In Honor of Leo Tolstoy

9/9/2014 Portland, Oregon – Pop in your mints…

Today in 1828, Lev Nikolayevich Tolstoy, or Leo Tolstoy, as most have come to know the Russian writer, was born in Yasnaya Polyana, a few hundred miles south of Moscow.

The Kingdom of God is Within You
“The Kingdom of God is Within You”

While Tolstoy is best know for works such as War and Peace and Anna Karenina, it is important to note that Tolstoy’s later works on Christian Anarchist thought and non-violence (specifically, what is refered to as “peaceful non-resistance”) had a profound impact on Martin Luther King, Jr. and had a direct impact on Mahatma Ghandi.

"L.N.Tolstoy Prokudin-Gorsky" by Sergey Prokudin-Gorsky - Журнал "Записки Русского технического общества", №8, 1908. Стр. 369. URL: http://prokudin-gorsky.org/arcs.php?lang=ru&photos_id=818&type=1. Licensed under Public domain via Wikimedia Commons - http://commons.wikimedia.org/wiki/File:L.N.Tolstoy_Prokudin-Gorsky.jpg#mediaviewer/File:L.N.Tolstoy_Prokudin-Gorsky.jpg
“L.N.Tolstoy Prokudin-Gorsky” by Sergey Prokudin-Gorsky – Журнал “Записки Русского технического общества”, №8, 1908. Стр. 369. URL: http://prokudin-gorsky.org/arcs.php?lang=ru&photos_id=818&type=1. Licensed under Public domain via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:L.N.Tolstoy_Prokudin-Gorsky.jpg#mediaviewer/File:L.N.Tolstoy_Prokudin-Gorsky.jpg

For anyone who is interested in truly achieving peace, his work The Kingdom of God is Within You is a must read.

Tolstoy’s influences included Victor Hugo, George Fox, William Penn.

In honor of Leo Tolstoy, we present links to our own works which have been inspired by Leo Tolstoy, whom Ghandi referred to as:

The greatest apostle of non-violence that the present age has produced

On the nature of Empire, Part II: The better way

The Catechism of Non-Resistance: Required reading for all human beings

What is Truth?  On the Nature of Empire

Atheism with Regards to Government

Join us in honoring Tolstoy and all of the peacemakers on this earth, for now, more than ever, our voices are needed! Go forth, and love your neighbor as you love yourself

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

On Racism – What Many White People do not understand

9/2/2014 Portland, Oregon – Pop in your mints…

“Life in this country is inherently different for white people and black people”

The words of John Stewart of the Daily Show as he skillfully ripped apart biased portions of Fox’s coverage of the Michael Brown homicide ring true as a reminder that the mar of racism is still visible on the fabric of modern North American culture.

The events on August 9, 2014 in Ferguson Missouri will forever change how Americans of all races view the police and each other.  In terms of one’s view of the police, Michael Brown’s death has served as a wakeup call that it is not ok for public servants to use deadly force on unarmed assailants.  While we believe the right of civilians to self-defense must be held sacred, the police, who are paid by the public to serve the public, must be held to a higher standard.  The job they are asked to do is an extremely difficult one, but they are well-trained and have any number of alternatives to deadly force available to them.  For all members of society, deadly force must be used as an absolute last resort, not as the deterrent of choice as it would appear to have been for the policeman on the night Mr. Brown lost his life.

On Racism

Beyond the ever-present tension between the police and the public, the incident on August 9th has given pause for Americans to reflect on an issue that has been for the most part swept under the rug, racism.

While much has been said on the subject, we wish to interject an idea that we hope will impact you, not matter what color your skin may be, as much as it has impacted us:  The concept of Equity

Equity

What is Equity and why is it important for understanding and removing the mar of racism from the Land of the Free?  When it comes to dealing with racism, the definition of Equity is two-fold.  Most white people in America understand and, in their better moments, are comfortable with the first:

1) Fairness of justice in the way people are treated

In many respects, the elevation and nearly universal recognition of this facet of the concept of Equity is the great achievement attributed to Martin Luther King, Jr. and the movement that he came to embody.  It was enshrined into law in the Civil Rights Act of 1964, and impacts nearly every aspect of public life in America.  For most white people, passing and observing this law was enough to rectify the problem of racism.

