The Dow has briefly touched the 15,000 mark once again and frankly, from a money supply standpoint, it may just be getting started. Ditto for the S&P 500, which is cruising past 1,600 and shows few signs of looking back.
The stock market is front running something. Conventional wisdom, that of seven years ago, would say that it is front running the economy, that a brighter future is on the horizon.
Here at The Mint, we see the stock market as an indicator of the bloat in the money supply and the default primary beneficiary of those who are unloading the monetary premium embedded in the US dollar.
From the dawn of time, up until 1994, the M2 money supply ran ahead of the stock market. Logically, money needed to be created before it could be invested. Then, in 1995, the Glass-Steagall act, which had created a chasm between the commercial and investment flavors of banks since 1933, was effectively repealed as Citicorp and Travelers merged, forcing (or anticipating) the effective repeal of 28 firewalls that Glass-Steagal had set up between the banking sectors.
Graph of normalized DJIA and Gold assets classes vs. M1, M2, and Federal Funds Rate measures
This repeal allowed commercial banks to fund purchases of “Section 20” affiliates, effectively unleashing the credit of the Commercial banking sector into the stock market, and stock indices have front run the M2 money supply ever since (with one notable exception at the height of the 2008 crisis right before the FED threw caution to the wind regarding monetary policy).
The FED will not make the same mistake again. They have embedded expectations that they are willing and able to print money in quantities necessary to avoid another wholesale collapse in the nominal price of financial assets, what we call the chocolate disaster.
However, the FED cannot avoid a collapse in the relative value of financial assets, which is currently underway. While the Dow may be headed to 17,000 before its next scheduled breakdown, the wise among us (that’s you and I, fellow taxpayer), must move our gaze to the diminishing relative value of those 17,000 Dow points.
Take the example of gold. Despite its recent collapse in price, gold, which may have yet another leg down, has shown itself to be incredibly resilient in the face of insurmountable odds, for the same credit mechanism that is used to shamelessly juice the stock market is also used to shamelessly short precious metals.
What is surprising, then, should not be that gold has collapsed some $350 in recent months, but that it has bounced back at all against a financial enemy with an unlimited supply of ammunition.
The physical supply of gold is another story. As anyone who has attempted to source gold or silver at these rock bottom prices can attest, it has been difficult to say the least, and it will be mid summer before supplies recover from the recent price shock.
Another non productive asset that is gaining on the Dow in relative terms is the Bitcoin. While the digital currency continues to be too volatile to trade, it is still attractive anywhere under $80. While not the panacea that many believe it to be, the Bitcoin fulfills a human need that will not soon go away.
Finally, corn, which took a similar early April bath along with a number of commodities, is raging back as well.
It will be an interesting summer indeed as the vanilla disaster continues to pile up. Soon, owning real assets will be not simply a luxury, but a necessity, as gains in the stock indices are dwarfed by real inflationary pressures.
Today at The Mint we are launching The Mint Money Supply Digest. Longsuffering readers of The Mint will recall that we launched a now defunct service known as the “72 Hour Call” which was an attempt to predict the future direction of a specific trade three days out. After roughly 63 attempts, of which we were batting .524 (correct 52.4% of the time) we decided that the short term call was a fool’s game best left to high frequency traders and those with insider information.
However, the 72 Hour Call exercise was not in vain, rather, what it revealed was that while our Key Indicators (listed below), when taken together, revealed no reliable and/or actionable data with regards to short term trades. Over time, however, the Key Indicators have proven extremely helpful in projecting longer term trends which tend to underpin the S&P 500 in particular and US equity indices in general.
Before we go further, we must give credit to both Lee Adler at the Wall Street Examiner and Greg Guenther of the Daily Reckoning’s Rude Awakening for their brilliant coverage of the frequent gyrations in the financial markets. If you need information which is actionable on a shorter time horizon, we highly recommend following their insights.
The intent of The Mint Money Supply Digest is to provide insight via the observation of changes in the trend of our Key Indicators as to the direction of one simple yet critically important trend.
The simple trend is that of the money supply in terms of US dollars. The goal of the monetary stimulus every central bank on the planet has undertaken to some degree or another over the past three to four years has been to simply increase the money supply and hope for the best.
Graph of normalized DJIA and Gold assets classes vs. M1, M2, and Federal Funds Rate measures
The strategy is a recipe for disaster, as we have explored in depth both here at The Mint and in our eBook series “Why what we use as Money Matters.” The goal of The Mint Money Supply Digest is to keep our readers informed as to the trend of the Money Supply in terms of US dollars in an effort to keep you ahead of the curve when the disasters (for there will be a series of them) occur.
The disasters will come in one of two flavors. The first flavor, which we will call vanilla for the moment, takes the form of the increases in the money supply begin to take hold to the point where inflationary expectations by a majority of the actors in the world economy who use dollars or dollar proxies (currencies and debt instruments which are pegged, directly or indirectly, to the US dollar) in trade become embedded to the point where inflation in consumer prices sparks a level of demand in consumer goods which quickly outstrips supplies of such goods. The vanilla disaster is a mouthful, and it is where the trend is gently heading today.
The second flavor, the disaster which is unlikely in the short term save the appearance of black swan type events, we will call the chocolate variety. The chocolate variety of disaster is simple, it takes the form of an unmitigated collapse in the money supply similar to what the world experienced in 2007 (which most people realized was occurring in 2008). Were this to occur, it is time to get all chips off of the table. Fortunately, our Key Indicators should give us roughly three to four years of advance warning of a full blow chocolate disaster taking place (barring the unpredictable, or black swan event, as it were).
As you can see, while the chocolate disaster is to be feared above all, it will be easier to prepare for given the lead time in the data. The vanilla disaster, which is currently underway to some extent, will be somewhat more difficult to pinpoint in terms of timing but will likely have a lead time of roughly two to three months in which to take action.
Our bias, then, at the outset of The Mint Money Supply Digest, is to be on the lookout for the vanilla disaster while gauging, via the trends in our Key Indicators, just how much chocolate is mixed into the swirl which is the combined disaster that is slowly unfolding in US dollar land.
As a logical offshoot of our analysis, we keep an eye on something we call the “Monetary Premium,” which is our term for what most people simply refer to as money. In our worldview, money does not exist in the tangible way that most people assume it does. Rather, the concept of money comes into being when people begin to attach the attributes of money to something which gives that something (usually one of our Key Indicators) a premium above and beyond what normal market conditions and that special “something’s” physical or ethereal composition might otherwise dictate.
This increase in relative value of that special “something” is what we refer to as the Monetary Premium, and it is important, for a big part of making money is accurately identifying not where the monetary premium is, such as the US dollar, but in where it is gravitating towards, such as gold, Bitcoins, or sea shells.
With the preamble out of the way, we hope to keep the Digests as simple and sweet as a cone on a hot summer’s day.
The Mint Money Supply Digest for May 3, 2013
Today the swirl of disasters continues to tend towards the vanilla variety. Jobless claims continued their positive trend and the unemployment rate reported by the BLS came down a notch to 7.5%. This is good news and bad news. Good news in that more people have jobs, and bad news in that every tick down in Unemployment moves the world closer to the day where the Federal Reserve is likely to turn the switch on their monetary Mega maid, their Quantitative easing programs, from suck to blow. That day is still far off, however.
Today’s jobs report, coupled with the ECB’s dovish meeting announcements yesterday (they are throwing in the towel, albeit in slow motion, on austerity) and the BOJ’s Turbo Kids monetary strategy for an aging population are all buoying the money supply to counteract the unmitigated, innavigable disaster that is the world economy. An economy that is desperately trying to reset itself without the benefit of knowing who is really solvent.
