Cycles & Obama’s Tax-Free Bonds

 

Posted on January 29, 2014 by Martin Armstrong

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COMMENT: 
Mr. Armstrong,
I just wanted to say thank you. I’m basically a nobody except to my 5 children and wife (that’s all that matters to me anyway). I have limited market experience. The majority of experience I have is in business systems analysis, so making sense out of the global market was almost undoable on my own.
I’ve been in protection mode with my savings. I don’t want the market to eat me alive, and it was doing just that.
It has been your blog posts that have turned my thinking around in regards to where I put my money and when. I’ve been reading your posts for over a year now. The strange thing is that cycles of every kind have fascinated me, I had just never thought to apply them to the market. Strange isn’t it? Your posts have elegantly pointed out what the market cycles are and why. This is something I can not get from any other source but you.
You have made a great effort, and a great sacrifice to keep people like me educated about the real nature of the cyclical market.
Your intelligence, wisdom, and experience is appreciated in ways I don’t really have words for….. other than to say a heart-felt thank you.
The best to you and yours,
G

REPLY: Thank you very much. This is truly the objective. If we can ever reach a majority that at least respects how nature functions, then half the battle will be won. Lady Margaret Thatcher, whose speech at out conference you can listen to on this site, was a believer in cycles. She commented that governments only think in trends – linearly. As long as government THINKS in such a manner, it will assume it can manipulate society to reverse any direction it desires. The problem simply remains, no one has ever been able to do so since the dawn of time.

Communism, designed to create the perfect world, resulted in the death of tens of millions of people. No such Utopian idea has every killed so many people. Even today, this idea that it is always the rich against the poor, put out their by government to deflect blame from themselves, plagues society for to get the “rich” means government needs more power. Passports were invented by the Romans to restrict the movement of people in order to guarantee they paid their taxes before they could travel anywhere. Freedom ALWAYS vanishes in the face of government greed – the rich do not possess guns and tanks.
It is not that I believe we can create world peace or some other Utopian ideal. Nor do I expect that the majority will ever believe or understand cycles. There are two primary goals. First, we eventually learn from our mistakes if we are not morons and reach the point recognizing that if we keep sticking our finger in the light socket, we will not get a different result (Einstein’s definition of insanity). Second, if we can run government respecting there are cycles and we stop this wretched attempt of trying to smooth out the business cycle to create the perfect world, we would at least reduce the tension and swings (volatility) within the economy.



If we understand that ALL energy flows from one place to another and its movement is cyclical, it is a start to reaching perhaps a better world. As it stands currently, this is like we assume the world is flat and close out any other possibility. We will execute anyone who dares to take an opposite position as Bruno was burned alive for daring to say that the sun did not revolve around the earth. Once we open our eyes to this is the divine design of the universe that is right before our eyes beginning with the cycle of life and the four seasons, then just maybe we will learn from the past and stop repeating this insanity over and over again. We never consult history, we always proceed with every crisis never bothering to even ask – Was this tried before? What was the result? You cannot get any more brain-dead than that.

Obama is acting more like a dictator than an elected official. He is using the Executive Order to raise the minimum wage and to create tax-free bonds because the Fed bought back long bonds under QE and now cannot resell them. They fear they cannot sell bonds to China and need to regain their sovereignty so they can act irresponsibly and not have to answer to anyone. To accomplish that, they need to sell bonds to the average person and are making them tax-free to do so. This is not Obama’s idea. He is way too ignorant to even comprehend economically what this means. His strings are being pulled very tightly from behind the curtain. We are following the Japan model whereby their debt is the worst in the world, but it is domestically held and the USA now sees that as the solution.

This is all about retaining power and it is why Margaret Thatcher believed in cycles. She respected that understanding how the world really worked was essential to running it. If you do not understand cycles, then you think you can control the economy with your power and they do everything possible to maintain that illusion while respecting they cannot actually control anything, which is why they pass laws and penalties.


The answer is always the shell game and that is precisely what Obama did last night. You pretend to be caring while you are only furthering your agenda. You need the diversion. Tell them look at this, and you do that. This is the classic game played by street charlatans.


One day the curtain will expose the true nature of government. Until that is reformed, they will do everything possible to retain power. This is the nature of government. It is always an illusion. Listen to the extreme talk shows. The Ed Show is just propaganda. There is never a single word out of his mouth that is ever objective. Likewise, there are his opposites on Fox News. Neither have anything worthwhile to offer society and both are equally dangerous for the bullshit they spout out causes wars.


