Basel III Liquidity Ratios

4/18/2014 Portland, Oregon – Pop in your mints…

Up until the financial crisis of 2008 and beyond, most Americans who were not alive during the early 1930′s had grown up in a world where choosing a bank was largely a matter of preference. Once the FDIC insurance program was instituted on January 1, 1934, depositors had little to worry about.

The financial crisis that the world just experienced was a wake up call on many levels. The first alarm rang for many Americans, members of congress included, when the Troubled Asset Relief Program (TARP) was sent on a freight train through the House and Senate under the threat of an imminent global financial meltdown. Meanwhile, in Europe, the European Central Bank and European Union take a series of measures to shore up both their banking system as well as the finances of their member nations.

Giving away trillions of dollars to businesses who made bad decisions, while ultimately the chief function of government, is, paradoxically, politically unpopular. As such, the governments of the world, who found themselves on the hook for losses in the financial system of a nature that many of them could not hope to understand in terms of nature and scope, began to devise a series of rules that would ensure that this sort of thing would never happen again.

So it was that, sometime in 2009, the word Basel, which until that time was a typo on a recipe card, became prevalent in the world of banking.

Basel is a city in Switzerland where the world’s banking regulators chose to meet to put their minds together as to what types of rules were needed so that the financial crisis would never happen again. Today, five years later, the rules that they took so much time to tailor are indeed perfect for a world that existed five years ago. As it stands today, the rules could very well be the cause of the next financial crisis.

The Basel accords and, more specifically, the Basel III Liquidity ratio, which is our focus today, are generally aimed at ensuring that large banks (those with $50 billion USD or more in assets, “too big to fail”, if you will) will always have enough liquid assets to meet the demands made on it each day.

The Basel III liquidity ratio is a simple ratio which places a banks Liquid Assets, meaning cash, Treasuries, and Agencies) over its Stressed Cash Outflows (meaning maximum foreseen withdrawals during a liquidity crisis). The banks must report this ratio at a set time every business day. If the ratio is over 100%, all is well. If not, not, meaning the bank could be forced by regulators to initiate a strategy to unwind its operations.

Serious stuff.

While the numerator of the liquidity ratio is extremely simple to calculate, it is driven by the denominator, which is infinitely more complex. This is where you and I, fellow taxpayer, come in.

Banks will be required to stratify their deposit customers well beyond the simple consumer and business account denominations that have sufficed to some degree until now. They are now required to carefully monitor customers to better understand their daily inflows and outflows from their accounts in order to arrive at a maximum Stressed Cash Outflow number for each category of account.

As a practical matter, the bank will assign each category of customer and account a “run-off” factor, which is expressed as a % of the account’s balance on any given day that may “run” out of the bank. Again, this number is critical for the bank, as it ultimately determines its reinvestment strategy and, by extension, how profitable a deposit customer is.

The good news is that consumer and small business accounts which are FDIC insured are, as of the most recent comment period, assigned a 3% run-off factor. Meaning that for every $100 on deposit, the bank must buy $3 worth of Treasuries as an offset, and it is free to invest the remaining 97% in loans or other more profitable investments.

This means that competition for deposits from consumers and small businesses just got more intense, which should generally be good news for customers. They should expect to see increased savings rates and incentives to hold both more cash and conduct more business at a specific bank, as it will be in the bank’s best interests to retain them and understand their spending habits.

The bad news begins outside of the realm of FDIC insured accounts. For all balances over the FDIC limits for the same customers, the run-off factor, which, all things being equal, has an inverse relationship with a bank’s profitability, jumps to 10%.

For larger Corporate customers, who tend to have operating (daily transaction) and non-operating (reserve) accounts, the run-off factor jumps to 25% on operating accounts and 40% on non-operating accounts. This makes large corporate customers somewhat less attractive.

The people that no one will want to bank with, from a run-off factor standpoint, are financial companies (think Insurance companies, small banks, etc.) who are presumed to have a run-off factor of 100%, meaning these companies, under Basel III liquidity rules, must be seen as ready to walk into the bank on any given day and withdraw all of their accounts.

In a way, the 100% run-off factor on financials makes sense, as it requires all large banks to hold Treasuries to backstop the accounts of financial companies. It is a “regulatory” guarantee that these companies will always be liquid.

The way around the 100% run-off factor for financials and other large institutions are accounts with covenants to provide the bank with at least 30 days notice before withdrawal. This type of notice requirement, in theory, gives the bank time to arrange its investments to be able to meet the cash outflow without impacting overall stressed cash outflows.

As one can imagine, Basel III will lead to a number of new banking products in terms of accounts and credit lines. Briefly, this is what consumers and companies can expect to see as January 1, 2015 approaches:

1. A dogfight for small, FDIC insured deposits.

2. Decreased access to business lines of credit, as the Treasuries will be the default reinvestment vehicle for banks as they attempt to sort out their daily Liquidity ratio.

