Book Reviews, Economics, Education

Finance Smurf – A Post-2008 look at a Classic Graphic Novel

8/22/2014 Portland, Oregon – Pop in your mints…

In November of 1992 Pierre Culliford, a renowned author and illustrator published a graphic novel of tremendous gravity and startling economic insight.  The novel would be his last, as on December 24, 1992, Culliford suffered a heart attack at his home in Brussels and passed away the same day.

Culliford is known by his nickname, Peyo, and he was the creator of the Schtroumpfs, who are better known by their English name, the Smurfs.

Peyo’s final novel, Finance Smurf, at long last has an English translation which became available on July 1, 2014.

Seen through the lens of post 2008 skepticism with regards to the financial system that continues to hold the world in shackles, the novel seems especially timely, and the marketing copy on the back cover, which reads:

“99% of the Smurfs have left the Smurfs Village!  No one but the Finance Smurf wants to occupy the Smurfs Village!”

appears to be nothing more than an attempt to carry on the rallying cry of the Occupy Wall Street movement of 2011.  However, as one opens the cover and peers into the world of Peyo’s Smurfs, it is clear that the author intended to call into question everything the reader thought they understood about money, and in large part, he succeeded.

Occupy Wall Street Poster
“Wall-Street-1” by http://26.media.tumblr.com/tumblr_lsd8ucoCX91qbrgmdo1_500.jpg. Licensed under Fair use of copyrighted material in the context of Occupy Wall Street via Wikipedia – http://en.wikipedia.org/wiki/File:Wall-Street-1.jpg#mediaviewer/File:Wall-Street-1.jpg

While the Smurfs are, well, the Smurfs, and as such will invariably be forever adorable and highly entertaining in the eyes of most of humanity, here at The Mint we will look past the novel’s obvious merits of providing page after page of blue colored cuteness and highlight our observations of the merits of the economic arguments and questions that it raises as well as the metaphors employed via the roles played by long-standing characters in the following review.  Enjoy!

Finance Smurf

The novel Finance Smurf is set in Smurfs Village.  It begins with the incapacitation of Papa Smurf, the Smurf who keeps Smurf Village safe and orderly, who is laid up by a laboratory accident.  In this sense, Papa Smurf may be seen as a metaphor for a benevolent dictator or embodiment of a divine being for the Smurfs.  This is important, as it is the absence of the ongoing intervention of Papa Smurf in daily life that gives room for the mischief in the novel to occur (Smurf fans will quickly recognize this plot device employed by Peyo).

It then falls to Finance Smurf to seek an antidote, which takes him to the world of humans.  It is there that he learns the concept of money and becomes fascinated by it.  It is interesting that he does not appear to immediately recognize the creation of money as a means to enrich himself.

Indeed a hallmark of the Smurfs is the communist (or socialist) structure of their life in the Village.  Here at The Mint, we do not find this odd, as we have explored in-depth here at The Mint the fact that socialism is the norm in self-supporting economic systems the size of Smurfs’ Village who have a Papa Smurf, so to speak, as a universally respected authority figure.  What drives people to Capitalism is the need to tacitly make economic decisions in the absence of a universally respected authority figure, hence Peyo’s need to sideline Papa Smurf at the outset for the narrative to play out.

Finance Smurf returns to Smurfs’ Village with the antidote, as well as a burning desire to introduce money and the human system of trade to the Smurfs.  First, he reasons that he needs gold coins with Papa Smurfs likeness on them to use as monetary units.  He goes to Painter Smurf for the artistic rendering, Sculptor Smurf for the mold for the coins, Miner Smurf for the gold (Miner Smurf, ironically, has a pile of gold sitting there which he has no use for, as he is diligently extracting flint with his pick axe). Handy Smurf then melts the gold and makes the coins using the mold.

Here we interject another observation.  The day-to-day activities of the Smurfs are dependent upon their profession (or lack thereof).  In the absence of money the Smurfs simply do what they do.  There are rarely specific value judgments made with regards to what the Smurfs do, though all of their actions appear to be motivated by the needs of their fellow Smurfs and throwing the occasional party.  This system, while idyllic, assumes that everyone wants to maintain the status quo.  The maintenance of the status quo is at once the pillar of strength and the Achilles heel of Socialism.

It is clear that for Painter Smurf, Sculptor Smurf, and Handy Smurf, the requests of Finance Smurf are outside of the status quo.  However, being good Smurfs, they go along with it and hope for the best.

With the coins made, Finance Smurf calls a meeting of all Smurfs, introduces the concept of money, and hands out an equal share of the coins to each Smurf.  The Smurfs initially do not know how to operate in the new system, so Finance Smurf helps them by doing some back of the napkin costing analysis of their activities.  It is worth noting here that this activity is also the hallmark of Socialist systems, the central planning of prices.

As the Smurfs begin to trade, the predictable begins to happen.  The productive elements of society, Farmer Smurf, Handy Smurf, Baker Smurf, and so on, soon have more coins than they know what to do with.  They take them to Finance Smurf, who is now acting as the bank, to be invested.  On the other side, artists such as Harmony Smurf and Poet Smurf find themselves short of money and then mortgage their houses to Finance Smurf.  Lazy Smurf is hardest hit.

If it was not obvious to readers to this point, Finance Smurf begins to embody Central Banks and Wall Street.  At one point, Baker Smurf calls out Finance Smurf for lending at 10% but only giving him a 6% return.  In a nod to the foreclosure crisis, Finance Smurf becomes owner of all of the real estate in Smurfs’ Village.  There is a reference to privatization of public works, as when the bridge goes out, the Smurfs look to Finance Smurf to pay for the replacement, which he does in exchange for the right to collect a toll.  Even corruption is broached as there is some price-fixing for lumber on the bridge project orchestrated by Finance Smurf.

In short, Finance Smurf comes to embody everything that everybody hates about today’s financial system.  The rest of the Smurfs, fed up with the swift disaster that the Money system introduced by Finance Smurf has brought upon them, leave to build another village.  In this action, they take the only logical step in the face of monetary tyranny.  It is a wonder that more of us do not venture out and do the same today.

In terms of economic lessons to be taken from Finance Smurfs, there is little more to be gleaned.

The remaining Social/Political lessons are taught via the intervention of Gargamel, the Smurfs’ arch nemesis.  Gargamel counterfeits coins, echoing a form of economic sabotage employed by nations at war, and lures the Smurfs to them, relying on their newfound greed to be their downfall.  Fortunately, Papa Smurf returns and wisely guides the Smurfs away from the trap.

In another odd twist, Papa Smurf, once he becomes aware of the new Money system that has been introduced during his time of incapacitation, does not act to stop it, instead, he bumbles along with it as many a powerful emeritus would do, until the Smurfs ultimately leave to build another village, safely away from the scourge of money.

Conclusions

As an adult reading Finance Smurf in the post 2008 socio-economic landscape, one gets an eerie sense that Peyo was on to something back in 1992, and cleverly communicated it to the world.  While the ongoing economic analogies presented in the novel are quite clear, Peyo proves stunningly accurate in his depiction of Finance Smurf inventing money and introducing it to the populace, along with a monopoly on usury, for in this way Central Banks unwittingly enslave the world by promulgating the debt based money supply.

The Peyo’s final triumph is his clairvoyant depiction of the Smurfs’ unanimous decision to simply leave the village that was their happy home before it became the illegitimate property of Finance Smurf, and build another village just a stone’s throw away, yet with one marked difference; the absence of money and its creator.

