T

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

2007,1 S
Or i s i t the
(Feb. 27, 2007)

Monetary System?

(Mar 19, 2009)

What Now?

;Mar 23, 2008)

(June 13, 2011)
1AB by M a r t i n A. Armstrong
f o r m e r Chairman o f
P r i n c e t o n Economics I n t e r n a t i o n a l , L t d ,

C o p y r i g h t R i g h t October 1 0 t h , 2008
 Dedicated t o :

Nikolai Dmyitriyevich Kondratieff

(1892 - 2938)

Who was imprisoned & executed f o r h i s

d a r i n g t o explore E c o n o m i c - P o l i t i c a l C y c l

and

my p a r e n t s M a r t i n & I d a
vho i n s p i r e d me w i t h h i s t o r y
and" the f o r t i t u d e t o e x p l o r e
 Table of Contents

Introduction 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 o f Money Supply 4
F a l l a c y o f I n t e r e s t Rates 5
F a l l a c y o f 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
t h a t perhaps ever l i v e d 7
The Lessons of Time 7

Understanding the Nature o f Time 8

D i m e n s i o n a l Time 8
The M u l t i - D i m e n s i o n a l Wave 10
Economic Confidence Model H
The 224 Year C y c l e of P o l i t i c a l Change . . . 13
4
The Shape o f t h e Wave * I
The P h a s e - T r a n s i t i o n 14
The 224 Year C y c l e Wave & The U n i t e d S t a t e s 17
The Great Convergence o f C r i t i c a l C y c l i c a l Waves ... 18
The C y c l e o f A l t e r n a t i n g P o l i t i c a l P h i l o s o p h y 20
The 37.33 Year Monetary C r i s i s C y c l e . 22
The 8.6 Year Economic Confidence Model 24
The 8.6 Month I n t e r n a l C y c l e (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 C y c l e 28
The God P a r t i c l e / C y c l e ? 29
T r u t h = t h e Rule o f 9 30
Revelation of Fibonacci 30
The M y s t e r y o f t h e Maya 31
The Concept o f S e l f - R e f e r a l 33
U n r a v e l i n g t h e 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
 R u s s i a & 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 D e r i v a t i v e s 40
Understanding the F l o a t i n g Exchange Rate System 41
The Nature o f a Debt C r i s i s 42

Wh&t &w? 43

The Paradox of S o l u t i o n 44

Comprehending t h e Problem 46
The D i f f e r e n c e Between M o n e t i z a t i o n & Borrowing .... 46
Because Government Borrowing Competes w i t h the
P r i v a t e S e c t o r - There i s an Equal & Opposite
Force of Suppressing Economic Growth i n
Proportion to Stimulation 46
I t i s Time t o 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
U n r a v e l i n g the F i n a n c i a l C o n t r a c t i o n 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 t o the D e s t r u c t i o n o f N a t i o n a l Wealth 54

The D e s i r e t o P u b l i c l y P u n i s h
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 T o o l s 57

White C o l l a r Crimes Are the Most
Abused P r o s e c u t i o n s i n F e d e r a l Courts 58

The Absence of D i s i n t e r e s t I n P r o s e c u t i o n s
Lends i t s e l f to C o r r u p t i o n 59

The M a n i p u l a t i o n o f Markets
The D i r t y L i t t l e ( B i g ) S e c r e t ' 60

So What Happened t o the Model? 66

6 7
h ululia
 The o b j e c t of t h i s t r e a t i s e i s t o demonstrate t h a t t h e r e i s s u b s t a n c e behind
the o l d adage t h a t " h i s t o r y r e p e a t s . " E v e r y t h i n g i n nature has i n r e c e n t t i m e s been
d i s c o v e r e d to f u n c t i o n mathematically conforming to what f r a c t a l geometry, c r e a t e d
by B e r n o i t Mandelbrot, can r e v e a l . During the 1970s, I d i s c o v e r e d t h a t t h e r e 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 t r a d i n g back i n cash
market days. Prom my T r a n s l u x ( p a p e r - t i c k e r - t a p e ) I c o u l d p l o t each and every t r a d e
t i c k - b y - t i c k , and even r e l a t e t h a t to volume (an a b i l i t y l o s t w i t h computer s c r e e n s ) .
I began to n o t i c e t h a t the o v e r a l l p a t t e r n t h a t 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,- e v e n t u a l l y appearing i n the weekly l e v e l and then a t
a h i g h e r l e v e l of monthly a c t i v i t y . These p a t t e r n s were extreme movements t h a t had
appeared l e a d i n g up t o major changes i n t r e n d s . I explained, to c l i e n t s e v e n t u a l l y
t h a t f o r any p a t t e r n based upon c y c l i c a l e v e n t s t o be v a l i d , i t had t o be r e f l e c t e d
throughout tame on a l l l e v e l s of a c t i v i t y . I n other words, i f t h e r e was a c y c l e o f
a u n i t o f 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 w i t h 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 l o o k i n g a t w i t h i n human b e h a v i o r . I*-began t o see t h a t
t h e r e 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 a s p e c t s to the causes behind what
became manifest i n why " h i s t o r y r e p e a t s . " F i r s t , t h e r e was the c l e a r o b s e r v a t i o n t h a t
t h e r e were p a t t e r n s of human behavior t h a t r e p e a t e d . T h i s p a t t e r n based a c t i v i t y l e d
t o 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 p a t t e r n r e c o g n i t i o n such as the work of F r o s t
and P r e c h t e r known as E l l i o t t Wave a n a l y s i s . Both sought to observe p a t t e r n s and then
p r o j e c t the f u t u r e from the past assuming t h a t t h e r e was a r e p e t i t i o n of p a t t e r n s .
Secondly, t h e r e 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 o f w h e t h e r ' i t c r e a t e d a low
o r a h i g h , boom or bust. W h e r e , f r a c t a l geometry c o u l d m a t h e m a t i c a l l y e x p l a i n how
something would u n f o l d , there was a separate and d i s t i n c t element t o t h i s h i d d e n
o r d e r than can be best d e s c r i b e d as the Geometry, of Time t h a t i s the m a t h e m a t i c a l
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 .

I n t h i s t r e a t i s e , I am concerned w i t h t h i s Geometry o f Time and how t h r o u g h

C y c l i c a l A n a l y s i s i t m a n i f e s t s w i t h i n "when" events are l i k e l y to u n f o l d l e a v i n g
f o r another day the f r a c t a l geometry of p a t t e r n r e c o g n i t i o n t h a t t r a v e l s w i t h i n
the same wave s t r u c t u r e l i k e DKA p r o v i d i n g a hidden code as to the p a t t e r n s t h a t
s h o u l d develop. The genius of Mandelbrot always a r i s e s from out o f the mainstream
because l i k e Socrates who t r i e d to prove the O r a c l e of D e l p h i wrong i n i t s . prognos-
t i c a t i o n t h a t he was the s m a r t e s t o f a l l Greeks, j u s t sometimes i t takes t h e one
l o o k i n g i n t o the forum from the o u t s i d e to see what a concensus cannot.

What I hope to accomplish i s to open the eyes to the t r u e hidden o r d e r t h a t

governs a l l l i f e , i n c l u d i n g o u r s e l v e s . We must become aware of both time and the form
o f s t r u c t u r e . We must break-away from l i n e a r thought and t o 'see t h e world t h a t i s
w a i t i n g to be d i s c o v e r e d t h a t surrounds e v e r y t h i n g . My mother always s a i d t o me t h a t
t h e r e was a "time and p l a c e f o r e v e r y t h i n g , " Her e x p l a n a t i o n o f the w o r l d t o me was
so very t r u e . 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 t h a t no man has the r i g h t to rob from another t o impose h i s p e r s o n a l
views be they p o l i t i c a l or r e l i g i o u s . I f we understand human nature and t h a t t h e r e
w i l l always be the booms and busts f o r they a r e the engine o f p r o g r e s s f o r c i n g new
advances t h a t 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 o u r
comprehension of time and space. We must not d e s t r o y o u r s e l v e s i n the t h i r s t t o
punish that what we do not understand. C i v i l i z a t i o n i s on the l i n e . So i s the r i s k '
of war. " I t i s j u s t time!" We must open our mind to see what our eyes cannot but what
our i n s t i n c t s t e l l s us e x i s t s .
f
 I t ' s J u s t Time
The Decline & F a l l of the United States?
The Global Financial System?
Or Capitalism? V Wovelengfh
8.6 5Tear C y c l e Wave
/ I \ /
/ \ / c ' W o V B
instil 1
year I n t e n s i t y W a v e / \

Or i s i t the
Monetary System? w h a t N o w ?
by M a r t i n A. Armstrong
former Chairman o f P r i n c e t o n Economics I n t e r n a t i o n a l , L t d .
C o p y r i g h t R i g h t 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'

s e t i n motion y e a r s ago t h a t are now u n f o l d i n g p r e c i s e l y a c c o r d i n g t o t i m e . The
q u e s t i o n of how t o d e a l w i t h i t , i s a s e r i o u s i s s u e . Whether t h i s i s a n a t u r a l
consequence o f the Business C y c l e , i s another important q u e s t i o n t o 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 t h a t n o t h i n g e v e r
changes, o n l y the p l a y e r s and the instruments.-

The c u l p r i t i s not merely the mortgage market. N e i t h e r i s i t e x c l u s i v e l y W a l l

S t r e e t and the Banks. I t i s a combination of blame t h a t s q u a r e l y r e s t s b o t h 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 s h o r t s i g h t e d t h a t we w i l l now j u s t
d e s t r o y our e n t i r e p o l i t i c a l economy i n quest of a q u i c k f i x ? A r e we t o y i e l d to
the r a n t i n g s o f X a r l Marx and h i s hatred of the " r i c h " t o blame the h i g h s a l a r i e s
on W a l l S t r e e t when t h a t has n o t h i n g to do w i t h c u r r e n t e v e n t s anymore t h a n huge
s a l a r i e s to s p o r t s f i g u r e s ? I f we do not h o n e s t l y examine the c a u s e s , we w i l l i n
f a c t d e s t r o y the B l e s s i n g s 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 o f freedom
merely to use c u r r e n t events as an excuse to punish the r i c h as Marx espoused. We
face major problems. The Dow Jones c o u l d f a l l to 3,500 i f C o n f i d e n c e s w i n g s t o t h e
government, or i t c o u l d go through a P h a s e - T r a n s i t i o n and reach 35,000 i f t h e swing
i s back to the p r i v a t e s e c t o r . G o l d - i s l i k e l y to go to $2,500 o r jump beyond even
$5,000. We a r e s t a r i n g i n t o a f u t u r e where the p o l i t i c a l - e c o n o m y and c a p i t a l i s m a r e
a t r i s k i n a merky c l o u d of u n c e r t a i n t y a r t i c u l a t e d o n l y by George O r w e l l 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.. P e r h a p s these
a r e the same p e o p l e whose parent t o l d them not t o s t i c k t h e i r f i n g e r i n t o the flame
of a candle because i t would burn, yet they d i d i t anyway r e j e c t i n g the l e s s o n s o f
h i s t o r y . I t i s times l i k e the p r e s e n t , where economic p a i n produces p e o p l e l i k e
H i t l e r and L e n i n . C a p i t a l i s m i s s u b j e c t to booms and b u s t s , s i m p l y because t h a t i s
the nature of mankind.
1
 C o n f i d e n c e Remains the Key

C o n f i d e n c e has always been the determining f a c t o r . I f the people t r u s t t h e s t a t e ,

the f l i g h t t o 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 s e c t o r . But i f t h a t l e v e l
o f c o n f i d e n c e should swing the other^way for_fear__of__an___abundant^supply o f bonds, t h e
swing c o u l d be v i o l e n t i n the o p p o s i t e 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 t h e
y i e l d - c u r v e t h a t provides c l u e s to the swing between P u b l i c & P r i v a t e c o n f i d e n c e .
P a r too o f t e n , the m a j o r i t y t h i n k s o n l y i n a 10 yield cur
r
l i n e a r f a s h i o n , r a t h e r than d3 namic. I f t h e r e 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 t o h i d e .
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 a s s e t s and
buy the s h o r t - t e r m debt of the s t a t e . T h i s becomes
s e l f - e v i d e n t by the y i e l d - c u r v e ( s h o r t vs long-term
i n t e r e s t r a t e s ) . As c a p i t a l f l e e s t o q u a l i t y , they
w i l l buy the s h o r t e s t 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 a n g l e . Short-term 6mo lyr 2yr ^5yr 1Djrr 3 Q y r

r a t e s move toward zero, but the l o n g - t e r m r a t e s may

remain the same or even r i s e . What i s not commonly understood, i s t h a t i f the pendulum
can swing back toward the p r i v a t e C o n f i d e n c e t h a t causes the o p p o s i t e e f f e c t s s h a r p
r i s e i n a s s e t v a l u e s i n d i r e c t p r o p o r t i o n t o the d e c l i n e i n the p u r c h a s i n g power o f
the c u r r e n c y . Tha German H y p e r - I n f l a t i o n o f 1922-23 was the c o l l a p s e of the Weimar.
R e p u b l i c , which was a,sympathic r e v o l u t i o n of workers who d e c l a r e d a .Republic November
9th, 1918 i n the aftermath of the R u s s i a n R e v o l u t i o n o f 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 c a r d s . N e v e r t h e l e s s , t h e y i e l d c u r v e
steepens f o r now w i t h short-term r a t e s dropping below 1%. However, l a s t y e a r , $400
b i l l i o n i n new debt came to the market. T h i s year, i t may be more than $1 t r i l l i o n .

P e o p l e may t h i n k 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 t h a t d e f l a t i o n can be moderated by government d e f i c i t spend-
r
i n g . But Ke3 nes was l i v i n g i n a g o l d standard e r a . Today, the d e f i c i t s p e n d i n g i s
c r o n i c , and p a r t of the problem. I n c r e a s i n g the spending t o o f f s e t the d e c l i n e works
i n t h e o r y i f money i s c r e a t e d . 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 t h a t China has been a b i g
buyer of US debt. Some argue they need t o support the US economy to keep t h e i r e x p o r t s
f l o w i n g . However, i f the economic d e c l i n e i s s p r e a d i n g l i k e a contagion, around t h e
w o r l d , we may not be a b l e to count on f o r e i g n buyers t o s t i m u l a t e the d o m e s t i c economy.
Economic t u r m o i l i s l i k e war, and a c t s l i k e a contagion s p r e a d i n g g l o b a l l y . What
happens i f the Chinese Government f a c e s r e b e l l i o n due to economics? Suddenly, t h e
n o t i o n o f the b a i l o u t does not work. We end up w i t h massive d r a i n i n g of cash f r o m
the domestic economy, or a c o l l a p s e i n P u b l i c C o n f i d e n c e t h a t swings toward P r i v a t e .

There are s o l u t i o n s t h a t are v i a b l e t o 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

i g n o r e the " r e a l " world s o l u t i o n s and t r e n d s , the g r e a t e r the d i s a s t e r w i l l become.
I t i s i n d e e d , the B i b l i c a l s t o r y of Joseph who warns o f 7 y e a r s of drought. L i s t e n ,
and we can s u r v i v e . Ignore the l e s s o n s of the p a s t , and i t w i l l be d i s a s t e r . I f the
c o n f i d e n c e swings back to the P r i v a t e S e c t o r and f o r e i g n i n v e s t o r s dry-up, t h e y i e l d -
c u r v e steepens e x p o n e n t i a l l y . 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 s h a r p l y . I f P u b l i c C o n f i d e n c e 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 b e l i e v e d the Fed c o u l d s t i l l s t i m u l a t e the economy by
l o w e r i n g i n t e r e s t r a t e s , t h i n k a g a i n . E x c e s s i v e borrowing d e f e a t s t h a t p r e m i s e 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 t h e o r y 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 t h a t they no l o n g e r work.
I t i s time f o r a s e r i o u s o v e r h a u l o f the system. I f we continue down t h i s r o a d , we
are f l i r t i n g w i t h 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 o f t r i l l i o n s coming
due i n e n t i t l e m e n t s . 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, a n d ^ e l T ~ s h a r e s " " a l l S w l a g " " d e h t s " ^ o ^ B ^ e o r g a ^ z e d - ; " I t - i s - t h e m a t i o n we-
need t o 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 F o u n d e r s
i n t e n d e d . Where i s our modern-day C i n c i n n a t u s ?
2
 The Keynesian Theory

John Maynard Keynes (1883-1946) was a B r i t i s h economist. He worked i n t h e

B r i t i s h Treasury between 1915 and 1919. H i s f i r s t work won w o r l d a t t e n t i o n i n
1919 - The Economic Consequences o f t h e Peace. Keynes o b j e c t e d 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 , t h a t ended i n 1918. Indeed, t h e r e p a r a t i o n s I s what s e t the s t a g e
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 o f A d o l f H i t l e r , by
the severe economic s u p p r e s s i o n c r e a t e d by the payments. Keynes f o l l o w e d 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 T r a c t on Monetary R e f o r m
. i n 1923, The End o f 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 a d v i s e r and a d i r e c t o r o f the Bank of England i n 1941.

N e v e r t h e l e s s , what Keynes i s t r u l y remembered f o r i s h i s G e n e r a l Theory o f

Employment, I n t e r e s t and Money p u b l i s h e d 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 s h o u l d be n o t e d , not even Keynes espoused
the r e s u l t s we now f a c e . 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 l o o k i n g at the economy as a whole t h a t i n c l u d e d 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 w h o l e ) , and the g e n e r a l
price levels tracking inflation/deflation.

We must keep i n mind t h a t Keynes wrote t h i s work i n the age o f a gold s t a n d a r d .

He d i d not, and could n o t , conceive o f the w h o l e s a l e f l o a t i n g exchange r a t e s y s t e m
t h a t we have today. The concept was too a b s t r a c t a t t h a t t i m e . We m u s t - a l s o n o t
f o r g e t t h a t 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 . H i s theory so deeply embraced by world governments t o d a y , was
t h a t 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 t a x e s and spending p r o -
grams, t o c o n t r o l and s t a b i l i z e the economy. He argued t h a t the o v e r a l l l e v e l o f
economic a c t i v i t y depends upon the " e f f e c t i v e demand" he d e f i n e d as t o t a l s p e n d i n g
by government, b u s i n e s s e s , 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 o f the Great D e p r e s s i o n i n a r a t h e r l i n e a r manner. He

b e l i e v e d t h a t the Great D e p r e s s i o n took p l a c e 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 p o s t u l a t e d t h a t d u r i n g such p e r i o d s of economic d e p r e s s i o n , i t was
the duty of the government to i n c r e a s e i t s s p e n d i n g w h i l e c u t t i n g t a x e s , or t o do
them i n d i v i d u a l l y , i n o r d e r t o s t i m u l a t e t h e economy. He. acknowledged t h a t t h i s
would c r e a t e a budget " d e f i c i t " and was c o n t r a r y t o L a i s s e z F a i r e ( l e a v e t h e market
f o r c e s t o s o r t i t o u t ) . He advocated "that d e f i c i t spending a t such a t i m e would
s t i m u l a t e the economy producing- h i g h e r 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 a c h i e v e f u l l employment. T h i s t h e o r y
was eaggerly adopted by both s i d e s of Government, c o n s e r v a t i v e and s o c i a l i s t , f o r
i t i n c r e a s e d the e x e c u t i v e powers and c a s t t h e p o l i t i c a l s t a t e as a new s a v i o r o f
the people and g i v e j u s t cause f o r p u b l i c e l e c t i o n .

The problem w i t h the Keynesian Model, i s the same w i t h Marx - i t assumes some
r o l e as a benevolent d i c t a t o r exempt from t h e s e l f - i n t e r e s t s t h a t d r i v e s t h e e n t i r e
economy as e x p l a i n e d by Adam Smith (1723-1790) i n h i s Wealth o f N a t i o n s . Once the
t h e o r y 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 s p e n d i n g , i t became l i k e
the a d i c t e d t o drugs. I once had a s e r i o u s meeting w i t h Dick Army on C a p i t a l H i l l
about the F l a t Tax. I e x p l a i n e d t h a t t h e r e a l problem was the Income t a x and t h a t we
needed to r e t u r n t o a consumption tax model f i r s t e s t a b l i s h e d by t h e F o u n d e r s . He
r i g h t l y pointed out, t h a t 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 t a x would not be a b o l i s h e d and then b o t h t a x e s would
be i n p l a c e . He i s c o r r e c t . Once the d e f i c i t spending took p l a c e , i t was .used e v e r y
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 C r o n i c d e f i c i t s became t h e
core problem. T h i s i s t h e Paradox o f 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 m i s t a k e a g a i n !

3
 FALLACY of I n f l a t i o n

Before we can even b e g i n , t h e r e are f o u r g r e a t

/ \ /INFLATION^
f a l l a c i e s t h a t 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
d i s p o s e d o f . The f i r s t f a l l a c y i s the m i s c o n c e p t i o n of
" i n f l a t i o n . " Most economists d e f i n e 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 . T h i s i s / DEFLATION.,
dead wrong!

I f you are w o r r i e d about c r a s h i n g your c a r , you buy a c c i d e n t i n s u r a n c e . I f

you are w o r r i e d about your house burning down, you buy f i r e i n s u r a n c e . I f you a r e
w o r r i e d about someone t a k i n g your v a l u a b l e s , you buy t h e f t i n s u r a n c e . But i f you
a r e w o r r i e d about d y i n g , you buy " l i f e " i n s u r a n c e ? The reason they do not s e l l
"death" i n s u r a n c e i s because most people are not c o m f o r t a b l e buying " d e a t h " i n s u r -
ance and t e l l the salesman they are not ready t o d i e . To i n c r e a s e s a l e s , they
changed the l a b e l t o i t s o p p o s i t e , c r e a t i n g the same d e c e p t i o n .

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 o f 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 i n c i d e n c e because a l l the oranges
were destroyed i n a storm, i s " i n f l a t i o n " t i e d t o t h e s u p p l y and demand and can be
t r a c e d t o t h a t event. However, t h a t narrow d e f i n i t i o n I s extended t o s h i f t the
blame from the government t o the p r i v a t e s e c t o r . When e v e r y t h i n g i s r i s i n g i n price,,
i t i s r e a l l y the d e c l i n e i n the v a l u e of the c u r r e n c y from-a p u r c h a s i n g power p e r -
s p e c t i v e . By changing the l a b e l , they s h i f t the blame. So a l r e a d y we a r e h e a r i n g
t h a t the blame i s the "greed of W a l l S t r e e t " t h a t immediately e x o n e r a t e s the
government i t s e l f . I f they a r e not the cause, what good would be s e r v e d by l o o k i n g
at government? None, of c o u r s e ! A s y s t e m i c 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 c u r r e n c y - not the r i s e i n the p r i c e o f goods and
s e r v i c e s . T h i s c r i s i s i s e f f e c t i n g the u n d e r l y i n g s y s t e m i c i n f l a t i o n a r y p r e s s u r e s
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 t o e x t e r n a l r e a s o n s . 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 o p p o s i t e s i d e s of the s c a l e . To d e f l a t e the v a l u e of t h e
currency causes a r i s e i n the c o s t s of goods and s e r v i c e s . To i n c r e a s e the v a l u e
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 .
T h i s i s the r e a l i t y of and f i n a n c i a l system.

THE FALLACY of Money Supply

The i d e a t h a t the Government c o n t r o l s the money supply i s absurd. The o n l y

t h i n g t h a t the Government can c o n t r o l i s the p h y s i c a l money s u p p l y . Beyond t h a t ,
money i s c r e a t e d by the p r i v a t e s e c t o r (1) through l e v e r a g e , and ( 2 ) by t h e v e r y
n a t u r e 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 t o r e a l i z e t h a t
i f you d e p o s i t $1,000 i n a bank and the bank l e n d s i t t o another p a r t y , b o t h w i l l
show the $1,000. I f you now l e v e r a g e t h a t through d e r i v a t i v e s , you can c r e a t e a
m u l t i t u d e of $1,000 a s s e t s .

The f a r more complex r e a l i t y of the money s u p p l y i s the e l e c t r o n i c money s u p p l y

t h a t i s c r e a t e d by c a p i t a l f l o w s 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 t o another c i t i z e n , the money s u p p l y I s not e f f e c t e d . However, i f you
s e l l t h a t same b u i l d i n g t o a European, something changes. The'European w i l l b r i n g
euros, they w i l l be converted w i t h o u t r e s t r i c t i o n by a bank i n t o d o l l a r s , and now
t h a t . $ l m i l l i o n i s given t o 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
d o m e s t i c a l l y t h a t d i d 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 c r e a t e d 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 t h e y p u t

exchange r a t e system. Consequently, money s u p p l y cannot be c o n t r o l l e d by t h e c e n t r a l

bank i n any a b s o l u t e manner under a f l o a t i n g exchange r a t e system.

4
 FALLACY o f I n t e r e s t "Rates

We are t o l d t h a t the Government can c o n t r o l the economy by r a i s i n g or l o w e r i n g

i n t e r e s t r a t e s . T h i s presumes the o l d world o f economics of f i x e d exchange r a t e s
where the k i n g (government) c o n t r o l s a b s o l u t e l y the money s u p p l y . That s i m p l y 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 l o o k w i l l now
r e v e a l t h a t i n t e r e s t r a t e s can do n o t h i n g t o cure t i e t u r m o i l . We a r e d e a l i n g w i t h
the essence o f the Economic C o n f i d e n c e Model w i t h the emphasis on " c o n f i d e n c e . " The
y i e l d curve i n t h i s i n s t a n c e w i l l steepen s h a r p l y i r r e s p e c t i v e o f p l a n of n a t i o n s .
D u r i n g economic p a n i c s , c a p i t a l w i l l i n i t i a l l y seek cover, w h i c h means i t w i l l r u n
as f a r away from u n c e r t a i n t y 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 l l a p s e to as c l o s e 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 s t o c k s . I t was pure and s i m p l e p r e s e r v a t i o n . The y i e l d c u r v e i n normal
f i n a n c i a l p a n i c s , 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 t o t h i s
s i t u a t i o n , we w i l l see a sharp i n c r e a s e from the d e f i c i t of t h e l a s t f i s c a l year t h a t
j u s t ended September 30th, 2008 w i t h about $400 b i l l i o n i n new debt o f f e r i n g s . I f
the Government had to a c t u a l l y i s s u e j u s t $250 b i l l i o n r e l a t e d t o the c r i s i s , t h i s
means the new supply of debt w i l l jump to $650 b i l l i o n at a minimum. We c o u l d 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 t a x 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
t h e r e 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 o f s t a t e economies as w e l l i n 2009.

These c u r r e n t events a s i d e , h i s t o r i c a l l y s p e a k i n g , j u s t f o r once examine 'the ;.

e v i d e n c e . During the Great D e p r e s s i o n , i n t e r e s t r a t e s c o l l a p s e d f r o m the 6% t o 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 G r e a t e s t 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
o f Europe d e f a u l t e d or suspended i t s debt. T h i s l e d t o a massive f l i g h t to q u a l i t y
t h a t caused the buying of d o l l a r s . T h i s drove the d o l l a r to new h i g h s and was not
understood back then, l e a d i n g t o the passage the Smoot-'Hawley T a r i f f A c t o f 1930.
The economic c o n t r a c t i o n was so bad t h a t B r i t a i n even cut Canada l o s e a l l o w i n g i t
t o be r e c o g n i z e d as an independent n a t i o n by the S t a t u t e o f W e s t m i n s t e r i n 193-1.
By'1932, Congress enacted the N o r r i s - L a G u a r d i a A c t , which was t h e f i r s t law t o
s u p p o r t organized l a b o r 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 t h e 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 p r o t e c t i o n i s m . T h i s f l i g h t t o the
- d o l l a r a l s o c o l l a p s e d i n t e r e s t r a t e s a t a f a s t e r pace i r r e s p e c t i v e o f the d e s i g n o f
the Government. By the abandoning of debt i n Europe, they e s s e n t i a l l y abandoned t h e
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 t h a t f o r c e d the d o l l a r t o r e c o r d h i g h s . T h i s was one o f
t h e r e a s o n R o o s e v e l t c o n f i s c a t e d g o l d and devalued the d o l l a r r e l a t i v e to g o l d i n
1934 r a i s i n g g o l d from $20 t o $35 per ounce. I f anyone t e l l s you the Government I s
i n a b s o l u t e 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 t h e y a r e t a l k i n g a b o u t .
Look at the f a c t s behind every major f i n a n c i a l p a n i c , 1837, 1873, 1893, 1907, and
1929, and you w i l l walk away w i t h a new perspective.. As l o n g as t h e r e i s a f l i g h t t o .
q u a l i t y , i n t e r e s t r a t e s w i l l d e c l i n e s h o r t - t e r m , but w i l l ' r i s e l o n g - t e r m due to t h e
massive suuply on the h o r i z o n . I f the new bonds are .sold o n l y 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 d r y i n g up p r i v a t e cash needed a t times l i k e t h i s . I n t e r n a t i o n a l
purchases w i l l b r i n g 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 o f Taxation

We have o f t e n heard t h a t R e p u b l i c a n s r a i s e d t a x e s d u r i n g the G r e a t D e p r e s s i o n .

L e t us s e t the r e c o r d s t r a i g h t . The o n l y people who p a i d t a x e s were the " r i c h " f o r
the p a y r o l l tax d i d not come i n t o p l a y u n t i l a f t e r World War 117 R a i s i n g t a x e s on
those who c r e a t e d j o b s made no sense. The f e a r s o f m a i n t a i n i n g sound money were
dominant, and t h a t i s what l e d ' to Keynsian t h e o r y l a t e r on. You cannot p u n i s h t h e
p r o d u c t i v e f o r c e s 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 D m y i t r i y e v i c h K o n d r a t i e f f (1892-1938)
t
i.fi,& ::; s5i-j v ^illfe
i s i n ray o p i n i o n the f a t h e r of modern economic s ; 1

c y c l i c a l theory. F o l l o w i n g the 1917 Russian Revo-

l u t i o n , K o n d r a t i e f f was an economic p r o f e s s o r who r^ffi%'"Sji^-ife"i! 'c.:,
^m^'iSf^i-' split*

was c a l l e d upon to c r e a t e the f i r s t S o v i e t F i v e -

Y e a r - P l a n . 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 t o come up
w i t h a program to s t i m u l a t e economic growth. I n
1926, he p u b l i s h e d h i s c o n c l u s i o n s and f i n d i n g s
i n a r e p o r t he e n t i t l e d "Long Waves i n Economic
Life."

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 t h a t would span 50-60 years i n d u r a t i o n .
He began w i t h the t i m e p e i o d of 1789 to 1926. He
saw e s s e n t i a l l y t h r e e g r e a t waves w i t h h i g h s about
1820, 1864, and 1920. Because the economy d u r i n g
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 w i t h Nikolai Dmyitrxyerich Kondratieff
r e s p e c t t o employment, the base assumption of h i s (IB9S-I83S)
work l e n d s i t s e l f t o c r i t i c i s m , but o n l y from the
s t a n d p o i n t t h a t the economy matured e v o l v i n g i n t o an i n d u s t r i a l based economy. T h i s
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 l o o k a t
the l a s t h i g h i n commodity p r i c e s of 1919 caused by World War I , we can see t h a t
the g r e a t e x p l o s i o n ' i n commodity p r i c e s between 1974 and 1980 would have been q u i t e
c o r r e c t . However, w h i l e t h e r e was a r e c e s s i o n 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
!
o f 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 l o n g e r 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 a p p l y i n g c y c l i c a l a c t i v i t y to economics i n modern

t i m e s . H i s work i n s p i r e d m y s e l f , as w e l l as o t h e r s , 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 i n n o v a t i o n o f a new product or i n v e n t i o n t h a t c r e a t e d waves of economic
p r o s p e r i t y l e d by e n t r e p r e n e u r s . He then wrote B u s i n e s s Cycles (1939) where he wrote
t h a t new developments g e 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 o f
boom and b u s t . Schumpter perhaps f e l l out of f a v o r 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 n o t i o n s t h a t I f government sought t o
reduce unequal d i s t r i b u t i o n o f income and to e l i m i n a t e business c y c l e s , t h i s would
d e s t r o y the very c o n d i t i o n s i n which e n t r e p r e n e u r s c o u l d f l o u r i s h . B i g b u s i n e s s , he
concluded, would e l i m i n a t e the e n t r e p r e n e u r s from d e c i s i o n - m a k i n g p o s i t i o n s w i t h i n
i n d u s t r y . T h i s would r e s u l t i n the d e s t r u c t i o n o f c a p i t a l i s m f o r i t would then l o s e
i t s a b i l i t y t o grow and develop, t h a t would undermine the economy and l e a d t o s o c i a l -
ism. Schumpeter taught a t 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
r e g u l a r 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 o f 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 n o n - e x i s t e n t " P e a s a n t s ' 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 e x e c u t i o n . He was first
sentenced to 8 years i n p r i f l o n . He wrote 5 new t e x t s w h i l e i n p r i s o n t h a t were never
T
p u b l i s h e d . During S t a l i n s "Great Purge," he was g i v e n a second t r i a l on September
-
17th, 1938 and sentenced t o 10 y e a r s , and then t a k e n o u t s i d e a n d s h o t a t t h e age or
46. He d i e d f o r h i s r e s e a r c h as others before him.

6
 ECONOMIC REALITY"
U R L MARX WAS THE MOST INFLUENTIAL ECONOMIST
THAT PERHAPS EVER LIVED

K a r l Marx (1818-1883) i s arguably t h e most i n f l u e n t i a l

economist t h a t 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 c o l d
hard f a c t of l i f e i s t h a t honor belongs t o Marx. I t goes w i t h o u t s a y i n g t h a t h i s
Communist M a n i f e s t o e f f e c t e d probably h a l f t h e w o r l d . But what i s o v e r l o o k e d i s t h e
f a c t t h a t w h i l e Marx was i n e x i l e i n London, he d i d happen t o have a s t e a d y j o b . That
was w r i t i n g f o r t h e New York T r i b u n e . Make no m i s t a k e about i t . Marx's i d e a s t o u c h e d
t h a t personal cord of j e a l o u s y w i t h i n human n a t u r e , and t h a t c r e a t e d S o c i a l i s m . t h a t
dominates the o t h e r h a l f o f the world-
Marx's w r i t i n g s were over more than 40 y e a r s . H i s i n t e r e s t s s h i f t e d d u r i n g t h a t
time frame and he o f t e n changed h i s mind. But h i s p o l i t i c a l p h i l o s o p h y remained v e r y
c o n s i s t e n t , d e s p i t e t h e f a c t t h a t h i s i d e a s were n o t presented i n a c l e a r documented
manner, suggesting t h a t i f : people want t o b e l i e v e , they j u s t do, even i n the' f a c e o f
an absence o f a s y s t e m a t i c coherent-scheme. Marx was welcomed w i t h open arms by t h e
American p o l i t i c i a n s and was l a r g e l y behind t h e p r o g r e s s i v e movement l e d . by, y e s , t h e
Republicans. Marx's i d e a was t h a t employers would be so cheap t h a t t h e y would e x p l o i t
l a b o r t o the p o i n t t h a t they would no l o n g e r be consumers and t h a t w o u l d c o l l a p s e t h e
core o f c a p i t a l i s m . Of course, Marx f a i l e d t o r e a l i z e t h a t a t some p o i n t a l o n g t h e
way, t h e employer would e i t h e r go broke h i m s e l f by being unable t o s e l l h i s p r o d u c t ,
or he would have t o y i e l d t o t h e f r e e markets c u t t i n g p r i c e s o r p a y i n g h i g h e r wages.

Marx i s r e s p o n s i b l e f o r almost a l l w h i t e c o l l a r crimes. The p o l i t i c i a n responded

f i r s t w i t h the I n t e r s t a t e Commerce A c t r e g u l a t i n g commerce, to p r e v e n t what Marx s a i d
would happen t h a t was n o t r e a l i s t i c . Next came t h e Sherman A n t i - T r u s t A c t t h a t a l s o
sought t o prevent t h e c o n s o l i d a t i o n o f b u s i n e s s r e d u c i n g the number o f e m p l o y e r s . T h i s
came t o be f o l l o w e d by the Income Tax i n 1909, t h a t was p o l i t i c a l l y j u s t i f i e d by
Marxism t a r g e t i n g the e v i l " r i c h " who t h r e a t e n e d c a p i t a l i s m . A l l o f t h i s l e g i s l a t i o n
was enacted and. the huge c o s t s t o t h e taxpayer t h a t i s now the a v e r a g e man, was a l l -
c r e a t e d 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 p h i l o s o p h i e s have c o s t m i l l i o n s o f l i v e s , destroyed f a m i l i e s , and s u f f e r e d
g e n e r a t i o n s t o be d e p r i v e d o f l i b e r t i e s . As you l i s t e n t o both R e p u b l i c a n s and t o t h e
Democrats, you w i l l n o t i c e , they a l l have prejudged W a l l S t r e e t b l a m i n g them and once
a g a i n r e s o r t i n g to .Marxism based p h i l o s o p h y . They a r e a n o i n t i n g a l l t h o s e who work
i n t h e f i n a n c i a l i n d u s t r y as the " e v i l d o e r s " t h a t have caused t h e c o l l a p s e .

The Lessons o f Time

F r a n c i s Bacon (1561-1626) s a i d t h a t " I f man w i l l begin w i t h 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 c o n t e n t t o begin w i t h d o u b t s , he s h a l l end
i n c e r t a i n t i e s . " The Advancement o f L e a r n i n g . The i d e a o f c y c l e s has been around f o r
a v e r y l o n g time. Even t h e h i g h l y r e s p e c t e d Roman Emperor, Marcus A u r e l i u s (121-180AD),
noted t h a t " A l l t h i n g s from e t e r n i t y a r e o f l i k e forms and come round i n a c i r c l e . "
When we look a t a c h a r t o f g o l d , s t o c k s , t h e economy, o r any commodity, we a r e l o o k i n g
at not some d i s t i n c t o b j e c t , but a t human i n t e r a c t i o n w i t h t h a t i n s t r u m e n t . G o l d does
not r i s e and f a l l by i t s e l f . The c h a r t i s showing human demand and how t h e y w i l l r u n
toward as w e l l as away from t h a t i n s t r u m e n t . When a young man d i e d i n b a t t l e , h i s
mother c r i e d whether t h a t i s today o r back i n Roman times. The u n i f y i n g t h e o r y i n a l l
forms o f f i n a n c i a l a n a l y s i s i s t h a t t h e unchanging element i s human e m o t i o n t h a t i s
the same today as i t was hundreds o f years ago.

7
 U n d e r s t a n d i n g t h e Nature o f Time

Time i s but a dimension t h a t we d i v i d e up t o mark i t s p a s s i n g . Western t h o u g h t

u n f o r t u n a t e l y i s l i n e a r , not dynamic. T h i s has been the c u r s e o f western u n d e r s t a n d -
i n g and knowledge. Time i s but a c y c l e - a c i r c l e . A s i a n s are r a i s e d w i t h t h e i d e a
of c y c l e s l e a d i n g t o a more dynamic t h i n k i n g p r o c e s s . 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 T h a t c h e r
once commented to me t h a t the C o n s e r v a t i v e s would l o s e t h e e l e c t i o n s i n G r e a t B r i t a i n
when John Major was running, she s a i d - " I t ' s j u s t t i m e . "
R i c h a r d E. Nesbett wrote a good book e n t i t l e d "The Geography o f Thought, How
A s i a n s 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 t o a
a Chinese s t u d e n t 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
t h i n k the w o r l d 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 t o quote him:

"The Chinese b e l i e v e i n c o n s t a n t change, but w i t h t h i n g s

always moving back t o some p r i o r s t a t e . They pay a t t e n t i o n
t o wide range of e v e n t s ; they search f o r r e l a t i o n s h i p s between
t h i n g s ; and they t h i n k you can't understand t h e p a r t w i t h o u t
understanding the whole. Westerners l i v e i n a s i m p l e r , more
d e t e r m i n i s t i c w o r l d ; they f o c u s on s a l i e n t o b j e c t s o r people
i n s t e a d of t h e l a r g e r p i c t u r e ; and they t h i n k they can c o n t r o l
events because they know t h e r u l e s t h a t govern the b e h a v i o r
of objects."

N i s b e t t was c o r r e c t . I have l e c t u r e d i n A s i a s i n c e t h e mid 1980s. I n o t i c e d

t h a t I d i d not have to e x p l a i n c y c l e s t o A s i a n s , 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 g e n e r a l l y l i n e a r , and has g r e a t e r 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 t a k i n g p l a c e on a dynamic l e v e l . The way
I p i c t u r e t h e w o r l d i n my mind i s a k i n t o gears i n a machine, where e v e r y t h i n g i s
connected. I f I t u r n one gear, a l l o t h e r s 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 t h e r e was a f l i g h t t o the
d o l l a r because of events i n Europe d u r i n g the Great
D e p r e s s i o n , events i n other n a t i o n s cause e f f e c t s
around the w o r l d . I t i s t h i s dynamic s t r u c t u r e
t h a t makes i t appear to the c a s u a l o b s e r v e r as
pure chaos. But t h e r e i s no such t h i n g as "chaos,
f o r i t w i l l i n f a c t be' c l e a r o r d e r below t h e s u r -
f a c e , i f you understand the n a t u r e of t i m e .

