8/15/2012 Portland, Oregon – Pop in your mints…
After a brief hiatus we return to our perch here at The Mint where we see the world very much as we left it with one glaring exception: Prices are rising.
This phenomenon comes as no surprise to our longsuffering readers. By our imprecise calculations, we saw that the tidal wave of money that the FED unleashed into the economies of the world would begin to hit main street circa March 2012. We may have been a bit early, but when preparing for an inflational Tsunami, it never hurts to have a few extra months to prepare.
As prices for everything from gasoline to houses rise, it may be natural to assume that this is a temporary increase which will fade as supply and demand come gently back into balance. For those of this opinion, most notably the members of the Federal Reserve’s Open Market Committee, we have some disturbing news. The same imprecise calculations which gave us March 2012 as the genesis of this latest inflationary wave tell us that the Tsunami of cash will relentlessly pound the shores of consumers through AT LEAST November of 2015, and that is if the FED raises the target rate at its next meeting on September 12-13, which is highly unlikely.
Those who think that the general public can tolerate the sustained price inflation which awaits in the trappings of the current system are making a fool’s bet, for the current monetary system will not survive this Tsunami. Our advice? Sell financial assets and buy real things. This is all one really needs to know about the current state of the economy.
Our hiatus has not been spent pondering life as we know it, rather, we used the time to prepare for what we thought would be an easy professional examination to attain the CTP, or Certified Treasury Professional, designation. We thought it would be easy for two reasons. First and foremost, we work in treasury on a daily basis, which should have given us and edge.
Second, the exam deals with Finance and Banking concepts. With all due respect to the bankers and financiers of the world, as an accountant by trade, we have always found finance and banking to be rather simple numerical sciences.
We passed the CPA exam back in the days when it was administered in large open convention center spaces with No. 2 pencils. It was a two day event which was both physically and mentally exhausting.
With this mind numbing experience as our point of reference, we may be excused for thinking that a 3 hour exam and a computer testing center would be a walk in the park.
Nonetheless, we blocked off two solid weeks for which to cram for the CTP exam which, in our accountant’s arrogance, we nearly underestimated.
It turned out that the 3 hours in the testing center were not so much mentally or physically grueling as they were a mind game. The climax of this game came at the bitter end end of the exam when, instead of flashing our results up on the screen so that we could experience the thrill of victory or agony of defeat in front of twenty others taking various nursing and other such certification exams, the computer instead forced us to take a brief survey regarding our preparation for the exam.
After the survey, the screen directed us to leave the testing center. What did it mean? Did we fail so horribly that the computer was too embarrassed for us to deliver the news?
As we left the room in disbelief, we were greeted by the attendant, who during the exam sat behind a glass window and observed us as one observes animals at the zoo. She handed us a printout.
To our relief and, at this point, surprise, the word “Congratulations” appeared across the top. We couldn’t help but smile.
And now, here we are. While we do not feel any different, we are now one of only 23,000 Certified Treasury Professionals in the world.
The Black Locust
With the exam behind us, we prepared for some much needed R&R through the month of August. We had taken the exam on a Friday and were still catching up on the details of life which we had eschewed during our cramm…er…preparation for the exam.
That very Saturday evening, we drifted into a type of deep sleep that only complete mental exhaustion can produce. Our slumber was abruptly interrupted by the anxious words of our better half:
“Did you hear that?”
“Hear what?” was our groggy reply, which was a question and an answer all at once, an efficient use language which appeals only to the hopeless utilitarian’s amongst us.
“That loud sound outside…”
As we got up to do a brief inspection of the grounds, we expected to see nothing and prepared in our minds the familiar speculation that the family of raccoons which roams our neighborhood had caused the disturbance. However, as we opened the front curtains, our jaws dropped.
The large black locust tree which graced our grounds, measuring 25 meters in height and weighing perhaps 10 tons, had split in two and come crashing to the ground in an event that most certainly registered in the Richter scale. While God had miraculously spared the house from being crushed, the tree was sprawled across the entire front side of the lot.
