This is the ultimate stimulus measure, money will continue to be free, let the final stage of the mad scramble for resources begin. With this statement, the FED has confirmed that the currency will be destroyed. Plan accordingly!
We saw a chart at the Wall Street Journal site today which was entitled “Downward Dow.” The name hearkens to the canine/yoga position better seen that described:
A Canine demostrates the new Dow pattern that is forming for the next two years
The FED sees what is going on and is taking a long, running, Charlie Brown style kick at the Downward Dow before it. Unfortunately for us all, like Charlie Brown, Ben and the gang are going to whiff on the Dow, which is more likely to lie down than resume its forward gait, and pull a hamstring in the process.
In other words, the FED, with today’s statement, has severely injured itself and will do nothing more now than sit on the sidelines and hand out free money. With Congress paralyzed, the helicopters (the FED member banks) will be in charge of dropping the money on the populace.
Today the Dow fell some 500 points. Looking further, everything seemed to fall today. We hope you have a good umbrella, fellow taxpayer, it could be quite a storm.
Three noteworthy things seemed to have taken place in no particular order and for no apparent reason other than to unite to tank financial asset prices all over the globe, which is no small feat. We will take them one by one.
First, overnight, the Japanese Central Bank intervened to prop up the dollar (or weaken the Yen, however you prefer to look at it).
Second, the world gave a collective thumbs down to the Eurozone’s “effort” to stabilize its bond markets. The Euro Feds appear over matched in their currency union’s first true fidelity test.
This uncoordinated action led to the third event which we will call the “mother of all calls” on the US Dollar. With short and long interest rates skipping around a zero as far as the eye can see, speculators have taken swings at the dollar like Dave Kingman at the 2-0 fastball. The dollar is already sold short on an almost unimaginable scale.
Today, those speculators, ala Dave Kingman, whiffed and nearly fell over. The only way this “mother of all calls” could be satisfied was for those short the dollar to quickly and injudiciously exit other positions.
This exiting injudiciously of other positions is colloquially called a crash.
This crash, along with the foul smelling economic datacoming out of the US will give the Fed and Congress all the ammunition they need to launch both QE3 and any and every fiscal stimulus program they can dream up.
QE3 and fiscal stimulus on steroids will soon prove those speculators short the dollar right and the final, sordid chapter of the US Dollar’s history is about to begin!
Dave Kingman may have whiffed at the 2-0 fastball, but he has two more swings…
*See the MINT Perceived target Rate Chart. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Sound the alarms! The today the BLS took the pulse of the labor market today and market observers jumped back, aghast that the patient, the US labor market, should be so weak. According to the charts, he was well on his way to recovery. After being in a coma for the past three years, it appeared that he would be back to his old self and dancing in the halls in a matter of months.
Now, the prognosis has taken a turn, albeit a small one, for the worse.
Here at the Mint, we take numbers with a grain of salt. We have nothing against numbers; on the contrary, we are rather fond of them. They give one the ability to appear to make sense of extremely complex phenomena. They make mankind appear intelligent, cunning, even clairvoyant at times.
It should come as no surprise, then, that mankind, specifically those bent on “improving the world,” should place so much faith in them. To understand and interpret numbers and then act on the data gives man a power rush that is exhilarating.
It is a fatal conceit.
It is illogical, perhaps insane, to think that something as complex as creation and the countless phenomena that occur every nanosecond can be adequately expressed (much less understood) in numbers.
On a small scale, such as a family farm, a small town, or even a remote island, numbers can prove very useful. They can provide accurate, timely information about productivity and relative scarcity. In these instances, numbers can be invaluable.
Begin to aggregate theses numbers and try to use them to understand phenomena on a large scale and they become not only devoid of meaning but dangerous.
Why does this happen? Simply because the farther removed that the decision maker reviewing the number is from the processes on the ground, both in space and time, the less able he or she is to react in a coherent manner. This, in a nutshell, is why Socialism, Communism, and any other form of Centralized planning or “world improvement” does not work on a large scale.
With this in mind, we will interpret today’s BLS unemployment numbers for you. Economic observers have been trained to understand that 9.2% unemployment is bad for the economy. Why it is bad, few stop to wonder, but that is a rant for another day.
It is simply understood to be bad, and since the economy needs to be “good,” the world improvers must do something. What will they do? First, they will use this as an excuse for the FED to keep the short term rates insanely low for a longer period of time. This will not create employment but will create hyperinflation.
Second, the US Congress will raise the debt ceiling and resort to the Bush era style of stimulus, they type where every taxpayer gets a check in the mail from the Treasury.
