Tag Archives: European Debt Crisis

Why the IMF has no clue how to deal with the Spaniards and Italians

10/15/2013 Portland, Oregon – Pop in your mints…

As the world continues to bite its collective nails while it waits for the US Government to decide whether to punt the ball down the road another stretch or capitulate on its debt in what we have dubbed “The Ultimate Stimulus Measure,” the IMF is busy scolding the US Government and proposing hack solutions which completely miss the point.

Just try to tax usThe world that the IMF operates in exists only in theory, it is like the perfectly closed system where energy is a constant which is the the basis of many physics theories.  On one hand, the assumption of a closed system is the only way to test a hypothesis.  On the other, to assume that the closed system is a given in real world situations is folly in the physics profession.

While the physics professor recognizes the limitations of his theory in practice and makes the requisite adjustments, these limitations are all too often lost on the IMF and others in the economics profession.  The situation of the latter is dangerous, as for some bizarre reason their theories influence wide-ranging policy decisions which affect the lives of billions based on its closed system fantasy.

Such is the case with the recommendations made in its October 2013 World Economic and Financial Survey which is eerily titled “Taxing Times.”

Taxing Times IMF 10-2013

In the report, the IMF makes two data driven observations:  That the national debt load in certain Euro zone countries is excessive and that there is a certain level of net family wealth in these countries.

Fair enough, however, what happens next is disturbing, for it reveals both the closed system fallacy as well as the arrogance of those at the IMF.  The IMF takes the above two data points and arrives at the following conclusion:

A one time, 10% tax on net family wealth in certain heavily indebted countries would make the national debt loads once again “manageable.”

If you have yet to laugh, cry, or hurl at what we have just described, you may stop reading as you are unlikely to get what follows and reading it will be a waste of time you can otherwise spend watching CNBC or the teletubbies.  Please carry on.

If you are still with us, allow us to heap it on by adding that the IMF believes that this one time family wealth tax would help as it would simply reduce the national debt, specifically in Italy and Spain, who, true to form, have managed to avoid full-scale bailouts suffered by the Irish, Greeks, Portuguese, and Cypriots to this point and gamed the ECB into issuing bonds on their behalf.

This last point should give you, fellow taxpayer, all the information you need to understand why, as ludicrous as a family wealth tax sounds, it becomes even more ludicrous when one thinks that it can be imposed on Spaniard and Italians, who are hands down the world champions in tax avoidance.

The governments of Italy and Spain have managed to have the ECB foot the bill for their respective bailouts to this point.  However, the only reason they need a bailout in the first place is because their citizens are experts in tax avoidance (it is a genetic adaptation acquired during Roman times which has grown stronger and more agile over time, that is all you need to know.)

Now, the IMF, in its infinite wisdom, glances at the problem and a dim light bulb goes on!  If you just tax 10% of each family’s wealth, you can reduce the national debt to an acceptable level!  “Voila,” says Lagarde!  “C’est comment son fait!”

“The genius of the tax,” she continues “is that it is one time only, so it won’t have any effect on investment or savings preferences!  Its perfect, I tell you, perfect!!!!”

This is why she’s paid 300,000 pounds a year, of course, to put two and two together.  At this moment, Christina Lagarde has now transformed into Cruella DeVille, the villainess of Disney fame (a transformation that requires only a slight wardrobe adjustment and a little imagination.)

As word of the IMF’s latest ploy spreads, the few Spaniards who have not opened a Bitcoin wallet called up their grandchildren and asked them to do it for them.

(Wondering what a Bitcoin is?  Check out our reasonably priced e book on the subject here)

By the time any sort of 10% one time wealth tax hits the Spanish and Italian Peoples, there won’t be a peseta or lira, er, Euro to be found from the Pyrenees and Alps to the Mediterranean coast, where avoiding the looting hands of emperors has been a national pastime for over 2000 years.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for October 15, 2013

Copper Price per Lb: $3.28
Oil Price per Barrel:  $101.38
Corn Price per Bushel:  $4.37
10 Yr US Treasury Bond:  2.70%
Mt Gox Bitcoin price in US:  $152.89
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,277
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.3%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  15,236
M1 Monetary Base:  $2,689,400,000,000
M2 Monetary Base:  $10,790,700,000,000

Cyprus – The Waterloo of Eurocratic management or the ultimate catalyst for Euro zone growth?

3/18/2013 Portland, Oregon – Pop in your mints…

While the management of the ongoing banking crises on this side of the Atlantic has been dishonest, the management on the other side of the pond, or in today’s case, sea, has been an unmitigated disaster.  Or so it would seem.

We are talking about Cyprus.  For those who have yet to hear about Cyprus, it is an island nation located in the far eastern Mediterranean Sea, just below Turkey.  It is currently inhabited by a fiery mix of Greeks and Turks, who have lived in an uneasy peace with each other for some 40 years after the events that took place during the summer of 1974.

Like many island nations, Cyprus has been able to find common ground with those who have been unable to find common ground on the mainland.  It has found that it can leverage its sovereignty and willingness to bend the rules to offer banking services without the nagging regulations which increasingly plague banks and their clients in the Western nations on the mainland.

Now that the government of Cyprus is bankrupt and in need of a bailout, showing that even a tax and banking paradise can be poisoned by a bad currency, they have gone hat in hand to Belgium, a strange country in the north with absolutely nothing in common with Cyprus, save the currency in question.