However, this facet of the concept of Equity is merely a first step, as it is the second definition of Equity that must be addressed by America, for indeed if we do not, there is not another nation on earth that will pay more than lip service to it.  It is this second definition that most White people do not understand, and when they do, tend to become extremely uncomfortable (image the Fox anchors in Stewart’s clip dealing with this one):

2) Justice according to natural law or right, specifically, freedom from bias or favoritism

You see, once racism has been acknowledged, it demands a just response.  It is not enough to simply ensure that a spirit of fairness with regards to race is carried out from this point in time forward.  To leave the issue there is to wash one’s hands of all of the past injustices that have been carried out in the name of racism.

If the mar of racism is to be cleansed from the American fabric once and for all, a concerted effort must be made, at least where public policy is concerned, to make amends, to the extent possible, for past injustices that have occurred.  To many, it will appear to be favoritism, and indeed it is, but as a form of favoritism has been exercised for a great deal of time already, it is only logical that it would take years of reverse favoritism to even begin to rectify the past injustices.

Followed to its logical end, this facet of the concept of equity means that people of color should be disproportionately represented in the halls of power at all levels, they should be awarded government contracts in disproportionate fashion, and should be accorded the right to provide any other favors they may see expedient at the public’s expense in the same way that white people have done for as long as forms of government in the United States have existed.

Sound absurd?  It may be, but it is just.  Under this second facet, it would not be out of the question for certain white people to be enslaved for two generations or more just to even the score with the descendants of those whom their ancestors systematically denied the blessings of life, liberty, and happiness.

While it is difficult to imagine these “eye for an eye” types of reparations taking place in 2014, this has been the harsh reality for people of color for most of our nation’s history.  Given the history, what, then, is the appropriate method of administering Justice with regards to racism?

The full concept of Equity, and the truth that it brings to light, is what most White people do not understand.

Conclusion

Here at The Mint, we understand that the government can do no good, as its very nature is to raise the most corrupt elements of society to the top and to steal and misappropriate resources, for by definition, it can do nothing more.

However, within the broken apparatus of public administration lies the means to achieve the full concept of Equity with regards to racism, and as long as it is in place, it has a duty to tip the scales of justice the way of those who have been disenfranchised because of the color of their skin.

While most persons in America would nod and agree with the first facet of the concept of equity, the second and more troubling facet is what most white people fail to understand.  Like most things that actually cost something, many find it difficult to embrace once they do fully understand it.

We only happened upon it by chance, and it has forever changed the way we see the renewed discussion of race in this country.  For it is the only way that America will be able to say, once and for all, that its fabric is truly free of the mar of racism. America is the only place that can hope to achieve Equity in a civilized and productive manner, and come out all the stronger for having fully embraced it.

Will we?

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Key Indicators for September 2, 2014

Copper Price per Lb: $3.17
Oil Price per Barrel:  $95.82

Corn Price per Bushel:  $3.59
10 Yr US Treasury Bond:  2.34%
Bitcoin price in US:  $479.44
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,286

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.2%
Inflation Rate (CPI):   0.1%
Dow Jones Industrial Average:  17,098
M1 Monetary Base:  $2,732,600,000,000

M2 Monetary Base:  $11,406,000,000,000

The US Economy is Already Going Gangbusters

8/29/2014 Portland, Oregon – Pop in your mints…

Amid what has become a nearly constant stream of alarming news from the Middle East and the escalation in the Ukraine conflict, the US Economic growth has quietly been amassing the fuel for what is shaping up to be an impressive period of extended growth.

