Tag Archives: Yen

Gold, Monetary Theory, The Mint

The currency war to end all currency wars

1/28/2013 Portland, Oregon – Pop in your mints…

With Japan’s recent aggressive devaluation of the Yen, the financial news has again taken up the phrase “currency war” to describe any lack of coordination in the steady devaluation of fiat currencies across the globe.

In a recent piece over at the Financial Times, Niall Ferguson identifies the Bank of England as the current winner in the stealth currency war that is currently being waged.  While the Bank of England may be the winner, the losers are not other nations, as the term war would suggest, but rather the savings of those who are unfortunate to count bank accounts or debt instruments denominated in national currencies among their assets.

Who, then, are the winners in what we have dubbed the currency war to end all currency wars?  In a simplified sense, those who hold the Dow Jones Industrial stock index (not the individual stocks, which are, in the final analysis, a crap shoot) and those who own gold.

In an attempt to illustrate this point while at the same time saving 1,000 words, should the old adage hold true, we have created the following graph, which plots a normalization (which brings the sheer magnitude of the numbers down to a workable scale) of the M1 and M2 monetary measures against both the Dow Jones Industrial Average and gold prices, all averaged on a monthly basis since April of 1968.

Graph of Normalized DJIA and Gold assets classes vs. M1, M2, and Federal Funds Rate measures
Graph of normalized DJIA and Gold assets classes vs. M1, M2, and Federal Funds Rate measures

Those with a keen eye will notice that the only data point that has been on a downward trend since the US Dollar was officially released from the shackles of the gold standard on August 15, 1971 has been the Federal Funds Rate, which in theory should have an inverse relationship with all of the other data points.

We will leave you with three observations from our graphic exercise:

1.  The most volatile of the two asset data sets has been that of the Dow Jones Industrial Average.  However, despite its volatility, its overall trend tends to follow that of the M2, or expanded, money supply measure.

2.  The more stable of the two asset data sets has been gold, which has generally lagged growth in the M1, or base money supply to which it was tied to pre 1971.  Beginning in the year 2000, gold again began to follow the M1 trend.

3.  The light blue line, which tracks the Federal Funds Rate, has been on a downtrend.  The upticks in the Federal Funds Rate, in theory, should have lead to downward ticks in the M1 and M2   As you can see from the graph, this is not the case.

The conclusion of this brief analysis is the following:  Holding Stock Indices such as the Dow Jones should give some measure of protection against inflation over the long term, perhaps even superior to gold.  However, since 2000, gold has held steady as an inflation hedge and generally will have less liquidity risk than stocks.

Finally, and perhaps most importantly, is that upwards changes in the Federal Funds rate, even those as dramatic as were experienced during the Volcker years, have little or no effect on the near term trajectory of the M1 and M2 monetary measures and have never caused these monetary measures to trend downwards, ever.  At most, these movements may serve to temporarily arrest the upwards slope of the growth of the M1 and M2 monetary measures.

What does it mean?  While the Federal Funds Rate may serve to weakly toggle the rise in the M1 and M2 measures, the Quantitative easing programs, which began in 2008 and are now a permanent piece of monetary policy, have had a much greater direct impact on both the monetary measures and the asset classes which have been included above.

Given the current state of affairs, the QE program must be watched closely as it will have an outsized immediate impact on asset prices.

In the long run, it is clear that the Federal Reserve has set monetary policy on autopilot and programmed a course straight through the stratosphere and into the far reaches of outer space.  There is no plan for the US Dollar to return to earth.  The M1 and M2 monetary measures will not come down, no matter what happens to QE and the Federal Funds Rate.

It is time to organize investments in the real world accordingly.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for January 28 2013

Copper Price per Lb: $3.64
Oil Price per Barrel:  $96.52
Corn Price per Bushel:  $7.29
10 Yr US Treasury Bond:  1.97%
FED Target Rate:  0.15%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,659 THE GOLD RUSH IS ON!
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.8%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  13,881
M1 Monetary Base:  $2,397,900,000,000 LOTS OF DOUGH ON THE STREET!
M2 Monetary Base:  $10,501,100,000,000

Economics, Mint Classics, The Mint

G7 Meet to Stop Yen’s Dramatic Rise and the BLS Calls BS on its Broad CPI Measure – A Mint Classic

Over the past year, the Bank of Japan has tried numerous times to Kamikaze its currency and has failed miserably.  As of the writing of this classic Mint, the USDJPY exchange stood at about 80:1.  Check today to see how the Bank of Japan has fared.
 
