A US Default? Into the Great Unknown

6/29/2011 Portland, Oregon – Pop in your mints…

Much has happened in the financial markets in this past week, and much will happen in the coming weeks.  But perhaps what is most notable is what has not happened.

Namely, the US Congress has not raised its self imposed credit card limit.  For an entity that is already $14.3 Trillion in debt ($4 Trillion of which reportedly comes due in the next 12 months) with no realistic plan to pay for it, this is suicide.  What are they thinking?

The two parties are in agreement one count, they need to save $2 Trillion dollars over 10 years.  Why this sum has been identified as the cure for what ails the country's finances is anybody’s guess.  Unfortunately, but not surprisingly, there is no agreement as to how to get there.

Where will they find $2 Trillion?  Tax the rich, screams Obama, repeating the eternal populist sentiment.  Stop spending, say the Republicans, using the circumstances to make a push for “limited government.”

Editors Note:  There is no hope for limited government with the current two party system in place, therefore the Republican’s stance is entirely a façade.

The President has taken the extraordinary step of asking Congress not to recess over the Fourth of July, as is their custom, calling their lack of agreement akin to his daughters not completing their homework.  While the President makes a quaint metaphor, we believe that Obama’s daughter’s homework is probably more challenging than Congress’s task of balancing the budget.

Obama tells the GOP to get their "homework" done

 Balancing a budget is simple.  It just takes courage.  It seems that courage is in short supply in Washington DC these days.

Without internal fortitude to press the Americans along, a little external pressure is beginning to be applied.  First, the Treasury’s latest 7 year bond auction did not go as well as planned as investors demanded 2.43% to hold US paper for a sabbath cycle.  Without the FED at the table, it is hard to imagine how it could have gone well.  Bond Market participants are beginning to wring their hands.

Then comes word that the IMF is beginning to apply pressure, eloquently reminding the Americans of what they should do and why they should do it.  It is worth noting that the IMF appears to be the last to know about such things so we will excuse their apparent surprise at the lack of inaction (they are most likely not informed MINT readers like yourself):

“…the federal debt ceiling should be raised expeditiously to avoid a severe shock to the economy and world financial markets,"

Yeah, tell us something we don't know.  And then, true to their holier than thou, infallible status, they give the Americans advice on how to do it:

"We see early political agreement on a comprehensive medium-term consolidation plan based on realistic macroeconomic assumptions as a cornerstone of a credible and cyclically appropriate fiscal adjustment strategy,"

Great!  Thanks for the incomprehensible and totally impractical advice.  This type of drivel simply solidifies our opinion that the IMF is a worthless institution and could be categorically ignored if it were not so insistent upon meddling in financial matters on a global basis.

Meanwhile, we are getting to see first hand what happens to a country that gives up control over its currency and then listens to the IMF for advice and is forced to take a loan from them.  Greece, is giving the world a glimpse at how popular austerity is with the masses.


The scene that was carried out in the Middle East in the Spring is set to take place in Europe and England over the summer months.


How long until it crosses the Atlantic?


Another event that may occur as interested parties begin to reduce exposure to US Treasury debt is a liquidity crunch that will start in early July.  Apart from the debt ceiling uncertainty, the Dodd-Frank financial reform rules are set to begin to do their damage to the financial system on July 15th.  

If they do not forestall these rules as many banks are begging them to do, the US and global economy will take their first tender steps into the great unknown, a world without political or real capital to act a a backstop for failures.


It will be dangerous and exciting.  And, just like a fireworks show, will be best enjoyed from a safe distance.  Keep your money close at hand, meaning out of banks and preferably in precious metals or anything tangible, and enjoy the show!

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 29, 2011

Copper Price per Lb: $4.20
Oil Price per Barrel:  $94.93 A FAILURE TO INFLATE, WILL TREND LOWER

Corn Price per Bushel:  $6.98   MONETARY POLICY IS NOT WORKING
10 Yr US Treasury Bond:  3.11%
FED Target Rate:  0.08%  UH OH!

Gold Price Per Ounce:  $1,511 BENEFITING FROM PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.25% 
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.2%
Dow Jones Industrial Average:  12,261
M1 Monetary Base:  $1,895,400,000,000 RED ALERT!!!  
M2 Monetary Base:  $9,086,900,000,000 YIKES!!!