The Eurocratic apparatus in Belgium, either on its own or at the behest of the global banking giants in Cyprus, has decided that the terms of the bailout, or “bail in”, which is the Euro friendly way to say “Corralito,” {Editor’s Note:  Corralito is the Argentinean term for when the Government decides to unilaterally make use of the funds in its country’s banks to fund the government because there is literally no one willing to lend them currency on any terms}, would be the direct confiscation of funds from depositors bank accounts in the form of a tax, in this case between 3 and 9.9% (because 10% just looks bad in print) to ultimately pay back the countries who have been generous enough to provide the funds, which, despite the technicalities involved, for most Europeans means Germany.

Predictably, the people of Cyprus, who caught wind of the confirmation of the rumors on Friday and awoke Monday to find that their government had declared what is, at this writing, an indefinite banking holiday (meaning banks and ATMs are closed) to prevent anyone who did not want to participate in the bail in from withdrawing their funds from the country’s banks, are channeling their anger at the German Embassy, quite naturally:

Henry Blodget has written a decent analysis on the details of the Cyprus bail in over at the Daily Ticker.  Blodget does a good job of analyzing the events up until the point where He presumes:

“…the moment depositors think that there is risk to their savings, they rush to banks to yank their money out.

That’s called a run on the bank.

And since no bank anywhere has enough cash on hand to pay off all its depositors at once, runs on the bank cause banks to go bust.

That’s what happened to hundreds of banks in the Great Depression.

And it’s what happened to Bear Stearns, Lehman Brothers, and other huge banks during the financial crisis (though, with Bear and Lehman, the folks who yanked their money out weren’t mom and pop depositors but other big financial institutions). It’s what threatened to bring the entire U.S. financial system to its knees. And it’s why the U.S. and European governments have been frantically bailing out banks ever since.

But now, thanks to the eurozone’s bizarre decision in Cyprus, the illusion that depositors don’t need to yank their money out of threatened banks because they’ll be protected has been shattered.”

What Blodget presumes is that a bank run is bad for the bank.  Here at The Mint, we postulate that this tax on depositors is taken precisely for the benefit of the Cypriot banks.  Further, it has been taken not only for the benefit of the banks in Cypriot, but to serve as the catalyst for the Euro zone to return to growth, or the activities which pass as economic growth circa 2013.

How can this be?  To understand this will take a basic understanding of the banking revenue model.

Ever since 2008, the Federal Reserve and the ECB have been underwriting the banking sector by providing cheap cash to banks and, indirectly, the governments and people’s of their respective countries.  This is where Blodget’s parallel of today’s bank runs and those that occurred during the Great Depression falls apart.  For all of the mistakes that Ben Bernanke has made, the unconditional guarantee of liquidity in the banking system is the one that he will never relinquish, despite appeals to reason, for he mysteriously sees it as his life’s calling.

However, in an effort to stem the fall in asset prices, which is largely a product of the insane “jack the rate 25 basis points every month or so” policy that the Greenspan and Bernanke Fed followed from June 2004 until June 2006, the policy that caused markets to seize up like a car engine losing oil as they accelerated to record speeds, the Feds and the ECB have largely ignited an increase not in economic growth, but in bank deposits.

Bank deposits, far from being a boon to the receiving bank, are a huge problem when market conditions force them to reinvest (read lend out) those funds for rates that are unconscionably low (3.75% to consumers for 30 years, in a fiat currency system, are you out of your mind?).  Making matters worse, the consumers have been slow to take the bait, resulting in a big time squeeze on the traditional banking revenue model.

Enter Cyprus, an island that holds a disproportionate amount of bank deposits.  As a thinking Eurocrat, of which we suspect there are few, save Nile Farage, who is hunting for a way to both ensure that the banking revenue model continues to function, the government of Cyprus retains legitimacy, and that economic activity in the Euro zone will increase, the pile of Euros in Cypriot banks looks like a great target not to loot, as most analysis of the situation will paint this move as, but to force billions of Euros out of the digital vaults of the banking system to wash from the shores of Cyprus outwards into the other Euro zone countries in search of real goods, not simply another cash warehouse.

One sees the Eurocratic genius in the move at the moment one (again, that is you and I, fellow taxpayer) understands that the mere threat of a unilateral tax on deposits as a condition for a Euro zone bailout is causing lines to form at ATMs from Andalu to Cataluña, across the border into Torino and down to the lonely parts of Sicily.

Cyprus Flag
Will the Cyprus Misadventure by the catalyst for elusive economic growth in the Euro zone?

Within a matter of days, billions of Euros which were locked up in the accounts of villainous savers and otherwise useless to the European economy will be running around the Spanish and Italian streets in a desperate attempt to purchase anything real in which to hold said savings.

With what appears to have been a typically boneheaded Eurocratic move, the Eurocrats may have managed to do what Ben Bernanke and all of the helicopters in the world could not have done to the club Med economies:  Shower them with foolishly spent cash while at the same time bailing out both the banks and the governments as a grotesque side effect.

To be sure, it is a short term fix and will leave the Euro zone further down the scorched earth economy path in a matter of years.  Even so, you have to give the Eurocrats some credit for pulling out all the stops, even if they did stumble upon their ultimate stimulus, which relies upon their own stupidity to function, completely by accident.

Meanwhile in Cyprus, the latest is that the government wants to “think over” the terms of the bailout.  The formal vote has been postponed until Friday, and we presume that the banking holiday will remain in effect until after the vote is taken and any taxes are skimmed.