The bankers are not interested in power, they want perpetual profits. They have paid the bills of the politicians to be able to do as they like. However, with every failure, they turned to government to be bailed out, proving they too are NOT in control of anything. They are not even wise investors. Why bother worrying about risk when you can buy your way out of jail?
This last time, however, the bill was too great (2007-2009) and they are now rapidly becoming the target. This is the second reason behind Obama’s tax-free bonds. Sell them to the public and you eliminate the power of the bankers. In the middle of their own greed, the bankers simply went too far and assumed it was a linear game with every loss, the bailout would just rise. They were NEVER professional real traders – just game riggers and the mainstream press is just in their pocket and have done far more damage to society than they care to ever admit.
The selling of new tax-free debt long-term regains sovereignty and eliminates the need for primary dealers who blackmail government. This is the game changer. It is starting to recognize that there is a debt crisis, yet do not reform the system, only further its advance. That is why we will still crash and burn.

The Emerging Market Crisis

 

Posted on January 25, 2014 by Martin Armstrong

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The fourth quarter real estate in Singapore turned down showing that the whole Emerging Markets did tend to peak out with the ECM last August. This has led to a flight of investors from the once-booming emerging markets sector that is similar to the shift in what we began to see in 1994 that manifested into the 1997 Asian Currency Crisis. Previously, international investors poured in some $7 trillion-worth of capital inflows into these emerging markets. This shift in capital outflows for emerging markets has only just begun. The details of the capital flows for 2013 have shown that so far it is retail rather than institutional. The outflows amounted to just over $50 billion. This is also how things started in 1994. Eventually, institutional capital left violently in 1997 to get ready for the birth of the Euro in 1998.
In this case, the leader of the trend has not been institutions, but the retail market investors. It has mainly been this group that has packed their bags and moved back to the USA and European share markets. When the big institutional firms join in, reducing their asset allocation models, then we run the risk of a serious wholesale capital flight as we saw in 1997.

China is starting to slow down and the share markets have established their major high back in 2007 and penetrating the 2013 low in 2014, will warn that China could decline all the way into 2020. The global impact of a wind-down in U.S. monetary stimulus has been greatly exaggerated. Nevertheless, this has fueled the image of a bearish trend for China and the emerging markets in general. We are seeing this manifest also in the currency markets with record lows unfolding in Argentina, Turkey, and Russia. The alternative shift has been into the Swiss, Japanese yen, and US Treasuries. This is a shift in capital flows that is what many see as a sign of global contagion. The bottom-line, they are selling even high-yielding emerging market debt.
Because looking ahead, we see the dollar rally on the horizon and this will accelerate losses in emerging markets for foreign investors. That will cause fears to surface and force the big institutional investors to cut their losses and run as the impact of a rising dollar is mirrored into a collapse in these currency values. International investment is always first-and-foremost a currency crisis. This is true if it is the foreign capital investing in the USA, as in 1987, or Japan back in 1989, Southeast Asia in 1997 and Russia in 1998 just for examples.

The capital flows have clearly shifted out of the emerging market economies and this will force institutions to lower their asset allocation models for this type of investment. This is both a cyclical but also a structural problem for we have serious economic issues in Europe and rising taxation that is simultaneously impacting international investment. Many of the emerging markets in domestic terms appear flat, but in currency terms they appear to be a disaster. The US dollar has risen almost 2% in the last quarter against a basket of these currencies and this sparks the decline in assets and the shift in capital flows. These have been 13 consecutive weeks of capital outflows so far similar to the 1990s.

The key is always currency and what we haven’t seen in emerging markets is major currency devaluation just yet. The serious outflows hitting Argentina can spread as investors often sell everything as groups. We are likely to see continued capital outflows going into September 2014. With the rising civil unrest, this trend is likely to extend into the bottom of the ECM in January 2020.
World Bank has even warned of the risk of a sudden stop in capital flows for emerging markets, a point which was discussed by the International Monetary Fund as well. Clearly, long-term interest rates are subject to a sudden rise of as much as 200 basis points as civil unrest rises. We are likely to see a collapse in capital inflows for this sector by at least 70%. The rise in civil unrest is likely to inspire a contagion to sell everything in the years ahead. When US long-term rates 4%, up from the 2.7% current levels, emerging markets will move into a serious decline.

Euro, GBP, Yen, Deflation, Dollar rise, British Property

Europe Outlawing Short-Selling – And There Goes Britain?

Posted on January 24, 2014 by Martin Armstrong

Cameron loses fight with EU over allowing short-selling. The European politicians think they can prevent a collapse by outlawing short-selling. What these morons fail to grasp is that once a market turns down and confidence vanishes, the ONLY support is short-covering. Without that, you get the 90% declines as was the case during the Great Depression in the USA. They were hunting down shorts aggressively and nobody would play the short-side resulting in a steady erosion of the market value.

David Cameron promised a referendum on if Britain should leave the EU, but has refuses to set a date afraid of the outcome. At this point, the manufacturers threaten to leave but staying will eliminate Britain as the financial center for Europe. There will be no choice for capital but to flee even Britain. Of course, if Britain stays, it is unlikely they will see any reform in the EU and we will see the Draconian measures applied by the EU hit Britain as well.

