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David Mint
11/15/2011 Portland, Oregon – Pop in your mints…
We continue today with our brief examination of the foundations of society here at The Mint. We are finding that while society appears complex on the surface, the further that its elements are reduced, the foundation is extremely, perhaps painfully simple. Any complexity that we experience is not a product of an inherent complexity in natural laws, rather, it is a product of the human relationships and actions that are a result of man’s choice of response to the demands of natural law.
For those of you joining us for the first time, let us get you up to speed with a synopsis:
Anarchy, the lack of government, is man’s natural state. It is an ultimate given. It simply is. A clear understanding of the current state of affairs depends upon grasping this inescapable fact.
In response to Anarchy, man has two choices. He can choose to mutually cooperate with his fellow man, respecting both his fellow man’s right to live and his right to property, or He can choose to take his fellow man’s life and property through the use of force. We have called the path of mutual cooperation “True Capitalism” and the path of forceful coercion “Might Makes Right.”
Ideologically, there is no middle ground between these two paths. In practice, men live at various points on the spectrum between these two ideological extremes.
We argue that True Capitalism is the response which creates the greatest benefits for the greatest number of people. The proof of the superiority of True Capitalism is that it allows man to best adapt and react to the inescapable demands of Natural Law. Like Anarchy, Natural Law is immutable. It does not change, for its statutes are etched in the foundations of the earth itself.
Last Thursday we presented the Natural Law of supply and demand, a law that deals with what is concrete and tangible. Today we will deal with second law which primarily governs human relationships and works in conjunction with the law of supply and demand.
It is popularly called the Golden Rule.
The Golden Rule is articulated and exalted as an ideal in some form in nearly every society and religion on the planet. The Bible famously articulates the Golden Rule in the following way:
“Love your neighbor as you love yourself” (Deuteronomy 6:5)
It is important to note that the Golden Rule is a positive declaration. It is a call to action. In many societies and religions the Golden Rule is stated in a negative declaration, a command to abstain from action. An example of this can be found in Hinduism:
“One should never do that to another which one regards as injurious to one’s own self.” (Anusasana Parva, Section CXIII, Verse 8 )
The negative declaration is sometimes called the Silver Rule. It is important to understand that only the Golden Rule, the positive call to action, is Natural Law. Observance of the Silver Rule, while highly advisable, does not rise to the level of Natural law. However, it is a logical corollary to the Golden Rule.
Compliance with the Golden Rule, as with all natural law, is indispensible. It is ignored at one’s peril, for it operates regardless of one’s acceptance of its validity or not. The Truly Capitalistic society greatly facilitates and encourages compliance with the Golden Rule. Conversely, compliance is hindered in a society that has embraced Might Makes Right as its ideological response to Anarchy.
“Wait a minute,” some of you are saying, “I’ll give you that the Golden Rule is a great ideal but Natural Law? No one requires it of me, right?”
Remember, the essence of Natural law is that it is universally true and applicable to all. The law of Supply and Demand, for example, can be ignored for a time, but every moment of ignorance causes the consequences of that ignorance to accumulate further until a final breaking point is reached. The result of the failure to comply with the law of supply and demand is material scarcity and ultimately death.
The same is true of the Golden Rule. Every moment of ignorance causes the consequences of that ignorance to accumulate further until a final breaking point is reached. In the case of the Golden Rule, the result of the failure to comply is by definition a failure to properly comply with the law of supply and demand as well, with the end result, as mentioned above, being material scarcity and ultimately death.
Compliance with the Golden Rule is a necessary prerequisite to compliance with the law of supply and demand, for the Golden Rule governs relationships in the purest sense. This is evident to most who have taken the time to ponder it. So broad are the implications of the Golden Rule that the origins of both the rule of law and more recently the concept of human rights can be traced to it.
What thrusts the Golden Rule out of the realm of being simply a good idea and into the realm of Natural Law is this: All attempts to comply with the Golden Rule serve to coordinate the actions of men in such a way that the greatest number of human needs are met in the most efficient way. Any deviance from the Golden Rule, by definition, is a failure to meet human needs in the most efficient way. Again, by definition, failure to meet human needs in the most efficient way means that a greater number of human needs are simply not being met.
Far from being simply a moral standard, the Golden Rule is elemental in the determination of supply and demand. As the equilibrium price serves as the beacon of production for the law of supply and demand, the actions taken by men, governed by the Golden Rule, initially determine the supply and demand factors which, when combined, produce the equilibrium price. In this sense, the Golden Rule serves as the beacon for both supply and demand which enable the creation of an initial equilibrium price.
How can the Golden Rule run ahead of the Law of Supply and Demand? This is one of the beauties of Natural Law. Natural Law always compliments and never contradicts itself.
An Example of the operation of the Golden Rule
Each human being has needs and wants which are sources of uneasiness. Human Action, to paraphrase Von Mises, consists of men acting to dispel their most intensely felt uneasiness. If a man is hungry, he will direct his actions towards getting something to eat. Other tasks will be put on hold until this intensely felt uneasiness is relieved.
The operation of the Golden Rule, in the example of mans the need to alleviate hunger, operates in the following way. A man feels hunger. He has two options before him with which to fulfill this need. First, he can forage, hunt, fish, or perform any series of actions with the end of fulfilling this need. Second, he can voluntarily cede some of his production (or production for others via his contribution of labor) or appeal to the charity of someone else in return for something to eat.
As the second way is the most expedient, it is likely that a majority of people will elect this option. Now reflect upon the Golden Rule: “Love your neighbor as you love yourself.” The person who chooses to comply with the Golden Rule will quickly understand that if he has the need to be fed, it is likely that his neighbor (in this sense, neighbor would mean anyone in the geographical realm in which he is equipped to serve, up to every person on the planet if it is possible for him to serve them) is likely to have the same need to some degree. With this revelation, he unwittingly is on his way to discovering demand.
As he seeks to voluntarily fulfill this demand, he will need to either produce the supply of food himself or he can voluntarily cede some of his production (or production for others via his contribution of labor) or appeal to the charity of someone else in return for a supply of food with which to provide his neighbor with something to eat. The information that his adherence to the Golden Rule provides him with regarding the needs of his fellow man will serve to guide his speculation as to where to best employ his limited time and capital.
It is a simple example, yet its simplicity serves to highlight the operation of the Golden Rule and can apply to any situation regardless of the complexity. The Golden Rule, in modern business school lingo, is the origin of market research; it is the impulse for entrepreneurial activity and is the basis for subsequent human actions.
The Question of Charity
What about charity? Wouldn’t adhering to the Golden Rule quickly lead to widespread scarcity and bankruptcy as catering to everyone’s preference to receive something for free would quickly deplete all available supplies and production?
The answer lies in the Golden Rule itself: “Love your neighbor as you love yourself.” Would you like to provide something for someone and not receive compensation? Our guess is only if you are in a position to give something away and are willing to do it. If all members of society are complying with the Golden Rule, the norms of charity will fall under the governance of the law of supply and demand.
The beauty, the perfection, of the Golden Rule is that above all it demands balance in human relationships and by extension, balance in the supply and demand of material goods.
True Capitalism Enable Compliance with the Golden Rule
True Capitalist ideology completely subjects itself completely to the Golden Rule and, in return, most accurately directs human actions towards fulfilling the most urgently felt needs of the greatest number of people.
Inefficiency is naturally wrung from the system at its source as errors are quickly corrected and information is quickly disseminated via equilibrium prices. The proper identification of demand by default leads to the most efficient allocation of scarce resources possible. The liberty of life and property which is ensured in the Truly Capitalistic system allows men to supply this demand by employing their limited time and resources without unnecessary hindrance.
