The Great Martin Armstrong: What is Money, Brilliant

Money: What Is It? What is Interest? What is the Wealth of a Nation?
Posted on September 7, 2015 by Martin Armstrong
Merkel-Lagards

Angela Merkel and IMF chief Christine Lagarde can laugh it up as Europe burns down. The whole crisis stems from antiquated ideas that center on what money actually is. If you do not grasp what the true function which money actually provides within the economy, then you will be unable to get anything else right either. This entire idea of austerity is the crazy notion that money somehow should be a store of value. This is up there on the list of myths with those who also argue that markets decline because of shorts rather than comprehending that eventually longs do also sell.

Money-Assets

Money is the OPPOSITE of assets and has always been historically. This is incredible important to understand far more than you may realize. If you want money to retain its purchasing power/value, you are creating a false image of how the economy functions. For Germany to be politically obsessed with the days of hyperinflation and constantly attempt to impose austerity, they are adopting the anti-asset position and that is the source of deflation.

Interest is actually supposed to be a measure of expected inflation and is essentially dealing in options. Whatever the rate of interest, the lender is expecting that the money will buy the same amount of assets upon repayment plus some profit in excess – the interest rate + inflation. Bankers want the same purchasing value back upon repayment plus their profit which is the entire purpose of lending money. Yet historically, the boom and bust cycle is the rise and fall in the purchasing power of money as measured in terms of assets. That is what is rising and falling – the purchasing power of maney against tangible assets/services (labor). When the purchasing power of money declines and assets rise, we call this a BULL MARKET. When the purchasing power of money rise and assets fall, we call this a BEAR MARKET.

CALLMONY-MA

I have written many times that there is no magic level in interest rates that will cause the stock market to fall. As a market rises (BULL MARKET), interest rate MUST rise for that is the option on money and its future purchasing power upon return. Thus, it has NEVER BEEN the direction of interest rates that determines the direction of assets, for they are historically linked and must be. Only a fool, indoctrinated by Marxist-Keynesianism, does not grasp that the economy cannot be manipulated by interest rates. This is why doing empirical studies of these two factors on a correlation model reveals simply that the stock market HAS NEVER peaked with the same level of interest rates twice in history. The level of interest rates is indistinguishable from a option premium on the future expectation of that particular asset. Therefore, interest rates are a reflection of anticipated decline in the purchasing power of money.

bank-robberThe Federal Reserve keeps talking about the “normalization” of interest rates. They will not come out and explain what I am writing right now because it would expose that the emperor is naked. The Fed sees that negative interest rates proposed by the legendary banking advocate Larry Summers who may have been an agent from Hell sent to Earth to wipe out the economy, are highly destructive and amount to a tax on money. Negative interest rates can only be totally destructive to all asset classes and furthers deflation to the extreme. People then would hoard money outside of banks to avoid the tax and this leads governments on their quest to eliminate physical money and embrace the age of electronic money. That changes the entire game and embraces economic totalitarianism.

Gold-Fluctuated

These people are fundamentally destroying everything because they are clueless about what is really money. Both China and Japan rose from the ashes without gold, proving that the wealth of a nation is not its gold reserves, but the total productive capacity of its people. Returning to a gold standard will not provide some magical check and balance where assets still rise in value yet gold/money would retain its purchasing power. They are totally lost in the rambling of their own mind. When gold was used as money, it rose and fell just as anything else that has ever been money proving it does not matter what you use for money, the same result will always emerge – money is on the opposite side of money. If you cannot grasp this fundamental realization, then you are doomed to screwing up the economy and society big time.

Caesar-5The only politician throughout history who truly understood this fact of life was Julius Caesar. To solve the debt crisis, he realized that the value of money rose above what it once had purchased and the price of assets reflected in terms of money had declined. He realized that when a banker lent you money to buy a home say $100,000, and the market crashes, a $100,000 can perhaps buy two houses. The banker then reaps a huge profit demanding full repayment. Caesar’s solution? He appointed a board to revalue all assets to the point when the debt was entered. He then attributed all previous interest payment to reduce that capital borrowing and therein settled all accounts. Caesar reduced the profits demanded by the bankers in purchasing power terms. He revitalized the economy and ended the debt crisis.

Money is merely a reflection of its purchasing power. It has NEVER been historically a store of wealth and cannot possibly be under any circumstances where assets rise in terms expressed in money. For assets to rise in terms of money, that means money must decline in purchasing power. This is rather simple to understand. Money is simply a medium of exchange that fluctuates in purchasing power rising and falling based upon human activity. We are lost in understanding the future because we cannot understand the past and the role of money no less debt and interest rates, which are merely an option on the future expectation of the purchasing power of money.