3. Point 2 above means that low-interest rates on Treasuries are likely to be embedded for quite some time.

4. Deposit products which cannot be withdrawn with less than 30 days notice without steep penalties. One idea we have heard is a “perpetual 31 day time deposit,” meaning that the 30 day withdrawal notice requirement is embedded in the covenant, it is like an operating account that the customer has to give 30 days notice, like they would a landlord, to the bank before withdrawing.

As the Affordable Care Act has fundamentally changed the healthcare industry, Basel III will fundamentally change the banking industry. While its aim is to forever stabilize financial markets, its implementation may be the biggest threat that financial markets have seen since late 2008. Beyond that, it places the bedrock of finance firmly on the shoulders of sovereign bonds, which, despite being seen as completely liquid, hold a myriad of unknown risks.

Basel III, coming January 1, 2015. The time to prepare is running out, and the time for action is upon us.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: [email protected]

Key Indicators for April 18, 2014

Copper Price per Lb: $3.03
Oil Price per Barrel: $104.30

Corn Price per Bushel: $4.94
10 Yr US Treasury Bond: 2.72%
Bitcoin price in US: $475.00
FED Target Rate: 0.09%
Gold Price Per Ounce: $1,294

MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 6.7%
Inflation Rate (CPI): 0.2%
Dow Jones Industrial Average: 16,409
M1 Monetary Base: $2,704,700,000,000

M2 Monetary Base: $11,330,600,000,000

Posted in Economics, Personal Finance | Tagged , , , , | Leave a comment

A Teaching on Deuteronomy

Those who have followed The Mint over the past several years are familiar with an annual assignment which we take very seriously. The assignment is to open the Bible as if we have never seen it before for the first 10 weeks of the year. The assignment is given each year by Bettie Mitchell, the Founder of Good Samaritan Ministries in Beaverton, where the classes are held.

Over the past four years, we have been fortunate to explore Hosea, Matthew, Isaiah, and John. This past February 19th and 26th we were privileged to assist in teaching the book of Deuteronomy, a book of staggering importance.

Below is a clip from the class on the 19th:

You can see the entire teaching at the following link:

https://www.youtube.com/watch?v=bRM2WHXNyCA

If you are interested in teaching on Deuteronomy, you can access our notes, with the introduction and conclusion from James Michener’s The Source, at the following link:

A Teaching on Deuteronomy

You can also download them in here: Deuteronomy Class Notes 2-16-2014

You can access the Powerpoint slides here: Deuteronomy Slides

You will quickly notice two things if you take time to watch the video of the teaching and look over the slides. First, you will notice that there are only three slides for what will be four hours of teaching. Second, the pace of speaking may seem slow.

We assure you that you are not imagining things. There are indeed very few slides and our pace is purposefully slow. On the internet, where one is accustomed to information coming at a rapid fire rate, it will feel slow.

The reason is the following: If one is to allow the Word of the Living God to teach them, it must come out of one’s mouth, travel around the room, and be heard back into one’s own ear to assure that it has been heard and understood by all. Only then, when it has been heard and understood by all, can it bring the people in the room together, as they were some 3,500 years ago at Kadesh Barnea, listening to Moses give his bittersweet farewell address to a people who were about to become a nation for the very first time.

It is a nation that has withstood the test of time and distance ever since that moment, and has spread from the Promised Land throughout the world, and yet remains one: Israel.

Regardless of one’s faith or ancestry, Deuteronomy is important, for it holds the key to a number of mysteries. As Bettie Mitchell put it:

In the cities there is confusion, in the wilderness, there is something different, something to be learned. In the wilderness, the question is not about human relationships, it is about God

Deuteronomy takes mankind to the wilderness.

 

Posted in Bible Teaching, Deuteronomy, GSM | Tagged , , | Leave a comment

More Evidence of the Impending Wage/Price Spiral Appears

4/2/2014 Portland, Oregon – Pop in your mints…

The wage/price spiral. It is a nasty economic phenomenon where the labor market suddenly tightens, causing a chain reaction of relative scarcity of output, which leads to higher prices for goods, which leads workers to demand higher wages, which employers pay for by raising prices and attempting to increase output, which finds itself back staring back at the tight labor market, where each available worker now knows he or she is worth much more.

The wage/price spiral, which is generally only possible on a broad scale in times like our own, when credit passes as money, appears to be accelerating.

Graphic courtesy of Deutsche Bank Research

Graphic courtesy of Deutsche Bank Research

The tightness in the US labor market has been happening in near stealth mode. While the Unemployment rate remains above 6.5%, the line drawn in the sand by the FED for consideration of tighter monetary policy, what is lost in the data is that Baby Boomers are retiring. While it is true that their overall consumption will likely decrease, it is also true that their staggering output as a generation is falling even faster, leaving fewer workers to fill the gaps, especially in highly skilled positions.

