QUESTION: Marty; You have emphasized how you track world capital flows and conducted your research even in the flows of capital and disparity of interest rates between regions in the Roman Empire. You have mentioned that liquidity has collapsed and that capital has fled from emerging markets that is also putting pressure on Russia before the sanctions. Is this part of the crisis you foresee and explains simultaneously the rise in corporate cash to record levels. It seems what you taught us at the conference appears to be on point connecting these dots. Do I have this correct?
Thanks for your enlightenment in the middle of a very dark age.
ANSWER: Yes. You are seeing everything around you and connecting the dots correctly. The rise in corporate cash is a reflection of the collapse in capital flows that is now even being accelerated by FATCA. Liquidity has also collapsed and this is all reflected in the failure of conventional fundamental analysis to understand that the game has changed entirely.
Those who seriously think that the dollar will be impacted by oil or China will unseat the dollar as the reserve currency are simply living in a world of delusion. Such statements made by people display they have no clue about the depth of international capital flows remaining clueless to the FIRST Golden Rule of international capital flows that dictate why the dollar is even the reserve currency. This is the golden rule of a reserve currency always attributes to the most powerful and largest economy throughout history
The SECOND Gold Rule is that of finance over trade in the modern age that has been really accelerated globalization of the world economy since the fall of Bretton Woods. People fail to even comprehend why Bretton Woods collapsed. It had little to do with trade – it was a current account deficit of the USA caused by the global expansion of the military. Even John F. Kennedy understood this and stated bluntly that the US could end its current account deficit any time it desired. I personally believe Kennedy was assassinated because he wanted to curtail the military to support the dollar. That was the real economic issue that he understood.
This globalization of the world economy is best illustrated by trading in foreign exchange markets. Daily foreign exchange trading has reached over $4 trillion, including spot and forward markets and other foreign exchange derivatives that feature prominently in carry trades (cross currency swaps based upon interest rates). While still in the teens in the late 1970s, the ratio of yearly foreign exchange market turnover over merchandise exports had reached about 50:1 in the 1980s, and has doubled again since that time. The current ratio of around 100:1 implies that only about 1% of foreign exchange trading is actually related to merchandise trade. The bulk of money flowing around the world is INVESTMENT. So just how can China or Russia displace the dollar if trade is a tiny fraction of the world economy?