An economist explains quantitative easing for the uninitiated, brought to our attention via Zerohedge:
Just in case you missed it earlier, the sovereign bailouts explained:
That pretty well sums up the political and banking sector’s strategy for dealing with the present crisis.
To quote Alfred E. Neuman:
“What, me worry?”
11/2/2012 Portland, Oregon – Pop in your mints…
In our recent open letter to Evo Morales, we brought up three principles which must operate together in a society for the greatest amount of material good to come to the greatest possible amount of people. While most assume that the principles, Liberty, Private Property, and Equality before the law, can only operate via the apparatus of government, we argue that the exact opposite is the case. By necessity, the operations of government, an ultimate sovereign, would necessarily hinder the operation of these essential principles.
The reasoning is this: These principles are so important that they must be learned and respected by every member of society. At the same time, they are so basic to human nature that they are most effectively learned by simply living amongst one’s fellow human beings. As such, the more a person is exposed to the anarchic environment in which we all ultimately live, the more quickly they will master these essentials.
The apparatus of Government can only retard the most effective teacher: Hands on experience.
The recognition of the vacuum of power called Anarchy, which all systems great and small operate under, is extremely important when trying to understand the world as we know it. However, it is not the focus of today’s Mint.
Today’s Mint is focused on Free banking. Within our three great principles, Free banking generally fits under the principle of Liberty. However, as banking and currency circulation, circa 2012 is perhaps the least free area of enterprise, it deserves special consideration as we examine what true freedom consists of.
Important as it is, the concept of Free banking may seem foreign to you, fellow taxpayer, as it is to nearly every other person, great and small, on our beloved earth.
However, the concept of Free Banking is perhaps the most important thing that men today can dedicate themselves to, for it is the lack of Freedom when it comes to currency and credit which has lead to stripping of the earth’s resources and the resulting environmental problems which a number of developing nations suffer from in a disproportionate manner.
Specifically, the suppression of Free Banking has caused the activities of man to create what is an unsustainable imbalance with the demands of the earth’s natural systems.
So what is Free banking? As the name may suggest to many in the developed world, it is not a lack of monthly charges on a bank account, rather, it is the freedom for banks to compete as issuers of credit and safe keepers of currency in any form.
The current slave banking system’s fatal flaw is that it is obligated to issue credit and accept deposits in currencies which are nothing more than debt issued by a Central Bank. This constraint causes the currency created by the Central Bank to be the basis of all of man’s activities out of a necessity to pay a tax to the government in said currency.
To compound this fatal flaw, the issuing Central Banks actively manipulate the interest rates, which affect the price of the flawed currency and credit, making the value of both the credit and savings of everyone completely subject to the whims of the Central Bank.
If the currency which everyone was working for had been created legitimately by the labor of another man and its price, via the interest rate mechanism, allowed to respond to real supply and demand signals, a natural balance would be struck between credit and savings in society. This balance would express itself as conservation and eventual increase of the earth’s resources.
However, the currency which everyone is working for is nothing more than a piece of data created by a computer and printed onto a piece of paper and, via the active suppression of the interest rate mechanism, is not allowed to be properly discounted. As such, all of the labors of man are set towards destroying the earth, turning it into more pieces of paper, and depositing them into a bank in order to close out the credit account created by the computer.
We observed the zeal with which Evo Morales and other revolutionary leaders have implemented reforms by closing down a majority of the ministries of the government almost immediately upon gaining the power to do so. It is a swift move in which they attempt to consolidate their power. However, as one studies these cases, they will see that often there was one notable exception that was allowed to continue operating: The Central Bank.
The Central Bank is often seen as a sacred cow, even by those who vehemently opposite it, on the grounds that the currency and interest rates are too important to day to day life to be to the incapable hands of the people, which is what the concept of Free banking is all about.
However, it is for this very reason, the indispensible role of currency and credit in society, that currency and interest rates CANNOT be left in the hands of any one entity, no matter how much clairvoyance is attributed to them.
No one would argue that grains and fuel are important to everyday life in nearly all the earth. However, even hard core Marxists would be hard pressed to admit that all peoples would be better off were only one entity given the ability to produce and set the price for either. As such, it has been proven over and over again that the expansion of the ability to produce such indispensible items not only provides them in sufficient quantities to satisfy demand, it will do so at a price that is more or less tolerable for all (this argument, of course, is null if the price is controlled by a single entity).
While free market proponents are quick to recognize the benefits of the freedom to produce grains, fuels, and healthcare, for example, they become hardcore Marxists when it comes to currency and credit. What those who fall into this trap fail to realize is that all of the virtues of free markets are worthless if the most basic economic common denominators of currency and credit are not allowed to operate in as nature intended.
Free banking would allow free markets to solve all the problem of scarcity in currency and credit in the most efficient way possible. Why, then, is Free banking seen as the ultimate boogeyman by those in authority? It is for one reason and one reason only:
Control of currency and credit represents the ultimate authority in the material world.
