I t T s Just Time The Decline & F a l l of the United States? The Global Financial System? Or Capitalism?

2007,1 S (Feb. 27, 2007)

(Mar 19, 2009)

Or i s i t the

Monetary System?

What Now?

;Mar 23, 2008) (June 13, 2011)

1AB by Martin A. Armstrong former Chairman of

P r i n c e t o n Economics I n t e r n a t i o n a l , Ltd,

Copyright Right October 10th, 2008

Dedicated t o :

N i k o l a i Dmyitriyevich K o n d r a t i e f f (1892 - 2938)

Who was imprisoned & executed f o r h i s daring to explore E c o n o m i c - P o l i t i c a l C y c l

and

my parents Martin & Ida vho i n s p i r e d me with h i s t o r y and" the f o r t i t u d e to explore

Table of Contents

I n t r o d u c t i o n 1 Confidence Remains the Key 2

The Keynesian Theory 3 F a l l a c y of I n f l a t i o n 4 F a l l a c y of Money Supply 4 F a l l a c y of I n t e r e s t Rates 5 F a l l a c y of Taxation • 5

The K o n d r a t i e f f Wave 6 Economic R e a l i t y

K a r l Marx was the Most I n f l u e n t i a l Economist th a t perhaps ever l i v e d 7

The Lessons of Time 7

Understanding the Nature of Time 8 Dimensional Time 8 The Multi-Dimensional Wave 10

Economic Confidence Model H The 224 Year Cycle of P o l i t i c a l Change . . . 13 The Shape of the Wave * I 4

The Phase-Transition 14 The 224 Year Cycle Wave & The United States 17

The Great Convergence of C r i t i c a l C y c l i c a l Waves . . . 18 The Cycle of A l t e r n a t i n g P o l i t i c a l Philosophy 20 The 37.33 Year Monetary C r i s i s Cycle . • 22 The 8.6 Year Economic Confidence Model 24 The 8.6 Month I n t e r n a l Cycle (37.33 Weeks) 25 The 37.33 Month Cycle Frequency 27 The S e l f - O r g a n i z i n g I n t e n s i t y Cycle 28 The God P a r t i c l e / Cycle? 29 Truth = the Rule of 9 30 Revelation of Fib o n a c c i 30 The Mystery of the Maya 31 The Concept of S e l f - R e f e r a l 33

Unraveling the Mystery of Time & Space 33 Creating R e p l i c a t i n g Patterns i n t o the Future - The Schema Frequency - 33

Comprehending Time 36

Russia & The .224 Year Cycle of P o l i t i c a l Change 37

China & The 224 Year Cycle of P o l i t i c a l Change 38 The Concept of Leverage 39

What About the Derivatives 40 Understanding the F l o a t i n g Exchange Rate System 41 The Nature of a Debt C r i s i s 42

Wh&t &©w? 43

The Paradox of Solution 44

Comprehending the Problem 46 The D i f f e r e n c e Between Monetization & Borrowing . . . . 46 Because Government Borrowing Competes w i t h the P r i v a t e Sector - There i s an Equal & Opposite Force of Suppressing Economic Growth i n Proportion to Stimulation 46 I t i s Time to Re-Examine What We Are Doing . . . . 47

The Paradox of Value 48 C a p i t a l Concentration 49 The H y p e r - I n f l a t i o n Outcome 50 Unraveling the F i n a n c i a l Contraction 51

A t t a c k i n g the Shorts 52 Abuse of I n v e s t i g a t i o n s 53 The Abandonment of the Rule of Law

Leads to the Destruction of N a t i o n a l Wealth 54

The Desire to P u b l i c l y Punish May I r r e p a r a b l y Damage Our Own Economy 56

C r i m i n a l Laws i n Anglo-Americam H i s t o r y are P o l i t i c a l Tools 57 White C o l l a r Crimes Are the Most

Abused Prosecutions i n Federal Courts 58

The Absence of D i s i n t e r e s t In Prosecutions Lends i t s e l f to Corruption 59

The Manipulation of Markets The D i r t y L i t t l e (Big) Secret ' 60

So What Happened to the Model? 66

£h§ §§ululi©a 6 7

The object of t h i s t r e a t i s e i s to demonstrate that there i s substance behind the o l d adage that " h i s t o r y repeats." Everything i n nature has i n recent times been discovered to function mathematically conforming to what f r a c t a l geometry, created by Bernoit Mandelbrot, can r e v e a l . During the 1970s, I discovered t h a t there was a very strange hidden r e g u l a r i t y i n p r i c e movements from day trading back i n cash market days. Prom my Translux (paper-ticker-tape) I could p l o t each and every trade t i c k - b y - t i c k , and even r e l a t e that to volume (an a b i l i t y l o s t with computer screens). I began to n o t i c e t h a t the o v e r a l l pattern that unfolded i n t r a d a y , would r e p l i c a t e i t s e l f onto the d a i l y level,- eventually appearing i n the weekly l e v e l and then at a higher l e v e l of monthly a c t i v i t y . These patterns were extreme movements that had appeared leading up to major changes i n trends. I explained, to c l i e n t s e v e n t u a l l y that f o r any pattern based upon c y c l i c a l events to be v a l i d , i t had to be r e f l e c t e d throughout tame on a l l l e v e l s of a c t i v i t y . In other words, i f there was a c y c l e of a u n i t of 8.6 i n t e r v a l s i n t r a d y , i t must a l s o e x i s t on the d a i l y , weekly, monthly, y e a r l y , decade, and century l e v e l s of time.

When I l a t e r became f a m i l i a r with Mandelbrot *s work, I r e a l i z e d t h a t what he had observed w i t h i n nature, I was looking a t w i t h i n human behavior. I*-began to see t h a t there was s t i l l more to t h i s f a s c i n a t i n 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 " h i s t o r y repeats." F i r s t , there was the c l e a r observation t h a t there were patterns of human behavior that repeated. This pattern based a c t i v i t y l e d to the f i e l d s of t e c h n i c a l a n a l y s i s and pattern r e c o g n i t i o n such as the work of F r o s t and Prechter known as E l l i o t t Wave a n a l y s i s . Both sought to observe patterns and then proj e c t the future from the past assuming that there was a r e p e t i t i o n of p a t t e r n s . Secondly, there was a c y c l i c a l wave of events i r r e s p e c t i v e of whether'it created a low or a high, boom or bust. Where,fractal geometry could mathematically e x p l a i n how something would unfold, there was a separate and d i s t i n c t element to t h i s hidden order than can be best described as the Geometry, of Time th a 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 A n a l y s i s .

In t h i s t r e a t i s e , I am concerned with t h i s Geometry of Time and how through C y c l i c a l A n a l y s i s i t manifests w i t h i n "when" events are l i k e l y to unfold l e a v i n g f o r another day the f r a c t a l geometry of pattern r e c o g n i t i o n that t r a v e l s w i t h i n the same wave stru c t u r e l i k e DKA providing a hidden code as to the patterns that should develop. The genius of Mandelbrot always a r i s e s from out of the mainstream because l i k e Socrates who t r i e d to prove the Oracle of Delphi wrong i n i t s . • prognos­t 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 looking i n t o the forum from the outside to see what a concensus cannot.

What I hope to accomplish i s to open the eyes to the true hidden order that governs a l l l i f e , i n c l u d i n g ourselves. We must become aware of both time and the form of s t r u c t u r e . We must break-away from l i n e a r thought and to 'see the world t h a t i s w a i t i n g to be discovered that surrounds everything. My mother always s a i d to me t h a t there was a "time and place f o r everything," Her explanation of the world to me was so very true. We must r e j e c t the idea than man needs to be c o n t r o l l e d . Freedom i s a devine g i f t that no man has the r i g h t to rob from another to impose h i s personal 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 t h a t there w i l l always be the booms and busts f o r they are the engine of progress f o r c i n g new advances that w i l l not appear, but f o r n e c e s s i t y , then we can s u r v i v e and ex"pand our comprehension of time and space. We must not destroy ourselves i n the t h i r s t to 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 .

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I t ' s Just Time The Decline & F a l l of the United States? The Global Financial System? Or Capitalism? V Wovelengfh

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Or i s i t the Monetary System? w h a t N o w ?

by Martin A. Armstrong former Chairman of Princeton Economics I n t e r n a t i o n a l , L t d . Copyright Right October 10th, 2008

The l a t e s t F i n a n c i a l C r i s i s of 2007/2008 i s but a m a n i f e s t a t i o n of events' set i n motion years ago that are now unfolding p r e c i s e l y according to time. The question of how to deal with i t , i s a serious i s s u e . Whether t h i s i s a n a t u r a l consequence of the Business Cycle, i s another important question to be r e s o l v e d . For the one u n i f y i n g core element .of a f i n a n c i a l c r i s i s i s that nothing ever changes, only the players and the instruments.-

The c u l p r i t i s not merely the mortgage market. Neither i s i t e x c l u s i v e l y Wall Street and the Banks. I t i s a combination of blame that squarely r e s t s both upon the P u b l i c and P r i v a t e s e c t o r s . Are we to be so shortsighted t h a t we w i l l now j u s t destroy our e n t i r e p o l i t i c a l economy i n quest of a quick f i x ? Are we to y i e l d to the rantings of X a r l Marx and h i s hatred of the " r i c h " to blame the h i g h s a l a r i e s on Wall S t r e e t when that has nothing to do with current events anymore than huge s a l a r i e s to sports f i g u r e s ? I f we do not honestly examine the causes, we w i l l i n f a c t destroy the Blessings of L i b e r t y f o r our p o s t e r i t y d e p r i v i n g them of freedom merely to use current 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 to the government, or i t could go through a Phase-Transition and reach 35,000 i f the swing i s back to the p r i v a t e s e c t o r . Gold-is l i k e l y to go to $2,500 or jump beyond even $5,000. We are s t a r i n g i n t o a future where the political-economy and c a p i t a l i s m are at r i s k i n a merky cloud of uncertainty a r t i c u l a t e d only by George Orwell and.Ayn Rand. There are those who r e j e c t h i s t o r y as o f f e r i n g any knowledge.. Perhaps these are the same people whose parent t o l d them not to 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 l e s s o n s of h i s t o r y . I t i s times l i k e the present, where economic p a i n produces people l i k e H i t l e r and Lenin. Capitalism i s subject to booms and busts, simply because t h a t i s the nature of mankind.

1

Confidence Remains the Key

Confidence has always been the determining f a c t o r . I f the people t r u s t the s t a t e , the f l i g h t to q u a l i t y w i l l run to bonds f l e e i n g the p r i v a t e sector. But i f t h a t l e v e l of confidence should swing the other^way for_fear__of__an___abundant^supply of bonds, the swing could be v i o l e n t i n the opposite d i r e c t i o n toward h y p e r - i n f l a t i o h . I t i s the y i e l d - c u r v e that provides clues to the swing between P u b l i c & P r i v a t e confidence.

Par too often, the majority t h i n k s only i n a 10 yield cur™ l i n e a r f a s h i o n , rather than d3rnamic. I f there i s a 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 to hide. I f people are not concerned about the s t a t e going i n t o d e f a u l t , they w i l l s e l l the t a n g i b l e assets and buy the short-term debt of the s t a t e . This becomes s e l f - e v i d e n t by the y i e l d - c u r v e (short 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 to q u a l i t y , they w i l l buy the shortest government debt d r i v i n g the y i e l d - c u r v e i n t o a sharp steep angle. Short-term 6 m o l y r 2 y r 5 y r 1 D j r r ^ 3 Q y r

rates move toward zero, but the long-term rates may remain the same or even r i s e . What i s not commonly understood, i s that i f the pendulum can swing back toward the p r i v a t e Confidence that causes the opposite e f f e c t s — sharp r i s e i n assetvalues i n d i r e c t proportion to the d e c l i n e i n the purchasing power of the currency. Tha German H y p e r - I n f l a t i o n of 1922-23 was the c o l l a p s e of the Weimar. Republic, which was a,sympathic r e v o l u t i o n of workers who declared a .Republic November 9th, 1918 i n the aftermath of the Russian Revolution of 1917. The German h y p e r - I n f l a ­t i o n was the extreme case, and not r e a l l y i n the cards. Nevertheless, the y i e l d — c u r v e steepens f o r now with short-term r a t e s dropping below 1%. However, l a s t year, $400 b i l l i o n i n new debt came to the market. This year, i t may be more than $1 t r i l l i o n .

People may think the Government, i s i n c o n t r o l . That i s f a r from the t r u t h . The Keyneslan model suggested that d e f l a t i o n can be moderated by government d e f i c i t spend­in g . But Ke3rnes was l i v i n g i n a gold standard era. Today, the d e f i c i t spending i s c r o n i c , and part of the problem. Increasing the spending to o f f s e t the d e c l i n e works i n theory i f money i s created. But what we are doing i s borrowing, t a k i n g money put of the system and merely r e d i s t r i b u t i n g . We have a l l heard that China has been a b i g buyer of US debt. Some argue they need to support the US economy to keep t h e i r exports f l o w i n g . However, i f the economic dec l i n e i s spreading l i k e a contagion, around the world, we may not be able to count on f o r e i g n buyers to s t i m u l a t e the domestic economy. Economic t u r m o i l i s l i k e war, and acts l i k e a contagion spreading g l o b a l l y . What happens i f the Chinese Government faces r e b e l l i o n due to economics? Suddenly, the n o t i o n of the b a i l o u t does not work. We end up with massive d r a i n i n g of cash from the domestic economy, or a c o l l a p s e i n P u b l i c Confidence that swings toward P r i v a t e .

There are s o l u t i o n s that are v i a b l e to m i t i g a t e the d i s a s t e r . But the l o n g e r we ignore the " r e a l " world s o l u t i o n s and trends, the greater the d i s a s t e r w i l l become. I t i s indeed, the B i b l i c a l s t o r y of Joseph who warns of 7 years of drought. L i s t e n , and we can s u r v i v e . Ignore the lessons of the past, and i t w i l l be d i s a s t e r . I f the confidence swings back to the P r i v a t e Sector and f o r e i g n i n v e s t o r s dry-up, the y i e l d -curve steepens exponentially. Suddenly, the market sees $1 t r i l l i o n i n bonds and the y i e l d - c u r v e r i s e s sharply. I f P u b l i c Confidence c o l l a p s e s , even short-term r a t e s w i l l explode upward. I f you believed the Fed could s t i l l s t i m u l a t e the economy by lowering i n t e r e s t r a t e s , t h i n k again. Excessive borrowing defeats that premise and runs the r i s k of exposing the l a c k of economic c o n t r o l . The Keynesian theory has been so abused, i t i s l i k e becoming immune to a n t i - b i o t i c s that they no longer work. I t i s time f o r a serious overhaul of the system. I f we continue down t h i s road, we are f l i r t i n g w ith complete d i s a s t e r s t a r i n g s t r a i g h t .at tens of t r i l l i o n s coming due i n entitlements. We cannot b a i l o u t the banks. We must buy the debt, put I t i n t o a~publlc~"funa, and^elT~shares " "allSwlag""dehts"^o^B^eorga^zed-;" I t - i s - t h e m a t i o n we-need to save — not the banks! We need r e a l " d i s i n t e r e s t " to govern as the Founders intended. Where i s our modern-day Cincinnatus?

2

The Keynesian Theory

John Maynard Keynes (1883-1946) was a B r i t i s h economist. He worked i n the B r i t i s h Treasury between 1915 and 1919. His f i r s t work won world a t t e n t i o n i n 1919 - The Economic Consequences of the Peace. Keynes objected t o the r e p a r a t i o n s imposed by the A l l i e s upon the defeated C e n t r a l Powers (namely Germany) a f t e r World War I , that ended i n 1918. Indeed, the reparations I s what set the stage f o r the German H y p e r - I n f l a t i o n 1922-1923. and the l a t e r r i s e of A d o l f H i t l e r , by the severe economic suppression created by the payments. Keynes followed t h i s f i r s t work w i t h a s e r i e s of books and essays i n c l u d i n g A Tract on Monetary Reform

. i n 1923, The End of L a i s s e z F a l r e i n 1926, and A T r e a t i s e on Money i n 1930. He became a government adviser and a d i r e c t o r of the Bank of England i n 1941.

Nevertheless, what Keynes i s t r u l y remembered f o r i s h i s General Theory of Employment, I n t e r e s t and Money published i n 1936. No doubt, t h i s work has e f f e c t e d most people's l i v e s today, although i t should be noted, not even Keynes espoused the r e s u l t s we now face. Keynes e s t a b l i s h e d Macroeconomics w i t h t h i s work t h a t was the b i r t h of looking at the economy as a whole that included the t o t a l p r o d u c t i o n , o v e r a l l employment l e v e l s (concept of- unemployment as % of whole), and the g e n e r a l p r i c e l e v e l s t r a c k i n g i n f l a t i o n / d e f l a t i o n .

We must keep i n mind that Keynes wrote t h i s work i n the age of a gold s t a n d a r d . He d i d not, and could not, conceive of the wholesale f l o a t i n g exchange rate system that we have today. The concept was too a b s t r a c t at that time. We must-also not f o r g e t that Keynes worked i n Government, and thus would have had a n a t u r a l b i a s toward such s e r v i c e . His theory so deeply embraced by world governments today, was that governments should use " f i s c a l p o l i c y " e s t a b l i s h e d by taxes and spending p r o ­grams, to c o n t r o l and s t a b i l i z e the economy. He argued that the o v e r a l l l e v e l of economic a c t i v i t y depends upon the " e f f e c t i v e demand" he defined as t o t a l spending by government, businesses, and i n d i v i d u a l s , (GNP Gross N a t i o n a l P r o d u c t ) .

Keynes viewed the cause of the Great Depression i n a rather l i n e a r manner. He believed that the Great Depression took place as a r e s u l t of a drop i n e f f e c t i v e demand. He then postulated that during such periods of economic depression, i t was the duty of the government to increase i t s spending while c u t t i n g taxes, or to do them i n d i v i d u a l l y , i n order to s t i m u l a t e the economy. He. acknowledged that t h i s would create a budget " d e f i c i t " and was contrary to Laissez F a i r e (leave the market f o r c e s to sort i t out). He advocated "that d e f i c i t spending at such a time would stimulate the economy producing- higher l e v e l s of economic a c t i v i t y t h a t i n c l u d e d investment and nongovernmental spending to achieve f u l l employment. T h i s theory was eaggerly adopted by both sides of Government, conservative and s o c i a l i s t , f o r i t increased the executive powers and cast the p o l i t i c a l s t a t e as a new s a v i o r of the people and give j u s t cause f o r p u b l i c e l e c t i o n .

The problem with the Keynesian Model, i s the same with Marx - i t assumes some r o l e as a benevolent d i c t a t o r exempt from the s e l f - i n t e r e s t s that d r i v e s the e n t i r e economy as explained by Adam Smith (1723-1790) i n h i s Wealth of N a t i o n s . Once the theory created a r o l e f o r the government to j u s t i f y d e f i c i t spending, i t became l i k e the adicted to drugs. I once had a s e r i o u s meeting with Dick Army on C a p i t a l H i l l about the F l a t Tax. I explained that the r e a l problem was the Income tax and t h a t we needed to return to a consumption tax model f i r s t e s t a b l i s h e d by the Founders. He r i g h t l y pointed out, that to support a r e t a i l s a l e s tax would not happen because the f e a r would be the income tax would not be abolished and then both taxes would be i n place. He i s c o r r e c t . Once the d e f i c i t spending took place, i t was .used every year f o r p o l i t i c a l agenda, not economic s t i m u l a t i o n . The Cronic d e f i c i t s became the core problem. This i s the Paradox of S o l u t i o n - .today's quick f i ^ : becomes the. problem f o r the next c y c l e . No doubt, we are about t o make the same mistake again!

3

FALLACY of I n f l a t i o n

Before we can even begin, there are four great f a l l a c i e s that must be understood because we cannot deal with r e a l i t y u n t i l these f a l s e b e l i e f s are disposed of. The f i r s t f a l l a c y i s the misconception of " i n f l a t i o n . " Most economists define t h i s as the r i s e i n the p r i c e of goods and s e r v i c e s . This i s dead wrong!

I f you are worried about crashing your car, you buy accident insurance. I f you are worried about your house burning down, you buy f i r e insurance. I f you are worried about someone taking your valuables, you buy t h e f 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 d i e . To increase s a l e s , they changed the l a b e l to i t s opposite, c r e a t i n 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 s e r v i c e s i n terms of d o l l a r s when i t i s throughout the e n t i r e economy. An i s o l a t e d incidence 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 to the supply and demand and can be traced to that event. However, that narrow d e f i n i t i o n Is extended t o s h i f t the blame from the government to the p r i v a t e s e c t o r . When everything i s r i s i n g i n price,, i t i s r e a l l y the decline i n the value of the currency from-a purchasing power p e r ­spective. By changing the l a b e l , they s h i f t the blame. So already we are hearing that the blame i s the "greed of Wall S t r e e t " that immediately exonerates the government i t s e l f . I f they are not the cause, what good would be served by l o o k i n g at government? None, of course! A systemic r i s e i n p r i c e s i s caused by a d e c l i n e i n the purchasing power of the currency - not the r i s e i n the p r i c e of goods and s e r v i c e s . This c r i s i s i s e f f e c t i n g the underlying systemic i n f l a t i o n a r y pressures r a t h e r than the r i s e of p r i c e s and s e r v i c e s due to e x t e r n a l reasons. D e f l a t i o n and I n f l a t i o n are s i t t i n g on opposite sides of the s c a l e . To d e f l a t e the value of the currency causes a r i s e i n the costs of goods and s e r v i c e s . To i n c r e a s e the value of a currency causes a d e f l a t i o n a r y e f f e c t i n the p r i c e s of goods and s e r v i c e s . This 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 idea that the Government c o n t r o l s the money supply i s absurd. The only thing that the Government can c o n t r o l i s the p h y s i c a l money supply. Beyond t h a t , money i s created by the p r i v a t e sector (1) through leverage, and (2) by the very nature of the f l o a t i n g exchange r a t e system. I t i s not d i f f i c u l t to r e a l i z e t h a t i f you deposit $1,000 i n a bank and the bank lends i t to another p a r t y , both w i l l show the $1,000. I f you now leverage that through d e r i v a t i v e s , you can c r e a t e a multitude of $1,000 assets.

The f a r more complex r e a l i t y of the money supply i s the e l e c t r o n i c money supply that i s created by c a p i t a l flows and banks. I f you have a b u i l d i n 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 e f f e c t e d . However, i f you s e l l that same b u i l d i n g to a European, something changes. The'European w i l l b r i n g euros, they w i l l be converted without 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 t h a t . $ l m i l l i o n i s given to you f o r the b u i l d i n g . You now have $1 m i l l i o n t o spend domestically that did not p r e v i o u s l 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 p r i v a t e s e c t o r and no c e n t r a l bank can prevent i t . I f they put

exchange rate system. Consequently, money supply cannot be c o n t r o l l e d by the c e n t r a l bank i n any absolute manner under a f l o a t i n g exchange r a t e system.

/ \ /INFLATION^

/ DEFLATION.,

4

FALLACY of I n t e r e s t "Rates

We are t o l d that the Government can c o n t r o l the economy by r a i s i n g or lowering i n t e r e s t r a t e s . This presumes the old world of economics of f i x e d exchange r a t e s where the king (government) c o n t r o l s a b s o l u t e l y the money supply. That simply i s not the case i n a f l o a t i n g exchange r a t e system. Secondly, a c l o s e r look w i l l now r e v e a l that i n t e r e s t rates can do nothing to cure t i e t u r m o i l . We are dealing w i t h the essence of the Economic Confidence Model w i t h the emphasis on "confidence." The y i e l d curve i n t h i s instance w i l l steepen sharply i r r e s p e c t i v e of plan of n a t i o n s . 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 run as f a r away from uncertainty as p o s s i b l e , i r r e s p e c t i v e of income. Thus, the s h o r t -term r a t e s w i l l c o llapse to as close to zero as p o s s i b l e f o 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 p r e s e r v a t i o n . 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 f e a r s the P r i v a t e s e c t o r . Unique to t h i s s i t u a t i o n , we w i l l see a sharp increase from the d e f i c i t of the l a s t f i s c a l year t h a t j u s t ended September 30th, 2008 with 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 a c t u a l l y issue j u s t $250 b i l l i o n r e l a t e d to 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 could see the expansion of the debt to w e l l over 51 t r i l l i o n f o r the tax revenue w i l l d e c l i n e , both f e d e r a l l y and at the s t a t 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 there w i l l r e q u i r e f e d e r a l b a i l o u t s of s t a t e economies as w e l l i n 2009.

These current 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 r a t e s c o l l a p s e d from the 6% to t h e ' 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 g l o b a l s c a l e . I wrote of the r e a l events i n the Greatest B u l l Market i n H i s t o r y showing t h a t v i r t u a l l y a l l of Europe defaulted or suspended i t s debt. This l e d to a massive f l i g h t to q u a l i t y that caused the buying of d o l l a r s . This drove the d o l l a r to new highs and was not understood back then, leading to the passage the Smoot-'Hawley T a r i f f Act of 1930. The economic contraction was so bad that B r i t a i n even cut Canada l o s e a l l o w i n g i t to be recognized as an independent nation by the S t a t u t e of Westminster i n 193-1. By'1932, Congress enacted the N o r r i s - L a Guardia Act, which was the f i r s t law to support organized labor a c t i v i t y . I t was the g l o b a l f l i g h t to the d o l l a r t h a 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. This f l i g h t t o the -dollar a l s o collapsed i n t e r e s t rates at a f a s t e r pace i r r e s p e c t i v e of the design of the Government. By the abandoning of debt i n Europe, they e s s e n t i a l l y abandoned the F i x e d Exchange "Sates under the Gold Standard c r e a t i n g a form of f l o a t i n g exchange r a t e system c o n s t r u c t i v e l y that forced the d o l l a r to record highs. This was one of the reason Roosevelt confiscated gold and devalued the d o l l a r r e l a t i v e to gold i n 1934 r a i s i n g gold from $20 to $35 per ounce. I f anyone t e l l s you the Government I s i n absolute c o n t r o l -of i n t e r e s t r a t e s , they do not know what they are t a l k i n g about. Look at the f a c t 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 with a new perspective.. As long as there 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 rates w i l l d e c l i n 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 d o m e s t i c a l l y , t h i s w i l l be s t i l l d e f a l t i o n a r y drying up p r i v a t e cash needed at 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 bring new cash i n and s t i m u l a t e the o v e r a l l net s t r u c t u r e .

The FALLACY of Taxation

We have often heard that Republicans r a i s e d taxes during the Great Depression. Let us set the record s t r a i g h t . The only people who paid taxes were the " r i c h " f o r the p a y r o l l tax did not come i n t o play u n t i l a f t e r World War 117 R a i s i n g taxes on those who created jobs made no sense. The f e a r s of maintaining sound money were dominant, and that i s what led' to Keynsian theory l a t e r on. You cannot punish the productive forces when you need them the most.

5

The K o n d r a t i e f f Wave

N i k o l a i Dmyitriyevich K o n d r a t i e f f (1892-1938) i s i n ray opinion the f a t h e r of modern economic • c y c l i c a l theory. Following the 1917 Russian Revo­l u t i o n , Kondratieff was an economic professor who was c a l l e d upon to create the f i r s t Soviet F i v e -Year-Plan. To do the j o b , K o n d r a t i e f f explored the g l o b a l economy as i t stood i n h i s day to come up w i t h a program to s t i m u l a t e economic growth. In 1926, he published h i s conclusions and f i n d i n g s i n a report he e n t i t l e d "Long Waves i n Economic L i f e . "

K o n d r a t i e f f ' s work showed waves of economic a c t i v i t y that would span 50-60 years i n duration. He began with the time peiod of 1789 to 1926. He saw e s s e n t i a l l y three great waves with highs about 1820, 1864, and 1920. Because the economy during the 1800s was l a r g e l y 70% a g r i c u l t u r a l based and even by 1929 i t was s t i l l 40% a g r i c u l t u r a l with Nikolai Dmyitrxyerich Kondratieff respect to employment, the base assumption of h i s (IB9S-I83S) work lends i t s e l f t o c r i t i c i s m , but only from the standpoint that the economy matured evolving i n t o an i n d u s t r i a l based economy. This has had an e f f e c t upon h i s p r e d i c t i o n s long-term. For. example, even i f we look at the l a s t high i n commodity p r i c e s of 1919 caused by World War I , we can see t h a t the great explosion'in commodity p r i c e s between 1974 and 1980 would have been quite c o r r e c t . However, while there was a recession f o l l o w i n g 1980, i t d i d not produce the economic depression. The only reason t h i s d i d not happen, was because the base of K o n d r a t i e f f ! s work was c a l c u l a t e d by commodity p r i c e movements. Once commodities were no longer the c e n t r a l dominant economic component, t h e i r r i s e and f a l l would have the opposite e f f e c t . A d e c l i n e i n commodities f u e l d i n d u s t r i a l p r o f i t s and the economic e v o l u t i o n reduce a g r i c u l t u r a l employment to 3% by 1980.

K o n d r a t i e f f was the f a t h e r of applying c y c l i c a l a c t i v i t y to economics i n modern times. H i s work i n s p i r e d myself, as w e l l as others, i n c l u d i n g Joseph A l o i s Schumpeter (1883-1950) who wrote The Theory of Economic Development (1911) where he argued i t was the innovation of a new product or i n v e n t i o n that created waves of economic p r o s p e r i t y l e d by entrepreneurs. He then wrote Business Cycles (1939) where he wrote that new developments ge n e r a l l y came i r r e g u l a r l y and i n bunches c r e a t i n g c y c l e s of boom and bust. Schumpter perhaps f e l l out of favor when he wrote C a p i t a l i s m , S o c i a l i s m , and Democracy (1942) where .he disputed Marxian noti o n s that I f government sought to reduce unequal d i s t r i b u t i o n of income and to e l i m i n a t e business c y c l e s , t h i s would destroy the very c o n d i t i o n s i n which entrepreneurs could f l o u r i s h . B i g business, he concluded, would eli m i n a t e the entrepreneurs from decision-making p o s i t i o n s w i t h i n i n d u s t r y . This would r e s u l t i n the destruction of c a p i t a l i s m for i t would then l o s e i t s a b i l i t y to grow and develop, that would undermine the economy and l e a d to s o c i a l ­ism. Schumpeter taught at Harvard U n i v e r s i t y i n the 1920's, but d i d not j o i n the regular f a c u l t y u n t i l 1932.

K o n d r a t i e f f ' s work was seen as a c r i t i c i s m of S t a l i n . He was a r r e s t e d i n J u l y 1930, accused of being a member of non-existent "Peasants' Labour P a r t y " and as e a r l y as August 1930, S t a l i n wrote a l e t t e r c a l l i n g f o r h i s execution. He was f i r s t sentenced to 8 years i n p r i f l o n . He wrote 5 new t e x t s while i n p r i s o n t h a t were never published. During S t a l i n T s "Great Purge," he was given a second t r i a l on September 17th, 1938 and sentenced to 10 years, and then taken outside and -shot at the age or 46. He died f o r h i s research as others before him.

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6

ECONOMIC REALITY" URL MARX WAS THE MOST INFLUENTIAL ECONOMIST

THAT PERHAPS EVER LIVED

K a r l Marx (1818-1883) i s arguably the most i n f l u e n t i a l economist that ever l i v e d i n modern times. Some would point .to John Maynard Keynes or even M i l t o n Friedman. But the cold hard f a c t of l i f e i s that honor belongs to Marx. I t goes without s a y i n g t h a t h i s Communist Manifesto e f f e c t e d probably h a l f the world. But what i s overlooked i s the f a c t that while Marx was i n e x i l e i n London, he d i d happen to have a steady j o b . That was w r i t i n g f o r the New York Tribune. Make no mistake about i t . Marx's ideas touched that personal cord of j e a l o u s y w i t h i n human nature, and that c r e a t e d S o c i a l i s m . t h a t dominates the other h a l f of the world-

Marx's w r i t i n g s were over more than 40 years. His i n t e r e s t s s h i f t e d during t h a t time frame and he often changed h i s mind. But h i s p o l i t i c a l p h i losophy remained very c o n s i s t e n t , despite the f a c t that h i s ideas were not presented i n a c l e a r documented manner, suggesting that i f : people want to b e l i e v e , they j u s t do, even i n the' face of an absence of a systematic coherent-scheme. Marx was welcomed w i t h open arms by the American p o l i t i c i a n s and was l a r g e l y behind the progressive movement led. by, yes, the Republicans. Marx's idea was that employers would be so cheap t h a t they would e x p l o i t l a b o r to the point that they would no longer be consumers and th a t would c o l l a p s e the core of c a p i t a l i s m . Of course, Marx f a i l e d to r e a l i z e that at some p o i n t along the way, the employer would e i t h e r go broke himself by being unable to s e l l h i s product, or he would have to y i e l d to the f r e e markets c u t t i n g p r i c e s or paying higher wages.

Marx i s responsible f o r almost a l l white c o l l a r crimes. The p o l i t i c i a n responded f i r s t with the I n t e r s t a t e Commerce Act r e g u l a t i n g commerce, to prevent what Marx s a i d would happen that was not r e a l i s t i c . Next came the Sherman A n t i - T r u s t A c t th a t a l s o sought to prevent the c o n s o l i d a t i o n of business reducing the number o f employers. This came to be followed by the Income Tax i n 1909, that was p o l i t i c a l l y j u s t i f i e d by Marxism targeting the e v i l " r i c h " who threatened c a p i t a l i s m . A l l of t h i s l e g i s l a t i o n was enacted and. the huge costs to the taxpayer t h a t i s now the average man, was a l l -created based upon Marxism. Sometimes, we j u s t f o r g e t . Economic i d e a s do move n a t i o n s . Sad economic philosophies have cost m i l l i o n s of l i v e s , destroyed f a m i l i e s , and s u f f e r e d generations to be deprived of l i b e r t i e s . As you l i s t e n to both Republicans and to the Democrats, you w i l l n o t i c e , they a l l have prejudged Wall Street blaming them and once again r e s o r t i n g to .Marxism based philosophy. They are anointing a l l those who work i n the f i n a n c i a l i n d u s t r y as the " e v i l doers" that have caused the c o l l a p s e .

The Lessons of Time Francis Bacon (1561-1626) s a i d that " I f man w i l l begin with c e r t a i n t i e s , he .

s h a l l end i n doubts; but i f he w i l l be content to begin with doubts, he s h a l l end i n c e r t a i n t i e s . " The Advancement of Learning. The idea of cy c l e s has been around f o r a very long time. Even the h i g h l y respected Roman Emperor, Marcus A u r e l i u s (121-180AD), noted that " A l l things from e t e r n i t y are of l i k e forms and come round i n a c i r c l e . " When we look at a chart of gold, stocks, the economy, or any commodity, we are l o o k i n g at not some d i s t i n c t object, but at human i n t e r a c t i o n with that instrument. Gold does not r i s e and f a l l by i t s e l f . The chart i s showing human demand and how they w i l l run toward as w e l l as away from that instrument. When a young man died i n b a t t l e , h i s mother c r i e d whether that i s today or back i n Roman times. The u n i f y i n g theory i n a l l forms of f i n a n c i a l a n a l y s i s i s that the unchanging element i s human emotion t h a t i s the same today as i t was hundreds of years ago.

7

Understanding the Nature of Time

Time i s but a dimension that we d i v i d e up to mark i t s passing. Western thought unfortunately i s l i n e a r , not dynamic. This has been the curse of western understand­i n g and knowledge. Time i s but a cycle - a c i r c l e . Asians are r a i s e d with the i d e a of cycles l e a d i n g to a more dynamic t h i n k i n g process. Some, see and f e e l c y c l e s , and some see i t as "necessary" and i n s t i n c t i v e l y understand them. Lady Margaret Thatcher once commented to me that the Conservatives would lose the e l e c t i o n s i n Great B r i t a i n when John Major was running, she said - " I t ' s j u s t time."

Richard E. Nesbett wrote a good book e n t i t l e d "The Geography of Thought, How Asians and Westerners Think D i f f e r e n t l y ... and why." He a t t r i b u t e d h i s work to a a Chinese student who s a i d : "You know, the d i f f e r e n c e between you and me i s t h a t I th i n k the world i s a c i r c l e , and you t h i n k i t ' s a l i n e . " He goes on to quote him:

"The Chinese believe i n constant change, but w i t h t h i n g s always moving back to some p r i o r s t a t e . They pay a t t e n t i o n to wide range of events; they search f o r r e l a t i o n s h i p s between thi n g s ; and they t h i n k you can't understand the part without understanding the whole. Westerners l i v e i n a simpler, more d e t e r m i n i s t i c world; they focus on s a l i e n t objects or people instead of the l a r g e r p i c t u r e ; and they think they can c o n t r o l events because they know the r u l e s that govern the behavior of objects."