True to form, the Smurfs reconcile with Finance Smurf who repents of his ways.  For Smurfdom, and indeed our world, was never meant to live under the tyranny of perpetual debts.  The Smurfs in Smurfs’ Village, who had a small-scale debt problem which quickly got out of hand, simply left and went elsewhere.  Jewish law called for a Jubilee, recognizing both the necessity of money and finance for large-scale commerce and the necessity of liberation from the snares that they created amongst what would otherwise be a brotherhood of man.  What, then, is the solution for an entire world living under the scourge of a 100-year-old debt based monetary system?

Following the Smurfs may not be a bad idea after all.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Key Indicators for August 22, 2014

Copper Price per Lb: $3.20
Oil Price per Barrel (WTI):  $93.50

Corn Price per Bushel:  $3.65
10 Yr US Treasury Bond:  2.40%
Bitcoin price in US:  $518.00
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,280

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.2%
Inflation Rate (CPI):   0.1%
Dow Jones Industrial Average:  17,001
M1 Monetary Base:  $2,694,800,000,000

M2 Monetary Base:  $11,393,400,000,000

Events

Notes on recent ISIS Advances in Iraq

Once again the world is watching what is occurring in Iraq with shock, awe, and horror.  As a public service, we have compiled the following links as a primer for those curious to know what is going on and why from those more knowledgeable than ourselves:

CNN Maps of Iraq Crisis:

Maps: Crisis in Iraq

Syrian/Middle East correspondent Matt Barber’s insightful Commentary on Yazidi flight:

IS Routs Peshmerga, Takes Control of Sinjar Mountains, Jeopardizes Yazidi Homeland

Stratfor’s always insightful analysis on the subject:

The Islamic State Tries to Ward Off U.S. Intervention in Iraq

With the world, we watch and pray for peace and prepare for contingencies.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Economics

Wall Street smells the wage price spiral

8/1/2014 Portland, Oregon – Pop in your mints…

Yesterday, the US stock market finally experienced mild selloff.  Finally, we say, because it had continued to rise even as the most recent series of crises in the Middle East flared up in conjunction with the downing of Malaysia Air flight 17 in the Ukraine conflict, which has become a flashpoint for deteriorating relations between Russia and the West.

Did investors just wake up to these crises and begin to fly to safety?

Don’t kid yourself, fellow taxpayer, the events above were actually bullish for the market.  In the altered universe that the use of debt as money for the past 43 years has created, destruction and war  = GDP growth + a population submitted by fear, afraid to ask for too much while others experience sacrifice.

When debt is money and destruction is growth, war is the ultimate boondoggle.

What truly has investors spooked at the moment, albeit mildly (despite what the headlines imply) is the continued march of evidence that the proletariat is now stepping up and demanding wage increases at an alarming rate.

Employment Cost IndexTake the Employment Cost Indicator above and add it to the  number of unemployed workers per job opening below and you come to one inescapable conclusion:  The Wage price spiral is upon us.

Unemployed workers per job opening US 2014The wage price spiral, that scourge of corporate profit margins which has been accelerating since March of this year (according to our unscientific calculations here at The Mint), has finally caught the attention of Investors, who in turn are selling on the off chance that the Federal Reserve will;

1)   Take notice and,

2)   Take action by increasing interest rates

To those who have been spooked by the selloff we offer a word of comfort:  The likelihood that the Federal Reserve takes action to raise rates in a meaningful way is slim.  Assuming they were to raise rates, any action at this point would take at least 39 months to matter, crucify fixed income in the short term, and trigger large scale bankruptcies the likes of which they have spent the past 5 years trying to mop up.

However, even if the Fed had the desire to raise rates they would be unable to do so.  They have lost any meaningful control of the traditional rate mechanisms through an incomprehensible mix of monetary policy (think Quantitative Easing) and regulatory action (chiefly Dodd-Frank) some time ago.  All they have left us rhetoric, which is increasingly falling on deaf ears.

Reality is far removed from Washington DC and Wall Street.  There are very large piles of money that are on the fence between seeking safety and return, and that pile is growing faster by the minute.  The bigger it grows, the greater the likelihood that it will be deployed at a lower risk adjusted return.  The decrease in returns = increased wages to the proletariat as the pendulum swings the other way in world’s socialist monetary system.

The wage price spiral is here, and it is about to make a hot mess of markets everywhere.  Ask for a substantial raise or find another job, especially if you are in an industry with ultra-tight demand for labor.  You are likely to be pleasantly surprised.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Key Indicators for August 1, 2014

Copper Price per Lb: $3.22
Oil Price per Barrel:  $97.39

Corn Price per Bushel:  $3.55
10 Yr US Treasury Bond:  2.52%
Bitcoin price in US:  $598.00
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,293

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.2%
Inflation Rate (CPI):   0.3%Dow Jones Industrial Average:  16,498
M1 Monetary Base:  $2,825,900,000,000

M2 Monetary Base:  $11,348,900,000,000

Economics

Negative rates and the no bid Repo: It’s not your father’s overnight funding market

7/14/2014 Portland, Oregon – Pop in your mints…

A great deal has occurred since our last correspondence, most of it bad news for what passes today as monetary policy.

Fellow taxpayers have no doubt noticed that our once faithful correspondence has been less than faithful over the past several months. While explanations amongst chums the likes of which we have become are unnecessary, we offer a brief glimpse as to how The Mint has been spending his precious time as of late.

For starters, we have been frantically reconstructing 2013 and making various systems upgrades on our most recent assignment. Now that the work has been done and passed audit, we are moving through regular compliance reports and are about to begin the second part, (our personal favorite) of our not quite patented one/two accounting and treasury systems overhaul: The treasury overhaul part of the program.

Here we digress into what we consider our unique philosophy on data processing with regards to accounting information systems. If you could care less about such matters, please scroll to the next bolded heading to return to

A mere 11 years ago, we considered ourselves an accountant. We acted like an accountant, worked like an accountant, even smelled like an accountant (if indeed accountants can be said to have a smell about them.

Then we went to Spain, and had nothing short of an epiphany, which is as follows: Real business people could care less about proper accounting, they simply want the accounts collected and the bills paid, a steady stream of cash in the bank, and they want to get real-time financial metrics which will let them both know how their past decisions have fared and, more importantly, allow them to make better decisions about the future.

With this epiphany fresh in our mind, we realized that most accounting systems, while built by programmers to serve the business person, had been hijacked by accountants when they were set up, in most cases rendering the information the business person was to receive subject to seemingly infinite torture by the accountants before it could be presented, at which time the information was neither timely or useful to the business person.

With this realization, we developed our two-step approach to assisting business people in reclaiming their accounting data. The first step involves ensuring that the accounting system they are using is both adequate (it may come as a shock that many companies pay too much for systems that are no longer a good fit for them) and set up to capture and report the business’s financial data in a way that facilitates high level decision-making.

The second step involves addressing the issue of the timeliness of the data. We realized that in a great majority of transactions, the bank received the data before the accounting department did, and much valuable time and effort was wasted by waiting for the accounting department to input data into the accounting system, much of which was provided by the bank rather than internal sources, and then reconciling the system to the bank statement. The entire process was backwards, so we decided to perform data processing directly in the banks’ treasury management systems, where the transactions are initiated, approved, and executed, and have the bank data be easily uploaded into the accounting system, where it can be matched with vendor and client data and properly classified.

There you have it, it is much easier said than done, but once our program is complete, most companies we engage can get by with half of the accounting/fiscal personnel they had before, get their data in a timely and coherent manner, and usually end up saving money on their systems to boot.

