Tag Archives: Federal Reserve

Economics, Freedom, Gold, Monetary Theory, Of Money and Metals, Silver, The Mint

Of Money and Metals, Part V – Free Money Refutes Gresham’s Law

1/31/2012 Portland, Oregon – Pop in your mints…

 

{Editor”s note: The following is the long awaited conclusion of the series “Of Money and Metals.”  Please click here to view the Part I,  Part II, Part III, and Part IV} 

 

Free money also renders null and void any arguments as to what constitutes good or bad money, for this determination will be made on a daily basis by producers and consumers rather than a monetary authority who is acting on mere theory with severely limited data.

 

Absent the government declaration of what is money and how much said “money” is worth, there is no longer bad money driving out good money, as Gresham’s Law so perceptively observes.  What remains, then, as the ultimate determinant of what is money and how much it is worth are the two parties to a transaction, who are generally in the best position to determine such matters.

 

“But this would destroy exchange as we know it!” comes the cry from apologists of legal tender laws.  “No one will know what anything is worth, let alone how to pay for it!”

 

On the contrary, the free operation of the money supply would, by necessity, cause everyone engaging in exchange to be acutely aware of both what constitutes money and how much it is worth.  It is legal tender laws which serve to pull the wool over everyone’s eyes as to the true value of money.

 

When seen through a different lens, that of the free operation of the money supply, the absurdity of legal tender laws becomes clear.  Commodity (free) money is unhindered by the artificial restraint of existing debts and is constrained only by the productive will of society.  Commodity (free) money is free to accurately reflect the price of goods and services in light of the perceived supply and productive capacity of both goods being exchanged, that being offered in exchange and that offered in payment as money.

 

Money, as most people instinctively understand it, is simply an ordinary good whose utility and value are greatly enhanced by its wide acceptance in trade.  If one strives to remove the “cost” of producing money, as Adam Smith so nobly aspired to do, it is clear that the best way to do this is to allow the good which is acting as money to be produced in the most efficient way by the greatest number of artisans as are necessary to fulfill the present demand for money.

 

But how would all of these artisans, blindly creating all of this commodity money, know when to stop producing were it not for legal tender laws?

 

Here, there is no risk of oversimplifying the answer, for the answer is painfully simple.  As persons competing in the free market who have chosen to produce money, they are likely to be the first to know when there is too much money in circulation, for their orders for new money will uncannily drop when the economy has enough money to function efficiently.

 

Further, any commodity that is only marginally used in the production of money will quickly and smoothly have its supply directed to other, more efficient uses as the incentive (realized margin) to use it as money is incrementally reduced as supply begins to overtake demand.  Each producer is therefore free to choose his or her exit point.

 

Take the case of copper.  If copper becomes monetized by the free will of the participants in the economy, it stands to reason that it could be demonetized by the same free market operation.  Should economic activity slow to the point where the pace of saving and exchange no longer calls for copper to assume a role as money, as copper is demonetized those holding copper will find it more efficient to melt the copper that they have in monetary form and sell it as a consumer good.

 

European Jeton from 1598 courtesy of Wikipedia.org

 

The process of demonetization is simply a matter or free choice when something occurring in nature is used as money.  It first moves to the fringes of use as money, as a Jeton or modern day casino chip is used in place of money.  In time, the material will be demonetized completely.

 

Debt, when used as money, enjoys no such elasticity.  By necessity, when debt is forced into a role as money, it causes an unnatural proliferation of credit, so that when the inverse of Gresham’s law begins to operate (good credits push bad credits out of circulation) the unnatural restriction on the money supply assures that even the best of credits will go bad, and the money supply along with them.

 

When debt is demonetized, usually by force, the result is more often than not a severe hyperinflation followed by war.

 

Legal tender laws, such as the modern laws which declare that debt is money, are futile at best and generally destructive.  They do, however, permit a small group to reap the monetary margin that the artificial monopoly on money creation allows them for at time.

 

Accepting that an inanimate object is no longer worth what one thought it was can be disappointing, but at least one still has said inanimate object.  In the case of debt, accepting that someone cannot deliver what they promised tends to create feelings of resentment and remorse which, depending upon the size of the failure, can lead to violence.

 

Soon, the world will learn that using debt as money is a dangerous violation of the very laws of nature.  As with any violation of natural law, the consequences may be withheld for a time, but they are never avoided.  The longer they are artificially withheld, the more swiftly and severely the consequences will be meted out when they can no longer be repressed.

 

For no man, or group of men, regardless of their number, clairvoyance, or special powers they profess to have, can suspend or accelerate the operation of natural law.  The Creator alone reserves that power for himself.

 

There is a perfect balance in God’s creation.  Yin and yang, male and female, mercy and justice, heat cold, money and debt.  Calling one extreme the by the name of other is futile and leads only to confusion and destruction.

 

It is only a matter of time.

 

Stay tuned and Trust Jesus.

 

Stay Fresh!

 

David Mint

Email: davidminteconomics@gmail.com

 

Key Indicators for January 31, 2012

 

Copper Price per Lb: $3.79
Oil Price per Barrel:  $98.48

Corn Price per Bushel:  $6.39  
10 Yr US Treasury Bond:  1.80%
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,737 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  1.50%
Unemployment Rate:  8.5%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  12,633  

M1 Monetary Base:  $2,152,800,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,782,800,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Economics, The Mint

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.

Economics, Monetary Theory, Of Money and Metals

Of Money and Metals, Part II – The Keynesian Nightmare

1/18/2012 Portland, Oregon – Pop in your mints…

{Editor”s note: The following is a continuation of the series “Of Money and Metals.”  Please click here to view the Part I} 

In 1913 the US Congress passed the now infamous Federal Reserve act.  Not unlike the recent passage of the 2012 NDAA, it happened during the winter holiday when the populace was largely distracted by the festivities.

While the Federal Reserve act has wrought many injustices on the earth, undoubtedly the greatest injustice which continues to cause the greatest amount of damage to mankind was the subtle replacement of money proper with Federal Reserve notes.  This action effectively declared that debt is money, in direct violation of natural law.

The Federal Reserve, in direct violation of Natural Law

 

While this fact may have seemed like a minor detail with regards to custodianship at the time, the declaration was, in essence, handing Frodo’s One Ring to the financial and governmental authorities of the earth.  For it gave them largely unfettered access to the accumulated savings of the entire earth and, in the case that the savings ran dry, the unhindered ability to incur debts against the future production of the entire earth as well.

The only thing that they needed was to compel the entire earth to accept debts as money in everyday exchange.  In the west, they have largely succeeded.  In the east, the acceptance of debt as money has been violently forced upon the populace through a series of wars.

Yet as we stated yesterday, debt and money are polar opposites.  To declare that debt is money was not only insane, it was a direct violation of natural law.  This violation of natural law began to reap its terrible harvest in 1933 with the onset of the great depression.  Yet instead of admitting defeat and leaving the quantities of debt and money in the hands of the people, where it naturally belongs, the authorities presented an academic apologist to confirm for them that debt was indeed now money and that all that was required was more of it.

Enter John Maynard Keynes, best known as the father of the Keynesian school of economic thought.  Mr. Keynes developed a thesis which “correctly” diagnosed that the economic problem facing the earth was a lack of money.  What Keynes and those who subscribed to his theories have failed to realize is that the Federal Reserve, in declaring that debt was money, had placed a significant impediment to the creation of money, the remedy which the earth desperately needed.

Instead, Keynes and his colleagues skipped over the only viable solution, namely, allowing the free market to determine what constitutes debt and money and in what quantities each was needed, and offered the world a solution which has been the equivalent of injecting poison directly into the veins of the ailing economy.  The poison of which we speak was injected as a result of the testing erroneous hypothesis:

 “The problem is that there is not enough money.  Because debt is now money, it follows that more debt must be incurred to create the money necessary to spur production, employment, and all the things that people now associate with a healthy economy.  Further, there is not enough money precisely because the people are not sufficiently indebting themselves.  Since the people are not inclined to further indebt themselves (Editor’s note:  the people are naturally reacting to natural law, which naturally calls for less debt and more saving), it is the duty of the government to increase overall indebtedness, and therefore the money supply, on behalf of the people.  It must force the people to do what they cannot (or more accurately, will not) do for themselves.”