The Scottish vote is September 18th, 2014 just after the turn in the ECM September 3rd. While everyone give this at best a 0.5% chance, events could still change this rapidly. The way the EU Parliament is being run, whatever they can do that history warns is the worst possible choice they are making. Between now and September, they can screw up an awful lot.

In France, the country is entering a serious economic depression. Job growth has collapsed and the only uptick is creating more state jobs. Government continues to grow which is precisely the reason they have all complained about Greece. France is dragging the EU down and in Germany, their austerity has about half of the municipal governments on the very of bankruptcy. Every step these people take is only to sustain their self-interests. Nobody is looking at what is best for the people.

Our long-term forecast for the decline in the Euro and even the pound start to make sense as we look ahead beyond 2015. The first leg is the rise in the currencies in a deflationary spiral. This is the same impact on the yen how it rose with the economic decline, the rise in the dollar between 1980 and 1985 with that economic decline, and of course the rise in the dollar during the Great Depression.

The pound and the euro will break only when the confidence collapses which is soon. The rise in the dollar will then put economic pressure on the USA as takes place with every economic downturn.

The latest drive to outlaw short-selling in Europe will be the kiss of death. This could very well seal the fate of Britain as well. For now, British property has been rising as is the case in Switzerland and we are seeing this in the major centers in the USA. But this is deceiving. It has been cash trying to get out of banks and off the grid. The trend toward electronic currency and negative interest rates in the future will only force capital into the Private Sector off the grid.

Negative interest

Electronic Money – Coming Everywhere Sooner than you Think

Posted on January 24, 2014 by Martin Armstrong

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When Larry Summers said interest rates should be negative, he was flying a balloon to see how it was taken. Negative interest rates are coming. When the economy turns down after 2015.75, they cannot lower rates that are already too low, so in their mind, they have to go negative. You will be taxed effectively on money you do not spend.

Of course, the mainstream press only put out the propaganda that government wants anyhow. I cannot telling how many talk about the top 1%, how guns on the streets are dangerous, and a host of other issues. Of course, taxes are going to be raised dramatically!

Gold & the cycles

Martin Armstrong

A number of questions have come in from is the Cycle Inversion negating the low in 2014  Or is verdict still out? There is nothing yet that suggests the low is in place. Corrections are 2 to 3 units of time and that means a max of 3 years from the intraday high in 2011 gives us 2014 and from the highest annual closing 2015.
The target of 1150 was the MINIMUM and from a price objective, the model would be satisfied with that 1151 June low if the timing is right. That does not negate pressing lower to retest the 1980 high of $875. But just as we have a difference between the annual intraday high and annual closing, we have a significant difference between CASH and FUTURES. The Cash low is June 28th, but the futures on the actual COMEX floor is December 31st. This creates a difference in timing as well for the February target calculated from the CASH disagrees with the FUTURES that is April.
Nevertheless, the whole Cycle Inversion thing is critical. The 1987 Crash bottomed precisely on the model rather than producing a high. That was the Cycle Inversion that pointed to a high in 1989.


The 1980 high in gold took place with the ECM rising. Gold fell from 1974 into 1976 by about 50% as STAGFLATION emerged – cost-push inflation, which we are experiencing again right now but from rising taxes rather than oil prices.

Now look at gold took off with the decline in the ECM from 2007 and peaked at the bottom in 2011. This is showing that gold is inverting and will rally with the shift in assets from public to private. Because of this, even if the low is 2014, there will not be the blast off until the ECM peaks in 2015.75.

During that decline in the ECM we should see the next rally and this is where we are likely to start to see more widespread government defaults at the state and local levels in Europe and the USA.

Dow - Bull Market on Steroids?

Dow Coming Phase Transition – Bull Market on Steroids?

QUESTION: Mr Armstrong,

I have been a fan since 1998 and want to understand the concept of phase transition.

If the Dow in Euros continues in a bull market while the value of the Euro is falling, then with the capital flows from EU into the perceived safe haven of the Dow, the Dow in Dollars must therefore have to simultaneously appear as a bull market on steroids, is this what you call a ”phase transition”? Or, does a phase transition have to occur in all currencies? Is the capital flow escaping EU sufficient enough to support and accelerate this Dow bull? Is this one of the reasons why you and your models continue to be bullish on the Dow while many Dollar-focused chartists are calling for an imminent top?

-SW

ANSWER: A Phase Transition is predominantly in the host currency. However, it normally soars in all currencies. Comprehending that everything moves according to its International Value was something I discovered thanks to my clients. Having offices all around the globe taught me to look at things from everyone’s viewpoint. I am not married to the left or the right in politics so I have no hidden agenda. I have learned always to go with the flow. This discovery was then essentially down the same path of Adam Smith. Everyone will act out of their own self-interest. That is determined globally according to the international value. If something declines by 50% in its host currency, then the rise will be in kind. This is not keeping up with inflation, but maintaining an international value. Illustrated here is why we had the 1987 Crash for the Dow was not quite making new highs yet.

