Thursday, October 13, 2011

Dual Entry Accounting - Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe - Part I

10/13/2011 Portland, Oregon - Pop in your mints…
As we alluded to yesterday, the Federal Reserve’s latest attempt to goose the economy, “Operation Twist,” is not only failing to achieve its stated goals, it is also triggering an unmitigated disaster in the fixed income markets.  These markets, once the bedrock of global finance, have now been conditioned to do nothing more than attempt to front run the FED and other Central Banks up and down the yield curve.

To continue our waterbed analogy, it is akin to a 300 pound Ben Bernanke (Central Banks) chasing an 800 pound gorilla (the market) around on a queen sized waterbed.  The action is becoming completely unpredictable and downright dangerous.
Pacioli's great gift to Western Civilization

Today, as the chaos continues to unfold, we want to take a moment to examine how humanity has arrived at this critical juncture in history, where a fat man chasing a gorilla on a waterbed can threaten to damage the wealth of nearly everyone on the planet.

In order to understand this, we must travel back to the year 1492.  Venice is the center of the western world and Christopher Columbus has set sail to find a new trade route to India.  A Franciscan monk by the name of Luca Pacioli sits in his room and creates the outline for:  Summa de Arithmetica, Geometrica, Proportioni et Proportionale.

As part of what would have otherwise been simply another boring textbook on Mathematics, Pacioli sees fit to include a section on “Details of Accounting and Recording” in which he described the accounting practices used in Venice at the time.  When Summa was published in 1494, it contained what is recognized as the first complete description of dual entry accounting.

To be clear, accounting in some way, shape, or form has always been practiced.  What Pacioli accomplished, perhaps unwittingly, was to disseminate throughout Europe the accounting method which had made the merchants in Genoa, Florence, and Venice the most successful in the Western World.

What makes dual entry accounting so special?  Dual entry accounting, in a nutshell, is the formal recognition that every trade has a net affect on the income statement and balance sheet of an individual or enterprise.
More to the point, it enabled merchants and producers to understand which activities created wealth and therefore make informed decisions regarding which activities to undertake with their limited time and resources.

While this now seems intuitive, it is hard to overstate the benefits that the dissemination and use of dual entry accounting has bestowed on Western Civilization by enabling a greater number of persons to engage in activities which increase the capital stock and allowing them to more quickly abandon activities which deplete the capital stock (accumulated wealth) of society.

This facilitation of wealth generating activities is why dual entry accounting may be considered man’s greatest innovation.

Yet, in perhaps the greatest irony since God sending His Son, Jesus, to die in our place, dual entry accounting enabled the existence of what we are calling man’s greatest catastrophe, Modern Central Banking.
We’ll explain this great irony tomorrow in Part II.

Stay tuned and Trust Jesus.

Stay Fresh!

P.S.  For more ideas and commentary please check out The Mint at

Key Indicators for October 13, 2011

Gold Price Per Ounce:  $1,667 PERMANENT UNCERTAINTY
M1 Monetary Base:  $2,201,800,000,000 RED ALERT!!!
M2 Monetary Base:  $9,554,000,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Wednesday, October 12, 2011

The Bond Market Waterbed, Operation Twist causes the first of many weak US Treasury Auctions

10/12/2011 Portland, Oregon - Pop in your mints…
At this point, most FED watchers have heard of the FED’s latest move to appear to stimulate the economy while at the same time appear to control inflation, Operation Twist.  In theory, the FED is simply reshuffling its bloated portfolio of worthless paper, exchanging the pieces of paper that have dates that are in the near future for pieces of the paper with dates farther off in the future.
Sounds simple enough, the FED is not directly increasing the money supply; rather, it is stepping from one end of the bond market waterbed to the other in an attempt to shake things up.
Now anyone who has ever jumped on or skipped along a waterbed knows it is a dangerous exercise.

The FED prepares to Leap to the Long end. Where will the water go?

