Artificial Intelligence & Neural Nets – Sorting out Truth from Fraud

Posted on October 24, 2015 by Martin Armstrong

QUESTION: Mr. Armstrong, it seems many people are starting to pretend they have artificial intelligence systems and neural nets. It seems that they are using these terms very loosely. Can you explain the real difference? Everyone I have spoken to says you are the father of AI in finance.
Thank you for all you contribute
Cheers
CW
ANSWER: Yes, 99% of what people pretend is Artificial Intelligence is nothing but an Expert System, which amounts to a look-up table. An Expert System is simply a list of, let’s say, diseases with their symptoms. You ask questions and it looks up predefined conclusions and says – wow, you have this disease. There is nothing to it. Real markets are nonlinear and the process by which they move appears to be random on the surface and that causes tremendous problems in modeling for if you cannot see the hidden patterns, you cannot achieve
Real Artificial Intelligence is something that learns and analyzes on its own to create its own conclusion. The countless claims of using AI to forecast markets can be distinguished rather easily from rule-based systems. You can take a chart, calculate the cycles, and then project the potential future pattern. Looks nice, but that is just making a calculation that can be done with a pocket calculator. There is nothing original in this process.
Then we have claims of using neural nets to predict the future. They can predict words and what you are looking for in Google or Apple’s Siri. Yet these are fairly rudimentary and far from the complexity of predicting the world economy. Neural Nets have outperformed subjective analysis like fundamentals. Nevertheless, attempts to forecast the future of markets has a dismal success rate of far less than 50% if not 33%. They have been flat models attempting to forecast a single market.
The problem with forecasting is human bias. This is the number one problem as to why forecasts fail. Take the goldbugs, they will never admit they were wrong even though gold declined for 19 years and this current decline is headed into a 5 year decline. They make excuses that are endless and will never revise their thought process. This is the human error caused by bias.
Then the next greatest failure in forecasting is attempting to predict the outcome of a single market in total isolation. Everything is connected. If you cannot grasp that concept then you are waiting in line to lose your shirt, pants, house, wife, kids, and the dog.
So how do we circumvent these two major problems? Devoted investigations, exploration of knowledge, and how it is attained in relation to the information process boils down to data processing in all systems of all kinds, regardless of whether we are talking about a human, animal, or machine based knowledge acquisition. True AI must acquire knowledge, remember that knowledge, and deploy it in the future without predetermined rules (e.g. if interest rates rise sell stocks) and without human bias. That creates an in-your-face confrontation with people clinging to their biases swearing you are evil and wrong.

The true scope of the subject spans the entire range of interests from classical problems in the philosophy of the mind and psychology into issues in cognitive psychology and sociobiology. This involves the actual mental capabilities of a particular species. Ideas that are related to the Artificial Intelligence field and computer science reveal, not so much the answer of how to create AI, but how to distinguish what is NOT AI.

The primary emphasis is traditionally placed upon theoretical, conceptual, and epistemological aspects of acquiring knowledge. Then we turn to reasoning which many expect will emerge from that data set. This introduces a very fine line, which distinguishes problems that are empirical, experimental, and methodological over time. We need to employ imagination, but it must be tempered and controlled within reality. Otherwise, we can or cannot achieve our aspirations.

There are many aspects to Artificial Intelligence that distinguish both input and output. The output must reach something that, at the very least, matches the human ability to reason without the expert system structure of a predetermined result. Then the input must be broad enough to cope with humans in order to communicate. So there must be an ability to determine what you are feeding into the system as information to acquire knowledge and experience in order to comprehend the result reached. To achieve this, interaction must be comprehensible and that also requires introducing language to be able to communicate but the system must understand what words really mean.

You cannot accomplish these tasks with a simple downloadable program to pretend that you are employing Artificial Intelligence or have a program that makes billions of calculations and call that AI. These are concepts that by no means are easy tasks to create in programming code, no less comprehend. It has taken me my whole life to develop what we have achieved and there is nothing like this. You cannot even create a random number generator for in programming there is the simple fact that it will become too repetitive and thus unable to learn.