There was a perfect CYCLE INVERSION whereby the crash bottomed on the Economic Confidence Model to that precise day rather than making a high. So the target worked, but we got a low instead of a high. That signaled new highs ahead into 1989 in dollar terms and then the breakout to record highs in international value that reached its first peak precisely on July 20th, 1998.

Here we are again on the verge of a breakout in International Value. That will take place when the Euro cracks as well as the Yen. The talking head will be talking to themselves as they always do believing their own bullshit. You cannot look at these things with only domestic colored glasses. If you do, you will never see what is coming. That accounts for a rally on steroids or a crash as 1987 because foreign capital saw the G5 Plaza Accord and manipulating the dollar down by 40% and that meant sell US assets

Collapse of the British empire after World War 1

MADMAX v Restructure

Posted on January 15, 2014 by Martin Armstrong

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QUESTION: Hi Marty,
You truly are the gadfly that Plato described of Socrates who kept pestering Greek government till they executed him but who Socrates commented that you are only killing the government and society more than you are killing me!  You talk of the collapse of the American empire sometime in 2032 analogous to the collapse of the British empire after world 1.  But even after world 1 to the present, Britain is still fairly relative prosperous country that many immigrants from the commonwealth flock too and enjoys a high standard of living.  It is certainly not a third world country by any stretch of the imagination.  While the collapse of the roman empire…was a total collapse of the Rome and italy like an Armageddon like existence with the takeover of barbarian kingdoms of the Ostrogoths and Lombards.  My question is what do you think the collapse of America will be like?  Would it be a mild collapse like the British empire or even that of the japanese of being in a consistent perpetual economic recession?  Or would it be like a total collapse of American civilization like that of the destruction of the roman empire in 476 AD?
Regards,
GP

ANSWER: If you look solely at the island of Britain, yes it is intact with some stress. What collapsed was the “British Empire” so to speak. The various nations from Canada and Australia to India and a host of islands, all became independent. The British island survived in culture just as you see the breakup of the Soviet Union where Russia proper survived and is now coming back.

What else collapsed was the British pound as the reserve currency of the world. That flipped to the US dollar. This part of the collapse was economic caused by massive debt increases. Again you do not see hyperinflation, but the deflationary process of contraction.

How did Britain reduce its massive debt? The debt was devalued by the collapse of the British pound. Government debt is ALWAYS the worst possible investment for it is UNSECURED meaning when the state simply refuses to pay you get nothing in return – absolutely ZERO. You cannot run down to the art gallery and grab paintings. Government understands this. When I was young, naive, and stupid, I met with the Treasury during the early Reagan period. The national debt had hit $1 trillion and Volcker was going nuts with the interest rates. He was raising rate to stop inflation when in fact he was simply moving it forward in time and transferring from the private sector to public. With a simply calculator at 17% the national debt would be many trillion by the end of the decade. I thought they couldn’t possible see the long-term consequences of these actions. They calmly said to me – Marty. We will be paying back with cheaper dollars.
This is why Say took the position that only a madman would hoard cash. The Goldbugs argue for a return to the gold standard that somehow money should be worth something. It never has been and its function is by no means a STORE OF VALUE – it is simply an economic medium of exchange – a language economically. That is it. This is why money has been everything from Utilitarian products such as bronze or cattle and even slave girls in Ireland as St. Patrick reported, to trinkets that are desirable yet have no real use within society such as sea shells and precious metals. Money has NEVER been a store of value even when it was “gold” for the state always debased and even gold coins were still fiat where government simply declares money is worth xyz.
So the collapse of the British Empire resulted in the collapse in purchasing power of the currency, the devaluation of debt, and the loss of territory. It was NOT a MADMAX event such as the fall of Rome. That takes placed when government attacks its citizens, hunts down capital as they are all starting to do now, and keep raising taxes PREVENTING economic growth. That is the substantial difference.

So what are we looking at with the fall of the American Empire? There should be a loss in unification (territory) just as we saw in Britain and the collapse of Russia or even that of Charlemagne. Look at the full history of Britain, you see the tribal Celtic pre-Roman Period, the collapse of Britain back into tribal states post-Rome, this is followed the Anglo-Saxson period of numerous states where we see kings of such places as Kings of Northumbria, Kings of Kent, Archbishops of Canterbury and at York, Kings of Mercia such as Offa who introduces the English Penny, Kings of East Anglia (Viking Coinages), Kings of Wessex, yet it was not until Alfred The Great  (871-899) that we begin to see the unification of the island emerging as  one nation being England and it took until 1707 to create the United Kingdom with Scotland joining..

