A reader from London just send this in. Another reader submitted:
I was reading online about what many regard as the greatest Chinese dynasty – the Tang Dynasty.
Anyway, the following is written about what occurred during this dynasty’s decline:
“The prominent status of Buddhism in Chinese culture began to decline as the dynasty and central government declined as well during the late 8th century to 9th century. Buddhist convents and temples that were exempt from state taxes beforehand were targeted by the state for taxation.”
This seems to highlight precisely what you keep saying… human history is a repetition of the same play, just with different actors.
When governments are broke they hunt everything and religion also becomes the target. I have mentioned how Constantine used Christianity to confiscate the wealth of the pagan temples. However, Napoleon confiscated the property of the Catholic Church (Papal States, imprisoned priests and engaged in torture. Henry VIII confiscated the property of the Catholic Church and created his own Church of England. All of this had to do with MONEY.
Government will not go quietly into the light. They will rage against any reform whatsoever. This is not going to end nicely. They are on a collision course to destroy civilization as we know it. This is the eternal battled – PUBLIC v PRIVATE. It always unfolds because government keeps consuming larger and larger portions of the productive capacity of the people (GDP) until it kills the economy. Detroit collapsed because pensions exceed 50% of the budget.
COMMENT: Martin, after reading your rather long post today entitled the paradox of inflation deflation, I found myself understanding it without having to read and re read it a number of times as I have in the past, its all coming together, thank you very much for the education that you provide to all including this little guy, looking forward to viewing the latest dvd you are offering that my son will order. By the way, I really don’t think that your statement about this blog not being for the fainthearted is complete without saying that it is also for realists, for only a realist will keep his head up and not hide it in the sand.
REPLY: A lot of emails have poured in expressing that this piece has turned on the light. Some still cannot see beyond the length of their nose and interpreted as Roman hoard “real” money gold or silver. I do not know how to make this more clear. They imitated gold and silver coins of Rome and even made them heavier than the Romans. If GOLD was the “money” then why are imitations heavier? It was the CONFIDENCE in the Roman currency just as there is CONFIDENCE in the US dollar compared to everything else.
Money began as food and became standardized as cattle. The Minoans helped to create the Bronze Age and money became ingots of bronze BECAUSE it was usable. Bronze was THE international currency – not GOLD. China issued bronze coinage never gold or silver until the 19th century. The coinage did not reflect a metal content so it was classic fiat.
Money has been sea shells for the same reason it was gold – they were desirable. People likely their shape and design and found them attractive. Gold became desirable because at first only kings were allowed to have it. As gold became more common, then the aristocrats adored it. Finally, gold became prevalent and the common made wanted it. But gold never had a practical use. It was desirable – but that was it.
What became the “reserve currency” was ALWAYS linked to the biggest economy. Today, 29% of households in the USA are hoarding cash outside the banks. It does not pay to deposit cash and receive nothing. Some banks not charge fees to accept cash from small business. They are trying to drive cash out of the system.
We are moving to electronic. Gold will rise when the CONFIDENCE shifts out of governments. Consumer Confidence in the USA reached a record high in January. This is typical moving into an 8.6 year high.
The sooner you look upon the world as a free flow of capital rather than everything viewed only from the gold portal, the sooner you will be able to survive. You have to go with the flow. Gold will have its day – just not yet. We elected a Weekly and Monthly Bearish Reversal in gold yesterday. Beware of the dollar rally.
One question that I answered would the Fed have been better off giving the money to the people rather than the bankers, the answer is no. The key to inflation and deflation is by no means the quantity of money. This is really a wrong theory that when tested does not hold up. The trend depends entirely upon the CONFIDENCE of the people.
Had the Fed just handed the money in the middle of crisis, any assumption that those on the receiving end will just run out and spend it is rather naive. Perhaps a teenager who has yet to experience the risks of life. However, most people will save it – not spend it. They will spend ONLY when they FEEL the economy is turning. This is why NEGATIVE interest rates will not work. NEGATIVE interest rates and next to nothing interest rates causes people to hoard and save.
The Fed’s QE has failed entirely. After nearly six years of a zero interest rate policy and as the Fed has pushed its balance sheet to nearly $4.5 trillion with no impact of inflation. This classic failure has unfolded for three primary reasons:
(1) Dollars are being absorbed internationally as emerging markets have issued $6 trillion in debt denominated in dollars.
(2) Banks have hoarded cash and lending has not followed. They pay nothing for deposits yet want 4% for secured loans. The margin is at historic highs. Banks have put away close to $2.8 trillion in reserves.
