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

Copper Price per Lb: $3.38
Oil Price per Barrel:  $99.34

Corn Price per Bushel:  $5.98  
10 Yr US Treasury Bond:  2.00%
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,715 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.0%
Inflation Rate (CPI):  -0.1%
Dow Jones Industrial Average:  11,556  

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!!!!!!!

The FED draws on its RRP Revolvers; Inflation solves the National Budget crisis and crushes the poor

11/8/2011 Portland, Oregon - Pop in your mints…

“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than output” – Milton Friedman

Today we came across evidence that the massive amounts of money created out of thin air may no longer be benignly parked at the Federal Reserve.  From Lee Adler at the wallstreetexaminer.com:

“The Fed was hit with withdrawals of $83.3 billion last Wednesday, the largest withdrawals from its deposit accounts that were not associated with quarterly tax payments since February of 2009…The Fed was apparently forced to take extraordinary measures to fund these withdrawals. These included the outright sale of nearly $24 billion in its Treasury note and bond holdings from the System Open Market Account. As a result, the Fed’s System Open Market Account (SOMA) fell to $2.611 trillion, some $43 billion below the Fed’s stated target of $2.654 trillion.”

Could this be the reason that Italian Bonds yields are surging and the ECB cut rates unexpectedly last week?

Could this be the reason that the BoJ had to expand its Yen debasement program to the tune of 5 trillion yen?

Ever since the FED opened swap lines with foreign central banks, it has generally been the FED lending money to the foreign banks to assure liquidity.  In this unexpected turn, the FED had to call in some of those loans to meet its own liquidity needs.



The FED is forced to draw on its RRP Revolvers

 Could this be the first of what history will call a “Central Bank Run”?  Only time will tell, but we would expect the FED to announce another, large scale dose of QE (Quantitative Easing) of its own in the next few weeks in an attempt to meet a similar event with fresh cash instead of a disruptive firing of its RRP revolvers.

In a way, this is the moment that the FED and all of the taxing authorities on the planet have been waiting for.  Inflation is a government’s best friend.  It allows the wealth destruction that these defense and welfare agencies engage in to continue while socializing the costs in a manner that is imperceptible to the untrained eye.

Even the Deficit Super Committee is onto this fact.  They are now discussing the use of the “Chained Consumer Price Index (CPI)” in place of the current CPI calculation for everything from Social Security COLAs to tax brackets to welfare qualification thresholds.  From AP:Do you see how it works, fellow taxpayer?  Inflation, combined with statistical shenanigans intended to mask it, is the magic pill for broken government finances.  It is no secret that the Government’s finances are a disaster, which is why we expect to inflation in generous doses.

“Just as 55 million Social Security recipients are about to get their first benefit increase in three years, Congress is looking at reducing future raises by adopting a new measure of inflation that also would increase taxes for most families –(with) the biggest impact falling on those with low incomes.

If adopted across the government, the inflation measure would have widespread ramifications. Future increases in veterans' benefits and pensions for federal workers and military personnel would be smaller. And over time, fewer people would qualify for Medicaid, Head Start, food stamps, school lunch programs and home heating assistance than under the current measure.

Taxes would go up by $60 billion over the next decade because annual adjustments to the tax brackets would be smaller, resulting in more people jumping into higher tax brackets because their wages rose faster than the new inflation measure. Annual increases in the standard deduction and personal exemptions would become smaller.”

How exactly does “Chained CPI” differ from the current CPI calculation?  The article goes on to explain:

“Many economists argue that the chained CPI is more accurate because it assumes that as prices increase, consumers switch to lower cost alternatives, reducing the amount of inflation they experience. 

For example, if the price of beef increases while the price of pork does not, people will buy more pork. Or, as opponents mockingly argue, if the price of home heating oil goes up, people will turn down their heat and wear more sweaters.”

Are you laughing yet?  Perhaps crying?  Now listen to how the Government justifies it:

“A report by the Moment of Truth Project, a group formed to promote the deficit reduction package produced by President Barack Obama's deficit commission late last year, supports a new inflation measure. "Rather than serving to raise taxes and cut benefits, switching to the chained CPI would simply be fulfilling the mission of properly adjusting for cost of living," it argues.”

After all, you can always put on a sweater, right?

Where the Government’s logic, and ultimately society, begins to break down is at the point when all prices, beef, pork, heating oil, and sweaters begin to rise astronomically in tandem with each other.  At that point, it becomes painfully obvious that the problem lies in the currency, not with the producers. 

Unfortunately, at that point, the Government will have long since vilified and persecuted speculators and producers for alleged price gouging to the point that the productive part of society, those who grow food and produce raw materials, will have completely ceased to produce and/or fled the country.  The subsequent lack of production will result in an increasingly scarce stock of real goods being quickly priced and re-priced in a currency which is produced at an incredible surplus.

In layman’s terms, these events will be summed up in the phrase “hyperinflation.”

If the FED has to draw once again on its RRP revolvers, it will be clear that the benign growth in the M2 money supply will have become malignant, and that hyperinflation will soon be in full bloom.

