Project Suggestions

1. Justify your asset allocation: why you invested a certain percentage of your total wealth in for example Gold, debt, equity,

2. Specify your time horizon and your investment goal

3. What is your attitude toward risk?

4. What kinds of risk are you facing?

5. What is your portfolio’s Beta?

6. What is the pairwise correlation among the securities included in your portfolio?

7. Should you use the value at risk in order to measure your portfolio’s risk?

8. Did you choose technical analysis and/or fundamental analysis?

9. Which technical or fundamental measures did you use?

10. Are the securities in your portfolio underpriced/overpriced/fairly valued?

11. What is the required rate of return on the securities in your portfolio

12. What is your securities’ alpha?

13. Are you adjusting for risk? If yes, which model/models are you using?

14. Are you considering taxes?

15. What is your current rate of return after considering risk and taxes?

.

cannot FIX the price on money for it is simply a commodity. If money is a flat line, that is communism. In a free market, it does not matter what is money. It rises and falls against assets. Under a gold standard, the yellow metal DECLINES with inflation and rises with DEFLATION precisely opposite when it is a free floating market. So let’s get this straight. Gold rallied after 1934 because (1) Roosevelt confiscated gold, and (2) devalued the dollar raising gold from $20.67 to $35. Gold is a good investment NOT because of all the fiat nonsense, but because inflation has passed it by and there will be a huge burst of price movement. That will come when the Sovereign Debt Crisis hits the USA and that does not seem likely until 2015.75. So back off of all the nonsense and you just might find a broader base for gold be disassociating it with all the false religious fervor that gold should be money. Be careful what you wish for. They confiscate money.

Dow & The FuturePosted on April 27, 2013 by Armstrong EconomicsReply

The Dow Jones Industrials basis the cash has been moving up reaching 14932.68 during the week of April 8th. Next week is the key turning point followed by the week of May 20th, June 3rd, and June 24th. Next week is a directional change si if we see a low that holds 14334 for the close of the week, then it is possible to turn this up into May. Critical support is forming under the market at 13880 with vital support if broken would lead to a mini-crash 13075 and 13017.

Technical resistance stands at 15012 -15015 area follow by 15355 for next week. Technical support lies at 14163, 13765, and 13174. Immediate support on Monday begins at 14668 followed by 14380, and 14004. Flipping beneath these levels will convert them into resistance.

The key days to pay attention are Monday and Friday where we have high volatility as well. Directional Change is due on Tuesday.

The market has been performing rather nicely on a regular technical projection. The Ascent Angles has been spot on as the Dow peaked the week of 04/08 at 14932.68 with the Ascent mathematical projection being 14930.09.

The Descending Angles have also worked rather normal. The last breakout fell back and retested the Descending Angle perfectly off by less than 1 point. In order to breakout again to record highs, the Dow will have to rally above this current Descent, then fall back to retest it, then blast-off again. That may be difficult. It is the Fall with the German Elections that looks to be crazy.

The Chaos Models are showing we begin to go chaotic in the Fall starting about the week of October 21st. That will be recalculated if we make new highs above that of the week of 04/08. Certainly, the opposition to Merkel is doing far better than the polls are reflecting. That is even the work from the US Capitol Hill. Certainly, if Merkel fails to hold her ground firmly, the future for Europe holding together will be seriously questioned near-term.

The Stocastics on the Weekly level are just starting to turn down warning that caution should be observed, This week will be key. So pay attention.

QUESTION: You seem to be the only person who distinguishes between a “countertrend reaction” and a “reaction”. Can you illustrate the difference?

ANSWER: Reactions are typically 2 to 3 units of time regardless of the level be it daily up to yearly. They are part of the “trend” and normally count as part of the trend cyclically. A Countertrend Reaction is a move that exceeds 3 units of time. This is normally a change cyclically speaking and thus is a separate cycle altogether. This can be easily illustrated by the 1989 Crash in Japan. The decline conformed to our Pi Cycle of 31.4 weeks plus the 8 week Countertrend Reaction.

Real Estate beats Gold as #1 Investment & Euro Yen RecapPosted on May 2, 2013 by Armstrong EconomicsReply

Land Auction Great Depression

The Gallup Poll is out surveying the investment sentiment of American investors. Gold has held that top slot up until now. Gold has now fallen for the first time to the second position as investors return to the old historical investment sector – real estate. Even in Europe people are starting to move toward real estate as we should see a bounce into 2015. The surge in gold coin sales has not proven to be new investors, but those already in the market bargain hunting. Any surge bringing in new investors will need to wait for the next rally.

So far everything appears on track with volatility rising making counter trend reactions strong yet going nowhere as in the yen and euro. In the Euro for example, the Weekly Bullish is in the 13900 zone which is far from the recent low reflecting the amount of volatility within the system.

The Japanese yen declined and the dollar made an effective double top at the 99.93 level. This is a big psychological area being par 100. Japanese institutions took profits selling foreign assets since it was the first 20% profit they have seen in 23 years. Nonetheless, only a daily closing BELOW 92.75 would suggest some follow-through. Here we will see most likely a 3rd test of the 100 level, and it may be the 4th time that we plow through it. The highest monthly closing has been 97.40 on the cash. A monthly closing above 97.76 will signal we are starting to breakout, Technical support begins at mid 9300 area with the critical intraday support at the 9000 level. This double top formation is important for it will show the dollar rally that will put the most pressure on the entire global economic system and eventually force the US economy into recession starting 2015.75.

The best trading strategy under these conditions is to sell highs in the Euro according to time against reversals where the risk is the least. In the yen, buy the dollar against support below or on the breakout when that unfolds. Both the euro and the yen are reflecting that we are indeed in a bull market for volatility and when everything turns again with 2015.75 on the ECM, the volatility will be twice as high as what we experienced between 2007-2009. That is where we can see the next phase transition in gold. Don’t forget, gold has yet to test the 1980 high adjusted for inflation which standards at about $2300 level. So forget the hype. Gold has NOT broken out yet nor has it truly made new highs in REAL terms – only nominal.

http://www.mining.com/gold-on-top-no-longer-investors-have-a-new-darling-25556/?utm_source=digest-en-mining-130501&utm_medium=email&utm_campaign=digest

EuroPosted on May 1, 2013 by Armstrong EconomicsReply

The Euro peaked in two weeks, fell back, and has rallied into this week. Nonetheless, key resistance still remains unchanged in the 13400 zone and the turning points are the weeks of 05/06 and 05/20. The top of the channel for resistance we warned about was in the 13400 level which has not been reached as yet. A weekly closing BELOW 13350 this Friday will keep the Euro neutral to bearish short-term. So far the high has been about 13242. So we have not reached critical resistance yet. If there is going to be a drop, it would most likely come going into the week of 05/20. There should be some rally and then we have problems for the fall.

Cycles

http://www.stevepavlina.com/blog/2006/07/10-reasons-you-should-never-get-a-job/

http://rescomp.stanford.edu/~cheshire/EinsteinQuotes.html1. Imagination is more important than knowledge. 2. Reading, after a certain age, diverts the mind too much from its creative pursuits. Any man who reads too much and uses his own brain too little falls into lazy habits of thinking.

3. The important thing is not to stop questioning. Curiosity has its own reason for existing. One cannot help but be in awe when he contemplates the mysteries of eternity, of life, of the marvelous structure of reality. It is enough if one tries merely to comprehend a little of this mystery every day. Never lose a holy curiosity. 4. The most beautiful thing we can experience is the mysterious. It is the source of all true art and science. 5. The secret to creativity is knowing how to hide your sources http://www.pickthebrain.com/blog/the-secret-to-creativity/

It is true that rising interest rates can attract capital. However, when capital FLEES, interest rates CONTINUE to rise due to the shortage of capital. NOTHING is ever a straight line. BIG Capital is fleeing Europe and that goes to government debt because it is liquid and can absorb vast amounts.

Problems

Government is NEVER rational or logical in its thinking process. This is exploited by New York banks on a regular basis. Installing bankers as the head of the US Treasury is far better than the head of the Fed. This gives them cabinet status and direct links into Congress as well as the White House.

Warren Buffett, in a recent interview with CNBC, suggested that he could balance the budget right away. He said:

”I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election.”

As the Roman politicians once said – given them dames and bread and they will blindly leave us alone. Europe has shown that the ideas of Marx are still alive and well. The Great Unwashed believes the propaganda that if the rich simply paid more, everything would be solved. They know nothing about what we face and this is why we cannot escape.

What the world fails to understand is simply that the jig is up. There is no way to fix this nightmare because to make your dreams come true you at least have to be awake. On that score, neither the politicians nor the press understand the nature of the problem, so why would the Great Unwashedunderstand? Even if we had a balanced budget, all spending would eventually be cut and interest expenditures would ultimately consume everything. Likewise, a gold standard would not work for the same reason it would not force a balanced budget any more than it did between 1944 and 1971. The only thing a gold standard would do is require us to pay the bankers in gold.

