Tag Archives: money

A Brief Bitcoin Q&A

We were recently contacted by someone who had seen our volume on Bitcoin, cryptically entitled “Bitcoins:  What they are and how to use them” which was written on one of those weekend trysts which economic thinkers are prone to, in which a flurry of ideas flies at one’s mind from all quarters and scream to be put on paper.

Bitcoins: What they are and how to use them
Bitcoins: What they are and how to use them

The book, which was literally cobbled together over the span of four days, has been our bestseller recently, which naturally has more to do with Bitcoin than ourselves.

In their inquiry, the reader had three further inquiries which we present below for those who are interested in such matters.  Enjoy!

Q:  What do you think about the relation between physical and virtual currency?

The Mint:  Generally speaking, the relation between physical and virtual currencies can be judged by examining the price for the physical currency expressed in the virtual currency.  However, I think it will be helpful to make a distinction, as the concept of virtual currency is simply another extension, or “strata”, as I like to call it, of something I refer to as the “Monetary Premium.”  Allow me to explain:

The concept of currency stems from the Monetary Premium that is attached to something, ultimately giving it value in trade.  (please read this post for a description of the Monetary Premium concept and its origins: https://davidmint.com/2014/02/08/the-division-of-labor-gives-rise-to-the-monetary-premium/ )

Over time, as the division of labor has increased, the need for credit and, by extension, something by which to exchange the monetary premium (i.e. serve as money) in order to settle the debt, has increased as well to the point that, today, all currency issued by government’s is a credit instrument (a liability of the Central Bank) and has only an indirect relationship to anything physical.

Given this, virtual currency, to the extent that it is accepted in trade, is synonymous with all other forms of currency in that it represents an indirect claim on physical wealth.

What many consider to be hard, or physical currency, such as gold and silver, will then have a relationship to either virtual currencies (such as Bitcoin) or credit based currencies (such as US dollars or Brazilian reais) which is expressed as a ratio, or price.  By extension, both virtual and credit based currencies will serve as pricing mechanisms for goods and services.

I hope the above makes sense, as it is getting to a key misconception that many have regarding money in general.

Q:  What is the future of Bitcoin? 

The Mint: As with any currency, bitcoin will have value and be traded until people lose confidence in it.  That said, bitcoin has two flaws that will make it increasingly difficult to use in trade:

1)  By design, there can only be a very limited amount of debt denominated in Bitcoin.  While most see this as attractive (indeed, it is what helps support its value), it will severely hinder the expansion of Bitcoin proper in trade as the algorithm ticks closer to the limit of ~21 million Bitcoins (never mind that many Bitcoins that previously circulated are trapped in wallets on hard drives which are in rubbish heaps now, never to be “mined” again!).

2)  The limitation on Bitcoin creation will dramatically reduce incentives to support the Bitcoin transaction validation process (known as “mining”) right at the time when it is most necessary.  This is where Bitcoin will shoot itself in the foot, and nobody knows what will happen then, but what is certain is that transaction processing will become a paid feature by providers or that it will become so slow that people will gravitate away from Bitcoin to other digital currencies who have no such flaw.

What is likely to occur is that Bitcoin will assume its place as the “gold standard” against which all subsequent virtual currencies will be measured.  In the same way that many national currencies are still measured against gold on the open market, so it will be that Bitcoin, given its finite production, will become, as gold has become, little more than an important point of reference for whatever virtual currency is currently predominately used in trade.

Q:  What is the effect on the world economy?

The Mint:  While the origins of Bitcoin and other virtual currencies may have been experimental and ideological in nature, their increasing acceptance is owed to the fact that they are filling a void in trade.  Namely, mediums of communication facilitated by the Internet have expanded trade exponentially and created needs for mediums of exchange (a way to transmit the monetary premium mentioned above) that national currencies cannot keep pace with. 

The current system of national currencies and banking provide a number of barriers to currency creation which leaves a void that solutions such as Bitcoin are able to fulfill, in the process creating a windfall for those who have successfully speculated in such currencies.

