Tag Archives: Federal Reserve

September 11th, and why Money does not Exist

9/11/2015 Portland, Oregon – Pop in your mints…

September 11th has become a day of remembrance in what was formerly the land of the free.  The horrific spectacle of the events that unfolded in New York and Washington that infamous day will be forever etched in the memory of our generation.  While we did not realize it at the time, it was the day that the United States lost a great deal of freedoms.

The external restrictions that have been imposed on society post 9/11 are well documented.  The passage of the Patriot Act has given the government carte blanche when it comes to surveillance and disregard for due process.  While these practices have always been employed to some degree, the Patriot Act in a sense legitimized them.

Perhaps more devastating, however, has been the mental shift that 9/11 caused in the thought of US Citizens.  Pre 9/11/2001, the US was a place where truly anything was possible, it was the Land of the Free, the sky was the limit.  Humankind had just “survived” the Y2K non-catastrophic event and credit flowed freely.

More importantly, though, our minds were free.

Naturally, we can only speak of our own experience, but we would be willing to bet that many who lived these events would agree.  Pre 9/11, the United States was a completely different country.

Ironically, 9/11/2001 was the day after we had been laid off from our first job.  We had cornered ourselves in Internal Audit, which for the uninitiated, is the first department to get the axe when cost cutting measures are employed.  Really, who wants to pay people to tell them what they are doing wrong all day unless they can justify the expense?

We received the memo and our final check on the 10th.  On the 11th, we woke up to the first day of freedom that we could recall, turned on Good Morning America, and watched the events unfold.  At that point they were speculating that the first tower was some sort of small aircraft accident.  A caller from New Jersey was on and said, with a grave seriousness in his voice, that it was not a small aircraft, but a commercial airliner.   Then, on live television, the second airplane hit the second tower.  We are embedding a YouTube video of this moment for those who did not see it.  Please be advised that it is indeed disturbing and skip it if you do not want to be shocked:

It was at that point that we knew something bigger than ourselves was occurring, and God had set us there to PAY ATTENTION TO WHAT WAS GOING ON!  We were new to Christianity, true Christianity, and had begun to truly commune with God over the past several months.  To those who have not had similar conversations with the creator, this will sound strange, but God does speak quite clearly to those who are paying attention.

Anyway, God said, “It’s time.”

This has set our life on a completely different course, one that you, fellow taxpayer, are now a part of.

Ah yes, we were going to explain why money does not exist, at least not in the sense that most understand it.

The Federal Reserve is set to meet in September.  There is an expectation that they will raise interest rates.  However, there is also a sense that the economy is somehow still in a funk.  What is the Fed to do?

We postulated earlier this year that the Fed would sooner raise interest rates than end its QE money printing programs.  We were wrong, QE ended before rates increased.  However, we hold out the spectre that, eventually, perhaps this month, the Fed will need to increase its target rate.  When it does, it will cause big problems for large banks.   Banks will need a buyer for the masses of Treasuries they have to hold as a result of Dodd-Frank.  The Fed will buy them at cost (not market, as their market value will be dropping), effectively reinstating their QE program.

They will raise rates on the short end and work to maintain lower than natural long rates.  Anything else would spell disaster for the economy.

Why can the Fed employ QE (electronic money printing) in the first place?  Because money does not exist.  What we use as money is really credit.  Credit and Money are opposite elements in the realm of economics.  They should cancel each other out.

Now that Money is credit, the productive activities of humankind are aligning themselves in direct conflict with the needs of the natural world.  And the chasing of non-existent money is causing humankind to strip mine the earth.

Will we learn in time?

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for September 11, 2015

Copper Price per Lb: $2.43
Oil Price per Barrel:  $44.79

Corn Price per Bushel:  $3.62
10 Yr US Treasury Bond:  2.19%
Bitcoin price in US:  $240.28
FED Target Rate:  0.14% 
Gold Price Per Ounce:  $1,106

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  5.1%
Inflation Rate (CPI):   0.1%
Dow Jones Industrial Average:  16,330
M1 Monetary Base:  $3,132,300,000,000

M2 Monetary Base:  $12,088,500,000,000

The Monetary Premium is the Fed Alternative

12/24/2013 Portland, Oregon – Pop in your mints…

Here at The Mint we are preparing for a record-breaking year in 2014.  As we look out upon the horizon, we see that the eternal tension between inflation and deflation that is the bane of the insane debt is money monetary system is beginning to subside.  While many at this point are standing on the beach watching the monetary tide recede to an unimaginable extreme, those who watch the weather know that this phenomenon is but the precursor to a tsunami.