D i m e n s i o n a l Time

Time i s a dimension w i t h i n the n o n l i n e a r concept of m u l t i p l e d i m e n s i o n s . I t i s

l i k e an o n i o n t o i t s e l f . P e a l i t back 'and t h e r e i s another l a y e r . We can s l i c e and
d i c e time t o c r e a t e c o u n t l e s s l a y e r s o f o b s e r v a t i o n , and i t i s here we must r e a l i z e
t h a t c y c l i c a l a c t i v i t y can be observed, but t o a v o i d f a l s e r e a d i n g s , the t r u t h of
time i s t h a t 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 t o be v a l i d . We can
see waves i n the ocean. Most do not r e a l i z e t h a t what the wave i s by i t s n a t u r e , a
f l o w of energy t h a t come i n c y c l e s . I f you go t o the beach and move beyond t h e p o i n t
where the waves a r e b r e a k i n g , t h e 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 w a t e r i s j u s t the
"medium" through which the energy wave moves i n a t r a n s v e r s e r e l a t i o n s h i p . I n o t h e r
words, i f we took a r o p e and t i e d i t on
Transverse wave , . , - , . , , ., _ -,
. - one-end-snd-then Jwhip--the-otner__up and .
down, the wave moves t h r o u g h t h e rope,
the p o i n t s on the rope do not move w i t h
the wave.
 A c y c l e wave i s measured t r a d i t i o n a l l y
from c r e s t t o c r e s t and I s d e f i n e d as t h e
The shape of a w a v e ,
[f Wove Length "Wave L e n g t h " w i t h the v e r t i c a l h e i g h t from
the trough t o the c r e s t known as t h e degree
of " a m p l i t u d e . " T h i s i s t h e b a s i c f o r m a t i o n
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 o f
the medium be i t water, t h e e a r t h as i n an
earthquake, o f people r e f e c t e d i n a market
or economy.

I n a d d i t i o n , we can l o o k a t 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 t h a t t h e r e i s " d i r e c t c u r r e n c t " t h a t 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 " t h a t t r a v e l s t o t h e o u t l e t i n
the w a l l . "Direct Current ("DC") cannot t r a v e l d i s t a n c e f o r i f you need a s p e c i f i c
power o u t p u t , the r e s i s t a n c e i n the w i r e s 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 i n t e n d e d 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 t o c r e a t e an A l t e r n a t i n g Current ("AC") t h a t a l l o w s t h e t a r g e t u n i t t o
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 o f 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 a m p l i t u d e w i t h a 300 year wave l e n g t h . I n d e e d , i f the che
sun f u n c t i o n e d o n l y a t one temperature and i t dropped below t h a t l e v e l , t h e sun would
simply "blow i t s e l f out l i k e DC. C y c l e s 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 t o your h e a r t . I f i s why you s l e e p a t n i g h t .

WOW t h a t We Understand t h a t C y c l e s 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 a l s o understand t h a t sometimes the
f Direction of Motion
energy wave t h a t c o n s t i t u t e s " t h e c y c l e
can be T r a n s v e r s e whereas i t p u r e l y gCCC(ICCC^^
passes t h r o u g h the medium e f f e c t i n g o n l y
amplitude, w h i l e t h e r e i s a l s o much more -
^ccacarcc^^
d e s t r u c t i v e L o n g i t u d i n a l Wave t h a t causes
a temporary change I n the medium. I f we
use a c o l l e d s p r i n g and c r e a t e a c y c l i c a l energy wave t o pass t h r o u g h i t , the wave
w i l l cause the loops or c o i l s o f the s p r i n g to c o n t r a c t c l o s e r as the wave p a s s e s
i n t o t h a t r e g i o n . The c o i l s w i l l r e t u r n ' t o normal once the wave p a s s e s . T h i s can
take p l a c e where t h e r e are convergences o f v a r i o u s c y c l i c a l f o r c e s t h a t a l s o may
c r e a t e p a n i c c y c l e s or i n c r e a s e a m p l i t u d e e x p o n e n t i a l l y . In w a t e r , s a i l o r s have t o l d
s t o r i e s o f " g i a n t " or "rogue" waves t h a t appear out o f nowhere: What t h e s e a r e can
be s i m p l y e x p l a i n e d 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 a b n o r m a l l y " g i a n t " or "rogue" wave t h a t c a u s e s t h e a m p l i t u d e
Of the i n d i v i d u a l waves t o b l e n d t o g e t h e r p r o d u c i n g the hugh abnormal e v e n t . T h i s
wave i n t e r f e r e n c e i s o f t e n known as the "phase." I f two waves o f t h e same f r e q u e n c y
as measured c r e s t t o c r e s t j o i n t o g e t h e r , the a m p l i t u d e w i l l i n c r e a s e . I f the two
wave are out of "phase" t h a t i s measured I n the degrees o f 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 w i t h each o t h e r and can c a n c e l each o t h e r 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 n o t i c e d t h a t e l e c t r o n s , n e u t r o n s ; and p r o t o n s , w i l l a l s o a t t i m e s 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 r a d i o waves. Here, i t has
been d i s c o v e r e d t h a t we can combine two
waves to c r e a t e the r a d i o . We need f i r s t ,
the sound wave, and t o t r a n s m i t t h a t
sound we need a " c a r r i e r " wave. The two
are combined to c r e a t e the r a d i o wave
showing t h a t we can a l s o o b t a i n complex
wave s t r u c t u r e s .

9
 The complex s t r u c t u r e of c v c l e waves can

Pill a l s o 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 a m D l i t u ^ e o f
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 . I n
r a d i o , t h i s i s what we c a l l (Amplitude M o d u l a t i o n

j11
4 111 i -\
iii
"AM"). We know t h a t AM r a d i o 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., t h a t
i s achieved by a l t e r i n g the wave l e n g t h , known
] il as (Frequency M o d u l a t i o n "FM"). So we can see
t h a t 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 l e n g t h f r e q u e n c y .

Edward Dewey who s t a r t e d the F o u n d a t i o n f o r the Study of C3'des, was t h e

economic a d v i s o r under H e r b e r t Hoover. He came away from the Great D e p r e s s i o n
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 D e p r e s s i o n was not j u s t
a economic d i s a s t e r , i t was a l s o a n a t u r a l p e r i o d of d i s a s t e r - the Dust Bowl.
There was poor management of the s o i l , d e s t r o y i n g the n a t u r a l g r a s s l a n d s and
c o n v e r t i n g i t to wheat t h a t d i d not p r o t e c t the s o i l . T h i s 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 l e n g t h of drought - 7 y e a r s . The drought began i n 1931
and the d e s t r u c t i o n o f the a g r i c u l t u r a l i n d u s t r y t h a t accounted f o r about 40% of
a l l employment, drove the unemployment r a t e to n e a r l y 25%. The drought c r e a t e d t h e -
"dust bowl" f o r c i n g American l a b o r to become s k i l l e d . The Dust Bowl was t h e most,
s e v e r e between 19.35 and 1938, w i t h 1935 s c o r i n g 40 storms w h i l e one of the worst, took
p l a c e i n May 1934 blowing 318 m i l l i o n t o n s of s o i l t o the E a s t Coast on t h e wind.
I t was t h i s combination of c y c l e events combining weather w i t h other economic f o r c e s
t h a t 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 M u l t i - D i m e n s i o n a l Wave

Electromagnetic nature of light

Now we are ready to look at m u l t i - d i m e n s i o n a l waves. T h i s 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 I n a e l e c t r o - m a g n e t i c wave w i t h two components. The wave
t r a v e l s w i t h the e l e c t r i c and the magnetic f i e l d s t o g e t h e r , but p o s i t i o n e d s e p a r a t e l y
a t 90 angles. E i n s t e i n p o s i t e d the t h e o r y t h a t 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 t h e o r y . But t e s t s have shown t h a t
a t t i m e s l i g h t behaves l i k e a wave and a t 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 s i n c e i t i s not the s u b j e c t - m a t t e r a t hand. I t i s s u f f i c i e n t t o
s t a t e t h a t 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 t h a t a l t e r i n g the wave l e n g t h c r e a t e s 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" t h a t i s d e f i n e d by m e a s u r i n g

the wave l e n g t h . Tf we shorten the wave l e n g t h , 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 t h e body
and shorten i t even f u r t h e r we get Gamma-Rays t h a t emerge w i t h n u c l e a r r e a c t i o n s .

10
 I f we now i n c r e a s e the wave l e n g t h measured from peak t o 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 a r e i n t o the w o r l d
o f Microwaves so many people cook w i t h from the i n s i d e out and t h e n 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
t o p r o v i d e even more i n f o r m a t i o n . But as you can see, c y c l i c a l waves can be very
complex and the measurement of the wave l e n g t h can vary producing a host o f d i f f e r e n t
e f f e c t s . U s i n g the sun a l o n e , we can move from s e e i n g t h i n g s the eyes cannot c a p t u r e
w h i l e i n c r e a s i n g the wave l e n g t h s a l l o w s us t o even cook food or v i e w t e l e v i s i o n .

The Economic Confidence Model

Economic Confidence WotM

&J0?p'ffly Martin A. Armstrong

I have e x p l a i n e d many times i n the p a s t , I d i s c o v e r e d the B u s i n e s s C y c l e back

i n the 1970s q u i t e u n i n t e n t i o n a l . I have e x p l a i n e d t h a t as a youth, I was f o r t u n a t e
t o have t r a v e l l e d t o Europe i n the mid-1960s spending the summer t h e r e w i t h my
p a r e n t s . T r a v e l i n g around from country to c o u n t r y i n t r o d u c e d me t o f o r e i g n c u r r e n c y
exchange. I had o b t a i n e d a j o b i n a l o c a l b u l l i o n / c o i n s t o r e t o earn money f o r t h e
j o u r n e y and.became f a m i l a r w i t h the p r e c i o u s m e t a l s markets as w e l l . So y e a r s 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 t u r n e d on a b l a c k & white f i l m -
"Toast o f the Town." T h i s was a f i l m about the P a n i c of 1869 where the term " b l a c k
f r i d a y " was f i r s t c o i n e d , because o f a gold p a n i c , people were d r a g g i n g the b a n k e r s
out t o the s t r e e t s and hanging them. To suppress the W a l l S t r e e t r i o t , they had t o
a c t u a l l y send i n the t r o o p s . One scene showed Cary Grant as a youth g i v i n g James F i s k
( m a n i p u l a t o r ) the quotes on g o l d . He read "$162." Having worked w i t h g o l d , I knew
i t was o n l y $35. Suddenly, my l i n e a r world c o l l a p s e d . I went t o the l i b r a r y and e v e n
v e r i f i e d t h a t quote was c o r r e c t . I c o u l d not understand how something was much h i g h e r
i n p r i c e i n 1869 than today - t h a t was not l i n e a r !

11
 A t f i r s t , I e x p l o r e d my own a n a l y s i s , not e x p e c t i n g 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 d i s p r o v e c y c l e s . I n 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 a t f i n a n c i a l p a n i c s . How many were t h e r e ? Why d i d they happen? I had
gathered e v e r y t h i n g I c o u l d f i n d . I found 26 such p a n i c s between 1683 and 1907 -
a span of 224 years. I then d i d a s i m p l e c a l c u l a t i o n to determine the a v e r a g e . I t
produced the number t o be p r e c i s e l y 8.6153846615.

I began t o e x p l o r e the time s e r i e s t o t r y t o comprehend what caused them. I

c o u l d see throughout h i s t o r y t h a t n a t i o n s and .empires always rose and f e l l . There
had t o be some e x p l a n a t i o n as to why such s t a t e s j u s t e x p i r e . I began t o n o t i c e t h a t
even p o l i t i c s flowed i n a c y c l i c a l n a t u r e ; Sudden shocks e c o n o m i c a l l y seemed t o even
spread l i k e a contaigon around the g l o b e . I n o t i c e d t h a t war were s i m i l a r . I f - o n e
takes t h e American R e v o l u t i o n , 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 E u s s i a . The examples are e n d l e s s . Even
going back to a n c i e n t times, the Komans overthrew t h e i r Tarquin k i n g s i n 509BC s e t t i n g
up a R e p u b l i c w h i l e i n Athens i n 508BC Democracy was born.

My s t u d i e s l e d me t o see g r e a t waves of s t r u c t u r e d trends t h a t b u i l t i n t o

groups of 6 waves of i n t e n s i t y ( v o l a t i l i t y ) forming major waves o f 51.6 y e a r s (6x
8.6). I f u r t h e r began to see t h a t how the economyc r e a c t e d d i f f e r e n t on an a l t e r -
n a t i n g b a s i s 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 t h e
s t a t e , v o l a t i l i t y was lower almost f e u d a l inasmuch t h a t when an i n v a d e r a p p e a r e d ,
one c o u l d run behind the w a l l s o f 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
i n n o v a t i o n 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 e x p o n e n t i a l economic
advancement. For example, the l a s t 3 h i g h s 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 w i t h c i v i l war and g r e a t
expansion of government. The n e x t wave saw the boom from the r a i l r o a d s and t h e
i n n o v a t i o n of the c a r . The l a s t was a P u b l i c wave peaking i n 1981.35 m a r k i n g t h e
peak i n the New Deal w i t h e s c a l a t i n g i n f l a t i o n and p e r p e t u a l d e f i c i t s p e n d i n g . Now
we are again i n a P r i v a t e wave marked again by the g r e a t 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 o f 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 t o c o a s t .

During the e a r l y 1970s I was i n f a l l i b l e . I foresaw g o l d r i s i n g f r o m 1970 i n t o

1974 based upon the gold-bug fundamentals, and g o l d r a l l i e d from $35 t o a l m o s t $200. ;
But then g o l d f e l l back t o about $103 going i n t o 1976. The fundamentals had n o t
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 t h a t my i n f a l l i b i l i t y was dumb l u c k j u s t l i k e a broken
c l o c k i s s t i l l c o r r e c t t w i c e a day. I s o l d at the peak i n 1974 o n l y because i t f e l t
r i g h t . I t r u l y f i r s t f o l l o w e d the model a t the low and saw the e x p o n e n t i a l 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 r e q u e s t

from a w e l l known U.S. m i l i t a r y s c h o o l - the C i t i d e l a s k i n g p e r m i s s i o n to t e a c h
t h i s model i n s c h o o l . I was. compared t o G.W.F. Hegel (1770-1831) who was a n o t e d
German p h i l o s o p h e r who p o s i t e d t h a t human nature c o u l d not be u n d e r s t o o d w i t h o u t
r e t r a c i n g the f o o t s t e p s of mankind throughout h i s t o r y . I t was H e g e l 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 v a r i o u s f i e l d s b e s i d e s the s t u d y o f
p h i l o s o p h y , a r t , r e l i g i o n , s c i e n c e , and p o l i t i c s . Hegel's " d i a l e c t i c " was h i s t h e o r y
of h i s t o r y t h a t formed t h r e e b a s i c c h a r a c t e r i s t i c s ; .(1) the course o f h i s t o r y f o l l o w s
t h a t which i s necessary f o r i t cannot u n f o l d 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) t h a t one phase of h i s t o r i c a l development t e n d s
to be c o n f r o n t e d and r e p l a c e d by i t s o p p o s i t e , and t h i s i s i n t u r n r e p l a c e d by a phase
t h a t 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 t h a t 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 d i d not use those terms. While I do

1?
 not agree w i t h Hegel i n a l l a s p e c t s , u n t i l I was c o n f r o n t e d w i t h h i s work, I had
not made the c o n n e c t i o n between my o b s e r v a t i o n s o f s h i f t i n g c o n f i d e n c e between t h e
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 H e g e l . I a g r e e
w i t h Hegel .that t h e r e are g r e a t swings throughout h i s t o r y t h a t d r i v e t h e d e s t i n y o f
men. But I see t h i s a l s o as the s t r u g g l e of c o o p e r a t i o n t h a t 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 d i s c o v e r e d , g i v e the mob h o l i d a y s , f r e e
bread, and p l e n t y o f s p o r t 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
t h a t they w i l l l e a v e the Senators alone t o rob and c o r r u p t every c o r n e r o f s o c i e t y
u n t i l the mob can no l o n g e r be f e d and r e v o l u t i o n t a k e s h o l d . K a r l Marx saw t h i s
s t r u g g l e o n l y between the employers and the working c l a s s , r a t h e r t h a n between t h e
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 b e f o r e c o n t a i n s 3,141 days t h a t forms t h e

c y c l e o r c i r c l e so t o speak equal i n numer t o P i x 1000. I a l s o e x p l a i n e d t h a t
I d i d not d i s c o v e r t h i s from P i , but l a t e r d i s c o v e r e d P i i n t r y i n g t o f i g u r e o u t
i t s a c c u r a c y . I e x p l a i n e d t h a t the c y c l e was d i s c o v e r e d from a s t u d y o f t h e number
of f i n a n c i a l p a n i c s between 1683 and 1907 t h a t was a t o t a l time p e r i o d o f 224 y e a r s .
There were 26 p a n i c s w i t h i n t h a t 224 year p e r i o d t h a t produced 8.615384615. I t was
l a t e r d i s c o v e r e d 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 o f 6 p r o d u c i n g a
major wave of 51.692 years t h a t was v e r y c l o s e t o the o b s e r v a t i o n s of K o n d r a t i e f f .
I a l s o t e s t e d t h i s back i n time forming a group of 6 waves a g a i n t h a t produced t h e
major wave of 309.6 y e a r s . At t h i s l e v e l , I began t o n o t i c e the r i s e and f a l l o f
c i v i l i z a t i o n s . At a conference of the Foundation f o r t h e Study of C y c l e s , , a g u e s t
speaker S a l l y B a l b i n u s showed her d i s c o v e r y of a 300 year c y c l e i n the energy o u t p u t
o f the Sun. I t was an .average t h a t shocked me f o r i t matched very c l o s e l y t o
the 309.6 year c y c l e i n the r i s e ' and f a l l o f civilizations.

L i k e t h e c h a r a c t e r Neo i n the M a t r i x who r e a l i z e s he i s the "One" because

he can now see the code, the hidden o r d e r o f c y c l e s indeed i s everywhere from
the beat of your h e a r t , 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. F o r a c y c l e t o 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 t i m e .

In the Second A r t i c l e "The B u s i n e s s C y c l e and the Future ( P a r t I I ) " d a t e d

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 e x p l a i n e d t h a t t h e r e were 8,6 month and 8.6
week c y c l e s w i t h i n the 8.6 year wave f o r m a t i o n . J u s t 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 t i m e r i g h t i n t o
minutes. But n o t i c e t h a t the wave b u i l d s i n t o l a r g e r waves i n groups o f 6. T h i s
i n f a c t b u i l d s i n t o another g r e a t wave i n s t e a d of being 51.6 y e a r s , the g r o u p i n g
b u i l d s s e p a r a t e l y , yet s i m u l t a n e o u s l y i n t o g r e a t waves of 72 y e a r s . 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 C y c l e of P o l i t i c a l Change

The 224 Year C y c l e Frequency

In the October 10th, 1999 a r t i c l e , I r e v e a l e d what the Government was t r y i n g

very hard t o suppress - the 224 year c y c l e of P o l i t i c a l Change. I gave a r e v i e w
of numerous governments throughout time showing the r e l a t i o n s h i p o f t h i s f r e q u e n c y
to p o l i t i c a l changes. Some governments d i d not l a s t beyond t h a t time frame, w h i l e
others reformed and s u r v i v e d , a l b e i t i n a d i f f e r e n t ^ m a n n e r . There i s s t i l l t h e
e f f e c t of a p a r a l l e l wave o f grouping t h a t tends t o c r e a t e the s e l f - r e f e r a l n a t u r e
t h a t f u e l e d 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 o f which H e g e l
spoke, t h a t the o p p o s i t e system emerges. Sometimes t h e r e may be a s y n t h e s i s o f
the two p r i o r systems, but t h i s g i v e s r i s e t o the maxim t h a t h i s t o r y r e p e a t s .

13
 The Shape o f t h e Wave

One of the great misconceptions i n

c y c l e theory i s t h a t c y c l e s u n f o l d l i k e
a B e l l Curve. T h i s i s simply n o t t r u e , as
we w i l l e x p l o r e . When we c o n s i d e r the
major 224 Tear C y c l e of P o l i t i c a l Change,
we a r e c o n f r o n t e d w i t h 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 t h a t there
i s some m y s t e r i o u s " e q u i l i b r i u m " t h a t forms
a magic b a l a n c i n g a c t . This n o t i o n of a
m a g i c a l 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 p e r s o n a l e x p e r i e n c e . The. i d e a o f "supply and demand" i n h e r e n t l y c r e a t e s
images of balance from.which " e q u i l i b r i u m " seems t o have emerged. I n the r e a l w o r l d ,
one r e a l i z e d t h a t 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 t o
balance themselves on a c h a i r on the edge of a skyscramper. The i d e a o f " 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 f o u n t a i n of y o u t h . 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 S m i t h who wrote
the c e l e b r a t e d Wealth of N a t i o n s i n 1776, s t a t e s : "Nothing, however can be more
a b s u r d than t h i s whole d o c t r i n e o f the balance o f t r a d e . " (Book IV, chp I I I , p a r t I I ) .
I f t r a d e were p e r f e c t l y balanced, t h e r e would be no progress, f o r t h e advantage of
one n a t i o n c r e a t e s p r o s p e r t y i n t h a t n a t i o n t h a t can come o n l y a t t h e expense of ..
another. That does not mean p r o t e c t i o n i s m i s the answer, f o r t h a t c r e a t e s t h e dark
age w i t h no p r o s p e r i t y .
For t h i s very r e a s o n / t h a t the "shape" of t h e wave cannot a l s o , be u n i f o r m 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 l o n g p e r i o d
o f o s c i l l a t i o n s t h a t b u i l d i n t o a major h i g h , 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 u n n a t u r a l s t a t e , suddenly faces t h e 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, t h a t appears to come f r o m nowhere l i k e
a " g r e a t " or "rogue" wave of combined f o r c e i n the ocean. I t i s not a B e l l Curve.

The Phase-Transition

The reason t h e 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 & R u s s i a and the b i g
c o l l a p s e i n 1998 i n R u s s i a , i s due t o
understanding the wave s t r u c t u r e . A
system can c r a s h f r o m e x h a u s t i o n , o r
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 c r e a t e s the e x p o n e n t i a l r a l l y
such as the .Com B u b b l e . N i k k e i 1989,
or gold jumping f r o m $400 to $875 i n
about 4 weeks f o r t h e h i g h i n 1980.

The P h a s e - T r a n s i t i o n i s t y p i c a l l y d e s c r i b e d as t a k i n g water and b o i l i n g i t . A

pot o f 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 t h a t e r u p t s a t the b o i l i n g p o i n t c r e a t i n g a P h a s e - T r a n s i t i o n a s water c o n v e r t s
to steam. S c i e n c e has s t u d i e d t h i s process t h a t has r e v e a l e d the n a t u r e 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 e x p o n e n t i a l move at the
end, which we c a l l the P h a s e - T r a n s i t i o n . Some have c a l l e d these "Power Laws" t h a t
are e s s e n t i a l l y f r a c t a l s d i s c o v e r e d by Mandelbrot experiments. Some have r e f e r r e d t o
t h i s as the s c i e n c e of "chaos" y e t 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 r e q u i r e d f u n c t i o n w i t h i n n a t u r e .

14
 I t i s c r i t i c a l to understand the shape of t h e wave i t s e l f . We a r e d e a l i n g
w i t h the P h a s e - T r a n s i t i o n shape, not the b e l l curve models. The shape o f t h e
wave becomes paramount t o comprehending what i s p o s s i b l e and what i s n o t . 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 t h e
magnetic p o l e s of the e a r t h . I t was not d i s p u t e d t h a t the p o l e s move. We know
where they have been f o r when a volcano e r u p t s , the c o o l i n g magna t h a t f o r m s new
stone i s magnetized i n the d i r e c t i o n f a c i n g the c u r r e n t north p o l e a t t h a t s p l i t
moment i n time. S t u d i e s have shown from a n c i e n t rocks t h a t the magnetic p o l e s
have even traded p l a c e s many t i m e s . During some p e r i o d s , the n o r t h m a g n e t i c p o l e
became l o c a t e d a t the south magnetic p o l e , and the south magnetic p o l e became
l o c a t e d a t the n o r t h . S c i e n t i s t s have o f t e n d i s a g r e e d how the movement t a k e s
p l a c e and even why. They have found animals f r o z e n w i t h food s t i l l i n t h e i r mouth.
T h i s has r e v e a l e d t h a t the movement of the poles i s not always a g r a d u a l p r o c e s s .
The p o l e s suddenly jump f o l l o w i n g more of the c h a o t i c models a l o n g t h e l i n e s o f
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 , b u t

appears to be c h a o t i c - l i k e a " g i a n t " or "rogue" wave t h a t s i m p l y a p p e a r s w i t h o u t
warning-. I n 1999, I p u b l i s h e d the c h a r t below of the Roman Monetary System. T h i s
was c o n s t r u c t e d by t a k i n g a l l the coinage of Rome, measuring i t s w e i g h t , and t h e
m e t a l content from a p u r i t y p e r s p e c t i v e . What emerged was f a r from l i n e a r , b u t showed
'the c l a s s i c model of a P h a s e - T r a n s i t i o n . . 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 t o have emereged out o f nowhere.

o o \D rsi o L n r - m ' - i O L n ^ o i
\OCN r- rn f- CM-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 !.

C o p y r i g h t M a r t i n A. Armstrong
Above we can see' t h e monetary system of Rome between 280BC and 518AD. T h i s c l e a r l y
r e v e a l s the sudden c o l l a p s e t h a t appears out of nowhere t a k i n g shape i n the f o r m of a
P h a s e - T r a n s i t i o n . The Roman Empire peaked w i t h 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 t h a t 72 years a f t e r 180AD, we a r r i v e a t 252AD. T h i s i s where the P h a s e - T r a n s i t i o n
takes p l a c e . The monetary system c o l l a p s e s d u r i n g the r e i g n of G a l l i e n u s (253-260AD).
I d i s c o v e r e d t h i s phenomenon w h i l e c r e a t i n g a model on the Lebanese pound f o r the
U n i v e r s a l Bank of Lebanon i n t h e 1980s. The model was completed 8 days b e f o r e a P h a s e - "
T r a n s i t i o n . I came to r e a l i z e t h e model p r e d i c t e d the war because t h o s e who knew i t
was coming, moved c a p i t a l i n advance c a u s i n g the model t o see the e v e n t .
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 The t u r n i n g - p o i n t o f 252AD was r i g h t on t a r g e t 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 t a k e s p l a c e , going i n t o 268AD marked the r e i g n o f V a l e r i a n (253-260AD)
and h i s s o n G a l l i e n u s (253-268AD). V a l e r i a n was captured by the P e r s i a n s i n b a t t l e ,
and by t h e end o f G a l l i e n u s ' r e i g n , t h e s i l v e r content o f the coinage reached v i r t u a l l y
z e r o and even t h e bronze content was s e v e r e l y reduced. T h i s c o l l a p s e was p e r h a p s v e r y
s i m i l a r t o the h y p e r - i n f l a t i o n o f Germany, a l t h o u g h not t o t h a t extreme. The economic
d e c l i n e promoted p o l i t i c a l u n r e s t as r e b e l s appeared i n B r i t a i n , Gaul and S p a i n t h a t
causing them t o secede from the Empire. Once a g a i n , n o t i c e the r e p e t i t i v e p a t t e r n o f
c y c l i c a l b e h a v i o r . A g a i n , 72 years from the peak on the 224 year P o l i t i c a l Change
C y c l e i n 180AD, we come t o the monetary c o l l a p s e t h a t begins i n 252AD. The s l i g h t
r e c o v e r y d i s p l a y e d i n the c h a r t i s the Reign o f 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 -
v e n t i o n e c o n o m i c a l l y , not merely i n t r o d u c i n g a new coinage e n t i r e l y , b u t he t a c k l e d t h e
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 a s t h i n g s
appear t o change through t h e eyes of p r o g r e s s , they remain f u n d a m e n t a l l y unchanged
i n s o f a r a s how human response u n f o l d s t o s p e c i f i c g e o p o l i t i c a l and economic e v e n t s .

Even t u r n i n g back i n time before t h e death o f J u l i u s Caesar i n 44BC, we a r r i v e

a t 268BC. Note t h a t t h i s t a r g e t was d u r i n g - a p e r i o d of Roman r i s e t o power. I t was
the d e c l i n e o f E t r u s c a n power. By 275BC, Rome c o n t r o l l e d a l l o f I t a l y . From t h e t i m e s
t h a t e x i s t e d b e f o r e 268BC, we were d e a l i n g w i t h the economic c o l l a p s e o f much o f
I t a l y . The F i r s t P u n i c War took place 264-241BC, so the 268 t a r g e t was a p e r i o d o f
g r e a t p o l i t i c a l change. Rome acquired i t s f i r s t p r o v i n c e s , S i c i l y , S a r d i n i a and even
C o r s i c a . Adding 72 years t o t h i s t u r i n g p o i n t on t h e 224 year C y c l e o f P o l i t i c a l
Change b r i n g s us t o 196BC, again j u s t a f t e r the Second P u n i c War 218-201BC, where
Hannibal was d e f e a t e d i n 202BC, Look a t t h e i l l u s t r a t i o n o f the Monetary System o f
Rome. Note t h a t t h e 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,
w i t h a s i g n i f i c a n t reform i n 240BC and a g a i n a f t e r t h e Second P u n i c War.

Look even f u r t h e r back i n time, t h e 224 Year C y c l e o f P o l i t i c a l Change t a r g e t

was 492BC. Keep i n mind t h a t t h i s i s where t h e i d e a o f a r e p u b l i c and democratic
forms o f government swept the world i n a p o l i t i c a l t i d a l wave, n o t uncommon from t h e
sweeping change t h a t took p l a c e i n China immediately f o l l o w e d by t h e f a l l o f t h e B e r l i n
W a l l . Romans overthrew t h e i r monarchy I n 509BC w h i l e democracy took h o l d i n Athens
i n 508BC. T h i s was a sweeping year o f p o l i t i c a l change t h a t was i n l i n e w i t h t h e
492BC t u r n i n g p o i n t w i t h i n two 8.6 year c y c l e s .

I f we go back t o 180AD t h a t i s c o n s i d e r e d the pennacle o f t h e Roman Empire under

Marcus A u r e l i u s , moving forward we come t o the next 224 year t a r g e t i n 404AD. T h i s
was the r e i g n o f Honorius (395-423AD). Rome was even invaded and sacked by t h e people
known as the V i s i g o t h s l o o t i n g the t r e a s u r y and t h e c i t y i t s e l f . T h i s was t h e p e r i o d
of the Hun i n v a s i o n . A t t i l a d i d not become k i n g o f the Huns u n t i l 434AD. But t h e
I n v a s i o n o f the Roman Empire by the Huns preceeded A t t i l a t a k i n g t h e thrown. What i s
very i n t e r e s t i n g , i s t h a t adding 72 years t o t h e 404 t a r g e t b r i n g s us t o t h e very l a s t
Emperor Romulus Augustus (475-476 AD). D u r i n g t h i s e n t i r e 72 year d e c l i n e from t h e
404 t a r g e t , the Roman Empire was i m p l o d i n g , but f o l l o w i n g the 8.6 y e a r c y c l e and t h e
v o l a t i l i t y dimensions v e r y c l o s e l y . I n f a c t , d u r i n g the r e i g n o f V a l e n t i n i a n I I I ( 4 2 5 -
455AD), A t t i l a the Hun had become so p o w e r f u l and a r r o g a n t , he demanded i n 450AD t h a t
the Emperor g i v e him h i s s i s t e r Honoria i n m a r r a i g e . I n the E a s t , A t t l i a demanded and
obtained annual payments from C o n s t a n t i n o p l e t o a v o i d b e i n g i n v a d e d .

L o o k i n g t o the E a s t , t h a t p o r t i o n o f the Roman Empire began when C o n s t a n t i n e

decided t o move the c a p i t a l t o the a n c i e n t c i t y o f Byzantium. C o n s t a n t i n e o f f i c a l l y
d e c l a r e d h i s new c a p i t a l i n 330 AD. C o n s t r u c t i o n was a t l e a s t i n t i a l l y completed by
333AD, y e t some major landmarks l i k e t h e "Blue Mosque" was o r i g i n a l l y S t . Sophia
T
b u i l t by J u s t i n i a n I i n the 5 3 0 s known then as "Hagia S o p h i a . " N e v e r t h e l e s s , t h e
t u r n i n g p o i n t s on the 224 Year Cycle o f P o l i t i c a l Change were 333, 557, 781, 1005,
1229, and 1453. The B y z a n t i n e Empire t h u s l a s t e d from the c o n s t r u c t i o n o f C o n s t a n t i n o p l e

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 5 C y c l e Waves. I t was p r e c i s e l y on t a r g e t i n 1453 t h a t the c i t y f e l l t o t h e T u r k s
and became the new Ottoman Empire. T h i s p r e c i s e 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 o f the f a l l of Byzantium was the e n t i r e c a t a l y s t
t h a t gave b i r t h to our modern s o c i e t y .

We have o f t e n f o r g o t t e n t h a t i t was the c o l l a p s e o f C o n s t a n t i n o p l e t h a t l e d

t o the f l i g h t o f s c h o l a r s t a k i n g w i t h them a l l the books o f knowledge back t o t h e
Roman and Greek times t h a t c r e a t e d s c h o o l s i n Rome and sparked the e n t i r e R e n a i s s a n c e .
Even i n R u s s i a , i t was the f a l l of C o n s t a n t i n o p l e t h a t l e d to the f l i g h t o f s c h o l a r s
and r o y a l f a m i l y members.that c r e a t e d much of the c u l t u r e of R u s s i a . The s h e e r s c o p e .
o f the B y z a n t i n e 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 u n f o l d e d , wars, plagues, and p o l i t i c a l coups. But i t r e i n v e n t e d i t s e l f
t i m e and a g a i n . I n fact,, w h i l e C o n s t a n t i n e renamed the c i t y C o n s t a n t i n o p l e i n 330AD,
the f i r s t peak on the 224 Year C y c l e 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 p a r t y system t h a t c l a s h e d i n t o s t r e e t b r a w l s . The a n t i g o v e r n m e n t
r i o t s d i d r e a c h a c h a o t i c s t a t e i n 532AD where much o f t h e 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 , t h a t the H a g i a 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 d u r i n g t h e Great D e p r e s s i o n .

The Crusades

F i r s t Crusade 1096 - 1099

Second Crusade .... 1147 - 1149
T h i r d Crusade 1189 - 1192
F o u r t h 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 , F o u r t h , and the C h i l d r e n ' s Crusade of 1212 where thousands
of c h i l d r e n from France and Germany b e l i e v e d God would p a r t the M e d i t e r r a n e a n Sea
and a l l o w them t o walk d i r e c t l y t o J e r u s a l e m , d i e d enroute to the s e a , when t h e i r
expected m i r a c l e d i d not happen, many s u r v i v o r s r e t u r n e d i n shame, w h i l e o t h e r s t r i e d
t o get t h e r e by s h i p , were merely captured by the Muslims, and s o l d I n t o s a l v e r y i f
they d i d not p e r i s h a t sea. The so c a l l e d F i f t h Crusade (1217-1221) o n l y amounted
to the c a p t u r e o f 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 H o l y Roman Empire, (1228-1229), which f i n a l l y compelled t h e M u s l i m s t o
t o t u r n o v e r J e r u s a l e m , but they s e i z e d i t again i n 1244 t a k i n g i t away from t h e
C h r i s t a i n s . T h i s was f o l l o w e d by the Seventh Crusade l e d by L o u i s I X o f F r a n c e , who
became known as St L o u i s (1248-1254), who was captured by the M u s l i m s and ransomed.
L o u i s l e d t h e E i g h t h Crusade i n 1270 t h a t captured T u n i s , but he d i e d s h o r t l y t h e r e -
a f t e r . W h i l e t h e T h i r d Crusade was a f a i l u r e and a p r e l u d e to the F o u r t h , i t was
t h e F o u r t h t h a t began about 51.6 y e a r s a f t e r the Second t h a t f i n a l l y ended i n t h e
whole crusade e f f o r t about 72 y e a r s 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 o f c y c l i c a l

a c t i v i t y f o r m i n g d i f f e r e n t wave l e n g t h s 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 n o t e
the s t r a n g e appearance of the 72 year c y c l e t h a t i s not a harmonic o f the 8.6 year
c y c l e or t h e 224 year, yet i t f o l l o w s the 224 year c y c l e w i t h r e g u l a r i t y . T h i s I s
exposing a m u l t i - d i m e n s i o n a l c y c l i c a l wave f o r m a t i o n 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, t h a t i s even more complex, t h a t i s h a r d t o see w i t h o u t
the c o l d power o f computers - The Schema C a r r i e r Frequency.

The 224 Year C y c l e Wave & The U n i t e d States

The U n i t e d S t a t e s has a l s o h i t i t s t a r g e t i n 1999 on the 224 y e a r c y c l e from

1775. T h i s was t h a t p o i n t where one must say, " I t ' s j u s t t i m e . " I n H e g e l i a n terms,
we reached the p o i n t i n time t h a t p o l i t i c a l change and upheaval was j u s t p l a i n and
s i m p l y s t a t e d as "necessary." Of course, a l o t has happened. There was even t h e 911

17
 a t t a c k and o f course t h e r e was t h e c o n t r o v e r s i a l Bush-Gore E l e c t i o n . There w o u l d
be h a r d l y anyone who can deny t h a t t h e n a 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 uncertainty.

I t does not appear t h a t the 1999 t a r g e t on t h e 224 Year Circle i s t h e end o f

American C i v i l i z a t i o n . But i t may v e r y w e l l be t h a t p o i n t i n t i m e t h a t h i s t o r i a n s
i n t h e f u t u r e w i l l look back upon and draw the l i n e i n 1999 a s d i d Edward Gibbon
r e g a r d i n g 180AD and the peak of t h e Roman Empire w i t h the r e i g n o f Marcus A u r e l i u s .
The U n i t e d S t a t e s w i l l s u r v i v e , a l b e i t , n o t n e c e s s a r i l y as we once knew i t . There
are great convergences o f c y c i c a l waves coming t o g e t h e r f o r t h i s downturn t h a t does
not l o o k v e r y good f o r the immediate y e a r s ahead.

As I have shown, the major changes i n t h e p o l i t i c a l economy o f mankind have

f o l l o w e d t h e wave l e n g t h o f 2.24 y e a r s . The r i s e and f a l l of v a r i o u s governments and
systems have unfolded w i t h t h e 224 year i n t e r v a l s , i n c l u d i n g Democracy i n a n c i e n t
times. We cannot f o r g e t , t h a t economic s t r e s s causes i t s e l f a degree o f s i g n i f i c a n t
v o l a t i l i t y t h a t forms the f o u n d a t i o n o f change. As I wrote i n t h e G r e a t e s t "Hull M a r k e t
I n "History, d u r i n g the Great D e p r e s s i o n , members o f t h e Senate s t o o d and even made
the shocking comment t h a t 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 t o what t h e y were u n d e r -
going a t t h e time. Take away t h a t s e c u r i t y b l a n k e t , and you w i l l see t o t a l chaos
erupt among t h e masses. Below i s i l l u s t r a t e d the convergence t h a t we now f a c e .

1999 THE. "GREAT"

CONVERGENCE OF

The "Great Covergence" t h a t we now f a c e i s one o f those moments i n t i m e 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 ; e v e n t
where the blood of p a t r i o t s i s needed t o f e e d the Tree of L i b e r t y . W h i l e t h e c l e a r
h i g h i n t h e p o l i t i c a l s t a t e o f t h e U n i t e d S t a t e s took p l a c e i n 1999, t h e economic
h i g h came p r e c i s e l y t o the day on February 2 7 t h , 2007. We have w i t n e s s e d a s t e a d y
economic d e c l i n e much f o r t h e same reasons a s the d e c l i n e o f t h e Roman Empire
e x c e s s i v e l e v e r a g e , c o r r u p t i o n o f the r u l e o f law, and the c o l l a p s e o f c o n f i d e n c e
i n i n v e s t i n g . We have now reached t h e t h r e s h o l d w i t h the 37.33 year F i n a n c i a l C r i s i s
Cycle t h a t has come i n t o p l a y f o r 2008. The c l i f f on the o t h e r s i d e a p p e a r s s t e e p
going i n t o what should be a t 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 t h e 37.33 year F i n a n c i a l C r i s i s C y c l e t h a t w i l l capture t h e a t t e n t i o n
of t h e e n t i r e world economy.