It is a hard assignment, and we do not envy them nor blame them for thinking it over.  The decision before Cyprus’ government officials is simple.  Should they accept the bailout, they face being blamed by their countrymen for sacrificing their parched island on the Eurocratic altar as well as spending the rest of their lives dodging the hit men of any oligarch’s who did not have sufficient forewarning of the move.

Should they reject the bailout, their government may even find a few contributions from said oligarchs to keep operating, and the only cost will be a few less German tourists on their shores, which, given the alternative, seems a small price to pay.

In the end, if our hunch is correct, the mere threat of corallito should be enough to stimulate the Euro zone.

Were we in their shoes, and we are glad we are not, we would reject the bailout.  Either way, it is a strong argument for exiting the formal banking system or becoming a large net creditor.  It is much easier for “crats” of any stripe to confiscate assets with a few keystrokes than for them to lift a finger to grab something in the real world.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for March 18, 2013 (PM)

Copper Price per Lb: $3.43
Oil Price per Barrel:  $93.79
Corn Price per Bushel:  $7.20
10 Yr US Treasury Bond:  1.96%
FED Target Rate:  0.15%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,606 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:  14,452
M1 Monetary Base:  $2,466,100,000,000 LOTS OF DOUGH ON THE STREET!
M2 Monetary Base:  $10,499,300,000,000

A Brief Reminder of the Function of Central Banks circa 2013

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?”

Ballot burning, our breaking point, and why the next Gold Rush just began

11/9/2012 Portland, Oregon – Pop in your mints…

The 2012 US Presidential election is over, and the only thing that remains to be seen is whether or not the No vote will maintain its absolute majority.  At last count it was 50.2% and will go down to the wire.

For our part, we finally got around to burning our mail-in ballot last night.  For those who will lament that we did not perform our civic duty, we report that we did give it a cursory check to make sure there were not City or County measures which required our input.

If you are joining us late in the game, we presented our personal reasons for not voting a few weeks ago.  To be fair, we have never been much for voting, mostly attributable to our inner laziness.  However, this time was different.  We made a conscious decision not to participate.  We decided not to to meddle in the affairs of others.  We took the position that the largest sphere of influence which we could, in good conscious, cast our vote over others was at the County level.

Our County generally fulfills its commitments and is solvent.  As such, it meets our criteria for an operating Socialist system.  The State and Federal level do not.  We did not reach this conclusion through logical contemplation, rather, we had a minor breaking point with regards to the political systems at the higher levels as we read to our son about the Trail of Tears, which moved us to tears and, as a consequence, this form of peaceful resistance.

The rest, including what you, fellow taxpayer, are reading, is a slow digestion and reflection upon our weeping over the Trail of Tears.

For the record, we do not buy into conspiracy theories (although trading on them can be very profitable) nor are we cynical enough to say, along with Emma Goldman, “If voting changed anything, it would be illegal.”  What we do know is that we can no longer endorse the killing and robbing of people with whom we have no quarrel and who pose us no existential threat.

In a sense, we are peacefully surrendering our “right” to participate.  Were the government to suddenly stop taxing our wages, income, gasoline purchases, telecommunications, and capital gains, we may go as far as to relinquish the “right” to Social security, roads, and such.  On this point, however, we will not hold our breath.  Nor will we actively avoid taxes or reject monetary benefits which come to us.  This is a broader question which we will not delve deeper into today.

Speaking of taxes, the election seems to have ignited what may be the blow off phase in the precious metals markets.  Please read on…

The new Gold Rush, The triple Fiscal Cliff, and logical consequences

The market selloff continues today, as the logical consequence of the expectation of higher taxes manifests itself.  While we believed that higher taxes were coming, no matter who was elected, it is nonetheless fascinating to watch what is unfolding in the equity markets.

For a bit of background, the Federal Reserve, ECB, Bank of Japan, England, and all entities in the Central Banking industry are putting the throttle down and printing money at a breathtaking pace.  This has been enough to keep equity prices “afloat” with relatively minor nominal price drops.

However, the drop in value, commonly known as purchasing power, has truly been staggering over the past several years.  If you track such things, look at your grocery or utility bills for proof.  You are probably either paying more, getting less, or some combination of these double whammies.

The election results appear to have triggered a decoupling of the commodity and equity markets for the foreseeable future.  Meanwhile, while bonds are rallying as those who hold large unrecognized gains in equity positions choose to recognize them before December 31, when the clock strikes midnight and any gains left on the table will be taxed out of existence {Editor’s note: this is figurative language and speculation, of course}.

This is the logical consequence of the fiscal cliff.  When the election was called for Obama and control of the Senate and House looked to remain the same, equity holders saw the writing on the wall.  The stalemate at the Federal level will remain in place and the probability of the US plummeting off of the dreaded Fiscal Cliff (which, we remind you, is purely a government construction) greatly increased.

While some window dressing will no doubt be presented as the solution, those holding large equity positions will be seen as “new meat for the grinder” and likely will be the next lamb sacrificed on the alter of fiscal irresponsibility.

But it is not just the US looking over a fiscal cliff.  The anticipation of the US Presidential outcome distracted attention from the dire situation in Greece, where in 8 short days, the government will be out of funds and the once vaunted “Troika” now stands by, unwilling to throw more money at them.

Then there are the Spaniards.  Having lived three years in Barcelona, we have a special affinity for the Spanish in general and specifically for the Catalans.  While the Greeks may be coerced into having more conditions shoved down their throat, the Spanish situation is a bit more complex.

The Spaniards are smart, and the Catalans are even smarter.  Catalunya knows that they are indispensible to Spain.  They have also spent the past 30+ years building systems to ensure that they can operate perfectly well without the Spanish Feds in Madrid.

