Blog/Armstrong Economics 101
Posted Jan 2, 2017 by Martin Armstrong
The only thing about international trade is that someone cannot have a trade surplus without another experiencing a trade deficit. We all cannot have trade surpluses simultaneously and we have to begin understanding this reality. The net capital movements around the world are showing clear signs that things will be intensifying and the net capital movement is headed for the dollar – but that does not mean day one. Sure, many will point the finger at Trump and blame him for a trade war etc., but in reality, the net capital movements are intensifying for reasons that have nothing to do with trade. Ushering in Trump will also have a profound impact upon Europe and now Merkel’s greatest challenge will be to hold the EU together for its core design was to enhance German trade by eliminating currency risk.
The insane policies of Angela Merkel combined with Mario Draghi in the ECB punish healthy companies with negative interest rates and reward companies that should be bankrupt by buying their junk bonds while trying to maintain this bail-in policy for the banks in the face of Quantitative Easing that helps bankers not the average person. This leaves one wondering whatever happened to common sense. Draghi thinks bailing out banks (depositors) is bad and buying junk bonds is a stimulus, which is beyond rational thinking even when totally drunk on New Year’s Eve. Undermining the people and allowing their money to vanish is exactly opposite of Quantitative Easing. His policy should be the exact opposite. The whole idea of insuring banks came from the Great Depression because people lost confidence in banks. Once the people lose that confidence, the entire economy will collapse and people hoard their money causing the velocity to collapse. This QE policy is only matched by the insanity of Prime Minister Narendra Damodardas Modi in India cancelling the currency overnight when India is an 80% cash economy. He never even asked the opinion of the central bank. Unbelievable! The lesson from the Great Depression was people hoarded their cash and refused to deposit into banks because they failed. The whole idea of insurance was to give the public confidence to use banks. With bail-in becoming law, from Canada to Switzerland, you really have to wonder how politicians cannot see what they are doing. The bottom-line is clear – it’s all about them and not the people.
The markets are the best indicator of the future for it is the only place people get to really vote without political shenanigans. Net capital movement is showing that the big money is starting to wake up. The capital movements are showing that there is a growing realization that Merkel will be defeated in 2017, and Le Pen may actually win in France while her conservative opponent is openly saying that the refugee policy of Angela Merkel was “absurd” and a “tragedy.” The French conservatives will now oppose Merkel’s refugee policy, and have begun to adopt Le Pen’s position. In Italy, there is a growing movement to follow Britain and the elections will bring in a sweeping anti-euro movement followed by a referendum to exit the Eurozone.
Meanwhile, under the pretense of fighting crime, the EU intensifies its hunt for cash focusing, among other things, on the cross-border transport of cash. The epicenter of capitalism is passing in its despair and in the absence of solutions to fiscal management. The quest to end the use of banknotes is just one more step toward their goal — totalitarianism. Instead of admitting this system is broke and incapable of being sustained, these people will not reverse their policy because the solution is terminating much of their power. They will be kicking and screaming as they are dragged into the light.
The trading of stocks of the Italian bank Monte Paschi had to be suspended from trading. The planned capital increase failed to raise the cash from the public and it is clear that it will take a lot more cash than expected. The ECB will have to blink. If they let the oldest bank in the world fail as a bail-in, there will be a run of the banks throughout Europe. They will not be able to stop the hoarding of cash unless they take the same measure as India — just cancel the currency overnight (which you can bet is being considered when faced with a major bank run in Europe). However, the anti-cash agenda of the Indian government is causing serious damage to the economy. The forced digitization of payment transactions does not work in many places and India is one of them when its economy is 80% cash. This was really a stupid move by the Prime Minister.
Meanwhile, gold held the support, the Dow elected two Daily Bearish Reversals, Crude elected two Minor Yearly Bullish Reversals warning of a test of $60, and the Euro fell to bounce off of its Yearly Bearish Reversal at 10365 reaching 10352 and then failed to elect it. With the US share market up for 7 years in 2015, a pause in trend seems likely failing to elect some critical numbers in various markets. Of course, the long-term remains unchanged. The markets are reflecting something far bigger at stake. Trump is bringing in hope of repairing the economy with consumer confidence at a 13 year high. Optimism is in the air, but this cannot alter the long-term trend without reforming the debt crisis as we have laid out. Only then can we postpone disaster a little while longer.
So strap yourself in tight. This is going to be a wild ride. We are still facing the total collapse of socialistic systems. So cheer up, this might be the best day of your life if you open your eyes and comprehend the global trend. We will be doing a special report reviewing the year-end closings and what the forecasts will be for 2017.