In any event, between earning our daily bread in the above manner, watching the World Cup, and editing a taxonomic paper on Central American land crabs (which can be seen here: http://biodiversitydatajournal.com/articles.php?id=1161), we have been following the disintegration of the debt based currency system from a comfortable distance. Our observations on the most recent ruptures follow:

The No bid Repo: It’s not your father’s overnight funding market

In the late 1980’s, the Federal Reserve had just begun what would be a series of automatic bailouts to the larger financial system. After Black Tuesday in 1987, it became clear to most sober observers that the Fed would do everything in its power, which at the time was limited to rigging short-term interest rates, to ensure that financial markets remained liquid at all costs.

Perhaps not coincidentally, in the late 1980’s, Oldsmobile ran a series of commercials with the tagline, “it’s not your father’s Oldsmobile,” which seemed to be a vain attempt to minimize the “Old” and emphasize the “mobile” part of its name. In case you don’t remember how exhilarating it was, videoarcheology.com brings it to life for us once again:

What did the strategy of the Fed and the strategy of Oldsmobile have in common? They both assumed that demand for their product, no matter how unappealing it was, would be infinite. Oldsmobile gave up the ghost in 2004, maybe people did want their father’s Oldsmobile after all.

The Fed is still hard at work, but their product, the debt-based currency used by most financial institutions in the United States and indeed throughout the world, is going the way of the Oldsmobile.

The Federal Reserve got by for nearly 95 years by monopolizing the ability to provide something for nothing, something that appealed to governments, companies, and consumers alike. They substituted debt for money, and in the process opened up a world of possibilities never before fathomed.

The plan went well, people began to circulate the debt in place of money, with those closest to the Fed paying the least and those furthest way paying more, and people toiled day in and day out to move further up the food chain.

Sure, using debt as money left the occasional sinkhole in the economy, on those rare occasions when more debts were being cancelled than issued, but the Fed simply lowered interest rates to provide adequate incentive for people to demand more debt, lowering the perceived price of getting something for nothing.

Now, circa 2014, the Fed has lowered interest rates to zero and has taken the extra step of creating even more debt of its own to circulate. While things should be going gangbusters at the Fed factory, we open the pages of the financial news to find that:

a) The Fed can no longer control the interest rate mechanism as it did before and;

b) The Repo market, which funds $1.6 trillion in short-term loans every business day, is going no bid on an increasingly regular basis thanks to the 2010 Dodd-Frank Act, which was supposed to fix these sort of problems.

{Editor’s Note:  For a primer on the Repo Market, read this paper by the NY Fed:  Key Mechanics of the U.S. Tri-Party Repo Market, we dare you}

The Federal Reserve’s debt based monetary system has reached its theoretical limit. While the ECB has toyed with the idea of negative interest rates, the US market, specifically US Treasuries which are sucked into the Repo Market nightly, is rendering negative rates on its own, and the Fed is powerless to stop it.

In layman’s terms, the game has flipped on the Fed, and now people and companies are essentially saying “lend me $100 today, and I’ll pay you back $97 in a year and we are square.” Crazy as it may sound, this is the reality on the fringe of the credit markets, and it is the price of continuing to deal in a debt-based currency that is passed its prime.

Let’s face it, Oldsmobile wasn’t cool in 1988. They had tinkered with it to such a degree that it would never again be your father’s Oldsmobile, and that was not a good thing. In the same way, between QE, Operation Twist, and near zero short-term rate targeting, Ben Bernanke has so severely mangled the Fed’s balance sheet with his tinkering that maintaining the integrity of the US dollar and US Treasuries as any sort of measure of reliable benchmark is all but impossible.

Now, the engine of the Fed’s debt based currency is beginning to lose speed via negative nominal rates, and Janet Yellen is looking into the toolbox, only to realize that Ben left most of the tools rigged in the engine of the Fed’s Balance sheet, and that moving any one of them will cause a catastrophic failure of the currency. Not to mention that long-awaited, highly inflationary wage – price spiral is about to kick in.

Academic economists will one day struggle to explain what is happening now, while inflation rises, interest rates continue to dip further, going negative at the top of the financial food chain, and the Fed is left with nothing but rhetoric with which to attempt to execute monetary policy. This is likely to get ugly and, if possible, defy the laws of finance and perhaps even mathematics before the game is up.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for July 14, 2014

Copper Price per Lb: $3.25
Oil Price per Barrel:  $100.51

Corn Price per Bushel:  $3.78
10 Yr US Treasury Bond:  2.52%
Bitcoin price in US: $618.00
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,339

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.1%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  16,944
M1 Monetary Base:  $2,961,000,000,000

M2 Monetary Base:  $11,284,500,000,000

 

Economics, Monetary Theory, The Mint

The ECB negative rate announcement is a cannibalistic non-event

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

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

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

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

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

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

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

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

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for June 22, 2014

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

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

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

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

Economics, Personal Finance

It is Junuary in the Land of Giants

6/1/2014 Portland, Oregon – Pop in your mints…

It is Junuary. For readers who have not had the pleasure of living in the Land of Giants, Junuary is the time of year when one looks at their calendar to find it clearly indicates the month of June, yet a look outside at the rain and colder temperatures seems to confirm one’s instinct that it is indeed January.

Fortunately, one way or another, Junuary yields to July, and the summer inevitably arrives in full force in the Pacific Northwest.

The US economy appears to be enjoying a Junuary of its own. In terms of monetary policy, it is January. On one hand, as GDP clocked in at a negative 1% for the first quarter of 2014, which in hindsight is quite natural when an economy that runs on a credit based currency created by fiat absorbs a loss of $40 Billion of anticipated new money flows with more reductions to come.

Yet at the same time, it is June.  Our key indicators here at The Mint reflect a situation in which the effects of monetary policy are quite the same as they have been for some time now, from the standpoint of the real economy, Q1 was business as usual in this recovery.  {Editor’s Note:  Bitcoin, for all its detractors, has weathered the Mt. Gox bankruptcy just fine, and now sits at an astonishing $646 USD per coin.  Yet for all its price resilience, economists continue to call for regulation.  The point of Bitcoin is that it cannot be regulated, and the position that it can be regulated stems from a wrong understanding of the role of money in general and Bitcoin’s role in the monetary strata on the part of the regulators.}

Further, the FED’s favorite indicators such as Unemployment, which now sits at 6.3%, average hourly earnings, up 1.9% year over year, and headline CPI is up 1.6% with core CPI up 1.4%. Similarly, housing prices continue their meteoric rise and consumer confidence continues to improve.

Consumer Confidence Chart

So what is it? January or June? If you are a financial commentator, it looks like January, with financial disaster just around the corner despite the improved data.

However, if you look beyond the numbers to what is actually occurring, it is June, with a substantial risk of a financial forest fire. The tinder on the ground has been there for nearly 5 years now; the Federal Reserve’s relentless money creation has left fuel in every corner of the forest. The only reason the landscape has not gone up in flames as a result is that consumer have not dared start a fire of their own.

Now, consumers are beginning to start their fires, and the trifecta of lower unemployment, wage inflation, and CPI is about to catch the FED completely off guard. Their monetary medicine has a serious side effect, it creates what we refer to as a scorched earth economy, and the dose required to keep the failed system afloat during this last round may take the forest down altogether.

