Category Archives: Monetary Theory

Greeks are about to learn the virtues of Bitcoin

6/28/2015 Portland, Oregon – Pop in your mints…

It appears that the Greek government is once again on the brink of an inevitable default on its Euro denominated debt.  This time, however, Greece’s Prime Minister Alexis Tsipras appears determined to take it over the edge, calling for a referendum on the whether or not the Greek people should continue to abide by its creditors’ bailout terms and extend their own misery or to give the proverbial middle finger to their oppressors in the north.

Monetary oppression

Greece, Where the Euro pays tourist prices
Greece, Where the Euro pays tourist prices

We use the term oppressors, for the current state of affairs has been held in place to ensure that Germany maintains a death grip on the Eurozone.  Greece stopped benefiting from being a member of the Eurozone the moment it accepted the yoke of a common currency.  Sure, it was a nice run for the entire Eurozone when times were good, but when times got tough circa 2008 the Euro handlers at the ECB cut rates too slowly, citing a tired “stable currency” bias, and generally struggled to maintain liquidity, which is pretty much “job 1” when one is running a currency regime.

Maybe the Treaty of Lisbon wasn’t such a good idea after all.

What happened next was a catastrophe that is only possible in a Central Banking/Tax Farm disconnect that the Eurozone’s half baked approach to unity has left as the norm.  You see, fellow taxpayer, in the United States of America, we have one Central Bank which runs the tax collection mechanism for the government.  This means that, with localized exceptions, the tax farm’s tactics and the Central Bank’s liquidity functions can work in an awkward harmony.  For those of us who pay Cesar annually via the IRS, this means that in a demented sense we share society’s burdens across 50 states.  To those of us in Oregon, it matters not that the State of California cannot pay its obligations (unless, of course, one is a creditor of the State of California).  It is taken as a given that the Federal Government will bail them out and the Federal Reserve will provide the cash (indirectly) to the Feds in order to do so.  Then, and this is where the magic happens, we all pay for California’s misdeeds via Federal taxes and inflation.

This same scenario was possible in Europe until January 1, 1999 (a day that lives in infamy) and had played out throughout much of modern history.

Not so today.  For today, in Europe, when the government of Greece hits hard times and cannot pay its bills, it has to beg its rich neighbors to the north for Euros, and accept whatever conditions they impose.  What is funny is that neither Greece nor its northern benefactors can actively emit currency in sufficient quantities to ensure their new contract can be paid.

What does it mean?

Which brings us back to the upcoming referendum.  While in our mind it is still even money that there will be a further modification of the Greek bailout and that the Eurozone will carry on as it has for 16 years now, there exists the strong possibility that Greece will “opt out” of the inconvenient currency part of the European Union.  What does it mean?  Beyond getting comfortable with Drachma exchange rates again, nobody knows, nobody has ever opted out of the currency after opting in (Denmark and the UK never got in).

The Greek people have decided that it means they are in big trouble, and they have been lining up at ATMs in order to get their hands on as many Euros as possible before the lights go out.  For Mr. Tsipras, this in turn means he must declare a banking holiday and capital controls, which is a time tested recipe for causing any remaining economic activity to screech to a halt as anyone with a brain and more than a few Euros to their name starts working 24/7 on ways to keep their assets off the government’s confiscation radar.

Bitcoins: What they are and how to use them
Bitcoins: What they are and how to use them

However, as in Cyprus, smart Greeks with a working data connection have a medium at their disposal that may ensure that their assets stay well away from their government: Bitcoin.

The mini-spike in Bitcoin indicates that the Cyprus scenario is playing out again.  If anyone recalls that event, it took the Bitcoin from relative obscurity to trading at around $1,100 before the mania wore off.  Will it happen again?

It is anybody’s guess, but here are some statistics that may help guide your own educated ponderings:

Population of Cyprus: 1.14M, pre banking holiday bitcoin price: $49 (March 2013), post banking holiday Bitcoin spike: $1,124 (October 2013)

Population of Greece: 10.82M, pre banking holiday bitcoin price: $249 (June 2015) , post banking holiday Bitcoin spike:  ???? (January 2016????)

