Martin Armstrong Slams "Myopic" Policymakers' Ignorance That Lower Rates Fuel Deflation

Tyler Durden's picture

Submitted by Martin Armstrong via,


Those in power never understand markets. They are very myopic in their view of the world. The assumption that lowering interest rates will “stimulate” the economy has NEVER worked, not even once. Nevertheless, they assume they can manipulate society in the Marxist-Keynesian ideal world, but what if they are wrong?

By lowering interest rates, they ASSUME they will encourage people to borrow and thus expand the economy. They fail to comprehend that people will borrow only when they BELIEVE there is an opportunity to make money. Additionally, they told people to save for their retirement. Now they want to punish them for doing so by imposing negative interest rates (tax on money) to savings. They do not understand that lowering interest rates, when there is no confidence in the future anyhow, will not encourage people to start businesses and expand the economy. It wipes out the income of savers and then the only way to make and preserve money becomes ASSET investment, as in the stock market — not creating business startups.

So lowering interest rates is DEFLATIONARY, not inflationary, for it reduces disposable income. This is particularly true for the elderly who are forced back to work to compete for jobs, which increases youth unemployment.

Since the only way to make money has become ASSET INFLATION, they must withdraw money from banks and buy stocks. Now, they are in the hated class of the “rich” who are seen as the 1% because they are making money when the wage earner loses money as taxation rises and the economy declines. As taxes rise, machines are replacing workers and shrinking the job market, which only fuels more deflation. Then you have people like Hillary who say they will DOUBLE the minimum wage, which will cause companies to replace even more jobs with machines.


Democrats, in particular, are really Marxists. They ignore Keynes who also pointed out that lowering taxes would stimulate the economy. Keynes, in all fairness, did not advocate deficit spending year after year nor never paying off the national debt. Keynes wrote regarding taxes:

“Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance, than an increase, of balancing the budget.”

Keynes obviously wanted to make it clear that the tax policy should be guided to the right level as to not discourage income. Keynes believed that government should strive to maximize income and therefore revenues. Nevertheless, Democrats demonized that as “trickle-down economics.”

Keynes explained further:

“For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more–and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.


This is the logic employed by those in power. They are raising taxes and destroying the economy; when revenues decline, they raise taxes further. The evidence that politicians are incompetent of managing the economy is simply illustrated here. Now, we have Hillary claiming that she will raise taxes on corporations, but that will reduce jobs for she will only attack small businesses and never the big entities and banks who fund her campaign.

Bill Murry on Taxes

So when it comes to sanity on interest rates or taxes, we really need to throw out of office anyone who is a professional career politician before they wipe out everything. The balance sheet is, as Keynes said, “ZERO on both sides.”


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knukles's picture

We gotchu covered.

Hows about throwing out of offices all the professional academics from responsible positions, too?

38BWD22's picture



Dr. Antal Fekete, a very smart observer of gold, has long written that lowering interest rates is very destructive of capital.

New borrowing is cheaper, but the "old" borrowing (and there is MUCH MORE of that) becomes more onerous to pay.  Capital destruction.

philipat's picture

Marty is quite prolific these days EXCEPT regarding his own predictions. Specifically 2015.75? Not a whisper about that at all since the date went by....

monkeyshine's picture

In theory old loans are refinanced at the new lower rate which generates previously unforeseen positive cash flows (lower outflows) allocated to debt financing. But because of the unpredictability and unreliability (this money was not earned from operations) it cannot be reliably budgeted and is seen as a windfall. Maybe it can be invested in capital expenditures, except that capital expenditures are not considered by law to be investments and need to be depreciated according to schedule. To the extent it is used for capital improvements it creates new efficiencies thereby reducing need for existing labor or forestalling new hires. What was intended to be a temporary economic boost results in permanently fewer jobs, dislocated labor (which is not easily relocated) and a shrinking economy . Lenders of capital previously earning the old rate are forced to accept less in interest income or to redirect capital to more profitable areas. Stock market perhaps. Or real estate. For example, buy an apartment building and collect rents from all the people forced out of their homes by the loss of wages. And the more people bid up real estate the more equity such an apartment building will earn in appreciation. No coincidence the rise in REITs and their special tax categories. The politicians ostensibly identify problems as they see them and try to fix those problems, but they are never faster than the markets. Markets are made of people and people try to avoid unjustified expenses and manage risks in their own individual style.

I am not advocating a tax on wealth but its amazing to me how many people are suckered into the "tax the rich" demagoguery. Taxes don't hurt the rich. Wealth is not taxed and income from wealth is taxed at a low fixed rate. This policy is not so much derived from a sense of fairness (double (or more!) taxation on the same pool of money is unjust) but reflective of the desires of those who finance politics. The wealthy and the large scale businesses are already entrenched and for the most part already have all the necessary infrastructure, property, equipment, processes, supply chain and pipeline to sell into. We could tax their profits at 99% and it wouldn't inherently slow them down. But the small growing competitor seeking to take market share needs profits to reinvest in the business. When we tax their profits it leaves less money accessible to finance growth, buy supplies, build inventory, get more efficient equipment or market their product. Income taxes therefor are by nature an anti-competitive device that stymies the upstart business and protects the entrenched, wealthy enterprise. IMO income taxes on wages are even worse and immoral since as a species it is incumbent upon us to work in order to support our families. Taxing those wages is counter productive, and a counter productive hindrance to our very nature. But I am getting far off track now... And must go to work soon to support a system of governing that is inefficient, unchecked, structurally unresponsive, corrupt, arbitrarily redistributive, militaristic, intrusive, paranoid, meddling, reflexively protective of itself and farther astray from a universally fair mission than this paragraph is to this thread about the foolishness of tinkering with interest rates to coerse behavior.