Since the old monarchy claimed the Divine Right of Kings to be above the law, they assume the same power and ignore the revolution without such statutory authority. That is all they have is power and enjoy exercising it. They are threatened by new ideas and take the view if they cannot prove what they believe you just must be one smart bastard. Never for a second will they ever consider just perhaps they might be wrong. I finally got a letter from the government confirming I owe nothing. There is NO authority to deny a passport. Yet they just do. Rights, privileges, and immunities do not exist – only if you have the money to go to court and can find a judge to say you do.

When we look at the two computer forecast arrays for the Dow Jones Industrials expressed in a Basket of Currencies and the in US dollars, we can see the disparity being caused by international capital flows through currency values. The Panic Cycle was due in June in a basket format and July in dollars. This combination produced the June low with the July reversal to the upside. That is what a Panic Cycle does. In this case, we declined into the June low, and rallied off to the upside. A Panic Cycle is ideally an outside reversal exceeding both the high and low of the previous period and changing trend. In the instant case, we are looking at a Panic to the upside because capital is fleeing Europe. The 1987 Crash was the opposite pattern and capital fled the USA and went back to Japan causing the bubble there in 1989.

Technically, the Dow has broken out through the top end of the 2000 Downtrend Channel. The Weekly Bullish Reversals are 13571, 13615, 13770, and 14170. Weekly timing targets seems to be lining up as July 13, August 17, September 21, and October 26 with the two more dominant targets being October 5 th and December 14th. When we look at the technical resistance for August it stands at 13765 which very close to the 13770 Weekly Bullish Reversal. Support lies at the top of the 2000 Downtrend Channel. 12568. If we can achieve a weekly closing above 13770, then we may be looking at a double top.

In gold, we have 1547 as the Weekly Bearish. Electing that would give us an August low with a recovery thereafter. Nevertheless, if gold closes above 1570 at year end, we can still see a correction before a breakout to the upside. So it would be nice to see a clean low for gold in 2012 for that would be much better for the long-term ahead. I still disagree with those that only say buy when the professionals are selling it to them. Knowing how corrupt the banks are and how they try to control the press, government, and analysis, I have to question the integrity of such analysis.

So hang on to your seat. It looks like the fall is going to be very interesting. Thank God for a unemotional computer right now. Somebody has to look at just the numbers please. There are always two sides to every fundamental no matter what you focus on.

The Theory of Non-Linear Intervention

By Martin A. Armstrong

© 1989 Princeton Economic Institute

Economics is well known for rather unrealistic theories based upon fundamentally unsound principles, such as the assumption that all things remain equal. Reality parts with academics whenever such assumptions are drawn to a foregone conclusion. However, greater false assumptions, which go unnoticed, lie at the foundation of so many theories in economics - primarily the assumption of linearity.

In our thinking process, we all are trapped by the Aristotelian sequence of logic - if X takes place then Y must follow. Unfortunately, we think in a linear fashion and, as such, most theories seek to embellish this very basic assumption. The financial world honestly wants to believe in simplistic notions. Raise interest rates and demand will subside along with inflation is but one false linear assumption. Man prefers to believe in linear relationships and systems, because anything beyond two variables becomes far too complex for rational thought processes.

Man's natural tendency toward linear thinking has indeed created many heated battles. The arguments between supply and demand-side economics is one such example. Given the assumption of a linear economy, demand-side economists argue that the economy can be controlled through the manipulation of government spending and interest rates. In effect, demand-side economics seeks to use the consumer (demand) as a club to beat capital over the head. Yet these same demand-side economists claim that supply-side economics benefits the rich at the expense of the poor. Strangely enough, throwing the consumer out of work and causing higher unemployment to effect lower demand is the core of demand-side economics. It is hard to see how demand-side benefits the poor at the expense of the rich. The supply-side economist argues that there should be less government intervention in demand. Instead, government should stimulate the economy through encouraging greater output through supply stimulation.

Both sides have identified two extremes within a non-linear system, even though, based upon a linear assumption, their arguments assume that the other is totally wrong. If we look at just the last 10 years of economic activity one can clearly see changes within the infrastructure which provide a period where each form of economic management would indeed be appropriate.

Looking at the period of 1976--1980, it would be difficult to label this period as anything other than an inflationary spiral led by demand. Raising interest rates would be appropriate under such conditions when it is demand which flourishes wildly beyond its

normal capacity. Hoarding and speculation was in full bloom. Therefore, one should employ "demand-side" economics when it is, in fact, demand which is out of control.

Nevertheless, in the post-1986 era and particularly since the '87 crash, speculation is hardly the issue. We do not find excessive demand leading to the hoarding of commodities, as was the case leading into 1980. Yet, governments around the world are still employing demand-side economics to curb inflation, which is being caused by real shortages in labour and commodities. Clearly, in this case at least, supply-side economics makes much more sense. If interest rates continue to rise, the world economy will be threatened by a sharp and severe recession. However, the shortages on the supply side in energy, agricultural and base metals will not be corrected by raising interest rates. Higher interest rates will not cause the weather to return to normal. Higher interest rates will certainly not encourage miners to open new mines. Higher interest rates will also not cause a reversal in trend within the energy sector where exploration has been cut by more than 50% in the last two years.

Supply-side economics is as valid as demand-side. There is a time and place for everything within the system because the system itself is non-linear. The chart provided illustrates our Theory of Non-Linear Intervention. This theory is essentially very simple and is based upon actual observation.

The standard economic assumption under demand-side economics is that raising interest rates will lower demand and inflation. If, in reality, this were the case, then Argentina with 300% interest rates per month would not be possible. However, continually raising interest rates does not prevent inflation. At some point in the system, confidence breaks down and higher costs in interest rates only add to costs of production and doing business. Eventually, this spurs on inflation instead of reducing it.

The very basic assumption that the system is linear is obviously incorrect. As our illustration portrays, the system is very much non-linear. If any effect is taken to extremes, the exact opposite effect emerges. This is the result of Non-Linear Intervention. Each economy possesses a different infrastructure. Consequently, the threshold where interest rates will cease being anti-inflationary and transform itself into the catalyst of inflation resides at different levels in each economic system. Differences in the value of labour, taxation, political systems and market mechanisms must be taken into account.

In conclusion, government intervention, which seeks to manage the economy in an efficient manner must take advantage of both supply-side as well as demand-side economics. Intervention should not be one sided or it will run the danger of driving the economy to excess either in the direction of inflation or deflation. Economics must reach a compromise in understanding and cease being the bastard science, which is biased by ideology instead of practicality.

World Capital Flows 

Since the dawn of time, man has tried desperately to predict the future. Man has gazed upon the stars, summoned soothsayers and astrologers and sought guidance in the patterns of tea leaves and chicken entrails. He has studied the movements of planets, comets, and even the flight of an owl. However, no matter what methods man has tried in his attempt to pull back the curtain which stands between the present and his destiny, nothing has ever provided the infallible key to the future.In this age of modern wisdom, where we look back upon our forefathers as being perhaps silly and superstitious, man has failed miserably in the so-called science of economics. It has often been said that economics is the only profession where one can be perpetually wrong in his theory, yet still achieve world fame and the Nobel Prize.Far too often economists seek to change “what is” into what they believe “should be,” thereby reducing the science of economics to nothing more than a corrupt political social movement. It was, after all, the conflicting economic theories of Keynes and Marx that built the Berlin Wall. While Marx was correct in identifying the source of man’s booms and busts as human nature, his error was in believing that government officials were somehow so virtuous that they were above such petty temptations or corruptions.At Princeton Economics, we do not consult the stars, nor do we believe in trying to change human nature. If a model cannot be built on “what is” then there is no point in creating something that will “never be.” We do not subscribe to a form of economic theory that advocates government control. → We firmly believe that Adam Smith was correct in his observation of the “Invisible Hand". 

Through years of our own observations and money management experience, we have come to see a much more dynamic Invisible Hand at work globally that still adheres to the core principles set forth by Smith in 1776. Understanding the nature of our global economy is not that difficult once we abandon unrealistic social dreams of creating utopia. The seemingly chaotic or random behavior of our economy is due to the enormous amount of complex variables involved that determine the final outcome.  → Our global economy is not unlike the dynamic system of the weather where the final outcome is caused by numerous combinations of variables. 