While free market reforms can go a long way towards liberating the peoples of the world, the task and to close down the Central Bank and allow both the banks and the people to choose in what currency they will issue credit and maintain their savings. Far from leading to anarchic chaos, the basic need for exchange and the issuance of credit amongst humans would cause all of society who wished to trade with one another to arrive at a tacit decision as to what is best suited to serve as currency.
While in most cases, this tacit decision has arrived on Gold and Silver, the British and American empires, the most recent examples of empire, grew so wealthy that lesser metals, such as copper, were thrust into use as currency.
As a practical matter, it must be admitted that closing down the Central Bank would be a shock. For this reason, we look to solutions such as those seen in the actions of Canupa Gluha Mani, the Ithanchan of the Free Lakota Bank, as a path to free banking and the ultimate freedom of the peoples of the world.
The Lakota people declared their freedom from the sovereignty from the Government of the United States government in 2007. As an important part of this process, they knew that it would be necessary to establish their own monetary system. Further, they recognized that to simply choose another currency would again make them slaves to the creators of that currency.
To solve this problem, they opened the Free Lakota Bank and adopted what is known as the American Open Currency Standard, which is attempt to return to a balanced system of metallic weights and measures to use as currency which is recognized and traded internationally.
While this may seem now like an impossible step to take, the Peoples of the earth must enjoy free banking if they are to enjoy Liberty, Private Property, and Equality before the law in any meaningful way. For the lack of options in currencies in favor of the Central Bank’s monopoly on the issue of credit will keep the Peoples of the earth and their governments in the bonds of financial slavery until the Freedom of Banking is restored.
Free banking, by its very nature, does not obligate a people to adopt a currency standard, as the native Lakota people have. While the most likely outcome of the liberation of the currency and credit markets is for all involved to quickly settle on a new currency standard, it is necessary to guarantee that all Peoples the right to choose which currency they want to hold and to bank in. This is the only way that man can live in harmony with one another and with the natural world. This freedom is the spirit of the principle of Free Banking.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for November 2, 2012
Copper Price per Lb: $3.48
Oil Price per Barrel: $84.86
Corn Price per Bushel: $7.39
10 Yr US Treasury Bond: 1.73%
FED Target Rate: 0.17% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,677 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 7.9%
Inflation Rate (CPI): 0.6%
Dow Jones Industrial Average: 13,093
M1 Monetary Base: $2,394,100,000,000
M2 Monetary Base: $10,168,900,000,000
10/4/2012 Portland, Oregon – Pop in your mints…
There is much confusion amongst economists regarding the effects of the various programs which are currently being run by the largest of the Western Central Banking cartels known as Quantitative easing, better known by its keystroke saving acronym, QE.
For the uninitiated, QE involves the Central Bank issuing currency in exchange for government debt and all other manner of otherwise worthless financial assets provided to it by the banking class. In the best of cases, it provides liquidity for what would be a temporary hiccup in an otherwise healthy economy. In the worst of cases, which most who have taken a sober look at the financial industry would agree we are in, it serves as a backstop for financial asset prices, placing an artificial floor under the price of what passes as collateral in the financial system.
In any case, the Central Bank agrees to swap the wine of its currency for the sewage on bank balance sheets. As anyone who has put this theory to the test will tell you, if you add a teaspoon of wine to barrel full of sewage, you get sewage, while if you add a teaspoon of sewage to a barrel full of wine, you get…sewage.
Following this analogy, the existence of QE means that the currency of all of the Western world is now sewage.
While the pure, hard money Austrian school analyst sees it as a prelude to a hyperinflationary event, the Keynesian sees it as a necessary evil. At this point, there is no real argument that QE, by definition, is inflationary. However, the perverted feedback loop between the Central banks’ issuance of currency, the Governments’ issuance of debt, and the banking sector serving as an increasingly weak middleman, has managed to keep a large portion of the freshly created currency parked in either the Treasury or at the Central Bank in the form of excess bank reserves.
As the logic of the Central Bank goes, once the storm blows over, the stars will align and all of the sewage will turn back into wine. The currency created as a part of QE will simply disappear, as it never really left the FED anyway.
Simple logic, right? You can almost cut the naivety with a knife. The fact is that the freshly minted currency is here to stay. As long as the Governments, Central banks, and banking cartel exist in their present form, none of them can afford for even a cent of the sewage they have created to disappear. It is there for the long haul. All the average man or woman can hope for is that the sewage doesn’t spill off of their balance sheets or work its way to the water supply of the real economy.
All of this is old hat to fiat currency hounds and bond vigilantes. The dangerous new twist which is just now in its infancy is the application of quantum theory to the mix.
Here, we must turn to the razor sharp intellect of Mr. Walayat, whose analysis over at The Market Oracle is on the cutting edge and generally spot on.
Walayat, along with Lee Adler of the Wall Street Examiner, are amongst the handful of analysts with a true understanding of the banking system and the motives and logical consequences of the actions of the Central banking cartel.
As the currency event in Iran unfolds, those of us in the “secure” West would do well to read up on what awaits as the Western Central banks throw their inflationary machines into overdrive, what Walayat refers to as “The Quantum of Quantitative Easing, or the keystroke saver: QQE.”
