Tag Archives: Dual Entry Accounting

The 800 Pound Gorilla and Pacioli’s Gift

3/27/2013 Portland, Oregon – Pop in your mints…

Today, we present to you the “postre” of our most recent eBook offering, which we have entitled, after much deliberation,

Pacioli’s Gift or Bernanke’s Curse?

It is slated to arrive on digital shelves this evening.  What started as a book about the irony of dual-entry accounting enabling central banking, therefore making man’s greatest wealth producing innovation the agent of his greatest wealth destroying menace.

While it accomplishes this, it naturally spreads its tentacles into sound money, economic thought, and monetary history.

Enjoy desert, the main course will be available shortly.

Conclusion

While free markets and Free Banking represent mankind’s best hope for averting disaster, many people look at the scene on the water bed and side with the 300 pound man, who represents the central bankers of the world.  After all, isn’t he the only one taking action to capture and sedate the 800 pound gorilla, whom in our metaphor represents the world’s financial markets?

Luca_Pacioli_Gemaelde by Jacopo de' Barbari circa 1496
Summa de Arithmetica, Geometrica, Proportioni et Proportionale – Pacioli’s great gift to Western Civilization

What this analysis fails to recognize is that the best course of action when dealing with an 800 pound gorilla is to observe it from a distance.  Once the gorilla feels like it has an understanding of its surroundings, it will become docile and predictable unless it gets hungry or senses danger.  If the gorilla gets hungry, one should let it find something to eat.  If it senses danger, one’s reaction should not be to calm the gorilla, rather, to focus on the source of the gorilla’s agitation and act accordingly.

The 800 pound gorilla is not the problem.  In fact, it can often be counted on to recognize threats and, even though its reactions may seem unpredictable, gyrations in financial markets serve as early warning signs to potential economic problems on the horizon.  Once recognized, economic imbalances can be recognized and remedied.

To silence the gorilla, or the gyrations in the financial markets, is to rob mankind of an important early warning system.  Circa 2013, as the efforts of the world’s central bankers to sedate the gorilla by force escalate, many a Chihuahua (our metaphor’s personification of the government) is getting trampled and the water bed of world economic activity is on the verge of springing any number of leaks.

This is an outcome that Luca Pacioli could not have envisioned, for he lived in an age and in a place where Free Banking and free markets were more or less givens.  It was an age where capital formation was accelerating and the capital base from which we still operate today was being formed.  All thanks to Pacioli’s unwitting effort to disseminate the methods of dual-entry accounting throughout western civilization from his humble Franciscan abode.

While it is a great irony that a Franciscan Monk, sworn to poverty, would refine and articulate the greatest wealth generating innovation known to mankind, it is an even greater irony that this innovation would enable the large-scale employment of man’s greatest threat to this wealth, modern central banking.

The unconventional measures employed by the world’s central bankers in increasing measures over the past 100 and are not only failing to achieve their stated goals of increasing employment and economic growth, they are triggering what is quickly becoming an unmitigated disaster in the fixed income markets.  These markets, once the bedrock of global finance, have now been conditioned to do nothing more than attempt to front run the central banks’ interest rate cues up and down the yield curve.

Fortunately, the choice of whether to use Pacioli’s gift for good or for evil is always at hand.  Even as the world suffers under the grip of modern central banking, the ultimate solution of Free Banking, the banking that Pacioli and the Venetian merchants had assumed would always exist, is waiting in the wings to save mankind from its own penchant for error.  In fact, Free Banking is not something that requires a great deal of compromise and administrative rule writing as most modern legislation does.

Free Banking operates under the rules of natural law, and it can be implemented via a simple political decision to get off of the water bed and leave the gorilla alone.

Unfortunately, it is a political decision that modern governments, whose fate and existence depends upon the modern central banking model, will never take on their own.  In the absence of political action, it will take the wholesale collapse of the central bank itself to rid the world of its menace.