The future course of the United States will follow the same pattern. Pre-Revolution, you had separate states. That became the UNITED states in 1789. We will see a breakup of the states most likely banning together in regions because of the difference in cultural views such as the Bible Belt. The fight over Obamacare illustrates the stark differences and this is fundamentally wrong for it is force one groups interests upon another.
There is a danger of a MADMAX event because of the stubborn insistence upon Marxism and we have a crisis is philosophy that is even infecting Britain to this day. I may be the gadfly. Thankfully, I am not 23 and do not have to live my life under this kind of nasty government. If they want to execute me like Socrates, fine. I so share his view it is either the migration of the soul where I will see all my old friends or it will be a peaceful sleep from which I will never be disturbed again. So as he said – go ahead. Do your best. The future that lies ahead to have no desire to participate in.

Civil Forefeiture Laws are Funding Pensions

 

Posted on January 15, 2014 by Martin Armstrong

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I have explained that the fall of Rome was accelerated by a trend where generals would move to usurp the throne and troops would support these ventures. Why would the military turn against their own people? The reason was simple. It was all about their profits and pensions. During the 3rd century, numerous generals were declared “emperor” by the troops. Any city that opposed them was sacked. Maximinus I laid siege to Aquileia. The troops got rich sacking Roman cities.
We have the same problem emerging today. As state and city coffers are empty, they are using the laws to raise money. In New Jersey they have placed cameras at red lights. One gives out some 30,000 tickets per month. One friend got a ticket there because they stopped for the light about 6″ past the white line on the street.
They are also using the Civil Asset Forfeiture laws to confiscate valuables in NYC. The money is going to fund pensions. This is the downside of what we face. This is turning man against his brother until society no longer functions. All because politicians promise the moon, yet fund nothing

Panic of 53 BC

Martin Armstrong

Julius Caesar (100-44BC)

The economic history of mankind has always been a story of boom and bust. Throughout time, we find crisis after crisis in the recorded pages of history. The slogans of revolution or revolt have far too often been merely a disguise for economic motives by the state, king, minister or emperor. The true story of Caesar and his clash with the Roman Senate led by Pompey is far from the noble story of purely defending the Republic against the ambitions of a ruthless dictator. For all the criticisims, Caesar by his actions was a man of the people from the days of doing battle against the dictator Sulla right up until his death by the hands of the questionable noble Senators of Rome.

It is not hard to understand the economic conditions that prevailed during the Civil War and the rise to power of Julius Caesar. Imagine how corrupt our modern-day democracies have become with political pay-offs, self-interest, intentional deadlocks and endless debates. The Senate of Rome was not much different from the current houses of government in our modern era. The same human emotions of power and greed that corrupt our present system also infected the politics of the Roman Republic as it approached its final hour in 44 BC.

Unfortunately, Shakespeare may have done more to distort the truth about Caesar than any historian. While Shakespeare was merely trying to create art, contemporary historians were trying to glorify the virtues of the Senate by slandering the nature and intentions of Caesar. But of all the rulers who either inherited power or stole it in the still of the night, no other leader has ever displayed such determination for justice and fairness. Caesar was no ambitious man purely for the sake of glory as one might argue about Nero or Caligula. Caesar sought true reform that would benefit the people first and the Senate of Rome last.

In our modern arrogance, we tend to feel so superior to these generations that have gone before us. We have cars, trains, planes, medicine and we have even landed on the Moon. Surely, with all these accomplishments, little remains in common with the past. However, when the subject turns to economics, very little progress has taken place in 6,000 years. Banking still functions very much the same today as it did in the days of Julius Caesar – minus credit cards and electronic wire transfers. Interest rates still fluctuate according to supply and demand today as they did in Caesar’s day. Real estate booms and busts still plague our modern economy as they did thousands of years ago. Indeed, to understand Caesar the man, we must also understand the monetary crisis that he and the people of Rome faced at the critical moment in time, which ultimately dealt the final death blow to the Republic while providing the spark of life to the Imperial era that followed.

The events that led to Caesar’s death are deeply entwined with not merely political intrigue, but with the cold hard human emotion of greed. When we think of the Roman Empire, few realize that there was a banking system and interest rates just as we have today. It was very much the abuse of credit by the state that severely weakened the Roman Empire and ultimately contributed to its collapse. It was the Dark Age that followed in which a period where credit and banking all but disappeared from western European culture. The monetary crisis that emerged at the time of the Civil War was very much a debt crisis that had been caused by yet another period of excessive credit and corruption.

There are many ancient historians who have recorded the facts as they were or sometimes slanted with a few personal biases here and there. During Caesar’s time, interest rates were far more volatile than they have been since the Great Depression. The elections of 53 BC illustrate that fact. The elections of 53 BC effectively degenerated into a bidding war between the various factions. Under the pretense of helping candidates with their expenses, the bottom line was simple bribery. We know from various contemporary authors of the time, that the bribery was so intense, that interest rates jumped from 4% to 8% during those elections. This bidding war was so serious, that the Senate of Rome was forced to act. Pompey professed to be shocked at the entire affair which was highly unlikely given his part in the dealings. The Senate was forced to announce prosecutions against all concerned, and the offices of Consul were given to other parties following a confession by one candidate, Memmius. Political contribution scandals are still taking place today as they did thousands of years ago.

