Showing posts with label Euro. Show all posts
Showing posts with label Euro. Show all posts

Friday, March 22, 2013

Cyprus – The Waterloo of Eurocratic management or the ultimate catalyst for Euro zone growth?

3/18/2013 Portland, Oregon – Pop in your mints…

While the management of the ongoing banking crises on this side of the Atlantic has been dishonest, the management on the other side of the pond, or in today’s case, sea, has been an unmitigated disaster. Or so it would seem.

We are talking about Cyprus. For those who have yet to hear about Cyprus, it is an island nation located in the far eastern Mediterranean Sea, just below Turkey. It is currently inhabited by a fiery mix of Greeks and Turks, who have lived in an uneasy peace with each other for some 40 years after the events that took place during the summer of 1974.

Like many island nations, Cyprus has been able to find common ground with those who have been unable to find common ground on the mainland. It has found that it can leverage its sovereignty and willingness to bend the rules to offer banking services without the nagging regulations which increasingly plague banks and their clients in the Western nations on the mainland.

Now that the government of Cyprus is bankrupt and in need of a bailout, showing that even a tax and banking paradise can be poisoned by a bad currency, they have gone hat in hand to Belgium, a strange country in the north with absolutely nothing in common with Cyprus, save the currency in question.

The Eurocratic apparatus in Belgium, either on its own or at the behest of the global banking giants in Cyprus, has decided that the terms of the bailout, or “bail in”, which is the Euro friendly way to say “Corralito,” {Editor’s Note: Corralito is the Argentinean term for when the Government decides to unilaterally make use of the funds in its country’s banks to fund the government because there is literally no one willing to lend them currency on any terms}, would be the direct confiscation of funds from depositors bank accounts in the form of a tax, in this case between 3 and 9.9% (because 10% just looks bad in print) to ultimately pay back the countries who have been generous enough to provide the funds, which, despite the technicalities involved, for most Europeans means Germany.

Predictably, the people of Cyprus, who caught wind of the confirmation of the rumors on Friday and awoke Monday to find that their government had declared what is, at this writing, an indefinite banking holiday (meaning banks and ATMs are closed) to prevent anyone who did not want to participate in the bail in from withdrawing their funds from the country’s banks, are channeling their anger at the German Embassy, quite naturally:

Henry Blodget has written a decent analysis on the details of the Cyprus bail in over at the Daily Ticker. Blodget does a good job of analyzing the events up until the point where He presumes:
“…the moment depositors think that there is risk to their savings, they rush to banks to yank their money out.
That’s called a run on the bank.
And since no bank anywhere has enough cash on hand to pay off all its depositors at once, runs on the bank cause banks to go bust.
That’s what happened to hundreds of banks in the Great Depression.
And it’s what happened to Bear Stearns, Lehman Brothers, and other huge banks during the financial crisis (though, with Bear and Lehman, the folks who yanked their money out weren’t mom and pop depositors but other big financial institutions). It’s what threatened to bring the entire U.S. financial system to its knees. And it’s why the U.S. and European governments have been frantically bailing out banks ever since.
But now, thanks to the eurozone’s bizarre decision in Cyprus, the illusion that depositors don’t need to yank their money out of threatened banks because they’ll be protected has been shattered.”
What Blodget presumes is that a bank run is bad for the bank. Here at The Mint, we postulate that this tax on depositors is taken precisely for the benefit of the Cypriot banks. Further, it has been taken not only for the benefit of the banks in Cypriot, but to serve as the catalyst for the Euro zone to return to growth, or the activities which pass as economic growth circa 2013.

How can this be? To understand this will take a basic understanding of the banking revenue model.

Ever since 2008, the Federal Reserve and the ECB have been underwriting the banking sector by providing cheap cash to banks and, indirectly, the governments and people’s of their respective countries. This is where Blodget’s parallel of today’s bank runs and those that occurred during the Great Depression falls apart. For all of the mistakes that Ben Bernanke has made, the unconditional guarantee of liquidity in the banking system is the one that he will never relinquish, despite appeals to reason, for he mysteriously sees it as his life’s calling.

However, in an effort to stem the fall in asset prices, which is largely a product of the insane “jack the rate 25 basis points every month or so” policy that the Greenspan and Bernanke Fed followed from June 2004 until June 2006, the policy that caused markets to seize up like a car engine losing oil as they accelerated to record speeds, the Feds and the ECB have largely ignited an increase not in economic growth, but in bank deposits.

Bank deposits, far from being a boon to the receiving bank, are a huge problem when market conditions force them to reinvest (read lend out) those funds for rates that are unconscionably low (3.75% to consumers for 30 years, in a fiat currency system, are you out of your mind?). Making matters worse, the consumers have been slow to take the bait, resulting in a big time squeeze on the traditional banking revenue model.