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 I f we b e g i n w i t h the 224 year Cycle of P o l i t i c a l Change, we know t h a t d i v i d i n g
t h i s by 26 produces the 8.615 year c y c l e - the base core of the Economic C o n d l d e n c e
Model. However, as I e x p l a i n e d , t h e r e are 37.33 weeks w i t h i n an 8.6 month cycle.
I f we now t a k e the v o l a t i l i t y dimension w i t h 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 , a g a i n we end up w i t h 37.33. T h i s produces the f o l l o w i n g
years.

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

Of c o u r s e , 1775 marked the beginning of the R e v o l u t i o n a r y 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 M a s s a c h u s e t t s m i l i t i a . The D e c l a r a t i o n o f 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 d e c l a r e d America i n r e b e l l i o n on A u g u s t s
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 1 7 t h , 1787,, -but i t
was o n l y r a t i f i e d when t h e n i n t h s t a t e agreed, New Hampshire, on June 21, 1788. The
B i l l of R i g h t s d i d not become law u n t i l December 15th, 1791. I f we were t o b e g i n
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 t h a t t h e r e i s a 13 year d i f f e r e n c e between the 1775 and 1788 t i m e

s e r i e s . L o o k i n g 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. T h i s I s the time s e r i e s t h a t began from the b e g i n n i n g o f the R e v o l u t i o n a r y
War. I n 1812, Congress d e c l a r e d war on B r i t a i n on June 18th. The B r i t i s h i n v a d e d
the U n i t e d S t a t e s , captured Washington, DC, "and burned a l l " t h e p u b l i c b u i l d i n g s ,
on August 24th, 1814. While the war ended w i t h the T r e a t y o f 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 d e s t r o y i n g the F e d e r a l i s t P a r t y , who had f o u g h t f o r g r e a t e r
E x e c u t i v e power to c r e a t e a s t a n d i n g army. T h i s was the essence o f b i g government.
The p a r t y 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 s e c r e t meeting i n H a r t f o r d , Conn, t h a t
was a l l e g e d to support s e c e s s i o n from the union t o c r e a t e t h e i r v i s i o n o f an a u t h o r -
i 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 E n g l a n d e r s - 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 t i m e 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 " R e p u b l i c a n s . As we move i n t o t h e
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 w i t h t h e 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 a l l o w e d up
to the M i s s i s s i p p i R i v e r , t h a t was r e p e a l e d ' i n 1854. The f i r s t woman's c o l l e g e
;

began i n 1821. By 1823 t h e r e was the Monroe D o c t 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 P a r t y c o l l a p s e , New England began t o emerge
as more " l i b e r a l " i n f a v o r 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 t o o k ' p l a c e i n Rhode I s l a n d 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 t h a t same year. The P r e s i d e n t i a l e l e c t i o n became
deadlocked w i t h 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 t h e House.

Both times s e r i e s c l e a r l y p r e s e n t 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 h i l o s o p h i e s . The I n d u s t r i a l R e v o l u t i o n 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, w h i l e i t was t a k i n g p l a c e , t h e r e was
a profound t r a n s f e r of economic power. J u s t as you saw AOL come out o f nowhere
and merge w i t h 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 p l a c e
d u r i n g the I n d u s t r i a l R e v o l u t i o n . A g r i c u l t u r e was p e r c e i v e d t o be w e a l t h . Even
Thomas J e f f e r s o n when he needed money, s o l d e v e r y t h i n g but l a n d , because l a n d
was s t i l l i n s t i n c t i v e l y w e a l t h . I n 1870, about 80% o f the economy was s t i l l
a g r i c u l t u r a l based. Even by 1929, t h i s had f a l l e n t o about 40% w h i l e i t d i d not
drop s i g n i f i c a n t l y u n t i l the Great D e p r e s s i o n , the Dust Bowl, and economic h a r d s h i p
t h a t f o r c e d the d o l l a r t o r e c o r d h i g h s . A g r i c u l t u r e accounted f o r about 3% o f

19
 the work f o r c e 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
c u r r e n t economy l e a v i n g behind t h e brick-and-motor s t o r e s , the I n d u s t r i a l R e v o l u t i o n
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 l a b o r . An example o f 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 s t a t e laws, a l b e i t no l o n g e r e n f o r c e d . For example, t h e r e was a law
t h a t i f you drove down the s t r e e t i n your automatic c a r r i a g e , s h o u l d a horse be
f r e i g h t e n e d by the c o n t r a p t i o n , you were r e q u i r e d t o p u l l i t o f f t h e road. I f the
horse was s t i l l f r e i g h t e n e d by t h e new i n v e n t i o n , you were r e q u i r e d by law t o then
disassemble i t . Technology was not always embraced.

The Turning p o i n t of 1887 i n the 1775 Time s e r i e s was a l s o i n t e r e s t i n g . Marx

d i e d i n 1883, but the i d e a s 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 A n t i - T r u s t A c t t o o k p l a c e . T h i s was used t o breakup .Standard
O i l Company, American Tobacco Company, and s e v e r a l o t h e r l a r g e f i r m s not t o mention
AT&T I n our modern l i f e t i m e . There were even c r i m i n a l p r o s e c u t i o n s f o r g i v e n any
d i s c o u n t s t o volume c l i e n t s . T h i s became viewed as a d e n i a l of e q u a l p r o t e c t i o n !
The 1914 passage o f the C l a y t o n A n t i t r u s t Act t a r g e t e d 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 d e a l e r and a manufacturer t h a t b a r r e d them from
s e l l i n g a c o m p e t i t o r ' s product. These r e g u l a t i o n s were a l l M a r x i s t based. I t was Marx
t h a t 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 K e y n e s i a n i d e a s
were used t o support endless d e f i c i t spending (not what he t r u l y a d v o c a t e d ) .

The 1924 t a r g e t on the 1775 time s e r i e s was the r e a c t i o n low b e f o r e t h e huge

e x p l o s i o n of investment t h a t drove the s t o c k market i n t o the h i s t o r i c a l h i g h 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 c r a s h a f t e r
the 1929 and Great Depression e r a . The next date was 1961 on the 1775 s e r i e s saw
the i n a u g u r a t i o n John F. Kenney, t h e Bay o f P i g s i n Cuba, the s t a r t o f the Space
Race w i t h the f l i g h t o f A l a n 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 t a r g e t of 1974 marked the s t a r t of the impeachment
proceedings a g a i n s t R i c h a r d Nixon t h a t was f o l l o w e d by h i s r e s i g n a t i o n August 8 t h .
The US evacuated Vietnam on A p r i l 2 9 t h 1975.- I t was t h i s t a r g e t t h a t a l s o marked
3

the l e g a l i z a t i o n f o r American t o once a g a i n 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 t h a t these two t i m e s e r i e s p l a y
an i n t e r e s t i n g r o l e w i t h each o t h e r . I t i s hard 1775 1788
to say one i s more v a l i d t h a t the o t h e r . The phase /\
d i f f e r e n c e between 1775 ( s t a r t o f war) and 1788 / /
( s t a r t of government) o f 13 years i s a c r i t i c a l
time d u r a t i o n i n - a n d - o f - i t s e l f . We are t h e r e f o r e
l o o k i n g at 1999 and 2011 as a v e r y c r i t i c a l window i n t i m e . T h i s 13 y e a r 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 P h a s e - S h i f t . They appear t o o f f e r v e r y
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 a p p e a r s t o be
c l o s e l y r e l a t e d t o such events, whereas the 1788 s e r i e s seems t o mark more o f t h e
p o l i t i c a l changes t h a t f o l l o w .

The C y c l e o f A l t e r n a t i n g P o l i t i c a l P h i l o s o p h y

Perhaps i t i s i n h e r e n t i n human n a t u r e t h a t one g e n e r a t i o n tends t o move i n the

o p p o s i t e d i r e c t i o n o f i d e a s from the p r e v i o u s . The 1960s was such a r e b e l l i o n . But
t h i s H e g e l i a n concept o f opposing i d e a s seems t o be s h o c k i n g l y 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 d u r i n g
the C i v i l War the s l a v e owners i n t e n t upon m a i n t a i n i n g s a l v e r y . L i n c o l n was t h e more
" l i b e r a l " R e p u b l i c a n f o l l o w i n g i n t h e 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
t h a t d u r i n g ' the War of 1812, the R e p u b l i c a n s fought a g a i n s t even m a i n t a i n i n g any
s t a n d i n g Army. They looked back and saw the p r e v i o u s 224 y e a r s of Euorpe as c r e a t i n g

20
 the v e r y 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 a g a i n s t the i n t e r e s t s of the
people. The 'noted r e s e a r c h e r , Gordon S. Wood, commented on t h i s t r a i t .

"From the s i x t e e n t h c e n t u r y through the e i g h t e e n t h c e n t u r y 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 d e s i g n a t e d
boundaries and m i l i t a r y f o r c e s i n order t o wage war, and t h a t
was what they d i d through most decades of t h r e e c e n t u r i e s . T h i s
meant the b u i l d i n g of e v e r more c e n t r a l i z e d governments and t h e
c r e a t i o n of ever more e l a b o r a t e means f o r e x t r a c t i n g money and men
from t h e i r s u b j e c t s . These e f f o r t s i n t u r n l e d to the growth o f
armies, the i n c r e a s e i n p u b l i c d e b t s , the r a i s i n g of t a x e s , and
the s t r e n g t h e n i n g of e x e c u t i v e power."
R e v o l u t i o n a r y C h a r a c t e r s , What made the FOUNDERS D i f f e r e n t , Gordon S. Wood
The Penguin P r e s s 2006

Even the Second Amendment r e a s o n i n g has changed over time. The r i g h t t o 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 " R e p u b l i c a n s 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 s t a n d i n g armies. Even James Madison
shared t h i s deep concern. A s t a n d i n g army was power t h a t f e d the k i n g o r the e x e c u t i v e ,
t h a t they viewed as a t h r e a t a g a i n s t the l i b e r t y o f the people. They a l s o opposed any
form o f 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 p e o p l e by
f o s t e r i n g g r e a t e r governmental powers t o keep t r a c k o f everyone and what they earned.
The C o n s t i t u t i o n , b e f o r e the i d e a s o f K a r l Marx took h o l d i n 1909, f o r b i d any s u c h
d i r e c t t a x a t i o n r e l e g a t i n g such revenue t o i n d i r e c t t a x a t i o n . Both o f t h e s e l i b e r t i e s
t h a t J e f f e r s o n and Madison advocated, a r e e l i m i n a t e d .

Today, the R e p u b l i c a n s are t h e F e d e r a l i s t s d e s p i t e t h e i r c l a i m s o f b e i n g t h e

" c o n s e r v a t i v e " p a r t y f o r l e s s o r government. The P a t r i o t A c t e l i m i n a t e s any such
c l a i m s . What s t a n d i n g armies c o u l d not a c c o m p l i s h by i n v a s i o n , B i n Laden a c c o m p l i s h e d
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 E x e c u t i v e t o expand i t s powers. I t was
Thomas Paine's Common Sense t h a t c a p t u r e d the s p i r i t of the times and i l l u s t r a t e s
how t h e R e p u b l i c a n s of today are a h y b r i d o f what they once opposed, t h e F e d e r a l i s t s
who s t o o d p r e c i s e l y f o r g r e a t e r expanded E x e c u t i v e powers.

War "from i t s p r o d u c t i v e n e s s , as i t e a s i l y f u r n i s h e s t h e p r e t e n c e
n e c e s s i t y f o r t a x e s and appointments t o p l a c e s and o f f i c e s , become
a p r i n c i p a l p a r t of the system o f o l d governments, and t o e s t a b l i s h
any mode t o a b o l i s h war, however advantageous i t might t o be n a t i o n s ,
would be t o take from government the most l u c r a t i v e of i t s branches."
Paine Collected Writings

The Democrats a r e now the " l i b e r a l " p a r t y whose c o r e base i s New E n g l a n d . We

can see t h a t the same r e g i o n has changed n o t 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 i m p o r t a n t . The very concept o f p o l i t i c a l i d e a s a l s o go t h r o u g h c y c l i c a l t r e n d s
t h a t i s perhaps what Hegel saw i n t h e swing between o p p o s i t e s and what I saw i n t h e
s h i f t between c o n f i d e n c e 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 p e o p l e ( P r i v a t e
Wave). The i d e a s of Adam Smith s t o o d i n o p p o s i t i o n t o the P h y s i o c r a t s who were F r e n c h
p h i l o s o p h e r s . .The P h y s i o c r a t s p o s t u l a t e d t h a t w e a l t h was o n l y d e r i v e d from n a t u r e
such as a farmer, whereas.,the b l a c k s m i t h l i v e d o f f o f the wealth of the f a r m e r .
T h i s i d e a sparked the age of i m p e r i a l i s m t o c r e a t e v a s t empires g r a b b i n g l a n d t o
i n c r e a s e wealth. J e f f e r s o n was an advocate of new I n v e n t i o n s , but he was s t i l l a
f a r m e r who would s e l l a n y t h i n g he owned b e f o r e l a n d . I t was t h i s i d e a of w e a l t h
t h a t m o t i v a t e d Adam Smith t o w r i t e the Wealth o f N a t i o n s i n 1776, showing t h a t
i f a farmer and a b l a c k s m i t h both s o l d t h e i r p r o d u c t t o France from E n g l a n d , t h e n
both r e t u r n e d w i t h g o l d , which c o n t r i b u t e d t o the w e a l t h of the n a t i o n .

21
 The 37.33 Year Monetary Crisis Cycle

The 37.33 Frequency

As t h e r e are 37.33 weeks w i t h i n a 8,6 month c y c l e , t h e r e a r e a l s o 6 waves of

r
37.33 y e a r s w i t h i n . a 224 y e a r P o l i t i c a l Change C3 cle. These are t h e c y c l e s of major
economic uphevals. ^hey are l i k e a L o n g i t u d i n a l Wave i n s o f a r as t h e y s i g n a l a major
c h a o t i c p e r i o d where the u n d i s c i p l i n e d management o f 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 s e c t o r t o blame. The l a s t 4 t a r g e t s w i t h i n
the U n i t e d S t a t e s economy r e v e a l a shocking degree o f order.

The F i n a n c i a l Monetary C r i s i s Cycle 37.33yrs

1896 1934 1971 2008

The l a s t f o u r 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.

L e t us begin w i t h the 1934 event. I t was here t h a t R o o s e v e l t c o n f i s c a t e d g o l d from
the p e o p l e ending the l a w f u l ownership of gold and f o r c i n g upon t h e p e o p l e a p l a i n
paper monetary system. The g o l d s t a n d a r d d i e d as we knew i t i n 1934. He announced he
was c o n f i s c a t i n g g o l d on A p r i l 19th, 1933. This was f i n a l l y r a t i f i e d by Congress on
June 5 t h , 1933. Indeed, 1933 was the l a s t year the U n i t e d S t a t e s m i n t e d any g o l d
c o i n s as money. The new reduced s i z e F e d e r a l Reserve Notes began t o be i s s u e d i n 1934..-
The n e s t i n t e r v a l of the 37.33 year c y c l e b r i n g s us t o 1971 where on August 15th, 1971
R i c h a r d Nixon cut the t i e s t o gold completely even between n a t i o n s . T h i s was not a
new monetary system t h a t was designed by some world g a t h e r i n g as a t B r e t t o n Woods
'back i n J u l y 1944 where 44 c o u n t r i e s gathered to c r e a t e the IMF and t h e World Bank
a l s o e s t a b l i s h i n g the US d o l l a r as t h e reserve c u r r e n c y of the w o r l d .

The 1971 t u r n i n g p o i n t 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 o n l y because of a t r a d e d i s p u t e where P r e s i d e n t N i x o n c l o s e d the
g o l d window and would no l o n g e r redeem, d o l l a r s f o r g o l d f o r the F r e n c h and the S w i s s .
T h i s brought an end to B r e t t o n Woods. I t was not planned. I t was not even d i s c u s s e d
a t a major world meeting. I t was s i m p l y a trade d i s p u t e t h a t was t o be . t e m p o r a r y , but
found i t s e l f d i s t r a c t e d by o t h e r e v e n t s - namely OPEC. The f l o a t i n g exchange r a t e
system t h u s emerged. T t was not taught i n s c h o o l s . Economists d i d not know even what
t o t e a c h . T h i s was the f i r s t time a f l o a t i n g exhange r a t e system emerged w o r l d w i d e .
P r e v i o u s l y , the U n i t e d S t a t e s abandoned the gold s t a n d a r d d u r i n g t h e C i v i l War. G o l d
t r a d e d on the New York Stock Exchange i n the form of "greenbacks" t o g o l d . That l e d
t o B l a c k F r i d a y i n 1869 w i t h a r i o t as i n v e s t o r s dragged the bankers out and hung them
i n the s t r e e t s . That i s what " b l a c k f r i d a y " r e a l l y meant. The r i o t was so bad, the
Government had t o send i n troops t o suppress the chaos when g o l d h i t $162 back i n
1869. A d j u s t e d f o r i n f l a t i o n , t h a t 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 C y c l e has been e x c e p t i o n a l l y a c c u r a t e g o v e r n i n g

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 t h e U n i t e d S t a t e s . The
1971 t u r n i n g p o i n t produced a c o m p l e t e l y new type of w o r l d c u r r e n c y system by d e f a u l t .
The 1934 t u r n i n g p o i n t produced the c o n f i s c a t i o n of g o l d and the b i r t h o f a t w o - t i e r
f i n a n c i a l system, whereby g o l d was c o n f i s c a t e d 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 l o o k back to 1896, we f i n d another major c r i s i s .

22
 I n 1895, J.P.Morgan r e o r g a n i z e d d e p a r t i n g from h i s former a l l i a n c e w i t h t h e *
important P h i l a d e l p h i a f a m i l y of D r e x e l , t h a t was known as D r e x e l Morgan & Co.. I t
was i n 1895 t h a t the s p l i t c r e a t e d J.P.Morgan & Company. N e v e r t h e l e s s , the g r e a t
f i n a n c i a l c r i s i s of 1896 l e d t o J.P. Morgan g a t h e r i n g a consortium o f w o r l d banks
t o b a i l o u t the U n i t e d S t a t e s 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 g o l d shortage i n the U.S. T r e a s u r y , t h a t had
been i n s t i g a t e d by the d e s i r e t o c r e a t e i n f l a t i o n through a l t e r i n g t h e g o l d - s i l v e r
r a t i o . . By v a l u i n g s i l v e r a t a h i g h e r r a t e t o g o l d , other n a t i o n s d e l i v e r e d s i l v e r
t o the U n i t e d S t a t e s exchanging i t f o r g o l d t h a t l e d to a vast s h o r t a g e o f g o l d where
i n e f f e c t the Government c o u l d no l o n g e r 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 p o i n t t h a t marked the economic t u r m o i l . I t was t h i s v e r y

t a r g e t year when W i l l i a m J e n n i n g s 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 o f t h i s n a t i o n and t h e w o r l d ,

supported by t h e 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 g o l d s t a n d a r d by s a y i n g t o them;
You s h a l l not p r e s s down upon the brow of l a b o r t h i s crown o f t h o r n s ,
you s h a l l not c r u c i f y mankind upon a c r o s s o f g o l d . "

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 t o 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 a t the request of farmers and s i l v e r m i n e r s . Those l o b b y groups f o u g h t
h a r d and t h e i r o v e r v a l u a t i o n of s i l v e r drove g o l d to Europe b a n k r u p t i n g the f e d e r a l
Government.

What does t h i s c y c l e s u g g e s t f o r 2008? U n f o r t u n a t e l y , t h i s i s a monetary

c r i s i s c y c l e of major p r o p o r t i o n s . When i t comes i n t o p l a y , 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 I n t o the
w o r l d of a one-currency system based upon the r e c e n t model - t h e Euro. The
spread of the economic chaos around the world w i l l p r o v i d e the i n c e n t i v e t o
make t h i n g s 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 t h e name w i l l
change from "Brenton Woods" t o perhaps the'new Treay of P a r i s . I see no o t h e r
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 " g r e e d " of W a l l S t r e e t i n i s o l a t i o n ,
we are a l s o dealing, w i t h the v a s t debt s t r u c t u r e t h a t was c r e a t e d by e n d l e s s
p o l i t i c a l promises. We w i l l not go back t o t h e g o l d s t a n d a r d . F o r Smith
was c o r r e c t , the w e a l t h o f a n a t i o n was i t s p e o p l e and p r o d u c i v e c a p a c i t y . But
make no m i s t a k e , i t i s a l s o the Rule o f Law. I f c a p i t a l cannot be s e c u r e i n t h e
t i t l e to p r o p e r t y and enforcement of r i g h t s - i t s i m p l y l e a v e s :

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 n o t . The d o l l a r

remains l e g a l tender s i n c e i n c e p t i o n . I n Europe, a l l n a t i o n s c a n c e l l e d c u r r e n c y
pre-Euro every 20 years o f so. There may a l s o be the r e e s t a b l l s h m e n t o f a t w o - t i e r
c u r r e n c y system where the one-world currency s e r v e s between n a t i o n s , and the l e s s o r
domestic v e r s i o n p r o v i d e s f o r c i t i z e n s . T h i s would a l l o w more f l e x i b i l i t y t o do the
d e f a u l t on domestic o b l i g a t i o n s c o v e r i n g i t w i t h new c u r r e n c y . D u r i n g t h e 1870s, t h e
U n i t e d S t a t e s 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 w i t h the Trade D o l l a r t h a t was 1 t r o y ounce o f
s i l v e r w h i l e domestic s i l v e r d o l l a r s were about t w e n t y - f i v e p e r c e n t l e s s . South
A f r i c a a l s o had a two t i e r c u r r e n c y , 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
s e t t l e m e n t s . A t w o - t i e r i s now p o s s i b l e .

The 37 33 Year Monetary C r i s i s C y c l e t a r g e t f o r 2008 appears t o be a s e r i o u s

t a r g e t t h a t w i l l s e t i n m o t i o n a/cascade of changes t h a t - s h o u l d p l a c e s t r e s s upon
the world economy going i n t o 2011. The h i g h dependency upon f o r e i g n c a p i t a l t o fund
the US debt, w i l l a l s o tend t o dry up f o r c i n g g r e a t e r m o n e t i z a t i o n o f t h e debt and
the i n e v i t a b l e c o l l a p s e of the f l o a t i n g r a t e system by as e a r l y as 2011 i f we g e t
past 2008. .
 The .8.6 Year Economic Confidence Model

1589.9S 2DB7,f

. 1994.25 20iO'2J85 2011 A'S

C o p y r i g h t M a r t i n A. Armstrong a l l r i g h t s reserved

To the shock o f many, d e s p i t e 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 c u r r e n t 8.6 year C y c l e Wave. So much f o r those who argued t h a t t h e o n l y
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 .

T h i s 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 t h a t drove the d o l l a r i n t o r e c o r d h i g h s f o r 1985. The B r i t i s h pound f e l l to
$1.03 on the major low. T h i s was the b i r t h ' of the G-5 (Group of F i v e now E i g h t )
whereby n a t i o n s gathered t o g e t h e r to c o o r d i n a t e 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. T h i s i s when I wrote the P r e s i d e n t Reagan
warning t h a t you cannot manipulate the economy t o c r e a t e a r t i f i c i a l o b j e c t i v e s .
The C h i e f Economic A d v i s o r Mr. S p r i n k l e wrote back t h a n k i n g me f o r the a d v i c e , but
s t a t i n g t h a t u n t i l someone e l s e had a model to s u p p o r t my warnings o f a sharp r i s e
i n v o l a t i l i t y , they c o u l d not r e l y upon o n l y one model. When the next t u r n i n g p o i n t
c r e a t e d the v o l a t i l i t y from w o r l d f o r e i g n exchange markets m a n i f e s t i n g 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 u r g e n t l y c a l l e d a s k i n g f o r what would happen now? A m a z i n g l y , 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 p o i n t
p i n p o i n t e d the Tokyo peak t h a t .December, and the c o l l a p s e i n t o 1994.25 marked the
p r e c i s e day o f the low f o r the S&P 500 t h a t year b e g i n n i n g the b u l l market t h a t has
reached a h i g h 13 y e a r s l a t e r i n 2007.15 (February 2 7 t h ) . But then we a l s o have the
1998.55 t u r n i n g p o i n t t h a t produced the h i g h J u l y 20th w i t h the c o l l a p s e of R u s s i a
and the r e t e s t of support f o r 2002.

We must r e a l i z e t h a t t h i s model i s a g l o b a l model. I t n o t based e x c l u s i v e l y

upon the US economy, markets or events. T h i s r e f l e c t s the " c o l l e c t i v e " b e h a v i o r
of mankind throughout the ages. I f we l o o k a t the 198Q.95 t u r n i n g p o i n t , i t i s
t r u e t h a t t h i s p i n p o i n t e d the major a l l time h i g h i n the N i k k e i 225 as w e l l as
the Japanese economy. However, t h i s a l s o marked the end o f communism as we knew
i t . In China, we saw Tiananmen Square on June 3 r d - 4 t h 1989 f o l l o w e d by t h e f a l l
of the B e r l i n W a l l 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 i d e a s o f mankind to d e f i n e d and
d i s t i n c t p e r i o d s . I t i s l i k e h o l d i n g your arm i n the a i r . I t i s no p r o b l e m , but
keep i t t h e r e . Suddenly you cannot h o l d your arm up any more i t I s j u s t too
heavy. T h i s model r e f l e c t s a s i m i l a r nature that' no m a t t e r what i t i s , t h e r e i s
a l i m i t to s u s t a i n i n g any t r e n d . T h i s i s what Margaret Thatcher s a i d t o me - the
C o n s e r v a t i v e s would l o s e because " I t i s j u s t t i m e ! "
 E c o n o m i c Oodi&J.eriLce Modle3
(C) C o p y r i g h t M a r t i n Armstrong

2015.75 2024.35

We have now c r o s s e d t h a t peak i n the c u r r e n t wave 2007.15 ( F e b r u a r y 2 7 t h ,

2007). we can see t h a t the Economic Confidence Model p r 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 l o n g a f t e r I am gone as i t d i d l o n g b e f o r e I was
born. These 8.6 year waves t h a t r e f l e c t the B u s i n e s s C y c l e a r e 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 t h a t y e a r . F o r example, 2015.75 produces (.75 x 365)
t h a t i s 273.75 days i n t o t h a t year = October 1 s t , 2015. The low f o r t h i s c u r r e n t
economic devacle s h o u l d be 2011.45 = June 13th, 2011.

The minor mid wave t u r n i n g p o i n t s break down as the f i r s t l e g b e i n g 2.15 y e a r s

or a q u a t e r of the 8.6 year wave. The next q u a r t e r wave i s t y p i c a l l y b r o k e n i n t o
h a l f a g a i n c r e a t i n g two 1.075 year waves. We can see t h a t i n t h e c u r r e n t wave, t h e
mid-wave t u r n i n g p o i n t s were 1008.225 (March 23, 2008) and 2009.3 (March 1 9 t h , 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 p o i n t s t o t h e day as i s t h e
case a t the major t u r n i n g p o i n t s . T h i s i s due t o t h e f a c t t h a t i n t e r n a l l y t h e r e 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 t h a t c o n s t i t u t e 6 waves w i t h i n
each l e g of t h e 8.6 year c y c l e . A g a i n we see the s t r u c t u r e f o l l o w i n g g r o u p i n g s o f
6 u n i t s . T h i s 8.6 month l e v e l o f a c t i v i t y c o n s i t u t e s 37.33 weeks. There i s y e t
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 b e l i e v e i t o r not seconds.

The hidden o r d e r does not end t h e r e . T h i s i s l i k e a Mandelbrot s e t o f j u s t

amazing o r d e r of p a t t e r n s r e p l i c a t i o n the same p a t t e r f r o m one l e v e l o f t i m e t o
the n e x t . S t i l l , we w i l l a l s o s h o r t l y e x p l o r e how the i n t e r a c t i o n o f t h i s c o r e
frequency I r e f e r t o as the Economic Confidence Model, w i t h the g r o u p i n g c y c l e
t h a t causes the s e l f - o r g a n i z i n g p a t t e r n s o f i n t e n s i t y ( v o l a t i l i t y ) . F o r example,
t a k i n g t h e major h i g h of the l a t e r 51.6 year P u b l i c Wave, 1981.35, adding t h e
the f i r s t wave of 6 y e a r s , we a r r i v e a t 1987. T h i s i s what caused t h a t u s u a l l y
minor t u r n i n g p o i n t t o produce the p r e c i s e date f o r the 1987 c r a s h , 1987.8 ( O c t .
19th, 1987). The next time t h i s 6 year wave l i n e s wup w i t h the 8.6 year w i l l be
2011. U n l e s s we understand time, we w i l l be c o m p e l l e d t o r e p e a t h i s t o r y a g a i n .

25
 The 8.6 Month I n t e r n a l C y c l e (37.33 Weeks)

2007.146

I8.6 Month I n t e r n a l C y c l e
W i t h i n t h e 8.6 Year C y c l e

r-t o
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CM
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o A o
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CM CM CM

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CM
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ACM

2002.85 "2011.44

C o p y r i g h t M a r t i n A. Armstrong 2008

There a r e 37.33 weeks w i t h i n a 8.6 month c y c l e . L o o k i n g a t t h e 8.6 month

t u r n i n g p o i n t s w i t h i n t h e 8.6 j^ear wave s t r u c t u r e , we have t h e f o l l o w i n g dates:

2002.85 11/6/02 2007.86 11/10/07

2003.56 07/23/03 2008.57 07/27/08
2004.28 04/12/04 2009.29 04/16/09
2004.99 12/27/04 2010.01 01/04/10
2005.71 09/16/05 2010.726 09/22/10
2006.43 06/06/06 2011.44 06/10/11
2007.146 02/23/07

Note we have 6 waves w i t h i n ' each h a l f o f t h e 8.6 year wave. T h i s i s caused

by t h e p a r a l l e l wave that, groups 12 waves o f 6 i n t o t h e 72 i n t e r v a l wave. We can
see t h a t t h e d i f f e r e n c e between 2008.57 and 2009.29 i s a g a i n .72% o f a y e a r . Once
more we see t h e i n t e r j e c t i o n o f t h e number 72.

The i n t e r a c t i o n between t h i s 8.6 month c y c l e 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 t h e 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 a s p e c t s
of our p h y s c i a l w o r l d . 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 t h e j o r m a

h i g h a t 2007.15 i s 2008.225 c o r r e s p o n d i n g t o March 23rd, 2008. You w i l l n o t i c e

t h a t t h i s date does not appear on t h e l i s t o f dates above. T h i s t u r n i n g p o i n t was
the low f o r the AMEX O i l Index, from which a r a l l y moved i n t o May 2 1 s t , 2008 j u s t
a f t e r w a r d s . Many commodities reached t u r i n g p o i n t s p l u s or minus 1 week from t h e
March 23rd t r a g e t such as c a t t l e , sugar, c o f f e e , c o t t o n , wheat, and soybean o i l
j u s t t o mention a few. When we compare the 8.6 month c y c l e (37.33 weeks), we see
the t a r g e t o f J u l y 27th, 2008. Here we f i n d a g a i n t u r n i n g p o i n t s g e n e r a l l y p l u s
or minus 1 week o f so. The A u s t r a l i a n d o l l a r reached a h i g h on J u l y 1 5 t h , 2008 f o r
the year. The Mexican peso peaked August 4 t h . The Euro peaked on J u l y 1 5 t h . Now
i f we l o o k a t the Swiss f r a n c , t h e h i g h was March 1 7 t h , 2008, t h e h i g h I n t h e
Japanese yen was a l s o March 17th, 2008. L e t us now t u r n t o t h e B r i t i s h pound, h e r e
the h i g h i s November 9 t h , 2007 and t h e Canadian d o l l a r peaked November 7 t h , 2007.
Looking a t t h e above l i s t o f 8.6 month d a t e s , we s e e November 1 0 t h , 2007.
26
 3/23/08 7/27/08 11/10/07
AMEX O i l Index Australian B r i t i s h POUND
Cattle Mexican peso Canadian $
sugar EURO NASDAQ 100
coffee Swiss f r a n c
cotton FTSE 100 Index
wheat DAX Index
soybean o i l S&P Midcap 400
R u s s e l l 2000
N a t u r a l Gas & Crude O i l

Those markets or i n d e x i n d i c a t o r s t h a t have peaked with the 2007-15 major

wave t a r g e t was the NIKKEI 225 s t o c k index i n Japan, t h a t reached i t s h i g h on
February 26th, 2007 a l o n g w i t h the debt markets and the US-economy. T h i s i s n o t
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 c a u s i n g a massive
s e l l i n g o f f o r e i g n investments t h a t w i l l d r i v e the yen to ne h i g h s a g a i n . E x c e e d i n g
the h i g h s 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 h i g h , but t h i s peaked on the *.6 month c y c l e on Oct.
11th 2007, j u s t shy o f the 11/10/07 t a r g e t . Japan w i l l be a key t o watch i n 2009.

The 37.33 Month C y c l e Frequency

I n "The B u s i n e s s C y c l e and the F u t u r e ( P a r t I I ) " , I p r o v i d e d t h e 37.33 month

f r e q u e n c y i l l u s t r a t i n g t h a t t h e r e were 37.33 weeks w i t h i n the 8.6 month c y c l e , but
I a l s o p o i n t e d 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 p o i n t s o f t e n 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, u s i n g the breakout h i g h of 1997 i n the NASDAQ 100

i n January o f t h a t year p r o j e c t s a h i g h f o r March 2000. L o o k i n g
a t the J u l y 1998 major h i g h t h a t c o i n c i d e d w i t h the model p r o j e c t s
a low f o r September 2001 w i t h high v o l a t i l i t y . The n e x t t u r n i n g
p o i n t would be p r o j e c t e d from the J u l y 1999 h i g h b r i n g s us t o
September 2002 f o r a p r o b a b l e major low at t h a t t u r n i n g p o i n t . "

Of course we do not have t o go i n t o what happened f o r the September 2001 t a r g e t

w i t h the h i g h v o l a t i l i t y . That seems t o be i n l i n e w i t h the model'. What we must come
t o understand t h a t time i s merely a dimension t h a t can be s l i c e d up very n i c e l y . The
key t o t h e v a l i d i t y of any c y c l e frequency i s t h a t t o 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 e q u a l to 3.11 y e a r s . T h i s a l s o i s v e r y c l o s e t o P i

being 3.141. To show the hidden order, I w i l l f o r the f i r s t t i m e p u b l i c l y o r 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 p r e v i o u s wave 1998.554298. Add P i i n
terms of y e a r s and months 3.141. T h i s 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 t o September 11th,
2001. So much f o r the CFTC c l a i m i n g t h a t my f o r e c a s t s m a n i p u l a t e t h e w o r l d 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. F o r 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 M a t r i x . 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 t o 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 R u s s i a i n 1998, w h i c h was c o v e r e d by t h e
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 t h a t f o r e c a s t i n London,
the CIA c a l l e d t h e o f f i c e . They r e c o g n i z e d 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 t o run any s t u d y
they might l i k e from P r i n c e t o n . 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 e v i d e n t , the model c o u l d p i c k up g e o p o l i t i c a l events because t h e y a r e p r e c e e d e d
by economic e v e n t s . I c r e a t e d a model f o r the U n i v e r s a l Bank o f Lebanon, t h a t i n d e e d
p r e d i c t e d the war because those who knew, a b n o r n a l l y moved c a p i t a l c h a n g i n g t h e . f l o w s .
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 C y c l e

For decades I have e x p l a i n e d t h a t 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
t h a t i n t u r n b u i l d - i n t o 6 waves o f 309.6 y r s .
I have not b e f o r e e x p l a i n e d why t h i s i s so.
J u s t as the e l e c t r o m a g n e t i c 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 t o be m u l t i d i m e n t i o n a l beyond what the
mind can see a t f i r s t b l u s h . The o r g a n i z i n g
p a r a l l e l wave t h a t c r e a t e s the grouping and
produces the i n t e n s i t y ( v o l a t i l i t y ) , u n f o l d s
not as a d e r i v a t i v e o f 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 u n i t s o f time. These b u i l d up I n t o a

l a r g e r wave o f 72 t h a t f l o w s at t w i c e the f o r m a t i o n o f the Economic C o n f i d e n c e
Model. The u n i t of 6 i s t r a n s f e r r e d t o the 8.6 year wave c a u s i n g i t t o group i n
f o r m a t i o n o f 51.6 y e a r s . But t h i s does not d i s t u r b 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 t h a t 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 t o 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.

T h i s was i l l u s t r a t e d w i t h the 224 year Cycle t h a t i s a d e r i v a t i v e of t h e

8.6 frequency. A f t e r every 224 y e a r s , we see a 72 y e a r c a t a s t r o p h y t h a t a p p e a r s
to come u n r e l a t e d t o the 8.6 year or.224 year c y c l e s , inasmuch as i t i s m e r e l y
a d e r i v a t i v e of the 8.6 year wave. I f we b e g i n w i t h the l a s t peak on the 51.6
year Economic Confidence Model we can see a g a i n 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 t h a t i f we use the h i g h (1981.35) and the low (1985.65) o f the l a s t 51.6
year Economic Confidence Model t h a t marked the h i g h 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 F i v e N a t i o n s ) t o c o o r d i n a t e g l o b a l economic m a n i p u l a t i o n 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 o n l y the I n t e n s i t y C y c l e u s i n g
the u n i t of 6 y e a r s , we a r r i v e a t the 1987 c r a s h , the 1999 low i n g o l d , and numerous
other t u r i n g p o i n t s , w i t h the i n t e n s i t y once again p o i n t i n g t o 2011. We can see
a l s o 2009, but t h i s should p r o v i d e t h e r e a c t i o n h i g h t h a t may form d u r i n g t h e f i r s t
or second week of March o f t h a t year. However, we can see t h a t 2011 i s coming up
on numerous waves t h a t are independent, s u g g e s t i n g very s t r o n g l y t h a t we a r e i n d e e d
f a c i n g 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 n a t u r e of t h i s wave. T h i s
r e q u i r e s f a r more_complex math t h a t i s f r a c t a l based t h a t c r e a t e s the s e l f - r e f e r r a l
to r e p l i c a t e c o n t i n u a l p a t t e r n s of o r g a n i z a t i o n .

28
 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 s e a r c h i n g f o r the
J / j u n i f y i n g t h e o r y and have s u r m i s e d t h a t j u s t
s i m p l y s t a t e d , there must be a m y s t e r i o u s
p a r t i c l e t h a t e x i s t s t h e y have c a l l e d the
"God P a r t c i l e . " Whether t h i s i s t h e same
t h i n g , I am not e n t i r e l y sure. Perhaps i t i s a c o i n c i d e n c e . But what I can s a y , i t
p r e s e n t s an i n t e r e s t i n g s u b j e c t f o r debate t h a t i s more r e a l w o r l d t h a n the Da V i n c i -
Code.

The "Born-Again" C h r i s t i a n s or F u n d a m e n t a l i s t s have been l o o k i n g f o r t h e s i g n

o f the Second Coming o f C h r i s t based upon the s t o r y o f the A p o c a l y p s e found i n the
R e v e l a t i o n s o f the New Testament s a i d t o have been w r i t t e n by S a i n t John the D i v i n e
w h i l e he was i n e x i l e i n the I s l e of Patmos. A s i d e from the f a c t t h a t t h i s book has
been the most w i d e l y d i s p u t e d f o r hundreds of y e a r s l e a d i n g even S a i n t Jerome t o so
d e c l a r e t h a t i t was s u b j e c t t o 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 c o n t r o v e r s y 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 o f h i s name, 666, i s a r e f l e c t i o n o f t h e o l d
number systems. Before the i n t r o d u c t i o n o f 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 a l p h a b e t composed of p u r e l y l e t t e r s , s e r v e d
a l s o as the number system. For example, A - J would r e p r e s e n t 1 t o 9, K=10, L=20, M=30,
N=40, 0=50, P=50, Q=70, R=80, S=90, T=100, U=200, V=300, W=400 and so on. . I t . was
the Romans t h a t c r e a t e d numerals t h a t were s p e c i f i c l e t t e r s t o r e p r e s e n t numbers as
IZ=9, 1=10, 11=11 f o r example. T h e r e f o r e , what i s meant by the p h r a s e t h a t we s h a l l
known someone by the number of t h e i r name i s t o use the o l d system a s s i g n i n g a v a l u e
t o each l e t t e r i n a name and adding them up.

The reason I have chosen t o r e f e r t o t h i s p a r t i c u l a r c y c l e as t h e "God C y c l e "

i s not t o 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 t h e f r e q u e n c y o f
t h i s c y c l e seems t o be extremely profound both i n the a c t i v i t i e s o f man and n a t u r e .
I t .happens t o match, a l b e i t perhaps by c o i n c i d e n c e , the n u m e r i c a l number i n Hebrew
f o r the name o f God - "Jehovah" t h a t i s i l l u s t r a t e d i n a n c i e n t Hebrew above. I n
hebrew t h a t reads i n the o p p o s i t e d i r e c t i o n , i t i s "He Vau He Yod" t h a t we t r a n s l a t e
to e n g l i s h as "Yod-He-Vau-He" making t h e word "Jehovah."

