Category Archives: Monetary Theory

The Division of Labor Gives Rise to the Monetary Premium

2/8/2014 Portland, Oregon – Pop in your mints…

Today we find ourselves, along with the rest of the inhabitants of the Willamette Valley, enjoying what has been dubbed “Snowpocalypse 2014.”  The valley’s residents are now three days into this rare event and, while much in the way of normal transit has been disrupted (truly, it does not take much snow to paralyze Portland).  We do not have a solid measure of just how much snow has fallen and whether or not the event lives up to its name, what is unmistakable is that the snow is beautiful and is has revealed many a great sledding hill in our midst.

Some of our faithful readers will recall that back in December, we began exploring the Monetary Premium, the portion of an item’s relative value owed to the utility of an item as money (those new to The Mint can glance back at these essays for a thorough exploration of the definition of money).  In that essay, we presented the portion of the Monetary premium that arises as a result of an Imperial authority demanding tribute in said currency.  Logically, it may also be said that laws declaring what is legal tender or any law which dictates the monetary unit in which debts are to be cancelled in an economic zone will also give rise to the monetary premium.

Of Money and Metals by David MIntGiven the above example, it may appear that the primary drivers for an economic good to carry the monetary premium are related to imperial or government action.  However, this is decidedly not the case, for the ultimate origin of and primary factor contributing to the monetary premium of any economic good has nothing to do with the government or what is used as money, rather, the Monetary premium comes into being as a result of an increase in the division of labor.

For those not familiar with the term, the division of labor is what makes urban society possible.  While perhaps the most easily understood metaphor is that of the assembly line, where each individual worker dedicates him or herself to completing one facet of the production process, relying on their counterparts on either side of them to ensure that the chain of production, of which they form part of, remains unbroken.

Economic systems are, in a sense, a collection of interconnected assembly lines both large and small, with each member of the system dedicating themselves to a set of tasks; the more time and energy that each individual is allowed to dedicate to their task, the more efficient each individual generally becomes.  The fact that each individual dedicates an increased amount of time and energy to a specific task gives rise for other members of society to pitch in and specialize in tasks that others cannot do for themselves given the specific scope of their labors.

The division of labor, if allowed to rise and sort itself out on its own, is generally good for economic output, as increased efficiencies translate into increased outputs.  However, as individuals increasingly specialize in certain tasks, they increasingly rely upon other members of society to fulfill their need.  As logic would follow that the increased division of labor does not allow much time for barter transactions, an increase in the division of labor always gives rise to the need for a monetary premium to both emerge and expand, attaching itself not only to traditional transmitters but giving rise to new ones as well.

Once the monetary premium expands, it gives rise to an increase in the division of labor, and in this way the dynamic between the two drives real economic growth.

Limitations on the Division of Labor and Monetary Premium

After reading the above, it should be clear that both the division of labor and the monetary premium are generally good for humankind, and that both factors driving real economic growth, if left to operate unhindered would eventually run up against and adapt to the limitations of the natural environment.

However, today, circa 2014, both the division of labor and monetary premium are hindered not by natural limitations, but by limitations placed upon them by well meaning legislators.  While all legislation tends to have either a direct or indirect effect on economic activity, there are two kinds that are particularly harmful to economic growth as they cut off the lifeblood of economic expansion:  The dual expansion of the division of labor and the monetary premium.

The first are laws dealing with minimum wages.  While minimum wages laws strive to guarantee a living wage for all members of society, they never achieve this goal and, in the process, serve to directly hinder the expansion of the division of labor when actual wage rates for certain activities are below the minimum wage rate, and serve no purpose when wage rates are above it.

The second set of laws are those referenced above; legal tender laws.  While Legal tender laws strive to codify what serves as money in a society, they invariably serve to direct an inordinate amount of the monetary premium into instruments that are not worthy of serving as money on a grand scale.  In the process, they serve as a severe limitation on what can carry the monetary premium and, by extension, the expansion of the monetary premium and the division of labor.