The Golden Rule may not provide everyone with what they expect or what they think they desire, but complete submission to it not only creates the most efficient allocation of resources, it gives humans the best information to base their attempts to mutually cooperate to fulfill the myriad of human desires. It has the added social benefit of creating the greatest amount of harmony and goodwill possible in human relations.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for November 15, 2011
Copper Price per Lb: $3.49
Oil Price per Barrel: $99.39
Corn Price per Bushel: $6.45
10 Yr US Treasury Bond: 2.06%
FED Target Rate: 0.08% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,781 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.0%
Inflation Rate (CPI): 0.3%
Dow Jones Industrial Average: 12,096
M1 Monetary Base: $2,215,000,000,000 RED ALERT!!! THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base: $9,532,200,000,000 YIKES UP $1 Trillion in one year!!!!!!!
The following is a Mint classic in its original form. Can the simplicity of Benford’s law, a statistical proof of the law of diminishing marginal returns, explain lower relative growth rates in developed economies? Judge for yourself:
2/4/2011 Portland, Oregon – Pop in your mints…
For anyone who read yesterday’s Mint, you will be happy to know that we do not recall any of our dreams from last night. We did, however, send inquiries to members of the Arkansas legislature to see if they could help us interpret our dream about them. We do not anticipate any response but you never know. If anyone can help to explain it we figure it would be them. Please do not ask why we dreamt about the Arkansas Legislature, for we have no answer.
What we can do, however, is to continue to develop our current hypothesis. As you may recall from yesterday‘s Mint, it is:
“As a predominantly Engineered (Socialist) economy becomes less Engineered and more Organic (Capitalist), it experiences exponentially increasing rates of economic growth. Conversely as a predominantly Organic economy becomes more Engineered, it experiences exponentially decreasing rates of economic growth.”
We will define economic growth as an increase in capital goods within an economy. For lack of a better measure, we have looked at year over year GDP growth in the East and the West. We say for lack of a better measure because in the current insane monetary system where debt is money and money is debt, it is arguable that what is measured as GDP growth is actually the rate at which the economy is cannibalizing itself. But that is a subject for a different day.
For the sake of simplicity, we further postulate that the Eastern economies (China, Japan, etc.) more closely resemble “Engineered” or state controlled economies and that Western Economies (US, France, etc.) more closely resemble “Organic” or Capitalist economies. These may not be perfect definitions on a country by country basis but the general distinction between East and West will give us a good starting point in trying to confirm or deny our hypothesis on a country by country basis. Naturally, the US and China, the world’s largest trade relationship, should be our first case study.
What complicates matters is that there does not exist, to our knowledge, a perfectly Organic nor a perfectly Engineered economy on the planet that would be available for study. Rather, we will encounter a jumbled mix of qualities within a country that will make it seem at once Organic and Engineered. What we are looking for, then, is evidence that and economy is becoming generally more Organic or generally less Engineered and vice versa.
If our hypothesis is correct, we would expect to see an Eastern economy, which is moving from a state of being Engineered to a state of being allowed to grow Organically, grow its GDP at a faster rate year over year than an economy that is moving from a state of Organic growth to a state of being Engineered. We expect that Organic growth not only creates wealth faster but does a better job of maintaining the capital that has been previously accumulated. On the other hand, any attempt to Engineer an economy has the consequence of destroying capital and reducing wealth on a net basis.
We must say up front that part of this growth has to do with an interesting statistical nuance that is known as “Benford’s Law.” In summary, Benford’s Law states that:
“in lists of numbers from many (but not all) real-life sources of data, the leading digit is distributed in a specific, non-uniform way.”
Benford’s Law appears to flay in the face of logic. Why don’t the leading digits (1-9) simply occur 10% of the time, as logic may suggest? The reason is that, as something grows exponentially, as the GDP of an Organic Economy may, the data sets produced such as GDP measured in terms of dollars tend to take longer to double from 1 to 2, or from 1,000,000 to 2,000,000, than they do to double from say 2,000,000 to 4,000,0000, etc. The tendency is so strong and widespread that it even applies to the measurement of natural phenomenon such as earthquakes, infectious diseases, and even pulsars! Should it come as any surprise that it applies to a country’s GDP measurement as well?
|
| Can Bedford’s Law Explain Higher GDP Growth Rates for Developing Countrie |
What does this have to do with our hypothesis? We are still wondering ourselves, but we think it has something to do with how the GDP growth percentage increase is measured. For a rapidly increasing GDP number, as we would expect to see in a developing economy moving from an Engineered state to an Organic state, the percentage increases would appear greater for data points between 1,000,000 and 2,000,000, for example. Since Bedford’s Law says that roughly 30% of the readings will start with one, as a smaller economy doubles in size, its rates of GDP growth expressed as a percentage will be higher than those of an economy moving from, say, 2,000,000 to 3,000,000. This rate of exponential growth would decrease and perhaps turn negative in an economy moving from an Organic state to an Engineered state.
To sum it up, the higher GDP growth percentage of an economy becoming less Engineered is because the Engineered economy is starting the GDP growth race from a very low GDP number. Logic and Benford’s Law dictate that it will outpace growth rates of the already high GDP Organic economies.
As an economy, once you’ve gone Organic, there is no turning back. The longer you stay Organic, the more dangerous becomes any attempt to Engineer it. The Dodd-Frank Financial Reform and Health Care Reform are large scale attempts to further Engineer the US’s Organic economy. Is it any wonder, then, that its growth rates should lag those of the East?
Stay Fresh!
Email: davidminteconomics@gmail.com
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11/10/2011 Portland, Oregon – Pop in your mints…
As Europe continues to unravel, we have been exploring, perhaps by accident, the foundations of society here at The Mint. In case you have missed it, here is a brief recap:
Anarchy, the lack of government, is man’s natural state. It is an ultimate given. It simply is. A clear understanding of the current state of affairs depends upon grasping this inescapable fact.
In response to Anarchy, man has two choices. He can choose to mutually cooperate with his fellow man, respecting both his fellow man’s right to live and his right to property or He can choose to take his fellow man’s life and property through the use of force.
In other words, man may choose the path of True Capitalism or Might Makes Right. Ideologically, there is no middle ground. In practice, men live at various points on the spectrum between these two extremes.
We have argued that True Capitalism is the response which creates the greatest benefits to society in terms of peace, security, capital accumulation and material prosperity while the ideology of Might Makes Right by definition is the antithesis of the Truly Capitalistic ideology and consequently would create the greatest detriment to society.
Ironically, all of the Nation States in existence derive their power from the adoption of the Might Makes Right ideology by a majority of the people. How, then, can we be so certain that True Capitalism is the proper response to Anarchy if the majority has embraced Might Makes Right?
The proof of the superiority of True Capitalism is that it allows man to best adapt and react to the inescapable demands of Natural Law. Like Anarchy, Natural Law is immutable. It simply is. Man is bound to it whether he chooses to recognize it or not. It does not change, for Its statutes are etched in the foundations of the earth itself.
It is as Ayn Rand stated: “You can ignore reality, but you can’t ignore the consequences of ignoring reality.”
In our example, we take the reality that Rand refers to as Natural Law. Natural Law may be ignored, but ignorance always comes at a price.
The first of these Natural Laws is that of supply and demand. The Law of supply and demand, simply stated, holds that supply of and demand for a good or service will tend to find a point of equilibrium at a certain price expressed in terms of money (the equilibrium price). On a graph the relationship looks like this:
In simple terms, it is a way of expressing what most people intuitively know. When an item is increasing in price, one of two things is happening. Either people are demanding more of the good or service or the supply of the item at the previous equilibrium price point is diminishing.