Junuary is here, and July is just around the corner. Inflation is about to become an important part of the economic landscape for the foreseeable future. At first, we may enjoy the pleasant kind, where housing prices and stock rise abnormally with pay bump. However, it will be followed by the unpleasant kind, where coffee and groceries take an outsized bite out of one’s paycheck. The summer will be very interesting indeed.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for June 1, 2014

Copper Price per Lb: $3.14
Oil Price per Barrel:  $102.71

Corn Price per Bushel:  $4.65
10 Yr US Treasury Bond:  2.48%
Bitcoin price in US: $646.01
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,251

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.3%
Inflation Rate (CPI):  0.3%
Dow Jones Industrial Average:  16,717
M1 Monetary Base:  $2,740,100,000,000

M2 Monetary Base:  $11,218,600,000,000

Uncategorized

A Brief Bitcoin Q&A

We were recently contacted by someone who had seen our volume on Bitcoin, cryptically entitled “Bitcoins:  What they are and how to use them” which was written on one of those weekend trysts which economic thinkers are prone to, in which a flurry of ideas flies at one’s mind from all quarters and scream to be put on paper.

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

The book, which was literally cobbled together over the span of four days, has been our bestseller recently, which naturally has more to do with Bitcoin than ourselves.

In their inquiry, the reader had three further inquiries which we present below for those who are interested in such matters.  Enjoy!

Q:  What do you think about the relation between physical and virtual currency?

The Mint:  Generally speaking, the relation between physical and virtual currencies can be judged by examining the price for the physical currency expressed in the virtual currency.  However, I think it will be helpful to make a distinction, as the concept of virtual currency is simply another extension, or “strata”, as I like to call it, of something I refer to as the “Monetary Premium.”  Allow me to explain:

The concept of currency stems from the Monetary Premium that is attached to something, ultimately giving it value in trade.  (please read this post for a description of the Monetary Premium concept and its origins: https://davidmint.com/2014/02/08/the-division-of-labor-gives-rise-to-the-monetary-premium/ )

Over time, as the division of labor has increased, the need for credit and, by extension, something by which to exchange the monetary premium (i.e. serve as money) in order to settle the debt, has increased as well to the point that, today, all currency issued by government’s is a credit instrument (a liability of the Central Bank) and has only an indirect relationship to anything physical.

Given this, virtual currency, to the extent that it is accepted in trade, is synonymous with all other forms of currency in that it represents an indirect claim on physical wealth.

What many consider to be hard, or physical currency, such as gold and silver, will then have a relationship to either virtual currencies (such as Bitcoin) or credit based currencies (such as US dollars or Brazilian reais) which is expressed as a ratio, or price.  By extension, both virtual and credit based currencies will serve as pricing mechanisms for goods and services.

I hope the above makes sense, as it is getting to a key misconception that many have regarding money in general.

Q:  What is the future of Bitcoin? 

The Mint: As with any currency, bitcoin will have value and be traded until people lose confidence in it.  That said, bitcoin has two flaws that will make it increasingly difficult to use in trade:

1)  By design, there can only be a very limited amount of debt denominated in Bitcoin.  While most see this as attractive (indeed, it is what helps support its value), it will severely hinder the expansion of Bitcoin proper in trade as the algorithm ticks closer to the limit of ~21 million Bitcoins (never mind that many Bitcoins that previously circulated are trapped in wallets on hard drives which are in rubbish heaps now, never to be “mined” again!).

2)  The limitation on Bitcoin creation will dramatically reduce incentives to support the Bitcoin transaction validation process (known as “mining”) right at the time when it is most necessary.  This is where Bitcoin will shoot itself in the foot, and nobody knows what will happen then, but what is certain is that transaction processing will become a paid feature by providers or that it will become so slow that people will gravitate away from Bitcoin to other digital currencies who have no such flaw.

What is likely to occur is that Bitcoin will assume its place as the “gold standard” against which all subsequent virtual currencies will be measured.  In the same way that many national currencies are still measured against gold on the open market, so it will be that Bitcoin, given its finite production, will become, as gold has become, little more than an important point of reference for whatever virtual currency is currently predominately used in trade.

Q:  What is the effect on the world economy?

The Mint:  While the origins of Bitcoin and other virtual currencies may have been experimental and ideological in nature, their increasing acceptance is owed to the fact that they are filling a void in trade.  Namely, mediums of communication facilitated by the Internet have expanded trade exponentially and created needs for mediums of exchange (a way to transmit the monetary premium mentioned above) that national currencies cannot keep pace with. 

The current system of national currencies and banking provide a number of barriers to currency creation which leaves a void that solutions such as Bitcoin are able to fulfill, in the process creating a windfall for those who have successfully speculated in such currencies.

The effect of virtual currencies such as Bitcoin on the world economy, then, has been and will be to further facilitate trade and, by extension, the division of labor in the world economy.  This is a very good thing as it will ultimately lead to a more perfect balance of trade, one that is not subject to the whim of a Central banker’s assessment of the need to expand or contract the money supply.

The latter has implications for the current nation-state which I won’t go into, but the people of the world now can, through the Bitcoin and broader virtual currency story, begin to envision a world economy that is not dominated by currencies emitted by National Central banks, what will happen with that vision is something that is likely to play out in our lifetimes.

Economics, Politics

Yellen and the Senate Banking Committee describe a winter economy

The Honorable Dr. Janet Yellen, Chair of the Federal Reserve, testified before the Senate Banking Committee yesterday in a ceremony that her predecessor, Dr. Bernanke, must have come to dread towards the end of his tenure.

Janet Yellen becomes the first woman to chair the Federal Reserve

Of course, towards the end, Dr. Bernanke’s tenure had been marked by the largest economic downturn in memory for most and he found himself shouldering much of the blame.  Bodies such as the Senate Banking Committee often took the opportunity to grill Bernanke on the latest financial headlines or the direct complaints from their constituents stemming from various financial debacles that had unfolded during his tenure. Be it Lehman Brothers, MF Global, or the troubled housing market, Bernanke could count on questions ranging from the dangerous to the ridiculous from committee members who were, in many cases, further removed from reality than Dr. Bernanke himself.

So it was that Yellen took the hot seat that her predecessor had dreaded yesterday before a new set of faces in order to explain what she sees in her economic crystal ball.

From what could be gathered from the mostly scripted exchange between the parties, there seems to be a range of lingering worries in the minds of policy holders as to the health of the US economy, which recently clocked in at an underwhelming 0.1% annual growth rate in Q1 of 2014.  The worries, which are no doubt rooted in recent history, range from the continued drop in labor force participation rates and what many see as a stalled out recovery in the housing market.

The US Q1 GDP number can be summed up in a phrase that Red Green was fond of, “It is winter.”  Housing markets invariably slow down over the winter months, which are generally a drag on GDP as households recover from the Q4 holiday spending binge.

Labor market participation, which surfaced as a primary concern during yesterday’s hearing, is a much more complex problem, for deep down it validates the fears of nearly every thinking economist, that the US is following in the footsteps of Japan’s demographic and economic precedent.

The real problem with the US economy was not addressed directly at this hearing, nor is it likely to ever be addressed in such a forum:  The extraordinary measures employed by the Fed back in 2008 in an effort to prop up the international banking system have forever altered the mode of transmitting credit into the economy.  This has caused a broad based reset of the banking food chain at a time when the US economy could least afford for such a change to occur.

These extraordinary measures will be with us until the US Dollar hits its breaking point, and the inevitable currency reset begins to pick up steam.  When this occurs, Dr. Yellen and the Senate Banking Committee are likely to be the last to know.