Those in Madrid know this, and are holding the threat of Catalan secession as their Ace in the hole which, at this point, has allowed them to extract concessions from the ECB, all the while avoiding surrendering what is left of their Sovereignty to Brussels as the Greeks, Irish, Portuguese, and Italians have.

Will the can which has been kicked down the road in Europe finally get kicked off the Euro Cliff?  Even if it doesn’t, the Spanish firecracker inside of the can will go off at some point and blow up the proverbial can, at which point all bets are off.

With the two largest, debt based financial currencies in the world facing unprecedented uncertainty and the prospect of higher taxes on the horizon, one has to question the wisdom of holding anything but physical gold and silver in place of financial assets.

This, along with the ongoing tension in the Middle East and that crazy Mayan prophecy, is why we believe that the final blow off in the gold and silver markets is at hand.  There is still time to get in and these quasi currencies have plenty of room to run.  While the physical production fundamentals are less compelling than they were 10 years ago (a 440% rise in price will tend to encourage production), the financial backdrop has never been more favourable, and its about to get even better.

Just remember, buy and hold the physical metals, as ETFs and futures will likely not catch all of the upside of this monumental move.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for November 9, 2012

Copper Price per Lb: $3.46

Oil Price per Barrel:  $85.14

Corn Price per Bushel:  $7.45

10 Yr US Treasury Bond:  1.63%

FED Target Rate:  0.16%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,730 THE GOLD RUSH IS ON!

MINT Perceived Target Rate*:  0.25%

Unemployment Rate:  7.9%

Inflation Rate (CPI):  0.6%

Dow Jones Industrial Average:  12,862

M1 Monetary Base:  $2,394,100,000,000

M2 Monetary Base:  $10,168,900,000,000

The Catalan Independence Movement – A Memory and a brief analysis

A quick note to share a smattering of links and thoughts related to the Catalan Independence movement and the latest wave of anti-austerity protests in the Club Med region:

Courting disaster in Spain via creditwritedowns.com

The eleconomista.es article referenced, which should be cause for alarm:  Militares advierten a Mas de las consecuencias de promover la “fractura de España” (The Military warns (Artur) Mas (Catalunya’s regional president) of the consequences of promoting the “break up of Spain”)

and this on broader unrest in Greece and Madrid from Reuters via Yahoo!:  Anti-cuts protests erupt on streets of Athens and Madrid

The people of the Mediterranean states are no fools, they realize that they have been made the scapegoats and guarantors for years of mismanagement by their parasitic central governments and banking sectors.  In a reasonable world, where the government respected its citizens, a region like Catalunya would have the right to shrug off the debts of the central government and make a go of providing basic services on its own.

Flag of Catalunya
The Catalans deserve better

Something, that most Catalans will point out, it is capable of doing very well.

However, when it comes to sovereign debt, it appears that there is no escape for the capable.  Rather, the noose is generally tightened as the central government becomes increasingly desperate for revenue.

All reasonable dialogue is thrown out the window, and the central government makes a nationalist appeal and orders subservience at the point of a gun, as evidenced by the statement issued by the Spanish Military Association to Artur Mas.

The statement comes in response to protests calling for Catalan independence that included one in five Catalans (1.5 Million of 7.5 Million).  

We must note, however, that the Catalans are an unusually peaceful people, and the chances of widespread violence are nil.

We were attending grad school in Barcelona when the tragic Madrid train bombing occurred on March 12, 2004.  Apalled by the violence, we participated in a protest of similar size.

It was beautiful.

We took the Metro to Passeig de Gracia and slowly streamed down Barcelona’s grandest boulevard.  As we came together with the main march, it was apparent that this was a large event which was hell-bent on rejecting the violence with an overwhelming show of peace.

No al terrorisme, No a la Guerra by Kippeboy via wikimedia commons
No al terrorisme, No a la Guerra by Kippeboy via wikimedia commons

As we marched down the Paseo, from time to time the procession of millions would stop, clap our hands, slap our legs, and then hold our hands, palms out, in front of us in silence in a grand gesture that shouted through the silence:

Enough

Adin Ballou would have been proud.

Enough of terrorism, enough of war.  This message came to the world in stark contrast to the regular reaction of an eye for an eye that had been pursued up to this point with predictable results.

We pray that this latest round of protests in our beloved Catalunya and Spain end in a similar fashion, with a firm and peaceful rejection of austerity, and a show of solidarity and goodwill towards men.

The Mint’s Euro 2012 prediction – Germany loses on all fronts

6/25/2012 Portland, Oregon – Pop in your mints…

After defeating Greece in the quarterfinals, Germany will now face Italy in the Euro semifinals and, if they are victorious in there, either Spain or Portugal in the finals.  If the 2012 Euro plays out according to the most recent soveriegn credit ratings, according to Moody’s, we should expect the following outcomes from the aforementioned teams:

Germany (Aaa) defeats Greece (Ca), which already occurred on Friday.  Spain (A3) would defeat Portugal (Ba3) on Wednesday, and Germany (Aaa) would come out a hair ahead of Italy (A3).

The Germany would then come out victorious after handling Spain on July 1.

However, as Italy showed England yesterday, poor credit ratings can be overcome on the pitch.  Therefore, we are speculating that Spain will defy Moody’s and take the cup.

Spain to defy Moody’s on the pitch

Ironically, a similar scenario is set to play out at the latest emergency EU summit (we have lost track but believe that there have been at least 14 prior to this one) where the Germans are set to capitulate on not only austerity measures but also restraint on monetary policy.