At midnight, the scene was surreal, what was just minutes earlier a brief 20 second walk to the street was now an obstacle course which could only be duplicated if the producers of “Wipeout” and “Survivor” were to collaborate on a project.
Our limited inspection of the grounds revealed that the tree had split, fallen, and pinned the overhead power line firmly to the ground, snapping the mast and electrical meter from the side of our garage like a toothpick.
As we observed the damage, we took a glance up at the remaining half of the tree, which in the night looked like a giant walking ala the Lord of the Rings trilogy, at any moment prepared to bend down and snatch us up.
It was just to much to process. We fought the natural urge to fire up the chainsaw and went inside, where we moved our sleeping quarters to the rear of the home, called the power company to disconnect the line, and went to sleep.
The next morning, the neighborhood awoke in shock and awe as they saw the giant that lay slain. Instead of continuing to recover from the exam, we began, along with our generous neighbors, the grim task of cutting a path to the street.
Two weeks on, we now have had the rest of the tree taken down and what will be, once cut, a great stash of firewood.
Now that a good portion of the grunt work is done, we pause for reflection on the lesson of the tree.
We call the lesson “Deferred maintenance.”
What the tree taught us is that there are two ways to deal with things, be they something as simple as a tree or as grandiose as a nation state’s foreign policy or the world’s financial system. You can either pay a bit for upkeep along the way at regular intervals, or you can choose not to pay for the upkeep and simply wait to pay an unknowable price when an inevitable breakdown occurs.
In the case of the tree, we had many opportunities to have an arborist prune and treat the tree. The tree was like a magnet for those in this line of work. Had we chosen to invest in the upkeep, the tree would have been pruned and inspected. If we had wanted to keep the tree, it could have been cabled together or a rod could have been placed through it to hold the rotting, diverging hulk together. As it turned out, we did nothing until the tree collapsed and our hand was forced.
As a result, our views on trees have changed. Where we once saw peaceful giants all around us, we now see potential house crushers waiting to collapse.
In the case of a nation state’s foreign policy, perceived threats to national interests can be dealt with via diplomacy or, if necessary, small scale skirmishes to keep adversaries either friendly or in check. If this regular upkeep, if you will, is not performed, the nation state may wait for a Pearl Harbor type of event to occur before being roused to taking meaningful action.
Finally, in the case of the world’s financial system, the authorities could allow for bankrupt entities to be pruned from the economic ecosystem from time to time, or wait for a blow up of the Central Banking and national currency system.
In all three cases and any number of other examples which could be called upon, it seems clear that taking the route of ongoing upkeep is the most prudent, especially when trying to preserve what is deemed to be the natural order of things.
However, those who either consciously or unconsciously take on the enormous risk associated with ignoring regular maintenance are essentially choosing not to insure themselves against a probable outcome whose only variable is the timing of the event.
If the event occurs at a time when they are not affected by it, they have come out ahead, as they will have should the event occur and turn out to be less catastrophic than had been anticipated. Indeed, it may even be beneficial if what is really needed is not simple maintenance, but a paradigm shift.
In the case of the tree, we now have sun shining where there once was shade, ideas of what to plant in its place, and great pieces of wood which make us wish we were chainsaw artists. None of this would have come about had the tree been encouraged to stand.
While there is much to be said for prudent maintenance, sometimes it is necessary to let things go and brace oneself for a paradigm shift, for the inevitable can only be put off so long by the machinations of mere mortals.
Stay tuned and Trust Jesus.
Key Indicators for August 15, 2012
Copper Price per Lb: $3.36
Oil Price per Barrel: $94.31
Corn Price per Bushel: $7.94
10 Yr US Treasury Bond: 1.81%
FED Target Rate: 0.13% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,603 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 8.3%
Inflation Rate (CPI): 0.0%
Dow Jones Industrial Average: 13,165
M1 Monetary Base: $2,301,800,000,000
M2 Monetary Base: $9,941,700,000,000