A Lunatic's picture

If their only true objective is to enrich their bankster overlords then they are doing everything correctly.......

Rehab Willie's picture

keynesiazis are clinically insane, they keep trying the same thing expecting a different result.

and their moto is "Try until you Die" (not them, just you)

Vlad the Inhaler's picture

Martin Armstrong should understand that raising the minimum wage is inflationary.

A Lunatic's picture

There is no inflation, and there never will be.......

Quasi's picture

Inflationary.. for what?  The economy as a whole? Nope. The only thing inflated by the minimum wage is labor itself. Once labor inflates, companies ditch the more expensive labor for machines (or move to an area with cheaper labor) as was stated. The net result is the goods either stay the same, or decrease in price. It doesn't send any "inflation" into the system as neither demand, supply, or confidence is affected.  If anything, deflation occurs when the factory moves to a new jurisdiction and the former factory building value drops considerably. Or, if you replace everyone with robots the man-operated equipment "deflates" in value as well as it is sold for scrap.

Vlad the Inhaler's picture

Yeah, if you raise the minimum wage, every single worker will be replaced by a robot.  I'll have some of what you're smoking.  The fact is that robots are replacing workers at current wages.  Higher minimum wage means more money in the pockets of the people who actually have to spend the money, because they still don't have the basic shit they need.  As opposed to higher paid people who could just save it.  Higher wages either come from higher prices which is also inflationary, or reducing other costs which is neutral.  The minimum wage when adjusted for inflation peaked in 1968.  The burger flipper used to work around 20 minutes for a Big Mac and today they work about 40 minutes for a Big Mac.


Martin Arstrong is an arrogant shit head jerk. Fuck him & any thing he writes.

Likstane's picture

A real douchebag

Magnum's picture

The day Russia bombed Syria.

PoasterToaster's picture
PoasterToaster (not verified) Vlad the Inhaler Dec 14, 2015 10:13 PM

The only way to create inflation is to increase the money supply.  "Wage-price spiral" is a Neo Keynesian myth used to keep people poor.

Debugas's picture

Q: The only way to create inflation is to increase the money supply

A: not true. One can stop producing (or even stop repairing things) and it will increase prices

CHX's picture

True, or by an increased *fiat* money velocity... (I guess that is what they would have liked to achieve by low&negative rates... utter FAIL), or by unilaterally set the price of gold to 100k USD (buying their gold back way higher than what they leased it out for... that would mark a true devaluation of currency vs. real money and increase the "real money supply"... I would certainly part from a few ounces at that price...).

NoDebt's picture

"We're all Marxists now."

- Michard M. Nixon  (adapted)

surf@jm's picture

Get rid of all the incompetent politicians huh?.....Now who`s preaching utopia?....

Term limits.....but that will never happen as long as they make their own rules......

uhland62's picture

Possibly, but it would be more effective to get rid of thw wars or halve them along with the military. Don't talk about the 1000 $ that you pay in Tax, talk about the Billions (1,000,000,000) that you spend on F-35s and all the other hardware. Stop fuelling the conflicts to cerate perpetual wars, because they are paid by YOU. Draw the connection between YOUR money and the wars. 


If you like a subued economy ensure to dampen consumption by job insecurity. The more unpredictability you can create the less people spend and the more deflation you get. It's not rocket science, but it's not in the textbooks so it cannot be right.

l8apex's picture

eurgold = complete scam.  

PoasterToaster's picture
PoasterToaster (not verified) Dec 14, 2015 10:07 PM

They are very myopic in their view of the world. The assumption that lowering interest rates will “stimulate” the economy has NEVER worked, not even once.

Hallelujah, at last!  Finally people are starting to gore the sacred cow.

Mitch Comestein's picture

The high marginal federal rate now is 43.4%, that is 39.6% on income + 3.8% on investment income or 2.9%+0.9% on wages over $200K for singles or $250 for married people.  That is the high you will pay in federal income tax on all income, sans LT capital gains and dividends.  

So, Martin's chart needs to be updated.

- Your friendly CPA

Insurrexion's picture

Keynesian economics fucking died in 1946.


Since then:

The Soviet Union, India, Pakistan, China, North Korea, Israel, France, and usta-be-great Britain gained nuclear weapons.

The U.S. Dollar became the global reserve currency and Pres. Dick Noxious removed the gold peg.

Janis Joplin, Jimi Hendrix, Jim Morrison and Kurt Cobain died when they reached 27 y.o.

The Soviet Union and the Warsaw pact broke into pieces.

