If I Had a Trillion Dollars, A Ballad From Ben Bernanke to the Banks (With Apologies to the Bare Naked Ladies)

11/2/2010 Portland, Oregon – Pop in your mints…

Today and tomorrow the entire world, that is, the investment world, will be watching what the Federal Reserve and its poster boy, Ben Bernanke.  What will he do?  Most money managers and bond traders are operating under the assumption that he will proceed to create approximately $1 Trillion US dollars out of thin air through a process known as Quantitative Easing (QE), which is nothing more than indirectly confiscating at least $1 Trillion worth of goods and services from those who produce them in good faith and are compelled to accept US dollars in exchange for them.

You see, Mr. Bernanke and his cohorts are presented with an impossible dilemma.  If they do nothing, bondholders get absolutely annihilated in short order and the dollar continues as a viable currency.  If they proceed with the $1 Trillion QE game, the currency is the sacrificial lamb and the bondholders get a lifeline, but will get annihilated in the end anyway.  Essentially it is the choice of when to feel the pain of massive default on dollar denominate paper.

But what must Mr. Bernanke be thinking at this very hour with so much at stake?  The world presumably expects $1 Trillion dollars.  Logic would follow that, at a minimum, what he must provide to avoid "disruption" in the markets.  You see, the markets have long since baked in these $1 Trillion dollars and if they do not appear will adjust prices accordingly.  Guessing which prices will change and when is what keeps things interesting.

Our guess here at The Mint is that Mr. Bernanke is not thinking at all.  He has his orders; the markets will wait and see if he follows them.  What he is likely doing is strumming his guitar and warming up his academic tenor voice with a song that goes something like this:

"If I Had a Trillion Dollars"  a Ballad from Ben Bernanke to the Banks (with Apologies to the Bare Naked Ladies):

To the tune of "If I Had a Million Dollars":

If I had a trillion dollars
(If I had a trillion dollars)
I'd buy the US a house
(I would buy the US a house)
If I had a trillion dollars
(If I had a trillion dollars)
I'd buy the US furniture for its house
(No interest or payments for a year)
And if I had a trillion dollars
(If I had a trillion dollars)
Well, I'd buy the US a Ford
(And get everyone's clunker off the road)
If I had a trillion dollars I'd buy your bonds!

If I had a trillion dollars
I'd buy some junk paper from your books
If I had trillion dollars
They could help, it'd be less you'd have to cook
If I had trillion dollars
Maybe we could put like a little collateral in there somewhere
You know, we could just act like everything's cool
Like show off the CUSIPs and stuff
Then there would still be liquidity available to us
As if we never bought subprime CDOs and other things

They have endless liquidity but they don't have asset quality anymore
Thanks to me, of course,
Uh, yeah

If I had a trillion dollars
(If I had a trillion dollars)
I'd buy up asset backed securities
(But not with real money I'd be a fool!)
And if I had a trillion dollars
(If I had a trillion dollars)
Well, I'd buy up Synthetic CDOs
(Yep, like a Hybrid or non-performing SIV)
And if I had a trillion dollars
(If I had a trillion dollars)
Well, I'd buy up Lehman Brother's remains
(Ooh, all them crazy Hudson Castle assets!)
And If I had a trillion dollars I'd buy your bonds!

If I had a trillion dollars
We wouldn't have to tax the people more
If I had a trillion dollars
Now, we'd stick to the foreign creditors
If I had a trillion dollars
We wouldn't have to eat our bad debts
But we would eat our bad debts
Of course we would, we'd just eat more
And pad our tier 1 ratios with new cash
That's right, all the free cash... FED credit!
Mmmmmm, Mmmm-Hmmm

If I had a trillion dollars
(If I had a trillion dollars)
Well, I'd get us out of this mortgage mess
(But not the homeowners, I'm no fool!)
And if I had a trillion dollars
(If I had a trillion dollars)
Well, I'd buy financial reform
(Ala  Dodd-Frank and Obama)
If I had a trillion dollars
(If I had a trillion dollars)
Well, I'd make you solvent
(Haven't you always wanted to be solvent?)

If I had a trillion dollars
I'd buy your bonds!

If I had a trillion dollars, If I had a trillion dollars
If I had a trillion dollars, If I had a trillion dollars
If I had a trillion dollars…
You'd be rich!