Naturally, the opposite is also true. When an item is decreasing in price, one of two things is happening. Either people are demanding less of the good or service or the supply of the item at the previous equilibrium price point is increasing.
In either case, the change in the price of the item in monetary terms is providing crucial information to all of those either producing or consuming the good or service in question, for it guides their inherent speculations.
(Editors Note: Speculation, far from being an illegal or immoral activity, is essential to everyday survival and without it, there is no hope of achieving equilibrium prices and therefore both production and consumption tend to cease. It is important to clarify that the illegal or immoral speculation that is villianized today is generally the act of investing the money of other parties in types of speculations without the knowledge or consent of the other party to do so.)
As a producer, if one sees the price of the good or service that one provides increase, the producer will strive (speculate, as it were) to either increase production to take advantage of the opportunity to profit and/or others will strive to produce the good or offer the service for which the price is increasing.
As a consumer, if one if one sees the price of the good or service that one consumes increase, the consumer will strive to either decrease consumption to mitigate the effects of the higher prices or others will strive to find a less expensive substitute for the good or service to offer in the place of the good or service for which the price is increasing.
Stay focused, here comes the important part. The increase in production will increase supply which, as the Natural Law of supply and demand dictates, will eventually lower the equilibrium price as the increase in demand is satisfied. Likewise the decrease in demand will have the effect of increasing the available supply.
In either case, the individual decisions (again, speculations, as it were) of the producers and consumers serve to increase the available supply. The process occurs tacitly, and is an example of what Adam Smith famously called the Invisible hand of the market.
To further sum it up in what may seem at first a paradox, the best cure for higher prices is higher prices.
There are no exemptions from the natural law of supply and demand, however, there are numerous examples of Nation States, guided by the principal that Might Makes Right, manipulating the pure message that price is intended to send to producers and consumers.
This manipulation may be achieved in overt ways, such as price controls (the setting the price of an item by decree). However, most people understand that price controls are bad, so today’s Nation States commonly resort to other tactics. Amongst these tactics are taxes, subsidies, and the granting exclusive privileges to either buy or sell the good or service in question via regulating the purchase of or granting monopolies to produce it.
Regardless of the tactic employed, the result is to always a manipulation of the equilibrium price for a good or service and consequently distort the signal which guides the speculations and ultimately the actions of all producers and consumers. The result of society as a whole is always and in every case achieving suboptimum results to those that would be achieved if the price signal were as pure as possible.
In the case of Central Banking and centralized currency control, the Nation State, in addition to the tinkering mentioned above, adds the complication of manipulating the currency that the equilibrium prices are expressed in. This further distorts the sacred price signal that is universally relied upon to direct the actions of producers and consumers.
You can imagine the confusion occurring all around us, every day.
The True Capitalist ideology, on the other hand, completely subjects itself completely to the law of supply and demand and, in return, provides producers and consumers with best opportunity to obtain and act on the most accurate price information possible.
A Truly Capitalist society quickly settles on Gold and/or Silver as currency and does not recognize the right of anyone to tax, regulate, or grant monopolies. The Truly Capitalist Society continually works to bring supply and demand into balance in the simplest, most efficient way possible: By relinquishing all control to the market participants and by extension, natural law.
Inefficiency is naturally wrung from the system as firms that depend upon the false price signals or special protections or subsidies provided under the Might Makes Right ideology quickly go out of business.
True Capitalism not only quickly eliminates economic waste, it quickly directs the surplus capital into its most urgently needed employ, and it is accomplished by simply obeying and embracing the natural law of supply and demand.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for November 10, 2011
Copper Price per Lb: $3.39
Oil Price per Barrel: $98.04
Corn Price per Bushel: $6.49
10 Yr US Treasury Bond: 2.07%
FED Target Rate: 0.08% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,749 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.1%
Inflation Rate (CPI): 0.3%
Dow Jones Industrial Average: 11,861
M1 Monetary Base: $2,122,700,000,000 RED ALERT!!! THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base: $9,507,600,000,000 YIKES UP $1 Trillion in one year!!!!!!!
11/9/2011 Portland, Oregon – Pop in your mints…
We have been mulling over the basic tenets of True Capitalism, the economic system which is man’s most productive response to the state of Anarchy in which he finds himself. Far from being an undesirable reign of chaos, Anarchy, the absence of government, is the natural state of man. If Anarchy is simply an ultimate given, then it is man’s response to Anarchy that must be examined.
In response to this natural state, man has two options: He can choose to mutually cooperate with his fellow man, respecting both his fellow man’s right to live and his right to property or He can choose to take his fellow man’s life and property through the use of force.
In other words, man may choose the path of True Capitalism or Might Makes Right. Ideologically, there is no middle ground. In practice, men live at various points on the spectrum between these two extremes.
What may come as a surprise is that all of the Nation States on the planet have come into existence by and base their operations on the principal of Might Makes Right. No matter how much freedom the Nation State may allow its citizens, it must be recognized that the Nation State stakes its claim on the individual’s life at birth, by declaring them a citizen and in many cases requiring either military service or registration to be conscripted into military service should the nation state deem it necessary. The Nation State then stakes its claim on the individual’s property through either taxation or a myriad of rules and regulations regarding the use of said property.
Far from being an ultimate given, the Nation State, at a basic level, is an entity which provides varying levels of security and welfare services. What differentiates the Nation State from other agencies providing security and welfare services (think security firms and insurance companies) is that the Nation State enjoys a geographic monopoly which it enforces by both the threat and use of violence against its captive audience, otherwise known as citizens.
This is the world today, and any sober look at the facts will lead one to conclude that man has chosen Might Makes Right as the dominant response to our Anarchic natural state.
Yet there is a better way. True freedom and prosperity can be found by embracing True Capitalism and abandoning the Might Makes Right doctrine. In contrast to Might Makes Right, a revolution cannot be undertaken to change man’s response to Anarchy from Might Makes Right to True Capitalism by violence, for by definition violence is simply a furthering of the Might Makes Right response, not a step towards a Truly Capitalistic society.
As the famous David Wilcox lyric goes: “resentment doesn’t die with the dead”
Rather, a revolution which would naturally, by definition, bring about a Truly Capitalistic society involves rejecting all aspects of the Might Makes Right doctrine. It involves renouncing any and all choices which make use of violence, whether undertaken personally or by directing the Nation State to use violence on one’s behalf, to take the life or property of another while at the same time asserting one’s rights to have their own life and property respected as inviolate.
On the surface, a Truly Capitalistic society may not look that different from the current structure of things. There may arise security and insurance companies which serve geographical areas in tandem in such a way that they closely resemble current Nation States. However, assuming that the paradigm is changed and man truly embraces Truly Capitalistic ideology, nobody will be compelled under the threat of violence to be a client of the security or insurance company. Rather, individuals holding property would be free to choose between defending and securing their own property and income streams or voluntarily contracting with the security and insurance companies for these services.
In a Truly Capitalistic society, the division of labor would flourish and the property and resources would quickly pass from unproductive hands to productive hands, organically balancing the competing goals of maximizing output and capital preservation.
Companies who abuse their clients would quickly be abandoned and weakened while those who deliver the best service and value to their clients would prosper and attract more clients. This rule naturally applies equally to security and insurance companies in stark contrast to the monopoly on these services currently claimed by the Nation State.
The lack of compulsion under the threat of violence is the key difference between the response of True Capitalism and Might Makes Right. Might Makes Right naturally engenders fear and evokes a response to others based on this fear. True Capitalism engenders, encourages, and rewards trust and evokes a response of trust in others.
