Wednesday, April 6, 2011

US Government Fails to Reach Budget Deal, Bernanke Mumbles Rate Increase to Avert Widespread Dollar Dumping

US Government Fails to Reach Budget Deal, Bernanke Mumbles Rate Increase to Avert Widespread Dollar Dumping
4/6/2011 Portland, Oregon – Pop in your mints…
The past two days have been surprisingly calm on the currency front given what we are witnessing.  We have no illusions that reality will express itself in the currency markets anytime soon.  The currency market manipulation is the largest ongoing market intervention in the world.  Daily flows there dwarf the precious metals and US Treasury debt markets.  With so much riding on the currency markets (namely, the illusion of controlling the world), it should come as no surprise that this market, which moves $4 Trillion in daily volume, around 37% of it through London, is the most closely "managed" market on the planet.
What exactly are we witnessing?  At The Mint, we have our eyes trained on two events that, taken at face value, would cause generalized panic selling of the US Dollar.  This panic selling would first express itself in the FOREX, US Treasury, and Precious metals markets.  At this point, only the precious metals are sending a danger signal to the world.
On to the events.
The first event is the failure of Congress to take action on raising the US debt ceiling at this late stage.  Despite repeated calls from Ben Bernanke and Timothy Geithner that financial Armageddon will occur if this seemingly painless step is not taken.  This US Government's debt ceiling must be raised for the charade that is FED funded Government spending, via Quantitative Easing (money printing), to maintain the illusion of legitimacy.  Otherwise, the veil comes off and the Wizard of Oz is forced to leave the Emerald Palace.
What do you mean I've got to go?
The second is the failure to pass a budget more than halfway through the fiscal year.  Under normal circumstances, this would not be that big of a deal.  Strange as it sounds, the $3.6 Trillion dollar Federal budget has run on autopilot for longer periods of time in the past.  What is significant about this particular budget process is the dire straits in which the US Treasury finds itself.  Again, to keep the charade going, the government must make meaningful reductions in expenditures.  As if to underscore the point, Chuck Butler at the Daily Pfenning brought to our attention a glimpse of the fiscal insanity that passes as modern Government finances:
( – The US Treasury has released a final statement for the month of March that demonstrates that financial madness has gripped the federal government.

During the month, according to the Treasury, the federal government grossed $194 billion in tax revenue and paid out $65.898 billion in tax refunds (including $62.011 to individuals and $3.887 to businesses) thus netting $128.179 billion in tax revenue for March.

At the same, the Treasury paid out a total of $1.1187 trillion. When the $65.898 billion in tax refunds is deducted from that, the Treasury paid a net of $1.0528 trillion in federal expenses for March.

That $1.0528 trillion in spending for March equaled 8.2 times the $128.179 in net federal tax revenue for the month.
As you can see, the situation is extremely serious.  Yet the US Dollar remains the reserve currency for most of the planet, and the US Dollar index seems to be bouncing around on the floor.  The fact that this floor exists is a testament to the far ranging power of the Central Banks to control the FOREX markets.
But even the power of a Central Bank with the ability to print the world's reserve currency is not inexhaustible.  In a nod to inflationary pressures, Fed officials "raised the specter" of higher interest rates late Monday.
The Fed faces a grim choice, to sacrifice the US Dollar and most likely itself, by leaving interest rates low, or to sacrifice its Member banks, the US Government, and the US Economy (you and I, fellow taxpayer) by raising interest rates and saving the US Dollar to fight another day.
What will they do?  We do not pretend to know but that doesn't keep us from guessing!
Our 72 hour call at yesterday was for the US Dollar Index, which is completely a product of what occurs in the FOREX markets, to fall.  Check back on April 7 to see how we did.  We are currently 0 for 1, not counting our initial gimme, so currently it appears that one would do well to read The Mint's call and promptly bet against it.  In any event, we are glad to be of service, even if it involves frequently swallowing our pride.  Please share it with your friends.
If we continue on our current pace, the words "bet against The Mint" may become the akin to such sage advice as "don't bet against the Fed!"  Stay tuned at
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Key Indicators for Wednesday, April 6th, 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.