As insane as this line of thought sounds, it is today generally accepted as natural law by nearly every Harvard trained economist, and therefore government and central bank official, on the planet.  The only difference between the 1930’s and today is that today, circa 2012, this disastrous line of thought is practiced on a much grander scale.

Stay tuned for tomorrow’s installment:  The Barbarous Relic and Trust Jesus!

Stay Fresh!

 

David Mint

 

Email: davidminteconomics@gmail.com

 

Key Indicators for January 18, 2012

 

Copper Price per Lb: $3.73
Oil Price per Barrel:  $100.77

 

Corn Price per Bushel:  $5.93  
10 Yr US Treasury Bond:  1.90%
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

 

Gold Price Per Ounce:  $1,660 PERMANENT UNCERTAINTY

 

MINT Perceived Target Rate*:  1.50%
Unemployment Rate:  8.5%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  12,562  

 

M1 Monetary Base:  $2,380,300,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,829,100,000,000 YIKES UP $1 Trillion in one year!!!!!!!

 

Economics, Monetary Theory, Of Money and Metals, The Mint

Of Money and Metals, Part I – Balance

Yin Yang - A picture of balance

1/17/2012 Portland, Oregon – Pop in your mints…

It is turning out to be an unusually dry winter here in Portland.  It is a refreshing break from the usual incessant pounding of rain which blesses this part of the world between November and May each year.  Perhaps we are just now getting back the lost months of June and July of 2011, as nature has a way of evening things out over time. 

We have observed that there is a perfect balance in God’s creation.  Some call it a yin and yang, male and female, mercy and justice, freedom and slavery, heat and cold.  For every extreme, there is a force which, given enough time, will work to counteract the excesses wrought by the seemingly uninhibited operation of its polar opposite.

It should come as no surprise, then, that in the economic sphere, debt and money fall into the same category of opposing natural forces.

Yes, debt and money are two completely different forces.  One takes from the future to provide for the present, the other takes from the past towards the same end. 

Simple, right?  Male, female, Yin, Yang, case closed.

Yet circa 2012, for some odd reason, there seems to be an abundance of debt and a dearth of money in the world.  The world as we know it is perilously out of balance.

How can this be?  Why are things so far out of balance?  In the interest of time, we will sum up what is otherwise a long and painful explanation in the following way.  Roughly 100 years ago, by decree of the financial authorities, debt was declared to be money.

Ever since then, man has lived in a state of economic confusion.  On one hand, He has seen an unprecedented level of technological advances and a resulting rise in his standard of living.  On the other hand, on net, he, or someone acting in his name, has borrowed an unprecedented amount of money from the future in order to achieve these advances and consequent rise in his living standards.

How is this possible?  Didn’t simply declaring debt is money relieve man of having to save?  After all, if everyone simply assents to accepting promises to pay in the future for goods or services delivered or performed today, haven’t we trumped the need for savings, the Yang, as it were?

More to the point, have the laws of nature with regards to money been permanently altered?

If only it were so.  Unfortunately, the longer man labors under the false assumption that debt is money, the greater the pain which will be incurred by mankind as nature unilaterally brings the earth into balance.

More to come…

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for January 17, 2012

Copper Price per Lb: $3.72
Oil Price per Barrel:  $100.75

Corn Price per Bushel:  $6.04  
10 Yr US Treasury Bond:  1.85%
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,653 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  1.50%
Unemployment Rate:  8.5%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  12,485  

M1 Monetary Base:  $2,380,300,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,829,100,000,000 YIKES UP $1 Trillion in one year!!!!!!!

 

Economics, Politics, The Mint, True Capitalism

The benefits of Decentralized power, Rumblings of QE3, the clock is ticking on the currency regime

12/12/2011 Portland, Oregon – Pop in your mints…
There is something strangely satisfying about sitting around a large indoor fire just feet away from the Christmas tree with family.  In those moments, one can partake of all that is right with the world.  It occurred to us that we all strive for these moments yet at times they can seem elusive.  Eternity is placed in our hearts, and time on earth seems to be in short supply.
As such, we must use it wisely.
We have been extolling the benefits of what we have been calling True Capitalism.  True Capitalism is what we here at The Mint humbly offer as the solution to what currently ails the world.  There is one byproduct of True Capitalism, a radical respect of life and property, which is often overlooked and is perhaps “central” to the advantage that it has over every other conceivable construct of society:
True Capitalism works to decentralize power.
In other words, it naturally evens the playing field by removing unfair advantages realized by some at the expense of others.
But isn’t that what Government is supposed to do?  Of course it is!  However, governments circa 2011 are in the middle of an unprecedented power grab.  This centralization of power, they say, is necessary in order to homogenize life as we know it and to help everything run smoothly.
Even if this were possible, there is a fundamental problem created by the centralization of power which is without resolution.  In layman’s terms, it makes for an easy target.
When we see the word target, your mind may conjure up images of vulnerability of a military attack.  However, what we have in mind is much more dangerous.  An army of lobbyists.
Herein lies the weakness of centralized power.  However good its intentions, it will constantly be under attack and subsequent influence of groups who desire this centralized power for their own benefit.  Repelling these attacks is expensive.  Succumbing to them, as is more often the case, will bankrupt a nation.
Governing is not cheap, and there are no economies of scale in it.  Rather, the larger it is, the less efficient it becomes.  Does this sound familiar?  This is what we have now thanks to the Might Makes Right ideology by which we are ruled.
Enter True Capitalism.
In a Truly Capitalistic system, the cost of the nation state drops to zero, for the nation state as we know it would cease to exist.  Does this mean that there will be not be a need for governance?  No, on the contrary, the roles which we now attribute to government will be carried out by any number of organizations.  Governance, in general, would increase, yet it would cost less!
How is this possible?  Voluntary governmental bodies are generally more responsive and efficient, in large part because the cost of governance falls directly to those individuals who desire to pay for it.
Governance has value, and its value can and is be properly set on an open market.  The phenomenon of corporations and persons choosing to reside in low tax venues represents a conscious choice of where and by whom one prefers to be governed by those individuals.
In the west, the value of the brand of government provided in the US and Europe is dropping along with its bond prices.  The fact that nations issue bonds is proof of two things:  That their service oriented businesses are failing and that they will be increasingly reliant upon their ability to forcefully relieve their citizens of their assets (commonly known as taxation) to continue operations.
In other words, they will rely on their Might, the use of force, to justify their “right” to govern.
This untenable “Might Makes Right” system that can only operate as long as people believe that the aggressor has absolute power over them.  This is why countries have flags and dictatorships have the image of the dictator plastered everywhere.  This is why people are being forced into the current banking system, taught to rely upon it, and subsequently shut out of it.
This is a reason why Modern Central Banking and the Corporations that have sprung up around the Central Banks are man’s greatest disaster.
Once the currency and banking systems of Europe and America are completely broken down, people’s blind faith in the currency and its issuer will be destroyed.  The currency regime will then quickly disintegrate
The Federal Reserve will likely allude to QE3 to the tune of $1 trillion dollars today in a desperate attempt to keep the currency regime afloat.
The clock is ticking on these failed monetary experiments.
Do you know where your money is?
Stay tuned and Trust Jesus.
Stay Fresh!

Key Indicators for December 12, 2011
Gold Price Per Ounce:  $1,665 PERMANENT UNCERTAINTY

M1 Monetary Base:  $2,255,500,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,623,700,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Mint Classics, Poetry, Uncategorized

If I Had a Trillion Dollars, A Ballad From Ben Bernanke to the Banks (With Apologies to the Bare Naked Ladies)

We send you into the first weekend of December with another Classic Mint.  This was written when Quantitative Easing was still relatively new, and the Federal Reserve was on the verge of printing another slew of money.  Enjoy and have a great weekend!
11/2/2010 Portland, Oregon – Pop in your mints…

Today and tomorrow the entire world, that is, the investment world, will be watching what the Federal Reserve and its poster boy, Ben Bernanke.  What will he do?  Most money managers and bond traders are operating under the assumption that he will proceed to create approximately $1 Trillion US dollars out of thin air through a process known as Quantitative Easing (QE), which is nothing more than indirectly confiscating at least $1 Trillion worth of goods and services from those who produce them in good faith and are compelled to accept US dollars in exchange for them.