 

A small change in just one variable, such as water temperature in the Pacific, can result in dramatic changes within the overall global weather patterns.Another example from nature can be seen in the work of ecologists’ studies of rain forests. Science has come to understand that man cannot create a rain forest by merely planting a group of trees. There are millions of species of bacteria and insects in addition to the thousands of plants and animals that

interact to form a balance within nature. Man cannot duplicate a rain forest due to his lack of knowledge concerning such a wealth of intricate variables interacting with one another to produce the final balanced system.Another problem for man in grasping a full understanding of market and economic behavior lies in his conscious thought process. In our natural state, our mind processes and records data in a nonlinear fashion. When we meet someone special, perhaps in a restaurant, our subconscious mind records the music and setting of the moment. It is quietly observing what the other person is wearing, the color of the tablecloth, the flicker of candlelight, the background music and so on. Our conscious mind focuses on the conversation at hand. Months or even years later, if we hear that particular background music, our mind suddenly retrieves the experience and consciously we relive the event right down to the twinkle of candlelight.Economic and market behaviour is quite similar to the operation of our mind. There are numerous variables hidden within the equation that determine the end result. Consciously we focus on only a small fraction of the variables involved. For example, we may pay a lot of attention to interest rates and stock market behavior or unemployment and its influence upon interest rates. We then try to interpret and make a judgment as to what the trend will be based upon just a handful of simplistic, fundamental relationships. Inevitably, such analysis proves to be incorrect due to the lack of attention paid to the wealth of other variables that will influence the final outcome. Normally, our subconscious mind would record these types of things for us in a social setting. Yet, in financial analysis we are ignoring the actual process of collecting knowledge by continually trying to reduce the entire fate of the world down to a few simplistic relationships such as interest rates, trade, corporate profits or whatever.We strive to develop a global model which filters in all key economic data along with free market movements that include everything from bonds and stocks to wheat and aluminum. The results, thus far, have given us perhaps the best track record of long-term economic forecasts on a consistent basis. Our overall model design takes into account 35 world economies and views the global trend as a sum of the parts.

In a study we published in 1986 entitled The Greatest Bull Market In History, a complete review of the world economy is given for the period of 1919 to 1946. Both the bull market and the great crash are covered in detail showing the precise interaction between all major commodities, stock and bond markets, foreign exchange, government decisions, corporate profits, unemployment and gross national product. By putting the global economy together, rather than attempting to forecast the fate of one market or economy in isolation, a new level of understanding emerges. For every action taken in Germany or France, a reaction takes place in all other nations ranging from subtle changes to major disruptions.The global trends that are set in motion are the result of smaller trends emerging from every economy around the world. All nations strive for a trade surplus. However, it is impossible for one nation to enjoy a trade surplus unless someone else endures a trade deficit. Correspondingly, it is impossible for the entire world to experience prosperity simultaneously. One nation’s boom has often been another’s bust.As a result of the two world wars, the United States emerged post-WW2 as the wealthiest nation on earth holding 76% of the free world’s gold reserves. As the countries of Europe fought each other, capital fled to the United States and created jobs and expanded its manufacturing base. However, as the U.S. adopted a more socialistic philosophy by driving corporate taxes to 70% and the top personal income tax to 90% during the 1960's, capital fled offshore in a stampede. To this day, 60% of the U.S. trade deficit is made up of U.S. companies manufacturing their own goods offshore.The trends in international capital movement are set in motion by the forces of

Taxation

Inflation Geopolitical security Financial security Foreign exchange and Cost of labour Additional minor influences, such as interest rate differentials

Nevertheless, capital is continually flowing from one economy to another in search of profit and/or financial stability.  

With the advent of floating exchange rates, this one factor above all others has become the primary source for volatility and capital flow movement. Price swings of 30-40% in the course of 1 to 2 years can wipe out normal profit margins and simple interest rate differentials.Examples of the influence of foreign exchange can be extracted from virtually any commodity or stock market. If we look at gold we can see that the bull market moving into 1980 was a true bull market

since gold made new highs in terms of every world currency. However, gold bottomed in 1985 in terms of dollars and rallied to $500 going into 1987. While most proclaimed this to be a new bull market, gold was still declining in terms of most other currencies. In order to create a bull market, it takes solid buying support from all nations—not just one. 

If we look at the Dow Jones Industrials since 1915 expressed in Swiss francs, we can see that by 1991 we had only risen to re-test the true peak in this market established back in 1966.  

Capital has only begun to return since the tax structure in the United States was drastically reduced. The key to knowledge today remains the global capital flows and comprehension of how capital rushes around the world. It is this interaction on a global scale that produces the real booms and busts. Bull markets ONLY take place when global capital flows target one nation focused into one particular sector (i.e. Japan 1989, 1997 SE Asia, 1998 Russia, 2000 DOT.COM, & the recent US Mortgage Bubble). Here are the capital flows for the 1987 Crash. 

 

Americans were the buyers and the foreigners were the sellers because this event was driven by the fear of the collapse in the dollar not by any domestic change in the economic output. As long as a market is rising ONLY in terms of a local currency, then foreign capital will be sellers against domestic buyers and thus there will be no sustainable trend.  → The true definition of a bull market is a market that rises in ALL forms of currency, NOT just one. 

 When expressed in terms of a basket of currencies gold peaked in 1986, not 1987.

At Princeton Economics, we have built global models by gathering together the world’s largest database of capital markets. Our computer models have every world currency back to 1900 with major currencies back to the 1700's. We have the most complete database of world stock markets, interest rates and commodities combined with most economic indicators. Using this immense foundation of data we have also built one of the few true Artificial Intelligence computer models. Unlike expert systems where man merely inserts his own rules, true Artificial Intelligence systems learn through experience.  → Our computer model has taken every individual variable and tracked it side by side with everything else in the global economy. Its forecasts are the result of history — not theory!

 

Man can only forecast what he believes is possible. If he has never experienced war, how can he possibly forecast war? The global approach to forecasting is the only hope we have of fully understanding the complex network of global interrelationships. For every fundamental that we believe moves the market, there is an example of the same fundamental producing the opposite result. Knowing when higher interest rates affect the stock market and when they do not, results from the external influences we may not be watching very closely.

For every up-trend there is always the inevitable downtrend. When the marketplace moves in the opposite direction of what everyone expects, it is not the markets that are wrong—it is our frail and inept interpretations.  → No one will ever be able to forecast the future based upon opinion. 

 

The only reasonable approach is an unbiased one that considers all the possibilities based upon research of “what is” rather than “what ought to be".

This is what government has figured out. Cities like Philadelphia are dead broke. They have chased the rich out of town, imposed wage taxes on anyone who flies in for business, they think it is their right to demand money and provide you with nothing in return. So what are they up to now? PROPERTY TAXES! You will see property taxes start to rise exponentially because it has nothing to do with income. If you can’t pay, well sorry – then they get to take the property and sell it. Taxes will rise where income is no longer an issue. They chased the rich out – someone has to pay for public servants to live.

Obama has asked for the Bush Tax Cuts to be extended for ONE YEAR only on HOUSEHOLD incomes of less than $250,000. This shows he wants the taxes on investment to jump to over 40%. He is likely to destroy more jobs and send the economy into a spiral nosedive faster than any president in history. The sad thing is, it really doesn’t matter who wins the elections despite the fact that Obama may win by the skin of his teeth. We are talking about a Lame-Duck Congress and the extension is in December so technically whoever wins, the event will have taken place already.

Obamacare TaxIt is true that there have been a lot of unfounded rumors concerning the Obamacare Tax that portray the 3.8 percent federal health care tax on the sale of your house. It is very true that this does in fact apply. However, it will more likely affect the wealthy, not the average American, but it is likely to kill commercial business properties.

Obamacare will impose a 3.8 percent tax on all home sales and real estate transactions – TRUE! However, this 3.8 percent tax will be on ALL investment profits and other non-wage income starting in 2013. But that tax applies ONLY to couples with adjusted gross income of $250,000 (or individuals with AGI of $200,000). About 95 percent of households make less than that, and will be exempt from the law no matter what. Furthermore, couples who sell a personal residence can exclude the first $500,000 in profit from tax ($250,000 for singles). This suggests that profit from a home sale, not proceeds, would more than likely be exempt. It is unlikely that this will amount to a hill of beans given the state of the real estate market in any event.

Expect the 3.8% tax to dampen commercial real estate at probably the worst point in time. The little bound we saw in the model, well we got it, and now it looks like it will turn down again. The real concern is how this could set off a selling spree in time for the elections. The Democrats are death, dumb, and blind when it comes to taxation. They refuse to look at just plotting the economy alongside the tax rates. If they did just once, they might see the light. Hiring government workers is ANTI-GROWTH. It is like hiring a maid at home. She produces nothing. Adds no income to the HOUSEHOLD; she consumes income. This is why they call government workers PUBLIC SERVANTS. The more you hire, the lower the economic growth – HELLO!

Of course, then we have the question of a definition. When the politicians say they will make those rich bastards pay, the majority cheer since they think they will get something for nothing. However, when the chase the rich out of town, what is left are the people who cheered. How does government deal with this?

