Complex Systems, Dysfunctional Industries, and Catastrophic Collapse

From Dollar Collapse, JANUARY 8, 2012

by JOHN RUBINO 

(Excerpt): ...But this time I had James Rickards’ new book Currency Wars on my Kindle (a device from customer-friendly Amazon that makes my life simpler and easier), and while waiting for a flight I came across this:

The third principal is that complex systems run on exponentially greater amounts of energy. This energy can take many forms, but the point is that when you increase the system scale by a factor of ten, you increase the energy requirements by a factor of a thousand, and so on. The fourth principal is that complex systems are prone to catastrophic collapse. The third and fourth principals are related. When the system reaches a certain scale, the energy inputs dry up because the exponential relationship between scale and inputs exhausts the available resources. In a nutshell, complex systems arise spontaneously, behave unpredictably, exhaust resources and collapse catastrophically.

That’s a pretty good framework for understanding these huge, complex, mostly dysfunctional industries. They’ve spent decades consolidating and concentrating and now have to generate sales on pretty much any terms, no matter how questionable, in order to avoid death by complexity. The customer takes a back seat to the desperate institutional need to survive and the product gets crappier and crappier until the production/delivery system breaks down.

The same dynamic is at work in the global financial system, says Rickards. In the US, a dollar of new debt produced nearly that much in new GDP in the 1960s. But today the return on new debt is negative. From here on, we can borrow as much as we want and the only result will be more debt. Wealth won’t increase at all. But we can’t stop; as with any other Ponzi scheme, the choice is more debt or instant bankruptcy.

This stage is generally followed by catastrophic failure, with the only question being what else the financial system takes down with it. As Rickards puts it:

A considerable challenge arises when one considers the interaction of human behavior and market dynamics. The complexity of human nature sits like a turbocharger on top of the complexity of markets. Human nature, markets and civilization more broadly are all complex systems nested inside one another like so many Russian matryoshka dolls….When you apply this paradigm to finance, you begin to see where the currency wars are headed.

Greece Spends Bailout Cash On European Military Purchases

From Zero hedge, By Tyler Durden

As Greek standards of living nose-dive, loans to households and businesses shrink still further, and Troika-imposed PSI discussions continue, there is one segment of the country's infrastructure that is holding up well. In a story on Zeit Online, the details of the multi-billion Euro new arms contracts are exposed as the European reach-around would be complete with IMF (US) and Europe-provided Greek bailout cash doing a full-circle into American Apache helicopters, French frigates, and German U-Boats. As the unnamed source in the article notes: "If Greece gets paid in March the next tranche of funding (€ 80 billion is expected), there is a real opportunity to conclude new arms contracts." With the country's doctors only treating emergencies, bus drivers on strike, and a dire lack of school textbooks and the country teetering on the brink of Drachmatization, perhaps our previous concerns over military coups was not so far-fetched as after the Portuguese (another obviously stressed nation), the Greeks are the largest buyers of German war weapons.  It seems debt crisis talks perhaps had more quid pro quo than many expected as Euro Fighter commitments were also discussed and Greek foreign minister Droutsas points out:"Whether we like it or not, Greece is obliged to have a strong military".

From Zeit Online: Fine Weapons For Athens (Via Google Translate)

Frigates, tanks and submarines: A Greek military passes any savings package. And Germany benefited.

The Gift of the Greek Ministry of Defense has the man in the head: up to 60 fighter aircraft fighter for maybe € 3.9 billion euros. French frigates for about four billion, patrol boats worth 400 million euros, as much is the necessary modernization of the existing Greek fleet. Then it still lacks of ammunition for the Leopard tank , also would have two American Apache helicopters will be replaced. Oh, and one would like to buy German U-boats, total price: two billion euros.

What the man who goes in and out of Greece's Defence Ministry, in an Athens cafe is because of the sounds absurd. A State which is on the verge of bankruptcy and is supported by billions of the European Union wants to buy tons of weapons? The man in the café is often seen in photos next to the generals of the Army or Defense, he phoned often with these people, so he knows his way around. He knows how sensitive the issue, and would therefore - like most other party - are not named in the newspaper. He even holds for arms purchases currently not communicable. But could soon change that, he says: "If Greece get paid in March the next tranche of funding of € 80 billion is expected, there is a real opportunity to conclude new arms contracts."

If only one billion staying left, so the man could be, for example, the first Euro Fighter frigates or a binding order.

Really incredible: This spring, decides whether Greece survives in the euro area or the drachma back . On the morning of the internals in the café are freely divulged, physicians treat in Athens hospitals only in emergencies, bus drivers on strike, are still missing textbooks in schools and thousands demonstrate against state officials announced their dismissal. Greece's government announced a new savings program that barely spared a Greek.

Unless he works for the military or the armaments industry . On these two areas is in fact still almost passed without any austerity.

...

Under Greece's EU partners, there are few who speak out publicly in favor, stop the project immediately and Greek armor for a long time. One is Daniel Cohn-Bendit, leader of the Greens in the European Parliament: "From the outside, access to EU countries in practically all the rights of Greece. Nurses will cut the wages and everything should be privatized. Only in the defense budget, it means a sudden, it was a sovereign right of the state. It's surreal. "

Cohn-Bendit believes that behind the hesitation of Europe to entrenched economic interests. Main beneficiary of the Greek armament policy in Europe is just saving champions Germany. According to the just-released report, Arms Export in 2010 after the Portuguese, the Greeks - a state on the verge of bankruptcy - the largest buyers of German war weapons. Spanish and Greek newspapers spread the rumor at all, Angela Merkel and French President Nicolas Sarkozy would have remembered former Prime Minister of Greece George Papandreou nor the end of October at the edge of a summit meeting to finding solutions to existing or new arms orders complete. In Papandreou's environment is not confirmed, the federal government decided denied "messages, Chancellor Merkel and President Sarkozy had recently urged Greece to new arms deals, baseless," said a spokesman via e-mail.

...

