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 just denial of free speech.
Here is a monthly chart of the US 30-year Treasury bond and the pattern is very clear. The flight-to-quality 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, socialists taking control of the battlements, inflation appearing likely, yet gold retreats. Phase ONE of a Sovereign Debt Crisis is international capital flight-to-quality 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 or 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 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.
My favorite quote from a Sovereign Debt Crisis of 1931 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 cascading like dominos. 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 breaking out to the upside for the final rally as Europe stumbles to its knees. Only after they are done with everyone else, then capital will turn and look at the USA. When that SECOND phase began in 1931, we see the dollar then crashed and burned.
Greece will be forced to leave for staying under the terms of Germany will bring civil war. 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. There has to be balance between austerity and stimulation. It is like heat and cold. Both extremes will kill you. We survive in the middle..
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 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 nonsense for MONEY can be anything. Dollars in ’31 were redeemable in gold – they were NOT gold!
Public v 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. It was introducing massive leverage. 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 51.6-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 gold coin and certificates 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 gold. This trend further shrunk the available money supply reducing the velocity of money circulation decreasing economic growth. This contributed to over 3,000 bank failures as deposits vanished 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 that nationalized gold to end the flight-to-quality.
“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 BIG 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. We are rushing to get the forecasting service up ASAP.
It now 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. The Bureaucracy is desperate to protect New York. The New York boys seem to constantly manipulate Wikipedia, removing the Greatest 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 on Wikipedia 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, 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. What’s next? Trying to shut down all publications? I have been doing this as a public service. So what’s the excuse going to be this time? And we live in a free country? Right!
The response to the offering of Roman Coins was simply overwhelming. So many people have written asking how they can buy Roman Coins and others realizing these are from the 3rd Century have asked are there examples available documenting the collapse of the monetary system? I have contacted some old friends with respect to making available a selection of Roman coins of this 3rd Century period for those interested in owning a piece of real live history and/or demonstrating the Monetary Crisis that led to the fall of Rome from a hoard of Roman coins.
Because of the turmoil of the 3rd Century and precisely the dangers we face today as government goes after citizens hunting down their wealth to confiscate to sustain their existence, what happens is they cause capital to hoard reducing the VELOCITY of money. Hoards of Roman coins of earlier chaotic periods exist, although much fewer in number. Consequently, the earlier coins tend to be much rarer. As shown above, here are two gold coins from the Post-Caesarian Civil War period (44-42BC) that followed the assassination of Julius Caesar. In the case of Brutus, a non-portrait silver denarius would bring generally $2,000-$5,000 where a silver EID MAR (bragging he killed Caesar) would be $25,000-$100,000. There are only two gold EID MAR (Ides of March) coins and these today would bring more than $1 million. The gold Ahenobarbus (supporter of Brutus) would bring well over $50,000 today.
Hoards of the 3rd Century are far more common. Pots with up to 50,000 coins have been discovered, but of course the condition is often well corroded making such coins worth perhaps $10 simply because they are a relic of the past and a piece of history. Silver and gold coins endure through the ages much better than bronze. Thus, condition of coins during the 3rd century does help to reduce the supply of decent well preserved coins in proportion to the bulk that are found over time.
Consequently, those asking the question: Is it possible to obtain coins showing the drastic collapse in silver content 0/ the 3rd Century? This collapse took place during the reign following Valerian I (253-260AD) who was captured by the Parthians (Persians) and stuffed as a wild animal trophy upon his death. His son, Gallienus (253-268AD) made no effort to rescue his father and the economic collapse thereafter is easily seen in the coinage. So the answer is yes! I have made arrangements for those seeking such an example of the Monetary Crisis of the 3rd Century.
This is an accommodation - not a business
In this particular hoard, the earliest coins were those of Valerian I (253-260AD). These appear to be silver coins, albeit the silver content is slightly below 50%. Valerian was captured by the Parthians of Iran and thus his joint reign with his son Gallienus (253-268AD) came to an end. Therefore, these coins were minted between 253-260AD. This suggests that the person burying this hoard began to cull the coins in circulation as the monetary system began to collapse. Additional silver coins of this period exist in this hoard as Salonina, the wife of Gallienus. These also are from the same period of 253-260AD.
