The GDP and Unemployment Red Herrings

2/1/2013 Portland, Oregon – Pop in your mints…

As we begin the month of February, it would appear that the US Economy has suffered from a couple of data shocks, which, taken at face value, would call into question the validity of the current rally in nearly every asset class (save bonds) and give rise to fears of the US slipping into another Recession or worse.

First, the Gross Domestic Product read came in at a negative 0.1% for the fourth quarter.  The GDP is mostly a bogus data point in an economy with a debt based currency.  At this point, the negative data, like most data that will appear this year, will give the Federal Reserve the statistical cover they need to continue QE and decimate the dollar.

The Unemployment rate, which inched up slightly, falls into the same category.  Given the paradigm shift that the US workforce is undergoing as the internet makes geography a non issue for anyone who works from a computer, and the demographic shift as the Baby Boomers ease into retirement make it hard to say what would constitute an appropriate amount of Unemployment at this time.

Full employment has always been a slippery concept, and at this point, the BLS statistics can be counted on to err on the side of covering the inflationary consequences of QE as well.

What has not changed is that people, when given the chance, will tend to spend more money than they have.  This tendency is again being allowed to manifest itself as credit restrictions are easing in the US and soon, even your cat will begin to receive credit card offers as they did in the good old days of 2005.

The Federal Reserve and every Central Bank on the planet have stuffed every orifice of the financial system with cash, so much so that they must lend gobs of it out to remain solvent.  The consumers are taking the bait, and the wave of inflation is now rolling through stocks and commodities.  It will not stop until QE stops.

And given the propaganda that passed as economic data prints this past week, QE will be with us for quite some time.  Plan and invest accordingly.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for February 1, 2013

Copper Price per Lb: $3.75
Oil Price per Barrel:  $97.77
Corn Price per Bushel:  $7.36
10 Yr US Treasury Bond:  2.01%
FED Target Rate:  0.15%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,667 THE GOLD RUSH IS ON!
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.9%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  14,010 
M1 Monetary Base:  $2,455,100,000,000 LOTS OF DOUGH ON THE STREET!
M2 Monetary Base:  $10,412,500,000,000

The currency war to end all currency wars

1/29/2013 Portland, Oregon – Pop in your mints…

With Japan’s recent aggressive devaluation of the Yen, the financial news has again taken up the phrase “currency war” to describe any lack of coordination in the steady devaluation of fiat currencies across the globe.

In a recent piece over at the Financial Times, Niall Ferguson identifies the Bank of England as the current winner in the stealth currency war that is currently being waged.  While the Bank of England may be the winner, the losers are not other nations, as the term war would suggest, but rather the savings of those who are unfortunate to count bank accounts or debt instruments denominated in national currencies among their assets.

Who, then, are the winners in what we have dubbed the currency war to end all currency wars?  In a simplified sense, those who hold the Dow Jones Industrial stock index (not the individual stocks, which are, in the final analysis, a crap shoot) and those who own gold.

In an attempt to illustrate this point while at the same time saving 1,000 words, should the old adage hold true, we have created the following graph, which plots a normalization (which brings the sheer magnitude of the numbers down to a workable scale) of the M1 and M2 monetary measures against both the Dow Jones Industrial Average and gold prices, all averaged on a monthly basis since April of 1968.

Graph of normalized DJIA and Gold assets classes vs. M1, M2, and Federal Funds Rate measures

Those with a keen eye will notice that the only data point that has been on a downward trend since the US Dollar was officially released from the shackles of the gold standard on August 15, 1971 has been the Federal Funds Rate, which in theory should have an inverse relationship with all of the other data points.

We will leave you with three observations from our graphic exercise:

1.  The most volatile of the two asset data sets has been that of the Dow Jones Industrial Average.  However, despite its volatility, its overall trend tends to follow that of the M2, or expanded, money supply measure.

2.  The more stable of the two asset data sets has been gold, which has generally lagged growth in the M1, or base money supply to which it was tied to pre 1971.  Beginning in the year 2000, gold again began to follow the M1 trend.

3.  The light blue line, which tracks the Federal Funds Rate, has been on a downtrend.  The upticks in the Federal Funds Rate, in theory, should have lead to downward ticks in the M1 and M2   As you can see from the graph, this is not the case.

The conclusion of this brief analysis is the following:  Holding Stock Indices such as the Dow Jones should give some measure of protection against inflation over the long term, perhaps even superior to gold.  However, since 2000, gold has held steady as an inflation hedge and generally will have less liquidity risk than stocks.