Enter Cyprus, an island that holds a disproportionate amount of bank deposits. As a thinking Eurocrat, of which we suspect there are few, save Nile Farage, who is hunting for a way to both ensure that the banking revenue model continues to function, the government of Cyprus retains legitimacy, and that economic activity in the Euro zone will increase, the pile of Euros in Cypriot banks looks like a great target not to loot, as most analysis of the situation will paint this move as, but to force billions of Euros out of the digital vaults of the banking system to wash from the shores of Cyprus outwards into the other Euro zone countries in search of real goods, not simply another cash warehouse.

One sees the Eurocratic genius in the move at the moment one (again, that is you and I, fellow taxpayer) understands that the mere threat of a unilateral tax on deposits as a condition for a Euro zone bailout is causing lines to form at ATMs from Andalu to Cataluña, across the border into Torino and down to the lonely parts of Sicily.

Cyprus Flag
Will the Cyprus Misadventure by the catalyst for elusive economic growth in the Euro zone?

Within a matter of days, billions of Euros which were locked up in the accounts of villainous savers and otherwise useless to the European economy will be running around the Spanish and Italian streets in a desperate attempt to purchase anything real in which to hold said savings.

With what appears to have been a typically boneheaded Eurocratic move, the Eurocrats may have managed to do what Ben Bernanke and all of the helicopters in the world could not have done to the club Med economies: Shower them with foolishly spent cash while at the same time bailing out both the banks and the governments as a grotesque side effect.

To be sure, it is a short term fix and will leave the Euro zone further down the scorched ear