Clearly this is apparently also become a state visit in Greece: German Government members expressed their export needs, and the Greeks reiterated their demand for imports. It has every known, "that Greece had invested too much in its military," so Linnenkamp. Yet the Greeks piled on over the years, enormous obligations.

...

But in the spring of 2010 reminded Foreign Minister Guido Westerwelle (FDP), the Greek government to the order of € Fighter, just weeks before the Greek bankruptcy. "Westerwelle called for a commitment to the Euro Fighter," says someone who has experienced the talks closely. The Foreign Minister also assured again in the Greek daily newspaper Kathimerini: "We do not urge the Greek government to buy. If (they) but, at any time whatsoever, a decision to purchase fighter aircraft meets the Euro Fighter countries want to be represented here by Germany, will be considered in the decision. . This is within the European Union, but completely normal, "A few weeks later Westerwelle called in the stock market newspaper more discipline from the South:" We expect before, there are discussions about aid that Greece executes fully their own homework to consolidate policy. "

How does that work? Not at all, is the defense expert Linnenkamp: "It was totally irresponsible to speak in the midst of severe economic crisis, the issue of Greece's Euro Fighter at all."

...

Dimitris Droutsas is one of the few Greeks who speak openly about these figures. By June 2011, he was of Greek foreign minister. "We have not spent so much money on defense, because we made it fun," he says. The Greek foreign borders must be secured against the waves of migration from North Africa and Asia, almost daily there are conflicts with Turkey. "As Foreign Minister I was always in the afternoon a message from the Defense Department with the list of Turkish violations of our airspace." Greece also been watching with concern the increasing activity of the Turkish navy in the Aegean Sea and have seen a good 35 years on the "Turkish invasion" Cyprus . Since then, the Greeks lived in a state of fear. That with Turkey give an arms race, although both countries are in NATO, Droutsas deems legitimate: "Whether we like it or not, Greece is obliged to have a strong military" point.

...

Resistance in its own population as Droutsas Greeks need not fear. The Greek military security sector promises to the people - and jobs. In a country without its own significant industry that is worth much. German defense companies have recognized this early and with Greek companies closely intertwined. Someone who mitverhandelte long, says: "In Greece, the arms deal as a give and take anywhere. What do I get in return when I buy a tank with you? Always it was also about compensation. Any politician who signed a treaty with the Germans hoped that a corresponding portion flows back. "

____________

Related:

Can the euro survive another year?

Debt, Trade Imbalances, and Currency Wars

Doug Casey: The Governments worldwide are jumping on the Terrorism bandwagon

Doug Casey founder and chairman of Casey Research Institute, talks about the NDAA bill and how the whole world is becoming a police state : The Governments worldwide are jumping on the Terrorism bandwagon because it gives them a lot of control ..." the whole system is corrupt from top to bottom the whole system needs to collapse 

"I don’t see any prospect of improvement at all until the current structure really collapses, and that wont be pleasant. It’s going to be very much like after the French Revolution. It was an excellent thing that they got rid of Louis XVI, that was great. But then he was replaced by The Terror, Robespierre, the Jacobins, and the Directorate. It became much, much worse than it was under Louis XVI, and then, they were replaced by Napoleon, which was a military dictatorship. So it wasn’t until Napoleon was gone that France once again became a free country. I think that’s going to happen in the U.S., and I think it’s going to follow that path." Doug Casey added 

Leaked Memo Says Apple Provides Backdoor To Governments

From Slashdot, Sunday January 08


Voline writes"In a tweet early this morning, cybersecurity researcher Christopher Soghoian pointed to an internal memo of India's Military Intelligence that has been liberated by hackers and posted on the Net. The memo suggests that, "in exchange for the Indian market presence" mobile device manufacturers, including RIM, Nokia, and Apple (collectively defined in the document as "RINOA") have agreed to provide backdoor access on their devices. The Indian government then "utilized backdoors provided by RINOA" to intercept internal emails of the U.S.-China Economic and Security Review Commission, a U.S. government body with a mandate to monitor, investigate and report to Congress on 'the national security implications of the bilateral trade and economic relationship' between the U.S. and China. Manan Kakkar, an Indian blogger for ZDNet, has also picked up the story and writes that it may be the fruits of an earlier hack of Symantec. If Apple is providing governments with a backdoor to iOS, can we assume that they have also done so with Mac OS X?"_________Related:The Complete List of All the Phones With Carrier IQ Spyware Installed

The IMF and US African Command (AFRICOM) Join Hands in the Plunder of the African Continent.... Lagos Dissents Under IMF Hegemony....

From Global Research, January 6, 2012 

Nigeria: The Next Front for AFRICOM

On a recent trip to West Africa, the newly appointed managing director of the International Monetary Fund, Christine Lagarde ordered the governments of Nigeria, Guinea, Cameroon, Ghana and Chad to relinquish vital fuel subsidies. Much to the dismay of the population of these nations, the prices of fuel and transport have near tripled over night without notice, causing widespread violence on the streets of the Nigerian capital of Abuja and its economic center, Lagos. Much like the IMF induced riots in Indonesia during the 1997 Asian Financial Crisis, public discontent in Nigeria is channelled towards an incompetent and self-serving domestic elite, compliant to the interests of fraudulent foreign institutions.

Although Nigeria holds the most proven oil reserves in Africa behind Libya, it’s people are now expected to pay a fee closer to what the average American pays for the cost of fuel, an exorbitant sum in contrast to its regional neighbours. Alternatively, other oil producing nations such as Venezuela, Kuwait and Saudi Arabia offer their populations fuel for as little as $0.12 USD per gallon. While Lagos has one of Africa’s highest concentration of billionaires, the vast majority of the population struggle daily on less than $2.00 USD. Amid a staggering 47% youth unemployment rate and thousands of annual deaths related to preventable diseases, the IMF has pulled the rug out from under a nation where safe drinking water is a luxury to around 80% of it’s populace.