Inflation will soon be here, and it is time to adjust revenue targets accordingly.

We make this forecast not out of any sort of clairvoyance, but largely as a hunch.  The Federal Reserve, which just passed its 100th anniversary and appears to be going strong, has no choice but to inflate, as it is their only tool and default bias.

What is changing in 2014 are the Federal Reserve’s tactics.  The FED will spend much of 2014 and beyond fighting inflation as a matter of policy.  Each coming policy, such as the recent $5 Billion/month token (or courtesy) taper that was recently announced, in theory will serve to reduce the monetary base.  What many do not realize is that the monetary base will not shrink as a result for at least three and a half years.

At this point our long-suffering readers are welcome to point out that The Mint was wrong.  We had predicted that the Fed would increase the target rate before tapering, as the target rate was more of a random subsidy while the taper recipients have come to expect it as a form of state banking welfare.  We humbly admit that, given the latest announcement, we were technically wrong.

What the taper reduction is accomplishing, in practice, is a form of marginal stimulus.  The Fed is herding the banks and other lenders out of Treasuries, as holding too many Treasuries in a taper environment is categorically inadvisable.  Some reports have the Fed representing 80-90% of the market for treasuries.  As they scale their participation rate back via the taper, Treasuries will be forced to find a market price, and if what happened to the 7 year after the announcement (a roughly 264 bp drop) is any indication, the market has an opinion of Treasuries that is quite different from those held by the Fed.

The point is that, as the banks have the spigot open at .09%, this money will, at long last, find its way into the hands of credit hungry consumers and businesses.

The giant of the US Economy is waking up.  Part of the activity can be attributed to the Christmas season, however, in early 2014, much of the initial uncertainty surrounding Obamacare will begin to sort itself out, and both businesses and consumers will find themselves both willing and, for the most part, able to do what they do best:  spend.

The Fed has worked tirelessly to shore up the monetary base for five years, and, despite what one may think of Yellen’s dovish bias, she is likely smart enough to realize that the best shot the Fed has now to stimulate the economy is to appear to head to the closet to pick up the liquidity mop.

The Importance of Tribute, and the Fed Alternative

After 100 years, the Federal Reserve has done much.  Their most amazing exploit, one that is lost on most, is that they made the US and much of the world believe that debt was money, and indeed, a great deal of the monetary premium has gravitated to Federal Reserve notes.

Clairvoyant Political Cartoon circa 2012 by Adam Crozier
Clairvoyant Political Cartoon circa 2012 by Adam Crozier

{Editor’s Note:  Click here to see more clairvoyant political cartoons circa 1912, just before the Fed was granted its monopoly on the US money supply}

In the end, what is a Federal Reserve note?  It is a Central Bank liability, which is an irredeemable hot potato that at best represents an indirect claim on wealth but in the end maintains its allure on the part of those forced to transact in it because the US Empire requires that all taxes be reported and paid in them.

Think about it, the hammerlock that any currency has on a citizenry, no matter how putrid its fundamentals may be (and they don’t get much worse than the paradox of debt based money), is that the sovereign requires tribute to be rendered in said currency.

The logical proof is this, were the US Government to require payroll and income tax remittances in Euros or corn bushels, how long is the Federal Reserve Note likely to retain its value and usefulness in trade?

The requirement to use a monetary unit or currency in rendering tribute is a important component of what we call the “monetary premium,” which is loosely defined as the portion of aggregate value that something carries related to its relative function of a transmitter of value.  It is embedded in the supply and demand dynamic of all quasi-monetary instruments, such as gold, silver, and most recently, Bitcoin and other crypto currencies.

While most fix their eyes on credit markets to determine the value of currency in trade, they would do better to observe the Monetary Premium, for it represents the collective hopes and dreams of humankind in the material world, and where it goes, relative riches follow.

For this reason, the Federal Reserve and other Central banks of the world will fight to the last (insert your preferred noun) to retain a share of the monetary premium, for it is their only value proposition in what is a terminally defective, if not purposefully fraudulent, product mix.

In 2014, the Fed will lose its iron grip on the Monetary Premium and take its place amongst currencies relegated to tax remittance and nothing more.