Monday, June 11, 2012

Spain, Inc., the latest proof of Anarchy in action, an impromptu Manifesto


6/11/2012 Portland, Oregon - Pop in your mints…
When we attended graduate school in Spain, we were the first North American student in our course.  It was late 2003 and the Eurozone was full of optimism.  This optimism lead some of the professors to use a portion of their class time taunt the US model as failed and the European model as the obvious way forward.
As proof of European supremacy, our Finance professor often made a point of mentioning to us that the yields on the Spanish 10yr bond were almost the equivalent to the yields on the US 10yr bond.
What a difference nine years and 500 basis points make.
Circa 2012, Spain dominates the financial headlines as the latest casualty of the European debt crisis.  Apparently Spain now is in need of a bailout.  The bailout strategy which will be employed by Spain, Inc. is a hybrid of the prior bailouts accepted by their counterparts, Greece, Inc. and Ireland, Inc.
Greece, Inc. required a bailout because its government was broke.  Ireland, Inc. was slightly more ingenious in that it made a good faith effort to backstop its banks, only to find that it was now the entity which required a backstop.  Spain, Inc, theoretically learning from both experiences, forced its banks to accept the backstop directly so that the Spanish government could save face and be spared the humiliation of the Irish scenario.
Unfortunately, the markets have seen through the charade and are now putting pressure on all bonds, bank or sovereign, which hail from the Iberian Peninsula.
What a difference nine years and 500 basis points make!
Spain's strategy has failed before it was even implemented for lack of collateral and credibility, both of which are in desperately short supply amongst the EU leadership.
How did once proud Europe end up in this situation?  They decided to force a debt based currency integration by integrating only the currency part of the equation and leaving the debt and fiscal matters to chance.
As if choosing to use a debt based currency weren't bad enough, choosing only to implement the currency is like handing the nations foolish enough to engage in such a gamble the revolver in a game of Russian roulette where the revolver is fully loaded.
Now, the revolver is being passed and it is Spain's turn.  Once Spain slumps to the floor, it is Italy's turn, the Belgium, France, etc. until the European Currency Union, doomed from its outset, breathes its last.
At some point in the process, possibly as Spain pulls the trigger, USA, Inc. will be forced to step in with the "ultimate" backstop, the final hope of the failed, insane "debt is money" currency regime.  As the US throws its sovereign credit rating in front of the runaway freight train of Europe's soveriegns, it will quickly find itself in the very situation that it is trying to save the European Sovereigns from.
For in this debt crisis, the unwritten rule of quality holds.  When one adds wine to sewage, one gets sewage.  When one adds sewage to wine, one gets sewage.  The sovereign vats have long since been polluted.  It might make sense to check one's portfolio and remove as much sewage as possible.
Beyond that, we will present two unsolicited yet practical bits of advice.  First, US Bonds will ultimately slide as USA, Inc. wades across the pond to aid Europe.  The Euro currency will rally as the run on European banks by the citizens and the wholesale dumping of any bond denominated in the currency begins.  Quite simply, demand for the Euro will exceed supply in the short term.
Plan accordingly.
We submit to you that the Spain, Inc. debacle is further evidence of one of The Mint's central themes, that Anarchy is man’s reality, it is an ultimate given, it simply is, and all understanding of the current political and social structures is greatly facilitated by one’s acceptance of this fact.
In fact, one’s ability to act and react to the unfolding changes in the current political and social structures depends upon accepting and embracing Anarchy as the basis for reality and learning to operate in the Truly Capitalistic system which organically emerges as men learn anew that mutual trust and cooperation are in their rightly understood self interests, and that he who is to lead must truly become the servant of all.
To truly embrace this fact, we must understand the nature of mankind.  Man, left to his own devices, is completely devoid of the ability to do the right thing.  He doesn’t have it in him.  He is lazy, self-serving, and completely evil.  He needs God and his fellow man to be able to do anything productive, altruistic, or what may be considered remotely good.  A full defense of this statement is a subject for another day (although the evidence is all around us), we mention it here only to underscore the necessity of a framework which presupposes this fact within which mankind can use this weakness to avoid both self and mutual destruction.
The only reliable framework which has emerged out of natural Anarchy which not only addresses the problem of human nature, but also turn man’s weaknesses into strengths is what we call True Capitalism.  Ironically, by allowing market forces to work with as little hindrance as possible, mankind can insulate itself from descending into chaos and catastrophe.
In fact, to fight the workings of True Capitalism is, by default, to submit oneself to chaos and misery.  Yet every nation on the planet is devoted to some degree in the fight against True capitalism.  Why?  Because the nation state sells itself as the most perfect expression of man’s good intentions, which we presuppose do not exist.  In other words, the dream of the nation state is built on a false pretense that is usually attributed to socialism: That man is inherently good and wants to do good to others.
Given their presuppositions, is it clear that the nation state and a truly capitalistic society are, in fact, the antithesis of one another.  Where a nation state regulates by edict,  truly capitalistic society regulates by example.  Where a nation state is rigid, where  truly capitalistic society is pliable.  Hence, where  truly capitalistic society will bend but not break, the nation state is repeatedly smashed to pieces when faced with change.
For the more a nation state tries to force men to do good, the more mankind's character flaws will overtake these good intentions until the nation state becomes an expression of mankind's evil nature.
The truly capitalistic society allows each mans evil nature to be corrected by allowing him to experience the consequences of his inherently poor behavior, paradoxically and naturally improving the behavior and norms of all.
Moving to a less philosophical level, how can we be sure that Anarchy is the basis of man’s current existence?  The evidence can be found in that the institutions which supposedly offer the best option to Anarchy, the nation states if the world, are beginning to succumb to the punishments they have built up in their losing fight against natural law.
Greece, Ireland, Portugal, Italy, and now Spain, Inc. are now succumbing to the inevitable.  The member of club med which turns from the failure of the Euro currency to go it alone and embrace the much feared "Anarchy," as it were, paradoxically stands to be richly rewarded by the flocks of tourists who can suddenly afford a European vacation without the Euro.
We conclude with a brief manifesto for your perusal and enjoyment.  What does the future hold?
Out of Anarchy, a Truly Capitalistic System will ORGANICALLY emerge, and with it a new dawn for humanity, built on mutual interest and almost endless capital formation which will engender a spontaneous and dynamic social order, a society without borders that would enjoy freedom and prosperity that we cannot even imagine under current conditions.
Believe.
Stay tuned and Trust Jesus.
Stay Fresh!
Key Indicators for June 11, 2012
Gold Price Per Ounce:  $1,596 PERMANENT UNCERTAINTY

Monday, December 12, 2011

The benefits of Decentralized power, Rumblings of QE3, the clock is ticking on the currency regime

12/12/2011 Portland, Oregon - Pop in your mints…
 
There is something strangely satisfying about sitting around a large indoor fire just feet away from the Christmas tree with family.  In those moments, one can partake of all that is right with the world.  It occurred to us that we all strive for these moments yet at times they can seem elusive.  Eternity is placed in our hearts, and time on earth seems to be in short supply.
 
As such, we must use it wisely.
 
We have been extolling the benefits of what we have been calling True Capitalism.  True Capitalism is what we here at The Mint humbly offer as the solution to what currently ails the world.  There is one byproduct of True Capitalism, a radical respect of life and property, which is often overlooked and is perhaps “central” to the advantage that it has over every other conceivable construct of society:
 
True Capitalism works to decentralize power.
 
In other words, it naturally evens the playing field by removing unfair advantages realized by some at the expense of others.
 