What does it mean? If you are a worker feeling squeezed by higher prices, ask your boss for a raise. If they won’t comply, start looking for another employer. Chances are, by the time you have found a better offer, your current employer will realize what is happening, and make you an even better offer to stay. This is a hypothetical situation, of course, and each person must carefully consider their own situation. However, when this spiral takes off, you will want to be well ahead of the curve.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: [email protected]

Key Indicators for April 2, 2014

Copper Price per Lb: $3.04
Oil Price per Barrel: $99.20
Corn Price per Bushel: $5.05
10 Yr US Treasury Bond: 2.80%
Bitcoin price in US: $469.48
FED Target Rate: 0.06%
Gold Price Per Ounce: $1,292
MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 6.7%
Inflation Rate (CPI): 0.1%
Dow Jones Industrial Average: 16,541
M1 Monetary Base: $2,694,800,000,000
M2 Monetary Base: $11,229,900,000,000

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The Great Work of Janet Yellen

3/29/2014 Portland, Oregon – Pop in your mints…

“…Sanballat and Geshem sent to me, saying, ‘Come, let us meet together in the villages in the plain of Ono.’ But they intended to harm me.

I sent messengers to them, saying, ‘I am doing a great work, so that I can’t come down. Why should the work cease, while I leave it, and come down to you?’ They send to me four times like this; and I answered them the same way…”

- Nehemiah 6:3

Nearly 30 days and nights have passed since our last correspondence, fellow taxpayer, and we, like Nehemiah, have only one excuse:

We are doing a great work.

Nehemiah’s great work, referred to above, was to rebuild Jerusalem, the Holy City. He found that, though he had been given authority to perform the work, on the ground, he often encountered hostility and detriments to the work that came from quarters where he had reason to expect help or, at a minimum, indifference.

Our great work at the moment, fellow taxpayer, is to concurrently rebuild a Fiscal department and restore an accounting record that has fallen into disrepair, all while undergoing an annual audit and responding to the day-to-day tasks and myriad of reporting requests which come with the territory of modern financial management.

{Editor’s Note: While it is a subject for another day, we must comment on the tool of the trade that is being employed in the great work, the Yardi Voyager accounting software. We last touched Yardi over 10 years ago and, while the software retains many of its origins, the current version is a beast in terms of cloud processing. We reckon that, given the correct tactician at the helm (which we humbly consider ourselves to be), accounting records in Yardi can be administered by considerably fewer finance staff than many competitors.}

For the moment, we face no hostility and, generally speaking, the finance profession is free from mortal danger. However, there is great interest in the work as there are ultimately a great number of interested parties, and we find that, like Nehemiah, we are often called to the ‘villages in the plain of Ono’ for other matters.

There are risks in undertaking any great work, and there is also great exhilaration in making progress and ultimately, after facing all of the difficulties and suffering through the doubts of naysayers, doing the impossible.

Janet Yellen’s Great Work

Janet Yellen came onto the job as the Federal Reserve’s first Chairwoman on February 3, 2014, just 10 days after we began our great work. Unlike ourselves, Yellen has had the benefit of watching her predecessor hone his craft as Vice Chairman for four years and has enjoyed the benefits of the revolving door between government and academia since the early ’80s.

In other words, Yellen has no real world experience, which is a prerequisite to serve in any high-ranking office in America, circa 2014.

A Shameless plug on our volume dealing with the constant unity of Capitalism and Socialism

A Shameless plug on our volume dealing with the constant unity of Capitalism and Socialism, click to purchase

According to her dossier, it counts among her previous great works a study dealing with East Germany’s integration into the German economy upon the reunification of the country. {Editor’s Note: For those to young or indifferent to recall such matters, the East German integration was a major windfall for West Germany at the time, who then (1990) was jockeying for position in what was to be the European Union. The reunification caused 16 million more Germans to appear overnight, giving the unified Germany a considerable voice in the negotiations.} Beyond this, Yellen is given credit for a form of clairvoyance regarding the financial crisis in 2007, apparently seeing something amiss from her post as the President of the San Francisco Fed (she must have seen Jim Cramer’s rant in July).

Janet Yellen now has a new great work to undertake as Chairwoman of the Federal Reserve. While she was likely performing many of Bernanke’s tasks from at least October of last year when President Obama nominated her as Bernanke’s successor, one task that could not be delegated was that of the press conference.

As such, Yellen took the stage on March 19th, 2013 and dutifully attempted to explain the rationale for the decisions of the Federal Reserve’s FOMC regarding short-term interest rates and its Quantitative Easing programs.

The press conferences, which began under Ben Bernanke, were meant to clear up any confusion, which may have been read into the numbers and written statements provided by the FOMC which had until then served as the primary window for the outside world into the machinations of the committee which decides how much credit will be conjured out of thin air.

For some reason, perhaps the novelty, the press conferences have taken on a life of their own. The reason for this is that, while the FOMC may have deliberated and arrived at a consensus regarding their curious task, the person who gives the press conference ultimately has the last word and, though the event is meant to be carefully scripted, it cannot help but introduce an element of uncertainty into a process (the conjuring of credit out of thin air) which already defies the laws of economics and indeed works in direct opposition to nature herself.