Credit and debt had played a key role in many of the political events in man’s history. Following the Civil War in which Pompey was defeated by Caesar, one such monetary crisis threatened the entire political system of Rome. If one were to take an objective view of Caesar and read between the lines of contemporary writers, it is not difficult to see the frustration that Caesar must have felt with the situation. Many of the leading Senators were in fact the moneylenders themselves clearly in a position of conflicting interests. Many Senators sought governorships through which they became unspeakably wealthy. Thus to be a Senator during the later Republic, was indeed a gateway to the rich and famous.

The monetary crisis following the Civil War period was not unlike that of the Great Depression of the 1930s. The chief problem seems to have been a shortage of cash. An enormous quantity of coin was taken to pay the rival armies in the conflict, and because of general insecurity among the populace, hoarding had withheld vast sums of cash from general circulation and banks. Consequently, money had become so scarce, there was simply not enough cash available to repay the outstanding levels of debt. Creditors were frantically trying to recover their loans, but the borrower, quite unable to satisfy them, were obliged to forfeit their mortgaged property and all allotments as well. However, this only created additional hardships through the collapse of economic activity. Because creditors were not interested in real estate properties by and large due to the shortage of cash, real estate values plummeted as was the case during the 1930s. Meanwhile, the savage and unfair laws written by the Senate against debtors applied creating a growing sense of unfairness among the populace.

This is the backdrop to the real story of Caesar’s assassination. Given the biased position of many Senators as moneylenders, it is unlikely that they would have handled the situation in a fair manner. Perhaps in such situations a dictator was indeed necessary and this may have played a large part in the role of Caesar during this period.

Caesar proposed some interesting solutions. He forbade the hoarding of cash like Franklin Roosevelt in 1933. However, at the same time, Caesar obliged creditors to accept land and movable goods in repayment. An interesting touch, which may have cost Caesar his life, was how the valuations of such property were to be used to settle the debt disputes. Consider for one moment, that the loans taken before the debt crisis struck were based upon land values at their peak. Given the collapse in the free markets and the rise in value of cash, creditors then seek to collect full value of their loans in currency, which is actually worth substantially more in purchasing power during a depression. The common denominator during all financial panics is the demand for cash and liquidity. This crisis during the late Republic is no different with respect to liquidity. Caesar realized that the differential between pre-crash values and money compared to post-crash depreciated values and the rise in purchasing power of cash unjustly benefits creditors at the expense of debtors. For example, a house worth $100,000 before the crash becomes worth $50,000 in the post-crash era. Therefore, if the creditor were to collect $100,000 on the old loan, he has doubled his money from a purchasing power perspective.

Caesar’s unique solution is something that deserves close study. Caesar demanded that creditors not merely be obliged to accept real estate and movable objects in repayment, he also decreed that the valuations on such property would be established at pre-crash levels. He established state valuers to place official values on all property. These special state valuers were appointed by the city praetor. Caesar in addition decreed that all interest previously paid by debtors to their creditors should be deducted from the principle of the loan in question. Given the fact that interest prior to the election of 53 had stood at 4% and in post-election years 8%, the interest rate at the peak of speculation prior to the crash stood at 12%. One can easily see, therefore, that the interest abatement was indeed a major concession that would not have sat well with the moneylenders.

The exact timing of these events is not certain. But we know that these events took place between the years 49 and 44 BC – the last 5 years during Caesar’s life. We know that Marc Antony and Dolabella were buying up the properties of political exiles and casualties of the Civil War believing that Caesar would outright abolish all debts. In fact, Antony even purchased the palace and salves of the fallen Pompey the Great at auction assuming he would never have to pay. Unfortunately for Antony, Caesar did not simply wipe the slate clean and their purchases needed to be settled.

Clearly, the measures taken by Caesar warrant investigation. The economy was stabilized. It is difficult to determine the long-term effects due to the assassination of Caesar and the outbreak of war as Antony and Octavian pursued Brutus and his compatriots. Nevertheless, the measures of Caesar stand alone within the solutions to monetary crisis situation throughout time. Obviously, demanding debts incurred prior to a crash be settled at the same face value after the crash is the very essence of monetary crisis irrespective of the time period we discuss.

Caesar’s actions in this case do not suggest that he was a ruthless dictator. Nor does the evidence support internal corruption within his administration given that Marc Anthony was forced to honor his debts as well. It is obvious that the actions or Caesar were in fact for the benefit of the people at the expense of a corrupt Senate of Rome.

Panic of 354 BC Athens

Martin Armstrong

Corruption between government and the bankers is nothing new. During the 4th Century BC, money that was donated to the gods became the temple treasure. Typically, the government would borrow from this hoard of cash and thus temples emerged as bankers. In Athens, there was one of the early banking crisis events involving what we would call the Secretary of the Treasury so to speak and his banking friends. While there may be some parallels to Hank Paulson helping Goldman Sachs during the crisis of 2007-2009, the events that took place are different, while the ethics are probably very similar.