The operation of QQE is simple and predictable, yet unnecessarily mind-boggling.
As in a standard QE operation, it begins with the Government issuing debt which is purchased by members of the banking cartel in exchange for currency, which it then spends on any number of pet projects. The Central Bank then buys the Government debt from the banks and receives the interest which is paid by the Government. The Banks park the currency they have received from the Central Bank at the Central Bank and earn interest on it.
QQE ensues when the Central Bank then returns to the Government the difference between the interest paid by the Government on its own debt and the interest paid out to the Banks to keep them afloat. As the Central Bank will never take a nominal loss on their debt holdings, and the Government will never default as long as QE remains in place, The Government is not borrowing at the implied interest rate that it auctions its debt at, rather, it is effectively borrowing at the rate that the banks earn on their reserves deposited at the Central bank, less the cost of the Central Bank’s operations!
Is your head spinning yet? Stay with us, it gets better. The longer that the policy of QE continues (and it will continue until the currencies of the world blow up, as the Iranian Rial is in the process of doing,) the Government is effectively swapping out its old debt, issued 30 years ago at anywhere between 11 and 14%, for new debt at an effective rate of 0.25%! Those interest savings on the rollover are the rocket fuel of QQE. They are what will allow the Governments to both ramp up spending and reduce the relative size of their balance sheet.
By the way, those “savings” come at the expense of every person and organization which holds the currency as a savings vehicle.
In order to gain a fuller understanding of just what is going on, read the articles linked in the above paragraphs at your leisure. They will help to make sense of what is occurring as we begin to see the paradox of increased government spending and reduced or stable levels of national debt.
Oh yes, and double digit real inflation rates, despite the irrelevant claims of the BLS propaganda machine. Plan accordingly, this is not a drill.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for October 4, 2012
Copper Price per Lb: $3.77
Oil Price per Barrel: $91.45
Corn Price per Bushel: $7.57
10 Yr US Treasury Bond: 1.67%
FED Target Rate: 0.16% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,790 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 8.1%
Inflation Rate (CPI): 0.6%
Dow Jones Industrial Average: 13,575
M1 Monetary Base: $2,355,800,000,000
M2 Monetary Base: $10,070,300,000,000
5/23/2012 Portland, Oregon – Pop in your mints…
“I am an atheist with regards to the world’s government, for I have chosen to live in the Kingdom of God”
Yesterday at The Mint, we took quite a ride through Portland’s plastic bag ban, bisacksuality, the virtues of non-violent protest, anarchy, atheism, and the imaginary construct of government.
If you missed it, we encourage you to give it a read as it will aid greatly in understanding today’s installment. Of course, if your prefer to jump cold turkey into today’s Mint, by all means, carry on.
And onward we must toil, for this is exceedingly important.
Yesterday we offered that the best way to test the legitimacy of government, that is, its right to govern, would be to simply live as if the government did not exist and see where resistance came from.
If resistance were to come from a solid majority, then that would lend credence to the necessity of government. If resistance were to appear in the form of a minority relying on an imaginary framework to create and enforce a series of rules, imposed by one group on other groups in order to gain or maintain an unearned privilege, the legitimacy of the government should be questioned.
Not the legitimacy of those who are governing at the time, mind you, rather, the legitimacy of the apparatus which allows such rule by the minority at the expense of the majority.
For if a majority would be materially better off by simply shedding the illusion of government, why does the idea of government persist?
Here at The Mint, we understand that the idea of government and its companion, central banking, have risen as mans’ collective response to help him deal with his anarchic surroundings.
Let’s face it, it is nice to sleep at night with the idea that someone is watching over us and our assets. Even more comfort may be found in the idea that, were something to happen to ourselves or our assets, we would probably still be taken care of.
Yet these same promises are also the promises of the Almighty God! Why, then, if one were to believe in the God of the Bible, would it make sense to attribute the power of God to a government which is by definition an assembly of fallible men?
The answer, most would say, is that God is unseen, while men, while they may be fallible, can be observed to be acting. This logic is clear. Some may even take it a step further and claim that the government is God’s agent to provide protection and provision to His people. There is certainly support for this idea in scripture. However, it is important to watch how the men act before blindly ascribing supernatural powers to them.
In the case of government, the confiscation of n
early 30% of a person’s income, which is what the average American may expect to pay in the form of Federal, State, and Local taxes, does not exactly fit with most peoples idea of the preservation of assets, nor does the idea of restricting the ability of one to own a weapon fit with the preservation of one’s life.
Yet it is clearly stated in the Bible that he who trusts in God shall be both protected and provided for.
How can this paradox be reconciled? For it is one thing to deny the existence of the unseen God. It is quite another to deny the existence of God on one hand, and on the other assign the attributes of the non existent God to an entity which consistently operates in a manner contrary to the self interest and freedom of the individual, which presumably would be the reason that an individual would deny the existence of God in the first place.