Although Nigeria produces 2.4 million barrels of crude oil a day intended for export use, the country struggles with generating sufficient electrical power and maintaining its infrastructure. Ironically enough, less than 6% of bank depositors own 88% of all bank deposits in Nigeria. Goldman Sachs employees line its domestic government, in addition to the former Vice President of the World Bank, Ngozi Okonjo-Iweala, who is widely considered by many to be the de facto Prime Minister. Even after decades of producing lucrative oil exports, Nigeria has failed to maintain it’s own refineries, forcing it to illogically purchase oil imports from other nations. Society at large has not benefited from Nigeria’s natural riches, so it comes as no surprise that a severe level of distrust is held towards the government, who claims the fuel subsidy needs to be lifted in order to divert funds towards improving the quality of life within the country.

Like so many other nations, Nigerian people have suffered from a systematically reduced living standard after being subjected to the IMF’s Structural Adjustment Policies (SAP). Before a loan can be taken from the World Bank or IMF, a country must first follow strict economic policies, which include currency devaluation, lifting of trade tariffs, the removal of subsidies and detrimental budget cuts to critical public sector health and education services.

SAPs encourage borrower countries to focus on the production and export of domestic commodities and resources to increase foreign exchange, which can often be subject to dramatic fluctuations in value. Without the protection of price controls and an authentic currency rate, extreme inflation and poverty subsist to the point of civil unrest, as seen in a wide array of countries around the world (usually in former colonial protectorates). The people of Nigeria have been one of the world’s most vocal against IMF-induced austerity measures, student protests have been met with heavy handed repression since 1986 and several times since then, resulting in hundreds of civilian deaths. As a testament to the success of the loan, the average laborer in Nigeria earned 35% more in the 1970’s than he would of in 2012.

Working through the direct representation of Western Financial Institutions and the IMF in Nigeria’s Government,a new IMF conditionality calls for the creation of a Sovereign Wealth Fund. Olusegun Aganga, the former Nigerian Minister of Finance commented on how the SWF was hastily pushed through and enacted prior to the countries national elections. If huge savings are amassed from oil exports and austerity measures, one cannot realistically expect that these funds will be invested towards infrastructure development based on the current track record of the Nigerian Government. Further more, it is increasingly more likely that any proceeds from a SWF would be beneficial to Western institutions and markets, which initially demanded its creation. Nigerian philanthropist Bukar Usman prophetically writes “I have genuine fears that the SWF would serve us no better than other foreign-recommended "remedies" which we had implemented to our own detriment in the past or are being pushed to implement today.”

The abrupt simultaneous removal of fuel subsidies in several West African nations is a clear indication of who is really in charge of things in post-colonial Africa. The timing of its cushion-less implementation could not be any worse, Nigeria’s president Goodluck Jonathan recently declared a state of emergency after forty people were killed in a church bombing on Christmas day, an act allegedly committed by the Islamist separatist group, Boko Haram. The group advocates dividing the predominately Muslim northern states from the Christian southern states, a similar predicament to the recent division of Sudan.

As the United States African Command (AFRICOM) begins to gain a foothold into the continent with its troops officially present in Eritrea and Uganda in an effort to maintain security and remove other theocratic religious groups such as the Lord’s Resistance Army, the sectarian violence in Nigeria provides a convenient pretext for military intervention in the continuing resource war. For further insight into this theory, it is interesting to note that United States Army War College in Carlisle, Pennsylvania conducted a series of African war game scenarios in preparation for the Pentagon’s expansion of AFRICOM under the Obama Administration.

In the presence of US State Department Officials, employees from The Rand Corporation and Israeli military personnel, a military exercise was undertaken which tested how AFRICOM would respond to a disintegrating Nigeria on the verge of collapse amidst civil war. The scenario envisioned rebel factions vying for control of the Niger Delta oil fields (the source of one of America’s top oil imports), which would potentially be secured by some 20,000 U.S. troops if a US-friendly coup failed to take place At a press conference at the House Armed Services Committee on March 13, 2008, AFRICOM Commander, General William Ward then went on to brazenly state the priority issue of America’s growing dependence on African oil would be furthered by AFRICOM operating under the principle theatre-goal of “combating terrorism”.

At an AFRICOM Conference held at Fort McNair on February 18, 2008, Vice Admiral Robert T. Moeller openly declared the guiding principle of AFRICOM was to protect “the free flow of natural resources from Africa to the global market”, before citing China’s increasing presence in the region as challenging to American interests. After the unwarranted snatch-and-grab regime change conducted in Libya, nurturing economic destabilization, civil unrest and sectarian conflict in Nigeria is an ultimately tangible effort to secure Africa’s second largest oil reserves. During the pillage of Libya, its SFW accounts worth over 1.2 billion USD were frozen and essentially absorbed by Franco-Anglo-American powers; it would realistic to assume that much the same would occur if Nigeria failed to comply with Western interests. While agents of foreign capital have already infiltrated its government, there is little doubt that Nigeria will become a new front in the War on Terror.

Nile Bowie

Bizarre: the anti-Lisbon campaigner wants a United States of Europe

From Mail Online - Euroseptic: Mary Ellen Synon in Brussels 

By Mary Ellen Synon

This is my column in today’s Irish Daily Mail. It is a response to a proposal written by the Irish businessman Declan Ganley, one of the leaders of the No to Lisbon campaign during the Irish referenda, and Brendan Simms, another Irishman who is professor of the history of European international relations at Cambridge. Mr Ganley says he is preparing to re-enter politics with a new pan-European organisation which will advocate for United States of Europe.