We’ll let you do the math on the hypothetical situation we have planted, but the dynamics of what is occurring in Greece, from a monetary standpoint, are extremely similar to the Cyprus scenario.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for June 28, 2015

Copper Price per Lb: $2.61
Oil Price per Barrel:  $58.74

Corn Price per Bushel:  $3.85
10 Yr US Treasury Bond:  2.48%
Bitcoin price in US:  $249.46
FED Target Rate:  0.13%
Gold Price Per Ounce:  $1,174

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  5.5%
Inflation Rate (CPI):   0.4%
Dow Jones Industrial Average:  17,947
M1 Monetary Base:  $2,929,400,000,000

M2 Monetary Base:  $11,970,200,000,000

Bitcoin Panel Illuminates the World of Crypto-currencies for the Oregon AFP

Bitcoin2/21/2015 Portland, Oregon – Pop in your mints…

For those who were unable to join us on Wednesday, the Bitcoin panel discussion at the Oregon AFP was a great success.  With us were six of the finest minds in Crypto-currencies in the Portland area.  These minds, together with some of the finest financial practitioners in the city, worked to bridge the gap between the Bitcoin universe and mainstream commerce.

We were pleased to find that the two are really not that far apart.

While there were a number of keen insights shared at yesterday’s meeting at the Multnomah Athletic Club, three stood out in our minds:

1) Transactions volume in Bitcoin has soared over the past two years and the USD/Bitcoin price action has settled down as a result.  Further, Venture Capital is pouring into the Bitcoin industry, proving that crypto-currencies, once on the exciting confluence of technology and money, are now entering the relatively boring yet infinitely more profitable economic mainstream.

2) Bitcoin innovators have largely solved the problem that has thus far kept most bankers at bay:  KYC, Know Your Customer.

3) Concerns about Bitcoin’s wild fluctuations in value are addressed by services that instantly exchange Bitcoins accepted in trade into national currencies. This is especially important for those who transact day-to-day business in Bitcoin, as it is technically considered property for tax purposes and could otherwise create an accounting nightmare. It also allows for a clear delineation between Bitcoin speculation and Bitcoin circulation, two completely different activities before were often unwittingly commingled by virtue of one’s use of Bitcoin in trade.

Bitcoin has come a long way since we published our 48 hour crash analysis of the emergent monetary revolution back in 2013, and our panelists did a superb job of presenting a balanced discussion of the present state of crypto-currencies.

A special thanks once again to all of our panelists, Lawrence I Lerner, Ian Pulicano, Anna Guyton, Mike Fors, George Fogg, and Rhys Faler, who was planning on spectating and found himself on the panel in the midst of an incredibly rich, informative, and relevant discussion of the merits and challenges of Bitcoin.

Ian had the difficult task of breaking the ice of ignorance and/or skepticism that is often associated with presenting the concept of Bitcoin to someone for the first time, which is never an easy task.  Beyond explaining the technical side in a concise manner, the slide near the end which highlighted the exponential growth in transactions and VC funding over the past 3 years got everyone’s attention and set the stage nicely for the discussion that followed.  Anna did a great job of stepping up as moderator and added valuable insights throughout, Lawrence did an excellent job of bridging the knowledge gap between industry and Bitcoin through helpful analogies, Mike and Rhys provided the evidence that Bitcoin can and is being used in everyday transactions, and George added insight into the inherent challenges and opportunities of Bitcoin on the regulatory and securitization side of the house.

At the end of the hour, the audience was left with one inescapable conclusion: Crypto-currencies are here, are here to stay, and will be part of one’s economic experience in the not too distant future.

For the benefit of those who were unable to join us on Wednesday, we offer the following bootleg recording of the event:

We also offer the hope that these types of panels will be held in other venues where finance and technology intersect, and that mankind will be all the better off for it.

Stay Fresh!

David Mint

Key Indicators for February 21, 2015

Copper Price per Lb: $2.58
Oil Price per Barrel:  $50.81

Corn Price per Bushel:  $3.85
10 Yr US Treasury Bond:  2.13%
Bitcoin price in US: $246.31
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,204

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  5.7%
Inflation Rate (CPI):  -0.3%

Dow Jones Industrial Average:  18,140
M1 Monetary Base:  $2,884,400,000,000

M2 Monetary Base:  $11,771,600,000,000

Happy Halloween from The Mint!