Finally, and perhaps most importantly, is that upwards changes in the Federal Funds rate, even those as dramatic as were experienced during the Volcker years, have little or no effect on the near term trajectory of the M1 and M2 monetary measures and h

Federal Reserve Effectively Forgives US National Debt

12/11/2012 Portland, Oregon – Pop in your mints…
Last week, we made a vague promise to provide data to back a claim that the US Debt at the FED had already been largely cancelled via the various quantitative easing (QE) operations that have been realized over the past several years.  This fact makes any talk of solving the moronic “Fiscal Cliff” via extreme methods such as minting platinum coins with $1 Trillion face value unnecessary.

In an attempt to illustrate what amounts to an effective forgiveness of a portion of the US National Debt by the Federal Reserve, we offer the following graph, which plots the both the official US National debt as well as the official US National debt net of the Federal Reserve’s holdings as a percentage of GDP.


As you can see, the real US National debt to GDP is closer to 94% rather than the projected 105% which the official US National debt figures would suggest.  The Federal Reserve, at last count, holds roughly $1.6 Trillion of US Treasury debt.  While this debt is still theoretically on the books, it can essentially be removed from consideration when arguing about the need to solve the debt problem, vis-a-vis the moronic Fiscal Cliff debacle that is playing out in Washington.

 94% is an alarming level, but according to our projections, the current US Government current account deficit cycle is about to end as the waves of new currency released into the global economy by the Federal Reserve and other central banks begins to run through the coffers of the US Government.

Despite the desperate proclamations by Congress that it will be difficult to solve their (yes, this is their problem) impasse, indicators such as an EFT that tracks the Defense industry, XAR, which would theoretically be the hardest hit were the US to fail to address portions of the Fiscal cliff such as suspending the sequestered spending cuts agreed upon as a result of the infamous Debt ceiling debacle, are not showing any signs of trouble.

In other words, the financial markets are assuming that the US Congress and Executive, when push comes to shove, will wind up and kick the can a mile down the road, as they did when the debt ceiling was bearing down on them.

According to our projections, there is no debate, the Fiscal Cliff does not even exist, rather, it is a figment of the collective imagination.

We do not believe in money, at least not in the form of money that is currently used in America today, and it appears that the US Congress is beginning to come around to our point of view.  If the Federal Reserve will simply finance deficits ad infinitum, why even bother with the Fiscal Cliff charade?  We are still working to answer that question, and leave it for you, fellow taxpayer, to ponder along with us.

The real question, the one which we wrestle with every day here at The Mint, is when will the faith in the Federal Reserve be destroyed?  With the advent of the various QEs beginning in 2008, the Federal Reserve system effectively collapsed.  The creation of credit was no longer self sustaining in the economy.  The FED has been living on borrowed time.

As December 21 approaches and those who have misinterpreted the Mayan calendar wonder if December 22nd will come, we look forward to the 22nd of December, when the Federal Reserve’s charter is rumored to expire, and YouTube’s “Man of Truth” famously prophesied that the Federal Reserve would go bankrupt. Technically, he said “December 2012″, but, after 99 years, why split hairs?

Chances are that the world will wake up on December 22nd and carry on.  However, if you see the words “Force Majeure” in the financial headlines, get ready to calculate prices in a new currency for 2013.  For the US may swerve to avoid the Fiscal Cliff, but sooner or later it will drop off the currency cliff.

That is when things will get very interesting indeed.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for December 11 2012

Copper Price per Lb: $3.65
Oil Price per Barrel:  $85.84
Corn Price per Bushel:  $7.24
10 Yr US Treasury Bond:  1.65%
FED Target Rate:  0.16%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,710 THE GOLD RUSH IS ON!
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.7%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  13,284
M1 Monetary Base:  $2,457,800,000,000 LOTS OF DOUGH ON THE STREET!
M2 Monetary Base:  $10,275,200,000,000

QQE – Quantum Physics meets Central Banking

10/4/2012 Portland, Oregon – Pop in your mints…

There is much confusion amongst economists regarding the effects of the various programs which are currently being run by the largest of the Western Central Banking cartels known as Quantitative easing, better known its keystroke saving acronym, QE.

For the uninitiated, QE involves the Central Bank issuing currency in exchange for government debt and all other manner of otherwise worthless financial assets provided to it by the banking class.  In the best of cases, it provides liquidity for what otherwise would be a temporary hiccup in an otherwise healthy economy.  In the worst of cases, which most who have taken a sober look at the financial industry would agree we are in, it serves as a backstop for financial asset prices, placing an artificial floor under the price of what passes as collateral in the financial system.