They change the definition of the rich. When they sold this nonsense to everyone, $1 million was a ton of money. If you consider a Cadillac was $600 when the rich were defined as $5 million, with the definition now $250,000 HOUSHOLD, not individual, then a Cadillac should be over $415 million to keep the same ratio.

Tax revolts are common throughout history. We are approaching such a period in 2016. The question is how much will the markets be influenced starting in September 2012. Yet sadly to say, it is ALL of Western society that is going down the drain just as the Communist world collapsed. It is just our turn for the same fiscal mismanagement sins. Even India has offered amnesty to more than 100 wealthy citizens who evaded taxes by hiding funds in accounts at HSBC Holdings Plc (HSBA)’s Swiss unit. The India income tax department has agreed not to start criminal proceedings or levy a penalty if the Indians repatriate the money from Geneva and pay the taxes right now.

Numerous countries are now trolling looking for assets they can seize and people they can imprison to confiscate their wealth. India is joining the USAm UK, Germany, and many others out for blood money. The politicians get to squander your wealth, and they they get to imprison you for refusing to give them whatever they demand. What is the difference with the Maffia demanding protection money? There is no way to stop this collapse because government insists upon holding on to power as is. They are not prepared to listen to any reason.

Taxes

The very word “suburbium” is what the Romans called it. People left the cities fleeing taxes. The population of Rome itself just collapsed. No city ever matched that size again until the Victorian era in London. This is how empires die. The cost of government always rises oppressing the private sector since the public sector is like a drunk – it just consumes and has the hand out claiming he needs money to eat instead of drink. The people either leave or revolt in their struggle to cope with the persistent unpredictable demands of government that historically NEVER lives within its means.

During economic crisis, money is hoarded. People curtail their spending to survive. Grover Cleveland addressed the Congress is a Special Session where he criticized his own party stating:

“At times like the present, when the evils of unsound finance threaten us, the speculator may anticipate a harvest gathered from the misfortune of others, the capitalist may protect himself by hoarding or may even find profit in the fluctuations of values; but the wage earner – the first to be injured by a depreciated currency – is practically defenseless. He relies for work upon the ventures of confident and contented capital. This failing him, his condition is without alleviation, for he can neither prey on the misfortunes of others nor hoard his labour.”

Gold’s role will be as the alternative UNDERGROUND economy and a store of wealth in time of political crisis. Remember – institutions will always be vulnerable to seizure. So never leave your gold in a bank that could be seized. You are defeating the very purpose of buying gold in such circumstances.

The Risk of Low Interest Rates

Copyright Martin Armstrong All Rights Reserved October 13th, 2012

The Risk of Low Interest Rates

Analysis is dominated by simply opinion and therein lies the problem. Economics has become nothing like a science. In physics, one observes and then determines the “LAWS” as to how the universe functions. In the field of Economics and Finance, there is no science whatsoever. The whole thing after Adam Smith and David Ricardo started to go downhill rapidly with the Marxist and then Keynesian assumption that man was capable of manipulating the economy. This idea has been the most devastating assumption perhaps ever created. It still was self-evident in the Vice Presidential debates where Scrappy Joe Biden bullshitted everyone with his flowerly Marxist hatred that the “Super Rich” are to blame for having any wealth at all and government somehow had nothing to do with it. He adopted the position that the Middle Class has fallen behind because the “Super Rich” made money and it is their responsibility to bail out the Middle Class not Congress’ fault for creating excessive debt and unfunded liabilities.

The problem is very simple. The President’s own budget shows that for the period 2013-2022, total non-defense spending will be $5.6 trillion whereas the total handed to the bondholders even at these low rates will be $5.8 trillion. Biden lied to the people to win an election. He wants to take everything from the “Super Rich” (couples who earn $250,000 or more not Buffett & Gates), and hand it NOT to the Middle Class, but to the bankers!!!!!!!!!!!!! Let’s tell the damn truth for just one minute. And what will happen after you raided the “Super Rich” so they have nothing left? How will you pay the bankers then? What will be next? Oh we go to a gold standard without monetary reform and then they redeem the bonds for all the gold? Then what? Outright civil war?

There is a ticking time bomb nobody seems to be talking about because it takes OBSERVATION rather than opinion. The artificially lowering of the interest rates has stolen the retirement income from the elderly. But they must be part of the “Super Rich” Biden hates so much. Their income is handed to the bankers for there is no law that they had to pass the lower interest rates to the consumer. So we end up with 3 year CD-rates at 0.5% and a 3 year secured car loan at almost 4%. That spread is destroying capital formation. Oh yes – that is the bankers. That’s ok! Biden specifically says Wall Street, so the investors and stock brokers will be hunted down and killed during civil unrest – not the bankers. The bankers are nowhere near Wall Street and they are known as the “Financial Services Industry” not Wall Street. Of course when there was the Occupy Wall Street movement, these types of lies by Biden help to protect the bankers and embarrass the stock brokers. In New York, apparently young brokers are no longer proud of their craft and tell potential dates their career in a lower tone.

After stealing the retirement income of the elderly, they have set the stage for an exponential PHASE TRANSITION (PANIC) whereby interest rates can simply explode to the upside. Why? Pension funds and everyone are sitting there holding bonds. This is like owning the Nikkei at the peak in 1989. There is ABSOLUTELY nowhere to go but down. The assumption that government can control the economy and interest rates is dead wrong and that was the very same believe that led the Japanese to keep holding their portfolios because the government would make the Nikkei go back to the old highs so they could sell. The Marxist-Keynesian world of manipulation is false. It has not merely led to the death of tens of millions of people in social revolutions, but it is about to destroy Western Civilization in a single bound.

Because everyone is sitting there holding worthless government paper, we will see a collapse in bonds equal to if not greater than the fall of the Nikkei from 1989 or the Dow Jones Industrials during the Great Depression. The slightest up-tick in interest rates will cause a massive PANIC sell-off like we have never seen before. Those who think there will be some PEACE DIVIDEND when Iran falls are dreamers. Russia is rising from the ashes. China will soon be the Greatest Economic power on earth. Hello? The rise of Asia is on the horizon. Even in South East Asia the “feeling” is the United States has become irrelevant economically as China begins to dominate the region.

Here is a table of illustrating an important shift in trend. Here we are looking at China and India from their import perspective. This reflects and important shift in the underlying trend and is why the United States is in a serious decline. The recent US law seeking to go after any American doing business overseas assuming they are hiding money from taxes, shifts the focus of government away from the benefit of society to the greed of government. Hence, the decline in the United States as a world economic power has been enhanced by this legislation.

While Joe Biden portrays the greed of companies that has led to jobs leaving America, what he fails to understand is global competition. The taxation has been driving jobs away because it is like a football in a game being thrown back and forth between two teams with no fixed plan of schedule. Government believes it has a right to change the tax code whenever it needs money. They do not understand how companies will not hire during uncertainty, and companies need a business plan to function. They need certainty what the taxation will be to establish budgets. Politicians are used to printing and borrowing whatever they need like a 14 year old with Daddy’s credit card. There is such a thing a business

management. Western governments are too caught up in Marxist ideas that they can manipulate the economy whenever they like, that they play by nobody’s rules ever.

The West has taken a gun constructed from debt to its own head and pulled the trigger. Joe Biden demonstrates clearly there is no plan, no observation of what is the problem, nor was there any clear explanation of how to solve the problem other than rob everything he can from the “Super Rich”. It is simply politics as usual. There is nothing left of any meaning. Politics has completely failed just as it did in the Roman Republic. It is not Democracy that has failed since politicians have done their best to eliminate the vote of the people on spending or major policies. We have a Republic with so called representatives to do as they please in the name of the people. Even in Europe, political powers refused to allow the Greek people to vote as was the case in Italy.

So unfortunately, interest rates cannot be controlled as they assume forever. The huge 800 pound gorilla hiding in the corner of the room is waiting to be noticed. Here is our famous US Government Bond Index. This chart illustrates how we constructed it using various changing bond issues over the course of the history of the United States. We always used the longest paper on a maturity perspective to create this perpetual view of US Government Bonds.

We naturally incorporated this Index into our full computer database. Here is the Forecasting Array for the Yearly Perspective. It is obvious that when the Economic Confidence Model peaks in 2015.75 and declines into 2020, we see a Panic Cycle in 2017 and rising volatility into 2019. Near-term, we see a Directional Change is due in 2012 and 2014 with volatility starting to rise in 2013.

The top line in the Forecasting Array is the composite of 72 models. Thus, this is the sum of our fears and hopes. We can see that the important years will be 2014, 2016, and 2018. It looks like interest rates will start to rise and after 2015.75 is when we get into the default period. It appears that 2014 is shaping up to be a serious event. That is also when we have the War Cycle turning and that can also mean civil unrest rather than international war.

