Armstrong Economics How a ll systems can i collapse ovjernight. The 3rd Century Monetary Collapse i Are there lessons from the past 13 4-1 that equal 13 C o solutions m 4-> -H for the d • o j-i u c 'H M P-, Future? OB 1= "J C C tH 4-1 = e e < T4 - ,c -= U C LH ii B 1-1 I- •TJ O ! __ACK H O W L ED G^E H E N T 5 i T would like to thank thE many people who have been writing from around the world. It: i encouraging s to know that there are so many people who are interested in uncovering tha truth, i have also special thanks for stj many providing valuable insight into trends around the world from China, Soviet Republics, South Africa, Brazil, Australian, and India, 1 believe wa can survive tha folly of governments even if they refuse to listen. The key is understanding the nature o f i events, and that allows us to correctly make the decision to be on the opposite side. • T would like to also thank a ll my old friend and Corner clients for their support and to know that they have continued to gather information that serves us a ll in times of crisis, , . He are standing on the precipice of a new era in global-social-econornics. How we enter this new age is of critical importance. Government is incapable to doing anything for any reform of its own abuse of power is not up for negotiation. We must weather the stern, and to do so we need to understand its nature. Just as tha 1930s Great Depression set in motion profound changes that were even manifest in geopolitical confrontations, we have now reached such a crossroads. A debt crisis has its tentacles deeply embedded into every sector right into government. This is the distinction from 3 nets stock market crash that never alters the economy long-term, Weiare seriously s t i ll over-leveraged and some banks are s t i ll trying to be hedge funds and have to speculate to make, a profit. That is a key warning sign that the worse is yet to coma. Comments, Snqq&stions & Questions i Please mail to: Martin A, Armstrong FCI Fort Dix Camp, #12518-050 PO Box 2000 I Fort Dix, NJ 08640 ELE&SE REGISTER YTJUR EMZLIL AECSESS ME KITUBE NEtfS QifCICaL TO COR SDEVXVEL Gzcyrightf Martin A, ALUfaUuiig, a ll rights r=3er?~--t3 This Report may be forwarded as you like without ctarge to individuals or gDugcr/ntnt£ around the world. It is prouidad as 3 Public Service at. this tiire udthout cost ngcaus? of tha critical facts that lira i-ioiu faced economically, The enntenta and designs of tha systems are in fact copyrighted. At a futura date, a ns<s\ edition cf tha 19B5 Tha Greatest Bull market In Hiatnry mill be releaaed and a nsiu book' mill saan ba published an tha model itself: - The Getmetry of Time, It is vital that me do not forge- this ia a world economy and the arrogance that any nation can dictate to the world is jet ir-sanity. Euery nation effects all otnata nc rfiff^tait than if one ret ion ven to pour all its to*ic waste into the oclan. Everything Is intarlinkedj and sciLr-inns ara nsver isolated events. How a ll systems can collapse overnight The 3rd Century Monetary Collapse! i Are there lessors from the past • i that equal • • solutions for the Future? by: Martin A- Armstrong Former Chairman of Princeton Economics International, Ltd. and Foundation of the Study of j Cycles C ollapse of the global economy as we once knew it can ;take place with such spaed, it will leave the vast majority frozen like a deer in headlights. There was one recent movie built upon this realisation of what T refer to as a Primary One Phas^Transition. That Imovie was "The Day after Tomorrow,11 This was based upon the scientific reality that things lite the sudden and shocking advance of an ice age, happen; jalroost instantaneously, not the slow gradual movement. For example, we a ll know that the north pole moves gradually on an annual basis- Geologists can show ius where the north pole use to be because whenever a volcano^ erupts, the cooling magna becomes magnetized to where the north pole ia at that moment- So we can track where it has been, but it has been the speed (timing) that we have not understood- There are basic laws that everything inherent within the structure or the kLiy in the universe is guided by and control systefns. For example, the "gold standard" led. Our social economy is no different collapsed in 1971 because of its defect in for at the foundation lies mother nature the Bretton Woods Accord back in 1944. The herself, if sheihas a bad day, we all have dollar was fixed at $35 to one ounce of a very bad day. So the rise and the fall gold, j Yes the United States had 76% of the of many civilizations has been in part entires world gold reserves. Hence, the also do to the dramatic changes in our dollar became the reserve currency. But weather; the internal fault within the structure