To accomplish real Artificial Intelligence,  it was possible ONLY because I have the skill set as a programmer and the knowledge base of a trader. Without such a combination, that list of accomplishments becomes impossible and cannot be brought into focus. Programming is understanding how to read and write in many respects. That does not mean you can write a book on how it feels to give birth if you have never gone through such a process. The programming is the skill, but then whatever field you may be in provides the knowledge and experience that can then be captured in code.

Debt cancellation or forgiveness actually was a tradition that began under Sumerian rule in Mesopotamia

Debt Forgiveness / Cancellations

Posted on October 24, 2015 by Martin Armstrong

QUESTION: Mr. Armstrong; What do you think of the Biblical forgiveness of debt which this time was due with the turn of your model?

ANSWER: Debt cancellation or forgiveness actually was a tradition that began under Sumerian rule in Mesopotamia. The Jewish tradition appears to have been adopted from the Sumerian. Do not forget that Abraham came from the Sumerian city of Ur located in southern Iraq today. Therefore, he would have grown up with that tradition.

Consequently, the debt cancellation practice began in Mesopotamia and can be traced back to 2400 BC extending into 1400 BC. The noted historian on this subject, Michael Hudson, I believe is absolutely correct when he states that general debt cancellation was one of the principal characteristics of Bronze Age societies in Mesopotamia. There were numerous debt cancellations in the Mesopotamian cities which used the words for these debt forgiveness decrees or cancellations such as amargi in Lagash (Sumer), nig-sisa in Ur, andurarum in Ashur, misharum in Babylon, shudutu in Nuzi.
(See:Michael Hudson’s Debt Cancellations)
However, we are way beyond such a solution thanks to SOCIALISM. Countless people now rely entirely upon pensions and social security type systems for their retirement. Many such programs by decree must invest “conservatively” in government debt. To default will set off a blood-bath if not a Mad Max event. During the Bronze Age, debts were private and did not tend to be expectation that you would be taken care of for life. So the debt structure was entirely different. Today, such a debt forgiveness would cause total economic meltdown. This is why we have proposed the Solution we have. There is no option to cancel of default without major civil unrest if not revolution.
The debt cancellations of the Bronze Age can be distinguished as PRIVATE. They were not PUBLIC debts borrowed from the people that they just never paid back. This was a debt forgiveness within the private sector. I might add that during the civil war that ended the Republic of Rome, the people cheered Julius Caesar and assumed he too would cancel all private debts. He adopted a different resolution forgiving all past interest applying that to capital with revaluing property and money to the same purchasing power parity. Clearly, the people were aware of the debt forgiveness ideas in that region. (See Anatomy of a Debt Crisis).

(Note: We have collected economic text from Mesopotamia as part of our research project in reconstructing the historical economic history of civilization. Here I hold one Sumerian cone from our collection. I funded archaeological digs that would further our knowledge of the past in order to reconstruct the history of the world, much of which the academics will not explain for reasons it will contradict prior theories. Then there is their communistic approach to knowledge.
I was asked to fund the dig at the House of the Papyri near Pompey in Herculaneum. Half of this villa has still not been excavated. This was a villa of a book collector and the Greek part of the collection is still buried. Here is all the lost books of Greek historians waiting to be uncovered. The Italian government lacks the money so 20 years after I was asked to fund this project, it still remains undone.
Additionally, the latest issue concerns material that arises on the black market rather than from an archaeological dig. For example, during the first Gulf War in Iraq, the bombing uncovered a city previously unknown. The archives of all the text appeared on the black market. Academics boycott such things rather than trying to save them. They object to private people using private funds for research and treat the subject as if it were a communistic state that only they should have such cache to play with. Something I seriously disagree with for there is never always public funds available for such projects.
In this particular case, thousands of tablets were on the black market. I bid to get the entire collection. There was a Norwegian collector of documents, Martin Schoyen. I do not recall what my bid was but it was many millions of dollars. Martin and I met in Zurich for dinner. Since he was a specialist in documents, we reached an agreement that my interest was economic. Martin even had an original Magna Carta. So the deal we struck was that I could use the economic text in return for bowing out of the bidding.
What made this find so valuable was it contained legal code predating Hammurabi who academics teach was the first legal code. Here we have the Legal Code of (ca. 2100BC) which is the oldest known, written law code that predates Hammurabi’s law code by about 300 years. The translation of this legal code was provided by Martin Schøyen, a Norwegian collector of manuscripts containing over 13,000 documents. His private efforts have contributed greatly to our knowledge base when government funding for translation is lacking and academics lack the funds to save material on the black market. When the Legal Code of Hammurabi (1792-1750BC) was first discovered in 1901, his laws were heralded as the earliest known examples. Subsequent to that discovery, older collections of legal codes have been unearthed. There are even older Babylonian copies of the Legal Code of Ur-Nammu (ca. 1900-1700 BC).