Nisbett was c o r r e c t . I have l e c t u r e d i n Asia since the mid 1980s. I n o t i c e d that I did not have to explain c y c l e s to Asians, they i n s t i n c t i v e l y understood what I was t a l k i n g about. Western t h i n k i n g i s generally l i n e a r , and has greater problems t r y i n g to comprehend m u l t i p l e r e l a t i o n s h i p s taking place on a dynamic l e v e l . The way I p i c t u r e the world i n my mind i s akin to gears i n a machine, where everything i s connected. I f I turn one gear, a l l others change i n s t a n t l y . C y c l i c a l a c t i v i t y i s s i m i l a r . Some f i n d i t f a r too complex. But keep i n mind t h a t we are a l l connected. J u s t as there was a f l i g h t t o the d o l l a r because of events i n Europe during the Great Depression, events i n other nations cause e f f e c t s around the world. I t i s t h i s dynamic s t r u c t u r e that makes i t appear to the casual observer as pure chaos. But there i s no such thing as "chaos, f o r i t w i l l i n f a c t be' c l e a r order below the s u r ­face, i f you understand the nature of time.

Dimensional Time

Time i s a dimension w i t h i n the nonlinear concept of m u l t i p l e dimensions. I t i s l i k e an onion to i t s e l f . Peal i t back 'and there i s another l a y e r . We can s l i c e and dice time to create countless l a y e r s of observation, and i t i s here we must r e a l i z e that c y c l i c a l a c t i v i t y can be observed, but to avoid f a l s e readings, the t r u t h of time i s that the i n t e r v a l of a c t i v i t y must e x i s t on a l l l a y e r s to be v a l i d . We can see waves i n the ocean. Most do not r e a l i z e that what the wave i s by i t s nature, a flow of energy that come i n c y c l e s . I f you go to the beach and move beyond the p o i n t where the waves are breaking, the wave passes through the water. You w i l l r i s e w i t h the water "but the wave w i l l pass by you t r a v e l i n g to shore. The water i s j u s t the "medium" through which the energy wave moves i n a transverse r e l a t i o n s h i p . I n other

words, i f we took a rope and t i e d i t on Transverse wave , . , - , . , , . , _ -,

. - one-end-snd-then Jwhip--the-otner__up and . down, the wave moves through the rope, the points on the rope do not move w i t h the wave.

The shape of a wave, [f Wove Length

A cycle wave i s measured t r a d i t i o n a l l y from crest to c r e s t and I s d e f i n e d as the "Wave Length" with the v e r t i c a l h e i g h t from the trough to the c r e s t known as the degree of "amplitude." This i s the b a s i c formation of a p r o p o r t i o n a l c y c l e wave r e g a r d l e s s of the medium be i t water, the e a r t h as i n an earthquake, of people r e f e c t e d i n a market or economy.

In a d d i t i o n , we can look at e l e c t r i c i t y to understand why c y c l e s perhaps e x i s t . We a l l know that there i s " d i r e c t currenct" that i s what you have i n a b a t t e r y you put i n a r a d i o , and then we have " a l t e r n a t i n g c u r r e n t " that t r a v e l s to the o u t l e t i n the w a l l . "Direct Current ("DC") cannot t r a v e l distance f o r i f you need a s p e c i f i c power output, the r e s i s t a n c e i n the wires alone w i l l reduce the c u r r e n t so t h a t by the time i t reachs the intended d e s t i n a t i o n , i t w i l l not f u n c t i o n . We add cycles to e l e c t r i c i t y to create an A l t e r n a t i n g Current ("AC") tha t allows the t a r g e t u n i t to f u n c t i o n i n a range of power l e v e l s . The sun i t s e l f i s a form of AC I n s o f a r as i t f l u c t u a t e s about 15% i n amplitude with a 300 year wave length. Indeed, i f the che sun functioned only at one temperature and i t dropped below that l e v e l , the sun would simply "blow i t s e l f out l i k e DC. Cycles extend l i f e . They are the way a l l l i f e i s enabled. I t i s the c y c l i c a l beat to your heart. I f i s why you s l e e p at n i g h t .

WOW t h a t We Understand that Cycles Longitudinal wave

e x i s t i n a l l aspects of l i f e i t s e l f , we —>jJflM([[M^^ must also understand that sometimes the

f Direction of Motion

energy wave that c o n s t i t u t e s " t h e c y c l e can be Transverse whereas i t purely gCCC(ICCC^^ passes through the medium e f f e c t i n g only »

^ccacarcc^^ amplitude, while there i s a l s o much more -d e s t r u c t i v e L o n g i t u d i n a l Wave that causes a temporary change In the medium. I f we use a c o l l e d spring and create a c y c l i c a l energy wave to pass through i t , the wave w i l l cause the loops or c o i l s of the spring to contract c l o s e r as the wave passes i n t o that region. The c o i l s w i l l r e t u r n ' t o normal once the wave passes. T h i s can take place where there are convergences of various c y c l i c a l f o r c e s t h a t a l s o may create panic cycles or increase amplitude e x p o n e n t i a l l y . In water, s a i l o r s have t o l d s t o r i e s of " g i a n t " or "rogue" waves that appear out of nowhere: What these are can be simply explained as a " c y c l i c a l convergence" whereby numerous c y c l i c a l waves j o i n together and produce an abnormally " g i a n t " or "rogue" wave that causes the amplitude Of the i n d i v i d u a l waves to blend together producing the hugh abnormal event. T h i s wave i n t e r f e r e n c e i s often known as the "phase." I f two waves of the same frequency as measured crest to c r e s t j o i n together, the amplitude w i l l i n c r e a s e . I f the two wave are out of "phase" that i s measured I n the degrees of a c i r c l e (360°), l e t us say by 180°, the waves w i l l i n t e r f e r e with each other and can c a n c e l each other out. Wave theory a p p l i e s even to l i g h t , sound and to the i n t e r n a l p a r t s of atoms. I t has been noticed that e l e c t r o n s , neutrons; and protons, w i l l a l s o at times behave i n waves.

Complex wave s t r u c t u r e can be a l s o ! I l l u s t r a t e d by radio waves. Here, i t has — been discovered that we can combine two waves to create the radio. We need f i r s t , the sound wave, and to transmit that sound we need a " c a r r i e r " wave. The two are combined to create the r a d i o wave showing that we can also obtain complex wave s t r u c t u r e s .

9

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] 1 1 Pill

i i i i l

The complex s t r u c t u r e of c v c l e waves can also be i l l u s t r a t e d by the d i f f e r e n c e between AM and FM r a ^ i o . I f we a l t e r the amDlitu^e of a c y c l e wave, we w i l l e f f e c t the i n t e n s i t y . In r a d i o , t h i s i s what we c a l l (Amplitude Modulation "AM"). We know th a t AM radio i s not as c l e a r and cannot t r a v e l as d i s t i n c t as sharp as FM radio., that i s achieved by a l t e r i n g the wave length, known as (Frequency Modulation "FM"). So we can see that d i f f e r e n t e f f e c t s can be achieved by a l t e r i n g e i t h e r the amplitude or the wave length frequency.

Edward Dewey who s t a r t e d the Foundation f o r the Study of C3'des, was the economic advisor under Herbert Hoover. He came away from the Great Depression w i t h the d i s t i n c t f e e l i n g t h a 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 d i s a s t e r , i t was also a n a t u r a l period of d i s a s t e r - the Dust Bowl. There was poor management of the s o i l , destroying the n a t u r a l grasslands and converting i t to wheat that d i d not protect the s o i l . This became a d i s a s t e r s i m i l a r to the B i b l i c a l length of drought - 7 years. The drought began i n 1931 and the d e s t r u c t i o n of the a g r i c u l t u r a l i n d u s t r y that accounted f o r about 40% of a l l employment, drove the unemployment r a t e to nearly 25%. The drought created the -"dust bowl" f o r c i n g American labor to become s k i l l e d . The Dust Bowl was the most, severe between 19.35 and 1938, w i t h 1935 s c o r i n g 40 storms while one of the worst, took place i n May 1934 blowing 318 m i l l i o n tons of s o i l to the East Coast on the wind. I t was t h i s combination of c y c l e events combining weather with other economic f o r c e s that caused Dewey to walk away from the event b e l i e v i n 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 i n v e s t i g a t e d .

The Multi-Dimensional Wave

Electromagnetic nature of light

Now we are ready to look at multi-dimensional waves. This can be i l l u s t r a t e d by l i g h t i t s e l f , which t r a v e l s In a electro-magnetic wave with two components. The wave t r a v e l s with the e l e c t r i c and the magnetic f i e l d s together, but p o s i t i o n e d s e p a r a t e l y at 90° angles. E i n s t e i n posited the theory that l i g h t i s made up of p a r t i c l e s of photons, which may appear to be c o n t r a d i c t i n g wave theory. But t e s t s have shown th a t at times l i g h t behaves l i k e a wave and at other times l i k e a p a r t i c l e . We need not go down t h i s road since i t i s not the subject-matter at hand. I t i s s u f f i c i e n t to s t a t e that wave theory s t i l l a p p l i e s to l i g h t . I am b r i n g i n g t h i s up p r i m a r i l y to i l l u s t r a t e that a l t e r i n g the wave length creates d i f f e r e n t e f f e c t s and t h i s i s the c e n t r a l theory behind the Economic Confidence Model.

V i s i b l e - l i g h t i s known as the " v i s i b l e spectrum" that i s defined by measuring the wave length. Tf we shorten the wave length, we cannot see the e f f e c t known as ultraviolet-•rays--causing~sunbum--Shorten i t . m o r e ^ ^ e ^ e t X-Rays to p i e r c e the body and shorten i t even f u r t h e r we get Gamma-Rays that emerge with nuclear r e a c t i o n s .

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I f we now increase the wave length measured from peak to peak, we move f a r beyond the v i s i b l e spectrum and beyond the i n f r a r e d r a y s . Now we are i n t o the world of Microwaves so many people cook with from the i n s i d e out and then Radio waves and T e l e v i s i o n waves. We can embed c r i p t e d waves w i t h i n the t e l e v i s i o n and r a d i o waves to provide even more information. But as you can see, c y c l i c a l waves can be very complex and the measurement of the wave length can vary producing a host of d i f f e r e n t e f f e c t s . Using the sun alone, we can move from seeing things the eyes cannot capture while i n c r e a s i n g the wave lengths allows us to even cook food or view t e l e v i s i o n .

The Economic Confidence Model

Economic Confidence WotM &J0?p'ffl£y Martin A. Armstrong

I have explained many times i n the past, I discovered the Business C y c l e back i n the 1970s quite u n i n t e n t i o n a l . I have explained that as a youth, I was f o r t u n a t e to have t r a v e l l e d to Europe i n the mid-1960s spending the summer there w i t h my parents. Traveling around from country to country introduced me to f o r e i g n currency exchange. I had obtained a job i n a l o c a l b u l l i o n / c o i n store to earn money f o r the journey and.became f a m i l a r with the precious metals markets as w e l l . So years l a t e r , I was s i t t i n g i n h i s t o r y c l a s s when the teacher turned on a black & white f i l m -"Toast of the Town." This was a f i l m about the Panic of 1869 where the term "black f r i d a y " was f i r s t coined, because of a gold panic, people were dragging the bankers out to the s t r e e t s and hanging them. To suppress the Wall Street r i o t , they had to a c t u a l l y send i n the troops. One scene showed Cary Grant as a youth g i v i n g James F i s k (manipulator) the quotes on gold. He read "$162." Having worked w i t h gold, I knew i t was only $35. Suddenly, my l i n e a r world c o l l a p s e d . I went to 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 h i g h e r i n p r i c e i n 1869 than today - that was not l i n e a r !

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At f i r s t , I explored my own a n a l y s i s , not expecting to f i n d a c y c l e , but i n f a c t I was t r y i n g to disprove c y c l e s . In the course of events, what I d i s c o v e r e d changed my e n t i r e l i f e , and I have been paying the p r i c e ever s i n c e . I had begun by l o o k i n g at 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 did a simple c a l c u l a t i o n to determine the average. I t produced the number to be p r e c i s e l y 8.6153846615.

I began to explore the time s e r i e s to t r y to comprehend what caused them. I could see throughout h i s t o r y that nations and .empires always rose and f e l l . There had to be some explanation as to why such states j u s t expire. I began to 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 noticed that war were s i m i l a r . I f - o n 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 r e v o l u t i o n i n Eussia. The examples are endless. Even going back to ancient times, the Komans overthrew t h e i r Tarquin kings i n 509BC s e t t i n g up a Republic while i n Athens i n 508BC Democracy was born.

My s t u d i e s led me to see great waves of structured trends that 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 years (6x 8.6). I f u r t h e r began to see that how the economyc reacted d i f f e r e n t on an a l t e r ­nating basis between P u b l i c and P r i v a t e Confidence. When the people t r u s t e d the s t a t e , v o l a t i l i t y was lower almost feud a l inasmuch that when an invader appeared, one could run behind the w a l l s of the c a s t l e . P r i v a t e waves produced f a r g r e a t e r innovation where s e l f - i n t e r e s t s f u e l e d progress c r e a t i n g exponential economic advancement. For example, the l a s t 3 highs of the 51.6 year c y c l e were 1878.15, 1929.75, and 1981.35. The f i r s t was a P u b l i c wave f i l l e d with 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 the innovation of the car. The l a s t was a P u b l i c wave peaking i n 1981.35 marking the peak i n the New Deal with e s c a l a t i n g i n f l a t i o n and perpetual d e f i c i t spending. Now we are again i n a P r i v a t e wave marked again by the great p r o l i f e r a t i o n of desktop computers, g l o b a l i z a t i o n of the economy, and the b i r t h of the I n t e r n e t e q u a l l e d only i n importance to .how..the r a i l r o a d s expanded the economy from coast to coast.

During the early 1970s I was i n f a l l i b l e . I foresaw gold r i s i n g from 1970 i n t o 1974 based upon the gold-bug fundamentals, and gold r a l l i e d from $35 to almost $200. ; But then gold f e l l back to about $103 going i n t o 1976. The fundamentals had not changed, but the model was c o r r e c t c a l l i n g f o r a low i n 1977.05 w i t h a e x p o n e n t i a l r a l l y i n t o 1981.35. I r e a l i z e d that my i n f a l l i b i l i t y was dumb luck j u s t l i k e a broken clock i s s t i l l c o rrect twice a day. I s o l 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 followed the model at the low and saw the exponential r a l l y before my very eyes.

S h o r t l y a f t e r p u b l i s h i n g t h i s model i n the l a t e 1970s, I r e c e i v e d a request from a w e l l known U.S. m i l i t a r y school - the C i t i d e l asking permission to teach t h i s model i n school. I was. compared to G.W.F. Hegel (1770-1831) who was a noted German philosopher who posited that human nature could not be understood without r e t r a c i n g the footsteps of mankind throughout h i s t o r y . I t was Hegel who promoted a wide spread i n v e s t i g a t i o n of h i s t o r y i n t o various 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 h i s t o r y that formed three basic 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 f o l l o w s that which i s necessary f o r i t cannot unfold d i f f e r e n t l y , (2) t h a t h i s t o r i c a l change develops as does progress, and (3) that one phase of h i s t o r i c a l development tends to be confronted and replaced by i t s opposite, and t h i s i s i n t u r n replaced by a phase that i s " somehow a r e s o l u t i o n of~~the two"~pfevi6us opposed phas"es~'If ~is~T;~hese t l i r e e ~ phases that he viewed formed a t y p i c a l d i a l e c t i c a l development t h a t has been c a l l e d t h e s i s , a n t i t h e s i s , and s y n t h e s i s , but Hegel did not use those terms. While I do

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not agree with Hegel i n a l l aspects, u n t i l I was confronted with h i s work, I had not made the connection between my observations of s h i f t i n g confidence between the Government and the P r i v a t e Se'ctor, and the " d i a l e c t i c " process of Hegel. I agree with Hegel .that there are great swings throughout h i s t o r y that d r i v e the d e s t i n y of men. But I see t h i s a l s o as the s t r u g g l e of cooperation that forms the f o u n d a t i o n

•of c i v i l i z a t i o n . As the Roman Senators discovered, give the mob h o l i d a y s , f r e e bread, and plenty of sport games, and they w i l l be so occupied w i t h t h e i r p l e a s u r e s that they w i l l leave the Senators alone to rob and corrupt every corner of s o c i e t y u n t i l the mob can no longer be fed and r e v o l u t i o n takes hold. K a r l Marx saw t h i s s t r u ggle only between the employers and the working c l a s s , rather than between the s t a t e and the people. '

The 8.6 year c y c l e I have w r i t t e n before contains 3,141 days t h a t forms the c y c l e or c i r c l e so to speak equal i n numer to P i x 1000. I also e x p l a i n e d t h a t I did not discover t h i s from P i , but l a t e r discovered P i i n t r y i n g to f i g u r e out i t s accuracy. I explained that the c y c l e was discovered from a study of the number of f i n a n c i a l panics between 1683 and 1907 that was a t o t a l time p e r i o d of 224 years. There were 26 panics w i t h i n that 224 year period that produced 8.615384615. I t was l a t e r discovered t h a t these i n d i v i d u a l waves b u i l t - u p i n t o groups of 6 producing a major wave of 51.692 years that was very close to the observations of K o n d r a t i e f f . I also t e s t e d t h i s back i n time forming a group of 6 waves again t h a t produced the major wave of 309.6 years. At t h i s l e v e l , I began to notice the r i s e and f a l l of c i v i l i z a t i o n s . At a conference of the Foundation f o r the Study of Cycles,, a guest speaker S a l l y Balbinus showed her discovery of a 300 year cycle i n the energy output of the Sun. I t was an .average that shocked me f o r i t matched very c l o s e l y to the 309.6 year c y c l e i n the r i s e ' and f a l l of c i v i l i z a t i o n s .

L i k e the character Neo i n the Matrix 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 c y c l e s indeed i s everywhere from the beat of your heart, weather, the p l a n e t s , and l i f e i t s e l f . We must f i r s t grasp the dynamic nature of c y c l e s . Above, i s the 8.6 year c y c l 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 c y c l e to become v a l i d , i t must e x i s t on a l l l e v e l s of time.

In the Second A r t i c l e "The Business Cycle and the Future ( P a r t I I ) " dated October 10th, 1999 (the one the Government prevented from being p u b l i s h e d but escaped v i a former employees), I explained that there were 8,6 month and 8.6 week cycles w i t h i n the 8.6 year wave formation. Just as the c y c l i c a l wave b u i l d s upward i n s c a l e through time, i t a l s o must e x i s t moving down i n time r i g h t i n t o minutes. But n o t i c e that the wave b u i l d s i n t o l a r g e r waves i n groups of 6. This i n f a c t b u i l d s i n t o another great wave instead of being 51.6 years, the grouping b u i l d s s eparately, yet simultaneously i n t o great waves of 72 years. The o r g a n i z i n 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 revealed what the Government was t r y i n g very hard to suppress - the 224 year c y c l e of P o l i t i c a l Change. I gave a review of numerous governments throughout time showing the r e l a t i o n s h i p of t h i s frequency to p o l i t i c a l changes. Some governments did not l a s t beyond that time frame, w h i l e others reformed and survived, a l b e i t i n a different^manner. There i s s t i l l the e f f e c t of a p a r a l l e l wave of grouping that tends to create the s e l f - r e f e r a l nature that fueled both i n t e n s i t y ( v o l a t i l i t y ) as w e l l as r e p e t i t i v e c y c l e of which Hegel spoke, that the opposite system emerges. Sometimes there may be a s y n t h e s i s of the two p r i o r systems, but t h i s gives r i s e to the maxim that h i s t o r y repeats.

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The Shape of the Wave

One of the great misconceptions i n c y c l e theory i s that cycles u n f o l d l i k e a B e l l Curve. This i s simply not true, as we w i l l explore. When we consider the major 224 Tear Cycle of P o l i t i c a l Change, we are confronted with p r e c i s e l y how the wave i s formed.

Another f a l l a c y has been that there i s some mysterious " e q u i l i b r i u m " that forms a magic balancing act. This n o t i o n of a magical s t a t e of " e q u i l i b r i u m " a r i s e from economics where those who c o n s t r u c t the t h e o r i e s l a c k personal experience. The. idea of "supply and demand" i n h e r e n t l y creates images of balance from.which " e q u i l i b r i u m " seems to 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 chair on the edge of a sky—scramper. The idea of " e q u i l i b r i u m " i s j u s t i m p r a c t i c a l f o r i t i s l i k e the search f o r the fountain of youth. I f the s t a t e of the economy were t r u l y balanced, we would be i n the dark ages. Adam Smith who wrote the celebrated Wealth of Nations i n 1776, s t a t e s : "Nothing, however can be more absurd than t h i s whole doctrine of the balance of t r a d e . " (Book IV, chp I I I , part I I ) . I f trade were p e r f e c t l y balanced, there would be no progress, f o r the advantage of one nation creates prosperty i n that nation that can come only at the expense of .. another. That does not mean protec t i o n i s m i s the answer, f o r that c r e a t e s the dark age w i t h no p r o s p e r i t y .

For t h i s very reason/that the "shape" of the wave cannot also, be uniform w i t h a n i c e balanced s t r u c t u r e . The shape.of the wave i l l u s t r a t e d here i s a long period of o s c i l l a t i o n s that b u i l d i n t 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 unnatural s t a t e , suddenly faces the hazardous c o l l a p s e . The shape of the wave i l l u s t r a s t e s the c a t a s t r o p i 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-Transition

The reason the model was indeed c o r r e c t i n f o r e c a s t i n g the p o l i t i c a l change i n China & Russia and the b i g c o l l a p s e i n 1998 i n Russia, i s due to understanding the wave s t r u c t u r e . A system can crash from exhaustion, or i t can go through a P h a s e - T r a n s i t i o n t h a t creates the e x p o n e n t i a l r a l l y such as the .Com Bubble. N i k k e i 1989, or gold jumping from $400 to $875 i n about 4 weeks f o r the high i n 1980.

The Phase-Transition i s t y p i c a l l y described as taking 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 i n t o a c h a o t i c s t a t e that erupts at the b o i l i n g point c r e a t i n g a Phase-Transition as water converts to steam. Science has studied t h i s process that has revealed the nature of a l l t h i n g s . The process does not f o l l o w the B e l l Curve but becomes an exponential 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 discovered by Mandelbrot experiments. Some have r e f e r r e d to t h i s as the science of "chaos" yet i t I s f a r from "chaos" i n t h a t i t i s a n a t u r a l and required f u n c t i o n w i t h i n nature.

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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 d e a l i n g with the Phase-Transition shape, not the b e l l curve models. The shape o f t h e wave becomes paramount to comprehending what i s p o s s i b l e and what i s not. F o r example, s c i e n t i s t s argued over two p o s s i b l e outcomes f o r the movement of the magnetic poles of the earth. I t was not disputed that the poles move. We know where they have been f o r when a volcano erupts, the cooling magna t h a t forms new stone i s magnetized i n the d i r e c t i o n f a c i n g the current north pole at t h a t s p l i t moment i n time. Studies have shown from ancient rocks that the magnetic pol e s have even traded places many times. During some periods, the north magnetic pole became located at the south magnetic pole, and the south magnetic pole became located at the north. S c i e n t i s t s have often disagreed how the movement takes place and even why. They have found animals frozen with food s t i l l i n t h e i r mouth. This has revealed that the movement of the poles i s not always a gradual p r o c e s s . The poles suddenly jump f o l l o w i n g more of the chaotic models along the l i n e s of a Phase-Transition.

No matter what we are l o o k i n g a t , change comes not i n a l i n e a r f a s h i o n , but appears to be chaotic - l i k e a " g i a n t " or "rogue" wave that simply appears without warning-. I n 1999, I published the chart below of the Roman Monetary System. T h i s was constructed by t a k i n g a l l the coinage of Rome, measuring i t s weight, and the metal content from a p u r i t y perspective. What emerged was f a r from l i n e a r , but showed 'the c l a s s i c model of a Phase-Transition.. The c o l l a p s e of the Roman economy was s w i f t , and c e r t a i n l y would have appeared to have emereged out of nowhere.

o o \D rsi o L n r - m ' - i O L n ^ o «—i \ O C N r - rn f - C M - O <n Cr* <t CT\ -<r 00 -d- O c N f M . - f . - H i — i r H C N t N m c O - ^ L n I I I I I !.

Copyright Martin A. Armstrong Above we can see' the monetary system of Rome between 280BC and 518AD. This c l e a r l y

r e veals the sudden c o l l a p s e t h a t appears out of nowhere taking shape i n the form of a Phase-Transition. The Roman Empire peaked with Marcus A u r e l i u s i n 180AD, p r e c i s e l y 224 years a f t e r the murder of J u l i u s Caesar i n 44BC from which the I m p e r i a l Age began. Note that 72 years a f t e r 180AD, we a r r i v e at 252AD. This i s where the P h a s e - T r a n s i t i o n takes place. The monetary system c o l l a p s e s during the r e i g n of G a l l i e n u s (253-260AD). I discovered t h i s phenomenon while c r e a t i n g a model on the Lebanese pound f o r the Universal Bank of Lebanon i n the 1980s. The model was completed 8 days before a Phase- " T r a n s i t i o n . I came to r e a l i z e the model predicted the war because those who knew i t was coming, moved c a p i t a l i n advance causing the model to see the event.

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The t u r n i n g - p o i n t of 252AD was r i g h t on target f o r in 253AD, where the m a j o r i t y of the c o l l a p s e takes place, going i n t o 268AD marked the r e i g n of V a l e r i a n (253-260AD) and h i s son G a l l i e n u s (253-268AD). V a l e r i a n was captured by the Persians i n b a t t l e , and by the end of Ga l l i e n u s ' reign, the s i l v e r content of the coinage reached v i r t u a l l y zero and even the bronze content was severely reduced. This c o l l a p s e was perhaps very s i m i l a r t o the h y p e r - i n f l a t i o n of Germany, although not to that extreme. The economic decline promoted p o l i t i c a l unrest as re b e l s appeared i n B r i t a i n , Gaul and Spain that causing them to secede from the Empire. Once again, n o t i c e the r e p e t i t i v e p a t t e r n of c y c l i c a l behavior. Again, 72 years from the peak on the 224 year P o l i t i c a l Change Cycle i n 180AD, we come to the monetary c o l l a p s e that begins i n 252AD. The s l i g h t recovery displayed i n the chart i s the Reign of D i o c l e t i o n who r e s o r t e d by major i n t e r ­vention economically, not merely introducing a new coinage e n t i r e l y , but he t a c k l e d the I r y p e r - i n f l a t i o n imposing wage and p r i c e c o n t r o l s . So we see, f o r as much as thi n g s appear to change through the eyes of progress, they remain fundamentally unchanged i n s o f a r as how human response unfolds to s p e c i f i c g e o p o l i t i c a l and economic events.

Even turning back i n time before the death of J u l i u s Caesar i n 44BC, we a r r i v e at 268BC. Note t h a t t h i s target was during-a period of Roman r i s e to power. I t was the d e c l i n e of Etruscan power. By 275BC, Rome c o n t r o l l e d a l l of I t a l y . From the times that e x i s t e d before 268BC, we were dealing with the economic c o l l a p s e of much of I t a l y . The F i r s t Punic War took place 264-241BC, so the 268 t a r g e t was a period of great p o l i t i c a l change. Rome acquired i t s f i r s t provinces, S i c i l y , S a r d i n i a and even Cor s i c a . Adding 72 years to t h i s t u r i n g point on the 224 year Cycle of P o l i t i c a l Change brings us to 196BC, again j u s t a f t e r the Second Punic War 218-201BC, where Hannibal was defeated i n 202BC, Look at the i l l u s t r a t i o n of the Monetary System of Rome. Note that the f o r m a l i z a t i o n of a Roman monetary system r e a l l y began i n 280BC, with a s i g n i f i c a n t reform i n 240BC and again a f t e r the Second Punic War.

Look even f u r t h e r back i n time, the 224 Year Cycle of P o l i t i c a l Change t a r g e t was 492BC. Keep i n mind that t h i s i s where the idea of a r e p u b l i c and democratic forms of government swept the world i n a p o l i t i c a l t i d a l wave, not uncommon from the sweeping change t h a t took place i n China immediately followed by the f a l l of the B e r l i n W all. Romans overthrew t h e i r monarchy In 509BC while democracy took h o l d i n Athens i n 508BC. This was a sweeping year of p o l i t i c a l change that was i n l i n e w ith the 492BC t u r n i n g point w i t h i n two 8.6 year c y c l e s .

I f we go back to 180AD that i s considered the pennacle of the Roman Empire under Marcus A u r e l i u s , moving forward we come to the next 224 year t a r g e t i n 404AD. This was the r e i g n of Honorius (395-423AD). Rome was even invaded and sacked by the people known as the V i s i g o t h s l o o t i n g the treasury and the c i t y i t s e l f . This was the period of the Hun i n v a s i o n . A t t i l a d i d not become king of the Huns u n t i l 434AD. But the Invasion of the Roman Empire by the Huns preceeded A t t i l a t a k i n g the thrown. What i s very i n t e r e s t i n g , i s that adding 72 years to the 404 target brings us to the very l a s t Emperor Romulus Augustus (475-476 AD). During t h i s e n t i r e 72 year d e c l i n e from the 404 t a r g e t , the Roman Empire was imploding, but f o l l o w i n g the 8.6 year c y c l e and the v o l a t i l i t y dimensions very c l o s e l y . In f a c t , during the r e i g n of V a l e n t i n i a n I I I (425-455AD), A t t i l a the Hun had become so powerful and arrogant, he demanded i n 450AD t h a t the Emperor give him h i s s i s t e r Honoria i n marraige. In the East, A t t l i a demanded and obtained annual payments from Constantinople to avoid being invaded.

Looking to the East, that portion of the Roman Empire began when Constantine decided to move the c a p i t a l to the ancient c i t y of Byzantium. Constantine o f f i c a l l y declared h i s new c a p i t a l i n 330 AD. Construction was at l e a s t i n t i a l l y completed by 333AD, yet some major landmarks l i k e the "Blue Mosque" was o r i g i n a l l y S t . Sophia b u i l t by J u s t i n i a n I i n the 530 Ts known then as "Hagia Sophia." Nevertheless, the turning p o i n t 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 l a s t e d from the c o n s t r u c t i o n of Constantinople

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5 Cycle Waves. I t was p r e c i s e l y on t a r g e t i n 1453 that the c i t y f e l l to the Turks and became the new Ottoman Empire. This precise peak f o r 1453 was so s i g n i f i c a n t , we f o r g e t t h a t the r i p p l e e f f e c t of the f a l l of Byzantium was the e n t i r e c a t a l y s t that gave b i r t h to our modern s o c i e t y .

We have often forgotten that i t was the c o l l a p s e of Constantinople t h a t l e d to the f l i g h t of scholars taking with them a l l the books of knowledge back to t h e Roman and Greek times that created schools i n Rome and sparked the e n t i r e Renaissance. Even i n R u s s i a , i t was the f a l l of Constantinople that l e d to the f l i g h t of s c h o l a r s and r o y a l f a m i l y members.that created much of the c u l t u r e of Russia. The sheer scope . of the Byzantine Empire i n i t s l o n g e v i t y was a s t o n i s h i n g . There were many economic c r i s i s t h a t unfolded, wars, plagues, and p o l i t i c a l coups. But i t reinvented i t s e l f time and again. In fact,, while Constantine renamed the c i t y Constantinople 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 t e n s i o n s . developed i n t o a two party system t h a t clashed i n t o s t r e e t brawls. The antigovernment r i o t s d i d reach a chaotic s t a t 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 S t a t e B u i l d i n g became the symbol of r e b i r t h and hope during the Great Depression.

The Crusades

F i r s t Crusade 1096 - 1099 Second Crusade . . . . 1147 - 1149 T h i r d Crusade 1189 - 1192 Fourth Crusade 1202 - 1204

Even l o o k i n g at the crusades, we see one 51.6.year wave between the F i r s t and Second Crusades. The T h i r d , Fourth, and the Children's Crusade of 1212 where thousands of c h i l d r e n from France and Germany believed God would part the Mediterranean Sea and allow them to walk d i r e c t l y to Jerusalem, died enroute to the sea, when t h e i r expected m i r a c l e did not happen, many survivors returned i n shame, while others t r i e d t o get there by ship, were merely captured by the Muslims, and s o l d Into s a l v e r y i f they did not p e r i s h at sea. The so c a l l e d F i f t h Crusade (1217-1221) only amounted to the capture of Damietta i n Egypt and the S i x t h Crusade was l e d by Emperor F r e d e r i c k I I of the Holy Roman Empire, (1228-1229), which f i n a l l y compelled the Muslims to to turnover Jerusalem, but they seized i t again i n 1244 taking i t away from the C h r i s t a i n s . This was followed by the Seventh Crusade l e d by Louis IX of France, who became known as St Louis (1248-1254), who was captured by the Muslims and ransomed. Louis l e d the Eighth Crusade i n 1270 that captured Tunis, but he d i e d s h o r t l y t h e r e ­a f t e r . While the Third Crusade was a f a i l u r e and a prelude to the Fourth, i t was the Fourth t h a t began about 51.6 years a f t e r the Second t h a 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 f i n d i s a complex dance of c y c l i c a l a c t i v i t y forming d i f f e r e n t wave lengths and c r e a t i n 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 c y c l e that i s not a harmonic of the 8.6 year c y c l e or the 224 year, yet i t f o l l o w s the 224 year c y c l e with r e g u l a r i t y . T h i s I s exposing a multi-dimensional c y c l i c a l wave formation t h a t i s f a r from f l a t . There i s yet a t h i r d dimension, that i s even more complex, t h a t i s hard to see without the cold power of computers - The Schema C a r r i e r Frequency.

The 224 Year Cycle Wave & The United States

The United States has a l s o h i t i t s target i n 1999 on the 224 year c y c l e from 1775. This was that point where one must say, " I t ' s j u s t time." In H e g e l i a n terms, we reached the point 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 s t a t e d as "necessary." Of course, a l o t has happened. There was even the 911

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attack and of course there was the c o n t r o v e r s i a l Bush-Gore E l e c t i o n . There would be hardly anyone who can deny that the na t i o n has begun a s p i r a l downward and where i t w i l l lead i s a c l i f f of u n c e r t a i n t y .

I t does not appear t h a t the 1999 t a r g e 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 th a t point i n time that h i s t o r i a n s i n the f u t u r e w i l l look back upon and draw the l i n e i n 1999 as d i d Edward Gibbon regarding 180AD and the peak of the Roman Empire with the re i g n of Marcus A u r e l i u s . The United States w i l l s u r v i v e , a l b e i t , not n e c e s s a r i l y as we once knew i t . There are great convergences of c y c i c a l waves coming together f o r t h i s downturn that does not look very good f o 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 followed the wave length of 2.24 years. The r i s e and f a l l of various governments and systems have unfolded with the 224 year i n t e r v a l s , i n c l u d i n g Democracy i n anc i e n t times. We cannot forget, t h a t economic s t r e s 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 that forms the foundation of change. As I wrote i n the Greatest "Hull Market In "History, during the Great Depression, members of the Senate stood and even made the shocking comment that a d i c t a t o r s h i p was p r e f e r r a b l e to what they were under­going at the time. Take away that s e c u r i t 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 that we now fac e .

The "Great Covergence" that we now face i s one of those moments i n time t h a t Hegel viewed as "necessary" and Thomas J e f f e r s o n perhaps viewed as a n a t u r a l ; event where the blood of p a t r i o t s i s needed to feed the Tree of L i b e r t y . While the c l e a r high i n the p o l i t i c a l s t a t e of the United States took place i n 1999, the economic high came p r e c i s e l y to the day on February 27th, 2007. We have witnessed a steady economic dec l i n e much f o r the same reasons as the decl i n e of the Roman Empire — excessive leverage, corruption of the r u l e o f law, and the co l l a p s e of confidence i n i n v e s t i n g . We have now reached the t h r e s h o l d with the 37.33 year F i n a n c i a l C r i s i s Cycle that has come i n t o play f o r 2008. The c l i f f on the otherside appears steep going i n t 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 t a r g e t . I t i s now the 37.33 year F i n a n c i a l C r i s i s Cycle that w i l l capture the a t t e n t i o n of the e n t i r e world economy.

