Copyright Martin Armstrong All Rights Reserved May 16th, 2012

Manipulating the World Economy Or Just Understanding How It Really Functions?

Some people will never admit a mistake. No matter what I say, they just will not believe me. I have received emails from some nasty gold fanatics saying the government is right for whenever I put out a report saying gold will decline it does. When I go to Capitol Hill, I am introduced as this is the guy with the model they are trying to suppress! Now I am fighting in court because they refuse to issue me a passport. Why? There are other issues! No explanation of course. Here is a monthly chart of the US 30-year Treasury bond and the pattern is very clear. The flight-toquality is not yet over. I have been warning gold was not ready yet for prime-time. Here we are on the edge of Europe being torn apart at the seams, socialist taking control of the battlements, inflation appearing likely, yet gold retreats. Phase ONE of a Sovereign Debt Crisis is international capital flight-toquality from one currency to the next. I have warned that the USA would be last to go not first!

During this new stage of the depression, the refugee gold and the foreign government reserve deposits were constantly driven by fear hither and yon over the world. We were to see currencies demoralized and governments embarrassed as fear drove the gold from one country to another. In fact, there was a mass of gold and short-term credit which behaved like a loose cannon on the deck of the world in a tempest-tossed era.

Herbert Hoover, Memoirs, Volume II, Chapter 7, page 67

It would be nice if people would listen and learn instead of always trying to blame someone for what is going on in the world. I could really fix the whole problem in 30-days of less because I have studied just about everything I could ever get my hands on regarding this subject. When dealing with the government (bureaucracy not Congress), the attitude is just poisonous. They shroud themselves in cloaks of power and enjoy the power to destroy anyone they choose and know that the courts just back them Since the old monarchy claimed the Divine Right of Kings to be above the law, they assume the same power and ignore the revolution of such statutory authority.. That is all they have is power and enjoy exercising that power. 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. My favorite quote from a Sovereign Debt Crisis is that of Herbert Hoover. There is a wealth of knowledge tied up in these words. You have to keep an open mind in order to acquire knowledge. If you assume you know everything and are unwilling to listen, it sounds like a career in the government bureaucracy is waiting for you. I have warned that the United States would be last to fall because it is the core economy being both the largest as well as the reserve currency. I have warned that this will not collapse into dust all at the same time. Each link will break one at a time. This is not my OPINION it is history!

Here is a chart of the US dollar during this chaotic period of the Sovereign Debt Crisis of 1931. Note that the dollar rose to record highs as Europe crumbled into dust. This is the stage we must go through FIRST and this is why the chart I began with is the US 30-year Treasury bonds showing that they are breakout out to the upside for the final rally as Europe crumbles to dust. Social unrest is erupting and what the US and German authorities FAIL to understand is we are dealing with a BELL CURVE and not a linear progression. 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. The gold buffs will say but gold was money in 1931 so it was a rush to gold, not dollars. SORRY! It was a mad dash to dollars MONEY and that will ALWAYS be the case regardless whatever you call money at the time. When gold is money, it FALLS during inflation and rises in value during deflation opposite of what it would do today when it freely trades just as an asset class. Gold is not MONEY it is an asset stop the fiat nonsense before you lose your shirt.

Public

Private

We have to understand what I call this Public v Private battle in confidence. This can also be called the flight-to-quality that appears during a crisis. The primary trend that is common in all economic declines is what is described as the flight-to-quality. This is at the core of capital flow for it represents the first criteria in how capital moves between Public and Private Assets. The flight-to-quality is traditionally observed by just about everyone and it is unleashed whenever confidence in the private assets collapses. Investors panic, sell private assets, and rush to government bonds driving interest rates down sharply. During the 2007-2009 crises, interest rates in the USA virtually went to zero. In other words, people were willing to accept no interest just to park their cash in a safe place they saw as government assets when they feared even banks would not survive. Time is truly a dimension that is FRACTAL. In other words, the same patterns operate on all levels of time. Thus, the flight-to-quality that we observe in the midst of a crisis, is also taking place within the longer dimension of time. Consequently, the flight-to-quality will also shift the general attitude within the beliefs of society. The whole thinking about buying a home and that would be your savings, all emerged from the Great Depression. Land values also collapsed and the 30 year mortgage was then inspired to try to resurrect the failed real estate market. That belief in real estate was purely a post-Great Depression attitude. We also emerged with the idea that government bonds were safe and investing in corporate shares was high risk. This belief led to the final low in book