It is the catastrophe to come, and it will leave the fortunes of many laid waste as it indiscriminately dismantles the erroneous divisions of labor and implied daily activities that it has caused mankind to organize itself under.

It is not a question of if, but when.  For modern central banking will eventually give way to Free Banking out of necessity.  When it happens, mankind will be allowed to continue its self-correcting path toward civility and peace.

And Luca Pacioli, if not Christopher Columbus, will be vindicated.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for March 27, 2013

Copper Price per Lb: $3.45
Oil Price per Barrel:  $96.69
Corn Price per Bushel:  $7.35
10 Yr US Treasury Bond:  1.85%
FED Target Rate:  0.14%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,605 THE GOLD RUSH IS STILL ON!
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.7%
Inflation Rate (CPI):  0.7%
Dow Jones Industrial Average:  14,526
M1 Monetary Base:  $2,368,600,000,000 LOTS OF DOUGH ON THE STREET!
M2 Monetary Base:  $10,521,800,000,000

The Presumption of a Monetary Constant

3/26/2013 Portland, Oregon – Pop in your mints…

Today, we offer a second course on the menu of our upcoming eBook release, Pacioli’s Gift vs. Bernanke’s Curse, it is a chapter on the importance of a monetary constant when employing the methods of dual entry accounting.  Enjoy!

The Presumption of a Monetary Constant

Luca Pacioli was first and foremost a mathematician.  He understood that mathematics relies upon certain constants to remain, well, constant in order for the calculations that depended upon them to be meaningful.  Whether or not Pacioli was conscious of the fact, implicit in his presentation of the methods of dual entry accounting is the assumption that the money in which he was directing merchants to keep their accounts on the basis of was sound money.  The use of the monetary unit as a unit of account implies that he understood that money was to the economic world what constants were to mathematical calculations.

Also implicit in his assumption was that the monetary units which were to be used as units of account on the accounting ledger contained a constant weight of silver or gold which existed in the natural world.  Silver and gold that had been hewn out of the ground and struck into coinage of a set weight and metallic alloy by the men at the old Zecca, the Mint of Venice in the Rialto district which preceded its famous successor was completed in 1545.  This was an important assumption, as dual entry accounting only works when the accounts balance.  By design, it implies that physical goods are in existence or are reasonably expected to come into existence and become available for exchange.

When Pacioli penned Summa, the Venetian Zecca was one of the largest and most reputable mints in the world.  This reputation was born in no small part of a scandal at the Zecca which consummated with the Doges, who ruled Venice at the time issuing a decree on the 11th of November, 1457 against then noted variations in the weight and purity of the gold and silver coins that the Mint at Venice.  As a result of this renewed commitment to monetary purity, the coins which circulated in Pacioli’s time and locale, the Silver Ducat, Soldo, Lira Sequin, and Gold Ducat, served as the standard of trade in the world known to Pacioli.

Given that the Venetian merchants could count on this sound monetary standard on which to base their accounts and, by extension, their choice of activities, their use of dual entry accounting not only benefited their own interests, but had the side effect of benefiting all who circulated and traded the Venetian coinage, whether or not they had mastered the art of dual entry accounting.

Luca_Pacioli_Gemaelde by Jacopo de' Barbari circa 1496
Summa de Arithmetica, Geometrica, Proportioni et Proportionale – Pacioli’s great gift to Western Civilization

For those who had mastered the art of dual entry accounting in this environment, the ability to properly recognize and record their transactions and to make sense of the results gave them a sort of super power.  This super power, the ability to recognize the value of transactions over longer time horizons and therefore direct investments over longer time horizons, was further refined by Pacioli, who employed the use of Arabic numerals and proposed a system of mercantile accounting that could apply uniformly to all trades and nations.

However, dual entry accounting, as mankind is now coming to understand, is a two-edged sword.  For dual entry accounting to work in favor of those who practice and/or rely upon it, the unit of account must hold a stable value.  The assumption of the relatively stable value of the monetary unit in relationship to the natural world is essential for interpreting the primary output of dual entry accounting, the profit or loss signal.  The stable unit of account is also essential when evaluating the worth and employment of items that are represented by entries to the balance sheet, upon which the profit or loss signal ultimately depends.

