Showing posts with label European Debt Crisis. Show all posts
Showing posts with label European Debt Crisis. 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 25, 2012

The Mint’s Euro 2012 prediction – Germany loses on all fronts

6/25/2012 Portland, Oregon – Pop in your mints…

After defeating Greece in the quarterfinals, Germany will now face Italy in the Euro semifinals and, if they are victorious in there, either Spain or Portugal in the finals.  If the 2012 Euro plays out according to the most recent soveriegn credit ratings, according to Moody’s, we should expect the following outcomes from the aforementioned teams:

Germany (Aaa) defeats Greece (Ca), which already occurred on Friday.  Spain (A3) would defeat Portugal (Ba3) on Wednesday, and Germany (Aaa) would come out a hair ahead of Italy (A3).

The Germany would then come out victorious after handling Spain on July 1.

However, as Italy showed England yesterday, poor credit ratings can be overcome on the pitch.  Therefore, we are speculating that Spain will defy Moody’s and take the cup.

Spain to defy Moody’s on the pitch

Ironically, a similar scenario is set to play out at the latest emergency EU summit (we have lost track but believe that there have been at least 14 prior to this one) where the Germans are set to capitulate on not only austerity measures but also restraint on monetary policy.

As unemployment in Europe’s club med regions rises, Germans and Europe in general will be keen to avoid a repeat of the rise of the Third Reich in their neighbors to the south.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for June 25, 2012

Copper Price per Lb: $3.36
Oil Price per Barrel:  $79.31
Corn Price per Bushel:  $6.31
10 Yr US Treasury Bond:  1.61%
FED Target Rate:  0.16%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,585 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  8.2%
Inflation Rate (CPI):  -0.3%
Dow Jones Industrial Average:  12,503
M1 Monetary Base:  $2,192,300,000,000
M2 Monetary Base:  $9,933,900,000,000

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

Wednesday, February 15, 2012

No Love for Greece, The latest casualty of central planning

2/15/2012 Portland, Oregon - Pop in your mints…

The fruits of Central Planning, via the socialized monetary and credit system which is currently managed by the World’s Central Banks, are beginning to ripen, and the whole world is witnessing the latest social harvest of this doomed philosophy in Greece.

From the Associated Press:

“Tensions between Athens and other European capitals have hit new highs this week. While the European Union is officially still warning of the far-reaching dangers of a disorderly default by Greece, some politicians have in recent weeks downplayed the effects of such an event.

… While the Parliament in Athens faced down violent protests over the weekend to approve a far-reaching new austerity package, the cabinet of ministers remained locked in talks Tuesday evening over how to save an extra euro325 million demanded last week by the eurozone.”
It seems that the Greeks are having trouble accepting the well intended budgetary advice which their credit “counselors” (read overlords) in the north are so generously imposing upon them.  Now that the Greeks appear to be balking at their inevitable slide towards a vassal state, the folks in the north are getting restless as their banking syndicates have quite a bit riding on the events unfolding on the shores of the Aegean Sea.

Will the Hellenic Republic submit?
It appears at this hour that the Germans are still unwilling to accept that the Greeks are not like them.  The Euro, which has been a dream for the Germans, is too rigid for the Greeks, who need a currency more suited to their Mediterranean roots.

On the other side of the Atlantic, it appears that the similarly indebted US government will escape the fate of externally imposed austerity which Greece is now suffering.  The Federal Reserve has made it clear that it will print money to monetize the deficits of the US Government for as long as necessary, and the Republican budget hawks have had their wings clipped with their latest capitulation on the extension of the Payroll tax holiday.

These two events, taken together, indicate that the US intends to go for broke and fully embrace the Keynesian dream of printing its way to full employment.

The obvious solution, then, would be for the Greeks to reject the Euro in favor of not the Drachma, but the infinitely flexible US Dollar.

Unfortunately for the US, and the Greeks, should they choose to join them, the Keynesian dream is quickly becoming a nightmare as the folly of central economic planning begins to express itself in the form of runaway.  The policy tools used in the past have succeeded only in stripping the earth and its people of the ability to make productive economic decisions.  What now awaits the world is the inevitable adjustment which is likely to lead to a lower standard of living.

At this prospect, Athens burned on Sunday night, and it appears that the last bastions of austerity in the US capital threw in the towel and, for the moment, Washington is not burning.

The tragedy unfolding in Europe is a painful reminder that the power to mint money was never meant to be given, by edict, to an elect few.

Will the rest of the world learn this valuable lesson before it is too late?

Stay tuned and Trust Jesus.

Stay Fresh!