The wealth of a nation is the total productivity of its people. If I have gold and want you to fix my house, I give you the gold for your labor. Thus, your wealth is your labor, and the gold is merely a medium of exchange. So it does not matter whatever the medium of exchange might be. You will give your labor provided you know someone else will accept the medium of exchange from you in purchasing something else. It is the labor of the people and their productive capacity that creates the wealth of any nation. Germany rose from the ashes in Europe to be the strongest economy without gold all on the back of the total productive capacity of its people. The same is true for Japan and for China. Where corruption prevailed as in Russia and they relied upon selling a commodity rather than the productive capacity of its people, then its economy has not soared as did China, Japan, or Germany. This also explains the third world status of South America and Africa. When a country exploits is natural resources to gain wealth rather than educating its people, its long-term viability will diminish with the reduction in the supply of its natural resources or in the case of oil, against rising cheaper alternatives. We do not get this fundamental principle correct, we will destroy our economies with excessive taxation, which in turn, reduces the total productive capacity of its people.

This entry was posted in Ancient Economies, Europe’s Economic History and tagged Ancient Rome, Angela Merkel, Christine Lagarde, Julius Caesar, Money, Wealth of a Nation by Martin Armstrong. Bookmark the permalink.
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Inside the Currency Market: EUR/INR

Sri, my levels and points aren’t exact perfect but extremely close.

EUR/INR. Bottom. 74.36. Range break above 75.43, Below 74.04. Overbought sell point 75.16. Strategy. Longs above 74.74, target 75.16. Then reverse short to 74.95 and lower. Points on the way up, 74.77, 74.87, 74.97, 75.16.

Shorts below 74.73, target 74.54. Watch this point for reversal higher. Points on the way down, 74.66, 74.56, 74.51, 74.43, 74.36 Bottom. Bottom breaks then target 74.20 then 74.04.

Brian Twomey Inside the Currency Market, btwomey.com

Inside the Currency Market: EUR/USD

Okay last 4 trades. Always done quick, always profit fast and always hit perfectly or just about perfect as written. USD/JPY Longs from 119.05, Dead Stopped 119.57, then shorts back to reported 119.33 saw 119.20 lows. + 89 on USD/JPY. EUR/CAD, Long 1.4772, target 1.4822 overshot to 1.4839, short reverse to 1.4788 saw 1.4785. + 84 on longs and shorts. Overshot not counted. EUR/USD Long 1.1144, target 1.1194 saw 1.1177. + 33. Then shorts saw 1.1110 lows. + 77. Total + 110. USD/CAD I have as + 37 on longs only. Total pips 4 trades, longs and shorts as forecast, + 320 pips.

EUR/USD. Bottom. 1.1113. Range break above 1.1272, Below 1.1057. Overbought sell point 1.1233- 1.1247. A target failure at 1.1218. Strategy. Longs above 1.1269, Target 1.1233. Then reverse short to 1.1201. Points on the way up, 1.1174, 1.1189, 1.1204, 1.1218, 1.1233.

Shorts below 1.1168, Target 1.1140. Watch for reversal here to 1.1168 and higher. Points on the way down, 1.1165, 1.1158, 1.1151, 1.1143, 1.1140, 1.1126 then Bottom 1.1113. Point 1.1140 must cross to go higher.

Brian Twomey Inside the Currency Market, btwomey.com

Inside the Currency Market: Scumbucket World of FX Retail Trading

It appears a time once existed somewhere in the 2005 / 2006 vicinity when computers married Retail currency trading. Then came the rise of the Kathy Lien types with their impressive resumes, industry experience and books. These Kathy Lien types filled either a massive massive void in trading tactics to earn money or they were at the forefront of a massive massive movement that would bring in multitudes of millions of ordinary people hoping to earn money. Let’s face it, in the 1990’s academic journals, the focus was still on the deep intricacies, the deep understanding how to view, trade and understand currencies and trading. Carry trade topics in many forms, economics, Forward Points, interest differentials as well as arcane topics Vs today such as USD Premiums and Discounts to GBP were studied and discussed in finer detail. Even FXstreet in the 1990’s published terrific, vital and actionable trading information that dovetailed the academics. The journal of Technical Analysis was full of strategies, math formulas and actionable trading information. Anybody with half a brain, energy and a few dollars could easily jump into the game of currency trading and earn boatloads of money. But they were equipped with full understanding and knew exactly what they were doing. What happened. The Kathy Lien types actually poisoned the system for the massive multitudes present and future because the focus changed from understanding first then jump into the game to money first, forget understanding.