But isn't that what Government is supposed to do?  Of course it is!  However, governments circa 2011 are in the middle of an unprecedented power grab.  This centralization of power, they say, is necessary in order to homogenize life as we know it and to help everything run smoothly.

Even if this were possible, there is a fundamental problem created by the centralization of power which is without resolution.  In layman's terms, it makes for an easy target.

When we see the word target, your mind may conjure up images of vulnerability of a military attack.  However, what we have in mind is much more dangerous.  An army of lobbyists.

Herein lies the weakness of centralized power.  However good its intentions, it will constantly be under attack and subsequent influence of groups who desire this centralized power for their own benefit.  Repelling these attacks is expensive.  Succumbing to them, as is more often the case, will bankrupt a nation.

Governing is not cheap, and there are no economies of scale in it.  Rather, the larger it is, the less efficient it becomes.  Does this sound familiar?  This is what we have now thanks to the Might Makes Right ideology by which we are ruled.

Enter True Capitalism.
 
In a Truly Capitalistic system, the cost of the nation state drops to zero, for the nation state as we know it would cease to exist.  Does this mean that there will be not be a need for governance?  No, on the contrary, the roles which we now attribute to government will be carried out by any number of organizations.  Governance, in general, would increase, yet it would cost less!

How is this possible?  Voluntary governmental bodies are generally more responsive and efficient, in large part because the cost of governance falls directly to those individuals who desire to pay for it.
 
Governance has value, and its value can and is be properly set on an open market.  The phenomenon of corporations and persons choosing to reside in low tax venues represents a conscious choice of where and by whom one prefers to be governed by those individuals.
 
In the west, the value of the brand of government provided in the US and Europe is dropping along with its bond prices.  The fact that nations issue bonds is proof of two things:  That their service oriented businesses are failing and that they will be increasingly reliant upon their ability to forcefully relieve their citizens of their assets (commonly known as taxation) to continue operations.
 
In other words, they will rely on their Might, the use of force, to justify their “right” to govern.
 
This untenable “Might Makes Right” system that can only operate as long as people believe that the aggressor has absolute power over them.  This is why countries have flags and dictatorships have the image of the dictator plastered everywhere.  This is why people are being forced into the current banking system, taught to rely upon it, and subsequently shut out of it.
 
This is a reason why Modern Central Banking and the Corporations that have sprung up around the Central Banks are man’s greatest disaster.
 
Once the currency and banking systems of Europe and America are completely broken down, people’s blind faith in the currency and its issuer will be destroyed.  The currency regime will then quickly disintegrate
 
The Federal Reserve will likely allude to QE3 to the tune of $1 trillion dollars today in a desperate attempt to keep the currency regime afloat.

The clock is ticking on these failed monetary experiments. 

Do you know where your money is?
 
Stay tuned and Trust Jesus.

Stay Fresh!

 
 
P.S.  For more ideas and commentary please check out The Mint at www.davidmint.com
 
Key Indicators for December 12, 2011

Gold Price Per Ounce:  $1,665 PERMANENT UNCERTAINTY
M1 Monetary Base:  $2,255,500,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,623,700,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Wednesday, December 7, 2011

Losing even blind faith in the Euro and USD, remembering Pearl Harbor

12/7/2011 Portland, Oregon - Pop in your mints…
Today we continue to watch the relative calm in both the stock and bond markets with our jaw hanging just inches from the floor.  In our estimation, the calm, or homeostasis, is perhaps the only thing that is completely inexplicable under the current state of affairs.

Just what is that state of affairs, you ask?  A few off the top of our head:

-          Downgrades or the threat of downgrades to nearly every sovereign bond on the planet
-          A resulting dearth of quality assets to be used as collateral in the financial system
-          A debt based economy collectively attempting to live within its means
-          The resulting collapse of the debt based economy
-          An imminent war in Persia

But these are simply large events that are leading to a great number of small decisions which are in turn causing more unforeseen large scale events, etc.  The result being that, much to the chagrin of the financial authorities, a majority of the world is embracing frugality.

A quick recap for those are joining us for the first time, the powers that be, the current currency regime, rely on an ever expanding amount of debt in order to continue to function.  It is a system that is based on trust and blind faith, for it offers nothing of lasting value.

In the short term, the system, if functioning properly, allows a great deal of power to be centralized.  It also encourages, albeit indirectly, nearly every sort of vice and shuns virtue.  The system tends to reward bad behavior and to promote into leadership those who are least likely to possess a moral compass.