When I say we have THE largest database known to humankind, I am not exaggerating. You cannot create models if you lack the data to input. How can you forecast a debt crisis or list the possible outcomes without understanding how such a crisis has been resolved throughout history or how they appeared in the first place. People can pretend to do what we do, but how is that possible without the data?

All schools should be private, PROPERTY TAXES must also be abolished, ONLY a retail sales tax EXCLUSIVELY for local government

How to Create A Fairer System

Posted on October 21, 2015 by Martin Armstrong

QUESTION: Mr Armstrong,

I am an avid fan of your site and thoroughly enjoy your posts.

As much as I am against tax, would you not agree it’s rather sick that a company the size of Facebook paid out less tax than I did last year?

http://www.bbc.co.uk/news/business-34504474

I know you advocate a tax on sales, but in the UK we already pay VAT on goods.

Any suggestions on a fair system?

Many thanks for all your work.

Regards,

G

ANSWER: This is the problem with taxation. Major public corporations can move their tax domicile offshore to avoid taxes legally. The average person cannot move his labor offshore to lower his taxes, which is a disadvantage we must address with tax reform. With VAT, that is far worse than a sales tax. Every person in the chain must collect and file paperwork. It must require three times the number of people to administer such a system compared to a point of sales tax collection.

But that issue aside, there should be ABSOLUTELY NO income taxes whatsoever. That not only eliminates government having to track everything, but it also eliminates the whole movement of capital solely for tax purposes. This is unfair, for the average person cannot send their labor offshore to avoid taxation without moving. Even then, that would only get an American the first $100,000 tax-free; after that, it would be subjected to U.S. income tax.

The Founding Fathers of the United States revolted over taxation without representation. We are back to that now, for we are being taxed to pay interest to service debts from the last two generations. We had no right to vote on that spending, which took place before we were born. This is not a democratic process.

There should be ONLY a retail sales tax EXCLUSIVELY for local government. Federal government should be prohibited from imposing ANY tax and it should be barred from borrowing money. The local tax will naturally be checked by the free market, for if they keep raising taxes, businesses will move to the next town and there goes the jobs. This will help to restrain government on a more practical level.

Moreover, there should be NO PUBLIC SCHOOLS. All schools should be private for then there will be no mismanagement, crazy pension failures, or tax hikes to line their pockets. Schools should be by voucher and run by private industry just like Catholic schools, which were always known for having better education in the States.

It is the teachers and their unions who have ruined society, as taxes are imposed on property and people cannot afford to retire in their home where they raised a family. They are forced to sell because they cannot afford taxes that never stop and only rise. PROPERTY TAXES must also be abolished.

Our problem is the total mismanagement of government. They promise and award themselves all sorts of perks, which reduces the quality of life for everyone else. We must look at the cause and that is the seriously flawed design of the financial-economic-governmental system.

Posted in Uncategorized

Cases, money was gold and it failed to prevent any crisis.

Gold & Politicians – Getting it Right For Once

Posted on October 20, 2015 by Martin Armstrong

QUESTION: Mr. Armstrong; I heard you on Infowars. I understand how the gold standard would not solve anything for the problem is politicians and not what we call money. Some think that you can create a floating gold standard so gold would be money but not fixed. I really have a hard time seeing where this would solve anything for you still would have loans then in gold and you end back at the same spot with paper gold. This is really getting confusing. That was the question I wanted to ask.