We all suffer to some degree due to manmade hindrances to the expansion of either the monetary premium or the division of labor; however, it is those farthest from monetary spigots, as defined by legal tender laws, who suffer the most.  In order for peace and prosperity to accrue to the greatest possible number of persons, it is critical that we grasp the importance of encouraging the division of labor to operate unhindered.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for February 8, 2014

Copper Price per Lb: $3.26
Oil Price per Barrel:  $99.88

Corn Price per Bushel:  $4.44
10 Yr US Treasury Bond:  2.68%
Mt Gox Bitcoin price in US:  $680.00
FED Target Rate:  0.07%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,267

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.6%
Inflation Rate (CPI):   0.3%
Dow Jones Industrial Average:  15,794
M1 Monetary Base:  $2,752,800,000,000

M2 Monetary Base:  $10,968,700,000,000

Why What We Use as Money Matters Trailer released

Today we present the fresh release of the trailer for our recent book, Why What We Use as Money Matters, a reflection on current systems of finance and governance and how they may be throwing the earth wildly out of balance.

Could it be that it is not how, but what we use as money matters when searching for the root cause of Climate Change and other Global Problems?  These nine volumes are a thought provoking exploration of modern financial and political systems and their effects on both people and the land.

WWWUAMM BannerPick up your copy today and stay fresh!

 

How Money is Made

1/13/2014 Portland, Oregon – Pop in your mints…

We were fortunate to have the video below brought to our attention recently.  As you can see, this brilliant video presentation of what is wrong with the current monetary system does in 30 minutes something that we have taken lengthy stabs at expressing via the written word over the past three years, and it does so with some nice animation to boot!

Enjoy this presentation of “How Currency is Made, How Debt is Created, and How you are Impoverished,” the fourth video in a series on the monetary system courtesy of Liveleak.com:

We are especially fond of the scene where the workers shovel the currency into the piggy bank, only to have a large bird swoop down, pick it up, and fly it to the offices of the tax authority.  It is truly something that nearly all of our fellow taxpayers can related to, and this depiction drives the point home.

For better or worse, this is the monetary and taxing regime in which we live.  Getting out of it is as simple as changing your mind with regards to such matters.  The difficult part is changing the minds of others so that meaningful advances towards monetary freedom can be made.  For if you act alone, you are merely a prepper, but if you act in concert with all of those in your community and circle of trade, you are a history maker.

One way or another, we will all find ourselves in the latter camp, but, like campsites on the fourth of July weekend, the best spots will go to those who get there early.  Will you be one of them?

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

The Monetary Premium is the Fed Alternative

12/24/2013 Portland, Oregon – Pop in your mints…

Here at The Mint we are preparing for a record-breaking year in 2014.  As we look out upon the horizon, we see that the eternal tension between inflation and deflation that is the bane of the insane debt is money monetary system is beginning to subside.  While many at this point are standing on the beach watching the monetary tide recede to an unimaginable extreme, those who watch the weather know that this phenomenon is but the precursor to a tsunami.

Inflation will soon be here, and it is time to adjust revenue targets accordingly.

We make this forecast not out of any sort of clairvoyance, but largely as a hunch.  The Federal Reserve, which just passed its 100th anniversary and appears to be going strong, has no choice but to inflate, as it is their only tool and default bias.

What is changing in 2014 are the Federal Reserve’s tactics.  The FED will spend much of 2014 and beyond fighting inflation as a matter of policy.  Each coming policy, such as the recent $5 Billion/month token (or courtesy) taper that was recently announced, in theory will serve to reduce the monetary base.  What many do not realize is that the monetary base will not shrink as a result for at least three and a half years.