The system is no longer functioning as designed.  The reach of the currency regime is shrinking and will continue to shrink until the only ones who maintain faith in it are the most morally decrepit individuals and institutions on the planet.  They will continue to trade their increasingly worthless paper until they realize that they are simply shuffling paper amongst themselves, long after they have completely lost any semblance of control that they had on the situation.

Much of this paper shuffling is running through the stock and bond markets, and seemingly these markets are calm.  However, the illusion of stability is being maintained at the cost of trillions of new dollars and Euros being created which are rapidly losing value against anything tangible.

In the United States, the dollar will begin to significantly deteriorate sometime in March, according to our crude calculations.  The Euro, whose handlers have been late to start the game of shameless currency debasement, is more likely to implode with the European banking system as they gag on the sewage of assets that are on their balance sheets.

The great irony of the current currency regime is that a currency which has attempted to maintain its value will become extinct, shunned for one whose value is plummeting.

The Euro and US Dollar are showing the world the two paths that a currency regime can follow to destruction.  It will be interesting to see which car ceases to operate first, the motor that runs out of gas or the one that has its gas tank overflow and goes up in flames.

Either way the economy, which is the motor of the vehicle in the metaphor we have just jumped to, is currently being retooled to run on another type of combustible, one that will last much longer than the current blend of currency gasoline which is nothing more than flammable vapors.  If the currency, and the assets which back it have real value, the economic motor will be allowed to run at a more even pace.

Gold and Silver, ready or not, here we come.  Until then, the economy is sputtering and running on fumes.

Pearl Harbor

We cannot let today pass without a few brief words about Pearl Harbor.  Like 9/11, Pearl Harbor served as a national wake-up call.  Both served as the justifications for the largest military actions and suppressions of freedom (which seem to go hand in hand) that America has known. 

The explosion of the USS Shaw during the attack on Pearl Harbor, courtesy of the US National Archives

As this day that lives in infamy passes, we pause to honor those who perished in these events and the subsequent military actions which occurred as a result of these events.  May they rest in peace, and may mankind learn to avoid the suffering and sacrifices they had to endure at all costs.

War is not necessary and must be undertaken only after every other attempt to engage and deter an aggressor has been exhausted.  It is an act of desperation, not a form of economic stimulus, and it troubles us that the widespread loss of life and property has been referred to as the force which lifted the US out of the great depression.

Those who hold to such a theory are not only following an indefensible logic, they are hurling the ultimate insult to men and women who have fought to defend Freedom throughout history.  For any “stimulus” which has been observed is not the result of the decision of a politician to go to war, rather, it is a result their tireless efforts and indomitable spirits which lifted this and many other countries from the ashes of war.

We pray that more of these heroic efforts and indomitable spirits will not be squandered in Persia.

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 December 7, 2011

Gold Price Per Ounce:  $1,742 PERMANENT UNCERTAINTY
M1 Monetary Base:  $2,155,200,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,627,300,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Tuesday, October 25, 2011

The Three Ring Circus Begins

10/25/2011 Portland, Oregon - Pop in your mints…
What a difference a day makes.  Yesterday, it appeared that the authorities had most of the problems that ail the world’s economy resolved.  All they needed was a little more time, money and cooperation to implement their plans and the good times would be rolling once again!  Today, instead of coordinated, determined action, it appears that a three ring circus of sorts is beginning.

In Ring 1, we have the European Clown Car:  Yesterday, Europe looked ready to announce a plan to simultaneously solve the sovereign debt, banking, and resultant currency crises in one fell swoop.  Today, it appears that Italy is balking at implementing a growth plan on moment’s notice and Germany and France will need a miracle to announce a credible Pan-European rescue package by tomorrow, their self imposed deadline.  What a difference a day makes!

It should be clear by now to most sober persons that regardless of what is announced tomorrow, the Euro as a currency in its present form is not viable.  It should also be clear that the countries who have adopted the Euro will give away what is left of their sovereignty in a vain attempt to preserve it.

Step Right up!  The Economic 3 Ring Circus Begins
In Ring 2, we have the American Elephants:  The US is quietly completing three Bond auctions that will cause the national debt higher than the national GDP.  The official total should eclipse GDP by the end of October.  100% of GDP is when the debt of a mere mortal nation (Greece, for example) has traditionally harkened national bankruptcy.

The only exception to this rule is in Ring 3, the Japanese Tight Rope Walker: Japan, where national debt is north of 200% of GDP.  How do they avoid bankruptcy?  Simple, they print money to pay the debt.  As if to prove our point, today, the Bank of Japan decided that they have seen enough Yen appreciation and announced another five trillion Yen currency printing campaign.

When money doesn’t exist, the sky is the limit, which is why commodities and certain equities are set to explode to the upside.  Bonds, while they may not fall in nominal value, will fall in relative value as they are repaid in severely depreciated currencies.