For the sake of consistency, then, the professing atheist must be a professing anarchist as well. If not, one would be at a minimum inconsistent and possbily insane to assent to most if not all of the actions of the government, for the sacrifices required by most governments on the earth far exceed those requested of humanity by the Living God.
Those who know God, on the other hand, would be inconsistent were they to declare that God is their provider and protector and then eschew what God asks of them in favor of fulfilling a requirement imposed upon them by the government when the two come into conflict with each other.
So what gives? Is it possible to be an atheist with regards to the world’s governments without living in defiance of nor toiling against them? Is it possible to simply deal with the inconveniences which appear as a result of a large part of the world’s population acting upon the belief that the government really exists?
In other words, is it possible to live in the world but not be of the world, as the apostle Paul alluded to? For to do so is to choose to live in the Kingdom of God.
The only way to know for sure is for both the atheist and the believer to peacefully and actively test the hypothesis of a government’s legitimacy by living their lives as if the government did not exist, and then patiently wait and see where any resistence to their chosen way of life came from.
Aslong as they are not stealing from of hurting anyone, they should be just fine, right?
More to come.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for May 23, 2012
FED Target Rate: 0.16% ON AUTOPILOT, THE FED IS DEAD!
MINT Perceived Target Rate*: 0.25% AWAY WE GO!
Dow Jones Industrial Average: 12,496
2/15/2012 Portland, Oregon – Pop in your mints…
The fruits of Central Planning, via the socialized monetary and credit system which is currently managed by the World’s Central Banks, are beginning to ripen, and the whole world is witnessing the latest social harvest of this doomed philosophy in Greece.
From the Associated Press:
“Tensions between Athens and other European capitals have hit new highs this week. While the European Union is officially still warning of the far-reaching dangers of a disorderly default by Greece, some politicians have in recent weeks downplayed the effects of such an event.
… While the Parliament in Athens faced down violent protests over the weekend to approve a far-reaching new austerity package, the cabinet of ministers remained locked in talks Tuesday evening over how to save an extra euro325 million demanded last week by the eurozone.”
It seems that the Greeks are having trouble accepting the well intended budgetary advice which their credit “counselors” (read overlords) in the north are so generously imposing upon them. Now that the Greeks appear to be balking at their inevitable slide towards a vassal state, the folks in the north are getting restless as their banking syndicates have quite a bit riding on the events unfolding on the shores of the Aegean Sea.
On the other side of the Atlantic, it appears that the similarly indebted US government will escape the fate of externally imposed austerity which Greece is now suffering. The Federal Reserve has made it clear that it will print money to monetize the deficits of the US Government for as long as necessary, and the Republican budget hawks have had their wings clipped with their latest capitulation on the extension of the Payroll tax holiday.
These two events, taken together, indicate that the US intends to go for broke and fully embrace the Keynesian dream of printing its way to full employment.
The obvious solution, then, would be for the Greeks to reject the Euro in favor of not the Drachma, but the infinitely flexible US Dollar.
Unfortunately for the US, and the Greeks, should they choose to join them, the Keynesian dream is quickly becoming a nightmare as the folly of central economic planning begins to express itself in the form of runaway inflation. The policy tools used in the past have succeeded only in stripping the earth and its people of the ability to make productive economic decisions. What now awaits the world is the inevitable adjustment which is likely to lead to a lower standard of living.
At this prospect, Athns burned on Sunday night, and it appears that the last bastions of austerity in the US capital threw in the towel and, for the moment, Washington is not burning.
The tragedy unfolding in Europe is a painful reminder that the power to mint money was never meant to be given, by edict, to an elect few.
Will the rest of the world learn this valuable lesson before it is too late?
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for February 15, 2012
Copper Price per Lb: $3.80
Oil Price per Barrel: $101.93
Corn Price per Bushel: $6.27
10 Yr US Treasury Bond: 1.93%
FED Target Rate: 0.12% ON AUTOPILOT, THE FED IS DEAD!
MINT Perceived Target Rate*: 1.00% AWAY WE GO!
Unemployment Rate: 8.3%
Inflation Rate (CPI): 0.0%
Dow Jones Industrial Average: 12,781
M1 Monetary Base: $2,274,500,000,000
M2 Monetary Base: $9,653,000,000,000
12/1/2011 Portland, Oregon – Pop in your mints…
The first of December has come. Contrary to “political” belief, the first of December would have arrived even if the large European bank which caused all the global fake money shuffling amongst western Central Banks to occur yesterday had been allowed to fail.
Nature cares not whether a man or woman in New York or Frankfurt raise a finger to populate a spreadsheet with a number representing something that does not exist but as a figment of the popular imagination. The sun would have set and a great majority of the world would have been none the wiser, and likely better off.
Make no mistake, the actions taken by Central Banks are made for the benefit of very few to the detriment of a great many. For this reason, we have called it Man’s Greatest Catastrophe.
The first of December always brings with it a fond memory from our youth here at The Mint.
