Category Archives: Of Money and Metals

Bitcoins, Economics, Monetary Theory, Of Money and Metals

It is Winter, do you know what and where your Bitcoins are?

12/3/2013 Portland, Oregon – Pop in your mints…

“It is winter, a time to pause, the driveway is half shoveled out, but I lay down the shovel, and I pause to enjoy this moment, after all, this is my first heart attack.”

A Poem recited by Red Green during The Winter of our Discount Tent show segment

For those who were fortunate enough to see Red Green in his prime, circa 1991, the words “it is winter” immediately bring a sense of comic anticipation to mind.  Really, the mere sound of the man’s voice will bring a smile to your face if not cause one to break out in laughter.

Red Green, a Canadian, brought a unique brand of humor to the late night airwaves.  While there is really nothing to compare it to, if one were to imagine a cross between Al Bundy (Married with Children) and Crocodile Dundee in Canada doing a variety show against the backdrop of an ongoing storyline in his men’s lodge, you would be in the ballpark.

Yet as the poem above hints at, you never quite knew what would come out of Red’s mouth, but his dry delivery and lighthearted machismo made nearly anything the man said pass for hilarious. (see the poem read live by Red below and see for yourself).

It is winter, and while any number of narratives continue to fill the financial landscape, they all have one thing in common:  Inflation is here to stay and the Federal Reserve and it cohorts around the world are not about to do anything stupid, like raise rates or end bond buying programs, at this stage of the game.  From their standpoint, risks are on the side of deflation, no matter what your grocery bill is.

In the context of this stance by the caretakers of the world’s currencies, a developer known as Satoshi Nakamoto launched the Bitcoin Genesis block back in 2009, like a self replicating message in a bottle to the world that reads “try using this as money.”

Today, as we near the end of 2013, it is becoming clear that the message is reaching quite a few individuals, and that they are taking action.  The message came to us in March of 2012, when the Bitcoin/USD ratio hovered around $5-$16, and it took us until March of 2013, when the ratio was near $150 to act upon it.  The ratio now sits at around $1,100 and has garnered so much attention that a US Senate committee called a hearing in a feeble attempt to understand what it is and why it is valuable.

As anyone who has followed such hearings can attest, they rarely, if ever, shed light on the subject being discussed, and it was clear in watching that the Senators who attended as well as their expert witnesses have no idea what Bitcoins truly are.

Misinformation regarding Bitcoins abounds, indeed, a discussion we have been following in one of our Treasury groups has drug on for weeks with the participants vacillating from the stance that Bitcoins are a good idea and viable fiat alternative to them being a Ponzi scheme.  Our take is that those who are obviously confused are not hindered in their understanding of what Bitcoins are as much as they are hindered by their failure to understand what money is in the first place {Editor’s Note:  If you count yourself among the confused, stay with us for a spell or pick up a copy of one of the following publications:  What is Money, Of Money and Metals, or Bitcoins: What they are and how to use them}

Our take here at The Mint is twofold.  First, Bitcoins are clearly a Ponzi scheme, however, they are a self-limiting Ponzi scheme with no clear beneficiary, and in these respects are superior to other widely accepted Ponzi schemes such as equities and fiat currencies, which share similar characteristics to that of Bitcoin in terms of representing and indirect claim on wealth.

Second, and more importantly at the moment, Bitcoins are the gold standard with regards to digital currencies by virtue of being the first and most widely accepted.  All other digital currencies to come are practically forced to use the Bitcoin market as a point of reference in the same way the gold market looks to comex prices.

During the past few days, a Welshman named James Howells has been in the news because he tossed out a hard drive containing approximately 7,500 Bitcoins.  The same article mentions a man named Stefan Thomas who allegedly lost 7,000 Bitcoins according to Der Spiegel.  Indeed, we have a friend who told us he had wiped “thousands” of Bitcoins off of his hard drive.

While these types of stories may seem to offer a reason not to dabble in Bitcoins, we see them as yet another reason that the Bitcoin/USD ratio will continue to go vertical for the foreseeable future, as there will only be 21 million Bitcoins ever created, and, if the system is as tight as it appears to be, neither Mr. Howells’, Mr. Thomas’, nor our friend’s lost Bitcoins will ever be circulated again, making the remaining Bitcoins that are tradable all the more scarce and, at the moment, valuable.

A bit of free advice from The Mint.  While it seems counterintuitive, we encourage you to store your wallet online at a service such as blockchain.info to avoid the fate of the above mentioned individuals.  This goes without saying, but choose an extremely complex password.

Finally, if you are convinced that Bitcoins are a Ponzi scheme, remember that so are equities and fiat currencies, the only difference is that Bitcoins are still in an extremely early stage.  Think of it as buying Apple or Microsoft in the 80s, only better, as Bitcoins represent a confluence of technology and commerce that has just begun the search for its value.

It is winter, do you know where your Bitcoins are?

Until next time, keep your stick on the ice!