As for the other theme, if anyone still believes in the BLS’ headline inflation number, they probably work at the Federal Reserve and watch I-Pad prices for signs of inflation!

Enjoy!
 
3/18/2011 Portland, Oregon – Pop in your mints…
 
The G7 Central Bankers have called an emergency meeting to “do something” about the “skyrocketing Japanese Yen.”  This meeting is simply their latest attempt to combat reality.  The reality of the situation in Japan is that they are dealing with a catastrophe.  When one is dealing with a catastrophe, the next prudent step, after all of the immediate crises have been contained, is to take stock of the situation.  By taking stock, we mean that one takes note of what was lost and, more importantly, what one will need in order to restore things to an acceptable level of comfort.Comforts cost money.  In Japan, to replace these comforts the average person needs Yen.  They will either get this Yen by making a claim with their insurance company or selling assets to raise cash.  With damages of nearly $15 Trillion Yen (roughly 3% of Japan’s GDP) and counting you can imagine how the demand for Yen is, well, about to skyrocket.

 
The Japanese people are still dealing with the catastrophe.  Speculators in the currency markets are, as always, one step ahead of what must happen and are sapping liquidity, in terms of Yen, at a rapid pace.  This activity, taken at face value, will presumably wreak havoc for Japanese Government Bond prices, the prices of stocks traded on the Nikkei, and the US Dollar.
 
These three markets will crash if nature is allowed to take its course.  You see, in the tipsy turvy world of currencies, to buy a yen more often than not means that a US dollar, a JGB, or a stock listed on the Nikkei is sold on the other side of the trade.
 
The most sought after currency in the world, at least until the G7 meet tomorrow
 
The accelerated selling of dollars, as Jim Rogers points out, could cause the endgame scenario for the US currency to swiftly come upon the world.  Mr. Rogers goes so far as to call this a “Moment of Truth for the dollar.”
You can see the brief interview by clicking here.
 
Of course, as Mr. Rogers points out, it may be time to buy the dollar, if for some reason it is to survive as a top tier currency.  We have lived just long enough to know that anything is possible.
 
The G7 meeting today is VERY IMPORTANT.  It should not be, if only the world had not left the embrace of sound money 40 years ago, but unfortunately, it is.  For the G7 will essentially decide whether to keep the Dollar on life support or to pull the plug.
 
What will they do?
 
Meanwhile, the Bureau of Labor Statistics (BLS), the legion of bureaucrats who are charged with cranking out data in order to support FED policy, appears to be starting its own form of political protest against the loose dollar policies followed by the Federal Reserve.  After faithfully cranking out the core CPI, a key statistic here at The Mint, for years and watching it slowly become distorted into the puppet statistic that it now is, they came out with a data point in 2002 called the “Chained Consumer Price Index” which takes into account a rolling average of food and fuel costs, which the core CPI now blatantly ignores.
 
This index hit a record high in February, confirming what most average Americans already know:  It has never been more expensive to live in the Land of the Free.
 
Will we be Brave enough to return to sound money?  You, fellow taxpayer, can take a step in that direction with just a few simple keystrokes.  APMEX, our affiliate, is running a contest.  They are giving away one 1 oz gold eagle coin each month.  All you have to do to enter is register by clicking this link and filling in the blanks.  You can register to win once per month.  If you so desire, click here and Register at APMEX.com Today!
 
By definition, the black hole of debt will always grow at a more rapid pace than the worthless currency that is printed in an attempt to fill it.  If the black hole collapses (i.e. widespread default occurs), hyperinflation will occur quickly.  If currency becomes scarce, people will find another medium of exchange, likely gold and/or silver.
 
Either way, the world will be out of this mess before long, so hold on to your hats, it is bound to be a wild ride to the other side!
 
Stay Fresh!
 
 
 
P.S.  If you enjoy or at least tolerate The Mint please share us with your friends, family, and associates!
 
