Professional Documents
Culture Documents
2007,1 S
Or i s i t the
(Feb. 27, 2007)
Monetary System?
What Now?
and
Wh&t &©w? 43
The Paradox of Solutio n 44
Comprehending the Problem
46
The Differenc e Between Monetizatio n & Borrowing ....
Because Government Borrowing Competes wit h the 46
Privat e Secto r - There i s an Equal & Opposite
46
Force of Suppressing Economic Growth i n
Proportio n t o Stimulatio n 47
£h§ §§ululi©a
The objec t of thi s t r e a t i s e i s t o demonstrate that ther e i s substance behind
the ol d adage that "histor y repeats. " Everythin g i n nature has i n recen t times been
discovered to functio n mathematically conforming to what f r a c t a l geometry, created
by Bernoi t Mandelbrot, can reveal . During the 1970s, I discovered tha t ther e was a
very strange hidden r e g u l a r i t y i n pric e movements from day tradin g back i n cash
market days. Prom my Translux (paper-ticker-tape ) I could plo t each and every trad e
t i c k - b y - t i c k , and even r e l a t e tha t to volume (an a b i l i t y l o s t wit h computer screens)
. I began to notic e tha t the o v e r a l l patter n tha t unfolded intraday , would r e p l i c a t e
i t s e l f onto the dail y level, - eventuall y appearing i n the weekly l e v e l and then a t
a higher l e v e l of monthly a c t i v i t y . These pattern s were extreme movements tha t had
appeared leadin g up t o major changes i n trends . I explained, to c l i e n t s eventuall y
tha t fo r any patter n based upon c y c l i c a l events t o be v a l i d , i t had t o be r e f l e c t e d
throughout tame on a l l level s of a c t i v i t y . In other words, i f there was a cycl e of
a uni t of 8.6 interval s intrady , i t must als o exis t on the d a i l y , weekly, monthly,
yearly , decade, and century level s of time.
When I l a t e r became f a m i l i a r wit h Mandelbrot *s work, I r e a l i z e d tha t what he had
observed withi n nature, I was lookin g a t withi n human behavior. I*-began t o see tha t
ther e was s t i l l more to t h i s fascinatin g f r a c t a l geometry a r i s i n g from what t r u l y
amounted to geophysics. There were two d i s t i n c t aspects to the causes behind what
became manifest i n why "histor y repeats. " F i r s t , there was the c l e a r observatio n tha t
there were patterns of human behavior that repeated. Thi s patter n based a c t i v i t y le d
t o the f i e l d s of technica l analysi s and patter n recognitio n such as the work of Fros t
and Prechter known as E l l i o t t Wave analysis . Both sought to observe pattern s and then
projec t the futur e from the past assuming tha t there was a r e p e t i t i o n of patterns .
Secondly, there was a c y c l i c a l wave of events irrespectiv e of whether'i t create d a
low o r a high, boom or bust. Where,fracta l geometry could mathematically explai n how
something would unfold , there was a separate and d i s t i n c t element t o t h i s hidden
order than can be best describe d as the Geometry, of Time tha t i s the mathematical
r e a l i z a t i o n of C y c l i c a l Analysis .
I n t h i s t r e a t i s e , I am concerned wit h t h i s Geometry of Time and how through
C y c l i c a l Analysi s i t manifests withi n "when" events are l i k e l y to unfol d leavin g
f o r another day the f r a c t a l geometry of patter n recognitio n that t r a v e l s withi n
the same wave structur e l i k e DKA providin g a hidden code as to the pattern s tha t
should develop. The genius of Mandelbrot always arise s from out of the mainstream
because l i k e Socrates who t r i e d to prove the Oracle of Delph i wrong i n i t s . • prognos-
t i c a t i o n that he was the smartest of a l l Greeks, j u s t sometimes i t takes the one
lookin g int o the forum from the outsid e to see what a concensus cannot.
What I hope to accomplish i s to open the eyes to the tru e hidden order tha t
governs a l l l i f e , includin g ourselves . We must become aware of both time and the form
of structure . We must break-away from l i n e a r thought and t o 'see the world tha t i s
waitin g to be discovered that surrounds everything . My mother always sai d t o me tha t
ther e was a "time and plac e f o r everything, " Her explanatio n of the world t o me was
so very true . We must rejec t the idea than man needs to be controlled . Freedom i s
a devine g i f t that no man has the righ t to rob from another t o impose hi s persona l
views be they p o l i t i c a l or r e l i g i o u s . I f we understand human nature and tha t ther e
w i l l always be the booms and busts fo r they are the engine of progress forcin g new
advances that w i l l not appear, but fo r necessity , then we can surviv e and ex"pand our
comprehension of time and space. We must not destroy ourselve s i n the t h i r s t t o
punish that what we do not understand. C i v i l i z a t i o n i s on the l i n e . So i s the r i s k •'
of war. " I t i s j u s t time!" We must open our mind to see what our eyes cannot but what
our i n s t i n c t s t e l l s us e x i s t s .
f
I t ' s Jus t Time
The Decline & F a l l of the United States?
The Global Financial System?
Or Capitalism? V Wovelengfh
8.6 5Tear Cycle Wave
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instil •
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1
« yea r I n t e n s i t y W a v e / \
Or i s i t the
Monetary System? w h a t N o w ?
by Marti n A. Armstrong
former Chairman o f Princeto n Economics International , Ltd .
Copyright Righ t October 10th, 2008
The l a t e s t Financia l C r i s i s of 2007/2008 i s but a manifestatio n of events'
se t i n motion years ago tha t are now unfoldin g precisel y accordin g t o time . The
question of how t o deal wit h i t , i s a seriou s issue . Whether t h i s i s a n a t u r a l
consequence of the Business Cycle , i s another important questio n t o be resolved .
For the one unifyin g core element .of a f i n a n c i a l c r i s i s i s tha t nothin g ever
changes, only the player s and the instruments.-
The c u l p r i t i s not merely the mortgage market. Neithe r i s i t e x c l u s i v e l y Wal
l Stree t and the Banks. I t i s a combination of blame tha t squarel y r e s t s both
upon the Publi c and Privat e sectors . Are we to be so shortsighte d tha t we w i l l
now j u s t destroy our entir e p o l i t i c a l economy i n quest of a quick f i x ? Are we t o
y i e l d to the ranting s of X a r l Marx and hi s hatred of the " r i c h " t o blame the
hig h s a l a r i e s on Wall Stree t when that has nothing to do wit h curren t events
anymore than huge salarie s to sport s figures ? I f we do not honestly examine the
causes, we w i l l i n fac t destroy the Blessing s of Libert y fo r our posterit y
deprivin g them of freedom merely to use curren t events as an excuse to punish the
r i c h as Marx espoused. We face major problems. The Dow Jones could f a l l to 3,500
i f Confidence swings t o the government, or i t could go through a Phase-Transitio n
and reach 35,000 i f the swing i s back to the privat e sector . Gold-i s l i k e l y to go
to $2,500 or jump beyond even $5,000. We are starin g int o a futur e where the
political-econom y and c a p i t a l i s m ar e a t r i s k i n a merky cloud of uncertaint y a r t i c
u l a t e d only by George Orwel l and.Ayn Rand. There are those who r e j e c t histor y as
offerin g any knowledge.. Perhaps these are the same people whose parent tol d them
not t o s t i c k t h e i r f i n g e r i n t o the flame of a candle because i t would burn, yet
they did i t anyway r e j e c t i n g the lesson s of history . I t i s times l i k e the present,
where economic pai n produces people l i k e H i t l e r and Lenin . Capitalism i s
subject to booms and busts , simpl y because tha t i s the nature of mankind.
1
Confidence Remains the Key
Confidence has always been the determining factor . I f the people t r u s t th e s t a t e
, the f l i g h t t o qualit y w i l l run to bonds f l e e i n g the privat e sector . But i f tha t l e
vel of confidenc e should swing the other^way for_fear__of__an___abundant^supply of bonds,
the swing coul d be violen t i n the opposite directio n toward hyper-inflatioh . I t i s
th e yield-curv e tha t provides clue s to the swing between Publi c & Privat e
confidence . Par too often , the majorit y think s only i n a 10 yield cur™
l i n e a r fashion , rathe r than d3 namic. I f there i s a
r
9 short v Long-Term
f i n a n c i a l c r i s i s , c a p i t a l decides where t o hide.
I f people are not concerned about the stat e going
int o default , they w i l l s e l l the tangibl e asset s and
buy the short-ter m debt of the state . Thi s becomes
self-eviden t by the yield-curv e (shor t vs long-term
i n t e r e s t r a t e s ) . As c a p i t a l f l e e s t o quality , they
w i l l buy the shortes t government debt drivin g the
yield-curv e int o a sharp steep angle. Short-term 6m o lyr 2yr 5yr^ 1Djrr 3Q y r
I f you are worried about crashin g your car , you buy acciden t insurance . I f
you are worried about your house burning down, you buy f i r e insurance . I f you ar e
worrie d about someone takin g your valuables , you buy thef t insurance . But i f you
are worried about dying, you buy " l i f e " insurance? The reason they do not s e l l
"death" insurance i s because most people are not comfortable buying "death" i n s u r-
ance and t e l l the salesman they are not ready to die . To increas e s a l e s , they
changed the l a b e l to i t s opposite , creatin g the same deception.
I n f l a t i o n i s not the r i s e i n the goods and service s i n terms o f d o l l a r s when
i t i s throughout the entir e economy. An i s o l a t e d incidenc e because a l l the oranges
were destroyed i n a storm, i s " i n f l a t i o n " t i e d t o the supply and demand and can be
trace d t o that event. However, tha t narrow d e f i n i t i o n I s extended t o s h i f t the
blame from the government t o the privat e sector . When everythin g i s r i s i n g i n
price,, i t i s r e a l l y the declin e i n the value of the currency from-a purchasin g
power p e r- spective . By changing the l a b e l , they s h i f t the blame. So alread y we ar
e hearin g tha t the blame i s the "greed of Wal l Street " tha t immediately
exonerates the government i t s e l f . I f they are not the cause, what good
would be serve d by lookin g at government? None, of course! A systemic r i s e i n
price s i s caused by a declin e i n the purchasing power of the currency - not the
r i s e i n the pric e of goods and services . This c r i s i s i s e f f e c t i n g the underlyin
g systemic i n f l a t i o n a r y pressure s rathe r than the r i s e of price s and service s due
t o externa l reasons. Deflatio n and I n f l a t i o n are s i t t i n g on opposit e side s of the
scale . To deflat e the valu e of the currency causes a r i s e i n the cost s of goods
and services . To increas e the valu e of a currency causes a deflationar y effec t
i n the price s of goods and services . Thi s i s the r e a l i t y of and f i n a n c i a l
system. THE
FALLACY of Money Supply The ide a tha t the
Government control s the money supply i s absurd. The onl y thin g that the
Government can contro l i s the physica l money supply. Beyond that , money i s
created by the privat e secto r (1) through leverage, and (2) by th e very nature
of the f l o a t i n g exchange rat e system. I t i s not d i f f i c u l t t o r e a l i z e tha t if
you deposit $1,000 i n a bank and the bank lends i t t o another party , both w i l l
show the $1,000. I f you now leverag e tha t through derivatives , you can creat e a
multitud e of $1,000 assets .
The fa r more complex r e a l i t y of the money supply i s the electroni c money supply
that i s created by c a p i t a l flow s and banks. I f you have a buildin g and s e l l i t f o r
$1 m i l l i o n to another c i t i z e n , the money supply I s not effected . However, i f you
s e l l that same buildin g to a European, something changes. The'European w i l l brin g
euros, they w i l l be converted withou t r e s t r i c t i o n by a bank i n t o d o l l a r s , and now
that.$ l m i l l i o n i s given t o you f o r the building . You now have $1 m i l l i o n t o spend
domesticall y tha t di d not previousl y e x i s t . Under a f l o a t i n g exchange r a t e , money
i s created by the privat e secto r and no centra l bank can prevent i t . I f the y put
exchange rat e system. Consequently, money supply cannot be controlle d by th e c e n t r a l
bank i n any absolut e manner under a f l o a t i n g exchange rat e system.
4
FALLACY of Interes t "Rates
We are t o l d that the Government can contro l the economy by r a i s i n g or lowerin g
i n t e r e s t rates . This presumes the ol d world of economics of f i x e d exchange rate s
where the kin g (government) control s absolutel y the money supply . That simply i s
not the case i n a f l o a t i n g exchange rat e system. Secondly, a c l o s e r loo k w i l l now
revea l tha t i n t e r e s t rate s can do nothing t o cure t i e turmoil . We are dealin g wit h
the essence o f the Economic Confidence Model wit h the emphasis on "confidence. " The
y i e l d curve i n t h i s instance w i l l steepen sharpl y irrespectiv e of pla n of nations .
During economic panics, c a p i t a l w i l l i n i t i a l l y seek cover, which means i t w i l l ru n
as f a r away from uncertaint y as possible , i r r e s p e c t i v e of income. Thus, the short-
term rate s w i l l collaps e to as clos e to zero as possibl e fo r c a p i t a l w i l l net t r u s t
banks nor stocks . I t was pure and simple preservation . The y i e l d curve i n normal
f i n a n c i a l panics , steepens when c a p i t a l fear s the Privat e sector . Unique t o t h i s
s i t u a t i o n , we w i l l see a sharp increas e from the d e f i c i t of the l a s t f i s c a l year tha
t j u s t ended September 30th, 2008 wit h about $400 b i l l i o n i n new debt o f f e r i n g s . I f
the Government had to actuall y issu e j u s t $250 b i l l i o n relate d t o the c r i s i s , t h i s
means the new supply of debt w i l l jump to $650 b i l l i o n at a minimum. We coul d see
the expansion of the debt to wel l over 51 t r i l l i o n f o r the tax revenue w i l l decline ,
both f e d e r a l l y and at the stat e l e v e l s , prompting yet another c r i s i s . I t i s l i k e l y
ther e w i l l requir e federa l bailout s of stat e economies as wel l i n 2009.
These curren t events aside , h i s t o r i c a l l y speaking, j u s t f o r once examine 'the ;.
evidence. During the Great Depression, i n t e r e s t rate s collapse d from the 6% t o the '
below 1% l e v e l . -There was a huge f l i g h t to q u a l i t y on a globa l scale . I wrote of
the r e a l events i n the Greatest B u l l Market i n Histor y showing tha t v i r t u a l l y a l l
o f Europe defaulte d or suspended i t s debt. Thi s le d t o a massive f l i g h t to q u a l i t y
tha t caused the buying of d o l l a r s . Thi s drove the d o l l a r to new high s and was not
understood back then, leadin g t o the passage the Smoot-'Hawley T a r i f f Act o f 1930.