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for December 3, 2013

Copper Price per Lb: $3.16
Oil Price per Barrel:  $97.19
Corn Price per Bushel:  $4.22
10 Yr US Treasury Bond:  2.78%
Mt Gox Bitcoin price in US:  $1,158
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,224
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.3%
Inflation Rate (CPI):  -0.1%
Dow Jones Industrial Average:  15,915
M1 Monetary Base:  $2,563,700,000,000
M2 Monetary Base:  $10,942,300,000,000

ebooks, Economics, Monetary Theory, Of Money and Metals, The Mint

The Repo man goes Basel on funding markets

1/25/2013 Portland, Oregon – Pop in your mints…

We have been remiss in our regular correspondence to you, fellow taxpayer, and we pray you will forgive us.  We have completed and published the first two volumes in our series, called “Why what we use as Money Matters.”  It is our humble attempt to explain, well, why what we use as money matters.  The volumes are currently available on Amazon’s Kindle as wells as in various eBook formats on Smashwords and can be accessed at the following links:

What is Money? – Volume I – Free until February 7, 2013 at Smashwords

What is Money? By David Mint

Of Money and Metals -Volume 2 – Free until January 31, 2013 at Smashwords

Of Money and Metals by David MInt

Our objective in writing the series is to convince humanity of two truths:

1.  That if the activities of the earth are to be in balance with the available resources, money must be something natural, in other words, not debt or a sort of promise or idea.

2.  That Anarchy is an ultimate given, and that Capitalism is the best response to this given.

The governments of the world, as we have known them, are disintegrating, but this will be addressed in our upcoming volumes in the series.

We would be honored if you would give them a read and keep watch for the upcoming volumes, for these ideas are exceedingly important.

Back to finance

While the Fiscal cliff and subsequent fallout have taken a toll on the average working American to the count of 2% right where it counts, there is a something altogether wonderful and dreadful knocking at the door:

Inflation

The wave of inflation that has been on the horizon ever since Federal Reserve monetary policy gave us new acronyms such as ZIRP and QE, appears to be breaking and will soon wash ashore.  Now that it is breaking, the only thing that stands between it and the average working American is some flavor of collective default by the nation’s banks.  Thanks to the programs which are represented by the above mentioned acronyms, this is highly unlikely.

At this point, then, the only entities whose default could cause such a chain reaction are the Federal Reserve, US Treasury, or possibly the ECB.  However, here at The Mint we believe that the tidal waves of cash that have been unleashed may even make the default of one of these institutions manageable.

The Federal Reserve has succeeded in the sense that they have flooded the system with so much cash and have repeatedly stated in no uncertain terms that they will backstop the Treasury and MBS market until the US Dollar’s last dying breath.  While for a time, maturing debt obligations were mopping up the liquidity that the FED was pumping in, most consumers have now moved to extend maturities via refinancing or, on the conservative end, have closed out both cash and debt positions by paying off mortgages with savings which had been “ZIRPed” into dormance as an income producing asset.  This collective action has put the economy in a sort of warped reset where the fiat currency debt monster can run amok for the foreseeable future, with the attendant fatal real world consequences.

Oddly enough, as the FED begins to claim victory over the financial crises which its own policies have made possible, the double whammy of the Basel accords and Dodd-Frank regulatory regimens may eventually eliminate many of the financial institutions which today are household names.

The Repo man cometh

In what is perhaps an unintended consequence, the afore mentioned regulations have given what is known as a REPO contract its walking papers.  In our oversimplified understanding of the matter, for simplicity is a virtue here at The Mint, the REPO arrangement, which is a glorified demand deposit, has allowed banks to hold their client’s funds on their balance sheet as Tier I capital.

In 2017, these arrangements will be forced to be properly classified as demand deposits, and many of the wiser financial institutions, who already have a long way to go to reach the Basel Tier I requirements, are already steering their clients away from these arrangements.

How much capital will this pull out of the banking system?  Nobody knows.  But what is for sure is that unwinding these REPO positions will leave some institutions exposed and unprepared.  They will probably become aware of their exposure via the classic individual financial panic mechanism:

The margin call.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for January 25 2013

Copper Price per Lb: $3.64
Oil Price per Barrel:  $95.88
Corn Price per Bushel:  $7.21
10 Yr US Treasury Bond:  1.95%
FED Target Rate:  0.15%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,659 THE GOLD RUSH IS ON!
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.8%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  13,896
M1 Monetary Base:  $2,397,900,000,000 LOTS OF DOUGH ON THE STREET!
M2 Monetary Base:  $10,501,100,000,000

ebooks, Economics, Education, Gold, Monetary Theory, Of Money and Metals, Silver, Teaching

Of Money and Metals: The Operation of a Free Money Supply Explained

We’ve been at it again!  Be the first to download our newest e-book,  now available on Smashwords and Amazon’s Kindle:

Of Money and Metals: The Operation of a Free Money Supply Explained

Of Money and Metals: The Operation of a Free Money Supply Explained is Volume II in the “Why what we use as Money Matters” series. Of Money and Metals presents the fallacies of the current day practice of circulating debt in the place of money and explains the urgent need for and the operation of a free money supply. This volume also explores the phenomenon of Bitcoins and digital currencies.

It is available to our dear readers for free until January 31, 2013 at smashwords.com, just enter coupon code: MA65L

Thank you for your support!

Of Money and Metals by David MInt

 

Gold, Monetary Theory, Of Money and Metals, Silver, The Mint

Perpetuation of the Trillion dollar coin solution to US Debt

As our site name implies, we have more than a passing interest in monetary theory.  As such, ideas for new types of coin and currency are of special interest.  When the value of the coins proposed contains an insane amount of seigniorage, we are compelled to call it out.

 

The Fiscal Cliff melodrama playing out in the halls of US Federal Government’s Capital has given rise to the above mentioned monetary insanity.

As the so called, moronic “Fiscal Cliff” false alarm approaches, it becomes more common for those of a Socialist/Statist leaning philosophy to search for easy solutions to what amounts to enabling catastrophic policy failures, out of control spending, and unsustainable debt pacts.

