Tag Archives: Financial Crisis

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.

Sumo Wrestling in Europe, Can America afford to be Frugal? Not as long as Debt = Money

10/5/2011 Portland, Oregon – Pop in your mints…

In Europe, the sumo wrestlers have resumed their battle royal on the edge of the cliff.  In this metaphor, the wrestlers conveniently represent the various banks, semi-sovereign governments, central banks, and other unproductive, parasitic organizations with the words “Monetary Fund” in their name.

Up until now, with the exception of some jeering from the spectators, the battle royal has been good natured fun.  Each time one of the wrestlers has tumbled towards the cliff, several of his benevolent fellow competitors have come to his rescue.

First Greece, then Ireland, Northern Rock, Anglo-Irish, and The Bank of Ireland.  Now Alpha, Spain, Caja del Sol, Portugal, Italy, and Dexia.

Each time, they get up, dust each other off, and go back at it.

But the competitors are getting weary, as are the spectators.  With each new stumble towards the cliff, more competitors and even some spectators are required to jump in to avert certain disaster.  If this continues, when one of the weary wrestlers finally tumbles over the cliff, it is increasingly likely that he will take the rest of his competitors and a decent number of well meaning spectators over the edge with him.

Now things are starting to get interesting as BNP Paribas, SocGen, and France herself began to stumble towards the edge.  Who will save them?  Certainly not the Swiss National Bank, which last month stumbled to the edge of the ring and ironically may be the first to fall off.

Any sober observer will quickly point out that this is an insane pastime.  Why would a group of sweaty fat men repeatedly try to push each other from a ring along the edge of a cliff?

We can only venture a guess, and our guess is along the lines of “they somehow believe that they must.”

Why ask Why? Just stay away from the edge!

It doesn’t make sense, neither do a great number of things that occur in the current, insane, “debt is money” currency system in which we live. 

People and institutions are trained to make decisions regarding money based on the assumption that money in and of itself has value.  This assumption, under which the world currently toils, was debased along with the US Dollar back in 1971.  Money today has very little in common with the money our fathers grew up with.  Peter Schiff, the outspoken CEO of Euro Pacific Capital, has gone as far as to call modern currencies the “hidden portfolio risk.

Our father’s money was based on the assumption that men were dishonest, and what they used as money (gold and silver) served to keep them honest.  Today, money is widely assumed to be honest, a fact which has served to make a great number of men dishonest.

Debt is not money, the proof

The only way that the illusion that debt is money can be perpetuated is when debt, and therefore the perceived money supply, is increasing.  First of all, who has ever been known to turn down free money?  When the exponential increase in the perceived money supply is occurring, it creates the welcome illusion of wealth.

Second, people quickly learn that the easiest way to make money is to position oneself as close as possible to the creation of new debt.  This is essentially the business model of Goldman Sachs and every other consumer and investment bank on the planet.

The money is so easy that no one stops to consider what would happen if aggregate debt were to begin to decrease, in turn decreasing the money supply by the same multiples with which it was created.

It will never happen, right?  People will never turn down free or almost free money.

Yet they are.  It turns out that people have a propensity for austerity when they have no choice.  If money were based on something real, austerity would be extremely healthy for the economy which would be accumulating a capital base from which to make the next series of technological advances.

In the current, insane, debt is money currency regime austerity (the reduction of aggregate debt) removes the life blood from the monetary system and causes the underlying economy to die a slow, then sudden and altogether painful, death.

The mirage of the debt fueled economy quickly vaporizes and the debtors and creditors in the system find themselves in the middle of an economic desert with a long road ahead of them.

There will be much struggle along the way, and their only hope is to walk together.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for October 5, 2011

Copper Price per Lb: $3.13
Oil Price per Barrel:  $79.51

Corn Price per Bushel:  $6.05  
10 Yr US Treasury Bond:  1.91%

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

Gold Price Per Ounce:  $1,640 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.4%!!!   UP UP UP!!!
Dow Jones Industrial Average:  10,940  

M1 Monetary Base:  $2,052,100,000,000 RED ALERT!!!
M2 Monetary Base:  $9,511,300,000,000 YIKES!!!!!!!