Only upon this trust can a truly free and prosperous society blossom.
The choice between True Capitalism and Might Makes Right is one which must be made. Anarchy demands a response, and these two options are the only responses known to man. All other supposed choices are simply points on the spectrum between these extremes, but the choice of guiding ideology determines where man and society are moving along this continuum.
The ideologies of True Capitalism and Might Make Right are like magnets, and remaining at a point in between them on the continuum is not an option, for society is always being pulled in one direction or the other depending upon the dominant ideology adopted by a majority of the people.
This is an ideological battle which must be won if mankind is to survive and prosper. Life and death are laid before us. Choose life, that you may live.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for November 9, 2011
Copper Price per Lb: $3.44
Oil Price per Barrel: $97.42
Corn Price per Bushel: $6.61
10 Yr US Treasury Bond: 1.96%
FED Target Rate: 0.08% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,789 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.0%
Inflation Rate (CPI): 0.3%
Dow Jones Industrial Average: 11,936
M1 Monetary Base: $2,122,700,000,000 RED ALERT!!! THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base: $9,507,600,000,000 YIKES UP $1 Trillion in one year!!!!!!!
11/8/2011 Portland, Oregon – Pop in your mints…
“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than output” – Milton Friedman
Today we came across evidence that the massive amounts of money created out of thin air may no longer be benignly parked at the Federal Reserve. From Lee Adler at the wallstreetexaminer.com:
“The Fed was hit with withdrawals of $83.3 billion last Wednesday, the largest withdrawals from its deposit accounts that were not associated with quarterly tax payments since February of 2009…The Fed was apparently forced to take extraordinary measures to fund these withdrawals. These included the outright sale of nearly $24 billion in its Treasury note and bond holdings from the System Open Market Account. As a result, the Fed’s System Open Market Account (SOMA) fell to $2.611 trillion, some $43 billion below the Fed’s stated target of $2.654 trillion.”
Mr. Adler goes on to state that in order to meet these withdrawls, the FED had to borrow $43 billion from foreign central banks through “Reverse Repurchase Agreements (RRPs)”. In a sense, the FED had to make the equivalent of a good old fashioned margin call that foreign central banks had to scramble to make good on.
Could this be the reason that Italian Bonds yields are surging and the ECB cut rates unexpectedly last week?
Could this be the reason that the BoJ had to expand its Yen debasement program to the tune of 5 trillion yen?
Ever since the FED opened swap lines with foreign central banks, it has generally been the FED lending money to the foreign banks to assure liquidity. In this unexpected turn, the FED had to call in some of those loans to meet its own liquidity needs.
Could this be the first of what history will call a “Central Bank Run”? Only time will tell, but we would expect the FED to announce another, large scale dose of QE (Quantitative Easing) of its own in the next few weeks in an attempt to meet a similar event with fresh cash instead of a disruptive firing of its RRP revolvers.
In a way, this is the moment that the FED and all of the taxing authorities on the planet have been waiting for. Inflation is a government’s best friend. It allows the wealth destruction that these defense and welfare agencies engage in to continue while socializing the costs in a manner that is imperceptible to the untrained eye.
Even the Deficit Super Committee is onto this fact. They are now discussing the use of the “Chained Consumer Price Index (CPI)” in place of the current CPI calculation for everything from Social Security COLAs to tax brackets to welfare qualification thresholds. From AP:
“Just as 55 million Social Security recipients are about to get their first benefit increase in three years, Congress is looking at reducing future raises by adopting a new measure of inflation that also would increase taxes for most families –(with) the biggest impact falling on those with low incomes.
If adopted across the government, the inflation measure would have widespread ramifications. Future increases in veterans’ benefits and pensions for federal workers and military personnel would be smaller. And over time, fewer people would qualify for Medicaid, Head Start, food stamps, school lunch programs and home heating assistance than under the current measure.
Taxes would go up by $60 billion over the next decade because annual adjustments to the tax brackets would be smaller, resulting in more people jumping into higher tax brackets because their wages rose faster than the new inflation measure. Annual increases in the standard deduction and personal exemptions would become smaller.”
Do you see how it works, fellow taxpayer? Inflation, combined with statistical shenanigans intended to mask it, is the magic pill for broken government finances. It is no secret that the Government’s finances are a disaster, which is why we expect to inflation in generous doses.
How exactly does “Chained CPI” differ from the current CPI calculation? The article goes on to explain:
“Many economists argue that the chained CPI is more accurate because it assumes that as prices increase, consumers switch to lower cost alternatives, reducing the amount of inflation they experience.
For example, if the price of beef increases while the price of pork does not, people will buy more pork. Or, as opponents mockingly argue, if the price of home heating oil goes up, people will turn down their heat and wear more sweaters.”
Are you laughing yet? Perhaps crying? Now listen to how the Government justifies it:
“A report by the Moment of Truth Project, a group formed to promote the deficit reduction package produced by President Barack Obama’s deficit commission late last year, supports a new inflation measure. “Rather than serving to raise taxes and cut benefits, switching to the chained CPI would simply be fulfilling the mission of properly adjusting for cost of living,” it argues.”
If you are not yet laughing, crying, or laughing to avoid crying, allow us to assist you. What they are trying to say is that in the parallel universe in which the Government operates, the need to substitute more expensive goods for cheaper ones does not constitute a real loss of the purchasing power of the currency with which those goods are purchased.
After all, you can always put on a sweater, right?
Where the Government’s logic, and ultimately society, begins to break down is at the point when all prices, beef, pork, heating oil, and sweaters begin to rise astronomically in tandem with each other. At that point, it becomes painfully obvious that the problem lies in the currency, not with the producers.
Unfortunately, at that point, the Government will have long since vilified and persecuted speculators and producers for alleged price gouging to the point that the productive part of society, those who grow food and produce raw materials, will have completely ceased to produce and/or fled the country. The subsequent lack of production will result in an increasingly scarce stock of real goods being quickly priced and re-priced in a currency which is produced at an incredible surplus.
In layman’s terms, these events will be summed up in the phrase “hyperinflation.”
If the FED has to draw once again on its RRP revolvers, it will be clear that the benign growth in the M2 money supply will have become malignant, and that hyperinflation will soon be in full bloom.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for November 8, 2011
Copper Price per Lb: $3.54
Oil Price per Barrel: $96.44
Corn Price per Bushel: $6.63
10 Yr US Treasury Bond: 2.01%
FED Target Rate: 0.09% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,737 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.0%
Inflation Rate (CPI): 0.3%
Dow Jones Industrial Average: 12,040
M1 Monetary Base: $2,122,700,000,000 RED ALERT!!! THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base: $9,507,600,000,000 YIKES UP $1 Trillion in one year!!!!!!!
Far from signaling economic recovery, the action appears to be further evidence that what Nadeem Walayat at the Market Oracle calls the Inflation Mega-Trend (and consequent Stealth Bull Market in stocks) is firmly in place.
Think about it, while the FED, ECB, BoJ, and nearly every other Central Bank in the world pump money into their financial systems in order to “fight deflation” or “stimulate the export market,” the average person has watched gas, food, and the price of nearly everything else (besides their paycheck) steadily rise over the past decade.
Will all of this freshly printed money really be content to simply die a quiet death, never having run through an ATM or point of sale transaction in the real world?
M1 Monetary Base: $2,122,700,000,000 RED ALERT!!! THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base: $9,507,600,000,000 YIKES UP $1 Trillion in one year!!!!!!!