Readers of The Mint are aware that we follow a baker’s dozen of key indicators, which are presented at the end of each edition, in order to gauge the actual state of the economy via money supply growth and some of the key inputs and outputs as to what expectations are as to the future state of the money supply. Setting aside the fact that what we use as money is not really money at all, but not so cleverly disguised debt, the state of the money supply gives us a sense as to what will happen in terms of employment and asset prices, the fodder which ultimately impacts GDP. Overall, our key indicators have been steadily signaling growth ever since 2009.

While the fuel has been amassing for approximately 5 years now, it is now poised to be coupled with the proverbial spark necessary to spur growth rates reminiscent of the late ’90s – 2007: Improving sentiment.

You won’t see improving sentiment on TV, hear it on the radio nor read about it in the news. You see, improving sentiment doesn’t draw people to read the news, doom and gloom does.

Improving sentiment can be seen in a very conspicuous place in American cities: Increased traffic, be it car, pedestrian, freight, or public transit. When people are out and about, they are generally doing something. The fact that more people are out tends to beget additional economic activity. It is largely a chicken and egg question but in the cities, when you see traffic increase, it is a good bet you are witnessing economic growth first hand.

Have you seen traffic on the rise where you are? In Portland, it has been staggering.

Confirmations that the US Economy is already going gangbusters and may be poised to go into hyper drive for at least the next 5 years are beginning to pop up in the mainstream media:

Deutsche Bank us expansion timeline
Deutsche Bank us expansion timeline

You might ask what will drive this expansion? While there is truly no catalyst or new age industrial revolution on the horizon, there is an avalanche, tsunami, (insert your favorite metaphor) of money itching to get out of government bonds and into something, anything that will paradoxically give it increased yields and security.

2014 government bond yieldsAs in the past, this money will find its way into real estate, the much scourged asset class that is now surprisingly affordable on a relative basis. Once that happens, we know the script, and the expansion expected by the market in the first chart above seems probable, indeed, inevitable.

Here at The Mint, we have been beating the drum of recovery for some time now by virtue of following our “MINT Perceived Target Rate” which lags the more famous Federal Reserve Target rate by 39 months, the estimated amount of time it takes for Fed policy to hit main street. Through this lens, we see at least 39 months of accelerating growth in the future. Once sentiment kicks in, the game will really be on, and the time to position oneself is now.

Is it time to jump back into real estate? Back in early 2013, Nadeem Walayat, at the Market Oracle gave this prognosis for the US Housing Market, which today is holding true to form, as most of Mr. Walayat’s analysis does.

One would do well to mind his final word of caution, do not make the mistake of leveraging oneself too far. If you do, you must time the exit perfectly, and who needs that kind of pressure? The inflationary mega trend to which he refers and our Key Indicators confirm will be with us a very long time, which means real assets trump money in the back any day of the week. The key is to stay liquid.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Key Indicators for August 29, 2014

Copper Price per Lb: $3.19
Oil Price per Barrel:  $95.08

Corn Price per Bushel:  $3.62
10 Yr US Treasury Bond:  2.35%
Bitcoin price in US: $508.89
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,287

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.2%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  17,103
M1 Monetary Base:  $2,732,600,000,000

M2 Monetary Base:  $11,406,000,000,000

Finance Smurf – A Post-2008 look at a Classic Graphic Novel

8/22/2014 Portland, Oregon – Pop in your mints…

In November of 1992 Pierre Culliford, a renowned author and illustrator published a graphic novel of tremendous gravity and startling economic insight.  The novel would be his last, as on December 24, 1992, Culliford suffered a heart attack at his home in Brussels and passed away the same day.

Culliford is known by his nickname, Peyo, and he was the creator of the Schtroumpfs, who are better known by their English name, the Smurfs.

Peyo’s final novel, Finance Smurf, at long last has an English translation which became available on July 1, 2014.

