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When asked what Congress wanted, Armstrong replied, “One question (From Congress) was, ‘How could everything collapse overnight like that?’  The difference was very simple, the mortgage-backed securities that they were using, they rated them AAA.  That’s why S&P and so on are being investigated because once they were rated AAA, then you could post them in the repurchase agreement market, the repo market. 

In the repo market you post securities, the next day you get cash for them and the next day you have to pay back the cash.  So it’s a 24 hour market.  Now if you have these time bombs that are rated AAA, and it has to be AAA paper to go into the repo market, and it blows up, you have 24 hours to come up with the cash.

Whereas, if they were not AAA, if they were even AA and they blew up, then they are just sitting on a company’s books.  That has to be reported on a quarterly basis and they have the time to work it out, take charge offs, whatever.  Lehman would have survived.  Most of the other companies would have survived....

“This is what a lot of people didn’t understand.  That is why a lot of people (Congressmen) ended up coming to me because I understand these markets, how they were created, I was there when they were created.”

When asked which currency will collapse first, Armstrong responded, “Americans tend to focus really just on the United States.  The United States is, among the Western countries, it’s actually in the best shape.  Europe is going to largely collapse first.  What you have to understand with the dollar is that the dollar is the reserve currency.  What that means is that about 40% of the interest that we pay goes overseas.

All of the foreign central banks hold US government bonds, not actually physical dollars, but they actually hold bonds as a reserve. So the reserve currency is not something that is going to crack first.  You have to understand that because if the dollar were to be the first thing to collapse, the rest of the world has to go with it.

In Europe, to put it into an American context, imagine if every state had the right to print dollars, it would be total chaos.  That’s what Europe did (by allowing individual country bonds to be issued) and that’s why I warned them that they were going to collapse, but politicians just didn’t want to hear it ten years ago.  They were more interested in creating a euro than they were in creating a (long-term functional) system.

...This is also why the banking system over there is in trouble.  They (European leaders) are going to try to hang on as long as they can.” 

The King World News interview with Martin Armstrong is incredibly powerful.  This was a man who at one time sat atop the financial world and who, to this very day, world leaders still go to for counsel.  Armstrong covered currencies, gold and much, much more.  The KWN interview with Martin Armstrong is available now and you can listen to it by CLICKING HERE. 

© 2011 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

Eric King

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