1999 THE. "GREAT" CONVERGENCE OF

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I f we begin with the 224 year Cycle of P o l i t i c a l Change, we know that d i v i d i n g t h i s by 26 produces the 8.615 year cycle - the base core of the Economic Condldence Model. However, as I explained, there are 37.33 weeks w i t h i n an 8.6 month cycle. I f we now take the v o l a t i l i t y dimension with i t s base u n i t of 6 and d i v i d e t h a t a l s o i n t o the 224 year c y c l e , again we end up with 37.33. This produces the f o l l o w i n g years.

1775 - 1812 - 1849 - 1887 - 1924 - 1961 - 1999

Of course, 1775 marked the beginning of the Revolutionary War t h a t has been a t t r i b u t e 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 s e i z e the m i l i t a r y s u p p l i e s of the Massachusetts m i l i t i a . The D e c l a r a t i o 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 declared America i n r e b e l l i o n on Augusts 23, 1777. The C o n s t i t u t i o n was agreed upon f i n a l l y on September 17th, 1787,, -but i t was only r a t i f i e d when the n i n t h s t a t e agreed, New Hampshire, on June 21, 1788. The B i l l of Rights d i d not become law u n t i l December 15th, 1791. I f we were to begin from the r a t i f i c a t i o n of the C o n s t i t u t i o n , we produce the f o l l o w i n g t a r g e t s .

1788 - 1825 - 1862 - 1900 - 1937 - 1974 - 2011.98

We'can see that there i s a 13 year d i f f e r e n c e between the 1775 and 1788 time s e r i e s . Looking at the f i r s t 1775 time s e r i e s , we can see t h a t the next t a r g e t was 1812. This Is the time s e r i e s that began from the beginning of the R e v o l u t i o n a r y War. I n 1812, Congress declared war on B r i t a i n on June 18th. The B r i t i s h invaded the United States, captured Washington, DC, "and burned a l l " the p u b l i c b u i l d i n g s , on August 24th, 1814. While the war ended with 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. T h i s war did have the e f f e c t of destroying the F e d e r a l i s t P a r t y , who had fought f o r greater Executive power to create a standing army. This was the essence of b i g government. The party c o l l a p s e d a f t e r the r e v e l a t i o n of a secret meeting i n H a r t f o r d , Conn, that was a l l e g e d to support secession from the union to create t h e i r v i s i o n of an author­i t a t i v e s t a t e i n 1816. The F e d e r a l i s t 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 n a t i o n swung d e c i s i v e l y toward the " l i b e r a l " Republicans. As we move i n t o the 1825 t u r n i n g - p o i n t , we see a l s o the s h i f t i n g p o l i t i c a l Ideas with the s l a v e r y i s s u e marked by the M i s s o u r i Compromise of March 23, 1820 where s l a v e r y was allowed up to the M i s s i s s i p p i River, ; that 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 Doct r i n e opposing European i n t e r v e n t i o n i n the Americas. With the F e d e r a l i s t Party c o l l a p s e , New England began to emerge as more " l i b e r a l " i n favor of the people r a t h e r than the Government. The f i r s t woman's s t r i k e took'place i n Rhode Island i n 1824, and I l l i n o i s , where L i n c o l n would emerge, outlawed s l a v e r y that 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 with t h i s c y c l e and i n 1825, John Quincy Adams was e l e c t e d by the House.

Both times s e r i e 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 t a r g e t s and s h i f t i n g p hilosophies. The I n d u s t r i a l Revolution w i t h h i n d s i g h t may appear to be j u s t f a n t a s t i c . However, while i t was t a k i n g place, there was a profound t r a n s f e r of economic power. Just as you saw AOL come out of nowhere and merge with Time Warner, a w e l l e s t a b l i s h e d company, the same was t a k i n g place during the I n d u s t r i a l Revolution. A g r i c u l t u r e was perceived to be wealth. Even Thomas J e f f e r s o n when he needed money, so l d everything but land, because land was s t i l l i n s t i n c t i v e l y wealth. In 1870, about 80% of 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 to about 40% while 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 hardship that forced the d o l l a r to record highs. A g r i c u l t u r e accounted f o r about 3% of

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the work force f i n a l l y by about 1980. J u s t as the i n t e r n e t has been changing the current economy l e a v i n g behind the brick-and-motor s t o r e s , the I n d u s t r i a l Revolution l e f t behind a g r i c u l t u r e and u n s k i l l e d labor. An example of the r e s i s t a n c e i s s t i l l r e f l e c t e d i n many sta t e laws, a l b e i t no longer enforced. For example, there was a law that i f you drove down the s t r e e t i n your automatic c a r r i a g e , should a horse be freightened by the contraption, you were required to p u l l i t o f f the road. I f the horse was s t i l l freightened by the new i n v e n t i o n , you were required by law to then disassemble i t . Technology was not always embraced.

The Turning point of 1887 i n the 1775 Time s e r i e s was also i n t e r e s t i n g . Marx died i n 1883, but the ideas were widespread and r e s i s t e d the I n d u s t r i a l R e v o l u t i o n. By 1890, the Sherman Anti-Trust A c t took place. This was used to breakup .Standard O i l Company, American Tobacco Company, and s e v e r a l other l a r g e f i r m s not to mention AT&T In our modern l i f e t i m e . There were even c r i m i n a l prosecutions f o r given any discounts to volume c l i e n t s . This became viewed as a d e n i a l of equal p r o t e c t i o n ! The 1914 passage of the Clayton A n t i t r u s t Act targeted p r i c e d i s c r i m i n a t i o n and made c r i m i n a l agreements between a dealer and a manufacturer that barred them from s e l l i n g a competitor's product. These r e g u l a t i o n s were a l l Marxist based. I t was Marx that j u s t i f i e d the power of c r i m i n a l r e g u l a t i o n .of commerce j u s t as Keynesian ideas were used to support endless d e f i c i t spending (not what he t r u l y advocated).

The 1924 target on the 1775 time s e r i e s was the r e a c t i o n low before the huge explosion of investment that drove the stock market i n t o the h i s t o r i c a l high going, i n t o 1929, whereas the 1788 time s e r i e s produced 1937, the f i r s t r e a l crash 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 inauguration John F. Kenney, the Bay of P i g s i n Cuba, the s t a r t of the Space Race with 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. In the 1788 time s e r i e s , the target of 1974 marked the s t a r t of the impeachment proceedings against Richard Nixon t h a t was followed by h i s r e s i g n a t i o n August 8th. The US evacuated Vietnam on A p r i l 29th 3 1975.- I t was t h i s target that a l s o marked the l e g a l i z a t i o n f o r American to once again own gold a f t e r i t was outlaws by FDR back i n 1933.

13 Years D i f f e r e n t i a l We can see that these two time s e r i e s play

an i n t e r e s t i n g r o l e with each other. I t i s hard 1775 1788 to say one i s more v a l i d that the other. The phase / \ d i f f e r e n c e between 1775 ( s t a r t of war) and 1788 / / ( s t a r t of government) of 13 years i s a c r i t i c a l time duration i n - a n d - o f - i t s e l f . We are therefore lo o k i n g at 1999 and 2011 as a very c r i t i c a l window i n time. This 13 year d i f f e r e n c e between the two time s e r i e s i s what we c a l l a Phase-Shift. They appear to o f f e r very d i s t i n c t h i s t o r i c a l d i f f e r e n c e s . The 1775 s e r i e s begins w i t h WAR and appears to be c l o s e l y r e l a t e d to such events, whereas the 1788 s e r i e s seems to mark more of the p o l i t i c a l changes that f o l l o w .

The Cycle of A l t e r n a t i n g P o l i t i c a l Philosophy

Perhaps i t i s inherent i n human nature that one generation tends to move i n the opposite d i r e c t i o n of ideas from the previous. The 1960s was such a r e b e l l i o n . But t h i s Hegelian concept of opposing ideas seems to be shockingly s e l f - e v i d e n t . Many s h i f t s i n p o l i t i c a l theory take p l a c e over time. For example, Democrats were during the C i v i l War the slave owners i n t e n t upon maintaining s a l v e r y . L i n c o l n was the more " l i b e r a l " Republican f o l l o w i n g i n the s p i r i t of J e f f e r s o n & Madison. We must r e a l i z e that during' the War of 1812, the Republicans fought against even maintaining any standing Army. They looked back and saw the previous 224 years of Euorpe as c r e a t i n g

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the very i n s t i t u t e of a s e l f - p e r p e t u a t i n g government against the i n t e r e s t s of the people. The 'noted researcher, Gordon S. Wood, commented on t h i s t r a i t .

"From the si x t e e n t h century through the eighteenth century the European monarchies had been busy c o n s o l i d a t i n g t h e i r power and making out t h e i r a u t h o r i t y w i t h i n c l e a r l y designated boundaries and m i l i t a r y f o r c e s i n order to wage war, and t h a t was what they d i d through most decades of three c e n t u r i e s . This meant the b u i l d i n g of ever more c e n t r a l i z e d governments and the c r e a t i o n of ever more elaborate means f o r e x t r a c t i n g money and men from t h e i r subjects. These e f f o r t s i n turn l e d to the growth of armies, the increase i n p u b l i c debts, the r a i s i n g of t a x e s , and the strengthening of executive power."

Revolutionary Characters, What made the FOUNDERS D i f f e r e n t , Gordon S. Wood The Penguin Press 2006

Even the Second Amendment reasoning has changed over time. The r i g h t to r e t a i n . a gun was i n s i s t e d upon by the " l i b e r a l " Republicans l i k e Thomas J e f f e r s o n who were

deeply concerned about the e v i l of a l l o w i n g standing armies. Even James Madison shared t h i s deep concern. A standing army was power that fed the k i n g or the executive, that they viewed as a threat against the l i b e r t y of the people. They a l s o opposed any form of d i r e c t t a x a t i o n (Income Tax) because i t would i n f r i n g e upon the people by f o s t e r i n g greater governmental powers to keep t r a c k of everyone and what they earned. The C o n s t i t u t i o n , before the ideas of K a r l Marx took hold i n 1909, f o r b i d any such d i r e c t t a x a tion r e l e g a t i n g such revenue to i n d i r e c t t a x a t i o n . Both of these l i b e r t i e s that J e f f e r s o n and Madison advocated, are e l i m i n a t e d .

Today, the Republicans are the F e d e r a l i s t s despite t h e i r claims of being the "conservative" party f o r l e s s o r government. The P a t r i o t Act e l i m i n a t e s any such claims. What standing armies could not accomplish by invasion, B i n Laden accomplished by s e t t i n g i n motion the s e l f - i n t e r e s t of the Executive to expand i t s powers. I t was Thomas Paine's Common Sense that captured the s p i r i t of the times and i l l u s t r a t e s how the Republicans of today are a hybrid of what they once opposed, the F e d e r a l i s t s who stood p r e c i s e l y f o r greater expanded Executive powers.

War "from i t s productiveness, as i t e a s i l y furnishes the pretence necessity f o r taxes and appointments to places and o f f i c e s , become a p r i n c i p a l part of the system of o l d governments, and to e s t a b l i s h any mode to a b o l i s h war, however advantageous i t might to be n a t i o n s , would be to take from government the most l u c r a t i v e of i t s branches."

Paine C o l l e c t e d Writings

The Democrats are now the " l i b e r a l " p a r t y whose core base i s New England. We can see that the same region has changed not p a r t i e s so much, but " i d e a s " t h a t i s f a r more important. The very concept of p o l i t i c a l ideas a l s o go through c y c l i c a l t r ends that i s perhaps what Hegel saw i n the swing between opposites and what I saw i n the s h i f t between confidence r e s i d i n g i n the s t a t e ( P u b l i c Wave) and the people ( P r i v a t e Wave). The ideas of Adam Smith stood i n o p p o s i t i o n to the P h y s i o c r a t s who were French philosophers. .The Physiocrats postulated t h a t wealth was only derived from nature such as a farmer, whereas.,the blacksmith l i v e d o f f of the wealth of the farmer. This idea sparked the age of i m p e r i a l i s m t o create vast empires grabbing land to increase wealth. Jeffe r s o n was an advocate of new Inventions, but he was s t i l l a farmer who would s e l l anything he owned before land. I t was t h i s idea of wealth that motivated Adam Smith to w r i t e the Wealth of Nations i n 1776, showing t h a t i f a farmer and a blacksmith both s o l d t h e i r product to France from England, then both returned with gold, which c o n t r i b u t e d to the wealth of the nation.

21

The 37.33 Year Monetary C r i s i s Cycle

The 37.33 Frequency

As there are 37.33 weeks w i t h i n a 8,6 month c y c l e , there are a l s o 6 waves of 37.33 years w i t h i n . a 224 year P o l i t i c a l Change C3 rcle. These are the c y c l e s of major economic uphevals. ^hey are l i k e a Longitudinal Wave i n s o f a r as they s i g n a l a major ch a o t i c period where the u n d i s c i p l i n e d management of government comes home and they t y p i c a l l y hunt down those i n the p r i v a t e sector to blame. The l a s t 4 t a r g e t s w i t h i n the United States economy r e v e a l a shocking degree of order.

The Financial Monetary Crisis Cycle 37.33yrs

1896 1934 1971 2008

The l a s t four t a r g e t s ' o f t h i s c y c l e were 1896, 1935, 1971 and r i g h t now 2008. Let us begin w i t h the 1934 event. I t was here that Roosevelt c o n f i s c a t e d gold from the people ending the l a w f u l ownership of gold and f o r c i n 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 c o n f i s c a t i n g gold 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 United States minted any gold coins as money. The new reduced s i z e Federal Reserve Notes began to be issued i n 1934..-The nest i n t e r v a l of the 37.33 year cycle brings us to 1971 where on August 15th, 1971 Richard Nixon cut the t i e s to gold completely even between n a t i o n s . This was not a new monetary system that was designed by some world gathering as at B r e t t o n Woods

'back i n J u l y 1944 where 44 countries gathered to create the IMF and the World Bank al s o e s t a b l i s h i n g the US d o l l a r as the reserve currency of the world.

The 1971 turning point was t r u l y chaos. The new monetary system t h a t emerged by d e f a u l t d i d so only because of a trade dispute where President Nixon c l o s e d the gold window and would no longer redeem, d o l l a r s f o r gold f o r the French and the Swiss. This brought an end to Bretton Woods. I t was not planned. I t was not even discussed at a major world meeting. I t was simply a trade dispute that was to be . temporary, but found i t s e l f d i s t r a c t e d by other events - namely OPEC. The f l o a t i n g exchange r a t e system thus emerged. T t was not taught i n schools. Economists did not know even what to teach. This was the f i r s t time a f l o a t i n g exhange r a t e system emerged worldwide. P r e v i o u s l y , 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" to gold. That l e d to Black Friday i n 1869 with a r i o t as investors dragged the bankers out and hung them i n the s t r e e t s . 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 to send i n troops to suppress the chaos when gold h i t $162 back i n 1869. Adjusted f o r i n f l a t i o n , that may be f a r beyond $10,000 today.

The 37.33 Year F i n a n c i a l C r i s i s Cycle has been e x c e p t i o n a l l y accurate governing a s p e c i f i c r e a c t i o n w i t h i n the p o l i t i c a l - e c o n o m i c s t r u c t u r e of the United S t a t e s . The 1971 turning point produced a completely new type of world currency system by d e f a u l t . The 1934 turning point produced the c o n f i s c a t i o n of gold and the b i r t h of a t w o - t i e r f i n a n c i a l system, whereby gold was confiscated d o m e s t i c a l l y , but used i n t e r n a t i o n a l l y . Yet, when we look back to 1896, we f i n d another major c r i s i s .

22

In 1895, J.P.Morgan reorganized departing from h i s former a l l i a n c e w i t h the* important P h i l a d e l p h i a f a m i l y of Drexel, that was known as Drexel Morgan & Co.. I t was i n 1895 that the s p l i t created J.P.Morgan & Company. Nevertheless, the great f i n a n c i a l c r i s i s of 1896 l e d to J.P. Morgan gathering a consortium of world banks to b a i l o u t the United States Government. J.P. Morgan's f i r m s o l d a l l o f a $62 m i l l i o n Government bond i s s u e . The s a l e ended a gold shortage i n the U.S. Treasury, t h a t had been i n s t i g a t e d by the d e s i r e to create i n f l a t i o n through a l t e r i n g the g o l d - s i l v e r ratio.. By v a l u i n g s i l v e r at a higher r a t e to gold, other nations d e l i v e r e d s i l v e r to the United States exchanging i t f o r gold that l e d to a vast shortage of gold where i n e f f e c t the Government could no longer pay i t s o b l i g a t i o n s i n i n t e r n a t i o n a l t r a d e .

I t was the 1896 t u r n i n g point t h a t marked the economic t u r m o i l . I t was t h i s very t a r g e t year when W i l l i a m Jennings Bryan d e l i v e r e d h i s famous speech a t the Chicago Democratic Convention.

"Having behind us the producing masses of t h i s n ation 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 f o r a gold standard by saying to them; You s h a l l not press down upon the brow of lab o 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 F i n a n c i a l C r i s i s was the Government t r y i n g to d e l i b e r a t e l y c r e a t e • i n f l a t i o n at the request of farmers and s i l v e r miners. Those lobby groups fought hard and t h e i r o v e rvaluation of s i l v e r drove gold to Europe bankrupting the f e d e r a l Government.

What does t h i s c y cle suggest f o r 2008? Unfortunately, t h i s i s a monetary c r i s i s c y c l e of major pr o p o r t i o n s . When i t comes i n t o p lay, we somehow end-up w i t 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 Into the world 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 provide the i n c e n t i v e to make things b e t t e r . I t may be h e l d in. a d i f f e r e n t l o c a t i o n so the name w i l l change from "Brenton Woods" to perhaps the'new Treay of P a r i s . I see no other s o l o u t i o n f o r we are d e a l i n g w i t h not the "greed" of Wall S t r e e t i n i s o l a t i o n , we are also dealing, with the vast debt s t r u c t u r e that was created by endless p o l i t i c a l promises. We w i l l not go back to the gold standard. For Smith was c o r r e c t , the wealth of a n a t i o n was i t s people and producive c a p a c i t y . But make no mistake, i t i s a l s o the Rule of Law. I f c a p i t a l cannot be secure i n the t i t l e to property and enforcement of r i g h t s - i t simply leaves:

Europe knows a l l about c a n c e l l i n g c u r r e n c i e s . Americans do not. The d o l l a r remains l e g a l tender since i n c e p t i o n . In Europe, a l l nations c a n c e l l e d currency pre-Euro every 20 years of so. There may also be the reestabllshment of a t w o - t i e r currency system where the one-world currency serves between nat i o n s , and the l e s s o r domestic v e r s i o n provides f o r c i t i z e n s . This would a l l o w more f l e x i b i l i t y to do the d e f a u l t on domestic o b l i g a t i o n s covering i t w i t h new currency. During the 1870s, the United States Issued two s i l v e r d o l l a r s : (1) Trade D o l l a r and (2) S i l v e r D o l l a r . I n t e r n a t i o n a l payments were made with the Trade D o l l a r t h a t was 1 t r o y ounce of s i l v e r while domestic s i l v e r d o l l a r s were about twenty-five percent l e s s . South A f r i c a also had a two t i e r currency, the! Rand and the F i n a n c i a l Rand f o r i n t e r n a t i o n a l settlements. A two-tier i s now p o s s i b l e .

The 37 33 Year Monetary C r i s i s Cycle t a r g e t f o r 2008 appears to be a s e r i o u s t a r g e t that w i l l set i n motion a/cascade of changes that-should place s t r e s s upon the world economy going i n t o 2011. The high dependency upon f o r e i g n c a p i t a l to fund the US debt, w i l l a lso tend to dry up f o r c i n g greater monetization of the debt and the i n e v i t a b l e collapse of the f l o a t i n g r a t e system by as early as 2011 i f we get past 2008. .

The .8.6 Year Economic Confidence Model

1589.9S 2DB7,f£

. 1994.25 20iO'2J85 2011 A'S

Copyright Martin A. Armstrong a l l r i g h t s reserved

To the shock of many, despite the l a c k of p u b l i s h i n g s i n c e 1999, the 8.6 year Economic Confidence Model performed once again p r e c i s e l y to the day f o r the major

. top on t h i s current 8.6 year Cycle Wave. So much f o r those who argued that the only reason the model worked p r e c i s e l y to the day was because too many people l i s t e n e d to the f o r e c a s t s .

This model c o r r e c t l y showed the d e c l i n e i n the economy and the d e f l a t i o n a r y mode that drove the d o l l a r i n t o record highs f o r 1985. The B r i t i s h pound f e l l to $1.03 on the major low. This was the b i r t h ' of the G-5 (Group of F i v e now E i g h t ) whereby nations gathered together to coordinate i n t e r v e n t i o n , i n t e r n a t i o n a l l y i n an e f f o r t to manipulate the economy. This i s when I wrote the P r e s i d e n t Reagan warning that you cannot manipulate the economy to create a r t i f i c i a l o b j e c t i v e s . The Chief Economic Advisor Mr. Sprinkle wrote back thanking me f o r the advice, but s t a t i n g that u n t i l someone else had a model to support my warnings of a sharp r i s e i n v o l a t i l i t y , they could not r e l y upon only one model. When the next t u r n i n g point created the v o l a t i l i t y from world f o r e i g n exchange markets manifesting i n t o the 1987 Crash p r e c i s e l y to the day 1987.8 (365 x .8 = 292 days = October 19th, 1987), I suddenly was urgently c a l l e d asking f o r what would happen now? Amazingly, i t seemed everyone agreed, v o l a t i l i t y was the number one problem. The 1989.95 t u r n i n g point pinpointed the Tokyo peak that .December, and the c o l l a p s e i n t o 1994.25 marked the precise day of the low f o r the S&P 500 that year beginning the b u l l market that has reached a high 13 years l a t e r i n 2007.15 (February 27th). But then we a l s o have the 1998.55 t u r n i n g point that produced the high J u l y 20th w i t h the c o l l a p s e of Russia and the r e t e s t of support f o r 2002.

We must r e a l i z e that t h i s model i s a g l o b a l model. I t not based e x c l u s i v e l y upon the US economy, markets or events. This r e f l e c t s the " c o l l e c t i v e " behavior of mankind throughout the ages. I f we look at the 198Q.95 t u r n i n g p o i n t , i t i s true that t h i s pinpointed the major a l l time high i n the N i k k e i 225 as w e l l as the Japanese economy. However, t h i s also marked the end of communism as we knew i t . In China, we saw Tiananmen Square on June 3rd-4th 1989 followed by the f a l l of the B e r l i n Wall 5 months l a t e r i n November 1989. What the model i s r e f l e c t i n g i s a n a t u r a l tendency to l i m i t s the behavior and ideas of mankind to d e f i n e d and d i s t i n c t periods. I t i s l i k e holding your arm i n the a i r . I t i s no problem, but keep i t there. Suddenly you cannot hold your arm up any more — i t I s j u s t too heavy. This model r e f l e c t s a s i m i l a r nature that' no matter what i t i s , there i s a l i m i t to s u s t a i n i n g any trend. This i s what Margaret Thatcher s a i d t o me - the Conservatives would l o s e because " I t i s j u s t time!"

Economic Oodi&J.eriLce Modle3

(C) Copyright Martin Armstrong

2015.75 2024.35

We have now crossed that peak i n the current wave — 2007.15 (February 27th, 2007). we can see that the Economic Confidence Model pr o j e c t s out beyond my l i f e expectancy and i t w i l l f u n c t i o n long a f t e r I am gone as i t did long before I was born. These 8.6 year waves that r e f l e c t the Business Cycle are c a l c u l a t e d by t a k i n g the per cent of 365 days f o r that year. For example, 2015.75 produces (.75 x 365) that i s 273.75 days i n t o that year = October 1st, 2015. The low f o r t h i s c u r r e n t economic devacle should be 2011.45 = June 13th, 2011.

The minor mid wave turning p o i n t s break down as the f i r s t l e g being 2.15 years or a quater of the 8.6 year wave. The next quarter wave i s t y p i c a l l y broken i n t o h a l f again c r e a t i n g two 1.075 year waves. We can see that i n the c u r r e n t wave, the mid-wave turning p o ints were 1008.225 (March 23, 2008) and 2009.3 (March 19th, 2009). T y p i c a l l y , these waves do not produce s p e c i f i c t u r n i n g points to the day as i s the case at the major turning p o i n t s . This i s due to the f a c t that i n t e r n a l l y there i s yet another l a y e r of a c t i v i t y , the 8.6 month c y c l e that c o n s t i t u t e 6 waves w i t h i n each l e g of the 8.6 year c y c l e . Again we see the s t r u c t u r e f o l l o w i n g groupings o f 6 u n i t s . This 8.6 month l e v e l of a c t i v i t y c o n s i t u t e s 37.33 weeks. There i s yet another l a y e r beneath t h i s c a l c u l a t e d i n 8.6 week i n t e r v a l s , f o l l o w e d by s t i l l another, 8.6 days, hours, mintues and believe i t or not seconds.

The hidden order does not end there. This i s l i k e a Mandelbrot set of j u s t amazing order of patterns r e p l i c a t i o n the same p a t t e r from one l e v e l of time to the next. S t i l l , we w i l l a lso s h o r t l y explore how the i n t e r a c t i o n of t h i s core frequency I r e f e r to as the Economic Confidence Model, w i t h the grouping c y c l e that causes the s e l f - o r g a n i z i n g patterns of i n t e n s i t y ( v o l a t i l i t y ) . For example, taking the major high of the l a t e r 51.6 year P u b l i c Wave, 1981.35, adding the the f i r s t wave of 6 years, we a r r i v e at 1987. This i s what caused that u s u a l l y minor t u r n i n g point to produce the p r e c i s 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 with 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 I n t e r n a l Cycle (37.33 Weeks)

I 8.6 Month I n t e r n a l Cycle Within the 8.6 Year Cycle

2002.85

2007.146

o r-t o r-» CM

o o A CM

<r o o CM

CO*

o o CM CM

i O

\ O \ O i—< \ CM o \ A o \ / \ t—i

\ / \ o \ ACM

"2011.44

Copyright M a r t i n A. Armstrong 2008

There are 37.33 weeks w i t h i n a 8.6 month c y c l e . Looking at the 8.6 month turning points w i t h i n the 8.6 j^ear wave s t r u c t u r e , we have the f o l l o w i n g dates:

2002.85 2003.56 2004.28 2004.99 2005.71 2006.43 2007.146

11/6/02 07/23/03 04/12/04 12/27/04 09/16/05 06/06/06 02/23/07

2007.86 2008.57 2009.29 2010.01 2010.726 2011.44

11/10/07 07/27/08 04/16/09 01/04/10 09/22/10 06/10/11

Note we have 6 waves within' each h a l f of the 8.6 year wave. This i s caused by the p a r a l l e l wave that, groups 12 waves of 6 i n t o the 72 i n t e r v a l wave. We can see that the di f f e r e n c 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 cycle w i t h i n the 8.6 year c y c l e i s c r i t i c a l t o comprehending how the n a t u r a l c y c l i c a l f o r c e s f u n c t i o n I n a l l aspects of our p h y s c i a l world. On the 8.6 year wave, the f i r s t r e a c t i o n low a f t e r the m a j o r high at 2007.15 i s 2008.225 corresponding t o March 23rd, 2008. You w i l l n o t i c e that t h i s date does not appear on the l i s t of dates above. This t u r n i n g point was the low f o r the AMEX O i l Index, from which a r a l l y moved in t o May 21st, 2008 j u s t afterwards. Many commodities reached t u r i n g points plus or minus 1 week from the March 23rd traget such as c a t t l e , sugar, c o f f e e , cotton, wheat, and soybean o i l j u s t to mention a few. When we compare the 8.6 month c y c l e (37.33 weeks), we see the target of J u l y 27th, 2008. Here we f i n d again t u r n i n g p o i n t s g e n e r a l l y plus or minus 1 week of so. The A u s t r a l i a n d o l l a r reached a high on J u l y 15th, 2008 f o r the year. The Mexican peso peaked August 4th. The Euro peaked on J u l y 15th. Now i f we look at the Swiss f r a n c , the high was March 17th, 2008, the high In the Japanese yen was also March 17th, 2008. Let us now turn to the B r i t i s h pound, here the high i s November 9th, 2007 and the Canadian d o l l a r peaked November 7th, 2007. Looking at the above l i s t of 8.6 month dates, we see November 10th, 2007.

26

3/23/08 7/27/08 11/10/07

C a t t l e sugar coffee cotton wheat soybean o i l

AMEX O i l Index A u s t r a l i a n £ Mexican peso EURO Swiss franc FTSE 100 Index DAX Index S&P Midcap 400 R u s s e l l 2000 Natural Gas & Crude O i l

B r i t i s h POUND Canadian $ NASDAQ 100

Those markets or index i n d i c a t o r s that have peaked with the 2007-15 major wave t a r g e t was the NIKKEI 225 stock index i n Japan, that reached i t s high on February 26th, 2007 along with the debt markets and the US-economy. This i s not b u l l i s h f o r Japan. The N i k k e i 225 w i l l f a l l i n 1932 percentage" terms causing a massive s e l l i n g of f o r e i g n investments that w i l l d r i v e the yen to ne highs again. Exceeding the highs of Dec. 1999/Jan 2000, w i l l s i g n a l the c o n t r a c t i o n . t h a t may peak i n 2009. The S&P 500 exceede the Feb 2007 high, but t h i s peaked on the *.6 month c y c l e on Oct. 11th 2007, j u s t shy of the 11/10/07 ta r g e t . Japan w i l l be a key to watch i n 2009.

The 37.33 Month Cycle Frequency

In "The Business Cycle and the Future ( P a r t I I ) " , I provided the 37.33 month frequency i l l u s t r a t i n g that there were 37.33 weeks w i t h i n the 8.6 month c y c l e , but I also pointed out l i k e the 72 year c y c l e f o l l o w s the 224 year . l i k e w i s e we f i n d t h a t major t u r n i n g points often 37.33 months a f t e r major monthly t u r n i n g p o i n t s .

"For example, using the breakout high of 1997 i n the NASDAQ 100 i n January of that year p r o j e c t s a high f o r March 2000. Looking at the J u l y 1998 major high that coincided with the model p r o j e c t s a low f o r September 2001 with high v o l a t i l i t y . The next t u r n i n g point would be projected from the J u l y 1999 high brings us to September 2002 f o r a probable major low at t h a t turning p o i n t . "

Of course we do not have to go i n t o what happened f o r the September 2001 t a r g e t with the high v o l a t i l i t y . That seems to be i n l i n e with the model'. What we must come to understand that time i s merely a dimension that can be s l i c e d up very n i c e l y . The key to the v a l i d i t y of any c y c l e frequency i s that to v e r i f y i t s e x i s t a n c e , i t must appear on a l l l e v e l s of time.

The 37.33 month c y c l e i s equal to 3.11 years. This also i s very c l o s e to P i being 3.141. To show the hidden order, I w i l l f o r the f i r s t time p u b l i c l y or even p r i v a t e l y i l l u s t r a t e a p o i n t . Take the high of the previous wave 1998.554298. Add P i i n terms of years and months 3.141. This produces the date 2001.695. Take 365 days and m u l t i p l y .695 y i e l d s 253.675 days i n t o the year 2001. That amounts to September 11th, 2001. So much f o r the CFTC clai m i n g that my f o r e c a s t s manipulate the world economy because nobody can p r e d i c t a s p e c i f i c day years i n advance. For as much as t h i n g s may appear to be random, i t i s more l i k e Neo i n the Matrix. Suddenly he can see not the w a l l s , but the code. ' .

I t i s a l l over the i n t e r n e t thanks to former employees who b e l i e v e d t h e i r j o b s may have been destroyed because of my r e f u s a l to work f o r the CIA. To c l a r i f y , a f t e r the model c o r r e c t l y f o r e c a s t the c o l l a p s e of Russia i n 1998, which was covered by the London F i n a n c i a l Times who attended my l e c t u r e d e l i v e r i n g that f o r e c a s t i n London, the CIA c a l l e d the o f f i c e . They recognized the power of the model, but f o r m i l i t a r y purposes. They wanted me to work i n Washington. I d e c l i n e d , o f f e r i n g to run any study they might l i k e from Princeton. They d e c l i n e d , s t a t i n g they had to own the model. I t i s evident, the model could p i c k up g e o p o l i t i c a l events because they are preceeded by economic events. I created a model f o r the U n i v e r s a l Bank of Lebanon, t h a t indeed predicted the war because those who knew, abnornally moved c a p i t a l changing t h e . f l o w s .

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The Self-Organizing I n t e n s i t y Cycle

For decades I have explained that the Economic Confidence Model b u i l d s i n t o groups of 6 waves from 8.6 years i n t o 51.6 years that i n turn b u i l d - i n t o 6 waves of 309.6 y r s . I have not before explained why t h i s i s so. Just as the electromagnetic wave has two d i s t i n c t components, e l e c t r i c and magnetic f i e l d s moving t o g e t h e r , _ a l l c y c l i c a l waves appear to be multidimentional beyond what the mind can see at f i r s t blush. The organizing p a r a l l e l wave that creates the grouping and produces the i n t e n s i t y ( v o l a t i l i t y ) , unfolds not as a d e r i v a t i v e of the 8.6 year c y c l e , but i s e n t i r e l y independent.

The core frequency comes i n waves of 6 units of time. These b u i l d up I n t o a l a r g e r wave of 72 that flows at twice the formation of the Economic Confidence Model. The u n i t of 6 i s t r a n s f e r r e d to the 8.6 year wave causing i t to group i n formation of 51.6 years. But t h i s does not disturb the independent i n t e n s i t y frequency i t s e l f , which means we s t i l l have a p a r a l l e l e f f e c t that w i l l appear i n a l l a c t i v i t y s i m i l a r to a " g i a n t " or "rogue" wave i n s o f a r as i t may appear to be coming from nowhere.

This was i l l u s t r a t e d w ith the 224 year Cycle t h a t i s a d e r i v a t i v e of the 8.6 frequency. A f t e r every 224 years, we see a 72 year catastrophy t h a t appears to come unrelated to the 8.6 year or.224 year c y c l e s , inasmuch as i t i s merely a d e r i v a t i v e of the 8.6 year wave. I f we begin with the l a s t peak on the 51.6 year Economic Confidence Model we can see again how the 6 year i n t e n s i t y wave running p a r a l l e l had c o l l a t e r a l e f f e c t .

Note that 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 that marked the high i n I n f l a t i o n and the f o r m a t i o n of the G-5 (Group of Five Nations) to coordinate g l o b a l economic manipulation t h a t i s now coming back i n t o vogue, p r o j e c t i n g forward only the I n t e n s i t y Cycle using the u n i t of 6 years, we a r r i v e at the 1987 crash, the 1999 low i n gold, and numerous other t u r i n g points, with the i n t e n s i t y once again p o i n t i n g to 2011. We can see also 2009, but t h i s should provide the r e a c t i o n high that may form during the f i r s t or second week of March of that year. However, we can see that 2011 i s coming up on numerous waves that are independent, suggesting very s t r o n g l y that we are indeed facing a major Great Convergence.

There i s yet a deeper l e v e l of the s e l f - o r g a n i z i n g nature of t h i s wave. T h i s requires f a r more_complex math that i s f r a c t a l based that creates the s e l f - r e f e r r a l to r e p l i c a t e c ontinual patterns of o r g a n i z a t i o n .

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The God P a r t i c l e / C y c l e ?

We have a l l heard t h a t i n p a r t i c l e *m *) p h y s i c s , s c i e n t i s t s are searching f o r the

J / j u n i f y i n g theory and have surmised t h a t j u s t simply s t a t e d , there must be a mysterious p a r t i c l e that e x i s t 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

th i n g , 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 subject f o r debate that i s more r e a l world than the Da V i n c i -Code.

The "Born-Again" C h r i s t i a n s or Fundamentalists have been l o o k i n g f o r the s i g n of the Second Coming of C h r i s t based upon the s t o r y of the Apocalypse found i n the Revelations of the New Testament s a i d to have been w r i t t e n by S a i n t John the D i v i n e while he was i n e x i l e i n the I s l e of Patmos. Aside from the f a c t t h a t t h i s book has been the most widely disputed f o r hundreds of years leading even S a i n t Jerome to so declare that i t was subject to 7 e n t i r e l y d i f f e r e n t i n t e r p r e t a t i o n s , n e v e r t h e l e s s , i t s controversy has endured the ages. The famous s t o r y of the A n t i - C h r i s t and t h a 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 the o l d number systems. Before the i n t r o d u c t i o n of numbers as w r i t t e 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 purely l e t t e r s , served a l s o as the number system. For example, A-J would represent 1 to 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 that created numerals that were s p e c i f i c l e t t e r s to represent numbers as IZ=9, 1=10, 11=11 f o r example. Therefore, what i s meant by the phrase that we s h a l l known someone by the number of t h e i r name i s to use the old system a s s i g n i n g a value to each l e t t e r i n a name and adding them up.