11/2/2011 Portland, Oregon – Pop in your mints…
Recently we have submitted for your consideration, fellow taxpayer, that Anarchy is man’s reality. It is not a choice, it is an ultimate given, it simply is. All understanding of the current political and social structures is greatly facilitated by one’s acceptance of this simple fact.
In fact, one’s ability to act and react to the changes in the current political and social structures depends upon accepting and embracing Anarchy as the basis for reality and learning to operate in the True Capitalistic system which organically emerges as men learn that mutual trust and cooperation are in their rightly understood self interests, and that he who is to lead must truly become the servant of all.
To truly embrace this, for, as we have established, it useless to reject it, we must first understand something about the nature of mankind. First and foremost, man, left to his own devices, is completely devoid of the ability to do the right thing. He doesn’t have it in him. He is lazy, self-serving, and completely evil. He needs God and his fellow man to be able to do anything productive, altruistic, or remotely good. A full defense of this statement is a subject for another day (although the evidence is all around us), we mention it here only to underscore the need for a framework within which mankind can avoid both self and mutual destruction.
The only reliable framework which has emerged out of Anarchy not only addresses the problem of human nature but also serves to turn man’s weaknesses into strengths. This framework is True Capitalism. By allowing market forces to work with as little hindrance as possible, mankind can insulate itself from descending into chaos and catastrophe. As we have stated previously:
Out of Anarchy, the Truly Capitalistic System would ORGANICALLY emerge, and with it a new dawn for humanity, built on mutual interest and almost endless capital formation which will engender a spontaneous and dynamic social order, and a society without borders that would enjoy freedom and prosperity that we cannot even imagine under current conditions.
How would this work? In some cases, it may be that the catastrophes simply cancel each other out. In others, it may be that a counterforce in the market arises to crush the catastrophic force before it can do much damage. No one can truly say. Yet the fact that no one person can say what will work is precisely why it works.
The greatest virtue of True Capitalism is the speed with which it corrects errors in judgment. Bad idea, malinvestment, frauds, and even violent and property crime are quickly dealt with.
But who sets the rules? By definition, there are no rules apart from what has been mutually agreed upon by consenting parties. That said, it is easy to imagine how quickly a myriad of rules may spring forth in True Capitalism. The key difference between these rules and those declared by a governmental decree is that compliance with the agreed upon rules in True Capitalism is voluntary, making compliance likely. For to violate the rules of an agreement is to forfeit the advantage imagined to be gained by entering into the agreement.
Even the primordial requirements of the right to life and property would organically be honored, for they are primordial to all humans, whether they readily admit it or not. Being primordial, securing of the life and property of others would be amongst the first series of contracts that any person would enter into, whether directly or indirectly.
Of course, mankind is completely subject to natural (or divine, as one prefers) law, True Capitalism simply allows the fullest and most complete expression of the operations of natural law to operate in the dealings of men.
Did God not warn the people not to desire a king?
To fight True Capitalism, mankind’s least flawed response to his Anarchic surroundings, is to cause or submit to chaos and misery. Yet every nation on the planet is devoted to some degree in the fight against True capitalism. Why? Simply because the nation state, under the guise of being the most perfect expression of man’s good intentions, today occupies the throne which rightly belongs to True Capitalism.
The two are the antithesis of one another. A nation state regulates by edict, True Capitalism regulates by example. A nation state is rigid, where True Capitalism is pliable. Hence, where True Capitalism will bend but never break, the nation state is repeatedly smashed to pieces when faced with change.
Moving to a less philosophical level, how can we be sure that Anarchy is the basis of man’s current existence? Because the institutions which supposedly offer the best option to embracing Anarchy are beginning to succumb to the punishments they have built up in their losing fight against True Capitalism.
Yes, Anarchy is now trumping the nation state. We urge you to watch closely the phenomenon which is currently playing out in Greece, for it is highly likely to play out in nearly every Western Democracy before Anarchy comes in to give its people a bear hug.
Thankfully, natural (or divine) law will not change. One’s time would be better spent understanding the immutable truths of natural law, for they will prevail. What is natural law? We’ll give you hint. It involves supply and demand, and loving one’s neighbor as himself.
Believe.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for November 2, 2011
Copper Price per Lb: $3.58
Oil Price per Barrel: $92.81
Corn Price per Bushel: $6.45
10 Yr US Treasury Bond: 2.01%
FED Target Rate: 0.08% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,737 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.1%
Inflation Rate (CPI): 0.3%
Dow Jones Industrial Average: 11,836
M1 Monetary Base: $2,071,500,000,000 RED ALERT!!!
M2 Monetary Base: $9,607,200,000,000 YIKES UP $1 Trillion in one year!!!!!!!
11/1/2011 Portland, Oregon – Pop in your mints…
You can’t make this stuff up. In case you are unaware, today, Greek Prime Minister George Papandreou made a surprise call for a referendum on the most next round of bailout funding that its big Euro brothers, Germany and France, spent so much time and political capital to arrange. From Reuters:
The Greek government faced possible collapse on Tuesday as ruling party lawmakers demanded Prime Minister George Papandreou resign for throwing the nation’s euro membership into jeopardy with a shock call for a referendum.
Caught unawares by his high-stakes gamble, the leaders of France and Germany summoned Papandreou to crisis talks in Cannes on Wednesday to push for a quick implementation of Greece’s new bailout deal ahead of a summit of the G20 major world economies.
Apparently, it was a surprise even to those in Athens, the article continues:
Papandreou did not even inform Finance Minister Evangelos Venizelos he was going to announce the referendum on the latest EU aid deal, a government official told Reuters.
“They must be crazy… this is no way to run a country,” said a senior executive of one of Greece’s biggest firms, speaking on condition of anonymity.
Yes, Anarchy is now trumping the nation state. Let us examine the phenomenon which is currently playing out in Greece, for it is highly likely to play out in nearly every Western Democracy before Anarchy comes in to give its people a bear hug.
Allow us to present this development in terms of Greece as a Corporation to make clear the absurdity of the present situation.
Greece Inc., the security and welfare agency, is one of the oldest in the Western world. It is currently running an unbelievable operating deficit and is awaiting 8 Billion Euros payable in mid November under a financing deal that its largest creditors have essentially negotiated for it.
Mr. Papandreou, the CEO of Greece, Inc., along with Greece Inc.’s creditors, has been negotiating a new, complex financial deal which will allow the bankrupt corporation to continue to fund its security and welfare activities, albeit at reduced levels. Without this deal, Greece, Inc. will run out of cash in January 2012.
Mr. Papandreou has been slashing the preferred dividends (welfare payments) and salaries of the Greece, Inc.’s shareholders and employees in order to comply with the terms of the current financing deal.
Looking ahead to January 2012, Greece Inc.’s lenders have “negotiated” yet another deal for it to be able to fund its operations past the corporation’s next D-Day. Naturally, the deal includes a lot more “shared pain” in the form of further reductions to employee salaries and preferred dividends. Naturally, this comes as unwelcome news to the employees and shareholders.
Sensing that he is losing control of the company, Mr. Papandreou suddenly feels the need to get “buy in” for the new deal from all affected parties. Today, without consulting its creditors, Mr. Papandreou announced that he is presenting the complex financial deal for the formal approval of his enterprise’s (Greece) captive shareholders.
To make matters more interesting, he is scheduling the approval vote (aka the referendum) to occur at about the same time that Greece, Inc. is scheduled to run out of cash in January of 2012. This may be the ultimate in financial brinksmanship.
Naturally, the potential funders (Germany, France, China, etal) are taken aback at the sudden “need” to gain shareholder approval. This is something that is, while perfectly legal, completely unexpected and has introduced yet one more variable in what is already a complex deal.