This is not surprising, as Socialism and economics are incompatible philosophies. Anyone who claims otherwise either mistakenly applies small system theory to large scale systems or is a shill. From one of these insane theorists comes the idea of the US Treasury coining a trillion dollar platinum coin to deposit at the FED, who would then cancel the Treasury’s debts.

This will not happen, first and foremost, because the insane monetary system relies on debt as its lifeblood, as such, any debt cancellation by the underlying foundation of US Treasury debt is out of the question.

Second, it must be recognized that coining a trillion dollar coin, theoretically equal to 1/60 of global GDP, that anyone other than the FED would accept at face value, is impossible, it simply flies in the face of reason.  The FED has been paying 100 cents on the dollar for the MBS toilet paper that banks have sold to them for years now, as such, any concept of value left the halls of the Federal Reserve years ago.

The third reason is that the US debt at the FED has already been largely canceled via the FED’s various QE operations over the past several years. For the reasoning as to why the official US Debt held by the FED hasn’t been lowered to better reflect its true drag on GDP, we refer fellow taxpayers back to reason one.

We will present more data to back this claim in the coming week. In the meantime, if someone offers you a trillion dollar coin, be sure to check the spot price of platinum before making a more reasonable counter-offer. In any event, you are better off holding the platinum, as someday it will be worth are least a trillion Federal Reserve notes, the shills at the FED and Treasury have assured it.

Gold, Monetary Theory, Of Money and Metals, Silver, The Mint

Is Fiduciary money really money or cleverly disguised debt?

4/30/2012 Portland, Oregon – Pop in your mints…

As money managers are frantically rebalancing their portfolios in a vain effort to get out of the way of Apple’s 20 point decline and Spain’s central bank, whose reason for existing we cannot conjure at the moment, consults experts in toxic assets because it apparently cannot figure out how to perform the most basic of banking functions:  Writing down bad assets, we are waxing philosophical here at The Mint.

We will give the Spaniards the benefit of the doubt and assume that they know what should be done with the toxic assets, they just do not want to appear to have admitted that the vile sludge on the balance sheets of nearly all spanish banking institutions are worse than worthless without getting an expert opinion. 

The defunct Spanish Central Bank looking for unsophisticated Investors to clean their banking system's septic tank

These are smart people, no doubt, the money managers and central bankers involved in the debacle that is the western financial system, circa 2012.  It is for this reason that there should be great cause for concern when they appear completely uncapable of functioning when things do not go the way they planned.

For example, a properly functioning banking system would have no problem figuring out what to do with non-performing loans (the common name for the toxic assets that the central bankers so dread).  In fact, a properly functioning banking system, where real and not limitless fiduciary money was at stake, would have created an adequate quality control system to ensure that very few financial assets of the toxic variety live to see the light of day.  Those that did see the light of day would have beem properly discounted them to a point where all of their toxic side effects could be properly cleaned up should they spill over.

We must assume, then, that there is something dreadfully wrong with the banking system.  But what is it?

We began to ponder this question last week when we saw a post by an Ivy League trained economist.  The assertion that fiduciary money is money bothered us to the point where we were compelled to jump in to correct this unintentional error.

The Ivy league trained economist indulged us for a time and then, for reasons unknown, disabled commenting on the post.  We interpret this action as a concession of the point we are trying to make, either that or they just wanted to get rid of us, which, given our obvious charm, we can only assume is not the case.

What is important is that the post brought up a fallacy which we see it as part of our mission here at The Mint to debunk.

The fallacy, which is widely accepted as fact by money managers and Spanish central bankers alike, is that fiduciary money operates like money when in reality it is nothing more than a debt instrument in disguise. 

So which is it?  Is The Mint off its rocker or is there something to the error of this “debt is money” point of view, as in, it is causing otherwise intelligent people to act in more and more absurd ways as the inevitable consequences of using debt as money rear their ugly head?

Simply stated, is fiduciary money really money, as the name implies, or is it technically debt?  It is a fine point that, to be honest, does not matter to most people on the planet, for what is commonly known as fiduciary money tends to operate as money in a way that is imperceptable to the members of society…until it doesn’t.

The true essence of fiduciary money is not money at all, but debt.  Granted, it may be a highly liquid and highly transferable form of debt, but that does not change the fact that when it is created at the bank, be it a local or central bank, it represents a debt of that bank, regardless of the ability of said bank to redeem the fiduciary money for specie money, which is what we hold out as worthy of the term money for purposes of analysis.

As you can see from our presentation of the interaction below, we attempted, in good faith, to convince the Ivy League trained economist that Federal Reserve notes, as their name implies, are debt and not money.

I have redacted the amicable interaction to highlight the applicable text of our interaction as it pertains to the case in point, is fiduciary money really money?

Please read on and decide for yourself.

{Editor’s note:  Out of respect for the Ivy League trained economist, we have removed all references to their identity, for it is not our intent to shame, discredit, or launch any form of personal attack on them, but rather, the fallacy surrounding mainstream economics’ treatment of fiduciary money in its analysis}.

The Mint (in response to the intial post):

I would like to point out that fiduciary money is not money, but rather debt which carries in its value a monetary premium which the market has chosen to assign it.

Ivy League trained economist:

“Perhaps this helps you David Mint. I wrote this back on March 8th.

{Link to content further asserting that fiduciary money is money, removed to protect economist’s identity}

The Mint:

Thanks again, however, I still cannot concede your assertions that Federal Reserve notes are money, rather, they are a debt instrument, which is often referred to as fiduciary money.