J u s t about everyone knows the "666" omen, but s t r i k i n g l y , most do n o t know the
number of the name the Jews gave t o God - "Jehovah." I f we use the o l d Hebrew s y s t e m
we can f i n d the number of God. Yod = 1 0 , He = 5, and Vau = 6. T h e r e f o r e , the name
o f God i n Hebrew He Vau He Yod equals 5 + .6 + 5 + 10 = 26. The number o f the name
assigned t o God by the Jews i s 26.

I e x p l a i n e d t h a t I d i s c o v e r e d the 8.6 year c y c l e by adding up the t o t a l number

o f f i n a n c i a l p a n i c s between 1683 and 1907, which c r e a t e d a time-space o f 224 y e a r s .
I found t h a t t h e r e were 26 f i n a n c i a l p a n i c s and then d i v i d e d t h a t i n t o the 224 y e a r s
to o b t a i n an average. That produced the 8.6 year frequency. Only when i t began t o
p r o j e c t t o s p e c i f i c days, then I decided to study much deeper. There . i s , t h e f a c t
t h a t I t appeared t o be i n t e r i c a t e l y complex r u n n i n g c o n c u r r e n t w i t h c o u n t l e s s o t h e r
c y c l i c a l behavior be i t n a t u r a l or man h i m s e l f i n a s o r t o f 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 o u t p u t o f e a c h and
e v e r y l t e r a t i o n becomes the i n p u t f o r the next g e n e r a t i o n p e r p e t u a t i n g p a t e r n s o f
o r d e r i n such a dynamic, s t r u c t u r e , t h a t one cannot see the order o f the whole f o r
the mask of s u p e r f i c i a l chaos. There s i m p l y i s y e t a s e p a r a t e and d i s t i n c t c o r e
frequency of 26 running, through the c e n t e r o f the f i e l d c a u s i n g n o t merely P h a s e -
T r a n s i t i o n s , but a l s o P h a s e - S h i f t s and P h a s e - C a n c e l l a t i o n s when two c y c l e s i n d e e d
c o l l i d e of equal yet o p p o s i t e f o r c e s .

29
 1929 - 1955 - 1981 - 2007

The above sequence o f dates p r o v i d e s a s i m p l e demonstration o f t h e i n t e r e s t i n g

r e l a t i o n s h i p o f 26 t o t h e Economic Confidence Model. The h i g h on t h e l a s t P r i v a t e
51.6 y r Wave was 1929.75. I f we s i m p l y take the annual count of 26, we p r o d u c e t h e
above time s e r i e s . The g r e a t expansion of U.S. debt began from the 1955 post-war
t a r g e t where spending w i t h o u t r e g a r d t o m a i n t a i n i n g t h e r a t i o t o g o l d may s a f e l y be
d e f i n e d a s t h e s t a r t o f t h e perpetual,.spending. The next t a r g e t 1981, was t h e h i g h
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 a n d t h e open
b a t t l e a g a i n s t i n f l a t i o n . T h i s b r i n g s us t o 2P07, where the model has c o r r e c t l y g i v e n
the h i g h 2007.15 t h a t t a r g e t e d t o t h e day, the s t a r t o f t h i s economic d e c l i n e .

P r e v i o u s l y , we l o o k e d a t two time s e r i e s , one beginning from 1775 m a r k i n g the s t a r t

of t h e American R e v o l u t i o n , c o n t r a s t e d w i t h 1788 t h a t marked t h e b e g i n n i n g o f t h e
f e d e r a l government w i t h 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 t h e s e two s e r i e s ,
i s h a l f t h e 26 c y c l e - 13 y e a r s . I t i s t w i c e 26 t h a t produces t h e number 52 t h a t we
w i l l see i s c e n t r a l t o t h e Maya, but was a l s o t h e o b s e r v a t i o n of t h e commodity c y c l e
noted by K o n d r a t i e f f - t h e R u s s i a n economist. We can see t h a t t h e t i m i n g i n t e r v a l o f
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 t o say t h e l e a s t .

Whether 26 i s the "God C y c l e " i s i n t e r e s t i n g . Hipparchus of Rhodes o b s e r v e d

around 150 BC t h a t the equinoxes moved w i t h time. T h i s i s where t h e Sun's p a t h
c r o s s e s the c e l e s t i a l equator. He r e a l i z e d that these were n o t f i x e d i n t i m e 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 s l o w i n a
w e s t e r l y d i r e c t i o n . This amounted t o but l e s s than 2 i n about 150 y e a r s . T h i s s l o w
movement i s known as the " P r e c e s s i o n o f the Equinoxes" and r e q u i r e s g e n e r a t i o n s
to even observe. I t i s l e s s than 2 movement every 150 y e a r s , b r i n g i n g t h i s a l s o t o
a v i r t u a l number o f c l o s e t o 26,000 years t o complete one c y c l e .

Truth = the Rule o f 9

Another k a b a l a number o f mystery has been

a t t r i b u t e d t o t h e famous Gaon From V i l n a who
d i s c o v e r e d t h a t 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 a l e p h = l added t o g e t h e r 441 = 9.

I t was argued t h a t God c r e a t e d t h e world based upon t r u t h , w h i c h i s t h e number

9. I f you take any number g r e a t e r than 9, add t h e 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 w i t h a number d i v i s i b l e by 9. F o r example, 10=1 - 10 = 9.
150=6 - 150 = 144 / 9 = 16; 278=17 - 278 = 261 / 9 = 29. The examples a r e o b v i o u s l y
e n d l e s s : 3255 = 15 - 3255 = 3240 / 9 = 360. Whether t h i s proves God c r e a t e d t h e
w o r l d 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 v e r y I n t e r e s t i n g
mathematical m i n d - t w i s t e r .

Revelation of Fibonacci

F i b o n a c c i perhaps became more w i d e l y known w i t h t h e D a V i n c i Code where t h e

n u m e r i c a l sequence w r i t t e n on t h e f l o o r was the c o m b i n a t i o n t o t h e v a u l t . T h i s
i s t h e name by which he may be known, but the r e a l name o f F i b o n a c c i was Leonardo
P i s a n o . Perhaps t h e name i s a r i d i c u l e meaning " b l o c k h e a d " coming a t a time when
knowledge poured from t h e East was seen as perhaps e v i l by some. Whatever t h e
reason Pisano was s t u c k w i t h the name F i b o n a c c i , has l o n g been l o s t i n time. Y e t ,
F i b o n a c c i to.day_is w i d e l y used bv t e c h n i c a l a n a l y s t s steming from h i s s t u d y o f
rabbits i n L i b e r Abaci.

30
 F i b o n a c c i was p r e s e n t e d w i t h a problem. How many r a b b i t s w i l l be b o r n i n t h e
course of one year from an o r i g i n a l p a i r of newly born r a b b i t s ? R a b b i t s c a n s t a r t
to breed a f t e r o n l y 2 months from b i r t h . F i b o n a c c i assumed t h a t every month a p a i r
of r a b b i t s would produce another p a i r . He concluded, a t the end of the y e a r , 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 w i t h 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 w o u l d s t a r t
to "breed on t h e i r own. T h i s e x e r c i s e produced the famous F i b o n a c c i sequence:

1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233

I f we dive deeper, we can see the r e l a t i o n between each number both moving i n
a forward and backward d i r e c t i o n . For example, l e t us take a number and d i v i d e i t
i n t o the p r e v i o u s number.

1 1.2 0.5
2/3 = 0.666
3/5 0.6
5/8 0.625
8/13 0.615384615
13 / 21 = 0.619047619
21 / 34 = 0.617647058
34 / 55 = 0.618181818
55 / 89 0.617977528
89 / 144 = 0.618055555
144 / 233 0.618025751

The above t a b l e shows t h e p r e c i s e 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 p o r t i o n i s based.
I f we d i v i d e the h i g h e r number by the lower number, we end up w i t h 1.618 ( r o u n d e d ) .
Now we are ready f o r the next i n t e r e s t i n g p r o o f . I f we take the square r o o t of 5,
2.24, - 1 g i v e s us 1.24 and d i v i d e t h a t by 2, we r e t u r n t o 0.618.

B e f o r e , I e x p l a i n e d t h a t I d i s c o v e r e d the Economic Confidence Model by s t a r t i n g

w i t h a s e r i e s of p a n i c s between 1683 and 1907 t h a t e q u a l s 224 y e a r s i n t i m e w i t h
26 p a n i c s t h e r e i n . Taking 224 / 26 = 8.6153846615. Now l o o k a t the F i b o n a c c i number
above 8 / 13 = 0.615384615. T h i s i s the same d e c i m a l of the 8.6 c a l c u l a t i o n . I f we
l o o k at the square r o o t - o f 5, we a l s o see 2..24 x 100 - 224 y e a r s . I f we use the
Kabala method of r e d u c t i o n adding every d i g i t i r r e s p e c t i v e of the d e c i m a l p o i n t , and
we s u b t r a c t 1, the p r o o f becomes 86153846615 ~ 53 ~ 1 = 52, t w i c e the u n i t 26.

The M y s t e r y o f the Maya

There has been of l a t e almost a c u l t a w a i t i n g the f a t e f u l day when t h e Mayan

Calendar reaches i t s end on December 21st, 2012. Of a l l the c a l e n d a r s d e v i s e d by man,
t h e r e i s t r u l y n o t h i n g l i k e the Maya i n v e s t i g a t i o n . They seem t o be an a n c i e n t p e o p l e
who understood t i m e . How, I am not s u r e . But t h e i r c a l c u l a t i o n s a r e a s t o n i s h i n g and
a r e not based upon the p l a n e t s , but upon t h e c y c l i c a l f o r c e s of n a t u r e t h a t t h e y
p e r c e i v e d . They c e r t a i n l y thought d y n a m i c a l l y , r a t h e r than l i n e a r , s u g g e s t i n g a more
Asian- f o u n d a t i o n compared t o European.

The number 26 a l s o shows up i n the Mayan c a l e n d a r t h a t i s q u i t e r e m a r k a b l e . The

c a l e n d a r c o n s i s t s of a r i t u a l c y c l e of 260 named days and a 365 day y e a r . Both a r e
running i n a complex c o n c u r r e n t 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 o f 365 days known as t h e "Calendar Round"
where a t 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 t o the s t a r t
i n s o f a r as i t r e c u r s i n the same p o s i t i o n i n the y e a r . The 260 day c y c l e i s formed
by the combination of numerals 1 through 13 t h a t meshes w i t h a r o t a t i n g wheel o f 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.

31
 The Mayan c a l e n d a r 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 p e r s p e c t i v e . The 365 year c y c l e was d i v i d e d by IS named months
of 20 named days, w i t h 5 days" of m y s t i c e v i l omen. The Mayan named y e a r s based upon
t h e f i r s t name of the day t h a t appeared. However, the 365 days c o u l d be d i v i d e d by 5
y i e l d i n g 73 days ( c l o s e to the 72 i n t e n s i t y c y c l e ) and the number o f named days b e i n g
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 o n l y 4 names combined w i t h 13 numbers t h a t c o u l d
ever b e g i n a year. These seem t o be c a l l e d "Year B e a r e r s " and were a s s i g n e d a c c o r d i n g
to the 4 q u a r t e r s of the world and were g i v e n 4 s p e c i f i c c o l o r s . T h i s becomes a k i n
to the s a y i n g i n v o l v i n g the 4 c o r n e r s of the w o r l d , and the 4 winds.

The manner i n which the Mayan r e c o r d e d dates i s s t i l l complex and shows a h i g h l y

r
tuned s t y l e of d3 namic t h i n k i n g r a t h e r than l i n e a r . To s p e c i f y a date i n the " C a l e n d e r
Round" they use the d e s i g n a t e d day by i t s numeral and name d i s t i n c t i o n , and added the
c u r r e n t month by p r e f i x i n g the number o f days t h a t had passed w i t h the c o r r e s p o n d i n g
number f o r t h a t month u s i n g 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 c u r i o u s
manner would occur o n l y 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 o f 52 y e a r s .

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 l o n g e r space

dimension. The Mayan show a dynamic t h i n k i n g p r o c e s s f o r time and a keen sense of
h i s t o r y t h a t they needed t o be a b l e t o r e f l e c t . The Mayan d e v i s e d the "Long Count"
t h a t was based upon a system of a count of - 20 - , t h e y s t r a n g l y used 18 as t h e
m u l t i p l e r (18 x 4 "= 72). T h e r e f o r e , the dates were w r i t t e n a s : k i n ( d a y ) ; m'nal (20
d a y s ) ; too. (18 u n i n a l s o r 360 d a y s ) ; k a t u n (20 t u n s o r 7,200 d a y s ) ; b a k t u n (20 k a t u n s
or 144,000 days). Why the Mayan used 18 as the m u l t i p l e r i s unknown. Perhaps t h e y
n o t i c e d t h e 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 t o anchor time i n a c o n t i n u o u s time-space dimension t h a t they c o u l d see i n
t h e i r mind . They anchored time t o 4 Ahau, 8 Cumku, which was equal t o 13 baktuns t h a t
was 1,872,000 days ( o r 5128.76 years of 365 days i n our mind). I t i s c l e a r from t h e
c a l e n d a r a l o n e , t h a t the Maya c o n c e i v e d time as a dimension through which h i s t o r y i s
formed, b u t 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 c a l e n d a r have l i t t l e t o do w i t h astronomy. The Mayan seem t o have p l a c e d
g r e a t s i g n i f i c a n c e on c y c l e s . There i s the c u r i o u s 819 day c y c l e (13x9x7=819) t h a t a l s o
s h o c k i n g l y produces 2.24 y e a r s ! The hidden o r d e r 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 c a l e n d a r i s i t s c o n c u r r e n t and dynamic

s t r u c t u r e of time t h a t i s c l o s e r t o what I have d e s c r i b e d from independent observa-"'
t i o n s h a v i n g n o t h i n g t o do w i t h p l a n e t a r y 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 A z t e c c a l e n d a r f o l l o w e d the Mayan i n many r e s p e c t s
but i n c o r p o r a t e d a 584 day c y c l e from the p l a n e t Venus and two 52 year c y c l e s were
c o n s i d e r e d "One Old Age," when the day c y c l e , the y e a r , and the p e r i o d of Venus a l l
came t o g e t h e r . These were a l s o noted by the Mayan, but were more i m p o r t a n t t o the
A z t e c . A l l Meso-Americans b e l i e v e d 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 o f
the w o r l d I n these g r e a t sweeping p e r i o d s of t i m e .

The core of the Mayan Calendar i s t h a t t h e w o r l d i s destroyed and r e b o r n time

and time a g a i n . While they see the end of t h i s w o r l d on December 21st, 2012 t h a t
w i l l e r u p t from earthquakes, t h a t i s a s e p a r a t e i s s u e t h a t l a c k i n g the d a t a o f the
p r e v i o u s c y c l e from which the Maya s t a r t t h e i r c a l e n d a r , t h e r e i s no way t o now
p r o j e c t forward to even t e s t the t h e o r y . 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.

C a l e n d a r s based upon the moon c y c l e of 19 y e a r s , known as the M e t o n i c C y c l e

named a f t e r Meton o f Athens i n 432BC o r the s o l a r c y c l e of 365.25 days o r t h e 28
year c y c l e when the same day r e p e a t s w i t h the same number under the J u l i a n C a l e n d a r ,
have c r e a t e d 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 c a l e n d a r C y c l e = 7,980 y e a r s
produced by 19 x 28"x~15v "The l a s t 15- y e a r cycle--isthe-Roman-tax-and-census-cycle
of I n d i c t i o n . There are c a l e n d a r s based upon J u p i t e r and i t s 12 year c y c l e . But a l l
a r e c y c l i c a l ba^ed.
 The Concept o f S e l f - R e f e r a l

E v e r y t h i n g i n nature seeks to r e c r e a t e i t s e l f by g e n e r a t i n g a copy of- i t s e l f

t h a t r e f e r s back t o the o r i g i n a l entity.. Our c h i l d r e n look l i k e u s , a l b e i t a t t i m e s
a b l e n d i n g of both p a r e n t s . N e v e r t h e l e s s , t h i s i s nature's way o f e x t e n d i n g t h e
c y c l e o f l i f e through the p r o c e s s o f s e l f - r e f e r a l to achieve p r o p a g a t i o n . Whatever
you may b e l i e v e , the e n t i r e p r o c e s s o f the u n i v e r s e i s based upon r e p l i c a t i o n t o
p r o g r e s s forward i n t o time. I t may indeed appear to be "chaos" so we dare n o t t o
l o o k too c l o s e l y . But t h e r e i s a s i n g l e system o f 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 e x t e n d s even f u r t h e r i n t o
nature t h a t c r e a t e s whether, volcanos and earthquakes to how we even behave i n . a
group.

The system of s e l f - r e f e r a l i s a complex process t h a t i s a f r a c t a l , r e v e a l e d by

B e r n o i t Mandelbrot of Y a l e . P h y s i c s 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 o f a
"power l a w " because the d i s t r i b u t i o n i s d e s c r i b e d w i t h an e q u a t i o n 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 e x p o n e n t i a l power o f t h e
a
o t h e r such as f ( x ) = x ~ where the product becomes the s t a r t i n g p o i n t f o r t h e n e x t .
Mandelbrot demonstrates remarkable order e x i s t e d hidden w i t h i n what seemed random.

At the core o f a l l c y c l i c a l b e h a v i o r , i s t h i s very concept o f s e l f - r e f e r a l

t h a t i s a means o f p e r p e t u a t i n g the c y c l e . I t d i c t a t e s t h a t t h e p e o p l e w i l l i n d e e d
respond i n the same manner i r r e s p e c t o f t h e c e n t u r y , because human n a t u r e does n o t
change. There i s a t h i r d i n h e r e n t wave s t r u c t u r e , t h a t i s f a r more complex than:
a n y t h i n g we have been l o o k i n g a t so f a r . I t moves w i t h the same waves and may be
a k i n to a c a r r i e r wave upon which a l l o t h e r s t r a v e l through t i m e - s p a c e . T h i s i s
the wave t h a t r e c r e a t e s the p a t t e r n s , whereas t h e o t h e r waves e f f e c t a m p l i t u d e
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 l e n g t h t h a t
indeed c r e a t e d i f f e r e n t e f f e c t s , s i m i l a r t o v a r y i n g the wave- l e n g t h can change t h e
the wave e f f e c t from x - r a y s , 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 t h e human response. But
i t the Schema Frequency t h a t i s a c a r r i e r wave o f p a t t e r n s o p e r a t i n g I n d e p e n d e n t l y
w i t h i n the other wave s t r u c t u r e s . T h i s i s the c o r e of hidden o r d e r t h a t o t h e r s a r e
j u s t now s t a r t i n g t o d i s c o v e r i n o t h e r areas of a c t i v i t y .

U n r a v e l i n g The Mystery o f Time & Space

C r e a t i n g R e p l i c a t i n g P a t t e r n s i n t o the F u t u r e
The Scheme Frequency

E v e r y t h i n g i n nature appears t o be on a quest to r e p l i c a t e i t s e l f . We are

indeed f a c e d w i t h what may appear t o be chaos, but i n r e a l i t y , t h e r e can be no
t r u e random chaos, f o r the system cannot s u r v i v e as i f i t were a r o g u e system
t h a t would soon cause i t s own demise. The e n t i r e u n i v e r s e 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 t h a t 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 . T h i s i s
a d e l i c a t e complex p a t t e r n o f i n t e r a c t i o n combining to c r e a t e s p a c e , t i m e , m a t t e r ,
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 c r e a t e the
beat or p u l s e of the u n i v e r s e t h a t f l o w s i n waves of energy i n a c y c l i c a l m o t i o n .
But t h e r e are p a t t e r n s t h a t 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 s c r a t c h i n g ' a s u r f a c e o f e x t r a o r d i n a r y c o m p l e x i t y h i d i n g
a simple s t a t e of i n c r e d i b l e o r d e r .

There a r e complex n o n - l i n e a r example i n nature t h a t apply t o human b e h a v i o r .

A bucket of water w i t h a s t r o n g f a u c e t source w i l l cause a v o r t e x a s t h e water
f l o w s i n t o the bucket. The water j e t w i l l c r e a t e a t r a n s v e r s e v o r t i c a l motion
r e l a t i v e t o the water source i t s e l f . E l e c t r i c i t y f l o w s the same way c r e a t i n g a
f i e l d t r e n s v e r s e t o the c u r r e n t i t s e l f .

33
 A n o n - l i n e a r example from the r e a l world took p l a c e between 1980 and 1985.
The i s s u e arose w i t h the US N a t i o n a l Debt h i t t i n g $1 t r i l l i o n i n 1980. We a l l j u d
othe r s by o u r s e l v e s . Consequently, the Europeans judged i n t h e i r eye the o p t i o n s
f a c i n g the United S t a t e s and presumed t h a t 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 w i t h 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 t o c r e a t e 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 s e t t l e m e n t s and a domestic d o l l a r . T h i s 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 p e r i o d . However, I n s t e a d o f
the s i l v e r " t r a d e " d o l l a r being 1 ounce w i t h the l e s s o r v a l u a b l e s i l v e r d o l l a r
o f about 75% s i l v e r by weight f o r domestic use, the Europeans were convinced t h a t
t h e t a b l e s 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 t h a t would
be worth l e s s than a domestic d o l l a r . D e s p i t e the e s c a l a t i n g debt, the Europeans
withdrew t h e i r Euro d e p o s i t s and switched them to domestic d o l l a r s . This drove
t h e d o l l a r to r e c o r d highs going i n t o 1985 where the B r i t i s h pound f e l l to $1.03
T h i s s h i f t i n g of d e p o s i t s c r e a t e d a t r a n s v e r s e wave w i t h an e f f e c t o p p o s i t e i t s
i n t e n t i o n . The c a p i t a l f l o w s from E u r o - d o l l a r to domestic d o l l a r s c r e a t e d 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 u n d e r l y i n g
i n t e n t i o n i s o p p o s i t e of i t s appearance. T h i s extreme economic p r e s s u r e was a g a i n
misunderstood by government t h a t responded by c r e a t i n g the G-5 t o m a n i p u l a t e the
g l o b a l economy.

I l l u s t r a t e d here i s Figure #1
a t r i p a r t i t e wave ( F i g #1) Wovelenglh
with three d i s t i n c t i v e . \ B.6 Year C y c l e Wave /
components, each p r o v i d i n g ; 1 \ A
a separate e f f e c t w i t h i n
t i m e . These segments are:
(1) 8.6 Year Wave
Economic Confidence
Model
s
(2) 6 Tear Wave - ~ " ' heu A

Intensity ( v o l a t i l i t y )
(3) the P a t t e r n of
Self-Referal
The Schema Frequency
So f a r I have d i s c u s s e d the 8.6 year wave p u b l i c l y f o r n e a r l y 30 y e a r s . I
have p r o v i d e d 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
n o t t o b r i n g i n G-5 t h a t 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 r e c e i v e d a r e p l y
from Mr. S p r i n k l e , the Chief Economic A d v i s o r a t t h a t time, t h a t I was t h e o n l y
person, w i t h such a v o l a t i l i t y model and u n t i l someone e l s e agreed w i t h my w a r n i n g s
b a s i c a l l y - Thanks but no thanks! By 1987, I was u r g e n t l y summoned t o "hurry-Tip;
we need to know what your model p r o j e c t s now, s i n c e everyone a g r e e s , v o l a t i l i t y
i s the number one problem? I have not per se e x p l a i n e d 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 m y s e l f u n t i l I was
ready t o r e t i r e . L i k e w i s e , I have d i s c u s s e d 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 y e t a n o t h e r
mystery - the Schema Frequency t h a t i s an embedded v e r s i o n s i m i l a r t o a code l i k e
DNA i t s e l f . I t i s a map of how t h i n g s w i l l u n f o l d t h a t s i m p l y i s a s t o n i s h i n g .
We know t h a t DNA i s r e v e a l e d 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 r e a d i n g t h a t 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 o f 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 t h a t may even be a c a r r i e r wave upon which o t h e r s become
"manifest.' I t dTctates~how the future"""will u n f b i d " on "a p a t t e r n p e r s p e c t i v e w h i l e -
the o t h e r 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 w i t h i n t e n s i t y .

34
 I i n t e n d to p u b l i s h a more d e t a i l e d a n a l y s i s o f the wave s t r u c t u r e i n t h e
f u t u r e . But i n a b a s i s concept, the Schema Frequency i s the b l u e p r i n t so t o speak
of a f a r more complex n a t u r e . For years I taught at seminars a r o u n d the world t h a t
b u l l market's and bear markets are f u n d a m e n t a l l y 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 e x p l a i n e d t h a t the core b a s i c b u l l market wave i s 7 u n i t s and t h e
bear market i s a u n i t of 2. I a l s o e x p l a i n e d t h a t 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 t a k e s people l o n g e r t o t r u s t and b e l i e v e
i n anyone o r something, than i t 'takes t o l o s e t h a t c o n f i d e n c e . T h e r e f o r e , t h e
t i m i n g l e n g t h s f o r a b u l l and bear market waves u n f o l d s as:

B u l l Markets Orange J u i c e M o n t h l y

I f we l o o k at Orange J u i c e on a monthly l e v e l between 1993-1996, we can see

t h a t t h e r e was a s t r a i g h t 7 month r a l l y from the low i n F e b r u a r y 1993 t h a t r e a c h e d
a h i g h i n September 1993. T h i s was f o l l o w e d by an i n i t i a l " 2 month sharp c o l l a p s e :
i n t o November 1993 w i t h a b r i e f 4 month c o n s o l i d a t i o n f o l l o w e d by a n o t h e r t h r u s t
downward i n t o a J u l y 1994 low - 10 months from the February 1993 h i g h . T h i s i s t h e n
f o l l o w e d by a steady drawn out r a l l y t h a t l a s t e d 21 months i n t o t h e h i g h e s t monthly
c l o s i n g i n A p r i l 1996. These p a t t e r n s emerge no matter what t h e market because i t
i s not t h e o b j e c t 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 r e a s o n , these p a t t e r n s are c o n s i s t e n t r e g a r d l e s s o f the m a r k e t . The major h i g h
i n 1929 was f o l l o w e d by the major low f o r - t h e Great D e p r e s s i o n I n 1932 - p r e c i s e l y
on t h e 3 count.

T h i s i s not the Schema Frequency, but merely a g l i m p s e . The Schema F r e q u e n c y

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 t o r e v e a l i t i n
a p r o p e r manner. N e v e r t h e l e s s , i t i s a c y c l e wave of v a r y i n g wave l e n g t h s t h a t
t a k e s p l a c e i n a s p e c i f i c p a t t e r n t h a t r e p e a t s over and over a g a i n . T h i s i s why
I have e x p l a i n e d i t i s more a k i n t o DNA i n s o f a r as i t i s a t r u e map o f t h e f u t u r e
t h a t i m p a c t s the other wave f r e q u e n c i e s . As shown above, t h i s i s a mere g l i m p s e o f
a p a t t e r n t h a t i s embedded w i t h i n e v e r y t h i n g , no m a t t e r what we a r e l o o k i n g a t . I t
i s a map w i t h 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
t h a t c r e a t e s 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. I n c o r p o r a t e d w i t h i n t h i s
s t r u c t u r e i s the P h a s e - T r a n s i t i o n t h a t causes the d r a m a t i c shocks t h a t appear t o
emerge from nowhere. ,

The P h a s e - T r a n s i t i o n i s the e x p o n e n t i a l
c h a o t i c move t h a t i s l i m i t e d to a t i m i n g phase
of 2 on the minimum to 3 on the o u t s i d e or t o
be p r e c i s e 3.141 meaning P i . Even l o o k i n g a t
gold back g o i n g i n t o the 1980 h i g h a t $875 on
January 2 1 s t , we see the p r i c e more than doubled
d u r i n g the l a s t two months o f the r a l l y . Now
look t o t h e r i g h t at the Japanese yen. We see a
2 month e x p o n e n t i a l r a l l y i n t o A p r i l 1995. The
most d r a m a t i c moves always take p l a c e i n the
s h o r t e s t amount of time.
35
 Comprehending Time

K o n d r a t i e f f was executed by S t a l i n f o r h i s courage t o e x p l o r e economic c y c l e s .

Schumpeter was g r e a t l y i n f l u e n c e d by IConradtieff and sought t o e x p l a i n why s u c h
booms and b u s t s took p l a c e . Schumpeter was a l s o t r y i n g t o 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 , S o c i a l i s m , and Democracy (1942).
Schumpeter w o r r i e d t h a t i n t h e quest t o 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 o f i n n o v a t i o n he b e l i e v e d c r e a t e d t h e b u s i n e s s 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 t h e s e l f - i n t e r e s t o f t h e i n d i v i d u a l ,
but t h e s e l f - i n t e r e s t o f t h e s t a t e t h a t a l s o c r e a t e s t h e c y c l e . The r e a l d i f f e r e n c e
between C a p i t a l i s m and Socialism/Communism, i s t h e d i f 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 ' c o n t r o l l e d economy? I t i s t h e s t a t e
f o r they p e r c e i v e 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 , I m p l i e d t h e u l t i m a t e f a i l u r e o f Communism, a l t h o u g h he d i d n o t
e x p r e s s l y s t a t e t h a t i n h i s 1926 s t u d y , Long Waves i n Economic L i f e .

I t has been t h e " b i g " houses t h a t ban t o g e t h e r t o manipulate markets t o

o b t a i n those p e r c e i v e d " r i s k l e s s " t r a d e s t h a t has put t h e e n t i r e w o r l d economy
a t r i s k . The CFTC and SEC a r e merely c o r r u p t cops, who o v e r r e g u l a t e t h e l e s s
i m p o r t a n t s m a l l f i r m s , w h i l e t u r n i n g a blind-eye to the " b i g " f i r m s . These
f i r m s were r e s p o n s i b l e f o r t h e i n s a n e a c c u s a t i o n t h e CFTC made i n a subpoena
t h a t I was " m a n i p u l a t i n g t h e w o r l d economy" b a s i c a l l y because no-one c o u l d
r e a l l y c r e a t e a model t h a t would f o r e c a s t a s p e c i f i c date 7 y e a r s i n advance
and watch i t happen. The CFTC became merely t h e t o o l as t h e law was t o S t a l i n .

S t a l i n had K o n d r a t i e f f k i l l e d because he d i d n o t l i k e h i s f o r e c a s t s . We
see the same p a t t e r n of an abuse o f power when G a l i l e o supported C o p e r n i c u s and
argued t h a t t h e c e n t e r of t h e s o l a r system was t h e sun, n o t the e a r t h . H i s d e a t h
sentence was commuted t o l i f e i n p r i s o n f o r h i s c o n f e s s i o n or r e c a n t o f t h o s e
t h e o r i e s . We a l s o see Socrates was sentenced t o death f o r h i s p h i l o s o p h y t h a t t h e
g r e a t democracy of Athens argued c o r r u p t e d t h e y o u t h . P l a t o r e c o r d e d t h e t r i a l
of Socrates..and h i s r e p l y t h a t he f e a r e d n o t d e a t h , f o r there were o n l y two s u c h
p o s s i b i l i t i e s , (1) a m i g r a t i o n o f the s o u l t o a p l a c e where h i s o l d f r i e n d s now
a w a i t e d , or (2) i t was a s l e e p so p e a c e f u l , one i s not even d i s t u r n e d by a dream.
P l a t o f l e d Athens, vowing he would not a l l o w two crimes a g a i n s t r e a s o n .

September 11th, 2001

The l i s t of c a s u a l t i e s i s l o n g i n d e e d .
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 3.14159 P i
and don't t h i n k t h a t somehow t h e U n i t e d
S t a t e s i s d i f f e r e n t - remember McCarty
To demonstrate t h a t t h e model i s n o t about
markets, but marekts a r e merely t h e 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 o f t a k i n g the peak i n t h e l a s t
8.6 Year Wave o f J u l y 20th, 1998, and t h e n
p r o j e c t i n g f o r w a r d u s i n g s i m p l y P i , and we
come t o p r e c i s e l y September 11th, 2001. L e t
us stop the nonsense and begin t o r e s p e c t
t h a t t h e r e i s a hidden order t o time i t s e l f .

Socrates debated Thrasymachus, w h i c h was recorded by P l a t o i n -his R e p u b l i c .

S o c r a t e s argued t h a t in.^._Ikmo^acy_i_because t h e people were i n c h a r g e , j u s t i c e
would always be done. Thrasymachus argued, a l l governments are "the same no m a t t e r
what t h e i r form, f o r a l l laws a r e passed only i n t h e s e l f - i n t e r e s t o f t h e s t a t e ,
which i s the s t r o n g e r . The s t a t e punishes those i t c l a i m s v i o l a t e s i t s l a w s , and
t-hn.g justice_.is._a2waysthe_same _it_is. merely t h e w i l l o f the s t a t e , who i s t h e
J

s t r o n g e r . They k i l l e d Socrates - Thras3nnachus was c o r r e c t .

36
 R u s s i a & The 224 Year C y c l e o f P o l i t i c a l Change

I n the B u s i n e s s C y c l e And The F u t u r e ( P a r t I I ) Bated October 1 0 t h , 1999, I

p r o v i d e s a b r i e f h i s t o r i c a l r e v i e w o f the 224 Year Cycle of P o l i t i c a l Change f o r
the Western World, t h a t i n c l u d e d R u s s i a . I e x p l a i n e d that what t h r u s t e d R u s s i a
both i n t o a n a t i o n a l s t a t e and a l e a r n e d c u l t u r e , was the c o l l a p s e o f the Roman
E a s t e r n Empire - Byzantium i n 1453AD. The Ottoman Empire began i n 1326AD and was
on a course of conquest t h a t r e s u l t e d i n the f a l l of C o n s t a n t i n o p l e i n 1453AD
under the r e i g n o f S u l t a n Muhammad I I . While the f a l l of C o n s t a n t i n o p l e l e d t o the
spread of knowledge by the f l i g h t o f s c h o l a r s to Rome beginning t h e Renaissance
i n Western Europe, i t was t h i s same f l i g h t t h a t a l t e r e d the c o u r s e of R u s s i a . The
n i e c e o f the l a s t B y z a n t i n e Emperor C o n s t a n t i n e S I , Sophia P a l e o l o g a , f l e d t o R u s s i a
and m a r r i e d - I v a n ICE (The Great)(1452-1505). Sophia br.ought.her c o u r t 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 t h a t 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 R u s s i a can be d e i v i d e d i n t o t h r e e 224 year c y c l e s of Cimmerian

Rule, f o l l o w e d by l'i c y c l e s of S c y t h i a n Rule, 1^ c y c l e s of S a r m a t i a n R u l e , w i t h
the i n v a s i o n o f the Goths i n the 3 r d Century f o l l o w e d by the 4 t h C e n t u r y i n v a s i o n
of the Huns i n 370AD. Upon the death o f A t t i l a i n 453AD, i t was t h e A v a r s 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 t o the Huns. T h i s was f o l l o w e d by the
Khazars who were overrun by the S l a v s i n the 9th c e n t u r y . The f i r s t w r i t t e n h i s t o r y
came o n l y i n the 12th c e n t u r y . A c c o r d i n g to these r e c o r d s of the P r i m a r y C h r o n i c l e ,
i t was t h e V i k i n g s who invaded i n t h e l a t e r 9 t h c e n t u r y i n v i t e d by t h e s l a v s , from,
whom R u s s i a i s s a i d to have t a k e n i t s name - the Varangian Russes.

R u s s i a f e l l t o the Mongols l e d by the grandson of Genghis Khan t h a t d e s t r o y e d

the c a p i t a l K i e v i n 1240AD. Moscow began to r i s e as a c i t y i n t h e 1 4 t h c e n t u r y . The
Moguls were f i e r c e w a r r i o r s . Genhis Khan had t r i e d t o conquere C h i n a , 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 d i e s i n 1227AD, and i t was h i s
grandson who turned back t o conquer ..China i n 1279. H i s dynasty f e l l I n 1368, and so
was the f a t e of the Mongolian Empire.
( Russia - 224 Year Cycle of P o l i t i c a l Change

1472 1696 1920 2144

A g a i n s t t h i s backdrop, we come t o Ivan The Great and h i s M a r r i a g e t o S o p h i a i n

1472 t h a t appears t o begin the blossoming or R u s s i a i n t o a w o r l d power. I v a n c r e a t e d
the f i r s t Rule o f Law t h a t i s the c o r n e r s t o n e of a l l n a t i o n a l w e a l t h . T h i s f o u n d a t i o n
of law i n 1497 was p r e d i c a t e d upon t h e l e g a l code o f J u s t i n i a n I o f .Byzantium. We
can see from the above i l l u s t r a t i o n o f j u s t the wave f o r m a t i o n s s t a r t i n g w i t h t h e
b i r t h o f R u s s i a 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 w i t h t h e R e v o l u t i o n
i n 1917, the f a l l of economy power i n 1989, t h a t was f o l l o w e d by the r e s i g n a t i o n of
on December 24, 1991 marking the o f f i c a l c o l l a p s e o f the S o v i e t Union w i t h i n weeks
of the t u r n i n g p o i n t s t a r t i n g w i t h t h e marriage of Ivan and Sophia.

S t a r t i n g i n 1472, we come t o 1696 which i s the year Ivan V d i e d h a n d i n g power

to P e t e r I The Great (1682-1725) a f t e r the 1689 R e v o l o u t i o n t h a t swept R u s s i a a l s o
f o l l o w i n g the 1688 R e v o l u t i o n i n England. 72 years a f t e r 1696, we come t o a n o t h e r
r e v o l u t i o n i n sympathy w i t h the US and France under C a t h e r i n e 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 t o 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 y e a r s from 1917, we come t o the c o l l a p s e o f
1991 w i t h i n weeks, w i t h the next t a r g e t p r o j e c t e d t o be 2010.325 ( A p r i l 2 8 / 2 9 ) .

37
 China & The 224 Year C y c l e o f P o l i t i c a l Change

The h i s t o r i c a l r e v i e w of t h e p o l i t i c a l
course o f events i n China i s a l o n g one. We
have seen numerous governments r i s e and f a l l China - Important H i s t o r y
s i n c e the f i r s t r e a l s t r o n g dynasty t h a t we
can draw t h e l i n e t o d e f i n e China as a major c. 1766-1122BC Shang Dynasty ( F i r s t )
s i n g l e n a t i o n - The Q i n Dynasty 221-206 BC. c. 1122BC Zhou overthrew Shang
We can see t h a t c i v i l war plagued China i n c. 500BC Confucius e s t a b l i e d m o r a l v a l u e s
the same time frame as i n the U n i t e d S t a t e s , c. 256BC Zhou d)^nasty f a l l s i n west
1851-1864 known as t h e T a i p i n g R e b e l l i o n . We 221-206BC Qin Dynasty ( 1 s t c e n t r a l g o v ' t )
a l s o see i n 1900 t h e famous Boxer R e b e l l i o n 202BC-220AD Han Dynasty
where f o r e i g n n a t i o n a l s were murdered. We 581-618 S u i Dynasty
see r e b e l l i o n a g a i n i n 1912 w i t h t h e f o r m i n g 618-907 Tang Dynasty
of the R e p u b l i c . o f C h i n a , however, i n 1917 960-1279 Song Dynasty
where t h e r e i s t h e R u s s i a n R e v o l u t i o n , t h e 1275-1292 Marco P o l o c l a i m s t o v i s i t
same u n r e s t spread t o China. Note 202BC i s 1279 Mongols conquered China
the r i s e o f t h e Han Dynasty, t h e same year 1368-1644 Ming Dynasty
when Rome d e f e a t e d H a n n i b a l . 1644-1912 Manchus r u l e d a s Qing Dynasty
1842 T r e a t N a n j i n g - B r i t i s h Hong Kong
J u s t as major p o l i t i c a l change u n f o l d e d 1851-1864 Taiping Rebellion
w i t h F r a n k l i n D. R o o s e v e l t and t h e n o n v i o l e n t 1900 Boxer Rebellion ( k i l l i n g foreigners)
"New d e a l " came t o power i n 1933, the same 1912 R e p u b l i c of China e s t a b l i s h e d
economic p r e s s u r e s brought H i t l e r t o power i n 1917 Sun Yat-ser. e s t a b l i s h e d r i v a l gov't
1933. When we l o o k a t China, we a l s o see t h e 1919 Sun Yat-sen r eorganizes N a t i o n a l i s t s
the r i s e o f Mao Zedong who l e d t h e famous 1928 Chiang K a i - s h e k l e a d N a t i o n a l i s t Gov't
Chinese Communists on t h e i r Long March t o 1931 Japan invades Manchuria
Shaanxi. By 1949, t h e Communists d e f e a t e d 1934-1935_Mao Zedong l e d Communist march
Chiang Kai-Shek who f l e e s t o Tiwan, and t h e 1937-1945 War w i t h Japan s h a t t e r e d C h i n a
new People's R e p u b l i c o f China emerges. 1949 Communists d e f e a t N a t i o n a l i s t s
1958 Great Leap Forward d e p r e s s e s economy
I f we l o o k a t j u s t one 51.6 year wave 1962 border war w i t h I n d i a
c a l c u l a t e d from 1949, t h e beginning o f t h e 1966-1969 The C u l t u r a l R e v o l u t i o n
People's R e p u b l i c o f China, we come t o 1989 1971 China j o i n s U n i t e d N a t i o n s
and the s t a r t o f t h e swing back t o c a p i t a l i s m 1972 P r e s i d e n t Nixon v i s i s t s C h i n a
w i t h Tiananmen Square on June 3-4, 1989. We 1976 Mao Zedong d i e s
can see t h e c o n t a g i o n e f f e c t f o r w i t h i n j u s t 1979 C h i n a & US b e g i n d i p l o m a t i c r e l a t i o n s
5 months, the B e r l i n W a l l f a l l s by November 1980s Reform t o r e l a x Gov't c o n t r o l s
1989. R u s s i a withdrew from A f g h a n i s t a n a l s o 1989 Tiananmen Square p r o t e s t
i n 1989 i n l i n e w i t h t h e 1989.95 Economic
Confidence Model.