The Temple kept its donations in the Opisthodomos. The Temple was not earning interest on its hoard of cash. The treasurer agreed to lend the money to personal banking friends who would then pay the treasurer interest that he could then personally put in his pocket. When the banking crisis hit and there was a liquidity problem, the banks could not repay the loans to the Temple.

Demosthenes (384-322BC) tells us that banking transactions were completely confidential in Athens. He tells us that the rich could “conceal [their] wealth .or in order that [t]he[y] might obtain secret returns through the bank.” Dem 45.66.

The banker Aristolochos was said to have taken substantial deposits and owed many a significant amount of funds (Dem 46.50). The bankers Sosinomos and Timodemos failed with many others and were unable to meet demands for withdrawals (Dem 36.50).

With a banking crisis in full bloom, now the treasurer was exposed. To try to cover-up the scandal, they set fire to the Opisthodomos. Nevertheless, the scheme was detected and the Treasurers of Athena were seized and imprisoned, about 377-376BC.

In 1989, government ministers of Crete pulled the same scam. They were depositing government funds in the Bank of Crete and interest was being diverted to themselves.
It was the failure of the Bank of Crete that exposed the scam (See NY Times, 9/21/89, A14; 9/27/89, A3).

Aristolochos’ bank failed it appears due to real estate prices collapsing, (Dem 36.50). Then the bankers failed, all of their funds and property were seized. What is interesting is that Demosthenes warns his fellow Athenians of the dire consequences for all of Attica ~hould the banker Phormion be forced into bankruptcy. “Don’t throw [him] away! Don’t allow this piece of filth to bankrupt him!” (Dem 57-58).

What Demosthenes sees in the midst of one of the earliest banking crisis in all recorded history, is that the lending of money was clearly a leverage that indeed had supported the entire economy. The drop in real estate in ancient Athens is not unlike that of the 2007 crisis. The deep corruption on the part of the Treasurer is something that sets off a public crisis in the collapse of confidence in banking.

Demosthenes does make it clear that the people should be angry at the bankers who failed (Dem 49.68). Reading between the lines implies he is trying to counsel the people that they should not panic and then withdraw their funds from all bankers. They should be justly concerned and outraged by the bankers who have failed, but do not by any means attribute that to all bankers.
These are words that have been repeated countless times in the midst of every panic throughout every century. They are repeated once again today, with record huge bailouts. Demosthenes focuses on the individuals and tries to dispel the CONTAGION that was then spreading throughout the entire economy.
There appears to have been a second period of a bank failure about 336BC that involved a banker by the name of Herakleides. There is no doubt debates over these
serious accounts. The 370BC decade was one of a major Athenian banking crisis that seems to have involved government officials that should come as no surprise.

Aristotle in his “Politics” argued against the idea of supply and demand insofar as he saw the problem from the demand side disconnected from supply. Aristotle thus
saw the problem that demand would rise and fall and sometimes exceed the supply without just cause.

Athens was making a transition from a predominant agrarian society to one of trade that included manufacture and finance. He called this the “monied mode of acquisition” that was driving the economy fed by businessmen concerned purely with profit that he described as“making money from one another.” The predominant economy was the villa that produced and consumed what it planted. Thus, his Politics (1256a-1257b) was describing the changing economy as Athens was rising as an economic power.

The old “oikos” had been this model of a self-sufficient, producing for its private consumption was fading. By the time we reach the 4th Century BC, agriculture is being raised and sold for cash. This, no doubt, caused land prices to rise. As people could now sell their crops for export, suddenly land prices would have now increased in value. This was one of the earliest bubble events in real estate that naturally resulted in a banking crisis no different from we have seen today and even in terms of the DOT-COM Bubble. Prices will always rise to reflect EXPECTED potential earnings, and then reality sets in. Hence, history repeats because the passions of man simply never change.

Xenophon (430-355BC) wrote his major work Oikonomikos (how to regulate the household = ECONOMICS) touting the virtue of the estate and a self-sufficient system. But by 355BC he had reversed himself in Poroi and . now promoted a market economy, encouraged immigration for labor, and to increase the m~ney supply that was raising the living standards of all Athenians.

There is little doubt the banking crisis is far from over. This is merely the pause between storms. Most pension funds and banks rely upon government debt. Because we are in the midst of a sovereign debt crisis, we are in very serious trouble. The banks that typically will get hit the worst are in fact those engaged in trading. The merchant banks throughout history will be hit so hard that there will be no time to run. They will simply fold in the middle of the night. No matter how much political clout they may have behind the scenes, it will not help.