Third, and most importantly, this announcement is a desperate attempt to keep domestic inflation in check. Inflation, and then hyperinflation, will begin once wages increase. The rise in unemployment sends the subliminal message to the working classes that they cannot demand raises because they are just “lucky to have a job.”
Are you really lucky to have a job? The not so subliminal truth is that YOU ARE IRREPLACEABLE AND ARE WORTH MUCH MORE THAN YOU ARE CURRENTLY MAKING!
Lives and economies were never meant to be measured in numbers. Numbers used to make large scale policies generally do more harm than good. Numbers produced by a central authority often are done so either with the intent to deceive or are so untimely and incompetently compiled that they become deceptive as they do not accurately reflect present circumstances.
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*See the MINT Perceived target Rate Chart. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
With consumer credit in a long term downtrend, the US Congress unable to come to an agreement to raise the debt ceiling, and the Euro system on the verge of collapse, The FED appears desperate. Our speculation is that they are now plotting something we call “Helicopter Phase.”
Helicopter Phase happens when money is literally showered on the American people in a desperate attempt to keep the currency regime from disintegrating. Ben Bernanke attempts to describe it in his own words in the latest edition of Mint Finger Puppet Theatre:
Helicopter Phase will most likely take the form of the stimulus checks that have been mailed out to taxpayers in the past as giving away money to the banks, defense contractors, and other special interests has failed to create any long term growth.
In rural areas, however, we suspect that Ben Bernanke‘s famous helicopter method is likely to prove useful:
We search for answers, yet the questions are trumping them right now. This phenomenon is inherent to human existence. People are always chasing after knowledge. In the Bible, the book of Daniel speaks of our times when the Angel tells Daniel in his vision:
“But you, O Daniel, shut up the words, and seal the book, even to the time of the end: many shall run to and fro, and knowledge shall be increased.”
A little bit of knowledge sparks a thirst for more knowledge, which, once quenched, sparks an even greater thirst for knowledge. Like Carmex, which soothes one’s chapped lips for a time only to dry them out again, which appears to create a perpetual “need” for to the product, knowledge provides answers and understanding which lead the enquirer to even more questions, and the cycle repeats itself.
The phenomenon expresses itself in markets in the form of a search for a “final price”. In a free, unfettered marketplace, this price, in money terms, represents all that is known about the value of the good that is being exchanged for money at that point in time. However, this “final price” is in and of itself a new data point to be considered, as is the exchange of goods which it represents. This changing data necessarily creates a new “final price” which, by definition, takes into account all factors know about the value of the good and so on.
Ever since we decided to eat the fruit of the tree of the knowledge of good and evil, the chase for knowledge has continued and will continue until Jesusreturns.
But what does this have to do with the US Dollar, let alone Beer?
We are glad you asked as we were getting a bit side-tracked. Our personal search for knowledge has brought us to the most recent of the endless questions that need to be answered:
When will Central Bank Currency Regimes and Sovereign Governments admit they are bankrupt and be allowed to default?
This is an URGENT and very important question as the entire financial world cannot progress until this question has been answered.
To be clear, most western governments and their Central Bank run currency regimes are now technically in default. They have been ever since they began to “solve” liquidity problems via money printing or “Quantitative Easing” (QE for short).
The acts of Quantitative Easing, which have been embarked upon by the US, Euro, and Japanese Central Banks is only necessary when the faith based currency regime in question has failed. The necessity to print money which is not demanded by the market nor provided at market prices provides concrete proof that people are no longer willing to further enslave themselves by incurring additional debt.
As we have explained in this space before, debt is the lifeblood of the currency regime. In these mindless confiscatory monetary systems where the only way to create money is to coax someone else into incurring debt, shrinking debt is the equivalent of someone pushing the currency regime’s self destruct button.
But instead of recognizing this fact for what it was, a failure of the system, much of western civilization continues in willful denial. Soon, however, everyone will be rushing for the exits.
But we promised you a beer, fellow taxpayer, so crack yourself a cold one (on your own dime, of course, this is, after all, a free newsletter) and see if you tell us what the Federal Reserve Notes that we currently use as money and Schlitz Beer have in common?
What do Schlitz and the Federal Reserve Note have in Common?
Need a hint? Think quality, or lack thereof.
Give up? Here are the answers, as always, we invite inquiring fellow taxpayers to add to this list by commenting below.