The proof of this lies in that Federal Reserve notes pay interest and trade at an implied discount rate, whereas money simply trades against other goods in a varying relationship determined by the relative scarcity of resources.

Both circulate as currency in a normal economy, but the rigidity of debt makes it unsuitable for obligatory legal tender.

It is a fine point that is categorically overlooked, but the more one forces debt into the role of money, the greater the disconnect between the activities of men and the resources available to support those activities.

I would love to hear a convincing argument that debt is money if you have one in your archives.

Thanks again and all the best!

Ivy League trained economist:

“Decidedly David Mint, Federal Reserve notes do not pay interest. There isn’t anyone on earth paying interest to anyone else who is holding a $5 bill in his wallet.

Here, David, disabuse yourself. See my many shares on what money is:

{Link to content further asserting that fiduciary money is money, removed to protect economist’s identity}

You ought to spend good time reading this one:

{Link to content further asserting that fiduciary money is money, removed to protect economist’s identity}

The Mint

Quickly, on the fallacy of the $5 bill which is held, the implied interest and discount rate on Federal Reserve notes traded amongst commercial and central banks still affect the value of the bill as it is held up until the moment it is given in exchange for trade.  The coupon rate is 0%, but the normal operations of debt instruments hold true for them.

From what admittedly little I have read of your work, I agree with 99% of what you present.  It is this fine point, that Federal Reserve notes behave as debt, even when they are part of the M1 money supply, that I believe is the error which is spread throughout mainstream economics.  Of this, I have yet to be disabused by what you have presented.

Debt includes all fiduciary money.  The point is important because using debt as money works until it doesn’t, meaning the issuer of the debt defaults or is widely perceived to have defaulted, and their debts become worthless in trade.

Ivy League trained economist:

“That’s all fine, except Federal Reserve bank notes are not debt.  Decidedly, Federal Reserve bank notes are money owning to bearer negotiability and ability to extinguish contracts.

Yet, Federal Reserve notes are not credits, and thus are not debt.  Federal Reserve notes are not even evidences of ownership of contracts.

At most anyone can say is that Federal Reserve notes represent a call on future products to be made by anonymous, as yet, identified others who likely shall take them in exchange.”

The Mint

As a matter of accounting necessity, the Federal Reserve must book a liability when it issues a Federal Reserve Note which makes their notes debt by definition.  If this were not the case, why would they list it as a liability on their balance sheet?

http://www.federalreserve.gov/releases/h41/current/

On the contrary, the most that anyone can say about Federal Reserve notes is that they are the highest and most liquid form of debt which is traded in the US economy.  However, this does not change the fact that the essence of the Federal Reserve note is debt.

The Ivy League trained economist unexpectedly exits stage left.

Who cares?  Why is this important?  It is important because if what we believe about fiduciary money is true, most of the Western world, including the mysteriously influential Paul Krugman (who is not, by the way, the anonymous Ivy League trained economist above), somehow believes that fiduciary money is money that can be produced at will, and that the world will be better off if we simply produced more of it.

If the Krugman’s of the world get their way, labor and accumulated capital will be so poorly allocated that it could take three generations for humanity to adequately organize itself to make good use of the earth’s inexhaustible reasources.  Do you have that kind of time?

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for April 30, 2012

Copper Price per Lb: $3.86

Oil Price per Barrel:  $104.88

Corn Price per Bushel:  $6.60

10 Yr US Treasury Bond:  1.92%

FED Target Rate:  0.14%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,664

MINT Perceived Target Rate*:  1.00% AWAY WE GO!

Unemployment Rate:  8.3%

Inflation Rate (CPI):  0.3%

Dow Jones Industrial Average: 13,214

M1 Monetary Base:  $2,210,700,000,000

M2 Monetary Base:  $9,970,100,000,000

Bible Teaching, Economics, Jesus, Monetary Theory, Of Money and Metals

The Bible Clearly Explains the Consequences of a Debt based Monetary System

2/28/2012 Portland, Oregon – Pop in your mints…

Yesterday we took our fellow taxpayers for a detour which is leading us into what, for some, may be uncharted waters.  These waters are commonly known as the Bible, or the Word of God.  While seemingly unrelated to the discipline of economics and specifically monetary theory, it is important to gain an understanding of the Bible for two reasons:

  1. It is the most widely read book in the history of the world to date
  2. In its labyrinth of narratives, poetry, song, and prophecy, it provides the only coherent framework within which humans, who have been given the gift of reasoning, can understand the world in which they inhabit and what they are to do with their time here.

If only for these reasons alone, it is of the utmost importance that the Bible be understood if we are to gain any meaningful understanding of what is called the “economy” and our specific area of interest, monetary theory, as these disciplines make absolutely no sense without an understanding of the framework in which they operate.

Regardless of one’s preconceived judgments about the Bible’s ability to provide this framework, it is important to understand that a number of one’s fellow humans believe that the Bible provides this framework.  With this given, it can be inferred that this belief is, in whole or in part, is driving their choice of actions. 

A Bible Handwritten in Latin in Malmesbury Abbey, Wilshire, England. Transcribed in Belgium in the year 1407

However, if you remain unconvinced or simply do not have time or motivation to undertake a careful study of the Bible, we will relate what we understand, it is in no way a substitute for one’s personal and corporate study of the Bible, but we appreciate your confidence.

The lessons of the Bible are important and we reiterate, without an understanding of the framework of the Bible, nothing that is going to take place in the future will make sense but will appear to simply occur at random:

Truly we tell you, the events to come have been foretold.  The Kingdom of God is advancing.

What does it have to do with money?  Why is a proper understanding of what we use as money important?

