Don’t Anybody Move Or the Black Guy Gets it!

I have worked with people on Capitol Hill for some time now. I testified before the House Ways & Means Committee in 1997 on the global economy and taxation. 

When I was young and idealistically naïve, I met with the US Treasury during the Reagan Administration. I stupidly assumed that everyone would do the right thing and therefore if they were not doing so, then the answer must be surely they did not see at the problem correctly!

When Paul Volcker raised interest rates to insane levels in 1981 to fight inflation, perhaps being a trader rather than an academic, I saw things from a far more practical perspective. I was beside myself. How could you raise interest rates to fight inflation when you yourself are the biggest borrower.

It was like that crazy scene in the move Blazing Saddles where the black guy holds the gun to his own head and says if anyone moves, the black guys get it. I could not understand how there could be such stupidity in Washington, DC. So I worked out the simple math and showed the Treasury that this policy was disastrous.

They would cause the National Debt to rise from $1 trill to $8 trilling by the end of the decade. This was just insane! They look at me as if I was nuts. They replied – “But we will be paying back with cheaper dollars!"

The trade statistics are calculated based upon the old gold standard of Bretton Woods. If money was of a fixed value, then the shortcut to calculating trade was just to monitor the money going back and forth.

When the floating exchange rate system emerged as a bargaining chip in 1971, there was no formal conference and nobody sat down and revised the entire world monetary system.

When they came up with the brilliant idea of manipulating the dollar down by 40% to reverse the trade deficit forming the G5 (Now G20) at the Plaza Accord, again the concept was just insane.

Since currencies floated, the “trade deficit" that was really the Current Account no longer represented actual tangible goods, but the same goods now fluctuated in price and a rise in the deficit would no longer imply you actually imported more goods for the currency simply changed.

Again I wrote to the White House pleading with them not to act in such a stupid brain-dead manner. You could no more isolate only trade, and would reverse investment flows as well. The White House replay was a two page letter saying how nobody effectively understood what I was talking about.

The only politician to grasp what I was talking about at the time was Jack Kemp. While I was trying to come up with a solution that at the time involved the IMF, Jack disagreed with that and over time I began to understand that this was an issue of political power.

Creating a reserve currency out of SDRs (something others are floating today) will never work because it required a nation to yield sovereignty to the IMF over its economy. As time passed, I had to learn the not just the real world solutions, but how to merge them with the political world.

This was something that I learned only by having to deal in both worlds on a more regular basis. A bridge of understanding had to be constructed between reality and what would fly on a political basis.

I found Jack Kemp to have been an exception to the rule.

The same I could say for Bill Archer who was Chairman of the House Ways & Means Committee in the 1990s. Otherwise, most of those in power unfortunately have no real world experience or understanding.

Likewise, those in the real world do not fully understand Washington. I had to learn this lesson myself. Why so many in public services are attracted to positions of power but are clueless is a real world context is truly a paradox.

We should have a requirement that ONLY people with experience at the END of their career should go to Washington. There are also people who write newsletters that have never played in the big leagues yet pretend to tell people what to do.

It is like going to a virgin for advice of sex. There are plenty of people with real experience. Make it attractive for them to donate the last few years of their career to help the nation.

When I was invited by the Central Bank of China in 1997 to fly to Beijing to discuss the Asian Currency Crisis of 1997, that they knew was the result of market manipulations, I was asked by the people in the US Treasury what was my impression.

I told them it was amazing. They ONLY hired people with real world experience who work on trading desks – not administrative management.

However, real world experience that does not include down in the trenches trading, is still worthless. In the case of Robert Rubin being former head of Goldman Sachs does not ensure that there will be any practical knowledge that will follow with the job.

Once again in 1997 there were the same stupid comments emerging from the treasury that they wanted to see a lower dollar to help the US trade numbers.

Once again I wrote to Secretary Rubin warning not to make the same mistakes of 1987. This time, the reply was from today’s Secretary of the Treasury Timothy Geithner.

Mr. Geithner simply denied that there was a policy to talk the dollar down and claimed that the “recognition that the fundamental sources of a strong and stable currency are sound monetary and fiscal policies that foster healthy, non-inflationary growth, and sustainable current account positions."

This is obviously not following their own advice today.

As I said, there can also be the problem of those in the real world being ignorant of how government truly functions as well. I have straddled both worlds and try to relay what I have learned from a unique position I have had for decades.

This is why there has been a major effort by those in New York to shut me up at all costs, because what I have to say will kill the golden goose that fuels the corruption in New York City.

Government is NEVER rational or logical in its thinking process. This is exploited by New York banks on a regular basis. Installing bankers as the head of the US Treasury is far better than the head of the Fed. This gives them cabinet status and direct links into Congress as well as the White House.

Warren Buffett, in a recent interview with CNBC, suggested that he could balance the budget right away.

He said: "I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election."

While this is a noble suggestion, we are past the point of no return. Balancing the Budget will no longer save the day. The entire monetary system is so screwed up there will be little hope of avoiding a major economic catastrophe in 2015.75-2020.05.

Balancing the budget will fail because the interest expenditures will continue to rise. As they do, they will then force spending cuts in all social and tangible areas as the money will have to be directed at interest expenditures. Thus, what will happen is total expenditures will be consumed by interest to keep the debt rolling.

Of course, this would be an impossible result for that would mean government employment would shrink and played out to the ultimate conclusion, what will happen is there would be nobody left in government to sign the checks. Government would have to become all machines as in the Matrix or the Terminator movie series.

There would be major social unrest long before that would happen so the true scope would be a bell curve rather than a linear projection. Meaning, at some point the great unwashed who receive checks from government to remain quiet will rise up and tear the cities apart as they plunder the stores to get what they would view as their rightful property.

While there are people arguing for the introduction of what they would call the Congressional Reform Act of 2012, it would have to be introduced by people whose self-interest would be directly affected. It is true that most other amendments were done with incredible speed. But none of them curtailed political individual power. The proposals are:

1. No Tenure / No Pension. A Congressman/woman collects a salary while in office and receives no pay when they're out of office.

2. Congress (past, present & future) participates in Social Security. All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system, and Congress participates with the American people. It may not be used for any other purpose.

3. Congress can purchase their own retirement plan, just as all Americans do.

4. Congress will no longer vote themselves a pay raise. Congressional pay will rise by the lower of CPI or 3%.

5. Congress loses their current health care system and participates in the same health care system as the American people.

6. Congress must equally abide by all laws they impose on the American people.

7. All contracts with past and present Congressmen/women are void effective 12/1/12. The American people did not make this contract with Congressmen/women.

It is true that Congress made all these contracts for themselves. In all honesty, you will never get something like this introduced.

The best we can hope for is term limits whereby nobody should be allowed to remain in office but for one term.

But even that will be impossible to get passed absent a revolution. It is true that serving in Congress should be an honor rather than a career. Yet good luck on making that point.

I have fought the corruption in New York that is going to bring us to the brink of world war. Congress REFUSES to even investigate the New York court system that is a joke. You have to be insane to have ANY money in New York after MF Global.

The only way to break the back of this corruption is to move funds out of New York, refuse to do business with anyone doing business in New York, and that will hurt the ability of government to borrow and roll this debt on a perpetual basis. Until they cannot keep the debt game rolling, there will never be any reform.

So we have to be practical. Until government is put in check by the free markets, the joke is on us and will continue to be so. Feel free to send this to everyone you can around the world. We need to educate people about government and its own self-interest that is opposed to the interest of the people or what is even fair, just, and right.

Copyright Martin Armstrong All Rights Reserved May 6th, 2012