Bitcoins, Economics, Monetary Theory, Politics

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

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

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

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

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

Enjoy!

A Discussion of the Merits of Short Term Interest Rate Management

The hypothesis:

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

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

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

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

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

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

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

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

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

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

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

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

Discussion

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

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

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

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

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

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

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

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

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

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

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

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

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

Contributor C:  

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

I like above statement. 

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

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

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for April 28, 2014

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

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

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

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

Economics, Personal Finance

Basel III Liquidity Ratios

4/18/2014 Portland, Oregon – Pop in your mints…

Up until the financial crisis of 2008 and beyond, most Americans who were not alive during the early 1930’s had grown up in a world where choosing a bank was largely a matter of preference.  Once the FDIC insurance program was instituted on January 1, 1934, depositors had little to worry about.

The financial crisis that the world just experienced was a wake up call on many levels.  The first alarm rang for many Americans, members of congress included, when the Troubled Asset Relief Program (TARP) was sent on a freight train through the House and Senate under the threat of an imminent global financial meltdown.  Meanwhile, in Europe, the European Central Bank and European Union take a series of measures to shore up both their banking system as well as the finances of their member nations.

Giving away trillions of dollars to businesses who made bad decisions, while ultimately the chief function of government, is, paradoxically, politically unpopular.  As such, the governments of the world, who found themselves on the hook for losses in the financial system of a nature that many of them could not hope to understand in terms of nature and scope, began to devise a series of rules that would ensure that this sort of thing would never happen again.

So it was that, sometime in 2009, the word Basel, which until that time was a typo on a recipe card, became prevalent in the world of banking.

Basel is a city in Switzerland where the world’s banking regulators chose to meet to put their minds together as to what types of rules were needed so that the financial crisis would never happen again.  Today, five years later, the rules that they took so much time to tailor are indeed perfect for a world that existed five years ago.  As it stands today, the rules could very well be the cause of the next financial crisis.

The Basel accords and, more specifically, the Basel III Liquidity ratio, which is our focus today, are generally aimed at ensuring that large banks (those with $50 billion USD or more in assets, “too big to fail”, if you will) will always have enough liquid assets to meet the demands made on it each day.

The Basel III liquidity ratio is a simple ratio which places a banks Liquid Assets, meaning cash, Treasuries, and Agencies) over its Stressed Cash Outflows (meaning maximum foreseen withdrawals during a liquidity crisis).  The banks must report this ratio at a set time every business day.  If the ratio is over 100%, all is well.  If not, not, meaning the bank could be forced by regulators to initiate a strategy to unwind its operations.

Serious stuff.

While the numerator of the liquidity ratio is extremely simple to calculate, it is driven by the denominator, which is infinitely more complex.  This is where you and I, fellow taxpayer, come in.

Banks will be required to stratify their deposit customers well beyond the simple consumer and business account denominations that have sufficed to some degree until now.  They are now required to carefully monitor customers to better understand their daily inflows and outflows from their accounts in order to arrive at a maximum Stressed Cash Outflow number for each category of account.

As a practical matter, the bank will assign each category of customer and account a “run-off” factor, which is expressed as a % of the account’s balance on any given day that may “run” out of the bank.  Again, this number is critical for the bank, as it ultimately determines its reinvestment strategy and, by extension, how profitable a deposit customer is.

The good news is that consumer and small business accounts which are FDIC insured are, as of the most recent comment period, assigned a 3% run-off factor.  Meaning that for every $100 on deposit, the bank must buy $3 worth of Treasuries as an offset, and it is free to invest the remaining 97% in loans or other more profitable investments.

This means that competition for deposits from consumers and small businesses just got more intense, which should generally be good news for customers.  They should expect to see increased savings rates and incentives to hold both more cash and conduct more business at a specific bank, as it will be in the bank’s best interests to retain them and understand their spending habits.

The bad news begins outside of the realm of FDIC insured accounts.  For all balances over the FDIC limits for the same customers, the run-off factor, which, all things being equal, has an inverse relationship with a bank’s profitability, jumps to 10%.

For larger Corporate customers, who tend to have operating (daily transaction) and non-operating (reserve) accounts, the run-off factor jumps to 25% on operating accounts and 40% on non-operating accounts.  This makes large corporate customers somewhat less attractive.

The people that no one will want to bank with, from a run-off factor standpoint, are financial companies (think Insurance companies, small banks, etc.) who are presumed to have a run-off factor of 100%, meaning these companies, under Basel III liquidity rules, must be seen as ready to walk into the bank on any given day and withdraw all of their accounts.

In a way, the 100% run-off factor on financials makes sense, as it requires all large banks to hold Treasuries to backstop the accounts of financial companies.  It is a “regulatory” guarantee that these companies will always be liquid.

The way around the 100% run-off factor for financials and other large institutions are accounts with covenants to provide the bank with at least 30 days notice before withdrawal.  This type of notice requirement, in theory, gives the bank time to arrange its investments to be able to meet the cash outflow without impacting overall stressed cash outflows.

As one can imagine, Basel III will lead to a number of new banking products in terms of accounts and credit lines.  Briefly, this is what consumers and companies can expect to see as January 1, 2015 approaches:

1.  A dogfight for small, FDIC insured deposits.

2.  Decreased access to business lines of credit, as the Treasuries will be the default reinvestment vehicle for banks as they attempt to sort out their daily Liquidity ratio.

3.  Point 2 above means that low-interest rates on Treasuries are likely to be embedded for quite some time.

4.  Deposit products which cannot be withdrawn with less than 30 days notice without steep penalties.  One idea we have heard is a “perpetual 31 day time deposit,” meaning that the 30 day withdrawal notice requirement is embedded in the covenant, it is like an operating account that the customer has to give 30 days notice, like they would a landlord, to the bank before withdrawing.

As the Affordable Care Act has fundamentally changed the healthcare industry, Basel III will fundamentally change the banking industry.  While its aim is to forever stabilize financial markets, its implementation may be the biggest threat that financial markets have seen since late 2008.  Beyond that, it places the bedrock of finance firmly on the shoulders of sovereign bonds, which, despite being seen as completely liquid, hold a myriad of unknown risks.

Basel III, coming January 1, 2015.  The time to prepare is running out, and the time for action is upon us.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for April 18, 2014

Copper Price per Lb: $3.03
Oil Price per Barrel:  $104.30

Corn Price per Bushel:  $4.94
10 Yr US Treasury Bond:  2.72%
Bitcoin price in US:  $475.00
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,294

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.7%
Inflation Rate (CPI):   0.2%
Dow Jones Industrial Average:  16,409
M1 Monetary Base:  $2,704,700,000,000

M2 Monetary Base:  $11,330,600,000,000

Bible Teaching, Deuteronomy, GSM

A Teaching on Deuteronomy

Those who have followed The Mint over the past several years are familiar with an annual assignment which we take very seriously.  The assignment is to open the Bible as if we have never seen it before for the first 10 weeks of the year.  The assignment is given each year by Bettie Mitchell, the Founder of Good Samaritan Ministries in Beaverton, where the classes are held.

Over the past four years, we have been fortunate to explore Hosea, Matthew, Isaiah, and John.  This past February 19th and 26th we were privileged to assist in teaching the book of Deuteronomy, a book of staggering importance.