The reason I have chosen to r e f e r to t h i s p a r t i c u l a r cycle as the "God C y c l e " i s not to j u s t f o l l o w the l i n e of p a r t i c l e p h y s i c s , but because the frequency of t h i s cycle 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" that 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" that we t r a n s l a t e to e n g l i s h as "Yod-He-Vau-He" making the word "Jehovah."

Just 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 o l d Hebrew system we can f i n d the number of God. Yod =10, He = 5, and Vau = 6. Therefore, the name of 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 c y c l 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 created a time-space of 224 years. I found that there were 26 f i n a n c i a l panics and then d i v i d e d that i n t o the 224 years to obtain an average. That produced the 8.6 year frequency. Only when i t began to pro j e c t to s p e c i f i c days, then I decided to study much deeper. There .is,the f a c t that I t appeared to be i n t e r i c a t e l y complex running concurrent w i t h countless other c y c l i c a l behavior be i t n a t u r a l or man himself i n a s o r t of time-space tube c r e a t e 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 input f o r the next generation perpetuating paterns of order i n such a dynamic, s t r u c t u r e , that 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 simply i s yet a separate and d i s t i n c t core frequency of 26 running, through the center of the f i e l d causing not merely Phase-T r a n s i t i o n s , but also Phase-Shifts and Phase-Cancellations when two c y c l e s indeed c o l l i d e of equal yet opposite f o r c e s .

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1929 - 1955 - 1981 - 2007

The above sequence of dates provides a simple demonstration of the i n t e r e s t i n g r e l a t i o n s h i p of 26 to the Economic Confidence Model. The high 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 s e r i e s . The great expansion of U.S. debt began from the 1955 post-war ta r g e t where spending without regard to maintaining the r a t i o to gold may s a f e l y be defined as the s t a r t of the perpetual,.spending. The next target 1981, was the high of t h e P u b l i c Wave of 51.6 years marked by the peak i n i n t e r e s t r a t e s and the open b a t t l e against i n f l a t i o n . This brings us to 2P07, where the model has c o r r e c t l y given the high 2007.15 that targeted to the day, the s t a r t of t h i s economic d e c l i n e .

P r e v i o u s l y , we looked at two time s e r i e s , one beginning from 1775 marking the s t a r t of the American Revolution, contrasted with 1788 that marked the beginning of the f e d e r a l government with the C o n s t i t u t i o n . The d i f f e r e n t i a l between these two s e r i e s , i s h a l f the 26 cycle - 13 years. I t i s twice 26 that produces the number 52 th a t we w i l l see i s c e n t r a l to the Maya, but was also the observation of the commodity c y c l e noted by K o n d r a t i e f f - the Russian economist. We can see that the t i m i n 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 i n t e r e s t i n g . Hipparchus of Rhodes observed around 150 BC that the equinoxes moved with time. This 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 t r a v e l e d i n a c y c l i c a l manner. The movement was extremely slow i n a westerly d i r e c t i o n . This amounted to but l e s s than 2° i n about 150 years. This slow movement i s known as the "Precession of the Equinoxes" and r e q u i r e s generations to even observe. I t i s l e s s than 2° movement every 150 years, b r i n g i n g t h i s a l s o to a v i r t u a l number of close to 26,000 years to complete one c y c l e .

Truth = the Rule of 9

Another kabala number of mystery has been a t t r i b u t e d to the famous Gaon From V i l n a who discovered that the Hebrew word f o r t r u t h ( t a f -mem-aleph) produces the number t a f = 400, mem=40, and aleph=l added together 441 = 9.

I t was argued that God created the world based upon t r u t h , 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 s u b t r a c t the o r i g i n a l , we end up with 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 are o b v i o u s l y endless: 3255 = 15 - 3255 = 3240 / 9 = 360. Whether t h i s proves God created the world upon " t r u t h " i s open f o r debate. But i t c e r t a i n l y produces a very I n t e r e s t i n g mathematical mind-twister.

R e v e l a t i o n of F i b o n a c c i

Fibonacci perhaps became more widely known with the DaVinci Code where the numerical sequence w r i t t e n on the f l o o r was the combination to the v a u l t . This i s the name by which he may be known, but the r e a l name of Fibo n a c c 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 with the name Fibonacci, has long been l o s t i n time. Yet, F i b o n a c c i to.day_is widely used bv t e c h n i c a l a n a l y s t s steming from h i s study of r a b b i t s i n L i b e r Abaci.

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Fibonacci was presented with a problem. How many ra b b i t s w i l l be born i n the course of one year from an o r i g i n a l p a i r of newly born rabbits? Rabbits can s t a r t to breed a f t e r only 2 months from b i r t h . F ibonacci assumed that every month a p a i r of r a b b i t s would produce another p a i r . He concluded, at the end of the year, t h e r e would be 233 r a b b i t s from the o r i g i n a l p a i r . He s t a r t s with 1 p a i r who do not even breed f o r 2 months'. By the f o u r t h month, the o r i g i n a l p a i r ' s o f f s p r i n g would s t a r t to "breed on t h e i r own. This exercise produced the famous Fibonacci 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 d i v i d e i t i n t o the previous number.

1 1.2 0.5 2 / 3 = 0.666 3 / 5 0.6 5 / 8 — 0.625 8 / 1 3 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 t a b l e shows the precise c a l c u l a t i o n s . They are rounded'to 0.618 which the Greeks c a l l e d the "Golden Mean" upon which a l l p r o portion i s based. I f we d i v i d e the higher number by the lower number, we end up w i t h 1.618 (rounded). Now we are ready f o r the next i n t e r e s t i n g proof. I f we take the square r o o t of 5, 2.24, - 1 gives us 1.24 and d i v i d e that by 2, we r e t u r n to 0.618.

Before, I explained that I discovered the Economic Confidence Model by s t a r t i n g with a s e r i e s of panics between 1683 and 1907 that equals 224 years i n time w i t h 26 panics t h e r e i n . Taking 224 / 26 = 8.6153846615. Now look at the F i b o n a c c i number above 8 / 13 = 0.615384615. This i s the same decimal of the 8.6 c a l c u l a t i o n . I f we look at the square r o o t - o f 5, we a l s o see 2..24 x 100 - 224 years. I f we use the Kabala method of reduction adding every d i g i t i r r e s p e c t i v e of the decimal p o i n t , and we subtract 1, the proof becomes 86153846615 ~ 53 ~ 1 = 52, twice the u n i t 26.

The Mystery o f the Maya

There has been of l a t e almost a c u l t awaiting the f a t e f u l day when the Mayan Calendar reaches i t s end on December 21st, 2012. Of a l l the calendars devised by man, there i s t r u l y nothing l i k e the Maya i n v e s t i g a t i o n . They seem to be an ancient people who understood time. How, I am not sure. But t h e i r c a l c u l a t i o n s are a s t o n i s h i n g and are not based upon the p l a n e t s , but upon the c y c l i c a l forces of nature t h a t they perceived. They c e r t a i n l y thought dynamically, r a t h e r than l i n e a r , suggesting a more Asian- foundation compared to European.

The number 26 a l s o shows up i n the Mayan calendar that i s q u i t e remarkable. The calendar c o n s i s t s of a r i t u a l c y c le of 260 named days and a 365 day year. Both are running i n a complex concurrent r e l a t i o n s h i p . These components combine c r e a t i n g a c y c l e of 18,980 days c o n s t i t u t i n g 52 years of 365 days known as the "Calendar Round" where at the end a s p e c i f i c day designated i n the 260 day c y c l e r e t u r n s to the s t a r t i n s o f a r as i t recurs i n the same p o s i t i o n i n the year. The 260 day c y c l e i s formed by the combination of numerals 1 through 13 that meshes with a r o t a t i n g wheel of 20 . names i n an ordered sequence. I f we take 260 days and d i v i d e by 5, we end back a t 52.

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The Mayan calendar i s complex, shows dynamic t h i n k i n g , and i s f a r more i n t r i g u i n g from a mathematical perspective. The 365 year c y c l e was divided by IS named months of 20 named days, with 5 days" of mystic e v i l omen. The Mayan named years based upon the f i r s t name of the day that appeared. However, the 365 days could be d i v i d e d by 5 y i e l d i n g 73 days (close to the 72 i n t e n s i t y c y c l e ) and the number of named days being 20 was a l s o d i v i s i b l e by 5, r e s u l t e d i n only 4 names combined with 13 numbers that could ever begin a year. These seem to be c a l l e d "Year Bearers" and were assigned according to the 4 quarters of the world and were given 4 s p e c i f i c c o l o r s . This becomes a k i n to the saying i n v o l v i n g the 4 corners of the world, and the 4 winds.

The manner i n which the Mayan recorded dates i s s t i l l complex and shows a h i g h l y tuned s t y l e of d3rnamic t h i n k i n g rather than l i n e a r . To specify a date i n the "Calender 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 current month by p r e f i x i n g the number of days that had passed with the corresponding number f o r that month using 0 - 1 9 r a t h e r than 1 to 20. A date w r i t t e n i n t h i s curious manner would occur only once i n every Calendar Round r e s u l t i n 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 longer space dimension. The Mayan show a dynamic t h i n k i n g process f o r time and a keen sense of h i s t o r y t h a t they needed to be able to r e f l e c t . The Mayan devised the "Long Count" that was based upon a system of a count of - 20 - , they strangly used 18 as the m u l t i p l e r (18 x 4 "= 72). Therefore, the dates were w r i t t e n as: k i n (day); m'nal (20 days); too. (18 uninals or 360 days); katun (20 tuns o r 7,200 days); baktun (20 katuns or 144,000 days). Why the Mayan used 18 as the m u l t i p l e r i s unknown. Perhaps they noticed the v o l a t i l i t y of h i s t o r y perhaps i n s t i g a t e d by nature. The "Long Count" was a means to anchor time i n a continuous time-space dimension that they could see i n t h e i r mind . They anchored time to 4 Ahau, 8 Cumku, which was equal to 13 baktuns that 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 s e l f - o r g a n i z i n g s t r u c t u r e . The b a s i c elements of the Mayan calendar have l i t t l e to do with astronomy. The Mayan seem to have placed great s i g n i f i c a n c e on c y c l e s . There i s the curious 819 day cycle (13x9x7=819) that a l s o shockingly produces 2.24 years! The hidden order e x i s t s - i t i s not chaos!

The i n t e r e s t i n g aspect of the Mayan calendar i s i t s concurrent and dynamic s t r u c t u r e of time that i s c l o s e r to what I have described from independent observa-"' t i o n s having nothing to do with planetary movements. The use of both the 72 and 26 u n i t s of time i s s t r i k i n g . The Aztec calendar f o l l o w e d the Mayan i n many r e s p e c t s but incorporated a 584 day cycle from the planet Venus and two 52 year c y c l e s were considered "One Old Age," when the day c y c l e , the year, and the p e r i o d of Venus a l l came together. These were a l s o noted by the Mayan, but were more important to the Aztec. A l l Meso-Americans believed i n the c y c l i c a l d e s t r u c t i o n and r e - c r e a t i o n of the world In these great sweeping periods of time.

The core of the Mayan Calendar i s that the world i s destroyed and reborn time and time again. While they see the end of t h i s world on December 21st, 2012 t h a t w i l l erupt from earthquakes, that i s a separate i s s u e that l a c k i n g the data of the previous c y c l e from which the Maya s t a r t t h e i r calendar, there i s no way to now p r o j e c t forward to even te s t the theory. L i k 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 c y c l e of 19 years, known as the Metonic C y c l e named a f t e r Meton of Athens i n 432BC or the s o l a r c y c l e of 365.25 days or the 28 year c y c l e when the same day repeats w i t h the same number under the J u l i a n Calendar, have created i n t e r e s t i n g math c a l c u l a t i o n s . 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 J u p i t e r and i t s 12 year c y c l e . But a l l are c y c l i c a l ba^ed.

The Concept of S e l f - R e f e r a l

Everything i n nature seeks to recreate i t s e l f by generating a copy of- i t s e l f t hat r e f e r s back to the o r i g i n a l entity.. Our c h i l d r e n look l i k e us, a l b e i t a t times a blending of both parents. Nevertheless, t h i s i s nature's way of extending the c y c l 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 b e l i e v e , the e n t i r e process of the universe i s based upon r e p l i c a t i o n to progress forward i n t o time. I t may indeed appear to be "chaos" so we dare not to look too c l o s e l y . But there i s a s i n g l e system of s e l f - r e f e r a l t h a t a l l o w s a l l t h i n g s to propagate from a. v i r u 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 that creates 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 that i s a f r a c t a l , r e v e a l e d by Bernoit Mandelbrot of Yale. Physics has r e f e r r e d to t h i s as a r e l a t i o n s h i p of a "power law" because the d i s t r i b u t i o n i s described with an equation c o n t a i n i n g a exponent or pwer. Hence, a v a r i a b l e i s expressed as an exponential power o f the other such as f ( x ) = x ~ a where the product becomes the s t a r t i n g p o i n t f o r the next. Mandelbrot demonstrates remarkable order e x i s t e d hidden w i t h i 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 of s e l f - r e f e r a l that i s a means of perpetuating the c y c l e . I t d i c t a t e s that the people w i l l indeed respond i n the same manner i r r e s p e c t ofthe century, because human nature does not change. There i s a t h i r d inherent wave s t r u c t u r e , that i s f a r more complex than: anything we have been l o o k i n g at so f a r . I t moves with the same waves and may be akin 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. This i s the wave that recreates the p a t t e r n s , 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 le n g t h t h a t indeed create d i f f e r e n t e f f e c t s , s i m i l a r to varying the wave- l e n g t h can change the the wave e f f e c 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 l e n g t h , we change what the wave c o n t r o l s both i n nature and w i t h i n the human response. But i t the Schema Frequency that i s a c a r r i e r wave of patterns o p e r a t i n g Independently w i t h i n the other wave s t r u c t u r e s . This i s the core of hidden order t h a t others are j u s t now s t a r t i n g to discover i n other areas of a c t i v i t y .

Unraveling The Mystery o f Time & Space Creating R e p l i c a t i n g P a t t e r n s i n t o the Future

The Scheme Frequency

Everything i n nature appears to be on a quest to r e p l i c a t e i t s e l f . We are indeed faced with what may appear to be chaos, but i n r e a l i t y , t h e r e can be no true random chaos, f o r the system cannot survive as i f i t were a rogue system that would soon cause i t s own demise. The e n t i r e universe i s c o n s t r u c t e d upon the model of s e l f - r e f e r a l that r e p l i c a t e s p e r p e t u a l l y i n t o the f u t u r e . This i s a d e l i c a t 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 t h a t create the beat or pulse of the universe that flows i n waves of energy i n a c y c l i c a l motion. But there are patterns that e x i s t , which some observe as i n t e c h n i c a l a n a l y s i s , but what they are doing i s scratching' a surface of extraordinary complexity h i d i n g a simple s t a t e of i n c r e d i b l e order.

There are complex non-linear example i n nature that apply to human behavior. A bucket of water with a strong faucet source w i l l cause a vortex as the water flows i n t o the bucket. The water j e t w i l l create a transverse v o r t i c a l motion r e l a t i v e to the water source i t s e l f . E l e c t r i c i t y flows the same way c r e a t i n g a f i e l d trensverse to the current i t s e l f .

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A non-linear example from the r e a l world took place between 1980 and 1985. The issue arose with the US National Debt h i t t i n g $1 t r i l l i o n i n 1980. We a l l j u d othe r s by ourselves. Consequently, the Europeans judged i n t h e i r eye the options f a c i n g the United States and presumed that the US would d e f a u l t on i t s deb.t by c a n c e l l i n g the currency, and r e p l a c i n g i t with domestic and e x t e r n a l d o l l a r s . L i k e South A f r i c a , the Europeans expected the US to create a " f i n a n c i a l " d o l l a r f o r i n t e r n a t i o n a l settlements and a domestic d o l l a r . This was not u n l i k e the two s i l v e r d o l l a r s minted during the 1870-1880 time period. However, Instead of the s i l v e r "trade" d o l l a r being 1 ounce with the l e s s o r valuable s i l v e r d o l l a r of about 75% s i l v e r by weight f o r domestic use, the Europeans were convinced t h a t the tables would be turned and t h i s time i t would be the E u r o - d o l l a r s that would be worth l e s s than a domestic d o l l a r . Despite the e s c a l a t i n g debt, the Europeans withdrew t h e i r Euro deposits 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 i n t o 1985 where the B r i t i s h pound f e l l to $1.03 This s h i f t i n g of deposits created a transverse wave with an e f f e c t opposite i t s i n t e n t i o n . The c a p i t a l flows from E u r o - d o l l a r to domestic d o l l a r s created i n a t e c h n i c a l sense, a "bear r a l l y " or " s h o r t - c o v e r i n g - r a l l y " where the underlying i n t e n t i o n i s opposite of i t s appearance. This extreme economic pressure was again misunderstood by government that responded by c r e a t i n g the G-5 to manipulate the g l o b a l economy.

I l l u s t r a t e d here i s a t r i p a r t i t e wave ( F i g #1) with three d i s t i n c t i v e components, each providing; a separate e f f e c t w i t h i n time. These segments are: (1) 8.6 Year Wave

Economic Confidence Model

Figure #1 Wovelenglh

. \ B.6 Year Cycle Wave / 1 \ • A

(2) 6 Tear Wave - ~ " 's°heuA

I n t e n s i t y ( v o l a t i l i t y ) (3) the Pattern of

S e l f - R e f e r a l The Schema Frequency

So f a r I have discussed the 8.6 year wave p u b l i c l y f o r n e a r l y 30 years. I have provided v o l a t i l i t y f o r e c a s t s and even warned the White House back i n 1985 not to bring i n G-5 that v o l a t i l i t y would r i s e d r a m a t i c a l l y . I received a r e p l y from Mr. S p r i n k l e , the Chief Economic Advisor at t h a t time, that I was the only person, with such a v o l a t i l i t y model and u n t i l someone else agreed w i t h my warnings b a s i c a l l y - Thanks but no thanks! By 1987, I was urgently summoned to "hurry-Tip; we need to know what your model p r o j e c t s now, s i n c e everyone agrees, v o l a t i l i t y i s the number one problem? I have not per se explained the i n t e r c o n n e c t i v i t y between the two models, p r e f e r r i n g to keep the d e t a i l s to myself u n t i l I was ready to r e t i r e . Likewise, I have discussed t h a 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 e x p l a i n yet another mystery - the Schema Frequency that i s an embedded version s i m i l a r to a code l i k e DNA i t s e l f . I t i s a map of how things w i l l u n f o l d that simply i s a s t o n i s h i n g .

We know that DNA i s revealed i n a sequence. I t i s a complex code t h a t i s the map as to who we are and how reading that code i n the womb (DNA Reader) c o n s t r u c t s a human person. The Schema Frequency i s a p a t t e r n of s e l f - r e f e r a l t h a 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 others become "manifest.' I t dTctates~how the future"""will unfbid" on "a pattern p e r s p e c t i v e while-the other wave s t r u c t u r e s i n f l u e n c e the e f f e c t s and amplitude with i n t e n s i t y .

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I i n t e n d to publish a more d e t a i l e d a n a l y s i s of the wave s t r u c t u r e i n the f u t u r e . But i n a basis concept, the Schema Frequency i s the b l u e p r i n t so to speak of a f a r more complex nature. For years I taught at seminars around the world t h a t b u l l market's and bear markets are fundamentally d i f f e r e n t i n t i m i n g and p a t t e r n development. I explained that the core b a s i c b u l l market wave i s 7 u n i t s and the bear market i s a u n i t of 2. I also explained that the fundamental d i f f e r e n c e i s caused by confidence i t s e l f . I t simply takes people longer to t r u s t and b e l i e v e i n anyone or something, than i t 'takes to lose that confidence. Therefore, the timing lengths for a b u l l and bear market waves unfolds as:

B u l l Markets Orange J u i c e Monthly

I f we look at Orange Ju i c e on a monthly l e v e l between 1993-1996, we can see that there was a s t r a i g h t 7 month r a l l y from the low i n February 1993 that reached a high i n September 1993. This was followed by an i n i t i a l " 2 month sharp collapse: i n t o November 1993 with a b r i e f 4 month c o n s o l i d a t i o n followed by another t h r u s t downward i n t o a July 1994 low - 10 months from the February 1993 high. This i s then followed by a steady drawn out r a l l y that l a s t e d 21 months i n t o the highest monthly c l o s i n g i n A p r i l 1996. These patterns emerge no matter what the market because i t i s not the object we are t r a c k i n g , .but the human i n t e r a c t i o n w i t h t h a t o b j e c t . For t h i s reason, these patterns are c o n s i s t e n t regardless of the market. The major high i n 1929 was followed by the major low f o r - t h e Great Depression In 1932 - p r e c i s e l y on the 3 count.

This i s not the Schema Frequency, but merely a glimpse. The Schema Frequency i s f a r more complex and w i l l take a l o t more math and e x p l a i n i n g to r e v e a l i t i n a proper manner. Nevertheless, i t i s a c y c l e wave of varying wave lengths t h a t takes place i n a s p e c i f i c pattern that repeats over and over again. This i s why I have explained i t i s more akin to DNA i n s o f a r as i t i s a t r u e map of the f u t u r e that impacts the other wave frequencies. As shown above, t h i s i s a mere glimpse of a p a t t e r n that i s embedded w i t h i n everything, no matter what we are l o o k i n g a t . I t i s a map with the component s t r u c t u r e hidden deeply i n a f r a c t a l or s e l f - r e f e r r a l that creates l i f e w i t h i n c o l l e c t i v e s o c i e t y so to speak. Incorporated w i t h i n t h i s s t r u c t u r e i s the Phase-Transition that causes the dramatic shocks t h a t appear t o emerge from nowhere. ,

The Phase-Transition i s the exponential chaotic move that i s l i m i t e d to a timing phase of 2 on the minimum to 3 on the outside or to be p r e c i s e 3.141 meaning P i . Even loo k i n g at gold back going i n t o the 1980 high at $875 on January 21st, we see the p r i c e more than doubled during the l a s t two months of the r a l l y . Now look to the r i g h t at the Japanese yen. We see a 2 month exponential r a l l y i n t o A p r i l 1995. The most dramatic moves always take place i n the shortest amount of time.

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Comprehending Time

Kon d r a t i e f f was executed by S t a l i n f o r h i s courage to explore economic c y c l e s . Schumpeter was g r e a t l y influenced by IConradtieff and sought to e x p l a i n why such booms and busts took place. Schumpeter was a l s o t r y i n g to cope w i t h Marxism and t h i s was r e f l e c t e d i n h i s l a t e r work, C a p i t a l i s m , Socialism, and Democracy (1942). Schumpeter worried that i n the quest to balance incomes through s t a t e s o c i a l i s m , we would k i l l the waves of innovation he be l i e v e d created the business c y c l e . Yet Adam Smith was s t i l l c o r r e c t . I t i s not j u s t the s e l f - i n t e r e s t of the i n d i v i d u a l , but the s e l f - i n t e r e s t of the s t a t e that a l s o creates the cyc l e . The r e a l d i f f e r e n c e between Cap i t a l i s m and Socialism/Communism, i s the dif f e r e n c e between l i b e r t y and a c o n t r o l l e d economy. Who r e a l l y b e n e f i t s from a 'controlled economy? I t i s the s t a t e f o r they perceive t h e i r power as omnipotent. K o n d r a t i e f f threatened S t a l i n f o r h i s work i n t o c y c l e s , Implied the ult i m a t e f a i l u r e of Communism, although he d i d not expressly s t a t e that i n h i s 1926 study, Long Waves i n Economic L i f e .

I t has been the " b i g " houses that ban together to manipulate markets t o obtain those perceived " r i s k l e s s " trades that has put the e n t i r e world economy at r i s k . The CFTC and SEC are merely corrupt cops, who overregulate the l e s s important small f i r m s , while t u r n i n g a blind-eye to the " b i g " f i r m s . These fi r m s were respons i b l e f o r the insane accusation the CFTC made i n a subpoena that I was "manipulating the world economy" b a s i c a l l y because no-one could r e a l l y create a model that would f o r e c a s t a s p e c i f i c date 7 years i n advance and watch i t happen. The CFTC became merely the t o o l as the law was to S t a l i n .

S t a l i n had Ko n d r a t i e f f k i l l e d because he d i d not l i k e h i s f o r e c a s t s . We see the same pattern of an abuse of power when G a l i l e o supported Copernicus and argued that the center of the s o l a r system was the sun, not the earth. H i s death sentence was commuted to l i f e i n p r i s o n f o r h i s confession or recant of those t h e o r i e s . We also see Socrates was sentenced to death f o r h i s philosophy t h a t the great democracy of Athens argued corrupted the youth. P l a t o recorded the t r i a l of Socrates..and h i s r e p l y t h a t he feared not death, f o r there were only two such p o s s i b i l i t i e s , (1) a migration of the s o u l to a place where h i s o l d f r i e n d s now awaited, or (2) i t was a sleep so peaceful, one i s not even disturned by a dream. P l a t o f l e d Athens, vowing he would not al l o w two crimes against reason.

The l i s t of c a s u a l t i e s i s long indeed. The s t a t e o f t e n does not l i k e c o n f r o n t a t i o n and don't t h i n k that somehow the United States i s d i f f e r e n t - remember McCarty To demonstrate that the model i s not about markets, but marekts are merely the r e f e l e c ­t i o n of human' behavior, to the r i g h t i s an i l l u s t r a t i o n of taking the peak i n the l a s t 8.6 Year Wave of July 20th, 1998, and then p r o j e c t i n g forward using simply P i , and we come to p r e c i s e l y September 11th, 2001. Let us stop the nonsense and begin to respect that there i s a hidden order t o time i t s e l f .

Socrates debated Thrasymachus, which was recorded by Plato i n -his R e p u b l i c . Socrates argued that in.^._Ikmo^acy_i_because the people were i n charge, j u s t i c e would always be done. Thrasymachus argued, a l l governments are "the same no matter what t h e i r form, f o r a l l laws are passed only i n the s e l f - i n t e r e s t of the s t a t e , which i s the stronger. The s t a t e punishes those i t claims v i o l a t e s i t s laws, and t-hn.g justice_.is._a2ways„the_sameJ_it_is. merely the w i l l of the s t a t e , who i s the stronger. They k i l l e d Socrates - Thras3nnachus was c o r r e c t .

September 11th, 2001 3.14159 P i

36

Russia & The 224 Year Cycle of P o l i t i c a l Change

In the Business Cycle And The Future (Part I I ) Bated October 10th, 1999, I provides a b r i e f h i s t o r i c a l review of the 224 Year Cycle of P o l i t i c a l Change f o r the Western World, that included Russia. I explained that what t h r u s t e d Russia both i n t o a n a t i o n a l s t a t e and a learned c u l t u r e , was the c o l l a p s e of the Roman Eastern Empire - Byzantium i n 1453AD. The Ottoman Empire began i n 1326AD and was on a course of conquest that r e s u l t e d i n the f a l l of Constantinople i n 1453AD under the r e i g n of Sultan Muhammad I I . While the f a l l of Constantinople l e d to the spread of knowledge by the f l i g h t of scholars to Rome beginning the Renaissance i n Western Europe, i t was t h i s same f l i g h t that a l t e r e d the course of Russia. The niece of the l a s t Byzantine Emperor Constantine S I , Sophia P a l e o l o g a , f l e d t o Russia and married-Ivan ICE (The Great)(1452-1505). Sophia br.ought.her court w i t h her, but the c r i t i c a l c o n t r i b u t i o n that sen Kussia on the course to world r e c o g n i t i o n , was tne a c q u i s i t i o n of knowledge.

E a r l y h i s t o r y of Russia can be deivided i n t o three 224 year c y c l e s of Cimmerian Rule, followed by l'i cycles of Scythian Rule, 1^ c y c l e s of Sarmatian Rule, w i t h the i n v a s i o n of the Goths i n the 3rd Century followed by the 4th Century i n v a s i o n of the Huns i n 370AD. Upon the death of A t t i l a i n 453AD, i t was the Avars who took c o n t r o l , although they were c l o s e l y r e l a t e d to the Huns. This was f o l l o w e d by the Khazars who were overrun by the Slavs i n the 9th century. The f i r s t w r i t t e n h i s t o r y came only i n the 12th century. According to these records of the Primary C h r o n i c l e , i t was the V i k i n g s who invaded i n the l a t e r 9th century i n v i t e d by the s l a v s , from, whom Russia i s s a i d to have taken i t s name - the Varangian Russes.

Russia f e l l to the Mongols l e d by the grandson of Genghis Khan t h a t destroyed the c a p i t a l Kiev i n 1240AD. Moscow began to r i s e as a c i t y i n the 14th century. The Moguls were f i e r c e w arriors. Genhis Khan had t r i e d to conquere China, but broke o f f h i s i n v a s i o n i n 1218 and turned toward the West. He dies i n 1227AD, and i t was h i s grandson who turned back to conquer ..China i n 1279. His dynasty f e l l I n 1368, and so was the fate of the Mongolian Empire.

( Russia - 224 Year Cycle of P o l i t i c a l Change

1472 1696 1920 2144

Against t h i s backdrop, we come to Ivan The Great and h i s Marriage to Sophia i n 1472 that appears to begin the blossoming or Russia i n t o a world power. Ivan created the f i r s t Rule of Law that i s the cornerstone of a l l n a t i o n a l wealth. T h i s foundation of law i n 1497 was predicated upon the l e g a l code of J u s t i n i a 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 w i t h the b i r t h of Russia i n t o a modern s t a t e , the t u r n i n g p o i n t s l i n e up with the R e v o l u t i o n i n 1917, the f a l l of economy power i n 1989, that was followed 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 c o l l a p s e of the Soviet Union w i t h i n weeks

of the turning point s t a r t i n g w i t h the marriage of Ivan and Sophia.

S t a r t i n g i n 1472, we come to 1696 which i s the year Ivan V died handing power to Peter I The Great (1682-1725) a f t e r the 1689 Revoloution that swept R u s s i a a l s o f o l l o w i n g the 1688 Revolution i n England. 72 years a f t e r 1696, we come to another r e v o l u t i o n i n sympathy with the US and France under Catherine The Great t h a t was crushed i n 1775. The next r e v o l u t i o n was 1917 and 72 years l a t e r we come to 1989. P r o j e c t i n g i n i n t e r v a l s of 37.33 years from 1917, we come to the c o l l a p s e of 1991 w i t h i n weeks, with the next t a r g e t projected to be 2010.325 ( A p r i l 28/29).

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China & The 224 Year Cycle of P o l i t i c a l Change

The h i s t o r i c a l review of the p o l i t i c a l course of events i n China i s a long one. We have seen numerous governments r i s e and f a l l s ince the f i r s t r e a l strong dynasty that we can draw the l i n e to define China as a major s i n g l e nation - The Qin Dynasty 221-206 BC. We can see that c i v i l war plagued China i n the same time frame as i n the United States, 1851-1864 known as the Taiping R e b e l l i o n . We als o see i n 1900 the famous Boxer R e b e l l i o n where f o r e i g n n a t i o n a l s were murdered. We see r e b e l l i o n again i n 1912 with the forming of the Republic.of China, however, i n 1917 where there i s the Russian Revolution, the same unrest spread to China. Note 202BC i s the r i s e of the Han Dynasty, the same year when Rome defeated Hannibal.

Just as major p o l i t i c a l change unfolded with F r a n k l i n D. Roosevelt and the nonviolent "New deal" came to power i n 1933, the same economic pressures brought H i t l e r to power i n 1933. When we look at China, we a l s o see the the r i s e of Mao Zedong who led the famous Chinese Communists on t h e i r Long March to Shaanxi. By 1949, the Communists defeated Chiang Kai-Shek who f l e e s to Tiwan, and the new People's Republic of China emerges.

I f we look at j u s t one 51.6 year wave c a l c u l a t e d from 1949, the beginning of the People's Republic of China, we come to 1989 and the s t a r t of the swing back to c a p i t a l i s m with Tiananmen Square on June 3-4, 1989. We can see the contagion e f f e c t f o r w i t h i n j u s t 5 months, the B e r l i n Wall f a l l s by November 1989. Russia withdrew from Afghanistan a l s o i n 1989 i n l i n e w ith the 1989.95 Economic Confidence Model.

China - Important H i s t o r y c. 1766-1122BC Shang Dynasty ( F i r s t ) c. 1122BC Zhou overthrew Shang c. 500BC Confucius e s t a b l i e d moral values c. 256BC Zhou d)^nasty f a l l s i n west 221-206BC Qin Dynasty (1st c e n t r a l gov't) 202BC-220AD Han Dynasty 581-618 S u i Dynasty 618-907 Tang Dynasty 960-1279 Song Dynasty 1275-1292 Marco Polo claims to v i s i t 1279 Mongols conquered China 1368-1644 Ming Dynasty 1644-1912 Manchus r u l e d as Qing Dynasty 1842 Treat Nanjing - B r i t i s h Hong Kong 1851-1864 Taiping R e b e l l i o n 1900 Boxer R e b e l l i o n ( k i l l i n g f o r e i g n e r s ) 1912 Republic of China e s t a b l i s h e d 1917 Sun Yat-ser. e s t a b l i s h e d r i v a l gov't 1919 Sun Yat-sen reorganizes N a t i o n a l i s t s 1928 Chiang Kai-shek lead N a t i o n a l i s t Gov't 1931 Japan invades Manchuria 1934-1935_Mao Zedong l e d Communist march 1937-1945 War with Japan s h a t t e r e d China 1949 Communists defeat N a t i o n a l i s t s 1958 Great Leap Forward depresses economy 1962 border war with I n d i a 1966-1969 The C u l t u r a l R e v o l u t i o n 1971 China j o i n s United Nations 1972 P r e s i d e n t Nixon v i s i s t s China 1976 Mao Zedong dies 1979 China & US begin d i p l o m a t i c r e l a t i o n s 1980s Reform t o r e l a x Gov't c o n t r o l s 1989 Tiananmen Square p r o t e s t

We f i n d that i n 1917, Sun Yat-sen set up a r i v a l government i n Guangzhou as the N a t i o n a l i s t s . We can see that 72 years from t h i s new government b r i n g s us to Tinananmen Square i n 1989 and the s t a r t of the new age of Chinese c o n t r o l l e d c a p i t ­a l i s m . In 1919, Sun Yat-sen reorgantized the party that i n 1928 was l e d t o v i c t o r y by Chiang Kai-shek. I t i s i n t e r e s t i n g that the takeover of China by the Communist party influenced by K a r l Marx comes oh'the 224 Year Cycle of P o l i t i c a l Change, i . e . Mongols i n 1279 (1279 - 1503 - 1727 - 1951). We can see a wealth of c y c l i c a l trends back-and-forth warning that 2021 could be a very e x p l o s i v e year i n China.

The modern-day warlords of c a p i t a l want more freedom. These pressures are now being f e l t . A f t e r opening the doors to c o n t r o l l e d c a p i t a l i s m , i f the contagion h i t s hard i n China, any expectations t h a t they w i l l . buy debt t o s t i m u l a t e the US economy may evaporate. I t i s hard to pretend China does not honor American standards of humaix_rdgh±SLjCwh lss_uesL_and_..then go hat-in-hand s o l i c i t i n g help to buy the debt. 72 years from 1934-35 Long March of Mao i s 2007-2008. I t i s ju s t time again.

The Concept of Leverage

Leverage i s inherent throughout c a p i t a l i s m . A f t e r the f a l l of Rome, the C a t h o l i c Church adopted the " s i n of usery" holding that i f you were a C h r i s t i a n , you l e n t money to a person to help him, not to e x p l o i t him with i n t e r e s t . The bankers were the Jews because both the C a t h o l i c and the Muslim f o r b i d the earning of i n t e r e s t . The P r o t e s t a n t Reformation i s where the c a p i t a l i s m t r u l y begins because i t allowed the banking i n d u s t r y to become C h r i s t i a n , and thus expanded widely throughout Europe. Spain had borrowed so extensively upon i t s expected treasure from America, that out of f i n a n c i a l desperation, i t moved to take England i n part hoping to pay i t s debts to the V e n i t i a n bankers. Of course, the Spanish Armada was destroyed i n 1588. Spain defaulted on i t s debts d e s t r o y i n g the I t a l i a n economy with i t . The banking i n d u s t r y moved to Germany, the Dutch took i t over, and then the B r i t i s h .