value and the Tale-Over-Boom of the mid-80s. Share prices fell to record lows in 1977 so that you could buy companies, sell their assets, and double your money. They were vastly undervalued as confidence in government peaked in 1981 precisely during the month that Paul Volcker raised interest rates to insane levels to fight asset inflation. This undervalued state of the share market was the direct result of this flight-to-quality that takes place at the generational level measured in roughly 52-year shifts in attitude. The shift in this flight-to-quality attitude is always at the core of capital movement. During a generational Private Wave, investment and speculation become common place. During a Public Wave, private assets are looked upon as risky and the safer bet is to invest and trust government. The nationalization of gold became necessary because the wave that peaked in 1929 was a Private Wave and government was trying to seize power. People were hoarding cash (gold) outside of banks because they did not trust the banks and they did not trust government bonds when so many government bonds had gone into default in 1931.

The official reasoning behind the nationalization of gold, however, was grounded in the collapse of confidence in both PUBLIC and PRIVATE assets creating hard times that had caused people to hoard of gold. This trend further shrunk the available money supply reducing the velocity of money circulation reducing economic growth and was seen as making the depression far worse, which of course was a purely domestic perspective. The New York Times, on April 6th, 1933 reported about Executive Order 6102: "Hoarding of Gold", "The Executive Order issued by the President yesterday amplifies and particularizes his earlier warnings against hoarding. On March 6, taking advantage of a wartime statute that had not been repealed, he forbade the hoarding 'of gold or silver coin or bullion or currency,' under penalty of $10,000 and/or up to five to ten years imprisonment." Id/ p. 16, So understanding what we are facing right now is critical to our survival. We must understand that forecasting a single market in isolation is asking for disaster. To comprehend the true global implication of how capital moves, we must embrace a global correlation approach. We are headed for NIG volatility come September/October. Reality should start to make its way known going into year-end. So hold on tight. This will be a rough ride.

It appears the US bureaucracy is trying to prevent me from delivering any lectures outside the USA probably for fear about educating people about the corruption in New York. I believe we will win this one. But these people are really pure evil and nasty. Even the European film crew had their site attacked and it was shut down for over a week trying to stop people from seeing the film clip. They went on YouTube telling people they should not be watching the film trailer. YouTube, unlike Wikipedia, stood up for the freedom of speech and removed the comments as spam. They are desperate to protect New York. New York seems to constantly manipulate Wikipedia, removing the Great Bull Market listing claiming it was advertising for a book that is out of print for more than two decades. They changed the definition of contempt to justify what they did to me even though a subsequent Supreme Court decision came out stating you cannot deny counsel and throw people in prison without changes under the pretense of civil contempt (Turner v. Rogers, 79 USLW 4553 (June 20, 2011)). They fought like hell to remove all reference to the Economic Confidence Model on Wikipedia and retained it only after numerous readers started a campaign against Wikipedia which then removed all illustrations on claims it violated my copyright when I gave permission. So Wikipedia appears to be like mainstream press biased and pro-government and I believe it has become the internet version of Pravda. Is anyone from the major banks in New York ever prosecuted? The answer is no! The rule of law has meant nothing in the MF Global case. What happened to Corzine? This corruption is destroying the world economy and the refusal to clean up this mess is setting the stage for World War III because it will open up the US to be the great Satin just like the Carpet Baggers fleecing the world this time instead of the South. So unfortunately, our overseas conferences have been delayed until I can fight this out in court just to be able to speak freely. Whats next? Trying to shut down all publications? I have been doing this as a public service. So whats the excuse going to be this time?