Bitcoin’s resilience is but one item in a long list of evidence that the monetary premium attributed to central bank notes is attaching itself to other indirect claims on wealth and items representing unencumbered claims on wealth.

The economic activity that this tacitly coordinated shift out of Federal Reserve notes will cause in 2014 and beyond will be breathtaking.  They will call it inflation, and it will be the Fed’s death knell.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for December 24, 2013

Copper Price per Lb: $3.31
Oil Price per Barrel:  $99.21

Corn Price per Bushel:  $4.35
10 Yr US Treasury Bond:  2.98%
Mt Gox Bitcoin price in US:  $698.87
Gold Price Per Ounce:  $1,205

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.0%
Inflation Rate (CPI):   0.0%
Dow Jones Industrial Average:  16,358
M1 Monetary Base:  $2,583,700,000,000

M2 Monetary Base:  $11,024,400,000,000

Why the FED will Increase the Target Rate Before Tapering and the DC Budget/Debt Ceiling Paralysis Matters Not

9/27/2013 Portland, Oregon – Pop in your mints…

Autumn is upon us here in the Northwest.  As in most places, it is a refreshing return to the dance of life that we will live together over the next nine months under the requisite cover of rain and cloud.

If occurrences in nature can be trusted as future economic guidance, we are setting up for a phenomenal year in terms of production.  Salmon runs up the Columbia basin, which were once nearly extinguished altogether, are crushing all previous records this year, and word is that the Tuna catches in terms of quantity are staggering.  Corn yields further east in Minnesota are on pace to increase even on a decrease in acreage planted.

Even the Mushroom pickers are reporting a bumper crop.

Mushroom picking; illustration to III tome "Pan Tadeusz" circa 1860 by Franciszek Kostrzewski
Mushroom picking; illustration to III tome “Pan Tadeusz” circa 1860 by Franciszek Kostrzewski

Nature is doing its part to provide for us on any number of fronts, despite what Malthusian apologists and central planners may say, the only thing holding humankind back are the restrictions that it places upon itself.

Chief among these restrictions is the unnatural monopoly that exists with regards to the production of money and credit, which paradoxically are one in the same in the current “debt is money” scheme under which the entire financial world operates.  For the uninitiated, the monopoly that we speak of is that of the Central Banking institutions, which have been given unchecked authority to manipulate (notice our choice of terminology in place of the more quaint verb “setting” which is normally propagated) short (and now long term) interest rates as well as to determine what serves as legal tender.

Add to these monopolistic practices the ultimate authority to collect taxes and the extent of the monopoly which Central Banks have been granted becomes clear.

Given the existence of this monopoly, it is little wonder that those who make their living by working closely with money and debt, as we do, or those who hold a large amount of money and debt instruments examine the actions of the Central Banks with a great deal of anticipation and scrutiny.

The Central Banks are not to be watched because they have anything special or relevant to offer in the form of clairvoyance or enlightenment, rather, they are to be watched in the same way a pack of dogs must be watched when boarding an airplane, for their movements, while unproductive, tend to bother and in the worst of cases, cause harm to the rest of the passengers.

Against this backdrop, the captive watchers of the Federal Reserve were somewhat surprised this past Thursday that the Central Bank decided to delay their much anticipated “tapering” operation.  The decision to leave the current amount of money printing (Quantitative easing, that is) at current levels, which amount to roughly $115 Billion per month, was welcomed with a certain degree of shock by those who were certain that the program would be discontinued in light of the recent strength in the US economic data reports.

Entitlement: Why the FED will Raise the Target Rate Before Tapering

The decision did not surprise us, however, for the following reason.  The Quantitative easing program has essentially become an entitlement in the sense that it guarantees the credit system a buyer of last resort for the current level of mortgage backed and other securities which the FED purchases from their holders.  Were this program to be dialed back, it is clear which entities would be hurt by the action.  Entitlements of this sort are nearly impossible to take away once they are in place.

On the other hand, the other tool that the FED would theoretically use to signal it was responding to strong economic data by working to tighten credit (something that will not occur within the next three to five years, no matter what the FED does), is by manipulating short term interest rates via the SOMA and POMO.  They are more likely to test the waters by letting rates drift higher as this is an action that does not necessarily have direct consequences for certain market actors.  While some of the consequences are predictable, they are in the end indirect consequences, which give them less the feel of an entitlement, which is what the QE program has become.