At this point our long-suffering readers are welcome to point out that The Mint was wrong.  We had predicted that the Fed would increase the target rate before tapering, as the target rate was more of a random subsidy while the taper recipients have come to expect it as a form of state banking welfare.  We humbly admit that, given the latest announcement, we were technically wrong.

What the taper reduction is accomplishing, in practice, is a form of marginal stimulus.  The Fed is herding the banks and other lenders out of Treasuries, as holding too many Treasuries in a taper environment is categorically inadvisable.  Some reports have the Fed representing 80-90% of the market for treasuries.  As they scale their participation rate back via the taper, Treasuries will be forced to find a market price, and if what happened to the 7 year after the announcement (a roughly 264 bp drop) is any indication, the market has an opinion of Treasuries that is quite different from those held by the Fed.

The point is that, as the banks have the spigot open at .09%, this money will, at long last, find its way into the hands of credit hungry consumers and businesses.

The giant of the US Economy is waking up.  Part of the activity can be attributed to the Christmas season, however, in early 2014, much of the initial uncertainty surrounding Obamacare will begin to sort itself out, and both businesses and consumers will find themselves both willing and, for the most part, able to do what they do best:  spend.

The Fed has worked tirelessly to shore up the monetary base for five years, and, despite what one may think of Yellen’s dovish bias, she is likely smart enough to realize that the best shot the Fed has now to stimulate the economy is to appear to head to the closet to pick up the liquidity mop.

The Importance of Tribute, and the Fed Alternative

After 100 years, the Federal Reserve has done much.  Their most amazing exploit, one that is lost on most, is that they made the US and much of the world believe that debt was money, and indeed, a great deal of the monetary premium has gravitated to Federal Reserve notes.

Clairvoyant Political Cartoon circa 2012 by Adam Crozier
Clairvoyant Political Cartoon circa 2012 by Adam Crozier

{Editor’s Note:  Click here to see more clairvoyant political cartoons circa 1912, just before the Fed was granted its monopoly on the US money supply}

In the end, what is a Federal Reserve note?  It is a Central Bank liability, which is an irredeemable hot potato that at best represents an indirect claim on wealth but in the end maintains its allure on the part of those forced to transact in it because the US Empire requires that all taxes be reported and paid in them.

Think about it, the hammerlock that any currency has on a citizenry, no matter how putrid its fundamentals may be (and they don’t get much worse than the paradox of debt based money), is that the sovereign requires tribute to be rendered in said currency.

The logical proof is this, were the US Government to require payroll and income tax remittances in Euros or corn bushels, how long is the Federal Reserve Note likely to retain its value and usefulness in trade?

The requirement to use a monetary unit or currency in rendering tribute is a important component of what we call the “monetary premium,” which is loosely defined as the portion of aggregate value that something carries related to its relative function of a transmitter of value.  It is embedded in the supply and demand dynamic of all quasi-monetary instruments, such as gold, silver, and most recently, Bitcoin and other crypto currencies.

While most fix their eyes on credit markets to determine the value of currency in trade, they would do better to observe the Monetary Premium, for it represents the collective hopes and dreams of humankind in the material world, and where it goes, relative riches follow.

For this reason, the Federal Reserve and other Central banks of the world will fight to the last (insert your preferred noun) to retain a share of the monetary premium, for it is their only value proposition in what is a terminally defective, if not purposefully fraudulent, product mix.

In 2014, the Fed will lose its iron grip on the Monetary Premium and take its place amongst currencies relegated to tax remittance and nothing more.

Bitcoin’s resilience is but one item in a long list of evidence that the monetary premium attributed to central bank notes is attaching itself to other indirect claims on wealth and items representing unencumbered claims on wealth.