Throughout history, those bankers who always go down in flames and have destroyed the economy to varying extents, have always been those who are traders. They are also touted as the best, brightest, and richest. However, these laurels are often short-lived. Today we have Goldman Sachs who has pursued political control no different from all the famous merchant bankers before them. The one firm that was on top of the world was indeed Solomon Brothers. They were king of the hill and Goldman Sachs yearned for their power . from the shadows. The downfall of Solomon was linked to the collapse in commodities when gold crashed from $875 to under $300 between 1980 and 1985.

The some 6,000 bank failures of the Great Depression had a common theme. They were speculating and trading. That was the entire purpose of the regulations that had separated banks, brokers, and insurance. It was former Chairman of Goldman Sachs Robert Rubin who worked to repeal that in 1992 that has enable the economic crisis to unfold by blending trading, banking, and insurance causing the bailout of AIG.

These events are by far nothing new. We have banking crisis after crisis from ancient times through medieval, which all have the same root cause – trading and corruption of government.

Financial Crisis of the 14th Century

Martin Armstrong

The Financial Crisis of 1294 that erupted with the seizure of the  Bonsignore’s Gran Tavolaby Philip IV of France, expanded rapidly with the seizure of the Papacy itself. Avignon isoften referred to as the “City of Popes”because of the presence of the French anti-Popes from 1309 to 1423 during the seizure of the Catholic church often referred to by the real Catholics as the years of captivity. Philip IV seized all the assets of the Church and then used his puppet pope to seize all the Templars and effectively burned them alive. That date has ever since lived on as being unlucky - Friday, 13th October 1307

Seizing bankers who dared to lend to government became very popular way to default on public debt. Under Edward II (1307-1327), the English Parliament passed the Ordinances that was directed at alien merchant bankers blaming inflation and just about everything else upon their presence.The next merchant banker to go down was the Frescobaldi. There was the collapse and bankruptcy of the Bardi and the Peruzzi during the 14th century. Banking and lending to kings proved to be a total disaster.

Financial Crisis of 13th Century

Martin Armstrong

Banking reemerged after the fall of Rome in Northern Italy. In the town of Lucca, merchant-bankers set up tables in the square to deal with money from exchange, taking deposits, and lending. On the wall of the church in the square you will find to this day the oath of the moneychangers – “no theft, nor trick nor falsification.” The industry was born on trust and ethics.

There was the Riccardi, the merchant bankers of Lucca who got caught in a serious liquidity crisis of 1294. Edward I of England seized the bankers, imprisoned some and in fact defaulted upon all his loans from them. It was Edward I who also expelled all the Jews from England because he had borrowed from them as well and could not repay his debts. He thus expelled the Jews and would not allow them to take their assets thereby confiscating the wealth of the Jews as well. They then fled to Germany for the most part.

One must always dig just a bit deeper. The King’s debts owed to the Riccardi have gained attention in most accounts of the events of 1294. However, we also see debts owed to the Riccardi or 5 earls and at least a dozen important men in the administration of the king. The claim was that the Riccardi owed the crown 29,609 pounds, but failed to deduct 18,924 pounds owed them by the king. Using the government profits made from the seizure of their wool alone, the net outstanding amount would be reduced to 3,324 pounds. The debts owed to the Riccardi from the king’s ministers was 6,927 pounds. In this case, The scheme was hatched by Laurence of Ludlow who ironically sailed from England with 227 sacks of wool seized from the Riccardi merchant bankers to be sold on the continent, but the ship was so overloaded to save on shipping, that it sank in the Channel taking Laurence with it to the bottom.

Siena

Banking had become a major enterprise in Siena. The first major banker of the era was Orlando the son of Bonsignore di Bernardo, who was a minor merchant. Orlando, together with his brother Bonifazio, expanded the family fortunes and by 1230 he was probably the richest man in Siena. Orlando’s friendship with Pope Innocent IV led to the Bonsignori acting as the first real Papal agents and bankers.
In 1255, after Bonifazio’s death, Orlando formed a consortium called the Gran Tavola(“Great Table”), which soon became the most powerful bank in all of Europe. The Gran Tavola became the exclusive banker for the deposits of the income of the Papal States and, under Pope Clement IV, the ecclesiastical tithes for the Holy Land. The Gran Tavolasupported Charles of Anjou in his conquest of the Kingdom of Sicily, and benefited greatly from his victory over the Hohenstaufen. Orlando Bonsignori died in 1273. After his death the Gran Tavola soon declined and eventually went bankrupt in the early 14th century.

That bankruptcy took place because of the sovereign default of France, when King Philip IV (1268-1314) simply refused to honor his debts. Philip IV seized Gran Tavola merchant bankers of Siena, and the collapse of the Bonsignori, set off a cascade failure that set back banking for some time.

The credit crisis of 1294 was monumental. Philip IV did not stop there. The Pope tried to save the funds of the Papacy from the seizure of the Bonsignori operation. This led to the seizure of the Papacy itself and Philip IV then moved the church from Rome to France. He then installed his own French Pope who declared the Knights Templar were violating the laws of God to justify seizing all their banking aspects. He tortured and killed all the Knights Templar he could find.