Here at The Mint, we have a soft spot for both Entrepreneurs and Angel Investors, for they are to a business what Adam and Eve are to the Genesis narrative. They are not the creators themselves, but they are the ones who work together in the creation of a business so that it might to flourish.
Our friends over at onlinemba.com have put together a great video series called Minute MBA. In a recent video, which can be seen here (or by pasting the following link in your browser: http://www.onlinemba.com/blog/video-how-to-fund-a-startup), they eloquently, in both pictures and words, walk us through the startup funding process from idea, to seed capital, through to an IPO in under three minutes.
They also stress the importance of timing the solicitation of the appropriate flavor of capital at the right stage in the company’s life cycle. It is an extremely import detail which cannot be overstated.
Click to view “How To Fund A Startup” via www.onlinemba.com
While there is much written about ideas, business plan development, and the life-cycle of a startup, which is naturally where a majority of the action takes place, there is often less attention devoted to the preparation of the garden plot upon which the seed capital will be planted into.
We call this garden plot the entity structure. While many entrepreneurs wait until the Angel Investor appears on the scene to prepare the garden plot, there are some things that can and should be done by the entrepreneur at or near the conception of their venture to ensure that any seed capital they manage to attract is not needlessly scattered to the wind.
{Editor’s Note: At this point a blanket disclaimer is in order, at this point, we are neither an attorney, CPA, tax, or other type of registered professional. Even if we were, the following is in no way intended to address any one specific situation. Any decision regarding entity structure should be taken after consulting an attorney and/or CPA who understands the laws of the land where the enterprise is to be founded and operate (should they not be one in the same) as well as the specifics of the owner(s)’ situation and goals.}
The following are three types of potential entity structures that may be employed to form a receptacle that can receive seed or, in some cases, even angel stage capital depending upon the requirements of the potential investor(s).
Think of it as the entrepreneur building their own garden box into which they will pour the rich soil of their time, effort, creativity, and ingenuity. A garden box that is prepared to receive seeds that will be watered by the blood, sweat, and tears of the entrepreneur in hopes they will blossom to the point where the angels will take notice, muster their resources, and work their own creative magic.
When the angel gets involved, they may see that the garden box is well-tended and bearing fruit. Depending upon the circumstances, they may seed their capital into the existing garden box, make substantial additions to it, or ask the entrepreneur to take their idea out of the garden box altogether and purchase them a field large enough to accommodate the flood of IPO funding.
We now digress to that lonely place where the entrepreneur sits alone in their yard, trying to decide what type of garden box to build. The following is a menu of basic garden box designs from which to choose with the careful guidance of a qualified professional with intimate knowledge of the actors and the circumstances:
Step 1 – Buy an investment vehicle – The entrepreneur should establish a simple entity such as an S-Corporation or LLC to serve as their personal vehicle in which they can drive their idea(s) around in to visit potential investors. This step will help establish a shield between the entrepreneur’s personal assets and their new venture. It will also give the entrepreneur a tool through which they can manage their tax liability if necessary.
Perhaps more importantly, establishing the first entity gives the entrepreneur a bit of practice, both at corporate governance as well as letting go. As parents of college freshmen (and Suzy Bogguss) will tell you, it’s never easy letting go. The saying goes sevenfold for an entrepreneur and their idea. However, letting go, to some extent, is the ultimate, often unstated goal of soliciting angel types of investment. It is best to take the first, painful step in the privacy of one’s own home to avoid any unwanted emotional breakdowns as they sign away a portion of the rights to their baby entity in return for the cash needed for it to grow and thrive.
This is a deep, nearly metaphysical, aspect of the interplay between entrepreneur and angel investor, and we must leave it there for the moment and get on to the designs.
Design 1 – The Simple Promissory Note: While most entrepreneurs and investors alike tend to think of seed capital as purely equity, we believe that in terms of ease of set up (meaning fewer legal and accounting fees) and understanding, creating a promissory note directly payable to the seed fund investor and the vehicle entity that is wholly owned by the entrepreneur for the amount to be invested offers a simple, if not elegant way for the parties to marry their money and idea on a trial basis.
From the entrepreneur’s standpoint, the ideal promissory note would provide for the use of the investor’s funds for a mutually agreed upon amount of time, during which interest may accrue at an agreed upon rate, but no payments on the note are due until the entity is projected to be able to have the free cash flow available to make good on the obligation.
The investor may be afforded some protection by perfecting a security interest against a portion of the entrepreneur’s other assets which would act as collateral. We refer to this type of clause as a negative outcome exit.
However, as the reason for the decision to invest in the first place is presumably because the investor believes that the venture will succeed and grow, it would make even more sense to include a positive outcome exit. In the case of the simple promissory note structure, the positive exit would include the right for the investor to convert the note into an equity stake of a previously agreed upon percentage of an entity that is again, previously agreed upon to be formed as a next stage investment vehicle for the new venture.
The promissory note strategy is a form of baby IPO that allows for the intimate gestation of the venture while it is at its most vulnerable by two parties who have a vested interest in seeing it grow and develop.
This strategy does not, however, offer the tax advantages usually associated with the investor’s ability to write off any losses that the venture may incur in its early years that the strategies mentioned below in Design 2 and 3 offers. Then again, if a portion of an investment return is attributed to losses incurred in the early years, it may delay or even discourage the wise and judicious development of the venture by lulling the entrepreneur and investor alike into a false sense of security as the piling up of losses may be explained as beneficial with regards to tax liability.
Design 2 – The S-Corporation: An S-Corporation, while a bit antiquated, is still a favorite entity structure for closely held ventures. S-Corporations are subject to state administrative rules related to corporations and may be formed with a fixed number of shares that can be sold to a limited number of investors.
Along with the S-Corporation come the joys (read responsibilities) of corporate governance. There is more ongoing paperwork involved and therefore more attorney and CPA fees. However, the S-Corporation is a much sturdier garden box than the simple promissory note. It serves to isolate the venture and give it form; it also allows all parties to “enjoy” the tax benefits of the early years where the venture bleeds money.
Another advantage of the S-Corporation structure is that it can later be converted into a C-Corporation, which is the field upon which the great flood of the IPO can be released.
Design 3 – The Limited Partnership: This option generally allows for the greatest amount of entrepreneurial flexibility to operate with the greatest number of potential investors. Depending upon the requirements of the Limited Partners (LPs) and the myriad of exit strategies available, the agreements can be quite complex and again, there can be a great deal of legal and accounting fees incurred during the setup and operation of the LP.
The basic structure involves a General Partner, which in this case would be the entrepreneur’s vehicle established in Step 1 above, and one or several Limited Partners. The General Partner is responsible for the day-to-day operations and has full responsibility for the debts of the partnership (for this reason, it is best that the General Partner, in practice, be an S-Corporation or LLC which itself will limit the entrepreneur’s liability). New forms of Limited Partnerships, such as the LLP and LLLP are now being recognized which serve to further insulate the General Partner from unlimited liability.
The Limited Partners are only liable up to their invested amounts and are shielded in the same way a corporate shareholder is shielded in the event the LP should go bankrupt. However, the Limited Partners cannot participate in the day-to-day operations of the Partnership, which for most Angel investors is just fine.
The Limited Partnership allows all parties to enjoy the tax “benefits” of the losses that the venture incurs early on.