We f i n d t h a t i n 1917, Sun Yat-sen s e t 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 t h a t 72 y e a r s from t h i s new government b r i n g s us t o
Tinananmen Square i n 1989 and t h e s t a r t o f t h e new age o f Chinese c o n t r o l l e d c a p i t -
a l i s m . I n 1919, Sun Yat-sen r e o r g a n t i z e d t h e p a r t y t h a t 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 t h a t the takeover o f China by t h e Communist
p a r t y i n f l u e n c e d by K a r l Marx comes oh'the 224 Year C y c l e o f P o l i t i c a l Change, i . e .
Mongols i n 1279 (1279 - 1503 - 1727 - 1951). We can see a w e a l t h o f c y c l i c a l t r e n d s
back-and-forth warning t h a t 2021 c o u l d be a v e r y e x p l o s i v e year i n C h i n a .

The modern-day w a r l o r d s of c a p i t a l want more freedom. These p r e s s u r e s a r e now

being f e l t . A f t e r opening t h e doors t o c o n t r o l l e d c a p i t a l i s m , i f t h e c o n t a g i o n h i t s
hard i n China, any e x p e c t a t i o n s t h a t they w i l l . buy debt t o s t i m u l a t e t h e US economy
may evaporate. I t i s h a r d t o pretend China does not honor American s t a n d a r d s o f
humaix_rdghSLjCwh lss_uesL_and_..then go h a t - i n - h a n d s o l i c i t i n g
h e l p t o buy the debt. 72 years from 1934-35 Long March o f Mao i s 2007-2008. I t i s
j u s t time a g a i n .
 The Concept o f Leverage

Leverage i s i n h e r e n t 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 t h e " s i n o f u s e r y " h o l d i n g t h a t i f you were a C h r i s t i a n ,
you l e n t money to a person to h e l p him, not to e x p l o i t him w i t h 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 t h e
e a r n i n g of i n t e r e s t . The P r o t e s t a n t R e f o r m a t i o n 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 w i d e l y throughout Europe. S p a i n had borrowed so e x t e n s i v e l y upon i t s
expected t r e a s u r e from A m e r i c a , t h a t out of f i n a n c i a l d e s p e r a t i o n , i t moved t o
take England i n p a r t h o p i n g t o pay i t s debts to the V e n i t i a n bankers. Of c o u r s e ,
the Spanish Armada was destroyed i n 1588. S p a i n d e f a u l t e d on i t s d e b t s d e s t r o y i n g
the I t a l i a n economy w i t h i t . The banking i n d u s t r y moved to Germany, t h e Dutch t o o k
i t over, and then the B r i t i s h .

Borrowing money l e v e r a g e s the economy as a whole. For example, houses i n t h e

U n i t e d S t a t e s were more expensive than Europe i n . g e n e r a l . The p r i m a r y r e a s o n f o r
t h i s was the 30 year mortage. I f you can borrow 30 y e a r s i n t o the f u t u r e , t h e n
the p r i c e o f the r e a l e s t a t e w i l l r i s e i n p r o p o r t i o n t o a v a i l a b l e p u r c h a s i n g power.
I f you can o n l y borrow 10 years out, h o u s i n g p r i c e s w i l l d e c l i n e i n d i r e c t p o r p o r t i o n .
I f you cannot borrow a t a l l , you get t o the Dark Ages i n that p r o p e r t y w i l l o n l y
change hands a t f u l l v a l u e . T h i s i s t h e concept of c a p i t a l i s m t h a t Marx f a i l e d t o
c o n s i d e r . Marx saw employers being a b l e t o e x p l o i t workers to the p o i n t t h e y would
be unable t o consume c r e a t i n g the c o l l a p s e o f 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 p r e v e n t the t r e n d , but a l s o a p p l i e s ..to a ; s t a t e .

The r o l e of the bank has changed c o n s i d e r a b l y from the 1600s. Banks grew a s a
guarantor of " r e a l " money. When money was p u r e l y the c i r c u l a t i n g g o l d and s i l v e r ,
t h e r e was a b i g problem w i t h c l i p p i n g and s h a v i n g down the coinage. T h i s i s why t h e
c o i n s i n your pocket have "reeded" edges t o prevent c l i p p i n g t h a t r e a l l y does n o t
happen today. I n t e r n a t i o n a l payments I n t h e form of a B i l l o f Exchange t o o k p l a c e
because payment i n coinage c o u l d be even 10% l e s s than the o f f i c a l w e i g h t . 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 t r a d e . ( W e a l t h o f N a t i o n s ,
Book IV, Chp I I I , P a r t I ) . Banks were t o h o l d c o i n , and i s s u e r e c e i p t s . No one c o u l d
withdraw funds, except upon a r e c e i p t t h a t became a e a r l y form of c i r c u l a t i n g p a p e r
money. An i n v a d i n g army, c o u l d even buy up t h e r e c e i p t s a t a premium i n advance o f
an i n v a s i o n to ensure t h a t the t r e a s u r e would be t h e r e , 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 o f " l e v e r a g e " c r e a t e d by banks.

"A p a r t i c u l a r banker l e n d s among h i s customers h i s own p r o m i s s o r y

n o t e s , to the e x t e n t , we s h a l l suppose, o f 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. T h i s i n t e r e s t
i s the source of h i s g a i n . Though some o f those notes are c o n t i n u a l l y
coming back upon him f o r payment, p a r t of them continue t o c i r c u l a t e
f o r months and years t o g e t h e r . 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 ,
t h e r e f o r e , notes to the e x t e n t o f a hundred thousand pounds, twenty
thousand pounds i n g o l d 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 o p e r a t i o n , t h e r e f o r e ,
twenty thousand pounds i n g o l d and s i l v e r perform a l l the f u n c t i o n s w h i c h
a hundred thousand c o u l d o t h e r w i s e have performed."
Wealth o f N a t i o n s , Adam Smith 1776, Book I I , Chapter I I "

Smith e x p l a i n s t h a t 20,000 becomes the e q u i v a l e n t of 100,000. Today, t h e r a t i o

i s 6:100 and the d e r i v a t i v e s have i n c r e a s e d i t d r a m a t i c a l l y i n i n t e r b a n k m a r k e t s
t h a t are unregulated w i t h no guarantee s t a n d i n g between p a r t i e s . When c o n f i d e n c e i s
c o l l a p s i n g , t h e r e i s a f l i g h t t o cash t h a t c o n t r a c t s the degree of l e v e r a g e tht
had m u l t i p l i e d the money s u p p l y .
39
 What A b o u t The Derivatives

L e t us s t a r t w i t h 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 t h a t " D e r i v a t i v e s " are f i n a n c i a l i n s t r u m e n t s t h a t have no a c t u a l
t a n g i b l e v a l u e 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 c e l e b r a t e d " P o l i t i c s " d e s c r i b i n g s u c h
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 - " O p t i o n s " t h a t are i n s t r u m e n t s
w i t h no a c t u a l value i n and of i t s e l f . I t i s a l s o t r u e t h a t the great " T u l i p B u b b l e "
of the 1600s i n Holland i n v o l v e d . a c t u a l l y t r a d i n g i n o p t i o n s 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 d e a l e r s bought o p t i o n s to a s s u r e t h a t
they would have i n v e n t o r y f o r f u t u r e s a l e s , which became known as " c a l l s " w h i l e t h e
producers (growers) seeking p r o t e c t i o n a g a i n s t f a l l i n g p r i c e s would buy o p t i o n s
w i t h the r i g h t to s e l l t h e i r t u l i p s a t s p e c i f i c p r i c e s t h a t were " p u t s . " I n b o t h
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 p a r t y 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 s p e c u l a t i o n post-Rome. I t was
the p u b l i c buying and s e l l i n g the o p t i o n s , not the d e a l e r s t h a t caused t h e w i d e -
spread l e v e r a g e and economic c o n t r a c t i o n . Other bubbles f o l l o w e d , 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 l a n d .

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 t o commerce. They a r e what paved the way out

of the dark ages and f u e l e d e x p l o r a t i o n and world t r a d e . Merchants would not have
taken the r i s k to fund voyages as o f t e n when e n t i r e f l e e t s would be d e s t r o y e d by
a storm a t s e a . The d e r i v a t i v e " i n s u r a n c e " market was c r e a t e d t r a n s f e r i n g t h e r i s k
of c r o s s - A t l a n t i c voyages t h a t f u r t h e r e d c a p i t a l i s m and world t r a d e .

Even d u r i n g the C i v i l War, we f i n d both the N o r t h and South governments were

u s i n g D e r i v a t i v e s to c i r c u l a t e currency and t o i s s u e bonds w h i l e the abandonment o f
the g o l d s t a n d a r d caused the New York Stock Exchange t o t r a d e a D e r i v a t i v e l i s t e d
as "greenbacks" - paper currency t r a d e d upon the whims of the F o r t u n e s o f War r e l a t i v e
and expressed i n g o l d . The North i s s u e d paper c u r r e n c y t h a t were a D e r i v a t i v e o f
r
a bond t h a t d i s p l a y e d a pa3 ment schedule on the r e v e r s e showing what i t would be
worth i n the f u t u r e i f you h e l d i t . The Confederate Government i s s u e d bonds i n
Europe t h a t were D e r i v a t i v e s f o r (1) they c r e a t e d an o p t i o n that the buyer c o u l d
s e l e c t where t o be p a i d i n P a r i s , London, F r a n k f u r t or Amsterdam; (2) t h e c u r r e n c y
could be B r i t i s h pounds or French f r a n c s , and (3) pa}^ment c o u l d be t a k e n i n c o t t o n
r a t h e r than money and the c o t t o n would be a t a f i x e d p r i c e o f 6 pence when t h e
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
t h a t o f f e r e d (1) hedge a g a i n s t f o r e i g n exchange r i s k i n the currency, and (2) a
hedge a g a i n s t i n f l a t i o n u s i n g the c o t t o n . Numerous c o u n t r i e s have s u b s e q u e n t l y
i s s u e d debt denominated i n f o r e i g n c u r r e n c y 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 o f the death o f 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 o f the i n s t r u m e n t
and i t i s the people a t AIG i n London who i s s u e d CDS t h a t were seen as i n s u r a n c e
by banks around the w o r l d , but simply s t a t e d , there was no b u s i n e s s to back up
the o p e r a t i o n . 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 w i t h no
a c t u a l b u s i n e s s i n i n s u r a n c e (other than the name) to o f f s e t the r i s k s . T h i s i s
a k i n to a t u l i p grower s e l l i n g c a l l s a g a i n s t a crop he n e i t h e r has, nor i n t e n d s to
even p l a n t . The assumption t h a t they would never have t o pay on such CDS, was a
self-serving exercise i n self-delusion.
An economic i m p l o s i o n i s not caused by D e r i v a t i v e s as a concept. The r e g u l a t e d
f u t u r e s and o p t i o n s exchanges f u n c t i o n p e r f e c t l y . I t was the absence o f r e g u l a t i o n
on interbank d e r i v a t i v e markets t h a t a l l o w e d 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
 U n d e r s t a n d i n g t h e ' F l o a t i n g Exchange Rate System

FIXED EXCHANGE RATE SYSTEM FLOATING EXCHANGE RATE SYSTEM

% G a i n I s Higher Currency
In Country - A - A -
% Gain

% G a i n Lower
In Country - J Investment Investment
Country -A- C o u n t r y -B-

Currency - A = Currency - B Currency

- B -
% Gain

W i t h i n 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

t h e o r i e s were developed. Smith, R i c a r d o , Marx, and Keynes, c a p i t a l w i l l o n l y f l o w
from c o u n t r y B t o Country A when' i t sees a c o m p a r i t i v e advantage, i n R i c a r d o terms;.
The c u r r e n c y 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 o r l d t h a t on
t h e i n t e r n a t i o n a l l e v e l appears as a seesaw. While t h e r e 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, t h e c o n c e p t u a l w o r l d was l i n e a r . Y e t ,
moving t o 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 o f m a i n t a i n i n g t h e
-
c u r r e n c y v a l u e from t h e s t a t e t o t h e 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 t h e v a r i a b l e s and now even i f t h e e x p e c t a t i o n s f o r c a p i t a l g a i n do n o t even
e x i s t based upon some comparative advantage, t h e 40% swings i n t h e c u r r e n c i e s a l o n e
can cause a t r a n s v e r s e change i n c a p i t a l f l o w s . I f t h e r e i s a p o s i t i v e c o m p a r a t i v e
advantage i n a d d i t i o n f o r t h e u n d e r l y i n g b u s i n e s s w i t h a 25% expected g a i n , a p o s i t i v e
currency g a i n o f 10% w i l l i n c r e a s e t h e y i e l d t o 35%. L i k e w i s e , a 2 5 % e x p e c t e d g a i n
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 t h e d e c l i n e i n t h e c u r r e n c y i s o n l y
a 5% e x p e c t a t i o n .

We must understand t h e v a l u e o f t h e c u r r e n c y can a l t e r a l l o t h e r economic

c o n s i d e r a t i o n s . By t r a n s f e r r i n g t h e r i s k from t h e s t a t e t o t h e p e o p l e , c a p i t a l was
g i v e n y e t another independent reason t o move. T h i s has m a n i f e s t e d i n mature markets
t h a t a l l o w t h e i n t e r n a t i o n a l community t o a c t u a l l y vote i t s c o n f i d e n c e buy b u y i n g
or s e l l i n g t h e c u r r e n c y .

Sharp percentage swings i n t h e c u r r e n c y can a l s o cause delayed i n f l a t i o n . F o r

example, i n 1985 when t h e B r i t i s h pound f e l l t o TJSSi:03, Americans were buying j u s t
about e v e r y t h i n g i n London. Even t h e Concord t i c k e t s a t 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 t h e Concord t h a t they d e c l a r e d t h e f l i g h t a s u c c e s s , and r a i s e d t h e
p r i c e t o 4,000 pounds. But then t h e pound r a l l i e d back t o almost US$2.00 c a u s i n g t h e
p r i c e o f the t i c k e t t o r i s e t o over $8,000. The same happened t o c a r s and h o u s i n g .
That i n f l a t i o n a r y boom was c u r r e n c y d r i v e n . The same was t r u e o f t h e Japanese b u y i n g
p r o p e r t y i n t h e 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 t h e d e c l i n e i n t h e d o l l a r by
almost 40% between 1985-1987, l e d t o massive l i q u i d a t i o n s o f p r o p e r t y and t h e 1987
s t o c k market c r a s h . Currency has become a major component I n d r i v i n g c a p i t a l around
t h e w o r l d . A l l t h e o l d t h e o r i e s no l o n g e r work because t h e system was changed.

41
 The Nature o f a Debt C r i s i s

Not a l l f i n a n c i a l p a n i c s a r e a Debt C r i s i s . There a r e p a n i c s caused by t h e

s p e c u l a t i v e bubble i n a p a r t i c u l a r i n s t r u m e n t , such as t h e t u l i p s i n t h e N e t h e r l a n d s
(1634-1637). There are bubbles l i k e we saw i n t h e .COM boom. We saw s i m i l a r d r a m a t i c
e x p o n e n t i a l bubbles i n Rail'Road s t o c k s ( T r a n s p o r t a t i o n s ) i n 1907. The I n d u s t r i a l
Boom o f 1929 l e d by the auto s t o c k s . The 1989 r a l l y i n t h e Japanese N i k k e i was a l s o
a n o t h e r P h a s e - T r a n s i t i o n r a l l y . We saw t h e g o l d and s i l v e r boom i n t o 1980. A l l o f
t h e s e do n o t emerge because of a debt c r i s i s , but a r e the n a t u r a l e x h a u s t i o n o f a
s p e c u l a t i v e bubble conforming t o t h e P h a s e - T r a n s i t i o n e x p o n e n t i a l move.

The t r a d i t i o n a l s p e c u l a t i v e bubble i s c r e a t e d by a c o n c e n t r a t i o n o f i n v e s t m e n t
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 o f f - e x c h a n g e markets such as r e a l e s t a t e . We saw an. e x c e s s i v e s p e c u l a t i o n i n t o
r e a l e s t a t e 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 t h a t c r e a t e d an advantage t o
i n v e s t i n t o commercial p r o p e r t y . T h i s l e d t o a huge o f f i c e boom t h a t ended up w i t h
a dramatic over-supply.

However, t h e r e i s t h e f a r more dangerous Debt C r i s i s where t h e c o n f i d e n c e i n

the government i s a t s t a k e . U n f o r t u n a t e l y , American h i s t o r y has been l a r g e l y w r i t t e n
w i t h a very l i n e a r view t h a t f a i l s t o grasp t h e g l o b a l p e r s p e c t i v e . A d d i t i o n a l l y , .
t h e r e i s much c o n f u s i o n 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 t o see t h e s p e c u l a t i v e b u b b l e s more so d u r i n g
a P r i v a t e Wave, r a t h e r than a P u b l i c Wave. N e v e r t h e l e s s , where the v a l u e s o f c u r r e n c y
are f i x e d (by decree o r gold s t a n d a r d ) , 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 o n l y when
the p r o s p e c t of greater g a i n s appear on t h e h o r i z o n . T h i s i s what c r e a t e d by t h e
famous South Sea Co Bubble (1711-1720), t h e e x p e c t a t i o n s of f a b u l o u s w e a l t h o f f s h o r e .
There was t h e M i s s i s s i p p i Bubble b u r s t about t h e same time as t h e S o u t h Sea B u b b l e
i n England, t h a t was operated from France and gave b i r t h t o 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 t h a t c o n t r i b u t e d no doubt t o I t s demise j u s t
72 y e a r s l a t e r i n 1792. When i t i s t h e c o n f i d e n c e i n t h e government t h a t i s damaged,
we a r e l o o k i n g a t a s e r i o u s 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 b u b b l e .

Because we a r e d e a l i n g t h i s time w i t h t h e broader r e a l e s t a t e market t h a t i s t h e

home r e s i d e n c e r a t h e r than the commercial, and we a r e d e a l i n g w i t h a w h o l e s a l e bank
c r i s i s , we a r e on the b r i n k o f 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 t h e h o r i z o n . The Great D e p r e s s i o n was a d i s t i n c t breed o f 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 t h e other p a n i c s . I t i s t r u e
t h a t t h e R o a r i n g '20s was a p e r i o d o f i n d u s t r i a l boom b u i l t - u p o n t h e i n n o v a t i o n o f
the a u t o m o b i l e a k i n t o t h e .COM boom. However, what i s n o t looked a t c l o s e l y was t h e
g l a r i n g f a c t t h a t a l l o f Europe went i n t o d e f a u l t . H e r b e r t Hoover's memoirs i s t h e
best account w e l l documented as t o t h e s e e v e n t s . What was not u n d e r s t o o d by A m e r i c a ,
was t h a t c a p i t a l f l e d Europe buying US bonds and n o t e s d r i v i n g i n t e r e s t r a t e s lower
only because i t was seen as a f l i g h t t o q u a l i t y . When t h e r e 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 . T h i s I s a l s o f u r t h e r e d by t h e 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 t o e x p e c t a t i o n s n o t 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 t h e c u r r e n c y .

A Debt C r i s i s combined w i t h a f l o a t i n g exchange r a t e system, w i l l l e a d t o t h e

most v o l a t i l e outcome perhaps we have seen even s i n c e t h e T u l i p m a n i a o f t h e 1600s.
What we a r e f a c i n g i s t h e most d r a m a t i c c o m b i n a t i o n p o s s i b l e . F l o a t i n g exchange
r a t e s t h a t a c t as a medium o f i n t e r n a t i o n a l v o t i n g on t h e c o n f i d e n c e o f 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 t r a n s v e r s e wave
c o n t r a r y t o l o g i c i n a l i n e a r mind. A Debt C r i s i s s i m p l y " I s " ~ d l s t l n g u i s h e d from a~"
s p e c u l a t i v e bubble t h a t r a r e l y produces l o n g - t e r m 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 t h a t d r i v e government i n i t s

t h i n k i n g p r o c e s s . We have reviewed Adam Smith's (1723-1790) most c r i t i c a l c e n t r a l
c o r e of h i s f i n d i n g i n The Wealth o f N a t i o n s (1776), was t h a t everyone a c t s i n
a c c o r d w i t h t h e i r own p e r s o n a l s e l f - i n t e r e s t s . As Smith wrote; " i t i s not from
t h e benevolence o f the b u t c h e r ... t h a t we expect our d i n e r , but from [ h i s ]
r e g a r d t o [ h i s ] own i n t e r e s t . " V o l I , p26-27 ( O x f o r d : Clarendon ed. 1976). What
both Keynes and Marx advocated, was t h a t somehow t h e s t a t e was even c a p a b l e o f
managing t h e 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 t h e
r a i s i n g and l o w e r i n g of t a x a t i o n and i n t e r e s t r a t e s t o cause mankind t o 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 t h e r a t i n a maze, and Marx by t a k i n g a l l t o y s away
from t h e people and l e t t h e s t a t e c o n t r o l w e a l t h . I n t h i s r e s p e c t , Keynes and
Marx show l i t t l e d i f f e r e n c e . T h e i r i d e a s t h a t somehow the s t a t e would be more
c a p a b l e t h a n the people i s absurd. The concept of a planned economy has proven
t o be d i s a s t e r o u s both i n C h i n a and R u s s i a . What everyone seems t o i g n o r e i s t h a t
Smith uncovered the key t o u n d e r s t a n d i n g the system dynamics. I t i s n o t o n l y t h a t
those i n t h e p r i v a t e s e c t o r w i l l pursue t h e i r own p e r s o n a l s e l f i n t e r e s t s as t h e
p o l i t i c i a n s are now p o i n t i n g t o the "greed" o f W a l l S t r e e t , but those i n t h e
f o r t r e s s o f 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 R u s s i a f e l l
from Communism, i t was suddenly r e v e a l e d t h a t behind c l o s e d doors were t h e l u x u r i e s
of c a p i t a l i s m denied the p e o p l e .

Both Marx and Keynes open Pandora's Box ( i n a n c i e n t Greek i t was j a r ) , and
t h e e v i l s t h a t have swept the w o r l d have d e p r i v e d m i l l i o n s o f 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 d e s t r o y e d the l i v e s of so many, when
good t h e o r i e s have p r o v i d e d f o r l i b e r t y and p r o g r e s s t h a t advances mankind. I t i s
not i n the s e l f - i n t e r e s t o f t h e s t a t e t o l i s t e n t o what I have t o s a y , but t h e
t r u t h , n o n e t h e l e s s , s t i l l must be understood.

I have e x p l a i n e d a dynamic w o r l d where t h e v e r y nature of e v e r y t h i n g can be

reduced t o 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 b e t t i n g on a hedge i n t h e A u s t r a l i a n d o l l a r t h a t was wrong.
The Board o f D i r e c t o r s i n s i s t e d t h a t he meet w i t h me. I f l e w i n t o see what I c o u l d
do t o h e l p t h e c o r p o r a t i o n . The CFO was a t f i r s t v e r y h o s t i l e . No m a t t e r what I
t r i e d t o 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 c o i n c i d e n c e .
I then asked him what was h i s background? He s u d d e n l y was on t h e d e f e n s i v e . He then
a d m i t t e d t h a t he was a N u c l e a r P h y s i c i s t by t r a i n i n g . I s a i d g r e a t . L e t us l o o k a t t h e
market through the eyes of thermodynamics, which i s based upon 2 main l a w s . (1)
energy I n a system cannot be c r e a t e d nor d e s t r o y e d , but can be c o n v e r t e d from one
form t o another ( P h a s e - T r a n s i t i o n ) , and (2) t h a t a hot o b j e c t w i l l t r a n s f e r heat t o
a c o l d e r o b j e c t . Entropy based upon the Second Law i s t h a t the d i r e c t i o n toward t h e
maximum chaos or d i s o r d e r w i l l occur w i t h 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 c a r d s , i t i s a h i g h e r p r o b a b i l i t y t h a t t h e c a r d s w i l l move
to d i s o r d e r r a t h e r than f a l l back.to a o r g a n i z e d pattern, j u s t randomly. Once I
s a i d l e t us l o o k a t the markets i n terms o f thermodynamics, h i s eyes opened and
e x c l a i m e d ; "My God. There has t o be a c y c l e ! " The more government t r i e s t o c o n t r o l
t h e m a r k e t p l a c e , the g r e a t e r i t w i l l move t o d i s o r d e r c r e a t i n g huge spontaneous
r e a d j u s t m e n t s back to r e a l i t y .

We a r e l o o k i n g a t t h e peak of t h i s c u r r e n t b u s i n e s s c y c l e t h a t t o o k p l a c e on
February 2 7 t h , 2007 p r e c i s e l y . The r e a c t i o n s h o u l d have been t o t h e downside i n t o
2008, w i t h 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 s e r i o u s 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 t o

43
 r e c o v e r by much. U n l e s s the mortgages are taken out of the banks and a g e n e r a l
fund i s c r e a t e d t o a l l o w p r i v a t e c a p i t a l t o 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 c o n t r a c t i n g f o r some time t o come.

There are a l o t of people espousing the way t o put Humpty Dumpty hack t o g e t h e r
a g a i n . We can t r a i n a dog to l e a r n t r i c k s . But we have t o t r a i n e v e r y i n d i v i d u a l
dog. We can t r a i n a mouse to r u n a maze t o f i n d the cheese. A g a i n , we have t o 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 a r e suppose t o be
m a n i f e s t e d w i t h 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 p e r c e p t i o n and i m a g i n a t i o n , w i t h the a b i l i t y t o f o r m u l a t e i n t o the
f u t u r e because we a r e a l s o s e l f - a w a r e - c o n s c i o u s of o u r s e l v e s and c u r r e n t p o s i t i o n .
D e s p i t e t h i s s u p e r i o r i t y , we a r e 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 . S o l v e the problem i n a s o u n d - b i t e and w i t h the q u i c k - f i x . T h i s I s
what l e a d s t o the Paradox o f S o l u t i o n - where today's q u i c k - f i x becomes the v e r y
e v i l f o r which we now need another q u i c k - f i x on t h e next c y c l e . We may be c a p a b l e
o f being s e l f - a w a r e , but we p r e f e r t o be the r a t i n the maze - keep i t s i m p l e and
s t u p i d , and by the way, where i s the cheese?

The Paradox o f S o l u t i o n

The s o l u t i o n t o the Great D e p r e s s i o n was t o be d e f i c i t s p e n d i n g a t a time when

the i n d i v i d u a l was t o o a f r a i d t o spend and h i d e i n the corner o f t h e maze.-Now we
are f a c i n g a Debt C r i s i s where the c o n f i d e n c e i n the P u b l i c s e c t o r may y e t c o l l a p s e *
We a r e d e a l i n g w i t h a c o n t a g i o n t h a t i s s p r e a d i n g . 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 f u n d the f u t u r e
e n t i t l e m e n t s combined w i t h massive new debt c r e a t e d t o s o l v e c u r r e n t problems, t h a t
may demonstrate once and f o r a l l the t r u e scope o f the Paradox o f S o l u t i o n . The
c r i s i s we f a c e i s where w i l l the f u n d i n g come f o r the new debt, more t h a n S i t r i l l i o n !
There are o n l y t h r e e p o s s i b l e outcomes:

(1) We s e l l the new debt, i t i s absorbed d o m e s t i c a l l y and g l o b a l l y ,

causing..the y i e l d - c u r v e t o 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 t h e 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 t o the debt s o l d o f f s h o r e .
(2) The c o n t a g i o n 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 t o r i s e b r o a d l y
l i m i t i n g s a l e s d o m e s t i c a l l y , c a u s i n g o n l y a r e d i s t r i b u t i o n o f cash
e x t r a c t i n g i t from those who. c o u l d i n v e s t and s t i m u l a t e the economy
w h i l e the e l e c t r o n i c money supply c o n t r a c t s s h a r p l y .
(3) Confidence swings back t o the P r i v a t e S e c t o r (not banks) c a u s i n g
the new debt t o t a k e the form of m o n e t i z a t i o n due t o t h e i n a b i l i t y
to s e l l the new debt e i t h e r d o m e s t i c a l l y or g l o b a l l y .

The Keynesian model t o support Government c o n t r o l and d e f i c i t s p e n d i n g 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 t h e o f f i c e o f a
d i c t a t o r . While Roman p o l i t i c s was based upon a R e p u b l i c whereby the c e n t r a l power
r e s i d e d w i t h i n a s e n a t e , there was the o f f i c e o f two e l e c t e d C o n s u l s . N o n e t h e l e s s ,
where the two c o n s u l s performed perhaps the e x e c u t i v e f u n c t i o n , t h e system a l s o
r e s p e c t e d t h a t at t i m e s a democratic system does n o t work. Sometimes, a d i c t a t o r was
necessary because one man had t o t a k e the r e s p o n s i b i l t y t o a c t r a t h e r t h a n have an
endless course of debates. I noted i n the G r e a t e s t B u l l Market I n H i s t o r y , t h a t
d u r i n g the Great D e p r e s s i o n , s e n a t o r s stood upon the f l o o r of the U.S. Senate and
s t a t e d t h a t 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 t o what we were g o i n g t h r o u g h . The
most famous person t o h o l d t h a t o f f i c e i n Roman h i s t o r y , was L u c i u s Q u i n c t i u s
C i n c i n n a t u s (519-439BC) who handed the t r o o p s back along witlp. t h e powers o f t h e
o f f i c e and r e t u r n e d t o - h i s - 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 c o u l d use t h e i d e a
of magnamious i n t e r v e n t i o n , we f i n d t h a t the Paradox o f S o l u t i o n has c r e a t e d t h e
very problem t h a t p r e v e n t s 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 o f Value i l l u s t r a t e s t h a t the key to
u n d e r s t a n d i n g what i s h o n e s t l y going on, l i k e E i n s t e i n ' s
Theory o f R e l a t i v i t y , i t depends upon the p e r s p e c t i v e of
the o b s e r v e r . The Government immediately p o i n t s t o the
"greed" of the p r i v a t e s e c t o r no m a t t e r what form of a
government we are l o o k i n g a t , and the p r i v a t e s e c t o r now
l o o k s back at the Government. T h i s d i a l e c t i c r e l a t i o n s h i p
i n H e g e l i a n terminology i s f a r too s i m p l i s t i c f o r i t l e a d s
o n l y to the p r o c e s s 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 p r e s e r v e d 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 t h a t t h i s i s a dynamic system

t h a t i s f o r e v e r connected. I t may appear t o 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 t h e eye. W h i l e t h e s e P r i v a t e and P u b l i c a s p e c t s
s i t on o p p o s i t e s i d e of a s c a l e , the f o r c e s t h a t cause
o n e s i d e t o r i s e i n p r o p o r t i o n to the d e c l i n e i n i t s
o p p o s i t e are f a r more complex and are m u l t i - d i m e n s i o n a l .
I t i s t r u e t h a t we are d e a l i n g w i t h 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 o f
o r d e r o r the o t h e r .

The problem we f a c e i s the l a c k o f o b j e c t i v i t y t o comprehend t h a t t h e s e two

s t a t e s a r e i n f a c t connected and c o - e x i s t at a l l t i m e s . We are now l o o k i n g a t t h e
c o l l a p s e i n a s s e t p r i c e s , which i s the r i s e i n t h e p u r c h a s i n g power of t h e u n d e r l y i n g
c u r r e n c y . T h i s i s t a k i n g p l a c e because o f a c o l l a p s e i n the e l e c t r o n i c money s u p p l y
c r e a t e d through the p r i v a t e s e c t o r banks. As l e n d i n g s t o p s , t h e r e a l w o r l d money
supply c o n t r a c t s . Because a s s e t s are v a l u e d i n terms o f currency dependent upon the
s u p p l y , they r i s e r e l a t i v e t o a r i s e i n the q u a n t i t y ( l e v e r a g e ) and c o n t r a c t I n
response t o a c o l l a p s e i n q u a n t i t y ( l e v e r a g e ) .

Keynes was c o r r e c t i n h i s theory t h a t i f Government i n c r e a s e d i t s s p e n d i n g 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 s u p p l y of c a s h w o u l d be then
i n c r e a s e d causing the a s s e t s t o r i s e a g a i n . The money supply i s c r e a t e d by t h e banks
and i s not l i m i t e d i n d e f i n i t i o n t o p u r e l y the paper currency i n c i r c u l a t i o n . Even
i n the t i m e of J u l i u s Caesar, where t h e r e was no paper c u r r e n c y , t h e l e v e r a g e was
c r e a t e d by the l e n d i n g 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 l e v e r a g e c a u s e s t h e v a l u e
o f the money i t s e l f to r i s e i n p u r c h a s i n g power terms. The a c t u a l amount, o f 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
S e r v i c e , US T r e a s u r y , as of 6/30/06). I f we t a k e t h i s as a p e r c e n t a g e o f GBP, which
stood a t 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 s u p p l y
i s only 5% of the economy. Even i f we t a k e $13.2 t r i l l i o n compared t o t h e 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
w i t h o u t bonds or c u r r e n c y , and t h i s i s j u s t the s u r f a c e .

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 t h e p o s s i b i l i t y t h a t a d e f i c i t would

i n c r e a s e the money supply t o 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 u s i n g borrowing, we are merely r e d i s t r i b u t i n g w e a l t h 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 s u p p l y f u r t h e r s o a k i n g up even
a v a i l a b l e cash t h a t the p r i v a t e s e c t o r would put back t o use i f they have t h e p l a i n
o l d f a s h i o n " g u t s " or "courage" to i n v e s t , I d e f i n e as. P r i v a t e C o n f i d e n c e . We a r e
t a l k i n g about the e x p e c t a t i o n of p r o f i t i n the p r i v a t e s e c t o r must exceed t h e r i s k
p e r c e i v e d i n the marketplace i t s e l f . J u s t as I h e l p e d i n t e r n a t i o n a l companies d e a l
w i t h where to l o c a t e i n l i g h t of " c o u n t r y r i s k " t h a t was e s s e n t i a l l y t h e s t a b i l i t y
o f the R u l e o f Law, we are d e a l i n g w i t h the same c o 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
t o c r e a t e a major boom, r e q u i r e s the c o n c e n t r a t i o n o f c a p i t a l .

45
 Comprehending t h e Problem

We must come t o understand t h a t t h i s i s not t h e "greed" on W a l l 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 s l o g a n s l i k e m i n d l e s s pawns
i n a p o l i t i c a l p l a y and d e l i g h t i n our own applause when we l o c k u p hundreds o f
people from W a l l S t r e e t and pretend t h a t was t h e s o l u t i o n . Of c o u r s e t h e r e was
i n s a n e judgment"at AIG t h a t spread through the markets based upon p r o f i t s . But
t h i s has o n l y been t h e c a t a l y s t . F o r j u s t as we saw them w r i t e the d e r i v a t i v e s
with no b a c k i n g o r o f f s e t a t AIG, we have committed the same c r i m e 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 a l s o w i t h no f u n d i n g . The Keynesian
s o l u t i o n was t o t u r n t o the Government t o t a k e up t h e s l a c k . B u t t h e r e i s no s l a c k
and we a r e becoming trapped w i t h i n our own nightmare.

The D i f f e r e n c e Between M o n e t i z a t i o n & Borrowing

I t h a s been presumed that i f we borrow money r a t h e r 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 examin-
a t i o n o f t h e problem r e v e a l s i t s f a l l a c y . The n a t i o n a l debt i s e x p l o d i n g d r a m a t i c a l l y
due t o t h e i n t e r e s t alone. I f we look a t what has m o n <M *. - n -
T *. m n n _ v _ 4.1. 1980 = $1 t r i l l i o n
t a k e n p l a c e i u s t s i n c e 1980, we can see t h a t t h e *,
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 S I t r i l l i o n - ....
* m +. - T I J T" T - ^ n n r i n
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 a r e l o o k i n g a t o n m iMnn ^- 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% i n c r e a s e without i n t e r e s t m a
s i n g l e y e a r . The n a t i o n a l debt stood a t $2,125 bn
i n 1986 t h a t rose t o $8,507 bn i n 2006 amounting to a 400% i n c r e a s e . The i n t e r e s t a l o n e
d u r i n g t h i s same p e r i o d was about $6,142 bn. The i n c r e a s e i n t h e n a t i o n a l debt was
about $6,382 bn. We can see t h a t 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 t h e Government borrows, i t
competes w i t h t h e p r i v a t e s e c t o r s u p p r e s s i n g 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 , b u t - f o r the a v a i l a b i l i t y o f f e d e r a l d e b t . As a n a t i o n , we
a r e no d i f f e r e n t than a young couple who bought whatever they needed u s i n g c r e d i t
cards t o s e t up house, and f i n d t h a t they can no l o n g e r a f f o r d l i f e because o f t h e
i n t e r e s t payments.

Because Government Borrowing Competes

w i t h t h e P r i v a t e Sector - There I s an E q u a l & O p p o s i t e
F o r c e o f 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 i n h e r e n t problem w i t h a p p l y i n g Keynesian t h e o r y , i s t h e 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 t h e o r y o f r e l a t i v i t y where t h e o b s e r v e r on
the t r a i n t r a v e l i n g a t near t h e speed o f 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 t o a m i r r o r on t h e f l o o r . B u t t h e s t a t i o n a r y
o b s e r v e r (Government) see the l i g h t moving sideways as a p u l s e . Here, we cannot
see t h e e f f e c t o f the s t a t i o n a r y observer because o f t h e i n h e r e n t b i a s . Keynes
argued Government c o u l d " s t i m u l a t e " t h e economy when t h e p r i v a t e s e c t o r "was t h e n
c o n t r a c t i n g . But t h a t meant we needed t o i n c r e a s e the money s u p p l y , n o t borrow
the funds t a k i n g from one group and g i v i n g them t o a n o t h e r . T h i s i s moving money
from your l e f t t o your r i g h t pocket, which o f course does n o t change how much
money you a c t u a l l y have i n the system ( p o c k e t s ) .