You see, Mr. Bernanke and his cohorts are presented with an impossible dilemma.  If they do nothing, bondholders get absolutely annihilated in short order and the dollar continues as a viable currency.  If they proceed with the $1 Trillion QE game, the currency is the sacrificial lamb and the bondholders get a lifeline, but will get annihilated in the end anyway.  Essentially it is the choice of when to feel the pain of massive default on dollar denominate paper.

But what must Mr. Bernanke be thinking at this very hour with so much at stake?  The world presumably expects $1 Trillion dollars.  Logic would follow that, at a minimum, what he must provide to avoid “disruption” in the markets.  You see, the markets have long since baked in these $1 Trillion dollars and if they do not appear will adjust prices accordingly.  Guessing which prices will change and when is what keeps things interesting.
Our guess here at The Mint is that Mr. Bernanke is not thinking at all.  He has his orders; the markets will wait and see if he follows them.  What he is likely doing is strumming his guitar and warming up his academic tenor voice with a song that goes something like this:
“If I Had a Trillion Dollars”  a Ballad from Ben Bernanke to the Banks (with Apologies to the Bare Naked Ladies):
To the tune of “If I Had a Million Dollars“:
If I had a trillion dollars
(If I had a trillion dollars)
I’d buy the US a house
(I would buy the US a house)
If I had a trillion dollars
(If I had a trillion dollars)
I’d buy the US furniture for its house
(No interest or payments for a year)
And if I had a trillion dollars
(If I had a trillion dollars)
Well, I’d buy the US a Ford
(And get everyone’s clunker off the road)
If I had a trillion dollars I’d buy your bonds!
If I had a trillion dollars
I’d buy some junk paper from your books
If I had trillion dollars
They could help, it’d be less you’d have to cook
If I had trillion dollars
Maybe we could put like a little collateral in there somewhere
You know, we could just act like everything’s cool
Like show off the CUSIPs and stuff
Then there would still be liquidity available to us
As if we never bought subprime CDOs and other things
They have endless liquidity but they don’t have asset quality anymore
Thanks to me, of course,
Uh, yeah

If I had a trillion dollars
(If I had a trillion dollars)
I’d buy up asset backed securities
(But not with real money I’d be a fool!)
And if I had a trillion dollars
(If I had a trillion dollars)
Well, I’d buy up Synthetic CDOs
(Yep, like a Hybrid or non-performing SIV)
And if I had a trillion dollars
(If I had a trillion dollars)
Well, I’d buy up Lehman Brother’s remains
(Ooh, all them crazy Hudson Castle assets!)
And If I had a trillion dollars I’d buy your bonds!

If I had a trillion dollars
We wouldn’t have to tax the people more
If I had a trillion dollars
Now, we’d stick to the foreign creditors
If I had a trillion dollars
We wouldn’t have to eat our bad debts
But we would eat our bad debts
Of course we would, we’d just eat more
And pad our tier 1 ratios with new cash
That’s right, all the free cash… FED credit!
Mmmmmm, Mmmm-Hmmm

If I had a trillion dollars
(If I had a trillion dollars)
Well, I’d get us out of this mortgage mess
(But not the homeowners, I’m no fool!)
And if I had a trillion dollars
(If I had a trillion dollars)
Well, I’d buy financial reform
(Ala  Dodd-Frank and Obama)
If I had a trillion dollars
(If I had a trillion dollars)
Well, I’d make you solvent
(Haven’t you always wanted to be solvent?)

If I had a trillion dollars
I’d buy your bonds!

If I had a trillion dollars, If I had a trillion dollars
If I had a trillion dollars, If I had a trillion dollars
If I had a trillion dollars…
You’d be rich!

Seriously, to enjoy some real entertainment (and to get the tune in your head to sing along with Ben and the banks), check out the Bare Naked Ladies performing their 1996 hit “If I Had a Million Dollars” below.  As for tomorrow’s FED announcement, rest easy and wait along with the rest of the investment world to see if Ben & Co. really have the $1 Trillion dollars expected of them.  Of course they don’t really have it but at least it will be fun to see how they explain it this time, that is until those $1 trillion show up in commodity prices!


Stay Fresh!
David Mint
Key Indicators for Tuesday, November 2, 2010Copper Price per Lb: $3.77
Oil Price per Barrel:  $83.40
10 Yr US Treasury Bond:  2.63%
FED Target Rate :  0.19%
Gold Price per Oz:  $1,356
Unemployment Rate:  9.6%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  11,125
M1 Monetary Base:  $1,460,900,000,000
M2 Monetary Base:  $7,960,300,000,000
Economics, The Mint

Central Banks Coordinate USD Funding actions, the final act of currency homogenization is underway

11/30/2011 Portland, Oregon – Pop in your mints…

Living on the West Coast, there are two things which we take for granted here at The Mint.  First, that viewing Twitter is the quickest way to take a pulse of what is going on in the financial world.  Second, that we are, by virtue of our location, jumping into the financial news of the day when it is half over in New York and finished in Europe, allowing us not only to see the news but also the effect of the news on these markets.

With these two givens, we often pen our thoughts as a sort of digestion (or indigestion, as the case may be) of the events which are currently unfolding.  Such is the case today.

The Final Act

We’d barely had time to collect our scattered thoughts as news came that the final act of the tragedy that is the world’s financial system circa 2011 appears to be underway.  This morning, numerous tweets announcing that coordinated action amongst western central banks, specifically the Federal Reserve and its counterparts in Canada, Japan, Switzerland, and England, had been taken.  The action was taken to rush a fresh supply of cheap US Dollars to the ECB in time for the ECB to prevent a major European bank from imploding today.

Our guess is that the yet unnamed bank is BNP Paribas and by extension its many counterparties.  Any large French bank would be a candidate and we are just guessing that it would be the le grand chat.

The USD got torpedoed in coordinated action

As further evidence of the final act being underway, we see that the Federal Reserve suspended its POMO (Permanent Open Market Operation) for today until December 2nd.  Not coincidentally, this latest operation was to withdraw liquidity from the US dollar system on a day on which apparently the system was calling for more.

To simplify what has happened for our fellow taxpayers we offer the following executive summary:  Today is the final day of a calendar month, a day when accounts must be settled.  A large bank in the Euro zone did not have enough US Dollars with which to pay back its short term loans to other banks.  It turned to the ECB, which did not have enough US Dollars to backstop the large bank.  The ECB, then turned to the Federal Reserve, which quickly shifted gears from suck to blow and confirmed, once again, that it will print money any time there is a liquidity crunch, anywhere in the western world.

The FED will now wait until the dust settles on December 2nd to see how much liquidity it can withdraw from the system without imploding it.  To them we say: good luck.

As longsuffering Mint readers are already aware, a debt based currency regime, which is erroneously referred to as a monetary system, relies on the infinite creation of debt along with its continued acceptance in place of money proper in order for the game to continue.  Once either of those conditions ceases to exist, it indicates that a majority no longer have confidence in the currency regime.  In other words, the currency regime has failed.

The western central banks appear to momentarily have their streams crossed, and in a pointless effort to homogenize interest (and by extension foreign exchange) rates, will increasingly take this sort of “coordinated action” until their currencies act and trade as one. 

A JP Morgan note on this most recent coordinated action highlights the fact that the Federal Reserve not only will lend dollars to these Central Banks at a discount, the foreign Central Banks will in turn lend their respective currencies to the Federal Reserve at a discount on demand.  This gives further credence to the fact that the system has already failed and is in retreat, with the Central Banks themselves left passing their currencies and credits amongst themselves and their member banks.

Once this is homogenization process is complete; a severe devaluation of the homogenized currency will take place which will leave any holder or the homogenized currency(s) as a savings device substantially poorer and the holders of real assets better off on a relative basis.

However, on balance, the world as a whole grows poorer every day that the centralized currency regime is allowed to continue its violently enforced monopoly on currency issuance.

Money proper was never meant to be centralized and controlled by a single entity, and the current system which engenders this centralization is exploding before our very eyes.  Yet it will not go without a fight.  Recent events in the Middle East and Iran indicate that yet another physical fight to expand this failed system may be at hand.