The economic activity that this tacitly coordinated shift out of Federal Reserve notes will cause in 2014 and beyond will be breathtaking.  They will call it inflation, and it will be the Fed’s death knell.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for December 24, 2013

Copper Price per Lb: $3.31
Oil Price per Barrel:  $99.21

Corn Price per Bushel:  $4.35
10 Yr US Treasury Bond:  2.98%
Mt Gox Bitcoin price in US:  $698.87
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,205

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.0%
Inflation Rate (CPI):   0.0%
Dow Jones Industrial Average:  16,358
M1 Monetary Base:  $2,583,700,000,000

M2 Monetary Base:  $11,024,400,000,000

What is Bitcoin?

12/11/2013 Portland, Oregon – Pop in your mints…

We are settling in for a long, productive winter here at The Mint.  While there is a whirlwind of activity outside, the key to maintaining one’s sanity is to maintain an internal balance, no matter what happens.

The best way we have found to do this is to maintain a state of constant rest, the eternal Sabbath, if you will, together with the creator in the very core of our being.  Rather than experiencing God in one’s mind or even heart, true peace is found when you experience Him in the abdominal region, often referred to as the soul.

It was in the midst of this rest today that we had a profound revelation.  While the revelation was centered on the present Bitcoin phenomenon, it has implications far beyond the Bitcoin, and, for those of us who are paying attention, may reveal something of the nature of the divine as well as that of humankind.

Longsuffering readers of The Mint know that our musings on Monetary Theory often lead us to dabble in Eschatology, the study of what are commonly called the end times in world religions that hold apocalyptic worldviews.  Today’s revelation, as you will see, is a further dabble into this inherently speculative subject.

Before we dive into today’s revelation, we must provide a bit of context with regards to Bitcoin.

Bitcoin, an Unregulated Ponzi Scheme

We have watched the rise of the Bitcoin/USD ratio, which now stands near $909, ever since April.  In this short time frame, we have observed that every time there is a surge in the Bitcoin price, it attracts an increasing amount of attention, both positive and negative.  As it is with most things in life, the negative opinions are played at a higher volume.  In the case of Bitcoin, those who hold it in disdain throw around two flavors of arguments:

1.  It is a Ponzi scheme and, 2.  There is no regulation of it.

The detractors are correct on both counts, however, what they fail to recognize is that the same is true for fiat currencies, equities, and all other indirect claims on wealth.

“But what about the FED, SEC, the Government, etc.?  Don’t they regulate currencies and equities?” come the shrill voices from the public.

Again, this rebuttal is correct if one takes the narrow view of both of the unregulated Ponzi schemes in question.  The Federal Reserve does attempt to regulate its Ponzi scheme within the framework of the IRS and Banking system, and the SEC attempts to regulate various Ponzi schemes within its purview on various stock exchanges.

However, the unregulated universe in both equities and currencies is much larger than most realize, and Bitcoin’s apparent lack of regulation stems from the fact that it is a mere four years in existence.  Given time, sovereign governments and Bitcoin exchanges will begin to erect a regulatory framework for the Bitcoins that pass amongst their citizens or participants.  Indeed, these efforts are already underway.

The narrow analysis of Bitcoin that its critics lean on is that Bitcoin is either an equity or a currency.  In this faulty analysis, they point to the fact that as an equity or currency, there is nothing immediately recognizable within its framework that would lend it valuable.  Therefore, they state smugly, Bitcoin is a Ponzi scheme to be avoided and derided, case closed.

Yet supposedly educated, computer literate persons are willing to pay $900 USD per Bitcoin despite the risks.  What gives?  What the failed analyses of Bitcoin do not recognize is that Bitcoin is neither a currency or an equity, but rather the purest reflection to date of something that is pursued by nearly every person on the planet the world over on a daily basis in some form or another.

It may come as a shock to you, fellow taxpayer, and indeed much of humankind, that a great majority of humanity pursues what Bitcoin represents without even knowing how to articulate what they are pursuing.

While a portion of Bitcoin’s value stems from its functionality as an open source international money transfer channel, we believe that most of Bitcoin’s value stems from the fact that it is the purest reflection of what we call the Monetary Premium.  In an academic sense, the Monetary Premium is the relative increased value attached to an item that is attributable to a specific, ephemeral part of the item’s value that is related to its function, no matter how minimal it may be, as money.