The effect of virtual currencies such as Bitcoin on the world economy, then, has been and will be to further facilitate trade and, by extension, the division of labor in the world economy.  This is a very good thing as it will ultimately lead to a more perfect balance of trade, one that is not subject to the whim of a Central banker’s assessment of the need to expand or contract the money supply.

The latter has implications for the current nation-state which I won’t go into, but the people of the world now can, through the Bitcoin and broader virtual currency story, begin to envision a world economy that is not dominated by currencies emitted by National Central banks, what will happen with that vision is something that is likely to play out in our lifetimes.

Why the monetary premium must be attributed to a tangible good – To Build up the Land – Part IV

4/1/2013 Portland, Oregon – Pop in your mints…

On this April fool’s day we will attempt to lay out yet another premise.  It is the underlying premise and our ultimate contribution to man’s understanding of monetary theory.

Our choice to present the premise today may mean one of three things:

1.  If it is so absurd as not to be accepted by any thinking human being, we may attribute it to a cruel April fool’s joke.

2.  It may be received as such a revelation that mankind will take what they have assumed to be money for a cruel April fool’s joke.

3.  It just happens to be April 1st as we are writing.

We can assure you of that the third reason is absolutely true, as for which of the first two may be valid, we leave the decision up to you, fellow taxpayer.

The premise is the following:  The monetary premium, which is the increase in the value of an object owed to its usefulness as a store of value, medium of exchange, and/or unit of account, must be primarily attached to a tangible good for the activities which mankind carries out to be in balance with the resources that exist in natural world.

The world has operated on a system of fiat currency, or currency by decree, on and off for as long as there has been an Empire capable of dictating what its subjects must use as money in settlement of debts.  Fiat currency is not harmful in and of itself.  In fact, given enough time, any fiat currency which is not flexible enough to change with the needs of the economic activity which it is intended to aid will either self destruct on its own, owed to it being eschewed in favor of a more suitable currency, or, if its use is rigidly enforced, cause the underlying economic activity to self destruct or cease, causing another form of fiat collapse.

To control what is used as money and the monetary premium represents the ultimate power in the material world.  As such, such control can never be gained by force.  Rather, it must be created by a great many deceptions which cause otherwise rational persons to hand over control over this most important of decisions.

For over 40 years now, much of the world has not only subjugated itself to accepting a form of fiat, it has come to accept as money the worst form of fiat, a fiat currency that comes into being as a debt instrument.  As a result, mankind has attached this precious monetary premium to credit, which is not dependant upon the production of goods in the real world, nor on existing property, rather, it is primarily dependent upon the character of a man.

Today we read a list of quotations compiled by Frederick Sheehan which came to us via Credit Writedowns.  Two of the quotes speak directly to the nature of credit, which will help to underscore our premise:

“Credit is not money.  Credit is trust. Trust can vanish in an instant.” – Frederick J. Sheehan, March 25, 2013

In response to questioning by Samuel Untermeyer during the Pujo Committee hearings, J.P. Morgan famously made the following observations on money and credit:  {Editor’s note: You may read the Pujo Committee, formally known as the Money Trust Investigation, testimonies here via the St. Louis Fed.

Untermyer: ‘The basis of banking is credit, is it not?”

Morgan:  “Not always. That is evidence of banking, but it is not the money itself.  Money is gold, and nothing else.”

Then, during the same lime of testimony:

Untermyer: “Is not commercial credit based primarily on money or property?

Morgan: “No sir, the first thing is character.

Untermyer: “Before money or property?

Morgan: “Before money or property or anything else.  Money cannot buy it”

Both Sheehan and Morgan’s observations on credit are sufficient to gain an understanding of what credit really is.  Most persons are conditioned to assume that credit is backed by collateral.  However, were credit backed by collateral, it would cease to be credit.