We are glad you asked, allow us to explain:

The current monetary system which most of the Western world uses to each day is built on debt.  Debt, at its essence, is built a faith that persons will perform certain actions in the future.  Performance of these actions from the debtor’s perspective is homogenized as being able to order delivery of the debts of others to the creditor in order to satisfy the debt.

This activity and its consequences are conveniently summed up in Bible as the parable of the Unforgiving Debtor, which can be found in the Bible in the book of Matthew, Chapter  18, verses 21-35.

Wrapped up in a narrative which will take under two minutes to read, the final consequences of using debt as money have never been more clearly stated.  Please give it a read, it is important.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

 

Key Indicators for February 28, 2012

Copper Price per Lb: $3.86

Oil Price per Barrel:  $106.55

Corn Price per Bushel:  $6.53

10 Yr US Treasury Bond:  1.93%

FED Target Rate:  0.10%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,784

MINT Perceived Target Rate*:  1.00% AWAY WE GO!

Unemployment Rate:  8.3%

Inflation Rate (CPI):  0.2%

Dow Jones Industrial Average: 13,005

M1 Monetary Base:  $2,137,600,000,000

M2 Monetary Base:  $9,763,200,000,000

Economics, Freedom, Gold, Monetary Theory, Of Money and Metals, Silver, The Mint

Of Money and Metals, Part V – Free Money Refutes Gresham’s Law

1/31/2012 Portland, Oregon – Pop in your mints…

 

{Editor”s note: The following is the long awaited conclusion of the series “Of Money and Metals.”  Please click here to view the Part I,  Part II, Part III, and Part IV} 

 

Free money also renders null and void any arguments as to what constitutes good or bad money, for this determination will be made on a daily basis by producers and consumers rather than a monetary authority who is acting on mere theory with severely limited data.

 

Absent the government declaration of what is money and how much said “money” is worth, there is no longer bad money driving out good money, as Gresham’s Law so perceptively observes.  What remains, then, as the ultimate determinant of what is money and how much it is worth are the two parties to a transaction, who are generally in the best position to determine such matters.

 

“But this would destroy exchange as we know it!” comes the cry from apologists of legal tender laws.  “No one will know what anything is worth, let alone how to pay for it!”

 

On the contrary, the free operation of the money supply would, by necessity, cause everyone engaging in exchange to be acutely aware of both what constitutes money and how much it is worth.  It is legal tender laws which serve to pull the wool over everyone’s eyes as to the true value of money.

 

When seen through a different lens, that of the free operation of the money supply, the absurdity of legal tender laws becomes clear.  Commodity (free) money is unhindered by the artificial restraint of existing debts and is constrained only by the productive will of society.  Commodity (free) money is free to accurately reflect the price of goods and services in light of the perceived supply and productive capacity of both goods being exchanged, that being offered in exchange and that offered in payment as money.

 

Money, as most people instinctively understand it, is simply an ordinary good whose utility and value are greatly enhanced by its wide acceptance in trade.  If one strives to remove the “cost” of producing money, as Adam Smith so nobly aspired to do, it is clear that the best way to do this is to allow the good which is acting as money to be produced in the most efficient way by the greatest number of artisans as are necessary to fulfill the present demand for money.

 

But how would all of these artisans, blindly creating all of this commodity money, know when to stop producing were it not for legal tender laws?

 

Here, there is no risk of oversimplifying the answer, for the answer is painfully simple.  As persons competing in the free market who have chosen to produce money, they are likely to be the first to know when there is too much money in circulation, for their orders for new money will uncannily drop when the economy has enough money to function efficiently.

 

Further, any commodity that is only marginally used in the production of money will quickly and smoothly have its supply directed to other, more efficient uses as the incentive (realized margin) to use it as money is incrementally reduced as supply begins to overtake demand.  Each producer is therefore free to choose his or her exit point.

 

Take the case of copper.  If copper becomes monetized by the free will of the participants in the economy, it stands to reason that it could be demonetized by the same free market operation.  Should economic activity slow to the point where the pace of saving and exchange no longer calls for copper to assume a role as money, as copper is demonetized those holding copper will find it more efficient to melt the copper that they have in monetary form and sell it as a consumer good.

 

European Jeton from 1598 courtesy of Wikipedia.org

 

The process of demonetization is simply a matter or free choice when something occurring in nature is used as money.  It first moves to the fringes of use as money, as a Jeton or modern day casino chip is used in place of money.  In time, the material will be demonetized completely.

 

Debt, when used as money, enjoys no such elasticity.  By necessity, when debt is forced into a role as money, it causes an unnatural proliferation of credit, so that when the inverse of Gresham’s law begins to operate (good credits push bad credits out of circulation) the unnatural restriction on the money supply assures that even the best of credits will go bad, and the money supply along with them.

 

When debt is demonetized, usually by force, the result is more often than not a severe hyperinflation followed by war.

 

Legal tender laws, such as the modern laws which declare that debt is money, are futile at best and generally destructive.  They do, however, permit a small group to reap the monetary margin that the artificial monopoly on money creation allows them for at time.

 

Accepting that an inanimate object is no longer worth what one thought it was can be disappointing, but at least one still has said inanimate object.  In the case of debt, accepting that someone cannot deliver what they promised tends to create feelings of resentment and remorse which, depending upon the size of the failure, can lead to violence.

 

Soon, the world will learn that using debt as money is a dangerous violation of the very laws of nature.  As with any violation of natural law, the consequences may be withheld for a time, but they are never avoided.  The longer they are artificially withheld, the more swiftly and severely the consequences will be meted out when they can no longer be repressed.