Below is a clip from the class on the 19th: 

You can see the entire teaching at the following link:

https://www.youtube.com/watch?v=bRM2WHXNyCA

If you are interested in teaching on Deuteronomy, you can access our notes, with the introduction and conclusion from James Michener’s The Source, at the following link:

A Teaching on Deuteronomy

You can also download them in here:  Deuteronomy Class Notes 2-16-2014

You can access the Powerpoint slides here:  Deuteronomy Slides

You will quickly notice two things if you take time to watch the video of the teaching and look  over the slides.  First, you will notice that there are only three slides for what will be four hours of teaching.  Second, the pace of speaking may seem slow.

We assure you that you are not imagining things.  There are indeed very few slides and our pace is purposefully slow.  On the internet, where one is accustomed to information coming at a rapid fire rate, it will feel slow.

The reason is the following:  If one is to allow the Word of the Living God to teach them, it must come out of one’s mouth, travel around the room, and be heard back into one’s own ear to assure that it has been heard and understood by all.  Only then, when it has been heard and understood by all, can it bring the people in the room together, as they were some 3,500 years ago at Kadesh Barnea, listening to Moses give his bittersweet farewell address to a people who were about to become a nation for the very first time.

It is a nation that has withstood the test of time and distance ever since that moment, and has spread from the Promised Land throughout the world, and yet remains one:  Israel.

Regardless of one’s faith or ancestry, Deuteronomy is important, for it holds the key to a number of mysteries.  As Bettie Mitchell put it:

In the cities there is confusion, in the wilderness, there is something different, something to be learned. In the wilderness, the question is not about human relationships, it is about God

Deuteronomy takes mankind to the wilderness.

 

Economics

More Evidence of the Impending Wage/Price Spiral Appears

4/2/2014 Portland, Oregon – Pop in your mints…

The wage/price spiral.  It is a nasty economic phenomenon where the labor market suddenly tightens, causing a chain reaction of relative scarcity of output, which leads to higher prices for goods, which leads workers to demand higher wages, which employers pay for by raising prices and attempting to increase output, which finds itself back staring back at the tight labor market, where each available worker now knows he or she is worth much more.

The wage/price spiral, which is generally only possible on a broad scale in times like our own, when credit passes as money, appears to be accelerating.

Graphic courtesy of Deutsche Bank Research
Graphic courtesy of Deutsche Bank Research

The tightness in the US labor market has been happening in near stealth mode.  While the Unemployment rate remains above 6.5%, the line drawn in the sand by the FED for consideration of tighter monetary policy, what is lost in the data is that Baby Boomers are retiring.  While it is true that their overall consumption will likely decrease, it is also true that their staggering output as a generation is falling even faster, leaving fewer workers to fill the gaps, especially in highly skilled positions.

What does it mean?  If you are a worker feeling squeezed by higher prices, ask your boss for a raise.  If they won’t comply, start looking for another employer.  Chances are, by the time you have found a better offer, your current employer will realize what is happening, and make you an even better offer to stay.  This is a hypothetical situation, of course, and each person must carefully consider their own situation.  However, when this spiral takes off, you will want to be well ahead of the curve.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for April 2, 2014

Copper Price per Lb: $3.04
Oil Price per Barrel:  $99.20
Corn Price per Bushel:  $5.05
10 Yr US Treasury Bond:  2.80%
Bitcoin price in US:  $469.48
FED Target Rate:  0.06%
Gold Price Per Ounce:  $1,292
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.7%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  16,541
M1 Monetary Base:  $2,694,800,000,000
M2 Monetary Base:  $11,229,900,000,000

Economics, Mint Money Supply Digest

The Great Work of Janet Yellen

3/29/2014 Portland, Oregon – Pop in your mints…

“…Sanballat and Geshem sent to me, saying, ‘Come, let us meet together in the villages in the plain of Ono.’ But they intended to harm me.

            I sent messengers to them, saying, ‘I am doing a great work, so that I can’t come down.  Why should the work cease, while I leave it, and come down to you?’  They send to me four times like this; and I answered them the same way…”

– Nehemiah 6:3

Nearly 30 days and nights have passed since our last correspondence, fellow taxpayer, and we, like Nehemiah, have only one excuse:

We are doing a great work.

Nehemiah’s great work, referred to above, was to rebuild Jerusalem, the Holy City.  He found that, though he had been given authority to perform the work, on the ground, he often encountered hostility and detriments to the work that came from quarters where he had reason to expect help or, at a minimum, indifference.

Our great work at the moment, fellow taxpayer, is to concurrently rebuild a Fiscal department and restore an accounting record that has fallen into disrepair, all while undergoing an annual audit and responding to the day-to-day tasks and myriad of reporting requests which come with the territory of modern financial management.

{Editor’s Note:  While it is a subject for another day, we must comment on the tool of the trade that is being employed in the great work, the Yardi Voyager accounting software.  We last touched Yardi over 10 years ago and, while the software retains many of its origins, the current version is a beast in terms of cloud processing.  We reckon that, given the correct tactician at the helm (which we humbly consider ourselves to be), accounting records in Yardi can be administered by considerably fewer finance staff than many competitors.}

For the moment, we face no hostility and, generally speaking, the finance profession is free from mortal danger.  However, there is great interest in the work as there are ultimately a great number of interested parties, and we find that, like Nehemiah, we are often called to the ‘villages in the plain of Ono’ for other matters.

There are risks in undertaking any great work, and there is also great exhilaration in making progress and ultimately, after facing all of the difficulties and suffering through the doubts of naysayers, doing the impossible.

Janet Yellen’s Great Work

Janet Yellen came onto the job as the Federal Reserve’s first Chairwoman on February 3, 2014, just 10 days after we began our great work.  Unlike ourselves, Yellen has had the benefit of watching her predecessor hone his craft as Vice Chairman for four years and has enjoyed the benefits of the revolving door between government and academia since the early ’80s.

In other words, Yellen has no real world experience, which is a prerequisite to serve in any high-ranking office in America, circa 2014.

A Shameless plug on our volume dealing with the constant unity of Capitalism and Socialism
A Shameless plug on our volume dealing with the constant unity of Capitalism and Socialism, click to purchase

According to her dossier, it counts among her previous great works a study dealing with East Germany’s integration into the German economy upon the reunification of the country. {Editor’s Note:  For those to young or indifferent to recall such matters, the East German integration was a major windfall for West Germany at the time, who then (1990) was jockeying for position in what was to be the European Union.  The reunification caused 16 million more Germans to appear overnight, giving the unified Germany a considerable voice in the negotiations.}  Beyond this, Yellen is given credit for a form of clairvoyance regarding the financial crisis in 2007, apparently seeing something amiss from her post as the President of the San Francisco Fed (she must have seen Jim Cramer’s rant in July).

Janet Yellen now has a new great work to undertake as Chairwoman of the Federal Reserve.  While she was likely performing many of Bernanke’s tasks from at least October of last year when President Obama nominated her as Bernanke’s successor, one task that could not be delegated was that of the press conference.

As such, Yellen took the stage on March 19th, 2013 and dutifully attempted to explain the rationale for the decisions of the Federal Reserve’s FOMC regarding short-term interest rates and its Quantitative Easing programs.

The press conferences, which began under Ben Bernanke, were meant to clear up any confusion, which may have been read into the numbers and written statements provided by the FOMC which had until then served as the primary window for the outside world into the machinations of the committee which decides how much credit will be conjured out of thin air.

For some reason, perhaps the novelty, the press conferences have taken on a life of their own.  The reason for this is that, while the FOMC may have deliberated and arrived at a consensus regarding their curious task, the person who gives the press conference ultimately has the last word and, though the event is meant to be carefully scripted, it cannot help but introduce an element of uncertainty into a process (the conjuring of credit out of thin air) which already defies the laws of economics and indeed works in direct opposition to nature herself.