As the common person’s view of money is generally limited to fiat currencies, it is understandable that most would not know what makes a fiat currency act as money.  It then follows that Bitcoin, which is the purest form of the Monetary Premium, would be widely misunderstood by most of humankind.

Bitcoin, The Monetary Premium, and Eschatology: The Revelation

With the lengthy but essential matter of defining what Bitcoin is out of the way, the revelation that follows should now be clear.

The revelation is best presented in the following bullet points:

1.  Bitcoin may be the purest reflection of the Monetary Premium known to humankind.

2.  The Monetary Premium is manmade and cannot be seen.

3.  Pursuit of the Monetary Premium in some shape or form is what a majority of humans dedicate a large portion of their daily activities towards through the acts of producing, consuming, and investing.

4.  When God warns of the choice between God and money, as He does in Matthew 6:24:

24  “No one can serve two masters, for either he will hate the one and love the other; or else he will be devoted to one and despise the other. You can’t serve both God and Mammon.”

The Mammon (money) being referred to is not an inanimate object, but rather the Monetary Premium.

5.  The Ultimate choice between full, dedicated worship to the invisible God and continuing to pursue the invisible manmade Monetary Premium will be presented to those who are still present on earth with the ultimatum presented to mankind described in Revelation chapter 13:16-18 (for those who are familiar with eschatology, this last statement makes it clear that we hold a pre tribulation rapture view):

16 He causes all, the small and the great, the rich and the poor, and the free and the slave, to be given marks on their right hands, or on their foreheads; 17 and that no one would be able to buy or to sell, unless he has that mark, the name of the beast or the number of his name. 18 Here is wisdom. He who has understanding, let him calculate the number of the beast, for it is the number of a man. His number is six hundred sixty-six.

Click the image above to read more on Eschatology and Money
Click the image above to read more on Eschatology and Money

What does it all mean?

The Bitcoin is not the Mark of the Beast or any such thing.  However, Bitcoin’s unique reflection of the Monetary Premium is illustrative for purposes of understanding money in Biblical contexts where the worship of money is juxtaposed with the worship of God, as it is in Matthew 6:24, and the implications for such an understanding within the context of eschatological studies, specifically when pondering the events described in Revelation chapter 13.

Beyond the monetary realm, Trusting Jesus today is the single most important step that one can take in the search for inner peace.  For chasing the fickle monetary premium around will never allow for rest, peace with God can be found in Jesus.  He is closer than you think, waiting to commune with every one of us in the eternal Sabbath.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for December 11, 2013

Copper Price per Lb: $3.28
Oil Price per Barrel:  $97.37

Corn Price per Bushel:  $4.31
10 Yr US Treasury Bond:  2.84%
Mt Gox Bitcoin price in US:  $900.50
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,252

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.0%
Inflation Rate (CPI):  -0.1%
Dow Jones Industrial Average:  15,844
M1 Monetary Base:  $2,658,600,000,000

M2 Monetary Base:  $10,900,400,000,000

Bitcoins storm China as the Last Bear Standing throws in the towel

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

As the most recent arctic air blast rushes across the Northwest, the economies of the world appear to be at a crossroads.  The coming three months are critical in determining humanity’s path forward.  Will we cower with fear or step bolding forward with faith and courage into the unknown?

The past five years have taken a toll on the psyche of the financial markets and those who participate in them.  On one hand, the cards have been stacked for raging inflation to take hold and decimate the debt based currencies the world has come to rely on, on the other, this obvious outcome has been stayed because 1) it is obvious, meaning bets are disproportionately placed on the side of inflation and 2) in a debt based currency system, new currency creation by definition means new debt creation, as debt obligations have rolled over into lower interest obligations over the past five years, a heavy undercurrent of deflation has been running against the inflationary pressures.