The essence of credit is trust.  Trust, by definition, is created by the belief in an inherently uncertain future outcome.  Again, by definition, trust may not always be well placed.  The plans upon which the credit and underlying trust are built may just as well not turn out as planned.

Money cannot be destroyed, it can only change hands.  Credit and trust, however, can be destroyed in an instant, for they are subject to the fickle decisions and imperfect plans of men.

When money is based on trust, the world moves to a very dangerous place with regards to the planning of daily activities.  This is where the world is today, circa 2013, after 40 years of what we refer to as the insane debt is money financial system.

Trust is good and necessary to a point, however, it can vanish in an instant.  When there is an excess amount of trust, or promises to pay, circulating in relationship to a finite number of money, goods, and capital in the real world, there are bound to be a few broken promises.

If kept to a minimum, the economic systems which are organically created by man to trade and deal with scarcity, a state of being that we call True Capitalism, will correct the errors that result from misplaced trust which manifests itself by credits which are defaulted on.  The activities of men will then return to balance with the underlying natural resources which the earth affords him.

Forest Clearing in Cameroon, and example of man's imbalance with nature? Photo credits:  © Greenpeace / Alex Yallop
Forest Clearing in Cameroon, and example of man’s imbalance with nature?
Photo credits: © Greenpeace / Alex Yallop

However, if misplaced trust in the form of bad credits are allowed to perpetuate themselves, men will have no incentive to investigate whom amongst them is worthily of the trust that credit represents.  This state of being will, and indeed does, cause much of the earth’s natural resources to fall into unproductive hands where it will ultimately be squandered.

Meanwhile, those who are capable will not be able to coordinate their efforts with their fellow men in any meaningful way.  Indeed, the capable ones will simply learn how to take advantage of the over abundance of trust which is being created in the world.

This proliferation and misallocation, if we can call it that, of trust has two real world consequences:

1.  Natural resources are wasted at an alarming rate.  For this reason we believe that the placement of the monetary premium on credits has lead to the crisis that most people have come to call “Climate Change.”  It was previously known as “Global warming.”  This represents a myriad of symptoms whose root cause is that man’s activities are severely out of balance.  The cause of this imbalance in the current situation is that man’s activities, both those worth of trust that have succeeded and those that have failed miserably, have been greatly accelerated by the dangerous mix of credit and the monetary premium that circulates as currency.

Man is in a desperate race to meet a timetable that the earth’s resources cannot provide for.  The result is the severe imbalances which we are now observing.  It is this, and not the industrial revolution, fossil fuels, or any of the other symptoms that is the root cause of climate change.

2.  While there are a great deal of men who are busy scorching the earth with their activities, the wise have learned to concentrate their efforts not on the productive activities to which they would otherwise dedicate themselves, but to profiting from the explosion of trust and credit, from the misjudgments and miscalculations or their fellow men.

The land is either laying fallow or being scorched by the misguided activities of men, rather than being built up, as Old Jules encouraged.

However, it is not man himself or any of his inventions which constitute the root cause of the problem.  Rather, it is the simple misplacement of the monetary premium on credit instruments which emits the false signals that we all either follow or are forced to follow in the planning and execution of our daily activities.

This is our premise.  If one man in a million will grasp it, we can change the world.  Will it be you?

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for April 1, 2013

Copper Price per Lb: $3.40
Oil Price per Barrel:  $97.07
Corn Price per Bushel:  $6.42
10 Yr US Treasury Bond:  1.84%
FED Target Rate:  0.13%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,599 THE GOLD RUSH IS STILL ON!
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.7%
Inflation Rate (CPI):  0.7%
Dow Jones Industrial Average:  14,573
M1 Monetary Base:  $2,425,000,000,000 LOTS OF DOUGH ON THE STREET!
M2 Monetary Base:  $10,547,600,000,000

Of Money and Metals: The Operation of a Free Money Supply Explained

We’ve been at it again!  Be the first to download our newest e-book,  now available on Smashwords and Amazon’s Kindle:

Of Money and Metals: The Operation of a Free Money Supply Explained

Of Money and Metals: The Operation of a Free Money Supply Explained is Volume II in the “Why what we use as Money Matters” series. Of Money and Metals presents the fallacies of the current day practice of circulating debt in the place of money and explains the urgent need for and the operation of a free money supply. This volume also explores the phenomenon of Bitcoins and digital currencies.