Some 20 years ago we were in the midst of our junior year of high school. Like many our age, we preferred hanging out with friends to completing our assigned homework. A winter’s evening of that year found us doing the former while ignoring the latter.
On that particular evening, however, we were concerned. We had to write a poem for a class in which we were struggling the next day. At the time, it seemed a monumental task, made all the more impossible by leaving the task to the last minute.
We shared the dilemma with our friends that evening as we were excusing ourselves early in order to work on the poem at home.
A dear friend of our spoke up: “What does the poem need to be about?”
“Nature,” we replied.
“Hang on a minute,” replied our friend as he gathered pencil and paper and began to write. Within five minutes, he handed me the draft of a poem and said, “There, now you can stick around a bit longer!”
We were stunned, not only at the unselfishness of our friend, but at the eloquent words which he came up with in such a brief time. Our teacher, failing to see the genius and beauty in the poem, gave a merely average grade and forced us to revise and extend it. The subsequent revision, as we recall, severely diluted the beauty of the original five stanzas and attempted to resolve something that was better left to the reader to resolve.
Like so many things in life, an abundance of solutions robs people of the opportunity to think for themselves. Between television, sermons, university lectures, and government policies, life is diminished for many by listening to the voices of men in place of the sacred dialogue between a man and his God.
Our friend’s poem allowed for this dialogue.
We hope to one day be able to locate the manuscript of his masterpiece to share it with you. It is appropriately titled “The First of December” and is a moving description of a wintry scene witnessed by a man who is soon caught up in the wonder of it all. He then abruptly realizes that all that he is witnessing is occurring and will continue to occur, without his intervention, long after he is gone.
The realization humbles him.
We leave you with the last stanza which is forever etched in our memory:
“Now I must go,
But I’ll always remember,
Life in the cold,
On the first of December”
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for December 1, 2011
Copper Price per Lb: $3.53
Oil Price per Barrel: $100.14
Corn Price per Bushel: $5.95
10 Yr US Treasury Bond: 2.12%
FED Target Rate: 0.08% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,744 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.0%
Inflation Rate (CPI): -0.1%
Dow Jones Industrial Average: 12,020
M1 Monetary Base: $2,155,200,000,000 RED ALERT!!! THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base: $9,627,300,000,000 YIKES UP $1 Trillion in one year!!!!!!!
10/21/2011 Portland, Oregon – Pop in your mints…
As the western world braces for a full scale currency collapse, we have endeavored here at The Mint to offer an explanation as to why these events are taking place and, along the way, offering the obvious solution to the chief problem, mistaking credit for money.
For those of you who have missed Part I, Part II, Part II, and/or Part IV, you may read them by clicking on the following links:
If you require only a brief summary, Part IV above offers a relatively brief and comprehensive summary of the previous three. Now where were we…
Ah yes, in the United States, circa 1968, a time not so unlike our own. The Vietnam war was becoming increasingly unpopular and the social climate was ripe for protest. The US had run up a large and increasing trade deficit with the rest of the world. It was becoming clear that if foreign dollar holders were to redeem a significant amount of their Federal Reserve Notes, which we now understand to be banknotes and not money proper, for gold, which we now understand to be money proper, the Federal Reserve would not be able to deliver enough gold.
The solution, if it can be called that, was to gradually increase the amount of Federal Reserve Notes required to obtain an ounce of gold from $35 to $41 between 1968 and 1971. Then, in 1971, with the US dollar collapsing in value and the Bretton Woods system falling apart at the seams, then President of the United States Richard Nixon announced that US dollars were no longer convertible into gold. The event is now referred to as the Nixon Shock.
And a shock it was. The US dollar, the benchmark of Central Bank currencies throughout the world, was now officially backed only by the faith that it would continue to be accepted in trade. The Federal Reserve had defaulted.
Most of the world still lives by this faith today, and if anything, the delusion that a banknote issued by a Central Bank which has defaulted on its obligation to deliver real money on demand has only grown.
The reason that the large scale catastrophe of modern Central Banking lies before us is that over the last 40 years, the lack of gold and silver to back the banknotes in circulation has been replaced by the expectation that governments, and by extension their subjects (citizens), will produce enough goods and perform enough services to repay the obligations represented by the banknotes. As the unrestricted quantity of banknotes and obligations to deliver banknotes in existence will always tend to exceed the stock of available goods and services, these obligations are impossible to satisfy.
Human beings are fallible. It is normal and should be expected that they will not be able to deliver on certain obligations. The natural beauty of banknotes redeemable in gold and silver was that, if it was suspected or observed that a person or entity would be unable to pay their obligations, the creditor would move to seize the gold, silver, or other assets that the debtor had pledged as collateral.
The seizure of collateral or the threat of seizure was often enough to correct the failed human action or decisions that were leading to the net loss of wealth incurred by the activity which was undertaken. In economic parlance, we would call this the correction of the malinvestment of resources.
Without gold and silver to act as a natural limitation on the supply of banknotes and other forms of credit, the bad decisions that lead to the malinvestment and the activities that lead to the destruction of wealth and resources can continue for a very long time.