It is becoming clear that the ACA is having a more dramatic impact on the US landscape than anticipated.  The good news is that after a few months, most consumers fates will have been sealed, for better or worse, and many will be able to carry on.  By extension, many companies will be ready to deploy the capital that they have accumulated over the past several years through cost cutting and debt restructuring (for lack of a better term).  Again, the table is set for inflation, will the scenario play out?

Hugh Hendry seems to think so, ceding the obvious case that inflation in asset prices is to be a part of the investment landscape for the foreseeable future.  In his December 2013 Eclectica investment letter, which can be read over at Zero Hedge via the link below, he appears to be throwing in the towel on the bear case.  In doing so, he makes a revealing statement on the current state of equity markets:

“…I have had to put aside qualitative analysis and be in this trending market.” as “…Playing it safe may be the greatest risk of all.”

Read the entire letter here via Zero Hedge: Hugh Hendry Throws In The Bearish Towel: His Full Must-Read Letter

Ultimately, the case for inflation or deflation rests with the consumers of the world.  Will they cower in fear or step out boldly in faith and courage?  We believe the next three months will yield the answer to that question, and that they will step out boldly.

What’s with the Bitcoin Roller Coaster?

Bitcoins, which continue to garner attention on numerous planes, as a novelty, a speculative vehicle, and the answer to creating a worldwide currency and payment system, has seen its price swing from $550 to $1,200 and land around $760 at this writing.

The price swings are normal for such a small, relatively illiquid market.  Any large scale adoption event, which in the final analysis, is the driver of Bitcoins’ price at this stage, triggers a sell-off by those who have learned to speculate in the crypto currency.

The latest large scale adoption event in question this past week has been the increased interest in the currency by the Chinese.

In a recent interview, Bobby Lee outlined the reasons he believes that Bitcoin has garnered considerable interest in China over the last several weeks.  Lee has a front row seat to this phenomena from his post at BTC China and cites two main reasons that the Chinese have taken a keen interest in the crypto currency.

First, the Chinese are, on whole, extremely gifted in math and sciences, which makes the concept of a digital currency fit into the cultural nomenclature more readily.  As simply understanding what Bitcoin is may be the biggest hurdle to adopting and using it, the Chinese have a cultural leg up on many other cultures.

Second, and perhaps more importantly, is that the Chinese are net savers.  As such, they are constantly seeking out investments and places to park their savings for a rainy day.  Bitcoins appear to offer a strange form of asset protection, despite the breathtaking volatility in their price, as they are limited in the number that will be created by an algorithm.

Finally, one must remember that China does still impose capital controls on its citizens.  Bitcoin, while not its chief aim, gives the Chinese investor a handy tool by which to move his or her capital out of the country with their mobile phone or PC.  Something that simply cannot be accomplished with a bank account.

The Chinese, like the Cypriots and Argentines, are finding their culturally specific use for the world’s most popular crypto currency, and the price action, which has ranged from $1,200 USD to $700 during the past 72 hours, reflects just how volatile a freely traded, finite global currency can be.

Bitcoins are a rough equivalent to gold in the digital realm, and, as Lee notes, volatility is not going away any time soon.  Yet if one can see past the price movements to understand the value in what is essentially the world’s largest collective math problem, one will see that Bitcoins at any price serve a very important purpose:  They capture the monetary premium in action.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for December 7, 2013

Copper Price per Lb: $3.21
Oil Price per Barrel: $97.65
Corn Price per Bushel: $4.24
10 Yr US Treasury Bond: 2.88%
Mt Gox Bitcoin price in US: $765.00
FED Target Rate: 0.09% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,231
MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 7.0%
Inflation Rate (CPI): -0.1%
Dow Jones Industrial Average: 16,020
M1 Monetary Base: $2,618,600,000,000
M2 Monetary Base: $10,934,500,000,000

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