The New Age of Economic Totalitarianism & the London Meeting to End Currency

Armstrong Economics – by Martin Armstrong

I have been warning that the governments of the West are in severe trouble. We face the worst economic crisis perhaps in modern history with the distinct risk of moving into a state of Economic Totalitarianism. The governments are well aware of the Economic Confidence Model (ECM). Many people have asked the question why have they not killed me since it appears that most others central to events covered in the movie, the FORECASTER, are dead. I believe the answer is rather simple, for even when I was released and appeared on Capitol Hill, I was introduced as this is the guy with the model they are trying to suppress.  

Government is not a single entity. The forces I stood up against were restricted to the corruption in New York City. The New Yorker Magazine was able to get in to interview me only by going to Washington. And when I was thrown in the hole, it was a letter from Congress asking who ordered that treatment resulted in my instant release. And as for my release from contempt, that only took place when the Supreme Court ordered the government to respond to my petition for then the Solicitor General is the only one who can argue before the Supreme Court, not the corrupt prosecutors from New York City. So it is never just a single entity we call government. There are always internal forces that fight over the crumbs of power like pigeons on the ground under the tables at a sidewalk cafe.

I have advised many governments in my life so there are those on the economic side of power who are well aware of what I stand for, not merely the prosecutors who salivate over the opportunity to take down someone famous to further their personal careers. I was perhaps the first and only analyst or Forecaster to be invited by the Bank of China to fly to Beijing during the Asian Currency Crisis back in 1997. I may even be the only analyst who has ever had such experience on a truly global scale. I have been just about everywhere and at times it has appeared that if there was a crisis, somehow I seemed to be dragged in by some government somewhere. There is scarcely a major nation who is not aware of the ECM.

Britain’s David Cameron publicly stated upon the conclusion to the 2014 G20 meeting in Brisbane, Australia on November 17^th, 2014 that a second financial crash was imminent. He stated that the “red warning lights are flashing on the dashboard of the global economy” in the same way as when the financial crash brought the world to its knees 2007-2009. Cameron was quite frank and warned that there is now “a dangerous backdrop of instability and uncertainty.” He further commented that the Eurozone economy was slowing down and this would impact trade and employment as exports and manufacturing declined. That prompted many emails since it suddenly mirrored our forecast.

Indeed, government interest rates have moved into negative interest rates on about 30% of Eurozone total debt. This has become an effective tax on money itself with respect to whatever you have left in your account after paying taxes. We are heading for economic Armageddon and the day of reckoning is rapidly approaching. Many have noted that his comments came at the end of the G20 meeting and others have stated that the governments indeed were preparing for another downturn in the fall strangely aligned with the ECM.

Governments may indeed be now using the ECM for timing since it certainly appears they are now aware of cycles. Nonetheless, they are retreating from the world in any democratic position for they are preparing for what appears to be a shift toward Economic Totalitarianism rather than reform. Governments shifted at the G20 in favor of more Draconian taxation enforcement. They have not yet changed their way of thinking and you cannot solve a crisis by following the same path of thinking that has created the nightmare in which you are trapped. Governments as a whole are imposing extra taxes at least through enforcement that is tearing the world economy apart at the seams.

Government borrowing has continued and this may appear to be an easy solution along with taxation, but these steps will only prove only to be a repeat of the very same mistakes of the past and accelerate the economic decline on the horizon. Some think the debt crisis is improving since the debt to GDP ratio has declined, yet this is a false indicator since such a trend has been unfolding thanks to the move toward negative interest rates. The consumption of government as a real percentage of the total real economy continues to grow. They have no solution for the unemployed youth since they keep raising taxes and now negative interest rates has wiped out the income of the elderly.

The G20 has taken decisive steps to clamp down on individual tax avoidance, targeting 92 tax authorities which were now cooperating by sharing information thereby enabling G20 countries to raise an extra $32bn in tax revenues through enforcement right out of the gate. The politicians claim this is to target corporations, but corporations are the big political donors. The real target is always the small business and individuals for that represents more than 70% of the job creation and wealth – not major public corporations. This is the leading cause of the rise in youth unemployment – the lost generation.

Even David Cameron said at his closing press conference; “[t]he more we can make sure big corporations pay their taxes properly, the less we have to tax hardworking people who I want to make sure can keep more of their own money so they can spend as they choose.” That, unfortunately, is always the spin. The truth is never that result is always propaganda for any rise in taxation or enforcement is always against the individual who is viewed by government and attacked as some endless supply of revenue.