P.S.  For more ideas and commentary please check out The Mint at http://www.davidmint.com/

Key Indicators for February 15, 2012

Tuesday, November 29, 2011

Rockaway Beach, Jaca, and the illusion of Market Homeostasis

11/29/2011 Portland, Oregon - Pop in your mints…
We are back from a wonderful Thanksgiving holiday spent with family in lovely Rockaway Beach, Oregon.  Rockaway Beach is a gem of a town on the Oregon coast which straddles Rock Creek as it descends from the Coastal Range and violently collides with the Pacific Ocean.

We were fortunate to awake each morning with a front row seat to this raging battle.  At low tide, the creek appeared to make headway as it made its final run into the great unknown.  The beach was immense and inviting, and seagulls roamed the sands to find what the sea had left behind as an appetizer.

At high tide, the sea was angry.  The creek’s advances were violently thrust back again and again as the full weight of the Pacific came in against it.  The beach and its inhabitants disappeared and we were glad to be looking down on the raging waves from the third floor of the townhouse.

We now understand why navigating the mouth of the Columbia River was a fool’s game for centuries.
The central Oregon coast is unique.  It is never quite warm enough, no matter what time of year one visits, to be a suitable substitute for the tropics.  Nor is it ever quite cool enough to be easily categorized as Nordic.  It permanently exists in a state somewhere between these two extremes.

The State of Oregon declared the entire coast a state highway in 1913 and affirmed the beaches as public lands via passage of the Oregon Beach Bill in 1967.  These two actions have kept the coast both accessible to the public and in generally pristine condition. 

Essentially, these are no private beaches in Oregon   For this, we are grateful, as the coast may be one of the most peaceful and photogenic places on the planet.

A stunning sunset at Rockaway Beach

Our time in sleepy Rockaway Beach was pleasant.  Apart from seven miles of coastline, the town has a park and a number of antique and craft dealers.  On Friday evening we were treated to the annual town Christmas tree decorating and lighting ceremony along with an old fashioned sing-a-long led by the school choir.

Songbooks and cookies were passed around and the choir took requests from the crowd.  The last time we experienced such an expression of civic merry making was in the mountain town of Jaca in Aragon.  As we arrived in Jaca, it was dark and persons were flocking to the green in front of the Castle of San Pedro.  They appeared to jump at our car as if from nowhere.

A Family enjoying Rockaway Beach, Oregon


Once settled in to our accommodations, we joined them and were invited to a sing-a-long in the early autumn evening in the Spanish Pyrenees.  But that is a story for another day.  We are having a hard enough time returning from our vacation bliss.  If we reminisce on our time in Spain we may be on permanent vacation.

Homeostasis?

We love the word homeostasis.  It is a complicated way of saying that an organism, or in our case, an economic system, is in balance, in touch with its inner Chi.  We think of a frog sitting on a log, slowly breathing.  Perhaps it is an image burned into our minds by a biology text we once read.  Whatever images the word conjures in your mind, fellow taxpayer, it is unlikely to trigger a flight or fight response.

We seem to have returned from the raging coastline to a market which appears to have achieved a sort of homeostasis.  The rise and fall of equities, many times over 200 points a day as measured by the Dow, should evoke a fight of flight response from market participants.  Yet now commentators and participants barely blink an eye at such moves. 

After trillions of dollars of stimulus, dozens of government bailouts and guarantees, and collectively learning to think the unthinkable, the market must finally be achieving equilibrium, right?

Oh fellow taxpayer, if only it were true.  Unfortunately, the very perception that the market may be at homeostasis may be the indication that we are at an intermission before the dramatic final act of the play in which we all find ourselves unwilling participants, gets underway.

In the final act, the sovereign debt debacle that first appeared in Greece and is now enveloping France and perhaps Germany finds its way across the ocean to the United States of America.  At that point, the US will succeed where Europe, until now, has failed.

As the financial world trains its binoculars on the equity and bond market indicators, they will continue to declare that all is well, the homeostasis that the American authorities so desire will appear to have been achieved.  US bond yields will remain steady and the equity indices will steadily rise.  Even housing may begin to march forward after its long slumber.

No, the US will not default in the traditional way, as Europe is on the verge of doing.  In fact, perceptive fellow taxpayers will quickly point out that the US has been in the process of defaulting for some time now via quantitative easing (QE).

In markets as in a biological system, all of the actors are always pursuing a state of homeostasis.  Yet the rub of homeostasis is that it is impossible to achieve by unilateral force.  It is something that must collectively be achieved.  It is something that only Anarchy, the absence of the State, can bring about.

