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September
15
2017

Armstrong Logic?
Bill Hoter

I had not planned on penning a public article today but my plans were changed by Martin Armstrong as he again is busy attempting to rewrite history.  He is again trying to scare people away from their only financial hurricane insurance, gold …why?  Any thinking person knows a credit disaster is coming.  Heck, even he has called for a pending financial disaster himself…but gold is not a safe harbor “this time”?

As a reminder of past fallacy, Mr. Armstrong wrote back in September 2015 “…”You are doomed if you cling to the idea that gold will rise simply because stocks decline. Gold was DEVALUED in 1934 since gold was MONEY. What it could purchase for $20.67 then cost $35. (this line has since been deleted from his original article) The government confiscated gold and moved to a TWO-TIER monetary system with gold used exclusively for international settlements, not domestic.”  …Martin Armstrong

The fact is, gold was REVALUED 70% higher versus the dollar (and much more versus other assets) as what previously required $20.67 to purchase one ounce of gold moved to $35.  I said at the time, what he wrote could not have been a typo or a mistake, his logic was in reverse and he was trying to rewrite history.

Fast forward to present, he is at it again.  He recently posted   “Am I certain about the strong dollar?”  Let’s take a look at a few glaring “alterations” of history and poor logic according to Martin Armstrong.

His article starts out with “You can denominate oil to peanuts in some other currency but that still will never put a dent in the dollar. Why? It is capital flows than count and trade is minimal”.

Um not quite right Martin, and we will save this for the end as it’s the main broken bone to the writing.

He then attacks the Euro.  While I do not disagree with his premise that the Euro is flawed because it is a common currency but consists of members with different credit ratings and different interest rates.  I do disagree with his historical recollection.  Martin tells us “In general, Europeans are still trapped in World War II thinking that a stronger currency means economic boom.”  This is absolutely not so (please read “The rotten heart of Europe” by Bernard Connolly).  For years prior to the Euro commencing, nation after nation DEVALUED their currency in order to receive cost benefit for their produced and traded goods.  And besides, hasn’t Mario Draghi continually tried to talk the Euro down and devalue versus other world currencies?  World currencies have been in a race to the bottom, I am not sure what Armstrong is looking at here.

Then he goes on to say “the Chinese yuan will not replace the dollar until AFTER 2032”.  Has he not seen China for at least the last five years or more readying itself to do its business without using dollars?  Trade deals, credit facilities, bourses and clearing facilities all being erected to the EXCLUSION of dollars?  Does he not see the rest of the world distancing themselves from the U.S. and following very closely along with China?  Plus, with history as a guide, the $20 trillion current US debt will double twice to $80 trillion by 2032, will the U.S. even be financially viable by then (is it even viable now)?

He went full circle to what he started with and the most flawed of all; “Denominating oil in yuan or euro means nothing.  Where will you park your cash?”.

And then claims; “The ONLY time we get monetary reform is when the dollar RISES, not declines. Hey, if the dollar declines, then interest rates will continue to travel negative, gold will collapse, the stock market will implode, and Trump will emerge as the best president in history creating massive new American jobs exporting everything not just blue jeans, rock & roll, and US corrupt law. Emerging markets can keep borrowing dollars with no end, dumping commodities that are at excess supply, and everyone will be perpetually happy – the euro will be strong at last and magically the ECB can just keep European governments on life support without end.”

First, he is basically saying we will have economic nirvana with a weaker dollar and only at the expense of the stock market (and gold bulls of course).  A weak dollar sounds wonderful according to him, maybe even “the answer” to a failed system?  Unfortunately there is a thing called “history” which shows when a currency weakens or even collapses, stock markets, (gold), and assets in general skyrocket in that currency …just look at the results of Weimar, Zimbabwe or even Venezuela, their stock markets WENT UP in their own local currencies… not down.  If weak currencies (inflation) were such a good thing, why haven’t we already figured this one out and EVERYONE just print and devalue?  This has been tried over and over again throughout time and always ended up with the fiat currency being busted through over issuance.  “Printing” currency to devalue does not produce prosperity… if it did there would be no poverty anywhere on the planet.  This is historical fact, not opinion.

As for saying denominating oil in yuan, “means nothing”, can he really believe this?  According to Armstrong, “flow” is what is all important (I must agree), … and “trade is minimal”.  I beg to differ, TRADE is ALL IMPORTANT in today’s world and certainly affects capital flow very significantly “at the margin”.  If trade and settlement did not matter to the dollar, then why has the U.S. used its military for so long to enforce the petrodollar?  For that matter, why was the petrodollar scheme set up in the first place?  (It’s OK Martin, you know what happened on Aug. 15, 1971).  I bet Saddam and Mohamar might disagree with Armstrong’s take here if they were still living, what you actually settle oil (and other commodities) DOES MATTER because it affects “flow”, (and ultimately lives!).

I have a couple last questions.  How is it Martin that a weaker dollar will not bring forth “monetary reform”?  I understand your stronger dollar thesis where foreigners are financially blown up for borrowing in dollars that increase the difficulty in payoff and service of their debt.  But why would there need to be monetary reform if the reserve currency was acting like the reserve currency and remained a strong standard to be compared to and saved in?

How is it, a weaker (or significantly weaker) dollar cannot bring forth monetary reform?  What if the dollar is weaker because less people are using it …as they already are today?  What if the dollar is weaker because the Treasury/Federal Reserve balance sheets look like they are approaching junk bond status …and foreigners bail out of dollars …as they already are?  In reality, isn’t it the weak dollar itself (and poor financials of the issuer) that has prompted the rest of the world to seek a new reserve currency in the first place?  They are tired of seeing their “savings” in dollars depreciate AND don’t fancy playing the game of “never getting paid” …!

You see Martin, dollars only promise to pay more dollars and “settlement” is never really made.  With gold, because it is no one else’s liability, IS final settlement… (but you already know this of course).  This is just one more difference between a “currency” and “money” that you seem not to want the public to understand?  I am not sure why this is?  You used to be such a beacon of logic, what happened to it?  Where did it go?

One last question, what would John Edelson or Fred Manko say about your history?

Standing watch,

Bill Holter

Holter-Sinclair collaboration

Bill Holter writes and is partnered with Jim Sinclair at the newly formed Holter/Sinclair collaboration. Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a retail stockbroker for 23 years, including 12 as a branch manager at A.G. Edwards. He left Wall Street in late 2006 to avoid potential liabilities related to management of paper assets. In retirement he and his family moved to Costa Rica where he lived until 2011 when he moved back to the United States. Bill was a well-known contributor to the Gold Anti-Trust Action Committee (GATA) commentaries from 2007-present. You can reach Bill at: [email protected]. 

 

 

 

 

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