Thank you

P

ANSWER: It really does not matter what we use for money. It is only a medium of exchange. Before 1934, private loans always had a gold clause. So yes, you are correct. You ended up with more gold owed than actually existed, This is fundamental to any credit system.

The problem is people are arguing over what should be money as if this really matters. There were defaults under a gold standard just as there were under paper. This is kind of blaming your wife because she failed to compel you to take the trash out.

The problem is not money and as long as people only focus on money assuming some return to a gold based system will magically convert all politicians into saints, then we doom ourselves to repeat history for this nonsense is arguing at the surface and ignoring the fact that governments and monetary systems have collapsed for countless millennium. The list of empire, nations, and city states that have collapsed are countless since the beginning of recorded history regardless of what money was. The common denominator that existed for EVERY collapse, was abuse of credit and politicians. How about the  Athenian Crisis of 354BC. Just replace the names and you have 2007. Or how about the Roman Financial Debt Crisis of 53BC when interest rates soared because the politicians were borrowing so much to bribe people for votes. Or how about the Roman Debt Crisis of 49BC which ended in revolution. In all cases, money was gold and it failed to prevent any crisis.

If people stop with the gold bias and open their eyes, we will see that the cause is NOT paper (fiat) since China always had fiat as did Egypt until it was conquered by Alexander the Great, but career politicians. Aristophanes (c. 446 – c. 386 BC) said “Under every rock lurks a politician.” Nothing has ever changed.

Higher taxes = Lower employment, lower marriage rates

Socialism v Capitalism

Posted on October 19, 2015 by Martin Armstrong

The debate for socialism is simply that they regard it as unfair when anyone has more than another. The solution is always to rob someone else to improve your own life. If you take this philosophy on your own, then you rob others because they have more than you on the street or you break into their home and that is a crime resulting in your tax-free living in prison. However, if you vote for a politicians to degree the very same act is law and it somehow makes robbing other people legal and if they complain or assert rights, then they are greedy capitalists who worship their money somehow more than your desire to rob them claiming fairness.

The fact that Socialism violates the Ten Commandments which prohibit you from coveting what your neighbor has and you do not, well God just must have had a bad day for he does not understand. He obviously is not that smart after all to disagree with a socialism. It was Julius Caesar who said man will believe only what he wants to believe. There is no changing his mind.

Europe has a death wish. Since World War II, they have been infected with socialism that is reflected in the unemployment. All the highest unemployment is confined to nations with the highest degree of socialism. If you attack investment, you do not create jobs, and the end result is rather bleak. People are not getting married because they cannot find employment or earn enough anymore to fund a family. When will we wake up to just perhaps this hatred of the so called 1% is and excuse to keep politicians rich in tax revenues?

So why to we put up with taxes any more when they are only necessary at the local level, never federally? It is time for a major readjustment in this plague that has torn the world apart at the seams every since Marx created the Progressive Era.that manifested in Socialism and Communism.

At the low, we should see metals companies fold.

Commodities Still Contracting

Posted on October 18, 2015 by Martin Armstrong

 

Mitsui & Co Precious Metals Inc is closing down its NY and London operations as losses mount. In New York, their operation was rather small with about 30 people and their annual revenues was a little over $3 million. The company was formed only in 2005 and has not handled the bear market since 2011 very well.

 

At the low, traditionally we should see metals companies fold. This applies in both the brokerage community (market-makers) as well as miners. This is part of the cycle where they will collapse as we make the lows and reach over-expansion at the top. Like American Barric, the largest miner, now owes more than the company is worth. Its over-expansion using debt at the top is its recipe for disaster moving into the lows. Where gold HAS NOT elected any yearly bearish reversals, Barric has elected TO.

The Coming French Revolution of 2020?

Posted on October 17, 2015 by Martin Armstrong

QUESTION: Mr. Armstrong; Thank you for coming to Paris. You said the civil unrest would rise in France going into 2018 and there was a risk of another French Revolution in 2020. You mentioned that when surrounded by many people on the Champs–Élysées. Since then  I have paid attention and there is a rising discussion about capitalism and socialism that is becoming regular. Can you explain more?