A Chilling Coincidence in the S&P Chart

This chart came to our attention via the Business Insider Chart of the day.  Apparently it was produced by an analyst a Citi and is turning a lot of heads.  Three years on, the S&P closed yesterday at exactly the same level it did on October 3, 2008. After that, well, bad things happened.  Coincidence?

The FED Kicks the Downward Dow, and Whiffs!

 

8/9/2011 Portland, Oregon – Pop in your mints…

 

Something extraordinary happened today.  The FED, one day after the worst stock market crash in the series of stock market crashes to which we are doomed until the problem of too much debt is dealt with, came out and announced that it would hold overnight rates under 0.25% for at least two more years.

This is the ultimate stimulus measure, money will continue to be free, let the final stage of the mad scramble for resources begin.  With this statement, the FED has confirmed that the currency will be destroyed.  Plan accordingly!

We saw a chart at the Wall Street Journal site today which was entitled “Downward Dow.”  The name hearkens to the canine/yoga position better seen that described:

A Canine demostrates the new Dow pattern that is forming for the next two years

The FED sees what is going on and is taking a long, running, Charlie Brown style kick at the Downward Dow before it.  Unfortunately for us all, like Charlie Brown, Ben and the gang are going to whiff on the Dow, which is more likely to lie down than resume its forward gait, and pull a hamstring in the process.

In other words, the FED, with today’s statement, has severely injured itself and will do nothing more now than sit on the sidelines and hand out free money.  With Congress paralyzed, the helicopters (the FED member banks) will be in charge of dropping the money on the populace.

Helicopter Phase is here!

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for August 9, 2011

Copper Price per Lb: $3.97
Oil Price per Barrel:  $79.75

Corn Price per Bushel:  $6.78  
10 Yr US Treasury Bond:  2.33%

FED Target Rate:  0.08%  TIGHTENING?  NOT!

Gold Price Per Ounce:  $1,750 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  -0.2%!!!  PULL OUT THE HELICOPTERS!!!
Dow Jones Industrial Average:  10,826  TO THE MOON!!!

M1 Monetary Base:  $2,012,200,000,000 RED ALERT!!!
M2 Monetary Base:  $9,226,100,000,000 YIKES!!!!!!!

S&P Prepares to pass Judgment on US Debt, Unemployed for the long haul

8/5/2011 Portland, Oregon – Pop in your mints…
Mercifully, today we have time for a brief Mint.  It appears that the people at S&P are finally going to give the US Government a well deserved, long overdue, courtesy downgrade on their sovereign debt rating.
This will cause havoc with any investment policy, rule, code, law, etc. that relies on the US Government to maintain an untarnished reputation as the safest investment in the world.  Ironically, an S&P downgrade will probably trigger a rally in US Treasuries.  However, this phenomenon is more a testament to the ineptitude of the debt raters at S&P rather than any firming up of the nation’s finances.
But what if tax revenues began to increase?  They almost have to, even if by accident, given all of the cash that is flying out of stock, bond, and money market funds and on to the streets.  Word has it that over $66 BILLION left money market funds for parts unknown last week, mostly due to the debt ceiling debacle, which last week threatened to wreak the same havoc that a downgrade will likely cause on corporate short term cash investment policies across the globe.
For perspective, $144 BILLION ran out of money market funds the week that Lehman Bros declared bankruptcy.  But that, by most counts, was a surprise.
As food for thought, we submit this scary chart for your perusal, courtesy of the Money Game:
Unemployed for the long haul!

Stay tuned and Trust Jesus.

Stay Fresh!
P.S.  For more ideas and commentary please check out The Mint at www.davidmint.com
Key Indicators for August 5, 2011
Gold Price Per Ounce:  $1,663 PERMANENT UNCERTAINTY

Italians to join Europe’s needy, the parable of the Chiropractor

7/11/2011 Portland, Oregon – Pop in your mints…

Investors woke up today and wasted little time in marking down Italian sovereign debt, along with Spanish and Portuguese debt issues.  Why?  The story of the Italians is eerily similar to that of the Greeks, the Portuguese, and the Spanish.  Their government spends more than it takes in.

At this point, all readers of The Mint know that it is impossible for any Government to produce value.  Yet somehow, in our upside down, insane monetary system, it has become acceptable for the western governments to run a reasonable deficit to help pay for their role as the Robin Hood in the current welfare state model.  The European Union even went so far as to attempt to define what constitutes a reasonable deficit as 3% of a nation’s GDP per year.