The K e y n e s i a n model assumed t h a t Government would s t i m u l a t e when needed. Y e t

what took p l a c e , t h e Government d i s p l a c e d t h e economy i n s o f a r as i t became t h e s i n g l e
800 pound g o r i l l a t o whom everyone l o o k s . However, i f i t l a c k s s e l f - a w a r e n e s s and
i s t o o d e l i g h t e d i n i t s own applause, i t cannot and w i l l n o t see t h a t p a r t o f t h e
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 t h e p r i v a t e s e c t o r , i t i s o n l y r e d i s t r i b u t i n g t h e
c a p i t a l - n o t s t i m u l a t i n g the economy a s a whole. Whatever t h e Government s o a k s up
i n c a p i t a l , c r e a t e s an equal and o p p o s i t e e f f e c t o f s u p p r e s s i n g economic growth.
 The F i r s t Law o f thermodynamics a p p l i e s . There i s a f i x e d amount o f e n e r g y
w i t h i n the economy. We can n e i t h e r c r e a t e i t nor d e s t r o y i t . A l l we can do i s
t o 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
c o n c e n t r a t e s i s because t h a t i s the n a t u r a l p r o d u c t of any system. There a r e
people who enjoy working - the w o r k a h o l i c . There a r e those who p r e f e r t o be j u s t
p r o v i d e d 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 r e s e n t t h e w e a l t h
a c q u i r e d by the w o r k - a h o l i c , and demand t h a t such w e a l t h be r e d i s t r i b u t e d t o make
i t " f a i r " because one person s h o u l d not have more than another i r r e s p e c t i v e o f how
much work he does. Communism f a i l e d because they suppresses i n n o v a t i o n t h a t i s the
key t o c r e a t i n g new ages of p r o s p e r t y , i . e . Schumpeter. D i s t r i b u t i o n o f w e a l t h on a
e q u a l b a s i s 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 p e r i o d s l i k e t h e d a r k
ages where t h e r e i s no c o o p e r a t i o n . Even the i n t e r n e t develops i n c l u s t e r s o f web-
s i t e s a c c o r d i n g t o i t s use and t h u s p o p u l a r i t y , not on t h e o r i e s of " f a i r n e s s . "

I t i s one t h i n g to r e q u i r e s o c i a l programs t o ensure the c h i l d r e n a r e t a u g h t ,

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 o f
t h e s e i s s u e s are the very purpose o f banning t o g e t h e r i n s o c i e t y , t o c r e a t e t h e
c o o p e r a t i v e t h a t b e n e f i t s the whole. However, we can n e i t h e r t a k e t h i s i d e a t o t h e
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 ( a n a r c h y ) . There must be
'a balance between the two - the p o l i t i c a l i d e a l s o f J e f f e r s o n & Madison s t a n d i n
s t a r k c o n t r a s t t o the g o a l s of the R e p u b l i c a n s % Democrats t h a t both see t h e
Government as the answer, as d i d Marx t h a t l e d t o g r e a t e r 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 t h a t the Government can make e v e r y t h i n g b e t t e r 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 t h e Government i s not your mother. We
must h o n e s t l y f a c e the f a c t t h a t b o r r o w i n g does not reduce i n f l a t i o n l o n g - t e r m , and
i t w i l l o n l y a c c e l e r a t e the problem. I t i s time t o monetize p a r t of t h e debt a t t h e
very l e a s t , r e s p e c t what i s r e a l l y happening, and stop d e l u d i n g o u r s e l v e s t h a t i f
we borrow a $100 on a c r e d i t c a r d , we somehow are not r e a l l y i n g s p e n d i n g and the
i n t e r e s t i s not important enough t o pay a t t e n t i o n . I f we are g o i n g 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 c i r c u m s t a n c e s w i l l he i n d i c t a f i r m he i s h o p i n g t o
work f o r i n the f u t u r e . We have l o s t our way e c o n o m i c a l l y and p o l i t i c a l l y . We
c o u l d have p r i n t e d $6 t r i l l i o n l e s s s i n c e 1986 had we j u s t monetized a l l o w i n g t h e
money supply t o grow i n at l e a s t t h e p r o p o r t i o n t o the p o p u l a t i o n . I n 1986, t h e
n a t i o n a l debt on a per c a p i t a b a s i s stood a t $8,774 each whereas i n 2006 i t was
$28,504 (source Bureau of P u b l i c D e b t ) . The p o p u l a t i o n has i n c r e a s e d f r o m about
226.5 m i l l i o n t o 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 i n c r e a s e i n t o t a l p o p u l a t i o n about 32% f o r t h i s same p e r i o d . T h i s means t h a t had
the money supply simply been m o n e t i z e d i n p r o p o r t i o n to the p o p u l a t i o n 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
o f $10.2 t r i l l i o n . I f we s u b t r a c t t h e i n t e r e s t payments o f $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 t o
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 p r o p o r t i o n t o 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 l o o k i n g a t what i n God's name we are d o i n g . The f l o a t i n g

exchange r a t e system emerged w i t h o u t p l a n n i n g . T h i s a l t e r e d e v e r y t h i n g i n the f i e l d
o f economics. A l l the t h e o r i e s are from t i m e s l o n g s i n c e past. We r e a l l y need t o
re-examine what i s going on i f we are t o 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 t o do s o ,
w i l l only _ i n v i t e war t h a t i s a byproduct of economic d e p r e s s i o n . The a l a r m c l o c k
j u s t , w e n t o f f . Good Morning A m e r i c a ! Wake up and s m e l l the c o f f e e !

47
 The Paradox o f Value

.We must understand another problem I r e f e r t o as the Paradox o f V a l u e . When

a market c r a s h e s , we measure t h a t -crash i n terms o f t h e c u r r e n c y . 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 w i t h o u t
t r u l y s p r e a d i n g t o other a r e a s . One c y c l e might f i n d i t t o be commodities, t h e
next s t o c k s , and another t h e r e a l e s t a t e . As p r o f i t s a r e earned from .those i n t h a t
p a r t i c u l a r segment, they may i n f l u e n c e o t h e r markets by s p r e a d i n g t h e p r o f i t s . Y e t
t h i s may c r e a t e a t a g - a l o n g e f f e c t t h a t appears t o be more b r o a d l y based, i t i s
d i s t i n g u i s h a b l e I n s o f a r as t h e i n d i v i d u a l segment i s r i s i n g i n a P h a s e - T r a n s i t i o n
w i t h e x p o n e n t i a l gains t h a t i s n o t r e f l e c t e d on an even b a s i s i n a l l o t h e r such
segments. Where the P h a s e - T r a n s i t i o n i s t a k i n g p l a c e on a broad base p e r s p e c t i v e ,
we a r e e n t e r i n g i n t o the zone of t h e Currency C r i s i s t h a t i s j o i n e d a t t h e h i p
o f t e n w i t h t h e Debt C r i s i s o r a t l e a s t a s i g n i f i c a n t d e c l i n e i n P u b l i c C o n f i d e n c e .
When we s e e a b r o a d l y based e x p o n e n t i a l r i s e i n a s s e t v a l u e s i n a l l segments f o r t h e
most p a r t ( w i t h i s o l a t e d e x c e p t i o n s ) , we w i l l be c o n f r o n t e d by t h e Paradox o f V a l u e .

The Paradox o f Value i s the n a t u r a l way t h a t t a n g i b l e a s s e t s r i s e i n v a l u e a s

expressed i n t h e l o c a l c u r r e n c y t h a t 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 t h e p u r c h a s i n g
power o f t h e c u r r e n c y . However, when t h e pendulum swings back t h e o p p o s i t e way, we
now see t h e r i s e i n value o f t h e c u r r e n c y r e l a t i v e t o t h e t a n g i b l e a s s e t s , commonly
c a l l e d a " c r a s h " by p u n d i t s . What i s t a k i n g p l a c e , i s t h e contraction i n leverage
( l o a n s ) reduces the money supply and t h e r e i n c r e a t i n g t h e paradox. Suddenly,, we are'
faced w i t h t h e same amount of c u r r e n c y buying t w i c e t h e amount o f t a n g i b l e a s s e t s .

Paradox o f V a l u e

In a debt - c r i s i s , t h e c e n t r a l
p u r c h a s i n g power o f t h e c u r r e n c y
r i s e s i n p r o p o r t i o n t o the a s s e t
v a l u e 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 a g a i n s t t h e c u r r e n c y , 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 t h e 1990s, a s i m i l a r debt c r i s i s h i t Denmark. The Government took over t h e

banks, and what was c r i t i c a l , they stepped i n t o r e v a l u e t h e a s s e t s . Once t h e s t a t e
made those d e t e r m i n a t i o n s , i t r e l i e v e d t h e burden from t h e p r i v a t e s e c t o r and t h a t
allowed t h e c r i s i s t o be worked out. S i m i l a r l y , we must understand t h e J u l i u s C a e s a r
workout. He appears t o be t h e o n l y head o f s t a t e t o understand the n a t u r e o f t h e
r e a l problem.

In the m i d s t o f a debt c r i s i s , t h e v a l u e o f money r i s e s on a p u r c h a s i n g power

b a s i s . I f t h e house t h a t was purchased was once $500,000, b u t i s now w o r t h o n l y h a l f
t h a t amount, t h e same $500,000 now buys two homes. F o r c i n g t h e homeowner t o now
pay the $500,000 becomes a p r o f i t I n p u r c h a s i n g power terms t h a t i s a k 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 t h e t a n g i b l e a s s e t s and
the value o f t h e currency caused by t h e swing i n c o n f i d e n c e between t h e 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 r e v a l u e d each
p r o p e r t y t o t h e e q u i v a l e n t value a t t h e time t h e l o a n was made. He r e a l i z e d t h a t
when a s s e t s d e c l i n e , i t i s t h e p u r c h a s i n g power o f t h e c u r r e n c y 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 t o the., l e n d e r . . Likewise., one may.
borrow a g a i n s t p r o p e r t y as a hedge a g a i n s t i t s d e c l i n e t a k i n g i n t h e c u r r e n c y now
r
before i t s v a l u e d e c l i n e s . Caesar's p l a n was t o t a k e a l l i n t e r e s t pa3 ments and
p r i n c i p a l payments and apply them t o t h e l o a n t o s e t t l e t h e debt c r i s i s .
 Capital Concentration

One of the c r i t i c a l f a c t o r s I d i s c o v e r e d 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 " t h a t a p p l i e s both d o m e s t i c a l l y as w e l l as g l o b a l l y . Even
the CIA seemed to acknowledge I i n v e n t e d 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 p a r t upon Marxism. I n o t i c e d i n my p e r s o n a l t r i p behind t h e B e r l i n
W a l l i n the l a t e 1970s, was t h a t what Marx had c r e a t e d was a k i n t o the o l d movie
the S t e p f o r d Wives, where everyone seemed s t r i p p e d o f p e r s o n a l I n n o v a t i o n . I f c a p i t a l
were evenly d i s b u r s t i n equal p r o p o r t i o n s t o every person, you would c r e a t e a new
dark age. What makes one s e c t o r or n a t i o n r i s e i s t h e c o n c e n t r a t i o n o f c a p i t a l .

Take the .COM B u b b l e . C a p i t a l c o n c e n t r a t e d w i t h i n t h a t p e r t i c u l a r s e c t o r c a u s i n g

i t t o r i s e e x p o n e n t i a l l y compared to a l l o t h e r s e c t o r s w i t h i n the US share m a r k e t s .
When c a p i t a l c o n c e n t r a t e s i n such a manner, then one s e c t o r can r i s e e x p o n e n t i a l l y .
There i s o n l y a d e f i n e d amount of c a s h w i t h i n a system even when l e v e r a g e d , f o r i t
I s not u n l i m i t e d . I n o r d e r f o r a boom i n one s e c t o r to take p l a c e , c a p i t a l needs
to concentrate i n t h a t s e c t o r . What we see i s the " f l a v o r o f t h e 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 . T h i s i s what c r e a t e s t h e r e a l
"boom" t h a t o f t e n 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 t o $875 i n the f i n a l month.

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

Pacific

C a p i t a l flows from r e g i o n to
r e g i o n and from c o n t i n e n t to
c o n t i n e n t . The f l o a t i n g r a t e
system i n c u r r e n c i e s f o s t e r s
g r e a t e r i n c e n t i v e s , to move
a t f a s t e r r a t e s than
previously i n history.

There i s a l s o a f i n i t e q u a n t i t y o f c a p i t a l w i t h i n the g l o b a l economy. As I

e x p l a i n e d 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 b a s i s . I f the e x p e c t a t i o n i s t h a t the s t o c k market w i l l " r i s e i n t h e U.S.
by 30%, then as long as the currency i s s t a b l e , expected t o r i s e , o r a t l e a s t not
d e c l i n e by more than 10%, f o r e i g n c a p i t a l w i l l be a t t a c k e d i f t h i s n e t r e t u r n would
be g r e a t e r 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 d i v e r s e . One c o u l d see the c a p i t a l f l o w s i n the room. I t became o b v i o u s t h a t
the same a d v i c e to one person denominated i n Swiss f r a n c s had to be d i f f e r e n t from
t h a t given to a Canadian. I t was Adam Smith a l i v e and w e l l . What became o b v i o u s , was
c a p i t a l w i l l c o n c e n t r a t e 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 f o 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 t o i n v e s t d o m e s t i c a l l y . The N i k k e i Index r o s e s h a r p l y i n t o
December 1989. When I f l e w to Tokyo t o meet w i t h c l i e n t s t h e r e , I r a n i n t o b r o k e r s
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 B u b b l e i n Tokyo was
caused by the c a p i t a l c o n c e n t r a t i o n . When i t b u r s t , i t moved to S o u t h e a s t A s i a ,
then i t moved back to Europe f o r the b i r t h o f the Euro. The f l o w o f c a p i t a l c r e a t e s
the e x c e s s i v e growth i n " r e a l " money s u p p l y , f r e e i n g up dead a s s e t s d o m e s t i c a l l y and
i n c r e a s i n g the e x p o n e n t i a l P h a s e - T r a n s i t i o n .

49
 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

s i m p l y d i e a n a t u r a l death through the f o r c e s of p u b l i c
and p r i v a t e confidence swings t h a t 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 e x t e r n a l winds of i n t e r n a t i o n a l f o r c e s t h a t 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 o f Germany. The f a t e o f a l l economies swing i n
a constant s t a t e of confidence between two o p p o s i t e poles -
the p r i v a t e and p u b l i c c o n f i d e n c e .

To see the Dow Jones c o l l a p s e t o 3,500, what p r e c i s e l y would cause such a m a j o r

d e c l i n e ? Does the a c t u a l v a l u e d e c l i n e i n terms o f purchasing power? Or i s i t j u s t
t h a t the purchasing power o f the c u r r e n c y r i s e s a g a i n s t a l l t a n g i b l e a s s e t s ? In* o r d e r
f o r the D e f l a t i o n a r y S p i r a l t o u n f o l d , as was the case i n the' c r a s h of 1929, the
c u r r e n c y must be of a steady q u a n t i t y and p e r c e i v e d to be a p r e s e r v a t i o n o f c a p i t a l .
D u r i n g 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 t o t h e n
p r e s e r v e i t s e l f . I t was not a q u e s t i o n of p r o f i t or even y i e l d . D u r i n g s u c h a t i m e ,
c a p i t a l i s s a t i s f i e d w i t h v i r t u a l l y zero r e t u r n . R a i s i n g and l o w e r i n g 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 r o s e t o r e c o r d h i g h s going i n t o 1932 not t o 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 t o about 1%, but t o f l e e t h e p l a i n
u n c e r t a i n t y i n Europe.

The Dow Jones I n d u s t r i a l Index c o u l d swing t o r e c o r d h i g h s i f i t managed to g e t

back above the 13,500 g e n e r a l a r e a on a monthly c l o s i n g b a s i s . The economic r e a l
growth p r o s e c t s l o o k dismal i n any event going i n t o 2011. Could t h e Dow s t i l l r i s e
t o new h i g h s i n the middle of s h e e r chaos? The answer i s yesJ T h i s would not be
a happy outcome to say the l e a s t d e s p i t e the numbers, f o r we- a r e 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, g o l d 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 s t r u g g l e 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 s h e e r

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 y e a r began on
October 1 s t , 2008. We know t h a t 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 p r o b a b l y a t 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, t o whom i s
c r i t i c a l . I f the s a l e were p u r e l y t o the domestic market, t h i s would become a z e r o -
sum game from a money-supply p e r s p e c t i v e . Somone w i t h cash, buys t h e bonds, the c a s h
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 C h i n a , t h e n new cash
e n t e r s 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 t h a t i s more i n f l a t i o n a r y t h a t a c o n t r a c t i n g r e d i s t r i b u t i o n .

Now, we can see i n our c u r r e n t monetary system s t r u c t u r e , i f the c o n t a i g o n 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 G r e a t D e p r e s s i o n w i t h
n a t i o n s f a i l i n g t o understand what i s going on once again. I f debt c a n n o t be s o l d i n
the domestic market, r a t e s w i l l r i s e beased upon a huge i n c r e a s e i n s u p p l y . I f the
confidence i n the P u b l i c S e c t o r 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 t h a t would l e a d t o a P r i v a t e S e c t o r wave of H y p e r - I n f l a t i o n t h a t i s
the c o l l a p s e i n the value of the c u r r e n c y i n purchasing power terms. T h i s becomes the
P h a s e - T r a n s i t i o n outcome t h a t p h y s i c s may c a l l s u b j e c t t o Power Laws. To .survive, we
must respect t h a t the leverage i n the.banks i s c o l l a p s i n g . That i s a money-supply t h a t
i s imploding when such e l e c t r o n i c money i s c r e a t e d 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 t h e w o r l d economy t o
even approach the c o r r e c t s o l u t i o n . We are p a i n t e d 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 m o n e t i z e
i n combination w i t h borrowing i n a d e l i c a t e b a l a n c e . I f we borrow e v e r y t h i n g , we
w i l l e x t r a c t cash needed to s t i m u l a t e the economy t o cover l o s s e s by t h e B a n k e r s .
T h i s w i l l p l a c e the n a t i o n at r i s k o f 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 t o 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 t h e F e d e r a l R e s e r v e , .
S e c u r i t i e s & Exchange Commission, and the Commodity F u t u r e s T r a d i n g Commission
a l l c l a i m i n g the power t o r e g u l a t e ? I n t r u t h , the o n l y r e g u l a t i o n enforced i s
a g a i n s t t h e s m a l l firms-, never the b i g houses who h i r e the Government a t t o r n e y s
s t r a n g e l y enough. We have t o q u e s t i o n whether or not a system t h a t h i r e s young
a t t o r n e y s , a l l o w s them t o decide who t o prosecute e x c l u s i v e l y , and then run t o
a b i g p a y i n g p r i v a t e s e c t o r j o b as soon as they make a name, f o r themselves i s n o t
j u s t c o n t r a r y to the purpose o f r e g u l a t i o n ? W i l l someone h a r s h l y r e g u l a t e a f i r m
w i t h whom they i n t e n d to take one of those " b i g " p a y i n g j o b s l a t e r ? Not l i k e l y .
Government A t t o r n e y s who prosecute the laws a r e r a r e l y c a r e e r p e o p l e , 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 e x c e s s i v e r e g u l a t i o n of s m a l l b u s i n e s s , and v i r t u a l l y no r e g u l a t i o n
o f the b i g b u s i n e s s e s . The CFTC w i l l abuse i t s power t o f u r t h e r c a r e e r s a g a i n s t
the s m a l l f i r m s , but under no c o n d i t i o n s has i t brought a major enforcement a c t i o n
a g a i n s t any b i g houses. The f u t u r e s and o p t i o n s markets i n w h i c h the p u b l i c can
t r a d e are o v e r r e g u l a t e d , w h i l e the e x i s t a n c e of i n t e r b a n k d e r i v a t i v e markets a r e
not r e g u l a t e d a t a l l and t h e r e i s no exchange s t a n d i n g between p a r t i e s t o ensure
t h a t t h e r e 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 t h e r e s i m p l y been u n i f o r m r e g u -
l a t i o n r e q u i r i n g an exchange, t h e r e would be no major c o n t r a c t i o n i n l e v e r a g e . r i g h t
now and we would have r e a l w o r l d t r a n s p a r e n c y . T h i s s t r o n g l y s u g g e s t s t h a t we need
t o get r i d of the SEC and CFTC and merge them i n t o the F e d e r a l Reserve c h a r g i n g i t
w i t h the s o l e r e g u l a t i o n o f a l l f i n a n c i a l markets and banking under one c o o r d i n a t e d
r o o f . We cannot not a f f o r d the incompetency o f o v e r l a p p i n g a g e n c i e s w a s t i n g money
t h a t o b v i o u s l y does not p r o v i d e any major p r o t e c t i o n f o r the economy.

T h i s i s the same age o l d problem r e s u r f a c i n g a l l the t i m e , j u s t w i t h a d i f f e r e n t

t w i s t w i t h r e s p e c t t o the p r o d u c t , and who i s t h e t a r g e t e d m a r k e t . What we a r e now
l o o k i n g a t i s yet another form of the Orange County c o l l a p s e . Chairman o f Temple
U n i v e r s i t y was a f r i e n d o f mine - R i c h a r d Fox. B e f o r e the Orange County d e b a c l e ,
M e r r i l l Lynch approached Temple o f f e r i n g a p r o d u c t f o r t h e i r t r u s t f u n d p r o m i s i n g
h i g h e r y i e l d s . D i c k t o l d them t o run i t by me f i r s t , and they f l e w i n from C h i c a g o .
The scheme b a s i c a l l y was t o l e v e r a g e say $1 m i l l i o n i n t o $10 b u y i n g l i k e 30 y e a r |
bonds and s e l l i n g a l i k e amount o f 10 y e a r , r e f l e c t i n g the s p r e a d back t o the base :
investment m u l t i p l y i n g the y i e l d . I p o i n t e d 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 d e a l and argued i t would be a b r e a k - e v e n , I
d e c l i n e d t o recommend i t , .and they t o l d Temple I was i n the b u s i n e s s t o o l o n g 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 t h e
"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 o f the New York Times wrote an a r t i c l e on the c u r r e c n t AIG ;

c r i s i s t h a t appeared on September 28th, 2008 a t the f r o n t page. G r e t c h e n understood
t h a t t h i s t i m e the "medium" they s e l e c t e d was n o t c o r p o r a t i o n s o r s m a l l governments. j
They s e l e c t e d mom & pop mortgages.They were put i n t o " p o o l s o f l o a n s 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 t h e 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 s o l d i n r e a l i t y i n s u r a n c e "
through i t s banking arm t h a t was a very a g g r e s s i v e t r a d i n g u n i t on i t s own. S i n c e
t h e r e was no r e g u l a t i o n of i n t e r b a n k d e r i v a t i v e s o f t h i s n a t u r e , t h e r e was no s u c h
c o l l a t e r a l requirement as e x i s t i n i n s u r a n c e . That was the p r o b l e j

As Gretchen Morgenson e x p l a i n e d , i t was J.P. Morgan t h a t approached AIG

London t r a d i n g u n i t w i t h a c r e a t i v e idea t h a t AIG s h o u l d w r i t e i n s u r a n c e 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 "
o t "CDO" f o r s h o r t . The London o p e r a t i o n c r e a t e d u n c o l l a t e r a l i z e d i n s u r a n c e
f o r i n s t i t u t i o n s h o l d i n g the CDOs. T h e i r revenue jumped from $737 m i l l i o n i n
1999 t o $3.26 b i l l i o n i n 2005 a c c o r d i n g to Morgenson. These i n s u r n a c e 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 r a t h e r than the i n s u r a n c e company, t h a t was not s u b j e c t
to the same r e g u l a t i o n s t h a t r e q u i r e c o l l a t e r a l t o w r i t e i n s u r a n c e . T h i s a l l o w e d
t h e CDS market t o 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 s h a r p l y and even European banks began t o get i n v o l v e d
as i n s u r a n c e f o r p o r t f o l i o s . This e n t i r e mess c r e a t e d a f a l s e sense of c o n f i d e n c e
and allowed r i s k concerns t o take a back-seat. The mortgage market was f u r t h e r
expanded because i t became presumed t h a t one c o u l d i n s u r e a g a i n s t d e f a u l t and
o f course t h e r e was Fannie Mae & F r e d d i e Mac w i t h i m p l i e d AAA r a t i n g s . Bankers
became c a r e l e s s , assuming t h a t debt c o u l d be i n s u r e d so why r e a l l y b o t h e r about
the q u a l i t y ? The AIG London U n i t may be the s o u r c e of the c o n t a g i o n , but i t was
t h e absence o f any r e g u l a t i o n of i n t e r b a n k d e r i v a t i v e s t h a t i s the problem.

O b v i o u s l y , going forward, we need one e n t i t y , not m u l t i p l e , t h e same way t h e y

c r e a t e d the Homeland S e c u r i t y Agency post-911 f o r they found t h a t numerous a g e n c i e s
d i d not c o o r d i n a t e and had i n f o r m a t i o n t h a t o t h e r s d i d not know about. C o n s e q u e n t l y ,
f o r a s t a r t , we need t o f o l d the SEC and CFTC i n t o the F e d e r a l Reserve w i t h one
r o o f 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 t o g e t h e r . End t h e d u p l i c a t i o n ,
t h a t i s p a i n f u l l y s e l f - e v i d e n t , w o r t h l e s s I L i k e w i s e , the Department of J u s t i c e must
a l s o 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
s h o u l d be the F e d e r a l Reserve. We don't need more p r o s e c u t i o n s o f f i r m s t h a t send
unemployment h i g h e r j u s t to f u r t h e r the i n d i v i d u a l c a r e e r s 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 t r a n s p a r e n t so the p u b l i c knows why some f i r m s a r e charged
and o t h e r s are not. We need a c o n s i s t e n t Rule o f Law.

A t t a c k i n g the Shorts

The t u r m o i l t h a t l e d t o the 1934 t u r n i n g p o i n t and R o o s e v e l t ' s c o n f i s c a t i o n

was again a f r o n t a l a t t a c k upon the f i n a n c i a l m a r k e t s . T h i s time, t h e Senate a l s o
launched i n v e s t i g a t i o n s t h a t Herbert Hoover a p o l o g i z e d 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 a t h i s t o r y c l a i m i n g t h a t was then - t o d a y 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 t o a t t a c k
the " s h o r t " p l a y e r s . 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 P a n i c of 1907.
During the 1930s, everyone o f s i z e was subpoenaed b e f o r e the Senate and i n t e r r o g a t e d
as t o were they " s h o r t " as i f t h a t was proof of b e i n g a t r a i t o r .

The s t o c k market f e l l by about 90% i n t o the 1932 low. T h i s d e c l i n e was so

massive because o f 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 s h o r t 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 w i t h no r e a l w o r l d
experience f a i l t o get, i s t h a t when a market i s c r a s h i n g , o n l y the s h o r t p l a y e r
has the courage t o buy d u r i n g a d e c l i n e to take a p r o f i t . S h o r t - c o v e r i n g p r o v i d e s
the appearance o f 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 t h e s h o r t - c o v e r
r a l l y comes, even government c h e e r s , 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. S h o r t s p r o v i d e the balance and can a l s o c r e a t e r a l l i e s when t h e r e i s none.

The witch-hunts w i l l b e g i n . Every time t h e r e i s a d e c l i n e the Government l o o k s

f o r the s h o r t s . They hate them. To be s h o r t becomes t r e a s o n i n t h e i r mind, which o f
course cannot understand how the markets work and u s u a l l y become more o f a b u l l i n
a c h i n a shop..__ . ._ ._ . ... . - -

LAW Number 1: NEVER OUTLAW SHORT SELLING

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 H e r b e r t Hoover a p o l o g i z e d f o r the i n v e s t i g a t i o n s . The t r e a t m e n t o f those i n the
f i n a n c i a l markets t h a t i n c l u d e d b r o k e r s and I n v e s t o r s 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 t h a t t h e C o n s t i t u t i o n means v e r y l i t t l e . Hoover w r o t e ; "Sometimes
when a government becomes enraged, I t burns down the barn t o get t h e r a t . "

Abuse o f 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 t h a t took p l a c e d u r i n g the 1930s were d e v a s t a t i n g t o t h e

economy. Herbert Hoover r e c o g n i z e d what took p l a c e a f t e r the f a c t . But i t d i d not
change the outcome. The c l a i m s t h a t both the Democrats and R e p u b l i c a n s a r e g o i n g
to t a r g e t the "greed" on W a l l S t r e e t , we must r e s p e c t t h a t the l i k e l y outcome o f
t h i s w i l l be to send the- United STates back i n t o the p r i m a t i v e dark ages. We have
a l r e a d y 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 w o r l d . That now
belongs t o London because of the abuse o f p r o s e c u t i o n g e n e r a l l y .

I a p o l o g i z e f o r h a v i n g to c i t e my own c a s e , 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 t o f l e e . My lawyers a t P r o s k a u e f 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 o b l i g a t e d t o i n f o r m them o f my
case t h a t has changed t h e e n t i r e f o u n d a t i o n of c o r p o r a t e law. Once they e x p l a i n e d
t h a t now a t e r r o r i s t has more r i g h t s t h a n a c o r p o r a t e o f f i c e r , then decided t o k i l l
the i d e a of opening i n New York. A t common law, c o r p o r a t i o n s c o u l d n o t be c r i m i n a l l y
p r o s e c u t e d i n England i n 1789, but t h e i r o f f i c e r s c o u l d be. The Second C i r c u i t c o u r t
o f a p p e a l s i n New York, h e l d t h a t s i n c e a c o r p o r a t e had no r i g h t s , t h e n n e i t h e r d i d
I. T h i s r u l i n g by C h i e f Judge John Walker shocked t h e w o r l d . I t was t o j u s t i f y , the
i m p r i s o n i n g of myself f o r more t h a n 7 years w i t h o u t any r i g h t t o a t r i a l o r any r i g h t
to an a p p e a l . He h e l d you can j u s t be thrown i n t o a c e l l where you can d i e s i m p l y
because you had the a u d a c i t y to s u r r e n d e r a l l p e r s o n a l r i g h t t o 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 w e a l t h i s the Rule o f Law. Judge Walker
would r a t h e r expand p e r s o n a l powers o f judges t h a n defend what makes c a p i t a l i n v e s t .

One o f the b i g problems i n f i n a n c i a l cases i s t h e a b i l i t y t o I n d i c t w i t h o u t any

a c c o u n t a b i l i t y or t r a n s p a r e n c y . I n a major case i n New Hampshire i n v o l v i n g E n t e r a s y s
Networks, I n c . the former'Governor was the main s h a r e h o l d e r . 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 ex-
posed f o r a c c o u n t i n g 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 R o b e r t 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 t o 11 y e a r s , a l i t t l e more t h a n 1 year f o r every week he worked.
The US A t t o r n e y had to s t e p down, but not h i s o f f i c e , because o f the p o l i t i c a l t i e s .
The f r a u d becomes G a g a l i s was g i v e n $2 m i l l i o n i n s t o c k o p t i o n s t o t a k e the j o b , but
they were not v e s t e d . So the t h e o r y becomes, he commits the cover-up t o e v e n t u a l l y
make the $2 m i l l i o n i n t h e f u t u r e .

In 2000, the U n i t e d S t a t e s had 50% of a l l w o r l d IPOs (new s t o c k o f f e r i n g s ) . I f

you were not l i s t e d on t h e New York Stock markets, you were a nobody. Today, t h e
c a p i t a l has been d r i v e n o f f s h o r e t o s t a y as f a r away from these a b u s i v e 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 t o l e s s t h a n 5%. I t
has t r a n s f o r m e d the U n i t e d S t a t e s i n t o a w a s t e l a n d . With the new w i t c h - h u n t s a b o u t
to b e g i n , i t i s u n l i k e l y t h a t anyone w i l l f i n d an u n d e r w r i t e r i n the US and we may
be back t o 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 v e r y 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 t o t r y t o p i n some p o l i t i c a l
reason to d e s t r o y him. They were not s u c c e s s f u l . They i g n o r e d n o t j u s t the f a c t t h a t
Morgan helped the. n a t i o n i n 1893, 1896 and 1907, but t h a t h i s e f f o r t s t o f u n d new
p r o j e c t s c r e a t e d I n t e r n a t i o n a l H a r v e s t e r , AT&T, and G e n e r a l E l e c t r i c . C o n g r e s s t r i e d
very hard t o destroy Morgan. I n those days, c o n s p i r a c y laws were both abused a s t h e y
are today. A r t i c l e I I I o f the C o n s t i t u t i o n d e f i n e s what I s t r e a s o n because t h e K i n g

53
 would c l a i m t h a t v i o l a t i n g any law was t r e a s o n . Today, they have a c c o m p l i s h e d t h e
same tyranny u s i n g c o n s p i r a c y by t h r e a t e n i n g one person w i t h l i f e imprisonment u n l e s s
he agrees t o say whatever the government needs t o c o n v i c t o t h e r s . C o n s p i r a c y i s
o n l y an "agreement" t o do something t h a t never a c t u a l l y takes p l a c e . C o n s p i r a c y was
i n v e n t e d i n E n g l i s h law by the King t o get h i s enemies. There may have been an
American R e v o l u t i o n , but i n a l l honesty, we a r e s t i l l but " s u b j e c t s " o f the new
crown. The o l d maxim "The k i n g i s dead. Long l i v e t h e k i n g " i s s t i l l a l i v e and w e l l
in the United States.

Perhaps you may r e c a l l C h a r l e s K e a t i n g . He was h e l d up as t h e p o s t e r - b o y f o r

the SSL C r i s i s . He was found g u i l t y on a t h e o r y t h a t he c o n s p i r e d t o s e l l bonds
he knew he intended t o d e f a u l t on 7 years l a t e r . Who p l a n s t o go bankrupt 7 y e a r s
i n advance? The t h e o r i e s used a r e d i s c o n n e c t e d from r e a l i t y , but t h e y use t h e amount
of money t o p o r t r a y 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 p e r s o n a l account as i n my case. I n f a c t , t h e r e was n o t even a d e f a u l t and
where t h e p r i v a t e notes were simple unsecured c o n t r a c t borrowings o f Japanese y e n ,
they c o n s t r u c t i v e l y c l a i m e d t h a t a l l t r a d i n g i n t h e U n i t e d S t a t e s was f o r t h e b e n e f i t
of a n o t e h o l d e r even when t h e notes p a i d o n l y a f i x e d r a t e o f i n t e r e s t . The j u d g e s
are w o r t h l e s s , f o r t h e c o u r t s a r e s t a c k e d w i t h pro-government j u d g e s t h a t w i l l never
r u l e a g a i n s t t h e p r o s e c u t o r - they a r e on t h e same team. No m a t t e r much I t r i e d t o
f i g h t , i t mattered n o t . B a s i c a l l y , t h e t h e o r y became i f you borrow money from a back,
1
you a r e somehow c o n s t r u c t i v e l y managing monej " f o r t h e bank, even when t h e bank'has
no l e g a l t i t l e t o any investments be t h e r e a p r o f i t o r l o s s .

The treatment o f Howard Huges by Congress was a l s o d i s p i c a b l e . Whenever t h e r e

I s a p r i v a t e i n t e r e s t t h a t can c o n t r o l t h e p o l i t i c a l process as Pan Am d i d t o t r y
to d e s t r o y Hughes, t h e d i g n i t y o f t h e government s u f f e r s . But l i k e w i s e , whenever t h e
Government c r e a t e s t h e mess, they hunt f o r those i n t h e p r i v a t e s e c t o r t o s a c r i f i c e
to t h e mob. Under t h e abuse o f C o n s p i r a c y , t h a t t h e non common-law n a t i o n s never
adopted as a crime i n Europe, both Hughes and Morgan would have been c o n v i c t e d i n
today's c l i m a t e . The McCarthy witch-hunts a r e a n o t h e r 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 t h e 37.33 Y e a r l y C y c l e h i t s , t h e 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 t h e 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
d u r i n g p o l i t i c a l w i t c h - h u n t s . They w i l l be rounding-up c o u n t l e s s p e o p l e t h i s t i m e
f o r t h i s event. '

The Abandonment o f t h e Rule o f Law

Leads t o t h e D e s t r u c t i o n o f N a t i o n a l Wealth

I n i n t e r n a t i o n a l investment, t h e common term one h e a r s . i s " c o u n t r y r i s k " t h a t

t r a n s l a t e s i n t o t h e l a c k of a c o n s i s t e n t Rule o f Law. At t h e c o n f e r e n c e i n 1997
w i t h former Prime M i n i s t e r of Great B r i t a i n , Lady Margaret T h a t c h e r , a member o f
the a u d i e n c e asked t h e q u e s t i o n , "Which country would you i n v e s t i n . R u s s i a o r China?"'
Lady Thatcher s t a t e d she would n o t i n v e s t a dime i n e i t h e r , because they d i d n o t
r e s p e c t t h e Rule o f Law. Indeed, the R u l e o f Law I s t h e c o r n e r s t o n e o f c a p i t a l i s m
t h a t cannot e x i s t as l o n g as judges c l a i m t h e u l t i m a t e power o f " d i s c r e t i o n " t o
w i t h h o l d the judgment o f law. I n the New Testament a t Luke 18 i s t h e p a r a b l e o f t h e
c o r r u p t judge and t h e widow. The Widow keeps p e t i t i o n i n g f o r h e r r i g h t s . The j u d g e
b e l i e v e s he has so much power, he has t h e d i s c r e t i o n t o w i t h h o l d t h e judgment o f
law. J e s u s C h r i s t h i m s e l f r e f e r s t o t h i s as a c o r r u p t j u d g e . I n Magna C a r t a we f i n d
the same complaint t h a t the K i n g agrees t o a p p o i n t o n l y those who know the l a w and
are w i l l i n g t o 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 c o u r t s a r e s t a c k e d t o a l t e r the R u l e o f Law t o p r e f e r one r e l i g i o n , c l a s s , o r
group a g a i n s t a l l o t h e r s . This was l i k e t h e Supreme Court d e c i s i o n o f Dred S c o t t
(1795-1858) whose case was decided by a pro-Government c o u r t r u l i n g t h a t b l a c k s
were merely p r o p e r t y . That was t h e Supreme Court o f t h e U n i t e d S t a t e s , ( S c o t t v
Sanford (1857). Then t h e r e was t h e Japanese i n t u r n m e n t Korematsu v US (1948) t h a t
a l l o w e d c i t i z e n s t o be a r r e s t e d merely because o f t h e i r a n c e s t r y .
 U n f o r t u n a t e l y , t h e Rule o f Law i n the U n i t e d S t a t e s i s f a r f r o m any b i n d i n g r u l e
and the f e d e r a l c o u r t s have been s t a c k e d w i t h " c o n s e r v a t i v e " j u d g e s who are no more
" c o n s e r v a t i v e " t h a t FDR. The c o u r t s have once a g a i n been stacked w i t h j u d g e s t h a t w i l l
o n l y r u l e i n f a v o r of the Government. The c r i m i n a l c o n v i c t i o n r a t e o f t h e infamous
S t a r Chamber was about 96%, The S p a n i s h I n q u i s i t i o n was about 97%. These a r e the most
n o t o r i o u s 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. A t t h e v e r y
l e a s t , the c o n v i c t i o n r a t e i n the U n i t e d S t a t e s I n f e d e r a l c o u r t s i s now 98.5-99%.
We have even surpassed A d o l f H i t l e r . T h i s Idea t h a t the government must a l w a y s 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 t r u e .

" I t has long ... been my o p i n i o n ... t h a t the germ of d i s s o l u t i o n o f

our F e d e r a l 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 s c a r c e l y a s c a r e c r o w , )
working l i k e g r a v i t y by n i g h t and by day, g a i n i n g a l i t t l e t o d a y 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 f r o m t h e
S t a t e s , and the government of a l l be c o n s o l i d a t e d i n t o one."
The W r i t i n g s of Thomas J e f f e r s o n , Chp XV, p331-32.

The independency of the c o u r t s I s gone. Even the Supreme Court has a b d i c a t e d

i t s c o n s t i t u t i o n a l duty and by R u l e 10, i t has h e l d t h a t 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 j u d g e who p o l i t i c a l l y decides your c a s e , r u l e s
o n l y f o r the the Government, the a p p e l l a t e c o u r t w i l l rubber stamp w h a t e v e r t h e
government wants ( j u s t look a t the r a t i o of c o n v i c t i o n s o v e r t u r n l e s s t h a n 1%),
and then you have no r i g h t to be heard by the Supreme Court. So much f o r Due P r o c e s s
o f Law and Equal P r o t e c t i o n . The p u r e 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 c r i m e s ,
DNA evidence has overturned more t h a n 1,000 c o n v i c t i o n s f o r murder and r a p e . One
must ask, how are so many innocent p e o p l e being c o n v i c t e d ?

The abandonment o f the Rule o f Law i n f a v o r o f 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 p l a c e s l i k e Cuba and I r a n . The R u l e o f Law
i s the cornerstone of a n a t i o n ' s w e a l t h . T h i s was a l s o noted by W i l l i a m E a s t e r l y o f
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 L e v i n e of U n i v e r s i t y o f M i n n -
e s o t a . Back i n 2002, t h e y 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 q u e s t i o n they asked: "What makes one country r i c h e r than a n o t h e r ? " One would
assume the w e a l t h of a n a t i o n i s determined by i t s n a t u r a l r e s o u r c e s , i t s i n f r a s t r u c -
t u r e , and perhaps i t s p r o d u c t i v e c a p a c i t y w i t h a s k i l l e d l a b o r f o r c e . What E a s t e r l y
and Levine found was t h a t the most s i g n i f i c a n t f a c t o r t h a t determines the w e a l t h o f
a n a t i o n was i t s s o c i a l technology t h a t was b u i l t upon the R u l e of Law t h a t s e c u r e d
p r o p e r t y r i g h t s , a w e l l - o r g a n i z e d b a n k i n g system, economic t r a n s p a r e n c y , l a c k o f
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 n o t d i s p u t e
t h e i r f i n d i n g s , my p e r s o n a l s p e c i a l t y of i n t e r n a t i o n a l c o r p o r a t e a d v i s o r y work, t h e
Rule of Law was the number one f a c t o r . I f t h e r e was no c o n s i s t e n t R u l e o f Law, a l l
o t h e r c o n s i d e r a t i o n s became secondary. I f you c o u l d 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 f o r c e d t o count y o u r
f i n g e r s a f t e r shaking hands, who needs t h e r i s k .

R e c e n t l y , there has been an o u t c r y to r e g u l a t e s p e c u l a t i o n i n o i l . On September

12th, 2008, the W a l l S t r e e t J o u r n a l r e p o r t e d t h a t even Walter Lulcken, the A c t i n g
Chairman of the Commodity F u t u r e s T r a d i n g Commission ("CFTC"), warned about more
r e g u l a t i o n may " f o r c e b u s i n e s s o v e r s e a s . " Id/page C3. The b a c k l a s h t o the e n t i r e
ENRON, WoldCora, Tyco p r o s e c u t i o n s 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 t h a t has c r e a t e d such d r a c o n i a n p e n a l t i e s , the U n i t e d S t a t e s l o s t i t s
f i n a n c i a l s t a t u r e of b e i n g the F i n a n c i a l C a p i t a l of the World.