*See the MINT Perceived target Rate Chart.  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.

Inflation set to Bloom, Bernanke Resorts to Desperate Pleas to Raise the Debt Ceiling

6/14/2011 Portland, Oregon – Pop in your mints…

The Rose Festival has dominated the city’s waterfront park for the past two weeks.  Carnival rides have been up since Memorial Day weekend and an assortment of ships from the US and Canadian Navy (affectionately known as the “Canavy”) arrived late last week.  After no fewer than four parades, the annual Dragon Boat Races rounded out the festivities. 

The Festival usually marks the beginning of summer, which is defined as the absence of rain for four delightful months, here in Portland.  While the rain seems to have done its part, the weather remains colder than one would expect.

This year was the first year that anyone can remember the roses not being in full bloom during most of the festival.  An uncharacteristically cold spring has caused many of the plants to hold back here from showing off their blooms.  When they do finally bloom, it tends to happen quickly and spectacularly. 

For some reason the plight of the roses has us worrying about inflation.  We have been certain that inflation is on the horizon for some time now, and while there has been an uncomfortable rise in food and gasoline prices, it is hardly the degree of inflation that we had been anticipating.

Are we early or just plain wrong about inflation?  The question is troubling.  What is certain is that many of the things that we have speculated would happen are coming to pass.  Most significantly, the US Government appears to be approaching a moment of truth regarding its dire finances.  The simple question of whether or not to raise the debt ceiling has opened a Pandora’s box of questions about the nation's spending priorities.

Now the 2012 election cycle is beginning and US lawmakers have rushed out the door to the campaign trail and have left Pandora’s box wide open on the Capitol floor with its questions racing about the room:

Should we cut entitlements?

Enact more economic stimulus?

Will the Government really go bankrupt on August 2^nd?

Is the activity on Twitter accounts really open to the public?

With the national political circus about to go into full swing, any hope of a serious discussion about a realistic budget or debt ceiling is gone.  What we are now left with are desperate pleas for action from none other than Ben Bernanke, the ace lobbyist for the nation’s largest banks. 

Today’s plea was made by Bernanke at the Committee for a Responsible Federal Budget’s appropriately titled annual conference: “The Debt Ceiling, Fiscal Plans, and Market Jitters, Where Do We Go From Here?”

Mr. Bernanke, in his classic, diplomatic style, told the Republican leadership in attendance that he appreciated what they were trying to do in trying to get the nation to live within its means, but that their use of the debt ceiling as a hostage was not an appropriate tool for the job.  Instead, he advocates deficit reduction goals which trigger automatic cuts if they are not met.

Leading Lobbyist for the Banking Sector

 The United States is one of the few countries with a congressionally mandated debt ceiling.  Contrary to Mr. Bernanke’s belief (which we must say defies logic), the debt ceiling is the perfect tool to use if a lawmaker wants to put an end to out of control spending but doesn’t have the time to gain consensus for a reasonable budget plan.  It is the ultimate way to “trigger automatic cuts.”

Perceptive readers will note that what Mr. Bernanke’s proposes is the same fiscal spending control model that has worked spectacularly in Europe. Just ask the Greeks!

Still, the question remains, where is the inflation?  Our simple analysis led us to believe that under current circumstances the FED would print money to give both to its member banks and to the US Treasury until things either got better or the dollar was completely worthless in exchange for goods.  Our money is on the latter passing before the former.

It now appears that the US government has temporarily thrown a wrench in those plans.

But this should come as no surprise.  As Henry Hazlitt so eloquently explains in his book Economics in One Lesson, government intervention in the economy always fails to achieve its desired ends and almost uncannily brings about results contrary to those that the government intended.

Would it not make sense, then, that the current efforts to produce price inflation turn out to be dramatic failures as well?

Then, long after the government has abandoned its inflationary policies, a tidal wave of cash will appear quickly and spectacularly, not unlike the rose blooms in Portland this year.   

This inflation will occur when the US Government, whether on its own or under compulsion from the bond markets, turns its clumsy machinations towards austerity.  In other words, when it least wants or expects it.