Now if the government takes in 25% of national income in the form of taxes, which is not an unheard of (if anything it is a low estimate) and then borrows an additional 3% (which has proved an elusive target), then 28% of the welfare state’s economy is devoted to income “redistribution.”

While the term “income redistribution” does not fly well with most voters, the Government’s “investment” decisions are cleverly disguised as Social Security, Health Care, Defense, and Education.  Most will recognize that these are important investments, which leads us to the logical question:

Why leave these investment decisions up to the Government?

This question is rarely asked, and most seem content to let the Government continue in their collective role as Robin Hood.  It should come as no surprise, then, that a great deal of time and what would otherwise be productive energy goes into influencing Robin Hood’s decisions as to whom the poor are at the moment.  Bill Bonner at The Daily Reckoning calls this outsized effect of Government in the economy a “Zombie Takeover.

With the Zombies creatively destroying a minimum of 28% of GDP in a modern welfare state, perhaps it is a testament to the resilience and productivity of the citizenry that any real progress can be made under such circumstances.

Fortunately (or unfortunately for those in the zombie class) the insanity is coming to an end.  As the government’s destruction of wealth accelerates, even elected officials will have to admit that the bad decisions that all of this accumulated debt represents do not go away just because one denies that they exist.

In fact, attempts to solve the problem of too much debt by creating more currency are futile, as each unit of currency creates a unit of debt which must be dealt with at a later date.  This is the glory of modern monetary theory.  It binds the world together in slavery.  It is also its Achilles heel, which is now exposed, waiting to be stricken.

How and when will this finally occur?  It will be like the man with back pain who finally goes to visit the chiropractor.  The gradual spinal realignment that he had hoped to achieve by doing simple stretching exercises (austerity) is not taking place, in fact, his back problems have gotten worse.  Once in the exam room, he will be laid down swiftly on the chiropractor’s table.

Then chiropractor will move into place, interest rates will rise, and a series of pops will go off in the patient’s spine.  Naturally, the popping sounds are the troubled EU nations defaulting on their sovereign debt in unison, which is what is about to occur.

Will the patient then get up and go on his way, sore but better off for the treatment?  Or perhaps the better question is; do zombies even use chiropractors?

Meanwhile in the US, the political theater that is the debt ceiling negotiations may be the catalyst that sends the US Treasury market into a much deserved tailspin.  We have speculated about this almost incessantly and still cannot believe that it may happen.

But while the EU goes to the chiropractor, the US may prefer to rely on the prescription drugs of fiscal and monetary stimulus for as long as they appear to work in a futile attempt to reassure the zombies that all is well.

The US will simply destroy the value of the currency, completely and irreversibly.  Why else would they pick a fight with Iran at this point?

That makes each dollar that one holds like holding an M80 firecracker with a lit fuse.

How long will you hang on?

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

P.S.  If you enjoy or at least tolerate The Mint, please share us using the buttons at the bottom of this post.  If you feel that you can’t go another day and risk missing The Mint, please register by clicking here.  Thank you!

Key Indicators for July 11, 2011

Copper Price per Lb: $4.32
Oil Price per Barrel:  $94.99

Corn Price per Bushel:  $6.81
10 Yr US Treasury Bond:  2.92%

FED Target Rate:  0.07% JAPAN HERE WE COME!

Gold Price Per Ounce:  $1,554 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.2%
Inflation Rate (CPI):  0.2%
Dow Jones Industrial Average:  12,506 TO THE MOON!!!
M1 Monetary Base:  $2,020,000,000,000 RED ALERT!!!
M2 Monetary Base:  $9,112,300,000,000 YIKES!!!!!!!

*See the MINT Perceived target Rate Chart.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.

Grants for Democracy? It’s Getting Ugly in Spain, US Housing Capitulates, Greek Government to Default on Austerity and then Simply Default

5/27/2011 Portland, Oregon – Pop in your mints…

We’ve said it before, things are beginning to happen at a rapid pace and the authorities are absolutely and completely helpless to do anything about it.  Not for lack of money, have you, for they are second in line behind the banks to pick at the money tree.  No, the authorities lack the one thing that is indispensable to getting things done.  Credibility.

Have things improved for you, fellow taxpayer?  Unless you are a banker, lobbyist, are a contractor who works for a banker or lobbyist, the answer is probably no.