I have been hesitating to comment on Declan Ganley’s new plan for a United States of Europe if only out of embarrassment for the man.
It’s like the moment when you see a woman trip over a kerb and sprawl flat with her dress blown up around her waist -- you look away in embarrassment for her.
Mr Ganley is a good chap, and a man who was courageous in his fight against the Lisbon     Treaty. But his desire to see the member states of the European Union turn into a federal union based on the United States is just blush-making
First it is embarrassing because I don’t think Mr Ganley understands the American federal union, and second because there is no taste on the Continent for such an utterly Anglo-Saxon invention.
Therefore it does raise the question of why Mr Ganley has put forward this proposal. But why Mr Ganley might be doing this is something I won’t get into. Motive in this case is irrelevant. I will just deal with what Mr Ganley and his colleague Brendan Simms of Cambridge University wrote yesterday in the Sunday Business Post.
Back to why there is and can never be a taste on the Continent for re-shaping the EU into an American-style federal union: the point from the start of the EU was that it would be nothing like America. It was to be the anti-US, the non-America. Europeans have always seen America as the supreme product of the Anglo-Saxon political philosophy, which is the opposite of the Continental political philosophy.
That is why America was and is a place despised by the euro-elite.
Right from the start, and I mean right from the 1920s, when the idea of a European union first appeared, the idea was that any ‘United States of Europe’ would be an entirely new form of government, not like America at all.
According to The Great Deception by Christopher Booker and Richard North (probably the best book tracing the roots of the EU), the two men who first conceived this ‘dream’ in the 1920s of a United States of Europe were Jean Monnet, a French former brandy salesman, and his close friend, an Englishman now largely forgotten, Arthur Salter. What these two wanted to see created in Europe was a government that was ‘supra-national,’ that is, beyond the control of national governments, politicians – or electorates.
So look at the powers which have already been shifted to the EU institutions by the Lisbon Treaty, and then at the even greater powers which are now being seized on the pretext of ‘saving the euro’ – centralised control of national budgets in particular -- and ask yourself how the move towards the Monnet-Salter supra-national dream is going. Answer: it is moving along at a cracking pace.
Third, the Europeans are not intellectually or philosophically up to building a union such as the one framed in the 1787 US Constitution. They do not have the same foundation in a common legal history that the 13 original States had, they do not share a common history sprung from the English constitution, they have nothing like the common law tradition from which to draw.
Booker and North note that the US Constitution of 1797 contained just seven articles, with ten short amendments being added as a Bill of Rights. The first draft of the 2004 European Constitution, the one produced out of the constitutional convention led by former French president Giscard and which eventually had its name changed to the Lisbon Treaty, had 465 articles. Limited federal government is not, and never has been, where the ‘European project’ intends to go.
Fourth, a centralised European state would increase the probability that the Continent would be ripped up by war again. I will get back to that in a moment.
Fifth, Mr Ganley is holding up Alexander Hamilton, one of the Framers of the US Constitution and the first US secretary of the treasury, as the model for what the EU should do with its vast debts: which is, a new central government should assume all the debts of the member states and with them assume new powers taken from the member states.
Which means in Europe today: hand over control of your debts to a new central EU power, and at the same time hand over every fundamental power of your own national parliament.
This was no doubt the sort of power coup Hamilton had in mind when he pulled over the      debt-assumption deal for the early US federal government.
Here was a man who wanted the new American president hold the office for life, and for all the members of the senate to form what was in effect a House of Lords.
Yet Mr Ganley imagines the EU should seek inspiration from Hamilton. He proposes that following the ideas of Hamilton and the other Framers of the US Constitution would ensure a ‘democratic’ Europe.
The fact is that the Framers rarely mentioned democracy. When they did it was as a warning against the dangers of mob rule. It is intellectually dishonest for Mr Ganley and his colleague Prof Simms to use these great men an excuse to establish European ‘democracy.’ In 1787, a complete democracy was regarded throughout the 13 former colonies as a threat to law and order.
Here is Hamilton in 1787: ‘The voice of the people has been said to be the voice of God and however generally this maxim has been quoted and believed, it is not true to fact. The people are turbulent and changing, they seldom judge or determine right.’
And again in 1788, when he said it may therefore be doubted whether the people ‘possess the discernment and stability necessary for systematic government.’
Which I may add are exactly the kind of sentiments now being expressed among the euro-elite who are drafting the new eurozone treaty. One of the goals in the negotiations is to structure the treaty so that the euro-elites’ collaborators in the Irish government can ensure that the Irish people will have no vote on it. They feel the Irish people do not ‘possess the discernment and stability necessary’ to make a judgement on the matter, so the power to vote Yes or No in a referendum must be taken away from them.
What Mr Ganley proposes in the end is that the EU now throws out the Lisbon Treaty and creates a new treaty ‘by the people for the people.’
At which point I want to slide off my chair in despair, and not only because there is no such thing as a ‘European people,’ anymore than there ever was a ‘Soviet people.’ So I do have to wonder what ‘people’ it is Mr Ganley is talking about.
Worse, I despair because Mr Ganley is quoting Abraham Lincoln in that line, the man who more than any other seized the US Constitution and destroyed it in his thirst to destroy the powers of the sovereign States.
If ever there was a warning about the dangers of pushing towards a European federal union, it is the fate of the 1787 US Constitution under Lincoln.
He destroyed the Constitution when he declared war on the sovereign States of the South in 1861 rather then let them leave the union.
Mr Ganley says his idea for a new EU constitution will include the ‘automatic right of secession for any member states.’ He seems not to know the same right for every sovereign state of the United States was guaranteed under the Constitution.
Yet when the States tried to exercise that right, the Northern states refused to let go of their foreign earnings milch cow: 80 percent of US foreign earnings came from exports from the vastly-rich Southern States. The Yankees, having earlier grown rich off the South by shipping slaves into Southern markets – Boston was the first slave port in the New World – were now determined to hold onto the revenue of the vast Southern agricultural output. (Please don’t even imagine it was about ‘freeing the slaves,’ but that is for another column.)
So Lincoln launched a war which, if an American president tried it today, would have him landed in an international tribunal as a war criminal.
His excuse for the butchery was: ‘The union can and must be preserved!’ Think about that   
next time the EU takes over yet more of our national sovereignty with the cry that the euro can and must be preserved.             
The 20th century French philosopher Bertrand de Jouvenel called the War Between the States ‘a war such as Europe had never yet seen.’ Indeed it was. It left the remains of the 1787 Constitution drowned in a sea of blood.
I regret that a man such as Mr Ganley has a plan which could lead the states of Europe to the same end.