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 Tuesday, June 14, 2011

Copper Price per Lb: $4.16
Oil Price per Barrel:  $99.43

Corn Price per Bushel:  $7.55
10 Yr US Treasury Bond:  3.10%
FED Target Rate:  0.10%  FED STILL IN DESPERATION MODE

Gold Price Per Ounce:  $1,524

MINT Perceived Target Rate*:  2.25%Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  12,076
M1 Monetary Base:  $2,022,700,000,000 RED ALERT!!! M2 Monetary Base:  $9,005,800,000,000 STARTING TO DRY UP?  NOT!

*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.

Colors, Protests in Madrid, Greek Employment Crash, and The Chinese Bet on a US Default

5/19/2011 Portland, Oregon – Pop in your mints…

It is a bright and sunny day in Portland, the type of day that makes you feel like you are on another planet.  After seven months of rainfall the sunshine overcomes the gray and the world takes on the most vivid of colors.  It is amazing.  

They are shooting a movie at the old US Customs House these days and today quite a crowd was gathered outside.  We later found that the movie is called "Gone." From what we can tell, it is a teenage thriller of the "Scream" genre and will come out in February 2012.

That explains the school buses and scores of teenage extras roaming the neighborhood.

In Portland people literally hibernate for the winter.  One would think the population figures grossly overstated if they only visited during the rainy months.  Once the sunshine hits, then city springs to life and one wonders where all of these people came from.  It is like living in two worlds, depending upon the season, and the difference is marked here like nowhere else.

Maybe we are on another planet.  We hardly recognize what is going on around us.

The Socialists in Greece and Spain are implementing austerity measures…

The LinkedIn (LNKD) IPO shot to the moon…

The Chinese are net sellers of US Treasury Debt…

And the US Government is going to default.

Are we still on planet earth?  The answer would be a resounding NO from anyone who had fallen asleep in 2006 and been recently awakened to this news.  They would think these are headlines from The Onion.

Yet what once would have seemed absurd is now coming to pass. 

One can no longer chastise the Socialists as spendthrifts.  The Socialist governments of Spain and Greece did not gain power by running on austerity driven platforms.  Yet there they are, forced to do the dirty work as their disillusioned electorates take to the streets in protest.

A union leader in Greece warned of an "Employment Crash" that will occur as the Greek economy digests the latest round of tough love from its fellow Eurozone members.  What exactly is an "Employment Crash"?  From what we can gather, there is not much work being done in Greece at the moment anyhow.

Any reduction would be a mere fender bender.

Then there is the LinkedIn IPO, which at face value appears to be a miracle.  Up 110% on its opening day?  Time to party like its 1999, right?

Upon further examination, the LinkedIn IPO appears to have been a product of an extremely limited stock offering which then shot to the moon without the danger of being sold short.  The market essentially prohibited any short bets being made against the stock, removing any restraint to its initial rise.

This is not how healthy markets operate.  But at this point, mortgage backed securities can be held at face value with no hope of near term price discovery.  Hence, no one in their right mind would pay face value for them, which of course explains why the FED did just that.

And what about the Chinese?  Aren't they raking in Billions of US Dollars in excess reserves each day with which they are "obligated" to buy US Treasury debt?  Yet since January, they have been reducing their holdings.  What gives?

It appears that China, along with Mexico and Bolivia, are pouring these reserves into Gold, infrastructure, anything tangible in anticipation of the debt ceiling debacle in the US spiraling out of control.

Yes, the impasse in Washington appears to be heading towards the "unthinkable," namely the US defaulting on its debt.  We predicted this here at The Mint earlier this year and frankly are shocked that it may take place.  Yet there it is, and the behavior of the Chinese makes us believe that a default is on the horizon.

So will the US give the shaft to its foreign creditors or its domestic dependents?  Maybe the more relevant question is, will the US go to war with China or fight a Civil war?

All we can say is come, Lord Jesus!