Because interest rates are so low, the slightest uptick in rates will wipe out bond holdings extremely rapidly. In Japan, the banks are loaded to the gills with government debt. Deflation in Japan has been massive. A lunch in Marunouchi district in Tokyo was 1,000 yen in 1989. Today it is just 500 yen. That is visible deflation rarely seen. The Japanese banks can be wiped out in a single uptick. In the United States, pension funds are at extreme risk to a rate rise that will cause their bonds to free-fall. This is the real downside to low interest rates. The bondholders have bought the equivalent of the Nikkei on December 31st, 1989 or the Dow on September 3rd, 1929.

http://www.federalreserve.gov/pf/pf.htm

By Passing the banks

http://www.reuters.com/article/2012/05/21/us-usa-treasuries-china-idUSBRE84K11720120521

http://prudentinvestornewsletters.blogspot.com/2012/05/implications-of-chinas-direct-access-to.html

http://www.businessinsider.com/china-buys-us-treasuries-directly-2012-5

The Federal Reserve, “believes,” acts as if we live in a fish bowl economy. This assumptions is preposterously dead wrong. The fed things they will stimulate the economy by purchasing government securities in the open market and will increase the economy. The fed assumes the money supply inside the domestic economy will rise except this cannot be true when the facts are examined.

The fed assumes that by purchasing long term bonds, government securities it will put more cash in the economy and it would stimulate demand.

What happens when the debt is held by a foreign entity or a foreign individual? The money is sent outside of the United States and doesn’t help the economy at all. It doesn’t even help the government because they don’t have to pay taxes on it.

How can this be possible?

The amount of debt the United states has is more than a third of the entire world. That is 1/3 of the pie for the world government’s debt.

40% of the interest on government bonds is held overseas.

The fed just says it will help the economy there is no way it is helping anybody except the bankers who hold large quantity of cash and are selling the bonds to the fed.

As the fed increases the money supply, prices increase but the productive forces will diminish as the bankers run the government. The only way to ensure they’re paid interest on the bonds is to increase taxation on the US citizens. The US increases its borrowed spending not to help the economy through social programs but to push its own agenda. There was the $700 billion tarp fund that went to help the banks, $1 trillion dollars for war which is mostly exported outside of the US, and 40% of US government debt is held by foreign investors, where the interest payments on the huge debt are exported outside of the united states.

The main purpose of an elastic money supply, fiat money, is to increase the quantity of money when there is a run on the banks. What happened before was in a depression the banks would fail and the assets and outstanding loans were sold for pennies on the dollar. This happened before where real estate collapsed and the entire leverage of the real estate market imploded. Creating an elastic money supply, the money supply could expand in these periods and reduce when confidence returns.

The Federal Reserve was created with the ability to increase the money supply, and help alleviate bank failures that would take place. This is perfectly fine except this was never supposed to be permanent fix. The Federal Reserve is known as the lender of last resort. Now we have politicians who assume the Fed is there to fix the economy, when even Ben Bernanke is on the record saying the government debt has to be reduced. The politicians have changed the Federal Reserve main purpose and want the Fed to fix the problems the politicians created because they always spent more than they should. The elastic money supply is a perfect short term fix only if it’s temporary. Expansion would shrink back to normal once the panic was over. This is the role the Federal Reserve was created for, except politicians cannot accept it as is. The politicians always spent more than they had and they debase the currency to pay for it. The same thing happened in Rome. The currency was gold then except the politicians then were just as clever and started debasing the metal content. The problem is spending and debt. They spend as they like, take no responsibility and pass the bill to the people.

Nobody ever pays their deb, the politicians continue to roll it over forever. We are addicted to debt and the primary dealers, bankers, are keeping it going.

allow them to takeover private intuitions

The European Central Bank is very different. The ECB is not authorized to create an elastic money supply. The ECB cannot just continue to buy the soverign debt of the European countires because they will run out money; unlike the fed.

This is going to create the biggest disaster when the ECB will have to be recapitalized. Who recapitalizes the continent’s bank that is recapitalizing all the countries’ banks? The disaster that is brewing with the ECB is going to become public and more politicians are going to be involved. The entire banking system will fail and Europe will collapse because they don’t have an elastic money supply. The countries will default on their soverign debt because no investor will ever invest in government debt, and the bank failure s will destroy anybody will wealth in Europe.

The ECB has become the short-term lender in Europe because the banks aren’t lending to each other. The ECB cannot continue to lend like this. The ECB will need to be recapitialized and

http://www.bbc.co.uk/news/business-19592151

http://www.federalreserve.gov/monetarypolicy/default.htm

http://www.businessinsider.com/bernanke-speech-five-questions-about-the-federal-reserve-and-monetary-policy-2012-10

http://www.businessinsider.com/bernanke-on-using-monetary-policy-to-influence-fiscal-policy-2012-10

The Federal Reserve was created following

Just because the Federal Reserve says its objective is promoting a healthy economy, doesn’t necessarily pursues those goals.

The Euro started out an incomplete currency. The Euro banking countries created a central bank but didn’t create a treasury. The member countries thatjoined the Euro gave up the rights to print their own currency therefore exposed themselves to default. Countries like Portugal, Spain, and Greece converted their previous debts in their own currencies to a stronger currency in the Euro, making it harder for them to repay their debts. Neither the politicians nor the financial authorities understand what they were getting themselves into. They were looking for the short term gain. France and Germany turned a blind eye because it would allow them to increase their exports in the short through medium term.

Its not a matter of IF but it’s a matter of WHEN.

Theory that lower interest rates stimulate the economy and borrowing is absurd. What happens if the banks keep the savings? The banks receive a bigger profit for themselves and the people have to suffer. The older citizens who have retired or are soon to be retired have saved cash all their life to enjoy their last years on a fixed income. Their fixed income has been reduced to basically none because the banks are paying around .5 % interest. When lenders lend money the interest rates naturally pay for the loss in purchasing power create by inflation, except this has disappeared.

With interest rates at extremely low levels it reduces the income towards savers. When savers or anybody for that manner feel their income is being reduced, they consequently decrease their spending. This is what almost every human does and it diminishes the GPD and the confidence that the economy will ever recover.

Government will contribute to the demise of the economy because they will continue to raise taxes which produces uncertainty. Companies, small and large businesses, are unwilling to hire because the incentives are larger to hold onto the cash. The government has been completely fiscally irresponsible with their finances.

“We don't have a trillion-dollar debt because we haven't taxed enough; we have a trillion-dollar debt because we spend too much.” Ronald Reagan

The Federal Reserve cannot control the interest rate in the long-term. In 1935 in the passage of The Banking Act of 1935. The Federal Reserve act was amended to supporting bonds at par value. This was used by the government to stimulate bond buying by citizens so the government could pay for the war. This arose to finance World War II. The Treasury had the daring task to raise funds that were well above the tax receipts. The Treasury wanted to keep the interest rates on government securities at low levels. The Federal Reserve supported their mission and adopted the policy of supporting the bond market. Between 1942 and 1945 the government was borrowing massive funds to ensure their would be no shortage of weapons for war. The fed announced it would keep the 90 day government bills at 3/8 percent and continued to do so for 5 years.

When the Federal Reserve adopts the policy of pegging interest rates, it surrenders control on the supply of money. When the rates are pegged too low, private sector demand for new government securities are too small to take up the entire issue. This forces the Federal Reserve or other central banks to purchase bonds, preventing bond prices from falling and yields rising. The Fed increase its reserves. The other side of this is if the rates are set high, the private sector demands excess government debt forcing the Federal Reserve to sell holdings from its own portfolio to prevent interest rates from falling. Even after World War II the Fed continued to support bond prices because it reduced the cost of borrowing for the government. The Tresury could ensure that it would sell the new bond issues because the Federal Reserve was purchasing the entire unsold issue. At the same time the market was protected against capital losses and rising interest rates. The Treasury and Federal Reserve got into arguments because the Fed was concerned with its inability to prevent inflation due to its required support of government debt. The market place who held bonds viewed government debt as very liquid since the Fed supported the prices of government debt. When the Fed let the 90 day government bill rise, it increase the Fed’s interest income on the T-bills. The Fed agreed to turn over 90% of the revenue to the Treasury, to ensure the Treasury’s support. From 1949 onward Congress was seen as supporting the Fed in its conflicts vs the Treasury. The Treasury continued to force the Fed to sell government bonds at 2 and ½ percent but the Fed refused. At this time Harry Truman called all of the FOMC committee to the White House to discuss their policies. A report was issued by Senator Paul Douglas concluding that the benefits of avoiding inflation was grand enough to justify giving the Federal Reserve freedom to raise interest rates, even though it meant that the cost of federal debt would rise.