PS After I filed this I was in touch with an American history buff who tells me I should add that the first thing Hamilton did after becoming secretary of the treasury was to propose a Bank of the United States. Yet the establishment of such a bank was not among the enumerated powers given to the Federal government in the Constitution. President Washington was uneasy about it; Thomas Jefferson and James Madison opposed it as unconstitutional, which it clearly was. The bank was established, but the charter later expired.
Good point. I’d say we can expect the same disregard for any constitution establishing a United States of Europe from the EU elite, except their power grabs will be more permanent.
As for Hamilton the man, his affair with a married woman while he was in office allowed him to be blackmailed by her and her husband. His attempts to smear the reputation of Jefferson’s vice-president, Aaron Burr, led to Hamilton being called out and killed in a duel.
Altogether one can understand John Adams’ description of Hamilton, and it had more to it than just a literal description of the circumstances of his birth: ‘a bastard of a Scots pedlar.’

Ann Barnhardt & Warren Pollock: Financial Collapse, Wall Street Financial Rape, Bank Holiday, Breakdown of Society …

From Jesse's, 05 JANUARY 2012:


Ann Barnhardt and Warren Pollock have an interesting discussion about the financial crisis, the setting of legal precedent, netting, settlement, and future trends including a possible bank holiday. 

They talk about MF Global as it applies to savings and commercial banking, brokerage, insurance, and commodities. 

They also discuss the numeric impossibility of solving the debt problem, the partnership between government and finance, and the injustice of having the victims pay the price for the crisis rather than the perpetrators. 

Ann and Warren also explain how the MF Global bankruptcy process could define the ways in which customer funds may be treated during a bank holiday.

This idea of a bank holiday is intriguing, particularly with regard to the scope of it.  

Rather than just including the US, such a financial holiday could involve the greater part of the developed world in a coordinated restructuring of sovereign debt, and the revaluation of the world's major currencies according to some formula. 

A new world order for the financial system if you will. It is certainly in the realm of possibility.

Martin Armstrong Interview and transcript Jan 5th

Link to audio
Transcript, from Financial Sense:

Jim: Joining me as my special guest on the program today is Martin Armstrong from ArmstrongEconomics.com, and Martin, in December of 2010 the US passed the HIRE Act which increased reporting requirements for US citizens holding assets overseas. It would appear to me Martin that step by step the government is implementing programs of capital control. Do you see it that way?

Martin: Oh, Absolutely! I mean, we’re in a situation where the budget deficits are just blowing out, and its going to get much worse. And so what’s happening is that instead of dealing with the issues the government is going to be much more aggressive to tax people, chase them down, put them in prison. All kinds of crazy stuff. This new act that came in December 19^th, effectively they are telling any foreign corporation that they must report any activity with an American overseas. And what they’re going to do to them is what they did to UBS. If they don’t comply, they will confiscate all their assets here. So, honestly, from an international perspective, the best advice I could tell people is that, is to get out. If you’re going to do business in the United States use an agent. Get your branches out of this country. It’s going to get far worse. 

Jim: It would almost appear, this is something that happened in Germany under the Nazi’s, where they began to collect and find out where the assets were, and eventually as we know in the case of the Jews, they confiscated them. But it seems like, whenever you have a government that is trying to keep tabs of what you’re doing, what you own, where it’s held…that’s a government that’s intent on taking some of it.

Martin: Yeah, I mean this is, you know the slogans tend to really mask the truth. And that is, “The rich don’t pay their fair share”, etc. What this is really about is that only the United States and Japan tax worldwide income. So, if you’re parents were American and you happen to be born in Kenya or something, and you never come back to this country, you still owe taxes to the United States. So, it’s not a question of paying your fair share. An American is basically, when he’s born, is an economic slave. And you owe money to this country, whether you’re here, whether you receive any of the benefits or not. Whereas Europeans, they pay if you use the services. If you’re going to stay in the country, then you pay taxes. A “Brit” who works in Hong Kong, doesn’t pay taxes back in Britain. He pays his taxes in Hong Kong. Americans have to pay in both places. So, it’s one of the primary reasons why also, US companies are forced offshore, which the government doesn’t like to talk about. 

But, for example, the Yellow River Dam in China, not one American company got any of the construction. Why? Because German companies were already 33% cheaper bidding on the same project than an American company. And, because they earn the money outside the country, it’s tax free. Americans don’t. So we really cannot compete on a global scale, which is one of the primary reasons why companies leave. And of course they don’t want to talk about that. You know, that’s the reality of what we’re facing here.

Jim: You know, throughout history, governments rarely reform themselves. In fact, when you look at the Roman Empire, England under Charles I, France during the French Revolution, it seems like the powers of the State, as the State’s debts expand, the powers of the State against the people also grow. Is this likely to happen here? I mean, it seems like, little by little, that’s what’s happening. Our rights, and the Constitution, the Bill of Rights, are being stripped away from us almost on an annual basis.

Martin: Well, essentially, the Bill of Rights is gutted already. There’s nothing left. If, you know, just take the very simple thing, the rights, Freedom of Speech and Freedom of Assembly. OK, I mean, you can look at what they did basically to the “Occupy Wall Street” people. Regardless if you agree or disagree with them. I mean they basically arrest them. They say “Oh, you’re walking on the grass”, or. They say “You’re violating…” “Well, we're really not violating your First Amendment Rights”, you violated some other minor statute over here. So, this is how they get around everything. Ah, they always, I think it was, I just saw on the internet that 40,000 new laws are being proposed for 2012 already. (Chuckle) I mean, this is crazy. We have, I mean, God did the Ten Commandments, man did about 10 billion laws. (Laugh) So, and we’re trying to say the same thing countless times. I mean over and over again. The Bill of Rights is gone. That’s completely finished. And there is no question that somebody can actually protest, permit, and all this other kind of stuff. Now that’s all out the window. 