The use of gold and silver as money had another, more important function that is often overlooked. Gold and silver are inert, non-consumable objects. Their hoarding and use as money will not generally cause starvation or want. In fact, the hoarding of gold and silver as money would have the effect of lowering general prices as productivity increased, naturally creating an incentive to decrease production which in turn would raise prices, making the expenditure of more silver and gold necessary and in turn raise prices, creating a natural incentive to produce.
Gold and silver allow the economy to naturally regulate itself and, by virtue of the difficulty in extracting them, cause the rest of the earth’s resources to be used in harmony with each other.
Finally, gold and silver are inanimate objects. Their recognition and possible seizure as collateral does not threaten the liberty or life of a person. However, because modern central banking has replaced money proper and placed credit in its place, it will become increasingly common to entire societies held as security for a debt that many of them had no direct hand in creating. This is the logical end of using credit as money.
It is the truth that will bring tragedy to the earth.
Without the natural counterbalance to trade and growth which gold and silver money had provided for over 9,000 years, man’s activities, whether productive or destructive, have continued nearly unchecked for the past 40 years. It is staggering to think of the catastrophe that awaits if man is truly on the path to destruction.
Man, by nature, is always on the path of destruction, but the use of gold and silver as money served to correct him before he strayed too far down it.
Most people alive today have been trained to believe that using Gold and Silver as money is an unnecessary and environmentally harmful process. Even Adam Smith believed that if the effort expended to mine metals to create money could be directed to other, more useful activities, that humanity would be better off.
What Smith did not realize was that man would not always direct its energies to useful activities. Like modern Socialists, he underestimated the power of self interest inherent in all human action. Today we are preparing to reap the consequences of 40 years of unrestricted and more often misguided human actions.
While it may be too late to avoid the catastrophe that Modern Central Banking may bring upon us, it is comforting to know that a return to the understanding and use of gold and silver as money offers hope for a future of truly infinite possibilities.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
P.S. For more ideas and commentary please check out The Mint at www.davidmint.com
Key Indicators for October 21, 2011
Copper Price per Lb: $3.23
Oil Price per Barrel: $87.40
Corn Price per Bushel: $6.49
10 Yr US Treasury Bond: 2.20%
FED Target Rate: 0.07% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,642 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.1%
Inflation Rate (CPI): 0.3%
Dow Jones Industrial Average: 11,809
M1 Monetary Base: $2,056,000,000,000 RED ALERT!!!
M2 Monetary Base: $9,570,500,000,000 YIKES UP $1 Trillion in one year!!!!!!!
10/20/2011 Portland, Oregon – Pop in your mints…
For those of you who have missed Part I, Part II, and/or Part III, you may read them by clicking on the following links:
Again, for those of you who are too lazy to click the links, here we offer a brief summary to get you up to speed:
Central Banking is the physical expression of Man’s need to safeguard his wealth and to increase trade. A Central Bank’s usefulness and scope were greatly increased when dual entry accounting could be employed to manage a Central Bank’s accounts.
The Central Bank’s role as a storehouse of wealth has generally attracted the attention of the Government, which is the physical expression of Man’s need to protect his life. The Government, in this capacity, does not generate wealth and must maintain itself either by taxing its subjects or borrowing funds.
The Central Bank, as the repository of wealth and facilitator of trade, by default creates a majority of the banknotes which circulate in a society. As such, the Central Bank becomes the natural creditor of the Government. Whether it lends funds directly to the Government or indirectly, the result is the same. That result is that the use of its subject’s wealth by the Government is greatly facilitated by the existence of a Central Bank.
Having established the fact that some form of both a Government and a Central Bank will naturally, in some form, come into existence and become increasingly interdependent, the only question is one of the size and scope of such entities.
Today, that the scale of modern Central Banking is excessive and that the potential for catastrophe is unprecedented.
The reason for the unprecedented scope of Central Banking is that money, as it is widely understood today, does not really exist. Rather, banknotes issued by Central Banks, which are by definition credit instruments, are misunderstood to be money proper by a majority of the people in the developed and semi-developed world.
This misunderstanding flies in the face of 9,000 years of human history, in which Gold and Silver in bar and coin form have been tacitly used as money proper. It is this misunderstanding which has set the stage for the greatest catastrophe in history to occur.
|
The misunderstanding of money and credit began, like many experiments, in Northern Europe with the establishment of the Bank of Amsterdam. Established in 1609, the Bank of Amsterdam is widely recognized as at least a precursor to modern central banks. For over 400 years since it was established, the use of banknotes issued by a Central Bank which are not directly convertible to coin has slowly but steadily increased.
Modern Central banks issuing banknotes were subsequently formed in Europe, England, and Japan. As these Central banks and their successors began to slowly absorb the true money supply and issue banknotes in their place, man began to slowly transfer the concept of money proper from Gold and Silver and attribute the qualities of money to the banknotes issued by the Central Bank.