It is available to our dear readers for free until January 31, 2013 at smashwords.com, just enter coupon code: MA65L

Thank you for your support!

Of Money and Metals by David MInt

 

Credit Unions: Join the people’s banking system

As public disgust with the commercial banking industry continues to grow, many consumers who were simply content to grumble about the Federal tax dollars that are being committed to bailing out the banks for their bad decisions are now being driven to the unspeakable action of renouncing commercial banks altogether.

What is it that has driven these otherwise reasonable people to take such a drastic step? 

In a word: Fees.  In addition to increasing the fees which consumers pay for overdrawn checks and various other “services”, some banks have taken the additional step of charging fees for debit cards, checking accounts, ATMs, and a host of other services which many Americans have come to expect free of charge.

Such has been the public outcry at this unthinkable insult that even Congress couldn’t help but notice.  Senator Dick Durbin, (D-Ill) had this to say:  “Bank of America customers, vote with your feet, get the heck out of that bank, find yourself a bank or credit union that won’t gouge you for $5 a month and still will give you a debit card that you can use every single day.  What Bank of America has done is an outrage.”

While it is a mystery why Durbin singled out Bank of America, as the fee cancer has spread throughout the commercial banking system, what is clear is that many Americans are already voting with their feet and are ditching fee mongering commercial banks in search of alternatives.

In Portland, the search will lead them to a number of local credit unions that offer superior service, unbeatable interest rates, and low or no fee alternatives to services provided by commercial banks. 

How can credit unions afford to do this?  The simple answer is that credit unions are banking coops.  By definition and by statute, they are locally owned and operated.  Credit unions are non-profit organizations whose only “shareholders” are its members.  Therefore, credit unions exist exclusively for the benefit of its customers and the community which it serves.

To become a member of a credit union, one must be a member of a group that is served by a specific credit union’s charter.  A person is typically eligible to become a member of a credit union based on where they live, work, or worship.  In some cases, becoming a member can be as easy as simply applying for a loan at the credit union.

Once a person is deemed to be eligible for the credit union’s field of membership, all they would need to do to become a member is to complete an application and make a one-time deposit (typically $5) into their savings account.  From there, the member is not only on their way to investing in their community, they are on their way to receiving better interest rates on both deposits and loans, superior customer service, and having the right to vote on important decisions affecting the credit union.

Few changes stand to make such a profound impact on both the individual and the community than the decision to bank at a local credit union instead of a commercial bank.  The individual and their community are both empowered by this seemingly simple choice.

There are a number of great credit unions in the Portland area.  A great place to start is by locating a credit union near you.  Websites such as findacreditunion.com and creditunionaccess.com can help you to locate a credit union in your area.

If you need any additional encouragement or have doubts about leaving your bank behind, a peek at this brief article at moneyistheroot.com on the advantages of credit unions should quickly put those doubts to rest.

In Portland, it is easy to cast your vote against the commercial banking regime and put your money to work building our community.  Start banking locally today at your local credit union.

Stay Fresh!

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!!!!!!!

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

10/19/2011 Portland, Oregon – Pop in your mints…

For those of you who have missed Part I and/or Part II, 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

For those of you who are too lazy to click the links, we do not blame you.  Below 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 come into existence and become increasingly interdependent, the only question is one of the size and scope of such entities.

Central Banking, like alcohol and socialism, may be a good idea when used in moderation.  However, each one of these also represents a catastrophe waiting to happen.  For if the circumstances under which they are created or used take an unfavorable turn, the wealth and lives of many may be lost in a very short period of time.