Seen through the lens of post 2008 skepticism with regards to the financial system that continues to hold the world in shackles, the novel seems especially timely, and the marketing copy on the back cover, which reads:

“99% of the Smurfs have left the Smurfs Village!  No one but the Finance Smurf wants to occupy the Smurfs Village!”

appears to be nothing more than an attempt to carry on the rallying cry of the Occupy Wall Street movement of 2011.  However, as one opens the cover and peers into the world of Peyo’s Smurfs, it is clear that the author intended to call into question everything the reader thought they understood about money, and in large part, he succeeded.

Occupy Wall Street Poster
“Wall-Street-1″ by http://26.media.tumblr.com/tumblr_lsd8ucoCX91qbrgmdo1_500.jpg. Licensed under Fair use of copyrighted material in the context of Occupy Wall Street via Wikipedia – http://en.wikipedia.org/wiki/File:Wall-Street-1.jpg#mediaviewer/File:Wall-Street-1.jpg

While the Smurfs are, well, the Smurfs, and as such will invariably be forever adorable and highly entertaining in the eyes of most of humanity, here at The Mint we will look past the novel’s obvious merits of providing page after page of blue colored cuteness and highlight our observations of the merits of the economic arguments and questions that it raises as well as the metaphors employed via the roles played by long-standing characters in the following review.  Enjoy!

Finance Smurf

The novel Finance Smurf is set in Smurfs Village.  It begins with the incapacitation of Papa Smurf, the Smurf who keeps Smurf Village safe and orderly, who is laid up by a laboratory accident.  In this sense, Papa Smurf may be seen as a metaphor for a benevolent dictator or embodiment of a divine being for the Smurfs.  This is important, as it is the absence of the ongoing intervention of Papa Smurf in daily life that gives room for the mischief in the novel to occur (Smurf fans will quickly recognize this plot device employed by Peyo).

It then falls to Finance Smurf to seek an antidote, which takes him to the world of humans.  It is there that he learns the concept of money and becomes fascinated by it.  It is interesting that he does not appear to immediately recognize the creation of money as a means to enrich himself.

Indeed a hallmark of the Smurfs is the communist (or socialist) structure of their life in the Village.  Here at The Mint, we do not find this odd, as we have explored in-depth here at The Mint the fact that socialism is the norm in self-supporting economic systems the size of Smurfs’ Village who have a Papa Smurf, so to speak, as a universally respected authority figure.  What drives people to Capitalism is the need to tacitly make economic decisions in the absence of a universally respected authority figure, hence Peyo’s need to sideline Papa Smurf at the outset for the narrative to play out.

Finance Smurf returns to Smurfs’ Village with the antidote, as well as a burning desire to introduce money and the human system of trade to the Smurfs.  First, he reasons that he needs gold coins with Papa Smurfs likeness on them to use as monetary units.  He goes to Painter Smurf for the artistic rendering, Sculptor Smurf for the mold for the coins, Miner Smurf for the gold (Miner Smurf, ironically, has a pile of gold sitting there which he has no use for, as he is diligently extracting flint with his pick axe). Handy Smurf then melts the gold and makes the coins using the mold.

Here we interject another observation.  The day-to-day activities of the Smurfs are dependent upon their profession (or lack thereof).  In the absence of money the Smurfs simply do what they do.  There are rarely specific value judgments made with regards to what the Smurfs do, though all of their actions appear to be motivated by the needs of their fellow Smurfs and throwing the occasional party.  This system, while idyllic, assumes that everyone wants to maintain the status quo.  The maintenance of the status quo is at once the pillar of strength and the Achilles heel of Socialism.

It is clear that for Painter Smurf, Sculptor Smurf, and Handy Smurf, the requests of Finance Smurf are outside of the status quo.  However, being good Smurfs, they go along with it and hope for the best.