 

For no man, or group of men, regardless of their number, clairvoyance, or special powers they profess to have, can suspend or accelerate the operation of natural law.  The Creator alone reserves that power for himself.

 

There is a perfect balance in God’s creation.  Yin and yang, male and female, mercy and justice, heat cold, money and debt.  Calling one extreme the by the name of other is futile and leads only to confusion and destruction.

 

It is only a matter of time.

 

Stay tuned and Trust Jesus.

 

Stay Fresh!

 

David Mint

Email: davidminteconomics@gmail.com

 

Key Indicators for January 31, 2012

 

Copper Price per Lb: $3.79
Oil Price per Barrel:  $98.48

Corn Price per Bushel:  $6.39  
10 Yr US Treasury Bond:  1.80%
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,737 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  1.50%
Unemployment Rate:  8.5%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  12,633  

M1 Monetary Base:  $2,152,800,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,782,800,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Economics, Gold, Monetary Theory, Of Money and Metals, Silver, The Mint

Of Money and Metals – Part IV: The Operation of a Free Money Supply Explained

1/23/2012 Portland, Oregon – Pop in your mints…

{Editor”s note: The following is a continuation of the series “Of Money and Metals.”  Please click here to view the Part I,  Part II, and Part III} 

Natural law is always operating, always demanding a balance of accounts in the real world, not simply on an accountant’s ledger or numbers on a bank statement.

It is then foolishness for anyone to assume that a central authority, no matter how clairvoyant, can properly estimate the money supply necessary for human economic activity to continue at the optimal rate, balancing both the quantity of debt and money to provide for both the present and future using all of the information which is collectively available.

It is for this reason that it is imperative that people be free to declare both what will serve as money as well as its value in exchange.  History has shown that, if people chose gold or anything natural as money, economic activity and the resulting benefits to society will accumulate so rapidly that the supply of gold will quickly act as a constraint.  If gold is money by decree, this becomes a problem. 

However, if gold has simply been chosen for use as money by the majority, the same majority will quickly and tacitly gravitate to a secondary natural source of money with which to augment the primary natural money supply.  Historically, this secondary source of money has been silver. 

Once economic activity further accelerates and the benefits continue to accrue to a larger portion of the population, the supply of silver will act as a restraint.  Again, if left to their own devices, the majority will quickly and tacitly adopt another item occurring in nature to be used as money.  Historically, this third source has been copper.

Yet even the supply of copper, abundant as it may be, will eventually serve as a restraint, and so on, and so forth.  Eventually, in this example of what we like to call “Free Money,” gold will tend to operate as a form of savings and settlement only in the largest of transactions, with silver serving as money at an intermediate level while copper would be the most widely circulated currency for smaller transactions.

The beauty of free money is that, should the supply of copper become a constraint, steel, nickel, or some other more abundant natural resource will take the place of copper for use in smaller transactions, and so on, so that the money supply, in a general sense, will always be perfectly suited for the rate of economic activity which is occurring.

It is important to note that, while history has shown a preference for metals to be used as money, in the free money (and by extension, free banking) theory there is no requirement that what be adopted as money be metal.  In fact, money can be anything that those participating in exchange bilaterally accept as payment for goods and settlement of debts.  As you will recall, the only thing that money should not be, by definition, is debt.

Yes, Mr. Cheney, Deficits do matter

 

While it is obvious that debt can be exchanged in the place of money for a time, as the past 100 years have shown us, common sense, logic, and natural law will demand that the debts which circulate be settled in real terms.  The creation of debt as money severely distorts economic reality and the more debt that is created, the greater the demanded settlement in real terms will be, regardless of how many times one chants the Keynesian mantra recently made famous again by former Vice President of the US Dick Cheney “Deficits don’t matter.”

The superiority of free money is that the money supply is free to adapt to the rapidly economic activity, which is nothing more than an expression of the changing wants and needs of consumers.  The money supply is not hindered by unnatural constraints which have nothing to do with economic reality and are imposed by what is at best an uninformed or disinterested and at worst a malicious monetary authority.

The current debt as money system, far from providing a perfectly elastic money supply, has created the economic equivalent of concrete, which is now hardening the economy instead of providing it with the much needed lubrication.  If this insanity carries on much longer, society will be shattered as economic reality takes a jackhammer to it.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for January 23, 2012

Copper Price per Lb: $3.79
Oil Price per Barrel:  $99.93

Corn Price per Bushel:  $6.20  
10 Yr US Treasury Bond:  2.07%
FED Target Rate:  0.10%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,677 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  1.50%
Unemployment Rate:  8.5%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  12,709  

M1 Monetary Base:  $2,167,800,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,805,600,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Economics, Gold, Monetary Theory, Of Money and Metals, Silver, The Mint

Of Money and Metals Part III – Debt: The Barbarous Relic

1/19/2012 Portland, Oregon – Pop in your mints…

{Editor”s note: The following is a continuation of the series “Of Money and Metals.”  Please click here to view the Part I and Part II} 

As the world descended further into depression which eventually led it into the Second World War (Editor’s Note:  It should come as no surprise that the only two World Wars have come after the declaration that debt is money), The Keynesian adherents clamored for more debt as the only answer to the world’s economic ills.

What Keynes and his Harvard trained legions fail to comprehend is that the only permanent cure for an economic depression is to allow each individual to declare what he or she will use as money and allow market participants to coalesce around what at that time is best suited for the role of money.  For balance sheet recessions, such as the one the world is currently experimenting, are merely symptoms of a rigid money supply which has failed to keep up with the demands of a dynamic economy.