At minute 20, which we have clipped below, Jon Hilsenrath of Wall Street Journal calls out the fact that there is an upward drift in a dot plot reflecting expectations for short-term interest rates of the individuals on the committee, and how one should reconcile that with the guidance given in the FOMC statement.

Yellen deflects Hilsenrath from the dot plots and then goes on to target the end of 2016 as the time when rates will likely rise. She also calls out 6.5% as the target for the unemployment rate, and reiterates the eternal 2% target for inflation as triggers for tightening. As you can see below, unemployment clocked in at 6.7%, meaning tightening could be around the corner.

This degree of upside uncertainty, which Yellen interjected as part of her great work at the press conference, managed to spook markets, as, while 2016 may be a long ways off in Yellen’s mind, as it would be when one is waiting to obtain their driver’s license, for those who are writing bonds today based on the Fed’s guidance, 2016 is in many cases a thing of the past, and Yellen’s utterances shattered a countless number of assumptions that the bond market had begun to hold dear.

Conjuring credit out of thin air is risky business as it is, and when those who are primarily responsible for it attempt to explain their actions, things can become incoherent in a hurry.

In the near future, we may hear Yellen uttering Nehemiah’s refrain the next time she is called to the press conference,

“I am doing a great work, so that I can’t come down. Why should the work cease, while I leave it, and come down to you?”

For the last time Yellen came down, fixed income nearly imploded. The risky business of conjuring credit out of thin air is best performed in the dark, if at all.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: [email protected]

Key Indicators for March 29, 2014

Copper Price per Lb: $3.02
Oil Price per Barrel: $101.07
Corn Price per Bushel: $4.92
10 Yr US Treasury Bond: 2.71%
Bitcoin price in US: $501.24
FED Target Rate: 0.08%
Gold Price Per Ounce: $1,295
MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 6.7%
Inflation Rate (CPI): 0.1%
Dow Jones Industrial Average: 16,323
M1 Monetary Base: $2,694,800,000,000
M2 Monetary Base: $11,229,900,000,000

Posted in Economics, Mint Money Supply Digest | Leave a comment

Mt Gox, we hardly knew ye

3/3/2014 Portland, Oregon – Pop in your mints…

While the digital currency Bitcoin continues to rise in value relative to the US Dollar, one of the mainstays of the Bitcoin universe, Mt Gox, appears to have exited the industry after a series of digital heists in the form of hacks into the exchange’s hot wallet (the exchange’s interface with the broader Bitcoin market) left what was once the world’s most important Bitcoin exchange insolvent.

Bitcoins: What they are and how to use them

Bitcoins: What they are and how to use them

When Mt Gox imploded on February 25th, it took with it one of the largest bridges between the Bitcoin universe and the national currencies of the world. It also took with it one of the largest pools of liquidity in the digital currency realm. As a result, the digital currency traded below $300 for the first time since November 2013.

While the events which unfolded on that fateful February day last week have caused many a Bitcoin naysayer to blurt out, “I told you so,” evidence of the actual demise of Bitcoin and other digital currencies has been lacking. After all, it wasn’t as if the Bitcoin blockchain itself that imploded. On the contrary, the demise of Mt Gox may have been the best thing to happen to the Bitcoin industry.

Mt Gox grew from its humble beginnings as an online exchange for Magic: The Gathering cards to dominate the Bitcoin trade, which it entered into in 2011. On June 11th, not long after it entered the Bitcoin game, it suffered the first of what would be several security breaches. After all, in the Bitcoin Universe, all Mt Gox had was just another wallet. The fact that it was seen as one of the largest wallets made it a natural target.

In April of 2013, when Mt Gox was in its heyday, processing roughly 70% of all Bitcoin trades, it suffered another well publicized hack.

Through all of its setbacks, Mt Gox was able to soldier on and execute trades, despite being short, as revealed over the past week, roughly 750,000 Bitcoins. It is our suspicion that Mt Gox was able to cover shortfalls in the past by mining Bitcoins to cover those that had been stolen. Over the course of the past year, with Bitcoin touching roughly $1,200 USD at certain points in time, mining again became lucrative as the rate of Bitcoin generation began to plateau, leaving any player who was short Bitcoin in an extremely difficult situation.

While those of us who, until recently, looked to Mt Gox for the Bitcoin market price as a silver trader looks to the Comex, it will take some minor adjustments, but life in Bitcoin land will move on and, from the looks of things, be more stable and vibrant.

For those who stored a great deal of Bitcoin denominated wealth directly on Bitcoin’s wallet, the outcome, it would appear, is much more tragic.

Does Mt Gox’s demise signal the demise of Bitcoin? On the contrary, it may have ushered in Bitcoin’s golden age as the standard by which all subsequent digital currency offerings are measured.

The case for Bitcoin remains extremely compelling once one grasps what Bitcoin represents. Bitcoin is operating as an indirect claim on assets, nothing more, nothing less. In this sense, it is similar to equities and central bank currencies. Once this is properly understood, a quick look at Bitcoin’s fundamentals will reveal why the Bitcoin/USD ratio is on a roller coaster ride tilted upwards until the rails come off the track.