It is a further expression of the Might Makes Right ideology, and it is time to pray for the peace of Israel.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for November 30, 2011

Copper Price per Lb: $3.56
Oil Price per Barrel:  $100.17

Corn Price per Bushel:  $6.01  
10 Yr US Treasury Bond:  2.07%
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,747 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.0%
Inflation Rate (CPI):  -0.1%
Dow Jones Industrial Average:  12,046  

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!!!!!!!

Economics, The Mint

The Dow Rises against a Wave of Bad News, The Inflation Mega-Trend Releases Caged Currency into the Wild

11/7/2011 Portland, Oregon – Pop in your mints…
The fairy tale of the world’s current financial system continued today.  Stocks crept higher in the face of what seems to be a deluge of bad news:

“Frustration mounts for MF Global clients” – Jon Corzine’s firm cannot account for $600 million in client funds.  Beyond the inability to deliver client funds on demand, MF Global clients began receiving margin calls as their collateral with the firm vanished.  The ripple effect was so severe that commodities exchanges relaxed their margin rules in order to to avoid wider damage.  The fall of MF Global was like an earthquake, now it is time to brace for the financial Tsunami.

“New Census data raise number of poor to 49 million” – The official poverty rate is 15.1%.  However, it hits 16% when you slide the income bar just a bit higher to $24,343 for a family of four.  In other words, one in six Americans is currently living below this slightly adjusted poverty measure.

“Italy bond yields soar; euro zone troubles deepen” – Lest we forget that the euro financial system is a complete disaster, Italian yields are climbing and the Italian bond market is beginning to resemble the leaning tower of Pisa.  Then came reports that Spain only had 20 billion Euros in reserves at the end of August (they must have spent their savings on vacation!) and as their banking system crumbles, they are largely helpless to intervene to save it.  Meanwhile France is now pushing austerity leaving Germany and the ECB as the only backstops in Europe.

Yet in spite of this disasterous news, the Dow is holding just above 12,000.  What does it mean?

Far from signaling economic recovery, the action appears to be further evidence that what Nadeem Walayat at the Market Oracle calls the Inflation Mega-Trend (and consequent Stealth Bull Market in stocks) is firmly in place.

The Mega-Trend, as Mr. Walayat calls it, is the simultaneous debasement of the currency and spreading of deflationary propaganda intended to delay the public’s reaction to the inflation caused by said debasement.

Think about it, while the FED, ECB, BoJ, and nearly every other Central Bank in the world pump money into their financial systems in order to “fight deflation” or “stimulate the export market,” the average person has watched gas, food, and the price of nearly everything else (besides their paycheck) steadily rise over the past decade.

The the public is told that these steady increases are “healthy inflation” which is currently “understood” to be roughly 2% a year.  This 2% in reality represents the indirect tax rate imposed on anyone who chooses to hold a currency as an asset or accept the currency as wages.  There is not time here to properly refute the fallacy that inflation is somehow necessary for GDP growth.  However, inflation is useful and absolutely necessary to keep an insane, “debt is money”, ponziesque, wealth destroying monetary system functioning.

As the Central Bank creates trillions of dollars out of thin air in a vain attempt to stabilize the global financial system, the public is told that it this new currency is “benign” because most of the money is being held on deposit at the Federal Reserve simply to buffer the banks against falling asset prices and keep the ATM machines spitting out cash.

Yet, with the stock market maintaining its optimism in the face of seeming insurmountable odds, can you be sure that the FED’s funny money is safely locked up in its electronic vaults, simply waiting to have foreclosed properties written off against it?

Will all of this freshly printed money really be content to simply die a quiet death, never having run through an ATM or point of sale transaction in the real world?

Oh, fellow taxpayer, we have our doubts.  You should too.  More tomorrow.

Stay tuned and Trust Jesus.

Stay Fresh!

Key Indicators for November 7, 2011

Gold Price Per Ounce:  $1,796 PERMANENT UNCERTAINTY

M1 Monetary Base:  $2,122,700,000,000 RED ALERT!!! THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,507,600,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Economics, Gold

Nickels: The perfect inflation hedge

We came across this graphic at www.zerohedge.com which underscores the current US Dollar debasement perhaps better than any words can.  It shows the value of the oft despised penny and nickel in terms of their raw metal weights.  This is the reason that we have speculated that pennies and nickels will soon be a thing of the past as the US Dollar undergoes a 10:1 reverse split.

This is also a reason why Unlce Sam and your bank hate cash and love cards.  You still have to do some work to create coins and bills.

Observe:

Nickels: the perfect inflation hedge?

 

In other words, you can currently buy nickels at roughly a 10% discount to thier current metal value.  Even if the metal values plunge, you come out even in dollar terms, guaranteed as long as the Federal Reserve runs the currency.

If the FED continues to destroy the currency, as has been their MO since inception, you have unlimited upside.  The fundamentals of the Nickel (the metal, not the coin) are nothing to sneeze at, either.  We don’t have statistics but we have a feeling that it is in relatively short supply.

Nickels and perhaps pennies may be the perfect inflation hedge.

If you can get your hands on them.

Economics, Gold, Silver, The Mint

Dual Entry Accounting – Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe – Part V – Final Catastrophe and Hope for the Future

10/21/2011 Portland, Oregon – Pop in your mints…

As the western world braces for a full scale currency collapse, we have endeavored here at The Mint to offer an explanation as to why these events are taking place and, along the way, offering the obvious solution to the chief problem, mistaking credit for money.  

For those of you who have missed Part I, Part II, Part II, and/or Part IV, you may read them by clicking on the following links:

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

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

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

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

If you require only a brief summary, Part IV above offers a relatively brief and comprehensive summary of the previous three.  Now where were we…

Ah yes, in the United States, circa 1968, a time not so unlike our own.  The Vietnam war was becoming increasingly unpopular and the social climate was ripe for protest.  The US had run up a large and increasing trade deficit with the rest of the world.  It was becoming clear that if foreign dollar holders were to redeem a significant amount of their Federal Reserve Notes, which we now understand to be banknotes and not money proper, for gold, which we now understand to be money proper, the Federal Reserve would not be able to deliver enough gold.

The solution, if it can be called that, was to gradually increase the amount of Federal Reserve Notes required to obtain an ounce of gold from $35 to $41 between 1968 and 1971.  Then, in 1971, with the US dollar collapsing in value and the Bretton Woods system falling apart at the seams, then President of the United States Richard Nixon announced that US dollars were no longer convertible into gold.  The event is now referred to as the Nixon Shock.

And a shock it was.  The US dollar, the benchmark of Central Bank currencies throughout the world, was now officially backed only by the faith that it would continue to be accepted in trade.  The Federal Reserve had defaulted.

Most of the world still lives by this faith today, and if anything, the delusion that a banknote issued by a Central Bank which has defaulted on its obligation to deliver real money on demand has only grown.

The reason that the large scale catastrophe of modern Central Banking lies before us is that over the last 40 years, the lack of gold and silver to back the banknotes in circulation has been replaced by the expectation that governments, and by extension their subjects (citizens), will produce enough goods and perform enough services to repay the obligations represented by the banknotes. As the unrestricted quantity of banknotes and obligations to deliver banknotes in existence will always tend to exceed the stock of available goods and services, these obligations are impossible to satisfy.

Human beings are fallible.  It is normal and should be expected that they will not be able to deliver on certain obligations.  The natural beauty of banknotes redeemable in gold and silver was that, if it was suspected or observed that a person or entity would be unable to pay their obligations, the creditor would move to seize the gold, silver, or other assets that the debtor had pledged as collateral.

The seizure of collateral or the threat of seizure was often enough to correct the failed human action or decisions that were leading to the net loss of wealth incurred by the activity which was undertaken.  In economic parlance, we would call this the correction of the malinvestment of resources.

Without gold and silver to act as a natural limitation on the supply of banknotes and other forms of credit, the bad decisions that lead to the malinvestment and the activities that lead to the destruction of wealth and resources can continue for a very long time.