Another advantage of the Limited Partnership is that one General Partner can be involved with many Limited Partnerships, which is ideal for the entrepreneur who has multiple ideas that may appeal individually to differing groups of investors who may not want to be in the same risk pool together. These risk pools can be established by creating different Limited Partnership.
Under the Limited Partnership model, the General Partner will generally charge a percentage of revenues as a management fee and an additional percentage or fixed amount as an investors’ service fee to the partnership in exchange for dealing with 100% of the headaches. These fees may be cash flow contingent and may vary depending upon the extent that the General and Limited Partners are sharing the profits or losses of the venture.
The Issue of investor accreditation and other rules, laws, and regulations:
In the case of Design 1, it may not always be possible to solicit funds using this vehicle depending upon local laws and regulations regarding who may or may not enter into a promissory note. In a perfect world, this would not be a barrier, however, we do not live in a perfect world.
Further, in Designs 2 and 3 (and in some cases, Design 1 as well), there exists the Federal requirement that all investors be “accredited,” meaning that they have a net worth of over $1MM or have an income of at least $200K for two of the past three years ($300K if married) and the expectation of generating this level of income during the current year. There are some other ways to qualify which can be seen here http://richard-wilson.blogspot.com/2008/08/accredited-investor.html but the $1MM threshold is the most common.
In summary, Design 1, the promissory note, is simplistic in that no new entity that needs to be formed. However, it does not offer much in the way of income tax advantages or flexibility. It is best suited for a specific project or purpose with an eye towards the larger garden boxes that will later be built. Designs 2 and 3 both have the complication of entity formation and governance. The ultimate advantage of options 2 and 3 are enhanced liability protection, greater operating flexibility, and the ability to control income tax considerations to a greater degree.
Again, these are just a few of any number of possible designs, and an attorney and or CPA that is close to the specific situation that is being addressed is in the best position to be able to advise which specific design to tailor so that both entrepreneur and angel investor, Adam and Eve, as it were, will be properly clothed.
If you are an Adam in search of an Eve, or vice versa, or an Adam and Eve who have just found each other and are in desperate need of a Virtual CFO to get things to the next level and beyond, we would love to help! Simply contact us at the email address below to enquire about our customized, tailor made CFO services here at The Mint.
Natural Law and the Theory of Economic System Fluidity provides the theoretical basis for allowing the strengths of each economic system to peacefully work together to achieve this end and examines both the natural laws which govern economics as well as the moral basis for the existence of the nation state.
It is volume VI of the Why what we use as Money Matters series, and perhaps the most important, for it forms the philosophical core of our thesis.
We are pleased to offer it in PDF format for free here to our fellow taxpayers at The Mint, just click on the following link:
Additionally, it can be had for a mere $0.99 over at Amazon’s Kindle store and for free in a myriad of other eBook formats over and at Smashwords.com for the next month. Be sure to use coupon code: WF75E at checkout to receive the discount. The offer is good until May 25th, 2013.
As the financial world continues to turn in an ever inflated manner, we have been diligently working to complete the latest volume of the Why what we use as Money Matters series before the joyous distractions of summer in the Northwest call us away.
The following is an excerpt of Volume VI in the series, entitled Natural Law and the Theory of Economic System Fluidity, is perhaps the most important volume because it forms the ideological core of our economic treatise.
Enjoy and stay fresh!
Marx and Rand together in perfect harmony
It is increasingly important that mankind take adequate time to pause and reflect as to what ideology is being tacitly or actively pursued as a guide for his daily toils. As the collective efforts of mankind reach an effectiveness that was unimaginable a generation ago, the throws of human action are having a profound impact not only on an increasingly interconnected global economy, but on the very earth which mankind has been entrusted with.
Natural Law and the Theory of Economic System Fluidity
It is no longer a safe assumption that the natural world can perpetually work to correct the mistakes in favor of mankind. A deep examination of our motives in light of the Golden Rule is desperately needed to ensure a prosperous future for many. The key to material prosperity is allowing mankind to tacitly coordinate his varied productive efforts by promoting the ideals of true capitalism in large scale dealings, for it is the ideology which best allows mankind to respond to the incessant demands of natural law. Continue reading Marx and Rand together in perfect harmony set for release!→
The world keeps turning and has become quite unpredictable. Check that, it has always been unpredictable, the realization of one’s inability to predict what will happen comes with age.
On one hand, money supply measures around the globe are going through the roof, as is indebtedness. On the other had, the underlying economy, which had barely picked itself off of the canvas, appears to be up again, ready to be pile driven once again. What is one to make of it?
The Bitcoin is once again racing ahead in USD terms, while Gold and Silver peel themselves off of the pavement after encountering a steamroller in their path (as an aside, it will be interesting just how much $1,350 gold and $23.50 silver can be delivered, our guess is, not much.)
Will Karl Marx dance with Rand?
Our upcoming eBook, Natural Law and Economic System Fluidity – Marx and Rand together in perfect harmony, wrestles with unexplained economic phenomena such as the seeming impossibly of Capitalism and Socialism coexisting in harmony with one another, which are rapidly becoming important.
The following is a brief excerpt of our latest offering, scheduled to release late this month. Enjoy!
A Tale of Two Responses to Anarchy
In the current economic debate that rages between the productive virtues of what is referred to as Capitalism and the humanistic virtues of the Socialist ideal, it has become fashionable to assume that the virtues of one system, were its guiding principles put into action at once by all of the members of society, would eventually bring about the virtues promised by the other system in a peaceful manner.
This narrow, apologetic view taken by Capitalists and Socialists alike ignores the fact that the systems are wholly incompatible. It also ignores the fact that mankind is in a constant struggle to bring order to surroundings that are inherently anarchic in nature. The only laws that must be adhered to are natural laws, which are explored in section II of this volume.
For purists on either side of the ideological fence, compromise on any point is a slippery slope, and in the sense that the two systems are wholly incompatible, the view is technically correct. However, most economists miss the fact that it is perfectly normal and beneficial for each system to operate side by side. In fact, it is the only way in which mankind can reap the benefits of both systems at once.
All humans live and operate in both systems to some extent. The Capitalistic system is best equipped to organize resources on a grand scale and provide material goods for the greatest number of people, the Socialist system is the system that offers refuge from the rigid and unrelenting demands of the Capitalistic system’s incessant response to anarchy and the demands of natural law.
This refuge is commonly referred to as the family, and it can be observed operating the world over in all shapes and sizes.
The inescapable fact that Capitalism and Socialism are at once incompatible and completely reliant upon one another is the basis for the Theory of Economic System Fluidity.
More to come as we hack and slash our way through the draft.
We leave you this Friday with some foor for thoughts on Nature’s struggle from our upcoming eBook. Enjoy!
The natural world strives daily to achieve a perfect state of balance. Events and occurrences that, taken by themselves, appear chaotic and devoid of meaning are part of a grand rebalancing of the earth’s delicate state. These events are the splash of color across an oppressive gray sky that hints at the rainbow that will soon appear.
The natural world exists in a constant state of subtle agitation and violent quakes, yet each ebb and flow in the natural world is the physical expression of a desire to achieve a state that by definition will never be perfected:
Homeostasis.
Homeostasis, the tendency toward a relatively stable equilibrium between interdependent elements, is all at once a state of being that already exists and one that will never exist, for the natural world’s constant striving towards this state ensures that a perfect balance will never be achieved.