The Kathy Lien types became the gods and goddesses of the industry because they brought in the multitudes. They dovetailed the concepts to bring in the multitudes with introduction of tactics such as double Bollinger Bands, RSI, Slow Stochs and the rest. FXCM and other currency brokers would literally bend over backwards to ensure accounts of the multitudes were established. The formal transition from understanding to money first was sealed. One word from these types to buy or sell and the multitudes gladly jumped. Profits of the currency brokers must have soared. Fxstreet changed then as well from a professional site to a site for the multitudes. The Journal of Technical Analysis even transitioned to money first concepts. Soon the entire world was money first, understanding gone.

The last holdouts in the money first transition was banks and hedge funds. They still focused on solid and actionable research and math formulas. They were the gods to the previous professionals with understanding as the source of information. But bank research reports were hard to obtain so very few had their information. One had to be a client, know somebody or forget about ever seeing their data and information. What a bonus situation to the Kathy Lien types as they were allowed to reign supreme over the multitudes. But even the banks succumbed to the pressure of the massive multitudes so they decided they must compete for accounts. So then banks joined the game of money first and indicators as the source of new accounts. Now the Kathy Lien types had formal competition for the first time in years. But as banks focused on publishing trades for the multitudes, the quality of their research took a severe nosedive.

The multitudes realized they too could participate in the money first game because they found the Kathy Lien types were failures at both trading and understanding despite impressive resumes, books. They realized banks weren’t exactly thrilling either as they posted hit or miss trades, maybe profits, maybe losses. The masses became disillusioned because the money first game wasn’t materializing for them. So multitudes armed with a few dollars constructed their own websites and a money first strategy. The search was on for a concept, strategy, anything. All that counted was the strategy worked sometimes and the websites could attract the lost multitudes roaming the universe in search of quick money trades. Now we have the 1 second chart, the 5 minute and the most popular 4 hour. The next guy found a pattern. The next guy found a Fib but yet can’t calculate a Square Root. The biggest websites like Fx street counterattacked by constructing trading rooms so the multitudes could hang out together and trade with hopes somebody knew what they were doing to insure the masses would earn money. But then the lead trader concept was forgotten when tons of advertising revenue streamed in by the bushels. When the big websites remained an open forum with no care who earns, who loses, who comes, who goes then the multitudes with a new found concept decided to open a trading room. After all match concept with Advertising revenue, who could lose. Currency trading schools then popped up with hopes to rape on the pockets of the multitudes with promise of big money.

Today, the multitudes are still roaming the universe looking for whatever it is they won’t find. The concept of knowledge first, money follows is still long gone. Kathy Lien is where she belongs from the start, irrelevant. The few sites that still exist made tons of money and became extraordinarily slack. Why learn and grow to have understanding when the money flows in by the bushels in Ad Revenues, selling of whatever else. Many strategies by the new comers turned out to be colossal failures. Many websites resorted to market reporters while they tout themselves as analysts with impressive resumes. The famous named currency analysts from the 2005 period turned out to be a cabal and are used and abused by anybody who can get them to speak, write, offer a webinar. Traffic to the website is the name of the game, not to advance pertinent knowledge.

A few examples. A guy on twitter touts 47,000 views. What is he selling I wondered. Pivot Points. daily monthly whatever pivot points. Forex live despite impressive resumes report after the fact information and trades that are possibilities. I’m watching this, possible that, 200 hour. Baby pips Gump reports Sunday night Asia was pricing in Friday NFP. Think about that statement. How does the market price in NFP Sunday when the release occurred Friday. How much is the release worth to price in. What is the EUR/USD price on Sunday night Asia trading for Friday NFP. What was the EUR/USD price for Friday’s actual release. Fxstreet still has the same tired faces doing the same tired things day in and day out. We lack originality in concepts, Information, analysis. Even the banks engage in the same tired concepts and much is irrelevvant. The same old losing trades are posted day in and day out, fundamental analysis is all dead wrong and proves just as in trading, knowledge means nothing because nobody does homework first, report second. The insiders became tired and are no longer hungry. They are comfortable with their tired concepts that’s not worth a dam. The sad fact is none that became famous, wealthy or both have a clue about a currency pair so how can they help the multitudes. So the multitudes, well, just as the start, its the same. The smart guys would stay away from the public and treat the insiders for what they are, irrelevant.