Naturally, the introduction of this new variable has sparked anyone who is currently owed money by Greece, Inc. at a future date now trying to sell Greek bonds for whatever they can get for them, virtually eliminating the market for Greek debt and, in the process, making the creditors who are ready to sign the new deal with Greece, Inc. look extremely foolish.
Beyond foolish, it naturally calls into question the motives, decision making ability, and ultimately the creditworthiness of said creditors Germany, Inc., France, Inc., and China, Inc. and their banking subsidiaries.
Crony Capitalism, there is nothing natural about it.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for November 1, 2011
Copper Price per Lb: $3.51
Oil Price per Barrel: $91.50
Corn Price per Bushel: $6.54
10 Yr US Treasury Bond: 2.00%
FED Target Rate: 0.09% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,720 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.1%
Inflation Rate (CPI): 0.3%
Dow Jones Industrial Average: 11,658
M1 Monetary Base: $2,071,500,000,000 RED ALERT!!!
M2 Monetary Base: $9,607,200,000,000 YIKES UP $1 Trillion in one year!!!!!!!
10/28/2011 Portland, Oregon – Pop in your mints…
We have been kicking around the idea of True Capitalism and cannot shake it. In our experience, the only hope we have of shaking it and moving on is to write it out, so here it is. Thank you for listening, fellow taxpayer. It may be simply a directionless rant, then again, we may solve the world’s problems. Either way, we aim to make it entertaining.
We will start with what we know:
True Capitalism is man’s most perfect expression of democracy
True Capitalism enables Justice
True Capitalism enables Equality
True Capitalism enables true prosperity
True Capitalism is born in and comfortable with Anarchy
True Capitalism is radically trusting in people
The Breakdown of society is a breakdown of Trust, If there is to be hope for the future, we must collectively learn to trust again. True Capitalism is a constant test of trustworthiness and a betrayal of trust is quickly and harshly dealt with. Conversely, those found trustworthy stand to be richly rewarded in a Truly Capitalistic system. The meting out of natural rewards and consequences increases general trustworthiness.
True Capitalism improves society by carrying out the consequences of actions in a rapid and impartial manner. It encourages men and women to serve one another as they find that serving one another is in their mutual interest. In fact, it is in their rightly understood self interest (to quote a term from Mises) to serve one another.
Intrigued? So are we. But what exactly is True Capitalism?
True Capitalism is a radical respect for life and private property. It is the recognition that the right of an individual to life and private property are inviolate and that individuals, assured that their life and property are no endangered, will reap the fullest benefits of the division of labor and mutual cooperation which men and women on this earth are capable of.
Participation in the True Capitalistic System is not voluntary, for True Capitalism, as we will find, is not an idealistic concept, rather, it is an ultimate given. Apart from participation, however, all other actions and agreements which do not violate other’s rights to life or property are completely voluntary.
Apart from being a part of the system, nothing done in the True Capitalistic System is purely obligatory. This is where True Capitalism differs from what has come to be known as “Crony Capitalism,” the system in which most of the world currently operates which is full of random taxes, fees, regulations, and laws which require compulsion or coercion by a nation state in order to be paid or obeyed.
At the other end of the spectrum, in the Truly Capitalistic system, actions such as paying an entity or observing a regulation may be strongly advisable to the point of being considered a necessity, but not taken under compulsion or the threat of violence by a nation state or another actor in the system.
In a Truly Capitalistic system, the best way to get ahead (obtain more opportunities, leisure, or whatever one desires) is to make oneself useful to his or her fellow man or woman. The nature of the system is to reward those who best serve others. Those rewarded then find themselves able to consume goods and services freely produced by their fellow man by using the resources they have obtained by doing the same.
If one lifts the veil of the machinations of today’s nation state, it is abundantly clear that this is more than idea, it is natural law.
We submit for your consideration, that, far from being unattainable ideals, True Capitalism (and by extension, Anarchy), are ultimate givens within which the current system of nation states are forced to operate.
If the nation state were to cease to exist, it can be argued that Anarchy would reign. This is technically true. Unfortunately, too many individuals believe that Anarchy would lead to chaos. We believe that quite the opposite is true.
Out of Anarchy, the Truly Capitalistic System would ORGANICALLY emerge, and with it a new dawn for humanity, built on mutual interest and almost endless capital formation which will engender a spontaneous and dynamic social order, and a society without borders that would enjoy freedom and prosperity that we cannot even imagine under current conditions.
Believe.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for October 28, 2011
Copper Price per Lb: $3.67
Oil Price per Barrel: $93.32
Corn Price per Bushel: $6.55
10 Yr US Treasury Bond: 2.33%
FED Target Rate: 0.07% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,743 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.1%
Inflation Rate (CPI): 0.3%
Dow Jones Industrial Average: 12,231
M1 Monetary Base: $2,071,500,000,000 RED ALERT!!!
M2 Monetary Base: $9,607,200,000,000 YIKES UP $1 Trillion in one year!!!!!!!
10/25/2011 Portland, Oregon – Pop in your mints…
What a difference a day makes. Yesterday, it appeared that the authorities had most of the problems that ail the world’s economy resolved. All they needed was a little more time, money and cooperation to implement their plans and the good times would be rolling once again! Today, instead of coordinated, determined action, it appears that a three ring circus of sorts is beginning.
In Ring 1, we have the European Clown Car: Yesterday, Europe looked ready to announce a plan to simultaneously solve the sovereign debt, banking, and resultant currency crises in one fell swoop. Today, it appears that Italy is balking at implementing a growth plan on moment’s notice and Germany and France will need a miracle to announce a credible Pan-European rescue package by tomorrow, their self imposed deadline. What a difference a day makes!
It should be clear by now to most sober persons that regardless of what is announced tomorrow, the Euro as a currency in its present form is not viable. It should also be clear that the countries who have adopted the Euro will give away what is left of their sovereignty in a vain attempt to preserve it.
In Ring 2, we have the American Elephants: The US is quietly completing three Bond auctions that will cause the national debt higher than the national GDP. The official total should eclipse GDP by the end of October. 100% of GDP is when the debt of a mere mortal nation (Greece, for example) has traditionally harkened national bankruptcy.
The only exception to this rule is in Ring 3, the Japanese Tight Rope Walker: Japan, where national debt is north of 200% of GDP. How do they avoid bankruptcy? Simple, they print money to pay the debt. As if to prove our point, today, the Bank of Japan decided that they have seen enough Yen appreciation and announced another five trillion Yen currency printing campaign.
When money doesn’t exist, the sky is the limit, which is why commodities and certain equities are set to explode to the upside. Bonds, while they may not fall in nominal value, will fall in relative value as they are repaid in severely depreciated currencies.
As if on cue, commodities took off today. How high and far they will fly this time is anyone’s guess.
As the circus gets underway, the sober amongst us are beginning to wonder, sometimes aloud, “if the Governments, banks, and monetary authorities cannot solve these problems, then who can?”
The answer, fellow taxpayer, is right under our fingertips. We, the People of the earth can solve it. The tool we have been given is our own wit and ingenuity. The only requirement is that we embrace True Capitalism, for better or for worse, for richer or poorer, until death do us part.
What is True Capitalism? It may be summed up as a deep, radical respect for life, liberty, and private property. It is an understanding that mutual cooperation is more often than not in our rightly understood interests (to use a Mises term). It is not simply a choice, it is the only choice. More to come.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for October 25, 2011
Copper Price per Lb: $3.41
Oil Price per Barrel: $93.17
Corn Price per Bushel: $6.51
10 Yr US Treasury Bond: 2.13%
FED Target Rate: 0.07% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,705 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.1%
Inflation Rate (CPI): 0.3%
Dow Jones Industrial Average: 11,707
M1 Monetary Base: $2,056,000,000,000 RED ALERT!!!
