Is the Global Financial System Losing its Grip on Reality? Other Observed Absurdities

3/1/2011 Portland, Oregon – Pop in your mints…

Somehow, Moammar Gadhafi's regime survived February and is beginning to fight back in the face of threats from the West.  As we ponder these events, we can't help but wonder what the rest of the world thought as the Civil War in the United States was unfolding.  Would there have been call to freeze Abraham Lincoln's assets?

Unless there is some conspiracy theory that we have not heard of, Honest Abe didn't have any assets that could be frozen.  The man grew up in a log cabin in Illinois and as far as we can tell was a true public servant.  While we suspect that the war between the States was based more on the economic interests of the North than its other more famous disputes, we doubt that Abe had any personal economic interest in its outcome.

Fast forward to today.  The Mubaraks and Gadhafis of the world rule by virtue of being the addressee of all of the checks that the West sends to pay for the oil that is shipped from their respective countries.  In turn, they spend much of their money on their personal security detail, which passes for the nation's military and police forces.  This is the only way to stay on top in the Arab world, by exhibiting a massive show of force.

Then, when it looks like the West might begin to bounce checks, they begin to trade directly in arms.

And now the revolutionary fire is literally spreading to Oman!  Protesters there have set a supermarket ablaze.  Again, the AP and perhaps the protesters themselves get it wrong when they demand

"higher salaries, jobs for unemployed youth, and the dismissal of some government ministers." 

If those were your demands, would you not better make a statement by burning the building of someone who you thought should be doing something about your grievances?  What the poor supermarket may have had to do with government ministers we can only guess.

No, the supermarket was burned as an obvious protest of high food prices, which we at The Mint maintain is the root cause of these revolutionary fires, with the Federal Reserve and other Central Banks as the main culprits.

Not having any personal experience as a dictator nor as a central banker, we can only speculate as to how this all works based on what we observe.

Speaking of speculation, the Wall Street Journal yesterday ran a story about investment banks selling credit default swaps that protect against failure by General Motors to pay its bonds.  The irony is that General Motors emerged from bankruptcy with no bonds outstanding!  There is currently no risk that the investment bank will have to perform on the contract.  What a racket!  From the Journal:

"Fresh from Wall Street's alchemy labs: Credit derivatives tied to General Motors Co. debt. The rub is, no such debt exists.

Banks and hedge funds are trading credit-default swaps, which make payments to holders of General Motors bonds in the event of a default. But GM canceled $40 billion of debt in bankruptcy and has pledged to cut its remaining $4.6 billion bank loan to the bone this year.

That is merely a technicality for the banks and hedge funds that have been actively trading the CDS.

Banks, some of which have made loans to the car maker, have been buying the CDS even though it is unclear whether the contracts would cover their debts, according to people familiar with the matter. Hedge funds have been happy to sell the protection, which allows them to make bullish, or "long," bets on the auto maker."

As one astute commentator puts it:

"Would you pay some company a mortgage insurance premiums on a house that is completely paid off? The global financial system has lost all basis in reality. Another crash is inevitable."

These same investment banks are the geniuses who want to help us plan for retirement.  Things in the financial world are making Las Vegas seem like a regulated market.  The Financial Market and the attempts to reign in its excesses are looking more and more ridiculous by the day.  Stay in cash and gold or silver, fellow taxpayer!

And speaking of ridiculous, it appears that the logo for the 2012 Summer Olympic Games in London is not only lame, but apparently offensive to Muslims.

2012 or Zion?  We can't make out either!

Apparently if you look closely enough you can clearly see the word "Zion."  Frankly, we have to strain to make out the "2012" that these blotches are supposed to represent.

Hang on tight!  Things are bound to get stranger!

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  If you enjoy or at least tolerate The Mint please share us with your friends, family, and associates!

Key Indicators for Tuesday, March 1st, 2011

Copper Price per Lb: $4.44
Oil Price per Barrel:  $97.39
10 Yr US Treasury Bond:  3.41%
FED Target Rate:  0.15%

Gold Price Per Ounce:  $1,411

MINT Perceived Target Rate*:  4.25%
Unemployment Rate:  9.0%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  12,226
M1 Monetary Base:  $1,805,500,000,000
M2 Monetary Base:  $8,870,700,000,000

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

Revolution Fire Continues to Rage, What’s wrong with Anarchy?

2/24/2011 Portland, Oregon – Pop in your mints…

Today we can hardly believe our eyes.  What appeared to be a simple revolution in a remote land, Tunisia, has begun a chain of events that may touch every person on the planet before it is through.  We will call it the "Fire" of revolution, at it seems to be catching everywhere.  The grievances of a generation are beginning to be aired in public forums from Tripoli to Madison, Wisconsin.  As you are aware, we are of the opinion that the spark for this fire began it what may appear to be a very far away place.  Washington, D.C.  

While many conspiracy theorists have their own, well, theories, we believe that this is collateral damage from the Federal Reserve's misguided attempt to leave no debt unpaid by simply printing the money up to pay them.  It is simple enough to do in their ivory towers, but the consequences in the real world, in the form of trade and production imbalances, which are sometimes referred to as "Malinvestments," are absolutely and totally destructive to balance in society.

The consequences of printing money are generally felt in two forms.