The economic contractio n was so bad tha t B r i t a i n even cut Canada los e allowin g i t
t o be recognized as an independent natio n by the Statut e o f Westminster i n 193-1.
By'1932, Congress enacted the Norris-L a Guardia Act , which was the f i r s t law t o
support organized labo r a c t i v i t y . I t was the globa l f l i g h t to the d o l l a r tha t had
s e r i o u s l y confused p o l i t i c i a n s and sparked the protectionism . Thi s f l i g h t t o the
-dolla r als o collapse d interes t rate s a t a f a s t e r pace i r r e s p e c t i v e of the desig n of
the Government. By the abandoning of debt i n Europe, they e s s e n t i a l l y abandoned th e
Fixe d Exchange "Sates under the Gold Standard creatin g a form of f l o a t i n g exchange
rat e system constructivel y tha t force d the d o l l a r t o record highs . Thi s was one o f
the reason Roosevelt confiscate d gold and devalued the d o l l a r r e l a t i v e to gol d i n
1934 r a i s i n g gold from $20 t o $35 per ounce. I f anyone t e l l s you the Government I s
i n absolut e contro l -of interes t rates , they do not know what they are t a l k i n g about.
Look at the fact s behind every major f i n a n c i a l panic , 1837, 1873, 1893, 1907, and
1929, and you w i l l walk away wit h a new perspective.. As long as ther e i s a f l i g h t to .
q u a l i t y , i n t e r e s t rate s w i l l declin e short-term , but w i l l ' r i s e long-term due to the
massive suuply on the horizon . I f the new bonds are .sold only domestically , t h i s w i l l
be s t i l l defaltionar y drying up privat e cash needed a t times l i k e t h i s . I n t e r n a t i o n a l
purchases w i l l brin g new cash i n and stimulat e the o v e r a l l net structure .
The FALLACY o f Taxatio n
We have ofte n heard that Republicans raise d taxes during the Great Depression .
Le t us se t the record straight . The onl y people who pai d taxes were the " r i c h " f o r
the p a y r o l l tax di d not come int o pla y u n t i l a f t e r World War 117 Raisin g taxe s on
those who create d jobs made no sense. The fear s o f maintainin g sound money were
dominant, and tha t i s what led' to Keynsian theory l a t e r on. You cannot punish the
productiv e force s when you need them the most.
5
The Kondratief f Wave
N i k o l a i Dmyitriyevic h Kondratief f (1892-1938)
i s i n ray opinio n the fathe r of modern economic
• c y c l i c a l theory. Followin g the 1917 Russian Revo- ^i l l f e
::; s5i-j v •
l u t i o n , Kondratief f was an economic professo r who s ;
r^ffi%'"Sji^-ife"i!
1
:
'c., ^m^'iSf^i-' split*
was c a l l e d upon to creat e the f i r s t Sovie t Five-
Year-Plan. To do the job , Kondratief f explored the
globa l economy as i t stood i n hi s day t o come up
wit h a program to stimulat e economic growth. I n
1926, he published hi s conclusion s and finding s
i n a repor t he e n t i t l e d "Long Waves i n Economic
Life . "
17th, 1938 and sentenced t o 10 years, and then taken outsid e and shot at the age or -
Edward Dewey who starte d the Foundation fo r the Study of C3'des, was the
economic adviso r under Herbert Hoover. He came away from the Great Depression
wit h the d i s t i n c t f e e l i n g tha t i t was l i k e what they commonly c a l l , "Murphy's
Law" - whatever can go wrong w i l l go wrong. The Great Depression was not j u s t
a economic disaster , i t was als o a natura l perio d of disaste r - the Dust Bowl.
There was poor management of the s o i l , destroyin g the natura l grasslands and
convertin g i t to wheat that di d not protec t the s o i l . Thi s became a disaste r
s i m i l a r to the B i b l i c a l lengt h of drought - 7 years . The drought began i n 1931
and the destructio n of the a g r i c u l t u r a l industr y that accounted fo r about 40% of
a l l employment, drove the unemployment rat e to nearl y 25%. The drought create d the -
"dust bowl" forcin g American labo r to become s k i l l e d . The Dust Bowl was the most,
severe between 19.35 and 1938, wit h 1935 scorin g 40 storms whil e one of the worst,
took plac e i n May 1934 blowing 318 m i l l i o n tons of s o i l t o the East Coast on the
wind. I t was t h i s combination of cycl e events combining weather wit h other
economic force s tha t caused Dewey to walk away from the event believin g i n some
complex c y c l i c a l a c t i v i t y he f e l t needed to be investigated .
The Multi-Dimensiona l Wave
I have explained many times i n the past, I discovere d the Business Cycl e back
i n the 1970s quit e unintentional . I have explaine d tha t as a youth, I was fortunat e
t o have t r a v e l l e d to Europe i n the mid-1960s spending the summer ther e wit h my
parents . Travelin g around from country to country introduce d me t o foreig n currenc y
exchange. I had obtained a jo b i n a l o c a l b u l l i o n / c o i n stor e t o earn money f o r th e
journe y and.became famila r wit h the precious metals markets as w e l l . So year s l a t e r
, I was s i t t i n g i n histor y clas s when the teacher turned on a black & white f i l m -
"Toast o f the Town." This was a f i l m about the Pani c of 1869 where the term "blac k
f r i d a y " was f i r s t coined, because of a gold panic , people were dragging the bankers
out t o the street s and hanging them. To suppress the Wal l Stree t r i o t , they had t o
a c t u a l l y send i n the troops. One scene showed Cary Grant as a youth givin g James F i s k
(manipulator) the quotes on gold . He read "$162." Having worked wit h gold , I knew
i t was onl y $35. Suddenly, my l i n e a r world collapsed . I went t o the l i b r a r y and even
v e r i f i e d that quote was correct . I could not understand how something was much highe
r i n pric e i n 1869 than today - tha t was not l i n e a r !
11
At f i r s t , I explored my own analysis , not expectin g to f i n d a cycle , but i n
fac t I was tryin g to disprove cycles . I n the course of events, what I discovere d
changed my entir e l i f e , and I have been paying the pric e ever since . I had begun
by lookin g a t f i n a n c i a l panics . How many were there? Why did they happen? I had
gathered everything I could f i n d . I found 26 such panics between 1683 and 1907 -
a span of 224 years. I then di d a simple calculatio n to determine the average. I t
produced the number t o be precisel y 8.6153846615.
I began t o explore the time serie s t o tr y t o comprehend what caused them. I
could see throughout histor y tha t nation s and .empires always rose and f e l l . There
had t o be some explanatio n as to why such state s j u s t expire . I began t o n o t i c e that
even p o l i t i c s flowed i n a c y c l i c a l nature; Sudden shocks economically seemed t o even
spread l i k e a contaigon around the globe. I notice d tha t war were s i m i l a r . If-on e
takes the American Revolution , you see the trend feeds France. The r e v o l u t i o n i n
England i n 1689 spreads to a revolutio n i n Eussia . The examples are endless . Even
going back to ancient times, the Komans overthrew t h e i r Tarquin king s i n 509BC s e t t i n
g up a Republi c while i n Athens i n 508BC Democracy was born.
My studie s le d me t o see great waves of structure d trends tha t b u i l t i n t o
groups of 6 waves of i n t e n s i t y ( v o l a t i l i t y ) forming major waves of 51.6 year s (6x
8.6). I furthe r began to see tha t how the economyc reacte d differen t on an a l t e r-
natin g basi s between Publi c and Privat e Confidence. When the people truste d th e
state , v o l a t i l i t y was lower almost feuda l inasmuch tha t when an invade r appeared,
one coul d run behind the wall s of the castle . Privat e waves produced f a r greate r
innovatio n where s e l f - i n t e r e s t s fuele d progress creatin g exponentia l economic
advancement. For example, the l a s t 3 high s of the 51.6 year cycl e were 1878.15,
1929.75, and 1981.35. The f i r s t was a Publi c wave f i l l e d wit h c i v i l war and great
expansion of government. The next wave saw the boom from the r a i l r o a d s and th e
innovatio n of the car . The l a s t was a Publi c wave peaking i n 1981.35 marking the
peak i n the New Deal wit h escalatin g i n f l a t i o n and perpetua l d e f i c i t spending. Now
we are again i n a Privat e wave marked again by the great p r o l i f e r a t i o n of desktop
computers, globalizatio n of the economy, and the b i r t h of the Interne t equalle d only
i n importance to .how..the r a i l r o a d s expanded the economy from coast t o coast .
During the earl y 1970s I was i n f a l l i b l e . I foresaw gold r i s i n g from 1970 int o
1974 based upon the gold-bug fundamentals, and gold r a l l i e d from $35 t o almost $200.
; But then gold f e l l back t o about $103 going int o 1976. The fundamentals had not
changed, but the model was correc t c a l l i n g fo r a low i n 1977.05 wit h a exponentia l
r a l l y i n t o 1981.35. I r e a l i z e d tha t my i n f a l l i b i l i t y was dumb luc k j u s t l i k e a broken
cloc k i s s t i l l correc t twice a day. I sol d at the peak i n 1974 only because i t f e l t
r i g h t . I t r u l y f i r s t followe d the model a t the low and saw the exponentia l r a l l y
before my very eyes.
Shortl y afte r publishin g t h i s model i n the l a t e 1970s, I receive d a request
from a wel l known U.S. m i l i t a r y schoo l - the C i t i d e l askin g permissio n to teach
t h i s model i n school . I was. compared t o G.W.F. Hegel (1770-1831) who was a noted
German philosophe r who posite d tha t human nature could not be understood withou t
retracin g the footstep s of mankind throughout history . I t was Hegel who promoted
a wide spread investigatio n of histor y int o variou s f i e l d s besides the study of
philosophy, a r t , r e l i g i o n , science , and p o l i t i c s . Hegel's " d i a l e c t i c " was h i s theory
of histor y tha t formed thre e basi c c h a r a c t e r i s t i c s ; .(1) the course of h i s t o r y follow s
that which i s necessary f o r i t cannot unfol d d i f f e r e n t l y , (2) tha t h i s t o r i c a l change
develops as does progress, and (3) tha t one phase of h i s t o r i c a l development tends
to be confronted and replace d by i t s opposite , and t h i s i s intur n replace d by a phase
that is " somehow a resolutio n of~~the two"~pfevi6us opposed phas"es~'If ~is~T;~hese t l i r e e ~
phases tha t he viewed formed a t y p i c a l d i a l e c t i c a l development tha t has been c a l l e d
thesis , a n t i t h e s i s , and synthesis , but Hegel did not use those terms. While I do
1?
not agree wit h Hegel i n a l l aspects, u n t i l I was confronted wit h h i s work, I had
not made the connection between my observation s of s h i f t i n g confidenc e between the
Government and the Privat e Se'ctor, and the " d i a l e c t i c " process of Hegel . I agree
wit h Hegel .that there are great swings throughout h i s t o r y that driv e the destin y of
men. But I see t h i s als o as the struggl e of cooperation that forms the foundatio n
•of c i v i l i z a t i o n . As the Roman Senators discovered , giv e the mob holidays , fre e
bread, and plent y of sport games, and they w i l l be so occupied wit h t h e i r pleasure s
that they w i l l leave the Senators alone t o rob and corrup t every corne r o f s o c i e t y
u n t i l the mob can no longer be fed and revolutio n takes hold . K a r l Marx saw t h i s
struggl e only between the employers and the working class , rathe r than between the
stat e and the people. '
The 8.6 year cycl e I have writte n before contain s 3,141 days tha t forms th e
cycl e or c i r c l e so t o speak equal i n numer t o P i x 1000. I als o explaine d tha t
I di d not discove r t h i s from P i , but l a t e r discovered P i i n t r y i n g t o f i g u r e out
i t s accuracy. I explaine d tha t the cycl e was discovered from a study of the number
of f i n a n c i a l panics between 1683 and 1907 tha t was a t o t a l time perio d of 224 years
. There were 26 panics withi n tha t 224 year perio d tha t produced 8.615384615. I t
was l a t e r discovere d tha t these i n d i v i d u a l waves built-u p int o groups of 6
producin g a major wave of 51.692 years tha t was very clos e to the observation s of
Kondratieff . I als o teste d thi s back i n time forming a group of 6 waves again tha
t produced th e major wave of 309.6 years. At t h i s l e v e l , I began to notic e the r i s
e and f a l l o f c i v i l i z a t i o n s . At a conference of the Foundation fo r the Study of
Cycles,, a guest speaker S a l l y Balbinu s showed her discover y of a 300 year cycl e
i n the energy output of the Sun. I t was an .average tha t shocked me fo r i t matched
very c l o s e l y t o the 309.6 year cycl e i n the rise ' and f a l l o f c i v i l i z a t i o n s
. Lik e the characte r Neo i n the Matri x who r e a l i z e s he
i s the "One" because he can now see the code, the hidden order of cycle s
indeed i s everywhere from the beat of your heart , weather, the planets , and
l i f e i t s e l f . We must f i r s t grasp the dynamic nature of cycles . Above, i s the 8.6
year cycl e on a m u l t i p l e time l e v e l . We can see how i t moves up through time i n
phases of 6 groups. For a cycl e t o become v a l i d , i t must e x i s t on a l l level s of
time. In the Second A r t i c l e "The
Business Cycle and the Future (Par t I I ) " dated October 10th, 1999 (the one
the Government prevented from being publishe d but escaped v i a former
employees), I explaine d tha t there were 8,6 month and 8.6 week cycle s withi
n the 8.6 year wave formation. Jus t as the c y c l i c a l wave b u i l d s upward i n scal e
through time, i t als o must exis t moving down i n time r i g h t i n t o minutes. But
notic e that the wave build s int o large r waves i n groups of 6. Thi s i n fac t
build s int o another great wave instea d of being 51.6 years , the grouping build s
separately , yet simultaneousl y int o great waves of 72 years . The organizin g
frequency of 72 years becomes a conerstone of s e l f - r e f e r r a l - i n t e n s i t y ( v o l a t i l i t y ) .