Key Indicators for Friday, March 18th, 2011
 
Economics, The Mint

The Three Ring Circus Begins

10/25/2011 Portland, Oregon – Pop in your mints…

What a difference a day makes.  Yesterday, it appeared that the authorities had most of the problems that ail the world’s economy resolved.  All they needed was a little more time, money and cooperation to implement their plans and the good times would be rolling once again!  Today, instead of coordinated, determined action, it appears that a three ring circus of sorts is beginning.

In Ring 1, we have the European Clown Car:  Yesterday, Europe looked ready to announce a plan to simultaneously solve the sovereign debt, banking, and resultant currency crises in one fell swoop.  Today, it appears that Italy is balking at implementing a growth plan on moment’s notice and Germany and France will need a miracle to announce a credible Pan-European rescue package by tomorrow, their self imposed deadline.  What a difference a day makes!

It should be clear by now to most sober persons that regardless of what is announced tomorrow, the Euro as a currency in its present form is not viable.  It should also be clear that the countries who have adopted the Euro will give away what is left of their sovereignty in a vain attempt to preserve it.

Step Right Up! The Three Ring Economic Circus Begins

In Ring 2, we have the American Elephants:  The US is quietly completing three Bond auctions that will cause the national debt higher than the national GDP.  The official total should eclipse GDP by the end of October.  100% of GDP is when the debt of a mere mortal nation (Greece, for example) has traditionally harkened national bankruptcy.

The only exception to this rule is in Ring 3, the Japanese Tight Rope Walker: Japan, where national debt is north of 200% of GDP.  How do they avoid bankruptcy?  Simple, they print money to pay the debt.  As if to prove our point, today, the Bank of Japan decided that they have seen enough Yen appreciation and announced another five trillion Yen currency printing campaign.

When money doesn’t exist, the sky is the limit, which is why commodities and certain equities are set to explode to the upside.  Bonds, while they may not fall in nominal value, will fall in relative value as they are repaid in severely depreciated currencies.

As if on cue, commodities took off today.  How high and far they will fly this time is anyone’s guess.

As the circus gets underway, the sober amongst us are beginning to wonder, sometimes aloud, “if the Governments, banks, and monetary authorities cannot solve these problems, then who can?”

The answer, fellow taxpayer, is right under our fingertips.  We, the People of the earth can solve it.  The tool we have been given is our own wit and ingenuity.  The only requirement is that we embrace True Capitalism, for better or for worse, for richer or poorer, until death do us part.

What is True Capitalism?  It may be summed up as a deep, radical respect for life, liberty, and private property.  It is an understanding that mutual cooperation is more often than not in our rightly understood interests (to use a Mises term).  It is not simply a choice, it is the only choice.  More to come.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for October 25, 2011

Copper Price per Lb: $3.41
Oil Price per Barrel:  $93.17

Corn Price per Bushel:  $6.51  
10 Yr US Treasury Bond:  2.13%
FED Target Rate:  0.07%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,705 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.3%
Dow Jones Industrial Average:  11,707  

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, Jesus, The Mint

Forgiveness, the FED, Bank of England, Bank of Japan, and ECB to coordinate actions, will they formally peg exchange rates?

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

Much ink is being spilled today in anticipation of what may or may not happen as the 10th anniversary of the events that occurred on September 11, 2001.  Here at The Mint, we take the somewhat radical view of the Amish in response to tragic loss.  We must forgive.  An important part of forgiveness is to avoid making or observing a memorial to the offense.  Memorializing an event is to keep it present before us.

As the US Empire is now conducting at least three extremely expensive military adventures which have their origins in the events that occurred that fateful day, forgiveness is probably not on many people’s minds this weekend.  Meanwhile, millions of dollars are being spent to memorialize it.

We must forgive.  It is our opportunity to choose the tree of life over the tree of the knowledge of good and evil.  To repair the fateful error made in Eden.

Under the cover of this memorial, we sense that an extraordinary event will occur which will impact the fortunes of many in the US, England, Japan, and Europe and others outside their borders with exposure to their respective currencies.

Debauchery

The Event which we refer to is the coordinated debauchery of their currencies. 

For the past four years, the FED, BoE, BoJ, and ECB have been engaged in a desperate attempt to debauch (devalue) their currencies.  They have had the predictably mediocre to poor results that one would expect from efforts made by this rare hybrid of an agency which combines the laziness of the banking class with the incompetence of the governing class.

