Thursday, October 21, 2010

What is Money? - Part I

10/21/2010 Portland, Oregon – Pop in your mints…

We were reading today what a wonderful success TARP has been for you and I, fellow taxpayer!  According to Bloomberg, the government has “earned” $25.2 billion which translates into an 8.2% return on our investment over two years .  Thank goodness!  I was afraid the government was just throwing our money away.  Apparently the only better investment over the past two years would have been the S&P 500 and real money, Gold.

Does this mean that you and I, fellow taxpayers, should expect a dividend check in the mail in the near future?  Alas, that is not how the government operates.  According to Bloomberg this windfall is
“enough money to fund the Securities and Exchange Commission for the next two decades.”
Do you see how things operate, fellow taxpayer?  If the government cannot use the gains to do something productive, which by virtue of being the government it cannot, a rational logic would suggest that the returns on investment be distributed in the form of dividends to the “investors” (or in this case the reluctant taxpayer).  But the government takes the absurdity of TARP and it’s aftermath a step further and, as the article suggests, it takes its good fortune and continues to fund an inept agency (the SEC) which has essentially failed to protect the interests of the average taxpayer throughout this financial crisis.  It would assure two more decades of clumsy games and busy work that pass as “market oversight.”

Ah, the wonder of it all!  Meanwhile they are still rioting in France to retain their right to retire at age 60.  I pity the French government for directly fighting the masses on this issue when there is an easier way out, at least for the current government officials.  The truth is that this is the end game of all government entitlement programs when there is nothing left to pay them with.  Neither the masses nor the government should be in this sad situation to begin with.

But we must carry on.  Today we are going to begin to ponder the eternally important question that few people bother to ask and even fewer arrive at a satisfying answer.  What is money?  Today, most persons in would answer that money is a nation’s local currency.  In our case, the US Dollar which today is a Federal Reserve Note backed only by people’s faith that it will be accepted in exchange for goods and services and to cancel debts.

But is that a satisfactory answer?  On the surface, it is.  What is troubling is that there is a circular reasoning involved that goes like this.  “Why is this piece of paper money?  Because everybody says it is.”  But what happens when everyone decides that it is NOT money?  More tomorrow…

Stay Fresh!

David Mint

Key Indicators for Thursday, October 21, 2010

Copper Price per Lb: $3.74

Oil Price per Barrel:  $81.77
10 Yr US Treasury Bond:  2.47%
FED Target Rate :  0.19%
Gold Price per Oz:  $1,341
Unemployment Rate:  9.6%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  11,108
M1 Monetary Base:  $1,460,900,000,000