Under current theory, the government sacrifices the dynamic economy in the name of preserving the “integrity” of the monetary system.

When it is quite obvious that it is the monetary system that has failed, the government’s response can only be seen as idiotic at best.

What makes the situation of the past 100 years even more untenable is that money, instead of operating as a lubricant for economic activity, is more like concrete.  Such is the inherently destructive nature of debt as money. 

For the only rule with regards to money which is imposed as a matter of natural law is that debt cannot ever be money.  It is a concept so clear that it escapes most academics and government officials.

Now, the Keynesian indoctrinated readers of these words are no doubt dusting off the “silver bullet” of Keynesian theory:  That gold, which is widely held as the logical alternative to the “debt is money” insanity, is a “barbarous relic.”  In layman’s terms, Keynesian theory holds that any attempt to limit the money supply via natural means, the most popular being a gold standard (fixing the price of gold in terms of monetary units) will cause a deflationary spiral which will bankrupt the entire world.

The former "Barbarous Relic" - photo by Toi Mine courtesy of Wikimedia Commons

Even Adam Smith argued that the mining of metals for use as currency was essentially a lamentable waste of resources.

We could not agree with them more.  The limited amounts of gold in the world make it wholly unfit for everyday exchange.  Gold, rather, is generally agreed upon to be the most perfect savings vehicle that the world has yet discovered.

So Keynes, despite promoting a theory which sacrifices the yang (savings) and glorifies the yin (debt) is right after all?  Not quite…

Using the same logic with which the Keynesian so adeptly slays the gold standard, it quickly becomes obvious that by declaring that debt is money is not only a violation of natural law, it makes debt, rather than gold, the new barbarous relic.

Debt has a distinct disadvantage to gold in that it can be quickly and completely destroyed.  Once it is assumed by the majority that a certain debtor will not be able to make good on their debts, the debts owed by the debtor, and any money in circulation which is either directly or indirectly related to the existence of these debts, is destroyed.  For debt, at its base level, is a figment of the imagination until it is settled in real terms by the delivery of money in settlement of the debt.

It would hold, then, that debt, the new “barbarous relic,” is exponentially more dangerous than gold when used as money.  The reasoning is the following, while the quantity of debt in the world can be suddenly and permanently reduced, the quantity of gold, which is admittedly difficult to increase, is at the same time extremely difficult to decrease.

Yet even given the strong advantage of gold over debt as money, it is obvious that both the Keynesians and the gold bugs are sadly mistaken in formulating their ultimate solution to the eternal problem of the money supply.

When it comes to determining the proper money supply, Adam Smith’s invisible hand of the market can be seen slapping both Keynesians and gold bugs silly!

For the problem with declaring anything, be it gold, debt, or white elephants as money, has nothing to do with the fitness of gold, debt, or white elephants for use as money, rather, it lies in the act of the minority attempting to dictate what will be used as money by the majority.

Money, in a general sense, is a good of the highest order.  There is nothing in nature which states that gold, silver, seashells, or anything else must be used as money.  The historical association of gold and silver as money is the result of their superior fitness for the role of money.  It is simply a product of the collective wisdom of mankind, gleaned from experience as free exchange and the division of labor began to bring order to man’s chaotic surroundings.

However, just because gold and silver were superior in their role as money in the past does not necessarily mean that they enjoy some sort of divine designation as money.

Gold and Silver, like all things occurring in nature, are in limited supply.  The fact that they occur in nature gives them a distinct advantage over debt (which is simply a promise to pay in the future) in that debt, which is theoretically in infinite supply, quickly loses value against scarce real goods due to the fact that debt, in theory, enjoys an infinite supply.

Anyone can make promises to pay in the future, it is the function of debt markets to determine what those promises are worth today.  Ironically, the value of debt today is perilously tied to speculations about the money supply, which is in turn dependent upon the issuance of debt.  Thus, declaring debt as money provides the economy with yet another hindrance in that the debt markets are increasingly disconnected from their noble origins; the debtor’s perceived productive capacity.

It is clear that mankind is in a perilous predicament.  Will we take hold of the simple answer, which lies in free banking and free determination of what will serve as money?

More to come…

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for January 19, 2012

Copper Price per Lb: $3.80
Oil Price per Barrel:  $100.41

Corn Price per Bushel:  $6.06  
10 Yr US Treasury Bond:  1.97%
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,657 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  1.50%
Unemployment Rate:  8.5%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  12,625  

M1 Monetary Base:  $2,167,800,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,805,600,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Economics, Monetary Theory, Of Money and Metals

Of Money and Metals, Part II – The Keynesian Nightmare

1/18/2012 Portland, Oregon – Pop in your mints…

{Editor”s note: The following is a continuation of the series “Of Money and Metals.”  Please click here to view the Part I} 

In 1913 the US Congress passed the now infamous Federal Reserve act.  Not unlike the recent passage of the 2012 NDAA, it happened during the winter holiday when the populace was largely distracted by the festivities.

While the Federal Reserve act has wrought many injustices on the earth, undoubtedly the greatest injustice which continues to cause the greatest amount of damage to mankind was the subtle replacement of money proper with Federal Reserve notes.  This action effectively declared that debt is money, in direct violation of natural law.

The Federal Reserve, in direct violation of Natural Law

 

While this fact may have seemed like a minor detail with regards to custodianship at the time, the declaration was, in essence, handing Frodo’s One Ring to the financial and governmental authorities of the earth.  For it gave them largely unfettered access to the accumulated savings of the entire earth and, in the case that the savings ran dry, the unhindered ability to incur debts against the future production of the entire earth as well.