As all hallows eve approaches, we are glad to inform you that we will be in attendance at the AFP annual conference in Washington, DC along with Dr. Ben Bernanke, Thomas Friedman, and 6,500 other Financial ghouls and goblins over the early part of next week.  If any of our readers will be there, feel free to drop us a line, we would love to connect with you, it will be a welcome respite from the deluge of mainstream economic/finance/banking information that has already started to bombard us in the mail!

We leave you today with what may just be the world’s first “Bit o Latern”:

The World's First Bit o Lantern?
The World's First Bit o Lantern?

The World’s First  Bit o Lantern?

We wish you all a safe and fun Halloween here at The Mint!

 

Positive Money UK is on the right track

10/10/2014 Portland, Oregon – Pop in your mints…

For some time we have followed a group known as Positive Money UK on Twitter.  They seem to be among the few people/groups that have a decent comprehension of the flaws in what we call the insane debt based monetary system in which the inhabitants of the earth are either coerced or compelled to live by.  They describe themselves as “a movement to democratise money and banking so it works for society and not against it.”

We were reminded of this by one of their tweets today:

Positive Money Tweet

The alien meme sums up what we have been driving at for some time now here at The Mint.  We tend to focus on the acceleration of the damage that humankind causes to nature as the nasty side effect of using debt as money, but it is well noted in other corners that indeed, many of the distortions in relationships between persons and nations have the concept of extinguishing debt as their root.

The video which is linked to in the above Tweet from Positive Money UK is presented as a public service below, it does a nice job of showing how the only way to create money in our insane, debt based monetary system, is to go deeper into debt or have someone else go into debt.

While the video is spot on in terms of money creation, they present only half of the solution (which we find is common in many monetary reform circles, namely Bitcoin).  The second half that is too often ignored is that 1) money, as a concept, necessarily will take on many forms in the world and 2) whatever is used as money by a majority will necessarily require an associated debt market to successfully operate for any length of time (the lack of a viable debt market is killing Bitcoin).  This is the great supposed advantage of using debt in the form of Central Bank notes as money, infinite debt markets = infinite liquidity, meaning there is always money available.  It is this advantage that any viable monetary reform must include, or else it is doomed from the start.

On their website, Positive Money UK points out that “Only 1 in 10 MPs understand that 97% of money is created by banks.”  As the English are generally cleverer than Americans, we would imagine the ratio in the governing bodies on the US side of the pond to be even lower.  If you need proof of this, just watch the next Senate Banking Committee session on C-Span.

Nobody seems to get that today, circa 2014, money and debt are the SAME THING.  What passes as money today are nothing more than liabilities of Central Banks.  This is a worldwide phenomenon, and the effects are profound.

Money is a concept that attaches itself to certain real world things in various forms.  Credit is another concept which attaches itself to various agreements.  They are the antithesis of each other.  Most people generally understand this and spend a good deal of their time working or causing others to work in order to attain a reasonable balance between the two on their ledgers, regardless of the size.

However, as the above video partially illustrates, most people are wrong, the only way to “make money” is to “make debt.”  This is causing SEVERE imbalances in the natural world as the activities of mankind continue with an unconscious disregard for the effects of the real world.

The effects on the real world are this:  There is an inordinate amount of fallow land left unattended while an increasing share of mankind passes time in urban settings, with their own productive capacity squarely aligned, day in, day out, in conflict with the needs of the natural world.

The irony is that many have taken note of the dire state of affairs of nature (read Climate Change, etc.) and then misdiagnose the cause.  They clamor for more “money” to solve problems that have come about as an indirect result of the creation of more “money.”

Humankind was never meant to live under that shadow of such an overabundance of credit.  The removal of limits on credit creation has effectively removed the natural governor of the activities of man, the need to create real, free market money, making certain that debts are settled in terms of real goods which are demanded by a free market economy.  The return to this natural governor on human activity is indispensable if humankind is to even begin to address climate change and world peace.

The return to this natural governor will be painful, but it is inevitable, and the more one can prepare now to operate in a world where money and credit operate in their appropriate the capacities and take their appropriate places in a balanced economy, the better.

The world is headed, kicking and screaming, towards a forced monetary reset, and things will be much different than they are now.

We applaud the efforts of Positive Money UK, for they are on the right track.  You too can follow them on Twitter or YouTube and learn more about this fascinating and important subject that, by our own reckoning, only one in a million comprehend.  Will that one be you?