Seriously, to enjoy some real entertainment (and to get the tune in your head to sing along with Ben and the banks), check out the Bare Naked Ladies performing their 1996 hit "If I Had a Million Dollars" below.  As for tomorrow's FED announcement, rest easy and wait along with the rest of the investment world to see if Ben & Co. really have the $1 Trillion dollars expected of them.  Of course they don't really have it but at least it will be fun to see how they explain it this time, that is until those $1 trillion show up in commodity prices!

Stay Fresh!

David Mint

Key Indicators for Tuesday, November 2, 2010

Copper Price per Lb: $3.77
Oil Price per Barrel:  $83.40
10 Yr US Treasury Bond:  2.63%
FED Target Rate :  0.19%
Gold Price per Oz:  $1,356
Unemployment Rate:  9.6%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  11,125
M1 Monetary Base:  $1,460,900,000,000
M2 Monetary Base:  $7,960,300,000,000

Candidates Begging at the MAX, Bloated Pension Promises, and More of the Same from the FED…

11/3/2010 Portland, Oregon – Pop in your mints…

Today Ben Bernanke and his band are completing their sound checks and preparing to sing the tune that the markets are waiting to hear.  It is a classic tune (debauching the currency is as old as the concept of currency itself) that the FED is simply performing a modern version of to the tune of $1 Trillion dollars .  As we wait for Ben to sing and for the election results to roll in, the markets are calm so we will satisfy ourselves today with a personal anecdote, the significance of which we are still pondering.

As you may or may not know, Portland has a public transit system that is the envy of much of the US.  Due to a little old fashioned foresight and out of the box thinking and "redirection" of federal highway dollars (which took place long before we pitched our tent here), we enjoy transit amenities on the scale of much larger cities with technology that may rival any city in the world.  Whether or not the public can afford it is another story.  Trimet, the organization in charge of the system, allows employees to retire after 10 years with full health benefits for the employee and their family.  At last count, benefit costs were higher than the wages paid to existing employees.  Something has to give.

Ode to the Auto Feo, Part IV – Acceptance and Admiration

8/29/2011 Portland, Oregon - Pop in your mints…

It was another beautiful weekend here in the Northwest, safely away from Irene and all of the mayhem that it has left in its wake.  Summer arrived a bit late this year and, like recent stock market rallies, has had trouble gaining traction.

One must be content with the days of sunshine that come our way, for our instinct tells us that they will not last.  For us here in the Northwest, that means days of sunshine must be enjoyed to the fullest.  In the stock market, it means that any near term rally should be seen as an opportunity to sell.

In the long run, as the wheels come off the US Dollar mobile, stocks should outperform most other paper assets.  In the short run, with Bank of America imploding, the resulting black hole threatens to suck a few trillion dollars out of the stock market.

Bank of America is too big to succeed and is in a hurry to raise capital that they do not need.   Given the incredible incentive that most Bank Executives have to misrepresent their circumstances, it is a wonder that investor would take them seriously.  Anyone who is not obligated to hold B of A stock and is still holding it is performing an act of charity, for that money will go quickly down the drain.

But enough about B of A, we have a story to tell.

That story is the sordid tale of the Auto Feo.  You can catch up with the “Ode to the Auto Feo”, Parts I,II, and III by clicking on the following links. 

Ode to the Auto Feo, Part I –  The Birth of a “Need”

Ode to the Auto Feo, Part II –Optimism and Desperation are Poor Bedfellows

Ode to the Auto Feo, Part III –Lemon Discovery

Our story continues:

We arrived at home much later than we imagined.  What should have been a brief run across town to kick the tires on a vehicle that we should have passed on had now become a frustrating and humiliating odyssey.  We were stuck with a car that seemed doomed to be scrapped within the week.  Our only consolation was that we had “only” dropped $1,300 on this bitter lesson.

We drove the overheating, smoking beast into our driveway.  We were dripping with sweat as we were forced to turn the heat on in a desperate attempt to moderate the vehicle’s temperature as the thermostat was not performing its designated function.

Still, our ever supportive wife was optimistic:

“It only needs to make it the 1.5 miles each day,” she reassured us.

“And it has air-conditioning!”