The use of gold and silver as money had another, more important function that is often overlooked.  Gold and silver are inert, non-consumable objects.  Their hoarding and use as money will not generally cause starvation or want.  In fact, the hoarding of gold and silver as money would have the effect of lowering general prices as productivity increased, naturally creating an incentive to decrease production which in turn would raise prices, making the expenditure of more silver and gold necessary and in turn raise prices, creating a natural  incentive to produce.

Gold and silver allow the economy to naturally regulate itself and, by virtue of the difficulty in extracting them, cause the rest of the earth’s resources to be used in harmony with each other.

Finally, gold and silver are inanimate objects.  Their recognition and possible seizure as collateral does not threaten the liberty or life of a person.  However, because modern central banking has replaced money proper and placed credit in its place, it will become increasingly common to entire societies held as security for a debt that many of them had no direct hand in creating. This is the logical end of using credit as money.

It is the truth that will bring tragedy to the earth.

Without the natural counterbalance to trade and growth which gold and silver money had provided for over 9,000 years, man’s activities, whether productive or destructive, have continued nearly unchecked for the past 40 years.  It is staggering to think of the catastrophe that awaits if man is truly on the path to destruction.

Man, by nature, is always on the path of destruction, but the use of gold and silver as money served to correct him before he strayed too far down it.

Most people alive today have been trained to believe that using Gold and Silver as money is an unnecessary and environmentally harmful process.  Even Adam Smith believed that if the effort expended to mine metals to create money could be directed to other, more useful activities, that humanity would be better off.

What Smith did not realize was that man would not always direct its energies to useful activities.  Like modern Socialists, he underestimated the power of self interest inherent in all human action.  Today we are preparing to reap the consequences of 40 years of unrestricted and more often misguided human actions.

While it may be too late to avoid the catastrophe that Modern Central Banking may bring upon us, it is comforting to know that a return to the understanding and use of gold and silver as money offers hope for a future of truly infinite possibilities.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

P.S.  For more ideas and commentary please check out The Mint at www.davidmint.com

Key Indicators for October 21, 2011

Copper Price per Lb: $3.23
Oil Price per Barrel:  $87.40

Corn Price per Bushel:  $6.49
10 Yr US Treasury Bond:  2.20%
FED Target Rate:  0.07%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,642 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.3%
Dow Jones Industrial Average:  11,809  

M1 Monetary Base:  $2,056,000,000,000 RED ALERT!!!
M2 Monetary Base:  $9,570,500,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Economics, Gold, Silver, The Mint

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

10/20/2011 Portland, Oregon – Pop in your mints…

For those of you who have missed Part I, Part II, and/or Part III, you may read them by clicking on the following links:

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

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

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

Again, for those of you who are too lazy to click the links, here we offer a brief summary to get you up to speed:

 

Central Banking is the physical expression of Man’s need to safeguard his wealth and to increase trade.  A Central Bank’s usefulness and scope were greatly increased when dual entry accounting could be employed to manage a Central Bank’s accounts.

 

The Central Bank’s role as a storehouse of wealth has generally attracted the attention of the Government, which is the physical expression of Man’s need to protect his life.  The Government, in this capacity, does not generate wealth and must maintain itself either by taxing its subjects or borrowing funds.

 

The Central Bank, as the repository of wealth and facilitator of trade, by default creates a majority of the banknotes which circulate in a society.  As such, the Central Bank becomes the natural creditor of the Government.  Whether it lends funds directly to the Government or indirectly, the result is the same.  That result is that the use of its subject’s wealth by the Government is greatly facilitated by the existence of a Central Bank.

 

Having established the fact that some form of both a Government and a Central Bank will naturally, in some form, come into existence and become increasingly interdependent, the only question is one of the size and scope of such entities.

 

Today, that the scale of modern Central Banking is excessive and that the potential for catastrophe is unprecedented.

 

The reason for the unprecedented scope of Central Banking is that money, as it is widely understood today, does not really exist.  Rather, banknotes issued by Central Banks, which are by definition credit instruments, are misunderstood to be money proper by a majority of the people in the developed and semi-developed world.

 

This misunderstanding flies in the face of 9,000 years of human history, in which Gold and Silver in bar and coin form have been tacitly used as money proper.  It is this misunderstanding which has set the stage for the greatest catastrophe in history to occur.

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

The misunderstanding of money and credit began, like many experiments, in Northern Europe with the establishment of the Bank of Amsterdam.  Established in 1609, the Bank of Amsterdam is widely recognized as at least a precursor to modern central banks.  For over 400 years since it was established, the use of banknotes issued by a Central Bank which are not directly convertible to coin has slowly but steadily increased.

 

Modern Central banks issuing banknotes were subsequently formed in Europe, England, and Japan.  As these Central banks and their successors began to slowly absorb the true money supply and issue banknotes in their place, man began to slowly transfer the concept of money proper from Gold and Silver and attribute the qualities of money to the banknotes issued by the Central Bank.

 

This process of wealth absorption greatly accelerated in 1913 when the United States of America granted a 100 year charter to its third Central Bank, the Federal Reserve.  The FED, as it is commonly known, was to act primarily as a reserve and to create “money” (read banknotes) as necessary.  At the advent of World War I, the FED stepped in and issued bonds to finance the war and after the war the FED was granted exclusive control of the money supply in the United States.

 

In 1933, in the midst of what was to be the great depression in the US, President Franklin D. Roosevelt signed Executive Order 6102 which required citizens to deliver all but a small amount of gold coin and bullion held by them to the FED in exchange for $20.67 worth of Federal Reserve notes (the banknotes issued by the FED) per ounce.

 

Naturally, most citizens with large quantities of gold at the time had it transferred to Switzerland.

 

Then, by decree, the Government raised the price of redeeming gold from the FED to $35 per ounce.  Redemption could only be made by Foreign parties as, naturally, it was now illegal for US Citizens to own gold.

 

Federal Reserve notes were now the only form of “money” that an entire generation of Americans were likely to handle.  However, foreigners could still redeem the Federal Reserve notes for gold, though they rarely did, at $35 per ounce.

 

After World War II, the US emerged as the most powerful nation on earth.  It was only natural that the western governments would peg their currencies at a fixed exchange rate to the US dollar (Federal Reserve Note) which was redeemable in gold at $35 per ounce.  This is commonly known as the Bretton Woods system.

 

The system held together for around 20 years, accepting that $35 US Dollars were as good as gold until 1968, when things began to get dangerous…

 

Stay tuned and  Trust Jesus.

 

Stay Fresh!

 

David Mint
 

Email: davidminteconomics@gmail.com

Key Indicators for October 20, 2011

Gold Price Per Ounce:  $1,622 PERMANENT UNCERTAINTY
M1 Monetary Base:  $2,056,000,000,000 RED ALERT!!!
M2 Monetary Base:  $9,570,500,000,000 YIKES UP $1 Trillion in one year!!!!!!!
Economics, The Mint

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

10/13/2011 Portland, Oregon – Pop in your mints…

As we alluded to yesterday, the Federal Reserve’s latest attempt to goose the economy, “Operation Twist,” is not only failing to achieve its stated goals, it is also triggering an unmitigated disaster in the fixed income markets.  These markets, once the bedrock of global finance, have now been conditioned to do nothing more than attempt to front run the FED and other Central Banks up and down the yield curve.

To continue our waterbed analogy, it is akin to a 300 pound Ben Bernanke (Central Banks) chasing an 800 pound gorilla (the market) around on a queen sized waterbed.  The action is becoming completely unpredictable and downright dangerous.

Today, as the chaos continues to unfold, we want to take a moment to examine how humanity has arrived at this critical juncture in history, where a fat man chasing a gorilla on a waterbed can threaten to damage the wealth of nearly everyone on the planet.

In order to understand this, we must travel back to the year 1492.  Venice is the center of the western world and Christopher Columbus has set sail to find a new trade route to India.  A Franciscan monk by the name of Luca Pacioli sits in his room and creates the outline for:  Summa de Arithmetica, Geometrica, Proportioni et Proportionale.

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

As part of what would have otherwise been simply another boring textbook on Mathematics, Pacioli sees fit to include a section on “Details of Accounting and Recording” in which he described the accounting practices used in Venice at the time.  When Summa was published in 1494, it contained what is recognized as the first complete description of dual entry accounting.