How, when, and most importantly why will this catastrophe take place?  As mere mortals, we can only answer the why and speculate as to the how and when.

Why, then, will the current system of Central Banking come to an end which will cause wealth destruction on a scale which will make the weapons of war seem like child’s play in comparison?

The answer, fellow taxpayer, is that money as it is widely understood today does not really exist.

You read correctly.  What a majority of the developed and semi-developed world uses as a store of wealth, unit of account, and medium of exchange, is a figment of the collective imagination.

Allow us to explain.  It is generally understood today that the value of money is not necessarily in money proper, rather the value of money is found in the ability of the bearer to exchange said money for goods and services.  What is often overlooked in this observation is that, for money to be exchanged for something of value between willing participants of a transaction, what is used as money in the transaction must be universally perceived to have value that is easily transferable between parties.

Following this logic, what society uses as money is, by definition, simply another good which is widely recognizable as useful in exchange and therefore carries a price premium (we will call it the monetary  premium) of a certain amount usually far above what some economists would incorrectly* call the good’s “intrinsic” value.

* We say incorrectly because value judgments, while often influenced by what are known as “market” or “intrinsic” values, are by definition made by the individuals who willingly enter into a transaction, not disinterested observers.  It is for this reason that it is more accurate to appraise value by observing price points of transactions on “the margin” (i.e. transactions that are actually taking place) as opposed to appraising value based on past transactions or transactions imagined to take place in the future.  Many are the hypothetical gains and losses of those who refuse to enter into transactions because they are waiting for and offer at “market prices” or the “intrinsic value” of an item.

Regardless of the monetary premium that a good may carry, whatever is used as money, by definition, must be a tangible good.  Otherwise, we are dealing with credit, which is a promise to pay in money at a future date. Credit may be given in exchange in the place of money and is often traded at a discount to money delivered immediately. 

The distinction between money and credit is common knowledge to but it is important to make a clear distinction in order to properly understand what happens next.

 

Examples of Money Proper - Courtesy of Mark Herpel - www.dgcmagazine.com

 

In roughly 9.000 years of human history, it has been tacitly agreed upon that silver and gold, usually in coin or bar form, are the highest and most widely recognized goods used as money and that the accumulation of silver and gold represent wealth. 

As you recall, the concept of a Central Banking arose in response to the need for man to protect his wealth.  You will further recall that in order to both protect wealth and facilitate trade, a Central Bank creates banknotes which represent a claim on the wealth being protected by the Central Bank. 

These banknotes which the Central Bank creates are, by definition, credit and not money.  They are generally the highest, least discounted, form of credit which is traded, but this does not change the fact that the banknotes are credit and thus carry an implied risk of default.  This risk of default places the ultimate limit on the circulation and acceptance of the banknotes in trade.

From time to time, when a Central Bank’s ability to protect the wealth entrusted to it came into question, banknotes would be presented to the Central Bank to be redeemed for the amount of silver and gold which they represented.  If the Central Bank could not produce the amount of silver and gold that was being redeemed, the Central Bank was considered to be in default and, as word of the default spread, the banknotes in circulation would trade at an ever increasing discount to real goods.

This logic further supports the fact that banknotes are credit, subject to default risk, and not money proper.

Can you now smell the impending catastrophe?  Or, to put the question more directly:

What’s in your wallet?  More tomorrow,

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for October 19, 2011

Copper Price per Lb: $3.25
Oil Price per Barrel:  $86.11

Corn Price per Bushel:  $6.38  
10 Yr US Treasury Bond:  2.16%

FED Target Rate:  0.07%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,671 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.3%
Dow Jones Industrial Average:  11,505  

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!!!!!!!

Watch “Ron Paul asks Ben Bernake – Is Gold Money? July 13, 2011” on YouTube

Ron Paul asks Ben Bernanke at the end of the clip, point blank, “is gold money?” His answer is amazing:

By the way, the right answer is YES!