As if on cue, commodities took off today.  How high and far they will fly this time is anyone’s guess.

As the circus gets underway, the sober amongst us are beginning to wonder, sometimes aloud, “if the Governments, banks, and monetary authorities cannot solve these problems, then who can?”

The answer, fellow taxpayer, is right under our fingertips.  We, the People of the earth can solve it.  The tool we have been given is our own wit and ingenuity.  The only requirement is that we embrace True Capitalism, for better or for worse, for richer or poorer, until death do us part.

What is True Capitalism?  It may be summed up as a deep, radical respect for life, liberty, and private property.  It is an understanding that mutual cooperation is more often than not in our rightly understood interests (to use a Mises term).  It is not simply a choice, it is the only choice.  More to come.

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 October 25, 2011

Gold Price Per Ounce:  $1,705 PERMANENT UNCERTAINTY
M1 Monetary Base:  $2,056,000,000,000 RED ALERT!!!
M2 Monetary Base:  $9,570,500,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Monday, October 24, 2011

European Semi-Solution Extends the False Calm and indirect moratorium on Eurozone Investment

10/24/2011 Portland, Oregon - Pop in your mints…
Today after the western stock markets closed, the German lawmakers announced yet another plan in an attempt to stem the Eurozone’s tandem sovereign debt and banking crisis, which is rapidly accelerating.  The plan, according to AP, would boost the European Financial Stabilization Fund from its current 440 billion Euros approximately one trillion Euros.   
 
The one trillion Euro figure is an estimate due to the nature of the plan which involves enticing capital to invest in the Sovereign debt issues from Euro member states by creating an insurance fund to partially back sovereign debt issues that would otherwise attract little investor interest.
 
Think of it as a partial Fannie Mae guaranty for European Governments.  
 
There is a reason that foreign capital is hesitant to invest in Euro sovereign debt, and it is not for lack of enticement.  Greek, Spanish, Portuguese, and Italian bonds all offer fixed income investors a decent premium over other sovereigns for their perceived risk.  The problem from the point of view of the investors is that the premiums are not high enough if considered against the likely event that they will not get their principal returned.  The problem from the perspective of the Euro sovereign issuers is that they cannot realistically pay even these reduced premiums.
 
Once it is generally perceived that a nation state will default on its obligations, it is very difficult to attract capital, whether it be the purchase of sovereign bonds or investments in businesses located in the troubled country.
 
Default, while the most practical solution for any normal debtor, is apparently unacceptable for modern western nations.  For this reason, the Eurozone leadership is moving in slow, measured steps to appear to do just enough to preserve the credibility of the debt issued by the weaker, peripheral states such as Greece, Spain, and Portugal.
 
Will this latest Eurocrat concoction be enough?
 
For the moment, it may be.  The German Parliament must vote on their new obligations on Wednesday, just hours before the broader Eurozone working group is set to formally announce the plan, leaving no room for dissent, ala Slovenia earlier this month.  Once the political drama in Germany passes, it will be smooth sailing for the Euro and its sovereign debt markets…for about a week.  
The illusion of viability and solvency
At that point, it will again become clear that the banks and sovereigns will require additional funds (currently the estimate is north of 2 trillion Euros) in order to continue the illusion solvency.
 
The problem of Euro solvency is no secret.  This is why both banks and sovereign governments are having a great deal of difficulty getting credit from anyone other than other broke European governments, banks, the ECB, and the Federal Reserve.  This latter list of entities have two things in common.  First and foremost, they all have a vested interest in perpetuating the charade that the Euro is a viable currency.  Second, these entities, by virtue of their activities, can only destroy wealth and therefore must coerce the productive class into lending its resources.
 
To make matters worse, no one in their right mind can invest real capital in the Eurozone under these conditions.  With sovereign governments pushing austerity measures and increasing the confiscation of private assets via increased taxation, any further investment in the Eurozone must be properly seen as an act of charity.
 
Such is the paradox of solving debt problems by incurring more debt.  Once one believes that the debt cannot be repaid, this belief becomes a self fulfilling prophecy.  The Eurozone is becoming the world’s latest example of this inescapable truth.
 
Meanwhile, commodity prices, which reflect the fruits of productive activities, are on the verge of exploding to the upside, signaling a growing distaste for fiat currencies.   Will this be the final, violent blow off in commodities?
 
Stay tuned and Trust Jesus.
 
Stay Fresh!
 