Borrowing money leverages the economy as a whole. For example, houses i n the United States were more expensive than Europe i n . g e n e r a l . The primary reason f o r t h i s was the 30 year mortage. I f you can borrow 30 years i n t o the f u t u r e , then the p r i c e of the r e a l estate w i l l r i s e i n proportion to a v a i l a b l e purchasing power. I f you can only borrow 10 years out, housing p r i c e s w i l l decline i n d i r e c t p o r p o r t i o n . I f you cannot borrow at a l l , you get to the Dark Ages i n that property w i l l o n l y change hands at f u l l value. This i s the concept of c a p i t a l i s m that Marx f a i l e d t o consider. Marx saw employers being able to e x p l o i t workers to the p o i n t they would be unable to consume c r e a t i n g the c o l l a p s e of c a p i t a l i s m . Be f a i l e d t o r e a l i z e t h a t the I n v i s i b l e Hand of Adam Smith would prevent the trend, but also a p p l i e s ..to a ;state.

The r o l e of the bank has changed considerably from the 1600s. Banks grew as a guarantor of " r e a l " money. When money was purely the c i r c u l a t i n g gold and s i l v e r , there was a b i g problem w i t h c l i p p i n g and shaving down the coinage. T h i s i s why the coins i n your pocket have "reeded" edges to prevent c l i p p i n g that r e a l l y does not happen today. I n t e r n a t i o n a l payments In the form of a B i l l of Exchange took p l a c e because payment i n coinage could be even 10% l e s s than the o f f i c a l weight. Thus, the bank became a means to secure " r e a l " money i n i n t e r n a t i o n a l trade. (Wealth of Nations, Book IV, Chp I I I , Part I ) . Banks were to hold c o i n , and issue r e c e i p t s . No one could withdraw funds, except upon a r e c e i p t that became a e a r l y form of c i r c u l a t i n g paper money. An invading army, could even buy up the r e c e i p t s at a premium i n advance of an invasion to ensure that the treasure would be there, and not used f o r m i l i t a r y advantage. Yet Smith commented upon the e a r l y forms of "leverage" created by banks.

"A p a r t i c u l a r banker lends among h i s customers h i s own promissory notes, to the extent, we s h a l l suppose, of a hundred thousand pounds. As -hose notes serve a l l the purposes of money, h i s debtors pay him the same i n t e r e s t as i f he had l e n t them so much money. This i n t e r e s t i s the source of h i s gain. Though some of those notes are c o n t i n u a l l y coming back upon him f o r payment, part of them continue to c i r c u l a t e f o r months and years together. Though he has g e n e r a l l y i n c i r c u l a t i o n , therefore, notes to the extent of a hundred thousand pounds, twenty thousand pounds i n gold and s i l v e r may, f r e q u e n t l y , be a s u f f i c i e n t p r o v i s i o n f o r answering o c c a s i o n a l demands. By t h i s operation, t h e r e f o r e , twenty thousand pounds i n gold and s i l v e r perform a l l the f u n c t i o n s which a hundred thousand could otherwise have performed."

Wealth of Nations, Adam Smith 1776, Book I I , Chapter I I "

Smith explains that 20,000 becomes the equivalent of 100,000. Today, the r a t i o i s 6:100 and the d e r i v a t i v e s have increased i t d r a m a t i c a l l y i n interbank markets that are unregulated with no guarantee standing between p a r t i e s . When confidence i s c o l l a p s i n g , there i s a f l i g h t to cash that c o n t r a c t s the degree of leverage th»t had m u l t i p l i e d the money supply.

39

What About The D e r i v a t i v e s

Let us s t a r t with the l i t t l e known f a c t among the general p o p u l a t i o n , t h a t i t may be t r u e that " D e r i v a t i v e s " are f i n a n c i a l instruments that have no a c t u a l tangible value of t h e i r own. Yet. D e r i v a t i v e s are the cornerstone of commerce, even A r i s t o l e explained i n Bock I of. h i s celebrated " P o l i t i c s " d e s c r i b i n g such a d e r i v a t i v e as a " f i n a n c i a l device which i n v o l v e s a p r i n c i p l e of u n i v e r s a l a p p l i c ­a t i o n . " The e a r l i e s t d e r i v a t i v e s were i n f a c t - "Options" that are instruments with no a c t u a l value i n and of i t s e l f . I t i s also true that the great " T u l i p Bubble" of the 1600s i n Holland involved .actually t r a d i n g i n options on t u l i p s i n s t e a d of an exchange i n the a c t u a l t u l i p s . The t u l i p dealers bought options to assure t h a t they would have inventory f o r future s a l e s , which became known as " c a l l s " w h i l e the producers (growers) seeking p r o t e c t i o n against f a l l i n g p r i c e s would buy o p t i o n s with the r i g h t to s e l l t h e i r t u l i p s at s p e c i f i c p r i c e s that were "puts." I n both cases, they were t r a n s f e r i n g the " r i s k " to a t h i r d party as a scheme of i n s u r a n c e . The T u l i p Bubble became the f i r s t p u b l i c exposure'to speculation post-Rome. I t was the p u b l i c buying and s e l l i n g the options, not the dealers that caused the wide­spread leverage and economic co n t r a c t i o n . Other bubbles followed, South Sea and the M i s s i s s i p p i Bubble i n France based a l s o on land.

D e r i v a t i v e s are i n f a c t e s s e n t i a l to commerce. They are what paved the way out of the dark ages and fueled e x p l o r a t i o n and world trade. Merchants would not have taken the r i s k to fund voyages as often when e n t i r e f l e e t s would be destroyed by a storm at sea. The d e r i v a t i v e "insurance" market was created t r a n s f e r i n g the r i s k • of c r o s s - A t l a n t i c voyages that furthered c a p i t a l i s m and world trade.

Even during the C i v i l War, we f i n d both the North and South governments were using D e r i v a t i v e s to c i r c u l a t e currency and to issue bonds while the abandonment of the gold standard caused the New York Stock Exchange to trade a D e r i v a t i v e l i s t e d as "greenbacks" - paper currency traded upon the whims of the Fortunes of War r e l a t i v e and expressed i n gold. The North issued paper currency that were a D e r i v a t i v e of a bond that displayed a pa3rment schedule on the reverse showing what i t would be worth i n the future i f you held i t . The Confederate Government issued bonds i n Europe that were Derivatives f o r (1) they created an option that the buyer could s e l e c t where to be paid i n P a r i s , London, Frankfurt or Amsterdam; (2) the currency could be B r i t i s h pounds or French f r a n c s , and (3) pa}^ment could be taken i n cotton rather than money and the cotton would be at a f i x e d p r i c e of 6 pence when the p r e v a i l i n g r a t e i n Europe was 24 pence. So these bonds were a complex D e r i v a t i v e that offered (1) hedge against f o r e i g n exchange r i s k i n the currency, and (2) a hedge against i n f l a t i o n using the cotton. Numerous co u n t r i e s have subsequently issued debt denominated i n f o r e i g n currency to e l i m i n a t e f o r e i g n exchange r i s k .

The bottom l i n e ; D e r i v a t i v e 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 issued CDS t h a t were seen as insurance by banks around the world, but simply s t a t e d , there was no business to back up the operation. This was t r u l y a '"Ponzi Scheme" f o r i t was p r i n t i n g money with no a c t u a l business i n insurance (other than the name) to o f f s e t the r i s k s . This i s akin to a t u l i p grower s e l l i n g c a l l s against a crop he n e i t h e r has, nor intends to even pl a n t . The assumption that they would never have to pay on such CDS, was a s e l f - s e r v i n g exercise i n s e l f - d e l u s i o n .

An economic implosion i s not caused by D e r i v a t i v e s as a concept. The regulated futures and options exchanges fu n c t i o n p e r f e c t l y . I t was the absence of r e g u l a t i o n on interbank d e r i v a t i v e markets that allowed CDSs to become the modern-day T u l i p f o 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 t h e ' F l o a t i n g Exchange Rate System

FIXED EXCHANGE RATE SYSTEM FLOATING EXCHANGE RATE SYSTEM

% Gain I s Higher In Country - A

% Gain Lower In Country - J

Currency - A = Currency - B

Currency - A -% Gain

Investment Investment Country -A- Country -B-

Currency - B -% Gain

Within a f i x e d exchange r a t e system under which v i r t u a l l y a l l major economic theories were developed. Smith, Ricardo, Marx, and Keynes, c a p i t a l w i l l only f l o w from country B to Country A when' i t sees a comparitive advantage, i n Ricardo terms;. The currency exchange i s f i x e d , and t h e r e f o r e , we have a very l i n e a r w orld t h a t on the i n t e r n a t i o n a l l e v e l appears as a seesaw. While there were s t i l l n o n l i n e a r i s s u e s working i n a dynamic manner behind-the-secenes, the conceptual world was l i n e a r . Yet, moving to the f l o a t i n g exchange r a t e system, t r a n s f e r r e d the r i s k of m a i n t a i n i n g the currency value from the s t a t e to the p r i v a t e sector; - We can see t h a t t h i s g r e a t l y expanded the v a r i a b l e s and now even i f the expectations f o r c a p i t a l g a i n do not even e x i s t based upon some comparative advantage, the 40% swings i n the c u r r e n c i e s alone can cause a transverse change i n c a p i t a l flows. I f there i s a p o s i t i v e comparative advantage i n a d d i t i o n f o r the underlying business with a 25% expected gain, a p o s i t i v e currency gain of 10% w i l l i ncrease the y i e l d to 35%. Likewise, a 25% expected gain i n the investment, may s t i l l a t t r a c t c a p i t a l i f the d e c l i n e i n the currency i s only a 5% expectation.

We must understand the value of the currency can a l t e r a l l other economic considerations. By t r a n s f e r r i n g the r i s k from the sta t e to the people, c a p i t a l was given yet another independent reason to move. This has manifested i n mature markets t h a t allow the i n t e r n a t i o n a l community to a c t u a l l y vote i t s confidence buy buying or s e l l i n g the currency.

Sharp percentage swings i n the currency can also cause delayed i n f l a t i o n . For example, i n 1985 when the B r i t i s h pound f e l l to TJSSi:03, Americans were buying j u s t about everything i n London. Even the Concord t i c k e t s at 2,000 pounds t h a t had been about $5,000 i n 1980, were suddenly cheaper than f i r s t c l a s s TWA t i c k e t s . Everyone s t a r t e d f l y i n g the Concord t h a t they declared the f l i g h t a success, and r a i s e d the p r i c e t o 4,000 pounds. But then the pound r a l l i e d back to almost US$2.00 causing the p r i c e of the t i c k e t to r i s e to over $8,000. The same happened to c a r s and housing. That i n f l a t i o n a r y boom was currency driven. The same was true of the Japanese buying property i n the US i n c l u d i n g R o c k e f e l l e r P l a z a . But the decline i n the d o l l a r by almost 40% between 1985-1987, l e d to massive l i q u i d a t i o n s of property and the 1987 stock market crash. Currency has become a major component In d r i v i n g c a p i t a l around the world. A l l the o l d th e o r i e s no longer work because the system was changed.

41

The Nature of a Debt C r i s i s

Not a l l f i n a n c i a l panics are a Debt C r i s i s . There are panics caused by the sp e c u l a t i v e bubble i n a p a r t i c u l a r instrument, such as the t u l i p s i n the Netherlands (1634-1637). There are bubbles l i k e we saw i n the .COM boom. We saw s i m i l a r dramatic exponential bubbles i n Rail'Road stocks (Transportations) i n 1907. The I n d u s t r i a l Boom of 1929 l e d by the auto stocks. The 1989 r a l l y i n the Japanese N i k k e i was a l s o another Phase-Transition r a l l y . We saw the gold and s i l v e r boom i n t o 1980. A l l of these do not emerge because of a debt c r i s i s , but are the n a t u r a l exhaustion of a sp e c u l a t i v e bubble conforming to the Phase-Transition exponential move.

The t r a d i t i o n a l speculative bubble i s created by a concentration of investment c a p i t a l i n t o a p a r t i c u l a r f i e l d . Such s p e c u l a t i v e bubbles have a l s o m a t e r i a l i z e d i n off-exchange markets such as r e a l e s t a t e . We saw an. excessive s p e c u l a t i o n i n t o r e a l estate c r e a t i n g the S&L C r i s i s sparked by t a x a t i o n that created an advantage t o i n v e s t i n t o commercial property. This l e d to a huge o f f i c e boom th a t ended up w i t h a dramatic over-supply.

However, there i s the f a r more dangerous Debt C r i s i s where the confidence i n the government i s at stake. Unfortunately, American h i s t o r y has been l a r g e l y w r i t t e n with a very l i n e a r view that f a i l s to grasp the g l o b a l perspective. A d d i t i o n a l l y , . there i s much confusion about how c a p i t a l r e a c t s w i t h i n a f i x e d exchange r a t e and a f l o a t i n g exchange r a t e system. We tend to see the sp e c u l a t i v e bubbles more so during a P r i v a t e Wave, rather than a P u b l i c Wave. Nevertheless, where the values of currency are f i x e d (by decree or gold standard), c a p i t a l w i l l t r a v e l i n t e r n a t i o n a l l y only when the prospect of greater gains appear on the h o r i z o n . This i s what created by the famous South Sea Co Bubble (1711-1720), the expectations of fabulous wealth o f f s h o r e . There was the M i s s i s s i p p i Bubble burst about the same time as the South Sea Bubble i n England, that was operated from France and gave b i r t h to term " m i l l i o n a i r e ; - " .This i r r e p a r a b l y harmed the Bourbon Dynasty that c o n t r i b u t e d no doubt to I t s demise j u s t 72 years l a t e r i n 1792. When i t i s the confidence i n the government t h a t i s damaged, we are loo k i n g at a serious d i s t i n c t i o n from a P r i v a t e Wave s p e c u l a t i v e bubble.

Because we are dealing t h i s time with the broader r e a l estate market that i s the home residence rather than the commercial, and we are dealing with a wholesale bank c r i s i s , we are on the brink of a major economic c r i s i s from which s e r i o u s p o l i t i c a l change i s on the horizon. The Great Depression was a d i s t i n c t breed of c r i s i s t h a t can be c l a s s i f i e d as a Debt C r i s i s as d i s t i n g u i s h e d from the other panics. I t i s tru e that the Roaring '20s was a period of i n d u s t r i a l boom built-upon the i n n o v a t i o n of the automobile akin to the .COM boom. However, what i s not looked a t c l o s e l y was the g l a r i n g f a c t that a l l of Europe went i n t o d e f a u l t . Herbert Hoover's memoirs i s the best account w e l l documented as to these events. What was not understood by America, was th a t c a p i t a l f l e d Europe buying US bonds and notes d r i v i n g i n t e r e s t rates lower only because i t was seen as a f l i g h t to q u a l i t y . When there i s a Debt C r i s i s , c a p i t a l w i l l t r a v e l around the globe f o r s e c u r i t y . This I s a l s o furthered by the f l o a t i n g exchange r a t e system where c a p i t a l t r a v e l s a l s o due to expectations not of p r o f i t i n a p a r t i c u l a r investment, but s o l e l y w i t h i n the currency.

A Debt C r i s i s combined with a f l o a t i n g exchange r a t e system, w i l l lead to the most v o l a t i l e outcome perhaps we have seen even s i n c e the Tulipmania of the 1600s. What we are f a c i n g i s the most dramatic combination p o s s i b l e . F l o a t i n g exchange r a t e s that a c t as a medium of i n t e r n a t i o n a l v o t i n g on the confidence of a n a t i o n , -adding, a second__dimension as_ to why^ c a p i t a l w i l l f l o w even i n a transv e r s e wave contrary to l o g i c i n a l i n e a r mind. A Debt C r i s i s simply"Is"~dlstlnguished from a~" specula t i v e bubble that r a r e l y produces long-term economic d i s t r u p t i o n s .

42

What Now?

We have reviewed the main economic t h e o r i e s that drive government i n i t s t h i n k i n g process. We have reviewed Adam Smith's (1723-1790) most c r i t i c a l c e n t r a l core of h i s f i n d i n g i n The Wealth of Nations (1776), was that everyone acts i n accord w i t h t h e i r own personal s e l f - i n t e r e s t s . As Smith wrote; " i t i s not from the benevolence of the butcher ... that we expect our diner, but from [ h i s ] regard to [ h i s ] own i n t e r e s t . " V o l I , p26-27 (Oxford: Clarendon ed. 1976). What both Keynes and Marx advocated, was that somehow the s t a t e was even capable of managing the economy, Keynes through f i s c a l p o l i c y of d e f i c i t , spending and the r a i s i n g and lowering of t a x a t i o n and i n t e r e s t r a tes to cause mankind to run i n p a r t i c u l a r d i r e c t i o n s l i k e the r a t i n a maze, and Marx by t a k i n g a l l toys away from the people and l e t the s t a t e c o n t r o l wealth. In t h i s respect, Keynes and Marx show l i t t l e d i f f e r e n c e . Their ideas that somehow the s t a t e would be more capable than the people i s absurd. The concept of a planned economy has proven t o be disasterous both i n China and Russia. What everyone seems to ignore i s t h a t Smith uncovered the key to understanding the system dynamics. I t i s not only t h a t those i n the p r i v a t e sector w i l l pursue t h e i r own personal s e l f — i n t e r e s t s as the p o l i t i c i a n s are now p o i n t i n g to the "greed" of Wall Street, but those i n the f o r t r e s s of government a l s o respond i n t h e i r own s e l f - i n t e r e s t . When Russia f e l l from Communism, i t was suddenly revealed that behind closed doors were the l u x u r i e s of c a p i t a l i s m denied the people.

Both Marx and Keynes open Pandora's Box ( i n ancient Greek i t was j a r ) , and the e v i l s that have swept the world have deprived m i l l i o n s of t h e i r freedom and t h e i r p o s t e r i t y . Bad economic t h e o r i e s have destroyed the l i v e s of so many, when good t h e o r i e s have provided f o r l i b e r t y and progress that advances mankind. I t i s not i n the s e l f - i n t e r e s t of the s t a t e to l i s t e n to what I have to say, but the t r u t h , nonetheless, s t i l l must be understood.

I have explained a dynamic world where the very nature of everything can be reduced to a c y c l e . A major A u s t r a l i a mining company was a c l i e n t . T h e i r CFO had l o s t a l o t of money be t t i n g on a hedge i n the A u s t r a l i a n d o l l a r t h a t was wrong. The Board of D i r e c t o r s i n s i s t e d that he meet w i t h me. I flew i n to see what I could do to help the corporation. The CFO was at f i r s t very h o s t i l e . No matter what I t r i e d to e x p l a i n about c y c l i c a l a c t i v i t y , he responded i t might be j u s t a coincidence. I then asked him what was h i s background? He suddenly was on the defensive. He then admitted t h a t he was a Nuclear P h y s i c i s t by t r a i n i n g . I said great. Let us look at the market through the eyes of thermodynamics, which i s based upon 2 main laws. (1) energy I n a system cannot be created nor destroyed, but can be converted from one form to another (Phase-Transition), and (2) t h a t a hot object w i l l t r a n s f e r heat to a colder object. Entropy based upon the Second Law i s that the d i r e c t i o n toward the maximum chaos or disorder w i l l occur with spontaneous change i n a c l o s e d system. I f you s h u f f l e a deck of cards, i t i s a higher p r o b a b i l i t y that the cards w i l l move to d i sorder rather than f a l l back.to a organized pattern, j u s t randomly. Once I s a i d l e t us look at the markets i n terms of thermodynamics, h i s eyes opened and exclaimed; "My God. There has to be a c y c l e ! " The more government t r i e s to c o n t r o l the marketplace, the greater i t w i l l move to d i s o r d e r c r e a t i n g huge spontaneous readjustments back to r e a l i t y .

We are looking at the peak of t h i s current business cycle t h a t took place on February 27th, 2007 p r e c i s e l y . The r e a c t i o n should have been t o the downside i n t o 2008, with a c o n s o l i d a t i o n i n t o e a r l y 2009, but another serious d e c l i n e i s s t i l l p o s s i b l e going i n t o June 13th, 2011. Do not expect the r e a l e s t a t e markets to

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recover by much. Unless the mortgages are taken out of the banks and a general fund i s created to a l l o w p r i v a t e c a p i t a l to p a r t i c i p a t e , the r e a l e s t a t e market may be contracting f o r some time to come.

There are a l o t of people espousing the way to put Humpty Dumpty hack together again. We can t r a i n a dog to l e a r n t r i c k s . But we have to t r a i n every i n d i v i d u a l dog. We can t r a i n a mouse to run a maze to f i n d the cheese. Again, we have to t r a i n every mouse. The d i s t i n c t i o n between mankind and a hamster i s we are suppose to be manifested with a mind capable of more than j u s t a thought, memory, w i l l and f e e l i n g . We are capable of perception and imagination, w i t h the a b i l i t y to formulate i n t o the f u t u r e because we are also self-aware - conscious of ourselves and c u r r e n t p o s i t i o n . Despite t h i s s u p e r i o r i t y , we are no b e t t e r than a hamster. We l i v e f o r the immediate g r a t i f i c a t i o n . Solve the problem i n a sound-bite and with the q u i c k - f i x . This I s what leads to the Paradox of S o l u t i o n - where today's q u i c k - f i x becomes the very e v i l f o r which we now need another q u i c k - f i x on the next c y c l e . We may be capable of being self-aware, but we p r e f e r to be the r a t i n the maze - keep i t simple and s t u p i d , and by the way, where i s the cheese?

The Paradox of S o l u t i o n

The s o l u t i o n to the Great Depression was to be d e f i c i t spending at a time when the i n d i v i d u a l was too a f r a i d to spend and hide i n the corner of the maze.-Now we are f a c i n g a Debt C r i s i s where the confidence i n the P u b l i c s e c t o r may yet c o l l a p s e * We are dealing with a contagion that i s spreading. I t i s the massive c r o n i c d e f i c i t s and the mismanagement of the p u b l i c s e c t o r i n c l u d i n g the f a i l u r e t o fund the f u t u r e entitlements combined with massive new debt created to solve current problems, t h a t may demonstrate once and f o r a l l the t r u e scope of the Paradox o f S o l u t i o n . The c r i s i s we face i s where w i l l the funding come f o r the new debt, more than S i t r i l l i o n ! There are only three possible outcomes:

(1) We s e l l the new debt, i t i s absorbed domestically and g l o b a l l y , causing..the y i e l d - c u r v e to steepen as the long-term r a t e s r i s e f a s t e r i n response to the amount of new debt coming to the market, w i t h any p o s s i b l e s t i m u l a t i o n l i m i t e d to the debt s o l d o f f s h o r e .

(2) The contagion spreads g l o b a l l y f o r c i n g i n t e r e s t r a t e s to r i s e broadly l i m i t i n g sales d o m e s t i c a l l y , causing only a r e d i s t r i b u t i o n of cash e x t r a c t i n g i t from those who. could invest and s t i m u l a t e the economy while the e l e c t r o n i c money supply contracts sharply.

(3) Confidence swings back to the P r i v a t e Sector (not banks) causing the new debt to take the form of monetization due to the i n a b i l i t y to s e l l the new debt e i t h e r domestically or g l o b a l l y .

The Keynesian model to support Government c o n t r o l and d e f i c i t spending may have been the i n s t i t u t i o n a l i z a t i o n of the Roman p o l i t i c a l system of the o f f i c e of a d i c t a t o r . While Roman p o l i t i c s was based upon a Republic whereby the c e n t r a l power resided w i t h i n a senate, there was the o f f i c e of two elected Consuls. Nonetheless, where the two consuls performed perhaps the executive f u n c t i o n , the system a l s o respected that at times a democratic system does not work. Sometimes, a d i c t a t o r was necessary because one man had to take the r e s p o n s i b i l t y to act r a t h e r than have an endless course of debates. I noted i n the Greatest B u l l Market I n H i s t o r y , t h a t during the Great Depression, senators stood upon the f l o o r of the U.S. Senate and stated that even a d i c t a t o r s h i p was p r e f e r r a b l e to what we were going through. The most famous person to hold that o f f i c e i n Roman h i s t o r y , was Lucius Q u i n c t i u s Cincinnatus (519-439BC) who handed the troops back along witlp. t h e powers of the o f f i c e and returned to-his- farm- The power was^never given back by modern governments and the d e f i c i t spending became c r o n i c a d d i c t i o n and now when we could use the i d e a of magnamious i n t e r v e n t i o n , we f i n d that the Paradox of S o l u t i o n has created the very problem that prevents a s o l u t i o n , r e q u i r i n g new t h i n k i n g .

The Paradox of Value i l l u s t r a t e s that the key to understanding what i s honestly going on, l i k e E i n s t e i n ' s Theory of R e l a t i v i t y , i t depends upon the perspective of the observer. The Government immediately points to the "greed" of the p r i v a t e sector no matter what form of a government we are looking a t , and the p r i v a t e s e c t o r now looks back at the Government. This d i a l e c t i c r e l a t i o n s h i p i n Hegelian terminology i s f a r too s i m p l i s t i c f o r i t leads only to the process of change i n which a concept or i t s r a t i o n a l i z a t i o n passes over i n t o and i s preserved i f not f u l f i l l e d w i t h i n i t s opposite.

We must understand that t h i s i s a dynamic system that i s forever connected. I t may appear to be a p l a i n one-dimensional r e l a t i o n s h i p , but i t i s f a r deeper than meets the eye. While these P r i v a t e and P u b l i c aspects s i t on opposite s i d e of a s c a l e , the f o r c e s that cause one—side to r i s e i n proportion to the d e c l i n e i n i t s opposite are f a r more complex and are multi-dimensional. I t i s t r u e that we are dealing with a p r e d i s p o s i t i o n toward r e s i d i n g b r i e f l y w i t h i n time, w i t h i n one s t a t e of order or the other.

The problem we face i s the l a c k of o b j e c t i v i t y to comprehend th a t these two s t a t e s are i n f a c t connected and c o - e x i s t at a l l times. We are now l o o k i n g a t the • c o l l a p s e i n asset p r i c e s , which i s the r i s e i n the purchasing power of the u n d e r l y i n g currency. This i s taking place because of a c o l l a p s e i n the e l e c t r o n i c money supply created through the p r i v a t e sector banks. As lending stops, the r e a l world money supply c o n t r a c t s . Because assets are valued i n terms of currency dependent upon the supply, they r i s e r e l a t i v e to a r i s e i n the quantity (leverage) and c o n t r a c t I n response to a c o l l a p s e i n quantity (leverage).

Keynes was correct i n h i s theory that i f Government increased i t s spending to a l l o w f o r a d e f i c i t i n times of c o n t r a c t i o n , then a supply of cash would be then increased causing the assets to r i s e again. The money supply i s created by the banks and i s not l i m i t e d i n d e f i n i t i o n to purely the paper currency i n c i r c u l a t i o n . Even i n the time of J u l i u s Caesar, where there was no paper currency, the leverage was created by the lending and a c o n t r a c t i o n i n the a v a i l a b l e leverage causes the value of the money i t s e l f to r i s e i n purchasing power terms. The a c t u a l amount, of paper currency i n c i r c u l a t i o n i s only about $729.4 b i l l i o n (Source F i n a n c i a l Management Service, US Treasury, as of 6/30/06). I f we take t h i s as a percentage of GBP, which stood at about $13.2 t r i l l i o n i n 2006, we can see t h a t the p h y s i c a l money supply i s only 5% of the economy. Even i f we take $13.2 t r i l l i o n compared to the n a t i o n a l debt i n 2006 f e d e r a l l y $8.5 t r i l l i o n , we can s t i l l see $4.7 t r i l l i o n t h a t e x i s t s without bonds or currency, and t h i s i s j u s t the surface.

Keynes was c o r r e c t i n s o f a r as i d e n t i f y i n g the p o s s i b i l i t y t h a t a d e f i c i t would increase the money supply to o f f s e t the c o n t r a c t i o n . The problem we f a c e w i t h c r o n i c d e f i c i t s using borrowing, we are merely r e d i s t r i b u t i n g wealth s o l v i n g n o t h i n g and more l i k e l y than not, we are c o n t r a c t i n g the money supply f u r t h e r soaking up even a v a i l a b l e cash that the p r i v a t e sector would put back to use i f they have the p l a i n old fashion "guts" or "courage" to i n v e s t , I define as. P r i v a t e Confidence. We are t a l k i n g about the expectation of p r o f i t i n the p r i v a t e sector must exceed the r i s k perceived i n the marketplace i t s e l f . Just as I helped i n t e r n a t i o n a l companies deal with where to l o c a t e i n l i g h t of "country r i s k " that was e s s e n t i a l l y the s t a b i l i t y of the Rule of Law, we are dealing with the same co n s i d e r a t i o n s d o m e s t i c a l l y and to create a major boom, requires the concentration of c a p i t a l .

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Comprehending the Problem

We must come to understand that t h i s i s not the "greed" on Wall S t r e e t . We can reduce t h i s t o a sound-bite, r e g u r g i t a t e these slogans l i k e mindless pawns i n a p o l i t i c a l p lay and delight i n our own applause when we lock—up hundreds of people from Wall Street and pretend that was the s o l u t i o n . Of course there was insane judgment"at AIG that spread through the markets based upon p r o f i t s . But t h i s has only been the c a t a l y s t . For j u s t as we saw them wr i t e the d e r i v a t i v e s •with no backing or o f f s e t at AIG, we have committed the same crime p u b l i c l y by spending and handing out promises f o r b e n e f i t s also with no funding. The Keynesian s o l u t i o n was to tu r n to the Government to take up the sl a c k . But there i s no slack and we are becoming trapped w i t h i n our own nightmare.

The Difference Between Monetization & Borrowing

I t has been presumed that i f we borrow money rather than p r i n t i t , somehow t h i s w i l l be l e s s i n f l a t i o n a r y and i n theory i s somehow more r e s p o n s i b l e . A c l o s e examin­a t i o n of the problem reveals i t s f a l l a c y . The n a t i o n a l debt i s exploding d r a m a t i c a l l y due to the i n t e r e s t alone. I f we look at what has m o n <M *. - n -T • *. m n n _ v _ 4.1. 1980 = $1 t r i l l i o n • taken place i u s t since 1980, we can see that the *,„

I J - L T , - , , ' . fK*- ' " j * ! * 1990 - $3 t r i l l i o n n a t i o n a l debt has exploded from about SI t r i l l i o n n n r i n - .... * m +. - T I • J T " T - ^ 2000 = 55.7 t r i l l i o n t o over $10 t r i l l i o n , and now we are looking at o n m i M n n ^ - n * . T -n(_ . ... . „_ ^ . 2007 = $10.2 t r i l l i o n . a p o t e n t i a l 10% increase without i n t e r e s t m a

s i n g l e year. The n a t i o n a l debt stood at $2,125 bn i n 1986 that rose to $8,507 bn i n 2006 amounting to a 400% increase. The i n t e r e s t alone during t h i s same period was about $6,142 bn. The increase i n the n a t i o n a l debt was about $6,382 bn. We can see that had we simply p r i n t e d the money, r a t h e r than borrow, we would have a c t u a l l y saved more than $6 t r i l l i o n . When the Government borrows, i t competes w i t h the p r i v a t e sector suppressing economic growth. That c a p i t a l would have been p r i v a t e l y i n v e s t e d , but-for the a v a i l a b i l i t y of f e d e r a l debt. As a n a t i o n , we are no d i f f e r e n t than a young couple who bought whatever they needed using c r e d i t cards to se t up house, and f i n d that they can no longer a f f o r d l i f e because of the i n t e r e s t payments.

Because Government Borrowing Competes w i t h the P r i v a t e Sector - There I s an Equal & Opposite

Force of Suppressing Economic Growth I n P r o p o r t i o n t o S t i m u l a t i o n

The inherent problem with applying Keynesian theory, i s the d i f f e r e n c e i n what i s observed j u s t as i n E i n s t e i n ' s theory of r e l a t i v i t y where the observer on the t r a i n t r a v e l i n g at near the speed of l i g h t see a l i k e beam t r a v e l i n g normal from a f l a s h l i g h t on the c e i l i n g to a m i r r o r on the f l o o r . But the s t a t i o n a r y observer (Government) see the l i g h t moving sideways as a pulse. Here, we cannot see the e f f e c t of the s t a t i o n a r y observer because of the inherent b i a s . Keynes argued Government could "stimulate" the economy when the p r i v a t e s e c t o r "was then c o n t r a c t i n g . But that meant we needed to increase the money supply, not borrow the funds t a k i n g from one group and g i v i n g them to another. This i s moving money from your l e f t t o your r i g h t pocket, which of course does not change how much money you a c t u a l l y have i n the system (pockets).

The Keynesian model assumed that Government would s t i m u l a t e when needed. Yet what took place, the Government displaced the economy i n s o f a r as i t became the s i n g l e 800 pound g o r i l l a to whom everyone l o o k s . However, i f i t l a c k s self-awareness and i s too del i g h t e d i n i t s own applause, i t cannot and w i l l not see tha t part of the problem. _j.tself... I f . the gavernment_;borrows_$3^ d o e s _ i t come from? I f i t soaks up excess cash from the p r i v a t e s e c t o r , i t i s only r e d i s t r i b u t i n g the c a p i t a l - not s t i m u l a t i n g the economy as a whole. Whatever the Government soaks up i n c a p i t a l , creates an equal and opposite e f f e c t of suppressing economic growth.

The F i r s t Law of thermodynamics a p p l i e s . There i s a f i x e d amount of energy w i t h i n the economy. We can n e i t h e r create i t nor destroy i t . A l l we can do i s to r e d i s t r i b u t e the energy causing, i t to change form. The reason why c a p i t a l concentrates i s because that i s the n a t u r a l product of any system. There are people who enjoy working - the work—aholic. There are those who p r e f e r to be j u s t provided f o r , and do as l i t t l e as p o s s i b l e . There are those who resent the wealth acquired by the work-aholic, and demand that such wealth be r e d i s t r i b u t e d to make i t " f a i r " because one person should not have more than another i r r e s p e c t i v e of how much work he does. Communism f a i l e d because they suppresses innovation t h a t i s the key to c r e a t i n g new ages of pros p e r t y , i . e . Schumpeter. D i s t r i b u t i o n of wealth on a equal basis undermines the I n d i v i d u a l i n c e n t i v e s l e a d i n g to periods l i k e the dark ages where there i s no cooperation. Even the i n t e r n e t develops i n c l u s t e r s of web­s i t e s according to i t s use and thus p o p u l a r i t y , not on theories of " f a i r n e s s . "

I t i s one t h i n g to require s o c i a l programs to ensure the c h i l d r e n are taught, t h e r e - i s a f i r e department when i n time of need, and no one w i l l s t a r v e . Some of these issues are the very purpose of banning together i n s o c i e t y , to c r e a t e the cooperative that b e n e f i t s the whole. However, we can neither take t h i s i d e a t o the extreme (communism) nor t o t a l l y abandon s o c i a l o b l i g a t i o n s (anarchy). There must be

'a balance between the two - the p o l i t i c a l i d e a l s of Jefferson & Madison stand i n s t a r k contrast to the goals of the Republicans % Democrats that both see the Government as the answer, as did Marx that l e d to greater Government c o n t r o l .

I f the Government i s now the 800 pound g o r i l l a , i t cannot s t i m u l a t e i t s e l f . We can assume that the Government can make everything better l i k e our mothers who. k i s s our knee when we f e l l as a c h i l d . But the Government i s not your mother. We must honestly face the f a c t that borrowing does not reduce i n f l a t i o n long-term, and i t w i l l only accelerate the problem. I t i s time to monetize part of the debt a t the very l e a s t , respect what i s r e a l l y happening, and stop deluding ourselves t h a t i f we borrow a $100 on a c r e d i t card, we somehow are not r e a l l y i n g spending and the i n t e r e s t i s not important enough to pay a t t e n t i o n . I f we are going to j u s t borrow a l l the time and r e l y upon f o r e i g n governments to soak up t h i s mess, how can we then have any e f f e c t i v e i n t e r n a t i o n a l i n f l u e n c e ? L i k e a government a t t o r n e y l o o k i n g f o r a b i g paying j o b , under no circumstances w i l l he i n d i c t a f i r m he i s hoping to work f o r i n the f u t u r e . We have l o s t our way economically and p o l i t i c a l l y . We could have p r i n t e d $6 t r i l l i o n l e s s since 1986 had we j u s t monetized a l l o w i n g the money supply to grow i n at l e a s t the proportion to the population. In 1986, the n a t i o n a l debt on a per c a p i t a basis stood at $8,774 each whereas i n 2006 i t was $28,504 (source Bureau of P u b l i c Debt). The population has increased from about 226.5 m i l l i o n to 298.4 m i l l i o n i n 2006. We have added about 72_ m i l l i o n making i t a increase i n t o t a l population about 32% f o r t h i s same period. This means t h a t had the money supply simply been monetized i n p r o p o r t i o n to the population growth, • the n a t i o n a l debt would have been about $11,500 per c a p i t a or $3.5 t r i l l i o n i n s t e a d of $10.2 t r i l l i o n . I f we subtract the i n t e r e s t payments of $6 t r i l l i o n , we s t i l l s t i l l would have saved $700 b i l l i o n (10.2 - 6 ~ 4.2). Borrowing the money seems to be more i n f l a t i o n a r y than j u s t p r i n t i n g the money i n proportion to p o p u l a t i o n growth.

