4/1/2013 Portland, Oregon – Pop in your mints…

On this April fool’s day we will attempt to lay out yet another premise.  It is the underlying premise and our ultimate contribution to man’s understanding of monetary theory.

Our choice to present the premise today may mean one of three things:

1.  If it is so absurd as not to be accepted by any thinking human being, we may attribute it to a cruel April fool’s joke.

2.  It may be received as such a revelation that mankind will take what they have assumed to be money for a cruel April fool’s joke.

3.  It just happens to be April 1st as we are writing.

We can assure you of that the third reason is absolutely true, as for which of the first two may be valid, we leave the decision up to you, fellow taxpayer.

The premise is the following:  The monetary premium, which is the increase in the value of an object owed to its usefulness as a store of value, medium of exchange, and/or unit of account, must be primarily attached to a tangible good for the activities which mankind carries out to be in balance with the resources that exist in natural world.

The world has operated on a system of fiat currency, or currency by decree, on and off for as long as there has been an Empire capable of dictating what its subjects must use as money in settlement of debts.  Fiat currency is not harmful in and of itself.  In fact, given enough time, any fiat currency which is not flexible enough to change with the needs of the economic activity which it is intended to aid will either self destruct on its own, owed to it being eschewed in favor of a more suitable currency, or, if its use is rigidly enforced, cause the underlying economic activity to self destruct or cease, causing another form of fiat collapse.

To control what is used as money and the monetary premium represents the ultimate power in the material world.  As such, such control can never be gained by force.  Rather, it must be created by a great many deceptions which cause otherwise rational persons to hand over control over this most important of decisions.

For over 40 years now, much of the world has not only subjugated itself to accepting a form of fiat, it has come to accept as money the worst form of fiat, a fiat currency that comes into being as a debt instrument.  As a result, mankind has attached this precious monetary premium to credit, which is not dependant upon the production of goods in the real world, nor on existing property, rather, it is primarily dependent upon the character of a man.

Today we read a list of quotations compiled by Frederick Sheehan which came to us via Credit Writedowns.  Two of the quotes speak directly to the nature of credit, which will help to underscore our premise:

“Credit is not money.  Credit is trust. Trust can vanish in an instant.” – Frederick J. Sheehan, March 25, 2013

In response to questioning by Samuel Untermeyer during the Pujo Committee hearings, J.P. Morgan famously made the following observations on money and credit:  {Editor’s note: You may read the Pujo Committee, formally known as the Money Trust Investigation, testimonies here via the St. Louis Fed.

“Untermyer: ‘The basis of banking is credit, is it not?”

Morgan:  “Not always. That is evidence of banking, but it is not the money itself.  Money is gold, and nothing else.”

Then, during the same lime of testimony:

“Untermyer: “Is not commercial credit based primarily on money or property?

Morgan: “No sir, the first thing is character.

Untermyer: “Before money or property?

Morgan: “Before money or property or anything else.  Money cannot buy it”

Both Sheehan and Morgan’s observations on credit are sufficient to gain an understanding of what credit really is.  Most persons are conditioned to assume that credit is backed by collateral.  However, were credit backed by collateral, it would cease to be credit.

The essence of credit is trust.  Trust, by definition, is created by the belief in an inherently uncertain future outcome.  Again, by definition, trust may not always be well placed.  The plans upon which the credit and underlying trust are built may just as well not turn out as planned.

Money cannot be destroyed, it can only change hands.  Credit and trust, however, can be destroyed in an instant, for they are subject to the fickle decisions and imperfect plans of men.

When money is based on trust, the world moves to a very dangerous place with regards to the planning of daily activities.  This is where the world is today, circa 2013, after 40 years of what we refer to as the insane debt is money financial system.

Trust is good and necessary to a point, however, it can vanish in an instant.  When there is an excess amount of trust, or promises to pay, circulating in relationship to a finite number of money, goods, and capital in the real world, there are bound to be a few broken promises.

If kept to a minimum, the economic systems which are organically created by man to trade and deal with scarcity, a state of being that we call True Capitalism, will correct the errors that result from misplaced trust which manifests itself by credits which are defaulted on.  The activities of men will then return to balance with the underlying natural resources which the earth affords him.

However, if misplaced trust in the form of bad credits are allowed to perpetuate themselves, men will have no incentive to investigate whom amongst them is worthily of the trust that credit represents.  This state of being will, and indeed does, cause much of the earth’s natural resources to fall into unproductive hands where it will ultimately be squandered.

Meanwhile, those who are capable will not be able to coordinate their efforts with their fellow men in any meaningful way.  Indeed, the capable ones will simply learn how to take advantage of the over abundance of trust which is being created in the world.

This proliferation and misallocation, if we can call it that, of trust has two real world consequences:

1.  Natural resources are wasted at an alarming rate.  For this reason we believe that the placement of the monetary premium on credits has lead to the crisis that most people have come to call “Climate Change.”  It was previously known as “Global warming.”  This represents a myriad of symptoms whose root cause is that man’s activities are severely out of balance.  The cause of this imbalance in the current situation is that man’s activities, both those worth of trust that have succeeded and those that have failed miserably, have been greatly accelerated by the dangerous mix of credit and the monetary premium that circulates as currency.

Man is in a desperate race to meet a timetable that the earth’s resources cannot provide for.  The result is the severe imbalances which we are now observing.  It is this, and not the industrial revolution, fossil fuels, or any of the other symptoms that is the root cause of climate change.

2.  While there are a great deal of men who are busy scorching the earth with their activities, the wise have learned to concentrate their efforts not on the productive activities to which they would otherwise dedicate themselves, but to profiting from the explosion of trust and credit, from the misjudgments and miscalculations or their fellow men.

The land is either laying fallow or being scorched by the misguided activities of men, rather than being built up, as Old Jules encouraged.

However, it is not man himself or any of his inventions which constitute the root cause of the problem.  Rather, it is the simple misplacement of the monetary premium on credit instruments which emits the false signals that we all either follow or are forced to follow in the planning and execution of our daily activities.

This is our premise.  If one man in a million will grasp it, we can change the world.  Will it be you?

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for April 1, 2013

Copper Price per Lb: $3.40
Oil Price per Barrel:  $97.07
Corn Price per Bushel:  $6.42
10 Yr US Treasury Bond:  1.84%
FED Target Rate:  0.13%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,599 THE GOLD RUSH IS STILL ON!
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.7%
Inflation Rate (CPI):  0.7%
Dow Jones Industrial Average:  14,573
M1 Monetary Base:  $2,425,000,000,000 LOTS OF DOUGH ON THE STREET!
M2 Monetary Base:  $10,547,600,000,000