 
 
P.S.  For more ideas and commentary please check out The Mint at www.davidmint.com
 
Key Indicators for October 24, 2011
 
Copper Price per Lb: $3.46
Oil Price per Barrel:  $91.60
Gold Price Per Ounce:  $1,653 PERMANENT UNCERTAINTY
M1 Monetary Base:  $2,056,000,000,000 RED ALERT!!!
M2 Monetary Base:  $9,570,500,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Monday, October 17, 2011

Dual Entry Accounting – Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe – Part II – Irony

10/17/2011 Portland, Oregon – Pop in your mints…
 
For those of you who have missed or long since forgotten Part I, please take a moment to review it here:
 
 
Our tale continues:
 
As the Fixed income markets continue to crumble, all eyes in Finance are now on a summit of European leaders that will take place next Sunday, when many persons will be watching sporting events, enjoying the outdoors, protesting, or toiling to eke out a meager existence on this earth.
 
What happens in Europe next Sunday may be simply another act in the game of extend and pretend that until now has been the only strategy employed by Western governments and their Central Banks in response to the bankruptcy of the world’s largest banks and governments.
 
On the other hand, it may be a Pearl Harbor type of event for the Euro and other currencies.
 
Since we do not know what will befall mankind this coming Sunday, we must endeavor to understand how the Western world has arrived at this critical juncture in history.  We began last week, by exploring the often underestimated contribution of Luca Pacioli to the commonwealth of society:  The dissemination of Dual Entry Accounting methods used in Genoa, Florence, and Venice circa 1492.
 
Today, we will explore the great irony that Dual Entry Accounting – what we call man’s greatest innovation, has made possible what we are calling man’s greatest catastrophe, Modern Central Banking.
 
In order to do this, we begin with a brief history and explanation of the concept of Central Banking and its relationship to government.
 
The concept of Central Banking is rooted in man’s need for security as well as his recognition of his co-dependence on his fellow man to increase his well being through trade.  It takes time and energy to obtain and protect wealth.  It also takes time and energy to barter with counterparties while trading differing goods without a suitable means of exchange.
 
A bank, in its simplest form, provides a secure place to store wealth.  A natural extension of this activity is for the banker to extend credit and act as a clearing house for commerce by assuming a de facto role as an issuer of currency in the form of banknotes which represent a claim on wealth held at their bank.  The existence and circulation of these banknotes greatly facilitated trade.
 
As trade and consequently the wealth of mankind increased both in volume and geographical reach, there was increasingly a need for a larger banking interest to store the excess wealth of the individual banks and to honor the banknotes emitted by the individual banks.  This larger banking interest, formed by and for the benefit of the individual banks, is what we today call a Central Bank.
 
The complexity of maintaining banking accounts was greatly facilitated and made possible on a large scale by the use of dual entry accounting.  The ability for individual banks to maintain accounts on a larger scale made possible the existence of a Central Bank to act as a clearing house amongst banks.  Hence, our premise that Dual entry accounting enabled Central banking.
 
Now, on to the role of Government in relation to Central Banking.  If Central Banks arose because man needed someone to look after his wealth, governments arose because man needed someone to look after his life.  Governments were formed in response to the natural human need for a common defense.
It is not hard, then, to imagine that Governments, in whatever form, relied heavily upon and supported the formation of both individual banks and Central Banks.

Why would Governments need banks and Central banks?
 
Governments are generally given license by the members of society to use whatever means necessary to preserve their lives.  As such, they assume the role as the apparatus of compulsion and coercion in that society.
 
As the apparatus of compulsion and coercion, the government, by definition, cannot generate wealth.  At best, it can only create the conditions under which individuals may create wealth, but the activities of government as a provider of security never directly create wealth.  Because they cannot create wealth, they must either borrow from or tax the populace in order to fund their activities of compulsion and coercion.
 
Storage of Wealth and Tax Collection Service provided with a smile
The Central Bank, as the ultimate repository of wealth, offers a convenient source of both credit and, in a later wave of Central Banks of which the Federal Reserve is a prime example, tax collection services.
As you can see, a Central Bank is an indispensible institution both for individuals in terms of storing wealth and facilitating trade, as well as for Governments who have an insatiable need for tax revenues and credit.
 
The existence of a Central Bank, for all of the benefits that it may bestow, unwittingly makes the wealth of those it serves a natural target for those who are anxious to obtain that wealth through unjust means.
 
Central Banking, like alcohol and socialism, may be a good idea when used in moderation.  However, each one of these also represents a catastrophe waiting to happen.  For if the circumstances under which they are created or used take an unfavorable turn, the wealth and lives of many may be lost in a very short period of time.
 
Needless to say, the scale of modern Central Banking is beyond what would be advisable, and the potential for catastrophe is unprecedented.
 