She appeared as sold on the vehicle as we were until the smoke, which we were later to identify as oil leaking from the engine block onto the exhaust system, began to fill the thick summer evening air.
The smoking of the Auto Feo produced a dry ice effect coming out of the hood on the passenger side which we were never able to repair (the only attempt the mechanic made served to make it worse.)

Then, she saw the keyhole, or lack thereof.  She shook her head.

“You say you didn’t notice this?”

All we could do was shrug.  It was an oversight of classic proportions, like forgetting to make gravy for Thanksgiving dinner.  There was no reasonable excuse that could be offered.

Her look confirmed what we had now known for about 90 minutes, we had been taken.

What could we do?  Given the discovery of the oil leaking and the lack of the keyhole, we deemed the vehicle unacceptable.  We had to attempt the unthinkable.

“We will humble ourselves and ask the Iranian to undo the deal,” we proclaimed, as if the matter were firmly under control.  Swallowing one’s pride seemed preferable to seeing a testament to our own ignorance and impatience in our driveway.

We will spare you the details of our three telephone calls to the Iranian that ranged in tone from bold appeals to the man’s honor to tearful groveling.  True to form, He out-groveled us and admitted that the cash had gone to his brother that fateful night.

We were stuck.

A Unique Vehicle - The Discovery of a James Bond Smokescreen

The next two weeks served to confirm that we had just made the worst purchase in recent memory.  In addition to the inconvenience of entering the vehicle from the passenger side and the permanent smoke screen that the vehicle threw off as it drove:

-We experienced random starter issues (i.e. the vehicle started or failed to start completely at random)

-The cherished air conditioner broke in a plume of smoke on 3^rd day,

-After 7 days, the odometer stopped turning, which explained how a 1993 could have a mere 143,000 miles.

Still, the vehicle ran and served its purpose of carting us to and from the train station, a mere 1.5 miles down the road, and even though the starter worked only when it chose to, it rarely failed to start the motor after teasing us for a time.

With the initial bad taste out of our mouth, a strange sort of respect began to grow between ourselves and the mistreated vehicle.

“Just give us 12 months,” we told the trusty steed, which was obviously on its last legs.

Somehow, it seemed to understand, and six months passed without incident.

At that point, we decided to embark upon a dangerous experiment, an experiment that in hindsight was so ridiculous that it made even B of A’s robo-signing of foreclosure documents seem reasonable by comparison. 

We decided to put an end to the annoying smokescreen the vehicle threw off the cheapest way we could think of.  From that point forward, the only fluid we would put into the Auto Feo was gasoline.

Like B of A’s robo-signing adventure, it was bound to backfire.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

P.S.  For more ideas and commentary please check out The Mint at http://www.davidmint.com/

Key Indicators for August 29, 2011

Copper Price per Lb: $3.97
Oil Price per Barrel:  $87.63

Corn Price per Bushel:  $7.56  
10 Yr US Treasury Bond:  2.27%
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,789 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.5%!!!   UP 0.7% IN ONE MONTH, 8.4% ANNUALLY AT THIS PACE!!!
Dow Jones Industrial Average:  11,539  TO THE MOON!!!

M1 Monetary Base:  $2,040,500,000,000 RED ALERT!!!
M2 Monetary Base:  $9,498,800,000,000 YIKES!!!!!!!

Dual Entry Accounting - Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe - Part V – Final Catastrophe and Hope for the Future

10/21/2011 Portland, Oregon - Pop in your mints…

As the western world braces for a full scale currency collapse, we have endeavored here at The Mint to offer an explanation as to why these events are taking place and, along the way, offering the obvious solution to the chief problem, mistaking credit for money. 

For those of you who have missed Part I, Part II, Part II, and/or Part IV, you may read them by clicking on the following links:

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

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

Dual Entry Accounting - Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe - Part III – Money or Credit?

Dual Entry Accounting – Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe – Part IV – The Catastrophe at Hand

If you require only a brief summary, Part IV above offers a relatively brief and comprehensive summary of the previous three.  Now where were we…

Ah yes, in the United States, circa 1968, a time not so unlike our own.  The Vietnam war was becoming increasingly unpopular and the social climate was ripe for protest.  The US had run up a large and increasing trade deficit with the rest of the world.  It was becoming clear that if foreign dollar holders were to redeem a significant amount of their Federal Reserve Notes, which we now understand to be banknotes and not money proper, for gold, which we now understand to be money proper, the Federal Reserve would not be able to deliver enough gold.