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Key Indicators for October 10, 2014

Copper Price per Lb: $3.04
Oil Price per Barrel (WTI):  $85.82

Corn Price per Bushel:  $3.34
10 Yr US Treasury Bond:  2.31%
Bitcoin price in US:  $360.13
FED Target Rate:  0.08%
Gold Price Per Ounce:  $1,223

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  5.9%
Inflation Rate (CPI):   -0.2%
Dow Jones Industrial Average:  16,544
M1 Monetary Base:  $2,969,100,000,000

M2 Monetary Base:  $11,407,100,000,000

The ECB negative rate announcement is a cannibalistic non-event

6/22/2014 Portland, Oregon – Pop in your mints…

On June 5th, the European Central Bank made modern Central Banking history by providing the world with its first announcement of what they call a negative interest rate. For those who may be scratching their heads at the concept of a negative interest rate, we offer the following layman’s definition:

It is a commission that is charged every month for holding too many Euros in the wrong place.

In the mind of the clever central banker, a negative interest rate provides a simple disincentive to hoard Euros. In his or her mind, the way to invigorate the European economy is to force Euros into circulation by turning them into a sort of hot potato, though at -0.10% the analogy is more akin to a potato emanating scarcely enough heat to melt a pat of butter.

Following the infallible logic of the central banker, the banks will take the money and lend it, as putting 100% of deposits at risk via a loan in a terribly disjointed economic zone is clearly a better alternative that loosing a guaranteed 0.10% annually by parking it overnight at the ECB.

This would be a brilliant solution were the simple hoarding of Euros the only thing ailing the Euro system. Unfortunately for the ECB and indeed, Euro holders in general, the problem with the Euro is that it is dying a strange death at the hands of deflation and strangulating the European economy in the process. Following this set of facts, it would hold that the safer bet for those who find themselves holding excess Euros would be to pay down higher rate liabilities in lieu of holding Euros overnight at the cannibalistic ECB, whose actions, while for the moment are foreseen to be a non-event, will ultimately lead to an implosion of the 15 year-old Euro currency.

What is lost on the European central bank is that they are managing a debt-based currency that looks like money but smells something much different. While charging a commission on bank deposits in hopes of getting currency flowing again may seem a good idea, the dynamics of the debt-based currency make this strategy akin to economic suicide.  Fabian for Liberty appears to take a slightly different slant on the subject and arrives at the same conclusion:

Debt is the lifeblood of modern currency, and a large part of what gives debt based currency its allure is the illusion of getting something for nothing in the form of usury. On June 5th, the ECB pierced the veil on interest rates and the illusion of getting something for nothing along with it. This has never been attempted by a modern monetary authority, and once again the ECB has shown that if there are errors to be made in the management of debt based currency, they are willing to make it.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for June 22, 2014

Copper Price per Lb: $3.10
Oil Price per Barrel:  $106.83

Corn Price per Bushel:  $4.53
10 Yr US Treasury Bond:  2.62%
Bitcoin price in US: $599.07
FED Target Rate:  0.10%
Gold Price Per Ounce:  $1,315

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.3%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  16,947
M1 Monetary Base:  $2,728,900,000,000

M2 Monetary Base:  $11,306,300,000,000

A Discussion of the Merits of Short Term Interest Rate Management, Part I

4/28/2014 Portland, Oregon – Pop in your mints…

One of our working hypotheses here at The Mint is that short-term interest rate management, the primary tool employed by the Central Banks of the world to implement monetary policy, is necessarily harmful to the economy by providing incentives for achieving what otherwise would be suboptimal economic outcomes.  By extension, we believe that these suboptimal outcomes are not simply a lost opportunity or a generator of wasted efforts and resources, but a primary contributor to the imbalances in the environment which today bears the label “climate change.”

Recently, we were invited to present our hypothesis at a Global Macro Roundtable for discussion.  Today and over the next several days, we will present a slightly redacted transcript of the roundtable for the consideration of our fellow taxpayers.  Names (with the obvious exception of our own) have been changed to protect both the innocent and guilty.

As you will see, the discussion (which we have color coded in order to help follow the cast through the maze of discussion) takes many twists and turns, and in a way reveals how far-reaching the influence of short-term interest rates has become, as well as the broad misunderstanding of the concept of money that persists to this day.

Enjoy!