was they lacked any limitation upon the Our social-economic system has and creatjion of new dollars, Like a fool who will again, just collapse overnight in just Von the lottery and spends wildly, many cases. It is like 1969 and we woke we cah thank our politicians for the same to a student standing down a column of human|stupidity. Human nature is one key tanks in china* A few months later, the constant we can always count on. Berlin Wall fell and Communism came to an end. What we may be facing is a Primary Two Pnase Transition directly within our The social-economic fabric simply social-economic-political structure that implodes due to the internal weakness has taken place previously throughout our recorded history. One of tha best such California is tha 8th largest economy in documented cases was the economic meltdown the woirld, and it is dead broke. As this of the 3rd Century. One might ask how can begins| to spread to more states, we will this be similar to today? The answer is see the center core come apart. Everything simple. For as much as things seem to have we havfe today is dependent upon on© factor, changed, they remain very much the same. Publicj CorificencG. The dollar remains a medium j of exchange because there is no The political structure was not so other.jOnce the confidence of the people different from the United States today. is undermined in this respect, everything They too voted for local Senators who had implodes as we see took place during the abdicated their constitutional power to 3rd Century where the value of currency the executive branch, and the once vital fell si dramatically, it purchased 1/50th role of a Tribune who defended the pe ople of what it once did, and even taxes began against the corrupt politicians, was then to be Collected ia kind, for the government usurped by the: Emperor, The irage was that would not accept even Its own currency in the Emperor defended a free constitution payment,' that was preserved with dignity, honor, and reverence, and thus the Roman people appeared to possess the sovereign powers and authority exercised both through the senate that they elected, and the Tribune of the people in the office of the emperor. Today, we have the Inspector General who will i ssue reports against the various departments, but while his function is very Perhaps our greatest problem in making loosely that of the Roman Tribune insofar as advanceJiient in our social-political-economic he is to monitor government, he has no power development, has been the arrogance that we to indict, and is often ignored- Today, the can control such variables, and that leads new Obama Administration has created 31 new to political intervention into things they shadow posts called Czars (tsar) meaning a have no idea of what they are doing. It is "caesar" with semi-dictatorial powers. This the very nature of a Phase Transition that mirrors the Roman office of "Dictator" for politicians have no concept what it even is they are not elected, nor are they subject no less about how to manage such a truly to any oversight committee in the Senate. So astonishing nature of how all systems do in you see, we too are not exactly what you fact function. call a true government where the people do honestly control the state. If you boil a pot of water, pay very close attention to how the water boils. It is by nb means a steady linear progression. The Roman Empire was structurally also What really happens is that as the water divided into numerous provinces that were, not begins [to cotne close to the boiling point, so different from the states, minus the the wax!er will jump into a sudden burst of election of a governor locally* Hence, the conduct! that we call a Phase Transition. idea that the favor of the sovereign nay The warier is being transformed from a liquid confer power was the rule of law, but that into a [gas. When this takes place, there is exists only based upon the Public Confid a departure from the linear function of a ence of the people. All governmental power Steady [rise in temperatue, to a sudden burst exists only so far as it does not offend or explosion into a new state. This change the estoren of the people for that alone in stages from liquid to gas is what can be T confers alj^pgfoer upon a sUibe - even in called ia Phase Transition. dictatorshjps. The reason for this. Is that the ultimate check and balance becomes what iJoriically, this is how human nature Thomas Jefferson believed - the right of also responds. Everyone knows our politicians the people to break those political bonds. are corrupt as they knew in China and Russia. People tolerate being ruled and politicians Everything we have today in our core mistake this as a sign or confirmation of political structure, remain* unchanged