Why is it dangerous?  Because the FED, whose balance sheet is leveraged 55:1 as of October 5th, is telegraphing its trades in bold letters everywhere it can and is bound to be front run and take some losses.  Any mortal bank, bound by the restriction of marking its assets to market, would need to raise capital in the open market, beg the Government for a bailout, or increase its clients’ fees to cover these predictable losses.
Not the FED, they have the luxury of keeping their assets on the books at face value, running a negative capital balance, and printing the money necessary to absorb the losses.  All of these strategies have the ultimate effect of robbing their depositors (anyone holding US Dollars) of purchasing power. 
In the end, the Federal Reserve will become technically and later functionally insolvent.
They true tragedy in this gross, final expression of monetary madness by the FED is that they have no hope of achieving their stated goals.  Ostensibly they are selling on the short end of the yield curve in an attempt to raise rates and somehow spur lending, yet at last check, rates on the short end are as low as they have ever been.
Meanwhile, long yields, the ones the FED is theoretically partnering with the “free” market in order to lower rates so that everyone can refinance their underwater variable rate mortgages, are rising.
Inconceivable!  Yet true.
If today’s US Treasury auction was any indication of things to come (and there is no reason to think that it will not be), then the weakened demand for Treasuries that expressed itself today could overwhelm any attempt for the FED to lower rates and the logical end game is that the FED will be the ONLY entity bidding on long dated Treasuries.
Picture the waterbed.  A 300 pound Ben Bernanke jumps from one end to the other, where does the water go?  Follow the water, then race to get off the bed.  As long is Ben Is jumping on the bed, the bed (i.e. the Government controlled bond market that it represents) won’t hold water much longer.
Stay tuned and Trust Jesus.

Stay Fresh!

David Mint


P.S.  For more ideas and commentary please check out The Mint at

Key Indicators for October 12, 2011

Gold Price Per Ounce:  $1,676 PERMANENT UNCERTAINTY

Tuesday, October 11, 2011

Dexia Nationalized, Occupy Wall Street Appears to misinterpret the Monetary Roots of Widespread Discontent

10/11/2011 Portland, Oregon - Pop in your mints…
The big news over the weekend was the partial nationalization of the Belian Bank, Dexia.  What?  You’ve never heard of Dexia?  Most people this side of the pond hadn’t up until a few weeks ago.  This tiny $707 Billion hedge fund disguised as a bank, which just months ago passed the European bank stress tests with flying colors, has become the first official victim of the dearth of interbank funding in the Eurozone.

In a world full of potential butterfly effects, Dexia’s staggering juggernaut could have a knock-off effect for the US Municipal bond market.

Following a familiar script into unfamiliar territory, the Governments of France, Belgium, and Luxembourg jumped in and provided guaranties (ala Fannie Mae and Freddie Mac, which ironically are currently regurgitating their guaranties back onto US Banks) to the tune of $122 Billion until things settle down.

Unfortunately for France, Belgium, and Luxembourg, things will not settle down in time for their governments to remain solvent.  Chalk another set of Eurozone governments up to the “effective loss of sovereignty club.”  Surrendering sovereignty to international banking interests seems to be working out well for Greece, Ireland, Portugal, and Italy, so why not join the fun?

Protestors would do well to focus on Monetary Reform

Slovakia appears to be the only nation willing to stand up against the wave of bailouts and subsequent loss of sovereignty as the bailouts costs crush already strained government balance sheets.  It appears that they may hold out a couple more days, enough time to find a compliant government (the current one was voted out in a confidence vote tied to the EFSF earlier today).

The situation in Europe is giving the world a frightening message:  When push comes to shove, the governments can be counted on to work in the interests of the banks.  How long this untenable situation can last is anybody’s guess, but if the Occupy Wall Street movement continues to gain traction, it is clear that the situation, if properly understood, could change very quickly.

Observant fellow taxpayers will note that we have qualified our previous statement with the words “if properly understood” because, at the moment, the Occupy Wall Street movement appears to misunderstand the roots of their many and varied forms of discontent.

Protesters apparently see nothing wrong with the government selectively fleecing the productive class as long as they receive their “fair share.”  If we have correctly identified the Socialist tendencies of these protests (as last check they had not adopted a manifesto), then the logical outcome is simply the ouster of one form of parasite, the banking interests, for another.

The problem, of course, lies in what we use as money.  Placing the power to create money in the hands of a Central Bank and then turning a blind eye as they shamelessly debauch the currency, giving an inordinate amount of purchasing power to those closest to the money printing operation (banks and government) and placing an inordinate amount of regulatory and tax burden to those farther away from the money printing operation (that would be you and I, fellow taxpayer), is perhaps the surest way to destroy man’s faith in the capitalistic system, and in the process lay the blame for every evil unleashed by the debauching of the currency on the capitalistic system.

Rothchild, Marx, and Keynes understood this.  They also understood that only one man in a million would be able to understand how debauching the currency serves to concentrate power in the hands of few at the expense of many.

Are you one of them?

Stay tuned and Trust Jesus.

Stay Fresh!

P.S.  For more ideas and commentary please check out The Mint at

Key Indicators for October 11, 2011

Gold Price Per Ounce:  $1,663 PERMANENT UNCERTAINTY