Yet despite the constant struggles in the natural world, the clashes between immovable objects and irresistible forces, the interplay between predator and prey, and the aggregation of slow processes which unite to cause large scale natural spectacles and events, are living proof of the laws that they are governed by, a set of rules that we hold out as natural law.
Mankind, for all of its virtues, has tacitly adopted a large scale delusion with regards to the natural world. The delusion is this, that all of nature’s struggles, interplays, and slow processes can be tamed or manipulated to bring about a constant state of balance in which he can plan, build, and operate with a high degree of certainty.
The widespread belief in this delusion, while seemingly noble and painstakingly practical, has flourished and proliferated under the current monetary system, in which the monetary premium, which is the highest expression of value that can be attributed to a good, has been completely removed from the natural world and is largely attributed to debt instruments, which ultimately rest on nothing more than the well intended promises of men.
Mankind’s day to day activities, which are the result of the choices that each man or woman individually take, often unconsciously, are largely dedicated to obtaining an increased portion of the monetary premium. With this given, it holds that the activities of mankind, to the extent that they succeed in their pursuit of the monetary premium, serve to throw the natural world ever further out of its delicate balance, which in turn gives rise to nature’s need to rebalance itself in order to comply with the immutable natural laws under which it must operate.
This volume, which is the most important and forms the basis for the previous five and all subsequent volumes in the Why what we use as Money Matters series, deals with natural law and mankind’s most suitable response to its many and varied demands, the capitalistic system.
It does so by presenting the ideologic basis of the true capitalistic system, a system rooted in the principles of freedom and private property. It further examines the specific demands of natural law and mankind’s failed response to it, which is the large scale socialist system which is violently forced upon mankind through the mechanism of large scale government. The concept of the large scale socialist system is referred to throughout this volume as a product of the “might makes right,” mentality.
While mankind is a mere forty years into the present monetary experiment in which the monetary premium has been increasingly associated with debt instruments, the effects of the removal of the monetary premium from the natural world are already evident. The consequences are staggering, and are currently manifesting themselves in the natural world through a phenomenon that has been labeled climate change.
The label is woefully misleading, as the climate is not simply changing, rather, the natural world is becoming increasingly unstable as it desperately seeks to balance as the activities of men, which previously worked in relative harmony with nature, with the immutable demands of natural law.
The current debt based monetary system and its tendency towards centralized planning and decision making has not only caused significant imbalances in trade and resource allocation, it is increasingly causing the earth itself to react more and more violently as it alone strives to comply with the demands of natural law.
For mankind, once the earth’s unwitting yet faithful custodian, has become its well meaning adversary. The root of this growing antagonism between man and nature is money, and the only remedy is to return the monetary premium to its rightful place in the natural realm.
For so long as it rests solely on the hopes and dreams of mankind, the power of the monetary premium is in the employ of the most destructive force on the planet.
Much has occurred since our last correspondence. First, tragically, another act of terrorism has rocked the land of the free. Our thoughts and prayers go out to all affected. Once again, we are reminded of Robert Kennedy’s speech on the menace of violence. For those who have never heard it, it is well worth a listen.
Source IMF via the MoneyGame
Well before the twin blasts interrupted a peaceful Boston afternoon, two of our key indicators and our investment of choice here at The Mint, silver, took an unprecedented bath.
No, the data below on both the Bitcoin and Gold price are not typos. As a Goldman Report put it: “There are weeks when decades happen” or something to that effect, with regards to the action in the gold markets.
Essentially, 500 tonnes of gold were sold in the most recent selloff. Where it will come from or whether or not it will actually be delivered, nobody knows. It is certainly fodder for those who claim these markets are manipulated. Even so, there is no divine law as to what the price of things in US dollars should be. As such, those involved in the trade must accept their random fate, no matter how unjust it feels.
The Bitcoin somehow found its footing around $65 USD after crashing down to the canvas from $260.
However, the amazing, or perhaps not so amazing, if you have read our most recent eBook, part of the story is that it is still trading around $65 USD. This is an amazing commentary on the state of national currencies. How long can the central bank issued national currencies compete when a lifeless logarithm is doing their job better than they ever could?
Bitcoins: What they are and how to use them
We, along with the rest of the Bitcoin community, have been developing some innovative ideas about how to make Bitcoins more accessible to the general public. If you have $150,000 and care to help us launch the initiative more quickly (as an investor, naturally, this is not a charitable endeavor, at least, that is not the intention!) please email us for more information. You could significantly reduce our launch time in what will soon be a highly lucrative and competitive market: Building the Bitcoin infrastructure.
Perhaps our seed capital will come from none other than Zimbabwe. Those who have followed currency matters will recall that just five years ago Zimbabwe gave the world a rare glimpse of hyperinflation and one trillion dollar bill. In the now infamous words of Gideon Gono, Governor of the Reserve Bank of Zimbabwe:
“I’ve been condemned by traditional economists who said that printing money is responsible for inflation. Out of the necessity to exist, to ensure my people survive, I had to find myself printing money. I found myself doing extraordinary things that aren’t in the textbooks. Then the IMF asked the U.S. to please print money. I began to see the whole world now in a mode of practicing what they have been saying I should not. I decided that God had been on my side and had come to vindicate me.”
In a page that has since been removed from CNN’s ireport {SEE UPDATE BELOW}, we saw a rumor that Zimbabwe was poised to adopt the Bitcoin as its official currency. Perhaps Mr. Gono got a hold of our book?
{UPDATE 4/17/2013: The page has been updated and can be seen here. It now appears that Zimbabwe rumor is now official, though unverified by CNN.}
Meanwhile, as Bitcoin, Gold, Silver, and Oil crash, the monetary measures continue to spiral out of control. There are some big naked shorts out there, and Mr. Bernanke may, for a finale as Fed Chairman, borrow a page from Mr. Gono’s playbook circa 2009 in an attempt to cover them. Given the IMF’s global growth forecast, we deem it a virtual certainty.
The following is an excerpt of our brief, hastily compiled yet infinitely useful practical guide to the evolving world of Bitcoins. It is an encouragement to dive into Bitcoin acceptance, a monetary analysis of the Bitcion, a high level how to guide, and a word of caution all with a lesson in character embedded within its pages.
With any luck, it will hit digital shelves before the Bitcoin hits $200 USD, which will be tomorrow. Enjoy!
The Difficulty of Bitcoin Denominated Debt
Bitcoins: What they are and how to use them
Another rare but often unrecognized barrier to Bitcoin acceptance is the inability for the widespread formation of debt markets denominated in terms of Bitcoins. The reason that debt contracts will not be created in terms of Bitcoins has to do with the very thing that makes Bitcoins valuable in the first place: The mathematical limit on their issuance.
As of this writing, slightly over half of the 21 million Bitcoins scheduled to be created are in circulation. The rest will be emitted in decreasing increments over the next twenty years. The trajectory of the Bitcoin logarithm against the national currencies is negative, which is causing the inverse relationship in their prices.
Again, in layman’s terms, it would be a fools bet to take promise to pay a debt in Bitcoins, as they will, by definition, become increasingly difficult to obtain. If anything, one would need to factor in a Bitcoin appreciation to the debt instrument, meaning that it would have in implied negative interest rate. While we can foresee the emergence of such instruments, we also foresee that they will be too complex to be understood by most. As such, an important medium of currency acceptance, the existence of deep and liquid debt markets, will be lacking in the case of Bitcoin. While this is not a bad thing, it must be recognized by anyone who deals in Bitcoins.
The book will hit digital shelves near you shortly.