At minute 20, which we have clipped below, Jon Hilsenrath of Wall Street Journal calls out the fact that there is an upward drift in a dot plot reflecting expectations for short-term interest rates of the individuals on the committee, and how one should reconcile that with the guidance given in the FOMC statement.

Yellen deflects Hilsenrath from the dot plots and then goes on to target the end of 2016 as the time when rates will likely rise.  She also calls out 6.5% as the target for the unemployment rate, and reiterates the eternal 2% target for inflation as triggers for tightening.  As you can see below, unemployment clocked in at 6.7%, meaning tightening could be around the corner.

This degree of upside uncertainty, which Yellen interjected as part of her great work at the press conference, managed to spook markets, as, while 2016 may be a long ways off in Yellen’s mind, as it would be when one is waiting to obtain their driver’s license, for those who are writing bonds today based on the Fed’s guidance, 2016 is in many cases a thing of the past, and Yellen’s utterances shattered a countless number of assumptions that the bond market had begun to hold dear.

Conjuring credit out of thin air is risky business as it is, and when those who are primarily responsible for it attempt to explain their actions, things can become incoherent in a hurry.

In the near future, we may hear Yellen uttering Nehemiah’s refrain the next time she is called to the press conference,

“I am doing a great work, so that I can’t come down.  Why should the work cease, while I leave it, and come down to you?”

For the last time Yellen came down, fixed income nearly imploded.  The risky business of conjuring credit out of thin air is best performed in the dark, if at all.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for March 29, 2014

Copper Price per Lb: $3.02
Oil Price per Barrel:  $101.07
Corn Price per Bushel:  $4.92
10 Yr US Treasury Bond:  2.71%
Bitcoin price in US:  $501.24
FED Target Rate:  0.08%
Gold Price Per Ounce:  $1,295
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.7%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  16,323
M1 Monetary Base:  $2,694,800,000,000
M2 Monetary Base:  $11,229,900,000,000

Bitcoins, Monetary Theory

Mt Gox, we hardly knew ye

3/3/2014 Portland, Oregon – Pop in your mints…

While the digital currency Bitcoin continues to rise in value relative to the US Dollar, one of the mainstays of the Bitcoin universe, Mt Gox, appears to have exited the industry after a series of digital heists in the form of hacks into the exchange’s hot wallet (the exchange’s interface with the broader Bitcoin market) left what was once the world’s most important Bitcoin exchange insolvent.

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

When Mt Gox imploded on February 25th, it took with it one of the largest bridges between the Bitcoin universe and the national currencies of the world.  It also took with it one of the largest pools of liquidity in the digital currency realm.  As a result, the digital currency traded below $300 for the first time since November 2013.

While the events which unfolded on that fateful February day last week have caused many a Bitcoin naysayer to blurt out, “I told you so,” evidence of the actual demise of Bitcoin and other digital currencies has been lacking.  After all, it wasn’t as if the Bitcoin blockchain itself that imploded.  On the contrary, the demise of Mt Gox may have been the best thing to happen to the Bitcoin industry.

Mt Gox grew from its humble beginnings as an online exchange for Magic: The Gathering cards to dominate the Bitcoin trade, which it entered into in 2011.  On June 11th, not long after it entered the Bitcoin game, it suffered the first of what would be several security breaches.  After all, in the Bitcoin Universe, all Mt Gox had was just another wallet.  The fact that it was seen as one of the largest wallets made it a natural target.

In April of 2013, when Mt Gox was in its heyday, processing roughly 70% of all Bitcoin trades, it suffered another well publicized hack.

Through all of its setbacks, Mt Gox was able to soldier on and execute trades, despite being short, as revealed over the past week, roughly 750,000 Bitcoins.  It is our suspicion that Mt Gox was able to cover shortfalls in the past by mining Bitcoins to cover those that had been stolen.  Over the course of the past year, with Bitcoin touching roughly $1,200 USD at certain points in time, mining again became lucrative as the rate of Bitcoin generation began to plateau, leaving any player who was short Bitcoin in an extremely difficult situation.

While those of us who, until recently, looked to Mt Gox for the Bitcoin market price as a silver trader looks to the Comex, it will take some minor adjustments, but life in Bitcoin land will move on and, from the looks of things, be more stable and vibrant.

For those who stored a great deal of Bitcoin denominated wealth directly on Bitcoin’s wallet, the outcome, it would appear, is much more tragic.

Does Mt Gox’s demise signal the demise of Bitcoin?  On the contrary, it may have ushered in Bitcoin’s golden age as the standard by which all subsequent digital currency offerings are measured.

The case for Bitcoin remains extremely compelling once one grasps what Bitcoin represents.  Bitcoin is operating as an indirect claim on assets, nothing more, nothing less.  In this sense, it is similar to equities and central bank currencies.  Once this is properly understood, a quick look at Bitcoin’s fundamentals will reveal why the Bitcoin/USD ratio is on a roller coaster ride tilted upwards until the rails come off the track.

Enjoy the ride, but keep an eye on the exit, you may need a parachute!

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for March 3, 2014

Copper Price per Lb: $3.20
Oil Price per Barrel:  $104.73

Corn Price per Bushel:  $4.70
10 Yr US Treasury Bond:  2.75%
Bitcoin price in US:  $672.00
FED Target Rate:  0.07%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,350

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.6%
Inflation Rate (CPI):   0.1%
Dow Jones Industrial Average:  16,168
M1 Monetary Base:  $2,658,300,000,000

M2 Monetary Base:  $11,121,500,000,000

Economics, Monetary Theory, The Mint

The Division of Labor Gives Rise to the Monetary Premium

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

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

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

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

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

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

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

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

Limitations on the Division of Labor and Monetary Premium

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

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

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

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

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

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for February 8, 2014

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

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

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

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

Anarchy: Athiesm with Regards to Government, Empire, Politics, Strategy

Robert D. Kaplan’s Clairvoyance on Emerging Anarchy

2/6/2014 Portland, Oregon – Pop in your mints…

Robert D. Kaplan, Stratfor’s Chief Geopolitical Analyst, published in interesting report yesterday recounting his clairvoyance in predicting the rise of anarchic rule in certain African states (predictions that came to pass) and the general erosion of state governance throughout the world.

Anarchy as an Ultimate GivenKaplan’s observations are of particular interest to us, as we hold the belief that Anarchy is an Ultimate Given, meaning that groups of people tend to search for a coordinated approach to their inherently anarchic surroundings, the most recent of which has been the democratic nation state.

While Kaplan’s analysis appears to paint a picture of chaos and lawlessness, which indeed are the hallmarks of regime change, we see democratic nation states and their attendant monetary regimes as things that the world is currently shedding for its ultimate betterment, as they now serve to restrict trade instead of facilitating it as once was their chief contribution to the livelihood of the governed.

The continued adoption of communication via the internet is moving toward a state of maturity from which the natural progression towards internet facilitated trade amongst parties is causing the world to eschew the label of their respective nation state and replace it with one of religion or other shared affinities which are readily accessible given the pace of mobile communication expansion.

Kaplan also makes a clear distinction between the need for strong governance of urban societies whereas rural/agrarian societies tend to govern themselves, a point that is lost on most observers, not the least of which are the political classes in the current nation state, which tend to focus on national borders as the only limitations to their sphere of influence.

While Kaplan’s analysis is interesting and serves to explain what is likely to continue to occur for the next 5 to 20 years in terms of the erosion of central governments, he appears unable to speculate as to what form the governing body of a large geographical area would take.

