US Jobless Rate Prints Lower, Prepare for a FED Target Rate Hike!

3/7/2011 Portland, Oregon – Pop in your mints…

On Friday the world rejoiced as the US Unemployment rate dropped from 9% to 8.9%.  Amazing, right?  Look out, the recovery on main street is underway!  So amazing that the Dow dropped 150 points and Gold rose $12.  Even Treasuries rose mildly, defying all logic.  What does it mean?  Why is this good news immediately followed by action that, in market parlance, is a predominant flight to safety?

For the most part, what happens daily in global markets is rubbish.  It is the product of an insane combination of Investment Banks robbing their clients by front-running their trades, hot money flashing in and out without warning, panicked responses to margin calls, window dressing of mutual fund investment results, and plain old fashioned gamesmanship.  All of this action literally dwarfs the honest investor who is simply trying to "buy and hold" what they think is a good investment.  For an interesting narrative of these phenomena, please check out this link from zerohedge.com:  A Deep Walkthru for Silver Manipulation – Redux.

So we must look beyond the daily grind and grasp at good old common sense to understand what is going on.  Before we begin our rambling explanation, we must let you in on a secret:

We don't know what is going on.  But we take courage, if not comfort, in the fact that neither do Bernanke, Geithner, Obama, Greenspan, Trichet, Merkel, or any of the other people who are paid by the public to know.  Our bumbling ignorance, on the other hand, is done on our own nickel.

Now that the secret is out, we will tell you what we think is going on.

The FED is going to increase their Target Rate.  Ben Bernanke doesn't want it to, for reasons documented here at The Mint.  Neither do the FED's member banks.  To Bernanke, it means that he won't get to test his academic theory that the only reason the Great Depression got the "Great" adjective was that monetary and fiscal stimulus was shut off too soon.

For the member banks it is much more serious, they will need either TARP 2 or a miracle to survive any increase in short term rates.  Given the popularity of TARP, a miracle seems more likely.

Despite their objections, the markets are beginning to trump even the most powerful monetary authority on the planet and his evil legions of member banks.  The trump card?  Skyrocketing gold and silver prices.  People are beginning to understand the scam that is the global financial and banking system and to put their money into hard assets like gold and silver before the monetary authorities can sell the next version of their monetary scam to the public. 

When people get their money out of the banking system and into hard assets, they are no longer fleeced at will by the monetary regime.  They are free!

An economically free people is the last thing that the monetary authorities want, and they are willing to sacrifice the weak among their member banks to assure that the people remain enslaved.

The FED Funds Rate Categorically Moves Inversely To the Unemployment Rate - Courtesy of Calculatedriskblog.com

The decrease in the unemployment rate, as small as it is, gives Bernanke a theoretical basis to raise the FED short term rate.  The increase, or the threat of an increase, is enough to bring the Dow down as money floods out of equities as banks increase cash holdings in anticipation.

More importantly to the monetary regime, the increase will bring down the gold and silver price, making staying in the banking system look like a better option.

Don't take the bait, fellow taxpayer!  Rather, when the price drop comes, our guess is it will arrive in May or June, see it as a buying opportunity for the metals.  If you need proof that precious metals serve as a better form of money and savings than bank deposits, you can investigate the past 5,000 years or so of human history to see which paper currency has maintained its value better than gold or silver over that time period. 

Or, you can save some time if you just take The Mint's word for it!

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 Monday, March 7th, 2011

Copper Price per Lb: $4.47
Oil Price per Barrel:  $104.42
10 Yr US Treasury Bond:  3.49%
FED Target Rate:  0.15%

Gold Price Per Ounce:  $1,433

MINT Perceived Target Rate*:  4.25%
Unemployment Rate:  8.9%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  12,170
M1 Monetary Base:  $1,876,700,000,000
M2 Monetary Base:  $8,871,100,000,000

*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.

Ben Bernanke Gives his Mid-Year Report on the Monetary Stimulus Price Spiral

3/2/2011 Portland, Oregon – Pop in your mints…

The situation in the Middle East continues to unfold in an absolutely fascinating way, one that will reshape the world in the years to come.  As with many world changing events, it has caught everyone completely off guard! 