We were fortunate, or not, depending upon one’s view of mainstream economics, to attend the annual Economic Breakfast put on by US Bank. The annual address is attended by roughly 1,000 and has been given for as long as we can remember by one John Mitchell.
Mr. Mitchell is the retired head economist for US Bank, and today pledged to give the address next year should he be “alive and taking nourishment.” For his sake, we pray that he will be. His talks are heavy on data, observations, and are concluded with a poem, yes, a poem which sums up his talk. Between Mitchell’s wit and the English breakfast, it is time well spent.
Mitchell was interesting as always. He interjected speculations that the health care reform, which is set to turn the health care industry on its head, and take a few others with it, will have some “unintended consequences.”
First, he speculated that there may be an emergence of 49 person firms to duck the 50 employee threshold at which a slew of obligations are heaped on the employers. He also speculated that health insurance rates for the young would skyrocket, as rates for the aged in the population are legally bound to be no more than three times the younger persons’ premiums. Finally, he speculated that in response to the premium jumps experienced by the young and healthy, they would increasingly forgo paying health insurance and pay the famous $95 fine, which has been vehemently haggled in court, and then pick up insurance should they become ill, which of course will be their right under the health care reform.
The point that people will get creative is well taken.
He also made a couple of interesting points about the current recovery. Both related to government spending. First, he observed that this is the first recovery that has not seen an increase in government employment. Second, he presented a graph which mapped the trajectory of Federal spending from 2014 through 2023. It revealed how both interest payments and mandatory spending would begin to crowd out the part that everyone bickers about, discretionary spending.
Federal discretionary spending is where much of direct government employment flows from. Mitchell also observed that the spending sequester that was phased in on March 1 was simply a warm up, implying that the Federal government was entering a period of permanent sequestration.
In other words, the Federal government’s days of stimulating the economy in any meaningful way are done, unless a wide scale armed conflict give cause to throw fiscal caution to the wind, an outcome we expect but pray does not occur.
Near the conclusion of his remarks, Mitchell provided an appropriate anecdote for the fiscal situation in the United States via two metaphors. The first is the meteor, which he presented this way: Imagine that tomorrow we receive news that a meteor will strike the earth causing catastrophic damage in exactly 15 years. Further imagine that there is a chance to avert the disaster if all of the resources in the country were to be organized focused on the sole task of building a shield that could withstand the blast. The only catch is that work must start immediately to be completed by the time the meteor arrives.
Would Congress be able to act fast enough? Such is the Fiscal state of the US Government. The entitlement and interest burdens must be dealt with, but the government must start immediately.
We wouldn’t hold our breath.
In Mitchell’s second metaphor, he sums up the government’s current response by reminding us that there is “no fiscal tooth fairy.”
Here at The Mint, we see two outcomes, both equally disturbing. First, the Federal Reserve has been left to print the US out of the fiscal bind that it is in. Even if inflation rears its ugly head, don’t expect the Fed to be on top of it. Plan accordingly and muster real world goods while there is time to do so.
Second, there will be more talk of American’s contributing their “fair share” to the nation’s finances. The fair share, is the kind and gentle collectivist way for saying “we have run out of money so we are taking yours by force of law.”
The situation in Cyprus has shown that the governments will choose what the “fair share” at their pleasure, and the rush into Bitcoins has shown that people will increasingly shift their material wealth so that tit will not be on the radar when the government moves to collect its “fair share.”
{Editor’s Note: Beyond Bitcoins, it appears that the fleecing of depositors in Cyprus has given rise to another stream of revenue that banks can offer their customers: Private deposit insurance. Who says the government cannot stimulate the economy?}
There are numerous problems with the concept of the “fair share,” but at its base, when a government, or any entity reverts to this type of rhetoric, it seats itself as judge, jury, and jailer when it comes to everyone’s finances. However, the brutal irony is that the very fact that it must ask and determine what is everyone’s “fair share” should be means that it has fundamentally failed in its stated mission.
To serve its population.
We leave you to ponder this and Mr. Mitchell’s illuminating speech with a word of warning. Anyone claims that they can accurately determine what exactly everyone’s “fair share” should be must be summarily dismissed. For we can assure you of this:
On this April fool’s day we will attempt to lay out yet another premise. It is the underlying premise and our ultimate contribution to man’s understanding of monetary theory.
Our choice to present the premise today may mean one of three things:
1. If it is so absurd as not to be accepted by any thinking human being, we may attribute it to a cruel April fool’s joke.
2. It may be received as such a revelation that mankind will take what they have assumed to be money for a cruel April fool’s joke.
3. It just happens to be April 1st as we are writing.
We can assure you of that the third reason is absolutely true, as for which of the first two may be valid, we leave the decision up to you, fellow taxpayer.
The premise is the following: The monetary premium, which is the increase in the value of an object owed to its usefulness as a store of value, medium of exchange, and/or unit of account, must be primarily attached to a tangible good for the activities which mankind carries out to be in balance with the resources that exist in natural world.
The world has operated on a system of fiat currency, or currency by decree, on and off for as long as there has been an Empire capable of dictating what its subjects must use as money in settlement of debts. Fiat currency is not harmful in and of itself. In fact, given enough time, any fiat currency which is not flexible enough to change with the needs of the economic activity which it is intended to aid will either self destruct on its own, owed to it being eschewed in favor of a more suitable currency, or, if its use is rigidly enforced, cause the underlying economic activity to self destruct or cease, causing another form of fiat collapse.
To control what is used as money and the monetary premium represents the ultimate power in the material world. As such, such control can never be gained by force. Rather, it must be created by a great many deceptions which cause otherwise rational persons to hand over control over this most important of decisions.
For over 40 years now, much of the world has not only subjugated itself to accepting a form of fiat, it has come to accept as money the worst form of fiat, a fiat currency that comes into being as a debt instrument. As a result, mankind has attached this precious monetary premium to credit, which is not dependant upon the production of goods in the real world, nor on existing property, rather, it is primarily dependent upon the character of a man.
Today we read a list of quotations compiled by Frederick Sheehan which came to us via Credit Writedowns. Two of the quotes speak directly to the nature of credit, which will help to underscore our premise:
“Credit is not money. Credit is trust. Trust can vanish in an instant.” – Frederick J. Sheehan, March 25, 2013
In response to questioning by Samuel Untermeyer during the Pujo Committee hearings, J.P. Morgan famously made the following observations on money and credit: {Editor’s note: You may read the Pujo Committee, formally known as the Money Trust Investigation, testimonies here via the St. Louis Fed.
“Untermyer: ‘The basis of banking is credit, is it not?”
Morgan: “Not always. That is evidence of banking, but it is not the money itself. Money is gold, and nothing else.”
Then, during the same lime of testimony:
“Untermyer: “Is not commercial credit based primarily on money or property?
Morgan: “No sir, the first thing is character.
Untermyer: “Before money or property?
Morgan: “Before money or property or anything else. Money cannot buy it”
Both Sheehan and Morgan’s observations on credit are sufficient to gain an understanding of what credit really is. Most persons are conditioned to assume that credit is backed by collateral. However, were credit backed by collateral, it would cease to be credit.
The essence of credit is trust. Trust, by definition, is created by the belief in an inherently uncertain future outcome. Again, by definition, trust may not always be well placed. The plans upon which the credit and underlying trust are built may just as well not turn out as planned.
Money cannot be destroyed, it can only change hands. Credit and trust, however, can be destroyed in an instant, for they are subject to the fickle decisions and imperfect plans of men.