As such, we will speculate for him.  The world is in the process of segregating itself into phyles, or groups of people aligned in terms of ideologies, be they religious or otherwise, independent of geographic location.  These phyles will tend to unite, geographically where possible, but primarily through trade relationships.  Once these trade relationships are established, the increased division of labor will resume within the phyles, giving rise to a true increase in the Monetary premium of items that up until now have not been identified as money.

Bitcoin is one example of what is essentially a pure monetary premium transmitter.  As the nation states continue to crumble, the foundations for new societies united by ideology and/or trade relations are already being laid, and we hope and pray for a peaceful transition onto them for all, as the failed model of the democratic nation state based on mere borders must be laid to rest peacefully for humankind to truly prosper.

Without further ado, Robert D. Kaplan…

Why So Much Anarchy?

By Robert D. Kaplan

Twenty years ago, in February 1994, I published a lengthy cover story in The Atlantic Monthly, “The Coming Anarchy: How Scarcity, Crime, Overpopulation, Tribalism, and Disease are Rapidly Destroying the Social Fabric of Our Planet.” I argued that the combination of resource depletion (like water), demographic youth bulges and the proliferation of shanty towns throughout the developing world would enflame ethnic and sectarian divides, creating the conditions for domestic political breakdown and the transformation of war into increasingly irregular forms — making it often indistinguishable from terrorism. I wrote about the erosion of national borders and the rise of the environment as the principal security issues of the 21st century. I accurately predicted the collapse of certain African states in the late 1990s and the rise of political Islam in Turkey and other places. Islam, I wrote, was a religion ideally suited for the badly urbanized poor who were willing to fight. I also got things wrong, such as the probable intensification of racial divisions in the United States; in fact, such divisions have been impressively ameliorated.

However, what is not in dispute is that significant portions of the earth, rather than follow the dictates of Progress and Rationalism, are simply harder and harder to govern, even as there is insufficient evidence of an emerging and widespread civil society. Civil society in significant swaths of the earth is still the province of a relatively elite few in capital cities — the very people Western journalists feel most comfortable befriending and interviewing, so that the size and influence of such a class is exaggerated by the media.

The anarchy unleashed in the Arab world, in particular, has other roots, though — roots not adequately dealt with in my original article:

The End of Imperialism. That’s right. Imperialism provided much of Africa, Asia and Latin America with security and administrative order. The Europeans divided the planet into a gridwork of entities — both artificial and not — and governed. It may not have been fair, and it may not have been altogether civil, but it provided order. Imperialism, the mainstay of stability for human populations for thousands of years, is now gone.

The End of Post-Colonial Strongmen. Colonialism did not end completely with the departure of European colonialists. It continued for decades in the guise of strong dictators, who had inherited state systems from the colonialists. Because these strongmen often saw themselves as anti-Western freedom fighters, they believed that they now had the moral justification to govern as they pleased. The Europeans had not been democratic in the Middle East, and neither was this new class of rulers. Hafez al Assad, Saddam Hussein, Ali Abdullah Saleh, Moammar Gadhafi and the Nasserite pharaohs in Egypt right up through Hosni Mubarak all belonged to this category, which, like that of the imperialists, has been quickly retreating from the scene (despite a comeback in Egypt).

No Institutions. Here we come to the key element. The post-colonial Arab dictators ran moukhabarat states: states whose order depended on the secret police and the other, related security services. But beyond that, institutional and bureaucratic development was weak and unresponsive to the needs of the population — a population that, because it was increasingly urbanized, required social services and complex infrastructure. (Alas, urban societies are more demanding on central governments than agricultural ones, and the world is rapidly urbanizing.) It is institutions that fill the gap between the ruler at the top and the extended family or tribe at the bottom. Thus, with insufficient institutional development, the chances for either dictatorship or anarchy proliferate. Civil society occupies the middle ground between those extremes, but it cannot prosper without the requisite institutions and bureaucracies.

Feeble Identities. With feeble institutions, such post-colonial states have feeble identities. If the state only means oppression, then its population consists of subjects, not citizens. Subjects of despotisms know only fear, not loyalty. If the state has only fear to offer, then, if the pillars of the dictatorship crumble or are brought low, it is non-state identities that fill the subsequent void. And in a state configured by long-standing legal borders, however artificially drawn they may have been, the triumph of non-state identities can mean anarchy.

Doctrinal Battles. Religion occupies a place in daily life in the Islamic world that the West has not known since the days — a millennium ago — when the West was called “Christendom.” Thus, non-state identity in the 21st-century Middle East generally means religious identity. And because there are variations of belief even within a great world religion like Islam, the rise of religious identity and the consequent decline of state identity means the inflammation of doctrinal disputes, which can take on an irregular, military form. In the early medieval era, the Byzantine Empire — whose whole identity was infused with Christianity — had violent, doctrinal disputes between iconoclasts (those opposed to graven images like icons) and iconodules (those who venerated them). As the Roman Empire collapsed and Christianity rose as a replacement identity, the upshot was not tranquility but violent, doctrinal disputes between Donatists, Monotheletes and other Christian sects and heresies. So, too, in the Muslim world today, as state identities weaken and sectarian and other differences within Islam come to the fore, often violently.

Information Technology. Various forms of electronic communication, often transmitted by smartphones, can empower the crowd against a hated regime, as protesters who do not know each other personally can find each other through Facebook, Twitter, and other social media. But while such technology can help topple governments, it cannot provide a coherent and organized replacement pole of bureaucratic power to maintain political stability afterwards. This is how technology encourages anarchy. The Industrial Age was about bigness: big tanks, aircraft carriers, railway networks and so forth, which magnified the power of big centralized states. But the post-industrial age is about smallness, which can empower small and oppressed groups, allowing them to challenge the state — with anarchy sometimes the result.

Because we are talking here about long-term processes rather than specific events, anarchy in one form or another will be with us for some time, until new political formations arise that provide for the requisite order. And these new political formations need not be necessarily democratic.

When the Soviet Union collapsed, societies in Central and Eastern Europe that had sizable middle classes and reasonable bureaucratic traditions prior to World War II were able to transform themselves into relatively stable democracies. But the Middle East and much of Africa lack such bourgeoisie traditions, and so the fall of strongmen has left a void. West African countries that fell into anarchy in the late 1990s — a few years after my article was published — like Sierra Leone, Liberia and Ivory Coast, still have not really recovered, but are wards of the international community through foreign peacekeeping forces or advisers, even as they struggle to develop a middle class and a manufacturing base. For, the development of efficient and responsive bureaucracies requires literate functionaries, which, in turn, requires a middle class.

The real question marks are Russia and China. The possible weakening of authoritarian rule in those sprawling states may usher in less democracy than chronic instability and ethnic separatism that would dwarf in scale the current instability in the Middle East. Indeed, what follows Vladimir Putin could be worse, not better. The same holds true for a weakening of autocracy in China.

The future of world politics will be about which societies can develop responsive institutions to govern vast geographical space and which cannot. That is the question toward which the present season of anarchy leads.

Why So Much Anarchy? is republished with permission of Stratfor.

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Monetary Theory, To Build up the Land, True Capitalism

Why What We Use as Money Matters Trailer released

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

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

WWWUAMM BannerPick up your copy today and stay fresh!

 

Fresh ideas on Economics, Monetary Theory, Politics, and Less Pressing but Equally Entertaining Matters for the English and Spanish speaking worlds