The only thing that they needed was to compel the entire earth to accept debts as money in everyday exchange.  In the west, they have largely succeeded.  In the east, the acceptance of debt as money has been violently forced upon the populace through a series of wars.

Yet as we stated yesterday, debt and money are polar opposites.  To declare that debt is money was not only insane, it was a direct violation of natural law.  This violation of natural law began to reap its terrible harvest in 1933 with the onset of the great depression.  Yet instead of admitting defeat and leaving the quantities of debt and money in the hands of the people, where it naturally belongs, the authorities presented an academic apologist to confirm for them that debt was indeed now money and that all that was required was more of it.

Enter John Maynard Keynes, best known as the father of the Keynesian school of economic thought.  Mr. Keynes developed a thesis which “correctly” diagnosed that the economic problem facing the earth was a lack of money.  What Keynes and those who subscribed to his theories have failed to realize is that the Federal Reserve, in declaring that debt was money, had placed a significant impediment to the creation of money, the remedy which the earth desperately needed.

Instead, Keynes and his colleagues skipped over the only viable solution, namely, allowing the free market to determine what constitutes debt and money and in what quantities each was needed, and offered the world a solution which has been the equivalent of injecting poison directly into the veins of the ailing economy.  The poison of which we speak was injected as a result of the testing erroneous hypothesis:

 “The problem is that there is not enough money.  Because debt is now money, it follows that more debt must be incurred to create the money necessary to spur production, employment, and all the things that people now associate with a healthy economy.  Further, there is not enough money precisely because the people are not sufficiently indebting themselves.  Since the people are not inclined to further indebt themselves (Editor’s note:  the people are naturally reacting to natural law, which naturally calls for less debt and more saving), it is the duty of the government to increase overall indebtedness, and therefore the money supply, on behalf of the people.  It must force the people to do what they cannot (or more accurately, will not) do for themselves.”

As insane as this line of thought sounds, it is today generally accepted as natural law by nearly every Harvard trained economist, and therefore government and central bank official, on the planet.  The only difference between the 1930’s and today is that today, circa 2012, this disastrous line of thought is practiced on a much grander scale.

Stay tuned for tomorrow’s installment:  The Barbarous Relic and Trust Jesus!

Stay Fresh!

 

David Mint

 

Email: davidminteconomics@gmail.com

 

Key Indicators for January 18, 2012

 

Copper Price per Lb: $3.73
Oil Price per Barrel:  $100.77

 

Corn Price per Bushel:  $5.93  
10 Yr US Treasury Bond:  1.90%
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

 

Gold Price Per Ounce:  $1,660 PERMANENT UNCERTAINTY

 

MINT Perceived Target Rate*:  1.50%
Unemployment Rate:  8.5%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  12,562  

 

M1 Monetary Base:  $2,380,300,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,829,100,000,000 YIKES UP $1 Trillion in one year!!!!!!!

 

Economics, Monetary Theory, Of Money and Metals, The Mint

Of Money and Metals, Part I – Balance

Yin Yang - A picture of balance

1/17/2012 Portland, Oregon – Pop in your mints…

It is turning out to be an unusually dry winter here in Portland.  It is a refreshing break from the usual incessant pounding of rain which blesses this part of the world between November and May each year.  Perhaps we are just now getting back the lost months of June and July of 2011, as nature has a way of evening things out over time. 

We have observed that there is a perfect balance in God’s creation.  Some call it a yin and yang, male and female, mercy and justice, freedom and slavery, heat and cold.  For every extreme, there is a force which, given enough time, will work to counteract the excesses wrought by the seemingly uninhibited operation of its polar opposite.

It should come as no surprise, then, that in the economic sphere, debt and money fall into the same category of opposing natural forces.

Yes, debt and money are two completely different forces.  One takes from the future to provide for the present, the other takes from the past towards the same end. 

Simple, right?  Male, female, Yin, Yang, case closed.

Yet circa 2012, for some odd reason, there seems to be an abundance of debt and a dearth of money in the world.  The world as we know it is perilously out of balance.

How can this be?  Why are things so far out of balance?  In the interest of time, we will sum up what is otherwise a long and painful explanation in the following way.  Roughly 100 years ago, by decree of the financial authorities, debt was declared to be money.

Ever since then, man has lived in a state of economic confusion.  On one hand, He has seen an unprecedented level of technological advances and a resulting rise in his standard of living.  On the other hand, on net, he, or someone acting in his name, has borrowed an unprecedented amount of money from the future in order to achieve these advances and consequent rise in his living standards.

How is this possible?  Didn’t simply declaring debt is money relieve man of having to save?  After all, if everyone simply assents to accepting promises to pay in the future for goods or services delivered or performed today, haven’t we trumped the need for savings, the Yang, as it were?

More to the point, have the laws of nature with regards to money been permanently altered?

If only it were so.  Unfortunately, the longer man labors under the false assumption that debt is money, the greater the pain which will be incurred by mankind as nature unilaterally brings the earth into balance.

More to come…

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for January 17, 2012

Copper Price per Lb: $3.72
Oil Price per Barrel:  $100.75

Corn Price per Bushel:  $6.04  
10 Yr US Treasury Bond:  1.85%
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,653 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  1.50%
Unemployment Rate:  8.5%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  12,485  

M1 Monetary Base:  $2,380,300,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,829,100,000,000 YIKES UP $1 Trillion in one year!!!!!!!