When money is based on trust, the world moves to a very dangerous place with regards to the planning of daily activities. This is where the world is today, circa 2013, after 40 years of what we refer to as the insane debt is money financial system.
Trust is good and necessary to a point, however, it can vanish in an instant. When there is an excess amount of trust, or promises to pay, circulating in relationship to a finite number of money, goods, and capital in the real world, there are bound to be a few broken promises.
If kept to a minimum, the economic systems which are organically created by man to trade and deal with scarcity, a state of being that we call True Capitalism, will correct the errors that result from misplaced trust which manifests itself by credits which are defaulted on. The activities of men will then return to balance with the underlying natural resources which the earth affords him.
However, if misplaced trust in the form of bad credits are allowed to perpetuate themselves, men will have no incentive to investigate whom amongst them is worthily of the trust that credit represents. This state of being will, and indeed does, cause much of the earth’s natural resources to fall into unproductive hands where it will ultimately be squandered.
Meanwhile, those who are capable will not be able to coordinate their efforts with their fellow men in any meaningful way. Indeed, the capable ones will simply learn how to take advantage of the over abundance of trust which is being created in the world.
This proliferation and misallocation, if we can call it that, of trust has two real world consequences:
1. Natural resources are wasted at an alarming rate. For this reason we believe that the placement of the monetary premium on credits has lead to the crisis that most people have come to call “Climate Change.” It was previously known as “Global warming.” This represents a myriad of symptoms whose root cause is that man’s activities are severely out of balance. The cause of this imbalance in the current situation is that man’s activities, both those worth of trust that have succeeded and those that have failed miserably, have been greatly accelerated by the dangerous mix of credit and the monetary premium that circulates as currency.
Man is in a desperate race to meet a timetable that the earth’s resources cannot provide for. The result is the severe imbalances which we are now observing. It is this, and not the industrial revolution, fossil fuels, or any of the other symptoms that is the root cause of climate change.
2. While there are a great deal of men who are busy scorching the earth with their activities, the wise have learned to concentrate their efforts not on the productive activities to which they would otherwise dedicate themselves, but to profiting from the explosion of trust and credit, from the misjudgments and miscalculations or their fellow men.
The land is either laying fallow or being scorched by the misguided activities of men, rather than being built up, as Old Jules encouraged.
However, it is not man himself or any of his inventions which constitute the root cause of the problem. Rather, it is the simple misplacement of the monetary premium on credit instruments which emits the false signals that we all either follow or are forced to follow in the planning and execution of our daily activities.
This is our premise. If one man in a million will grasp it, we can change the world. Will it be you?
At long last, the much anticipated fifth volume in our “Why what we use as Money Matters” series is available in on Amazon’s Kindle and over at Smash words.com for your immediate reading pleasure.
Pacioli’s Gift or Bernanke’s Curse?
The volume has a hero, Luca Pacioli, the Franciscan Monk who not only taught mathematics to Leonardo Da Vinci but dissimenated to Western Civilization nothing short of an economic super power.
It also has a villian, Central Banking, born of the super powers of dual-entry accounting, it uses this super power against humanity and has become dual-entry accounting’s arch nemesis.
How will it end? At this point, you’ll have to shell out $0.99 and a couple hours of your time to find out. However, by doing so, you may end up changing the world for the better. Not a bad return on investment!
We pray you will enjoy it.
Today, Bitcoins traded near $100 USD, silver and gold continued to mysteriously get crushed, and US stocks, perhaps more mysteriously, continued to defy gravity. What does it mean?
The events in Cyprus have once again caused a sort of flight to safety. Unfotunately, the flight to safety is a very crowded trade, and is causing the US Dollar to suffer from an unwelcome bout of strength, or potential deflation.
Bernanke and the Fed will never stand for it. US Dollar strength cannot be tolerated, and will be swiftly dealth with. As it is dealt with in the coming weeks, Bitcoins, gold, and silver will seem like a steal at today’s prices.
Then there is the matter of the brewing war in Persia, but speculation on that scenario must wait, for the Passover is at hand.
Today, we present to you the “postre” of our most recent eBook offering, which we have entitled, after much deliberation,
Pacioli’s Gift or Bernanke’s Curse?
It is slated to arrive on digital shelves this evening. What started as a book about the irony of dual-entry accounting enabling central banking, therefore making man’s greatest wealth producing innovation the agent of his greatest wealth destroying menace.
While it accomplishes this, it naturally spreads its tentacles into sound money, economic thought, and monetary history.
Enjoy desert, the main course will be available shortly.
Conclusion
While free markets and Free Banking represent mankind’s best hope for averting disaster, many people look at the scene on the water bed and side with the 300 pound man, who represents the central bankers of the world. After all, isn’t he the only one taking action to capture and sedate the 800 pound gorilla, whom in our metaphor represents the world’s financial markets?
Summa de Arithmetica, Geometrica, Proportioni et Proportionale – Pacioli’s great gift to Western Civilization
What this analysis fails to recognize is that the best course of action when dealing with an 800 pound gorilla is to observe it from a distance. Once the gorilla feels like it has an understanding of its surroundings, it will become docile and predictable unless it gets hungry or senses danger. If the gorilla gets hungry, one should let it find something to eat. If it senses danger, one’s reaction should not be to calm the gorilla, rather, to focus on the source of the gorilla’s agitation and act accordingly.
The 800 pound gorilla is not the problem. In fact, it can often be counted on to recognize threats and, even though its reactions may seem unpredictable, gyrations in financial markets serve as early warning signs to potential economic problems on the horizon. Once recognized, economic imbalances can be recognized and remedied.
To silence the gorilla, or the gyrations in the financial markets, is to rob mankind of an important early warning system. Circa 2013, as the efforts of the world’s central bankers to sedate the gorilla by force escalate, many a Chihuahua (our metaphor’s personification of the government) is getting trampled and the water bed of world economic activity is on the verge of springing any number of leaks.
This is an outcome that Luca Pacioli could not have envisioned, for he lived in an age and in a place where Free Banking and free markets were more or less givens. It was an age where capital formation was accelerating and the capital base from which we still operate today was being formed. All thanks to Pacioli’s unwitting effort to disseminate the methods of dual-entry accounting throughout western civilization from his humble Franciscan abode.
While it is a great irony that a Franciscan Monk, sworn to poverty, would refine and articulate the greatest wealth generating innovation known to mankind, it is an even greater irony that this innovation would enable the large-scale employment of man’s greatest threat to this wealth, modern central banking.
The unconventional measures employed by the world’s central bankers in increasing measures over the past 100 and are not only failing to achieve their stated goals of increasing employment and economic growth, they are triggering what is quickly becoming an unmitigated disaster in the fixed income markets. These markets, once the bedrock of global finance, have now been conditioned to do nothing more than attempt to front run the central banks’ interest rate cues up and down the yield curve.
Fortunately, the choice of whether to use Pacioli’s gift for good or for evil is always at hand. Even as the world suffers under the grip of modern central banking, the ultimate solution of Free Banking, the banking that Pacioli and the Venetian merchants had assumed would always exist, is waiting in the wings to save mankind from its own penchant for error. In fact, Free Banking is not something that requires a great deal of compromise and administrative rule writing as most modern legislation does.
Free Banking operates under the rules of natural law, and it can be implemented via a simple political decision to get off of the water bed and leave the gorilla alone.
Unfortunately, it is a political decision that modern governments, whose fate and existence depends upon the modern central banking model, will never take on their own. In the absence of political action, it will take the wholesale collapse of the central bank itself to rid the world of its menace.