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 Thursday, May 19th, 2011

Copper Price per Lb: $4.04
Oil Price per Barrel:  $98.86

10 Yr US Treasury Bond:  3.17%
FED Target Rate:  0.10% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,494

MINT Perceived Target Rate*:  3.25%
Unemployment Rate:  9.0%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  12,605
M1 Monetary Base:  $1,880,400,000,000 THE CRACK-UP BOOM BEGINS!!!!
M2 Monetary Base:  $9,011,900,000,000 DESPERATION!!!!

*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 Inflation Train is Back on Track, Citi Shares Rise the Hard way, and the Carcass of Housing and Sovereign Debt issues

5/10/2011 Portland, Oregon – Pop in your mints…

A head fake.  That is the only way we can describe the action in the commodity markets last week.  Commodity markets differ from equity, bond, and money markets in that commodity markets are where real stuff changes hands, even if the owners never actually take delivery. 

When one buys a bond or equity, they own the vague or explicit promise of an income stream at some future date.  These streams generally come in the form of currency, which must pass through the money markets to get to their wallet.  From the time the bond or equity is purchased until the income hits their wallet, this income undergoes a hazing ritual in the form of taxes and regulatory fees which would cause any fraternity house to be banned from the college campus.  This hazing ritual reduces the income stream to a mere trickle.

It should come as no surprise, then, that speculation in stocks and bonds is much more profitable than any buy and hold strategy, especially when the FED is supplying free money at the casino!  Equities are easy to manipulate which makes them the preference of modern day money changers.

Take Citibank (C) for example, their share price was languishing around $4.50 per share (which is still way too much for their carcass of a balance sheet).  Most institutional investors (read those who invest workers' 401Ks), wouldn't touch it with a 10 foot pole, simply because the stock trades below $10 (which says something about the brain dead fund managers and their models but that is fodder for another Mint).  What to do?

Voila!  On Monday, Citibank opened with a share price around $44.  This was accomplished with a little mathematical operation called a "reverse split."  You see, Citibank, on a whim, made 10 of their shares suddenly equal to one share.  Problem solved!  Citi promptly fell more than 2%.

AIG, another carcass, pulled the same type of head fake in July of 2009.  After rising 87%, according to the Wall Street Journal, they are down 39% year to date in 2011.  Mathematical operations do not change fundamentals.

In contrast, when you buy a contract for wheat or any other commodity you have the right to take delivery of said commodity.  In the case of wheat, all you need is some yeast and an oven and you are on your way to a good meal.

Speculation in Commodity markets is their very essence and function.  The stakes are high.  These markets can literally affect the price of producer and consumer goods all over the planet.

If the income stream doesn't pan out for an equity or bond, the seller simply points the angry buyer to the prospectus where it tells them that the equity or bond may lose value for any number of reasons. 

In commodities, if the seller can't deliver the wheat they promised, people may starve.

Last week, the commodity markets went into a nosedive.  It appeared for a moment that they anticipated demand to plummet and called for worldwide production to slow.

This was merely a head fake.  Astute readers have picked up on the fact that we are comparing the commodity markets to a basketball player.  The prices of various contracts are the "head" of the basketball player and the fundamentals of the market (supply and demand) are the player's hips.

A head fake is where a player leads one way with his or her head and then darts the other way with the ball towards the goal.  As a defender (or investor in commodities) one MUST keep their eye on the opposing player's hips.

The fundamentals in the commodities markets take many years to change.  This week the fundamentals are driving commodity prices higher and signaling a looming hyperinflation after throwing a deflationary head fake at investors last week.

Nothing has changed to stop the "inflation megatrend", as Nadeem Wayalat of the Market Oracle calls it.  See for yourself in our Key Statistics below.  Even if the FED were to change course now and raise its short term interest rate target, it would take around three years for this to trickle down to consumer prices.

But how can this be?  Isn't there slack in employment, ever increasing sovereign debt issues, and an overhang of housing inventory in the US as far as the eye can see?

Again, this deflationary propaganda is a mere head fake.  They are describing the carcass of the old economic model that governments worldwide are fighting to prop up.  This carcass will continue to decay.

Behold, a new economy is arising far from the reaches of the carcass and its handlers.  Most of the FED's money will end up not propping up the carcass but rushing into the new model. 

Skyrocketing commodity prices, which still have a long way to rise, are announcing this fact loud and clear to those who will listen.

He who has ears, let him hear!