The final act of this play will be the ultimate display of unilateral force.  In an increasingly desperate attempt to keep bond and equity indices steady, the Federal Reserve will lose control of the currency in what historians will call a hyperinflationary blow off.

Then modern Central Banking, Western Governments, the warfare/welfare state, and all of its grotesque machinations will take a bow and exit stage left…or they will jump off the stage and attack the crowd.
Come to think of it, we may just leave after this intermission.

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 November 29, 2011

Gold Price Per Ounce:  $1,715 PERMANENT UNCERTAINTY
M1 Monetary Base:  $2,095,600,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,664,500,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Tuesday, November 1, 2011

Greece, Inc., Anarchy in action

11/1/2011 Portland, Oregon - Pop in your mints…
You can’t make this stuff up.  In case you are unaware, today, Greek Prime Minister George Papandreou made a surprise call for a referendum on the most next round of bailout funding that its big Euro brothers, Germany and France, spent so much time and political capital to arrange.  From Reuters:

The Greek government faced possible collapse on Tuesday as ruling party lawmakers demanded Prime Minister George Papandreou resign for throwing the nation's euro membership into jeopardy with a shock call for a referendum.

Caught unawares by his high-stakes gamble, the leaders of France and Germany summoned Papandreou to crisis talks in Cannes on Wednesday to push for a quick implementation of Greece's new bailout deal ahead of a summit of the G20 major world economies.
Apparently, it was a surprise even to those in Athens:
Papandreou did not even inform Finance Minister Evangelos Venizelos he was going to announce the referendum on the latest EU aid deal, a government official told Reuters.

"They must be crazy... this is no way to run a country," said a senior executive of one of Greece's biggest firms, speaking on condition of anonymity.
Yes, Anarchy is now trumping the nation state.  Let us examine the phenomenon which is currently playing out in Greece, for it is highly likely to play out in nearly every Western Democracy before Anarchy comes in to give its people a bear hug.

Allow us to present this development in terms of Greece as a Corporation to make clear the absurdity of the present situation. 
George Papandreou Jr - CEO Greece, Inc.
Greece Inc., the security and welfare agency, is one of the oldest in the Western world.  It is currently running an unbelievable operating deficit and is awaiting 8 Billion Euros payable in mid November under a financing deal that its largest creditors have essentially negotiated for it.
Mr. Papandreou, the CEO of Greece, Inc., along with Greece Inc.’s creditors, has been negotiating a new, complex financial deal which will allow the bankrupt corporation to continue to fund its security and welfare activities, albeit at reduced levels.  Without this deal, Greece, Inc. will run out of cash in January 2012.
Mr. Papandreou has been slashing the preferred dividends (welfare payments) and salaries of the Greece, Inc.’s shareholders and employees in order to comply with the terms of the current financing deal.
Looking ahead to January 2012, Greece Inc.’s lenders have “negotiated” yet another deal for it to be able to fund its operations past the corporation’s next D-Day.  Naturally, the deal includes a lot more “shared pain” in the form of further reductions to employee salaries and preferred dividends.  Naturally, this comes as unwelcome news to the employees and shareholders.
Sensing that he is losing control of the company, Mr. Papandreou suddenly feels the need to get “buy in” for the new deal from all affected parties.  Today, without consulting its creditors, Mr. Papandreou announced that he is presenting the complex financial deal for the formal approval of his enterprise’s (Greece) captive shareholders.
To make matters more interesting, he is scheduling the approval vote (aka the referendum) to occur at about the same time that Greece, Inc. is scheduled to run out of cash in January of 2012.  This may be the ultimate in financial brinksmanship.
Naturally, the potential funders (Germany, France, China, etal) are taken aback at the sudden “need” to gain shareholder approval.  This is something that is, while perfectly legal, completely unexpected and has introduced yet one more variable in what is already a complex deal.
Naturally, the introduction of this new variable has sparked anyone who is currently owed money by Greece, Inc. at a future date now trying to sell Greek bonds for whatever they can get for them, virtually eliminating the market for Greek debt and, in the process, making the creditors who are ready to sign the new deal with Greece, Inc. look extremely foolish. 
Beyond foolish, it naturally calls into question the motives, decision making ability, and ultimately the creditworthiness of said creditors Germany, Inc., France, Inc., and China, Inc. and their banking subsidiaries.
Crony Capitalism, there is nothing natural about it.
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 November 1, 2011

Gold Price Per Ounce:  $1,720 PERMANENT UNCERTAINTY
M1 Monetary Base:  $2,071,500,000,000 RED ALERT!!!
M2 Monetary Base:  $9,607,200,000,000 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!!!!!!!