To be clear, accounting in some way, shape, or form has always been practiced.  What Pacioli accomplished, perhaps unwittingly, was to disseminate throughout Europe the accounting method which had made the merchants in Genoa, Florence, and Venice the most successful in the Western World.

What makes dual entry accounting so special?  Dual entry accounting, in a nutshell, is the formal recognition that every trade has a net affect on the income statement and balance sheet of an individual or enterprise.

More to the point, it enabled merchants and producers to understand which activities created wealth and therefore make informed decisions regarding which activities to undertake with their limited time and resources.

While this now seems intuitive, it is hard to overstate the benefits that the dissemination and use of dual entry accounting has bestowed on Western Civilization by enabling a greater number of persons to engage in activities which increase the capital stock and allowing them to more quickly abandon activities which deplete the capital stock (accumulated wealth) of society.

This facilitation of wealth generating activities is why dual entry accounting may be considered man’s greatest innovation.

Yet, in perhaps the greatest irony since God sending His Son, Jesus, to die in our place, dual entry accounting enabled the existence of what we are calling man’s greatest catastrophe, Modern Central Banking.

We’ll explain this great irony tomorrow in Part II.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for October 13, 2011

Copper Price per Lb: $3.31
Oil Price per Barrel:  $84.61

Corn Price per Bushel:  $6.38  
10 Yr US Treasury Bond:  2.17%
FED Target Rate:  0.07%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,667 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.4%!!!   UP UP UP!!!
Dow Jones Industrial Average:  11,478  

M1 Monetary Base:  $2,201,800,000,000 RED ALERT!!!
M2 Monetary Base:  $9,554,000,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Economics, The Mint

The Bond Market Waterbed, Operation Twist causes the first of many weak US Treasury Auctions

10/12/2011 Portland, Oregon – Pop in your mints…

At this point, most FED watchers have heard of the FED’s latest move to appear to stimulate the economy while at the same time appear to control inflation, Operation Twist.  In theory, the FED is simply reshuffling its bloated portfolio of worthless paper, exchanging the pieces of paper that have dates that are in the near future for pieces of the paper with dates farther off in the future.

Sounds simple enough, the FED is not directly increasing the money supply; rather, it is stepping from one end of the bond market waterbed to the other in an attempt to shake things up.

Now anyone who has ever jumped on or skipped along a waterbed knows it is a dangerous exercise.

The FED prepares to Leap to the Long end. Where will the water go?

Why is it dangerous?  Because the FED, whose balance sheet is leveraged 55:1 as of October 5th, is telegraphing its trades in bold letters everywhere it can and is bound to be front run and take some losses.  Any mortal bank, bound by the restriction of marking its assets to market, would need to raise capital in the open market, beg the Government for a bailout, or increase its clients’ fees to cover these predictable losses.

Not the FED, they have the luxury of keeping their assets on the books at face value, running a negative capital balance, and printing the money necessary to absorb the losses.  All of these strategies have the ultimate effect of robbing their depositors (anyone holding US Dollars) of purchasing power. 

In the end, the Federal Reserve will become technically and later functionally insolvent.

They true tragedy in this gross, final expression of monetary madness by the FED is that they have no hope of achieving their stated goals.  Ostensibly they are selling on the short end of the yield curve in an attempt to raise rates and somehow spur lending, yet at last check, rates on the short end are as low as they have ever been.

Meanwhile, long yields, the ones the FED is theoretically partnering with the “free” market in order to lower rates so that everyone can refinance their underwater variable rate mortgages, are rising.

Inconceivable!  Yet true.

If today’s US Treasury auction was any indication of things to come (and there is no reason to think that it will not be), then the weakened demand for Treasuries that expressed itself today could overwhelm any attempt for the FED to lower rates and the logical end game is that the FED will be the ONLY entity bidding on long dated Treasuries.

Picture the waterbed.  A 300 pound Ben Bernanke jumps from one end to the other, where does the water go?  Follow the water, then race to get off the bed.  As long is Ben Is jumping on the bed, the bed (i.e. the Government controlled bond market that it represents) won’t hold water much longer.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for October 12, 2011

Copper Price per Lb: $3.38
Oil Price per Barrel:  $84.90

Corn Price per Bushel:  $6.41  
10 Yr US Treasury Bond:  2.23%
FED Target Rate:  0.07%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,676 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.4%!!!   UP UP UP!!!
Dow Jones Industrial Average:  11,519  

M1 Monetary Base:  $2,144,500,000,000 RED ALERT!!!
M2 Monetary Base:  $9,473,100,000,000 YIKES!!!!!!!

Economics, Events, The Mint

A run on BNP, Europe’s Financial Collapse begins in earnest

9/22/2011 Portland, Oregon – Pop in your mints…

While it was a rough day for equity markets everywhere, in light of what is occurring, they (the markets) were amazingly resilient.  A testimony to how fast the monetary spigots at the Central Banks are running.

There are two events that appear to be on a collision course with destiny today (No, neither of them is the NASA space junk hurtling towards the earth).  It feels as if the world is reaching a sort of inflection point in modern history.  Perhaps a great awakening is about to occur.  Will people’s faith in Central Banking finally be broken?

The colliding events are the Palestinian bid for official recognition by the United Nations, scheduled for tomorrow, and the emerging institutional bank run on BNP Paribas.

The Palestinian situation needs no further discussion.  It is clear to most that it is an explosive topic to which the bid for recognition threatens to detonate, much in the way the Israeli Declaration of Independence ignited war in Palestine in 1948.

The Institutional run on BNP Paribas is an event that is occurring as we write and it is unclear how it will play out.  Reggie Middleton at the BoomBustBlog, is chronicling this event in real time.  If you are interested, we highly recommend following the event there.

Real Money Fleeing the Continent!

We have read reports of Lloyds of London, the famous Insurance Marketplace, pulling a great deal of its deposits out of banks on the continent.  We have also read reports of Siemens pulling deposits and parking them directly at the ECB.

Then there was the report of the ECB making an emergency loan of $500 million US Dollars to an unidentified bank (read BNP) with similar loans to other institutions in the cue.  It is clear that the banking crisis in France is dwarfing the ability for the French government to deal with it.

There is no use pointing out the many lessons that society will learn from this, for only one is expedient at the moment.  That lesson is that digital bits on a computer screen or numbers on a bank statement are worthless if the counterparty cannot make good on their commitments.

The run on BNP will intensify the focus on Western Central Banks, which have balance sheets that make BNP, BAC, and all of the other large sinking banks look good by comparison.  This is important because a good part of the world is to some extent a counterparty to the Central Banks.

Need proof?  Open your wallet.  If you have US Dollars or Euros, you are a counterparty to (owed money by) the Federal Reserve or the ECB, whose management is currently buying every worthless paper asset on the planet with leverage that is unimaginable for mere mortals.

Dollar and Euros are about to become extremely hot potatoes, which makes trading them for potatoes, spuds, or anything real, a real good idea.

Let us pray for the peace of Jerusalem, and that tomorrow passes uneventfully on all fronts.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for September 22, 2011

Copper Price per Lb: $3.45
Oil Price per Barrel:  $80.41

Corn Price per Bushel:  $6.50  
10 Yr US Treasury Bond:  1.72%
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,736 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.4%!!!   UP UP UP!!!
Dow Jones Industrial Average:  10,734  

M1 Monetary Base:  $2,010,000,000,000 RED ALERT!!!
M2 Monetary Base:  $9,541,800,000,000 YIKES!!!!!!!

Economics, Politics, The Mint

Markets go up, Slovenia goes down, Dissing the State, Embracing Anarchy

9/20/2011 Portland, Oregon – Pop in your mints…

The Stock market is absolutely resilient in the face of news ranging from bad to UGLY.  Presumably, the slow motion debt market collapse occurring in Europe is priced in, and it may be this very collapse that is driving money into US equities.  In the insane “debt is money” system, the money can only go so many places, and there is currently so much money sloshing around that it is a wonder everything isn’t going up in price.

Oh, wait, it is!  The CPI came in at 0.4% for August.  Nothing to write home about but at this pace the annual CPI could hit 5%, well above the FED’s 2% target.