It is the rising burden of taxation and benefits that the political forces are also imposing upon small business. It is always about government, not truly about the people. We have far too many lawyers running governments and nobody with practical experience in foreign exchange, capital flows, or simply running a business operation. As lawyers, they look at the numbers and are only concerned about the rising unemployment which emerges from a civil unrest perspective. Those in power do not care no less understand the changing job market for they only see their own pockets not those of the people.

In Germany, the government has not merely imposed a minimum wage of €8.5  and hour, they have created a European nightmare of sovereignty. The first question jumps out at you asking should Germany’s national minimum wage laws apply to truck drivers passing through a certain EU member state? On the one hand, companies will hire non-German firms to move goods. On the other hand, the government cannot control the labor market domestically while allowing open borders.

Chancellor Angela Merkel’s government introduced Germany’s first nationwide wage floor of €8.50 per hour early this year. The law was the brainchild of the Social Democrats (SPD), who made it a condition of joining Merkel’s coalition in 2013. This is the demand of the socialists trying to force higher wages upon business that is already starting social unrest. Small business simply cannot hire people now for it is the risk of compliance that is the burden. Meanwhile, companies are now fighting back by charging workers for their tools to do the job from knives to compensating staff with tanning salon vouchers and use of company computers. German employers are coming up with creative ways to avoid paying a new minimum wage, angering unions.

At the traditional May 1st Communist Day celebrations that take place in the old section ofEast Berlin and around the country we are starting to see the classic class warfare crisis reemerging. Right-wing violence erupted at Weimar May Day celebrations as unions seek to protect minimum wage. The German anti-capitalism protests in Hamburg turned to violence and vandalism. May 1 is known in Germany and elsewhere as the unofficial International Workers’ Day and is marked with demonstrations and rallies that have, in some instances, turned violent. Violence erupted this year also in Turkey.

The German government has created financial police auditors going into small business and if they can find a violation, they impose a fine which can be even €50,000. Small firms have stopped hiring even part-time interns. No one can even offer to work for free just to get their foot in the door.

This German move to establish a minimum wage to gain the socialist support in Germany stands in contrast to Stephen Poloz, the Bank of Canada governor, who publicly recommended that jobless university graduates should create resumes by working for free. Germany’s approach, they cannot work for free. Far too many world leaders are clueless as to the cause of massive youth unemployment or 65% of graduates saddled with burdensome student loans unable to find a job in their field of study. We even have the US Post Office hiring only part-time workers to avoid benefits they cannot afford. This new trend toward the casualization of jobs is being caused by laws attempting to force benefits upon jobs that cannot support such costs. This casualization of part-time work is leading to higher unemployment and greater insecurity in the labor market which is spreading across the world. This further drives the trend toward replacing minimal jobs with automation to save on the burdens imposed upon business by government. This exacerbates the entire trend toward technological skills that is similar to the shift in agriculture during the 1920s introduced with the combustion engine.

These trends are weakening the foundation of the global economy changing its very structure. Governments are fighting the trend, yet seem aware that the economy will turn down and the ECM is warning that we will face a much worse decline than 2007-2009, and governments are digging in their heels rather than trying to solve the problems they are aware of looming on the horizon. The central banks are indeed taking up these growing signs and are planning drastic restrictions on cash itself. They see moving to electronic money will first eliminate the underground economy, but secondly, they believe it will even prevent a banking crisis.

This idea of eliminating cash was first floated as the normal trial balloon to see how the people take it. It was first launched by Kenneth Rogoff of Harvard University and Willem Buiter, the chief economist at Citigroup. Their claims have been widely hailed and their papers are now the foundation for the new age of Economic Totalitarianism that confronts us. Rogoff and Buiter have laid the ground work for the end of much of our freedom and will one day will be considered the new Marx with hindsight. They sit in their lofty offices but do not have real world practical experience beyond theory. Considerations of their arguments have shown how governments can seize all economic power are destroy cash in the process eliminating all rights. Physical paper money provides the check against negative interest rates for if they become too great, people will simply withdraw their funds and hoard cash. Furthermore, paper currency allows for bank runs. Eliminate paper currency and what you end up with is the elimination of the ability to demand to withdraw funds from a bank.

Willem Buiter has even discussed creating insane devices for paying negative interest rates on currency such as stamp taxes as the British use to do where currency would remain valid only if it were regularly stamped to reflect tax payment. This would be totally impractical and a nightmare to administer demonstrating his lack of practical experience and historical depth to the issue. These people lack any common sense for history and cannot see beyond their nose what kind of world they are proposing. This is indeed Marxism on steroids where you retain ownership only in your imagination.