And we haven’t even begun to talk “austerity” on US shores.

But first, we are obligated to take a peek at what the G-8 is doing.  We suspect we know but it is important to confirm ones suspicions.

From the Associated Press:

DEAUVILLE, France (AP) — Rich countries and international lenders are aiming to provide $40 billion in funding for Arab nations trying to establish true democracies, officials said at a Group of Eight summit Friday.

Officials didn’t fully detail the sources of the money, or how it would be used, but the thrust was clearly to underpin democracy in Egypt and Tunisia — where huge public uprisings ousted autocratic regimes this year — and put pressure on repressive rulers in Syria and Libya.

We suspected more aid to someone but this appears even more misguided than we thought.  The first line of the second paragraph is especially laughable but you can see where this is going.  We speculated Wednesday about the events in Palestine getting ready to take center stage, largely as a distraction to the “utter and complete collapse” of the world’s current financial system.

The G-8 is now throwing what is left of their credibility into extending their influence in the Middle East.  They have Iraq, Afghanistan, and now Egypt and Tunisia as footholds.  Will they be strong enough to hang on to this newfound influence?  Only time will tell if the new regimes can be bribed as easily as the old ones.

The credibility of the Western Governments and their worn out welfare state economic models is nearly spent.  In Greece, the IMF / Eurozone bailout participants are finding out that the Greek politicians don’t have the collective stomach to play the repo man on their countrymen’s future.

It appears that the government is refusing more austerity measures and is rethinking whether or not this whole Euro adventure is such a good idea.  Failure to agree now places the spotlight on the IMF / Eurozone plunge protection team.  Will they have the stomach to let Greece default?

The gauntlet has been thrown down, and what happens to Greece will set the tone for how the inevitable sovereign defaults of the Western Governments are likely to play out.  Are the Greeks the Lehman Brothers of Sovereigns?

On the other side of the world, Japan’s sovereign debt was officially downgraded as if to underscore the fact that the world monetary system is hurtling towards a catastrophic failure.

Back in Europe, a sequel to the Greek experience is now playing itself out across the Mediterranean Sea on the Iberian Peninsula.  The youth in Spain are finally arising as they clearly see that the politicians have shamelessly “handed their future” to the nation’s banks.

With protests in nearly every major city, their resolve grows with every passing day.  In Barcelona, one day before Barça plays for the Champions Cup against Manchester, the authorities attempted to clear Plaça Catalunya to clean it in anticipation of the celebrations that would surely take place there when Barça, led by the great Liionel Messi, wins the cup.

With over 100 persons injured between protestors and police officers, they will now have to clean up blood in the square.  The Spanish authorities, not unlike their western peers, just don’t get it.  The old way of doing things is over, fini.  The youth are taking matters into their own hands.  With 45% of the Spanish youth unemployed, their sheer numbers, if they stay at it, will simply overwhelm the authorities.

All the same, we are pulling for Barça tomorrow.

A final piece of news to share with you here at The Mint, the US Housing Market has finally capitulated. In other words, it is now safe to buy a house.  The hope that the US Government and Central Bank could somehow revive this market has left town on the same train as the US Government’s credibility.

The US Government lost its credibility most recently as it continues to bicker over meaningless spending cuts as the nation thunders towards an imminent default on its sovereign debt and by affirming the Unconstitutional Patriot Act, which essentially gave legislative authority for the US to become the wards of an international police state.

The brave souls who gave their lives to create and protect a free America must be rolling over in their graves this Memorial Day.

Will there be a generation brave enough to reclaim it?

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  Please check out our latest 72 Hour Call at www.davidmint.com

Key Indicators for Friday, May 27th, 2011

Copper Price per Lb: $4.16
Oil Price per Barrel:  $100.74

10 Yr US Treasury Bond:  3.06%
FED Target Rate:  0.09% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,537

MINT Perceived Target Rate*:  2.25% INFLATION HERE WE COME!!!!
Unemployment Rate:  9.0%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  12,441
M1 Monetary Base:  $1,892,800,000,000 THE CRACK-UP BOOM BEGINS!!!!
M2 Monetary Base:  $9,036,600,000,000 MORE FUEL FOR THE CRACK-UP BOOM!!!!

 *See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.