In any case, the Central Bank agrees to swap the wine of its currency for the sewage on bank balance sheets.  As anyone who has put this theory to the test will tell you, if you add a teaspoon of wine to barrel full of sewage, you get sewage, while if you add a teaspoon of sewage to a barrel full of wine, you get…sewage.



QE- Sewage in disguise

 Following this analogy, the existence of QE meant that the currency of all of the Western world is now, sewage.

While the pure, hard money Austrian school analyst sees it as a prelude to a hyperinflationary event, the Keynesian sees it as a necessary evil.  At this point, there is no real argument that QE is, on the surface, inflationary.  However, the perverted feedback loop between the Central banks’ issuance of currency, the Governments’ issuance of debt, and the banking sector serving as an increasingly weak middleman, has managed to keep a large portion of the freshly created currency parked in either the Treasury or at the Central Banks in the form of excess reserves.

As the logic of the Central Bank goes, once the storm blows over, the stars will align and all of the sewage will turn back into wine.  The currency created as a part of QE will simply disappear, as it never really left the FED anyway.

Simple logic, right?  You can almost cut the naivety with a knife.  The fact is that the freshly minted currency is here to stay.  As long as the Governments, Central banks, and banking cartel exist in their present form, none of them can afford for even a cent of the sewage they have created to disappear.  It is there for the long haul.  All the average man or woman can hope for is that the sewage doesn’t spill off of their balance sheets or work its way to the water supply of the real economy.

All of this is old hat to fiat currency hounds and bond vigilantes.  The dangerous new twist which is just now in its infancy is the application of quantum theory to the mix.

Here, we must turn to the razor sharp intellect of Mr. Walayat, whose analysis over at The Market Oracle is on the cutting edge and generally spot on.

Walayat, along with Lee Adler of the Wall Street Examiner, are amongst the handful of analysts with a true understanding of the banking system and the motives and logical consequences of the actions of the Central banking cartel.

As the currency event in Iran unfolds, those of us in the “secure” West would do well to read up on what awaits as the Western Central banks throw their inflationary machines into overdrive, what Walayat refers to as “The Quantum of Quantitative Easing, or the keystroke saver: QQE.”

The operation of QQE is simple and predictable, yet unnecessarily mind-boggling.

As in a standard QE operation, it begins with the Government issuing debt which is purchased by members of the banking cartel in exchange for currency, which it then spends on any number of pet projects.  The Central Bank then buys the Government debt from the banks and receives the interest which is paid by the Government.  The Banks park the currency they have received from the Central Bank at the Central Bank and earns interest.

QQE ensues when the Central Bank then returns to the Government the difference between the interest paid by the Government on its own debt and the interest paid out to the Banks to keep them afloat.  As the Central Bank will never take a nominal loss on their debt holdings, and the Government will never default as long as QE remains in place, The Government is not borrowing at the implied interest rate that it auctions its debt at, rather, it is effectively borrowing at the rate that the banks earn on their reserves deposited at the Central bank, less the cost of the Central Bank’s operations!

Is your head spinning yet?  Stay with us, it gets better.  The longer that the policy of QE continues (and it will continue until the currencies of the world blow up, as the Iranian Rial is in the process of doing,) the Government is effectively swapping out its old debt, issued 30 years ago at anywhere between 11 and 14%, for new debt at an effective rate of 0.25%!  Those interest savings on the rollover are the rocket fuel of QQE.  They are what will allow the Governments to both ramp up spending and reduce the relative size of their balance sheet.

By the way, those “savings” come at the expense of every person and organization which holds the currency as a savings vehicle.

In order to gain a fuller understanding of just what is going on, read the articles linked in the above paragraphs at your leisure.  They will help to make sense of what is occurring as we begin to see the paradox of increased government spending and reduced or stable levels of national debt.

Oh yes, and double digit real inflation rates, despite the irrelevant claims of the BLS propaganda machine.  Plan accordingly, this is not a drill.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for October 4, 2012

Copper Price per Lb: $3.77
Oil Price per Barrel:  $91.45
Corn Price per Bushel:  $7.57
10 Yr US Treasury Bond:  1.67%
FED Target Rate:  0.16%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,790 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  8.1%
Inflation Rate (CPI):  0.6%
Dow Jones Industrial Average:  13,575  
M1 Monetary Base:  $2,355,800,000,000
M2 Monetary Base:  $10,070,300,000,000