The 224 Year Cycle of P o l i t i c a l Change
The 224 Year Cycle Frequency
In the October 10th, 1999 a r t i c l e , I reveale d what the Government was trying
very hard t o suppress - the 224 year cycl e of P o l i t i c a l Change. I gave a revie w
of numerous governments throughout time showing the r e l a t i o n s h i p o f t h i s frequency
to p o l i t i c a l changes. Some governments di d not l a s t beyond that time frame, whil e
others reformed and survived , a l b e i t i n a different^manner. There i s s t i l l th e
effec t of a p a r a l l e l wave of grouping tha t tends to creat e the s e l f - r e f e r a l natur e
that fuele d both i n t e n s i t y ( v o l a t i l i t y ) as wel l as r e p e t i t i v e cycl e o f which Hegel
spoke, tha t the opposite system emerges. Sometimes there may be a synthesi s o f
the two p r i o r systems, but t h i s gives r i s e to the maxim tha t h i s t o r y repeats .
13
The Shape o f the Wave
One of the great misconceptions in
cycl e theory i s that cycle s unfol d l i k e
a B e l l Curve. Thi s i s simply not true , as
we w i l l explore . When we conside r the
major 224 Tear Cycle of P o l i t i c a l Change,
we are confronted wit h precisel y how the
wave i s formed.
Another f a l l a c y has been tha t there
i s some mysterious "equilibrium " that forms
a magic balancin g act . This notio n of a
magica l stat e of "equilibrium " aris e from economics where those who construc t the
theorie s lac k personal experience. The. idea of "supply and demand" inherentl y create
s images of balance from.which "equilibrium " seems t o have emerged. I n the r e a l
world, one r e a l i z e d that the economy i s more l i k e one of those e q u i l i b r i s t s who t r y
to balance themselves on a chai r on the edge of a sky—scramper. The ide a of
"equilibrium " i s j u s t impractica l fo r i t i s l i k e the search fo r the fountai n of
youth. I f the stat e of the economy were t r u l y balanced, we would be i n the dark ages.
Adam Smith who wrote the celebrate d Wealth of Nation s i n 1776, states : "Nothing,
however can be more absurd than t h i s whole doctrin e of the balance of trade. "
(Book IV, chp I I I , par t I I ) . I f trade were perfectl y balanced, there would be no
progress, fo r the advantage of one natio n create s prosperty i n that natio n tha t
can come only at the expense of .. another. That does not mean protectionis m i s
the answer, fo r tha t create s th e dark age wit h no prosperity .
For t h i s very reason/tha t the "shape" of the wave cannot also, be uniform wit h
a nic e balanced structure . The shape.of the wave i l l u s t r a t e d here i s a long perio d
of o s c i l l a t i o n s tha t buil d int o a major high , and then l i k e the e q u i l i b r i s t who i s
l e f t i n an unnatura l state , suddenly faces the hazardous collapse . The shape of the
wave i l l u s t r a s t e s the catastropi c melt-down, that appears to come from nowhere l i k e
a "great " or "rogue" wave of combined force i n the ocean. I t i s not a B e l l Curve.
The Phase-Transitio n
The reason the model was indeed
correc t i n forecastin g the p o l i t i c a l
change i n China & Russi a and the bi g
collaps e i n 1998 i n Russia , i s due t o
understanding the wave structure . A
system can cras h from exhaustion, or
i t can go through a Phase-Transitio n
tha t creates the exponentia l r a l l y
such as the .Com Bubble. Nikke i 1989,
or gold jumping from $400 to $875 i n
about 4 weeks fo r the hig h i n 1980.
The Phase-Transitio n i s t y p i c a l l y described as takin g water and b o i l i n g i t . A
pot of water progresses i n temperature,. but toward the end, i t jumps int o a chaoti c
stat e that erupt s at the b o i l i n g point creatin g a Phase-Transitio n as water convert s
to steam. Science has studied t h i s process tha t has reveale d the natur e of a l l things .
The process does not follo w the B e l l Curve but becomes an exponentia l move at the
end, which we c a l l the Phase-Transition . Some have c a l l e d these "Power Laws" that
are e s s e n t i a l l y f r a c t a l s discovere d by Mandelbrot experiments. Some have referre d t o
t h i s as the scienc e of "chaos" ye t i t I s fa r from "chaos" i n tha t i t i s a natura l
and require d functio n withi n nature .
14
I t i s c r i t i c a l to understand the shape of the wave i t s e l f . We are dealin g
wit h the Phase-Transitio n shape, not the b e l l curve models. The shape o f th e
wave becomes paramount t o comprehending what i s possibl e and what i s not . Fo r
example, s c i e n t i s t s argued over two possibl e outcomes f o r the movement of th e
magnetic poles of the earth . I t was not disputed tha t the pole s move. We know
where they have been fo r when a volcano erupts, the coolin g magna tha t forms new
stone i s magnetized i n the d i r e c t i o n facin g the curren t north pol e a t tha t s p l i t
moment i n time. Studies have shown from ancient rocks tha t the magnetic pole s
have even traded places many times. During some periods , the nort h magnetic pol e
became locate d at the south magnetic pole , and the south magnetic pol e became
locate d at the north . S c i e n t i s t s have ofte n disagreed how the movement take s
place and even why. They have found animals froze n wit h food s t i l l i n t h e i r mouth.
Thi s has revealed that the movement of the poles i s not always a gradua l process .
The pole s suddenly jump followin g more of the chaoti c models along the l i n e s o f
a Phase-Transition .
No matter what we are lookin g at , change comes not i n a l i n e a r fashion , but
appears to be chaoti c - l i k e a "giant " or "rogue" wave tha t simply appears withou t
warning-. I n 1999, I publishe d the char t below of the Roman Monetary System. Thi s
was constructed by takin g a l l the coinage of Rome, measuring i t s weight, and th e
metal content from a purit y perspective . What emerged was fa r from l i n e a r , but
showed 'the c l a s s i c model of a Phase-Transition.. The collaps e of the Roman economy
was s w i f t , and certainl y would have appeared t o have emereged out of nowhere.
turnin g point s on the 224 Year Cycle of P o l i t i c a l Change were 333, 557, 781, 1005,
1229, and 1453. The Byzantine Empire thus laste d from the constructio n of Constantinopl e
16
5 Cycle Waves. I t was precisel y on targe t i n 1453 tha t the c i t y f e l l t o th e Turk s
and became the new Ottoman Empire. Thi s precis e peak fo r 1453 was so s i g n i f i c a n t ,
we forge t tha t the r i p p l e effec t of the f a l l of Byzantium was the entir e c a t a l y s t
tha t gave b i r t h to our modern society .
We have ofte n forgotte n tha t i t was the collaps e of Constantinople tha t l e d
t o the f l i g h t of scholar s takin g wit h them a l l the books of knowledge back t o th e
Roman and Greek times that created school s i n Rome and sparked the entir e
Renaissance. Even i n Russia , i t was the f a l l of Constantinople tha t le d to the f l i g h t
o f scholar s and roya l famil y members.that create d much of the cultur e of Russia . The
sheer scope . of the Byzantin e Empire i n i t s longevit y was astonishing . There were
many economic c r i s i s tha t unfolded, wars, plagues, and p o l i t i c a l coups. But i t
reinvente d i t s e l f time and again . In fact,, whil e Constantine renamed the c i t y
Constantinopl e i n 330AD, the f i r s t peak on the 224 Year Cycle came i n 557 AD.
Indeed, the p o l i t i c a l tension s . developed i n t o a two part y system tha t clashed int o
stree t brawls. The antigovernment r i o t s di d reach a chaoti c stat e i n 532AD where
much of the c i t y was l e f t i n r u i n . I t was from t h i s r i o t , that the Hagia Sophia
was b u i l t much l i k e the Empire Stat e Buildin g became the symbol of r e b i r t h and
hope durin g the Great Depression. The Crusades
F i r s t Crusade 1096 - 1099
Second Crusade .... 1147 - 1149
Thir d Crusade 1189 - 1192
Fourt h Crusade 1202 - 1204
Even lookin g at the crusades, we see one 51.6.year wave between the F i r s t and
Second Crusades. The Third , Fourth, and the Children' s Crusade of 1212 where thousands
of childre n from France and Germany believe d God would par t the Mediterranean Sea
and allo w them t o walk d i r e c t l y t o Jerusalem, died enroute to the sea , when t h e i r
expected miracl e di d not happen, many survivor s returne d i n shame, whil e other s t r i e d
t o get there by ship , were merely captured by the Muslims, and sol d Int o salver y i f
they di d not peris h at sea. The so c a l l e d F i f t h Crusade (1217-1221) onl y amounted
to the capture of Damietta i n Egypt and the Sixt h Crusade was le d by Emperor Frederic k
I I of the Holy Roman Empire, (1228-1229), which f i n a l l y compelled the Muslims t o
t o turnover Jerusalem, but they seize d i t again i n 1244 takin g i t away from the
Christains . Thi s was followe d by the Seventh Crusade le d by Loui s IX of France, who
became known as St Loui s (1248-1254), who was captured by the Muslims and ransomed.
Loui s le d the Eight h Crusade i n 1270 tha t captured Tunis , but he die d s h o r t l y there-
a f t e r . While the Thir d Crusade was a f a i l u r e and a prelud e to the Fourth , i t was
the Fourth tha t began about 51.6 years afte r the Second tha t f i n a l l y ended i n the
whole crusade e f f o r t about 72 years l a t e r from'the year 1200.
The examples are numerous, but what we fin d i s a complex dance o f c y c l i c a l
a c t i v i t y forming differen t wave length s and creatin g d i f f e r e n t e f f e c t s . But note
the strange appearance of the 72 year cycl e that i s not a harmonic o f the 8.6 year
cycl e or the 224 year, yet i t follow s the 224 year cycl e wit h r e g u l a r i t y . Thi s I s
exposing a multi-dimensiona l c y c l i c a l wave formatio n tha t i s f a r from f l a t . There
i s yet a t h i r d dimension, tha t i s even more complex, tha t i s hard t o see withou t
the col d power of computers - The Schema Carrie r Frequency.
The 224 Year Cycl e Wave & The Unite d State s
The Unite d States has als o h i t i t s targe t i n 1999 on the 224 yea r cycl e from
1775. Thi s was tha t poin t where one must say, " I t ' s j u s t time." I n Hegelia n terms,
we reached the poin t i n time that p o l i t i c a l change and upheaval was j u s t p l a i n and
simply state d as "necessary." Of course, a l o t has happened. There was even the 911
17
attac k and of course there was the controversia l Bush-Gore E l e c t i o n . There would
be hardl y anyone who can deny tha t the natio n has begun a s p i r a l downward and where
i t w i l l lea d i s a c l i f f of uncertainty .
I t does not appear tha t the 1999 targe t on the 224 Year Circle i s the end o f
American C i v i l i z a t i o n . But i t may very w e l l be tha t poin t i n time tha t h i s t o r i a n s
i n the futur e w i l l look back upon and draw the l i n e i n 1999 as di d Edward Gibbon
regarding 180AD and the peak of the Roman Empire wit h the reig n of Marcus A u r e l i u s .
The United State s w i l l survive , a l b e i t , not necessaril y as we once knew i t . There
are great convergences of c y c i c a l waves coming together fo r t h i s downturn tha t does
not look very good fo r the immediate years ahead.
As I have shown, the major changes i n the p o l i t i c a l economy of mankind have
followe d the wave length of 2.24 years. The r i s e and f a l l of variou s governments and
systems have unfolded wit h the 224 year i n t e r v a l s , includin g Democracy i n ancien t
times. We cannot forget , tha t economic stres s causes i t s e l f a degree of s i g n i f i c a n t
v o l a t i l i t y tha t forms the foundatio n o f change. As I wrote i n the Greates t "Hull
Market I n "History, during the Great Depression, members of the Senate stoo d and even
made the shocking comment that a dictatorshi p was preferrabl e to what they were
under- going at the time. Take away tha t securit y blanket , and you w i l l see t o t a
l chaos erupt among the masses. Below i s i l l u s t r a t e d the convergence tha t we
now face .
THE. "GREAT"
1999 CONVERGENCE
OF
The "Great Covergence" tha t we now fac e i s one of those moments i n time tha t
Hegel viewed as "necessary" and Thomas Jefferso n perhaps viewed as a natural ; event
where the blood of patriot s i s needed t o fee d the Tree of Liberty . While the c l e a r
high i n the p o l i t i c a l stat e of the United State s took place i n 1999, the economic
hig h came precisel y to the day on February 27th, 2007. We have witnessed a stead y
economic declin e much fo r the same reasons as the declin e of the Roman Empire —
excessive leverage, corruptio n o f the r u l e o f law, and the collaps e of confidenc e
i n investing . We have now reached the threshol d wit h the 37.33 year F i n a n c i a l C r i s i
s Cycle tha t has come int o pla y fo r 2008. The c l i f f on the othersid e appears stee p
going int o what should be at l e a s t the f i r s t low i n 2011 on the 8.6 year target .
I t i s now the 37.33 year F i n a n c i a l C r i s i s Cycl e tha t w i l l capture the a t t e n t i o n
of the entir e world economy.
18
I f we begin wit h the 224 year Cycle of P o l i t i c a l Change, we know tha t d i v i d i n g
t h i s by 26 produces the 8.615 year cycl e - the base core of the Economic Condldence
Model. However, as I explained , there are 37.33 weeks withi n an 8.6 month cycle.
I f we now take the v o l a t i l i t y dimension wit h i t s base uni t of 6 and divid e tha t als o
int o the 224 year cycle , again we end up wit h 37.33. Thi s produces the followin g
years.
1775 - 1812 - 1849 - 1887 - 1924 - 1961 - 1999
Of course, 1775 marked the beginning of the Revolutionar y War tha t has been
attribute d to A p r i l 19, 1775 when the B r i t i s h t r i e d t o seiz e the m i l i t a r y supplie s
of the Massachusetts m i l i t i a . The Declaratio n of Independence was-announced on-the
4th of J u l y , 1776. King George had o f f i c i a l l y declare d America i n r e b e l l i o n on
Augusts 23, 1777. The Constitutio n was agreed upon f i n a l l y on September 17th, 1787,, -
but i t was onl y r a t i f i e d when the nint h stat e agreed, New Hampshire, on June 21,
1788. The B i l l of Right s di d not become law u n t i l December 15th, 1791. I f we were
t o begi n from the r a t i f i c a t i o n of the Constitution , we produce the followin g
targets . 1788 - 1825 - 1862 - 1900 - 1937 - 1974 - 2011.98
We'can see that there i s a 13 year differenc e between the 1775 and 1788 tim e
series . Looking at the f i r s t 1775 time series , we can see tha t the next targe t was
1812. Thi s I s the time serie s tha t began from the beginning of the Revolutionar y
War. I n 1812, Congress declare d war on B r i t a i n on June 18th. The B r i t i s h invaded
the Unite d States , captured Washington, DC, "and burned a l l " the publi c b u i l d i n g s ,
on August 24th, 1814. While the war ended wit h the Treaty of Ghent o f f i c i a l l y on
December 24th, 1814, yet i t was not r a t i f i e d u n t i l February 17th, 1815. Thi s war
di d have the e f f e c t of destroyin g the Federalis t Party , who had fought f o r greate r
Executiv e power to create a standin g army. Thi s was the essence of bi g government.