from their power. But that power exists solely the time of the 3rd Century. What we are at the [pleasure of the people. Once a line seeing in the second-phase of this debt is crossed, that is where revolution explodes crisis is the spread of unsound finance is appearilag; to rise from nortiere, that is the undoing the economic system of the states. Phase Transition, ! Mo doubt there are skeptics. That is part of the the very structural nature. There must always be two sides to every argument. There are some people who no matter what you say, they will refuse to ever listen. They are part of the cycle and help to create natural swings in politics, law, and markets. A Phase Transitiori exists and can be measured in an empiracl manner just like a pot of water. Gold had bottomed at 3700 in 1976. By December 1979, it had been a steady progression where it finally reached $400. yet between December and January 21st, gold erupted into a Phase Transition and it peaked at $375. It more than doubled in the last few weeks what had taken 3 years to accomplish. Wow look at the NASDAQ monthly chart for' the bubble Dot.Com peak. This too was a Phase TransitirJi and we can see that between 1998 the NASDAQ rose from 1,000 to 2,200 by the last quarter of 1999. We then see an explosition with a rise to 4,882 reaching its high on March 24th, 2000- Like gold, that exploded about 2.1 times in the last period, the JfeSDftg similarly ^exploded about the same percentage gain. We can find a Phase Transition for example in the Nikkei 225 for 19S9, but we do not see that in the Dow in 2007. It is the debt markets. These moves are dramatic, profound, and significant. We did see this today in the debt markets concentrated within the Financial sector. How markets unfold is very critical. Desert o£ SttemfKtftAl Cyfc/es I t is time to peal back: the next Layer of this onion of Structural Design* Wow that we understand that there are normal rallies that do not end with the explosive move, there are the bubble topsj that are Phase Transitions that are the hallmarks of significant changes' as we saw in Japan in 1989, then there is the Waterfall Effect where therk is no rally per se, it is the rolling over of the economy in a more sudden death. 1 perhaps shocked many with showing that the 'TJricertainty Principle" of Werner Heisenberg (1901-1976) also explains how the social-politicial-economlc structure we call civilisation in fact works. We can statistically predict that a certain} number of individuals will be bullish or bearish at a given time. Itowever, we cannot predict which specific individual will be bullish or bearish. This is how cycles exists, yet they are also not a redetermined manner of fate that prevents or dictates on an individual level. It is the group behavior that is statistically predictable - not the individual. It is true that Albert Einstein said What we are dealing with here is a full "I cannot believe that God plays dice with blown Structural Design of hew everything the universe." Nevertheless, Heisenbarg's works in the world we are in and is around theory has not been disproven. Perhaps, w& us both physical and a derivative of our key are facing such complexity that it Is not interactions. What makes the economic crash truly a crap-shoot just yet, but beyond is a conplex set of interactions. It will our ability to measure and calculate the focus primarily upon one sector. Yet this is events that cause a. particular action be a symptom, not the cause, Tha raising of the it an atom or why the Dow closes where it interest rates into 1981 to fight inflation will tamofow. Perhaps like the TV series is the solution for that cycle that creates Star Trek that inspired so many people to the problem for the next cycle. This is what create things from MRls to flip-cell phone I call thej Paradox of Solution. It relets designs, Heisenberg's day will yet come. the complexity of the system we live in. A Phase Transition in markets and in the If, you hold your arm straight up in the economy, are points when the status quo that air above your head, it's no problem, ftaep it traditionally exists between the two camps of there. Suddenly it becomes so heavy, it is no beliefs that in politics might be democrat & longer sustainable. The same is true with republican and in markets bulls 5 bears, just sleep. Vou cannot maintain the energy output shift to where there Is suddenly a dramatic and you| will collapse if you try to stay up imbalance. all the! time. The economy can simply just collapse when there becomes a major.imr*Qahce_ At a conference I held in Tokyo, a rich individual bribed his way in when this was a The concept of entropy is not always session for institutions only. He wanted to the easiest to explain outside