We’d like our gold now, Chavez Calling JP Morgan’s bluff? Bank Stocks Tanking, as Palestine flares up on cue

8/18/2011 Portland, Oregon - Pop in your mints…

It is 66 degrees on a mid-August afternoon in Portland.  As a banker friend of ours put it, “we hope you are enjoying the mild winter.”  The truth is, were it not August, we would be quite enjoying the weather.  Unfortunately people have certain expectations about the weather, hence the widespread belief that man can control and reverse trends like global warming or cooling.  August in the Northern Hemisphere should be hot.

But its not.

If people are upset at the weather, then they must be seething at what is occurring in the financial markets.  The relative calm in the financial markets has vanished like free beer at a NASCAR event.  A 400+ drop in the Dow today and an even more significant drop in the price of oil and financial stocks, coupled with a rise in gold, silver, and Treasury Bills? (yes, you read it right) on the surface are evidence of a classic “flight to safety.”

But what is going on?  Why such a massive flight to safety on what would otherwise be a calm August day, so fit for reflection and the pondering of life as one knows it?  We don’t know exactly why all of this occurred today but suffice it to say, none of it should come as a surprise.

For instance, it should come as no surprise that banks are completely broke and at this point, worse than worthless, as they are destroying real wealth.  The modern bank is built on the assumption that the currency regime and the demand for debt denominated in that currency will increase infinitely.  Demand for debt in US Dollars began to wane about four years ago and as far as we can tell is not coming back anytime soon, at least not in the quantities (nor at the margins) necessary for the modern megabanks to exist on their current scale.

Hence, the banks are toast.  Short them if you can after the next round of short covering passes.

The FED unwittingly made matters worse for the banks a couple of weeks ago when they announced that short rates would be near 0% for at least two years.  The FED has given up, and they have done it in the worst possible way.  Rather than standing ready to bail water out of the waterlogged currency ship, they have turned the spigot on full blast and walked away.

The FED will probably not be around in two years.

In yet another twisted irony that is a by-product of the current insane “debt is money” currency system, these low short rates, which in theory should be a boon to banks, will drown the banks with large deposits that they cannot lend except at razor thin margins to sub-prime borrowers such as the US Government.

Yes, society’s aversion to debt has fundamentally changed the banking business from one which primarily benefits from usury to one that must redefine itself as a trusted custodian of assets.  This change seems to be happening overnight, and the banks are completely unprepared.

Case in point, it appears that Hugo Chavez, Venezuela’s democratically elected dictator has been moved to repatriate his country’s roughly 211 tons of gold held by foreign banks.  He has already issued a demand to the Bank of England and rumor has it He will soon issue a demand to JP Morgan, which reportedly holds 10.6 tons of Venezuela’s gold.

Show Me The People's Money!

The problem is, JP Morgan only has 10.6 tons of gold in custody on liabilities of roughly 100 times that amount.  This would not be a huge problem except for the fact that thanks to the internet the entire world now knows this.  Leave it to Chavez to strike at the heart of US imperialism.  Things should begin to get interesting.

JP Morgan’s short position in physical Silver is even more frightening.   If JP Morgan’s skills as a custodian is any indication, it appears that the modern banks are unable to provide this service.  Protect your assets accordingly.

And speaking of frightening, almost as if on cue, violence in Palestine began to escalate again after attacks on Israeli civilians, the deadliest in two years, led Israel to retaliate by launching an airstrike against Gaza earlier today.

Our instinct tells us that a major event is unfolding in Palestine ahead of the UN’s statehood vote and it just may coincide with the collapse of the Western Currencies.

Coincidence?  Most certainly.  And a very sad coincidence indeed.

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 18, 2011

Copper Price per Lb: $3.95
Oil Price per Barrel:  $81.83

Corn Price per Bushel:  $6.99  
10 Yr US Treasury Bond:  2.08%
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,825 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:  10,991  TO THE MOON!!!

M1 Monetary Base:  $2,033,000,000,000 RED ALERT!!!
M2 Monetary Base:  $9,478,200,000,000 YIKES!!!!!!!

Is America becoming ungovernable?

8/17/2011 Portland, Oregon - Pop in your mints…

Almost nothing of consequence happened today in the markets.  Just what one would expect on a quiet August day.   Silver and other commodities are poised to go higher, but our guess is that it will wait a month to really hit its stride.  At that point, inflation could really be a problem.