I t i s Time To Re-Examine What We Are Doing

I t i s time to s t a r t looking at what i n God's name we are doing. The f l o a t i n g exchange r a t e system emerged without planning. This a l t e r e d everything i n the f i e l d of economics. A l l the theories are from times long since past. We r e a l l y need to re-examine what i s going on i f we are to s u r v i v e f o r p o s t e r i t y . F a i l u r e to do so, w i l l only _ i n v i t e war that i s a byproduct of economic depression. The alarm c l o c k just,went o f f . Good Morning America! Wake up and s m e l l the coffee!

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The Paradox of Value

.We must understand another problem I r e f e r t o as the Paradox of Value. When a market crashes, we measure that -crash i n terms of the currency. We can have an i s o l a t e d bubble where one segment w i t h i n the economy r i s e s d r a m a t i c a l l y without t r u l y spreading to other areas. One c y c l e might f i n d i t to be commodities, the next s t o c k s , and another the r e a l e s t a t e . As p r o f i t s are earned from .those i n t h a t p a r t i c u l a r segment, they may in f l u e n c e other markets by spreading the p r o f i t s . Yet t h i s may create a tag-along e f f e c t that appears t o be more broadly based, i t i s d i s t i n g u i s h a b l e Insofar as the i n d i v i d u a l segment i s r i s i n g i n a Ph a s e - T r a n s i t i o n with exponential gains that i s not r e f l e c t e d on an even basis i n a l l other such segments. Where the Phase-Transition i s taking place on a broad base p e r s p e c t i v e , we are ent e r i n g i n t o the zone of the Currency C r i s i s t h a t i s j o i n e d at the h i p often w i t h the Debt C r i s i s or at l e a s t a s i g n i f i c a n t decline i n P u b l i c Confidence. When we see a broadly based exponential r i s e i n asset values i n a l l segments f o r the most part (with i s o l a t e d exceptions), we w i l l be confronted by the Paradox of Value.

The Paradox of Value i s the n a t u r a l way that t a n g i b l e assets r i s e i n value as expressed i n the l o c a l currency that i s i n r e a l i t y a d e p r e c i a t i o n i n the purchasing power of the currency. However, when the pendulum swings back the opposite way, we now see the r i s e i n value of the currency r e l a t i v e to the t a n g i b l e a s s e t s , commonly c a l l e d a "crash" by pundits. What i s t a k i n g place, i s the contraction i n leverage (loans) reduces the money supply and t h e r e i n c r e a t i n g the paradox. Suddenly,, we are' faced w i t h the same amount of currency buying twice the amount of t a n g i b l e a s s e t s .

Paradox of Value

In a debt - c r i s i s , the c e n t r a l purchasing power of the currency r i s e s i n proportion to the asset value i n the p r i v a t e s e c t o r .

I n f l a t i o n sees a r i s e i n a l l a s s e t s against the currency, and i n a d e f l a t i o n the currency r i s e s against a l l assets

In the 1990s, a s i m i l a r debt c r i s i s h i t Denmark. The Government took over the banks, and what was c r i t i c a l , they stepped i n to revalue the as s e t s . Once the s t a t e made those determinations, i t r e l i e v e d the burden from the p r i v a t e s e c t o r and th a t allowed the c r i s i s to be worked out. S i m i l a r l y , we must understand the J u l i u s Caesar workout. He appears to be the only head of sta t e to understand the nature of the r e a l problem.

In the midst of a debt c r i s i s , the value of money r i s e s on a purchasing power basis. I f the house that was purchased was once $500,000, but i s now worth only h a l f that amount, the same $500,000 now buys two homes. Fo r c i n g the homeowner to now pay the $500,000 becomes a prof i t In purchasing power terms that i s ak i n t o a w i n d f a l l . J u l i u s Caesar understood t h i s Paradox o f Value between the t a n g i b l e a s s e t s and the value of the currency caused by the swing i n confidence between the P u b l i c and P r i v a t e s e c t o r s . Caesar e s t a b l i s h e d an e v a l u a t i o n board, which revalued each property to the equivalent value at the time the loan was made. He r e a l i z e d t h a t when assets d e c l i n e , i t i s the purchasing power of the currency t h a t r i s e s , and i n such c i r c u m s t a n c e s t h i s becomes a w i n d f a l l to the., lender.. Likewise., one may. borrow aga i n s t property as a hedge agai n s t i t s d e c l i n e taking i n the currency now before i t s value d e c l i n e s . Caesar's plan was to take a l l i n t e r e s t pa3rments and p r i n c i p a l payments and apply them to the loan to s e t t l e the debt c r i s i s .

C a p i t a l Concentration

One of the c r i t i c a l f a c t o r s I discovered i n economic f o r e c a s t i n g I d e f i n e d as " C a p i t a l Flow A n a l y s i s " that a p p l i e s both domestically as w e l l as g l o b a l l y . Even the CIA seemed to acknowledge I invented t h i s form of- f o r e c a s t i n g . I t was based on the r e a l i z a t i o n i n part upon Marxism. I noticed i n my personal t r i p behind the B e r l i n Wall i n the l a t e 1970s, was that what Marx had created was a k i n to the o l d movie the Stepford Wives, where everyone seemed s t r i p p e d of personal Innovation. I f c a p i t a l were evenly disburst i n equal proportions to every person, you would create a new dark age. What makes one sector or n a t i o n r i s e i s the concentration of c a p i t a l .

Take the .COM Bubble. C a p i t a l concentrated w i t h i n that p e r t i c u l a r s e c t o r causing i t to r i s e e xponentially compared to a l l other sectors w i t h i n the US share markets. When c a p i t a l concentrates i n such a manner, then one sector can r i s e e x p o n e n t i a l l y . There i s only a defined amount of cash w i t h i n a system even when leveraged, f o r i t Is not unlimited. In order f o r a boom i n one sector to take p l a c e , c a p i t a l needs to concentrate i n that s e c t o r . What we see i s the " f l a v o r of the month" t h a t where i t hecom.es popular to i n v e s t i n one p a r t i c u l a r s e c t o r . This i s what creates the r e a l "boom" that often ends i n the Phase T r a n s i t i o n l i k e gold r i s i n g t o $400 between 1976 and December 1979, yet jumping to $875 i n the f i n a l month.

There i s also a f i n i t e quantity of c a p i t a l w i t h i n the g l o b a l economy. As I explained e a r l i e r , i n a f l o a t i n g exchange r a t e system, c a p i t a l w i l l be a t t r a c k e d on a dynamic basi s . I f the expectation i s that the stock market w i l l " r i s e i n the U.S. by 30%, then as long as the currency i s s t a b l e , expected to r i s e , or at l e a s t not decline by more than 10%, f o r e i g n c a p i t a l w i l l be attacked i f t h i s net r e t u r n would be greater than elsewhere. I gave a l e c t u r e i n Geneva i n the e a r l y 1980s t h a t was very diverse. One could see the c a p i t a l flows i n the room. I t became obvious t h a t the same advice to one person denominated i n Swiss francs had to be d i f f e r e n t from that given to a Canadian. I t was Adam Smith a l i v e and w e l l . What became obvious, was c a p i t a l w i l l concentrate even g l o b a l l y . A f t e r the 1987 Crash, the Japanese p u l l e d back fo r e i g n investment s e l l i n g R o c k e f e l l e r P l a z a because the d o l l a r dropped by almost 40%. They s t a r t e d to invest d o m e s t i c a l l y . The N i k k e i Index rose s h a r p l y i n t o December 1989. When I f l e w to Tokyo to meet with c l i e n t s there, I ran i n t o brokers who had been i n Geneva s e r v i c i n g OPEC i n the e a r l y 1980s. The Bubble i n Tokyo was caused by the c a p i t a l concentration. When i t burst, i t moved to Southeast A s i a , then i t moved back to Europe f o r the b i r t h of the Euro. The flow of c a p i t a l c r e a t e s the excessive growth i n " r e a l " money supply, f r e e i n g up dead assets d o m e s t i c a l l y and increasing the exponential Phase-Transition.

G l o b a l C a p i t a l Flows

at f a s t e r rates than previously i n h i s t o r y .

C a p i t a l flows from region to region and from continent to continent. The f l o a t i n g r a t e system i n currencies f o s t e r s greater incentives, to move

Pacific

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The H y p e r - I n f l a t i o n Outcome

An economy can blow i t s e l f out l i k e a candle. I t can simply die a n a t u r a l death through the forces of p u b l i c and p r i v a t e confidence swings that produce the more common d e f l a t i o n a r y outcome, or we can see the the candle blown out by the external winds of i n t e r n a t i o n a l forces that w i l l produce the h y p e r - i n f l a t i o n s c e n a r i o , a l b e i t f a r l e s s than the s t o r i e s of Germany. The f a t e of a l l economies swing i n a constant s t a t e of confidence between two opposite poles -the p r i v a t e and p u b l i c confidence.

To see the Dow Jones c o l l a p s e to 3,500, what p r e c i s e l y would cause such a major de c l i n e ? Does the a c t u a l value d e c l i n e i n terms of purchasing power? Or i s i t j u s t t h a t the purchasing power of the currency r i s e s against a l l t a n g i b l e assets? In* order f o r the D e f l a t i o n a r y S p i r a l to unfold, as was the case i n the' crash of 1929, the currency must be of a steady quantity and perceived to be a p r e s e r v a t i o n of c a p i t a l . During the 1930s, a l l of Europe was d e f a u l t i n g on i t s debt. C a p i t a l sought to then preserve i t s e l f . I t was not a question of p r o f i t or even y i e l d . During such a time, c a p i t a l i s s a t i s f i e d with v i r t u a l l y zero r e t u r n . Raising and lowering i n t e r e s t r a t e s has no r e a l e f f e c t . The d o l l a r rose to record highs going i n t o 1932 not to obtain-. i n t e r e s t r a t e d i f f e r e n t i a l s , f o r U.S. r a t e s f e l l to about 1%, but to f l e e the p l a i n uncertainty i n Europe.

The Dow Jones I n d u s t r i a l Index could swing to record highs i f i t managed to get back above the 13,500 general area on a monthly c l o s i n g b a s i s . The economic r e a l growth prosects look dismal i n any event going i n t o 2011. Could the Dow s t i l l r i s e to new highs i n the middle of sheer chaos? The answer i s yesJ This would not be a happy outcome to say the l e a s t despite the numbers, f o r we- are not per se l o o k i n g a t r e a l value i n purchasing power terms. For the Dow to h i t 35,000, gold would be w e l l above 5,000, o i l perhaps a few 100 a b a r r e l .

We must struggle to understand t h a t a H y p e r - I n f l a t i o n outcome i n v o l v e s the sheer c o l l a p s e i n p u b l i c confidence. How does t h i s happen? The new f i s c a l year began on October 1st, 2008. We know that l a s t year the amount of new debt coming to the market was about $400 b i l l i o n . This i m p l i e s we can expect probably at l e a s t $1 t r i l l i o n . We can expect to s e l l the bonds making a standard presumption. However, to whom i s c r i t i c a l . I f the s a l e were purely to the domestic market, t h i s would become a z e r o -sum game from a money-supply per s p e c t i v e . Somone with cash, buys the bonds, the cash i s r e c i r c u l a t e d where i t i s needed. I f we s e l l the bonds to China, then new cash enters the domestic economy from overseas i n c r e a s i n g money supply t h a t s t i m u l a t e s i n Keynesian concepts that i s more i n f l a t i o n a r y that a contracting r e d i s t r i b u t i o n .

Now, we can see i n our current monetary system s t r u c t u r e , i f the contaigon spreads around the globe i n f e c t i n g a l l economies, we can s l i p i n t o a new Great Depression with nations f a i l i n g to understand what i s going on once again. I f debt cannot be s o l d i n the domestic market, rates w i l l r i s e beased upon a huge increase i n supply. I f the confidence i n the P u b l i c Sector c o l l a p s e s , then d o l l a r s would be p r i n t e d and we can see the mechanism that would lead to a P r i v a t e Sector wave of H y p e r - I n f l a t i o n that i s the collapse i n the value of the currency i n purchasing power terms. T h i s becomes the Phase-Transition outcome that physics may c a l l subject to Power Laws. To .survive, we must respect that the leverage i n the.banks i s c o l l a p s i n g . That i s a money-supply that i s imploding when such e l e c t r o n i c money i s created by the p r i v a t e s e c t o r . We must now comprehend the new dynamic s t r u c t u r e and i n t e r c o n n e c t i v i t y of the world economy to even approach the c o r r e c t s o l u t i o n . We are painted i n t o a corner f a c i n g a l s o some $50" t r i l l i o n " coming"in"unfunded programs f o r the Baby-Boomers. We"must monetize i n combination with borrowing i n a d e l i c a t e balance. I f we borrow e v e r y t h i n g , we w i l l extract cash needed to s t i m u l a t e the economy to cover l o s s e s by the Bankers. This w i l l place the nation at r i s k of an economic d e f l a t i o n a r y i m p l o s i o n .

U n r a v e l l i n g the F i n a n c i a l Contraction

We have to understand what i s r e a l l y going on and how d i d we get here. To make I t p a i n f u l l y obvious, how can t h i s happen when we have the Federal Reserve, . S e c u r i t i e s & Exchange Commission, and the Commodity Futures Trading Commission a l l c l a i m i n g the power to regulate? In t r u t h , the only r e g u l a t i o n enforced i s against the small firms-, never the b i g houses who h i r e the Government attorneys strangely enough. We have to question whether or not a system t h a t h i r e s young attorneys, allows them to decide who to prosecute e x c l u s i v e l y , and then run to a b i g paying p r i v a t e sector job as soon as they make a name, f o r themselves i s not j u s t contrary to the purpose of regulation? W i l l someone h a r s h l y regulate a f i r m w i t h whom they intend to take one of those " b i g " paying jobs l a t e r ? Not l i k e l y . Government Attorneys who prosecute the laws are r a r e l y career people, l a c k i n g any r e a l p o l i c y or o b j e c t i v i t y i n the enforcement of laws.

There i s excessive r e g u l a t i o n of small business, and v i r t u a l l y no r e g u l a t i o n of the b i g businesses. The CFTC w i l l abuse i t s power to f u r t h e r careers against the small f i r m s , but under no conditions has i t brought a major enforcement a c t i o n against any big houses. The f u t u r e s and options markets i n which the p u b l i c can trade are overregulated, while the existance of interbank d e r i v a t i v e markets are not regulated at a l l and there i s no exchange standing between p a r t i e s to ensure that there i s c o l l a t e r a l f o r the t r a n s a c t i o n s . Had there simply been uniform r e g u ­l a t i o n r e q u i r i n g an exchange, there would be no major c o n t r a c t i o n i n leverage . r i g h t now and we would have r e a l world transparency. This s t r o n g l y suggests t h a t we need to get r i d of the SEC and CFTC and merge them i n t o the Federal Reserve charging i t w i t h the s o l e r e g u l a t i o n of a l l f i n a n c i a l markets and banking under one coordinated r o o f . We cannot not a f f o r d the incompetency of overlapping agencies wasting money tha t obviously does not provide any major p r o t e c t i o n f o r the economy.

This i s the same age o l d problem r e s u r f a c i n g a l l the time, j u s t w i t h a d i f f e r e n t t w i s t with respect to the product, and who i s the targeted market. What we are now l o o k i n g at i s yet another form of the Orange County c o l l a p s e . Chairman of Temple U n i v e r s i t y was a f r i e n d of mine - Richard Fox. Before the Orange County debacle, M e r r i l l Lynch approached Temple o f f e r i n g a product f o r t h e i r t r u s t fund promising higher y i e l d s . Dick t o l d them to run i t by me f i r s t , and they f l e w i n from Chicago. The scheme b a s i c a l l y was to leverage say $1 m i l l i o n i n t o $10 buying l i k e 30 year | bonds and s e l l i n g a l i k e amount of 10 year, r e f l e c t i n g the spread back to the base : investment m u l t i p l y i n g the y i e l d . I pointed out i f i n t e r e s t r a t e s r o s e , they would be i n t r o u b l e . They r e c a l c u l a t e d the deal and argued i t would be a break-even, I declined to recommend i t , .and they t o l d Temple I was i n the business too long and d i d not understand the "new" way to make money. A few months l a t e r , Orange County blew up and I b e l i e v e M e r r i l l Lynch was being sued f o r $2 b i l l i o n . So much f o r the "new" d e r i v a t i v e way to make money. I t i s always the same scheme w i t h new o b j e c t s . j

Gretchen Morgenson of the New York Times wrote an a r t i c l e on the currecnt AIG ; c r i s i s that appeared on September 28th, 2008 at the f r o n t page. Gretchen understood that t h i s time the "medium" they s e l e c t e d was not corporations or s m a l l governments. j They sel e c t e d mom & pop mortgages.They were put i n t o "pools of loans s l i c e d i n t o , tranches and s o l d to i n v e s t o r s based upon c r e d i t q u a l i t y of the u n d e r l y i n g s e c u r i t i e s . " j Id./page 28. Gretchen e x p l a i n s t h a t the AIG London u n i t sold i n r e a l i t y insurance" through i t s banking arm that was a very aggressive t r a d i n g u n i t on i t s own. Since there was no r e g u l a t i o n of interbank d e r i v a t i v e s of t h i s nature, there was no such c o l l a t e r a l requirement as e x i s t i n insurance. That was the p r o b l e j

As Gretchen Morgenson explained, i t was J.P. Morgan that approached AIG London t r a d i n g u n i t with a c r e a t i v e idea that AIG should w r i t e insurance on

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packages of debt known worldwide today as " c o l l a t e r a l i z e d debt o b l i g a t i o n s " ot "CDO" f o r short. The London operation created u n c o l l a t e r a l i z e d insurance f o r i n s t i t u t i o n s holding the CDOs. Their revenue jumped from $737 m i l l i o n i n 1999 to $3.26 b i l l i o n i n 2005 according to Morgenson. These insurnace products became known as " c r e d i t d e f a u l t swaps" or "CDS" i n the marketplace. Since i t was the London u n i t of AIG rather than the insurance company, that was not subject to the same re g u l a t i o n s that require c o l l a t e r a l to w r i t e insurance. This allowed the CDS market to be naked, i n d i s t i n g u i s h a b l e from the T u l i p Bubble.

The CDS market expanded sharply and even European banks began to get i n v o l v e d as insurance f o r p o r t f o l i o s . This e n t i r e mess created a f a l s e sense of confidence and allowed r i s k concerns to take a back-seat. The mortgage market was f u r t h e r expanded because i t became presumed that one could insure against d e f a u l t and of course there was Fannie Mae & Freddie Mac w i t h implied AAA r a t i n g s . Bankers became c a r e l e s s , assuming that debt could be i n s u r e d so why r e a l l y bother about the q u a l i t y ? The AIG London Unit may be the source of the contagion, but i t was the absence of any r e g u l a t i o n of interbank d e r i v a t i v e s that i s the problem.

Obviously, going forward, we need one e n t i t y , not m u l t i p l e , the same way they created the Homeland Se c u r i t y Agency post-911 f o r they found that numerous agencies di d not coordinate and had information that others did not know about. Consequently, f o r a s t a r t , we need to f o l d the SEC and CFTC i n t o the Federal Reserve with one roof r e g u l a t i n g the f i n a n c i a l and banking i n d u s t r y together. End the d u p l i c a t i o n , that i s p a i n f u l l y s e l f - e v i d e n t , worthlessI L i k e w i s e , the Department of J u s t i c e must also be c u r t a i l e d where the d e c i s i o n to i n d i c t must come from a c e n t r a l body t h a t should be the Federal Reserve. We don't need more prosecutions of f i r m s that send unemployment higher j u s t to f u r t h e r the i n d i v i d u a l careers of a t t o r n e y s . The d e c i s i o n to i n d i c t or not must be transparent so the p u b l i c knows why some f i r m s are charged and others are not. We need a consistent Rule of Law.

A t t a c k i n g the Shorts The t u r m o i l that l e d to the 1934 turning p o i n t and Roosevelt's c o n f i s c a t i o n

was again a f r o n t a l attack upon the f i n a n c i a l markets. This time, the Senate a l s o launched i n v e s t i g a t i o n s that Herbert Hoover apologized f o r i n h i s Memoirs. There are those who r e j e c t l o o k i n g at h i s t o r y claiming that was then - today i s d i f f e r e n t . That i s j u s t s t u p i d . For the common r e a c t i o n i n every f i n a n c i a l c r i s i s i s to attack the "short" players. S o r t - s e l l i n g was outlawed b r i e f l y a f t e r the Panic of 1907. During the 1930s, everyone of s i z e was subpoenaed before the Senate and i n t e r r o g a t e d as to were they "short" as i f that was proof of being a t r a i t o r .

The stock market f e l l by about 90% i n t o the 1932 low. This d e c l i n e was so massive because of the i n t e r r o g a t i o n s of the Senate. Who i n t h e i r r i g h t mind would take a short p o s i t i o n knowing they would be p u b l i c l y questioned? The famous c u l p r i t i s always the s h o r t - s e l l e r . But what Government and academics with no r e a l world experience f a i l to get, i s that when a market i s c r a s h i n g , only the short player has the courage to buy during a d e c l i n e to take a p r o f i t . Short-covering provides the appearance of buying f o r the reason of a c t u a l b u l l i s h n e s s . When the short-cover r a l l y comes, even government cheers, but l i k e a f o o l , they d e l i g h t i n t h e i r own applause. Shorts provide the balance and can a l s o create r a l l i e s when there i s none.

The witch-hunts w i l l begin. Every time there i s a decline the Government looks f o r the s h o r t s . They hate them. To be short becomes treason i n t h e i r mind, which of course cannot understand how the markets work and u s u a l l y become more of a b u l l i n a china shop..__ . ._ . _ . ... . — - -

LAW Number 1: NEVER OUTLAW SHORT SELLING

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Herbert Hoover apologized f o r the i n v e s t i g a t i o n s . The treatment of those i n the f i n a n c i a l markets that included brokers and Investors a l i k e , was d e p l o r a b l e . You q u i c k l y f i n d out that the C o n s t i t u t i o n means very l i t t l e . Hoover wrote; "Sometimes when a government becomes enraged, I t burns down the barn to get the r a t . "

Abuse of I n v e s t i g a t i o n s

The i n v e s t i g a t i o n s that took place during the 1930s were d e v a s t a t i n g to the economy. Herbert Hoover recognized what took place a f t e r the f a c t . But i t d i d not change the outcome. The claims t h a t both the Democrats and Republicans are going to t a r g e t the "greed" on Wall S t r e e t , we must respect that the l i k e l y outcome of t h i s w i l l be to send the- United STates back i n t o the primative dark ages. We have already l o s t the s t a t u r e of being the F i n a n c i a l C a p i t a l of The world. That now belongs to London because of the abuse of prosecution g e n e r a l l y .

I apologize f o r having to c i t e my own case, but the lawyers have been shocked and perhaps because of my worldwide r e c o g n i t i o n , i t became l i k e a warning beacon f o r c a p i t a l to f l e e . My lawyers at Proskauef Rose, LLP informed me t h a t a European bank i n q u i r e d about opening i n New York. They were obl i g a t e d to inform them of my case that has changed the e n t i r e foundation of corporate law. Once they explained t h a t now a t e r r o r i s t has more r i g h t s than a corporate o f f i c e r , then decided to k i l l the idea of opening i n New York. At common law, corporations could not be c r i m i n a l l y prosecuted i n England i n 1789, but t h e i r o f f i c e r s could be. The Second C i r c u i t court of appeals i n New York, held that s i n c e a corporate had no r i g h t s , then n e i t h e r did I. This r u l i n g by Chief Judge John Walker shocked the world. I t was to j u s t i f y , the imprisoning of myself f o r more than 7 years without any r i g h t to a t r i a l or any r i g h t to an appeal. He held you can j u s t be thrown i n t o a c e l l where you can die simply because you had the audacity to surrender a l l personal r i g h t to work c o r p o r a t e l y . The most important f a c t o r i n c r e a t i n g n a t i o n a l wealth i s the Rule of Law. Judge Walker would rather expand personal powers of judges than defend what makes c a p i t a l i n v e s t .

One of the b i g problems i n f i n a n c i a l cases i s the a b i l i t y t o I n d i c t without any a c c o u n t a b i l i t y or transparency. I n a major case i n New Hampshire i n v o l v i n g Enterasys Networks, Inc. the former'Governor was the main shareholder. The head US A t t o r n e y • was h i s f r i e n d , a s s i s t e d him even i n h i s p o l i t i c a l campaign. When the company was ex­posed f o r accounting i r r e g u l a r i t i e s l i k e ENRON and WORLDCOM, they h i r e d Robert G a g a l i s j u s t . 10 weeks before the news h i t , making him the new CFO. Who got i n d i c t e d ? G a g a l i s who was sentenced to 11 years, a l i t t l e more than 1 year f o r every week he worked. The US Attorney had to step down, but not h i s o f f i c e , because of the p o l i t i c a l t i e s . The fraud becomes Gagalis was given $2 m i l l i o n i n stock options to take the j o b , but they were not vested. So the theory becomes, he commits the cover-up to e v e n t u a l l y make the $2 m i l l i o n i n the future.

In 2000, the United States had 50% of a l l world IPOs (new stock o f f e r i n g s ) . I f you were not l i s t e d on the New York Stock markets, you were a nobody. Today, the c a p i t a l has been driven offshore to stay as f a r away from these abusive p r o s e c u t i o n s . The US share of the IPO market has c o l l a p s e d from 50% i n 2000 to l e s s than 5%. I t has transformed the United States i n t o a wasteland. With the new witch-hunts about to begin, i t i s u n l i k e l y that anyone w i l l f i n d an underwriter i n the US and we may be back to the 1700s where the r e a l market i s London once more.

The power to i n v e s t i g a t e f o r p o l i t i c a l purposes has been very d e s t r u c t i v e . I n 1912, Congress began an i n v e s t i g a t i o n of J.P.'Morgan to t r y to p i n some p o l i t i c a l reason to destroy him. They were not s u c c e s s f u l . They ignored not j u s t the f a c t t h a t Morgan helped the. nation i n 1893, 1896 and 1907, but that h i s e f f o r t s to fund new projects created I n t e r n a t i o n a l Harvester, AT&T, and General E l e c t r i c . Congress t r i e d very hard to destroy Morgan. In those days, conspiracy laws were both abused as they are today. A r t i c l e I I I of the C o n s t i t u t i o n defines what Is treason because t h e K i n g

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would claim that v i o l a t i n g any law was treason. Today, they have accomplished the same tyranny using conspiracy by threatening one person with l i f e imprisonment unless he agrees to say whatever the government needs to conv i c t others. Conspiracy i s only an "agreement" to do something that never a c t u a l l y takes place. Conspiracy was invented i n En g l i s h law by the King to get h i s enemies. There may have been an American Revolution, but i n a l l honesty, we are s t i l l but "subjects" of the new crown. The o l d maxim "The king i s dead. Long l i v e the k i n g " i s s t i l l a l i v e and w e l l i n the United States.

Perhaps you may r e c a l l Charles Keating. He was held up as the poster-boy f o r the SSL C r i s i s . He was found g u i l t y on a theory t h a t he conspired to s e l l bonds he knew he intended to default on 7 years l a t e r . Who plans to go bankrupt 7 years i n advance? The th e o r i e s used are disconnected from r e a l i t y , but they use the amount of money to portray you as some common t h i e f , even when not one $1 was ever d i v e r t e d to some personal account as i n my case. In f a c t , there was not even a d e f a u l t and where the p r i v a t e notes were simple unsecured contract borrowings of Japanese yen, they c o n s t r u c t i v e l y claimed that a l l t r a d i n g i n the United States was f o r the b e n e f i t of a noteholder even when the notes paid only a f i x e d r a t e of i n t e r e s t . The judges are worthless, f o r the courts are stacked with pro-government judges that w i l l never r u l e against the prosecutor - they are on the same team. No matter much I t r i e d to f i g h t , i t mattered not. B a s i c a l l y , the theory became i f you borrow money from a back, you are somehow c o n s t r u c t i v e l y managing monej1" f o r the bank, even when the bank'has no l e g a l t i t l e to any investments be there a p r o f i t or l o s s .

The treatment of Howard Huges by Congress was a l s o d i s p i c a b l e . Whenever there I s a p r i v a t e i n t e r e s t that can c o n t r o l the p o l i t i c a l process as Pan Am did to t r y to destroy Hughes, the d i g n i t y of the government s u f f e r s . But l i k e w i s e , whenever the Government creates the mess, they hunt f o r those i n the p r i v a t e s e c t o r to s a c r i f i c e to the mob. Under the abuse of Conspiracy, that the non common-law nations never adopted as a crime i n Europe, both Hughes and Morgan would have been convicted i n today's climate. The McCarthy witch-hunts are another example. What you suddenly see i n times of t u r m o i l , p a r t i c u l a r l y when the 37.33 Y e a r l y Cycle h i t s , the C o n s t i t u t i o n i s j u s t suspended i n f o r m a l l y by Congress and the c o u r t s . The C o n s t i t u t i o n means l i t t l e during p o l i t i c a l witch-hunts. They w i l l be rounding-up countless people t h i s time fo r t h i s event. • '

The Abandonment of the Rule of Law Leads t o the Destruction of N a t i o n a l Wealth

In i n t e r n a t i o n a l investment, the common term one h e a r s . i s "country r i s k " t h a t t r a n s l a t e s i n t o the l a c k of a con s i s t e n t Rule of Law. At the conference i n 1997 with former Prime M i n i s t e r of Great B r i t a i n , Lady Margaret Thatcher, a member of the audience asked the question, "Which country would you i n v e s t i n . Russia or China?"' Lady Thatcher stated she would not i n v e s t a dime i n e i t h e r , because they d i d not respect the Rule of Law. Indeed, the Rule of Law I s the cornerstone of c a p i t a l i s m that cannot e x i s t as long as judges c l a i m the u l t i m a t e power of " d i s c r e t i o n " t o withhold the judgment of law. In the New Testament at Luke 18 i s the parable of the corrupt judge and the widow. The Widow keeps p e t i t i o n i n g f o r her r i g h t s . The judge b e l i e v e s he has so much power, he has the d i s c r e t i o n to withhold the judgment of law. Jesus C h r i s t himself r e f e r s to t h i s as a corrupt judge. In Magna Carta we f i n d the same complaint that the King agrees to appoint only those who know the law and are w i l l i n g to uphold i t , Chapter 45. The age o l d source o f a l l c o r r u p t i o n , i s when the courts are stacked to a l t e r the Rule of Law to pre f e r one r e l i g i o n , c l a s s , or group against a l l others. This was l i k e the Supreme Court d e c i s i o n of Dred Sco t t (1795-1858) whose case was decided by a pro-Government court r u l i n g that blacks were merely property. That was the Supreme Court of the United S t a t e s , (Scott v Sanford (1857). Then there was the Japanese inturnment Korematsu v US (1948) t h a t allowed c i t i z e n s to be arrested merely because of t h e i r ancestry.

Unfortunately, the Rule of Law i n the United States i s f a r from any b i n d i n g r u l e and the f e d e r a l courts have been stacked with "conservative" judges who are no more "conservative" that FDR. The courts have once again been stacked w i t h judges t h a t w i l l only r u l e i n favor of the Government. The c r i m i n a l conviction rate of the infamous Star Chamber was about 96%, The Spanish I n q u i s i t i o n was about 97%. These are the most notorious t y r a n n i c a l i n s t i t u t i o n s i n h i s t o r y . We have beat a l l of them. At the very l e a s t , the conviction r a t e i n the United States In f e d e r a l courts i s now 98.5-99%. We have even surpassed Adolf H i t l e r . This Idea t h a t the government must always win has made the p r e d i c t i o n s of Thomas J e f f e r s o n come tr u e .

" I t has long ... been my opinion ... that the germ of d i s s o l u t i o n o f our Federal government i s i n the c o n s t i t u t i o n of the f e d e r a l j u d i c i a r y ; an i r r e s p o n s i b l e body, ( f o r impeachment i s scarcely a scarecrow,) working l i k e g r a v i t y by n i g h t and by day, gaining a l i t t l e today and a l i t t l e tomorrow, and advancing i t s n o i s e l e s s step l i k e a t h i e f , over the f i e l d of j u r i s d i c t i o n , u n t i l a l l s h a l l be usurped from the States, and the government of a l l be consolidated i n t o one."

The Writings of Thomas J e f f e r s o n , Chp XV, p331-32.

The independency of the courts I s gone. Even the Supreme Court has abdicated i t s c o n s t i t u t i o n a l duty and by Rule 10, i t has held that i t i s i t s own d i s c r e t i o n " i f " i t decides to l i s t e n . A f e d e r a l judge who p o l i t i c a l l y decides your case, r u l e s only f o r the the Government, the a p p e l l a t e court w i l l rubber stamp whatever the government wants ( j u s t look at the r a t i o of c o n v i c t i o n s overturn — l e s s than 1%), and then you have no r i g h t to be heard by the Supreme Court. So much f o r Due Process of Law and Equal P r o t e c t i o n . The pure s t a t i s t i c s do not l i e . Even i n v i o l e n t crimes, DNA evidence has overturned more than 1,000 c o n v i c t i o n s for murder and rape. One must ask, how are so many innocent people being convicted?

The abandonment of the Rule o f Law i n favor of p o l i t i c a l agendas, has caused c a p i t a l f l i g h t j u s t as i t had f l e d from places l i k e Cuba and I r a n . The Rule o f Law i s the cornerstone of a nation's wealth. This was a l s o noted by W i l l i a m E a s t e r l y of the I n s t i t u t e f o r I n t e r n a t i o n a l Economics and Ross Levine of U n i v e r s i t y of Minn­esota. Back i n 2002, they conducted a d e t a i l e d study of 72 r i c h and poor n a t i o n s . The question they asked: "What makes one country r i c h e r than another?" One would assume the wealth of a nation i s determined by i t s n a t u r a l resources, i t s i n f r a s t r u c ­t u r e , and perhaps i t s productive c a p a c i t y with a s k i l l e d labor f o r c e . What E a s t e r l y and Levine found was that the most s i g n i f i c a n t f a c t o r that determines the wealth of a nation was i t s s o c i a l technology that was b u i l t upon the Rule of Law t h a t secured property r i g h t s , a well-organized banking system, economic transparency, l a c k of c o r r u p t i o n , and other s o c i a l and i n s t i t u t i o n a l s e c u r i t i e s . 'While I would not d i s p u t e t h e i r f i n d i n g s , my personal s p e c i a l t y of i n t e r n a t i o n a l corporate a d v i s o r y work, the Rule of Law was the number one f a c t o r . I f there was no consistent Rule of Law, a l l other considerations became secondary. I f you could not t r u s t the government, i t mattered not how tempting the o f f e r might be, when you were forced to count your f i n g e r s a f t e r shaking hands, who needs the r i s k .

Recently, there has been an outcry to regulate s p e c u l a t i o n i n o i l . On September 12th, 2008, the Wall S t r e e t J o u r n a l reported that even Walter Lulcken, the A c t i n g Chairman of the Commodity Futures Trading Commission ("CFTC"), warned about more r e g u l a t i o n may "force business overseas." Id/page C3. The backlash to the e n t i r e ENRON, WoldCora, Tyco prosecutions has been the unnecessary r e g u l a t i o n of c o r p o r a t e management that has created such draconian p e n a l t i e s , the United S t a t e s l o s t i t s f i n a n c i a l stature of being the F i n a n c i a l C a p i t a l of the World.

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The Desire To P u b l i c l y Punish May I r r e p a r a b l y Damage Our Own Economy

There was no doubt t h a t the Secretary of the Treasury's attempt to s l i p i n an immunity clause i n t o the b a i l - o u t f o r the bankers was d i s g r a c e f u l . N e v e r t h e l e s s , we also cannot a f f o r d a wholesale prosecution to s a t i s f y some p o l i t i c a l agenda nor to quench the t h i r s t f o r blood i n some inherent p r i m i t i v e need to get even. There are those who honestly committed crimes, but there are a whole l o t more who w i l l be found g u i l t y j u s t because where they worked.