First, both Federal Reserve Notes and Schlitz were once the gold standards of their product class (currency and beer, respectively). Federal Reserve Notes took the place of US Dollars in 1913 and maintained the US Dollar’s tradition of quality and enjoyed increased market share until finally overtaking the British Pound Sterling as the world’s currency of choice. In the beer industry, Schlitz rose to overtake rival Pabst as the most popular beer in the world in 1902.
In the 1970s, the Schlitz brewing process was changed to make use of high temperature fermentation in order to further speed production. This change and subsequent changes in the formula had disastrous results which came to a head in 1982. On the US Dollar front, then President Richard Nixon began to tinker with the US Dollar formula in the 70s, namely making the US Dollar no longer convertible into gold. This watering down of the dollar supply had disastrous effects which also came to a head in the early 1980’s.
Both Schlitz and the US Dollar then continued to generally decline in status for close to 30 years.
In 2008, however, the old Schlitz formula was discovered and has been revived by Stroh’s Brewing Company to give new life to an old beer that everyone had left for dead.
Circa 2011, the US Dollar is still yearning to return to the “gold convertibility” formula that made it so insanely popular for the first half of the twentieth century.
*See MINT Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Rationale: It appears that the march out of US Treasuries and into cash has begun. Big banks really have no choice. With the US political establishment in gridlock on the debt ceiling there is now growing principal risk in holding US Treasuries. Without the prospect of further debt expansion to mop up all of the excess cash in the system in the short term, the Fed is resorting to the tactic of deflationary propagandain a futile attempt to quell inflationary pressures.
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Summer has arrived in Portland. We had hoped that it would arrive months ago but as with 41% of our predictions here at The Mint, we were early, which is a polite way to say that we were wrong.
In the financial markets, it continues to rain. The authorities have done everything in their power to stop the effects of the rain, hoping to simply ride it out. They are now exhausted and the ominous prospect of rising flood waters to accompany the constant drizzle adds to their misery.
The storm began innocently enough and that was the problem. Despite the dark clouds forming on the horizon, most people thought that they simply needed to stay indoors for a while, maybe move the patio furniture inside, and wait it out.
As it turns out, loading up the wagon and moving to higher ground is the only thing that can save them. In a practical sense, this means paying off debts and moving assets into precious metals or anything else real. It means cutting ties with any and all counter-parties because the probability of default is increasing and can strike without warning.
This financial storm did not necessarily require the divine insight afforded Noah in his day but to adequately prepare for it one needed to at least have in mind the possibility that this storm was no ordinary storm.
Yes, fellow taxpayer, the world economy is not in a recession or a depression (unless you are trying to describe a certain level of misery and not an economic phenomenon). The economy is in the process of being completely retooled. Bill Bonner at the Daily Reckoning calls it the “Great Correction.” We do not have a name for it here at The Mint but Mr. Bonner’s term seems a bit mild to us.
Now that the FED’s firepower and credibility are completely expended, the economy is set to experience something akin to random “rolling blackouts.” As the cash and credit that flowed steadily downstream for the past 50 plus years begins to dry up, a wall of water in the form of stimulus and monetary accommodation is barreling down the canyon and is literally destroying everything in its path and is PERMANENTLY changing the river’s channel.
Beyond the wall of water is a dry riverbed. This has been confirmed as the FED’s credibility is shot. Even if they could continue sending what water is left down the canyon it wouldn’t even come close to filling the new channel or be capable of forming anything that resembles the river that once was.
It is difficult to imagine a more desperate state of affairs. This is one of the miracles of central planning, that it always and in every sense is a failure for everyone. In some rare cases the planners benefit but for the most part, in the long run, even they are poorer for their efforts.
So what awaits the economy are unpredictable rolling blackouts as the lack of water causes random and unexpected defaults and quasi-defaults to occur until all participants learn to not trust each other. Oddly enough, only then will something resembling organic growth begin anew.
An interesting idea was brought to our attention yesterday. The idea is that the FED’s charter as America’s Central Bank is set to end on December 21, 2012, which nicely coincides with the final date on the Mayan Calendar. We then further investigated and saw that someone with the Youtube user name “Man of Truth” predicted that the FED would be bankrupt in December of 2012 back in 2009.
While back in 2009 the Man of Truth may have sounded like a lunatic, circa 2011 his prediction seems not only possible but highly likely. While the December 2012 date is arbitrary, all of this taken together with the fact that many people believe the Mayan Prophecy may be enough to disrupt life as we know it for an extended period of time.
Courtesy of http://bizarrocomics.com/
While we at the Mint do not personally believe in the Mayan Prophecy or the FED for that matter, we have a feeling that enough people do believe to warrant being prepared for an extended period of random rolling economic blackouts which will probably begin early in 2012, making the best time to prepare for them, well, now.