Anything that hands government more power is always welcome to those in power. In many nations, specific measures have already been taken demonstrating that the Rogoff-Buiter world of Economic Totalitarianism is indeed upon us. This is the death of Capitalism. Of course the socialists hate Capitalism and see other people’s money should be theirs. What they cannot see is that Capitalism is freedom from government totalitarianism. The freedom to pursue the field you desire without filling the state needs that supersede your own.

There have been test runs of this Rogoff-Buiter Economic Totalitarianism to see if the idea works. I reported on June 21, 2014 that Britain was doing a test run. A shopping street in Manchester banned cash as part of an experiment to see if Brits would accept a cashless society. London buses ended accepting cash payments from July 2014. Meanwhile, Currency Exchange dealers began offering debt cards instead of cash that they market as being safer to travel with. The Chorlton, South Manchester experiment was touted to test customers and business reaction to the idea for physical currency will disappear inside 20 years.

France passed another Draconian new law that from the summer of 2015 it will now impose cash requirements dramatically trying to eliminate cash by force. French citizens and tourists will then only be allowed a limited amount of physical money. They have financial police searching people on trains just passing through France to see if they are transporting cash, which they will now seize. Meanwhile, the new French Elite are moving in this very same direction. Piketty wants to just take everyone’s money who has more than he does. Nobody stands on the side of freedom or on restraining the corruption within government. The problem always turns against the people for we are the cause of the fiscal mismanagement of government that never has enough for themselves.

In Greece a drastic reduction in cash is also being discussed in light of the economic crisis. Now any bill over €70 should be payable only by check or credit card – it will be illegal to pay in cash. The German Baader Bank founded in Munich expects formally to abolish the cash to enforce negative interest rates on accounts that is really taxation on whatever money you still have left after taxes.

Now the end is coming nearer and starkly in focus. It is so shocking that we have to rub our eyes to ensure we are even awake. By the end of May, there will now be this subject of eliminating cash on the formal table for discussion among the major countries at a major conference in London. The advocates to end our economic freedom and to move toward a new world economic order of an Economic Totalitarian state where we will no longer be able to buy or sell anything anonymously with paper money will have their say in London – namely Rogoff and Buiter. At this meeting there will be participation of central banks from Switzerland, Denmark, the Euroland and the United States. No I am not invited for I am not in agreement with Rogoff-Buiter’s Economic Totalitarian vision. The aim of this meeting is to now create a solution for the pending economic emergency that the ECM is forecasting.

Clearly, behind the curtain there appears to be underway for the first time actual preparation for an economic downturn. However, the possibility of a dramatically sharpened financial crisis looming in the fall appears to be considered and now broadly accepted as inevitable. There is obviously a serious threat of a possible global bank run thanks to the faulty structure of the Euro and its lack of a consolidated debt from the outset. The European bank reserves lack a single status and as the member states get into trouble, so will the banking system. This could spill over into a global crisis as people see banks fail in Europe and prudent people begin to withdraw cash in North America as a precaution setting in motion a contagion.

The problems within the European banking system can obviously set off a further loss of confidence in the global financial institutions worldwide. The abolition of cash in this context is seen as a serious tool to defend the system. However, that complete abolition of cash threatens our very freedom and rights of citizens in so many areas. Those in the emerging economies, even in Eastern Europe in like places such as Ukraine where people do not trust banks and conduct business in cash, the world economy could be split entirely in two between the developed and underdeveloped nations. How can commerce exist when people lack the basic confidence in government as well as the banks?

Paper currency is indeed the check against negative interest rates. We need only look to Switzerland to prove that theory. Any attempt to impose say a 5% negative interest rates (tax) would lead to an unimaginably massive flight into cash. This was already demonstrated recently by the example of Swiss pension funds, which withdrew their money from the bank in a big way and now store it in vaults in cash in order to escape the financial repression. People will act in their own self-interest and negative interest rates are likely to reduce the sales of government bonds and set off a bank run as long as paper money exists.

Obviously, government and bankers are not stupid. The only way to prevent such a global bank run would be the total prohibition of paper money. This is unlikely, both in Switzerland and in the United States because the economies are dominated there by a certain “liberalism” to some extent but also because their currencies also circulate outside their domestic economies. The fact that but the question of the cash ban in the context of a global conference with the participation of the major central banks of the US and the ECB will be discussed, demonstrates by itself that the problem is not a regional problem.