The most obvious form is what is being seen in Greece and now Wisconsin.  In these cases the government made promises to workers, retirees, and other constituents that they cannot honor.  The governments appear to be doing the honest thing and are effectively defaulting on these promises.  However, they are attempting to default at exactly the wrong moment, as the increased money supply begins to pinch workers in the developed world.  In both cases, many public workers are simply being asked to give up privileges such as the ability to take a long holiday at the beach.  In both cases, we are seeing sometimes violent evidence of just how hard it is for the government to default on its promises.

The less obvious and more damaging form of consequences are what we are seeing in Tunisia, Egypt, Yemen, Algeria, Bahrain and Libya.  In these cases, the governments are not technically defaulting on promises, rather, they are seen as the scapegoats for rapidly rising food costs which threaten to drive many to the point of starvation.  These rising food costs are the indirect result of the governments in the developed world attempting to give their public employees holidays at the beach.  Naturally, with the stakes higher in the developing world, a sense of desperation has set in and the pace of and violence involved in the uprisings is markedly higher.

Raging Against the Machine in Madison, Inflation Only Beginning to Take its Toll

2/21/2011 Portland, Oregon – Pop in your mints…

The world is beginning to rage against the machine.  Egypt, Bahrain, Libya, and Madison Wisconsin?  Yes, it appears that the airing of grievances knows no borders.  It is difficult to be a leader today.  Whether you are a sheik in a desert kingdom or the governor of the cheese heads, the job has gotten increasingly more difficult.

Why?  Again, numerous reasons are being spouted off by numerous analysts.  The general explanation, if you can call it that, is that the Arab world suddenly wants "Democracy."  In the land of Cheese, Unions of public employees are protesting to defend their "right to collective bargaining."  In both cases, we suspect that these folks simply want money and expect the government to give it to them.

Take the case of Egypt.  After the dictator who ruled for over 30 years stepped down, promising a transition to democracy, you would think that the crowds would go home and patiently wait for their ballots to arrive in the mail.  Yet they continue to riot in the streets with more intensity. 

We offer Iraq as another example of democracy failing to satisfy the masses.  After nearly 8 years of war to ouster Saddam Hussein, the Iraqi people are openly expressing their anger at their democratically elected government.

In Wisconsin, which theoretically has had a democracy since it obtained statehood, protestors are camped out on the floor of the legislature and taking to the streets in great numbers in an attempt to prevent the government from reneging on their promises.  What a sight!

As we have stated before, there is but one reason for this sudden outpouring of grievances, inflation of the money supply.  Inflation is fun when asset prices are rising, it is not so fun when the cost of food and gasoline are rising.

South Carolina to Secede Once Again? The World Bank Acknowledges Skyrocketing Food Costs

2/16/2011 Portland, Oregon – Pop in your mints…

Oh, fellow taxpayers, it as if some sort of dam has been breached and all sorts of mayhem and shenanigans are barreling down upon us.  What has happened?  What is the cause?  Why, out of nowhere, have governments fallen in the Middle East with the promise of more ousters to follow?  Why is the Italian Prime Minister still in office?  Why have the oppressed of the world begun to speak out, almost in unison, against perceived injustices?

Is it Social Networking, Facebook, Twitter?  Despite what we think, many of those who are rioting may scarcely be able to read or write, let alone operate a computer.  While this may help to facilitate, we doubt these tools in themselves have the power to agitate.

The one thing that tends to affect everyone all at once are rising food prices!  Even the World Bank seems to be getting it.  In a recent report, they state that global food prices have jumped a whopping 29% in one year.  The report goes on to blame export bans and weather disruptions as part of the problem.  What it doesn't state, but what is obvious now to Mint followers, is that dramatic increases in the global money supply, spewed into the banking system by every Central Bank on the planet, are now finding their way into basic commodity prices.

You see, the Central Banks of the world, through their actions, may have given the current insane monetary system a few more years to survive, but they have essentially stolen the wages of the masses.  This is why they are rioting.  People will tolerate shenanigans at all levels of government as long as they are fed and see better things on the horizon.

Now that the Central Banks have virtually assured that neither of those things will happen for at least 3 years and counting, the floodgates have opened for any sort of grievance to be publicly aired.  It is as if a season of Festivus for the rest of us has been declared!

The Egyptians tolerated Mubarak for 30 years until he could no longer feed them.  He fell in 18 days.

Obama’s Budget to be Nipped, Tucked, and Enhanced, Thoughts on True Freedom

2/15/2011 Portland, Oregon – Pop in your mints…

Yesterday President Obama presented his proposed budget, only five months late, not bad for government work.  The Federal Government rarely passes a budget on time and is accustomed to operating on autopilot for months at a time.  Since the FED is currently buying up all of Uncle Sam's freshly minted Treasury Debt, it should come as no surprise that they are not in a hurry to pass any kind of budget.

Yet at some point, the political theater demands the annual budget show, or showdown, as this year's version may be called.  Mr. Obama, the protagonist, appears to have alienated nearly everyone with this proposal.  Apparently the overextended and inefficient governmental operation currently being run cannot be scaled back without ruffling a few feathers.   

After accelerating government spending into a realm which has never been seen before, the proposal promises to cut the annual Federal deficit in half by the end of his first term.   

We wouldn't hold our breath.  His budget optimistically assumes that GDP will grow BY 3.6% in 2012 and 4% thereafter.  GDP growth is easy to obtain when all you have to do is plug numbers in to a spreadsheet.  It is much harder to achieve in an economy bent on destroying itself.