And, you can go pretty much down the line. Forth Amendment…gone. The Fifth Amendment…they basically have held that you’re right to remain silent, that’s only personal. If you work for a company, which basically 99% of the people do, you don’t have such a right because Corporations don’t have such rights. I mean, you go right down the line. You look at this new bill that they just put in, that the military can operate domestically; deny people counsel, lock them up – citizens now – alright. No right to go to court, no right to lawyers, no right to a trial. They can just hold you indefinitely until you die. And all under the pretense, "oh, it’s terrorism." Well, how do you know somebody is a terrorist? You know, you have to have a right to what its called, due process of law. 

And due process of law actually comes from the Bible, and it comes from Genesis. When God basically says to Cain, “Where is your brother?” He already knows supposedly what happened. But He’s giving him the right. He’s summoning him and He’s giving him the right to be heard. That is the fundamental principle of due process of law. And this new bill says that you do not have that. That we can just lock you up; you have no right to lawyers, no right to a judge, no right to a public trial, no right to even find out what they say against you. Nothing. So, we’re about the closest we can get to Nazism.

Jim: Well, on another issue too, which is maybe why the government is doing this. We’re seeing world economies start to crumble under their burdens of debt, and yet the governments’ response is to expand government. And the US has gone from 18% of GDP on its’ way to 25%. We’ve seen increased regulations, and you just talked about numerous bills being proposed for this year. And as they increase these regs and the size of government, taxation and regulation are strangling the economies. So instead of lowering taxes and reducing the size of government, they’re going in the opposite direction. Government is getting more rapacious in terms of its demands on its citizens. 

Martin: This is exactly how Rome collapsed. There was a Roman Emperor, Maximinus in 238 [AD], he simply declared all wealth in the Roman Empire to be his. That’s it. And, what happened, is that, and what you’re going to see over the next few years, as you attack the rich, as the Romans did, what happens is that, somebody now hoards their money. They no longer invest it, they hide it, and they don’t keep it in banks. And consequently, that reduces the velocity of money. And as it reduces the velocity that is what creates the economic decline. So that interest rates, even during the Great Depression, fell to 1%, nobody would borrow because they didn’t see an opportunity to make money. And every possible mistake that every government has made before us, we are following step by step. 

I mean you take the 2007 crisis. There were over ten agencies regulating these CDOs. Not a single one was able to do anything. You look at MF Global. It’s blown up, they stole almost basically two billion dollars from people; the clearing exchange hasn’t honored it. Nobody will do anything about it. The FTC, I mean, we have all these regulators. What have they ever prevented? Nothing! Absolutely nothing! And it’s just a real giant joke. And the other problem that we are now facing and why government is rising exponentially is that as the baby boomers retire, this is also happening with government employees. So now they have to pay them virtually 100% of what they’ve been earning the last three years. Now they have to go out and hire somebody else to replace them. So the cost of government on the retirees is basically doubling. And there is no way out of this without some sort of honest reform. And government is not about to do it because, largely I think… Well, historically you’re asking them…they have to give up power which they are not going to do. 

And additionally, we really don’t have a democracy, per se. You saw politicians stand up and say, “Oh Saddam Hussein was a dictator, and Gaddafi. Oh, they’ve been in power for thirty years.” Then you look at these senators and you say, “Well how long have you been down there?” About the same amount of time. You know, we really don’t have choices and whoever is sponsored by the party has to basically kowtow to the party. So, you know it’s very rare to find an individual like Ron Paul, for example, but the press tries to ignore him desperately. Why? Because he’s not really part of the mainstream. 

So, I don’t see where we have any hope of doing anything, and because [of] the politicians. We need term limits desperately. It is unfortunately…I mean even if you want to, say a Congressman, increase the term to four years, fine. But one time – that’s it – out and gone!

I mean, I don’t care who you put in as president, Obama is already spending the last, almost half the term that he’s in for, preparing to get elected for the second time. So, you know, it should be one time only for everybody. And then, they're actually, maybe going to do something that they should be doing without having to say, “Well gee, I had better not vote on this because I am going to get elected and nobody likes that.” 

 You know, without serious political reform, I mean we’re just really screwed. Totally! 

Jim: This brings up the question of what has been referred to as the Fourth Estate. That would appear Martin that we no longer operate in this country with a free press. In fact I would probably call it the government media. Because its views, its readership is declining because of its bias and slant of how issues are presented to the public, or how issues are ignored. And that’s the tragedy here because our Founding Fathers always believed in a free press and the freedom of speech, that the media would be a check on government. Instead they’ve become another arm of government. Isn’t that another problem that we face here?

Martin: Yeah, there’s just… The press is absolutely terrible. Ah, I mean, it’s been going on for a while. When Michael Milken back in 1987, he was going to go to trial. Then they finally forced him into pleading. And not one American paper told the truth. The only paper that reported the full true story was the London Financial Times. Michael Milken, they first charged his brother, trying to force him to plead guilty. His brother said, “Don’t worry about it, let’s go to trial.” Then they went after his 90 year old grandfather, and said, “If you don’t plead guilty, we’re going to charge him.”

So, I mean not one of the American papers won’t ever tell the truth about anything here. I mean it’s an absolute joke. We have a conviction rate in this country that is 10% higher than Adolph Hitler. I mean that’s alarming. The only person we haven’t beaten is Stalin, and that’s only because he basically said, “Take everybody away.” But I mean the most notorious court of Adolph Hitler had a conviction rate of 90%. We’re at 99! I mean, what does that tell you? The federal government can never be wrong about anybody at any time. So it really gets to be scary.

Jim: I want to move on to another issue that is confronting the markets, not only last year, but looks like a carryover into this year. And that is the sovereign debt crisis. We’ve seen in Europe the December 9^th agreement to cede sovereignty. I guess, as you look at this crisis unfold, do you believe that Germany will stick to its hard line or will the politicians and bureaucrats, in order to preserve the Euro, will Germany blink, if it means saving the Euro in the end?

Martin: According to very high sources I have in Germany, if the choice comes between the collapse of the Euro or blinking and letting inflation take place, they will take the latter. They have so much invested in this Euro its pathetic that, there too, they simply will not do the right thing. 