 

ANSWER: Each country has its own unique cycle. There was a very major turning point in France that nearly became a revolution. Even Charles de Gaulle secretly left France for a few hours after fearing for his life and a revolution. The civil unrest began with a series of student occupation protests against capitalism, consumerism, and traditional institutions that manifested in a cultural revolution. This deeply rooted clash between freedom and capitalism contrasted against the social state to suppress the rich and industry has infected French society.

That year was a tremendously volatile period of civil unrest in France. May 1968 was highlighted by demonstrations and massive general strikes. Students, not the elderly, staged occupations of universities and factories across France. The uprising virtually brought the economy of France to a dramatic halt. The civil unrest had reached such a boiling point that political leaders feared civil war or revolution.

The social revolution of May 1968 had a profound impact upon French society and was the

 

turning point that catapulted socialism to the forefront in French politics. This shock wave has rippled through French society for decades ever since. Alain Geismar was one of the leaders of that time and characterized the uprising as “a social revolution, not as a political one.” (Erlanger, Steven. “May 1968 – a watershed in French life”. New York Times. August 31, 2012)

 

 

The French socialist state is now collapsing under Hollande. Civil unrest will erupt moving into 2017 and then there is the risk of another major cultural revolution as the youth do not share the same values as the socialistic elites who are in control. We will see that risk erupt by 2020 or 51.6 years from the May 1968 cultural revolution.

Intolerable- then it reaches a boiling point and boom — revolution or war

Why We Are Doomed To Repeat History?

Posted on October 17, 2015 by Martin Armstrong

QUESTION:
Martin, Why do citizens of a country continually allow their government to destroy the nation without putting up a “real” fight? You have given many examples and no one ever seems to fight until things get really, really bad and it’s too late.
Regards,
MLO
ANSWER: This is the sad state of affairs. People who do not believe we can forecast the future never look at the past. They are delusional to assume we have “free will” that somehow implies intelligence at a collective level. Some of us see the patterns that others will never see. The truth is the truth. The old saying that “a house divided will always fall” is very true. There are always two camps throughout history and they become the driving force between the rise and the fall of all civilizations, empires, nations and city-states.
Politicians become corrupt because we do not pay attention. We get mad only when it becomes intolerable. Then it reaches a boiling point and boom — revolution or war. It is rather disgusting that we cannot seem to escape this cycle for thousands of years.

Everything is pointing to early November - With the budget issue. Major weekly resistance at 17760

Dow for the Close – Oct. 16, 2015

Posted on October 16, 2015 by Martin Armstrong

The Dow held the 15500 number on the Weekly level and then held 16280 level. Our models warn that a slingshot becomes possible taking out the August low. On the upside, we still have the major resistance at 17760 and it will take a weekly closing above that level to suggest a breakout back to the upside.





Our timing models show a potential high for this week. We need to exceed this week’s high on a closing basis next week to suggest we can rise into the first week of November. However, a closing today BELOW 17068 will warn that this market is starting to run out of steam on the upside.

Everything is pointing to early November. With the budget issue hanging out there, if nobody steps up before the vote, Boehner can try to circumvent the fiscal conservatives and get 40 Democrats to vote with him to defeat the Tea Party. That will probably set in motion an all-out war inside the Republican Party. Keep in mind that the race for Speaker of the House is not really a race, and since the divisions are so deep no one wants to step into that mud.

So stay tuned. This is by no means settled in either direction. We continue to bounce off of support and resistance. If you would like to know the real LAW, even I could run for Speaker of the House. That’s right. There is no constitutional requirement to even be a Congressman or hold any elected office. Article I, section 5, of the Constitution provides the House with the authority to determine whether members-elect are qualified to be seated.
“No Person shall be a Representative who shall not have attained to the age of twenty five Years, and been seven Years a Citizen of the United States, and who shall not, when elected, be an Inhabitant of that State in which he shall be chosen.”
— U.S. Constitution, Article I, section 2, clause 2