With the coins made, Finance Smurf calls a meeting of all Smurfs, introduces the concept of money, and hands out an equal share of the coins to each Smurf.  The Smurfs initially do not know how to operate in the new system, so Finance Smurf helps them by doing some back of the napkin costing analysis of their activities.  It is worth noting here that this activity is also the hallmark of Socialist systems, the central planning of prices.

As the Smurfs begin to trade, the predictable begins to happen.  The productive elements of society, Farmer Smurf, Handy Smurf, Baker Smurf, and so on, soon have more coins than they know what to do with.  They take them to Finance Smurf, who is now acting as the bank, to be invested.  On the other side, artists such as Harmony Smurf and Poet Smurf find themselves short of money and then mortgage their houses to Finance Smurf.  Lazy Smurf is hardest hit.

If it was not obvious to readers to this point, Finance Smurf begins to embody Central Banks and Wall Street.  At one point, Baker Smurf calls out Finance Smurf for lending at 10% but only giving him a 6% return.  In a nod to the foreclosure crisis, Finance Smurf becomes owner of all of the real estate in Smurfs’ Village.  There is a reference to privatization of public works, as when the bridge goes out, the Smurfs look to Finance Smurf to pay for the replacement, which he does in exchange for the right to collect a toll.  Even corruption is broached as there is some price-fixing for lumber on the bridge project orchestrated by Finance Smurf.

In short, Finance Smurf comes to embody everything that everybody hates about today’s financial system.  The rest of the Smurfs, fed up with the swift disaster that the Money system introduced by Finance Smurf has brought upon them, leave to build another village.  In this action, they take the only logical step in the face of monetary tyranny.  It is a wonder that more of us do not venture out and do the same today.

In terms of economic lessons to be taken from Finance Smurfs, there is little more to be gleaned.

The remaining Social/Political lessons are taught via the intervention of Gargamel, the Smurfs’ arch nemesis.  Gargamel counterfeits coins, echoing a form of economic sabotage employed by nations at war, and lures the Smurfs to them, relying on their newfound greed to be their downfall.  Fortunately, Papa Smurf returns and wisely guides the Smurfs away from the trap.

In another odd twist, Papa Smurf, once he becomes aware of the new Money system that has been introduced during his time of incapacitation, does not act to stop it, instead, he bumbles along with it as many a powerful emeritus would do, until the Smurfs ultimately leave to build another village, safely away from the scourge of money.

Conclusions

As an adult reading Finance Smurf in the post 2008 socio-economic landscape, one gets an eerie sense that Peyo was on to something back in 1992, and cleverly communicated it to the world.  While the ongoing economic analogies presented in the novel are quite clear, Peyo proves stunningly accurate in his depiction of Finance Smurf inventing money and introducing it to the populace, along with a monopoly on usury, for in this way Central Banks unwittingly enslave the world by promulgating the debt based money supply.

The Peyo’s final triumph is his clairvoyant depiction of the Smurfs’ unanimous decision to simply leave the village that was their happy home before it became the illegitimate property of Finance Smurf, and build another village just a stone’s throw away, yet with one marked difference; the absence of money and its creator.

True to form, the Smurfs reconcile with Finance Smurf who repents of his ways.  For Smurfdom, and indeed our world, was never meant to live under the tyranny of perpetual debts.  The Smurfs in Smurfs’ Village, who had a small-scale debt problem which quickly got out of hand, simply left and went elsewhere.  Jewish law called for a Jubilee, recognizing both the necessity of money and finance for large-scale commerce and the necessity of liberation from the snares that they created amongst what would otherwise be a brotherhood of man.  What, then, is the solution for an entire world living under the scourge of a 100-year-old debt based monetary system?