I mean, as a trader, I warned them back in ’97. If you’re going to leave every country with its own individual bond, if you short the bond you basically have a virtual currency. Its just a derivative, that’s it. The only way to have actually created a single currency was, like the United States, you have to create a single national debt. Can you imagine what the national debt of this country would be if all fifty states had the right to issue federal debt? I mean it would be total chaos. But that’s what Europe has got. And largely because the politicians…I mean the two words that should have been divorced the minute they met are “political economy.” Because, they don’t know what they’re doing…most of them are lawyers. And they have done a fantastic job of always screwing up everything, every step of the way.

And Europe, unfortunately is in the same boat. And they… It’s gotten worse now. Where before you thought Greece was in bad shape you sold the currency. It actually devalued the debt. Now what happens is, because the currency is the Euro, you have to sell the bonds. So you sell the bonds, and what happens is the interest rates don’t go up. What we’re really facing this year is, and remarkably no one is talking about it yet, there is six hundred (600) billion Euros that have to be rolled, and that is just Spain and Italy this year. You’re rolling from interest rates that are 1.5% to 2%, to 7%. So everywhere we look the national debt of everyone around is going to go exponentially higher. So this is why the countries are getting very aggressive with their taxation. I believe that historically you’re gonna see more and more people hoard money and not really invest. It’s just everything they could possibly do wrong they are doing.

Jim: Well, you know we’ve seen Martin, a lot of protests. Whether we’ve seen it here in the states, Greece, the Middle East… And governments I would think would have to look with trepidation at events in the Middle East where a rebellion used social media to bring the rebellion together and to get organized. There is a recent bill that was introduced into the Senate by Senator Joseph Lieberman and Susan Collins; it’s called “protecting cyber space.”

Shouldn’t that also be a warning in terms of the steps government is taking? And it seems like, Martin, they sort of have a sense that this is coming. In other words, people will only sit back and be a slave for so long before the slaves revolt.

Martin: Oh, yeah, they know it. They proposed that within months of what happened in the Middle East. And I’m a programmer. You cannot attack every server in this country simultaneously. You can maybe attack one server; you know you can attack the government. You can unplug those, but you cannot unplug the entire internet. And this is what the president now… That’s what they want the power to do. Which will basically shut down all the social media. But it will also shut down where the free press is. Everybody turns to the internet for radio, for all these things. This will all be shut off in the blink of an eye if the government just doesn’t like it. And they can always now claim, “Oh, its some terrorist.” I mean these nineteen guys and a camel have taken away all our rights, where World War I, Korea, Vietnam…none of those standing armies could have done what nineteen guys and a camel did. 

Jim: I want to move on to something that we’re seeing play out in the economy, and I’d like to get your explanation for our listeners. 

On one hand we have two opposing forces at work. We have deleveraging taking place in the private sector, and we’ve seen that steadily since the crisis in 2007. And yet we have monetary and fiscal expansion on the side of the government which is inflationary. So it seems like, Martin, we have a battle between the forces of inflation and deflation occurring simultaneously. And looking at the economic numbers and even the inflation rate, what we’ve got in its place is stagflation. 

Martin: Yes. Its hard to get a full bead on the full amount of deflation we’re going through. I would put it at a very bear minimum of 15 trillion dollars. And that is the lowering of asset values across the board. So, if you look at just the real estate market, the outstanding mortgages were about 15 trillion. So, if you really just want to look at that, there’s a third off of that, so you’re talking five trillion dollars. So the Feds increasing the monetary supply through its elastic facility, you’re talking about a little less than three trillion dollars. That’s why there was no real inflation. QE 1 and 2 really did not stimulate. They can’t pump in enough money to basically fix it the way they’ve done. What they should have done, which would have been much simpler, was to forget their friends and relatives in the banking industry. They should have just taken all the mortgages across the board and just said OK, fine, we’re chopping them by 25% and let the government pay up for that. That would have done a heck of a lot more for the economy because, number one, it would have prevented all these massive foreclosures, which essentially affects everybody. 

Because what happens is so much housing comes on the market that your house, even if you are fully paid up, depreciates in value because of the supply that’s out there to be sold. And the banks have absolutely done a terrible job at this. They didn’t have…pay attention really to what they were doing. They started pooling all these mortgages together. And I can tell you that anybody that had any kind of a problem with not being able to pay their mortgage or whatever, all they really have to do is say, you want… If somebody tries to foreclose, “Give me the certified copy of the mortgage.” Because once they pooled these things and they sliced them and diced them, no one actually knew who actually owned what. So that’s why you have some people being able to stay in houses for three years. You know, they’re getting basically rent free and whatever, largely because they pooled these things together that should never have been done. And they go to the government with their hat in hand and ask for, you know, 700 billion dollars to bail themselves out. Not the economy. That hasn’t done anything for anybody, other than make the bankers rich again, that’s about it. 

Jim: You know, as we look at these opposing forces that we’ve been talking about here, inflation, deflation. This leads me to gold and how it has performed. In September, Martin, it looked like…as it crossed over 1900 it was on its way to 2000. Instead, it ended the year below 1600. Now, you believe the market has the possibility, in the gold market, to retest the 1225 – 1325 area going into this year. What would be the catalyst for this move downward in your opinion? 

Martin: It’s largely this battle between inflation and deflation. I don’t see the inflationary pressure currently. We’re still burdened more with a deflationary contraction still. But that will probably start to, I would think reverse, this summer. After the summer it will start to percolate back upward in the inflationary side. Largely because we have so much debt rolling over that the interest expenditures are going to go up in Europe and elsewhere. And I think that we’re going to see that a lot more capital tends to be hoarded, and if you’re going to be looking at hoarding cash at this time you certainly don’t want to do it in cash in a bank, per se. So I do think that people will tend to look a little bit more at the metals, particularly gold, later on in 2012. More in the second half. 

So I think that we’re gonna have to really be concerned about how the government is moving in every single direction here with taxation, with cutting off the internet, with authorizing domestic activity with the military. All this is pointing in one direction that they know that they have trouble coming. And, historically, even with Fascism or whatever appears in Europe, it just takes one or two years for it to pop up over here.