Enjoy the ride, but keep an eye on the exit, you may need a parachute!

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: [email protected]

Key Indicators for March 3, 2014

Copper Price per Lb: $3.20
Oil Price per Barrel: $104.73

Corn Price per Bushel: $4.70
10 Yr US Treasury Bond: 2.75%
Bitcoin price in US: $672.00
FED Target Rate: 0.07% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,350

MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 6.6%
Inflation Rate (CPI): 0.1%
Dow Jones Industrial Average: 16,168
M1 Monetary Base: $2,658,300,000,000

M2 Monetary Base: $11,121,500,000,000

Posted in Bitcoins, Monetary Theory | Tagged , | Leave a comment

The Division of Labor Gives Rise to the Monetary Premium

2/8/2014 Portland, Oregon – Pop in your mints…

Today we find ourselves, along with the rest of the inhabitants of the Willamette Valley, enjoying what has been dubbed “Snowpocalypse 2014.” The valley’s residents are now three days into this rare event and, while much in the way of normal transit has been disrupted (truly, it does not take much snow to paralyze Portland). We do not have a solid measure of just how much snow has fallen and whether or not the event lives up to its name, what is unmistakable is that the snow is beautiful and is has revealed many a great sledding hill in our midst.

Some of our faithful readers will recall that back in December, we began exploring the Monetary Premium, the portion of an item’s relative value owed to the utility of an item as money (those new to The Mint can glance back at these essays for a thorough exploration of the definition of money). In that essay, we presented the portion of the Monetary premium that arises as a result of an Imperial authority demanding tribute in said currency. Logically, it may also be said that laws declaring what is legal tender or any law which dictates the monetary unit in which debts are to be cancelled in an economic zone will also give rise to the monetary premium.

Of Money and Metals by David MIntGiven the above example, it may appear that the primary drivers for an economic good to carry the monetary premium are related to imperial or government action. However, this is decidedly not the case, for the ultimate origin of and primary factor contributing to the monetary premium of any economic good has nothing to do with the government or what is used as money, rather, the Monetary premium comes into being as a result of an increase in the division of labor.

For those not familiar with the term, the division of labor is what makes urban society possible. While perhaps the most easily understood metaphor is that of the assembly line, where each individual worker dedicates him or herself to completing one facet of the production process, relying on their counterparts on either side of them to ensure that the chain of production, of which they form part of, remains unbroken.

Economic systems are, in a sense, a collection of interconnected assembly lines both large and small, with each member of the system dedicating themselves to a set of tasks; the more time and energy that each individual is allowed to dedicate to their task, the more efficient each individual generally becomes. The fact that each individual dedicates an increased amount of time and energy to a specific task gives rise for other members of society to pitch in and specialize in tasks that others cannot do for themselves given the specific scope of their labors.

The division of labor, if allowed to rise and sort itself out on its own, is generally good for economic output, as increased efficiencies translate into increased outputs. However, as individuals increasingly specialize in certain tasks, they increasingly rely upon other members of society to fulfill their need. As logic would follow that the increased division of labor does not allow much time for barter transactions, an increase in the division of labor always gives rise to the need for a monetary premium to both emerge and expand, attaching itself not only to traditional transmitters but giving rise to new ones as well.

Once the monetary premium expands, it gives rise to an increase in the division of labor, and in this way the dynamic between the two drives real economic growth.

Limitations on the Division of Labor and Monetary Premium

After reading the above, it should be clear that both the division of labor and the monetary premium are generally good for humankind, and that both factors driving real economic growth, if left to operate unhindered would eventually run up against and adapt to the limitations of the natural environment.

However, today, circa 2014, both the division of labor and monetary premium are hindered not by natural limitations, but by limitations placed upon them by well meaning legislators. While all legislation tends to have either a direct or indirect effect on economic activity, there are two kinds that are particularly harmful to economic growth as they cut off the lifeblood of economic expansion: The dual expansion of the division of labor and the monetary premium.

The first are laws dealing with minimum wages. While minimum wages laws strive to guarantee a living wage for all members of society, they never achieve this goal and, in the process, serve to directly hinder the expansion of the division of labor when actual wage rates for certain activities are below the minimum wage rate, and serve no purpose when wage rates are above it.

The second set of laws are those referenced above; legal tender laws. While Legal tender laws strive to codify what serves as money in a society, they invariably serve to direct an inordinate amount of the monetary premium into instruments that are not worthy of serving as money on a grand scale. In the process, they serve as a severe limitation on what can carry the monetary premium and, by extension, the expansion of the monetary premium and the division of labor.

