The US House of Representatives, Unable to Function, Waffles on Derivatives Rules and Libya Resolution

6/1/2011 Portland, Oregon – Pop in your mints…

The leadership of the United States finds itself publicly handcuffed to the interests of the banks and defense contractors and at this point appears effortless to free itself.  Two glaring and pertinent examples have appeared in this week in what can only be described as an utter and complete failure to act on behalf of the people.  This inability to govern, as a QE program is evidence of the failure of a currency regime, is evidence of the very failure of a government. 

Both examples are from the US House of Representatives:

Exhibit A of House Dysfunction:  House Financial Services Committee Votes to Delay Derivatives Rules

For the uninitiated we offer a humble and intentionally oversimplified explanation of what this means. 

You may recall that In 2007, The United States gave a $700 Billion blank check to the financial services industry (commonly known as TARP) with few, if any, questions asked.  When the inevitable, albeit insincere political backlash from the masses began to surface, the taxpayer was pacified with a piece of legislation called the Dodd-Frank Act.

The Dodd-Frank Act is a fictional attempt to regulate the financial markets.  Its passage was meant to put to rest any doubts that the US Government knew what it was doing when it immediately and blindly ceded over 5% of GDP to the sharks of the financial industry.

Senators Chris Dodd and Barney Frank were going to make sure that the financial markets never put the US Government in the uncomfortable position of having to bail them out again. 

The main culprit was identified as the OTC derivatives market, presented to the people as a clandestine exchange where financial companies freely traded promises that they couldn't keep for money that their counterparties didn't have.  The whole thing was a fraud to begin with.

Unfortunately, passage of the Dodd-Frank Act has simply legitimized and encouraged this fraud.  Now, nearly two years later, Congress is having trouble implementing rules with teeth to apply the fairy tale derivatives market which is now reportedly worth $600 Trillion dollars, or roughly 10 TIMES GLOBAL GDP.

The failure to write rules for this worthless piece of legislation simply underscores how far the money lenders have infiltrated the US Government.

Meanwhile, large cap companies continue to raise large amounts of cash in preparation for a complete breakdown of traditional credit markets which could occur later this summer, no matter what the authorities do.

A New Sign Soon to grace the US Capitol Building?

 Exhibit B of House Dysfunction: House puts off Vote on Libya Resolution

In what is perhaps an even more shocking example of how far the defense contractors have infiltrated the US Government, we have this report of a House resolution being pulled for fear that it will pass.  From the Associated Press:

"The GOP leadership had scheduled a vote Wednesday on the resolution by Rep. Dennis Kucinich, D-Ohio, that "directs the president to remove United States Armed Forces from Libya ... not later than 15 days after the adoption" of the measure. The vote was delayed as the leadership and Obama administration realized frustrated lawmakers likely would support it."

If this is to be believed, there is widespread support in congress for the US to immediately cease and desist all military activity in Libya.  At The Mint, we had speculated that the US had no business intervening in Libya.  It appears that the House of Representatives agrees. 

But as appears to be the case with the Dodd-Frank Act, a mysterious force seems to be impeding the US Government from following the simple guidelines laid out for it in its own founding document, the long since forgotten Constitution of the United States of America.

With the government quickly running out of money and virtually impotent to do anything, let alone carry out its basic functions of protecting the life and property and its citizens, a time of "adjustment" (chaos in the financial markets) appears to be rapidly approaching on the horizon.

Are you prepared?

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  Please check out our latest 72 Hour Call at www.davidmint.com

Key Indicators for Wednesday, June 1st, 2011

Copper Price per Lb: $4.09
Oil Price per Barrel:  $99.82

10 Yr US Treasury Bond:  2.97%
FED Target Rate:  0.10% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,539

MINT Perceived Target Rate*:  2.25% INFLATION HERE WE COME!!!!
Unemployment Rate:  9.0%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  12,290
M1 Monetary Base:  $1,892,800,000,000 THE CRACK-UP BOOM BEGINS!!!!
M2 Monetary Base:  $9,036,600,000,000 MORE FUEL FOR THE CRACK-UP BOOM!!!!

*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.