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 8, 2011

Copper Price per Lb: $3.54
Oil Price per Barrel:  $96.44

Corn Price per Bushel:  $6.63  
10 Yr US Treasury Bond:  2.01%
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,737 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.0%
Inflation Rate (CPI):  0.3%
Dow Jones Industrial Average:  12,040  

M1 Monetary Base:  $2,122,700,000,000 RED ALERT!!! THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,507,600,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Bernanke fires up the Helicopters and Precious Metals Blast off!

7/13/2011 Portland, Oregon - Pop in your mints…

Today Bernanke went before the US Congress and gently laid down the gauntlet. If Congress fails to raise the debt ceiling soon (by August 2^nd, we are told), it could have catastrophic effects on the economy.

Given that nearly the entire banking system on the planet depends upon the US Treasury being Grade A debt, Mr. Bernanke may again be credited with the understatement of the year!

We pity Mr. Bernanke. He is like a pilot flying an Airbus aircraft that is stalling at extremely high altitute. We don’t know much about aircraft but we understand that Airbus aircraft, with their European design slant, do not give a pilot much freedom to override the plane’s automated systems. It assumes that all of the necessary corrective actions can be pre-programmed and, if the plane begins to stall, the computers take over to attempt to correct the problem.

Actual Airbus pilots are free to dispute the merits of our oversimplification. We just needed a metaphor.

Back to Bernanke, with the autopilot mechanism failing, the pilot does not know what to do. If the US Congress had dutifully raised the debt ceiling as it had 94 times in the past, as the Airbus autopilot manual said it would, Bernanke’s reaction to the most recent US jobs report would have been to simply propose a third round of quantitative easing (read: money printing or counterfeiting of currency).

On the Airbus, he would get on the intercom and say “please fasten your seatbelts until we pass through this patch of rough air.”

However, the failure of the US Congress to reach a deal to raise the debt ceiling has thrown a wrench in his plans. What is his plan now? Think helicopters, Zimbabwe, Gideon Gono.

Mr. Bernanke is going on a safari!



Yes, fellow taxpayer, with each day that passes, it is becoming clearer to the majority that Mr. Bernanke is unwittingly following in the footsteps of none other than Gideon Gono. Some may recall that Mr. Gono, the Governor of the Reserve Bank of Zimbabwe, was forced to “do extraordinary things that aren’t in the textbooks,” meaning that he oversaw the printing of large amounts of his country’s currency which produced an amazing modern example of hyperinflation.

In an interview with Newsweek in early 2009, Gono offered an explanation for his actions and predicted that the US would do the same, as it has:

“I've been condemned by traditional economists who said that printing money is responsible for inflation. Out of the necessity to exist, to ensure my people survive, I had to find myself printing money. I found myself doing extraordinary things that aren't in the textbooks. Then the IMF asked the U.S. to please print money. I began to see the whole world now in a mode of practicing what they have been saying I should not. I decided that God had been on my side and had come to vindicate me.”


The hyperinflation in Zimbabwe led to shortages of real goods and destroyed the economy. Why would Mr. Bernanke’s experiment end any differently?
Meanwhile, over in the Eurozone, the Airbus is in rapid descent and everybody on the plane is offering ideas as to what went wrong and how to fix it. Its auto-pilot has not been programmed to deal with the failures the plane is experiencing and as the pilots and passengers engage in a heated debate, none are able to grab the controls much less safely land the aircraft.

it will not be long before impact and the smarter passengers are starting to grab for the parachutes made of Gold and Silver. Gold closed up almost 1% to a record of $1,583 and Silver gained nearly 6% on the day.

Back in the US, whether or not Congress passes legislation to raise the debt ceiling is irrelevant. The US Treasury will borrow and the FED will print even without Congressional approval. That is what makes modern Government fun, if you don’t like a rule, just ignore it and claim that you were exercising “Leadership.”

All of the countries in the Eurozone will soon surrender their sovereignty to Germany and the IMF in exchange for the “privilege” of using Euro as currency. The ideological divide that is being exposed in the US may eventually lead to civil war.

But these events may be small compared to what is occurring in the Middle East. Iran opened its own international Crude Oil exchange today which is akin to declaring war on the western governments and banking interests.

And keep your eyes on Palestine. The UN vote on Palestinian statehood in September is eerily similar to the vote 62 years ago when the UN accepted Israel as an independent state. Our guess is that this vote will spark events there that will capture the attention of the whole world.

Stay tuned and Trust Jesus.
Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

P.S. If you enjoy or at least tolerate The Mint, please share us using the buttons at the top of this post. If you feel that you can’t go another day and risk missing The Mint, please register by clicking here. Thank you!

Key Indicators for July 13, 2011

Copper Price per Lb: $4.35
Oil Price per Barrel: $97.83
Corn Price per Bushel: $7.26
10 Yr US Treasury Bond: 2.89%
FED Target Rate: 0.07% JAPAN HERE WE COME!
Gold Price Per Ounce: $1,582 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.2%
Inflation Rate (CPI): 0.2%
Dow Jones Industrial Average: 12,492 TO THE MOON!!!
M1 Monetary Base: $2,020,000,000,000 RED ALERT!!!
M2 Monetary Base: $9,112,300,000,000 YIKES!!!!!!!

*See the MINT Perceived target Rate Chart. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.