Following the Smurfs may not be a bad idea after all.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Key Indicators for August 22, 2014

Copper Price per Lb: $3.20
Oil Price per Barrel (WTI):  $93.50

Corn Price per Bushel:  $3.65
10 Yr US Treasury Bond:  2.40%
Bitcoin price in US:  $518.00
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,280

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.2%
Inflation Rate (CPI):   0.1%
Dow Jones Industrial Average:  17,001
M1 Monetary Base:  $2,694,800,000,000

M2 Monetary Base:  $11,393,400,000,000

Notes on recent ISIS Advances in Iraq

Once again the world is watching what is occurring in Iraq with shock, awe, and horror.  As a public service, we have compiled the following links as a primer for those curious to know what is going on and why from those more knowledgeable than ourselves:

CNN Maps of Iraq Crisis:

Maps: Crisis in Iraq

Syrian/Middle East correspondent Matt Barber’s insightful Commentary on Yazidi flight:

IS Routs Peshmerga, Takes Control of Sinjar Mountains, Jeopardizes Yazidi Homeland

Stratfor’s always insightful analysis on the subject:

The Islamic State Tries to Ward Off U.S. Intervention in Iraq

With the world, we watch and pray for peace and prepare for contingencies.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Wall Street smells the wage price spiral

8/1/2014 Portland, Oregon – Pop in your mints…

Yesterday, the US stock market finally experienced mild selloff.  Finally, we say, because it had continued to rise even as the most recent series of crises in the Middle East flared up in conjunction with the downing of Malaysia Air flight 17 in the Ukraine conflict, which has become a flashpoint for deteriorating relations between Russia and the West.

Did investors just wake up to these crises and begin to fly to safety?

Don’t kid yourself, fellow taxpayer, the events above were actually bullish for the market.  In the altered universe that the use of debt as money for the past 43 years has created, destruction and war  = GDP growth + a population submitted by fear, afraid to ask for too much while others experience sacrifice.

When debt is money and destruction is growth, war is the ultimate boondoggle.

What truly has investors spooked at the moment, albeit mildly (despite what the headlines imply) is the continued march of evidence that the proletariat is now stepping up and demanding wage increases at an alarming rate.

Employment Cost IndexTake the Employment Cost Indicator above and add it to the  number of unemployed workers per job opening below and you come to one inescapable conclusion:  The Wage price spiral is upon us.

Unemployed workers per job opening US 2014The wage price spiral, that scourge of corporate profit margins which has been accelerating since March of this year (according to our unscientific calculations here at The Mint), has finally caught the attention of Investors, who in turn are selling on the off chance that the Federal Reserve will;

1)   Take notice and,

2)   Take action by increasing interest rates

To those who have been spooked by the selloff we offer a word of comfort:  The likelihood that the Federal Reserve takes action to raise rates in a meaningful way is slim.  Assuming they were to raise rates, any action at this point would take at least 39 months to matter, crucify fixed income in the short term, and trigger large scale bankruptcies the likes of which they have spent the past 5 years trying to mop up.

However, even if the Fed had the desire to raise rates they would be unable to do so.  They have lost any meaningful control of the traditional rate mechanisms through an incomprehensible mix of monetary policy (think Quantitative Easing) and regulatory action (chiefly Dodd-Frank) some time ago.  All they have left us rhetoric, which is increasingly falling on deaf ears.

Reality is far removed from Washington DC and Wall Street.  There are very large piles of money that are on the fence between seeking safety and return, and that pile is growing faster by the minute.  The bigger it grows, the greater the likelihood that it will be deployed at a lower risk adjusted return.  The decrease in returns = increased wages to the proletariat as the pendulum swings the other way in world’s socialist monetary system.

The wage price spiral is here, and it is about to make a hot mess of markets everywhere.  Ask for a substantial raise or find another job, especially if you are in an industry with ultra-tight demand for labor.  You are likely to be pleasantly surprised.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Key Indicators for August 1, 2014

Copper Price per Lb: $3.22
Oil Price per Barrel:  $97.39

Corn Price per Bushel:  $3.55
10 Yr US Treasury Bond:  2.52%
Bitcoin price in US:  $598.00
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,293

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.2%
Inflation Rate (CPI):   0.3%Dow Jones Industrial Average:  16,498
M1 Monetary Base:  $2,825,900,000,000

M2 Monetary Base:  $11,348,900,000,000

Negative rates and the no bid Repo: It’s not your father’s overnight funding market

7/14/2014 Portland, Oregon – Pop in your mints…

A great deal has occurred since our last correspondence, most of it bad news for what passes today as monetary policy.