A Discussion of the Merits of Short Term Interest Rate Management

The hypothesis:

Why Short-Term Interest Rate Management is Harmful to the Economy: The Unseen Funding Dynamic 

While the evidence is clear that centralized planning is a failure, pointing to the reasons why can prove elusive. Recently, a revelation regarding the problem with centralized management of short-term interest rates came upon us. The revelation is the following: Imagine you are a banker who needs to fund a loan. In order to fund this loan, you would presumably need to have the money available with which to fund it. This is simple logic, however, in the real world of banking, the decision of whether or not to fund a loan is completely disconnected from the availability of funds, which is primarily determined by the overnight funding markets which, in turn, are completely reliant upon short-term interest rates.

In a world that followed the rules of financial physics, the short-term interest rates would be completely dependent upon the availability of funds in the system. However, the centralized management of interest rates makes this critical data point, which would otherwise provide a snapshot of the amount of capital in an economic system which is held in liquid form and available for deployment, irrelevant, as the amount of capital available in today’s centrally managed system can be determined on whim.

As such, the ability of the banker to fund the loan is not dependent upon an availability of funds that represents the amount of capital available in the real world, rather, his ability to fund the loan is completely dependent upon the borrower’s ability to pay and the size of the loan in relation to the structure of the bank’s balance sheet.

The three criteria above are important, as any underwriter will tell you, but the invisible fourth criteria, the true availability of the funds for the loan, or funding dynamic, is completely ignored in the following fashion:

When the short-term interest is managed to be low, as is the case currently, any borrower who has the capacity to pay and has a lending need that fits well with a certain bank’s loan mix is extremely likely to get funded, regardless of whether or not the economics system as a whole has the capital available to fund his or her loan. When the short-term interest rate is managed to be high, as it was in the early 1980’s in the US, funding any loan, regardless of the ability to pay and fit within bank’s balance sheet, becomes impossible to fund.

In both cases, both borrower and banker are left completely in the dark as to whether or not there exists the necessary capital stock or productive capacity in the economy for the funds to be deployed in the manner that the borrower envisions, for the short-term interest rate signal has been genetically modified to send a common signal to all participants.

Unfortunately, it is a signal that blinds everyone to the facts of the situation. For many are the hopes, dreams, and ideas of mankind, but it is the funding dynamic which keeps these hopes, dreams, and ideas in harmony with the natural world upon which we all depend.

Right now, we are floating in the clouds, completely disconnected from reality. The landing caused by the next round of high rates, via a natural rebalancing of accounts or further genetic modification of the short-term rates, will be very hard indeed.

The funding dynamic is so delicate that mankind cannot hope to optimize it via genetic modification, for when left alone, it is optimized by definition. Again, by definition, every attempt to modify will bring about sub-optimal results.

As with all complex economic and political systems, dissent is information, and serves to manage the system’s outputs while at the same time increasing the resiliency of the system, making it less susceptible to shocks.

Centralized short-term interest rate management must be abandoned before it is too late, for it is leading the activities of mankind towards a dangerous showdown with the limitations of the natural world.

Discussion

Contributor A:  This brings to mind the Pareto curve reaching a knee limit and catastrophe theory when there is a Quantum state change in the system being considered (the twig will snap, the water will boil as energy (money) is added, etc.). We are expanding the money supply and disregarding that eventually an infinite amount will be needed.

One other point is the Multiplier effect at the Bank who gets $ 1 Million from the fed and uses a low Reserve to make loans greatly exceeding that because the Loans are an asset on their books ; and, as repayments come in multipliers on those. Where does it stop? When the twig snaps and then raging inflation must kick in at an Exponential level with time. Then SNAP!

Contributor B:  I have no disagreement with the conclusion, however, the facts leading there need to be adjusted/considered. For example, in the early 80’s, liquidity was not nearly the issue as it was raised in the statement. Not only did my clients acquire funding as required in that period, but I [stupidly] agreed to a mortgage in that period with an interest rate that still gives me nightmares. For the last few years interest rates have been suppressed, but at the same time my middle market clients have complained of there being insufficient liquidity to fund their business loans, meaning that new business ventures were not realised. This has relaxed in the past year or two slightly, but you need to remember one of the issues regarding the vast amount of dollars being held in banks.