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 Tuesday, May 10th, 2011

Copper Price per Lb: $4.02 Oil Price per Barrel:  $103.72

10 Yr US Treasury Bond:  3.19%
FED Target Rate:  0.09% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,519

MINT Perceived Target Rate*:  3.25%Unemployment Rate:  9.0%
Inflation Rate (CPI):  0.5%
Dow Jones Industrial Average:  12,767
M1 Monetary Base:  $1,960,200,000,000 DESPERATION!!!!M2 Monetary Base:  $8,995,300,000,000 DESPERATION!!!!

*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.

Deflation has been Defeated, Woe to us All!

4/19/2011 Portland, Oregon – Pop in your mints…

It is hard to imagine that the amount of negative news has ever been more abundant.  Reasons to worry abound.  At The Mint, we have speculated that bad news and the worry it causes is, to some extent, a seasonal phenomenon.  Not that the events that cause the news only occur during certain seasons, rather that mankind is more apt to worry about the news during the Spring and Fall in either hemisphere than during other times of the year.  It is a time when preparations for the upcoming summer or wintertime are being made and it is natural to worry as to whether or not one's preparations are adequate.

However, even discounting seasonal worry, the combination of troublesome events that are being reported at present is staggering.  Under normal circumstances, any of the catastrophic events and wars that have occurred recently on its own would be reason for a stock market collapse.  Taken together, it is a wonder that stocks even have a pulse.

Yet in what can only be described as the eighth wonder of the world (ninth, if you count Andre the Giant), the stock, bond, and commodity markets are all racing higher at various speeds.

Can the Economic Recovery rival Andre the Giant

 as the 8th wonder of the world?

What to make of it?  Here at The Mint, we look at the data and believe that there is only one reasonable conclusion:

The Central Bankers have won:  Deflation has been Defeated.

Mint.com for Android – Keep Your Money in Your Pocket

As you may recall, three and one half years ago, give or take, the Financial authorities realized that there was a four alarm fire occurring in the financial markets.  Soon, every major Central Bank and Government were on the scene and proceeded to pump liquidity into the system to avoid a deflationary collapse that, as we were told, would bring an end to the world as we know it.

Now, much like George W. Bush in Iraq, we survey the landscape in the financial markets and, with equal confidence declare "Mission Accomplished."

Just like the US Military in Iraq, the financial authorities are announcing plans for an "orderly handover of power" from the public sector to the private sector.  

Just like the US Military in Iraq, the financial authorities are finding the handover of power to be much easier in word than deed.

Now that the financial authorities have defeated deflation (or Saddam Hussein if you are still following the Iraqi war parallel), they are finding that instead of the smooth transition of power that they apparently had hoped for there exists a cadre of violent elements in the economy which are jousting to fill the vacuum that the financial authorities and governments of the world will leave as they begin to pull liquidity out of the markets.

Instead of supply and demand being in balance, even more grotesque ratios of debt to equity and skyrocketing commodity prices are emerging as the rule of the day and equity, bond and commodity markets are walking time bombs.  Essentially, the later condition of the markets is worse than the former.

Didn't Jesus say something about this in Luke 11:24-26?  More than a clean heart, Man needs to have his sinful nature cleansed from him.  In the same way, more than liquidity, the financial system needs to have its bad debts written off, no matter how painful it may be.

Free money (or liquidity) is not the ultimate answer to the imbalances in the financial markets just as democracy does not appear to be the ultimate solution to a peaceful and prosperous Iraq.  It may even be breaking down in the United States if the recent partisan wrangles over the budget and debt ceiling are any indication. 

No, we are just now beginning to see the "unforeseen" (yet strangely logical) consequences of flooding the world with liquidity.  The war against deflation has been won, but the pent up demand and distorted production patterns that the war has left in its wake are now threatening to unleash inflation on a scale not seen for nearly a century.

Woe to dollar holders everywhere, for this inflation is now taking on a life of its own.

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 Tuesday, April 19th, 2011

Copper Price per Lb: $4.26
Oil Price per Barrel:  $108.40 SKYROCKETING!!!!
10 Yr US Treasury Bond:  3.36%
FED Target Rate:  0.10% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,495  SKYROCKETING!!!!

