Thinking Outside the Box – Yes there is a Whole Lot More Than Meets the Eye

COMMENT: Mr. Armstrong, I just wanted to say your proposal is brilliant. I fear most people will not grasp what you put forth because they are confined in their world of ideas about money having some tangible value and inflation is related to the quantity of money rather than as you say, it is just confidence. In late 1986, Mexican sovereign debt was trading at fifty-seven cents on the dollar, and Mexico was taking an average redemption discount of eleven percent. Allowing three cents on the dollar for the fees of a trader to assemble the package of convertible debt, an investor would actually receive eighty-nine cents worth of pesos for every sixty cents spent- an increase in buying power of over forty-eight percent. It worked and saved the country from bloodshed. People who are unfamiliar with international finance will not understand what you have put forth. This is a spectacular proposal for if you follow it through to its conclusion, you saved the future for even Social Security will be transformed into a wealth fund. Brilliant.


REPLY: Yes. Very keen observation. Everything will flow from that implementation. The markets will respond in anticipation and capital will return. The wealth of a nation is the TOTAL PRODUCTIVE CAPACITY of its people. You must examine what is money. Even if you use gold, money is NOT the store of wealth, it is just the medium of exchange. But what does that really mean? It means that the real item of value in a transaction is the labor, idea, or service offered by one person to another. The object used as the medium of exchange has been many different things.

Saint Patrick in the 5th Century AD upon his arrival in Ireland, found that MONEY was expressed in human slave-girls. He wrote in his Confession, “I think that I have given away to them no less than the price of fifteen humans.” This passage shows something very important. First, MONEY is not defined as the Medium of Exchange exclusively. It also serves the purpose of a Unit of Account. In fact, this becomes the true function of MONEY even more so than what it is. MONEY is a language of value.

We think in the currency of our domicile. It is how we measure value in our head. It does not matter if we actually make a transaction in terms of MONEY. For example, when we travel to a different country, we then use the currency of that nation to buy and sell. We translate the price quotes in different currency back to the domestic currency of our domicile. If an American goes to Paris, he then converts the price of whatever back to dollars. He then makes his judgment based upon the currency conversion whether or not it is acceptable. Likewise, a Frenchman will do the same if he then travels to the United States. MONEY becomes a unit of account that is in fact a language in our head.

The function of MONEY is more than a MEDIUM OF EXCHANGE. It is a language we create in our mind that then also provides the concept of a UNIT OF ACCOUNT. Saint Patrick states he has given objects worth 15 humans. He does not state he had a cage full of slave-girls to handout. One did not literally go grocery shopping dragging a cage of slave-girls with them. They were the UNIT OF ACCOUNT like a ruler by which wealth (value) is measured in an exchange of two objects.

The wealth of a nation is therefore not MONEY but the TOTAL PRODUCTIVITY of its people. What we use to exchange that labor, service, or object between two people is irrelevant provided it is acceptable to both parties.

Therefore, once we grasp that money is now purely REPRESENTATIVE and not confirmed to a object, then we are set free from a barter system and taking that step TAXES are no longer required at the federal level.

An increase in money supply and inflation are not directly linked on a one-to-one basis. The key is CONFIDENCE. Japan has monetized its debt for 23 years and the central bank owns 70% of the debt. That did not offset the contraction because people lost CONFIDENCE in the economy. We have seen QE1-3 fail to create inflation and gold declined because people did not respond. Retail participation in the stock market is at historic lows. There is a missing element and that is CONFIDENCE. We still need to cap the growth of money respecting that we need fiscal restraint from government to maintain CONFIDENCE.

If we eliminate taxes and do a debt-equity swap to private assets, yes social security will be saved automatically, the 70% we spent on interest goes to now social programs for the needy who really do not get it, and we stop borrowing from the poor. The “rich” get rich not from wages, but from INVESTMENT. That is what Obama wants to raise even more taxes on capital gains. Let the people invest and then we will raise the living standards for the whole. Let them participate in the economic growth rather than being subjugated by taxes.


We will not require payroll taxes. The average household will have more disposable income to support their family and invest in the future.

We are wiping out pension funds and the elderly now because we lower interest rates to bailout bankers, and then we see that this also reduces the deficit by cheating the public out of interest income. If we just take these first steps, everything will change dramatically.

We have to start the debate by just once thinking outside the box.

Debt-Equity Swaps


Debt-equity swaps were used in the former Soviet satellites in Eastern Europe. This was the chief method of making the transition from communism to capitalism. Poland implemented an extensive privatization program back in 1990 and had privatized half of all state-owned enterprises by the end of 1994. Indeed, debt-equity swaps were introduced into the Polish process in 1994, primarily for use by Polish banks in converting their non-performing loans into equity stakes in the debtor companies. Nevertheless, foreign debt was not eligible for use in these Polish debt-equity swaps, although there were suggestions in 1995 and 1996 that external foreign debt should be.

