3/24/2011 Portland, Oregon – Pop in your mints…
If you turn on the news, it appears that the entire world order is about to fall apart. Yet somehow, in the face of what is arguably the greatest uncertainty the world has faced in the past 67 years, stock and bond markets remain largely unaffected. Sure, oil, gold, the Yen, and even US Treasury Bonds have gone up in price, but the increase has not been nearly as dramatic as one would expect given everything that has happened in 2011.
What gives? Are the revolutions in the Middle East, the three-fold catastrophes in Japan, and today's bombing in Jerusalem somehow already "priced" into the market?
The market did not even seem phased by the seemingly unilateral decision by President Obama to rally his buddies across the pond to bomb Muammar Ghadafi's forces in Libya.
In the current order of things, there is always a reason to go to war. Obama has chosen the reasoning of protecting the Libyan people from aggression at the hands of their own government. The Americans should be so lucky!
No, the elixir that is currently holding these markets together is now being brewed in ever increasing quatities by the G7 Central Bankers and being served under the brand name "QE" in the US. Happy hour has been extended and the FED member banks are in no hurry to go home.
Back to Libya, where the French are now getting NATO involved, why is the US intervening on behalf of the rebels? Is the nation state model of government being disregarded by the President? At least in the case of Iraq and Afghanistan, the reasoning was centered around a direct threat, albeit remote, bordering on non-existent, to the American people.
Instead, the President has committed the nation to $800 million in up front costs and $100 million per week of ongoing maintenance costs ($5.2 Billion per year, but who is counting) set up a "No-fly zone" to defend the Libyan people from their own government. In the increasingly interconnected world that we live in, there is no doubt some appeal that could be made in the name of US national security for such nonsense but up until now, we have not heard it.
This action certainly takes Washington's role as policeman of the world to another level. The best part is that every dollar spent on this misguided attempt at world improvement will go directly onto the national credit card!
Maybe Marc Faber was right and the US is quietly stepping into a world war in order to distract the American public from the government's failed economic policies. This logic makes more sense than the advent of a sudden burning desire to defend the Libyan public that the media is currently selling.
It is quickly becoming evident that the recovery being trumpeted is a sham. Nothing has changed. The FED continues to throw increasing amounts of money at the system that cannot seem to throw back any real economic growth. But what else can they do?
They are like a man throwing confetti to a crowd. Those closest to him (the FED member banks, in this metaphor) are bound to receive a lot, maybe they are covered knee deep in the stuff, while those who are farther back in the crowd are lucky if the wind blows any their way.
Even being so close to the monetary spigot does not seem to be helping some of them. Word came yesterday that the FED rejected Bank of America's request to increase dividend payments. The black hole of worthless debt held by Bank of America is so big that only $0.04 of every $8.35 in revenue per share was able to escape to be paid out to shareholders in the form of dividends last year.
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| Actual Image of BofA Balance Sheet Destroying Capital at a rate of 1% per year |
Poor BofA, one bad "strategic" acquisition (they bought the infamous Countrywide Financial in 2008 for what they thought was a steal, putting them in the same league as Fannie Mae and Freddie Mac in terms of mortgages held) has thrown the giant to the canvas. Even under the most favorable conditions in terms of short term interest rates, BofA has been unable to turn a profit and continues to cannibalize itself.
Ditto for many of the "profitable" FED member banks, where the difference between a good loan and bad loan can no longer be distinguished. Most are a simple regulation change away from being declared insolvent. Never has the line between profitability and bankruptcy been so thin. Once the US Treasury market blows up, these same banks will become both insolvent and completely illiquid.
It should now be clear why the FED will run the printing presses until the US Dollar returns to its intrinsic value of the paper it is printed on. Neither the large banks nor the government can afford to let nature take its course in the US Treasury Market. And now the government is throwing the apparent trump card of a large scale war into the mix.
Stay Fresh!
Email: davidminteconomics@gmail.com
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Key Indicators for Thursday, March 24th, 2011
Copper Price per Lb: $4.43
Oil Price per Barrel: $105.39
10 Yr US Treasury Bond: 3.35%
FED Target Rate: 0.14%
Oil Price per Barrel: $105.39
10 Yr US Treasury Bond: 3.35%
FED Target Rate: 0.14%
MINT Perceived Target Rate*: 4.25%
Unemployment Rate: 8.9%
Inflation Rate (CPI): 0.5%
Dow Jones Industrial Average: 12,086
M1 Monetary Base: $1,843,500,000,000
M2 Monetary Base: $8,974,000,000,000
Unemployment Rate: 8.9%
Inflation Rate (CPI): 0.5%
Dow Jones Industrial Average: 12,086
M1 Monetary Base: $1,843,500,000,000
M2 Monetary Base: $8,974,000,000,000
*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.
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