It is the catastrophe to come, and it will leave the fortunes of many laid waste as it indiscriminately dismantles the erroneous divisions of labor and implied daily activities that it has caused mankind to organize itself under.
It is not a question of if, but when. For modern central banking will eventually give way to Free Banking out of necessity. When it happens, mankind will be allowed to continue its self-correcting path toward civility and peace.
And Luca Pacioli, if not Christopher Columbus, will be vindicated.
Today, we offer a second course on the menu of our upcoming eBook release, Pacioli’s Gift vs. Bernanke’s Curse, it is a chapter on the importance of a monetary constant when employing the methods of dual entry accounting. Enjoy!
The Presumption of a Monetary Constant
Luca Pacioli was first and foremost a mathematician. He understood that mathematics relies upon certain constants to remain, well, constant in order for the calculations that depended upon them to be meaningful. Whether or not Pacioli was conscious of the fact, implicit in his presentation of the methods of dual entry accounting is the assumption that the money in which he was directing merchants to keep their accounts on the basis of was sound money. The use of the monetary unit as a unit of account implies that he understood that money was to the economic world what constants were to mathematical calculations.
Also implicit in his assumption was that the monetary units which were to be used as units of account on the accounting ledger contained a constant weight of silver or gold which existed in the natural world. Silver and gold that had been hewn out of the ground and struck into coinage of a set weight and metallic alloy by the men at the old Zecca, the Mint of Venice in the Rialto district which preceded its famous successor was completed in 1545. This was an important assumption, as dual entry accounting only works when the accounts balance. By design, it implies that physical goods are in existence or are reasonably expected to come into existence and become available for exchange.
When Pacioli penned Summa, the Venetian Zecca was one of the largest and most reputable mints in the world. This reputation was born in no small part of a scandal at the Zecca which consummated with the Doges, who ruled Venice at the time issuing a decree on the 11th of November, 1457 against then noted variations in the weight and purity of the gold and silver coins that the Mint at Venice. As a result of this renewed commitment to monetary purity, the coins which circulated in Pacioli’s time and locale, the Silver Ducat, Soldo, Lira Sequin, and Gold Ducat, served as the standard of trade in the world known to Pacioli.
Given that the Venetian merchants could count on this sound monetary standard on which to base their accounts and, by extension, their choice of activities, their use of dual entry accounting not only benefited their own interests, but had the side effect of benefiting all who circulated and traded the Venetian coinage, whether or not they had mastered the art of dual entry accounting.
Summa de Arithmetica, Geometrica, Proportioni et Proportionale – Pacioli’s great gift to Western Civilization
For those who had mastered the art of dual entry accounting in this environment, the ability to properly recognize and record their transactions and to make sense of the results gave them a sort of super power. This super power, the ability to recognize the value of transactions over longer time horizons and therefore direct investments over longer time horizons, was further refined by Pacioli, who employed the use of Arabic numerals and proposed a system of mercantile accounting that could apply uniformly to all trades and nations.
However, dual entry accounting, as mankind is now coming to understand, is a two-edged sword. For dual entry accounting to work in favor of those who practice and/or rely upon it, the unit of account must hold a stable value. The assumption of the relatively stable value of the monetary unit in relationship to the natural world is essential for interpreting the primary output of dual entry accounting, the profit or loss signal. The stable unit of account is also essential when evaluating the worth and employment of items that are represented by entries to the balance sheet, upon which the profit or loss signal ultimately depends.
In short, the stability of the monetary unit of account was essential if dual entry was to be relied upon for sound decision-making.
For the Venetians, this requirement was met by virtue of their relatively stable monetary unit. As such, the Venetian Mercantile class rose to dominate the Western world. Indeed, with few notable exceptions, dual entry accounting has rendered an invaluable service to mankind and has allowed human progress to follow a generally upward trajectory in terms of material well-being ever since Pacioli made his bequeath to mankind.
As a stable currency enables the super powers of dual entry accounting to operate, an unstable currency, of which there are numerous examples in the largest economies in the world today, circa 2013, is its kryptonite. A currency that does not have a relatively stable value over long time horizons, specifically the time horizons required for large-scale investments of capital to be planned with the precision required for them to be successful, serves to render the gift of Pacioli powerless.
In doing so, an unstable currency threatens to take mankind from the comfort of their large screen televisions, sofas, and smart phones, and throw them back into the dark ages, from which the world that Pacioli lived in had recently emerged.
In the irony of ironies, mankind has unwittingly made use of Pacioli’s gift to create the largest system of unstable currency that the world has ever known, the one that has operated for the past 100 years. This disastrous invention is known as central banking, and it has quickly turned the world’s economy into an unmitigated catastrophe waiting to happen.
As events in the Cyrus experiment continue to unfold. here at The Mint we are watching from a distance, aghast at the implications. The sacred rule of the Financial Crisis, the one that shielded most banking clients from taking direct losses as a result of holding their funds in a weak bank in a sovereign nation without the means or the control over its currency to bail them out, has been broken.
Anyone who was unfortunate enough to be holding over 100,000 Euros in a Cypriot bank at the close of business on March 15, 2013, now stands to take a 40% bath on all “uninsured funds.”
This is a warning shot, and if you are reading these words and do not yet understand, let us spell it out loud and clear. Funds held in banks or financial institutions are sitting ducks for bankrupt governments to line their pockets with. Any wealth that one wishes to maintain must be kept close at hand in something tangible and trade-able. Bank accounts are no longer risk free assets. They never were.
How has the world come to this place, where a government would directly confiscate assets and assume that there would not be severe repercussions?
Summa de Arithmetica, Geometrica, Proportioni et Proportionale – Pacioli’s great gift to Western Civilization
We have been editing our latest e-book, which will hit digital shelves later this week if all goes well. It is volume V in our “Why what we use as Money Matters” series. In it we explore how humanity came to this point in history, what is wrong, and most importantly, the solution.
As an appetizer, we present to you the introduction. Enjoy!
Pacioli’s Gift vs. Bernanke’s Curse
An Introduction
In response to what has become known as the Financial Crisis of 2008, the Central Bankers of the world have employed nearly every form of monetary alchemy at their disposal in a desperate attempt to maintain the status quo. The status quo, which in this case means that all commercial banks and sovereign governments remain both liquid and solvent, has become increasingly difficult to maintain as each attempt to stimulate economic growth via ultra low discount rates and quantitative easing has seen a diminishing marginal return in terms of economic growth. The longer the Central Banks of the world engage in these and other forms of financial alchemy, which in the end serve as futile attempts to defy immutable natural laws, the greater the danger of a complete economic collapse becomes.
The unconventional measures employed by the World’s Central bankers in increasing measures over the past five years are not only failing to achieve their stated goals of increasing employment and economic growth, they are triggering what is quickly becoming an unmitigated disaster in the fixed income markets. These markets, once the bedrock of global finance, have now been conditioned to do nothing more than attempt to front run the FED and other Central Banks up and down the yield curve.
The action in the financial markets is akin to a 300 pound man, who represents the Central Banks, chasing an 800 pound gorilla, who represents the financial markets, around on a queen sized water bed. The action is becoming completely unpredictable and downright dangerous. Throw in the chaotic interventions of a 10 pound chihuahua, who represents the sovereign governments’ meddling in the market financial market mechanisms via commercial banking regulation and tax policy, and the entire situation is a basement flood waiting to happen.
