Wednesday, March 2, 2011

Ben Bernanke Gives his Mid-Year Report on the Monetary Stimulus Price Spiral

3/2/2011 Portland, Oregon – Pop in your mints…
The situation in the Middle East continues to unfold in an absolutely fascinating way, one that will reshape the world in the years to come.  As with many world changing events, it has caught everyone completely off guard! 
Meanwhile, here on the other side of the globe, US policy makers bumble along a familiar path to ruin, one that empires have followed for millennia on our fair planet.  As the prospect of QE 3 is thrown around in FED land, the public is beginning to ask questions.
Yesterday Ben Bernanke marched up Capitol Hill, as he has done often lately, in an attempt to explain the unexplainable.  Officially, He delivered the Fed's semiannual Monetary Policy Report to Congress.
You can see his prepared remarks here.  We will save you some reading by summarizing it for you in plain English:
Economic Outlook:  The outlook is mostly gibberish and full of hedged predictions.  Generally, prices are rising while wages are not.  Nothing new here other than our bewilderment as to how these circumstances translate into 3.5% to 4% GDP growth.
Monetary Policy:  Bernanke claims that the FED can contain inflation easily, should it appear.  Once again, nothing new here.
Federal Reserve Transparency:  The FED wants Congress to remain in the dark and subservient to it.  Again, nothing new here.
At this point we feel sorry for the man.  As high priest at the Federal Reserve, he must now profess blind faith in and publicly defend an absolutely insane notion, the notion that an economy can somehow be centrally managed by simply tweaking short term interest rates.  Since that tactic has failed, he has moved on to printing money.
What would the Keynesian School High Priest say if He could?
As the monetary experiment becomes more bizarre, so do Mr. Bernanke's explanations.  So bizarre, that we doubt that even he believes them.  For the entertainment and education of our dear readers, we offer the following question and answer session with Mr. Bernanke.  The questions are posed by Congress and, by extension, the American people.  There are two answers to each.  First, what the dictates of Mr. Bernanke's religion obligate him to say and second, what Mr. Bernanke may tell you if he was a rational person after a few drinks at the bar.  More concisely, what he would like to say but can't!
Congress:  Why is the FED printing money to buy bonds?
Bernanke's Verbal Response:  To stimulate the economy.
What Bernanke would like to say:  Because if the FED doesn't buy them, the market for US Treasuries will Collapse!  How would you like to deal with 100 million angry Americans when their tax return checks bounce?
Congress:  Is it working?
Bernanke's Verbal Response:   Yes, but I cannot show you the specifics.
What Bernanke would like to say:  Of course not!  But it is the only thing we can do to try to hold this sham of a financial system and government together until 2012.
Congress:  Won't this cause runaway inflation?
Bernanke's Verbal Response:  A majority of my colleagues believe that it will lead to only slight inflation. While this is a problem to many of your constituents, it does not pose a significant risk to the recovery or overall inflation.
What Bernanke would like to say:  Define "runaway inflation."  If by "runaway inflation" you mean will people soon be using dollar bills as toilet paper, then yes, it will.
Congress:  Why isn't the unemployment rate dropping?
Bernanke's Verbal Response:  There is considerable slack in the U.S. economy and until this slack is picked up in the form of increased production, employment gains are likely to be muted.
What Bernanke would like to say:  American workers have priced themselves out of the global labor market.  Congress stifles innovation through a mountain of rules, regulations, and corresponding fees and taxes.  Do you want me to go on?
Congress:  Why are oil prices rising?
Bernanke's Verbal Response:  Because of the current tensions in the Middle East in addition to increased demand from China and other fast growing economies.
What Bernanke would like to say:  Because we are printing money to buy your worthless bonds, and absolutely and completely tanking the dollar in the process.  It seems that Congress is the only group of people on the planet who are not aware of this.  Of course, it is in your best interests to plead ignorance for such insanity.  By the way, your country is sitting on a nearly 2000 year supply of oil if you would quit listening to the tree-huggers.
Congress:   What will happen if we don't raise the debt ceiling?
Bernanke's Verbal Response:  That would be extremely dangerous and a recovery-ending event.
What Bernanke would like to say:  Are you insane?  Haven't you read The Mint?
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 Wednesday, March 2nd, 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.

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.