The part y collapse d afte r the revelatio n of a secre t meeting i n Hartford , Conn, tha t
was allege d to support secessio n from the union t o creat e t h e i r v i s i o n of an author-
i t a t i v e stat e i n 1816. The Federalist s were New Englanders - i . e . John Adams.
During t h i s 13 year phase d i f f e r e n t i a l between the 1775 and 1788 time s e r i e s ,
the natio n swung decisivel y toward the " l i b e r a l " Republicans. As we move i n t o th e
1825 turning-point , we see als o the s h i f t i n g p o l i t i c a l Ideas wit h the slaver y issu e
marked by the Missour i Compromise of March 23, 1820 where slaver y was allowe d up
to the M i s s i s s i p p i River, tha t was repealed' i n 1854. The f i r s t woman's c o l l e g e
;
began i n 1821. By 1823 there was the Monroe Doctrin e opposing European i n t e r v e n t i o n
in the Americas. With the Federalis t Part y collapse , New England began t o emerge
as more " l i b e r a l " i n favor of the people rathe r than the Government. The f i r s t
woman's s t r i k e took'place i n Rhode Islan d i n 1824, and I l l i n o i s , where L i n c o l n
would emerge, outlawed slaver y tha t same year. The P r e s i d e n t i a l e l e c t i o n became
deadlocked wit h t h i s cycl e and i n 1825, John Quincy Adams was electe d by th e House.
Both times serie s c l e a r l y present a very d i s t i n c t and i n t e r e s t i n g i n t e r a c t i o n
of target s and s h i f t i n g philosophies . The I n d u s t r i a l Revolutio n wit h hindsigh t
may appear to be j u s t f a n t a s t i c . However, whil e i t was takin g place , ther e was
a profound transfe r of economic power. Jus t as you saw AOL come out o f nowhere
and merge wit h Time Warner, a w e l l establishe d company, the same was t a k i n g plac e
during the I n d u s t r i a l Revolution . Agricultur e was perceive d t o be wealth . Even
Thomas Jefferso n when he needed money, sol d everythin g but land , because lan d
was s t i l l i n s t i n c t i v e l y wealth. I n 1870, about 80% o f the economy was s t i l l
a g r i c u l t u r a l based. Even by 1929, t h i s had f a l l e n t o about 40% whil e i t d i d not
drop s i g n i f i c a n t l y u n t i l the Great Depression, the Dust Bowl, and economic hardshi p
that force d the d o l l a r t o recor d highs. Agricultur e accounted fo r about 3% o f
19
the work forc e f i n a l l y by about 1980. Jus t as the interne t has been changing the
curren t economy leavin g behind the brick-and-motor stores , the I n d u s t r i a l Revolutio n
l e f t behind agricultur e and u n s k i l l e d labor . An example of the resistanc e i s s t i l l
r e f l e c t e d i n many stat e laws, a l b e i t no longer enforced. For example, there was a
law that i f you drove down the stree t i n your automatic carriage , should a horse be
freightene d by the contraption , you were require d to p u l l i t of f the road. I f the
horse was s t i l l freightene d by the new invention , you were require d by law to then
disassemble i t . Technology was not always embraced.
The Turning poin t of 1887 i n the 1775 Time serie s was als o i n t e r e s t i n g . Marx
died i n 1883, but the ideas were widespread and resiste d the I n d u s t r i a l Revolution .
By 1890, the Sherman Anti-Trus t Ac t took place . This was used to breakup .Standard
O i l Company, American Tobacco Company, and severa l other larg e firm s not t o mention
AT&T I n our modern l i f e t i m e . There were even crimina l prosecution s f o r given any
discount s to volume c l i e n t s . This became viewed as a denia l of equal protection !
The 1914 passage of the Clayton A n t i t r u s t Act targete d pric e discriminatio n and
made crimina l agreements between a deale r and a manufacturer tha t barre d them from
s e l l i n g a competitor's product. These regulation s were a l l Marxis t based. I t was Marx
tha t j u s t i f i e d the power of crimina l regulatio n .of commerce j u s t as Keynesian idea s
were used to support endless d e f i c i t spending (not what he t r u l y advocated).
The 1924 targe t on the 1775 time serie s was the reactio n low befor e the huge
explosio n of investment that drove the stock market int o the h i s t o r i c a l hig h going,
int o 1929, whereas the 1788 time serie s produced 1937, the f i r s t r e a l cras h a f t e r
the 1929 and Great Depression era . The next date was 1961 on the 1775 s e r i e s saw
the inauguratio n John F. Kenney, the Bay of Pig s i n Cuba, the s t a r t o f the Space
Race wit h the f l i g h t of Alan B. Shepard, J r . and the Cuba M i s s i l e C r i s i s i n 1962.
I n the 1788 time series , the targe t of 1974 marked the s t a r t of the impeachment
proceedings agains t Richard Nixon tha t was followe d by hi s resignatio n August 8th .
The US evacuated Vietnam on A p r i l 29th 1975.- I t was t h i s targe t tha t als o marked
3
The l a s t fou r targets'o f t h i s cycl e were 1896, 1935, 1971 and r i g h t now 2008.
Le t us begin wit h the 1934 event. I t was here that Roosevelt confiscate d gol d from
the people ending the lawfu l ownership of gold and forcin g upon the people a p l a i n
paper monetary system. The gold standard died as we knew i t i n 1934. He announced he
was confiscatin g gol d on A p r i l 19th, 1933. This was f i n a l l y r a t i f i e d by Congress on
June 5th , 1933. Indeed, 1933 was the l a s t year the Unite d States minted any gol d
coin s as money. The new reduced s i z e Federal Reserve Notes began t o be issue d i n
1934..- The nest i n t e r v a l of the 37.33 year cycl e brings us t o 1971 where on August
15th, 1971 Richard Nixon cut the t i e s t o gold completely even between nations . Thi s
was not a new monetary system tha t was designed by some world gatherin g as a t
Bretto n Woods 'back i n Jul y 1944 where 44 countrie s gathered to creat e the IMF and
the World Bank als o establishin g the US d o l l a r as the reserve currency of the
world . The 1971 turnin g poin t was t r u l y chaos. The new monetary
system tha t emerged by defaul t di d so only because of a trade dispute where
Presiden t Nixon close d the gol d window and would no longer redeem, dollar s fo r gol
d fo r the French and the Swiss. Thi s brought an end to Bretto n Woods. I t was not
planned. I t was not even discusse d a t a major world meeting. I t was simply a trade
disput e tha t was t o be . temporary, but found i t s e l f distracte d by other events -
namely OPEC. The f l o a t i n g exchange rat e system thus emerged. T t was not taught i
n schools. Economists did not know even what t o teach. This was the f i r s t time a f l o
a t i n g exhange rat e system emerged worldwide. Previously , the United States
abandoned the gold standard during the C i v i l War. Gold traded on the New York Stock
Exchange i n the form of "greenbacks" t o gold . That l e d t o Black Frida y i n 1869 wit
h a r i o t as investor s dragged the bankers out and hung them i n the streets . That i s
what "black f r i d a y " r e a l l y meant. The r i o t was so bad, the Government had t o send
i n troops t o suppress the chaos when gold h i t $162 back i n 1869. Adjusted fo r i n f
l a t i o n , tha t may be fa r beyond $10,000 today. The 37.33 Year
Financia l C r i s i s Cycle has been exceptionall y accurat e governing a s p e c i f i c reactio
n withi n the political-economi c structur e of the Unite d States . The 1971 turnin g poin
t produced a completely new type of world currency system by default . The 1934 turnin
g poin t produced the confiscatio n of gol d and the b i r t h o f a two-tie r financial
system, whereby gold was confiscate d domestically , but used i n t e r n a t i o n a l l y . Yet,
when we loo k back to 1896, we f i n d another major c r i s i s .
22
In 1895, J.P.Morgan reorganized departin g from hi s former a l l i a n c e wit h the*
important Philadelphi a famil y of Drexel , tha t was known as Drexe l Morgan & Co.. I t
was i n 1895 that the s p l i t create d J.P.Morgan & Company. Nevertheless , the grea t
f i n a n c i a l c r i s i s of 1896 l e d t o J.P. Morgan gatherin g a consortium o f worl d banks
to bailou t the United State s Government. J.P. Morgan's fir m sol d a l l o f a $62 m i l l i o
n Government bond issue . The sal e ended a gold shortage i n the U.S. Treasury , tha t
had been instigate d by the desir e t o creat e i n f l a t i o n through a l t e r i n g th e g o l d - s i l
ver ratio. . By valuin g s i l v e r at a higher rat e t o gold , other nation s delivere d s i
lver to the Unite d State s exchanging i t fo r gold tha t le d to a vast shortage o f
gol d where i n effec t the Government coul d no longer pay i t s obligation s i n i n t e r n a t
i o n a l trade . I t was the 1896 turnin g poin t tha t marked the economic turmoil . I
t was t h i s ver y targe t year when Willia m Jennings Bryan delivere d hi s famous speech
a t the Chicago Democratic Convention.
"Having behind us the producing masses of t h i s natio n and the world ,
supported by the commercial i n t e r e s t s , and the t o i l e r s everywhere,
we w i l l answer t h e i r demand fo r a gold standard by sayin g t o them;
You s h a l l not press down upon the brow of labo r t h i s crown of thorns ,
you s h a l l not c r u c i f y mankind upon a cross of gold. "
The 1896 Financia l C r i s i s was the Government tryin g t o d e l i b e r a t e l y creat e •
i n f l a t i o n at the request of farmers and s i l v e r miners. Those lobb y groups fough t
hard and t h e i r overvaluatio n of s i l v e r drove gol d to Europe bankruptin g the f e d e r a l
Government.
What does t h i s cycl e suggest fo r 2008? Unfortunately , t h i s i s a monetary
c r i s i s cycl e of major proportions . When i t comes int o play , we somehow end-up
wit h changing the monetary system i t s e l f . We w i l l be headed s t r a i g h t Int o the
worl d of a one-currency system based upon the recent model - the Euro. The
spread of the economic chaos around the world w i l l provid e the incentiv e t o
make thing s better . I t may be hel d in . a d i f f e r e n t locatio n so the name w i l l
change from "Brenton Woods" t o perhaps the'new Treay of Paris . I see no othe r
soloutio n f o r we are dealin g wit h not the "greed" of Wal l Stree t i n i s o l a t i o n ,
we are als o dealing, wit h the vas t debt structur e tha t was create d by endless
p o l i t i c a l promises. We w i l l not go back t o the gold standard. For Smith
was correct , the wealth of a natio n was i t s people and producive capacity . But
make no mistake, i t i s als o the Rule o f Law. I f c a p i t a l cannot be secure i n th e
t i t l e to propert y and enforcement of r i g h t s - i t simply leaves :
Europe knows a l l about cancellin g currencies . Americans do not. The d o l l a r
remains l e g a l tender sinc e inception . I n Europe, a l l nation s cancelle d currenc y
pre-Euro every 20 years of so. There may als o be the reestabllshmen t of a two-tie r
currency system where the one-world currency serve s between nations , and the l e s s o r
domestic versio n provides fo r c i t i z e n s . This would allo w more f l e x i b i l i t y t o do the
defaul t on domestic obligation s coverin g i t wit h new currency. During the 1870s, th e
Unite d State s Issued two s i l v e r d o l l a r s : (1) Trade Dolla r and (2) S i l v e r D o l l a r .
Internationa l payments were made wit h the Trade Dolla r tha t was 1 tro y ounce o f
s i l v e r whil e domestic s i l v e r d o l l a r s were about twenty-fiv e percent l e s s . South
A f r i c a als o had a two t i e r currency, the! Rand and the Financia l Rand fo r i n t e r n a t i o n a l
settlements . A two-tie r i s now possible .
The 37 33 Year Monetary C r i s i s Cycl e targe t fo r 2008 appears t o be a seriou s
targe t that w i l l se t i n motion a/cascade of changes that-shoul d plac e stres s upon
the world economy going i n t o 2011. The hig h dependency upon foreig n c a p i t a l t o fund
the US debt, w i l l als o tend t o dry up f o r c i n g greate r monetizatio n o f the debt and
the inevitabl e collaps e of the f l o a t i n g rat e system by as earl y as 2011 i f we ge t
past 2008. .
The .8.6 Year Economic Confidence Model
1589.9S
2DB7,f£
2015.75 2024.35
We have now crossed that peak i n the curren t wave — 2007.15 (February 27th ,
2007). we can see tha t the Economic Confidence Model project s out beyond my l i f e
expectancy and i t w i l l functio n lon g afte r I am gone as i t di d lon g befor e I was
born. These 8.6 year waves tha t r e f l e c t the Business Cycl e are calculate d by takin g
the per cent of 365 days fo r tha t year. For example, 2015.75 produces (.75 x 365)
that i s 273.75 days int o that year = October 1st , 2015. The low f o r t h i s curren t
economic devacle should be 2011.45 = June 13th, 2011.
The minor mid wave turnin g point s break down as the f i r s t le g bein g 2.15 year s
or a quater of the 8.6 year wave. The next quarte r wave i s t y p i c a l l y broken i n t o
hal f again creatin g two 1.075 year waves. We can see tha t i n the curren t wave, th e
mid-wave turnin g point s were 1008.225 (March 23, 2008) and 2009.3 (March 19th,
2009). Typically , these waves do not produce s p e c i f i c turnin g point s t o the day as i
s th e case a t the major turnin g points . Thi s i s due to the fac t that i n t e r n a l l y
ther e i s yet another laye r of a c t i v i t y , the 8.6 month cycl e that constitut e 6
waves w i t h i n each le g of the 8.6 year cycle . Again we see the structur e followin
g groupings o f 6 units . Thi s 8.6 month l e v e l of a c t i v i t y consitute s 37.33 weeks.
