3/9/2011 Portland, Oregon – Pop in your mints…
Paradox: A seemingly absurd or self-contradictory statement that is or may be true.
Today we are dealing with a paradox. At least that seems to be the word that most closely resembles what Atlanta Fed President Dennis Lockhart said in his discourse this past Monday at the NABE.
First, a lengthy disclaimer from The Mint. We do not believe that Federal Reserve notes are money. Therefore, what happens in FED land, while it must be keenly watched because a majority of people on the planet do believe that Federal Reserve notes (commonly called US dollars) are money, is really of little consequence in the grand scheme of things.
In the grand scheme of things, it is more akin to a passing fad. For example, the FED has been around longer than Cabbage Patch Kids but not as long as Coca Cola. Rest assured that it too shall pass.
The current monetary system is based on at best a half truth and at worst and outright lie. It then follows that those who are charged with perpetuating it must constantly utter paradoxes in order to make it sound legitimate. These paradoxes are things that make sense on the surface at any given point in time. However, once one endeavors to piece the puzzle together in the long view, the daily paradoxes which pass as enlightened economic thought become simply laughable.
Speaking of laughable, we now return to our topic, Mr. Lockhart uttering a paradox to the NABE, a group of diehard FED faithful. According to CNN Money, Mr. Lockhart stated:
"If [the rising price of oil] plays through to the broad economy in a way that portends a recession, I would take a position we would respond with more accommodation,"
In FED code, "more accommodation" (or QE / "Quantitative Easing") means printing more money to purchase US Government Bonds, which are proliferating at such a rapid pace that there are not enough purchasers at current prices. This would be the third such announced counterfeiting adventure undertaken by the FED which would give it the colloquial title QE3.
And now for the Paradox:
Though he doesn't think current oil prices around $106 a barrel are a problem, he said the evidence is clear that oil spikes can bring about a recession."I think at the $120 range ... it's a manageable level," he said. "Around $150 it becomes a much more serious concern."
Mr. Lockhart, enlightened as he is, now thinks he knows at what price oil should sell for. Do you see the Paradox? Allow us to assist. The price of oil is not really the price of oil. Rather, it is an algebraic expression of a ratio. The price of oil is the ratio of US dollars willing to purchase oil to barrels of oil for sale. For simplicity's sake, this ratio is usually reduced to one barrel of oil. Are you still with us? Good, because there is more.
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| What Requires more effort? Drilling for oil... |
At this point we must think abstractly about the processes involved in the production of the factors on each side of this ratio. We will start with oil. Oil must first be located by a team of highly trained scientists with very expensive equipment. Once located, negotiations must be made with land owners and the government to obtain the rights to extract the oil that has been located. Then, highly sophisticated drilling and extraction machinery must be transported to the site to begin extraction while the back end logistics of the transport, processing, and delivery of the black goo to market all must be either negotiated in order to use existing distribution channels or to construct new distribution channels.
The production of US dollars? Mr. Lockhart and his cohorts vote on a number, one of the FED's minions press a few buttons on a computer, and viola! Instant "money."
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| ...or Printing Money? |
Do you now see the Paradox in Mr. Lockhart's statement? He thinks that the problem of high oil prices can be solved by creating more FED funny money. The reality is that the FED funny money that has already been created is what is causing the price of oil to skyrocket! And these guys are in charge of the money supply?
When oil was selling for $150 a barrel two short years ago, we read a statistic that the US economy at that time was engineered to run on $20 per barrel oil. We doubt that the required "organic" re-engineering of the economy has been completed in the past two years to allow it to accommodate $106 dollar oil. Something has got to give. According to PIMCO's Bill Gross, who indirectly manages $1.2 trillion worth of bond assets, the most recent oil price increase could in fact decrease GDP by 0.5%.
Do you see now how the FED's mission of fostering economic growth, maintaining stable employment, and maintaining stable prices is a complete and utter failure on all counts?
Fortunately, there is an alternative! While we do not believe in Federal Reserve Notes, we do believe that God gave man Gold and Silver to use as money. While this fact has been confused and obscured over the past 40 to 100 years, there are roughly 5,000 years of human history which testify to this fact.
The best part of this revelation is that in the US, you can still own physical Gold and Silver!
Along with the skyrocketing price of Silver, which is beginning to become regular headline news, we were further excited that people are starting to understand what money is by reading what is being hailed as "The Best Article on Silver in Ten Years!" Please follow the link below to read nearly every compelling reason to own silver all in one place:
Or paste this link in your browser, it is that important:
While it is never a bad time to shun Federal Reserve Notes in favor of Silver, we recommend buying in the summer months of the northern hemisphere when Silver tends to be relatively less expensive, if you can find it!
Stay Fresh!
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, March 9th, 2011
Copper Price per Lb: $4.32
Oil Price per Barrel: $104.27
10 Yr US Treasury Bond: 3.54%
FED Target Rate: 0.14%
Oil Price per Barrel: $104.27
10 Yr US Treasury Bond: 3.54%
FED Target Rate: 0.14%
MINT Perceived Target Rate*: 4.25%
Unemployment Rate: 8.9%
Inflation Rate (CPI): 0.4%
Dow Jones Industrial Average: 12,214
M1 Monetary Base: $1,876,700,000,000
M2 Monetary Base: $8,871,100,000,000
Unemployment Rate: 8.9%
Inflation Rate (CPI): 0.4%
Dow Jones Industrial Average: 12,214
M1 Monetary Base: $1,876,700,000,000
M2 Monetary Base: $8,871,100,000,000
*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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