55
 The D e s i r e To P u b l i c l y P u n i s h
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 S e c r e t a r y of the Treasury's attempt to s l i p i n

an immunity c l a u s e 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 a l s o cannot a f f o r d a w h o l e s a l e p r o s e c u t i o n t o 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 b l o o d i n some i n h e r e n t p r i m i t i v e need t o get even. There
are those who h o n e s t l y committed c r i m e s , but t h e r e a r e 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.

R e c e n t l y , the New York Times r a n 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 B e n e d i c t Carey. I t was p o i n t e d
out t h a t t h e r e may j u s t be a h a r d - w i r e response i n people t h a t needs t o p u n i s h . I t
was a l s o r i g h t l y e x p l a i n e d ; "Some e x p e r t s b e l i e v e t h a t Japan's d i s a s t r o u s d e l a y 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 p a r t by a c o l l e c t i v e urge t o
p u n i s h c o r r u p t bankers, and they f e a r a s i m i l a r outcome today." I d / F r o n t page. The
New York Times e x p l a i n s t h a t t h i s may j u s t be i n s t i n c t i v e . American c o u r t s a r e not
of a f o r g i v i n g nature, and w i l l do e v e r y t h i n g i n t h e i r power to i n f l i c t punishment
on those who appear b e f o r e them t o extremes. T h i s may be c y c l i c a l . For t h e C r u e l &
Unusual Punishment p r o h i b i t i o n i n the E i g h t h Amendment was d i r e c t e d at t h i s v e r y
problem of a r r o g a n t j u d g e s . The famous t r i a l of T i t u s Oats may be t h e s o u r c e f o r
t h e n o v e l 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 o f p e r j u r y ,
a misdemeanor at the time. L o r d C h i e f 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 -
t h a t s i n c e i t was only a misdemeanor and not a f e l o n y t h a t was s u b j e c t t o d e a t h ,
the judges c o u l d do whatever they wanted, as l o n g as they d i d not o r d e r h i s d e a t h .
J e f f r e y s ordered t h a t Oats would walk the l e n g t h of London f o r 2 days w h i l e b e i n g
whipped. He would then be p l a c e d i n t h e p i l l o r y ( s t o c k s ) i n t h r e e l o c a t i o n s i n
London where c i t i z e n s c o u l d throw v a r i o u s items a t him. He then sentenced him t o
l i f e imprisonment, but on the a n n i v e r s a r y of h i s c r i m e , each year he had t o r e p e a t
the same punishment. Judges have h i s t o r i c a l l y viewed the punishments they o r d e r t o
be a form of p e r s o n a l vengeance d u r i n g 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 a g a i n . Under B i b l i c a l law, p r o p e r t y c r i m e s were punished o n l y
by r e s t i t u t i o n . That was changed i n 1987 i n the U n i t e d S t a t e s , 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 t h a t h i s t o r i c a l l y the maximum j a i l time f o r such o f f e n s e s was
45 days, M i s t r e t t a v US, 488 US 361 (1989). The eye-for-an-eye s t a n d a r d i n t h e
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 f a c e today, not o n l y o f f e n d s t h e
laws of God, but a r e d e s t r o y i n g the economy.

By p l e d g i n g t o p r o s e c u t e those "greedy" people on W a l l S t r e e t , t h e 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 c o u l d be t h e f a t e o f c a p i t a l i s m i t s e l f . H i s t o r y s t a n d s as w i t n e s s
to t h e sad f a c t t h a t w i t h every bubble and f i n a n c i a l c r i s i s , the government, no m a t t e r
who t h a t may be, i n c r e a s e s i t s power and blames the t a r g e t e d c l a s s . F o r 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 f i n a n c e a l o n g w i t h commerce. F o r 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 a l m o s t
300 y e a r s of s p e c t a c l e s p o r t - f e e d i n g t h e C h r i s t a i n s t o t h e . l i o n s . F o r Marx, i t was
the "greed" of the " b o u r g e o i s e " - the wealthy s e l e c t , group of the M i d d l e C l a s s . I t
m a t t e r s not who i s i n power. I t m a t t e r s not i f I t i s a monarchy, d i c t a t o r s h i p , o r
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 t o
a s p e c i f i c t a r g e t of p e o p l e , a t t a c h the blame t h a t exonerates themselves, and t h e n
' l e t the games b e g i n .

There i s a very s e r i o u s t h r e a t t h a t i n the d e s i r e t o exonerate the government

f o r not-doing the j o b i t s h o u l d have'"dohe, we w i l l ' u t t e r l y d e s t r o y the" f i n a n c i a l
i n d u s t r y sending t h e American economy made i n t o a p r i m o r d i a l s t a t e t h a t we become
a banana r e p u b l i c w i t h n u c l e a r weapons.
56
 I am not a d v o c a t i n g t o cover-up " r e a l " c r i m e . We j u s t must be v e r y c a r e f u l
to ensure t h a t the c r i m i n a l laws a r e not once a g a i n used f o r p o l i t i c a l o b j e c t i v e s .
T h i s has been the c u r s e of mankind f o r c e n t u r i e s . I f we do not understand how t h e
c r i m i n a l laws work and how they a r e put i n t o p r a c t i c e , the the people w i l l n o t
even know i f the r i g h t people a r e being p r o s e c u t e d , or are we p r o s e c u t i n g a b a t c h
of i n n o c e n t people to save t h o s e 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 e r y
high places.

, C r i m i n a l ~ - L a w s ' 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 d e v i c e . Even i n Magna

C a r t a , the k i n g 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
c o n t r i v e d a l l s o r t s of o f f e n s e s t o r a i s e revenue. Indeed, t h e revenue t h i r s t o f t h e
K i n g c r e a t e d the e n t i r e c r i m i n a l law. S i n c e B i b l i c a l Times, i f someone murdered a
f a m i l y member, he was p r o s e c u t e d by the f a m i l y , not t h e s t a t e . I n Athens, t h e
o n l y crime prosecuted by the s t a t e was a crime a g a i n s t the s t a t e or t h e Gods, as
S o c r a t e s 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 t h e
v i c t o r was seen as being v i n d i c a t e d by t h e hand o f 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 a g a i n t h e i d e a was a i n n o c e n t
would be saved by God. But a f t e r Magna C a r t a and the p r o h i b i t i o n a g a i n s t amercements,
the King of England _ i n s e r t e d h i m s e l f i n t o p r i v a t e d i s p u t e s c l a i m i n g t h a t any s u c h
2
p r i v a t e event " d i s t u r b e d h i s peace" and thus he was now e n t i t l e d to c o m p e n s a t i o n .
Never was t h e p r o s e c u t i o n f o r t h e b e n e f i t of s o c i e t y , i t was t o f u r t h e r t h e s e l f -
i n t e r e s t s o f the K i n g . I t was Marx t h a t c r e a t e d t h e s o c i a l compact i d e a s t h a t were
f u e l e d by h i s demonization of t h e r i c h f o r the b e n e f i t of t h e s t a t e .

We must understand, t h a t with' the t u r n i n g of t h i s c y c l e downward and t h e G r e a t

Convergence we now f a c e , the s t a t e w i l l always t u r n a g a i n s t i t s own p e o p l e , and
t h a t has been j u s t p a r t of t h e p r o c e s s . Even t h e c l a s s i c work of Edward Gibbon i n
h i s c e l e b r a t e d the D e c l i n e and F a l l o f t h e Roman Empire observed t h a t one o f t h e
primary reasons t h a t c a p i t a l c o n t r a c t s and shys away from i n v e s t i n g i s when t h e
R u l e of Law c o l l a p s e s . When t h e s t a t e becomes d e s p e r a t e f o r f u n d s , 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 t h e r i g h t s of the i n d i v i d u a l no m a t t e r what t h e f o r m
of government s i n c e he who r u l e s , a l s o c o n t r o l s the R u l e o f Law. Edward Gibbon n o t e d
t h a t c o r r u p t i o n had i n f i l t r a t e d t h e e n t i r e c r i m i n a l l a w p r o c e s s and t h a t i n d e e d a
" d i s t i n c t i o n o f every k i n d soon became c r i m i n a l . " Id./Chp I V . Under t h e r e i g n o f
Commodus, the son of Marcus A u r e l i u s and i m m e d i a t e l y f o l l o w i n g the 224 Year h i g h
i n the C y c l e o f P o l i t i c a l Change ( t h e same p o i n t a t where we a r e t o d a y ) , he t o o
t a r g e t e d the r i c h and the l o s s of economic power he f a c e d , he r e v e r s e d and blamed
the p r i v a t e i n d i v i d u a l s making the mere " p o s s e s s i o n of w e a l t h " the j u s t cause f o r
becoming the t a r g e t and " [ s ] u s p i c i o n was e q u i v a l e n t t o p r o o f ; t r i a l t o condemnation."
i b i d . The r i g h t s , p r i v i l e g e s , and immunities d i s a p p e a r e d and t h e s o l e t h r u s t o f
the r u l e of law became the quest f o r a b s o l u t e v i c t o r y . . The p r o s e c u t o r s , so t o _speak,
were the "most w o r t h l e s s of mankind [who] a r e not a f r a i d t o condemn I n o t h e r s t h e
same d i s o r d e r which they a l l o w i n themselves; and can r e a d i l y d i s c o v e r some n i c e
d i f f e r e n c e of age, c h a r a c t e r , o r s t a t i o n t o j u s t i f y t h e p a r t i a l d i s t i n c t i o n . " I d . /
Chp VI. The R u l e o f Law i n Rome s i m p l y became " c o r r u p t e d by t h e m u l t i p l i c i t y o f l a w s "
t h a t were " i n t e r p r e t e d ... a c c o r d i n g to the d i c t a t e s o f p r i v a t e i n t e r e s t " and t h a t
the promotion of government l a w y e r s "was p r e g n a n t w i t h m i s c h i e f and d i s g r a c e . "
I6./Chi> X V I I .

2.) Alexander, G.J. " T r i a l by Champion" (1984) Santa C l a r a Law Review 3 4 ( 3 ) : 545-64
Landsman, S/ (1983). "A b r i e f survey of t h e a d v e r s a r y system" Ohio S t a t e Law J r n l
4 4 ( 3 ) : 713-739
Weef, M. & N i g e l S. (1974) "The Adversary Nature of t h e Am L e g a l 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 a l s o : E n c y c l o p a e d i a 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
 W h i t e C o l l a r Crimes Are The Most
Abused P r o s e c u t i o n s I n F e d e r a l C o u r t s

For decades, lawyers have been c o m p l a i n i n g t h a t the f r a u d s t a t u t e s are too

vague and a l l o w themselves to be abused f o r p o l i t i c a l purposes. No m a t t e r how
many times the l e g a l arguments have been made t h a t the m a i l and w i r e f r a u d 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 t o a c i t i z e n t h a t
he i s even committing a crime, the c o u r t s always r u l e i n the f a v o r of the Government.
What you should understand, i s t h a t m a i l or w i r e (telephone) f r a u d i s per each t i m e
you use t h a t instrument. So i f t h e r e i s a f r a u d of $1 m i l l i o n t h a t o n l y i n v o l v e d
one phone c a l l , t h a t i s 20 y e a r s . I f another used the phone 5 times f o r the same
$1 m i l l i o n , he now f a c e s 100 y e a r s . I n the f i n a n c i a l i n d u s t r y , t h e r e w i l l be no-one
who t h e government c o u l d not demand l i f e i n p r i s o n , and t h e r e i s no l i m i t o f the
amount of money nor i s there a minimum, f o r the c o u r t s a l s o c l a i m i t i s not the
amount of money t h a t i s an element o f the crime, but the use of the m a i l or the
telephone t h a t c o n s t i t u t e s the c r i m e .

Therefore, f r a u d i s the p e r f e c t p o l i t i c a l crime t h a t can be a p p l i e d t o anybody

who uses the m a i l s , FedEx ( p r i v a t e c a r r i e r s ) , telephones, o r e m a i l s . So j u s t about
a n y t h i n g can be used to c r e a t e the c r i m e . T h i s 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, f r a u d i s suppose to be some s o r t of a scheme
t h a t i n v o l v e s a d e l i b e r a t e m i s r e p r e s e n t a t i o n w i t h the o b j e c t i v e o f "embezzlement"
where the money at stake i s to be f o r "one's own use," a c c o r d i n g t o the Supreme C o u r t ,
C a r p e n t e r v US, 484 US 19, 27 (1987). There i s suppose to be a " m a n i p u l a t i o n or
d e c e p t i o n " used to c r e a t e the f r a u d , D i r k s v SEC, 463 US 646, 654 (1983), and the
o b j e c t of the f r a u d must be t h e " p r o p e r t y " i n the hands of the s p e c i f i c v i c t i m ,
C l e v e l a n d v US, 531 US 12 (2000). The " m i s r e p r e s e n t a t i o n " i s a l s o suppose t o d i r e c t l y
cause the l o s s , known as " l o s s c a u s a t i o n . " Dura P h a r m a c e u t i c a l s v Broudo, 544 US -
(2005). A major problem i s Rule 10 of the Supreme Court denies any r i g h t t o be h e a r d
c l a i m i n g i t i s the p r e r o g a t i v e of the Court t o l i s t e n . There can be no E q u a l P r o t e c t i o n
as, l o n g as c o u r t s c l a i m the p r e r o g a t i v e of d i s c r e t i o n . Unless t h e r e i s an a b s o l u t e
r i g h t t o be heard, t h e r e i s no Rule o f Law. T h i s i s the e n t i r e problem t h a t i s b e h i n d
undermining the economy, for.^as John S t u a r t M i l l s wrote i n On L i b e r t y , 'we a r e not y e t .
f r e e of the " s t a i n o f l e g a i p e r s e c u t i o n . " U n f o r t u n a t e l y , you and I do not have t h e
" d i s c r e t i o n " t o decide whether we want to work yet -the employer has t o pay r e g a r d l e s s .
Only judges can c l a i m they have the " d i s c r e t i o n " t o 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 t h a t even 1% of r e c u s a l motions are e v e r g r a n t e d
and most lawyers f e a r c h a l l e n g i n g 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 o t h e r c l i e n t s . There i s no R u l e o f Law, f o r you cannot compel any c o u r t t o 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 w i t h o u t any t r i a l a t a l l .

Candidates are running commercials a t a l l l e v e l s , vowing now t o get t h o s e e v i l

"greedy" people on W a l l S t r e e t t h a t have d e s t r o y e d your l i f e . The p r o s e c u t i o n s w i l l be
p o l i t i c a l to exonerate the Government i t s e l f . L e t us not p r e t e n d . What we have seen
i n a l l the b i g w h i t e c o l l a r t r i a l s , i s the " l i f e s t y l e " p r o s e c u t i o n . For example, i n the
Tyco case, you heard about a p a r t y f o r h i s w i f e w i t h 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 t o the j u r y , you must'be g u i l t y f o r "greed" t h a t i s somehow a u n w r i t t e n c r i m e . I f
they argued a b l a c k youth must be g u i l t y because he "hung" on a s p e c i f i c c o r n e r i n
a h i g h crime a r e a , t h e r e would be outrage t o argue someone must be g u i l t y because of
where and how he l i v e d . But i n w h i t e c o l l a r c a s e s , f o r g e t 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 t h a t the p r o s e c u t o r s
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, " f o r g e t 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' " c o n s p i r a c y " i s - t h a t -
someone e l s e may do the crime, you d i d n o t h i n g , but they argue you agreed and when
they cannot even prove an agreement, they r o l l out the good o l d " c o n s c i o u s avoidance"
58
 i n s t r u c t i o n to the j u r y . They t h e n l o o k a t your l i f e - s t y l e , and presume t h a t you .
must have known t o make a l l t h a t money and t h e r e f o r e you " c o n s c i o u s l y a v o i d e d any-
a c t u a l knowledge of the crime. So k i s s the w i f e and k i d s good-by. The land o f g r e a t
o p p o r t u n i t y i s f a r more M a r x i s t than you ever imagined.

We can expect hundreds of people t o be p r o s e c u t e d 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 t o the s i z e of the b a i l o u t and the p a i n and s u f f e r i n g on main s t r e e t . I t
m a t t e r s not i f t h e r e was a crime per s e , f o r i t b o i l s down to someone has t o s i m p l y
j u s t go t o j a i l t o s a t i s f y the mob. Make no m i s t a k e about i t . Even the c r i m i n a l
defense l a w y e r s a r e not s t u p i d . They a r e t h e r e f o r c e r e m o n i a l purposes o n l y . I f you
t h 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 t o 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 a g a i n . The Supreme C o u r t
h e l d t h a t t h e r e i s "no s u p e r v i s o r y j u d i c i a l a u t h o r i t y " over what t a k e s p l a c e i n t h e
grand j u r y room, US v W i l l i a m s , . 5 0 4 US 36 (1992). I t was h e l d t h a t o n l y Congress may
c r e a t e e t h i c a l r u l e s , and they d i d not bother t o do so. Three w e l l known j u d g e s o f
the Seventh C i r c u i t Court of Appeals I n Chicago s t a 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 p r o v i d e 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 s u s p e c t s whom a US A t t o r n e y wishes t o i n d i c t . N e v e r t h e -
l e s s , t h a t i s not a r e a l i s m t o which j u d g e s a r e p e r m i t t e d t o y i e l d .
US v Ross, 412 F3d 771, 774 ( 7 t h C i r 2005)(Judges E a s t e r b r o o k , Posner & Evan)

The e n t i r e purpose of the grand j u r y t o prevent p o l i t i c a l p r o s e c u t i o n s has been

removed by the c o u r t s . The government can say a n y t h i n g they l i k e . There i s no r u l e
and you have no r i g h t t o even appear. They can l i e t o t h e grand j u r v , and nobody w i l l
-ver know because a l l r e c o r d s a r e s e a l e d and the p u b l i c has no r i g h t t o know!

The Absence o f D i s i n t e r e s t
In P r o s e c u t i o n s Lends i t s e l f t o C o r r u p t i o n

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 t o curb how much they make,

but they do n o t h i n g t o c o r r e c t t h e 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 o p p o s i t e of China, where young l a w y e r s become p r o s e c u t o r s l o o k i n g f o r t h e
b i g case t o get t h e i r name i n the papers and l a n d them one of t h o s e " b i g " p a y i n g
j o b s . Back i n 1987, a l l the SEC l a w y e r s t h a t p r o s e c u t e d M i l k e n , I b e l i e v e , q u i t t h e
SEC and t o o k j o b s paying $1 m i l l i o n or more. I n s t e a d of e x p e r i e n c e d l a w y e r s t a k i n g
up t h e government a t the end of t h e i r c a r e e r s , who would not be l o o k i n g f o r t h a t b i g
case t o l a n d a b i g bucks j o b , we have the r e v e r s e model prone t o c o r r u p t i o n . T h i s
a l s o l e n d s t h e c r i m i n a l law t o be n o t h i n g more than a p o l i t i c a l t o o l a t the f e d e r a l
l e v e l - Murder and rape c a s e s , t r a d i t i o n a l v i o l e n t c r i m e s , are s t a t e cases not f e d e r a l
u n l e s s connected t o o r g a n i z e d crime or b i g drug r i n g s . These young l a w y e r s w i l l not
p r o s e c u t e the " b i g " houses because they are t h e 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 p r o s e c u t e those who you a r e l o o k i n g t o l a t e r
h i r e you as a lawyer. T h i s i s why you w i l l never see c r i m i n a l c a s e s of b i g houses.

, The p r o s e c u t i o n always a v o i d the b i g New York p l a y e r s . T h i s i s not a c o i n c i d e n c e .

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 u n d e r s t a n d i n g o f the b a s i c
requirement t o be a " d i s i n t e r e s t e d " p e r s o n . As Gordon S. Wood p o i n t s o u t :

" [ D i s i n t e r e s t e d [ i ] s b e i n g ' s u p e r i o r t o r e g a r d t o p r i v a t e advantage

not i n f l u e n c e d by p r i v a t e p r o f i t , ' and t h a t was what t h e f o u n d e r s
meant by the term. We today have l o s t most o f 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 -
e s t e d , meaning ' i n d i f f e r e n t o r unconcerned.' I t i s a l m o s t as i f we
cannot q u i t e imagine someone who i s c a p a b l e o f r i s i n g above a p e c u n i a r y
i n t e r e s t and b e i n g 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."
R e v o l u t i o n a r y C h a r a c t e r s , Gordon S Wood, p l 6 , The Penguin P r e s s
59
 Even Ben F r a n k l i n was not t r u l y r e s p e c t e d u n t i l he. r e t i r e d from p r i v a t e e n t e r -
p r i s e t o 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 t o operate i s a s t o n i s h i n g . I f government a t t o r n e y s can be h i r e d
.by those who p r o v i d e the l u c r a t i v e j o b s , they cannot be " d i s i n t e r e s t e d " w i t h i n the
meaning t h a t founded t h i s n a t i o n . T h i s a l l o w s 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 b u s i n e s s w i t h no f e a r of p r o s e c u t i o n or even r e g u l a t i o n t h a t
w i l l ever i n t e r f e r e w i t h t h e i r b u s i n e s s o p e r a t i o n . I n f a c t , those same sources o f
j o b s , can a l s o be used t o c r e a t e , i n v e s t i g a t i o n s and p r o s e c u t i o n s of c o m p e t i t o r s . 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
t h e r e 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 C h a r l e s Dickens has w r i t t e n about how c o r r u p t the l e g a l system had

become back i n 1853. Dickens wrote i n Chapter I , " I n Chancery" o f h i s c e l e b r a t e d
B l e a k e House, " S u f f e r any wrong t h a t can be done you, r a t h e r than come h e r e ! "
Indeed, the c u r r e n t s t a t e of American f e d e r a l c o u r t s has once a g a i n reached the
l o w e s t p o i n t c o m p l e t i n g 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 i t h what we should expect w i t h the 224 Tear C y c l i c a l h i g h
i n t h e C y c l e o f 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 I n d u s t r y , k i s s t h e
w i f e and k i d s good-bye, f o r you have l i t t l e chance. As H e r b e r t Hoover wrote, "Some-
times when a government i s enraged, i t burns down the barn t o get t h e r a t . "

The M a n i p u l a t i o n Of Markets.
The D i r t y L i t t l e ( B i g ) S e c r e t

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 o f o i l r i s i n g t o

unprecedented l e v e l s . L e t us make t h i s very c l e a r . There has been a c o r e group o f
f i r m s t h a t manipulate markets t o o b t a i n t h a t "guaranteed" t r a d e w i t h o u t ' r i s k . I t has
been l i m i t e d t o the c u r r e n c i e s and commodities i n g e n e r a l , f o r these a r e m a r k e t s
t h a t are r e g u l a t e d by the g e n e r a l l y incompetent CFTC. What the l a w y e r s have t o l d me,
i f you can't get a j o b at the J u s t i c e Department. You c a n ' t get a j o b a t the SEC.
Then what you do i s go t o the CFTC. I t i s t r u e , t h e i r a t t o r n e y s are not t h e s h a r p e s t
n a i l i n the box nor are they t h e b r i g h t e s t bulb i n a l i g h t shop.

Many people knew t h a t I would r o u t i n e l y warn about which market was g o i n g t o

be manipulated n e x t . I had a network of brokers who were not p a r t o f t h e " c l u b " who
would a l s o h e l p monitor what was going on. I r e f r a i n e d from ever s a y i n g "who" was
doing the m a n i p u l a t i o n , t h a t was not my j o b the way I saw i t , p a r t i c u l a r l y when t h e
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 p r o s e c u t i n g m a n i p u l a t i o n
cases. Lawyers t o l d me the government a t t o r n e y s s a i d they were d i f f i c u l t c a s e s t o
prove. Of course when the m a n i p u l a t o r s were the b i g houses who were the ones d o i n g
the h i r i n g o f government a t t o r n e y s , I suppose t h a t had n o t h i n g t o do w i t h i t . S t i l l ,
I hope i t has not gone u n n o t i c e d t h a t o i l has crashed by about 50% c u r i o u s l y enough
when a l o t o f f i r m s have blownup (AIG i n p a r t i c u l a r ) , y e t t h e r e does n o t seem t o
be any corresponding change i n the fundamentals. There i s s t i l l the war, and t h e
g l o b a l consumption has not d e c l i n e d by 50% i n such a s h o r t t i m e . So was o i l a l s o
being manipulated? Chances a r e , you w i l l never know because those who were' p a r t o f
the " c l u b " were p r o t e c t e d by government a t t o r n e y s who l o o k e d the o t h e r way.

The s i l v e r m a n i p u l a t i o n may be r e s p o n s i b l e f o r my e n t i r e case. As c l i e n t s a r e

w e l l aware, I came out i n September 1997 warning t h a t t h e y were going t o m a n i p u l a t e
s i l v e r from $4 t o $7 going i n t o January. I t seems, t h a t t h i s may have s t a r t e d t h e
b a l l r o l l i n g f o r the " c l u b " was known as the " B i l l i o n s r e ' s C l u b " made up o f 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 " t o j o i n t h e " c l u b "
by R e p u b l i c N a t i o n a l Bank i t s e l f . I was t o l d f l a t o u t , _ " s t o p " f i g h t i n g e v e r y o n e and
j o i n w i t h them f o r once. I d e c l 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 f o r I b e l i e v e d i n my model would p r e v a i l i n any event. I t was n o t t h e f i r s t
:ime I .was " i n v i t e d " t o j o i n i n . N e v e r t h e l e s s , I r e p o r t e d t h a t they i n t e n d e d t o t a k e
60
 s i l v e r up t o $7 s t a t i n g - "They're back!" I t appears t h a t t h i s t i m e they got mad.
I n s t e a d of i g n o r i n g me and s i t t i n g back c o m f o r t a b l y knowing they had the f o r c e s
t h a t c o u l d do a n y t h i n g s a f e l y i n t h e i r pocket, they decided t o t r y t o m a n i p u l a t e
the p r e s s a g a i n s t me. What they f a i l e d t o a p p r e c i a t e , was I was p r i m a r i l y a s e r i o u s
c o r p o r a t e and i n s t i t u t i o n a l a d v i s o r . I d i d not r e l y upon the " r e t a i l " n e w s l e t t e r
t r a d e so g e t t i n g the press t o t r y t o d i s c r e d i t me, d i d not impress me very much.

A f r i e n d of mine became a board member o f 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 r e c e i v e d a c a l l from him, t o 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 J e r s e y . I s a i d s u r e . He t h e n
a r r i v e d the next morning c l e a r l y under p r e s s u r e from the head t r a d e r f o r t h e London
AIG o f f i c e . I was asked not t o t a l k p u b l i c l y about m a n i p u l a t i n g markets. I t o l d him
I n e v e r r e v e a l e d who was doing what, j u s t t h a t c e r t a i n m a n i p u l a t i o n s would t a k e
p l a c e . I found i t s t r a n g e t h a t AIG was becoming concerned about my p u b l i c comments
t o hop on a plane and f l y t o the U n i t e d S t a t e s . N e v e r t h e l e s s , I a p p a r e n t l y made
a m i s t a k e i n u n d e r - e s t i m a t i n g 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 t o go r u n n i n g t o the CFTC or SEC, as they were i n c a p a b l e o f ever g o i n g
a f t e r such schemes. So I p a i d 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 " b r o k e r s " was P h i l l i p s B r o t h e r s i n C o n n e c t i c u t . I b e l i e v e t h e y had

an a n a l y s t on the p a y r o l l so t o speak who had developed c o n t a c t s i n the p r e s s . I
b e l i e v e the s t u p i d d e c i s i o n was made t o t r y t o get the p r e s s a f t e r me to s t o p the
f o r e c a s t s . A j o u r n a l i s t from the W a l l S t r e e t J o u r n a l c a l l e d , a c c u s i n g me o f b e i n g
s h o r t s i l v e r and t r y i n g to t a l k t h e 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 s h o r t why would I be s a y i n g i t would r i s e from the
mid $4 range t o $7? The c o n v e r s a t i o n t u r n e d 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 m a n i p u l a t i o n . I t o l d him i t d i d n ' t m a t t e r
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 s a y i n g B u f f e t t d i d not t r a d e commodities.
I j u s t commented, t h a t ' s how much you know, and slammed the phone down.

They c r e a t e d 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 o f t h e

London newspapers was induced t o r u n n i n g a s t o r y c a l l i n g me t h e " l a r g e s t " s i l v e r
t r a d e r i n t h e w o r l d . T h i s was a j o k e t o me, f o r anyone t h a t knew me, would never
t a k e such s t o r i e s s e r i o u s - p a r t i c u l a r l y about s i l v e r . T h i s became a very b i g
m i s t a k e on t h e i r p a r t , because once they induced the press t o s t a r t r u n n i n g s t o r i e s
about me an market m a n i p u l a t i o n s , they were l i f t i n g the r o c k under w h i c h t h e y had
been h i d i n g f o r a very l o n g - t i m e . The CFTC c o u l d v e r y 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 t h 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 p r e s s c r e a t e d t h e very p r e s s u r e on Government t h e y d i d n o t
want. The CFTC c a l l e d me, because of the p r e s s s t o r i e s they i n s t i g a t e d , and v e r y
b l u n t l y asked where was the m a n i p u l a t i o n s e e i n g 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 o f t h e i r j u r i s d i c t i o n , and they s a i d they c o u l d get t o the
bottom of t h a t anyway. I never expected the e v e n t s that f o l l o w e d , t h a t was c l e a r l y
because they t r i e d t o get the p r e s s a f t e r me t o s t o p t a l k i n g about m a n i p u l a t i o n s .

To my shock, my telephone rang. I t was a b r o k e r who was not p a r t of t h e " c l u b "

t o l e t me know the Bank of England c a l l e d a m e e t i n g i n the morning o f a l l s i l v e r
b r o k e r s . I was t r u l y shocked. O b v i o u s l y t h e p r e s s d i d n ' t want t o b e l i e v e me, but i t
seems the Government^ s d i d l i s t e n . T h i s was o n l y a couple of hours a f t e r t h e c a l l
from the CFTC. Then came the r e a l Shockwave. L a t e r t h a t same day, Warren B u f f e t t came
out t o 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 m a n i p u l a t i n g t h e market, and s a i d i t would be a l o n g - t e r m
investment. The W a l l S t r e e t J o u r n a l c a l l e d back t h e 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 j o b t o
know, and I hung up the phone, p r e f e r r i n g not t o get i n v o l v e d .

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 I was n o t t r y i n g t o save t h e w o r l d . I was not t r y i n g t o expose i n d i v i d u a l s . I t
was ray j o b t o t e l l the t r u t h about t h e 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 r e a s o n why I d i d not
expect the CFTC to defend the markets and was shocked t h a t 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 .
A c c o r d i n g t o my s o u r c e s , i n 1993 t h e r e was a n o t h e r attempt t o get i n v o l v e d w i t h 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 B r o t h e r s . The CFTC t h i s
time n o t i c e d the t r a d i n g and went t o " P h i B r o " as they were known. They wanted the name
of who they were d e a l i n g f o r . P h i B r o r e f u s e d t o g i v e u p B u f f e t t ' s name. The CFTC t h e n
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 c r a s h e d
and a l o t of people got h u r t . The CFTC d e c l i n e d t o i n v e s t i g a t e t h e " b i g " names.

So f o r g i v e me i f I l a c k the c o n f i d e n c e i n the r e g u l a t o r s 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 t h e markets. As
r
l o n g as government a t t o r n e y s are l o o k i n g f o r a b i g pa3 ing j o b , t h e r e 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 c o u n t r y becomes

the byproduct of the a c t i v i t i e s of a c a s i n o , the j o b i s l i k e l y t o be i l l done."
The G e n e r a l Theory o f Employment, I n t e r e s t & Money, NY H a r c o u r t , B r a c e , 1936, p l 5 9 .
Between the AIG CDS w i t h o u t c o l l a t e r a l b a c k i n g , t h e concept of m a n i p u l a t i n g the
markets to c r e a t e guaranteed w i n s , 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
t o c r e a t e r i s k l e s s t r a d e s , but i n the p r o c e s s , d e s t r o y e d 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 o p p o s i t e . 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 t h a t has l e d t o t h i s mess. I t has been the attempt by the " b i g " houses t o
c o n t r o l the t r a d e t o " a v o i d l o s s e s , t h a t has l e d t o sheer chaos.

The degree of attempts t o 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 w i t h the " B i l l i o n a r e ' s C l u b " r e g a r d i n g R u s s i a . Edmond S a f r a ,
the major s h a r e h o l d e r of R e p u b l i c N a t i o n a l Bank t r i e d t o get me t o j o i n i n w i t h
them on R u s s i a . I warned them my model-was f o r e c a s t i n g t h a t R u s s i a n debt would
c o l l a p s e . S a f r a rented the e n t i r e N a t i o n a l G a l l e r y i n Washington, DC, f o r the
IMF honorary d i n n e r . Every p o l i t i c a n was t h e r e o f any note as were former F e d e r a l
Reserve chairman. I was i n v i t e d t o show me t h a t I was wrong. They had i n s i d e
t r a c k s t o the IMF and a s s u r e d me t h a t the l o a n s t o R u s s i a would c o n t i n u e . I was
asked t o j o i n i n w i t h S a f r a and o t h e r s t o i n v e s t i n R u s s i a g e t t i n g huge r e t u r n s _ =
i n h i g h i n t e r e s t r a t e s when the IMF was going t o back R u s s i a . S a f r a s e t up Hermitage
C a p i t a l , and t r i e d t o get me t o 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 b e l i e v e d i n m a n i p u l a t i n g markets t o c r e a t e the guaranteed investment w i t h o u t r i s k . '
The model was c o r r e c t - S a f r a and the "boys" were f l a t l y wrong, and blamed me.

I know t h e r e were rumors and s t o r i e s t h a t the woman who was r u n n i n g f o r the i

Mayor of St P e t e r s b u r g h who was executed being s h o t i n the head was a pawn of a
major western f i n a n c i e r who was supposed t o be m y s e l f . I b e l i e v e t h i s was a n o t h e r
s t o r y t r y i n g t o d i s c r e d i t me some how. I never met h e r , and the o n l y l o s e c o n n e c t i o n
was t h a t her son worked i n our London o f f i c e by c o i n c i d e n c e . L e t me a l s o s e t t h e
r e c o r d s t r a i g h t , we had more than 200 employees worldwide, and I d i d not do t h e
h i r i n g and f i r i n g . We had p a r t n e r s In every c o u n t r y who ran t h e i r own d i v i s i o n s
but we worked around the w o r l d t o g e t h e r g a t h e r i n g t h e best p r i v a t e i n t e l l i g e n c e
network t h a t perhaps ever e x i s t e d . Governments s h a r e d i n t i m a t e knowledge t h a t t h e y
wanted out i n t o the marketplace, but c o u l d not p o l i t i c a l l y make such s t a t e m e n t s .
We became the U n i t e d N a t i o n s i n f i n a n c e and c l e a r l y t h e r e were some who r e s e n t e d
that i n t e n s e l y .

Edmonpl_Sa^ra_XJfa^ld_ejve_jwas_ j e e p l y j L n y o l y e d _ i n a p l o t t o takeover R u s s i a . T h i s
may have been the crowning a u d a c i t y of market m a n i p u l a t i o n s . I b e l i e v e he was i n
p a r t n e r s w i t h two Russians B e r i s n o f s k y and G a z i n s k y , who were very p o w e r f u l and
even c o n t r o l l e d the p r i v a t e media i n R u s s i a . - I b e l i e v e the r e a l s t o r y p r o v i d e d t o
62
 me by the son of a w e l l connected "Russian d i p l o m a t , and s t i l l o t h e r s , a m a z i n g l y was
t h a t '%he Bank of New York p r o s e c u t i o n f o r a c l a i m 7 b i l l i o n money l a u n d e r i n g 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 h i m s e l f . I t was R e p u b l i c N a t i o n a l 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 b e l i e v e "Republic even t e s t i f i e d
i n Congress.

As you w i l l r e c a l l , Y e l t s i n had vowed he would run f o r e l e c t i o n a g a i n i n 2000.

The Bank o f New York d e a l came out i n August 1999, about 30 days b e f o r e my case
t h a t was a l s o i n s t i g a t e d by R e p u b l i c N a t i o n a l Bank running t o the Feds. As t h e s t o r y
goes, Y e l t s i n was b e i n g - b l a c k m a i l e d , t h a t he would be p r o t e c t e d i f he s t e p p e d down
and appointed one of t h e two R u s s i a n s as the next l e a d e r . Y e l s t i n , i t was t o l d t o
me, t u r n e d i n s t e a d 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 a c c e p t e d t h e
appointment and p r o t e c t e d Y e l t s i n and the whole IMF scandal. Both B a r i s n o f s k y and
Gazinsky f l e d R u s s i a w h i l e a l l t h e i r a s s e t s were c o n f i s c a t e d . My case began on
September 13th, 1999. Y e l t s i n announced he was s t e p p i n g down i n November, and by
December 3rd, 1999, Edmand S a f r a was k i l l e d i n Monaco. W i t h i n 1 month, my l a w y e r s
were r e t r o a c t i v e l y disgorged o f 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" t h a t the s t a t u t e 28 USC 51826 s t a t e d I had an a b s o l u t e r i g h t t o an immediate
appeal w i t h i n 30 days. P r e s i d e n t Bush's c o u s i n , C h i e f Judge John M. Walker, J r . ,
grabbed my appeal, h e l d I had no such r i g h t t o ever appeal, and t h a t a l l o w e d the .
government to a r b i t r a r i l y i m p r i s o n me f o r more t h a n 7 years on "contempt" o f c o u r t
denied, l a w y e r s , denied any r i g h t t o a p p e a l , and denied any t r i a l by j u r y o r any
l i m i t a t i o n upon the d u r a t i o n o f imprisonment. They d i d not want t o go t o t r i a l
and showed the world t h a t i f the US Government wants t o l o c k you up, w e l l guess
what - you r e a l l y have no r i g h t s a t a l l .

The murder of S a f r a remains a mystery. Some sources have i n t i m a t e d t h a t he

was murdered f o r Y e l t s i n as a f a v o r on o r d e r s of P u t i n . To make more of a paradox
of t h i s enigma, they charged the male nurse w i t h s e t t i n g the f i r e i n Monaco
and a l s o spent a t l e a s t 6 y e a r s 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 F r a n c e , r e v e r s e d the c o n v i c t i o n s t a t i n g t h a t t h e j u d g e
and the prosecutor c o n s p i r e d t o g e t h e r to d e p r i v e him o f a f a i r t r i a l . He was then
ordered r e l e a s e d , and sent back to the U n i t e d S t a t e s . Never would an A m e r i c a n c o u r t
ever say t h a t 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 a l l e g e d "Ivan the T e r r i b l e " when i t came out t h a t American p r o s e c 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 w i t h h e l d e v i d e n c e 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 C o u r t of
I s r a e l vacated the c o n v i c t i o n , was embarrassed enough to say t h a t US Government
A t t o r n e y s committed f r a u d upon the c o u r t , Demjanjuk v P e t r o v s k y , 10 F3rd 228 ( 6 t h
C i r 1993). The q u e s t i o n t h a t jumps from the pages, i s why are A m e r i c a n ' c o u r t s so
pro-Government to the p o i n t they w i l l cover-up a c t i o n s and a l l o w k n o w i n g l y i n n o c e n t
people t o be even executed?

S a f r a began h i s c a r e e r i n exchanging c o i n s i n the middle e a s t . The main s i l v e r

c o i n t h a t was used i n t r a d e was the M a r i a Theresa b a r i n g the p o r t r a i t of o f a woman
t h a t was not c o n s i d e r e d a c c e p t a b l e t o the Arabs. S a f r a t o l d me he use to buy them
at a discount from the Arabs and t h a t i s how he s t a r t e d h i s empire. He was v e r y
much a g o l d bug, and would c a l l New York and speak d i r e c t l y t o h i s m e t a l s d e a l e r s .
T h i s i s why, i n my o p i n i o n , he was obcessed w i t h R u s s i a to get h i s hands on t h e
metals t h a t e x i s t e d t h e r e .