Nevertheless, there is a growing assumption that the negative interest rate world (tax on cash) is likely to increase dramatically in Europe in particular since it is socialism that is collapsing. Government in Brussels is unlikely to yield power and their line of thinking cannot lead to any solution. The negative interest rate concept is making its way into the United States at J.P. Morgan where they will charge a fee on excess cash on deposit starting May 1^st, 2015. Asset holdings of cash with a tax or a fee in the amount of the negative interest rate seems to be underway even in Switzerland.

Ironically, when money was coin, bank money on deposit came at premium over coins simply because the coins could be clipped, shaved, or counterfeited. Then there were often two-tier monetary systems where gold served only for international trade and silver was the currency for wages and prices locally. Disparities between the two would often swing and create financial crisis that would at times even result in hanging the bankers.

Bank money developed out of necessity. Cash transactions required authentication each and every time the coins changed hands. Therefore, bank money became more valuable than cash. This type of throwback to the 14^th century is certainly possible today.  We could see the establishment of an exchange rate between book money and cash, as it had previously existed at the dawn of banking coming out of the Dark Ages. We could see a divergence between the market price/value of a bank deposit v cash reflected to the extent of the desired negative interest rate. For example, such a regime could result in a 2% negative interest rate on bank deposits and a 5% tax to withdraw cash. Trying to withdraw cash in the USA of $3,000 or more is already sparking reports to the IRS and some banks are charging small business fees to deposit cash. A family member owns a restaurant and his bank is now charging fees to accept cash deposits.

The movement toward electronic money is moving at high speed and this says a lot about the state of the financial system. The track record of the major financial institutions is nearly perfect – they are always caught on the wrong side when a crisis breaks, which requires their bailouts. The fact that we have already seen test runs with theory-balloons flying, the major financial institutions are in no shape to withstand another economic decline.

For depositors, this means they really need to grasp what is going on here for unless they are vigilant, there is a serious risk of losing everything. We must understand that these measures will be implemented overnight in the middle of a banking crisis after 2015.75. The balloons have taken off and the discussions are underway. The trend in taxation and reduction of cash seems to be unstoppable. Government is not prepared to reform for that would require a new way of thinking and a loss of power. That is not a consideration. They only see one direction and that is to take us into the new promised-land of economic totalitarianism. The depositors and investors should now realize that a greater diversification for themselves is mandatory, which should above all be sure to keep investing large sums in any one or more asset classes.

Unfortunately, the availability of assets is limited and we must now broaden our view to incorporate the global economy as a whole. Flexibility is truly the radical measure required for what we face on the horizon. This will require a sort of crash course in understanding the world economy as a whole and how capital flows both domestically as well as internationally. For this reason, we are opening to all clients our famous capital flow map so you can see the movement of capital on a daily basis.

At the same time, the close monitoring of the global currency markets is critical since the currency will often rise or fall like a share in a corporation based upon the CONFIDENCEin that particular country. The tools we are soon to open up will allow you to see the Global Market Watch but also to view any instrument in whatever currency you denominate your personal wealth.

There will be differences in the global landscape with regard to this new period of financial repression and the age of Economic Totalitarianism. Timely knowledge of alternatives, such as public shares, private bonds, foreign exchange, precious metals or commodities, seems more urgent than ever. This is not a time for bias or propaganda by salesmen.

There are some problems moving toward a cashless society that must be noted. True, the rapid growth of substitutes for cash, particularly debit and credit cards and Google Wallets, has led economists to predict the advent of the “cashless society”. Yet cash holdings in most developed economies continue to grow and in the United States, per capita currency holdings now amount to $3,000 if we assume a domestic circulation. The long-standing controversy concerning the whereabouts of U.S. cash should not be ignored lightly. Specifically, the Obama sanctions against Russia has led to the reduction of dollars circulating in Russia mainly for political reasons. This has been replaced by the Euro even in Ukraine, but the plight of the Euro could reverse that trend in 2016. Employing a confidential data source on net shipments of U.S. currency abroad reveals a reversal of the trend from the 1990s began in 2012. The estimate of U.S. currency held overseas that once was cited as 65% is down sharply to about 25%. This reduces the domestic cash holdings amounting to roughly $2,250 per capita. This warns that moving to a cashless society for nations such as the United States and Switzerland may be far more difficult that the myopic domestic perspective.

The governments are well aware of the Economic Confidence Model (ECM). It certainly appears as though they are now focusing on the cycle rather than just the trend. Nevertheless, they have not changed their thinking process and in that line the future appears very grim – we are headed into economic totalitarianism unless the people wake up.

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