On March 4, 1951 the accord of 1951 was passed and introduced to the public. It was designed make the federal reserve more independent from the executive branch. Although it was explicitly state the Federal Reserve was cleared from its role to support government bonds. For the next two years interest rates rose and the volatility of rates soared but once the short-term interest rates were corrected for inflation, the real interest rates on government securities became less volatile. The Accord also indirectly separated the debt management policy from that of monetary policy.

http://www.bus.lsu.edu/mcmillin/personal/4560/accord.html

Bach, G.L. 1971. Making Monetary and Fiscal Policy. Washington, D.C.: The Brookings Institution.

Shiller, Robert J. 1980. "Can the Fed Control Real Interest Rates?" In Rational Expectations and Economic Policy, ed. S. Fischer. Chicago: The University of Chicago Press.

Stein, Herbert. 1969. The Fiscal Revolution in America. Chicago: The University of Chicago Press.

http://www.encyclopedia.com/topic/Federal_Reserve_System.aspx

Broz, J. Lawrence. The International Origins of the Federal Reserve System. Ithaca, N.Y.: Cornell University Press, 1997.

Kettl, Donald F. Leadership at the Fed. New Haven, Conn.: Yale University Press, 1986.

Livingston, James. Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890–1913. Ithaca, N.Y.: Cornell University Press, 1986.

Morris, Irwin L. Congress, the President, and the Federal Reserve: The Politics of American Monetary Policy-Making. Ann Arbor: University of Michigan Press, 2000.

Toma, Mark. Competition and Monopoly in the Federal Reserve System, 1914–1951: A Microeconomics Approach to Monetary History. Cambridge, U.K.; New York: Cambridge University Press, 1997.

Wells, Wyatt C. Economist in an Uncertain World: Arthur F. Burns and the Federal Reserve, 1970–1978. New York: Columbia University Press, 1994.

Wheelock, David C. The Strategy and Consistency of Federal Reserve Monetary Policy, 1924–1933. Cambridge, U.K.; New York: Cambridge University Press, 1991.

Friedman, M., and A. J. Schwartz. A Monetary History of the United States, 1867–1960. Princeton: Princeton University Press and National Bureau of Economic Research, 1963.

Goodhart, C. A. E. The Evolution of Central Banks. Cambridge: MIT Press, 1988.

Humphrey, T. “The Choice of a Monetary Policy Framework: Lessons from the 1920s.” Cato Journal 21, no. 2 (2001): 285–313.

Meltzer, A. H. A History of the Federal Reserve. Vol. 1: 1913–1951. Chicago: University of Chicago Press, 2003.

Smith, V. C. The Rationale of Central Banking. Westminster: P. S. King and Son, 1936. Reprinted as The Rationale of Central Banking and the Free Banking Alternative. Indianapolis: Liberty Fund, 1990. Available online at: http://www.econlib.org/library/LFBooks/SmithV/smvRCB.html

Timberlake, R. H. Monetary Policy in the United States: An Intellectual and Institutional History. Chicago: University of Chicago Press, 1993.

Warburton, Clark. Depression, Inflation, and Monetary Policy: Selected Papers, 1945–1953. Baltimore: Johns Hopkins University Press, 1966.

ECB

Greece Prinipal payments

http://www.tfmarketadvisors.com/2012/02/08/the-ecbs-scary-carry-trade/

http://www.commoditiesforexnews.com/2012/news-analysis/ecb-says-no-to-taking-a-loss-fed-extends-low-interest-rates-environment-to-2014-end-of-free-market/

http://www.investoruprising.com/author.asp?section_id=1525&doc_id=239624

http://www.europarl.europa.eu/committees/en/econ/studiesdownload.html?languageDocument=EN&file=31677

George Soros

http://www.nybooks.com/articles/archives/2012/sep/27/tragedy-european-union-and-how-resolve-it/?pagination=false

Even Heyward Keynes argued that in order to stimulate the economy you need to lower taxes. He never said anything about pertpetual borrowing. Government and elected officials took that in a recession the government needs to spend more and blocked out the parts they didn’t want to hear. Everyone is raising taxes at exactly the wrong time. The governments want to keep interest rates down desperately.

Inflation tracks inflation rates. Except they are not rising, only when they start to rise will the recovery actually emerge.

Because governments are stupidly buying back bonds, you should sell the bonds and take the cash now. Soon the government will become desperate for income and start taxing the people for everything. This is when atlas Shrugged comes into play. Money will start to flee and the laborer is stuck with nothing!

The money supply has changed drastically. In the 1960s a US savings could not be used as collateral at the bank but today only 50 years later we can do this. Debt becomes money because today T-bills can be posted as collateral for trading.

What happens if somebody from London wants to buy U.S dollars, Do they get on the phone and call the Fed saying they want to exchange their pounds for dollars. No, they can simply buy dollars electrionically at a bank. The Federal Reserve doesn’t print that money nor do they create it. This is a completely different world of money creation. The government nor the Federal Reserve no longer create money based on the traditional factional reserves. Money nowadays is created by lending and until the ability of borrowing is undertaken, the Fed doesn’t control anything.

The debt is welfare for the bankers. Governments have to stop perpetually borrowing because there is no plan to pay anything back. The debt has become money that pays compound interest. The entire issue is the debt! What the people don’t understand is that government is for government. They have wrongly assumed that the government will honor its promises. It was the Roman Senators who said give them circuses and bread and they will leave you alone. Human interest hasn’t changed in the 1800 years since. The government never mentions how the promises were never kept. The politicians

promise to feel our pain, tax our money, or promise to help us but when do we expect them to honor their world. Government always turns against its own people.

Thinking out of the box has always gotten me into trouble. I can’t stand listening to the rhetoric that “going to college is best.” Have the richest people in the world gone to college, some have others haven’t. All college does is impermates the mind with the same ideas and views with the people around you. This means students and their teachers, and most importantly the teachers’ agenda via lectures. This doesn’t mean that all teachers push their views but some insist and are opposed to listening to new ideas.

When thinking differently succeeds its called genius or a good idea but when it fails its associated with non-conformity. In elementary school they always ask you if everybody else were to jump off a bridge would you jump but when you start to poke the box and ask questions they snarl at you. Its associated with disruptive behavior. Yet when I first got a car and told my parents that I wanted to paint the hood orange, they told me to be like everybody else and have a uniform color.

People presume education prepares one for life but what does it really do for you? Its more like labratting you. They push job fairs and getting a good job but when you work for a corporation without a doubt at least 98% the employee adds more value to the corporation than they receive in pay and benefits.

Genius is not like being rich where people define “rich” as everyone who has more than them. Genius is nonconformity and willing to consider all ideas thinking out of the box.

The careless actions of government, which are dominated by small minds, have led us to economic cliff. This isn’t a fiscal cliff like they keep talking about but rather the cliff back into the dark ages. Small minds will focus only on people. Average minds upon the event. But the Great Minds, those who think out of the box and connect all the dots, will see the path that lies ahead. Embrace the journey. For we have no choice. The current systems are unsustainable.

Let’s remember that genius has an ability to get the possessor into all kinds of trouble; ironically enough they’re the ones who are the likeliest to be misunderstood in classrooms. Teachers tend to smile on the child who gets As on everything but frown upon those with creative minds. The intelligent but uncreative child accepts conformity, doesn’t rebel, and complete their assignments to exactly the teachers instructions. How boring is that? The teacher would then read 30+ of the same exact assignment. Now the “genius” is more manipulative, imaginative, and intuitive. They also love to harass the teacher. There described as wild, naughty, silly, lacking in seriousness and the teacher claims their distracting. What happens when everybody grows up to be exactly the same? It’s boring and predictable. So the creative mind gives unique answers to banal questions, causing laughter among the students and the teacher proceeds to scorn that child. Instead I look at it as their attempting to open the minds of others.

Now to the Attempted question from Chapter 12:This is so serious. You see what is happening to Greece. You might not believe me now but the Euro will be done come Summer. This is a debt crisis that will strike and wipe out the savings of all the un-prepared, and will change the future forever. Pension funds are done for and the rule of law will collapse. This is because the danger we face is the government and our fate is in their hands. Just as you look out for your own self interest so does the government look out for their own self interest. We have this last election fueled by class warfare caused by the government pushing blame onto the rich! Its not the rich it’s the government that always over promises and underfunds their promises. We saw the Democrats empower the majority to vote the assets of the minority their own!!!! Their reasoning is “they can afford it.”

Even in the Ten commandments forbid this “You shall not covet your neighbor's house; you shall not covet your neighbor's wife, or his manservant, or his maidservant, or his ox, or his ass, or anything that is your neighbor's.”

You shall not desire . . . anything that is your neighbor's.

http://www.vatican.va/archive/ccc_css/archive/catechism/command.htm

This violates everything anybody ever stood for! Were so screwed and so many people are unprepared for the backlash they have set in motion!

