Pondering the State of the Union as the British GDP reading takes a Nosedive

1/26/2011 Portland, Oregon – Pop in your mints…

Today all the buzz is about the State of the Union address that President Obama delivered last night.  Make no mistake, the President is perhaps the best orator that has ever been elected.  He gave what we considered to be a great speech.  It is ironic that only minutes after it was over there was already an uproar from nearly every corner of the Democratic base.  Environmentalists angered at the energy plan laid out and every parasite in the union complaining about the proposed domestic spending freeze.  Unfortunately, there is little He or anyone else in his administration can do, short of cutting taxes and relieving the people of Governmental regulations, that will help revive the American Economy to levels enjoyed just five short years ago.  The Democratic base will have to accustom itself to compromise or risk sounding like spoiled children.

The problem here in America is debt.  Specifically, there is way too much of it.  There is way too much of it because in the insane monetary experiment in which we live, the only way that "money" (and we use the term loosely) can be created is to create more debt.  There is only one way out of this mess, and that is to change the entire monetary system and make money that is backed by something real, that exists today.  Not an ambiguous claim on somebody else's future production.

If they had asked us to pen a few lines we would have taken full advantage of them.  Why beat around the bush on the issue of the currency?  Obama chose to simply ignore it, as have most Presidents.  But wouldn't it have been something if he had, in his classic Obama style, given it to the American public straight for a change?  Our contribution would have been something along the lines of:

The Greatest Orator Ever Elected?

"Look, we cannot hope to work our way out of debt.  Generations before us have proven time and time again that printing money is not the same as making money.  Never has been, never will be.  Tonight we recognize this fact and are taking action to repair our monetary system.  I announce to you that the US Dollar is returning to its full backing not by debt, but by actual gold, as our nation's founders intended it to be.  I will sign the Executive order tomorrow, ending consumption and restoring productivity as the quickest way to prosperity in the Land of the Free."

Alas, nothing of the sort was mentioned.  It was an inspiring speech all the same.

Meanwhile, across the pond, England's economy apparently shrunk by 0.5% in the fourth quarter of 2010.  What a shock!  Not only to us but to anyone who thought the Brits could simply grow their way out of the gigantic debt trap they are facing.  The government's austerity apparently has crushed the Bank of England's insanely low interest rates and Quantitative Easing creating a dismal economic environment that we affectionately call "stagflation."  Naturally, the Brits are blaming the weather.  Talk about punting!  To be clear, austerity in a normal monetary system is a good thing.  In an insane "debt is money" currency regime, it can be suicide.  Someone needs to get this Mint to European leaders before it is too late.

Naturally, the British Pound is currently taking, well, a pounding in the currency markets.

Europe is further down the Socialist path than the United States is at this point.  The current debt crisis is highlighting the painful fact that the European governments cannot deliver on their numerous promises that are trumpeted as "basic human rights."  Sooner or later, these "basic human rights" must be paid for by someone.  Most member of the EU member states are running out of pockets to raid and the system is quickly becoming bankrupt.  As Margaret Thatcher, a somewhat famous Brit once remarked, "...Socialist governments traditionally do make a financial mess. They [socialists] always run out of other people's money. It's quite a characteristic of them."  This statement has been famously paraphrased to more clearly state that "The problem with socialism is that eventually you run out of other people's money."

Will the US change course in time?  Obama's speech as given us hope that it just may.

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  If you enjoy or at least tolerate The Mint please share us with your friends, family, and associates!

Key Indicators for Wednesday, January 26th, 2011

Copper Price per Lb: $4.25
Oil Price per Barrel:  $86.42
10 Yr US Treasury Bond:  3.32%
FED Target Rate:  0.18%

Gold Price Per Ounce:  $1,333

MINT Perceived Target Rate*:  4.5%
Unemployment Rate:  9.4%
Inflation Rate (CPI):  0.5%
Dow Jones Industrial Average:  11,977
M1 Monetary Base:  $1,783,700,000,000
M2 Monetary Base:  $8,879,300,000,000

*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.