Manipulating Central Banks

1927-Secret Cental Bank Meeting

QUESTION: Mr. Armstrong; Are we watching the central banks trying to manipulate capital flows as they did in 1927 but reverse with European rates down and America up? I believe you are saying this is the case because Europe is in a major economic implosion. I am correct in this assessment?

Thank you from Europe


ANSWER: Precisely. This is a function of the warped thinking process employed by Stockman. Lower interest rates and increasing money supply should be inflationary. This is the express direction of the IMF to the ECB. In 1927, they lowered rates in the USA assuming the higher rates were attracting capital inflows. Today, they have reversed this thinking and now assume lower rates will stimulate the economy so USA should raise rates and Europe should lower rates. This will set the stage for a carry-trade, borrow Euro at cheap rates invest in dollars at higher rates and profit also from the decline in the Euro.

The lowering of rates in 1927 had the reverse impact. As the Fed raised rates, it only attracted more capital inflows. We will see the same movement of capital into the USA with rising rates and the real confusion will be rising share prices that will cause the talking heads to begin to talk to themselves.