of physics ask me a pressing question. He had purchased class J Tt is formally a measure of the un the Nikkei 225 on the very day of the high in available energy in a closed system in December 1989. The market was down 30% and he f±errrodynamics so related to the state of informed me he had never purchased stock in the system that a change in the measure his life. This was his first investment and varies: with change In the ratio of the he vffls over 65. I was curious. I had just met increment of heat taken in to the absolute the man that did buy the high. I asked him temperature at which it is absorbed. How what convinced htm to buy? He said brokers they can't say I did not give an explanation. called him every year trying to get him to invest and pointed out thattthe Nikkei had it is this transfer of energy that is risen 5-7% every January for the past several known as entropy that is seme times commonly years. Each time he said no, and watched the also termed - from disorder emerges order. brokers being correct. He finally bought the Yes itj can be visualised in many ways even high looking to make that 5-7% in 3D days. outside of ttermcdynamics. It can be also He invested $50 million. That is what I am the measure of the amount of information in talking about. When you have sucked in every a message that is based on the logarithm of last person, you reach a critical point in the nuiViber of possible equivalent messages. entropy and the system will now collapse. It can! also be the degradation of the matter and energy in the universe to an ultimate state of inert uniformity. However, it can Government has launched countless and also be more down to earth and be used to major investigations trying to find that describe the steady degradation of disorgan group that sold the high and forced the ization of a political system or society as collapse. They never found anyone. The very a whole. reason why is not merely is it impossible for an individual to overpower the free markets, I i but when everyone is now long looking for Think of it this way. When you are born, the profit, a ll you need do is scare the herd everything ccmes together creating, let us say and they will panic like wild animals. Since , from a biased perspective, "order" being a the vast majority are long, you now have the living organism. Now let us realize that the vast majority trying to sell. There are no joined matter constituting our body is also buyers, and thus it collapses, not because moving toward a point of maximum growth where of short players, but because' the longs are we peak in performance, health, height, etc. going through a Phase Transition transforming From this maximum point of "order™ the matter like water to gas into bears with no logic. then constitutes our parson, is seeking to go Panic unfolds and when you outlaw shorts, it back bb disorder, meaning death. This ifc how gets far worse. The only person who will buy capital concentrates into a single sector and in such a panic is a jihort who is taking his create^ the DOT.COM bubble top, but that en profit. Outlaw shorts, and you have no such ergy will now turn and seek self-preservation buying in the middle of panics and thus the and thus will move back to "disorder" that is decline becomes far worse as it did in 1929. the cxish. When the Senate was hauling in everyone to i find out who was short, short selling just dried up. This is one of the primary reasons When people lose money, they turn to the why the stock market decline in the United politician and demand laws to prevent markets States during the 1930s was nearly 90%. They from declining. This is not "disorder" but a made short selling unpatriotic. restoration of "order" rebooting the system and creating the stage for the next cycle. 4 In thermodynamics, if you take a hot Tie "o^tagicsvn is a major effect that stone and place it on top of a cold stone demonstrates that there are external forces of the same material, the heat will flow and that one cannot manage the economy for to the colder object until they both will it is tot a closed system. It is far more reach the same temperature. These ideas complex and this is why government interven may seem strange for economics, but it in tion usually creates more damage than it has ever avoided, nothing Roosevelt did changed fact governs our world as well. the course of the economy. It was what came afterwards -WAR- that pressed the real Notice that I emphasized "closed" red button marked "REBOOT" that got things system. This is very Important. If the going again. The "New Deal" did nothing at system is closed, then we need not deal all to! reverse the economic trend. The only with any other influences coming from program that had a benefit was the HPA, not other