There i s ye t another laye r beneath t h i s calculate d i n 8.6 week i n t e r v a l s ,
followe d by s t i l l another, 8.6 days, hours, mintues and believ e i t or not
seconds. The hidden order does not end there . This i s l i k e
a Mandelbrot se t o f j u s t amazing order of pattern s r e p l i c a t i o n the same patte r
from one l e v e l of time t o the next. S t i l l , we w i l l als o shortl y explor e how the
i n t e r a c t i o n of t h i s cor e frequency I refe r t o as the Economic Confidence
Model, wit h the grouping cycl e that causes the self-organizin g pattern s of i n
t e n s i t y ( v o l a t i l i t y ) . For example, takin g the major hig h of the l a t e r 51.6 year
Publi c Wave, 1981.35, adding th e the f i r s t wave of 6 years, we a r r i v e at
1987. Thi s i s what caused tha t u s u a l l y minor turnin g poin t t o produce the
precis e date f o r the 1987 crash , 1987.8 (Oct. 19th, 1987). The next time t h i s 6
year wave l i n e s wup wit h the 8.6 year w i l l be 2011. Unless we understand time,
we w i l l be compelled to repeat h i s t o r y again .
25
The 8.6 Month Interna l Cycl e (37.33 Weeks)
Cycl e 2007.146
Withi n the 8.6 Year Cycl e
r-t o
r-»
CO*
CM A CM CM
i O
O
O i—<
CM
\ CM
o
/\
o
t—i
\ \/ \
"2011.44
2002.85
Copyright Marti n A. Armstrong 2008
There are 37.33 weeks withi n a 8.6 month cycle . Looking a t the 8.6 month
turnin g point s withi n the 8.6 j^ear wave structure , we have the followin g
dates:
11/6/02 2007.86 11/10/07
2002.85 07/23/03 2008.57 07/27/08
2003.56 04/12/04 2009.29 04/16/09
2004.28 12/27/04 2010.01 01/04/10
2004.99 09/16/05 2010.726 09/22/10
2005.71 06/06/06 2011.44 06/10/11
2006.43 02/23/07
2007.146
Note we have 6 waves within ' each hal f of the 8.6 year wave. Thi s i s caused
by the p a r a l l e l wave that, groups 12 waves o f 6 i n t o the 72 i n t e r v a l wave. We can
see that the differenc e between 2008.57 and 2009.29 i s again .72% of a year.
Once more we see the i n t e r j e c t i o n of the number 72.
The i n t e r a c t i o n between t h i s 8.6 month cycl e withi n the 8.6 year cycl e i s
c r i t i c a l t o comprehending how the natura l c y c l i c a l force s functio n I n a l l aspect s
of our physcia l world. On the 8.6 year wave, the f i r s t reactio n low a f t e r the j o m a
Note tha t i f we use the high (1981.35) and the low (1985.65) of the l a s t 51.6
year Economic Confidence Model tha t marked the high i n I n f l a t i o n and the formatio n
of the G-5 (Group of Fiv e Nations) t o coordinate globa l economic manipulatio n tha t
i s now coming back i n t o vogue, projectin g forward onl y the Intensit y Cycl e usin g
the uni t of 6 years, we a r r i v e at the 1987 crash, the 1999 low i n gold , and numerous
other turin g points , wit h the i n t e n s i t y once again pointin g t o 2011. We can see
als o 2009, but t h i s should provid e the reactio n high tha t may form durin g th e f i r s t
or second week of March of tha t year. However, we can see tha t 2011 i s coming up
on numerous waves that are independent, suggesting very strongl y tha t we ar e indeed
facin g a major Great Convergence.
There i s yet a deeper l e v e l of the self-organizin g nature of t h i s wave. Thi s
require s f a r more_complex math tha t i s f r a c t a l based tha t create s the s e l f - r e f e r r a l
to replicat e continua l pattern s of organization .
28
The God P a r t i c l e / Cycle ?
We have a l l heard tha t i n p a r t i c l e
*m *) physics , s c i e n t i s t s are searchin g f o r the
J / j unifyin g theory and have surmised tha t j u s
t simply stated , there must be a mysteriou
s p a r t i c l e tha t exist s they have c a l l e d
the "God P a r t c i l e . " Whether t h i s i s the
same thing , I am not e n t i r e l y sure. Perhaps i t i s a coincidence . But what I can
say, i t presents an i n t e r e s t i n g subjec t fo r debate tha t i s more r e a l world than
the Da V i n c i - Code.
The "Born-Again" Christian s or Fundamentalists have been lookin g fo r th e sig n
o f the Second Coming of Chris t based upon the stor y of the Apocalypse found i n the
Revelation s of the New Testament sai d t o have been writte n by Sain t John the Divin e
whil e he was i n e x i l e i n the I s l e of Patmos. Aside from the fac t tha t t h i s book has
been the most widely disputed fo r hundreds of years leadin g even Sain t Jerome t o so
declar e tha t i t was subjec t to 7 e n t i r e l y d i f f e r e n t interpretations , nevertheless ,
i t s controversy has endured the ages. The famous stor y of the A n t i - C h r i s t and tha t
we s h a l l know who he i s by the number of h i s name, 666, i s a r e f l e c t i o n of th e ol d
number systems. Before the introductio n of numbers as writte n d i s t i n c t from l e t t e r s
by the Arabs, both the Hebrew and Greek alphabet composed of purel y l e t t e r s , serve d
als o as the number system. For example, A- J would represent 1 t o 9, K=10, L=20, M=30,
N=40, 0=50, P=50, Q=70, R=80, S=90, T=100, U=200, V=300, W=400 and so on. . I t . was
the Romans tha t created numerals tha t were s p e c i f i c l e t t e r s to represen t numbers as
IZ=9, 1=10, 11=11 fo r example. Therefore, what i s meant by the phrase tha t we s h a l l
known someone by the number of t h e i r name i s to use the ol d system assignin g a valu e
to each l e t t e r i n a name and adding them up.
The reason I have chosen t o refe r t o t h i s p a r t i c u l a r cycl e as the "God Cycle "
i s not to j u s t follo w the l i n e of p a r t i c l e physics , but because th e frequency o f
t h i s cycl e seems to be extremely profound both i n the a c t i v i t i e s of man and nature .
I t .happens to match, a l b e i t perhaps by coincidence , the numerical number i n Hebrew
f o r the name of God - "Jehovah" tha t i s i l l u s t r a t e d i n ancient Hebrew above. I n
hebrew that reads i n the opposite d i r e c t i o n , i t i s "He Vau He Yod" tha t we t r a n s l a t e
to englis h as "Yod-He-Vau-He" making the word "Jehovah."
Jus t about everyone knows the "666" omen, but s t r i k i n g l y , most do not know the
number of the name the Jews gave to God - "Jehovah." I f we use the ol d Hebrew system
we can f i n d the number of God. Yod =10 , He = 5, and Vau = 6. Therefore , the name
o f God i n Hebrew He Vau He Yod equals 5 + .6 + 5 + 10 = 26. The number of the name
assigned to God by the Jews i s 26.
I explained that I discovered the 8.6 year cycl e by adding up the t o t a l number
of f i n a n c i a l panics between 1683 and 1907, which create d a time-space o f 224 years .
I found that there were 26 f i n a n c i a l panic s and then divide d tha t i n t o the 224 year s
to obtai n an average. That produced the 8.6 year frequency. Only when i t began t o
projec t to s p e c i f i c days, then I decided to study much deeper. There .is,th e f a c t
tha t I t appeared to be i n t e r i c a t e l y complex running concurrent wit h countles s othe r
c y c l i c a l behavior be i t natura l or man himsel f i n a sor t of time-space tube create d
by an interdependent, s e l f - r e f e r r a l f i e l d network whereby, the output of each and
e v e r y l t e r a t i o n becomes the inpu t fo r the next generatio n perpetuatin g patern s of
order i n such a dynamic, structure , tha t one cannot see the order of the whole f o r
the mask of s u p e r f i c i a l chaos. There simpl y i s yet a separate and d i s t i n c t cor e
frequency of 26 running, through the cente r of the f i e l d causing not merely Phase-
Transitions , but als o Phase-Shift s and Phase-Cancellation s when two cycle s indee d
c o l l i d e of equal yet opposite forces .
29
1929 - 1955 - 1981 - 2007
The above sequence of dates provides a simple demonstration of th e i n t e r e s t i n g
relationshi p of 26 to the Economic Confidence Model. The hig h on the l a s t P r i v a t e
51.6 y r Wave was 1929.75. I f we simply take the annual count of 26, we produce the
above time series . The great expansion of U.S. debt began from the 1955 post-war
targe t where spending without regard to maintainin g the r a t i o to gol d may safel y be
defined as the s t a r t of the perpetual,.spending. The next targe t 1981, was the hig h
of th e Publi c Wave of 51.6 years marked by the peak i n interes t rate s and the open
battl e agains t i n f l a t i o n . Thi s bring s us to 2P07, where the model has c o r r e c t l y given
the high 2007.15 that targete d to the day, the s t a r t of t h i s economic d e c l i n e .
Previously , we looked a t two time series , one beginning from 1775 marking the s t a r
t of the American Revolution , contrasted wit h 1788 tha t marked the beginnin g o f the
federa l government wit h the Constitution . The d i f f e r e n t i a l between these two series ,
i s h a l f the 26 cycl e - 13 years. I t i s twice 26 tha t produces the number 52 tha t we
w i l l see i s centra l to the Maya, but was als o the observatio n of th e commodity cycl e
noted by Kondratief f - the Russian economist. We can see tha t the timin g i n t e r v a l of
26 i s a c r i t i c a l and i n t e r e s t i n g number to say the l e a s t .
Whether 26 i s the "God Cycle " i s interesting . Hipparchus of Rhodes observed
around 150 BC tha t the equinoxes moved wit h time. Thi s i s where the Sun's path
crosses the c e l e s t i a l equator. He r e a l i z e d that these were not f i x e d i n time and
space but travele d i n a c y c l i c a l manner. The movement was extremely slow i n a
westerl y d i r e c t i o n . This amounted t o but les s than 2° i n about 150 years . Thi s slo w
movement i s known as the "Precessio n of the Equinoxes" and require s generation s
to even observe. I t i s les s than 2° movement every 150 years, bringin g t h i s als o t o
a v i r t u a l number of clos e to 26,000 years to complete one cycle .
Trut h = the Rule o f 9
Another kabal a number of mystery has been
attribute d to the famous Gaon From V i l n a who
discovere d tha t the Hebrew word fo r trut h ( t a f-
mem-aleph) produces the number taf = 400, mem=40,
and aleph=l added together 441 = 9.
I t was argued tha t God create d the world based upon truth , which i s the number
9. I f you take any number greater than 9, add the i n d i v i d u a l numbers, and subtrac t
the o r i g i n a l , we end up wit h a number d i v i s i b l e by 9. For example, 10=1 - 10 = 9.
150=6 - 150 = 144 / 9 = 16; 278=17 - 278 = 261 / 9 = 29. The examples ar e obviousl y
endless : 3255 = 15 - 3255 = 3240 / 9 = 360. Whether t h i s proves God create d the
world upon " t r u t h " i s open fo r debate. But i t c e r t a i n l y produces a very Inte re sting
mathematical mind-twister .
Revelatio n o f Fibonacc i
Fibonacc i perhaps became more widel y known wit h the DaVinc i Code where the
numerical sequence writte n on the f l o o r was the combination to the vault . Thi s
i s the name by which he may be known, but the r e a l name of Fibonacc i was Leonardo
Pisano. Perhaps the name i s a r i d i c u l e meaning "blockhead" coming at a time when
knowledge poured from the East was seen as perhaps e v i l by some. Whatever the
reason Pisano was stuck wit h the name Fibonacci , has long been l o s t i n time. Yet ,
Fibonacc i to.day_is widely used bv technica l anal yst s steming from h i s study of
rabbit s i n Libe r Abaci .
30
Fibonacc i was presented wit h a problem. How many rabbit s w i l l be born i n th e
course of one year from an o r i g i n a l pai r of newly born rabbits ? Rabbit s can start
to breed afte r onl y 2 months from b i r t h . Fibonacc i assumed that every month a p a i
r of rabbit s would produce another pair . He concluded, at the end of the year ,
ther e would be 233 rabbit s from the o r i g i n a l pair . He s t a r t s wit h 1 p a i r who do
not even breed fo r 2 months'. By the fourt h month, the o r i g i n a l pair' s offsprin g
would s t a r t to "breed on t h e i r own. Thi s exercis e produced the famous Fibonacc i
sequence: 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233
I f we dive deeper, we can see the r e l a t i o n between each number both moving i
n a forward and backward d i r e c t i o n . For example, l e t us take a number and divid e
i t int o the previou s number.
1 1.2 0.5
2/3 = 0.666
3/5 0.6
5/8 — 0.625
8/13 0.615384615
13 / 21 = 0.619047619
21 / 34 = 0.617647058
34 / 55 = 0.618181818
55 / 89 — 0.617977528
89 / 144 = 0.618055555
144 / 233 0.618025751
The above tabl e shows the precis e calculations . They are rounded'to 0.618
which the Greeks c a l l e d the "Golden Mean" upon which a l l proportio n i s based.
I f we divid e the highe r number by the lower number, we end up wit h 1.618 (rounded).
Now we are ready f o r the next interestin g proof. I f we take the square roo t of 5,
2.24, - 1 gives us 1.24 and divid e tha t by 2, we retur n t o 0.618.
Round" they use the designated day by i t s numeral and name d i s t i n c t i o n , and added the
curren t month by prefixin g the number of days that had passed wit h the correspondin g
number f o r tha t month using 0 - 1 9 rathe r than 1 to 20. A date writte n i n t h i s curiou s
manner would occur only once i n every Calendar Round resultin g i n I n t e r v a l s of 52 years.
Yet the Maya were s t i l l concerned about r e f l e c t i n g time i n a much longe r space
dimension. The Mayan show a dynamic thinkin g process fo r time and a keen sense of
histor y tha t they needed to be able to r e f l e c t . The Mayan devised the "Long Count"
tha t was based upon a system of a count of - 20 - , they strangl y used 18 as the
m u l t i p l e r (18 x 4 "= 72). Therefore, the dates were writte n as: k i n (day) ; m'nal (20
days); too. (18 uninal s or 360 days); katun (20 tuns o r 7,200 days) ; baktun (20 katuns
o r 144,000 days). Why the Mayan used 18 as the m u l t i p l e r i s unknown. Perhaps the y
notice d th e v o l a t i l i t y of histor y perhaps instigate d by nature. The "Long Count" was
a means t o anchor time i n a continuous time-space dimension tha t they coul d see i n
t h e i r mind . They anchored time t o 4 Ahau, 8 Cumku, which was equal t o 13 baktuns tha t
was 1,872,000 days (or 5128.76 years of 365 days i n our mind). I t i s c l e a r from the
calendar alone, that the Maya conceived time as a dimension through which h i s t o r y i s
formed, but was a c y c l i c a l event of self-organizin g structure . The basi c elements
of the Mayan calendar have l i t t l e to do wit h astronomy. The Mayan seem t o have place d
great significanc e on cycles . There i s the curiou s 819 day cycl e (13x9x7=819) tha t als o
shockingl y produces 2.24 years! The hidden order e x i s t s - i t i s not chaos!