Other Eastern European countries, such as Croatia, the Czech Republic, and Hungary, have used debt-equity swaps to enable banks to exchange debt for equity in highly indebted local companies so that the local banks become shareholders in the companies. Bulgaria  has likewise made extensive use of debt-equity  conversions, primarily of external debt in the form of Brady bonds.

The debt-equity swap that we are proposing would be open to both domestic and foreign holders of debt through a series of tranches being swapped into coupons that could then be used to invest in domestic private shares, not the privatization of inefficient state run entities.

The coupons would then be free to trade on the open market. Foreign investors could sell them at current market prices to whomever wanted to invest domestically in shares. The central bank would then return to its original design free from being compelled to buy exclusively government bonds. Stimulation would be direct rather than indirect whereby they would buy corporate paper during times of recession that would soften the hard-landing and reduce swings in unemployment. Currently, relying on the banks to lend defeats the purpose of stimulation for they lack the confidence to lend and will stockpile cash during economic declines.

There are more layers to this proposal than meet the eye at first glance. It would be a step in reclaiming the free markets and bringing a final end to the Marxist era of state manipulation.

Solution Conference



I would like to thank everyone for participating. This event may have been the largest financial conference in history with more than 5,000 attending from 47 countries. If everyone watched bringing just one friend, then we probably exceeded 10,000. The whole purpose of this event was to start the ball rolling with a discussion of reform.

The recording will be up now for 2 weeks for people to watch through the PEI site.



We have no choice in this matter, Either we default by deflation or by inflation in which case we end up with massive civil unrest and the risk of REVOLUTION or a major INTERNATIONAL WAR.



The Solution as presented is by no means a Solution for all out problems. There are huge problems with regulation, unfunded liabilities, etc.. We cannot address all of these concerns from the outset. We have to start the ball rolling. Get the process started, and the rest will take shape in the course of time and circumstance.

Eliminating Taxation, Privatizing the Debt, ending Federal Borrowing, and eliminating political contributions so elections are funded by government are all plausible. The eventual debatable reform is capping the size of government.

The main objective is start thinking out of the box. If we can just start here, then reforms thereafter will become possible.Creative-Destruction

We are in a Schumpeter Wave of Creative Destruction. This is what we face on the other side of 2015.75. There is little hope of coming out of this as a society without change of some sort. Our problem is we constantly turn to the same solutions and repeat the cycle endlessly.


CAPITALISM Capitalism is the FREEDOM to decide your own fate. Socialism/Communism is when government makes those decisions for you. We are in a battle between Capitalism v Authoritarianism and this is not a world we really want to leave our posterity. So is the Solution presented the cure for everything? Of course not. It is a palatable solution to start the process moving.



Where we cap the size of government will be the hot question. Moving forward with additional reforms like term-limits may be possible since the older generation is gradually dying out. This will remain works in progress.

We have to begin somewhere and this is just the start. The object of this exercise is to start the debate. I have already discussed the basics with people in government around the world. The 50 shades of grey are centered on what portion of GDP do we cap government. Get this first round of reform in place and change will sweep through faster than you may suspect.

How do we begin? It needs to be with any government, Greece, Italy, Spain, where the economic pressure is already felt by the people. The United States is not ready yet. We have to wait until the other side of 2015.75.

I will be doing a tour of Europe for 6 weeks going everywhere from Poland and France to Netherlands down to Spain. I have been invited to speak at three Universities. So the ball is rolling. We now need more team-players to help it this over the goal line. We start to fight back and reclaim our FREEDOM, or we will be suppressed to the point all will be lost.

If we can change these elements, FATCA will vanish, the NSA no longer needs to track our money, and you can have cash in your pocket once again. In Britain, they too are confiscating cash even if you have receipts just as they do in the States and France. CASH has become the target of police everywhere and this is all because government is broke. There will be no FREEDOM or LIBERTY left in just a few years. It is time to act before you need to give a DNA sample to get on a train, bus, or plane.

COMPLEXITY – Key to Reality


COMMENT: Marty, you called for a pop in the Euro and I then see a slight pop in gold and decline in the Dow. Everything really is connected. Thank you so much for opening my eyes.

REPLY: Yes. You are seeing the world for what it really is. Everything is connected and nothing moves in isolation. That is why I argue you cannot systemically manipulate just one market perpetually that is counter-trend to everything else. It is just absurd.


Democrat Claims Global Warming Will Turn Women into Prostitutes


You really could not make this up for nobody would believe such an argument. But California Democrat Barbara Lee this week introduced  a resolution in the House of Representatives which amazingly claims women will eventually be forced into prostitution in order to obtain life-sustaining food and water for their families because of Global Warming. So why does she fly or drive a car? She should walk barefoot from California to Washington. When she gets there, then immediately turn around. By the time she gets back, her two years will be finished and look how many trees she will save from all the wasted paper for this type of legislation.