Fellow taxpayers have no doubt noticed that our once faithful correspondence has been less than faithful over the past several months. While explanations amongst chums the likes of which we have become are unnecessary, we offer a brief glimpse as to how The Mint has been spending his precious time as of late.

For starters, we have been frantically reconstructing 2013 and making various systems upgrades on our most recent assignment. Now that the work has been done and passed audit, we are moving through regular compliance reports and are about to begin the second part, (our personal favorite) of our not quite patented one/two accounting and treasury systems overhaul: The treasury overhaul part of the program.

Here we digress into what we consider our unique philosophy on data processing with regards to accounting information systems. If you could care less about such matters, please scroll to the next bolded heading to return to

A mere 11 years ago, we considered ourselves an accountant. We acted like an accountant, worked like an accountant, even smelled like an accountant (if indeed accountants can be said to have a smell about them.

Then we went to Spain, and had nothing short of an epiphany, which is as follows: Real business people could care less about proper accounting, they simply want the accounts collected and the bills paid, a steady stream of cash in the bank, and they want to get real-time financial metrics which will let them both know how their past decisions have fared and, more importantly, allow them to make better decisions about the future.

With this epiphany fresh in our mind, we realized that most accounting systems, while built by programmers to serve the business person, had been hijacked by accountants when they were set up, in most cases rendering the information the business person was to receive subject to seemingly infinite torture by the accountants before it could be presented, at which time the information was neither timely or useful to the business person.

With this realization, we developed our two-step approach to assisting business people in reclaiming their accounting data. The first step involves ensuring that the accounting system they are using is both adequate (it may come as a shock that many companies pay too much for systems that are no longer a good fit for them) and set up to capture and report the business’s financial data in a way that facilitates high level decision-making.

The second step involves addressing the issue of the timeliness of the data. We realized that in a great majority of transactions, the bank received the data before the accounting department did, and much valuable time and effort was wasted by waiting for the accounting department to input data into the accounting system, much of which was provided by the bank rather than internal sources, and then reconciling the system to the bank statement. The entire process was backwards, so we decided to perform data processing directly in the banks’ treasury management systems, where the transactions are initiated, approved, and executed, and have the bank data be easily uploaded into the accounting system, where it can be matched with vendor and client data and properly classified.

There you have it, it is much easier said than done, but once our program is complete, most companies we engage can get by with half of the accounting/fiscal personnel they had before, get their data in a timely and coherent manner, and usually end up saving money on their systems to boot.

In any event, between earning our daily bread in the above manner, watching the World Cup, and editing a taxonomic paper on Central American land crabs (which can be seen here: http://biodiversitydatajournal.com/articles.php?id=1161), we have been following the disintegration of the debt based currency system from a comfortable distance. Our observations on the most recent ruptures follow:

The No bid Repo: It’s not your father’s overnight funding market

In the late 1980’s, the Federal Reserve had just begun what would be a series of automatic bailouts to the larger financial system. After Black Tuesday in 1987, it became clear to most sober observers that the Fed would do everything in its power, which at the time was limited to rigging short-term interest rates, to ensure that financial markets remained liquid at all costs.

Perhaps not coincidentally, in the late 1980’s, Oldsmobile ran a series of commercials with the tagline, “it’s not your father’s Oldsmobile,” which seemed to be a vain attempt to minimize the “Old” and emphasize the “mobile” part of its name. In case you don’t remember how exhilarating it was, videoarcheology.com brings it to life for us once again:

What did the strategy of the Fed and the strategy of Oldsmobile have in common? They both assumed that demand for their product, no matter how unappealing it was, would be infinite. Oldsmobile gave up the ghost in 2004, maybe people did want their father’s Oldsmobile after all.