The interestin g aspect of the Mayan calendar i s i t s concurrent and dynamic
structur e of time tha t i s close r to what I have describe d from independent observa-"'
tion s having nothing t o do wit h planetar y movements. The use of both the 72 and 26
unit s of time i s s t r i k i n g . The Aztec calendar followe d the Mayan i n many respect s
but incorporate d a 584 day cycl e from the plane t Venus and two 52 year cycle s were
considere d "One Old Age," when the day cycle , the year , and the perio d of Venus a l l
came together . These were als o noted by the Mayan, but were more important t o the
Aztec . A l l Meso-Americans believe d i n the c y c l i c a l destructio n and re-creatio n of
the world In these great sweeping period s of time.
The core of the Mayan Calendar i s that the world i s destroyed and rebor n time
and time again. While they see the end of t h i s world on December 21st, 2012 tha t
w i l l erupt from earthquakes, tha t i s a separate issu e tha t lackin g the data o f the
previou s cycl e from which the Maya s t a r t t h e i r calendar , there i s no way t o now
projec t forward to even tes t the theory. Lik e most r e l i g i o n , t h i s f a l l s i n t o the
area of f a i t h - not math.
Calendars based upon the moon cycl e of 19 years , known as the Metonic Cycl e
named a f t e r Meton of Athens i n 432BC or the s o l a r cycl e of 365.25 days or th e 28
year cycl e when the same day repeats wit h the same number under the J u l i a n Calendar,
have created interestin g math calculations . The J u l i a n calendar Cycle = 7,980 years
produced by 19 x 28"x~15v "The l a s t • 15- year cycle--is—the-Roman-tax-and-census-cycle
of I n d i c t i o n . There are calendars based upon Jupite r and i t s 12 year cycle . But a l l
are c y c l i c a l ba^ed.
The Concept o f Self-Refera l
Everything i n nature seeks to recreat e i t s e l f by generatin g a copy of- i t s e l f
tha t refer s back t o the o r i g i n a l entity.. Our childre n look l i k e us, a l b e i t a t times
a blending of both parents. Nevertheless , thi s i s nature's way of extendin g the
cycl e of l i f e through the process of s e l f - r e f e r a l to achieve propagation . Whatever
you may believe , the entir e process of the universe i s based upon r e p l i c a t i o n t o
progress forward int o time. I t may indeed appear to be "chaos" so we dare not t o
look too closely . But there i s a singl e system o f s e l f - r e f e r a l tha t allow s a l l thing
s to propagate from a. viru s to a l l forms of l i f e . But t h i s extends even f u r t h e r i n t
o nature tha t create s whether, • volcanos and earthquakes to how we even behave i
n .a group.
The system of s e l f - r e f e r a l i s a complex process tha t i s a f r a c t a l , reveale d by
Bernoi t Mandelbrot of Yale . Physic s has referre d to t h i s as a r e l a t i o n s h i p o f a
"power law" because the d i s t r i b u t i o n i s describe d wit h an equatio n containin g a
exponent or pwer. Hence, a variabl e i s expressed as an exponentia l power o f the
other such as f(x) = x~ where the product becomes the s t a r t i n g poin t f o r th e next.
a
Mandelbrot demonstrates remarkable order existe d hidden withi n what seemed random.
At the core of a l l c y c l i c a l behavior, i s t h i s very concept o f s e l f - r e f e r a l
tha t i s a means of perpetuatin g the cycle . I t dictate s that the people w i l l indee d
respond i n the same manner irrespec t ofthe century, because human natur e does not
change. There i s a t h i r d inheren t wave structure , tha t i s f a r more complex than:
anything we have been lookin g a t so f a r . I t moves wit h the same waves and may be
aki n to a c a r r i e r wave upon which a l l others t r a v e l through time-space. Thi s i s
the wave tha t recreate s the patterns , whereas the other waves e f f e c t amplitude
through i n t e n s i t y ( v o l i t i l i t y ) _ whereas the main waves vary i n wave lengt h tha t
indeed creat e differen t e f f e c t s , s i m i l a r t o varyin g the wave- lengt h can change the
the wave effec t from x-rays, v i s i b l e l i g h t , to t e l e v i s i o n . Change the wave length ,
we change what the wave control s both i n nature and withi n the human response. But
i t the Schema Frequency tha t i s a c a r r i e r wave of patterns operatin g Independently
withi n the other wave structures . Thi s i s the core of hidden orde r tha t other s ar e
j u s t now s t a r t i n g t o discove r i n other areas of a c t i v i t y .
Unravelin g The Mystery o f Time & Space
Creatin g Replicatin g Pattern s int o the Futur e
The Scheme Frequency
Everything i n nature appears t o be on a quest to r e p l i c a t e i t s e l f . We are
indeed faced wit h what may appear t o be chaos, but i n r e a l i t y , ther e can be no
tru e random chaos, fo r the system cannot surviv e as i f i t were a rogue system
that would soon cause i t s own demise. The entir e univers e i s constructe d upon
the model of s e l f - r e f e r a l tha t r e p l i c a t e s perpetuall y int o the f u t u r e . Thi s i s
a delicat e complex pattern of i n t e r a c t i o n combining to create space, time, matter,
motion, and energy. I t i s the i n t e r a c t i o n between these elements tha t creat e the
beat or pulse of the universe tha t flow s i n waves of energy i n a c y c l i c a l motion.
But there are pattern s that e x i s t , which some observe as i n t e c h n i c a l analysis ,
but what they are doing i s scratching ' a surfac e of extraordinar y complexit y hidin g
a simple stat e of incredibl e order.
There are complex non-linea r example i n nature tha t apply t o human behavior.
A bucket of water wit h a stron g fauce t source w i l l cause a vorte x as the water
flows int o the bucket. The water j e t w i l l creat e a transvers e v o r t i c a l motion
r e l a t i v e t o the water source i t s e l f . E l e c t r i c i t y flow s the same way creatin g a
f i e l d trensvers e t o the curren t i t s e l f .
33
A non-linea r example from the r e a l world took place between 1980 and 1985.
The issu e arose wit h the US Nationa l Debt h i t t i n g $1 t r i l l i o n i n 1980. We a l l ju
d othe r s by ourselves . Consequently, the Europeans judged i n t h e i r eye the
option s facin g the United State s and presumed that the US would defaul t on i t s
deb.t by cancellin g the currency, and replacin g i t wit h domestic and externa l
dollars . Lik e South A f r i c a , the Europeans expected the US t o create a " f i n a n c
ia l " dollar f o r internationa l settlements and a domestic d o l l a r . Thi s was not
unlik e the two s i l v e r dollar s minted during the 1870-1880 time period .
However, Instead of the s i l v e r "trade " dolla r being 1 ounce with the lesso r
valuabl e s i l v e r d o l l a r of about 75% s i l v e r by weight fo r domestic use, the
Europeans were convinced tha t the table s would be turned and t h i s time i t would
be the Euro-dollar s that would be worth les s than a domestic d o l l a r . Despite the
escalatin g debt, the Europeans withdrew t h e i r Euro deposit s and switched them
to domestic d o l l a r s . This drove the d o l l a r to record highs going int o 1985
where the B r i t i s h pound f e l l to $1.03 Thi s s h i f t i n g of deposit s created a
transvers e wave wit h an e f f e c t opposite i t s intention . The c a p i t a l flows from
Euro-dolla r to domestic d o l l a r s created i n a technica l sense, a "bear r a l l y "
or "short-covering-rally " where the underlyin g i n t e n t i o n i s opposit e of i t s
appearance. Thi s extreme economic pressur e was agai n misunderstood by government
that responded by creatin g the G-5 t o manipulate the globa l economy.
Figur e #1
I l l u s t r a t e d here i s
Wovelenglh
a t r i p a r t i t e wave (Fi g #1) B.6 /
. \ Year Cycl e Wave
wit h three d i s t i n c t i v e
1 \ • A
components, each providing;
a separate effec t withi n
time. These segments are:
(1) 8.6 Year Wave
Economic Confidence
Model - ~ " ' °heu
s
Intensit y ( v o l a t i l i t y )
(3) the Patter n of
Self-Refera l
The Schema Frequency
So fa r I have discussed the 8.6 year wave p u b l i c l y fo r nearl y 30 years . I
have provided v o l a t i l i t y forecast s and even warned the White House back i n 1985
not t o brin g i n G-5 that v o l a t i l i t y would r i s e dramatically . I receive d a repl y
from Mr. Sprinkle , the Chief Economic Adviso r at tha t time, tha t I was the onl y
person, wit h such a v o l a t i l i t y model and u n t i l someone els e agreed wit h my
warnings b a s i c a l l y - Thanks but no thanks! By 1987, I was urgentl y summoned t o
"hurry-Tip; we need to know what your model project s now, sinc e everyone agrees,
volatility i s the number one problem? I have not per se explaine d the i n t e r c o n
ne c t iv i t y between the two models, preferrin g to keep the d e t a i l s to myself u
n t i l I was ready t o r e t i r e . Likewise , I have discussed tha t the frequency
must e x i s t on a l l l e v e l s of time, but t h i s i s the f i r s t time I am t r y i n g to
explai n ye t another mystery - the Schema Frequency that i s an embedded versio
n s i m i l a r t o a code l i k e DNA i t s e l f . I t i s a map of how thing s w i l l unfol d tha t
simply i s astonishing . We know tha t DNA i s revealed i n a sequence. I t i
s a complex code tha t i s the map as to who we are and how readin g that code i n
the womb (DNA Reader) construct s a human person. The Schema Frequency i s a patter
n of s e l f - r e f e r a l tha t i s a t h i r d component of the wave that may even be a c a r r i
e r wave upon which other s become "manifest.' I t dTctates~how the future"""will
unfbid " on "a patter n perspectiv e while- the other wave structure s influenc e the e
f f e c t s and amplitude wit h i n t e n s i t y . 34
I inten d to publis h a more detaile d analysi s of the wave structur e i n the
future . But i n a basi s concept, the Schema Frequency i s the b l u e p r i n t so t o
speak of a f a r more complex nature. For years I taught at seminars around the
world tha t b u l l market's and bear markets are fundamentally differen t i n timin g
and patter n development. I explained tha t the core basi c b u l l market wave i s 7
unit s and the bear market i s a uni t of 2. I als o explaine d tha t the fundamental
differenc e i s caused by confidence i t s e l f . I t simply takes people longer t o t r u
s t and believ e i n anyone or something, than i t 'takes t o los e tha t confidence .
Therefore, the timin g length s fo r a b u l l and bear market waves unfold s as:
B u l l Markets Orange Juic e Monthly
Against thi s backdrop, we come t o Ivan The Great and hi s Marriage t o Sophia in
1472 tha t appears to begin the blossoming or Russi a int o a world power. Iva n create d
the f i r s t Rule of Law that i s the cornerstone of a l l nationa l wealth. Thi s foundatio
n of law i n 1497 was predicate d upon the lega l code of Justinia n I of .Byzantium. We
can see from the above i l l u s t r a t i o n of j u s t the wave formations s t a r t i n g wit h the
b i r t h of Russia int o a modern state , the turnin g point s l i n e up wit h th e Revolutio n
i n 1917, the f a l l of economy power i n 1989, tha t was followe d by the r e s i g n a t i o n of
on December 24, 1991 marking the o f f i c a l collaps e of the Sovie t Union w i t h i n weeks
of the turnin g poin t s t a r t i n g wit h the marriage of Ivan and Sophia.
Startin g i n 1472, we come t o 1696 which i s the year Ivan V died handing power
to Pete r I The Great (1682-1725) a f t e r the 1689 Revoloutio n tha t swept Russi a a l s o
followin g the 1688 Revolutio n i n England. 72 years a f t e r 1696, we come t o another
revolutio n i n sympathy wit h the US and France under Catherine The Great tha t was
crushed i n 1775. The next revolutio n was 1917 and 72 years l a t e r we come t o 1989.
Projectin g i n i n t e r v a l s of 37.33 years from 1917, we come to the collaps e o f
1991 withi n weeks, wit h the next targe t projecte d t o be 2010.325 ( A p r i l 28/29).
37
China & The 224 Year Cycl e of P o l i t i c a l Change
worth i n the futur e i f you hel d i t . The Confederate Government issue d bonds i n
Europe tha t were Derivative s fo r (1) they created an optio n that the buyer coul d
selec t where t o be paid i n P a r i s , London, Frankfur t or Amsterdam; (2) the currency
could be B r i t i s h pounds or French francs , and (3) pa}^ment could be taken i n cotto n
rathe r than money and the cotto n would be at a fixe d pric e of 6 pence when th e
prevailin g rat e i n Europe was 24 pence. So these bonds were a complex D e r i v a t i v e
tha t offere d (1) hedge against foreig n exchange r i s k i n the currency, and (2) a
hedge agains t i n f l a t i o n using the cotton . Numerous countrie s have subsequently
issue d debt denominated i n foreig n currency to eliminat e foreig n exchange r i s k .
The bottom l i n e ; Derivative s are not. the cause of the death of c a p i t a l i s m any
more than a gun k i l l s a person. People k i l l people i r r e s p e c t i v e of the instrument
and i t i s the people at AIG i n London who issue d CDS tha t were seen as insuranc e
by banks around the world, but simply stated , there was no business to back up
the operation . This was t r u l y a '"Ponzi Scheme" fo r i t was p r i n t i n g money wit h no
actua l business i n insurance (other than the name) to offse t the r i s k s . Thi s i s
aki n to a t u l i p grower s e l l i n g c a l l s agains t a crop he neithe r has, nor intend s to
even plant . The assumption tha t they would never have t o pay on such CDS, was a
self-servin g exercis e i n self-delusion .