Meanwhile, here on the other side of the globe, US policy makers bumble along a familiar path to ruin, one that empires have followed for millennia on our fair planet.  As the prospect of QE 3 is thrown around in FED land, the public is beginning to ask questions.

Yesterday Ben Bernanke marched up Capitol Hill, as he has done often lately, in an attempt to explain the unexplainable.  Officially, He delivered the Fed's semiannual Monetary Policy Report to Congress.

You can see his prepared remarks here.  We will save you some reading by summarizing it for you in plain English:

Economic Outlook:  The outlook is mostly gibberish and full of hedged predictions.  Generally, prices are rising while wages are not.  Nothing new here other than our bewilderment as to how these circumstances translate into 3.5% to 4% GDP growth.

Monetary Policy:  Bernanke claims that the FED can contain inflation easily, should it appear.  Once again, nothing new here.

Federal Reserve Transparency:  The FED wants Congress to remain in the dark and subservient to it.  Again, nothing new here.

At this point we feel sorry for the man.  As high priest at the Federal Reserve, he must now profess blind faith in and publicly defend an absolutely insane notion, the notion that an economy can somehow be centrally managed by simply tweaking short term interest rates.  Since that tactic has failed, he has moved on to printing money.

What would the Keynesian School High Priest say if He could?

As the monetary experiment becomes more bizarre, so do Mr. Bernanke's explanations.  So bizarre, that we doubt that even he believes them.  For the entertainment and education of our dear readers, we offer the following question and answer session with Mr. Bernanke.  The questions are posed by Congress and, by extension, the American people.  There are two answers to each.  First, what the dictates of Mr. Bernanke's religion obligate him to say and second, what Mr. Bernanke may tell you if he was a rational person after a few drinks at the bar.  More concisely, what he would like to say but can't!

Congress:  Why is the FED printing money to buy bonds?

Bernanke's Verbal Response:  To stimulate the economy.

What Bernanke would like to say:  Because if the FED doesn't buy them, the market for US Treasuries will Collapse!  How would you like to deal with 100 million angry Americans when their tax return checks bounce?

Congress:  Is it working?

Bernanke's Verbal Response:   Yes, but I cannot show you the specifics.

What Bernanke would like to say:  Of course not!  But it is the only thing we can do to try to hold this sham of a financial system and government together until 2012.

Congress:  Won't this cause runaway inflation?

Bernanke's Verbal Response:  A majority of my colleagues believe that it will lead to only slight inflation. While this is a problem to many of your constituents, it does not pose a significant risk to the recovery or overall inflation.

What Bernanke would like to say:  Define "runaway inflation."  If by "runaway inflation" you mean will people soon be using dollar bills as toilet paper, then yes, it will.

Congress:  Why isn't the unemployment rate dropping?

Bernanke's Verbal Response:  There is considerable slack in the U.S. economy and until this slack is picked up in the form of increased production, employment gains are likely to be muted.

What Bernanke would like to say:  American workers have priced themselves out of the global labor market.  Congress stifles innovation through a mountain of rules, regulations, and corresponding fees and taxes.  Do you want me to go on?

Congress:  Why are oil prices rising?

Bernanke's Verbal Response:  Because of the current tensions in the Middle East in addition to increased demand from China and other fast growing economies.

What Bernanke would like to say:  Because we are printing money to buy your worthless bonds, and absolutely and completely tanking the dollar in the process.  It seems that Congress is the only group of people on the planet who are not aware of this.  Of course, it is in your best interests to plead ignorance for such insanity.  By the way, your country is sitting on a nearly 2000 year supply of oil if you would quit listening to the tree-huggers.

Congress:   What will happen if we don't raise the debt ceiling?

Bernanke's Verbal Response:  That would be extremely dangerous and a recovery-ending event.

What Bernanke would like to say:  Are you insane?  Haven't you read The Mint?

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 Wednesday, March 2nd, 2011

Copper Price per Lb: $4.47
Oil Price per Barrel:  $100.16
10 Yr US Treasury Bond:  3.41%
FED Target Rate:  0.16%

Gold Price Per Ounce:  $1,433

MINT Perceived Target Rate*:  4.25%
Unemployment Rate:  9.0%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  12,058
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.

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.