However, Congress has latitude. For instance, William Claiborne of Tennessee became the youngest person to ever serve in the House when he was elected and seated in 1797 at the age of 22. The House also seated Claiborne at the age of 24 when he won re-election. The House, however, has not always been so lenient. Representative John Young Brown of Kentucky was first elected to the House in the 36th Congress (1859–1861) when he was 24, but the House refused to administer the oath of office to him until he was 25—after the first session of the Congress was over.
I wonder if someone will figure this out and step up to the plate as crazy as this seems

Recessionary trend emerge on a global scale this time

China Still Heading Lower

Posted on October 13, 2015 by Martin Armstrong

The latest economic news from China shows that, in dollar terms, imports collapsed 20.4% in September from a year earlier to $145.2bn. This is one of the sharpest declines ever, and it is far beyond what was expected. This has had a further impact upon the raw commodity sector and metals. This latest drop in Chinese imports was down 20.4%, year-on-year, compared with a 13.8% decrease in August. Meanwhile, China’s exports were also down 3.7% during September after a 5.5% decline during August.

The other side of 2015.75 still looks like a sharp cliff going into next year. From an economic viewpoint, the economy turned down Wed., Sept. 30, 2015, on a global scale coinciding also with our Cycle of War on the international model. We should see the economy turn downward into a steeper recession moving into Wed., Sept. 28, 2016, which is the next turning point on the Economic Confidence Model followed thereafter by Tues., Oct. 24, 2017. Caution is advisable for it appears we should see an overall recessionary trend emerge on a global scale this time.

Posted in China | Tagged China

To negate a Slingshot we need a daily closing in the Dow above 17735

US Shares & Slingshot Move

Posted on October 12, 2015 by Martin Armstrong

The potential for a Slingshot Move has not been negated. To negate a Slingshot we need a daily closing in the Dow above 17735. If we will get the Slingshot and trap the majority, then we should see this rally fail and new lows by the first quarter.

Can we merely do into a Phase Transition without the Slingshot? Yes. They would require key annual closing and consolidation into the first quarter before electing the Weekly Bullish Reversals.

Either way, it still appears that we will have that shift from public to private assets and the quantitative easing has shortened the duration of the debt so the slightest uptick in rates will have devastating effects. Even in Britain, Osbourne has doubled the national debt at these low levels of rates. Can you imagine what will happen when rates are forced to rise? The exist from public assets will become a huge one-way street. This is how empires fail and die. We deserve what we get by filling government with lawyers who assume the answer is more laws to dictate to society.

Problem with austerity- turning off the spigot BUT also continuing to service the debt and raise taxes

Austerity Good or Bad?

Posted on October 12, 2015 by Martin Armstrong

QUESTION: Martin,

The ‘Austerity’ argument seems a bit confusing.

Surely,  “Austerity” means reducing the size of Government and is an understanding that we can’t keep funding zillions of civil/public servants and on the other is a reduction of the Social Security Bill – healthcare, social benefits, the cost of the un and underemployed etc – both of which seem to be excellent objectives unless you are in one of the groups affected. Isn’t it impossible to return to or have a vibrant economy unless and until these objectives are achieved?

AB

ANSWER: The problem with austerity carried out in the fashion is they are turning off the spigot, which is ending Marxist/Socialism, but they are continuing to service the debt and to accomplish that they hunt the rich and raise taxes, then agree to exchange all info and in the process you cause capital to hoard and not invest. So you are not really ending socialism, you are moving more toward totalitarianism.

So we will get these riots for they are not just people who receive, these are the people who cannot find a job because nobody is creating them with deflation. We have to look at both sides and this is why our proposal is to eliminate taxation at the federal level to unwind this mess from both directions.

So there is more to this than just reducing social programs. Doing that raising taxes to still service debts you end you with taxation without representation for the current workforce must then pay for spending that they never received anything in return.