The solution, if it can be called that, was to gradually increase the amount of Federal Reserve Notes required to obtain an ounce of gold from $35 to $41 between 1968 and 1971.  Then, in 1971, with the US dollar collapsing in value and the Bretton Woods system falling apart at the seams, then President of the United States Richard Nixon announced that US dollars were no longer convertible into gold.  The event is now referred to as the Nixon Shock.

And a shock it was.  The US dollar, the benchmark of Central Bank currencies throughout the world, was now officially backed only by the faith that it would continue to be accepted in trade.  The Federal Reserve had defaulted.

Most of the world still lives by this faith today, and if anything, the delusion that a banknote issued by a Central Bank which has defaulted on its obligation to deliver real money on demand has only grown.

The reason that the large scale catastrophe of modern Central Banking lies before us is that over the last 40 years, the lack of gold and silver to back the banknotes in circulation has been replaced by the expectation that governments, and by extension their subjects (citizens), will produce enough goods and perform enough services to repay the obligations represented by the banknotes. As the unrestricted quantity of banknotes and obligations to deliver banknotes in existence will always tend to exceed the stock of goods and services, these obligations are impossible to repay.

Human beings are fallible.  It is normal and should be expected that they will not be able to deliver on certain obligations.  The natural beauty of banknotes redeemable in gold and silver was that, if it was suspected or observed that a person or entity would be unable to pay their obligations, the creditor would move to seize the gold, silver, or other assets that the debtor had pledged as collateral.

The seizure of collateral or the threat of seizure was often enough to correct the failed human action or decisions that were leading to the net loss of wealth incurred by the activity which was undertaken.  In economic parlance, we would call this the correction of the malinvestment of resources.

Without gold and silver to act as a natural limitation on the supply of banknotes and other forms of credit, the bad decisions that lead to the malinvestment and the activities that lead to the destruction of wealth and resources can continue for a very long time.

The use of gold and silver as money had another, more important function that is often overlooked.  Gold and silver are inert, non-consumable objects.  Their hoarding and use as money will not generally cause starvation or want.  In fact, the hoarding of gold and silver of money would have the effect of lowering general prices as productivity increased, naturally creating an incentive to decrease production which in turn would raise prices, making the expenditure of more silver and gold necessary and in turn raise prices, creating a natural  incentive to produce.

Gold and silver allow the economy to naturally regulate itself and, by virtue of the difficulty in extracting them, cause the rest of the earth’s resources to be used in harmony with each other.

Finally, gold and silver are inanimate objects.  Their recognition and possible seizure as collateral does not threaten the liberty or life of a person.  However, because modern central banking has replaced money proper and placed credit in its place, it will become increasingly common to entire societies held as security for a debt that many of them had no direct hand in creating. This is the logical end of using credit as money.

It is the truth that will bring tragedy to the earth.

Without the natural counterbalance to trade and growth which gold and silver money had provided for over 9,000 years, man’s activities, whether productive or destructive, have continued nearly unchecked for the past 40 years.  It is staggering to think of the catastrophe that awaits if man is truly on the path to destruction.
Man, by nature, is always on the path of destruction, but the use of gold and silver as money served to correct him before he strayed too far down it.

Most people alive today have been trained to believe that using Gold and Silver as money is an unnecessary and environmentally harmful process.  Even Adam Smith believed that if the effort expended to mine metals to create money could be directed to other, more useful activities, that humanity would be better off.

What Smith did not realize was that man would not always direct its energies to useful activities.  Like modern Socialists, he underestimated the power of self interest inherent in all human action.  Today we are preparing to reap the consequences of 40 years of unrestricted and more often misguided human actions.

While it may be too late to avoid the catastrophe that Modern Central Banking may bring upon us, it is comforting to know that a return to the understanding and use of gold and silver as money offers hope for a future of truly infinite possibilities.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

P.S.  For more ideas and commentary please check out The Mint at http://www.davidmint.com/

Key Indicators for October 21, 2011

Copper Price per Lb: $3.23
Oil Price per Barrel:  $87.40

Corn Price per Bushel:  $6.49  
10 Yr US Treasury Bond:  2.20%
FED Target Rate:  0.07%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,642 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.3%
Dow Jones Industrial Average:  11,809  

M1 Monetary Base:  $2,056,000,000,000 RED ALERT!!!
M2 Monetary Base:  $9,570,500,000,000 YIKES UP $1 Trillion in one year!!!!!!!