sources. This is how politicians to restart the economy, but bo help train try to run our economy - in the sheer and farmers to hectare skilled labor. The Qbama dark world, of oblivion. They try to feed stimuli^ for infrastructure will have no us a single explanation for any event and effect other than push us dangerously close you can bet it never involves any action to the inevitable Waterfall Effect. on their part. Thus, they perpetuate the nonsense of a "closed economy11 ignoring all other external forces including those what I want to show you is that indeed of the primary agent - themselves. The for much things appear to progress and change, result - economic drivel! they indeed remain very much the same. What we arel facing is a classic Waterfall Effect The very existence of a "contagion" that unfolds as a Primary-Two Phase Transi disputes everything the politicians even tion. Although we are about to look at the pretend they have power over. They are real history of the 3rd Century AD, you can no more capable of running the economy just replace the names with familiar ones of than I am trying to be a brain surgeon. the present and see little difference. 1 M any people attempt to be analysts or economists, yet they speak without having real experience and they- fail to see that they are really nothing more than a fly on the ass of a big elephant. They do not realize they are even sitting on an elephant and worse still, they do not understand what is an elephant. They will just never know unless they step back or take flight so they can gain vital perspective and at last see what the elephant even looks like. This is what we are facing. The elephant is the world economy that we cannot see if we are too close. I discovered the •0:n>TlLl-^ta:T Waterfall Effect only by observing thousands of years of data. The 3rd Century Monetary Collapse of the Reran Empire 10BC - 290AD C O L L A P SE OF T HE ' R O H AN M O N E T A RY S Y ST EM W g;A S O R ED BY S I L V ER C O N T E NT 6 I do not mean to be arrogant. Vet at the big picture of the Waterfall the problem is not dissimilar from the Effect. If we focus closely upon any clash between the established belief of section, we will see the patterns and the rise and fall and minor Phase Trans the old world that the earth was both itions that create the bubble tops along flat and that the sun revolved around us the way- Yet stepping back, we begin to because heaven and hell were clearly realize that this is the "noise" and fixed places'above and below. is within the realm of Heisenrjerg1 s Uncertainty Principle. There is no question that empirical evidence of the cannon observation was that the earth was flat, aside from the The shocking thing that emerges rolling hills and mountains. This view from the long-term data, is that drastic was certainly logical because like the movements" that topple civilization along fly on the elephant, we were too close the way, take place in the shortest to observe that It was a gldbe. amount of tine. This in the short-term world can even be explained as what we are seeing right now - the "contagion." By focusing upon only the Jjntiedrate The detailed chart I have provided of short-term data, we can come up with an the 3rd Century Meltdown took place on array of methods to analyze what we are a massive scale within just 13 years! looking at. However, that is not at any That is stunning insofar as we are not way reflective of reality. We can come up looking at just short-term, but a 1,000 with things like Elliot Wave, but the big year historyl This dispels the slow and question that jumps out is are we. only steady linear progression, and reflects observing the minor fluctuations within the true nature of how major events do the bigger whole? take place just as in the movie "The Day After Tomorrow." This is important .From observing the very extremely to understand, because it effects our long-term data, this is where we arrive perspective of possibilities. A rroganoe.has of ten been our worst enemy. It prevents us from rising to the next level of understanrling. We assume that we are so wise, that we know evei^iJring, so why bother looking at the paat? After all, they were just a bunch of sword fighting spear chuckers. What we miss, is that while we may have technology and can now shoot each other, the human character has not changed. What does it matter if you die by a sword Or you are shot in the head. You are still dead. Human nature never changes, for that is still the unifying constant throughout all tine. As I showed in previous writings, government does not believe in God and certainly nor do politicians, for by their actions, they display perpetual cupidity and cling to all power with intense avarice. During the Imperial Age of