We all suffer to some degree due to manmade hindrances to the expansion of either the monetary premium or the division of labor; however, it is those farthest from monetary spigots, as defined by legal tender laws, who suffer the most. In order for peace and prosperity to accrue to the greatest possible number of persons, it is critical that we grasp the importance of encouraging the division of labor to operate unhindered.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: [email protected]

Key Indicators for February 8, 2014

Copper Price per Lb: $3.26
Oil Price per Barrel: $99.88

Corn Price per Bushel: $4.44
10 Yr US Treasury Bond: 2.68%
Mt Gox Bitcoin price in US: $680.00
FED Target Rate: 0.07% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,267

MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 6.6%
Inflation Rate (CPI): 0.3%
Dow Jones Industrial Average: 15,794
M1 Monetary Base: $2,752,800,000,000

M2 Monetary Base: $10,968,700,000,000

Posted in Economics, Monetary Theory, The Mint | Tagged , , , | Comments Off

Robert D. Kaplan’s Clairvoyance on Emerging Anarchy

2/6/2014 Portland, Oregon – Pop in your mints…

Robert D. Kaplan, Stratfor’s Chief Geopolitical Analyst, published in interesting report yesterday recounting his clairvoyance in predicting the rise of anarchic rule in certain African states (predictions that came to pass) and the general erosion of state governance throughout the world.

Anarchy as an Ultimate GivenKaplan’s observations are of particular interest to us, as we hold the belief that Anarchy is an Ultimate Given, meaning that groups of people tend to search for a coordinated approach to their inherently anarchic surroundings, the most recent of which has been the democratic nation state.

While Kaplan’s analysis appears to paint a picture of chaos and lawlessness, which indeed are the hallmarks of regime change, we see democratic nation states and their attendant monetary regimes as things that the world is currently shedding for its ultimate betterment, as they now serve to restrict trade instead of facilitating it as once was their chief contribution to the livelihood of the governed.

The continued adoption of communication via the internet is moving toward a state of maturity from which the natural progression towards internet facilitated trade amongst parties is causing the world to eschew the label of their respective nation state and replace it with one of religion or other shared affinities which are readily accessible given the pace of mobile communication expansion.

Kaplan also makes a clear distinction between the need for strong governance of urban societies whereas rural/agrarian societies tend to govern themselves, a point that is lost on most observers, not the least of which are the political classes in the current nation state, which tend to focus on national borders as the only limitations to their sphere of influence.

While Kaplan’s analysis is interesting and serves to explain what is likely to continue to occur for the next 5 to 20 years in terms of the erosion of central governments, he appears unable to speculate as to what form the governing body of a large geographical area would take.

As such, we will speculate for him. The world is in the process of segregating itself into phyles, or groups of people aligned in terms of ideologies, be they religious or otherwise, independent of geographic location. These phyles will tend to unite, geographically where possible, but primarily through trade relationships. Once these trade relationships are established, the increased division of labor will resume within the phyles, giving rise to a true increase in the Monetary premium of items that up until now have not been identified as money.

Bitcoin is one example of what is essentially a pure monetary premium transmitter. As the nation states continue to crumble, the foundations for new societies united by ideology and/or trade relations are already being laid, and we hope and pray for a peaceful transition onto them for all, as the failed model of the democratic nation state based on mere borders must be laid to rest peacefully for humankind to truly prosper.

Without further ado, Robert D. Kaplan…

Why So Much Anarchy?

By Robert D. Kaplan

Twenty years ago, in February 1994, I published a lengthy cover story in The Atlantic Monthly, “The Coming Anarchy: How Scarcity, Crime, Overpopulation, Tribalism, and Disease are Rapidly Destroying the Social Fabric of Our Planet.” I argued that the combination of resource depletion (like water), demographic youth bulges and the proliferation of shanty towns throughout the developing world would enflame ethnic and sectarian divides, creating the conditions for domestic political breakdown and the transformation of war into increasingly irregular forms — making it often indistinguishable from terrorism. I wrote about the erosion of national borders and the rise of the environment as the principal security issues of the 21st century. I accurately predicted the collapse of certain African states in the late 1990s and the rise of political Islam in Turkey and other places. Islam, I wrote, was a religion ideally suited for the badly urbanized poor who were willing to fight. I also got things wrong, such as the probable intensification of racial divisions in the United States; in fact, such divisions have been impressively ameliorated.

However, what is not in dispute is that significant portions of the earth, rather than follow the dictates of Progress and Rationalism, are simply harder and harder to govern, even as there is insufficient evidence of an emerging and widespread civil society. Civil society in significant swaths of the earth is still the province of a relatively elite few in capital cities — the very people Western journalists feel most comfortable befriending and interviewing, so that the size and influence of such a class is exaggerated by the media.

The anarchy unleashed in the Arab world, in particular, has other roots, though — roots not adequately dealt with in my original article:

The End of Imperialism. That’s right. Imperialism provided much of Africa, Asia and Latin America with security and administrative order. The Europeans divided the planet into a gridwork of entities — both artificial and not — and governed. It may not have been fair, and it may not have been altogether civil, but it provided order. Imperialism, the mainstay of stability for human populations for thousands of years, is now gone.