August is a time for reflection and relaxation.  Casting off the cares of the past 11 months and charging the batteries for another run.  At The Mint, we are pondering a great many things.  Our dear German friend who has been with us here in Portland the past nine months left for Frankfurt today.  She will be missed dearly by all.  It seems that Oregon had a special impact upon her as well and she commented that this season has been one of the most pleasant of her life.

Yes, Oregon is a special place.

“There is so much nature here!” she commented upon returning from a trip to Montana.  Apparently in Germany every square mile is spoken for, leaving wild animals little room to roam.  One of her chief concerns on these excursions was the bears.  Who can blame her, with the news coming out of Yellowstone at the time? 

She is heading to Barcelona to start a ministry and we wish her well, for she is now one of the family.  Hospitality blesses one in ways they cannot imagine.

August thoughts in the US are being rudely interrupted by the presidential campaigns that are warming up in Iowa and are heading to New Hampshire to continue the race in which the winner will declare themselves King of the Americans. 

As Bloom County fans may recall, when the Meadow party nominated Bill the Cat and Opus for the job, they concluded that only a complete idiot would apply after careful consideration of the job description which in there estimation included “being blamed for every problem on the planet.”

The complete idiot label came to mind after we heard a comment in a video shared with us by a friend in which Bill Hybels, the Pastor of Willow Creek, a large church in Illinois, noted that the tendency in American dialogue today is to “throw stones first” and ask questions later.  He explained that people grab onto comments and statements made by others and publicly villianize them without bothering to consider the context or verify the validity of said statements.

His remarks were made at the Willow Global Leadership Summit while addressing the interesting situation in which Howard Schultz, the CEO of Starbucks, backed out of his contract to appear at the summit after receiving threats of a boycott from a group who claimed that Willow Creek was anti-gay.

He went on to say that this phenomenon is making America “ungovernable.”

Mr. Hybels did not go into detail as to how this phenomenon would make the country ungovernable, but the idea got us thinking.  What makes a country governable in the first place?  Do people naturally need government in order to survive?

In the sense that people need to feel protected and able to care for themselves and their loved ones, people may need the concept of government.  People, knowing their weak state on this planet, need to believe that someone is looking out for them.  This need leads them to subject themselves to the idea of government.

Inevitably, those who are entrusted with embodying the idea of government find that they are given quite a bit of power over the lives of others and quickly learn to abuse it.

This leads the subjects to seek freedom from the government while at the same time looking for someone of something else to fulfill the basic needs of protection and material well-being.  Seen this way, when a people become “ungovernable” they are rejecting the government under which they are because of a perceived or actual abuse.

It is important to note that, for people to reach this state, they must feel that they are out of options under the current government.  Economic hardship has a lot to do with how people perceive their options.  It should come as no surprise then that economic hardship is a result of policies which restrictive freedom.

Free men are infinitely more productive than slaves.  A policy change in either direction will express itself in economic results.  The results in America prove that we are a people becoming enslaved.

When things go well, no one cares who is governing.  When things go badly, they become unnaturally preoccupied with the political process.  America circa 2011 is moving towards this unnatural preoccupation.

Ironically, the more one concentrates on the government and its political processes, the more it becomes evident that the very existence of a government organized by men may be more a threat to than a protector of the basic needs of protection and material well-being.

We have stated before that in practice the governments of the world today operate like competing defense agencies.  It may be, then, that Americans are tired of the current contractor and are searching for another one; one that is less intrusive and has fewer overhead costs to cover.

Will they find it before they are completely enslaved by the current one?

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 17, 2011

Copper Price per Lb: $4.03
Oil Price per Barrel:  $87.43

Corn Price per Bushel:  $7.11  
10 Yr US Treasury Bond:  2.16%
FED Target Rate:  0.10%  TIGHTENING?  NOT!

Gold Price Per Ounce:  $1,789 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  -0.2%!!!  PULL OUT THE HELICOPTERS!!!
Dow Jones Industrial Average:  11,410  TO THE MOON!!!

M1 Monetary Base:  $2,140,300,000,000 RED ALERT!!!
M2 Monetary Base:  $9,404,000,000,000 YIKES!!!!!!!

The Move to a European Government, Caesar can keep his money!