This process of wealth absorption greatly accelerated in 1913 when the United States of America granted a 100 year charter to its third Central Bank, the Federal Reserve. The FED, as it is commonly known, was to act primarily as a reserve and to create “money” (read banknotes) as necessary. At the advent of World War I, the FED stepped in and issued bonds to finance the war and after the war the FED was granted exclusive control of the money supply in the United States.
In 1933, in the midst of what was to be the great depression in the US, President Franklin D. Roosevelt signed Executive Order 6102 which required citizens to deliver all but a small amount of gold coin and bullion held by them to the FED in exchange for $20.67 worth of Federal Reserve notes (the banknotes issued by the FED) per ounce.
Naturally, most citizens with large quantities of gold at the time had it transferred to Switzerland.
Then, by decree, the Government raised the price of redeeming gold from the FED to $35 per ounce. Redemption could only be made by Foreign parties as, naturally, it was now illegal for US Citizens to own gold.
Federal Reserve notes were now the only form of “money” that an entire generation of Americans were likely to handle. However, foreigners could still redeem the Federal Reserve notes for gold, though they rarely did, at $35 per ounce.
After World War II, the US emerged as the most powerful nation on earth. It was only natural that the western governments would peg their currencies at a fixed exchange rate to the US dollar (Federal Reserve Note) which was redeemable in gold at $35 per ounce. This is commonly known as the Bretton Woods system.
The system held together for around 20 years, accepting that $35 US Dollars were as good as gold until 1968, when things began to get dangerous…
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for October 20, 2011
10/19/2011 Portland, Oregon – Pop in your mints…
For those of you who have missed Part I and/or Part II, you may read them by clicking on the following links:
For those of you who are too lazy to click the links, we do not blame you. Below we offer a brief summary to get you up to speed:
Central Banking is the physical expression of Man’s need to safeguard his wealth and to increase trade. A Central Bank’s usefulness and scope were greatly increased when dual entry accounting could be employed to manage a Central Bank’s accounts.
The Central Bank’s role as a storehouse of wealth has generally attracted the attention of the Government, which is the physical expression of Man’s need to protect his life. The Government, in this capacity, does not generate wealth and must maintain itself either by taxing its subjects or borrowing funds.
The Central Bank, as the repository of wealth and facilitator of trade, by default creates a majority of the banknotes which circulate in a society. As such, the Central Bank becomes the natural creditor of the Government. Whether it lends funds directly to the Government or indirectly, the result is the same. That result is that the use of its subject’s wealth by the Government is greatly facilitated by the existence of a Central Bank.
Having established the fact that some form of both a Government and a Central Bank will come into existence and become increasingly interdependent, the only question is one of the size and scope of such entities.
Central Banking, like alcohol and socialism, may be a good idea when used in moderation. However, each one of these also represents a catastrophe waiting to happen. For if the circumstances under which they are created or used take an unfavorable turn, the wealth and lives of many may be lost in a very short period of time.
How, when, and most importantly why will this catastrophe take place? As mere mortals, we can only answer the why and speculate as to the how and when.
Why, then, will the current system of Central Banking come to an end which will cause wealth destruction on a scale which will make the weapons of war seem like child’s play in comparison?
The answer, fellow taxpayer, is that money as it is widely understood today does not really exist.
You read correctly. What a majority of the developed and semi-developed world uses as a store of wealth, unit of account, and medium of exchange, is a figment of the collective imagination.
Allow us to explain. It is generally understood today that the value of money is not necessarily in money proper, rather the value of money is found in the ability of the bearer to exchange said money for goods and services. What is often overlooked in this observation is that, for money to be exchanged for something of value between willing participants of a transaction, what is used as money in the transaction must be universally perceived to have value that is easily transferable between parties.
Following this logic, what society uses as money is, by definition, simply another good which is widely recognizable as useful in exchange and therefore carries a price premium (we will call it the monetary premium) of a certain amount usually far above what some economists would incorrectly* call the good’s “intrinsic” value.
* We say incorrectly because value judgments, while often influenced by what are known as “market” or “intrinsic” values, are by definition made by the individuals who willingly enter into a transaction, not disinterested observers. It is for this reason that it is more accurate to appraise value by observing price points of transactions on “the margin” (i.e. transactions that are actually taking place) as opposed to appraising value based on past transactions or transactions imagined to take place in the future. Many are the hypothetical gains and losses of those who refuse to enter into transactions because they are waiting for and offer at “market prices” or the “intrinsic value” of an item.
Regardless of the monetary premium that a good may carry, whatever is used as money, by definition, must be a tangible good. Otherwise, we are dealing with credit, which is a promise to pay in money at a future date. Credit may be given in exchange in the place of money and is often traded at a discount to money delivered immediately.
The distinction between money and credit is common knowledge to but it is important to make a clear distinction in order to properly understand what happens next.
In roughly 9.000 years of human history, it has been tacitly agreed upon that silver and gold, usually in coin or bar form, are the highest and most widely recognized goods used as money and that the accumulation of silver and gold represent wealth.
As you recall, the concept of a Central Banking arose in response to the need for man to protect his wealth. You will further recall that in order to both protect wealth and facilitate trade, a Central Bank creates banknotes which represent a claim on the wealth being protected by the Central Bank.