An economic implosion i s not caused by Derivative s as a concept. The regulate d
future s and option s exchanges functio n perfectly . I t was the absence of regulatio n
on interbank derivativ e markets that allowed CDSs to become the modern-day Tuli p
fo r there..was..no-guarantee_.standing_he_tween and_.posltions..were not c o l l a t e r i z e d . .
40
Understanding the'Floatin g Exchange Rate System
% Gain Lower
Investment Investment
Currency - A In Country - J Country -A- Country -B-
= Currency - B Currency
- B -
% Gain
Pacific
at foot .
John Maynard Keynes wrote; "When the c a p i t a l development of a country becomes
the byproduct of the a c t i v i t i e s of a casino , the jo b i s l i k e l y t o be i l l done."
The General Theory o f Employment, Interes t & Money, NY Harcourt, Brace, 1936, pl59 .
Between the AIG CDS withou t c o l l a t e r a l backing, the concept of manipulatin g the
markets to creat e guaranteed wins, i t i s i r o n i c tha t the "big " houses were t r y i n g
t o creat e r i s k l e s s trades , but i n the process, destroyed i t a l l . As Hegel saw, ofte n
what develops i s precisel y the opposite . I t i s the t o t a l lac k of regulatio n of
r i s k tha t has le d to t h i s mess. I t has been the attempt by the "big " houses t o
contro l the trade to "avoid losses , tha t has le d t o sheer chaos.
The degree of attempts to contro l the markets knows no bounds. I was als o
s o l i c i t e d t o j o i n i n wit h the " B i l l i o n a r e ' s Club" regardin g Russia . Edmond Safra ,
the major shareholder of Republi c Nationa l Bank t r i e d to get me t o j o i n i n wit h
them on Russia . I warned them my model-was forecastin g tha t Russian debt would
collapse . Safr a rented the entir e Nationa l Galler y i n Washington, DC, f o r the
IMF honorary dinner. Every p o l i t i c a n was ther e of any note as were former Federa l
Reserve chairman. I was i n v i t e d t o show me tha t I was wrong. They had insid e
track s t o the IMF and assured me that the loans t o Russi a would continue . I was
asked t o j o i n i n wit h Safr a and others t o inves t i n Russi a gettin g huge return s _
= i n hig h i n t e r e s t rate s when the IMF was going t o back Russia . Safr a se t up Hermitage
C a p i t a l , and t r i e d t o get me to j o i n . I decline d warning my model forecas t a decline .
They believe d i n manipulating markets t o creat e the guaranteed investment without risk. '
The model was correc t - Safr a and the "boys" were f l a t l y wrong, and blamed me.
I know there were rumors and s t o r i e s that the woman who was running f o r the i
Mayor of St Petersburgh who was executed being shot i n the head was a pawn of a
major western financie r who was supposed t o be myself. I believ e t h i s was another
stor y tryin g t o discredi t me some how. I never met her, and the onl y los e connection
was tha t her son worked i n our London o f f i c e by coincidence . Let me als o se t the
record s t r a i g h t , we had more than 200 employees worldwide, and I di d not do the
h i r i n g and f i r i n g . We had partners In every country who ran t h e i r own d i v i s i o n s
but we worked around the world together gatherin g the best privat e i n t e l l i g e n c e
network tha t perhaps ever existed . Governments shared intimat e knowledge tha t they
wanted out i n t o the marketplace, but could not p o l i t i c a l l y make such statements.
We became the United Nations i n financ e and c l e a r l y there were some who resente d
that intensely .
Edmonpl_Sa^ra_XJfa^ld_ejve_jwas_ j e e p l y jLnyolyed_in a plo t t o takeover Russia . Thi s
may have been the crowning audacit y of market manipulations . I believ e he was i n
partner s wit h two Russians Berisnofsk y and Gazinsky, who were very powerful and
even controlle d the privat e media i n Russia.- I believ e the r e a l stor y provide d t o
62
me by the son of a w e l l connected "Russian diplomat, and s t i l l others , amazingly was
that '%he Bank of New York prosecutio n fo r a clai m £7 b i l l i o n money launderin g scam
was i n r e a l i t y $7 b i l l i o n stole n from the IMF (Internationa l Monetary Fund) loans ,
at the directio n of Y e l t s i n himself . I t was Republic Nationa l Bank, whom I. believe ,
ran to the Feds pointin g out the transaction . I believ e "Republic even t e s t i f i e d
i n Congress.
As you w i l l r e c a l l , Y e l t s i n had vowed he would run fo r e l e c t i o n again i n 2000.
The Bank of New York dea l came out i n August 1999, about 30 days before my case
tha t was als o instigate d by Republi c Nationa l Bank running t o the Feds. As the stor y
goes, Y e l t s i n was being-blackmailed , tha t he would be protected i f he stepped down
and appointed one of the two Russians as the next leader. Y e l s t i n , i t was t o l d t o
me, turned instea d to Puti n once he r e a l i z e d he was set-up. Puti n accepted the
appointment and protecte d Y e l t s i n and the whole IMF scandal. Both Barisnofsk y and
Gazinsky f l e d Russia whil e a l l t h e i r asset s were confiscated . My case began on
September 13th, 1999. Y e l t s i n announced he was steppin g down i n November, and by
December 3rd, 1999, Edmand Safr a was k i l l e d i n Monaco. Within 1 month, my lawyers
were r e t r o a c t i v e l y disgorged of a l l fees , and I was thrown i n t o priso n on " - c i v i l
contempt" that the statut e 28 USC 51826 state d I had an absolute r i g h t t o an
immediate appeal withi n 30 days. Presiden t Bush's cousin , Chief Judge John M. Walker,
Jr ., grabbed my appeal, hel d I had no such r i g h t t o ever appeal, and tha t
allowed the . government to a r b i t r a r i l y imprison me fo r more than 7 years on
"contempt" o f cour t denied, lawyers, denied any r i g h t t o appeal, and denied any t r
i a l by j u r y or any l i m i t a t i o n upon the duratio n of imprisonment. They did not
want t o go t o t r i a l and showed the world tha t i f the US Government wants t o
loc k you up, wel l guess what - you r e a l l y have no r i g h t s at a l l .
The murder of Safr a remains a mystery. Some sources have intimate d tha t he
was murdered f o r Y e l t s i n as a favo r on orders of Putin . To make more of a paradox
of t h i s enigma, they charged the male nurse wit h settin g the f i r e i n Monaco
and als o spent at leas t 6 years i n prison . Then, the Supreme Court where you do
have a r i g h t to be heard i n France, reverse d the convictio n s t a t i n g tha t the judge
and the prosecutor conspired togethe r to deprive him of a f a i r t r i a l . He was then
ordered released , and sent back to the Unite d States . Never would an American cour t
ever say that about i t s e l f . Even the Supreme Court of I s r a e l vacated a convictio n
of the allege d "Ivan the T e r r i b l e " when i t came out that American prosecutors , who
knew he was not the man, extradicte d him anyway and withhel d evidence tha t showed
he was not the person sought. The S i x t h C i r c u i t , only afte r the Supreme Court of
I s r a e l vacated the conviction , was embarrassed enough to say tha t US Government
Attorneys committed frau d upon the court , Demjanjuk v Petrovsky, 10 F3rd 228 (6th
Ci r 1993). The question that jumps from the pages, i s why are American'courts so
pro-Government to the poin t they w i l l cover-up action s and allo w knowingly innocent
people t o be even executed?
Safr a began hi s career i n exchanging coin s i n the middle east . The main s i l v e r
coi n tha t was used i n trade was the Mari a Theresa barin g the p o r t r a i t of o f a woman
that was not considered acceptable t o the Arabs. Safr a tol d me he use to buy them
at a discount from the Arabs and tha t i s how he starte d hi s empire. He was ver y
much a gol d bug, and would c a l l New York and speak d i r e c t l y t o h i s metals dealers .
This i s why, i n my opinion , he was obcessed wit h Russi a to get hi s hands on the
metals tha t existe d there .
The "club " i s always lookin g f o r the r i s k l e s s trade . They are not r e a l
investment managers. They have t o r i g the game to ensure they make money and
never lose . In t h i s respect , yes, i t i s the "greed" tha t drive s them because
63
they always have t o win. They do no ana^z e the markets, they have t o c o n t r o l
them. They have targete d so many areas, you would be shocked. They even di d
the rhodium market tha t i s purel y cash. Perhaps the most outrageous, was th e
platinum market. There, they bribe d Russian o f f i c i a l s who recalle d a l l t h e i r
platinum to take an "inventory. " Of course, they were already long . They the n
drove platinum up dramatically . They sol d at the top, reversed, and then took
shor t position s t e l l i n g the Russian i t was time the "inventory " was over. The
p r i c e collapsed . They took advantage no t j u s t of smal l speculators , but they
targete d the auto industry . Ford Motors f i l e d a lawsui t over tha t scam.
In the summer of 1998, I delivere d a lectur e i n London. The F i n a n c i a l Times
attended..They reporte d the forecas t I delivere d tha t Russia would collaps e i n
about 30 days. V e i l i t did . Even Long-Term Capita l Management was involved. , I
believ e that viewed tha t they had the IMF i n t h e i r pocket, and tha t my forecast s
were contrary t o t h e i r goals . Thei r collaps e and los s they blamed on me. I
believ e tha t t h i s i s what starte d the e f f o r t to stop the Princeto n forecast s at
a l l costs . I believ e that they were t e l l i n g the CFTC behind the scenes tha t I
was "manipulating" the world economy because I j u s t had too much influenc e and
too many c l i e n t s . I am sure, they did not bother t o t e l l the Government tha t they
were on .the other-sid e tryin g t o seek r e a l manipulatio n wit h bribe s and e f f o r t s
to manipulate markets tha t had nothin g to do wit h analysis .
Another inciden t where I clashed wit h the "force s t o be" came als o i n
March 1999. I warned at a seminar i n Tokyo tha t "they" were targetin g the yen
and were lookin g fo r tha t "guaranteed" trade . Every March, the Japanese sol d
t h e i r offshore investments and returne d the cash fo r March 31st accounting . They
would then immediately s e l l the yen and go back t o the short-ter m investments .
The "club " knew t h i s , and were i n search of a quick few b i l l i o n p r o f i t . They
would manipulate the yen over t h i s r o l l - o v e r t o creat e a wide spread between the
buy of the yen and the resal e of the 3'en. So I warned the c l i e n t s tha t the yen
was the "new" targe t and t o t h i s time loc k i n the sal e at the same time they
had t o buy the yen t o come home. This would eliminat e the p o t e n t i a l l o s s . They
l i s t e n e d , and the "club " l o s t . No doubt they got r e a l l y mad one more time. The
way I saw I t , I t o l d them to trad e l i k e men. But they wanted tha t " r i s k l e s s "
trad e assuming tha t " r i s k " was fo r f o o l s . I f i n d - I t i r o n i c that t h i s time the y
blew themselves up so bad, and they can't blame me.
Due Process of Law Died I n 1987
Again, I apologiz e fo r c i t i n g my own case. But since , I am w r i t i n g t h i s l i k e
Kondratief f from a c e l l servin g a 12 year sentence fo r a pretended offens e tha t by
law cannot j u s t i f y more than 5 years when g u i l t y , my a b i l i t y to quote a u t h o r i t a t i v e l
y to sources other than my own i s l i m i t e d . Those who know me, r e a l i z e I hate to c i t
e something as fac t unles s I have proven i t to myself.
My case- has stunned the f i n a n c i a l community fo r the government can f o o l the
genera l majorit y a l l of the time, but they cannot f o o l the professionals . That may
be why S t a l i n purged the populatio n of the i n t e l l e c t u a l s who can see through the l i e
s. We issue d privat e unsecured notes borrowing yen a t (1) fixe d rate s o r (2)
swapping a note fo r a pre-existin g p o r t f o l i o of Japanese stock s that we down 30-
50% wit h an unlimite d amount of time to pay o f f the note. Therefore, we were not
managing money any more than borrowing from a bank makes you a fund manager or
buying damaged port- f o l i o with a face value converts tha t int o a managed account
any more than takin g out a mortgage transforms you int o a caretake r fo r the bank. The
SEC allege d t h i s was a Ponz i scheme and there was commingling of accounts whil e the
CFTC allege d I was r e a l l y running a commodity poo l tha t not registered . I t came out a
t the h a i l hearin g tha t there^as no defauTtr on~any~note v Any' f iiiallyT^dien the -
- - - - _
W
<!
We must come t o face the r e a l f a c t s . T r a d i t i o n a l ' o l d
W
world economics i s no longer applicable . The greates t erro
r of the money supply being fixe d t o the gold standard,
was tha t the discover y of gold determined the supply of
>
money a l t e r i n g p o l i c i e s of government and subjectin g the
privat e secto r to swings i n the boom and bust sense tha t
would be influence d wit h respec t to amplitude incresin g
v o l a t i l i t y . We can see such period s followin g the Gold
Rush of 1849 i n C a l i f o r n i a and the consequences of the
deliberat e i n f l a t i o n create d by the " S i l v e r Democrats" tha
t le d t o v i r t u a l bank-
ruptc y requirin g J.P. Morgan to b a i l out the government i n BORROWING =
1896.
No doubt there w i l l be those who would never conside r
deliberat e i n f l a t i o n as f i s c a l i r r e s p o n s i b i l i t y . However,
when Pau l Volke r was f i g h t i n g the commodity boom int o 1980 REDISTRIBUTION
and raise d short-term interes t rates , we must r e a l i z e tha t
the bigges t spendthrif t withi n societ y i s the government.
By deliberatel y r a i s i n g interes t rate s to stop privat e secto r spending, th e n a t i o n a l
debt was put on an exponential growth path. The Government cannot be the stationar y
"disinterested " observer i n Einstein' s theory of r e l a t i v i t y . I t cannot see i t s own
action s because i t i s so busy t r y i n g t o a t t r i b u t e blame t o everyone else . Thi s i s
the fat e of our natio n at stake. Thi s i s the futur e of our children . Are we t o be so
irresponsibl e l i k e a drug addic t who steal s today wit h no regard fo r the consequences
j u s t t o obtai n that quick f i x ?
I f we merely borrow to fund the economic b a i l o u t ,
we have two major problems. The contractio n of leverag
e f a r outnumbers the actua l money supply even i f we
now count a l l cash and outstanding debt as money.