M2 Monetary Base: $9,570,500,000,000 YIKES UP $1 Trillion in one year!!!!!!!
At that point, it will again become clear that the banks and sovereigns will require additional funds (currently the estimate is north of 2 trillion Euros) in order to continue the illusion solvency.
M1 Monetary Base: $2,056,000,000,000 RED ALERT!!!
M2 Monetary Base: $9,570,500,000,000 YIKES UP $1 Trillion in one year!!!!!!!
10/21/2011 Portland, Oregon – Pop in your mints…
As the western world braces for a full scale currency collapse, we have endeavored here at The Mint to offer an explanation as to why these events are taking place and, along the way, offering the obvious solution to the chief problem, mistaking credit for money.
For those of you who have missed Part I, Part II, Part II, and/or Part IV, you may read them by clicking on the following links:
If you require only a brief summary, Part IV above offers a relatively brief and comprehensive summary of the previous three. Now where were we…
Ah yes, in the United States, circa 1968, a time not so unlike our own. The Vietnam war was becoming increasingly unpopular and the social climate was ripe for protest. The US had run up a large and increasing trade deficit with the rest of the world. It was becoming clear that if foreign dollar holders were to redeem a significant amount of their Federal Reserve Notes, which we now understand to be banknotes and not money proper, for gold, which we now understand to be money proper, the Federal Reserve would not be able to deliver enough gold.
The solution, if it can be called that, was to gradually increase the amount of Federal Reserve Notes required to obtain an ounce of gold from $35 to $41 between 1968 and 1971. Then, in 1971, with the US dollar collapsing in value and the Bretton Woods system falling apart at the seams, then President of the United States Richard Nixon announced that US dollars were no longer convertible into gold. The event is now referred to as the Nixon Shock.
And a shock it was. The US dollar, the benchmark of Central Bank currencies throughout the world, was now officially backed only by the faith that it would continue to be accepted in trade. The Federal Reserve had defaulted.
Most of the world still lives by this faith today, and if anything, the delusion that a banknote issued by a Central Bank which has defaulted on its obligation to deliver real money on demand has only grown.
The reason that the large scale catastrophe of modern Central Banking lies before us is that over the last 40 years, the lack of gold and silver to back the banknotes in circulation has been replaced by the expectation that governments, and by extension their subjects (citizens), will produce enough goods and perform enough services to repay the obligations represented by the banknotes. As the unrestricted quantity of banknotes and obligations to deliver banknotes in existence will always tend to exceed the stock of available goods and services, these obligations are impossible to satisfy.
Human beings are fallible. It is normal and should be expected that they will not be able to deliver on certain obligations. The natural beauty of banknotes redeemable in gold and silver was that, if it was suspected or observed that a person or entity would be unable to pay their obligations, the creditor would move to seize the gold, silver, or other assets that the debtor had pledged as collateral.
The seizure of collateral or the threat of seizure was often enough to correct the failed human action or decisions that were leading to the net loss of wealth incurred by the activity which was undertaken. In economic parlance, we would call this the correction of the malinvestment of resources.
Without gold and silver to act as a natural limitation on the supply of banknotes and other forms of credit, the bad decisions that lead to the malinvestment and the activities that lead to the destruction of wealth and resources can continue for a very long time.
The use of gold and silver as money had another, more important function that is often overlooked. Gold and silver are inert, non-consumable objects. Their hoarding and use as money will not generally cause starvation or want. In fact, the hoarding of gold and silver as money would have the effect of lowering general prices as productivity increased, naturally creating an incentive to decrease production which in turn would raise prices, making the expenditure of more silver and gold necessary and in turn raise prices, creating a natural incentive to produce.
Gold and silver allow the economy to naturally regulate itself and, by virtue of the difficulty in extracting them, cause the rest of the earth’s resources to be used in harmony with each other.
Finally, gold and silver are inanimate objects. Their recognition and possible seizure as collateral does not threaten the liberty or life of a person. However, because modern central banking has replaced money proper and placed credit in its place, it will become increasingly common to entire societies held as security for a debt that many of them had no direct hand in creating. This is the logical end of using credit as money.
It is the truth that will bring tragedy to the earth.
Without the natural counterbalance to trade and growth which gold and silver money had provided for over 9,000 years, man’s activities, whether productive or destructive, have continued nearly unchecked for the past 40 years. It is staggering to think of the catastrophe that awaits if man is truly on the path to destruction.
Man, by nature, is always on the path of destruction, but the use of gold and silver as money served to correct him before he strayed too far down it.
Most people alive today have been trained to believe that using Gold and Silver as money is an unnecessary and environmentally harmful process. Even Adam Smith believed that if the effort expended to mine metals to create money could be directed to other, more useful activities, that humanity would be better off.
What Smith did not realize was that man would not always direct its energies to useful activities. Like modern Socialists, he underestimated the power of self interest inherent in all human action. Today we are preparing to reap the consequences of 40 years of unrestricted and more often misguided human actions.
While it may be too late to avoid the catastrophe that Modern Central Banking may bring upon us, it is comforting to know that a return to the understanding and use of gold and silver as money offers hope for a future of truly infinite possibilities.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
P.S. For more ideas and commentary please check out The Mint at www.davidmint.com
Key Indicators for October 21, 2011
Copper Price per Lb: $3.23
Oil Price per Barrel: $87.40
Corn Price per Bushel: $6.49
10 Yr US Treasury Bond: 2.20%
FED Target Rate: 0.07% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,642 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.1%
Inflation Rate (CPI): 0.3%
Dow Jones Industrial Average: 11,809
M1 Monetary Base: $2,056,000,000,000 RED ALERT!!!
M2 Monetary Base: $9,570,500,000,000 YIKES UP $1 Trillion in one year!!!!!!!
10/20/2011 Portland, Oregon – Pop in your mints…
For those of you who have missed Part I, Part II, and/or Part III, you may read them by clicking on the following links:
Again, for those of you who are too lazy to click the links, here we offer a brief summary to get you up to speed:
Central Banking is the physical expression of Man’s need to safeguard his wealth and to increase trade. A Central Bank’s usefulness and scope were greatly increased when dual entry accounting could be employed to manage a Central Bank’s accounts.
The Central Bank’s role as a storehouse of wealth has generally attracted the attention of the Government, which is the physical expression of Man’s need to protect his life. The Government, in this capacity, does not generate wealth and must maintain itself either by taxing its subjects or borrowing funds.
The Central Bank, as the repository of wealth and facilitator of trade, by default creates a majority of the banknotes which circulate in a society. As such, the Central Bank becomes the natural creditor of the Government. Whether it lends funds directly to the Government or indirectly, the result is the same. That result is that the use of its subject’s wealth by the Government is greatly facilitated by the existence of a Central Bank.
Having established the fact that some form of both a Government and a Central Bank will naturally, in some form, come into existence and become increasingly interdependent, the only question is one of the size and scope of such entities.
Today, that the scale of modern Central Banking is excessive and that the potential for catastrophe is unprecedented.
The reason for the unprecedented scope of Central Banking is that money, as it is widely understood today, does not really exist. Rather, banknotes issued by Central Banks, which are by definition credit instruments, are misunderstood to be money proper by a majority of the people in the developed and semi-developed world.
This misunderstanding flies in the face of 9,000 years of human history, in which Gold and Silver in bar and coin form have been tacitly used as money proper. It is this misunderstanding which has set the stage for the greatest catastrophe in history to occur.