How, when, and most importantly why will this catastrophe take place?  We can only answer the why, and we will tackle it tomorrow as we are spent.
 
Stay tuned and Trust Jesus.
 
Stay Fresh!
 
 
 
Key Indicators for October 17, 2011
 
Copper Price per Lb: $3.35
Oil Price per Barrel:  $86.24
Gold Price Per Ounce:  $1,671 PERMANENT UNCERTAINTY
M1 Monetary Base:  $2,201,800,000,000 RED ALERT!!!
M2 Monetary Base:  $9,554,000,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Tuesday, October 4, 2011

If the FED is the only Lender of US Dollars, the System has Collapsed

10/4/2011 Portland, Oregon - Pop in your mints…
The dust is beginning to settle after what must have been a tense weekend for bank execs on both sides of the Atlantic.  We can only imagine that banks pulled out all the stops to somehow make their numbers for the third quarter end.  In a practical sense this meant putting the stranglehold on equity and commodity positions and hanging on to dollars with all their might.

The vacuum action in the dollar funding markets was so extreme that at one point it was rumored that US dollar funding for banks in Europe was apparently non-existent.  We speculated that banks were holding on to cash in the absence of clear direction from the Eurozone as to how they intend to bail out their large institutions and governments.

The action looks like a sumo wrestling battle royal on the edge of a cliff.

The FED came to the rescue and re- opened its swap lines with European banks to provide dollars and avoid widespread panic.  According to a report that we saw from Bloomberg, the FED had gone from its role as the lender of last resort to a role as the lender of ONLY resort.

We left off with a question which we will consider today:

Does the fact that the FED is the only institution willing to lend dollars indicate that the US Dollar system has technically collapsed?

On the surface, it would appear that the evidence points to just the opposite.  The US Dollar index has gone through the roof which would indicate a preference for dollars, making them more valuable.  Doesn’t this prove that the US Dollar is alive and well?

Were the Dollar backed by something real, the above would be true.  However, in the current, insane, “Debt is Money” currency regime, it tells us quite the opposite.  The fact that the Federal Reserve, the creator of the current version of the US Dollar, is the only institution willing to lend said Dollars is in fact evidence that the system has failed.

It has failed because it is no longer self sustaining.  The willingness to take on new debt, which is the life blood of a debt based currency regime, is non-existent.  The usurers need fresh blood in order to sustain themselves and finding no new victims, are beginning to feed on each other.


Bernanke Readies His Helicopters
 Financial Institutions are attempting to hoard dollars on a net basis.  Instead of lending them to productive enterprises, they are paying down their dollar denominated liabilities.  In other words, the productive classes have begun to shun the dollar on a net basis and the ultra leveraged financial sector is beginning to vaporize as the productive debts are cancelled.

Financial institutions see this vaporization taking place at their counterparties and are unwilling to extend them credit on any terms.  The financial institutions which cannot meet their day to day funding requirements then turn to the Federal Reserve to lend them the Dollars necessary to meet their commitments.

The inter day funding action has, in effect, become a high stakes game of musical chairs.

While musical chairs is fun to watch, it is not evidence in and of itself of the collapse.  The evidence of the collapse emerges as we fix our gaze on the logical end of this vicious feedback loop.  The logical end is this:  The Federal Reserve ends up holding every worthless paper asset on the planet on its balance sheet which theoretically backs the dollars which it is emitting in exchange.  The banks, which are left with the dollars as their own “paper asset” and the Federal Reserve are left with staggering liabilities which they pass back and forth as investors, businesses, and consumers increasingly shun their paper.

For the moment, the world may have reached a peak in monetization, and the FED’s money machine is now backing up as the sewage of every bad loan on the planet begins to flood their balance sheet.

It is getting ugly.  How ugly?  So ugly that Bank of America’s website has been down for three straight days, presumably for technical reasons but avoiding an online bank run and forcing customers to pay $8 to bank at the branches come to mind as compelling technical reasons for a website failure.

Meanwhile, Europe is having their own “TARP moment” as Slovakian resistance is sure to be swiftly dealt with.  We know where that will lead.

Yes, the end of the insane system is approaching.  It won’t be long now until the authorities pull out their ultimate trump card, a wholesale change of the currency.  With nearly every government and bank on the planet heading to the poorhouse, it is the only trick that the currency regime has left.
Don’t fall for it, fellow taxpayer, for it too shall fail.

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 October 4, 2011

Gold Price Per Ounce:  $1,624 PERMANENT UNCERTAINTY
M1 Monetary Base:  $2,052,100,000,000 RED ALERT!!!
M2 Monetary Base:  $9,511,300,000,000 YIKES!!!!!!!