As unemployment in Europe’s club med regions rises, Germans and Europe in general will be keen to avoid a repeat of the rise of the Third Reich in their neighbors to the south.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for June 25, 2012

Copper Price per Lb: $3.36
Oil Price per Barrel:  $79.31

Corn Price per Bushel:  $6.31
10 Yr US Treasury Bond:  1.61%
FED Target Rate:  0.16%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,585 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  8.2%
Inflation Rate (CPI):  -0.3%
Dow Jones Industrial Average:  12,503

M1 Monetary Base:  $2,192,300,000,000
M2 Monetary Base:  $9,933,900,000,000

Is Greece European? By Robert D. Kaplan | Stratfor

With Greece predominantly in the headlines for its fiscal woes, this insightful report by Robert Kaplan explores the historical roots of Greece’s economic problems as well as its unique strategic advantage owed to its geographic location.

Is Greece European?

It can be a long road from political extremism and nepotism to a moderate political center, and this past weekend’s elections have shown that it is a road which Greece may not continue down, no matter how much prodding it gets from the increasingly desperate EU.

Greece, Inc. is now for sale.  Its new management is preparing a list of demands for its current creditors, the Troika.  If those demands are not met, Greece, Inc., which enjoys a prime geographical location, will prod its shareholders to accept an offer from the highest bidder, likely to be either Russia and/or China.

From Olympic sized overspending to the aftermath of the recent world wars, Kaplan does a fine job of presenting Greece’s history as a framework for understanding its current situation.

The report can be seen in its entirety via Stratfor:

Is Greece European? via Stratfor

Spain, Debt and Sovereignty via Stratfor

The EU’s direct Spanish bank bailout, while ostensibly averting the latest in a string of events which threaten to blow the Euro to smithereens, has now raised the question of moral hazard for German politicians.

The path forward, as we have discussed in this space before, leads to the elimination of national sovereignty for the countries unfortunate enough to have adopted the Euro.

George Friedman discusses the scenarios which may unfold as the Eurozone inches closer to implementing their ultimate solution to the continent’s debt crisis: The Eurobond

Read the full essay here:

Spain, Debt and Sovereignty

Spain, Inc., the latest proof of Anarchy in action, an Impromptu Manifesto

6/11/2012 Portland, Oregon – Pop in your mints…

When we attended graduate school in Spain, we were the first North American student in our course.  It was late 2003 and the Eurozone was full of optimism.  This optimism lead some of the professors to use a portion of their class time taunt the US model as failed and the European model as the obvious way forward.

As proof of European supremacy, our Finance professor often made a point of mentioning to us that the yields on the Spanish 10yr bond were almost the equivalent to the yields on the US 10yr bond.

What a difference nine years and 500 basis points make.

Circa 2012, Spain dominates the financial headlines as the latest casualty of the European debt crisis.  Apparently Spain now is in need of a bailout.  The bailout strategy which will be employed by Spain, Inc. is a hybrid of the prior bailouts accepted by their counterparts, Greece, Inc. and Ireland, Inc.

Greece, Inc. required a bailout because its government was broke.  Ireland, Inc. was slightly more ingenious in that it made a good faith effort to backstop its banks, only to find that it was now the entity which required a backstop.  Spain, Inc, theoretically learning from both experiences, forced its banks to accept the backstop directly so that the Spanish government could save face and be spared the humiliation of the Irish scenario.

Unfortunately, the markets have seen through the charade and are now putting pressure on all bonds, bank or sovereign, which hail from the Iberian Peninsula.

What a difference nine years and 500 basis points make!

Spain’s strategy has failed before it was even implemented for lack of collateral and credibility, both of which are in desperately short supply amongst the EU leadership.

How did once proud Europe end up in this situation?  They decided to force a debt based currency integration by integrating only the currency part of the equation and leaving the debt and fiscal matters to chance.

As if choosing to use a debt based currency weren’t bad enough, choosing only to implement the currency is like handing the nations foolish enough to engage in such a gamble the revolver in a game of Russian roulette where the revolver is fully loaded.

Now, the revolver is being passed and it is Spain’s turn.  Once Spain slumps to the floor, it is Italy’s turn, the Belgium, France, etc. until the European Currency Union, doomed from its outset, breathes its last.

At some point in the process, possibly as Spain pulls the trigger, USA, Inc. will be forced to step in with the “ultimate” backstop, the final hope of the failed, insane “debt is money” currency regime.  As the US throws its sovereign credit rating in front of the runaway freight train of Europe’s soveriegns, it will quickly find itself in the very situation that it is trying to save the European Sovereigns from.

For in this debt crisis, the unwritten rule of quality holds.  When one adds wine to sewage, one gets sewage.  When one adds sewage to wine, one gets sewage.  The sovereign vats have long since been polluted.  It might make sense to check one’s portfolio and remove as much sewage as possible.

Beyond that, we will present two unsolicited yet practical bits of advice.  First, US Bonds will ultimately slide as USA, Inc. wades across the pond to aid Europe.  The Euro currency will rally as the run on European banks by the citizens and the wholesale dumping of any bond denominated in the currency begins.  Quite simply, demand for the Euro will exceed supply in the short term.

Plan accordingly.

We submit to you that the Spain, Inc. debacle is further evidence of one of The Mint’s central themes, that Anarchy is man’s reality, it is an ultimate given, it simply is, and all understanding of the current political and social structures is greatly facilitated by one’s acceptance of this fact.