These banknotes which the Central Bank creates are, by definition, credit and not money. They are generally the highest, least discounted, form of credit which is traded, but this does not change the fact that the banknotes are credit and thus carry an implied risk of default. This risk of default places the ultimate limit on the circulation and acceptance of the banknotes in trade.
From time to time, when a Central Bank’s ability to protect the wealth entrusted to it came into question, banknotes would be presented to the Central Bank to be redeemed for the amount of silver and gold which they represented. If the Central Bank could not produce the amount of silver and gold that was being redeemed, the Central Bank was considered to be in default and, as word of the default spread, the banknotes in circulation would trade at an ever increasing discount to real goods.
This logic further supports the fact that banknotes are credit, subject to default risk, and not money proper.
Can you now smell the impending catastrophe? Or, to put the question more directly:
What’s in your wallet? More tomorrow,
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for October 19, 2011
Copper Price per Lb: $3.25
Oil Price per Barrel: $86.11
Corn Price per Bushel: $6.38
10 Yr US Treasury Bond: 2.16%
FED Target Rate: 0.07% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,671 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.1%
Inflation Rate (CPI): 0.3%
Dow Jones Industrial Average: 11,505
M1 Monetary Base: $2,201,800,000,000 RED ALERT!!!
M2 Monetary Base: $9,554,000,000,000 YIKES UP $1 Trillion in one year!!!!!!!
Now, on to the role of Government in relation to Central Banking. If Central Banks arose because man needed someone to look after his wealth, governments arose because man needed someone to look after his life. Governments were formed in response to the natural human need for a common defense.
M1 Monetary Base: $2,201,800,000,000 RED ALERT!!!
M2 Monetary Base: $9,554,000,000,000 YIKES UP $1 Trillion in one year!!!!!!!
10/13/2011 Portland, Oregon – Pop in your mints…
As we alluded to yesterday, the Federal Reserve’s latest attempt to goose the economy, “Operation Twist,” is not only failing to achieve its stated goals, it is also triggering an unmitigated disaster in the fixed income markets. These markets, once the bedrock of global finance, have now been conditioned to do nothing more than attempt to front run the FED and other Central Banks up and down the yield curve.
To continue our waterbed analogy, it is akin to a 300 pound Ben Bernanke (Central Banks) chasing an 800 pound gorilla (the market) around on a queen sized waterbed. The action is becoming completely unpredictable and downright dangerous.
Today, as the chaos continues to unfold, we want to take a moment to examine how humanity has arrived at this critical juncture in history, where a fat man chasing a gorilla on a waterbed can threaten to damage the wealth of nearly everyone on the planet.
In order to understand this, we must travel back to the year 1492. Venice is the center of the western world and Christopher Columbus has set sail to find a new trade route to India. A Franciscan monk by the name of Luca Pacioli sits in his room and creates the outline for: Summa de Arithmetica, Geometrica, Proportioni et Proportionale.
As part of what would have otherwise been simply another boring textbook on Mathematics, Pacioli sees fit to include a section on “Details of Accounting and Recording” in which he described the accounting practices used in Venice at the time. When Summa was published in 1494, it contained what is recognized as the first complete description of dual entry accounting.
To be clear, accounting in some way, shape, or form has always been practiced. What Pacioli accomplished, perhaps unwittingly, was to disseminate throughout Europe the accounting method which had made the merchants in Genoa, Florence, and Venice the most successful in the Western World.
What makes dual entry accounting so special? Dual entry accounting, in a nutshell, is the formal recognition that every trade has a net affect on the income statement and balance sheet of an individual or enterprise.
More to the point, it enabled merchants and producers to understand which activities created wealth and therefore make informed decisions regarding which activities to undertake with their limited time and resources.
While this now seems intuitive, it is hard to overstate the benefits that the dissemination and use of dual entry accounting has bestowed on Western Civilization by enabling a greater number of persons to engage in activities which increase the capital stock and allowing them to more quickly abandon activities which deplete the capital stock (accumulated wealth) of society.
This facilitation of wealth generating activities is why dual entry accounting may be considered man’s greatest innovation.
Yet, in perhaps the greatest irony since God sending His Son, Jesus, to die in our place, dual entry accounting enabled the existence of what we are calling man’s greatest catastrophe, Modern Central Banking.
We’ll explain this great irony tomorrow in Part II.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for October 13, 2011
Copper Price per Lb: $3.31
Oil Price per Barrel: $84.61
Corn Price per Bushel: $6.38
10 Yr US Treasury Bond: 2.17%
FED Target Rate: 0.07% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,667 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.1%
Inflation Rate (CPI): 0.4%!!! UP UP UP!!!
Dow Jones Industrial Average: 11,478
M1 Monetary Base: $2,201,800,000,000 RED ALERT!!!
M2 Monetary Base: $9,554,000,000,000 YIKES UP $1 Trillion in one year!!!!!!!
You must be logged in to post a comment.