Rome 27BC see it in the currency of Athens when it to 476AD, the first Roman Emperor who came under seize by Sparta, Thus, economic began the process of debasing the money stress from war has been a primary factor by reducing the silver content, was Nero that can be demonstrated empirically by the (54-6JAD). It is remarkable, that during monetary history of man. the Republican period between 240BC up to Hero, the quality of the Roman Silver The decline of the Soman Empire was Denarius was largely unchanged. We see a rathsr steady progression of emperors, who debasement of currency as early as in like our politicians today, care nothing of Lydia during the invasion of Cyrus The the long-term, and focus only upon the very Great during the 6th Century DC, as in inmedia'te term of reference. Politicians other city states. However, we also will not risk their election until the crisis happens. This chart of the Monetary System of I have explained in previous writings, Pome cost us probably more than $20 million that the major Cycle of Political Change to create, back when a million was worth appears to be the duration of 224 years In something. I have been asked, did' enough which there are 25 periods of 8.615 years. icoins survive? The answer is yesl You can If we look at the start of this cycle from the assassination of Julius Caesar in 44BC, buy some Roman coins for as little as $10 112 years for the half cycle brings us to because they are still plentiful- Why have the end of the Julio-Claudian Era with the they survived? EN^rything from shipwrecks death of Hero in 66 AD and the start of a to the fact that hoards are often dug up new civil war. This erupts with generals that ccme from (1) individuals actually trying to seize power, Galba, Otho, Vitellius burying their money lacking banks, and (2) and the victor, Vespasian (69-79AD). the treasurer would bury the payroll going into battle so the other-side would not get it if they lost. They have even found mints The Jews saw this as an opportunity to in the Ealkins With as much as 20-30 million revolt and perhaps break away. This is why coins surviving. Vespasian had no choice and crushed them leading1 to Wasada, Had he not responded, it would have been possible that a "contagion" The Roman coinage enabled us to put would have developed and the provinces would together the entire monetary system of the revolt ending the Bnpixe right there and period with such accuracy, one would be then. This is the political significance for amazed if you were unfamiliar with the key advertising on the coinage not that Judaea material. The coins are effectively dated was conquered, but it was "vanquished" for on an annual basis depending on the titles this symbolizes punishment. that increment annually. In addition, the . Romans used coins like newspapers. They used the reverse side of the coin to announce The second half of the cycle from 6B everything from victories, to grand opening brings us to the death of Marcus Aureli.ug events such as the Coliseum pictured on a (161-180AD), where everyone has drawn the coin of Titus (79-81AD). line with the beginning of the decline and fall of the Roman Empire. He is succeeded by his son, OJimodus (177^192PJ>} - It is his death that begins to show the collapse in VESPASIAN the rule of law altogether. (69-75 AD,). The office of the The above illustration is the reverse Emperor was auctioned of a denarius issued by Vespasian {G9-79AD) off to the highest bid announcing he vanquished Judaea in 7QAD. We der. Didius Julianus paid find coins of Philip I issued in 24BAD to 25,000 sestertii per man DID!US JULIANUS, celebrate the 1,000 year anniversary of the to the praetorian guards. founding of Rome. Although he survived only (m A.D.). 3 months, he minted a lot of coinage to pay his debt also showing his wife and daughter in portrait coinage. Three other contenders also minted coinage, but did not survive - Pertinax, Pesccrmius Niger, Clodius Albinos. Here we have a denarius struck under Septimus Severus (193-211AD) showing a The victor was Roman galley With a sail and gangway to aaptiMffl Severus (193-211 the .ground with annimals arriving for SEPTI Mills AD) who restored order SEVERUS, a great show at the Coliseum. There are ;T 93-2II A.b.). and rebuilt defenses. He quadrigae (chariots) shewing there will was succeeded by his son be great races as well. The second coin Caracalla (198-217flDj shows a cap and two daggers. It was issued who killed his brother, by Brutus announcing he killed Julius raided the tomb of Alex Caesar on the Ides of March {15th). Coins ander the Great, and was were the newspapers of ancient times. Thus, CAHACALLA, one of the real tyrants history is verified and recorded by the reverse side of the coinage. of Pome. 8