What's his name invented the internet and global warming.

The CIA, Mossad and Arab patsies caused the perfectly executed catalyst to the "War on (by) Terror." This in turn caused the complete destabilization of the Middle East.

NATO expanded their hegemonic scope to Ukraine, Estonia, Latvia, Poland, and Macedonia.

Lehman shit on the street and Ben Bernanke printed $4 Trillion in U.S. Dollars to maintain the "Wealth and Power" status quo party.

A car salesman/zebra in mom pants/kenyan/wookie slave/teleprompter spokesman for the NWO that has ascended to the highest office in the western world with a Noble Peace prize.

Tell me that fucking Keynes is relevant and I will stab you in the fucking eyeball for being blind fucking idiot.


The world has changed. We must recognize what it is rather than the false simulacra of yesterday's propaganda.


Peace on earth and goodwill onto all of us who survive the Keynsian warranty period...

OpenThePodBayDoorHAL's picture

As Mike Milligan would say " I like your style" 


PoasterToaster's picture
PoasterToaster (not verified) Insurrexion Dec 15, 2015 12:57 AM

Does it really matter what label is placed on the lie they are telling?  Why so sensitive about Keynes?

Spungo's picture

The interest rates themselves are not deflationary, but uncertainty is. Who would buy a house when the media keeps saying rates are going up? Rising rates caused the adjustable rate mortgage collapse last time. In our minds, we associate rising rates with bankruptcy. Threatening a rate hike sounds like a threat to crash the economy, and spending does not respond well to threats.

Mr. Guts's picture

Capital is a coward 

truthalwayswinsout's picture

What is clear is we need either a Constitutional Amendment that as a matter of law there must be a substantive limit on how much you can be taxed by any and all Government sources or the Supreme Court needs to step forward as they did in BMW v. Gore where they placed substantive limits on punitive damages and for the Court to limit total taxation from all sources. 

In reality, how can anyone have the right to life, liberty and the pursuit of happiness if the governments they are subject to take more than 33% of their annual earnings (except in time of War as declared by Congress)?

Our forefathers never imagined that when they fought the British for our freedom that we would once again have an enemy worse than the British, our own governments.  

Aussie Battler's picture

How can something so blindingly fucking obvious elude the manipulators in chief at the ECB/Fed etc.

Debugas's picture

Q: How can something so blindingly fucking obvious elude the manipulators in chief at the ECB/Fed etc.

A: they are paid to mislead and makes simple things look complex that is why

Ghordius's picture

the FED leads... the ECB... follows. as per design

wrap your mind around one little thing about the ECB. it's an alliance of national banks... designed to withstand most of the effects of Currency War

and guess what? it's working, so far

Debugas's picture

let's be honest - lowering interest rates can stimulate the economy but not necessarily so

Ghordius's picture

+1, meanwhile setting negative rates... hasn't the exact same effects as lowering them further in the positive realm of rates

J J Pettigrew's picture

Low rates can stimulate ONLY in the short term.  Eventually the credit cards get maxed out and the consumer is in the debt bag again. 

Decision makers become leary that the faux rates have created fake asset evaluations....they sit, the velocity of money rolls over.

Savers who might be spending discretionary and disposable income off a fair return on their savings hunker down, inefficient businesses continue to operate and create product....deflationary forces.d

The new theories will point out the folly of the past 7 years of Fed policy.....

JailBanksters's picture

A Couple of things I've come to realize about Fiat Money Systems


1. all good things come to an end, sudenly

2. the only good fiat money system, is a dead fiat money system.


TuPhat's picture

I used to buy things because I felt like I could balance saving for retirement and buying things that would have some lasting value like furniture and tools.  That gave me a feeling that each day would have a better tomorrow.  With the current NIRP policies it is impossible to have much hope for retirement.  Money saved has no return and money in stocks is likely to be lost.  I must try to save as much as possible with little hope of it amounting to much.  That leaves barely enough for daily expenses and none for more durable goods.  The result is that every day there is little reason to hope that tomorrow will be better or that retirement will be anything but suffering.  You can't expect a better economy by spreading misery to all.  Lower taxes, repeal Obamacare, pay interest on savings, those things would incentivise work and thrift.  Stop rewarding sloth and indolence and the economy will recover.

l8apex's picture

Guess you don't work on Wall St or in DC....  'cause for those fuckers, they're all just worried about where to buy one of those miniature giraffes  for Xmas.

Konstantin Ks's picture

"They fail to comprehend that people will borrow only when they BELIEVE there is an opportunity to make money. "

Nevertheless, they seem to know that you don't need money to invest, so why don't you better give it to your wise government?

Toomuch's picture

The incomes of those employed in all supply chains, and their taxes, are provided from the sales income obtained, at the end of the supply chains, from their ultimate buyers, people with ready money, i.e. consumers. In other words, all taxes are inevitably sales taxes, which are largely hidden in consumer prices. Everyone pays a sales tax at the same general rate when buying goods and services with their real disposable income. The complexity of the tax system is deliberately constructed to conceal the actual taxation of consumption, in order to support various political ideologies.
Also, however government spends, its purchases are always tax free!