The End of Post-Colonial Strongmen. Colonialism did not end completely with the departure of European colonialists. It continued for decades in the guise of strong dictators, who had inherited state systems from the colonialists. Because these strongmen often saw themselves as anti-Western freedom fighters, they believed that they now had the moral justification to govern as they pleased. The Europeans had not been democratic in the Middle East, and neither was this new class of rulers. Hafez al Assad, Saddam Hussein, Ali Abdullah Saleh, Moammar Gadhafi and the Nasserite pharaohs in Egypt right up through Hosni Mubarak all belonged to this category, which, like that of the imperialists, has been quickly retreating from the scene (despite a comeback in Egypt).

No Institutions. Here we come to the key element. The post-colonial Arab dictators ran moukhabarat states: states whose order depended on the secret police and the other, related security services. But beyond that, institutional and bureaucratic development was weak and unresponsive to the needs of the population — a population that, because it was increasingly urbanized, required social services and complex infrastructure. (Alas, urban societies are more demanding on central governments than agricultural ones, and the world is rapidly urbanizing.) It is institutions that fill the gap between the ruler at the top and the extended family or tribe at the bottom. Thus, with insufficient institutional development, the chances for either dictatorship or anarchy proliferate. Civil society occupies the middle ground between those extremes, but it cannot prosper without the requisite institutions and bureaucracies.

Feeble Identities. With feeble institutions, such post-colonial states have feeble identities. If the state only means oppression, then its population consists of subjects, not citizens. Subjects of despotisms know only fear, not loyalty. If the state has only fear to offer, then, if the pillars of the dictatorship crumble or are brought low, it is non-state identities that fill the subsequent void. And in a state configured by long-standing legal borders, however artificially drawn they may have been, the triumph of non-state identities can mean anarchy.

Doctrinal Battles. Religion occupies a place in daily life in the Islamic world that the West has not known since the days — a millennium ago — when the West was called “Christendom.” Thus, non-state identity in the 21st-century Middle East generally means religious identity. And because there are variations of belief even within a great world religion like Islam, the rise of religious identity and the consequent decline of state identity means the inflammation of doctrinal disputes, which can take on an irregular, military form. In the early medieval era, the Byzantine Empire — whose whole identity was infused with Christianity — had violent, doctrinal disputes between iconoclasts (those opposed to graven images like icons) and iconodules (those who venerated them). As the Roman Empire collapsed and Christianity rose as a replacement identity, the upshot was not tranquility but violent, doctrinal disputes between Donatists, Monotheletes and other Christian sects and heresies. So, too, in the Muslim world today, as state identities weaken and sectarian and other differences within Islam come to the fore, often violently.

Information Technology. Various forms of electronic communication, often transmitted by smartphones, can empower the crowd against a hated regime, as protesters who do not know each other personally can find each other through Facebook, Twitter, and other social media. But while such technology can help topple governments, it cannot provide a coherent and organized replacement pole of bureaucratic power to maintain political stability afterwards. This is how technology encourages anarchy. The Industrial Age was about bigness: big tanks, aircraft carriers, railway networks and so forth, which magnified the power of big centralized states. But the post-industrial age is about smallness, which can empower small and oppressed groups, allowing them to challenge the state — with anarchy sometimes the result.

Because we are talking here about long-term processes rather than specific events, anarchy in one form or another will be with us for some time, until new political formations arise that provide for the requisite order. And these new political formations need not be necessarily democratic.

When the Soviet Union collapsed, societies in Central and Eastern Europe that had sizable middle classes and reasonable bureaucratic traditions prior to World War II were able to transform themselves into relatively stable democracies. But the Middle East and much of Africa lack such bourgeoisie traditions, and so the fall of strongmen has left a void. West African countries that fell into anarchy in the late 1990s — a few years after my article was published — like Sierra Leone, Liberia and Ivory Coast, still have not really recovered, but are wards of the international community through foreign peacekeeping forces or advisers, even as they struggle to develop a middle class and a manufacturing base. For, the development of efficient and responsive bureaucracies requires literate functionaries, which, in turn, requires a middle class.

The real question marks are Russia and China. The possible weakening of authoritarian rule in those sprawling states may usher in less democracy than chronic instability and ethnic separatism that would dwarf in scale the current instability in the Middle East. Indeed, what follows Vladimir Putin could be worse, not better. The same holds true for a weakening of autocracy in China.

The future of world politics will be about which societies can develop responsive institutions to govern vast geographical space and which cannot. That is the question toward which the present season of anarchy leads.

Why So Much Anarchy? is republished with permission of Stratfor.

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Why What We Use as Money Matters Trailer released

Today we present the fresh release of the trailer for our recent book, Why What We Use as Money Matters, a reflection on current systems of finance and governance and how they may be throwing the earth wildly out of balance.

Could it be that it is not how, but what we use as money matters when searching for the root cause of Climate Change and other Global Problems? These nine volumes are a thought provoking exploration of modern financial and political systems and their effects on both people and the land.

WWWUAMM BannerPick up your copy today and stay fresh!