The Fed is still hard at work, but their product, the debt-based currency used by most financial institutions in the United States and indeed throughout the world, is going the way of the Oldsmobile.

The Federal Reserve got by for nearly 95 years by monopolizing the ability to provide something for nothing, something that appealed to governments, companies, and consumers alike. They substituted debt for money, and in the process opened up a world of possibilities never before fathomed.

The plan went well, people began to circulate the debt in place of money, with those closest to the Fed paying the least and those furthest way paying more, and people toiled day in and day out to move further up the food chain.

Sure, using debt as money left the occasional sinkhole in the economy, on those rare occasions when more debts were being cancelled than issued, but the Fed simply lowered interest rates to provide adequate incentive for people to demand more debt, lowering the perceived price of getting something for nothing.

Now, circa 2014, the Fed has lowered interest rates to zero and has taken the extra step of creating even more debt of its own to circulate. While things should be going gangbusters at the Fed factory, we open the pages of the financial news to find that:

a) The Fed can no longer control the interest rate mechanism as it did before and;

b) The Repo market, which funds $1.6 trillion in short-term loans every business day, is going no bid on an increasingly regular basis thanks to the 2010 Dodd-Frank Act, which was supposed to fix these sort of problems.

{Editor’s Note:  For a primer on the Repo Market, read this paper by the NY Fed:  Key Mechanics of the U.S. Tri-Party Repo Market, we dare you}

The Federal Reserve’s debt based monetary system has reached its theoretical limit. While the ECB has toyed with the idea of negative interest rates, the US market, specifically US Treasuries which are sucked into the Repo Market nightly, is rendering negative rates on its own, and the Fed is powerless to stop it.

In layman’s terms, the game has flipped on the Fed, and now people and companies are essentially saying “lend me $100 today, and I’ll pay you back $97 in a year and we are square.” Crazy as it may sound, this is the reality on the fringe of the credit markets, and it is the price of continuing to deal in a debt-based currency that is passed its prime.

Let’s face it, Oldsmobile wasn’t cool in 1988. They had tinkered with it to such a degree that it would never again be your father’s Oldsmobile, and that was not a good thing. In the same way, between QE, Operation Twist, and near zero short-term rate targeting, Ben Bernanke has so severely mangled the Fed’s balance sheet with his tinkering that maintaining the integrity of the US dollar and US Treasuries as any sort of measure of reliable benchmark is all but impossible.

Now, the engine of the Fed’s debt based currency is beginning to lose speed via negative nominal rates, and Janet Yellen is looking into the toolbox, only to realize that Ben left most of the tools rigged in the engine of the Fed’s Balance sheet, and that moving any one of them will cause a catastrophic failure of the currency. Not to mention that long-awaited, highly inflationary wage – price spiral is about to kick in.

Academic economists will one day struggle to explain what is happening now, while inflation rises, interest rates continue to dip further, going negative at the top of the financial food chain, and the Fed is left with nothing but rhetoric with which to attempt to execute monetary policy. This is likely to get ugly and, if possible, defy the laws of finance and perhaps even mathematics before the game is up.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: [email protected]

Key Indicators for July 14, 2014

Copper Price per Lb: $3.25
Oil Price per Barrel:  $100.51

Corn Price per Bushel:  $3.78
10 Yr US Treasury Bond:  2.52%
Bitcoin price in US: $618.00
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,339

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.1%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  16,944
M1 Monetary Base:  $2,961,000,000,000

M2 Monetary Base:  $11,284,500,000,000

 

Fresh ideas on Economics, Monetary Theory, Politics, and Less Pressing but Equally Entertaining Matters for the English and Spanish speaking worlds

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