8/16/2011 Portland, Oregon - Pop in your mints…

The markets seem to be enjoying a relative calm after the record setting volatility they experienced last week.  It turns out that one would have hit a home run by buying the VIX as the debt ceiling debate was dragging on.  We’ll keep that recommendation tucked away for a later date as the conditions which created last week’s tremors still exist and continue to intensify.

A headline caught our eye today, from Bloomberg:  German, French leaders propose European ‘economic government’

This caught our eye because it is further confirmation of what we have long suspected here at The Mint.  Specifically that giving up the right to coin currency (seigniorage) essentially means giving up a nation’s sovereignty.  Any sort of puppet government may be set up to give the appearance of sovereignty.  They may even give the people the right to vote for their own government.  No matter how the government is chosen, the puppet will move in accordance with the way its strings are pulled.

In practice, the monetary authority becomes the sovereign.

We have further speculated that the current sovereign debt crisis in Europe would serve to erode the sovereignty of the governments being bailed out.  It now appears that even wise users of the Euro, such as Germany and the Netherlands, will have to give up the illusion of budgetary authority to save the currency.  Think of it as guilt by association.

What happens next in Europe will be the true test of the Euro’s ability to exist.  Can Greeks and Spaniards manage finances to German standards?  Can they alter their production and consumption patterns to the German standard?  If the answer is yes, then we will have confirmation that a shared fiat currency (and by default fiscal policy) is all that it takes to break down borders and achieve world peace.

If the answer is no, then the Euro, the latest entrant in a long line of doomed experiments in fiat currencies is…doomed.

The leaders in the Eurozone are dealing with a problem that has no solution.  What is unfortunate is that they are taking a considerable amount of time and other people’s money in a vain attempt to solve it. 

The problem is simple enough.  A fiat currency, such as the Euro, is a faith based currency.  One needs faith that the currency will maintain its value and continue to be accepted in trade.  The bedrock of this currency faith is that credits must be created which are repayable in the currency.  This gives people, who naturally want to improve their circumstances by attending to the most urgently felt need, the incentive to productively trade in the currency.

If the currency is something tangible and can be produced in sufficient quantities, this is all that is required for something to be accepted as currency in society.  Production and circulation of the currency would occur organically as the needs of the economy dictated.

The Euro's fiath based currency is doomed!

On the other hand, if the currency is a fiat, faith based currency, such as the Euro, much heinous effort is required for it to be accepted as currency.  The first requirement is a decree that all taxes must be remitted in the fiat currency.  This is what Jesus referred to when he told the spies of the Chief Priests to “give to Caesar what is Caesar’s and give to the Lord what is the Lord.”

Once it is decreed that taxes will be remitted in the fiat currency, the fiat currency must be produced in sufficient quantities without the guidance of the free market signals (known today as monetary policy).  Finally, the system of taxation and redistribution of the tax revenue (known today as fiscal policy) must be perceived as either inconsequential or fair in order for those subjected to the fiat currency regime to continue to assent to using the currency.

The Eurozone’s incurable ailment is that its single monetary policy cannot respond to the multitude of fiscal policies that are operating in the currency zone.  If the currency were tangible, production in the economy would properly adjust and fiscal policy would be less pervasive and dictated by reality.  But because the Euro is simply a faith based currency, fiscal and monetary policy have no chance of harmonizing themselves.

The Euro is doomed and its handlers must at least suspect it by now.  Their only hope is to quickly form a unified fiscal government in the Eurozone which is what in theory they are doing.  In practice this may be nearly impossible.

The US Dollar faces a similar problem which has been slower to manifest itself because its problem is on a global scale.

As Jesus said, the fiat authority only owns the coins, scraps of paper, or electronic bits that consist of money.  True ownership of real things, and especially people, ultimately is the Lord’s.

How important this simple teaching will be in the years to come.

Stay tuned, Trust Jesus, and 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 16, 2011

Copper Price per Lb: $3.99
Oil Price per Barrel:  $87.14

Corn Price per Bushel:  $7.14  
10 Yr US Treasury Bond:  2.21%
FED Target Rate:  0.10%  TIGHTENING?  NOT!

Gold Price Per Ounce:  $1,787 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  -0.2%!!!  PULL OUT THE HELICOPTERS!!!
Dow Jones Industrial Average:  11,406  TO THE MOON!!!

M1 Monetary Base:  $2,140,300,000,000 RED ALERT!!!
M2 Monetary Base:  $9,404,000,000,000 YIKES!!!!!!!