The last coins found in this hoard take us up to Diocletan (284-305AD) and his joint ruler Maximianus (285-305AD). Since the monetary reform of Diocletian took place in 295AD and the coins included within this hoard were pre-reform, this suggests that this hoard was assembled covering the period of 253-295AD or 42 years. It was discovered in England and thus includes coins struck by Postumus (259-268AD), which were once again a restoration of silver. For you see, in 259AD because of the monetary crisis brewing, there was a division of Europe. The Gallic Empire was born and thus France, England, and Spain separated from Rome and were not reunited until 273AD. Therefore, the Gallic Empire lasted officially about 14 years while the full duration was 15.7 years (1/2 the Pi Cycle) from the rebellion reflecting similar to the breakup of the USSR.
Pictured here are the debased coins of Gallienus. Most of these once silver coins are not merely reduced in weight, but are struck in bronze and are generally of a very poor quality with respect to workmanship, style, weight, and regularity. Precisely as the USA and all countries did in 1965, the Romans also removed silver from the coinage, but in modern times we replaced it with a white meal (nickel) to give the appearance of silver. The Romans pulled a similar trick. They issued the coins in bronze, and then silver plated them to make them appear to be silver. Such coins that survive with the silver plating intact are naturally much more difficult to find. The silver plating wore off quickly, and any hoard coins that are cleaned that had the silver still present, end up removing the silver to get rid of the corrosion. Pictured to left, are four coins with much of the silver plating intact, but as often the case, they are badly corroded. Bronze does not survive well in the ground. Consequently, finding acceptable specimens with the silver intact is very difficult.
The question has long been, just how did the Romans silver plate the coinage without electricity? These ancient metals craftsmen working in the Roman mints at that time had discovered how to apply a complex principle of chemistry involving oxidation and reduction to achieve silver plating. This process would not truly be entirely understood by scientists until the 19th century.
The ancients probably learned the technique by observing special rare cases of naturally occurring processes. Throughout history, we find plated coins were often produced. The process seems to be discovered by counterfeiters. The earliest official use of the trick dates back to the Peloponnesian War where Sparta defeated Athens in 404BC. Illustrated here is a silver tetradrachm on the left and the official issue toward the end of the war as Athens was running out of silver and resorted to plating bronze coinage. Again the issues are very crude and rare with the silver plating intact.
Pictured above, are genuine coins of the Emperor Claudius (51-54AD) that are ancient counterfeits but officially produced by the mint. These are bronze coins produced from the official dies, yet are silver plated. This demonstrates that the bureaucracy always has had its own agenda. These coins stand as evidence of how government workers were scamming the process of producing money. These “Fouree Denarii” are extremely rare and will bring much more than a genuine silver denarius. These coins stand as witness to the fact that the ancients knew how to plate bronze coinage for hundreds of years.
During the early days of the Roman Republic pre-27BC, “Fouree Denarii” were produced by covering copper blanks with a sheet of silver on both sides and heating to weld the metals together. Alternatively, heated copper could be quickly dipped into molten silver accomplishing the plating appearance. Both of these processes required a considerable amount of labor to produce coins reducing the incentive to create such counterfeits. These official ancient forgeries are known by their French term – “Fouree”.
The method of plating that was used during the 3rd and 4th Centuries was substantially different. The Roman moneyers had discovered that copper could be etched away by certain acids and corrosive salts that will leave silver untouched. A coin blank was made in the regular way of alloying two metals containing about 5% silver, sometimes even less, with the majority being copper. The blank was then dipped in a “pickle” type solution of corrosive salts and acid. The process could be repeated heating the planchets again followed by another dip to speed up the process. The copper was dissolved out, leaving a microscopically thin layer of sponge-like pure silver that now covered the surface of the blank. When the planchets were then struck with the dies, the sponge-like silver was flattened down and spread across the surface of the coin, creating a stunning, brilliant silvery finish on the coin. This silver plating soon wore off in circulation leaving a bronze coin.