MINT Perceived Target Rate*:  3.25%
Unemployment Rate:  8.8%
Inflation Rate (CPI):  0.5%
Dow Jones Industrial Average:  12,267
M1 Monetary Base:  $1,954,200,000,000 DESPERATION!!!!
M2 Monetary Base:  $9,045,900,000,000 DESPERATION!!!!

*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.

Is it Seasonal or is the US Dollar Losing Reserve Status more quickly than we think?

4/14/2011 Portland, Oregon – Pop in your mints…

This week we have witnessed a relentless increase across the board in the price of most commodities.  Some of this action is attributable to seasonal factors.  Spring is the time to plant in the Northern Hemisphere and the time to Harvest in the Southern.  These events create a flurry of activity in commodities because at this point there are many unknowns. 

In the North, they are trying to decide what to plant which creates a sort of statistical vacuum for speculators to fill with the assumption that there will be scarcity.  In the South, they are beginning to tally what the combination of the earth along with their toil has afforded them as sustenance for the winter.  Naturally, as when the votes of a big election are being tallied, there is a lot of speculation.  Speculators jump on this informational vacuum and the feeling of scarcity causes them to, you guessed it, bid up commodities.

The whole flurry of activity itself involves lots of John Deere tractors and combines, fertilizer, water and manpower and, you guessed it, oil.  All of which involves increased demand for various commodities and helps to create a general anxiety which sweeps the planet.

It should come as no surprise that God chose to ordain the two great feasts during these times.  The Passover in the spring of the North and the Feast of Trumpets in the autumn.

Some of this seasonality in commodity prices is new phenomena, some of this has been around since man first was called into being on the sixth day.  Whatever the underlying reason, the confluence of these events tends to cause prices to rise in money terms in the autumn and spring in both hemispheres.  Modern transport methods and global trade have helped to smooth this out but natural forces have always trump man's efforts.  Even the advent of the internet has not changed this fact.

But what to make of the recent run up in the prices of just about everything except paper money?  There is something more to these increases than the regular seasonal trends.  Yes, fellow taxpayer, it appears that the inflation that the FEDS of every nation on the planet have been baking in over the past three years is beginning to set up.   

George Soros, a famous investor who made a great deal of his fortune and reputation by shorting the British Pound in the early 1990's held an April 8^th conference that some are hailing as "Bretton Woods III", an homage to the past two conferences which reformed currencies and in turn created the present world order that we now live in, appears to have called for an end to the dollar as the world's reserve currency.  This is from an interview with Mr. Soros by the Financial Times in November of 2009:

You can read more about the speculation on Mr. Soros' intentions here.

Please follow this link for a long and interesting Q & A at the conference with Mr. Soros and Paul Volcker fielding questions.

The fact that this conference is being held, taken along with the fact that China has been amassing large amounts of gold and silver, is giving credence to the speculation that the Chinese currency may be in a position to take the baton of reserve currency status from the dollar.  If this is true, we cannot overstate what this means for currency and bond markets and more importantly the cost of everyday items for those attempting to pay for them in dollars.

To state what may be obvious, the US dollar will be worth much less in trade than it is today.

While the European and Chinese Central Banks have recently raised rates, the US FED still has the printing press on full throttle.  If our speculation here at The Mint is correct, the FED, like the driver of a semi-truck that is careening down a steep mountain road, may not be able to apply the brakes and save the remaining value of the US dollar.

Then again, maybe they don't want to.

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 Thursday, April 14th, 2011

Copper Price per Lb: $4.26
Oil Price per Barrel:  $109.41 SKYROCKETING!!!!
10 Yr US Treasury Bond:  3.485%
FED Target Rate:  0.08% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,462  SKYROCKETING!!!!

MINT Perceived Target Rate*:  3.25%
Unemployment Rate:  8.8%
Inflation Rate (CPI):  0.5%
Dow Jones Industrial Average:  12,285
M1 Monetary Base:  $1,954,200,000,000 DESPERATION!!!!
M2 Monetary Base:  $9,045,900,000,000 DESPERATION!!!!

*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.

Will the FED be able to Control its Short Term Fed Funds Rate when it needs to?