And we haven’t seen anything yet.  Tomorrow, the Federal Reserve will meet and be expected to “do something.”  Lately, “do something” has meant that the FED offers to throw perfectly good Federal Reserve notes at various forms of bad paper issued by companies and governments who never intend to make good on them.

At this stage in the game, it is now a given that if perfectly willing market participants won’t buy the paper, surely the FED must do it.  “So what?” say you, “Let the FED waste its own money!”  If only it were that simple, fellow taxpayer.

Unfortunately, the FED’s money, by decree, is everybody’s money.  Every bad decision by the FED reduces the purchasing power of every dollar holder on the planet, making nearly all of us involuntary shareholders of this worthless enterprise, and management at the FED has been making some very bad decisions with very large sums for about four years now.

As a concerned involuntary shareholder of the FED we are compelled to offer the following unsolicited advice:  Why not just wait until January, when the 0% FED funds “trickle” their way down to Main Street?  Then things will really be interesting.  That is when the US Dollar in its present form will go the way of every other paper currency in the history of mankind. 

Fellow taxpayer, prudence demands that one make immediate plans to replace anything that depends upon the value of the US Dollar with something real.  By the time the FED gets around to doing it for you, by introducing a New Dollar, current inaction will have caused anyone with faith in the dollar to suffer horrendously tremendous losses in relative purchasing power.

Back in the rotting old world, to quote Nabokov, the Euro debacle just became more complicated as the Slovenian government failed a confidence vote.  The President is now left trying to cobble together a government and the rest of the Eurozone will presumably have to wait at least 30 days to get Slovenia’s approval for the next round of good money to be thrown at Greece.

It is useless to point out that the Eurozone governments, like their American counterparts, are simply throwing good money after bad.  As we have observed here before, throwing money at failing enterprises is their only solution.  Besides, they have banking interests to protect.  Soon they will be spreading propaganda that ATMs won’t spit out Euros and the world will end if the Greeks are not supported.

That may be true, but these unpleasant outcomes will eventually come to pass no matter what the Euro FEDs do.

This is how the State, which by definition can do nothing but destroy wealth, operates.  Western societies, and dare we say, the entire world are now beginning to suffocate under the weight of the current form of welfare/warfare state which exists to make promises on behalf of its productive citizens to its unproductive citizens.

Then, after enslaving the productive citizens, the State then makes promises to support the banking and military interests in order to ensure that the productive citizens remain enslaved.

Is Anarchy the Answer?

At some point, each citizen decides that they are either better off becoming an unproductive citizen, working for the State taskmaster as a banker or provider of “security”, or fleeing beyond the State’s ability to enslave them.  Western society is quickly approaching the tipping point where a majority of its productive citizens will be forced to make this choice.

Faced with such facts, an intelligent fellow taxpayer such as yourself is surely asking (or should be asking, if we may prompt you), “Isn’t there a better way?”

In other words, is the State really necessary?  Today we read a brilliant essay on this very subject by Stefan Molyneux.  We encourage you to peruse it at your leisure.  You can see it by clicking on the link below:

The Stateless Society – An Examination of Alternatives

If you are limited on time, it is enough to say that Molyneux lays out compelling, logical arguments about how the free market would more effectively take care of the tasks which are currently relegated to the State.  Specifically, he examines three activities which pro-State apologists claim that the free market will not solve on its own, making the State’s existence a necessity:  Dispute Resolution, Collective Services, and Pollution.

After reading Molyneux’s arguments, it seems that now more than ever that embracing Anarchy is the answer to what ails society.

Much more than simply the answer, it is clear that the true chaos in not created by the Stateless Anarchist model, rather the present chaos is a product of entrusting the State with too much power.

How else can one explain how every present effort the Government uses to ”improve” its citizen’s lives serves to collectively impoverish them?

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for September 20, 2011

Copper Price per Lb: $3.76
Oil Price per Barrel:  $86.43

Corn Price per Bushel:  $6.90  
10 Yr US Treasury Bond:  1.94%
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,805 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.4%!!!   UP UP UP!!!
Dow Jones Industrial Average:  11,409  

M1 Monetary Base:  $2,101,100,000,000 RED ALERT!!!
M2 Monetary Base:  $9,540,500,000,000 YIKES!!!!!!!

Economics, The Mint

The Disguise, Greece plays roulette with the Eurocrats, How inflation will express itself in USD Prices

9/12/2011 Portland, Oregon – Pop in your mints…

The moment of truth is approaching for Greece.  Today the headlines flashed that the markets were pricing in a 98% chance of the Greeks defaulting on their sovereign debt.  A great lesson is about to be learned.  Is anyone paying attention?

The great lesson is the following:  Reliance on governmental and/or central bank action to stave off a default is not a sound strategy.  You may get lucky once, twice, even three times.  If one is particularly unfortunate, the strategy may even work many times in succession.

The government reliance strategy is like idly watching spins a roulette wheel with all your chips on red.  With enough spins, the ball will eventually drop on a black.  Think of it as the governmental version of a black swan.

Gambling on Government intervention

 

In the case of Greece, who abandoned its 2,000 year old currency to join the Euro club, there seems to be a lack of political will to ink the rubber stamp which approves the Greek’s next ration of Euros.  The taskmasters of the Eurozone are starting to realize that each time the stamp is inked, the sewage of Greek finances leaks a little further into their well. 

The populace is starting to get sick to their stomach, as are large banks on both sides of the Atlantic.  The French banking giants are queasy because much of the Greek debt is on their books.  In the New World, where about half of Greek debt is insured, the banking giants are getting nauseas.  It is the nausea of a drunk man realizing he will be stuck with the bar tab after his buddies sneak out of the tavern.

Meanwhile, as the politicians and central banks continue to bungle their way through this information, the market has already priced it in.

“Priced in?”  Astute, shocked, and astounded readers are surely thinking, “Then where is the crash in stocks and bonds?” 

Astute readers, of course, are right.  There is a crash occurring right now in stocks and bonds.  However, bond yields are down and the stock market is up because the crash is occurring against the backdrop of rapidly depreciating currencies and as such, the debauched currencies are disguising the crash.

The Disguise

Astute readers now have a collective light bulb in their head illuminating as they clearly see that inflation in consumer prices is set to accelerate in the near future.  Naturally, this obvious inflation would not be tolerable and as such must be masked in order for the general public to peacefully accept it.

For this acceptance to peacefully take place, the inflation must come in disguise.  Here is what is likely to occur once the loosened up monetary policies of the FED, ECB, BoJ, and BoE are in sync (with apologies to the 1990’s boy band):

A new dollar will be introduced with a convertibility ratio from old dollars of 10:1.  In other words, each current dollar will be the equivalent of a new dime.

Voila!  No inflation here.  The new and improved dollar now buys more than ever! 

The Debauched Dollar in disguise

Why choose a 10:1 ratio?  There are two compelling reasons for the US Currency to go through a reverse 10:1 split.  First and foremost, it is simple.  Since a majority of the world’s commerce is conducted in dollars, the disguise must be mathematically simple.  What could be simpler than moving a decimal place?

The second reason is less obvious but perhaps more compelling from the point of view of the monetary authorities.  The disguise would immediately eliminate the need for pennies and nickels and increase the demand for dollar coins.

At this stage in the game, it costs the US Mint more to create pennies and nickels than they are worth.  While we are not certain of the exact numbers as of today, some estimates have the value of the metals needed to create a nickel valued at $0.07 while the metals needed to create a penny are valued at $0.012.  This is before considering the energy and equipment necessary to strike the coins and distribute them.

At current metal prices, which are unlikely to drop in the near future, the US Mint is producing nickels and pennies at a loss.

This embarrassing detail makes the purchase of nickels and pennies a better risk free investment than US Treasury Bonds, the world’s current safe haven of choice.  The metal premium for Platinum, Gold, and Silver coins is widely known.  At some point, nickels and pennies will disappear from circulation and their metal premium will take precedence over their face value. 

Still, one may ask, “What difference does it make?  This 10:1 switch sounds like a great idea.  I’m sick of pennies!”

Oh, if only the switch were price neutral, it would make no difference at all.  How, then, do the stock, bond, and almost every other market continue to rally in the face of questionable macroeconomic fundamentals?