Absent from this immediate English hoard are coins of Macrianus (260-261AD) and his son Quietus. These were Eastern usurpers declared emperor by the troops following the capture of Valerian. The absence of these coins illustrates that much of the circulating money supply in the West tended to be local. Also absent are coins of Regallianus (260AD) a brief usurper in the Balkans.
The economic decline that caused the disintegration of the Soviet Union due to fiscal mismanagement and excessive control of the people as the United States is now adopting where everyone is a terrorist, can be seen as history repeating. The economic decline of the 3rd Century brought more than just the rise in Christianity as people prayed to their gods and nothing happened. As illustrated here, the Roman Empire split at first into two parts with the Gallic Empire breaking away including England, France and Spain. Then less than a decade later no doubt encouraged by the fact that the Gallic Empire was able to sustain itself and Rome could not take it by force, we find in the East at Palmyra there was hope that they too could separate into a new empire free of Rome. Economic declines open the door to political changes on a grand scale. Those who fail to understand
that the more aggressive the United States becomes with its taxation, the greater the possibility that the nation will split also along religious ideals is historical precedent.
The Gallic usurper Postumus (259-268AD) took Britain, France, and Spain up to the Rhine River and carved out a new Empire. Here the coins are silver once again and Postumus portrays himself as the great restorer of the economy. There are small quantities of his successors’ coins found in this hoard.
Gallienus’ immediate successor after his assassination was Claudius II Gothicus (268-270AD). His coinage is generally of the same poor quality as that of Gallienus at the end of his reign. The coins are poorly struck, bronze and silver plated, which quickly wore off. Claudius was given the title “Gothicus” for defeating the Gothic barbarian tribes. Claudius was most likely part of the conspiracy against Gallienus along with Aurelian. The Goths brought with them a plague and thus Claudius died of the disease just shy of two years of a reign.
Claudius was succeeded by his co-conspirator against Gallienus – Aurelian (270-275AD). Aurelian was the great restorer. He is the one who built the wall that still surrounds Rome today. He constructed that due to the swarm of barbarian invasions. His coinage reflects the first monetary reform that provides the bounce coming out of the low on our chart. The workmanship is greatly improved, and the coins take on a general uniform look. They are marked “XXI” or “KA” and this states that the coins, although are still bronze, now contain 1/20th part silver. This reflects the official acknowledgment of this chemical process to create silver plated bronze coins. Now there is no return to silver coinage, just a claim that a tiny portion of the coinage is now silver mixed in with the bronze.
Aurelian’s reform is clearly extensive. The increases both the size and the weight ofthe antoniniani as they now took on a more uniform appearance. Aurelian officially adopted the silver plating process and increased the size and weight of the gold coins from 5.5 g to 6.5 g. He made no attempt however to reintroduce any silver coinage. Additionally, he made an extensive production of coins bearing his wife’s portrait Severina. These coins however are approximately 3 times as common as those of his wife.
Aurelian is assassinated because of his reforms. The internal bureaucrats, corrupt as we see they are today, plot against him to prevent him from cleaning house so to speak. So we see clear parallels – (1) Rome splits because of the monetary crisis just as did the USSR, and (2) the bureaucrats were running government (BACKROOM DICTATORSHIP). Because it was the bureaucrats who killed Aurelian rather than a general, we have a brief period of the Interregnum where the Senate issued two bronze coins without the image of an emperor.
After the death of the Aurelian, the troops of the Balkans wanted to disassociate themselves from the assassins in the bureaucracy. They petitioned the Senate to nominate the new ruler. This was highly unusual since normally he would have been overthrown a general. In this case, it was a corruption of the bureaucracy that took down a Aurelian. The Senate nominated Tacitus (275-276AD) who was an elderly senator claiming descent from the famous historian of the same name. Tacitus was 75 years old. He joined the troops in Thrace to defeat the Gothic invasion. The traveling prove to be burdensome and Tacitus died in April of 276AD.
Following the death of Tacitus’s half-brother Florrianus (276AD) claimed the throne. His rule was recognized by the Senate and most of the Western provinces. However, the Eastern armies proclaimed Probus to be emperor and thus the two were locked into confrontation. These armies met at Tarsus. However, before battle took place, Florianus was murdered by his own troops after a reign of only two months.