When the FED began shipping huge quantities of dollars to friendly banks after the 2008 crash in order to stabilise some very shaky balance sheets, the FED promised to pay interest to the banks on those funds kept in storage with one absolutely unbreakable codicil: under no circumstances could the banks use those funds as part of their asset base in making loans. In other words, none, zero, zip, nada, NONE of those FED funds could be used for loans. Clearly, this move suppressed what would have been an immediately inflationary environment in the US, a highly destructive inflationary environment. But it also left these banks which were otherwise strapped for funds floundering for any money to loan out to their best small business customers. The banks may have stabililsed in the past few years of lean flow of funds, but it is not that much better in the commercial market for small and mid-sized customers.

The Mint:  As Contributor A highlights, the entire modern monetary system is extremely fragile and, given its debt base, could quickly disintegrate were a crisis of confidence to emerge or a widespread failure of technology make it inaccessible.

Contributor B (to whom I will defer on funding experiences of the early 80’s) brings up an important point in the form of the “unbreakable codicil” of the FED with regards to funding intended to shore up the Federal Reserve system. While this move made the banks and system technically solvent, the Fed has ignored the fact that the US economy has outgrown the Federal Reserve system, as the economy is starved for money at a time when the Fed’s measurements indicate that quite the opposite is true.

In the 2008 panic, the Federal Reserve deviated significantly from its traditional funding mechanisms to save its system and has altered the normal monetary transmission protocol. I believe that this has created a feedback loop which will result in the Federal Reserve system receding and other mediums of exchange posturing to take its place.

Contributor B:  I thoroughly agree that it will be reset, David. However, while you may see market forces and evolved consumer needs driving this reset, I tend to pay attention to the political aggression of states not at all amicable to the interests of the FED and believe the geopolitical transformation we will witness may be the lynchpin upon which the existence of the FED depends. In the long run it will not really matter to the FED whether it is driven by the economic needs of the consumer or the geopolitical ambitions of another nation, but it will matter to the ordinary participants, I suspect. The withering of FED control worn away by alternative exchange mechanisms will provide a much different life at ground level than the sudden repudiation of the USD as the world reserve currency as anticipated (and desired it seems) by the Chinese military (along with a few others who are tired of US economic hegemony). The former is a transformative change more gradual in nature while the latter can be far more sudden in keeping with the rapid shifts in the global market; the former providing the opportunity to adjust more peacefully while the latter is expected to lead to widespread disruptions in service, food, and support delivery at the ground level. Food riots, water riots, just plain riots, and toilet paper riots… sorry, basic staples of urban and 21st century life will be in short supply. I think I’ll find farmland in another country far away. 😉

For ease of transition, I’d vote for alternative exchange mechanisms. Curiously, I saw an article a few weeks ago that noted extreme activity increases in southeast Asia on Bitcoin and the development of alternatives… either opportunity or another front in the attack on the USD. It can be both.

Now, to envision a world without central banks. That takes us back a while in history…

Then again, perhaps this graph {Editor’s Note:  Regarding the Longevity of currency reserve status over the past 600 years} tells it all:

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2012/01/20120103_JPM_reserve.png

… and speaking of market competitors, Googlecoin? it is being touted already.

Contributor C:  

“Centralized short-term interest rate management must be abandoned before it is too late, for it is leading the activities of mankind towards a dangerous showdown with the limitations of the natural world.”

I like above statement. 

This game of interest rate putting up and down could create a crisis if somebody implemented at the wrong time. I consider interest rate as a weapon of mass of destruction if we manage it recklessly. Interest rate volatility creates problems for investors, homeowners and other savers. What about instruments linked to interest rates? What will happen if we don’t carefully manage  or misuse those instruments? Why do we see higher interest rates in some periods and lower interest rates in some periods? Can’t we find solution to fix interest rates without creating volatility?”

The discussion, which is about to take many an unforeseen turn, continues tomorrow…things are about to get lively (at least lively as far as short-term interest rates discussions go) indeed!

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for April 28, 2014

Copper Price per Lb: $3.07
Oil Price per Barrel:  $100.93

Corn Price per Bushel:  $5.07
10 Yr US Treasury Bond:  2.68%
Bitcoin price in US:  $431.71
FED Target Rate:  0.10%
Gold Price Per Ounce:  $1,303

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.7%
Inflation Rate (CPI):   0.2%
Dow Jones Industrial Average:  16,361
M1 Monetary Base:  $2,721,500,000,000

M2 Monetary Base:  $11,353,000,000,000

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: davidminteconomics@gmail.com

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