How to prepare? First and foremost, accept Jesus Christ as your personal savior. Then, not matter what happens, you have absolutely nothing to fear, not even death.
Second, financially act as if a flash flood is coming down the canyon and get whatever you think you may need to ride out the blackout period close at hand because the probability of obtaining it later is diminishing with each passing day.
Third, help others to do likewise. In the process of helping others, you will literally be laying the foundation for the bright future that awaits you.
Piece of cake, right?
Meanwhile, the security situation in Palestine the Middle East continue to deteriorate. Will it be enough to distract the West from its own perilous situation?
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Today the focus of the financial world is on events around the Mediterranean where the Greek and increasingly the Spanish people again find themselves at odds with their respective governments and their IMF / ECB / German debt collectors.
How did they get there? The Greeks and arguably the Spanish have been living in the social equivalent of a Club Med ever since they joined the Euro. The initial sting of higher prices was offset for most by lower borrowing costs. Life was good. The advent of the Euro along with a boom in tourism began to feed a property boom in Spain and a government spending boom in Greece.
Alas, as an economy slows, the government is usually the last to know.
Like the father whose family takes a vacation to Club Med, he is content to let the family splurge with little worry as to how he will cover the bill. “Just throw it on the credit card, we’ll take care of it later” becomes the mantra.
Unfortunately for the father (who represents the Greek, Spanish, and arguably the US governments in our parable), his bank decides to cut his credit line just before the vacation is over. The bill comes due and the man frantically negotiates with his bank (the ECB, IMF, and arguably the US FED) to extend his credit line enough to cover the bill.
Club Med – Paradise Lost!
To make matters worse, upon his return the man finds that the income from his job (the government’s tax receipts in our parable) has been cut due to “the economy*.” He now has no realistic prospect of repaying his extended credit line and instead must now consider a painful reduction in the family’s standard of living.
Naturally the family, who has developed some expensive habits while away at Club Med, rebels. The father is now in a no win situation. On the surface, he appears to have a choice between satisfying his family at the expense of his creditors or vice versa.
There is, of course, an easy way out. The man who is in this hopeless situation can declare bankruptcy. Problem solved, right? Not so fast. You see, because of “the economy*,” the bank cannot release the man from his debts and have enough money to make good on its own obligations.
At this point, the Central Banks of the world (which are represented by the bank in our parable) lack not only the credibility but also the practical tools to perform their make believe function as protectors of the value of their respective currencies.
Today we read a piece by Michael Pento of Euro Pacific Capital (run by Peter Schiff) which seems to give logical credence to what we have long suspected to be the case:
“In the end, any meaningful attempt to withdraw liquidity will not only bankrupt the institution (The FED) but also zero out their remaining credibility. That’s why they’ll never even make an honest attempt.”
The FED is helpless to remove the liquidity it has injected and will soon have to decide which of its member banks to sacrifice if the dollar is to continue as a functioning currency. Our money is on the dollar and all who rely on it as a store of value to be the sacrificial lambs.
Back to our parable. Both the man and the bank will continue to pretend to negotiate with each other, giving the illusion that what is now their mutual problem will supernaturally disappear. The family will continue to pretend to debate which expenditures to cut back on as if it will make a difference.
Unfortunately, the likelihood of the problem disappearing is equivalent to the likelihood of the family being able to go back in time to cancel their trip to Club Med prior to departure. Such is the nature of debt.
So the bank, the father, and the family find themselves clinging to a myth as they helplessly hurtle towards the unknown.
*Definition of “the economy”, circa 2011 – A term used to describe the large scale collapse of Central Banking and the Socialist / Communist economic model that it has created over the past 100 years. Generally used by politicians and others in authority to “explain” why they cannot pay their obligations. This explanation is presented to the masses as a failure of capitalism when quite the opposite is true. Thus, this simple two word phrase is used as an excuse to further the Socialist / Communist agenda and that of the police state that is forming all around the world.
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Today’s Call: Japan Government Bond (JGB) 5 year yield to fall. Currently 0.49%.
Rationale – Anticipation of combination of FED signaling continued easy money policies coupled with BOJ bond purchases in wake of disaster increasing price of JGB farther out on the yield curve.
Result of Call for April 20, 2011: Greek 5-YR Sovereign Credit Default Swap to rise. Was 1325.70. Currently 1474.70. Good Call
Calls to Date: Good Calls: 6, Bad Calls: 7, Batting .462
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