 

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How Money is Made

1/13/2014 Portland, Oregon – Pop in your mints…

We were fortunate to have the video below brought to our attention recently. As you can see, this brilliant video presentation of what is wrong with the current monetary system does in 30 minutes something that we have taken lengthy stabs at expressing via the written word over the past three years, and it does so with some nice animation to boot!

Enjoy this presentation of “How Currency is Made, How Debt is Created, and How you are Impoverished,” the fourth video in a series on the monetary system courtesy of Liveleak.com:

We are especially fond of the scene where the workers shovel the currency into the piggy bank, only to have a large bird swoop down, pick it up, and fly it to the offices of the tax authority. It is truly something that nearly all of our fellow taxpayers can related to, and this depiction drives the point home.

For better or worse, this is the monetary and taxing regime in which we live. Getting out of it is as simple as changing your mind with regards to such matters. The difficult part is changing the minds of others so that meaningful advances towards monetary freedom can be made. For if you act alone, you are merely a prepper, but if you act in concert with all of those in your community and circle of trade, you are a history maker.

One way or another, we will all find ourselves in the latter camp, but, like campsites on the fourth of July weekend, the best spots will go to those who get there early. Will you be one of them?

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: [email protected]

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Its 2014: Just do it

1/7/2014 Portland, Oregon – Pop in your mints…

The New Year has come according to the Gregorian calendar, and we wish our fellow taxpayers a happy and healthy 2014. We can hardly contain our excitement, as the calendar change seems to have awoken the slumbering giants of economic progress who have been holed up the past five years.

As an aside, if you are in the Portland area, tomorrow evening at Good Samaritan Ministries in Beaverton there will begin an important series of Bible classes at 6:30 pm. For those who are just now joining us, at the beginning of each calendar year, we choose approximately ten books of the Bible to be taught on and teach one of them each Wednesday evening until the 10 are complete, wrapping up the series of classes sometime in March.

The classes are unique in that each year we are opening the Bible as if we have never opened it before, throwing out preconceived notions and opinions and letting the Bible study us, not the other way around as is the common practice in much of Christendom, where the faithful study the Bible, as if we had something to add to it or the Bible required our approval. It is a simple juxtaposition of subjects that makes all the difference. We do not study the Bible, the Bible studies us.

Starting from this place, the teaching is fresh and earth shattering every time, for all who are in attendance become both teacher and student in this unique format. Again, the series begins tomorrow evening, January 8th at Good Samaritan Ministries in Beaverton. Our assignment this season is on Deuteronomy, and we will be allowing it to study us in mid February.

Its 2014: Just do it

 

Janet Yellen becomes the first woman to chair the Federal Reserve

Janet Yellen becomes the first woman to chair the Federal Reserve

2014 is setting up to be an extremely prosperous year, and, now that Janet Yellen has been confirmed as the Federal Reserve’s first Chairwoman, what could possibly go wrong?

The answer, of course, is many things. The world’s economy is built upon a shaky premise and the obligation to use debt-based currency brings with it a whole slew of unknowns that may become known over the next several months, such as, “what happens when borrowing and lending of a debt based currency become so disjointed that trading in said currency becomes not just unpalatable, but nearly impossible?” or “what happens when a $2.2 trillion dollar corporate cash hoard gets deployed all at once?”

The answers to these and other burning questions are likely to reveal themselves over the next several months.

Here at The Mint, we have been busy churning out proposals and other documents in hopes of attracting a portion of the downpour of cash that awaits those of us just beyond the spigot of the Federal Reserve System, hence the lapses in our faithful correspondence.

As we alluded to above, it will be an exciting year and one in which our broad advice is once again best encompassed in the three words made famous by a neighboring company:

Just do it.

If there is something you have put off, a dream, an idea, a plan, 2014 seems like as good of a time as any to execute it, the wind is at your back in terms of monetary measures. There is more than enough of it to go around, and were the money supplies of the world not centrally managed in what is an essentially Socialist system, it would be more evenly distributed throughout the economy by now.

As this is decidedly not the case, prepare to see large scale dislocations exacerbated by the widespread confusion surrounding the newest provisions of the health care law taking effect which will be most noticeable in the fact that getting an appointment with a medical provider will simply not be as easy as it has been in the past.

In other words, you can give everyone the right to health care but you can’t create doctors and nurses to provide said care out of thin air.

For this reason, we drink to the health of all our fellow taxpayers as the earth begins its latest run around the sun on the Gregorian calendar. The odds are it may be the only thing one needs to maintain in order to prosper this year.

Janet Yellen is taking care of the rest.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: [email protected]

Key Indicators for January 7, 2014

Copper Price per Lb: $3.35
Oil Price per Barrel: $94.00

Corn Price per Bushel: $4.26
10 Yr US Treasury Bond: 2.94%
Mt Gox Bitcoin price in US: $909.00
FED Target Rate: 0.08% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,232

MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 7.0%
Inflation Rate (CPI): 0.0%
Dow Jones Industrial Average: 16,531
M1 Monetary Base: $2,758,400,000,000

M2 Monetary Base: $11,062,600,000,000

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