Tune in tomorrow.

 Trust Jesus and Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

P.S.  For more ideas and commentary please check out The Mint at www.davidmint.com

Key Indicators for September 12, 2011

Copper Price per Lb: $3.97
Oil Price per Barrel:  $88.19

Corn Price per Bushel:  $7.34  
10 Yr US Treasury Bond:  1.93%
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,814 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.5%!!!   UP 0.7% IN ONE MONTH, 8.4% ANNUALLY AT THIS PACE!!!
Dow Jones Industrial Average:  11,061  TO THE MOON!!!

M1 Monetary Base:  $2,181,100,000,000 RED ALERT!!!
M2 Monetary Base:  $9,456,000,000,000 YIKES!!!!!!!

Economics, Portland, The Mint

Ode to the Auto Feo, Part V – The Bitter End

9/1/2011 Portland, Oregon – Pop in your mints…

With the markets relatively calm until the sparks fly later next week, we conclude our tale.  Our tale is, among other things, a recount of the recent history of Bank of America wrapped up in a vehicle metaphor:  “Ode to the Auto Feo,” originally inspired by the recent passing of a vehicle that taught us many valuable lessons.

You can catch up with the “Ode to the Auto Feo”, Parts I,II, III, and IV by clicking on the following links. 

Ode to the Auto Feo, Part I –  The Birth of a “Need”

Ode to the Auto Feo, Part II –Optimism and Desperation are Poor Bedfellows

Ode to the Auto Feo, Part III –Lemon Discovery

Ode to the Auto Feo, Part IV – Acceptance and Admiration

Our story continues:

After careful reflection, we could see that our reasons for adopting the fateful “gasoline only” policy in the Auto Feo were two-fold and that they reflected two of our character traits which, taken individually are admirable, yet when combined, can lead to terrible decision making.

The first and most obvious of these traits is frugality.  While we do not think of ourselves as especially frugal, we do tend to choose certain items or activities upon which to focus our frugality.  This focused frugality in and of itself can prove extremely useful where investments in proven strategies are concerned.

The second, perhaps less obvious, trait which was expressing itself in this decision was our sense of adventure.  This trait can prove extremely useful when there is something to be gained from the undertaking and adequate margin for error for the undertaking’s failure. 

The terrible decision, then, comes when we combine this sense of adventure, which, we repeat, requires ample margin for error, with our frugality which, by definition, does not provide for any margin of error.

Hence, in retrospect it was obvious that adopting the gasoline only policy in the case of the Auto Feo was a terrible decision.  The only thing to be gained was sheer entertainment value reaped by those unaffected by the decision, a group that you, fellow taxpayer, are happily a part of.

Now that we understand the motivation for such a decision, we offer you the inspiration.

We were inspired by the desire to avoid buying a quart of oil each week (frugality) and, by extension, to avoid further staining our driveway with oil spilled out of the engine block.  To accomplish this, we discovered (or perhaps imagined) an experiment that the military had conducted in which they had never put oil in new vehicles and had been able to rely on the resulting engine shavings caused by the friction to serve as a sort of permanent lubricant for the pistons as they slammed up and down in the engine block.

Now most sane persons and certainly those who are mechanically inclined will quickly realize that there is a big difference between our situation with a 17 year old vehicle which held two quarts of oil and the military who had new vehicles which had never been filled.  There was also a big difference in our respective circumstances.  The military could afford to lose a few vehicles to this sort of experiment.  We, on the other hand, would be walking if it did not pan out.

The experiment began with promising results.  The vehicle’s performance, which was not that great to begin with, deteriorated only slightly.  This did not concern us as.  After all, we only had 1.5 miles to drive each day.  We continued through rain and shine, confident that we were actually on the verge of improving the Auto Feo’s performance and significantly extending its useful life.

Like so many of today’s fiscal and monetary policies, the delusion of sustainability was to be, uh, sustained until the day it came to a catastrophic end.

Six more months passed and two things happened in quick succession.  One turned out to be an omen, while the other an illusory victory.

The omen appeared one late Spring evening when we came upon the Auto Feo in the parking garage on our return commute to find that the driver side window had been shattered and the vehicle’s contents, which consisted of a Bible and a pair of jumper cables, had been clumsily rifled through.  The thief took the jumper cables.

With the bi-annual emissions test that is required in Oregon just one week away, our frugality again kicked in and we resolved to use clear plastic and duct tape to temporarily replace our driver-side window until we could be sure that the vehicle would be cleared by the authorities to operate another two years.

Note to self:  If you need to cover a broken out window in a vehicle, make every attempt not to use opaque or transparent plastic.

We hobbled along for a week of near misses at intersections with limited visibility out of our driver’s side.  On a Saturday, we made the trek to Hillsboro to submit the Auto Feo to the automotive equivalent of a colonoscopy.

Arriving at the emissions testing center, we found ourselves apologizing unnecessarily for the condition of the vehicle and explaining that we wanted assurance that Oregon’s green gods would allow the vehicle to continue to operate on the roads of their realm.

“We wanted to see if it would pass before fixing the window,” we offered.

“Looks like its seen better days, let’s take a look,” said the attendant.

She was apparently unfazed by the appearance of the vehicle and we later thought that apart from these people, only body shops and junkyards see more pathetic looking vehicles on a regular basis.

We winced as we watched the attendant place the probe into the Auto Feo’s tailpipe and had to remind ourselves that it was not human.

“Looks like it failed,” said the attendant.  “But it did improve at 2,000 RPMs,”

“Can we give it another try?” we offered in a desperate last ditch effort to forestall the diagnosis.

“Why not?” said the attendant.

And then a miracle occurred.  The Auto Feo passed the emissions test.

We joyfully drove home and quickly arranged to have the driver’s side window replaced.  Our experiment was going swimmingly and the emissions test somehow validated our hypothesis.  The military was right, we are better off not adding oil to your vehicle!

The Bitter End - Rest in Peace Auto Feo

Our delusion, which was now government sanctioned, was allowed to carry on.

Astute readers will quickly draw a parallel between our Auto Feo tale and Bank of America and the current banking system in general:  Our emissions test is a metaphor for the so-called stress tests that have been run on the banks in America and Europe in an attempt to shore up confidence.

When will these delusions end?

In the case of the Auto Feo, two short months after the government sanctioned emissions test gave it the green light, we were forced to make a journey farther than our normal 1.5 mile daily jaunt.

Through knocks, heaves, and roars, the Auto Feo dutifully carried us on our route until, a mere .5 miles from home, the Auto Feo froze up.

We feared the worst but in our optimism we had the vehicle towed to our house.  We waited for the morning.

The next morning, it started!  This truly was a miracle.

Alas, the miracle was that the Auto Feo was simply saying goodbye.  For in the evening, when we jumped in to drive it home, the Auto Feo did not immediately respond.  A brief heave was all it could muster as we cranked the starter.  And then, all was silent. 

Our experiment was a failure, the Auto Feo had passed on.

Bank of America has been in the news a lot lately, and for all the wrong reasons.  The behemoth is too big to succeed and for every client that is making money, there seem to be two or three who are going bankrupt, leaving B of A to foot the bill.

Although management will never admit it, the Bank is now throwing Hail Marys late in the fourth quarter in a desperate attempt to raise capital.  While this is exciting to watch, you probably don’t want to put your money on the team who has resorted to such a desperation tactic.

Returning for one last, painful look at our automobile metaphor, It appears that the FED has decided not to change the oil (i.e. replace member banks’ worthless assets for fresh cash) and the banks will be left to lubricate their engines with the metal shavings as its worthless assets disintegrate on the balance sheet.

How long until B of A seizes up?

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for September 1, 2011

Copper Price per Lb: $4.15
Oil Price per Barrel:  $88.71

Corn Price per Bushel:  $7.29  
10 Yr US Treasury Bond:  2.15%
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,825 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.5%!!!   UP 0.7% IN ONE MONTH, 8.4% ANNUALLY AT THIS PACE!!!
Dow Jones Industrial Average:  11,494  TO THE MOON!!!

M1 Monetary Base:  $2,108,800,000,000 RED ALERT!!!
M2 Monetary Base:  $9,473,600,000,000 YIKES!!!!!!!