Probus (276-282AD) was a highly competent emperor for he was not merely experienced as a general but he also attempted to restore the economic livelihood of the Empire. To some extent Probus represented a time where the prestige of Rome had declined greatly due to the barbarian invasions. Probus was to some degree very much like Ronald Reagan insofar as he sought to restore the “prestige” of the Roman Empire much as Reagan came at a point in time where the United States had been humiliated by Iran.
The interesting aspect of the assassination of Probus 282AD is that he was murdered because of his attempts to reform the bureaucracy. In this particular case Probus was murdered by mutinous troops who objected to being used for public works. We must keep in mind that the military received a full pension after 20 years of service similar to the current situation with government employees of modern-day. Having such a huge paid force who were entitled to pensions, Probus attempted to achieve some economic gain by having the military construct public works.
Even during the Great Depression of the ‘30s the Empire State building in New York City was constructed and gave the much needed boost to the morale of the population. In this same context we find Probus was attempting to restore the confidence of the people through also establishing public works. It was the corruption of the bureaucracy that had not merely killed Aurelian but now rose up also against Probus. There were two usurpers during this period time approximately during the year 280AD. The first was a general Saturninus (280 AD) located in Egypt (the rarest of all Roman coins). Not much is known of Saturninus and only two coins exist one being located at the Louvre in Paris. The second usurper was in Britain by the name Bonosus (280AD). His coins tend to be very crude and extremely rare. Neither of these coins existed in this hoard.
The Praetorian Prefect Carus (282-283AD) was duty bound to protect Probus. Upon his assassination the troops haled Carus to be emperor who raised his two sons to the rank of Caesar – Carinus this and Numerian. Carus set out on a campaign against the Persians who he defeated. However, he was struck by lightning in his camp at the Persian capital in late 283AD. Carus perhaps one month before his death raised his two sons to the rank of Augustus meaning co-emperors. Numerian was with his father in Persia and after his victory against the Parthians, he led the troops back to Europe when he was discovered murdered in his litter. The Commander of the Imperial bodyguard was Diocletian who immediately accused the Praetorian Prefect and had him executed without trial. It is quite possible that Diocletian may have had a hand in the death of Numerian. So once again we have a very short-lived emperor
With Carinus (283-285AD) we still see the Aurelian standard reformed coinage1/20th part silver with the silver plating. When his father and brother set out for Persia, Carinus remained in Rome. In the Balkans a new usurper appeared known as Julian of Pannonia (284-285AD) (whose coins are absent from the hoard). Carinus confronted him near Verona and slew him in battle. He now had to face Diocletian who is was hailed by the troops in the East as Emperor and was marching against Carinus who actually defeated Diocletian in battle yet was nonetheless murdered by his own troops leaving Diocletian as the new Emperor of the Roman Empire.
It was now Diocletian (284-305AD) who came to the throne with new ideas about how to turn the economy around and strengthen the borders of the Roman Empire. It was during the year 295AD or 296AD that Diocletian began his monetary reforms. He introduced a new silver coin that was equal to five bronze folles that was also a new coin equal to 2 1/2 bronze antoniniani. The follis adopted the Aurelian reform insofar as its fabric consisted of one part silver to 20 parts copper. The post reform antoniniani became pure copper abandoning the one part silver denoted by the marking “XXI” that now appeared on the follis.
Diocletian realized that the Empire was too big for one man to manage alone. Part of his political reforms included dividing the Empire between East and West with two emperors and he selected Maximianus (286-305AD). There were also two Caesars who were the heir apparent forming the Tetriachy. Diocletian became the first emperor to retire. While the empire was actually divided between east and west, it would be Constantine I The Great who would move the capital to the east creating Constantinople (modern Istanbul).
The quality of these coins is virtually Extremely Fine without corrosion. All names are legible. These are the selected quality from the hoard and and are not the typical low grade junk often sold. This provides a good sampling of this period (minus the extreme rarities) that have survived thanks to the tremendous economic upheavals of the times that led people to burry their wealth.
Set of 15 average coins of the above non-corroded, VF condition all readable $595
Set of 16 with (2) Gallienus(Silver/Bronze) EF Top Grade all readable $2450.00