Because ther e has been no regulatio n of the amount
of leverag e between banks as I s done withi n the
exchanges who r a i s e and lower margin requirements i n
future s t o manage the amount of leverag e ("gearing"),
we are lookin g a t a contractio n tha t could exceed
the GDP i n m u l t i p l e s . We must r e a l i z e tha t borrowing
to bailou t th e banks, i s economically
indistinguishabl e from moving money from your l e f t
pocket t o your r i g h t . We are a c t u a l l y furthe r adding t
o the economic contractio n by soaking up cash i n the
system and r e d i s t r i b u t i n g . Thi s i s merely a form
of Marxism. What we must t o i s t o expand the sheer
actua l money supply t o o f f s e t the contrac t i n the " r e a l "
money supply create d by the privat e secto r i n e l e c t r o n i
c format tha t i s als o indistinguishabl e from suddenly discoverin g gol d i n C a l i f o r n i a
back i n 1849. The f i s c a l polic y of the natio n has been usurped by the bankers, who
di d not even understand what they were doing.
We need to review the Keynesian theory. Borrowing does not stimulat e f o r i t w i l l
liot~increas e the money-supply to compensate f o r the contraction . Even buying
69
the debt from the backs by i n j e c t i n g more c a p i t a l , i s pouring bad money a f t e r 'even
worse money. The Sub-Prime Mortgages should be • purchased from the banks a t curren t
market value , place d i n a p u b l i c fund not managed by bankers, allo w th e
mortgages'to be renegotiate d i n t o a fixe d rate , extending the time i f necessary, bu
t revaluin g the property as J u l i u s Caesar did , and settin g up a reasonable
payment schedule. I f the homeowner cannot cope wit h the payments, then they los e
the home. The bankers have to suffe r t h e i r f a t e . Le t the banks reorganiz e and
consolidate , and ther e must be the s u r v i v a l o f the f i t t e s t . That i s not t o say we
should abandon FDIC. We must stand behind a l l bank deposits . That i s the pric e we
must pay as a natio n fo r the f a i l u r e the regulat e the " b i g " houses as we do the
"small " players . We must c o l l e c t th e Sub-Prime Mortgages int o
a singl e fund tha t shoul d then allo w privat e investment.Individual s could inves
t even t h e i r 4013£s i n part , and we must c u r t a i l government borrowing a t a l l costs
. Those who do not want t o see the " s o c i a l " spending of the Democrats, we should
r e a l i z e tha t there would have been fa r more than a chicke n i n every pot had we
not spent so much on i n t e r e s t . I n f a c t , had there not been i n t e r e s t payments, we
coul d have spent the same amount of money and there would be a nationa l healtcar e
l i k e tha t i n England. We must confron t what i s going on. I t i s time we restructur e
Government i t s e l f . Lockin g up every person i n Banking or Wal l Stree t w i l l not solv e
the problem. Capitalism i s not a t f a u l t . The "club " seeks " r l s k l e s s " trade s and r
e l y upon Government t o cover losse s so why bother worrying about r i s k ? Long-Term
Capita l Management collapse d when the IMF coul d not continue to support Russi a
tha t the "club " was buying t h e i r paper a t 50-100% rate s of Interest . Thi s i s the
same problem. The Sub-Prime Mortgages displce d r i s k fo r they looked to the
Government as a guaranteed trade . That i s not c a p i t a l i s m - tha t i s p l a i n old-
fashio n corruption . Le t us deal wit h the truth ! The
bad p o r t f o l i o s i n Japanese corporate s were purchased wit h a note removing the
problem allowin g them to get back to business . Do not allow , the banks t o work-out
these problems and do not h i r e bankers to c o n t r o l the bailout . Hir e q u a l i f i e d fund
managers who w i l l not protec t the banks. A lawyer who represent s "himself , has a f o o l
as a c l i e n t . Bankers protec t bankers. How can you prosecute the people I n charge o f
the bailout ? We need independent management and consolidatio n o f SEC, CFTC and the
Federa l Reserve i n t o one regulator y body tha t protect s the system, not i n d i v i d u a l s .
I t i s time fo r seriou s reorganization .
Stop the Marxism! We need t o retur n t o basics . End the Income ta x & replac e i t
wit h a 10% Nationa l Sale s Tax (excludin g raw food & basi c clothing ) tha t als o includ
e r e a l estate . China has boomed because i t had no income tax ! Thi s i s what the men
who establishe d t h i s natio n establishe d u n t i l Marxism began wit h the passage of the
income tax only f o r the r i c h i n 1909, that now applie s t o everyone. Stop borrowing
money from the poorest wit h no i n t e r e s t masking i t as a "refund " ,neck confusin g
them to-make i t appear as a g i f t . Do t h i s , and we w i l l reestablis h job s i n America
and i t w i l l matter not i f someone i s an i l l e g a l a l i e n or not fo r they w i l l ' s t i l l
pay t h e i r f a i r share. We ar e l o s i n g job s because of hig h taxes and hig h heathcar
e cost s tha t j u s t make i t cheaper t o se t up servic e oriente d job s i n India , P h i l i p
p i n e s , or Mexico. I t i s time the 800 pound g o r i l l a l o s t a l i t t l e weight. Thi s w i l l
creat e a o f f s e t t i n g economic boom tha t w i l l save the nation . Marxism does not-
work. We cannot be a l i t t l e - b i t pregnant. The Constitutio n was establishe d to
preserv e the "Blessing s of L i b e r t y " t o a l l posterty , not depending upon race , creed ,
or c l a s s . Marxism was a disaster . I t should o f f e r no model fo r the future . Jus t
loo k a t Russi a and China. I f we do not reorganize , Ayn Rand w i l l be correct !
We can s t i l l have the benefi t of a c o l l e c t i v e societ y tha t afford s common goal s
to secure the i n d i v i d u a l way of l i f e . There must be the funded programs wit h the
growth In spending l i m i t e d to the GDP growth tha t must be se t by a globa l economic
independent organizatio n not subjec t t o the p o l i t i c a l pressures of one nation . The
economic s t a t i s t i c s are bogus. They are p o l i t i c a l l y manipulated l i k e i n f l a t i o n
t o reduce government sepending where many areas are indexed to CPI. Government
w i l l always corrup t i t s e l f . The reason we have the "Julia n Callendar " i s because
th e Romans knew the moon callenda r was incorrec t and that a d d i t i o n a l days had to
be inserte d to maintai n the seasons. Thus, someone had to be give n the j o b to
decide how many days to i n s e r t and when. That jo b was given to the High P r i e s t
("Pontif f Max"), who was r o u t i n e l y bribe d t o s t a l l election s by i n s e r t i n g months
a t a time. When J u l i u s Caesar walked i n t o government, he di d massive reforms and
thus he eliminate d the corrup t jo b of managing the callendar . Thi s i l l u s t r a t e s
tha t we must remove the temptatio n to manipulate economic s t a t i s t i c s t o e f f e c t
c e r t a i n p o l i c i e s . As they say, s t a t i s t i c s can be made to ensure they do not t e l l
the truth . Carrot s are very dangerous,because everyone who has ever eate n one has
eventuall y died ! Every country calculate s t h e i r s t a t i s t i c s accordin g t o a unique
formula . How can we even compare economic growth from one natio n t o another ?
We can monetize par t of the debt by redeeming a s p e c i f i c quantit y wit h newly
generated cash. There should be some control s on the quantit y of d o l l a r s create d
i n t e r n a t i o n a l l y through regulatio n carrie d int o place by the Federa l Reserve. We
must als o reestablis h the e n t i r e purpose of the numerous branches o f the Fed. That
was put i n plac e a f t e r 'the San Francis o Earthquake and the Crash of 1907. I t was
understood tha t there was a problem of regiona l c a p i t a l flows . To preven t a
shortage of cash tha t le d t o bank f a i l u r e s i n some regions , each branch was
autonomous tha t allowed f o r i n t e r e s t rate s t o be higher i n some regions . We - saw
thes e problems i n the 1980s, where a singl e nationa l i n t e r e s t rate s was used t o
stop stoc k market speculatio n tha t depressed farmers, because f o r World War I I
, a l l p o l i c y was usurped i n t o Washington because ther e was t o be a great expansion
i n debt. We need to stop usin g a gian t club t o stop one effec t by punishin g
everyone. Do not forget , lower i n t e r e s t rat e may not entic e • investment (see
Japan 0.1%), yet i t w i l l depriv e the e l d e r l y who are one of the larges t savers,
from earning an income when the y no longe r can work.
Jus t l i k e a company gone i n t o d i s t r e s s , we j u s t have t o dea l wit h the whole
problem. I f we thin k we can j u s t have bi g publi c t r i a l s l i k e Nero di d wit h the
Christain s to cover-up the burin g of Rome,then we are going t o have no future .
You can execute a l l those on Wal l Street . I t s t i l l w i l l not help . We need r e a l
l e g a l reform and stop the abuse of prosecution s fo r p o l i t i c a l purposes. The tru e
wealth of a natio n i s i t s consisten t Rule o f Law that protect s not merely the
persona l l i b e r t y of c i t i z e n s , but t h e i r property . I f the Rule of Law i s not going
to be upheld and can be even manipulated fo r r e l i g i o u s purposes, then we are j u s t
reducin g ourselve s t o a Banana Republi c wit h nuclea r weapons & c a p i t a l w i l l f l e e !
We need seriou s reform of how government operates. We need a singl e agency
to regulat e the f i n a n c i a l markets and banking. We have t o stop the buylng-of f of
Government attorney s and i f they are not intereste d i n a career , then get your
experience someplace else . We need i n t e g r i t y t o be restored . We must stop the
abuse of "big " firm s i n s t i g a t i n g the government agencies to remove competitors .
Thi s i s eithe r going to be a natio n of tru e l i b e r t y , or melt-down the statut e of
l i b e r t y and use i t fo r handcuffs and stop the propaganda. We must r e a l i z e that
" r e a l " c a p i t a l w i l l f l e e i f we are not f a i r and consisten t i n our treatment of
a l l those withi n our society . I f we are so i n t o l e r a n t that the C a l v a n i s t i c force s
tha t seek t o gai n contro l o f the law to e f f e c t r e l i g i o u s objects , we are no better ,
than the Taliba n i n Afghanistan . True l i b e r t y and freedom i s a give n that i s devine.
Everyone has the fre e w i l l t o pray or t o s i n . A s i n t o one group i s not a s i n t o
another. There are a host of variation s i n Islam, C h r i s t i a n i t y , and Judaism. Who i s
r i g h t and who i s wrong i s not fo r court s or government to l e g i s l a t e . We must defend
the r i g h t t o speak f r e e l y f o r everyone, or we w i l l silenc e ourselves . I t was the
hatre d of the Protestant s agains t the Cathoic s tha t not only tor e England and Irelan d
71
apart , but le d to "prohibition " i n the United State s to creat e laws t o impriso n
th- c a t h o l i c I r i s h and I t a l i a n s . That create d the Mafia , was responsibl e fo r
countles s deaths, untold waste of nationa l wealth, and was repealed i n the end.
No more! As Margaret Thatcher once s a i d , " I t i s j u s t time, " She i n s t i n c t
i v e l y knew tha t cycle s e x i s t because people j u s t get t i r e d o f the same ol d
thing . We have an absolut e r i g h t t o good honest government. That i s the b a t t l
e cr y o f every c i v i l war known to history . Jus t as J u l i u s Caesar was a man
of th e people who was cheered when he crossed the Rubicon, we need someone o
f i n t e g r i t y so bad, unles s we obtai n honest reform, we are perhaps i n v i t i n g
the Gods of War to return . The people crave a fres h s t a r t , and they crav e f i s c a l
r e s p o n s i b i l i t y . Where ar e the aspirations , dreams, and promises of Jefferso n &
Madison? Where have they^ gone?
Edward Gibbon (1737-1794) wrote a most notabl e epitap h i n hi s celebrate d '
The Declin e and P a l l of the Roman Empire f i r s t publishe d between 1776 amd 1788,
describin g two men who ascended the Capitolin e H i l l i n Rome to survey tha t which
remained. One remarks t o the other :
"Her primeval state , such as she might appear i n a remote age,
when Evander etertaine d the strange r of Troy, has been delineate d
by the fancy of V i r g i l . Thi s Tarpeia n roc k was then a savage and-
s o l i t a r y thicket : i n the time of the poet, i t was crowned wit h
the golden roof s o f a temple; the temple i s overthrown, the gold
has been pillaged , the wheel of fortun e has accomplished her
•revolution , and the sacre d ground i s agai n disfigure d wit h thorns
and brambles. The h i l l of the C a p i t o l , on which we s i t , was formerl y
the head of the Roman empire, the c i t a d e l of the earth , the t e r r o r
of kings ; i l l u s t r a t e d by the footstep s o f so many triumphs, enriche d
wit h the s p o i l s and t r i b u t e s of so many nations . Thi s spectacl e of
the world , how i s i t f a l l e n ! how changed! how defaced! The path of
victor y i s obliterate d by vines , and the beneches of.th e senator s ar e
concealed by a d u n g h i l l . "
Id./Chapter LXXI
We have a choice , f i x what I s broken, o r di e leaving'behin d nothing of any
s i g n i f i c a n c e as the dreams tha t once f i l l e d t h i s lan d evaporate int o o b l i v i o n . The
impatience of c a p i t a l w i l l not long suffe r the suspence of truth.. C i v i l unres t and
even war follo w economic declines . The cloc k i s t i c k i n g . The C i v i l War cycl e turned
i n 2002. The Clas h of reason i s on the horizon . I t cannot be business as usual .
Indeed, i t i s only a matter of time. Marxism, socialis m and communism are'not
the alternativ e fo r true capitalis m i s freedom. The "club " di d not seek capitalism .
They als o sought t o contro l the fre e markets fo r persona l gain , usin g government.
We need r e a l reform. Jus t as ther e must be a separatio n o f church and stat e tha t
the Religiou s Righ t does not respec t tryin g t o manipulate the law fo r r e l i g i o u s
purposes no d i f f e r e n t than the Taliban , we desperatel y need e t h i c a l reform t o stop
the desir e to r i g the game. Adam Smith was correct . But keep i n mind, everyone has
a s e l f - i n t e r e s t and act s upon i t . I want t o preserve freedom fo r my postert y and
to stop the corruptio n that leads t o l e g a l persecution s .of groups, industries. , o r
even i n d i v i d u a l s . Libert y w i l l not be known by our p o s t e r i t y unles s we j u s t once,
see the lesson s of time and stop the l i n e a r q u i c k - f i x answers tha t ar e never a s
o lu t i on Marti n A- Armstrong
Former Chairman of
Princeto n Economics International '
& former Chairman of
The Foundation fo r the Study of Cycle s