what was in people’s minds. In China, it was the tall poppy syndrome – as long as you did not stick you head up above others, they left you alone. This is the main reason why China has boomed and Russia has not. The Chinese were quick to rise to capitalism for it was deeply within their culture.
Nevertheless, both Russian and Chinese immediately moved to materialism. Russian women are perhaps the best dressers anywhere. They go to the grocery store and they are dressed. It appears that being suppressed has resulted in the swing back to the extreme in the opposite direction. Go to a play in NYC or London, and what you see is people dressed in very casual clothes right down to jeans and sneaks. Even in some places like Kiev, women are starting to dress more American with t-shirts and jeans.
Still, this trend of looking-out-for-number-one has followed through into politics. In both Russia and China, it has been money can buy anything. The interesting trend in China is that some 900 bureaucrats have been demoted or fired. The anti-corruption effort in China is now turning to get rid of bureaucrats who sent their families overseas for an escape hatch to whom they have been funneling money. We will see this effort against corruption spread to Europe and America where the politicians fill jobs with their family members.
This is the trend of anti-corruption that we see behind the rising civil unrest. In most cases. Americans are the most naive as a whole. They tend to believe government far more than Eastern Europeans, Chinese, Russian, and South Americans. Of course Kiwis, Ozys, Canucks, and Birts, and much more like the Americans – living in their special little dream world.
2016 – The Year From Hell
While the ultimate socialist has her eyes on 2016, so does our model. We have been projecting this target not only for the potential rise in Third Party votes, the Sovereign Debt Big Bang, but the turning point in pensions as well. Social Security is negative true, but what will also turn negative is 401Ks. That’s right, it is time to cash in the chips. There will be more net withdrawals in 2016 than deposits. We are headed downhill in every possible direction. So as they say, cheer up. This may be the last of the old old days.
So Smart – They Always Get it Wrong
QUESTION: Marty; Virtually every so-called analyst on TV has missed the US stock rally. When they asked … how does it feel that he missed the rally, he said he didn’t miss it because he was in a foreign market not US. Then he said once the Fed cuts off all of its QE stimulus the market will fall. I can see what you are talking about. These people all analyze everything based upon the Fed and domestic theory looking at markets through domestic colored glasses. Why are companies buying back their own shares?
ANSWER: Yes. Your eyes are opening. The Fed is in serious trouble. It realizes there is a problem with capital inflows headed into real estate from Europe and into the US market. This is why the domestic press and analysts have missed the rally. They keep analyzing this from a domestic viewpoint blind to the global trends.
Insofar as the buybacks, the biggest transactions are taking place in the tech field. They are also under the attack for taxes from everywhere. It makes sense to use overseas cash to buy back shares as much as possible or they will have to repatriate it and pay tax anyway. This also has the benefit of reducing charges for taxes and increases profits per share.
I reported that the Fed was going around to the NY banks warning them that their models are incorrect and that the Fed does NOT BELIEVE that there will be a flight to quality next time to the long-end. They have also informed the banks that they will NOT bailout their proprietary trading again. This is info DIRECTLY from the banks who are friendly toward us and are not part of the proprietary trading against the world. Based upon their comments, they were presuming the Fed was starting to listen to our models. Perhaps. I have no formal arrangement with them. Nonetheless, other central banks are more open about it and have attended our WEC conferences some incognito and others openly stated who they were. Yet other merely state that they are using the type of model we designed – international capital flows.
The whole NEGATIVE interest rate thing is part of this problem. Rates were lowered by the strong big for fixed income from pensions. With all the baby-boomers, pensions just needed to lock in their guarantees. This is why long-term rates are still declining for now they fear negative rates and even 2.6% for 10 years will look good.
Look closely at this theory that these so-called analysts espouse that raising interest rates will cause the stock market to collapse. SORRY! Just run a correlation and you will see these people are simply delusional. The theory in their mind is rates up and people will buy less so the market will collapse. When you correlate the world, you see that the market has NEVER peaked with the same rates twice in history and that the market rises with higher rates for that is the indication that people are bullish and even willing to buy. They confuse the tail-end when rates exceed expectations and then pronounce –eureka! They discovered the formula. Interest rates up and stocks down.
Japan rates fell for 23 years and virtual zero rates produced nothing bullish because even at 0.1%, that was still higher than expectations of profit. DAH!. The theory is just complete nonsense and anyone who states this theory is a parrot merely repeating the words without ever investigating if what they are saying is true or false.
I am sorry. This is not being an analyst. That should be someone who actually investigates something. These people just mimic total nonsense. Some with amazing conviction. They pretend to be so smart – yet they are simply always wrong. You would think they would wise up one of these days.