Recently, the New York Times ran an a r t i c l e i n I t s Science Times s e c t i o n on October 7th, 2008 e n t i t l e d : "Wired f o r J u s t i c e , " by Benedict Carey. I t was p o i n t e d out that there may j u s t be a hard-wire response i n people that needs to punish. I t was a l s o r i g h t l y explained; "Some experts believe that Japan's d i s a s t r o u s delay i n b a i l i n g out I t s banks i n the e a r l y 1990s was caused i n part by a c o l l e c t i v e urge to punish corrupt bankers, and they f e a r a s i m i l a r outcome today." Id/Front page. The New York Times explains that t h i s may j u s t be i n s t i n c t i v e . American courts are not of a f o r g i v i n g nature, and w i l l do everything i n t h e i r power to i n f l i c t punishment on those who appear before them to extremes. This may be c y c l i c a l . For the C r u e l & Unusual Punishment p r o h i b i t i o n i n the Eighth Amendment was di r e c t e d at t h i s very problem of arrogant judges. The famous t r i a l of T i t u s Oats may be the source f o r the novel Count of Monte C r i s t o . T i t u s Oats was t r i e d and found g u i l t y of p e r j u r y , a misdemeanor at the time. Lord Chief J u s t i c e J e f f r e y s of the l i n g ' s Bench h e l d -that since i t was •• only a misdemeanor and not a f e l o n y that was subject to death, the judges could do whatever they wanted, as long as they did not order h i s death. J e f f r e y s ordered that Oats would walk the length of London f o r 2 days w h i l e being whipped. He would then be placed i n the p i l l o r y (stocks) i n three l o c a t i o n s i n London where c i t i z e n s could throw various items at him. He then sentenced him to l i f e imprisonment, but on the anniversary of h i s crime, each year he had to repeat the same punishment. Judges have h i s t o r i c a l l y viewed the punishments they order to be a form of personal vengeance during those days. I t appears the c y c l e has made i t s f u l l c i r c l e once again. Under B i b l i c a l law, property crimes were punished only by r e s t i t u t i o n . That was changed i n 1987 i n the United States, where i n a d i s s e n t , J u s t i c e S c a l i a noted that h i s t o r i c a l l y the maximum j a i l time f o r such offenses was 45 days, M i s t r e t t a v US, 488 US 361 (1989). The eye-for-an-eye standard i n the B i b l e i s a s t a t u t o r y maximum, p r o h i b i t i n g the i n f l i c t i o n of any punishment g r e a t e r than the harm caused. The l i f e imprisonment CEOs face today, not only offends the laws of God, but are destroying the economy.

By pledging to prosecute those "greedy" people on Wall S t r e e t , the Government has exonerated i t s e l f , i d e n t i f i e d the g u i l t y , t r i e d them f o r a l l f u t u r e j u r i e s , and set i n motion, what could be the f a t e of c a p i t a l i s m i t s e l f . H i s t o r y stands as witness to the sad f a c t that with every bubble and f i n a n c i a l c r i s i s , the government, no matter who that may be, increases i t s power and blames the targeted c l a s s . For H i t l e r i t was the "greedy" Jews who c o n t r o l l e d the banks and finance along with commerce. For Nero" i t was the C h r i s t a i n s who he blamed f o r burning down Rome s e t t i n g i n motion almost 300 years of spectacle sport - feeding the C h r i s t a i n s to t h e . l i o n s . For Marx, i t was the "greed" of the "bourgeoise" - the wealthy select, group of the Middle C l a s s . I t matters not who i s i n power. I t matters not i f I t i s a monarchy, d i c t a t o r s h i p , or a democracy, a l l governments throughout h i s t o r y respond i d e n t i c a l l y . They p o i n t to a s p e c i f i c target of people, at t a c h the blame that exonerates themselves, and then

' l e t the games begin.

There i s a very serious threat that i n the des i r e to exonerate the government f o r not-doing the job i t should have'"dohe, we w i l l ' u t t e r l y destroy the" f i n a n c i a l i n d u s t r y sending the American economy made i n t o a p r i m o r d i a l s t a t e that we become a banana r e p u b l i c with nuclear weapons.

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I am not advocating to cover-up " r e a l " crime. We j u s t must be very c a r e f u l to ensure that the c r i m i n a l laws are not once again used f o r p o l i t i c a l o b j e c t i v e s . This has been the curse of mankind f o r c e n t u r i e s . I f we do not understand how the c r i m i n a l laws work and how they are put i n t o p r a c t i c e , the the people w i l l not even know i f the r i g h t people are being prosecuted, or are we prosecuting a batch of innocent people to save those who are r e a l l y g u i l t y , but have f r i e n d s i n v ery high places.

, —Criminal~-Laws ' i n - Anglo-American- H i s t o r y - A r e - P o l i t i c a l — T o o l s —

The c r i m i n a l law has a l s o been used as a revenue r a i s i n g device. Even i n Magna Carta, the king was then p r o h i b i t e d from f i n i n g people - c a l l e d amercements. He contrived a l l s o r t s of offenses to r a i s e revenue. Indeed, the revenue t h i r s t of the King created the e n t i r e c r i m i n a l law. Since B i b l i c a l Times, i f someone murdered a family member, he was prosecuted by the f a m i l y , not the s t a t e . In Athens, the only crime prosecuted by the s t a t e was a crime against the s t a t e or the Gods, as Socrates was charged, see P l a t o ' s The Laws. There was T r i a l by B a t t l e where the v i c t o r was seen as being v i n d i c a t e d by the hand of God. There was t r i a l by o r d e a l where the accused was burned, thrown i n t o water, and again the idea was a innocent would be saved by God. But a f t e r Magna Carta and the p r o h i b i t i o n against amercements, the King of England _inserted h i m s e l f i n t o p r i v a t e disputes claiming t h a t any such p r i v a t e event "disturbed h i s peace" and thus he was now e n t i t l e d to compensation. 2

Never was the prosecution f o r the b e n e f i t of s o c i e t y , i t was to f u r t h e r the s e l f -i n t e r e s t s of the King. I t was Marx that created the s o c i a l compact ideas t h a t were fue l e d by h i s demonization of the r i c h f o r the b e n e f i t of the s t a t e .

We must understand, that with' the t u r n i n g of t h i s c y c l e downward and the Great Convergence we now face, the s t a t e w i l l always t u r n against i t s own people, and that has been j u s t part of the process. Even the c l a s s i c work of Edward Gibbon i n h i s celebrated the Decline and F a l l of the Roman Empire observed that one of the primary reasons that c a p i t a l c o ntracts and shys away from i n v e s t i n g i s when the Rule of Law c o l l a p s e s . When the s t a t e becomes desperate f o r funds, i t s own s e l f -i n t e r e s t always p r e v a i l s over the r i g h t s of the i n d i v i d u a l no matter what the form of government since he who r u l e s , also c o n t r o l s the Rule of Law. Edward Gibbon noted that corruption had i n f i l t r a t e d the e n t i r e c r i m i n a l law process and t h a t indeed a " d i s t i n c t i o n of every kind soon became c r i m i n a l . " Id./Chp IV. Under the r e i g n o f Commodus, the son of Marcus A u r e l i u s and immediately f o l l o w i n g the 224 Year h i g h i n the Cycle of P o l i t i c a l Change (the same point at where we are today), he too targeted the r i c h and the l o s s of economic power he faced, he reversed and blamed the p r i v a t e i n d i v i d u a l s making the mere "possession of wealth" the j u s t cause f o r becoming the target and " [ s ] u s p i c i o n was equivalent to proof; t r i a l to condemnation." i b i d . The r i g h t s , p r i v i l e g e s , and immunities disappeared and the s o l e t h r u s t of the r u l e of law became the quest f o r absolute v i c t o r y . . The p r o s e c u t o r s , so to _speak, were the "most worthless of mankind [who] are not a f r a i d to condemn In others the same disorder which they a l l o w i n themselves; and can r e a d i l y discover some n i c e d i f f e r e n c e of age, character, or s t a t i o n to j u s t i f y the p a r t i a l d i s t i n c t i o n . " I d . / Chp VI. The Rule of Law i n Rome simply became "corrupted by the m u l t i p l i c i t y of laws" that were "inter p r e t e d ... according to the d i c t a t e s of p r i v a t e i n t e r e s t " and t h a t the promotion of government lawyers "was pregnant w i t h m i s c h i e f and d i s g r a c e . " I6./Chi> XVII.

2.) Alexander, G.J. " T r i a l by Champion" (1984) Santa C l a r a Law Review 34(3): 545-64 Landsman, S/ (1983). "A b r i e f survey of the adversary system" Ohio State Law J r n l

44(3): 713-739 Weef, M. & N i g e l S. (1974) "The Adversary Nature of the Am Legal System from a

_ H i s t o r i c a l P e r s p e c t i v e " New York Law Forum, 20; 123-164 see also : Encyclopaedia B r i t a n n i a , Macropedia 1982,

Law of Evidence,'Legal-7:1-6 and L e g a l P r o f e s s i o n 10: 779-784 ' 57

White C o l l a r Crimes Are The Most Abused Prosecutions In Federal Courts

For decades, lawyers have been complaining that the fraud s t a t u t e s are too vague and allow themselves to be abused f o r p o l i t i c a l purposes. No matter how many times the l e g a l arguments have been made that the mail and wire fraud s t a t u t e s are too vague and u n c o n s t i t u t i o n a l f o r they do not provide n o t i c e to a c i t i z e n t h a t he i s even committing a crime, the courts always r u l e i n the favor of the Government. What you should understand, i s that m a i l or wire (telephone) fraud i s per each time you use that instrument. So i f there i s a fraud of $1 m i l l i o n that only i n v o l v e d one phone c a l l , that i s 20 years. I f another used the phone 5 times f o r the same $1 m i l l i o n , he now faces 100 years. I n the f i n a n c i a l i n d u s t r y , there w i l l be no-one who the government could not demand l i f e i n p r i s o n , and there i s no l i m i t of the amount of money nor i s there a minimum, f o r the courts also claim i t i s not the amount of money that i s an element of the crime, but the use of the m a i l or the telephone that c o n s t i t u t e s the crime.

Therefore, fraud i s the p e r f e c t p o l i t i c a l crime that can be a p p l i e d to anybody who uses the mails, FedEx ( p r i v a t e c a r r i e r s ) , telephones, or emails. So j u s t about anything can be used to create the crime. This broad sweeping a p p l i c a t i o n i s not understood u n t i l i t i s too l a t e . Yet, fraud i s suppose to be some s o r t of a scheme tha t involves a d e l i b e r a t e misrepresentation with the o b j e c t i v e of "embezzlement" where the money at stake i s to be f o r "one's own use," according to the Supreme Court, Carpenter v US, 484 US 19, 27 (1987). There i s suppose to be a "manipulation or deception" used to create the fraud, Dirks v SEC, 463 US 646, 654 (1983), and the object of the fraud must be the "property" i n the hands of the s p e c i f i c v i c t i m , Cleveland v US, 531 US 12 (2000). The "misrepresentation" i s also suppose to d i r e c t l y cause the l o s s , known as "loss causation." Dura Pharmaceuticals v Broudo, 544 US -(2005). A major problem i s Rule 10 of the Supreme Court denies any r i g h t to be heard claiming i t i s the prerogative of the Court to l i s t e n . There can be no Equal P r o t e c t i o n as, long as courts claim the prerogative of d i s c r e t i o n . Unless there i s an absolute r i g h t to be heard, there i s no Rule of Law. This i s the e n t i r e problem that i s behind undermining the economy, for.^as John Stuart M i l l s wrote i n On L i b e r t y , 'we are not yet. free of the " s t a i n of l e g a i persecution." Unfortunately, you and I do not have the " d i s c r e t i o n " to decide whether we want to work yet -the employer has to pay r e g a r d l e s s . Only judges can claim they have the " d i s c r e t i o n " to honor any r i g h t s . And i f you t h i n k you can recuse a judge; Forget i t ! I doubt that even 1% of r e c u s a l motions are ever granted and most lawyers fear challenging the judge because the judges w i l l p r e j u d i c e t h e i r f i r m s and other c l i e n t s . There i s no Rule of Law, f o r you cannot compel any court to f o l l o w the law and they can throw you i n j a i l on contempt f o r decades without any t r i a l at a l l .

Candidates are running commercials at a l l l e v e l s , vowing now to get those e v i l "greedy" people on Wall Street that have destroyed your l i f e . The prosecutions w i l l be p o l i t i c a l to exonerate the Government i t s e l f . Let us not pretend. What we have seen i n a l l the big white c o l l a r t r i a l s , i s the " l i f e s t y l e " prosecution. For example, i n the Tyco case, you heard about a party f o r h i s w i f e with i c e s c u l p t u r e s and how much he spent on a shower c u r t a i n . They show how you l i v e d , how much money you made, and argue to the j u r y , you must'be g u i l t y f o r "greed" that i s somehow a un w r i t t e n crime. I f they argued a black youth must be g u i l t y because he "hung" on a s p e c i f i c corner i n a high crime area, there would be outrage to argue someone must be g u i l t y because of where and how he l i v e d . But i n white c o l l a r cases, forget i t . You are g u i l t y because you made money i r r e s p e c t i v e of the f a c t s and don't pretend that the prosecutors do not push t h i s button. I f . you t h i n k you p e r s o n a l l y have to.do something, "forget i t . I t i s presumed you have " c o n s t r u c t i v e " c o n t r o l over everybody and knew p r e c i s e l y what any "employee - under" y d u ^ o u l d have-dbne"."The whole purpose" of' "conspiracy" i s - t h a t -someone else may do the crime, you d i d nothing, but they argue you agreed and when they cannot even prove an agreement, they r o l l out the good o l d "conscious avoidance"

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i n s t r u c t i o n to the j u r y . They then look at your l i f e - s t y l e , and presume that you . must have known to make a l l that money and therefore you "consciously avoided any-a c t u a l knowledge of the crime. So k i s s the wife and k i d s good-by. The land of great opportunity i s f a r more Marxist than you ever imagined.

We can expect hundreds of people to be prosecuted f o r i t w i l l be i n d i r e c t p r o ­p o r t i o n to the s i z e of the b a i l o u t and the pain and s u f f e r i n g on main s t r e e t . I t matters not i f there was a crime per se, f o r i t b o i l s down to someone has to s i m p l y j u s t go to j a i l to s a t i s f y the mob. Make no mistake about i t . Even the c r i m i n a l defense lawyers are not s t u p i d . They are there for•ceremonial purposes only. I f you th i n k t h a t you have the p r o t e c t i o n of a grand j u r y t h a t was to prevent .the government from i n d i c t i n g j u s t anybody f o r p o l i t i c a l purposes, t h i n k again. The Supreme Court held that there i s "no supervisory j u d i c i a l a u t h o r i t y " over what takes place i n the grand j u r y room, US v Williams,.504 US 36 (1992). I t was held that only Congress may create e t h i c a l r u l e s , and they d i d not bother to do so. Three w e l l known judges of the Seventh C i r c u i t Court of Appeals In Chicago sta t e d b l u n t l y :

" R e a l i s t i c a l l y , f e d e r a l grand j u r i e s today provide l i t t l e p r o t e c t i o n f o r c r i m i n a l suspects whom a US Attorney wishes to i n d i c t . Neverthe­l e s s , that i s not a r e a l i s m to which judges are permitted to y i e l d .

US v Ross, 412 F3d 771, 774 (7th C i r 2005)(Judges Easterbrook, Posner & Evan)

The e n t i r e purpose of the grand j u r y to prevent p o l i t i c a l prosecutions has been removed by the courts. The government can say anything they l i k e . There i s no r u l e and you have no r i g h t to even appear. They can l i e to the grand j u r v , and nobody w i l l -ver know because a l l records are sealed and the p u b l i c has no r i g h t to know!

The Absence of D i s i n t e r e s t In Prosecutions Lends i t s e l f to Corruption

Government o f f i c i a l s are t a r g e t i n g CEOs and t r y i n g to curb how much they make, but they do nothing to c o r r e c t the i n t e r n a l problems w i t h i n government. The U.S. i s p r e c i s e l y opposite of China, where young lawyers become prosecutors lo o k i n g f o r the big case to get t h e i r name i n the papers and land them one of those " b i g " paying jo b s . Back i n 1987, a l l the SEC lawyers that prosecuted M i l k e n , I b e l i e v e , q u i t the SEC and took jobs paying $1 m i l l i o n or more. Instead of experienced lawyers t a k i n g up the government at the end of t h e i r careers, who would not be l o o k i n g f o r t h a t b i g case to land a big bucks j o b , we have the reverse model prone t o c o r r u p t i o n . T h i s a l s o lends the c r i m i n a l law to be nothing more than a p o l i t i c a l t o o l at the f e d e r a l l e v e l - Murder and rape cases, t r a d i t i o n a l v i o l e n t crimes, are s t a t e cases not f e d e r a l unless connected to organized crime or b i g drug r i n g s . These young lawyers w i l l not prosecute the " b i g " houses because they are the f u t u r e employers or c l i e n t s of the b i g law f i r m s . E i t h e r way, you cannot prosecute those who you are l o o k i n g to l a t e r h i r e you as a lawyer. This i s why you w i l l never see c r i m i n a l cases of big houses.

, The prosecution always avoid the big New York p l a y e r s . This i s not a coincidence. The Framers of the C o n s t i t u t i o n had a t o t a l l y d i f f e r e n t understanding of the b a s i c requirement to be a " d i s i n t e r e s t e d " person. As Gordon S. Wood po i n t s out:

" [ D i s i n t e r e s t e d [ i ] s being 'superior to regard to p r i v a t e advantage not influenced by p r i v a t e p r o f i t , ' and that was what the founders meant by the term. We today have l o s t most of t h i s e a r l i e r meaning. Even educated people now use d i s i n t e r e s t e d as a synonym f o r u n i n t e r ­ested, meaning ' i n d i f f e r e n t or unconcerned.' I t i s almost as i f we cannot quite imagine someone who i s capable of r i s i n g above a pecuniary i n t e r e s t and being u n s e l f i s h or i m p a r t i a l where an i n t e r e s t might be present."

Revolutionary Characters, Gordon S Wood, p l 6 , The Penguin Press 59

Even Ben F r a n k l i n was not t r u l y respected u n t i l he. r e t i r e d from p r i v a t e enter­p r i s e to become a " d i s i n t e r e s t e d " man of d i g n i t y . The l o s e manner i n which we a l l o w those i n Government to operate i s astonishing. I f government attorneys can be h i r e d

.by those who provide the l u c r a t i v e jobs, they cannot be " d i s i n t e r e s t e d " w i t h i n the meaning that founded t h i s n a t i o n . This allows the b i g f i r m s who now need b a i l o u t s , to engage i n r i s k y business with no fear of prosecution or even r e g u l a t i o n that w i l l ever i n t e r f e r e with t h e i r business operation. In f a c t , those same sources of j o b s , can a l s o be used to create, i n v e s t i g a t i o n s and prosecutions of competitors. The sad r e s u l t , i s the complete c o l l a p s e of the i n t e g r i t y of the f i n a n c i a l markets f o r there i s no t r u l y " d i s i n t e r e s t e d " r e g u l a t i o n .

Even Charles Dickens has w r i t t e n about how corrupt the l e g a l system had become back i n 1853. Dickens wrote i n Chapter I , "In Chancery" of h i s c e l e b r a t e d Bleake House, "Suffer any wrong t h a t can be done you, rather than come here!" Indeed, the current s t a t e of American f e d e r a l courts has once again reached the lowest point completing the r e v o l u t i o n of the wheel of p o l i t i c a l f o r t u n e . Perhaps ,.;this I s i n l i n e w ith what we should expect w i t h the 224 Tear C y c l i c a l high i n the Cycle of P o l i t i c a l Change. Those who are i n the f i n a n c i a l Industry, k i s s the wife and kids good-bye, f o r you have l i t t l e chance. As Herbert Hoover wrote, "Some­times when a government i s enraged, i t burns down the barn to get the r a t . "

The Manipulation Of Markets. The D i r t y L i t t l e (Big) Secret

There was a l o t of t a l k about r e g u l a t i n g s p e c u l a t i o n because of o i l r i s i n g to unprecedented l e v e l s . Let us make t h i s very c l e a r . There has been a core group of firms that manipulate markets to obtain that "guaranteed" trade without' r i s k . I t has been l i m i t e d to the currencies and commodities i n general, f o r these are markets that are regulated by the g e n e r a l l y incompetent CFTC. What the lawyers have t o l d me, i f you can't get a job at the J u s t i c e Department. You can't get a job at the SEC. Then what you do i s go to the CFTC. I t i s true, t h e i r attorneys are not the sharpest n a i l i n the box nor are they the b r i g h t e s t bulb i n a l i g h t shop.

Many people knew that I would r o u t i n e l y warn about which market was going to be manipulated next. I had a network of brokers who were not part of the " c l u b " who would a l s o help monitor what was going on. I r e f r a i n e d from ever saying "who" was doing the manipulation, that was not my job the way I saw i t , p a r t i c u l a r l y when the J u s t i c e Department, CFTC and SEC were never i n t e r e s t e d i n prosecuting m a n i p u l a t i o n cases. Lawyers t o l d me the government attorneys s a i d they were d i f f i c u l t cases to prove. Of course when the manipulators were the b i g houses who were the ones doing the h i r i n g of government attorneys, I suppose that had nothing to do with i t . S t i l l , I hope i t has not gone unnoticed that o i l has crashed by about 50% c u r i o u s l y enough when a l o t of f i r m s have blown—up (AIG i n p a r t i c u l a r ) , yet there does not seem to be any corresponding change i n the fundamentals. There i s s t i l l the war, and the global consumption has not declined by 50% i n such a short time. So was o i l a l s o being manipulated? Chances are, you w i l l never know because those who were' p a r t of the "club" were protected by government attorneys who looked the other way.

The s i l v e r manipulation may be responsible f o r my e n t i r e case. As c l i e n t s are w e l l aware, I came out i n September 1997 warning that they were going to manipulate s i l v e r from $4 to $7 going i n t o January. I t seems, that t h i s may have s t a r t e d the b a l l r o l l i n g f o r the "club" was known as the " B i l l i o n s r e ' s Club" made up of a l o t of the " b i g " houses and p a r t i c u l a r i n d i v i d u a l s . I was " i n v i t e d " to j o i n the " c l u b " by Republic National Bank i t s e l f . I was t o l d f l a t out,_"stop" f i g h t i n g everyone and j o i n with them f o r once. I decl i n e d s t a t i n g b l u n t l y , I d i d not b e l i e v e i n m a n i p u l a t i n g narkets for I believed i n my model would p r e v a i l i n any event. I t was not the f i r s t :ime I .was " i n v i t e d " to j o i n i n . Nevertheless, I reported that they intended t o take

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s i l v e r up to $7 s t a t i n g - "They're back!" I t appears that t h i s time they got mad. Instead of i g n o r i n g me and s i t t i n g back comfortably knowing they had the f o r c e s t h a t could do anything s a f e l y i n t h e i r pocket, they decided to t r y to manipulate the press against me. What they f a i l e d to appreciate, was I was p r i m a r i l y a s e r i o u s corporate and i n s t i t u t i o n a l a d visor. I d i d not r e l y upon the " r e t a i l " n ewsletter trade so getting the press to t r y to d i s c r e d i t me, did not impress me very much.

A f r i e n d of mine became a board member of AIG i n London, he was the former economic a d v i s o r to Prime M i n i s t e r Margaret Thatcher. I received a c a l l from him, to see i f I would be a v a i l a b l e i n my o f f i c e i n P r i n c e t o n , New Jersey. I s a i d sure. He then a r r i v e d the next morning c l e a r l y under pressure from the head t r a d e r f o r the London AIG o f f i c e . I was asked not to t a l k p u b l i c l y about manipulating markets. I t o l d him I never revealed who was doing what, j u s t that c e r t a i n manipulations would take p l a c e . I found i t strange that AIG was becoming concerned about my p u b l i c comments to hop on a plane and f l y to the United S t a t e s . Nevertheless, I apparently made a mistake i n under-estimating the concern I appeared to be c r e a t i n g . I had no I n t e n t i o n to go running to the CFTC or SEC, as they were incapable of ever going a f t e r such schemes. So I paid the warning no mind. S t i l l , i t was AIG London t h a t was a major p l a y e r i n t h i s n e f a r i o u s p r o f e s s i o n .

One of the "brokers" was P h i l l i p s B r o thers i n Connecticut. I b e l i e v e they had • an analyst on the p a y r o l l so to speak who had developed contacts i n the press. I b e l i e v e the s t u p i d decision was made to t r y to get the press a f t e r me to stop the f o r e c a s t s . A j o u r n a l i s t from the Wall S t r e e t J o u r n a l c a l l e d , accusing me o f being s h o r t s i l v e r and t r y i n g to t a l k the market down. He was very h o s t i l e . We argued and I b l u n t l y t o l d him i f I was short why would I be saying i t would r i s e from the mid $4 range to $7? The conversation turned almost i n t o a screaming match. He i n s i s t e d I t e l l him who was behind the manipulation. I t o l d him i t didn't matter because he would never p r i n t the name. We y e l l e d back and f o r t h and f i n a l l y I j u s t s a i d f i n e , i t was Warren B u f f e t t . He laughed saying B u f f e t t d i d not trade commodities. I j u s t commented, that's how much you know, and slammed the phone down.

They created a f l u r r y of press about me and s i l v e r . I b e l i e v e even one of the London newspapers was induced to running a s t o r y c a l l i n g me the " l a r g e s t " s i l v e r t r a d e r i n the world. This was a joke to me, f o r anyone that knew me, would never take such s t o r i e s serious - p a r t i c u l a r l y about s i l v e r . This became a very b i g mistake on t h e i r part, because once they induced the press to s t a r t running s t o r i e s about me an market manipulations, they were l i f t i n g the rock under which they had been h i d i n g f o r a very long-time. The CFTC could very e a s i l y j u s t l o o k and see who was the l a r g e s t ' s i l v e r t r a d e r . They knew th a t was c e r t a i n l y not me. T h i s a t t e n t i o n from the press created the very pressure on Government they did not want. The CFTC c a l l e d me, because of the press s t o r i e s they i n s t i g a t e d , and very b l u n t l y asked where was the manipulation seeing I had no p o s i t i o n s . I t o l d them i t was i n London out of t h e i r j u r i s d i c t i o n , and they s a i d they could get to the bottom of that anyway. I never expected the events that followed, that was c l e a r l y because they t r i e d to get the press a f t e r me to stop t a l k i n g about manipulations.

To my shock, my telephone rang. I t was a broker who was not p a r t of the " c l u b " to l e t me know the Bank of England c a l l e d a meeting i n the morning of a l l s i l v e r brokers. I was t r u l y shocked. Obviously the press didn't want to b e l i e v e me, but i t seems the Government^ s did l i s t e n . This was only a couple of hours a f t e r the c a l l from the CFTC. Then came the r e a l Shockwave. L a t e r that same day, Warren B u f f e t t came out to head-off the Bank of England and p u b l i c l y admitted he bought $1 b i l l i o n worth of s i l v e r , he denied manipulating the market, and s a i d i t would be a long-term investment. The Wall Street J o u r n a l c a l l e d back the next day. The J o u r n a l i s t was i n t o t a l shock. He asked me how d i d I know I t was B u f f e t t ? I t o l d him i t was my job to know, and I hung up the phone, p r e f e r r i n g not to get involved.

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I was not t r y i n g to save the world. I was not t r y i n g to expose i n d i v i d u a l s . I t was ray job to t e l l the t r u t h about the markets. That i s what the c l i e n t s expected from me. They knew i f I s a i d something, i t was v e r i f i e d . The reason why I d i d not expect the CFTC to defend the markets and was shocked that they even c a l l e d the Bank of England, was because t h i s was not B u f f e t t ' s f i r s t commodity s p e c u l a t i o n i n t o s i l v e r . According to my sources, i n 1993 there was another attempt to get i n v o l v e d with the s i l v e r market. I b e l i e v e B u f f e t t was going through P h i l l i p s Brothers. The CFTC t h i s time noticed the t r a d i n g and went to "PhiBro" as they were known. They wanted the name of who they were dealing f o r . PhiBro refused to give u p B u f f e t t ' s name. The CFTC then j u s t ordered they get out of the p o s i t i o n s never demanding the name. S i l v e r crashed and a l o t of people got hurt. The CFTC d e c l i n e d to i n v e s t i g a t e the " b i g " names.

So f o r g i v e me i f I l a c k the confidence i n the regulators a c t u a l l y r e g u l a t i n g . There i s no " d i s i n t e r e s t " among those who a r e suppose to guard the markets. As long as government attorneys are looking f o r a big pa3ring job, there i s " i n t e r e s t " at f o o t .

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 j o b i s l i k e l y to be i l l done." The General Theory of Employment, I n t e r e s t & Money, NY Harcourt, Brace, 1936, pl59. Between the AIG CDS without c o l l a t e r a l backing, the concept of manipulating the markets to create guaranteed wins, i t i s i r o n i c t h a t the " b i g " houses were t r y i n g to create r i s k l e s s trades, but i n the process, destroyed i t a l l . As Hegel saw, o f t e n what develops i s p r e c i s e l y the opposite. I t i s the t o t a l l a c k of r e g u l a t i o n of r i s k that has l e d to t h i s mess. I t has been the attempt by the " b i g " houses to c o n t r o l the trade to "avoid l o s s e s , that has l e d to sheer chaos.

The degree of attempts to c o n t r o l the markets knows no bounds. I was a l s o s o l i c i t e d t o j o i n i n with the " B i l l i o n a r e ' s Club" regarding Russia. Edmond Safra, the major shareholder of Republic N a t i o n a l Bank t r i e d to get me to j o i n i n with them on Russia. I warned them my model-was f o r e c a s t i n g that Russian debt would c o l l a p s e . S a f r a rented the e n t i r e National G a l l e r y i n Washington, DC, f o r the IMF honorary dinner. Every p o l i t i c a n was there of any note as were former Federal Reserve chairman. I was i n v i t e d to show me that I was wrong. They had i n s i d e tracks to the IMF and assured me that the loans to Russia would continue. I was asked to j o i n i n with Safra and others to i n v e s t i n Russia g e t t i n g huge re t u r n s _ = i n high i n t e r e s t rates when the IMF was going to back Russia. S a f r a set up Hermitage C a p i t a l , and t r i e d to get me to j o i n . I d e c l i n e d warning my model f o r e c a s t a d e c l i n e . They believed i n manipulating markets to create the guaranteed investment without r i s k . ' The model was correct - Safra 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 f i n a n c i e r who was supposed to be myself. I believe t h i s was another story t r y i n g t o d i s c r e d i t me some how. I never met her, and the only l o s e connection was t h a t her son worked i n our London o f f i c e by coincidence. Let me also set the record s t r a i g h t , we had more than 200 employees worldwide, and I d i 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 gathering the best p r i v a t e i n t e l l i g e n c e network that perhaps ever e x i s t e d . Governments shared intimate knowledge t h a 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 finance and c l e a r l y there were some who resented that i n t e n s e l y .

Edmonpl_Sa^ra_XJfa^ld_ejve_jwas_ j e e p l y jLnyolyed_in a p l o t to takeover R u s s i a . This may have been the crowning audacity of market manipulations. I b e l i e v e he was i n partners with two Russians Berisnofsky and Gazinsky, who were very powerful and even c o n t r o l l e d the p r i v a t e media i n Russia.-I b e l i e v e the r e a l s t o r y provided to

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me by the son of a w e l l connected "Russian diplomat, and s t i l l o t hers, amazingly was that '%he Bank of New York prosecution f o r a claim £7 b i l l i o n money laundering scam was i n r e a l i t y $7 b i l l i o n s t o l e n from the IMF ( I n t e r n a t i o n a l Monetary Fund) l o a n s , at the d i r e c t i o n of Y e l t s i n himself. I t was Republic National Bank, whom I. b e l i e v e , ran to the Feds p o i n t i n g out the t r a n s a c t i o n . I believe "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 for e l e c t i o n again i n 2000. The Bank of New York deal came out i n August 1999, about 30 days before my case that was also i n s t i g a t e d by Republic N a t i o n a l Bank running to the Feds. As the s t o r y goes, Y e l t s i n was being-blackmailed, that 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 to me, turned instead to P u t i n once he r e a l i z e d he was set-up. P u t i n accepted the appointment and protected Y e l t s i n and the whole IMF scandal. Both Barisn o f s k y and Gazinsky f l e d Russia while a l l t h e i r assets were confiscated. My case began on September 13th, 1999. Y e l t s i n announced he was stepping down i n November, and by December 3rd, 1999, Edmand Safra 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 f e e s , and I was thrown i n t o p r i s o n on " - c i v i l contempt" that the s t a t u t e 28 USC 51826 stated I had an absolute r i g h t to an immediate appeal w i t h i n 30 days. President Bush's cousin, Chief Judge John M. Walker, J r . , grabbed my appeal, held I had no such r i g h t to ever appeal, and that allowed the . government to a r b i t r a r i l y imprison me f o r more than 7 years on "contempt" of court denied, lawyers, denied any r i g h t to 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 duration of imprisonment. They did not want to go to t r i a l and showed the world that i f the US Government wants to lock you up, w e l 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 S a f r a remains a mystery. Some sources have intimated t h a t he was murdered f o r Y e l t s i n as a favor on orders of P u t i n . To make more of a paradox of t h i s enigma, they charged the male nurse with s e t t i n g the f i r e i n Monaco and a l s o spent at l e a s t 6 years i n p r i s o n . Then, the Supreme Court where you do have a r i g h t to be heard i n France, reversed the c o n v i c t i o n s t a t i n g that the judge and the prosecutor conspired together to deprive him of a f a i r t r i a l . He was then ordered released, and sent back to the United States. Never would an American court ever say that about i t s e l f . Even the Supreme Court of I s r a e l vacated a c o n v i c t i o n of the alleged "Ivan the T e r r i b l e " when i t came out that American prosec u t o r s , who knew he was not the man, e x t r a d i c t e d him anyway and withheld evidence t h a t showed he was not the person sought. The S i x t h C i r c u i t , only a f t e r the Supreme Court of I s r a e l vacated the c o n v i c t i o n , was embarrassed enough to say that US Government Attorneys committed fraud upon the court, Demjanjuk v Petrovsky, 10 F3rd 228 (6th C i r 1993). The question that jumps from the pages, i s why are American'courts so pro-Government to the point they w i l l cover-up ac t i o n s and a l l o w knowingly innocent people to be even executed?

Safra began h i s career i n exchanging coins i n the middle east. The main s i l v e r coin that was used i n trade was the Maria Theresa baring the p o r t r a i t of of a woman that was not considered acceptable to the Arabs. Safra t o l d me he use to buy them at a discount from the Arabs and that i s how he s t a r t e d h i s empire. He was very much a gold bug, and would c a l l New York and speak d i r e c t l y to h i s metals d e a l e r s . This i s why, i n my opinion, he was obcessed with Russia to get h i s hands on the metals that existed there.

The "club" i s always l o o k i n 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 to r i g the game to ensure they make money and never l o s e . In t h i s respect, yes, i t i s the "greed" that drives them because

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they always have to win. They do no ana^ze the markets, they have to c o n t r o l them. They have targeted so many areas, you would be shocked. They even d i d the rhodium market that i s p u r e l y cash. Perhaps the most outrageous, was the platinum market. There, they bribed Russian o f f i c i a l s who r e c a l l e d a l l t h e i r platinum to take an "inventory." Of course, they were already l o n g . They then drove platinum up d r a m a t i c a l l y . They s o l d at the top, reversed, and then took s h o r t p o s i t i o n 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 not j u s t of small speculators, but they targeted the auto indu s t r y . Ford Motors f i l e d a l a w s u i t over t h a t scam.

In the summer of 1998, I d e l i v e r e d a l e c t u r e i n London. The F i n a n c i a l Times attended..They reported the f o r e c a s t I d e l i v e r e d that Russia would c o l l a p s e i n about 30 days. V e i l i t d i d . Even Long-Term C a p i t a l Management was i n v o l v e d . , I b e l i e v e that viewed that they had the IMF i n t h e i r pocket, and that my f o r e c a s t s were contrary to t h e i r goals. Their c o l l a p s e and l o s s they blamed on me. I b e l i e v e that t h i s i s what s t a r t e d the e f f o r t to stop the Princeton f o r e c a s t s at a l l costs. I believe that they were t e l l i n g the CFTC behind the scenes that I was "manipulating" the world economy because I j u s t had too much i n f l u e n c e and too many c l i e n t s . I am sure, they did not bother to t e l l the Government t h a t they were on .the other-side t r y i n g to seek r e a l manipulation with b r i b e s and e f f o r t s to manipulate markets that had nothing to do with a n a l y s i s .