In any event, by espousing a policy of giving “Forward Guidance,” which theoretically gives juice to existing policy actions by providing certainty to market participants as to how long certain policies will be in place, the FED is now, monthly, placed in the impossible position of showing the world how much its “word” is worth, as Forward Guidance only works if that guidance is actually reliable.

You see, contrary to what academics such as Michael Woodford, who is credited with originating the Forward Guidance principle, might say, the word of an organization and/or individual, like a debt instrument, can also be discounted based on the prevailing belief as to the extent to which the promises of the individual and/or organization can be trusted.

While the actions of the Federal Reserve, whatever they may be, are for some reason seen as immediately effective is beyond us.  In our models it is clear that any action taken by the FED with regards to interest rates does not significantly impact price and wage levels outside of the financial sphere for three to five years.  Nevertheless, the Federal Reserve actions are observed by algorithms which “think” differently than we do, and it is these algorithms which drive large scale equity trading circa 2013.

Fiscal Policy vs Price Levels:  Why the DC Budget/Debt Ceiling Paralysis Matter Not

Perhaps even more ineffective and innocuous to the economy in the short term than Federal Reserve action are the actions that are taken (or not taken) by the Federal Government.

The news is currently ablaze with the current scenario in Congress which has managed to entangle the Federal Budget, the Debt Ceiling, and Obamacare in the same line of debate.  This type of stalemate in terms of budget matters is absolutely normal and to be expected of technically bankrupt entities.

The past three years, which have seen at least two other debates around the debt ceiling as well as various sequesters, furloughs, disastrous tax and fiscal policy, and arguably a complete failure of any inkling of “Forward Guidance” out of the Federal Government, have taught the economic community one very important lesson:

Despite members of each party assuring the public that the outcome of these debates and any failure to act will destroy the economy, whether these debates are resolved or not is of little consequence.  The reason that they are inconsequential is that the major actors in the US economy, which are and always will be at least one step ahead of both politicians and central bankers, have already discounted the true impact and likelihood of government action by tacitly adjusting their activities to adapt to the inherent uncertainty.

So relax, the no matter what the FED or Congress do or fail to do, the risks remain firmly on the upside for at least three to five more years or the day that the current “debt is money” system fails, whatever comes first.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for September 27, 2013

Copper Price per Lb: $3.29
Oil Price per Barrel:  $102.77
Corn Price per Bushel:  $4.54
10 Yr US Treasury Bond:  2.62%
Mt Gox Bitcoin price in US:  $140.00
Gold Price Per Ounce:  $1,337
MINT Perceived Target Rate*:  0.25%

Was Removing the DEA the Catalyst for Bolivia and Latin America’s Economic Miracle?

9/11/2013 Portland, Oregon – Pop in your mints…

We recently returned from Bolivia, which, for the geographically challenged, is a relatively large country located in the heart of South America.  Our better half hails from this land that extends from the peaks of the Andes to the Amazon basin, and we have more than a passing interest in the goings on there.

What we observed in Bolivia this past trip can only be described as an economic boom.  While the economy has been on the uptick for a number of years, what we saw this year was well beyond an uptick.  During previous visits, we witnessed the construction of major roads along with an insane number of apartment complexes being constructed.  On this trip it was evident that the parks are now being maintained and the number of western style shopping malls and other spaces had greatly increased.

The homogenization of Bolivia, as we are fond of calling the phenomenon of globalization, is well underway.

Indeed, as one toggles the GDP of Bolivia on the embedded chart below, courtesy of tradingeconomics.com, the warp curve of economic growth that we have observed in our travels there, which began in 2005, just before Evo Morales (whose policies can only be described as Neo-Socialist) was elected, is confirmed by GDP figures.

Source: tradingeconomics.com

As we descended into Viru Viru, the interestingly named airport in Santa Cruz, we struck up a conversation with a young man who was working as a commercial diver in Oman.  In the course of the conversation, we remarked that Bolivia appeared to be in the midst of an economic boom.

When we asked our fellow weary traveller his opinion as to why the Bolivian economy had entered into its most recent growth spurt, he simply replied, “se fue la DEA.” Which means, the DEA is gone.

The DEA (US Drug Enforcement Administration, for those unfamiliar with the show Miami Vice) had occupied the rich agricultural land of the Chapare, which, while not ideal for growing coca leaves, enjoys a humid climate in which nearly anything will grow quickly, for nearly 33 years when Morales ordered them to leave during a diplomatic spat with the US in November of 2008.   It was a long-standing grudge that Morales, a coca farmer himself, had against the agency which he saw as an imperial force which harassed the simple farmers in the region that was his adopted home.

