Tuesday, March 1, 2011

Is the Global Financial System Losing its Grip on Reality? Other Observed Absurdities

3/1/2011 Portland, Oregon – Pop in your mints…
Somehow, Moammar Gadhafi's regime survived February and is beginning to fight back in the face of threats from the West.  As we ponder these events, we can't help but wonder what the rest of the world thought as the Civil War in the United States was unfolding.  Would there have been call to freeze Abraham Lincoln's assets?
Unless there is some conspiracy theory that we have not heard of, Honest Abe didn't have any assets that could be frozen.  The man grew up in a log cabin in Illinois and as far as we can tell was a true public servant.  While we suspect that the war between the States was based more on the economic interests of the North than its other more famous disputes, we doubt that Abe had any personal economic interest in its outcome.
Fast forward to today.  The Mubaraks and Gadhafis of the world rule by virtue of being the addressee of all of the checks that the West sends to pay for the oil that is shipped from their respective countries.  In turn, they spend much of their money on their personal security detail, which passes for the nation's military and police forces.  This is the only way to stay on top in the Arab world, by exhibiting a massive show of force.
Then, when it looks like the West might begin to bounce checks, they begin to trade directly in arms.
And now the revolutionary fire is literally spreading to Oman!  Protesters there have set a supermarket ablaze.  Again, the AP and perhaps the protesters themselves get it wrong when they demand
"higher salaries, jobs for unemployed youth, and the dismissal of some government ministers." 
If those were your demands, would you not better make a statement by burning the building of someone who you thought should be doing something about your grievances?  What the poor supermarket may have had to do with government ministers we can only guess.
No, the supermarket was burned as an obvious protest of high food prices, which we at The Mint maintain is the root cause of these revolutionary fires, with the Federal Reserve and other Central Banks as the main culprits.
Not having any personal experience as a dictator nor as a central banker, we can only speculate as to how this all works based on what we observe.
Speaking of speculation, the Wall Street Journal yesterday ran a story about investment banks selling credit default swaps that protect against failure by General Motors to pay its bonds.  The irony is that General Motors emerged from bankruptcy with no bonds outstanding!  There is currently no risk that the investment bank will have to perform on the contract.  What a racket!  From the Journal:
"Fresh from Wall Street's alchemy labs: Credit derivatives tied to General Motors Co. debt. The rub is, no such debt exists.
Banks and hedge funds are trading credit-default swaps, which make payments to holders of General Motors bonds in the event of a default. But GM canceled $40 billion of debt in bankruptcy and has pledged to cut its remaining $4.6 billion bank loan to the bone this year.
That is merely a technicality for the banks and hedge funds that have been actively trading the CDS.
Banks, some of which have made loans to the car maker, have been buying the CDS even though it is unclear whether the contracts would cover their debts, according to people familiar with the matter. Hedge funds have been happy to sell the protection, which allows them to make bullish, or "long," bets on the auto maker."
As one astute commentator puts it:
"Would you pay some company a mortgage insurance premiums on a house that is completely paid off? The global financial system has lost all basis in reality. Another crash is inevitable."
These same investment banks are the geniuses who want to help us plan for retirement.  Things in the financial world are making Las Vegas seem like a regulated market.  The Financial Market and the attempts to reign in its excesses are looking more and more ridiculous by the day.  Stay in cash and gold or silver, fellow taxpayer!
And speaking of ridiculous, it appears that the logo for the 2012 Summer Olympic Games in London is not only lame, but apparently offensive to Muslims.
2012 or Zion?  We can't make out either!
Apparently if you look closely enough you can clearly see the word "Zion."  Frankly, we have to strain to make out the "2012" that these blotches are supposed to represent.
Hang on tight!  Things are bound to get stranger!
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 Tuesday, March 1st, 2011

*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.