In fact, one’s ability to act and react to the unfolding changes in the current political and social structures depends upon accepting and embracing Anarchy as the basis for reality and learning to operate in the Truly Capitalistic system which organically emerges as men learn anew that mutual trust and cooperation are in their rightly understood self interests, and that he who is to lead must truly become the servant of all.

To truly embrace this fact, we must understand the nature of mankind.  Man, left to his own devices, is completely devoid of the ability to do the right thing.  He doesn’t have it in him.  He is lazy, self-serving, and completely evil.  He needs God and his fellow man to be able to do anything productive, altruistic, or what may be considered remotely good.  A full defense of this statement is a subject for another day (although the evidence is all around us), we mention it here only to underscore the necessity of a framework which presupposes this fact within which mankind can use this weakness to avoid both self and mutual destruction.

The only reliable framework which has emerged out of natural Anarchy which not only addresses the problem of human nature, but also turn man’s weaknesses into strengths is what we call True Capitalism.  Ironically, by allowing market forces to work with as little hindrance as possible, mankind can insulate itself from descending into chaos and catastrophe.

In fact, to fight the workings of True Capitalism is, by default, to submit oneself to chaos and misery.  Yet every nation on the planet is devoted to some degree in the fight against True capitalism.  Why?  Because the nation state sells itself as the most perfect expression of man’s good intentions, which we presuppose do not exist.  In other words, the dream of the nation state is built on a false pretense that is usually attributed to socialism: That man is inherently good and wants to do good to others.

Given their presuppositions, is it clear that the nation state and a truly capitalistic society are, in fact, the antithesis of one another.  Where a nation state regulates by edict,  truly capitalistic society regulates by example.  Where a nation state is rigid, where  truly capitalistic society is pliable.  Hence, where  truly capitalistic society will bend but not break, the nation state is repeatedly smashed to pieces when faced with change.

For the more a nation state tries to force men to do good, the more mankind’s character flaws will overtake these good intentions until the nation state becomes an expression of mankind’s evil nature.

The truly capitalistic society allows each mans evil nature to be corrected by allowing him to experience the consequences of his inherently poor behavior, paradoxically and naturally improving the behavior and norms of all.

Moving to a less philosophical level, how can we be sure that Anarchy is the basis of man’s current existence?  The evidence can be found in that the institutions which supposedly offer the best option to Anarchy, the nation states if the world, are beginning to succumb to the punishments they have built up in their losing fight against natural law.

Greece, Ireland, Portugal, Italy, and now Spain, Inc. are now succumbing to the inevitable.  The member of club med which turns from the failure of the Euro currency to go it alone and embrace the much feared “Anarchy,” as it were, paradoxically stands to be richly rewarded by the flocks of tourists who can suddenly afford a European vacation without the Euro.

We conclude with a brief manifesto for your perusal and enjoyment.  What does the future hold?

Out of Anarchy, a Truly Capitalistic System will ORGANICALLY emerge, and with it a new dawn for humanity, built on mutual interest and almost endless capital formation which will engender a spontaneous and dynamic social order, a society without borders that would enjoy freedom and prosperity that we cannot even imagine under current conditions.

Believe.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for June 11, 2012

Copper Price per Lb: $3.35
Oil Price per Barrel:  $81.49

Corn Price per Bushel:  $5.92
10 Yr US Treasury Bond:  1.60%
FED Target Rate:  0.16%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,596 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  8.2%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  12,411

M1 Monetary Base:  $2,306,000,000,000
M2 Monetary Base:  $9,790,100,000,000

Watch “‘Greece doomed, economy total farce & fiction!'” on YouTube

Patrick Young, an investment advisor, gives a sobering account of the current state of the Greek economy and the future of the EU. In short, Greece will default within 8 weeks and it will be chaotic.
We are not sure what is more shocking, Mr Young’s assessment or the footage of the riots in Athens running in the background. About 5 minutes and well worth a view:

No Love for Greece, The latest casualty of central planning

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.

Will the Hellenic Republic submit?

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!

David Mint

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!

Gold Price Per Ounce:  $1,721

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

Nigel Farage calling out the EU on their Handling of Greece

Nigel Farage, again telling it like it is.  Below he calls out the members of the EU for systematically destroying Greece by forcing them to stay in the Euro.  With a puppet government and ceaseless demands for austerity, Greece’s economy has contracted for 5 straight years and is currently falling off a cliff.

It is refreshing to hear Farage call out the EU, and it is painfully obvious that his pleas fall on deaf ears as his Eurocrat colleagues simply mill about.  The EU Commission would be a funny joke if their idiocy didn’t cause such widespread suffering.  From zerohedge.com:

Euro funding doesn’t pencil out

Rumors today that Greece would default on its sovereign debt were received with relative calm by the bond markets.  Now that Greece’s public debt is approaching 150% of GDP and is forecast to increase by at least 10%, even the most optimistic analysts, namely S&P, are coming to one inescapable conclusion:

Greece is in technical default.

This is news to no one in the world of finance.  The numbers in Greece haven’t penciled out for at least three years and have shown absolutely no sign of improvement.  Anyone with significant exposure to Greece has either sold it or obtained some sort of guarantee from the ECB and/or IMF that they will be made whole on their exposure.

Hence, the lack of panic in the markets.

For financial market participants, the guarantee of the ECB works as a hallucinogen.  Traditional analysis no longer applies once an infinitely solvent guarantor signs on to back the debt of a weak partner.  The weak partner is no longer seen as insolvent, but rather, devoid of credit risk.