Dow versus Gold Ratio - no ratio

Dow/Gold Ratio

Posted on October 11, 2015 by Martin Armstrong

A number of people have written asking about the proposition that gold should rise to be equal to the Dow because that is where it had reach in 1980. Sorry – no way. When gold was $875 in 1980 and the Dow 1,000, that was the end of a Public Wave which peaked 1981.35. The difference between gold and the Dow is very important. Gold is a hedge against government for the individual; it is not an institutional investment. The reason is rather simple – gold pays no dividend.
As we can see from the above chart of this ratio back to 1790, The major support on this ratio is 3 to 3.3 and the resistance stands at 20:1. The low in the ratio took place in 2009 during the panic. Therefore, the decline was more associated with the decline in the Dow rather than gold. To reach that 20 level on a decline in the Dow again would mean if gold went all the way to the Yearly Bearish Reversal at 680 and the Dow made new lows, it would have to reach the 13,700 area.





Nevertheless, the proposition that the Dow and gold should be 1:1 and therefore gold will rise to 20,000, is just pipe-dreams. As this chart illustrates, the relationship is like everything else – a cycle. Picking a 1:1 relationship and claiming that is the NORM, is the same absurdity of claiming the silver gold ration should be 16:1 because that is what Congress did during the 19th century when the open market was 30:1 by the Panic of 1893. These types of relationships are by no means realistic  just distorted delusion to sell precious metals.
 

Quantitative easing is not responsible for increasing the money supply- It is a swap of bonds for cash

Is Quantitative Easing the Same as Printing Money?

Posted on October 9, 2015 by Martin Armstrong

QUESTION: Mr. Armstrong;

Thank you for coming to Athens. After the presentation, there were so many questions that the moderator did not have time for. You answered some for the crowd afterwards that I had never heard anyone ever explain. You said Quantitative Easing was not money printing nor did it really increase the money supply. You also said to the crowd that fiat is not paper money, but anything declared by government including pegs.

Could you elaborate on those statements.

Thank you for your enlightenment.

GP

ANSWER: Quantitative easing is not responsible for increasing the money supply or printing money. It is a swap of bonds for cash so they are not outright printing money. It is a swap transaction. This combined with the idea that paper money is fiat and precious metals are tangible are all seriously wrong. Fiat is the attempt by government to decree the value of money. This is no different from a peg that broke, such as the Swiss/euro peg, or the Bretton Woods attempt to fix gold in terms of dollars. ANY attempt to flat line the value of money by decree is fiat, regardless of whether the instrument is paper or seashells.

This idea that Quantitative Easing is printing money is very pre-1971 thinking and is a throwback to Bretton Woods. Such an assumption focuses on the differentiation between debt and money or cash. Pre-1971, you could not borrow against government debt so there was a clear difference between debt and money. The theory that it was less inflationary to borrow than print made sense only when there was a real difference between debt and cash or money.

Today, debt and cash are the same. If you trade futures, you deposit cash and to earn some interest you buy T-Bills, which are deposited and used as collateral. The distinction between debt and cash has vanished. This means that Quantitative Easing does NOT actually stimulate the economy. The giant assumption was that the cash would be spent within the system. But the banks complained and the Fed created the EXCESS RESERVE window which has about $2.5 trillion on which the Fed pays 0.25% interest. They only swapped bonds for the right to deposit cash at 0.25%, so where was the stimulus? Nothing was stimulated and there was no inflation since there was no actual increase in private spending.

These theories are very primitive to say the least. Nobody looks at them closely or follows the money to see if they are doing anything what the theory pretends should happen. The ECB bought 25% of the bonds and inflation still turned negative. They have stated that they will increase that to 33%. They never review their actions when something fails to work. All government ever does is move further in the same direction because government employees will NEVER admit a mistake.

This is akin to physicians in medieval times who assumed that bleeding a person would heal them because an illness was seen as if it were a poison in the bloodstream. If the patient died, they never assumed the death to be the result of taking too much blood. Instead, they would state that they did not bleed the patient soon enough and that caused their death.

Welcome to the plague of thinking among humankind. Why learn new ways as long as you can just accelerate the current failed process? It’s safer because you do not have to admit mistakes that way. This is why we must crash and burn. They will never look at their actions and are incapable of admitting an era. Anyone who challenges the status quo becomes the “fringe” element that should be ignored.