I refuse to write about social security because it’s already bankrupt. When Social Security started there were over 30 people paying for each retiree now there are 1.75 workers paying for 1 retiree. That’s over 70 years and as our population continues to get older was going to be taking out more than was paid in. The social security was suppose to be a trust that was untouched. When the politicians kept spending as they pleased they realized they could borrow from Social Security because there was a surplus. If this was invested instead of spent we wouldn’t have a huge down fall. Nope the politicians spent every last cent. As Ronald Regan said “We don’t have a trillion dollar deficit because we taxed too much, we have a trillion dollar deficit because we spent too much!” There is no hope insight.

I am more that capable of saving my own ass. I’m not going to fight people who won’t listen. They’ll suffer there own fate and wish they listened. Instead of facing fears we run from them and so were unprepared. The best way to overcome a fear is to face it. I already know how to hedge and understand global capital flows which they don’t teach you in school. Instead in economics class they teach us what happened under a gold standard. Hello that was 40 years ago. Sorry your Marxists ideas will die with socialism.

Just to pound my chest Ill demonstrate how and why investments are sinking:With the Obama victory the top income bracket raises to 39.6%!The long-term, over 1 year capital gains rise from 15% to 18.8 %. This is for households making less than $250k a year.The dividends rise from 15% to 39.6% with a 3.8% surtax for Obamacare. So 44.4%The Buffet Rule comes into effect so that means anybody making more than $250k have to pay at least 30% for their wages, interest from bonds/ CDs, and capital gains.

This is drastic because of the concentration of wealth causes mass selling. Except they already sold a month ago and now the littler people sell continuing the decline. The major funds will buy at the bottom when human nature comes into play and people sell at the bottom; just like they sell at the top.

Home prices will continue to fall. In the nearer term your looking for a correction going into the end of 2015. For the short term there will be a pick up because no one wants to catch a falling knife. In early 2007, the pinnacle zenith for real estate, there were no more buyers. Anybody who ever thought about buying already had, only the fools who thought they could keep flipping real estate forever were still there. There was a credit crunch forcing banks to hoard their own cash and stop lending not only to individuals but other banks also. There are still many places where homes are still low like florida and Nevada.

Towards the end of 2015 is where homes will take another step lower. This is after 2014 where the interest rates will tick upwards because the Fed can only support bonds for so long. Banks are buying bonds now to sell to the Fed in a year or two. T-bills, T-notes, and T-bonds interest payments will all rise and it be a stampede to sell at once because of the capital losses that are associated with the principal paid.

Unlike the national government, cities and states can’t print their own cash. Instead they’ll seek to raise taxes to continue their own agendas. The municipal governments are going to seek all the cash possible and will impose their draconian laws to violate all your rights. The municipals are already in desperate need for cash but what else can they tax? They will seek property taxes because you can’t hide your house. So on your house not only do you have to pay your agreed upon mortgage your going to have to pay the ever increasing taxes on your property. As this happens less people will want to own houses because nobody will be able to afford it. This will cause a massive amount of sellers all trying to downgrade or downsize, flooding the market with excess supply.

The population of the United States is aging. How many people have grandparents who are still living in their own house? This is on top of the Baby Boomer generation who is already at retiring age with more about to enter that range. This is the generation that has the most wealth. Most however didn’t expect to find taxes raise. They prepared for the prices of the past not of the future. Who will the older generation sell to when they want to down size. Not my generation we have no wealth no credit. The bankers aren’t stupid there not lending money for homes they know will go down in value. With the future so uncertain why would we commit at least $250 k for a house that might not be worth it.

The inheritance tax is already at 50%! If my rents pass suddenly, I’m not going to be able to pay $125 K instantly. So the only option is to sell the house!

Worst still is the Obamacare 3.8 % surtax will be included on your house. Idiotic I know, but that is how the government works; against the people, for the government. In the 60s they stop counting housing as part of the CPI so the rate of the CPI didn’t increase as quickly. The government then decided it was an investment. What is the Obamacare tax? It’s a 3.8 % tax on investments. That means your house

too. Now the people are too incompetent to complete understand this and hopefully your still reading this. So now we have a 3.8% tax that goes to the government and if that’s part of the inheritance were approaching 55%. How stupid can we be? Stupid enough to put us into the dark ages again.

Real Estate. Forget Yahoo and Msn this is easy to calculate if you understand the time value of money. And this is rather simple and yahoo and msn complicate it more than they need to

Ill buy a house for $220k with $44K down.

The rates are ridiculous because nobody with my credit would get this rate nor would a bank lend the money because they know I can’t repay

Ill use 4.3 % but its absurd.

No closing costs.

The monthly payment is $870.98 for 360 months.

The third bullet is absurd because for the first 167 months you pay more interest than you do principal. As you pay down your interest you get to the principal payment.

The total principal payments is $176 k which is the cost of the house and the interest payments are are equal to $137,548. So my total costs is $313,548

But lets say my interest is equal to 6.3 % my monthly payments are now $1089.40 a month. This equates to $216,175 worth of interest and $176,000 of principal for a grand total of $392,175. This is roughly double the price of the house.

In this second case you pay more interest for the first 228 months out of the 360 months.

I would never miss a payment if anything I would make 2 mortgage payments to cut the interest on the property down.

People never know what there doing and are always screwed in the end. Always do your research!

Leverage & Interest Rates One and the Same

by Martin A. Armstrong

© Copyright March 16, 1987

There once was a man who was 105 and when asked how long he expected to live past the ripe old age of 100, he simply replied: "Statistics prove that very few people die beyond the age of 100," and this in itself was no lie. For indeed very few people do die beyond the age of 100, but then again, damn few of us make it beyond 70 anymore.

Statistics can be used to justify hell in the midst of heaven if you care to try. In the end, we simply walk away wondering which end is up and if the price of duck feathers rise, then it means that down is really up.

The old adage known as market logic, is something, which at times suffers from the tricks of statisticians. They say that a statistician is someone who draws a straight line between an unwarranted assumption to his foregone conclusion. Indeed, market logic may be, in the final analysis, the bastard son of a once proud and renowned father named logic himself.

Often what appears to be logical proves to be illogical when the sun finally sets at the end of the day. Far too often, our minds have been played with by these strange and bizarre relationships between markets, which at times stray off into even stranger circumstances, drawing us farther away from the truth of reality.

One of the issues which dominates the world economy is something so commonplace that no one even bothers to think of its implications. That issue you might think is something not even worth the ink it costs to print this report, but if you do, you are perhaps in for a shock. That commonplace thing, in which we all participate on one side of the fence or the other, is the everyday practice of collecting and paying interest.

You might wonder exactly what I am getting at here. But keep in mind that just what something might appear to be is not always the case in point. The issue of interest is not a slight or insignificant issue. To be or not to be (to steal a phase here and there) is indeed the question at hand. If you are now confused, asking in your mind if I have taken leave of my senses since I am questioning if interest should be an acceptable thing or not, bear with me a short while longer.

The history of man's monetary system has always vacillated between a society that accepts the principle of interest and one that does not. Today in the Middle East, there exist Muslim banks, which do not charge, nor do they earn interest. Such practices are deemed to be the sin of usury. What is this sin which sounds rather silly? Well it is an issue that once severed the European world and cast man's destiny upon a different road of many repercussions.

Of what I am now about to discuss is not a mere saga in history. For it has its time and its place in the scope of our own fate. It may in fact be a glimpse of our own future, our own fate.

The evolution of our present day monetary system is one of many wrong turns and the conglomeration of a few smart moves as well. There was an economist who lived in the days of Popes and Kings. This man lived during the years of 1225-1274 and he was canonized in 1323 being forever known thereafter as Saint Thomas Aquinas. Although Saint Thomas' monumental work, Summa Theologica, was in part a religious reflection of the time, it also stands as a classic introspection of social economics of major importance.

St. Thomas wrote of issues that we have purely accepted today, such as the issue of charging interest. He also dealt directly with another issue, the distribution of wealth. With this, we still wrestle back and forth trying to justify taxing the rich at higher rates for the benefit of the poor. Perhaps you would like to know that this Saint concluded that it was not correct to try to alter the distribution of wealth and that such things were better left alone!

But of the issue of interest, he concluded that it was wrong and that unearned interest was indeed the sin of usury! Why would this man be so down on interest calling it a sin when he saw injustice within the distribution of wealth yet advocated its existence?

We are told that the purpose of money was to serve as the medium of exchange enabling the farmer to buy shoes when the shoemaker had no use for the farmer's grain. Money was that focal point which enabled the civilization of man to grow and prosper as trade expanded throughout the centuries. But the moment that interest is charged, money ceases to become a pure medium of exchange as it crosses over into the realm of commodities. Interest is the net price for which that commodity is sold for a certain duration of time. As the supply of money declines, the rate of interest rises. When money increases in supply, it depends upon the rate of increase whether or not the price of interest advances or declines. The relationships are not always on a par value.