However, 2012 is shaping up to be a tough year for the ECB itself.  With every cent of spare Euro liquidity fleeing to American shores, the ECB is now the lone ranger as its lending activity increasingly dominates the Euro money markets.

Assuming that it must fund a large majority of the Eurozone’s debt rollovers in in 2012, how many Euros will the ECB need to conjure up?  The rough tally is 740 billion euros worth of European sovereign debt.

Additionally, it is almost a bygone conclusion that the ECB will need to step in and buy the debt of European banks whose country’s sovereigns are under pressure.  This includes:

  • 25% of Irish banks outstanding debt
  • 20% of Spanish banks outstanding debt
  • 15% of Italian banks outstanding debt; and
  • 15% of Italian banks outstanding debt

To borrow an old but relevant metaphor, 2012 will be the year that the ECB’s wine, the Euro, turns to sewage.  Thanks to their unlimited swap line at the Federal Reserve, the US currency is likely to begin to smell funny as well.

Could this be why the FED funds rate has creeped up from its flatline the past few days?

No matter how you look at it, the 2012 Euro funding picture does not pencil out.  The sooner that Greece and the other insolvent sovereigns and banks declare the default that the markets have long since priced in, the sooner growth and hope will return to the Eurozone.

On the other hand, the longer the sewage is allowed to backup at the ECB, the greater the risk of a Euro currency collapse.  Nobody wants to see that, especially the FED.

Rockaway Beach, Jaca, and the illusion of Market Homeostasis

11/29/2011 Portland, Oregon – Pop in your mints…

We are back from a wonderful Thanksgiving holiday spent with family in lovely Rockaway Beach, Oregon.  Rockaway Beach is a gem of a town on the Oregon coast which straddles Rock Creek as it descends from the Coastal Range and violently collides with the Pacific Ocean.

We were fortunate to awake each morning with a front row seat to this raging battle.  At low tide, the creek appeared to make headway as it made its final run into the great unknown.  The beach was immense and inviting, and seagulls roamed the sands to find what the sea had left behind as an appetizer.

At high tide, the sea was angry.  The creek’s advances were violently thrust back again and again as the full weight of the Pacific came in against it.  The beach and its inhabitants disappeared and we were glad to be looking down on the raging waves from the third floor of the townhouse.

We now understand why navigating the mouth of the Columbia River was a fool’s game for centuries.

The central Oregon coast is unique.  It is never quite warm enough, no matter what time of year one visits, to be a suitable substitute for the tropics.  Nor is it ever quite cool enough to be easily categorized as Nordic.  It permanently exists in a state somewhere between these two extremes.

The State of Oregon declared the entire coast a state highway in 1913 and affirmed the beaches as public lands via passage of the Oregon Beach Bill in 1967.  These two actions have kept the coast both accessible to the public and in generally pristine condition. 

Essentially, these are no private beaches in Oregon   For this, we are grateful, as the coast may be one of the most peaceful and photogenic places on the planet.

Rockaway Beach
Sunset at Rockaway Beach

Our time in sleepy Rockaway Beach was pleasant.  Apart from seven miles of coastline, the town has a park and a number of antique and craft dealers.  On Friday evening we were treated to the annual town Christmas tree decorating and lighting ceremony along with an old fashioned sing-a-long led by the school choir.

Rockaway Beach
A Family enjoys the sunset at Rockaway Beach, Oregon

Songbooks and cookies were passed around and the choir took requests from the crowd.  The last time we experienced such an expression of civic merry making was in the mountain town of Jaca in Aragon.  As we arrived in Jaca, it was dark and persons were flocking to the green in front of the Castle of San Pedro.  They appeared to jump at our car as if from nowhere.

Once settled in to our accommodations, we joined them and were invited to a sing-a-long in the early autumn evening in the Spanish Pyrenees.  But that is a story for another day.  We are having a hard enough time returning from our vacation bliss.  If we reminisce on our time in Spain we may be on permanent vacation.

Homeostasis?

We love the word homeostasis.  It is a complicated way of saying that an organism, or in our case, an economic system, is in balance, in touch with its inner Chi.  We think of a frog sitting on a log, slowly breathing.  Perhaps it is an image burned into our minds by a biology text we once read.  Whatever images the word conjures in your mind, fellow taxpayer, it is unlikely to trigger a flight or fight response.

We seem to have returned from the raging coastline to a market which appears to have achieved a sort of homeostasis.  The rise and fall of equities, many times over 200 points a day as measured by the Dow, should evoke a fight of flight response from market participants.  Yet now commentators and participants barely blink an eye at such moves. 

After trillions of dollars of stimulus, dozens of government bailouts and guarantees, and collectively learning to think the unthinkable, the market must finally be achieving equilibrium, right?

Oh fellow taxpayer, if only it were true.  Unfortunately, the very perception that the market may be at homeostasis may be the indication that we are at an intermission before the dramatic final act of the play in which we all find ourselves unwilling participants, gets underway.

In the final act, the sovereign debt debacle that first appeared in Greece and is now enveloping France and perhaps Germany finds its way across the ocean to the United States of America.  At that point, the US will succeed where Europe, until now, has failed.

As the financial world trains its binoculars on the equity and bond market indicators, they will continue to declare that all is well, the homeostasis that the American authorities so desire will appear to have been achieved.  US bond yields will remain steady and the equity indices will steadily rise.  Even housing may begin to march forward after its long slumber.