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The misunderstanding of money and credit began, like many experiments, in Northern Europe with the establishment of the Bank of Amsterdam. Established in 1609, the Bank of Amsterdam is widely recognized as at least a precursor to modern central banks. For over 400 years since it was established, the use of banknotes issued by a Central Bank which are not directly convertible to coin has slowly but steadily increased.
Modern Central banks issuing banknotes were subsequently formed in Europe, England, and Japan. As these Central banks and their successors began to slowly absorb the true money supply and issue banknotes in their place, man began to slowly transfer the concept of money proper from Gold and Silver and attribute the qualities of money to the banknotes issued by the Central Bank.
This process of wealth absorption greatly accelerated in 1913 when the United States of America granted a 100 year charter to its third Central Bank, the Federal Reserve. The FED, as it is commonly known, was to act primarily as a reserve and to create “money” (read banknotes) as necessary. At the advent of World War I, the FED stepped in and issued bonds to finance the war and after the war the FED was granted exclusive control of the money supply in the United States.
In 1933, in the midst of what was to be the great depression in the US, President Franklin D. Roosevelt signed Executive Order 6102 which required citizens to deliver all but a small amount of gold coin and bullion held by them to the FED in exchange for $20.67 worth of Federal Reserve notes (the banknotes issued by the FED) per ounce.
Naturally, most citizens with large quantities of gold at the time had it transferred to Switzerland.
Then, by decree, the Government raised the price of redeeming gold from the FED to $35 per ounce. Redemption could only be made by Foreign parties as, naturally, it was now illegal for US Citizens to own gold.
Federal Reserve notes were now the only form of “money” that an entire generation of Americans were likely to handle. However, foreigners could still redeem the Federal Reserve notes for gold, though they rarely did, at $35 per ounce.
After World War II, the US emerged as the most powerful nation on earth. It was only natural that the western governments would peg their currencies at a fixed exchange rate to the US dollar (Federal Reserve Note) which was redeemable in gold at $35 per ounce. This is commonly known as the Bretton Woods system.
The system held together for around 20 years, accepting that $35 US Dollars were as good as gold until 1968, when things began to get dangerous…
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for October 20, 2011
10/19/2011 Portland, Oregon – Pop in your mints…
For those of you who have missed Part I and/or Part II, you may read them by clicking on the following links:
For those of you who are too lazy to click the links, we do not blame you. Below we offer a brief summary to get you up to speed:
Central Banking is the physical expression of Man’s need to safeguard his wealth and to increase trade. A Central Bank’s usefulness and scope were greatly increased when dual entry accounting could be employed to manage a Central Bank’s accounts.
The Central Bank’s role as a storehouse of wealth has generally attracted the attention of the Government, which is the physical expression of Man’s need to protect his life. The Government, in this capacity, does not generate wealth and must maintain itself either by taxing its subjects or borrowing funds.
The Central Bank, as the repository of wealth and facilitator of trade, by default creates a majority of the banknotes which circulate in a society. As such, the Central Bank becomes the natural creditor of the Government. Whether it lends funds directly to the Government or indirectly, the result is the same. That result is that the use of its subject’s wealth by the Government is greatly facilitated by the existence of a Central Bank.
Having established the fact that some form of both a Government and a Central Bank will come into existence and become increasingly interdependent, the only question is one of the size and scope of such entities.
Central Banking, like alcohol and socialism, may be a good idea when used in moderation. However, each one of these also represents a catastrophe waiting to happen. For if the circumstances under which they are created or used take an unfavorable turn, the wealth and lives of many may be lost in a very short period of time.
How, when, and most importantly why will this catastrophe take place? As mere mortals, we can only answer the why and speculate as to the how and when.
Why, then, will the current system of Central Banking come to an end which will cause wealth destruction on a scale which will make the weapons of war seem like child’s play in comparison?
The answer, fellow taxpayer, is that money as it is widely understood today does not really exist.
You read correctly. What a majority of the developed and semi-developed world uses as a store of wealth, unit of account, and medium of exchange, is a figment of the collective imagination.
Allow us to explain. It is generally understood today that the value of money is not necessarily in money proper, rather the value of money is found in the ability of the bearer to exchange said money for goods and services. What is often overlooked in this observation is that, for money to be exchanged for something of value between willing participants of a transaction, what is used as money in the transaction must be universally perceived to have value that is easily transferable between parties.
Following this logic, what society uses as money is, by definition, simply another good which is widely recognizable as useful in exchange and therefore carries a price premium (we will call it the monetary premium) of a certain amount usually far above what some economists would incorrectly* call the good’s “intrinsic” value.
* We say incorrectly because value judgments, while often influenced by what are known as “market” or “intrinsic” values, are by definition made by the individuals who willingly enter into a transaction, not disinterested observers. It is for this reason that it is more accurate to appraise value by observing price points of transactions on “the margin” (i.e. transactions that are actually taking place) as opposed to appraising value based on past transactions or transactions imagined to take place in the future. Many are the hypothetical gains and losses of those who refuse to enter into transactions because they are waiting for and offer at “market prices” or the “intrinsic value” of an item.
Regardless of the monetary premium that a good may carry, whatever is used as money, by definition, must be a tangible good. Otherwise, we are dealing with credit, which is a promise to pay in money at a future date. Credit may be given in exchange in the place of money and is often traded at a discount to money delivered immediately.
The distinction between money and credit is common knowledge to but it is important to make a clear distinction in order to properly understand what happens next.
In roughly 9.000 years of human history, it has been tacitly agreed upon that silver and gold, usually in coin or bar form, are the highest and most widely recognized goods used as money and that the accumulation of silver and gold represent wealth.
As you recall, the concept of a Central Banking arose in response to the need for man to protect his wealth. You will further recall that in order to both protect wealth and facilitate trade, a Central Bank creates banknotes which represent a claim on the wealth being protected by the Central Bank.
These banknotes which the Central Bank creates are, by definition, credit and not money. They are generally the highest, least discounted, form of credit which is traded, but this does not change the fact that the banknotes are credit and thus carry an implied risk of default. This risk of default places the ultimate limit on the circulation and acceptance of the banknotes in trade.
From time to time, when a Central Bank’s ability to protect the wealth entrusted to it came into question, banknotes would be presented to the Central Bank to be redeemed for the amount of silver and gold which they represented. If the Central Bank could not produce the amount of silver and gold that was being redeemed, the Central Bank was considered to be in default and, as word of the default spread, the banknotes in circulation would trade at an ever increasing discount to real goods.
This logic further supports the fact that banknotes are credit, subject to default risk, and not money proper.
Can you now smell the impending catastrophe? Or, to put the question more directly:
What’s in your wallet? More tomorrow,
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for October 19, 2011
Copper Price per Lb: $3.25
Oil Price per Barrel: $86.11
Corn Price per Bushel: $6.38
10 Yr US Treasury Bond: 2.16%
FED Target Rate: 0.07% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,671 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.1%
Inflation Rate (CPI): 0.3%
Dow Jones Industrial Average: 11,505
M1 Monetary Base: $2,201,800,000,000 RED ALERT!!!
M2 Monetary Base: $9,554,000,000,000 YIKES UP $1 Trillion in one year!!!!!!!
Now, on to the role of Government in relation to Central Banking. If Central Banks arose because man needed someone to look after his wealth, governments arose because man needed someone to look after his life. Governments were formed in response to the natural human need for a common defense.
M1 Monetary Base: $2,201,800,000,000 RED ALERT!!!
M2 Monetary Base: $9,554,000,000,000 YIKES UP $1 Trillion in one year!!!!!!!
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