The goal seems simple enough.  Print money to pay existing debts and encourage people to spend and to take on new debt.  So simple, that each of these Central Banks is currently running at their own pace down this calamitous path with little regard to how the outside world is reacting.

Guess what?  The outside world is not reacting as expected.

What they did not take into account, at least until now, was that there is quite a bit of money to be made from the fact that they are all running at different paces down the same path.  The nature of international finance is such that one Central Bank’s unbridled effort to debauch its currency leads to an opportunity to profit by borrowing in that nation’s currency and purchasing one of the other three currencies, which undermines the debauchery of the currency that is being purchased. 

Stark, as most thinking persons, cannot stomach the debauchery in his midst

This is commonly known as the carry trade, and these large Central Banks have taken all of the guess work out of it for the past four years.

We suspect that these four Central Banks see the immediate need to eliminate interest rate spreads amongst their currencies which will force those who ply the carry trade to purchase currencies outside of this group.

In effect, this ultimate coordination of interest rate policies will cause these four currencies to “peg” to each other, which should assure that the debauchery of their respective currencies will continue unchecked and likely accelerate.

According to Bloomberg, there is speculation that this type of coordination, a de facto currency peg to the dollar, could begin this weekend at the G-7 Meeting.

Will another stealth disaster befall the US this weekend?  If these Central Banks somehow coordinate their collective debauchery of the currency, the economic devastation of millions will march on.

Perhaps this is why Juergen Stark has suddenly stepped down from the ECB.  It will be more than any caring Bundesbank official can stomach.

Stay tuned and Trust Jesus.

Stay Fresh!

 

David Mint

 

Email: davidminteconomics@gmail.com

 

Key Indicators for September 9, 2011

 

Copper Price per Lb: $4.00
Oil Price per Barrel:  $87.20

 

Corn Price per Bushel:  $7.26  
10 Yr US Treasury Bond:  1.92%
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!

 

Gold Price Per Ounce:  $1,856 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:  10,992  TO THE MOON!!!

 

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

Economics, The Mint

Crash! The Mother of all Calls illustrated by Dave Kingman

8/4/2011 Portland, Oregon – Pop in your mints…

Today the Dow fell some 500 points.  Looking further, everything seemed to fall today.  We hope you have a good umbrella,  fellow taxpayer, it could be quite a storm.

Three noteworthy things seemed to have taken place in no particular order and for no apparent reason other than to unite to tank financial asset prices all over the globe, which is no small feat.  We will take them one by one.

First, overnight, the Japanese Central Bank intervened to prop up the dollar (or weaken the Yen, however you prefer to look at it).

Second, the world gave a collective thumbs down to the Eurozone’s “effort” to stabilize its bond markets.  The Euro Feds appear over matched in their currency union’s first true fidelity test.

This uncoordinated action led to the third event which we will call the “mother of all calls” on the US Dollar.  With short and long interest rates skipping around a zero as far as the eye can see, speculators have taken swings at the dollar like Dave Kingman at the 2-0 fastball.  The dollar is already sold short on an almost unimaginable scale.

Today, those speculators, ala Dave Kingman, whiffed and nearly fell over.  The only way this “mother of all calls” could be satisfied was for those short the dollar to quickly and injudiciously exit other positions.

This exiting injudiciously of  other positions is colloquially called a crash.

This crash, along with the foul smelling economic datacoming out of the US will give the Fed and Congress all the ammunition they need to launch both QE3 and any and every fiscal stimulus program they can dream up.

QE3 and fiscal stimulus on steroids will soon prove those speculators short the dollar right and the final, sordid chapter of the US Dollar’s history is about to begin!

Dave Kingman may have whiffed at the 2-0 fastball, but he has two more swings…

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for August 4, 2011

Copper Price per Lb: $4.19
Oil Price per Barrel:  $85.60

Corn Price per Bushel:  $6.93
10 Yr US Treasury Bond:  2.46%
FED Target Rate:  0.12%  TIGHTENING?  NOT!

Gold Price Per Ounce:  $1,649 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.2%
Inflation Rate (CPI):  -0.2%!!!  PULL OUT THE HELICOPTERS!!!
Dow Jones Industrial Average:  11,384  TO THE MOON!!!
M1 Monetary Base:  $2,012,200,000,000 RED ALERT!!!
M2 Monetary Base:  $9,226,100,000,000 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.