No, the US will not default in the traditional way, as Europe is on the verge of doing.  In fact, perceptive fellow taxpayers will quickly point out that the US has been in the process of defaulting for some time now via quantitative easing (QE).

In markets as in a biological system, all of the actors are always pursuing a state of homeostasis.  Yet the rub of homeostasis is that it is impossible to achieve by unilateral force.  It is something that must collectively be achieved.  It is something that only Anarchy, the absence of the State, can bring about.

The final act of this play will be the ultimate display of unilateral force.  In an increasingly desperate attempt to keep bond and equity indices steady, the Federal Reserve will lose control of the currency in what historians will call a hyperinflationary blow off.

Then modern Central Banking, Western Governments, the warfare/welfare state, and all of its grotesque machinations will take a bow and exit stage left…or they will jump off the stage and attack the crowd.

Come to think of it, we may just leave after this intermission.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for November 29, 2011

Copper Price per Lb: $3.38
Oil Price per Barrel:  $99.34

Corn Price per Bushel:  $5.98  
10 Yr US Treasury Bond:  2.00%

FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,715 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.0%
Inflation Rate (CPI):  -0.1%
Dow Jones Industrial Average:  11,556  

M1 Monetary Base:  $2,095,600,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,664,500,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Greece, Inc., Anarchy in action!

11/1/2011 Portland, Oregon – Pop in your mints…

You can’t make this stuff up.  In case you are unaware, today, Greek Prime Minister George Papandreou made a surprise call for a referendum on the most next round of bailout funding that its big Euro brothers, Germany and France, spent so much time and political capital to arrange.  From Reuters:

The Greek government faced possible collapse on Tuesday as ruling party lawmakers demanded Prime Minister George Papandreou resign for throwing the nation’s euro membership into jeopardy with a shock call for a referendum.

Caught unawares by his high-stakes gamble, the leaders of France and Germany summoned Papandreou to crisis talks in Cannes on Wednesday to push for a quick implementation of Greece’s new bailout deal ahead of a summit of the G20 major world economies.

Apparently, it was a surprise even to those in Athens, the article continues:

Papandreou did not even inform Finance Minister Evangelos Venizelos he was going to announce the referendum on the latest EU aid deal, a government official told Reuters.

“They must be crazy… this is no way to run a country,” said a senior executive of one of Greece’s biggest firms, speaking on condition of anonymity.

Yes, Anarchy is now trumping the nation state.  Let us examine the phenomenon which is currently playing out in Greece, for it is highly likely to play out in nearly every Western Democracy before Anarchy comes in to give its people a bear hug.

Allow us to present this development in terms of Greece as a Corporation to make clear the absurdity of the present situation. 

Greece Inc., the security and welfare agency, is one of the oldest in the Western world.  It is currently running an unbelievable operating deficit and is awaiting 8 Billion Euros payable in mid November under a financing deal that its largest creditors have essentially negotiated for it.

George Papandreou Jr - CEO Greece, Inc.
George Papandreou Jr - CEO Greece, Inc.

Mr. Papandreou, the CEO of Greece, Inc., along with Greece Inc.’s creditors, has been negotiating a new, complex financial deal which will allow the bankrupt corporation to continue to fund its security and welfare activities, albeit at reduced levels.  Without this deal, Greece, Inc. will run out of cash in January 2012.

Mr. Papandreou has been slashing the preferred dividends (welfare payments) and salaries of the Greece, Inc.’s shareholders and employees in order to comply with the terms of the current financing deal.

Looking ahead to January 2012, Greece Inc.’s lenders have “negotiated” yet another deal for it to be able to fund its operations past the corporation’s next D-Day.  Naturally, the deal includes a lot more “shared pain” in the form of further reductions to employee salaries and preferred dividends.  Naturally, this comes as unwelcome news to the employees and shareholders.

Sensing that he is losing control of the company, Mr. Papandreou suddenly feels the need to get “buy in” for the new deal from all affected parties.  Today, without consulting its creditors, Mr. Papandreou announced that he is presenting the complex financial deal for the formal approval of his enterprise’s (Greece) captive shareholders.

To make matters more interesting, he is scheduling the approval vote (aka the referendum) to occur at about the same time that Greece, Inc. is scheduled to run out of cash in January of 2012.  This may be the ultimate in financial brinksmanship.

Naturally, the potential funders (Germany, France, China, etal) are taken aback at the sudden “need” to gain shareholder approval.  This is something that is, while perfectly legal, completely unexpected and has introduced yet one more variable in what is already a complex deal.

Naturally, the introduction of this new variable has sparked anyone who is currently owed money by Greece, Inc. at a future date now trying to sell Greek bonds for whatever they can get for them, virtually eliminating the market for Greek debt and, in the process, making the creditors who are ready to sign the new deal with Greece, Inc. look extremely foolish. 

Beyond foolish, it naturally calls into question the motives, decision making ability, and ultimately the creditworthiness of said creditors Germany, Inc., France, Inc., and China, Inc. and their banking subsidiaries.

Crony Capitalism, there is nothing natural about it.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for November 1, 2011

Copper Price per Lb: $3.51
Oil Price per Barrel:  $91.50

Corn Price per Bushel:  $6.54  
10 Yr US Treasury Bond:  2.00%

FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,720 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.3%
Dow Jones Industrial Average:  11,658  

M1 Monetary Base:  $2,071,500,000,000 RED ALERT!!!
M2 Monetary Base:  $9,607,200,000,000 YIKES UP $1 Trillion in one year!!!!!!!