As the chaos on the water bed, which is a metaphor for the wealth of the real world, continues to unfold, it is important to examine and understand, to the extent possible, how humanity has arrived at this critical juncture in history, where a fat man chasing a gorilla while dancing around a chihuahua on a water bed can threaten to damage the wealth of nearly everyone on the planet.
It is the aim of this volume to explore two of the oft overlooked elements that have, each in their own way, given rise to the system which enables a relatively small group of persons to the ability to destroy the accumulated wealth of mankind’s 9,000 years of toil in just over 100. Dual entry accounting, which we refer to as mankind’s greatest invention, and Central Banking, which we refer to as mankind’s greatest catastrophe.
In the end, we present what is known as “Free Banking” as the antidote for the curse of Central Banking, and the ultimate solution to the current and future financial crises that the world will suffer at the hands of well-meaning Central bankers who, it would appear, are oblivious to the destruction that their chosen profession inflicts on humanity.
On Monday, we shared with you our friend Tom’s first hand experience and general impressions with the Spain’s currency conversion from pesetas to the Euro.
The conversion to the Euro, for most practical purposes was a long, drawn out process which took two years to implement, starting with the final exchange rate peg to the Euro and culminating with the coin and bill conversion which Tom so eloquently described.
Adios Euros!
Today, thanks to the prospect of forced bail ins, the term for a levy or tax (depending upon your preferred term for asset confiscation) such as the one proposed in Cyprus which would bail out the government and/or banks, there is a run on banks throughout Iberia.
The reason is that the preference for the bail in solutions are now popping out of central banker’s mouths like pop corn. Even Ben Bernanke, slave master of the US currency, has uttered that it would be a possibility.
However, this is the twenty-first century, and bank runs aren’t what they used to be. For one thing, banks now have instant access to all of the digital currency they could possibly want. It is a simple ledger entry for the bank to replace the customer’s deposit with a Central Bank liability.
However, there is still the matter of cold, hard currency. As the Spaniards begin to withdraw currency en masse, the bank branches are bound to run out of Euros. Thanks to technology, holding Euros, either in physical or digital form, is no longer an absolute necessity and, at this point, it is extremely undesirable.
According to a report at Zerohedge.com, Spaniards are getting a crash course on Bitcoin adoption: Spain Bitcoin run has started
As the monetary authorities are just now beginning to understand the practical implications o
Bienvenido real money!
f forced bail ins, the peoples of the world are not content to stand pat while their leaders sqauble over how much to confiscate from whom. Thanks to digital solutions like the Bitcoin, Spaniards and people the world over are making a run on banks from the comfort of their own homes on their smart phones. The Euro, which took two years to implement, may be largely replaced in commerce in a matter of weeks.
Even so, the Bitcoin has its limits, as wealth held digitally has a flight risk of its own. Silver and other hard currencies do not have this problem, and the first stages of the next leg up in Silver and Gold is commencing in lockstep with the Bitcoin app downloads in Iberia. Either way, it is a unanimous democratic process whose end result will be the Euro being voted off the continent.
While the monetary authorities prepare their familiar mantra, “Keep Calm and Carry on,” the response in Iberia is ringing back “I’m Latin, I can’t Keep Calm!”
Neither should you. Here at The Mint, we have taken the step of accepting Bitcoins in exchange for silver coins to deal with this contingency. We ship worldwide and guarantee your satisfaction. If you are interested, please email us at the address below for a quote as we have yet to fully automate this process.
On our two year anniversary here at Davidmint.com, we wish to take a brief moment to thank you, our fellow taxpayers, for tuning in and reading from time to time. We pray that you are well and that we can continue to be of service to you.
In honor of this occasion, we have two announcements:
1. We are giving away 100 PDF copies of our latest eBook, “What is Truth? On the Nature of Empire” for free over the next 7 days. Click here to download your copy from our new store.
Click here for your free download – Limited time offer
2. We have launched a new store right here on the site. We are taking measures towards accepting Bitcoins and, should the need arise, other forms of digital currency in exchange for our silver coin offerings.
While the first announcement is essentially shameless self promotion, the second is one that we suspect will be taken by any number of merchants in the Silver and Gold bullion space in the not too distant future.
Why? While we do not advocate holding a significant amount of long term wealth in digital formats, it may become important to do so in the short term. It may also be important to be able to transact in Bitcoins, regardless of whether or not the proceeds are held in Bitcoins or converted via an exchange to a national currency.
As the events in Cyprus continue to unfold, we here at The Mint have taken the decision to accept Bitcoins as a form of payment for Silver bullion products. While we accept that the Bitcoin, as a purely digital medium of exchange, is not without its risks, the mere prospect of a week long banking holiday, like the one the Cypriot banks are currently on, occurring closer to home demands that we create a contingency plan.
Being locked out of the bank, as the residents of Cyprus appear to be, can be downright lethal for commerce. Should the unthinkable happen in your neighborhood, it will be essential to have a backup plan.
Silver bullion is the ultimate backup plan. Should the lights go out, it is the most likely to function as a medium of exchange once the inevitable chaos wanes into some sort of order. Should the lights stay on and one’s bank accounts be randomly frozen by a government official, the ability to trade in Bitcoins will be essential for any merchant to be able to operate.
Will it work? Only time will tell. We can already foresee one possible glitch: Bitcoins have the distinct advantage of being anonymous. This is both their strength and weakness when it comes to selling bullion via mail, as in order to properly ship coins, this anonymity is likely to be temporarily relinquished into our care (silver coins are not like delivered pizzas as they must be paid for up front). While we have no immediate plans, other than to subscribe our customers to The Mint, something we see as benign, if not beneficial.
Beyond having a plan B should the banking system become “Temporarily Unavailable” on an individual or collective basis, in theory, accepting Bitcoins is beneficial as they should theoretically continue to appreciate in value against the fiat currencies of the world. The reason for this, for the uninitiated, is that Bitcoin creation is set to occur on a fixed timeline and to be ultimately finite. As of this writing, Bitcoin adoption is running well ahead of the logarithm, which is causing massive deflation in terms of Bitcoin pricing.
Mind you, Bitcoins can be traded fractionally up to 8 decimal places. Should Bitcoin adoption continue to take off, the Bitcoin’s rigid logarithm will not allow for the Bitcoin’s continued use in commerce. This has been described as its fatal flaw. The Bitcoin will, in theory, take its place in the digital realm as “Good money” in the terminology of Gresham’s Law and exit circulation. In its place will appear a plethora of digital currencies which would then come into existence via their own logarithm and trade against the Bitcoin, as today’s fiat currencies do.
In this sense, Bitcoin is the current gold standard of digital currencies. As such, our planned acceptance of Bitcoins for Silver is like trading physical silver for digital gold, as Bitcoin’s trajectory will theoretically track that of gold with one notable exception: Barring any subsequent changes to the logarithm, there will be no new “discoveries” of Bitcoins to augment the stock.
It seems like a good trade, and one we are willing to engage in to a point. However, we must reiterate that wealth must be held in the real world to be of any worldly good, and trading in Bitcoins, while temporarily solving the problem of rapidly depreciating fiat currencies, will serve to further throw the earth out of balance. For man’s activities to achieve balance with the earth, the monetary premium must be attached to something in the physical realm, not an inordinate amount of credit or data stored on a servers.
Besides, credits and data on servers has a strange knack for disappearing when you most need them. Silver typically does not.
One last word to the wise, NEVER, EVER GO SHORT BITCOINS IN FIAT CURRENCIES, as doing so places one on the wrong side of a trade against a deep pocketed adversary: A fixed mathematical limit.
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