4/11/2011 Portland, Oregon – Pop in your mints…

Alas, the sober reflection that we had hoped for in the form of a US Government shut down did not occur.  The nation will resume its journey down the path towards self destruction that all Empires are destined to follow.  The foreign wars and other shenanigans that occupy the country's attention can now presumably continue until at least September of 2011, assuming that the upcoming debt ceiling vote doesn't accelerate the Armageddon scenario that is unfolding in the Bond Markets!

In case you have just joined us, the US Government will exhaust its borrowing authority sometime in mid May, according to Treasury estimates.  Friday's showdown over passing the 2011 budget has shown that a vote to raise the debt ceiling is no sure thing, neither is an agreement on the 2012 budget, which the GOP has in theory linked to approval of increasing the debt ceiling.

It is good to pass an expense budget, as the Government has done.  It is bad to be unable to finance those expenses via tax receipts and borrowing.  If Congress fails to raise the debt ceiling, the expense budget will require radical and unpredictable modifications essentially at gunpoint due to a collapse of the US Treasury bond market.  With such serious consequences, you can see why this vote should be a sure thing.

Apparently Bill Gross, the Chief Investment Officer for PIMCO which manages some of the largest bond funds in the world, has his doubts.  PIMCO's total return fund, which recently dumped all of its US Government debt holdings, apparently has taken this movement a step further and is now short approximately $7 Billion of US debt.

If you would like to follow Mr. Gross' lead, our Affiliates TradeKing and Zecco.com will be more than happy to assist you.

If the entire thing simply makes your head spin, contact our Affiliate APMEX Gold and Silver about exchanging paper dollars for silver and gold and stop worrying about such things!

Mr. Gross must have smiled as he opened the Wall Street Journal this past Thursday.  The Journal ran an interesting article titled, "Concerns Emerge as a Fed Rate Falls."  In summary, the FED has traditionally used the FED funds rate (one of our Key Indicators here at The Mint) as its weapon of choice to drive monetary policy.  This rate is the interest rate at which FED member banks can borrow funds from each other overnight when they settle their accounts and collectively feign solvency.

The FED controls this rate via what it calls open market operations, which means that the FED either buys or sells short term securities on a scale necessary for the market to settle transactions at a yield that is near the FED's stated target rate, which is currently between 0% and 0.25%.

The FED leveling Bond Market Sand Castles with their QE program

The FED, being able to print money out of thin air, theoretically has unlimited ammunition to impose its will on this market.  Over time, it became understood that the FED and its buddies (member banks) played at the entrance to, or short term end, of the Bond Market sandbox while everyone else was forced to play in the rest of the sandbox.

With the advent of QE and QE2, the FED began to play capriciously in the rest of the sandbox, leveling out everyone else's sandcastles and kicking sand in their face.  The sandbox (Bond Market) is enclosed and once people enter to play in it, the only way to leave is to leave your buckets full of sand at the entrance, where the FED and its member banks have trying to level out the sand to keep it smooth.

Now all of the sand from the sandcastles that the FED has been leveling is beginning to pile up at the entrance of the sand box and the Wall Street Journal article seems to indicate that this sand (money marching out of long-dated bonds) is beginning to overwhelm the FED on the short end to the point where it is losing control of its stranglehold on short term interest rates.

It is no wonder that participants are fleeing the Bond Market, with the US Government's shenanigans and the FED kicking sand in everyone's face, the game is simply not fun anymore and frankly, a bit too dangerous!

Seriously, if the FED came in and leveled your sand castle, wouldn't you pick up and leave, too?

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 Monday, April 11th, 2011

Copper Price per Lb: $4.44
Oil Price per Barrel:  $109.41 SKYROCKETING!!!!
10 Yr US Treasury Bond:  3.57%
FED Target Rate:  0.10% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,462  SKYROCKETING!!!!

MINT Perceived Target Rate*:  3.25%
Unemployment Rate:  8.8%
Inflation Rate (CPI):  0.5%
Dow Jones Industrial Average:  12,368
M1 Monetary Base:  $1,978,000,000,000 DESPERATION!!!!
M2 Monetary Base:  $8,961,500,000,000

*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.