A quick glance at the GDP graph above seems to indicate that the DEA’s departure, which was completed in early February of 2009, appears to have been the catalyst that sent the Bolivian economy into overdrive.

Not only that, but when one overlays the Latin American GDP in the graph above, it is clear that not only Bolivia, but all of Latin America has experienced a similar GDP warp curve and attendant development in their infrastructure and consumer amenities.

While it may appear that a simple injection of drug money, which now flows somewhat unhindered into the country in search of the now abundant coca leaf (the raw material for cocaine and other illicit drugs) would account for this unprecedented growth, the phenomenon has coincided with another US policy that has paralleled the time frame in which Bolivia has been “DEA free*.”

Ben Bernanke’s printing press, which kicked into hyperdrive circa 2008 and has not stopped since.

While places like Hong Kong and China receive a great deal of attention for their respective currency pegs to the US Dollar, the Boliviano (the Bolivian national currency) is also pegged to the US Dollar in a similar 7:1 fashion.  As such, the Bolivian economy, which until recently has had a relatively low-level of consumer debt, has taken the dollars that Bernanke had intended to stimulate the US economy, and put them to work rather than throwing them down the black hole of their banking institutions.

So what is the ultimate catalyst for the explosive Bolivian and Latin American GDP growth over the past five years, the DEA leaving Bolivia or US Monetary policy?  Either way, it is clear that despite the Socialist bent of many Latin American countries, there is a flashing green light to invest in them as long as these two conditions persist, for they are like rocket fuel for these largely cash based economies with dollar pegs fixed to their national currencies.

“Viva mi Patria Bolivia…como la quiero yo!”

*Morales has deployed his own military to fulfill the role of the DEA in their absence, however it is evident that they are not as zealous in their persecution of the coca leaf as their American counterparts.

Key Indicators for September 11, 2013

The Mint Money Supply Digest – July 15, 2013

7/15/2013 Portland, Oregon – Pop in your mints…

Now that summer is in full swing there are few surprises on the horizon and the world, it would appear, is resigned to reluctantly following the current credit cycle on its dramatic upward trajectory. While we do not believe that the centrally managed credit cycles of today are beneficial (indeed, they are quite the opposite) nor do we believe in money in its present form (as long-suffering readers well know), the centrally managed credit cycle is quite predictable and in this sense appeals to our inner laziness.

Some five years ago, the Federal Reserve began doing everything in their power to stimulate credit, as the swoon of 2008, induced by a series of blind 25 basis point hikes in the Fed’s rate target, threatened to choke off the lifeblood of the debt based monetary system.  At the time, we postulated that it would be roughly 39 months before the average man on the street began to feel stimulated the way the Fed’s architects imagined he would.

Now, 60 months on, consumer credit is finally picking up, on net, and everywhere you look the debt soaked economy is on a high.  The money is so hot one risks a scorched retina by merely looking upon it as it flashes through the bond, equity, and commodity charts.

Unfortunately, beyond the glare, the debt based money supply has left some major sinkholes in the economy that either fiscal or monetary policy can patch.  The trick to safely navigating through the coming phase of the most recent edition of credit madness sponsored by central banks across the globe will be to avoid being engulfed by the sinkholes, for at this point there exists not the means nor political will to do so.

Where are the sinkholes?  Alas, if we knew for certain, we would long since have laid our pen to rest in favor of a life of leisure.  However, if we were pressed to guess, we would watch for them to appear under any patch of economic mass holding large sums of cash or long term debt instruments.

Given that criteria, the central banks themselves come to mind.  It is they that will remain trapped in concrete as human progress speeds ahead.

Stay tuned and Trust Jesus!

Stay Fresh!

Key Indicators for July 15, 2013 

The Mint Money Supply Digest – June 24, 2013

6/24/2013 Portland, Oregon – Pop in your mints…

And then there were two.

The liquidity drain initiated by the People’s Bank of China has caused a fire sale on financial assets across the globe as Chinese banks scramble to make various margin calls in the face of double-digit overnight rates.  Lee Adler, over at the Wall Street Examiner, offers some insight into the big squeeze currently underway:

US and Japan Pump It, Chinese Dam It and Suck, And Europe Sullenly Suffers Shrinkage

For the uninitiated, we beg of you to take a step back and to leave, just for a moment, any thought of “efficient market” hypotheses and market fundamentals behind and see the financial world for what it is:  A bunch of corporations with large credit card bills to pay and margin calls to meet.