(3) Overlooked, is now about 29% of American households are now hoarding CASH (not gold). This is what the goldbugs do not get. The majority of the average people do NOT see gold as money or even savings. MONEY to them is dollars. When a goldbug yells buy gold because it will rise, they express that reasoning still in dollars. Households are sitting on $2.15 trillion in savings—about a 50 percent increase over the past five years.
Had the Fed just handed money to people would not have worked for the majority would have hoarded it as a cushion anyway as they are now doing. It is all about CONFIDENCE. The trading slogan is buy the rumor sell the news. Why? We all act in anticipation of events whether or not they are real or ever take place. That does not matter. All that matters is what people BELIEF = CONFIDENCE.
QUESTION: Dr. Armstrong,
I know you don’t have that title but doctor means teacher so it is appropriate. I attended your conferences last year and am looking forward to October. My question may not be politically correct. Do you have any evidence during the collapse of the Roman Empire of the equivalent of our affirmative action? Did some ethnic groups receive favorable treatment by the government?
ANSWER: There was no exceptions for groups or genders. However, there was a tax exempt status that applied to those who ONLY lived in Rome itself. This contributed greatly to making Rome the largest city in history until it was surpassed during the late 1800s finally by London during the Victoria era. The tax-free status of Rome proper was a decree in Republican times after the second Punic War. They brought back so much wealth, taxes were no longer necessary. Can’t imagine politicians doing that today.
Interesting seeing your comment on Government taxes on flights on Jan 29th. I thought you might like to see my British Airways ticket below. I have booked a return flight from London Heathrow to Krakow in Poland for a cost of only £84.60 for the 868 mile flight.
What is truly incredulous is that the return flight is costing a mere £12.99 and Government taxes are £71.61 or 85% of the ticket price!!!!
REPLY: The taxes on travel are unbelievable. But it get worse. A ticket to Florida is about $200. Try to change that ticket and they have a $200 fee. Don’t show up for a flight and they say it is non-refundable. But if 50% of the ticket is composed of taxes, the airlines sell the seat again and appear to be pocketing the taxes. Congress is trying to hide from the people what they are gouging people in taxes promote consumer fraud. If we sold a report for $1,000 and $500 of that is a tax, you cancel the report do we just refund the $500 or the tax that you paid on something you did not use?
QUESTION: Mr. Armstrong, it was fantastic to listen to you tonight in Vancouver. You really helped me understand these movements. So $5,000 gold is not $5,000 as we know it today. Everything is relative. Gold cannot rise just yet until the dollar finishes rising blowing the world up. As a Canadian, I made a lot on my US investments as the loonie collapsed but to an American, he just lost the last few years worth of profits in Canada because of the US dollar rise. You are amazing and it is shocking how the media doesn’t highlight your success. They do not want to confront reality themselves. If I got this correctly, your targets are nominal not adjusted for inflation. Obviously, these investment promoters do not have a clue about what they are even forecasting. Did I get this correctly tonight?
Can’t wait for tomorrow.
ANSWER: Yes. Any target is nominal. The rise in gold or anything is against the purchasing power changes as well. It is all connected. Saying gold will reach $50,000 is meaningless for the mind equates that to today rather than never-never-land. There is an old joke. A guy is seriously ill so he has himself frozen until they find a cure. He hands all his wealth to a stock brokerage firm. When he wakes up after being cured 50 years later, he runs to the pay-phone and calls the firm. His original investment of $1 million he is told is now $100 million. Then the operator comes to the phone and says please deposit $1 million for the next 3 minutes.
When the Roman Empire collapsed during the reign of Gallienus (253-268AD), for the next two waves of the Economic Confidence Model (17.2 years) Rome remained in chaos. Then a general fought his way to power – Diocletian (284-305AD). During this period, inflation soared. Money really became in kind and the purchasing power of the debased coinage collapsed with the lack of confidence in government. This became akin to the crisis in Germany during the 1920s. People simply did not really accept the debased Roman coinage.
It was Diocletian who instituted wage and price controls and issued an edict on restraining prices. First you have the massive DEFLATION and then government is forced to debase the money supply that finally reverses the economy sending it into a INFLATIONARY spiral.
The second phase is when gold will rise. But you first have the DEFLATION that reduces tax revenues and then you have the INFLATION set in motion by rising costs. What is interesting is passports were invented by Diocletian. WHY? For the same reason we see FACTA and Civil Forfeitures. You could not travel leaving your town until you paid your taxes. Hence – papers please! Except in those days they were metal. The USA has passed the very same law if you owe more than $50,000 to the IRS they will revoke your passport until you pay-up.
Government will hunt down money. This is why history repeats because humans will respond to the same set of circumstances in a predictable manner. Just follow history and you will see the answer. So yes – eventually we will see the shift from PUBLIC to PRIVATE and that is the inflationary cycle. That does not arrive until AFTER we start BIG BANG.