US Unemployment Rate Unsurpirsingly Jumps, Austerity Spanish Style

12/6/2010 Portland, Oregon – Pop in your mints…

The drama in Europe continues.  We see that our beloved Spain has decided to calm the markets by, among other things, selling a stake in AENA, its airport authority.  Not surprisingly, the Spanish air traffic controllers went on strike and the Military having to step in and do air traffic control.  Privatization would hit this special interest group (the air traffic controllers) extremely hard.  How hard?  Will they lose their jobs?  Will their lives be endangered?  Will they be asked to work excruciating, long hours?

Viva España!

Having lived and studied in Spain for three years we suspected that the reason for the strike probably had something to do with losing a ridiculous privilege.  This strike is no exception.  It seems that the 2,400 air traffic controllers made an average of $463,600 per year by clocking overtime for attending union meetings and probably time spent merely thinking about work.  Privatization, the selling of a grossly mismanaged state enterprise to a buyer motivated to generate profits would mean an abrupt end to their supposed racket.  Are they overpaid?  We are not to judge.  But with the average Spaniard making $26,500, you can bet many of their countrymen do!

Back in the US, on Friday the Board of Labor Statistics dropped what theoretically would have been a bomb on optimism as it reported that the Unemployment rate increase to 9.8% for the month of November, up from 9.6% in October.  What does it mean?  Is 9.8% unemployment too high?  Here at The Mint we track the BLS Non-farm payroll unemployment rate as a key statistic.  Not because we believe that it is a real indication of how many persons are unemployed, but because it tells us what the FED will do next with respect to monetary policy.

Ben puts $600 Billion on Black and What would You do with $1 Trillion? If You are Just Printing Money, Why Spend it on Bonds?

11/4/2010 Portland, Oregon – Pop in your mints…

Today Ben Bernanke and his band completed their encore, they effectively placed the fate of the US Dollar on a roulette wheel, betting $600 Billion that bond markets will trump the currency markets for the time being.  Ben and Co. believe that the bet is simple, red or black, and it has landed on red for over two years, so black seems like a reasonable choice.  What Ben doesn't realize is that regardless of where he places his bet, the casino of the US dollar system is falling down all around him.  As for the piddly sum of $600 billion, don't worry bond market participants, we'll get much more than $1 Trillion before this fiasco known as QE2 is finished.  But really, who is counting?

That is the point.  Why count something that doesn't really exist anyway?  Does the FED really have $600 billion sitting in a vault somewhere in the same way the US carries a strategic oil reserve in caverns in Texas and Louisiana?  Don't be silly, dear reader, we are giving them too much credit, as if they had planned for this sort of contingency.  A study of Zimbabwe's recent currency debacle informs us of the ultimate results of this sort of "unconventional monetary policy", the kind you don't find in textbooks.  At a certain point counting dollars will become as meaningless as counting raindrops in the air.  It is only meaningful if it hits the ground.  Right now, most of the FEDs stimulus is evaporating before it gets down to us.  But the air is getting thick and the pressure increasing.  Rain is on the way. 

The Mushroom Shaped Dollar Debt Sponge

11/16/2010 Portland, Oregon – Pop in your mints…

So what is the point of all this speculation about the dollar no longer being widely accepted as a medium of exchange?  Why would this be important?

The point is that the worldwide real demand for dollars may have hit its high water mark, in the long historical sense, in 1971.  Since then, any increase in relative value has been mostly smoke and mirrors obscuring a long, winding road that the dollar has been following on its way to obsolescence.  As the wheels begin to fall off the "dollar mobile", the only thing that is holding it together is that its debt markets are the deepest that have ever existed.  If a large portion of the US denominated debt market were to be defaulted upon or forgiven (the portion owed by the government in Washington, D.C. comes to mind), inflation in domestic prices would shoot off like a rocket and the whole sorry episode would end in a spectacular, fantastic debacle played out in real life, a debacle the likes of which cannot yet be fathomed.