In short, the stability of the monetary unit of account was essential if dual entry was to be relied upon for sound decision-making.

For the Venetians, this requirement was met by virtue of their relatively stable monetary unit.  As such, the Venetian Mercantile class rose to dominate the Western world.  Indeed, with few notable exceptions, dual entry accounting has rendered an invaluable service to mankind and has allowed human progress to follow a generally upward trajectory in terms of material well-being ever since Pacioli made his bequeath to mankind.

As a stable currency enables the super powers of dual entry accounting to operate, an unstable currency, of which there are numerous examples in the largest economies in the world today, circa 2013, is its kryptonite.  A currency that does not have a relatively stable value over long time horizons, specifically the time horizons required for large-scale investments of capital to be planned with the precision required for them to be successful, serves to render the gift of Pacioli powerless.

In doing so, an unstable currency threatens to take mankind from the comfort of their large screen televisions, sofas, and smart phones, and throw them back into the dark ages, from which the world that Pacioli lived in had recently emerged.

In the irony of ironies, mankind has unwittingly made use of Pacioli’s gift to create the largest system of unstable currency that the world has ever known, the one that has operated for the past 100 years.  This disastrous invention is known as central banking, and it has quickly turned the world’s economy into an unmitigated catastrophe waiting to happen.

Stay tuned for the release and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for March 26, 2013

Copper Price per Lb: $3.45
Oil Price per Barrel:  $96.17
Corn Price per Bushel:  $7.30
10 Yr US Treasury Bond:  1.91%
FED Target Rate:  0.15%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,600 THE GOLD RUSH IS STILL ON!
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.7%
Inflation Rate (CPI):  0.7%
Dow Jones Industrial Average:  14,560
M1 Monetary Base:  $2,368,600,000,000 LOTS OF DOUGH ON THE STREET!
M2 Monetary Base:  $10,521,800,000,000

Pacioli’s Gift vs. Bernanke’s Curse

3/25/2013 Portland, Oregon – Pop in your mints…

As events in the Cyrus experiment continue to unfold.  here at The Mint we are watching from a distance, aghast at the implications.  The sacred rule of the Financial Crisis, the one that shielded most banking clients from taking direct losses as a result of holding their funds in a weak bank in a sovereign nation without the means or the control over its currency to bail them out, has been broken.

Anyone who was unfortunate enough to be holding over 100,000 Euros in a Cypriot bank at the close of business on March 15, 2013, now stands to take a 40% bath on all “uninsured funds.”

This is a warning shot, and if you are reading these words and do not yet understand, let us spell it out loud and clear.  Funds held in banks or financial institutions are sitting ducks for bankrupt governments to line their pockets with.  Any wealth that one wishes to maintain must be kept close at hand in something tangible and trade-able.  Bank accounts are no longer risk free assets.  They never were.

How has the world come to this place, where a government would directly confiscate assets and assume that there would not be severe repercussions?

Luca_Pacioli_Gemaelde by Jacopo de' Barbari circa 1496
Summa de Arithmetica, Geometrica, Proportioni et Proportionale – Pacioli’s great gift to Western Civilization

We have been editing our latest e-book, which will hit digital shelves later this week if all goes well.  It is volume V in our “Why what we use as Money Matters” series.  In it we explore how humanity came to this point in history, what is wrong, and most importantly, the solution.

As an appetizer, we present to you the introduction.  Enjoy!

Pacioli’s Gift vs. Bernanke’s Curse

An Introduction

In response to what has become known as the Financial Crisis of 2008, the Central Bankers of the world have employed nearly every form of monetary alchemy at their disposal in a desperate attempt to maintain the status quo.  The status quo, which in this case means that all commercial banks and sovereign governments remain both liquid and solvent, has become increasingly difficult to maintain as each attempt to stimulate economic growth via ultra low discount rates and quantitative easing has seen a diminishing marginal return in terms of economic growth.  The longer the Central Banks of the world engage in these and other forms of financial alchemy, which in the end serve as futile attempts to defy immutable natural laws, the greater the danger of a complete economic collapse becomes.

