Wednesday, December 9, 2009

Martin Armstrong – The DOW and the Future, Theory & Myth…

First of all, it is my understanding that the Prison does not want Martin writing a public statement about what happened! Gee, I wonder why? At any rate, we have all gotten a verbal thank-you and we’ll just have to be satisfied for now knowing that he is extremely grateful for all your help in keeping him safe! It is my understanding that we have been successful in preventing any type of retribution and he is back to writing as you will see.

When it comes to Theory & Myth, Martin claims that we are “clinging to old ideas.” I wholeheartedly agree with him on that and point to the lack of understanding of what happens when society becomes saturated with debt. For example, economist’s formulas to calculate the velocity of money do not account for debt despite it being intuitive that if one is debt saturated that when they get their hands on new money, that money must be used to service those prior obligations. Thus, the money does not circulate through the economy as it would without debt saturation. This is a most basic concept, but one that eludes our current crop of bankers, economists, and politicians who continue to ram debt down our collective throats, much as they have done for the past twenty years in Japan.

Martin spends most of this paper discussing international flows and updating his take on our major indices as well as the rest of the world’s. He sees NEW HIGHS in the stock market, despite a continued weak economy. I have to tell you that I have great difficulty seeing that in the short term, perhaps in the longer term, but not short. While I enjoy reading his work and I post it here, I don’t have to agree with ALL his thinking. I do agree with a lot, but I feel that in this case he is overlooking a key ingredient… in fact we ARE facing a bubble top. It may not appear at first glance to be a market bubble top, but what it was is a debt bubble top. The United States ALONG WITH most of the rest of the globe have money systems that are backed by debt. This causes a mathematical dilemma. The more money that comes into the system, the more debt there is. Eventually the weight of the debt PROHIBITS further expansion – this debt saturation is what happened in Japan, and it’s exactly what’s happening to us now. Now, that said, should the world decide to print and print without the backing of debt, then the conditions described by Armstrong will occur – a fate that will eventually KILL the confidence in the currency itself. Yes, Zimbabwe had a roaring stock market for a while under those conditions, but not any more. Despite the twisted logic of many, the United States does NOT operate under a different set of money rules and should we make the decision to print to that degree will suffer as our money shoots overseas and inflates away our ability to afford an resemblance of our current lifestyle. The status of "reserve currency" is a privaledge, one that if abused will be lost.

So, I am not so sanguine about new highs in the market. Should they occur under these conditions the end result will be far worse than a depression. I believe that the dollar carry trade that Martin refers to is changing as we speak. The dollar has broken a descending wedge upwards – we will just have to see how long this new upwards trend lasts. The flows around the world are very dynamic. As countries make decisions, their actions rapidly change the dynamics. The OVERARCHING dynamic, however, is one of debt backed currencies, further spending causes rising levels of debt, while incomes on all levels cannot support those levels of debt. Regardless of how the future unfolds, it’s going to be interesting for sure, and I appreciate the fact that we have Martin’s take and that he is still able to share his thoughts with us:

Below is a request for Bail from Martin Armstrong. There are people working on strategies to help him most effectively move forward – as is strategically necessary and we are able, we will step in if needed.