So, the other thing that we really have a problem with, which is similar to the Great Depression, is that… people don’t realize is that you really have to pay attention to what was the unemployment at that point in time. Unemployment was really about what it is today. It really only went up to slightly under ten percent from the financial market side. What came in as a second punch and drove unemployment to 25 percent was largely after the lows were in place going into 1935, etc.

The reason for that was the Dust Bowl and 40% of the civil workforce at the time were farmers. And you could not pass a law to make it rain. So it was the final stage of the Industrial Revolution that forced people out of the agricultural sector and into becoming skilled labor. So by the time you get to 1980 the agricultural sector is only eight percent. We’re in the same similar situation today, except for that 40 percent figure of the civil workforce is employed by government. And this is a bit worse in the sense that they do not really contribute anything to economic growth. That’s why we call them public servants. It’s like hiring a maid in your house, that’s very nice, but she’s going to cost you money…she’s not making it so that you can earn more. And a public servant is basically the same thing. It’s a cost of living. Although the government doesn’t put it in the CPI indexes, it is part of our cost of living. And 40 per cent of the civil workforce is employed by the government. 

So as government is rising in cost exponentially this is our great problem. Because the state and local governments are going to be forced into more and more layoffs, etc., because they can’t print money like the Feds can. So, you’re going to see more bankruptcies, etc. So, the unemployment we see going forward is largely going to be coming from the public sector rather than the private sector. And, uh, unemployment is going to go up rather significantly. And its a part of the process we have to go through. We have to get…reduce the size of government, make it more efficient again. I said, you had over ten agencies regulating the CDOs and nobody did the job. I mean, one would be, that actually functioned, would be far better than more than ten that do nothing. 

Jim: You know one of the things that I’ve noticed in your writings Martin, is that you make a lot of references to the Roman Empire. And like yourself, I am a student of Roman history. If you were to recommend something on Rome that our listeners could read that would give them sort of some insights because we seem to be running parallel to many of the things that caused the eventual decline of the Roman Empire. What book would you read? Would you recommend Gibbons? 

Martin: Well, Gibbons is probably one of the better ones. But it, it has maybe a bit of a bias in it as far as religion is concerned. He was fairly oppressed by religion, and when you read it, you have to keep in mind that this was also coming out of the period of the great religious wars in England between the Catholics and the Protestants. So, he tended to look at things a little bit more religiously, giving it much more credence that it was worth. I’m trying to finish a book on it to really bring it together from a lot of different sources. There is no one particular source that I could tell you. But I think what Gibbons missed on the religious side was that the real conversion to Christianity only came when the economy collapsed. So that people were praying to their various different gods and nothing happened. And that is really when they turned to Christianity, and that is in the third century. So that when you have Constantine basically in battle, he’s marching forward under the sign of the cross, etc. So that is really where the major persecutions took place and where the big shift in religious values take place. And that really was driven by the economy more than anything else at that stage. That’s where you get the big surge. 

Prior to that, Christianity still very much, was a minor type sect. The persecutions began largely because Nero was the first one do to it, and he basically wanted to blame them (the Christians) instead of himself for setting fire to Rome.

Jim: So is there any, outside of Gibbons, outside that bias, is there any book that you’ve read personally that had an impact in your thinking?

Martin: Well, I would say, you know, Adam Smith really, his “Wealth of Nations.” I think really is probably the beginning and the end in economics. That it’s fairly simple and straightforward and that is that everybody operates under their own self interest. And that not only applies personally to various different individuals, but also to government. So, that’s why Communism failed, because it sounds nice, you create government and you hand them… you take all the toys away from the rich, but, so all you did was take them from one party and place them in the hands of another and then that was power, and they didn’t want to give that up. (Chuckle) You can’t get away from this self-interest. It doesn’t matter who it is. It’s our problem with government right now as we’ve been talking, and it’s going to get much more aggressive in taxation. Because its self-interest is to survive, it will not reform willingly at any point in time. It has just never happened. So when you get to these points in history where the debt is always what destroys every society going back to 6,000 BC. 

And there were debt crises that Aristotle wrote about. So this is nothing new. It’s the same thing all the time. There were real estate speculations in Athens. He talked about how real estate collapsed. So it’s hard for me to point you to one particular book. I mean I’ve read so many different things, that I would say that the self-interest concept by Adam Smith is probably by far the best overview; and then there are a lot of different books that I’ve read on specific periods. So the one I’m trying to write now is to try and gather all that together and bring it into one place so that you can actually look at Athens, and etc., in comparison. 

Jim: Well, when that book is complete, please, give me a heads up because I would love to have you on the program to discuss it. 

Martin, as we close, give out your website, because you publish a lot of good information that you make available to the public free. And, but also, you are going to be cranking up the computer modeling in terms of forecasting, which will be a subscription service. Spend a moment if you would as we close and tell our listeners about that. 

Martin: Well, we began as a public service providing information, historical comparisons and things of this nature, and details as to what is happening politically on a global scale. And just as we were talking about the press, our readership is now is over 500,000, and we provide it all free as a public service. And I mean the New York Times, to put it into comparison, has a circulation of 800,000. We’re pretty large on an international scale at this point. And it is mainly provided to give people the sources where to actually find a lot of these different things and what is actually truly happening. And that you can get at “armstrongeconomics.com” or “martinarmstrong.org”, and they’re provided… You know you can go on there and pull down reports that are written for the last several years. That’s all provided for free. So we have a lot of students who are always using it…things of that nature. And it’s translated into different languages. So its been very very good for a lot of people over this chaotic period of time.

Jim: Well, keep up the good work Martin. As always it’s a pleasure to be speaking with you. I want to wish you a healthy and prosperous New Year. And once again if you want to follow Martin’s work, just go to “armstrongeconomics.com” that’s “armstrongeconomics.com” or “armstrongeconomics.org.” 

And we’ve been speaking with the head of Armstrong Economics, Martin Armstrong. Martin, thanks so much for joining us on the program. 

Martin: Thank you very much for inviting me.