The unconventional measures employed by the World’s Central bankers in increasing measures over the past five years are not only failing to achieve their stated goals of increasing employment and economic growth, they are triggering what is quickly becoming an unmitigated disaster in the fixed income markets.  These markets, once the bedrock of global finance, have now been conditioned to do nothing more than attempt to front run the FED and other Central Banks up and down the yield curve.

The action in the financial markets is akin to a 300 pound man, who represents the Central Banks, chasing an 800 pound gorilla, who represents the financial markets, around on a queen sized water bed.  The action is becoming completely unpredictable and downright dangerous.  Throw in the chaotic interventions of a 10 pound chihuahua, who represents the sovereign governments’ meddling in the market financial market mechanisms via commercial banking regulation and tax policy, and the entire situation is a basement flood waiting to happen.

As the chaos on the water bed, which is a metaphor for the wealth of the real world, continues to unfold, it is important to examine and understand, to the extent possible, how humanity has arrived at this critical juncture in history, where a fat man chasing a gorilla while dancing around a chihuahua on a water bed can threaten to damage the wealth of nearly everyone on the planet.

It is the aim of this volume to explore two of the oft overlooked elements that have, each in their own way, given rise to the system which enables a relatively small group of persons to the ability to destroy the accumulated wealth of mankind’s 9,000 years of toil in just over 100.  Dual entry accounting, which we refer to as mankind’s greatest invention, and Central Banking, which we refer to as mankind’s greatest catastrophe.

In the end, we present what is known as “Free Banking” as the antidote for the curse of Central Banking, and the ultimate solution to the current and future financial crises that the world will suffer at the hands of well-meaning Central bankers who, it would appear, are oblivious to the destruction that their chosen profession inflicts on humanity.

Intrigued?  So are we.  Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for March 25, 2013

Copper Price per Lb: $3.44
Oil Price per Barrel:  $94.75
Corn Price per Bushel:  $7.33
10 Yr US Treasury Bond:  1.92%
FED Target Rate:  0.16%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,605 THE GOLD RUSH IS STILL ON!
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.7%
Inflation Rate (CPI):  0.7%
Dow Jones Industrial Average:  14,448
M1 Monetary Base:  $2,368,600,000,000 LOTS OF DOUGH ON THE STREET!
M2 Monetary Base:  $10,521,800,000,000

Dual Entry Accounting – Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe – Part IV – The Catastrophe at Hand

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:

Dual Entry Accounting – Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe – Part I

Dual Entry Accounting – Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe – Part II – Irony

Dual Entry Accounting – Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe – Part III – Money or Credit?

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.

Federal Reserve Notes Begin toReplace Gold and Silver as the concept of Money for a Generation
 

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!

 

David Mint
 

Email: davidminteconomics@gmail.com

Key Indicators for October 20, 2011

Gold Price Per Ounce:  $1,622 PERMANENT UNCERTAINTY
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!!!!!!!

Dual Entry Accounting – Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe – Part III – Money or Credit?

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:

Dual Entry Accounting – Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe – Part I

Dual Entry Accounting – Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe – Part II – Irony

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.

 

Examples of Money Proper - Courtesy of Mark Herpel - www.dgcmagazine.com

 

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!

David Mint

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!!!!!!!