The " c l u b " i s always l o o k i n g f o r the r i s k l e s s t r a d e . They a r e not r e a l

investment managers. They have t o r i g the game to ensure they make money and
never l o s e . In t h i s r e s p e c t , yes, i t i s the "greed" t h a t d r i v e s them because
63
 t h e y always have t o win. They do no a n a ^ z e the markets, they have t o c o n t r o l
them. They have t a r g e t e d so many a r e a s , you would be shocked. They even d i d
t h e rhodium market t h a t i s p u r e l y cash. Perhaps the most outrageous, was t h e
p l a t i n u m market. There, they b r i b e d 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
p l a t i n u m t o take an " i n v e n t o r y . " Of course, they were a l r e a d y l o n g . They t h e n
drove p l a t i n u m up d r a m a t i c a l l y . They s o l d a t the t o p , r e v e r s e d , and then t o o k
s h o r t p o s i t i o n s t e l l i n g the R u s s i a n i t was time the " i n v e n t o r y " was over. The
p r i c e c o l l a p s e d . They took advantage n o t j u s t of s m a l l s p e c u l a t o r s , but t h e y
t a r g e t e d the auto i n d u 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 r e p o r t e d the f o r e c a s t I d e l i v e r e d t h a t R u s s i a 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 t h a t viewed t h a t they had the IMF i n t h e i r p o c k e t , and t h a t my f o r e c a s t s
were c o n t r a r y t o t h e i r g o a l s . T h e i r 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 t h a t t h i s i s what s t a r t e d the e f f o r t t o stop the P r i n c e t o n f o r e c a s t s a t
a l l c o s t s . I b e l i e v e t h a t they were t e l l i n g the CFTC behind the scenes t h a t I
was " m a n i p u l a t i n g " the w o r l d economy because I j u s t had too much i n f l u e n c e and
t o o many c l i e n t s . I am s u r e , they d i d not bother t o t e l l the Government t h a t they
were on .the o t h e r - s i d e t r y i n g t o seek r e a l m a n i p u l a t i o n w i t h b r i b e s and e f f o r t s
to manipulate markets t h a t had n o t h i n g to do w i t h a n a l y s i s .

Another i n c i d e n t where I c l a s h e d w i t h the " f o r c e s t o be" came a l s o i n

March 1999. I warned a t a seminar i n Tokyo t h a t "they" were t a r g e t i n g t h e yen
and were l o o k i n g f o r t h a t "guaranteed" t r a d e . Every March, the Japanese s o l d
t h e i r o f f s h o r e investments and r e t u r n e d the cash f o r March 31st a c c o u n t i n g . They
would then immediately s e l l the yen and go back t o the s h o r t - t e r m i n v e s t m e n t s .
The " c l u b " knew t h i s , and were i n s e a r c h of a quick few b i l l i o n p r o f i t . They
w o u l d manipulate the yen over t h i s r o l l - o v e r t o c r e a t e a wide s p r e a d between the
buy o f 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 t h a t the yen
was the "new" t a r g e t and t o t h i s time l o c k i n the s a l e a t the same t i m e t h e y
had t o buy the yen t o come home. T h i s would e l 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 " c l u b " l o s t . No doubt they got r e a l l y mad one more t i m e . The
way I saw I t , I t o l d them t o t r a d e 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 t h a t " 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 t h a t t h i s time t h e y
blew themselves up so bad, and they can't blame me.

Due Process o f Law D i e d I n 1987

Again, I a p o l o g i z e f o r c i t i n g my own case. But s i n c e , 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 s e r v i n g a 12 year sentence f o r a pretended o f f e n s e t h a t by
law cannot j u s t i f y more than 5 y e a r s when g u i l t y , my a b i l i t y t o 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 t o c i t e
something as f a c t u n l e s s I have proven i t to m y s e l f .
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
g e n e r a l m a j o r i t y a l l o f the t i m e , 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 p o p u l a t i o n of the i n t e l l e c t u a l s who can see t h r o u g h the l i e s .
We i s s u e d p r i v a t e unsecured n o t e s borrowing yen a t (1) f i x e d r a t e s o r (2) swapping
a note f o r a p r e - e x i s t i n g p o r t f o l i o of Japanese s t o c k s t h a t we down 30-50% w i t h an
u n l i m i t e d amount o f time to pay o f f the note. T h e r e f o r e , we were not managing money
any more than borrowing from a bank makes you a fund manager or b u y i n g damaged p o r t -
f o l i o w i t h a f a c e v a l u e c o n v e r t s 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 c a r e t a k e r f o r the bank. The SEC a l l e g e d t h i s was a
P o n z i scheme and t h e r e was commingling o f accounts w h i l e the CFTC a l l e g e d I was r e a l l y
r u n n i n g a commodity p o o l t h a t not r e g i s t e r e d . I t came out a t t h e h a i l h e a r i n g t h a t
- - - - _
t h e r e ^ a s n o d e f a u T t r o n ~ a n y ~ n o t e v Any' f iiiallyT^dien the -governmen1r-real-ized--theygot -
the whole theory wrong, they moved t o get r i d o f a l l t h e lawyers .SEC v P E I , 84 FSupp2d
443 (SDNY 2000) and then c r e a t e d t e h 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 t o save the companies.
 Tou t h i n k t h a t as an American we a r e honest and the b e s t . Think a g a i n . When
the government does not want you t o know the t r u t h , you w i l l n o t 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 a r e more l i k e those s i t t i n g above t h e c l o u d s who
p o n t i f i c a t e on what i s r i g h t , but the f o r c e s below c o u l d c a r e l e s s what t h e y do o r '
say. On A p r i l 24th, 2000, Judge Owen i l l e g a l l y c l o s e d the c o u r t , ordered the r e c o r d
delayed t o h i d e the event, and threw the A s s o c i a t e d P r e s s out, which they r e p o r t e d
on A p r i l 27th, 2000 q u e s t i n g i n g whether I c o u l d get a f a i r t r i a l i n New York. I f
you t h i n k what t a k e s p l a c e i n c o u r t i s p u b l i c r e c o r d because i t i s f e l o n y of 5 y e a r s
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 c o u r t
c r e a t e d i t s own r u l e t o negate Congress a l l o w i n g j u d g e s t o e d i t the r e c o r d c h a n g i n g
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 p r o s e c u t e a judge f o r h e l p i n g them. The Second C i r c u i t had t o
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 t o 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 t o c o n c e a l 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 c l a i m e d they l a c k e d the power t o
order t h e i r own j u d g e s t o obey the law. So much f o r t h e 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 n u c l e a r weapons. The
bureaucracy a l l o w s us t o b e l i e v e i t i s a democracy, but they o p e r a t e a c c o r d i n g t o
t h e i r own d e s i r e s . I t r i e d t i c h a l l e n g e t h i s p r a c t i c e . I got Judge Owen t o a d m i t even
p u b l i c l y he was a l t e r i n g the r e c o r d , but the Court o f Appeals r e f u s e d t o do a n y t h i n g !

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

Frank Quattrone of F i r s t Boston had the same j u d g e . The p r e s s was w e l l aware

of shenanigans going on. I even met w i t h Mr. S o r k i n o f the New York Times who was
c o v e r i n g 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 p a y i n g very c l o s e a t t e n t i o n t o what Judge Owen was doing t o Q u a t t r o n e .
The New York Times r e p o r t e d what Judge Owen had r u l e d , and the Second C i r c u i t i n
o v e r t u r n i n g Quattrone's c o n v i c t i o n where i t r e a l l y had no c h o i c e , 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 o p i n i o n c r i t i c i z e d the p r e s s s t a t i n g t h e y m i s r e p o r t e d e v e n t s .
I spoke t o S o r k i n a f t e r t h a t r e p o r t , and he confirmed t o me t h a t what he r e p o r t e d
was c o r r e c t and he too b e l i e v e d t h a t perhaps the t r a n s c r i p t s were changed by Judge
Owen. T h i s i s the sad s t a t e o f 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 a r e 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 t o sure up a c o n v i c t i o n when n e c e s s a r y . And
the Second C i r c u i t c l a i m s somehow i t has no power to e n f o r c e the l a w 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 o f people a r e a w a i t i n g f o r me t o speak out. T r u s t 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 R u l e o f Law,
We cannot m a i n t a i n the c o n f i d e n c e i n s o c i e t y , i n government, and i n the f u t u r e
a s long as the c o u r t s a r e n o t h i n g more than a den o f t h i e v e s . We cannot f i x t h e
economy u n l e s s the Rule o f Law i s e s t a b l i s h e d . T h i s i s a c o m p l a i n t t h a t been around
s i n c e 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 p a r a b l e of the widow and the c o r r u p t
judge who t h i n k s h i s p e r s o n a l power i n c l u d e s the " d i s c r e t i o n " t o 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 b i g g e s t t h r e a t t o the i n e v i t a b l e d e s t r u c t i o n
of the U n i t e d S t a t e s . We a r e r u n n i n g out o f t i m e . I f the game i s n o t f a i r , the game
cannot s u r v i v e what we a r e g o i n g 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 a t l e a s t the J u d i c i a r y Committees o f the House and
the Senate have t o s t o p a p p o i n t i n g pro-government j u d g e s 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 c o n t i n u e t o f l e e as l o n g as
the game i s r i g g e d . You cannot i n v e s t i n a n a t i o n where your r i g h t s depend upon t h e
mood and p e r s o n a l t y o f the j u d g e you end-up w i t h t h a t day. B e i n g a j u d g e was n o t t o
be one s t e p shy o f a monarchy, but t h a t 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 d i s a g r e e . 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 o f Law cannot be measured as t h e y use t o
say, by the l e n g t h of t h e judge's f o o t .
65
 So What Happened t o the Model?

Former employees have t o l d some key p a r t s of the s t o r y t h a t has appeared on

the I n t e r n e t . Yes i t i s t r u e t h a t I a l s o t a u g h t the computer t o communicate by
r a t i o n a l v e r b a l exchange. I n other words, I c o u l d t a l k to the computer, ask key
q u e s t i o n s , and i t would respond v e r b a l l y . I t was a s h o c k e r 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 t h a t p a r t of the d e s i g n i n the e a r l y '80s
and c o n s t r u c t e d a desktop v e r s i o n f o r my c h i l d r e n t h a t p r o b a b l y cost me as much
as a Porsche back then. My daughter would communicate w i t h the computer t y p i n g
i n q u e s t i o n s and the computer would then engage i n a c o n v e r s a t i o n w i t h 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 . i t became a f r i e n d .
When she came' home from school one day, I had the computer i n p i e c e s . She, got u p s e t
and thought he was dead. I a s s u r e d her, he was f i n e .

By 1985, I had c o n s t r u c t e d a v e r b a l i n t e r f a c e . My daughter c o n t r i b u t e d not

knowing t h a t she had been my t e s t p i l o t t o g i v e the computer a p e r s o n a l i t y and
t o teach i t human behavior. As my c h i l d r e n grew o l d e r , they outgrew the need
f o r a computer f r i e n d and I moved on to b i g g e r and more c h a l l e n g i n g p r o j e c t s .
What you may see i n the r e c e n t 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 c r e a t e d out o f n e c e s s i t y .

I r e a l i z e d t h a t the g r e a t e s t 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 f o r e c a s t 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 t r a n s f o r m e d from a commodity
world dominated by the p r e j u d i c e s c r e a t e d 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
R e v o l u t i o n . J u s t as Rome matured, i t s people wanted g r e a t e r p l e a s u r e s and t h e more
l o b o r i n t e n s i v e j o b s f e l l to the p r o v i n c e s . Augustus (27BC-14AD) had even p a s s e d
f a m i l y laws f o r b i d d i n g men to remain unmarried. As w e a l t h accumulates, l a b o r wants
more and more u n t i l the j o b s l e a v e . 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 h i g h e s t wage, and t h e
other demands the lowest c o s t . I t i s not the mere greedy c o r p o r a t i o n s and t h e e v i l
employers as Marx t a r g e t e d . T h i s i s a h i s t o r i c a l balance o f t h e economy.

Money supply i s t y p i c a l l y d e f i n e d as a p r o d u c t o f v e l o c i t y - how much i s

changing hands. This can be i n c r e a s e d d r a m a t i c a l l y t h r o u g h l e n d i n g and d e r i v a t i v e s .
T h i s a l s o c r e a t e s an opposing f o r c e t h a t must be understood. I n t r u t h , t h e r e a r e so
many v a r i a b l e s t h a t need to be t r a c k e d , you head e x p l o d e s . The model had t o 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 e v e r y t h i n g , understand time, the P h a s e -
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. T h i s opened t h e door to managing the f u t u r e . I t cannot be used
t o a l t e r the t r e n d t u r n i n g 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 t h e
comprehension of when and where t o apply the p r e s s u r e as Keynes b e l i e v e d .

I needed to c r e a t e a system t h a t would m i r r o r my own mind. Something t h a t I

could t e a c h how to t h i n k and a n a l y z e the d a t a . Once t h a t was done l i k e t e a c h i n g 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 g l i m p s e
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 r e g a r d i n g t h e B r i t i s h economy. I t
p r o j e c t e d t h a t 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 d e p a r t a c o r r e l a t i o n w i t h t h a t
of Europe i t s e l f . I was shocked by the f o r e c a s t . I a t t h a t t i m e c o u l d o n l y i n q u i r e
by t y p i n g In a q u e s t i o n - why? The computer s p i t out a c o r r e l a t i o n t o crude o i l
t h a t was so obvious, I c o u l d not b e l i e v e how s t u p i d I had been not t o see I t m y s e l f .
With the d i s c o v e r y of the N o r t h Sea O i l , B r i t a i n began t o e v o l v e as an economy. I
j
" remember^m^g--a-W-show-a t-the-^t-i-me-^d-t-h-ag^od^r-iando^.mine,-JWalter Br_e.sser.,____
a t r u e l e a d e r i n c y c l i c a l t h e o r y . I d e l i v e r e d t h a t f o r e c a s t i n or about 1983, and
watched the pound drop to about $1.03 by 1985.

66
 I taught t h e computer how t o t h i n k and how t o a n a l y z e . S i n c e I took t h e t r a x n m g
wheels o f f a l l o w i n g i t t o check soybeans a g a s l n t t h e Hang Sang Index, i t _ w o u l d be
a b l e t o study c o r r e l a t i o n s t h a t were n o t l i m i t e d t o my p e r s o n a l o b s e r v a t i o n s . The
v e r b a l i n t e r f a c e made i t f a r e a s i e r t o communicate. But i t was t h e s t r u c t u r a l
design t h a t was t h e key.

Yes i t i s t r u e t h a t I was i n v i t e d t o China end was o f f e r e d t h e e x c l u s i v e f o r e -

c a s t i n g c o n t r a c t , which I agreed. China d i d not i n s i s t upon h a v i n g the s o u r c e c o d e .
They wanted t o work together* The . CIA saw only t h e m i l i t a r y a s p e c t s and wanted me t o
c o n s t r u c t a s e p a r a t e system f o r them i n Washington. I d e c l i n e d , because I was f a r
t o busy, o f f e r i n g i n s t e a d t o r u n any study they might l i k e . They t o l d me f l a t l y ,
they had t o own i t . Some s t a f f have i m p l i e d t h a t P r i n c e t o n Economics was d e s t r o y e d
because o f my r e f u s a l t o work w i t h t h e CIA. Perhaps. B u t I b e l i e v e i t was coming
from another s o u r c e . I c a n c o n f i r m , t h a t t h e system was l a c e d w i t h a v i r u s . I f i t
was ever removed from t h e 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
t o o k place,,,'for i t appears t h e Government s e i z e d t h e computer, took i f t o a l a b
a t the World Trade C e n t e r , 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 q u e s t i o n a b l e a t t o r n e y Tancred S c h i a v o n i , f o r c e d t h e c l o s u r e o f t h e
P r i n c e t o n 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 p u b l i s h e r o f s t o c k a n a l y s i s ,
o f f e r e d t o r e n t t h e I n s t i t u t e t o keep the f o r e c a s t s g o i n g . They would n o t a l l o w t h a t
and sent him a e m a i l s t a t i n g I had t o turnover t h e s o u r c e code t o keep t h e company
going. I d e c i d e d t h a t the c o u 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 t o
t h e death. I d e c i d e d even i f i t c o s t me my l i f e , I would not r e g e n e r a t e t h e s o u r c e
code f o r Mr. S c h i a v o n i and A l a n Cohen whom I b e l i e v e d were beyond a l l m o r a l s
whatsoever. To s u r e up t h e i r p o s i t i o n , they asked Judge P. K e v i n C a s t e l f o r a b s o l u t e
immunity f o r any of t h e i r a c t i o n s a g a i n s t m y s e l f , my f a m i l y , employees or. even t h e
a l l e g e d v i c t i m s . Even t h e SEC o b j e c t e d t h a t t h i s would c r e a t e a precedent t h a t would
a l l o y them t o embezzel f u n d s w i t h o u t any s a n c t i o n s c i v i l l y o r c r i m i n a l l y . ,To even
ask f o r a b s o l u t e 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 o p i n i o n t h a t t h e r e a r e 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 t h e w i n g s . Y e t ,
t h e Southern D i s t r i c t o f New York i s j u s t o f f t h e r e s e r v a t i o n when i t comes t o y o u r
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 h a u l you i n t o New York because t h e r e I s j u s t
no p o s s i b l e way t o o b t a i n a f a i r t r i a l w i t h t h e p r a c t i c e o f t h r o w i n g t h e p r e s s o u t ,
c r i t i c i z i n g t h e p r e s s t o 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 2 7 t h , 2007;
and the p r a c t i c e o f a l l o w i n g j u d g e s t o even e d i t t h e very words spoken i n c o u r t .

I b e l i e v e t h a t c a s e a g a i n s t me was i n s t i g a t e d by t h e " c l u b " t o e l i m i n a t e t h e

f o r e c a s t i n g f o r on Oct 3 r d , 2000, t h e CFTC & SEC c a l l e d a h e a r i n g t o c l o s e t h e
I n s t i t u t e . An employee, James S m i t h , showed up w i t h a w r i t t e n r e q u e s t from t h e Dep't
of-Energy r e q u e s t i n g we c r e a t e a model because o u r f o r e c a s t o i l would r i s e from $10
i n 1999 t o t e s t $100 by 2007. Judge Owen would n o t a l l o w Smith t o 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 t o h i r e a l a w y e r . The " c l u b " t h i s time went w i t h t h e f o r e c a s t ,
but manipulated i t t o i n c r e a s e t h e a m p l i t u d e up t o n e a r l y $150. J u s t a s they l o s t on
the m a n i p u l a t i o n o f R u s s i a and the IMF c a u s i n g Long-Term C a p i t a l Management c o l l a p s e ,
they blew themselves up a g a i n . A monthly c l o s i n g back below $ 6 2 s i g n a l s a changed t r e n d

The Government w i t h i t s R e c e i v e r A l a n Cohen and h i s lawyer Tancred S c h i a v o n i ,

were determined t o s e i z e a l l e v i d e n c e I gathered on t h e " c l u b " and t h e m a n i p u l a t i o n s .
I documented e v e r y t h i n g and c o u l d 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
g i v e n some tapes t o my l a w y e r s f o r s a f e k e e p i n g . They a t t a c k e d my l a w y e r s demanding
the tapes c l a i m i n g they might l e a d to a s s e t s a p l a i n l i e . On February 7 t h , 2000, I
stood up i n open c o u r t and o b j e c t e d :

" I d i d a number o f p i e c e s and m o n i t o r e d a s i g n i f i c a n t e f f o r t

by a number o f i n v e s t m e n t and fund managers who attempt t o
o r g a n i z e t o g e t h e r i n m a n i p u l a t i n g 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 t o back up m y s e l f i n
support of t h a t "
(99-CIV-9667 SDNY, T r ; 2/7/00 page 4 ) , l i n e s 16-21)
 I c o n t i n u e d t o o b j e c t 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 t h a t they
were made I n a j o u r n a l i s t i c manner under the F i r s t Amendment. That of c o u r s e , j u s t
meant n o t h i n g . There i s o b v i o u s l y no f r e e - p r e s s but i n America when i t c o u n t s .

"These a r e tapes t h a t a r e , a g a i n , I do not see where t h e y are p a r t i c u l a r l y

r e l e v a n t t o 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 o f w e l l known p l a y e r s and Investment banks
on the s t r e e t t h a t p r o b a b l y do r e v e a l c r i m i n a l b e h a v i o r , but t h a t
does not n e c e s s a r i l y i n v o l v e t h i s c a s e . They were t h i n g s I wrote about.
I t i s w e l l documented t h a t I was exposing the s i l v e r m a n i p u l a t i o n s t h a t
were went by a number of f i r m s i n c l u d i n g R e p u b l i c Bank. The. CFTC
even c o n t a c t e d me p e r s o n a l l y f o r i n f o r m a t i o n I n t h a t 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 o f England g e t t i n g i n v o l v e d 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 R e c e i v e r A l a n Cohen had the a u d a c i t y t o argue t h a t t h e r e was no p r i v i l e g e .

Judge Owen r e f u s e d 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
s t a t e d : " P l e a s e , no. 1 am very t r o u b l e d by your s t a n d i n g up h e r e and s a y i n g ' t h i n g s
w h i c h are p u r p o r t e d l y f a c t s and you a r e a s k i n g me to r e l y o f them as facts." Id./pg29
L i n e 14-17. He a l l o w e d p u r e s p e c u l a t i o n by A l a n Cohen t o s e i z e everything', w h i c h I
b e l i e v e has been d e s t r o y e d . Cohen was then g i v e n a j o b a t one o f the f i r m s I was
t r a c k i n g , Goldman S a c k s . I f you t h i n k the " c l u b " .cannot c o n t r o l t h e c o u r t s , you a r e
wrong! There i s n e v e r a c o i n c i d e n c e . A f t e r C o h e n S S c h i a v o n i removed a l l l a w y e r s , the
lawyer a p p o i n t e d , David Cooper, J u s t so happened h i s w i f e was c o u n s e l t o AIG.

I b e l i e v e t h i s i s why I was thrown I n t o p r i s o n on contempt o f c o u r t . d e n i e d my

l a w y e r s , d e n i e d any t r i a l ever, or any r i g h t t o a p p e a l . 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 o f 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 i n t e n d e d t o be a r e s t r a i n t upon the Government. When you s t a c k the c o u r t s w i t h
former p r o s e c u t o r s t o pretend they a r e now f a i r j u d g e s , t h i s i s what you g e t . A t my
s e n t e n c i n g , Judge John F. Keenan on A p r i l 10th, 2007, t r i e d t o d i s c r e d i t the model
a l l e g i n g t h a t I g o t t h e 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 t h a t
was about a man who c r e a t e d 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 c o u r t s i n an attempt to
r e w r i t e h i s t o r y . The c o u r t s b e l i e v e they can d i c t a t e t o t h e p o e p l e , r e w r i t e t h e t r u t h ,
and d e l i g h t i n t h e i r own a p p l a u s e r e g a r d i n g t h e i r c l e v e r n e s s . The US A t t o r n e y seems
i t even i n t i m i d a t e d the WY Times c o m p l a i n i n g about a f r o n t , page a r t i c l e q u e s t i o n i n g
my g u i l t .

The f o r e n s i c accountant, M i c h a e l M. M u l l i g a n (FCL A d v i s e r s , G r e a t F a l l s , Va.)

wrote to t h e c o u r t q u e s t i o n i n g my g u i l t , whether t h e r e was even a c r i m e , a complained
t h a t f o r more t h a n 6 years the Government would never p r o v i d e e v i d e n c e . R e p u b l i c ' 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% o f a l l t r a d e s were
backed-out as e r r o r s by them, which made me b e l i e v e t h e " c l u b " was p a r k i n g t r a d e s
I n my a c c o u n t s u s i n g the c a s h f o r margins o r a t 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 a t t o r n e y s when they a r e t h e r e o n l y l o o k i n g f o r
a " b i g " p a y i n g 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 p r o s e c u t o r s ? S e r i o u s e t h i c a l r e v i s i o n s a r e d e s p e r a t e l y needed.

The Government s e i z e d 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 . S c h i a v o n i sent an e - m a i l to M a r t i n Weiss o f ' F l o r i d a who
o f f e r e d to r e n t t h e o p e r a t i o n to keep the f o r e c a s t s g o i n g , but to do so, they demanded
the source code, w h i c h Weiss s t a 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
c l o s e d by Judge Owen. I f i n d i t i r o n i c t h a t the model designed to h e l p i n t i m e s o f a
major c r i s i s , was d e s t r o y e d by the " c l u b " because they c o u l d n o t m a n i p u l a t e markets
a g a i n s t i t and i n the end, d e s t r o y e d t h e i r own i n d u s t r y .
68
 The Solution R e a l Money S u p p l y
CONTRACTION

1
tr
W
We must come t o face the r e a l f a c t s . T r a d i t i o n a l ' o l d <!
w o r l d economics i s no l o n g e r a p p l i c a b l e . The g r e a t e s t e r r o r W
o f t h e money supply being f i x e d t o t h e gold s t a n d a r d , was
t h a t t h e d i s c o v e r y o f gold determined t h e s u p p l y o f money >
a l t e r i n g p o l i c i e s o f government and s u b j e c t i n g t h e p r i v a t e
s e c t o r t o swings i n t h e boom and bust sense t h a t would be
i n f l u e n c e d w i t h r e s p e c t t o amplitude i n c r e s i n g v o l a t i l i t y .
We can see such p e r i o d s f o l l o w i n g t h e Gold Rush o f 1849 i n
C a l i f o r n i a and t h e consequences o f t h e d e l i b e r a t e i n f l a t i o n
c r e a t e d by the " S i l v e r Democrats" t h a t l e d t o v i r t u a l bank-
r u p t c y r e q u i r i n g J.P. Morgan t o b a i l out t h e government i n BORROWING =
1896.

No doubt t h e r e w i l l be those who would never c o n s i d e r

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 P a u l V o l k e r was f i g h t i n g t h e commodity boom i n t o 1980 REDISTRIBUTION
and r a i s e d s h o r t - t e r m i n t e r e s t r a t e s , we must r e a l i z e t h a t
the b i g g e s t 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 t h e 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 t o s t o p p r i v a t e s e c t o r s p e n d i n g , t h e n a t i o n a l
debt was put on an e x p o n e n t i a l growth path. The Government cannot be t h e 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 t h e o r y o f r e l a t i v i t y . I t cannot s e e i t s own
a c t i o n s because i t i s so busy t r y i n g t o a t t r i b u t e blame t o everyone e l s e . T h i s i s t h e
f a t e o f our n a t i o n a t stake. T h i s i s t h e f u t u r e o f our c h i l d r e n . A r e we t o be so
i r r e s p o n s i b l e l i k e a drug a d d i c t who s t e a l s today w i t h no r e g a r d f o r t h e consequences
j u s t t o o b t a i n t h a t quick f i x ?
I f we merely borrow t o fund t h e 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 l e v e r a g e
f a r outnumbers t h e a c t u a l money s u p p l y even i f we now
count a l l cash and o u t s t a n d i n g debt as money. Because
t h e r e has been no r e g u l a t i o n o f t h e amount of l e v e r a g e
between banks as I s done w i t h i n t h e exchanges who r a i s e
and l o w e r margin requirements i n f u t u r e s t o manage the
amount o f l e v e r a g e ( " g e a r i n g " ) , we a r e l o o k i n g a t a
c o n t r a c t i o n t h a t c o u l d exceed t h e GDP i n m u l t i p l e s . We
must r e a l i z e t h a t borrowing t o b a i l o u t t h e banks, i s
e c o n o m i c a l l y i n d i s t i n g u i s h a b l e from moving money f r o m
your l e f t pocket t o your r i g h t . We a r e a c t u a l l y f u r t h e r
adding t o t h e economic c o n t r a c t i o n by s o a k i n g up c a s h
i n t h e system and r e d i s t r i b u t i n g . T h i s i s m e r e l y a
form of Marxism. What we must t o i s t o expand t h e s h e e r
a c t u a l money s u p p l y t o o f f s e t t h e c o n t r a c t i n t h e " r e a l "
money s u p p l y c r e a t e d by t h e p r i v a t e s e c t o r i n e l e c t r o n i c
format t h a t i s a l s o 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 g o l d 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 o f t h e n a t i o n has been usurped by t h e b a n k e r s , who
d i d n o t even understand what they were doing.

We need t o r e v i e w the Keynesian t h e o r y . B o r r o w i n g does n o t s t 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 t o compensate f o r t h e c o n t r a c t i o n . Even b u y i n g
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 t h e banks a t c u r r e n t
market v a l u e , p l a c e d i n a p u b l i c fund not managed by bankers, a l l o w t h e mortgages'to
be r e n e g o t i a t e d i n t o a f i x e d r a t e , e x t e n d i n g the time i f n e c e s s a r y , b u t 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 r e a s o n a b l e payment s c h e d u l e . I f
the homeowner cannot cope w i t h the payments, then they l o s e t h e home. The bankers
have to s u f f e r t h e i r f a t e . L e t the banks r e o r g a n i z e and c o n s o l i d a t e , and t h e r e must
be the s u r v i v a l o f the f i t t e s t . That i s not t o say we should abandon FDIC. We must
stand behind a l l bank 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 t h e " 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 t h e Sub-Prime Mortgages i n t o a s i n g l e fund t h a t s h o u l d then

a l l o w p r i v a t e i n v e s t m e n t . I n d i v i d u a l s c o u l d i n v e s t even t h e i r 4013s i n p a r t , and we
must c u r t a i l government borrowing a t a l l c o s t s . Those who do not want t o see t h e
" s o c i a l " spending of t h e Democrats, we s h o u l d r e a l i z e t h a t t h e r e w o u l d have been
f a r more than a c h i c k e n i n e v e r y pot had we not spent so much on i n t e r e s t . I n f a c t ,
had t h e r e 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 t h a t i n England. We must c o n f r o n t 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 . L o c k i n g up e v e r y person i n
Banking o r W a l l S t r e e t w i l l n o t s o l v e 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 " t r a d e s and r e l y upon Government t o c o v e r l o s s e s so why b o t h e r
worrying about r i s k ? Long-Term C a p i t a l Management c o l l a p s e d when t h e IMF c o u l d not
c o n t i n u e to s u p p o r t R u s s i a t h a t 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 . T h i s i s t h e 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 t r 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 . L e t us d e a l 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 c o r p o r a t e s were purchased w i t h a n o t e removing

the problem a l l o w i n g them to get back to b u s i n e s s . Do not a l l o w , the banks t o work-out
these problems and do n o t 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 l a w y e r who r e p r e s e n t s " h i m s e l f , has a f o o l
as a c l i e n t . Bankers p r o t e c t bankers. How can you prosecute t h e p e o p l e I n c h a r g e o f
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 o f SEC, CFTC and the
F e d e r a l Reserve i n t o one r e g u l a t o r y body t h a t p r o t e c t s the system, n o t 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 reorganization.

Stop the Marxism! We need t o r e t u r n t o b a s i c s . End the Income t a x & r e p l a c e i t

w i t h a 10% N a t i o n a l S a l e s Tax ( e x c l u d i n g raw food & b a s i c 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 . C h i n a has boomed because i t had no income t a x ! T h i s i s what t h e 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 p a s s a g e o f the
income tax o n l y f o r the r i c h i n 1909, t h a t now a p p l i e s t o everyone. S t o p b o r r o w i n g
money from the p o o r e s t w i t h no i n t e r e s t masking i t as a " r e f u n d " ,neck c o n f u s i n g 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 A m e r i c a and
i t w i l l m a t t e r not i f someone i s an i l l e g a l a l i e n o r not f o r they w i l l ' s t i l l pay
t h e i r f a i r s h a r e . We a r e l o s i n g j o b s because of h i g h t a x e s and h i g h h e a t h c a r e c o s t s
t h a t j u s t make i t cheaper t o s e t up s e r v i c e o r i e n t e d j o b s i n I n d i a , P h i l i p p i n e s , o r
Mexico. I t i s t i m e the 800 pound g o r i l l a l o s t a l i t t l e w e i g h t . T h i s w i l l c r e a t e a
o f f s e t t i n g economic boom t h a t w i l l s a v e the n a t i o n . Marxism does not-work. We c a n n o t
be a l i t t l e - b i t p r e g n a n t . 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 p r e s e r v e t h e " B l e s s i n g s
of L i b e r t y " t o a l l p o s t e r t y , not depending upon r a c e , c r e e d , o r c l a s s . M a r x i s m was
a d i s a s t e r . I t s h o u l d o f f e r no model f o r the f u t u r e . J u s t l o o k a t R u s s i a and C h i n a .
I f we do not r e o r g a n i z e , Ayn Rand w i l l be c o r r e c t !

We can s t i l l have t h e 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 t h a t a f f o r d s common g o a l s

to secure the i n d i v i d u a l way o f 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 t h a t must be s e t by a g l o b a l economic
independent o r g a n i z a t i o n not s u b j e c t t o the p o l i t i c a l p r e s s u r e s 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
t o reduce government sepending where many a r e a s are indexed to CPI. Government
w i l l always c o r r u p t 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
t h e Romans knew the moon c a l l e n d a r was i n c o r r e c t and t h a t a d d i t i o n a l d a y s had to
be i n s e r t e d to m a i n t a i n the seasons. Thus, someone had to be g i v e n t h e j o b to
d e c i d e how many days to i n s e r t and when. That j o b was g i v e n to the H i g h 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 b r i b e d t o 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 t o government, he d i d m a s s i v e r e f o r m s and
t h u s he e l i m i n a t e d the c o r r u p t j o b of managing the c a l l e n d a r . T h i s i l l u s t r a t e s
t h a t we must remove the t e m p t a t i o n to m a n i p u l a t e 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 s a y , s t a t i s t i c s can be made to ensure t h e y do n o t t e l l
t h e t r u t h . C a r r o t s are very dangerous,because everyone who has ever e a t e n one has
e v e n t u a l l y d i e d ! 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 a c c o r d i n g t o a unique
f o r m u l a . How can we even compare economic growth from one n a t i o n t o a n o t h e r ?

We can monetize p a r t o f 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 s h o u l d be some c o n t r o l s on the q u a n t i t y of d o l l a r s c r e a t e d
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 p l a c e by the F e d e r a l R e s e r v e . 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 o f t h e Fed. That
was put i n p l a c e a f t e r 'the San F r a n c i s o Earthquake and the Crash o f 1907. I t was
understood t h a t t h e r e was a problem of r e g i o n a l c a p i t a l f l o w s . To p r e v e n t a s h o r t a g e
o f cash t h a t l e d t o bank f a i l u r e s i n some r e g i o n s , each branch was autonomous t h a t
a l l o w e d f o r i n t e r e s t r a t e s t o be h i g h e r i n some r e g i o n s . We - saw t h e s e 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 t o s t o p s t o c k market
s p e c u l a t i o n t h a t depressed f a r m e r s , 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 t h e r e was t o be a g r e a t expansion i n debt. We need to s t o p
u s i n g a g i a n t club t o stop one e f f e c t by p u n i s h i n g 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%), y e t i t w i l l d e p r i v e t h e
e l d e r l y who are one of the l a r g e s t s a v e r s , from e a r n i n g an income when t h e y no
l o n g e r can work.

J u s t l i k e a company gone i n t o d i s t r e s s , we j u s t have t o d e a l w i t h t h e whole

problem. I f we t h i n k 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 b u r i n g of Rome,then we are going t o have no f u t u r e .
You can execute a l l those on W a l l S t r e e t . I t s t i l l w i l l not h e l p . We need r e a l
l e g a l r e f o r m and stop the abuse of p r o s e c u t i o n s f o r p o l i t i c a l p u r p o s e s . The t r u e
w e a l t h of a n a t i o n i s i t s c o n s i s t e n t R u l e o f Law t h a t p r o t e c t s not m e r e l y the
p e r s o n a l l i b e r t y of c i t i z e n s , but t h e i r p r o p e r t y . I f the R u l e o f Law i s n o t going
to be upheld and can be even manipulated f o r r e l i g i o u s purposes, t h e n we a r e j u s t
r e d u c i n g o u r s e l v e s t o a Banana R e p u b l i c w i t h n u c l e a r weapons & c a p i t a l w i l l f l e e !

We need s e r i o u s r e f o r m of how government o p e r a t e s . We need a s i n g l e agency

to r e g u l a t e the f i n a n c i a l markets and banking. We have t o s t o p the b u y l n g - o f f of
Government a t t o r n e y s and i f they are not i n t e r e s t e d i n a c a r e e r , then get your
e x p e r i e n c e someplace e l s e . We need i n t e g r i t y t o be r e s t o r e d . We must stop the
abuse of " b i g " f i r m s i n s t i g a t i n g the government agencies to remove c o m p e t i t o r s .
T h i s i s e i t h e r going to be a n a t i o n of t r u e l i b e r t y , o r melt-down the s t a t u t e o f
l i b e r t y and use i t f o r h a n d c u f f s and s t o p the propaganda. We must r e a l i z e t h a t
" r e a l " c a p i t a l w i l l f l e e i f we a r e not f a i r and c o n s i s t e n t 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 t h a t the C a l v a n i s t i c f o r c e s
t h a t seek t o g a i n c o n t r o l o f 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 b e t t e r ,
than the T a l i b a n i n A f g h a n i s t a n . True l i b e r t y and freedom i s a g i v e n t h a t i s d e v i n e .
Everyone has the f r e e w i l l t o pray o r t o s i n . A s i n t o one group i s not a s i n t o
another. There are a host o f v a r i a t i o n s i n I s l a m , 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 c o u r t s or government to l e g i s l a t e . We must defend
the r i g h t t o speak f r e e l y f o r everyone, or we w i l l s i l e n c e o u r s e l v e s . I t was the
h a t r e d of the P r o t e s t a n t s a g a i n s t the C a t h o i c s t h a t not o n l y t o r e England and I r e l a n d

71
 a p a r t , but l e d to " p r o h i b i t i o n " i n t h e U n i t e d S t a t e s to c r e a t e laws t o i m p r i s o n th-
c a t h o l i c I r i s h and I t a l i a n s . That c r e a t e d t h e M a f i a , was r e s p o n s i b l e f o r c o u n t l e s s
d e a t h s , u n t o l d waste of n a t i o n a l w e a l t h , and was r e p e a l e d i n the end. No more!

As Margaret Thatcher once s a i d , " I t i s j u s t t i m e , " 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 a b s o l u t e r i g h t t o good honest government. That i s the b a t t l e c r y 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 t h e people who
was cheered when he c r o s s e d t h e Rubicon, we need someone o f i n t e g r i t y so bad,
u n l e s s we o b t a i n honest reform, we a r e perhaps i n v i t i n g the Gods o f War to r e t u r n .
The people c r a v e a f r e s h s t a r t , and they c r a v e f i s c a l r e s p o n s i b i l i t y . Where a r e
t h e 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 n o t a b l e e p i t a p h i n h i s c e l e b r a t e d '

The D e c l i n e and P a l l o f the Roman Empire f i r s t p u b l i s h e d 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 t h a t w h i c h
remained. One remarks t o the o t h e r :

"Her p r i m e v a l s t a t e , s u c h as she m i g h t appear i n a remote age,

when Evander e t e r t a i n e d t h e s t r a n g e r o f T r o y , has been d e l i n e a t e d
by the fancy o f V i r g i l . T h i s T a r p e i a n r o c k was then a savage and-
s o l i t a r y t h i c k e t : i n t h e t i m e o f the p o e t , i t was crowned w i t h
the golden r o o f s o f a t e m p l e ; the temple i s overthrown, the g o l d
has been p i l l a g e d , the wheel of f o r t u n e has accomplished her
r e v o l u t i o n , and the s a c r e d ground i s a g a i n d i s f i g u r e d w i t h t h o r n s
and brambles. The h i l l o f 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 o f the e a r t h , 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 t h e f o o t s t e p s o f so many triumphs, e n r i c h e d
w i t h the s p o i l s and t r i b u t e s of so many n a t i o n s . T h i s s p e c t a c l e o f
the w o r l d , how i s i t f a l l e n ! how changed! how defaced! The p a t h o f
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 o f . t h e s e n a t o r s a r e
c o n c e a l e d by a d u n g h i l l . "
Id./Chapter LXXI

We have a c h o i c e , f i x what I s broken, o r d i e l e a v i n g ' b e h i n d n o t h i n g o f any

s i g n i f i c a n c e as the dreams t h a t once f i l l e d t h i s l a n d evaporate i n t o o b l i v i o n . The
i m p a t i e n c e of c a p i t a l w i l l not l o n g s u f f e r t h e suspence o f truth.. C i v i l u n r e s t and
even war f o l l o w economic d e c l i n e s . The c l o c k i s t i c k i n g . The C i v i l War c y c l e t u r n e d
i n 2002. The C l a s h of reason i s on the h o r i z o n . I t cannot be b u s i n e s s as u s u a l .

Indeed, i t i s o n l y a matter o f t i m e . Marxism, s o c i a l i s m and communism a r e ' n o t

the a l t e r n a t i v e f o r t r u e c a p i t a l i s m i s freedom. The " c l u b " d i d not seek c a p i t a l i s m .
They a l s o sought t o c o n t r o l the f r e e markets f o r p e r s o n a l g a i n , u s i n g government.
We need r e a l r e f o r m . J u s t as t h e r e must be a s e p a r a t i o n o f c h u r c h and s t a t e t h a t
the R e l i g i o u s R i g h t does not r e s p e c t t r y i n g t o 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 d e s p e r a t e l y need e t h i c a l reform t o s t o p
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 a c t s upon i t . I want t o p r e s e r v e freedom f o r my p o s t e r t y and to
s t o p the c o r r u p t i o n t h a t l e a d s t o l e g a l p e r s e c u t i o n s .of groups, i n d u s t r i e s . , o r 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 u n l e s s we j u s t once, see
the l e s s o n s of time and s t o p the l i n e a r q u i c k - f i x answers t h a t a r e never a s o l u t i o n

M a r t i n 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 t h e Study o f C y c l e s