What you might never have considered was the impact of interest on an economy and how it altered man's destiny and may yet dictate our future. The Muslim faith proclaimed that interest was a sin just as the Catholic Church once upheld that same principle during the 13th century. Why did the world at one point shun the idea of charging interest? For interest was not the invention of modern times. It had even been charged quite religiously during the times of Virgil and of Caesar. Why then did the monetary systems suddenly change banning the collection of interest on money? The answer to that is quite interesting indeed.

The mere fact that interest was the way of life during the Roman Empire led to countless monetary panics over the course of time in both the Roman and the Byzantine Empires. Speculation was a normal way of life and the Romans speculated on everything from gold and silver to real estate and spices. During the days of the Civil War, when Caesar and Pompey drew swords, there were many other issues plaguing Rome that Shakespeare did not see fit to involve in his play. Unfortunately, most were compelled to read Shakespeare's Julius Caesar and, therefore our perception of the era has been seriously distorted. We read of Mark Anthony's famous speech when he asked "Friends, Romans, Countrymen, lend me your ears!" But what we did not read was of the intrigue and speculation which

had been perhaps the real motive behind the murder of Caesar, not his fabled greed or quest for the powers of a dictator.

Rome had degenerated into a corrupt political state where to become a Senator cost the fortunes of a King. A politician had to spend vast sums upon the people hosting extravagant public displays and games to win their votes. In many ways, Roman politics operated in a similar vein to that in America where vote for me and I will give you this program or that, became a standard way of American political life.

In Rome, these rising Senators were either super rich or sponsored by the super rich who provided the finances for the usual absorbent rate of interest. The debts of the Romans had escalated tremendously and interest rates exceeded 100% during the days of the Civil War.

Inflation became rampant at times for a variety of reasons. However, the real estate markets became the focal point of speculation more so than anything else did. Bets were lined up over what Caesar would do upon returning to Rome. The debts had become enormous and many of the moneylenders were the very Senators themselves. Mark Anthony ran out and bought Pompey's estate signing his life away betting that he would never have to pay.

Mark Anthony's bet was based upon his belief that the debt crisis had become so severe that Caesar would have to abolish all outstanding debt and start over again. That is how serious the situation had become. But Caesar was perhaps one of the wisest of men truly noble in his own right, free from the pressures of ultimate corruption which undoubtedly attempted to persuade him to abolish all outstanding debts. Surely, Anthony would have profited handsomely had Caesar taken that course.

Caesar, on the other hand, chose to deal with the crisis in a rather unique way. Clearly, something had to be done for the outstanding indebtedness was so vast that the interest rates being levied only multiplied the problem a thousand fold with each passing month. Caesar decided that the only way out of this widespread debt crisis was to call a moratorium on all interest payments. He proclaimed that all payments within the last year, or perhaps two, were to be applied directly to principle. Thus Caesar forced everyone to honor their debts, but forced the moneylenders to forgive the interest. This was not exactly the light shed upon the situation by Shakespeare, but then again no one ever expected a play to be reality, as we know it.

The sin of usury is normally defined as taking advantage of someone who is in need by forcing them to borrow for a fee. Here we have declared loan sharking to be illegal and at one time, that was defined by an interest level of 15% or greater in some states. 1981 forced the world to raise those levels sharply or arrest the banks for becoming the real organized crime syndicate.

Interest has a high price, which only gets worse as time goes by. Many South American nations today owe the industrialized nations vast amounts, but in most cases, more than 50% of what they owe is due to interest which keeps on accruing.

Throughout the 12th and 13th centuries, it was deemed a sin to charge interest. No Christian was permitted to charge interest because over time it had been recognized that interest was a means of transferring the wealth in a greater proportion from the needy into the waiting hands of the wealthy.

The reformation in the Catholic Church was not altogether a religious rebellion for the noble and enlightened God fearing world. Its seeds were sown, in part, for greed and the right to charge interest. Even the persecution of the Jews in Europe was not for the sake of their differences in religion, nor for the way they looked or dressed.

The European Jew played an essential role in the development of trade helping to bring man out of the Dark and Middle Ages. To the Jew, it was not a sin to charge interest and, because they differed in this respect from both the Christians and the Muslims, they became the bankers, financiers and moneylenders. But debt has never been something which man has managed well, be it on a personal or governmental level, the end results have often been the same. The Jews of Europe ended up holding the mortgages on land, houses, cattle, and ships and, in some cases, they owned the rights to profits on foreign trade ventures.

When debts went unpaid, naturally foreclosures took place. And is always the case, the debtor blames the lender for his troubles. This often led to the Jews being run out of town or persecuted under the disguise of religion when, in fact, the seeds were purely monetary. The problems caused by debt became widespread and this led to the Pope declaring that anyone who harmed the Jews would be Ex-communicated from the Church. Some clever souls, who had petitioned the Church many times for the right to charge interest but had been continually denied, saw fit to turn this issue into a religious rebellion. The position of the Church had remained undaunted. Interest was a sin and no Christian would be permitted to charge interest, period!

This issue was then distorted by taking words from Revelations which foretold of the Antichrist who would set himself up as the King of the Jews and precluded all men from buying or selling unless they accepted the "number of his name" stamped upon their forehead or right hand. Indeed, they could loosely claim that the Pope was protecting the Jews, thereby setting himself up as their messiah, and he had forbid the Christians from charging interest, thereby regulating trade. Despite the fact that he did not exactly fulfill the prophecies by a long shot, this did not really matter. It was a good enough reason to break away from the Church and to legalize the charging of interest.

The monetary history of man has dealt with these two systems. One, where interest is a normal way of life, and the other, where interest is forbidden. These two systems have alternated back and forth. The non-interest based monetary system promotes a slower rate of grow because credit is restrained and one must pay cash for what he is going to buy. Capital ventures also require full cash investments. Although growth rates are less in comparison to an interest rate based monetary system, history proves that far less economic disruptions take place during the reign of such non-interest-based systems.

Money remains as purely a medium of exchange and it is not a commodity that is thrown on the auction block to fetch the highest offer of "interest."

Interest based monetary systems cause money to become a commodity and, as such, it allows for an over-extension of debt, numerous panics, and runaway inflation and of course depression. A society based upon an interest monetary system expands more rapidly than a non-interest society. Interest is in effect leverage in a very similar manner as trading stocks on margin or commodity futures contracts. One can afford to buy beyond his means because he is borrowing. But the after effects are equally as severe because of the leverage.

When someone owns a stock outright, a drop on IBM from $140 to $70 is only a 50% decline. However, when one is margined, the decline from $140 to $70 becomes a 100% decline when the margin is on a 50% basis. He has lost all that he has put up instead of only half. Thus societies, which are based upon debt, are prone too much more volatility because of this leverage effect upon the economy as a whole. Real estate, diamonds, furs, cars, planes, boats; all are in effect margined to the hilt. When contractions come, they are a doozy as history has shown repeatedly.

The monetary crisis, which Caesar had to face, is on our horizon as well. Inflation is still present in all things but right now its effects are more pronounced in stock prices and real estate and not in oil, wheat or corn. Our national debt in the United States will DOUBLE in less than 5 years and the consequences of our over-extension will rise to the surface like never before in this century.

Understanding the past in its true undistorted reality is the only means of guidance for the future. It will not matter a single solitary moment who takes possession of the White House in 1989. The democrats, who are already trying to blame the fiscal deficits as well as the trade deficits upon President Reagan as they jockey for their political position, are doing us all a grave injustice.

Out of a $200 billion fiscal deficit, $120 billion is interest. It will not matter who takes office in the years ahead. The only way to reduce the interest payments completely is to default on the outstanding bonds. Just once it would be nice to hear a politician say, Look folks, we have some serious problems ahead. The deficits are not the cause of the current administration but the accumulated effect of all those who have preceded. Vote for me because this is how the problem must be handled, not because I will try to pin the blame of decades upon one man. For when my term is up, the next guy will only blame me and that would be equally unfair!

Let us hope that we will find a candidate with wisdom in 1988 regardless of party affiliations. My suggestion to him would be to recall part of the back debt issues and replace them with a gold backed bond with a yield of 2.5% or less. If just half the debt could be floated with gold backed bonds, the annual cost of carrying the debt will drop by $40 billion in the first year. It will prolong the time it will take to double the outstanding debt by another 3 to 5 years buying us time to really get our house in order. The bonds will be attractive to those who see gold as a hedge against disaster and it will ease the pressures

on interest rates in the next 3 years. Stop selling the nations gold reserves through the gold coin sales. Let those who want to buy more gold own the rights to it but give them an irrevocable guarantee. We can still pull a few tricks out of our sleeves if you just know where to find them. It is time we stop blaming the car for speeding down the road, it's the driver's fault. In our case it is not one man who sits in the White House, it takes a willing Congress and Senate to join forces and cross the aisle to make a true bipartisan effort to shape the future. No debt society has ever won the battle against time. Let us not fool ourselves by gambling with the future of our heirs.