Dual Entry Accounting – Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe – Part II – Irony

10/17/2011 Portland, Oregon – Pop in your mints…
For those of you who have missed or long since forgotten Part I, please take a moment to review it here:
Our tale continues:
As the Fixed income markets continue to crumble, all eyes in Finance are now on a summit of European leaders that will take place next Sunday, when many persons will be watching sporting events, enjoying the outdoors, protesting, or toiling to eke out a meager existence on this earth.
What happens in Europe next Sunday may be simply another act in the game of extend and pretend that until now has been the only strategy employed by Western governments and their Central Banks in response to the bankruptcy of the world’s largest banks and governments.
On the other hand, it may be a Pearl Harbor type of event for the Euro and other currencies.
Since we do not know what will befall mankind this coming Sunday, we must endeavor to understand how the Western world has arrived at this critical juncture in history.  We began last week, by exploring the often underestimated contribution of Luca Pacioli to the commonwealth of society:  The dissemination of Dual Entry Accounting methods used in Genoa, Florence, and Venice circa 1492.
Today, we will explore the great irony that Dual Entry Accounting – what we call man’s greatest innovation, has made possible what we are calling man’s greatest catastrophe, Modern Central Banking.
In order to do this, we begin with a brief history and explanation of the concept of Central Banking and its relationship to government.
The concept of Central Banking is rooted in man’s need for security as well as his recognition of his co-dependence on his fellow man to increase his well being through trade.  It takes time and energy to obtain and protect wealth.  It also takes time and energy to barter with counterparties while trading differing goods without a suitable means of exchange.
A bank, in its simplest form, provides a secure place to store wealth.  A natural extension of this activity is for the banker to extend credit and act as a clearing house for commerce by assuming a de facto role as an issuer of currency in the form of banknotes which represent a claim on wealth held at their bank.  The existence and circulation of these banknotes greatly facilitated trade.
As trade and consequently the wealth of mankind increased both in volume and geographical reach, there was increasingly a need for a larger banking interest to store the excess wealth of the individual banks and to honor the banknotes emitted by the individual banks.  This larger banking interest, formed by and for the benefit of the individual banks, is what we today call a Central Bank.
The complexity of maintaining banking accounts was greatly facilitated and made possible on a large scale by the use of dual entry accounting.  The ability for individual banks to maintain accounts on a larger scale made possible the existence of a Central Bank to act as a clearing house amongst banks.  Hence, our premise that Dual entry accounting enabled Central banking.

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.

It is not hard, then, to imagine that Governments, in whatever form, relied heavily upon and supported the formation of both individual banks and Central Banks.
Why would Governments need banks and Central banks?
Governments are generally given license by the members of society to use whatever means necessary to preserve their lives.  As such, they assume the role as the apparatus of compulsion and coercion in that society.
As the apparatus of compulsion and coercion, the government, by definition, cannot generate wealth.  At best, it can only create the conditions under which individuals may create wealth, but the activities of government as a provider of security never directly create wealth.  Because they cannot create wealth, they must either borrow from or tax the populace in order to fund their activities of compulsion and coercion.
The Central Bank, as the ultimate repository of wealth, offers a convenient source of both credit and, in a later wave of Central Banks of which the Federal Reserve is a prime example, tax collection services.
Storage of Wealth and Tax Collection Service provided with a smile
As you can see, a Central Bank is an indispensible institution both for individuals in terms of storing wealth and facilitating trade, as well as for Governments who have an insatiable need for tax revenues and credit.
The existence of a Central Bank, for all of the benefits that it may bestow, unwittingly makes the wealth of those it serves a natural target for those who are anxious to obtain that wealth through unjust means.
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.
Needless to say, the scale of modern Central Banking is beyond what would be advisable, and the potential for catastrophe is unprecedented.
How, when, and most importantly why will this catastrophe take place?  We can only answer the why, and we will tackle it tomorrow as we are spent.
Stay tuned and Trust Jesus.
Stay Fresh!
Key Indicators for October 17, 2011
Copper Price per Lb: $3.35
Oil Price per Barrel:  $86.24
Gold Price Per Ounce:  $1,671 PERMANENT UNCERTAINTY

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!!!!!!!

Dual Entry Accounting – Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe – Part I

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.

Summa de Arithmetica, Geometrica, Proportioni et Proportionale - Pacioli's great gift to Western Civilization

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!

David Mint

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!!!!!!!