Like anyone who has a large credit card bill to pay or margin call to meet, the ability to meet the obligation is more often than not determined by the willingness of other large corporations in similar situations to lend them money.  If they can, great, the credit rolls over.  If not, assets must be liquidated so that the debt can be paid.

The flaw in efficient market theory, with regards to financial markets, is that it implies stability when, in fact, most debtors, especially big ones, only liquidate assets as a final option.  As such, this type of liquidation often occurs suddenly and with little warning, hence the feeling of panic and cascading financial markets.

At their core, equity markets represent decisions at the margin. They often reflect this type of liquidation in an exaggerated manner.  In an odd way, this sort of whiplash seems to be the only way to spur Central bankers into action.

The actions of the PBoC suggest that they have had enough of the easy money policy that has dominated Central Bank actions for the past five years.  They have pulled the plug.  Does it have anything to do with Mr. Snowden?  Who knows, but it is what it is.

As it stands now, the Federal Reserve and Bank of Japan now stand alone on the mountain of insane monetary policy, watching the smoke plumes rise.

Anyone who has perused The Mint no doubt has noticed that we keep a relatively small collection of coins online.  This serves a dual purpose.  First, it allows us to quickly grab marketing copy should we have a particular coin in stock.  Second, it allows us to savor the coin as we attempt to put its dual faces into words.  Normally, this can be a tedious and relatively dull process.

1 OZ .999 Fine Silver First Anniversary Mount St. Helens Harry Truman Commemorative Round – 1981
1 OZ .999 Fine Silver First Anniversary Mount St. Helens Harry Truman Commemorative Round – 1981

Today was different, as we came across a relatively rare 1 OZ .999 Fine Silver First Anniversary Mount St. Helens Harry Truman Commemorative Round, minted in 1981.  For those who are unfamiliar with Harry R. Truman, we offer our marketing copy as a brief descriptor:

On one side of this coin is a bust of Harry R. Truman, the caretaker of the Mount St. Helens Lodge at Spirit Lake who stubbornly refused to leave his home even as the historic eruption was imminent. Truman was 84 when the Mount St. Helens erupted and is presumed to have died along with his 16 cats and 56 others that fateful day on May 18th, 1980. Truman’s bust is surrounded by the inscriptions “Courage,” “Spirit,” “Determination” above and his name, “Harry R. Truman” and the years he was born and died, “1896 – 1980″ below. The letters “KU” appear to the right, their meaning is unknown.

On the other side of this reeded coin is a depiction of Mount St. Helens erupting flanked by the inscriptions “One Troy Ounce” and “.999 Fine Silver,” to indicate its weight and silver content. The top of the coin, just above the smoke plume, is adorned with the inscription “First Anniversary.” Below the mountain are inscribed “1980 – 1981,” and the words “Mount St. Helens.” These beautiful coins are a great way to inspire your friends, loved ones, and co-workers by recalling the finer qualities of a man who became a hero for sticking by his desire to ride out a violent act of nature, come what may.

Mr. Truman, may he rest in peace, in many ways represents the Fed and BoJ today.  The other Central Bankers of the world have stepped cautiously back, away from the dreadful inflation for which the eruption of Mount St. Helens will serve as a handy metaphor of today.

1 OZ .999 Fine Silver First Anniversary Mount St. Helens Harry Truman Commemorative Round – 1981
1 OZ .999 Fine Silver First Anniversary Mount St. Helens Harry Truman Commemorative Round – 1981

Not Mr. Bernanke and his Japanese counterparts.  Both the US Dollar and Yen have been on the mountain longer than many of their counterparts, and their current caretakers are convinced that the bubbling inflation that their policies are stoking will simply blow over as they has in the past.

Are they right?  Or is it time to move away a safe distance from the mountain?

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for June 24, 2013

Copper Price per Lb: $3.03
Oil Price per Barrel:  $94.85
Corn Price per Bushel:  $6.53
10 Yr US Treasury Bond:  2.55%
Mt Gox Bitcoin price in US:  $122.89
Gold Price Per Ounce:  $1,283
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.6%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  14,660
M1 Monetary Base:  $2,432,200,000,000
M2 Monetary Base:  $10,621,100,000,000

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%
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