Another i n c i d e n t where I clashed with the "forces to be" came a l s o i n March 1999. I warned at a seminar i n Tokyo that "they" were t a r g e t i n g the yen and were looking f o r that "guaranteed" trade. Every March, the Japanese s o l d t h e i r offshore investments and returned the cash f o r March 31st accounting. They would then immediately s e l l the yen and go back to the short-term 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 to create a wide spread between the buy of the yen and the r e s a l e of the 3'en. So I warned the c l i e n t s that the yen was the "new" t a r g e t and to t h i s time l o c k i n the s a l e at the same time they had to buy the yen to come home. This would el i m i n a t 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 trade l i k e men. But they wanted t h a t " r i s k l e s s " t r a d e assuming that " r i s k " was f o 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 they blew themselves up so bad, and they can't blame me.

Due Process of Law Died In 1987 Again, I apologize f o 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

K o n d r a t i e f f from a c e l l serving a 12 year sentence f o r a pretended offense that 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 f a c t unless I have proven i t to myself.

My case- has stunned the f i n a n c i a l community f o r the government can f o o l the general majority a l l of the time, but they cannot f o o l the p r o f e s s i o n a l s . That may be why S t a l i n purged the population 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 issued pr i v a t e unsecured notes borrowing yen at (1) f i x e d r a t e s or (2) swapping a note for a p r e - e x i s t i n g p o r t f o l i o of Japanese stocks that we down 30-50% w i t h an unlimited 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 p o r t ­f o l i o with a face value converts t h a t i n t o a managed account any more than t a k i n g out a mortgage transforms you i n t o a caretaker f o r the bank. The SEC a l l e g e d t h i s was a Ponzi scheme and there was commingling of accounts while the CFTC a l l e g e d I was r e a l l y running a commodity pool that not r e g i s t e r e d . I t came out at the h a i l hearing t h a t there^as -no -defauTtr -on~any~notev Any' f iiiallyT^dien -the _-governmen1r-real-ized--they—got -the whole theory wrong, they moved to get r i d of a l l the lawyers .SEC v PEI, 84 FSupp2d 443 (SDNY 2000) and then created teh contempt because we were i n s i s t i n g on a speedy t r i a l by March of 2000 to save the companies.

Tou t h i n k that as an American we are honest and the best. Think again. When the government does not want you to know the t r u t h , you w i l l not know i t . And as f o r the p o l i t i c i a n s , w e l l .they are more l i k e those s i t t i n g above the clouds who p o n t i f i c a t e on what i s r i g h t , but the forces below could c a r e l e s s what they do or ' say. On A p r i l 24th, 2000, Judge Owen i l l e g a l l y closed the c o u r t , ordered the r e c o r d delayed to hide the event, and threw the Associated Press out, which they reported on A p r i l 27th, 2000 questinging whether I could get a f a i r t r i a l i n New York. I f you think what takes place i n court i s p u b l i c record because i t i s f e l o n y of 5 years to change the t r a n s c r i p t s , guess what.' The Souther D i s t r i c t of New York f e d e r a l court created i t s own r u l e to negate Congress a l l o w i n g judges to e d i t the record changing the events and the words you speak. That i s a crime 18 USC §2071(a), but the J u s t i c e Department w i l l never prosecute a judge f o r helping them. The Second C i r c u i t had to admit t h i s was a p r a c t i c e and r u l e d : "Courts do not have the power to a l t e r t r a n s c r i p t i n camera [ p r i v a t e l y ] and to conceal the a l t e r a t i o n s from the p a r t i e s . " PS v Zxchet- t e l l o , 208 F3d 72, 97-9S (2d C i r 2000), but then claimed they lacked the power to order t h e i r own judges to obey the law. So much f o r the Rule o f Law. We have become a banana r e p u b l i c where the government i s never wrong, but w i t h nuclear weapons. The bureaucracy allows us to b e l i e v e i t i s a democracy, but they operate according to • t h e i r own d e s i r e s . I t r i e d t i challenge t h i s p r a c t i c e . I got Judge Owen to admit even p u b l i c l y he was a l t e r i n g the record, but the Court of Appeals refused to do anything!

JUDGE RICHARD OWEN:. " I don't remember ever making any change to a t r a n s c r i p t of any substance whatever.. I may have stuck i n a coma, I may have stuck i n a dash. But I don't remember ever changing anything of substance." (99-Clv-9667 SDNY: Tr; 9/23/03, p45, L7-11)

Frank Quattrone of F i r s t Boston had the same judge. The press was w e l l aware of shenanigans going on. I even met with Mr. Sorkin of the New York Times who was covering Quattrone's t r i a l s . They knew of the e d i t i n g by Judge Owen i n my case, and were paying very close a t t e n t i o n to what Judge Owen was doing to Quattrone. The New York Times reported what Judge Owen had r u l e d , and the Second C i r c u i t i n overturning Quattrone's c o n v i c t i o n where i t r e a l l y had no choice, b l a s t e d the p r e s s and i n t h e i r w r i t t e n opinion c r i t i c i z e d the press s t a t i n g they misreported events. I spoke to Sorkin a f t e r that r e p o r t , and he confirmed to me that what he reported was correct and he too believed that perhaps the t r a n s c r i p t s were changed by Judge Owen. This i s the sad s t a t e of a f f a i r s i n f e d e r a l c o u r t s . I f you are not g u i l t y , they can a l t e r what was s a i d l a t e r to sure up a c o n v i c t i o n when necessary. And the Second C i r c u i t claims somehow i t has no power to enforce the law when i t i s one of t h e i r own v i o l a t i n g i t . So much f o r the Rule o f Law.

A l o t of people are awaiting f o r me to speak out. Trust me, t h a t day has come. But what I am more concerned about i s the complete c o l l a p s e i n the Rule of Law, We cannot maintain the confidence i n s o c i e t y , i n government, and i n the f u t u r e as long as the courts are nothing more than a den of t h i e v e s . We cannot f i x the economy unless the Rule of Law i s e s t a b l i s h e d . This i s a complaint that been around since B i b l i c a l times when C h r i s t d e l i v e r e d the parable of the widow and the c o r r u p t judge who thinks h i s personal power includes the " d i s c r e t i o n " to w i t h h o l d the r u l e of law. Thomas J e f f e r s o n saw t h i s as the biggest t h r e a t to the i n e v i t a b l e d e s t r u c t i o n of the United States. We are running out of time. I f the game i s not f a i r , the game cannot survive what we are going through. Perhaps i t i s time f o r a J u d i c i a l change l i k e J e f f e r s o n d i d i n 1800. Or at l e a s t the J u d i c i a r y Committees of the House and the Senate have to stop appointing pro-government judges and s t a r t p o l i c i n g the mess they have approved. Nobody i s i n charge and c a p i t a l w i l l continue t o f l e e as l o n g as the game i s rigged. You cannot i n v e s t i n a nation where your r i g h t s depend upon the mood and personalty of the judge you end-up with that day. Being a judge was not to be one step shy of a monarchy, but that i s what it-has_become. Thev can i n t e r p r e t the law anyway they l i k e , and then r u l e t h a t no one e l s e can disagree. We need r e a l s t a b i l i t y , d i g n i t y , and honesty. The Rule of Law cannot be measured as they use to say, by the length of the judge's f o o t .

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So What Happened to the Model?

Former employees have t o l d some key parts of the s t o r y that has appeared on the I n t e r n e t . Yes i t i s true t h a t I a l s o taught the computer to communicate by r a t i o n a l verbal exchange. In other words, I could t a l k to the computer, ask key questions, and i t would respond v e r b a l l y . I t was a shocker to those who f i r s t saw t h i s type of i n t e r f a c e . I worked on that part of the design i n the e a r l y '80s and constructed a desktop v e r s i o n f o r my c h i l d r e n that probably cost me as much as a Porsche back then. My daughter would communicate with the computer t y p i n g i n questions and the computer would then engage i n a conversation with her on a l l s o r t s of t o p i c s , l e a r n i n g who she was, what she l i k e d , a n d.it became a f r i e n d . When she came' home from school one day, I had the computer i n pieces. She, got upset and thought he was dead. I assured her, he was f i n e .

By 1985, I had constructed a verbal i n t e r f a c e . My daughter contributed not knowing that she had been my t e s t p i l o t to g i v e the computer a p e r s o n a l i t y and to teach i t human behavior. As my c h i l d r e n grew ol d e r , they outgrew the need f o r a computer f r i e n d and I moved on to bigger and more challenging p r o j e c t s . What you may see i n the recent movie Ironman w i t h the a c t i v e verbal i n t e r f a c e of the computer, i s what I created out of n e c e s s i t y .

I r e a l i z e d that the greatest d i f f i c u l t y i n f o r e c a s t i n g i s the p r e j u d i c e o f the a n a l y s t . One cannot forecast what he does.not b e l i e v e i s p o s s i b l e . K o n d r a t i e f f was c o r r e c t f o r h i s time. But the economy evolved and transformed from a commodity world dominated by the prejudices created by the P h y s i o c r a t s i n t o the I n d u s t r i a l Revolution. Just as Rome matured, i t s people wanted greater pleasures and the more lobor i n t e n s i v e jobs f e l l to the provinces. Augustus (27BC-14AD) had even passed family laws f o r b i d d i n g men to remain unmarried. As wealth accumulates, l a b o r wants more and more u n t i l the jobs leave. These are n a t u r a l tends where both the l a b o r and the consumer seek t h e i r s e l f - i n t e r e s t s . One demands the highest wage, and the other demands the lowest cost. I t i s not the mere greedy corporations and the e v i l employers as Marx targeted. This i s a h i s t o r i c a l balance of the economy.

Money supply i s t y p i c a l l y defined as a product of v e l o c i t y - how much i s changing hands. This can be increased d r a m a t i c a l l y through lending and d e r i v a t i v e s . This also creates an opposing f o r c e that must be understood. I n t r u t h , there are so many v a r i a b l e s that need to be tracked, you head explodes. The model had to r e f l e c t my unbiased t h i n k i n g process. C o r r e l a t e everything, understand time, the Phase-T r a n s i t i o n , and the dynamics of c o l l e c t i v e behavior. A l l o w i n g the computer t o t e s t a l l p o s s i b i l i t i e s , allowed i t to see war, changes i n p o l i t i c s (1989), and above a l l to comprehend time. This opened the door to managing the f u t u r e . I t cannot be used to a l t e r the trend turning highs i n t o lows, but i t can m i t i g a t e the d e c l i n e s by the comprehension of when and where to apply the pressure as Keynes be l i e v e d .

I needed to create a system that would m i r r o r my own mind. Something t h a t I could teach how to think and analyze the data. Once that was done l i k e teaching your c h i l d how to walk and t a l k , the end r e s u l t would be a s t o n i s h i n g . The f i r s t glimpse of t h i s p o t e n t i a l was a f o r e c a s t the model made regarding the B r i t i s h economy. I t projected that B r i t a i n would e s s e n t i a l l y i n v e r t and depart a c o r r e l a t i o n w i t h that of Europe i t s e l f . I was shocked by the f o r e c a s t . I at that time could only i n q u i r e by typing In a question - why? The computer s p i t out a c o r r e l a t i o n to crude o i l that was so obvious, I could not believe how s t u p i d I had been not to see I t myself. With the discovery of the North Sea O i l , B r i t a i n began to evolve as an economy. I

" remember^m^g--a-W-show-ajt-the-^t-i-me-^d-t-h-a—g^od—^r-iand—o^.mine,-JWalter Br_e.sser£.,____ a true leader i n c y c l i c a l theory. I d e l i v e r e d that f o r e c a s t i n or about 1983, and watched the pound drop to about $1.03 by 1985.

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I taught the computer how to t h i n k and how to analyze. Since I took the t r a x n m g wheels o f f a l l o w i n g i t to check soybeans agaslnt the Hang Sang Index, i t _ w o u l d be able to study c o r r e l a t i o n s that were not l i m i t e d to my personal observations. The verbal i n t e r f a c e made i t f a r e a s i e r to communicate. But i t was the s t r u c t u r a l design that was the key.

Yes i t i s true that I was i n v i t e d to China end was offered the e x c l u s i v e f o r e ­casting c o n t r a c t , which I agreed. China did not i n s i s t upon having the source code. They wanted to work together* The . CIA saw only the m i l i t a r y aspects and wanted me t o construct a separate system f o r them i n Washington. I declined, because I was f a r to busy, o f f e r i n g i n s t e a d to run any study they might l i k e . They t o l d me f l a t l y , they had to own i t . Some s t a f f have implied that P r i n c e t o n Economics was destroyed because of my r e f u s a l to work with the CIA. Perhaps. But I believe i t was coming from another source. I can confirm, that the system was laced with a v i r u s . I f i t was ever removed from the o f f i c e , i t would know and s e l f - d e s t r u c t . That I b e l i e v e took place,,,'for i t appears the Government s e i z e d the computer, took i f to a l a b at the World Trade Center, i r o n i c a l l y where i t was destroyed i n the a t t a c k . The Receiver and h i s questionable attorney Tancred Schiavoni, forced the c l o s u r e of the Princeton Economic I n s t i t u t e . M a r t i n Weiss of F l o r i d a , a publisher of stock a n a l y s i s , offered to rent the I n s t i t u t e to keep the f o r e c a s t s going. They would not a l l o w t h a t and sent him a email s t a t i n g I had to turnover the source code to keep the company going. I decided that the cou r t s were j u s t c o r r u p t and I was i n t h i s b a t t l e to the death. I decided even i f i t cost me my l i f e , I would not regenerate the source code for Mr. Schiavoni and Alan Cohen whom I believed were beyond a l l morals whatsoever. To sure up t h e i r p o s i t i o n , they asked Judge P. Kevin C a s t e l f o r absolute immunity f o r any of t h e i r a c t i o n s against myself, my f a m i l y , employees or. even the alleged v i c t i m s . Even the SEC objected that t h i s would create a precedent t h a t would a l l o y them t o embezzel funds without any sanctions c i v i l l y or c r i m i n a l l y . ,To even ask for absolute immunity r e t r o a c t i v e l y f o r whatever they have done, i t a s i g n i n my opinion that there are some r e a l l y dark s e c r e t s s t i l l l u r k i n g i n the wings. Yet, the Southern D i s t r i c t of New York i s j u s t o f f the r e s e r v a t i o n when i t comes t o your c o n s t i t u t i o n a l r i g h t s . I b e l i e v e they haul you i n t o New York because there I s j u s t no p o s s i b l e way to obtain a f a i r t r i a l with the p r a c t i c e of throwing the press out, c r i t i c i z i n g the press to i n t i m i d a t e them as. Judge C a s t e l d i d on A p r i l 27th, 2007; and the p r a c t i c e of a l l o w i n g judges to even e d i t the very words spoken i n court.

I believe that case aga i n s t me was i n s t i g a t e d by the "club" to e l i m i n a t e the for e c a s t i n g f o r on Oct 3rd, 2000, the CFTC & SEC c a l l e d a hearing to c l o s e the I n s t i t u t e . An employee, James Smith, showed up w i t h a w r i t t e n request from the Dep't of-Energy requesting we create a model because our f o r e c a s t o i l would r i s e from $10 i n 1999 to t e s t $100 by 2007. Judge Owen would not a l l o w Smith to t e s t i f y and denied the I n s t i t u t e any r i g h t to h i r e a lawyer. The " c l u b " t h i s time went w i t h the f o r e c a s t , but manipulated i t t o increase the amplitude up to ne a r l y $150. Just as they l o s t on the manipulation of Russia and the IMF causing Long-Term C a p i t a l Management c o l l a p s e , they blew themselves up again. A monthly c l o s i n g back below $62sig n a l s a changed trend

The Government with i t s Receiver Alan Cohen and h i s lawyer Tancred Schiavoni, were determined to s e i z e a l l evidence I gathered on the "club" and the manipulations. I documented everything and could prove whatever a l l e g a t i o n I made i n w r i t i n g . I had given some tapes to my lawyers f o r safekeeping. They attacked my lawyers demanding the tapes c l a i m i n g they might lead to assets a p l a i n l i e . On February 7th, 2000, I stood up i n open court and objected:

" I d i d a number of pieces and monitored a s i g n i f i c a n t e f f o r t by a number of investment and fund managers who attempt t o organize together i n manipulating markets. I wrote e x t e n s i v e l y about s e v e r a l on t h a t , and I made tapes - to back up myself i n support of t h a t "

(99-CIV-9667 SDNY, Tr; 2/7/00 page 4 ) , l i n e s 16-21)

I continued to object a g a i n s t t h e i r i l l e g a l s e i z u r e s t a t i n g p l a i n l y that they were made In a j o u r n a l i s t i c manner under the F i r s t Amendment. That of course, j u s t meant nothing. There i s obviously no free-press but i n America when i t counts.

"These are tapes that a r e , again, I do not see where they are p a r t i c u l a r l y r e l e v a n t to t h i s p a r t i c u l a r case, your Honor. They have s i g n i f i c a n t i m p l i c a t i o n s f o r a number of w e l l known players and Investment banks on the s t r e e t that probably do r e v e a l c r i m i n a l behavior, but that does not n e c e s s a r i l y i n v o l v e t h i s case. They were t h i n g s I wrote about. I t i s w e l l documented that I was exposing the s i l v e r manipulations t h a t were — went by a number of f i r m s i n c l u d i n g Republic Bank. The. CFTC even contacted me p e r s o n a l l y f o r information In that i n v e s t i g a t i o n . and as w e l l as t h a t l e d to the Bank of England g e t t i n g involved i n t o the i n v e s t i g a t i o n . "

I b i d / pg 4-5 (2/7/00)

The Receiver Alan Cohen had the audacity to argue t h a t t h e r e was no p r i v i l e g e . Judge Owen refused t o a l l o w me t o speak, as d i d Judge C a s t e l l a t e r on. Judge Owen st a t e d : "Please, no. 1 am very t r o u b l e d by your standing up here and saying'things which are p u r p o r t e d l y f a c t s and you are asking me to r e l y of them as facts." Id./pg29 L i n e 14-17. He allowed pure s p e c u l a t i o n by Alan Cohen to s e i z e everything', which I b e l i e v e has been destroyed. Cohen was then given a j o b at one of the f i r m s I was t r a c k i n g , Goldman Sacks. I f you t h i n k the " c l u b " .cannot c o n t r o l the c o u r t s , you are wrong! There i s never a coincidence. AfterCohenS Schiavoni removed a l l lawyers, the lawyer appointed, David Cooper, J u s t so happened h i s wife was counsel to AIG.

I b e l i e v e t h i s i s why I was thrown Into p r i s o n on contempt of court.denied my lawyers, denied any t r i a l ever, or any r i g h t to appeal. There i s c l e a r l y a way t h a t f e d e r a l c o u r t s can s t r i p you of a l l r i g h t s , j u s t c a l l i t contempt. The C o n s t i t u t i o n was intended to be a r e s t r a i n t upon the Government. When you stack the courts w i t h former prosecutors to pretend they are now f a i r judges, t h i s i s what you get. At my sentencing, Judge John F. Keenan on A p r i l 10th, 2007, t r i e d to d i s c r e d i t the model a l l e g i n g t h a t I got•the i d e a from a movie c a l l e d " P i " by an A u s t r a l i a n company th a t was about a man who created a computer model based upon P i . The problem i s , t h a t movie was based upon me, and d i d not come out u n t i l X was i n p r i s o n a f t e r 1999. T h i s bothered me because i t completed the c i r c l e i n v o l v i n g the courts i n an attempt to r e w r i t e h i s t o r y . The courts b e l i e v e they can d i c t a t e to the poeple, r e w r i t e the t r u t h , and d e l i g h t i n t h e i r own applause regarding t h e i r cleverness. The US Attorney seems i t even i n t i m i d a t e d the WY Times complaining about a front, page a r t i c l e q uestioning my g u i l t .

The f o r e n s i c accountant, Michael M. M u l l i g a n (FCL A d v i s e r s , Great F a l l s , Va.) wrote to the c o u r t questioning my g u i l t , whether there was even a crime, a complained th a t f o r more than 6 years the Government would never provide evidence. Republic's own s t a f f were i l l e g a l l y t r a d i n g i n the accounts and about 25% of a l l trades were backed-out as e r r o r s by them, which made me b e l i e v e the " c l u b " was parking trades I n my accounts using the cash f o r margins or at l e a s t R e p u b l i c s s t a f f were.

The " c l u b " can c o n t r o l government attorneys when they are there only l o o k i n g f o r a " b i g " paying j o b . P o l i t i c i a n s can be prosecuted f o r such schemes, but who w i l l ever prosecute the prosecutors? Serious e t h i c a l r e v i s i o n s are desperately needed.

The Government seized the computer, but i t s e l f - d e s t r u c t e d when moved. They then used the I n s t i t u t e as a t o o l . Schiavoni sent an e-mail to M a r t i n Weiss of 'Florida who o f f e r e d to rent the operation to keep the f o r e c a s t s going, but to do so, they demanded the source code, which Weiss sta t e d he d i d not need. I d e c l i n e d and the I n s t i t u t e was closed by Judge Owen. I f i n d i t i r o n i c that the model designed to help i n times of a major c r i s i s , was destroyed by the "club" because they could not manipulate markets against i t and i n the end, destroyed t h e i r own i n d u s t r y .

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The Solution Real Money Supply CONTRACTION

tr1

W <! W

>

BORROWING =

REDISTRIBUTION

We must come to 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 world economics i s no longer a p p l i c a b l e . The greatest e r r o r of the money supply being f i x e d to the gold standard, was that the discovery 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 s u b j e c t i n g the p r i v a t e s e c t o r to swings i n the boom and bust sense that would be inf l u e n c e d with respect to amplitude i n c r e s i n g v o l a t i l i t y . We can see such periods f o l l o w i n g the Gold Rush of 1849 i n C a l i f o r n i a and the consequences of the d e l i b e r a t e i n f l a t i o n created by the " S i l v e r Democrats" that l e d to v i r t u a l bank­ruptcy r e q u i r i n g J.P. Morgan to b a i l out the government i n 1896.

No doubt there w i l l be those who would never consider d e l i b e r a t 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 Paul Volker was f i g h t i n g the commodity boom i n t o 1980 and r a i s e d short-term i n t e r e s t r a t e s , we must r e a l i z e that the biggest s p e n d t h r i f t w i t h i n s o c i e t y i s the government. By d e l i b e r a t e l y r a i s i n g i n t e r e s t r a t e s to stop p r i v a t e sector spending, the n a t i o n a l debt was put on an exponential growth path. The Government cannot be the s t a t i o n a r y " d i s i n t e r e s t e d " observer i n E i n s t e i n ' s theory of r e l a t i v i t y . I t cannot see i t s own ac t i o n s because i t i s so busy t r y i n g to a t t r i b u t e blame to everyone e l s e . This i s the f a t e of our nation at stake. This i s the f u t u r e of our c h i l d r e n . Are we to be so i r r e s p o n s i b l e l i k e a drug addict who s t e a l s today with no regard f o r the consequences j u s t to obtain 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 c o n t r a c t i o n of leverage f a r outnumbers the a c t u a l money supply even i f we now count a l l cash and outstanding debt as money. Because there has been no r e g u l a t i o n of the amount of leverage between banks as I s done w i t h i n the exchanges who r a i s e and lower margin requirements i n futur e s t o manage the amount of leverage ("gearing"), we are l o o k i n g at a co n t r a c t i o n t h a 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 that borrowing to b a i l o u t the banks, i s economically i n d i s t i n g u i s h a b l e from moving money from your l e f t pocket to your r i g h t . We are a c t u a l l y f u r t h e r adding to the economic c o n t r a c t i o n by soaking up cash i n the system and r e d i s t r i b u t i n g . This i s merely a form of Marxism. What we must to i s to expand the sheer a c t u a l money supply to o f f s e t the contract i n the " r e a l " money supply created by the p r i v a t e sector i n e l e c t r o n i c

format that i s also i n d i s t i n g u i s h a b l e from suddenly d i s c o v e r i n g gold i n C a l i f o r n i a back i n 1849. The f i s c a l p o l i c y of the nation has been usurped by the bankers, who did not even understand what they were doing.

We need to review the Keynesian theory. Borrowing does not st i m u l a t e f o r i t w i l l l i o t ~ i n c r e a s e the money-supply to compensate f o r the c o n t r a c t i o n . 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 current market value, placed i n a p u b l i c fund not managed by bankers, a l l o w the mortgages'to be renegotiated i n t o a f i x e d r a t e , extending the time i f necessary, but r e v a l u i n g the property as J u l i u s Caesar d i d , and s e t t i n g up a reasonable payment schedule. I f the homeowner cannot cope w i t h the payments, then they l o s e the home. The bankers have to s u f f e r t h e i r f a t e . Let the banks reorganize and c o n s o l i d a t e , and there must be the s u r v i v a l of the f i t t e s t . That i s not to say we should abandon FDIC. We must stand behind a l l bank d e p o s i t s . That i s the p r i c e we must pay as a n a t i o n f o r the f a i l u r e the r e g u l a t e the " b i g " houses as we do the " s m a l l " p l a y e r s .

We must c o l l e c t the Sub-Prime Mortgages i n t o a s i n g l e fund t h a t should then al l o w p r i v a t e investment.Individuals could i n v e s t even t h e i r 4013£s i n p a r t , and we must c u r t a i l government borrowing at a l l c o s t s . Those who do not want to see the " s o c i a l " spending of the Democrats, we should r e a l i z e that there would have been f a r more than a chicken 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 c o u l d have spent the same amount of money and there would be a n a t i o n a l h e a l t c a r e l i k e that i n England. We must confront what i s going on. I t i s time we r e s t r u c t u r e Government i t s e l f . Locking up every person i n Banking or Wall S t r e e t w i l l not solve the problem. C a p i t a l i s m i s not a t f a u l t . The " c l u b " seeks " r l s k l e s s " trades and r e l y upon Government to cover l o s s e s so why bother worrying about r i s k ? Long-Term C a p i t a l Management collapsed when the IMF could not continue to support Russia that the " c l u b " was buying t h e i r paper a t 50-100% r a t e s of I n t e r e s t . This i s the same problem. The Sub-Prime Mortgages d i s p l c e d r i s k f o r they looked to the Government as a guaranteed tr a d e . That i s not c a p i t a l i s m - t h a t i s p l a i n o l d - f a s h i o n c o r r u p t i o n . Let us deal w i t h the t r u t h !

The bad p o r t f o l i o s i n Japanese corporates were purchased with a note removing the problem a l l o w i n g them to get back to business. Do not allow, the banks to work-out these problems and do not h i r e bankers to c o n t r o l the b a i l o u t . H i r e q u a l i f i e d fund managers who w i l l not p r o t e c t the banks. A lawyer who represents "himself, has a f o o l as a c l i e n t . Bankers pr o t e c t bankers. How can you prosecute the people In charge of the b a i l o u t ? We need independent management and c o n s o l i d a t i o n of SEC, CFTC and the Federal Reserve i n t o one r e g u l a t o r y body th a t protects the system, not i n d i v i d u a l s . I t i s time f o r s e r i o u s r e o r g a n i z a t i o n .

Stop the Marxism! We need to r e t u r n to b a s i c s . End the Income t a x & r e p l a c e i t with a 10% N a t i o n a l S a l e s Tax (excluding raw food & basic c l o t h i n g ) t h a t a l s o i n c l u d e r e a l e s t a t e . China has boomed because i t had no income tax! T h i s i s what the men who e s t a b l i s h e d t h i s n a t i o n e s t a b l i s h e d u n t i l Marxism began w i t h the passage of the income tax only f o r the r i c h i n 1909, that now a p p l i e s to everyone. Stop borrowing money from the poorest with no i n t e r e s t masking i t as a "refund" ,neck confusing them to-make i t appear as a g i f t . Do t h i s , and we w i l l r e e s t a b l i s h j o b 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 f o r they w i l l ' s t i l l pay t h e i r f a i r share. We are l o s i n g jobs because of high taxes and high heathcare c o s t s that j u s t make i t cheaper to s e t up s e r v i c e o r i e n t e d jobs i n I n d i a , 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. This w i l l c r e a t e a o f f s e t t i n g economic boom that w i l l save the n a t i o n . Marxism does not-work. We cannot be a l i t t l e - b i t pregnant. The C o n s t i t u t i o n was e s t a b l i s h e d to preserve the " B l e s s i n g s of L i b e r t y " to a l l p o s t e r t y , not depending upon race, creed, or c l a s s . Marxism was a d i s a s t e r . I t should o f f e r no model f o r the f u t u r e . Just look a t Russia and China. If we do not reorganize, Ayn Rand w i l l be c o r r e c t !

We can s t i l l have the b e n e f i t of a c o l l e c t i v e s o c i e t y that a f f o r d s common goals 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 w i t h the growth In spending l i m i t e d to the GDP growth that must be set by a g l o b a l economic independent o r g a n i z a t i o n not subject to the p o l i t i c a l pressures of one n a t i o n . 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 to reduce government sepending where many areas are indexed to CPI. Government w i l l always corrupt i t s e l f . The reason we have the " J u l i a n C a l l e n d a r " i s because the Romans knew the moon c a l l e n d a r was i n c o r r e c t and that a d d i t i o n a l days had to be i n s e r t e d to maintain the seasons. Thus, someone had to be given the j o b to decide how many days to i n s e r t and when. That j o b was given to the High P r i e s t ( " P o n t i f f Max"), who was r o u t i n e l y bribed to s t a l l e l e c t i o n 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 to government, he d i d massive reforms and thus he eliminated the corrupt j o b of managing the c a l l e n d a r . This i l l u s t r a t e s t h a t we must remove the temptation 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 t r u t h . Carrots are very dangerous,because everyone who has ever eaten one has e v e n t u a l l y died! Every country c a l c u l a t e s t h e i r s t a t i s t i c s according to a unique formula. How can we even compare economic growth from one n a t i o n to another?

We can monetize part of the debt by redeeming a s p e c i f i c q u a n t i t y w i t h newly generated cash. There should be some c o n t r o l s on the quantity of d o l l a r s created i n t e r n a t i o n a l l y through r e g u l a t i o n c a r r i e d i n t o place by the F e d e r a l Reserve. We must a l s o r e e s t a b l i s h the e n t i r e purpose of the numerous branches of the Fed. That was put i n place a f t e r 'the San Franciso Earthquake and the Crash of 1907. I t was understood that there was a problem of r e g i o n a l c a p i t a l flows. To prevent a shortage of cash that l e d to bank f a i l u r e s i n some regions, each branch was autonomous th a t allowed f o r i n t e r e s t rates to be higher i n some regions. We - saw these problems i n the 1980s, where a s i n g l e n a t i o n a l i n t e r e s t r a t e s was used to stop stock market s p e c u l a t i o n that 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 there was to be a great expansion i n debt. We need to stop using a g i a n t club to stop one e f f e c t by punishing everyone. Do not f o r g e t , lower i n t e r e s t r a t e may not e n t i c e • investment (see Japan 0.1%), yet i t w i l l deprive the e l d e r l y who are one of the l a r g e s t savers, from earning an income when they no longer 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 to deal w i t h the whole problem. I f we think we can j u s t have b i g p u b l i c t r i a l s l i k e Nero d i d w i t h the C h r i s t a i n s to cover-up the buring of Rome,then we are going to have no f u t u r e . You can execute a l l those on Wall S t r e e t . 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 prosecutions f o r p o l i t i c a l purposes. The true wealth of a nation i s i t s c o n s i s t e n t Rule of Law that p r o t e c t s not merely the personal 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 f o r r e l i g i o u s purposes, then we are j u s t reducing ourselves to a Banana Republic w i t h nuclear weapons & c a p i t a l w i l l f l e e !

We need serious reform of how government operates. We need a s i n g l e agency to reg u l a t e the f i n a n c i a l markets and banking. We have to stop the buylng-off of Government attorneys and i f they are not i n t e r e s t e d i n a career, then get your experience someplace e l s e . We need i n t e g r i t y to be r e s t o r e d . We must stop the abuse of " b i g " firms i n s t i g a t i n g the government agencies to remove competitors. This i s e i t h e r going to be a n a t i o n of true l i b e r t y , or melt-down the s t a t u t e of l i b e r t y and use i t f o 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 consistent i n our treatment of a l l those w i t h i n our s o c i e t y . 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 f o r c e s that seek to gain c o n t r o l of the law to e f f e c t r e l i g i o u s o b j e c t s , we are no better, than the Taliban i n Afghanistan. True l i b e r t y and freedom i s a given that i s devine. Everyone has the free w i l l t o pray or to s i n . A s i n to one group i s not a s i n to another. There are a host of v a r i a t i o n 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 f o r courts or government to l e g i s l a t e . We must defend the r i g h t to speak f r e e l y f o r everyone, or we w i l l s i l e n c e ourselves. I t was the hatred of the Protestants a g a i n s t the Cathoics that not only tore England and I r e l a n d

71

apart, but l e d to " p r o h i b i t i o n " i n the United States to create laws t o imprison th-c a t h o l i c I r i s h and I t a l i a n s . That created the M a f i a , was responsible f o r countless deaths, untold waste of n a t i o n a 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 t h a t c y c l e s e x i s t because people j u s t get t i r e d o f the same o l d t h i n g . We have an absolute r i g h t to good honest government. That i s the b a t t l e cry o f every c i v i l war known to h i s t o r y . J u s t as J u l i u s Caesar was a man of the 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, unless we obtain honest reform, we are perhaps i n v i t i n g the Gods of War to r e t u r n . The people crave a f r e s h s t a r t , and they crave f i s c a l r e s p o n s i b i l i t y . Where are the a s p i r a t i o n s , dreams, and promises of J e f f e r s o n & Madison? Where have they^ gone?

Edward Gibbon (1737-1794) wrote a most notable epitaph i n h i s c e l e b r a t e d ' The Decline and P a l l of the Roman Empire f i r s t published between 1776 amd 1788, d e s c r i b i n g two men who ascended the C a p i t o l i n e H i l l i n Rome to survey that which remained. One remarks to the other:

"Her primeval s t a t e , such as she might appear i n a remote age, when Evander e t e r t a i n e d the stranger of Troy, has been delineated by the fancy of V i r g i l . This Tarpeian rock was then a savage and-s o l i t a r y t h i c k e t : i n the time of the poet, i t was crowned w i t h the golden r o o f s of a temple; the temple i s overthrown, the gold has been p i l l a g e d , the wheel of fortune has accomplished her

• r e v o l u t i o n , and the sacred ground i s again d i s f i g u r e d w i t 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 f o r m e r l 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 k i n g s ; i l l u s t r a t e d by the f o o t s t e p s of so many triumphs, e n r i c h e d with the s p o i l s and t r i b u t e s of so many nations. This spectacle of the world, how i s i t f a l l e n ! how changed! how defaced! The path of v i c t o r y i s o b l i t e r a t e d by v i n e s , and the beneches of.the senators are 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, or d i e leaving'behind nothing of any s i g n i f i c a n c e as the dreams th a t once f i l l e d t h i s land evaporate i n t 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 s u f f e r the suspence of truth.. C i v i l unrest and even war f o l l o w economic d e c l i n e s . The clock i s t i c k i n g . The C i v i l War c y c l e turned i n 2002. The Clash of reason i s on the h o r i z o n . I t cannot be business as u s u a l .

Indeed, i t i s only a matter of time. Marxism, s o c i a l i s m and communism are'not the a l t e r n a t i v e f o r true c a p i t a l i s m i s freedom. The "club" d i d not seek c a p i t a l i s m . They a l s o sought to c o n t r o l the f r e e markets f o r personal gain, using government. We need r e a l reform. J u s t as there must be a s e p a r a t i o n of church and s t a t e t h a t the R e l i g i o u s Right does not respect t r y i n g to manipulate the law f o r r e l i g i o u s purposes no d i f f e r e n t than the T a l i b a n , we desperately need e t h i c a l reform to stop the d e s i r e to r i g the game. Adam Smith was c o r r e c t . But keep i n mind, everyone has a s e l f - i n t e r e s t and acts upon i t . I want to preserve freedom f o r my posterty and to stop the c o r r u p t i o n that leads to l e g a l persecutions .of groups, industries., or even i n d i v i d u a l s . L i b e r t y w i l l not be known by our p o s t e r i t y unless we j u s t once, see the lessons of time and stop the l i n e a r q u i c k - f i x answers that are never a s o l u t i o n

M artin A- Armstrong Former Chairman of P r i n c e t o n Economics I n t e r n a t i o n a l ' & former Chairman of The Foundation f o r the Study of Cycles