The Bill for Club Med comes due (the concept of Central Bankruptcy eloquently explained), a Parable

5/31/2011 Portland, Oregon – Pop in your mints…

Today the focus of the financial world is on events around the Mediterranean where the Greek and increasingly the Spanish people again find themselves at odds with their respective governments and their IMF / ECB / German debt collectors. 

How did they get there?  The Greeks and arguably the Spanish have been living in the social equivalent of a Club Med ever since they joined the Euro.  The initial sting of higher prices was offset for most by lower borrowing costs.  Life was good.  The advent of the Euro along with a boom in tourism began to feed a property boom in Spain and a government spending boom in Greece.

Alas, as an economy slows, the government is usually the last to know. 

Like the father whose family takes a vacation to Club Med, he is content to let the family splurge with little worry as to how he will cover the bill.  "Just throw it on the credit card, we'll take care of it later" becomes the mantra.

Unfortunately for the father (who represents the Greek, Spanish, and arguably the US governments in our parable), his bank decides to cut his credit line just before the vacation is over.  The bill comes due and the man frantically negotiates with his bank (the ECB, IMF, and arguably the US FED) to extend his credit line enough to cover the bill.

Club Med - Paradise Lost!

To make matters worse, upon his return the man finds that the income from his job (the government's tax receipts in our parable) has been cut due to "the economy*."  He now has no realistic prospect of repaying his extended credit line and instead must now consider a painful reduction in the family's standard of living.

Naturally the family, who has developed some expensive habits while away at Club Med, rebels.  The father is now in a no win situation.  On the surface, he appears to have a choice between satisfying his family at the expense of his creditors or vice versa.

In reality, with his reduced income, he cannot satisfy either of them.  This is where the Greek and Spanish governments currently find themselves, and this is where the US Government will soon find itself.

There is, of course, an easy way out.  The man who is in this hopeless situation can declare bankruptcy.  Problem solved, right?  Not so fast.  You see, because of "the economy*," the bank cannot release the man from his debts and have enough money to make good on its own obligations.

At this point, the Central Banks of the world (which are represented by the bank in our parable) lack not only the credibility but also the practical tools to perform their make believe function as protectors of the value of their respective currencies.

Today we read a piece by Michael Pento of Euro Pacific Capital (run by Peter Schiff) which seems to give logical credence to what we have long suspected to be the case:

"In the end, any meaningful attempt to withdraw liquidity will not only bankrupt the institution (The FED) but also zero out their remaining credibility. That's why they'll never even make an honest attempt."

 The FED is helpless to remove the liquidity it has injected and will soon have to decide which of its member banks to sacrifice if the dollar is to continue as a functioning currency.  Our money is on the dollar and all who rely on it as a store of value to be the sacrificial lambs.

Back to our parable.  Both the man and the bank will continue to pretend to negotiate with each other, giving the illusion that what is now their mutual problem will supernaturally disappear.  The family will continue to pretend to debate which expenditures to cut back on as if it will make a difference.

Unfortunately, the likelihood of the problem disappearing is equivalent to the likelihood of the family being able to go back in time to cancel their trip to Club Med prior to departure.  Such is the nature of debt.

So the bank, the father, and the family find themselves clinging to a myth as they helplessly hurtle towards the unknown.

Where will they end up?

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

*Definition of "the economy", circa 2011 – A term used to describe the large scale collapse of Central Banking and the Socialist / Communist economic model that it has created over the past 100 years.  Generally used by politicians and others in authority to "explain" why they cannot pay their obligations.  This explanation is presented to the masses as a failure of capitalism when quite the opposite is true.  Thus, this simple two word phrase is used as an excuse to further the Socialist / Communist agenda and that of the police state that is forming all around the world.

P.S.  Please check out our latest 72 Hour Call at www.davidmint.com

Key Indicators for Friday, May 31st, 2011

Copper Price per Lb: $4.17
Oil Price per Barrel:  $102.83

10 Yr US Treasury Bond:  3.05%
FED Target Rate:  0.09% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,534

MINT Perceived Target Rate*:  2.25% INFLATION HERE WE COME!!!!
Unemployment Rate:  9.0%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  12,579
M1 Monetary Base:  $1,892,800,000,000 THE CRACK-UP BOOM BEGINS!!!!
M2 Monetary Base:  $9,036,600,000,000 MORE FUEL FOR THE CRACK-UP BOOM!!!!

*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.