7/14/2014 Portland, Oregon – Pop in your mints…
A great deal has occurred since our last correspondence, most of it bad news for what passes today as monetary policy.
Fellow taxpayers have no doubt noticed that our once faithful
correspondence has been less than faithful over the past several months.
While explanations amongst chums the likes of which we have become are
unnecessary, we offer a brief glimpse as to how The Mint has been
spending his precious time as of late.
For starters, we have been frantically reconstructing 2013 and making
various systems upgrades on our most recent assignment. Now that the
work has been done and passed audit, we are moving through regular
compliance reports and are about to begin the second part, (our personal
favorite) of our not quite patented one/two accounting and treasury
systems overhaul: The treasury overhaul part of the program.
Here we digress into what we consider our unique philosophy on data
processing with regards to accounting information systems. If you could
care less about such matters, please scroll to the next bolded heading
to return to our long running commentary on the failing debt based money
supply.
A mere 11 years ago, we considered ourselves an accountant. We acted
like an accountant, worked like an accountant, even smelled like an
accountant (if indeed accountants can be said to have a smell about
them).
Then we went to Spain, and had nothing short of an epiphany, which is
as follows: Real business people could care less about proper
accounting, they simply want the accounts collected and the bills paid, a
steady stream of cash in the bank, and they want to get real-time
financial metrics which will let them both know how their past decisions
have fared and, more importantly, allow them to make better decisions
about the future.
With this epiphany fresh in our mind, we realized that most
accounting systems, while built by programmers to serve the business
person, had been hijacked by accountants when they were set up, in most
cases rendering the information the business person was to receive
subject to seemingly infinite torture by the accountants before it could
be presented, at which time the information was neither timely or
useful to the business person.
With this realization, we developed our two-step approach to
assisting business people in reclaiming their accounting data. The first
step involves ensuring that the accounting system they are using is
both adequate (it may come as a shock that many companies pay too much
for systems that are no longer a good fit for them) and set up to
capture and report the business’s financial data in a way that
facilitates high level decision-making.
The second step involves addressing the issue of the timeliness of
the data. We realized that in a great majority of transactions, the bank
received the data before the accounting department did, and much
valuable time and effort was wasted by waiting for the accounting
department to input data into the accounting system, much of which was
provided by the bank rather than internal sources, and then reconciling
the system to the bank statement. The entire process was backwards, so
we decided to perform data processing directly in the banks’ treasury
management systems, where the transactions are initiated, approved, and
executed, and have the bank data be easily uploaded into the accounting
system, where it can be matched with vendor and client data and properly
classified.
There you have it, it is much easier said than done, but once our
program is complete, most companies we engage can get by with half of
the accounting/fiscal personnel they had before, get their data in a
timely and coherent manner, and usually end up saving money on their
systems to boot.
In any event, between earning our daily bread in the above manner,
watching the World Cup, and editing a taxonomic paper on Central
American land crabs (which can be seen here:
http://biodiversitydatajournal.com/articles.php?id=1161),
we have been following the disintegration of the debt based currency
system from a comfortable distance. Our observations on the most recent
ruptures follow:
The No bid Repo: It’s not your father’s overnight funding market
In the late 1980′s, the Federal Reserve had just begun what would be a
series of automatic bailouts to the larger financial system. After
Black Tuesday in 1987, it became clear to most sober observers that the
Fed would do everything in its power, which at the time was limited to
rigging short-term interest rates, to ensure that financial markets
remained liquid at all costs.
Perhaps not coincidentally, in the late 1980′s, Oldsmobile ran a
series of commercials with the tagline, “it’s not your father’s
Oldsmobile,” which seemed to be a vain attempt to minimize the “Old” and
emphasize the “mobile” part of its name. In case you don’t remember how
exhilarating it was, videoarcheology.com brings it to life for us once
again:
What did the strategy of the Fed and the strategy of Oldsmobile have
in common? They both assumed that demand for their product, no matter
how unappealing it was, would be infinite. Oldsmobile gave up the ghost
in 2004, maybe people did want their father’s Oldsmobile after all.
The Fed is still hard at work, but their product, the debt-based
currency used by most financial institutions in the United States and
indeed throughout the world, is going the way of the Oldsmobile.
The Federal Reserve got by for nearly 95 years by monopolizing the
ability to provide something for nothing, something that appealed to
governments, companies, and consumers alike. They substituted debt for
money, and in the process opened up a world of possibilities never
before fathomed.
The plan went well, people began to circulate the debt in place of
money, with those closest to the Fed paying the least and those furthest
way paying more, and people toiled day in and day out to move further
up the food chain.
Sure, using debt as money left the occasional sinkhole in the
economy, on those rare occasions when more debts were being cancelled
than issued, but the Fed simply lowered interest rates to provide
adequate incentive for people to demand more debt, lowering the
perceived price of getting something for nothing.
Now, circa 2014, the Fed has lowered interest rates to zero and has
taken the extra step of creating even more debt of its own to circulate.
While things should be going gangbusters at the Fed factory, we open
the pages of the financial news to find that:
a) The Fed can no longer control the interest rate mechanism as it did before and;
b) The
Repo market, which funds $1.6 trillion in short-term loans
every business day,
is going no bid on an increasingly regular basis thanks to the 2010
Dodd-Frank Act, which was supposed to fix these sort of problems.
{Editor’s Note: For a primer on the Repo Market, read this paper by the NY Fed: Key Mechanics of the U.S. Tri-Party Repo Market, we dare you}
The Federal Reserve’s debt based monetary system has reached its
theoretical limit. While the ECB has toyed with the idea of negative
interest rates, the US market, specifically US Treasuries which are
sucked into the Repo Market nightly, is rendering negative rates on its
own, and the Fed is powerless to stop it.
In layman’s terms, the game has flipped on the Fed, and now people
and companies are essentially saying “lend me $100 today, and I’ll pay
you back $97 in a year and we are square.” Crazy as it may sound, this
is the reality on the fringe of the credit markets, and it is the price
of continuing to deal in a debt-based currency that is passed its prime.
Let’s face it, Oldsmobile wasn’t cool in 1988. They had tinkered with
it to such a degree that it would never again be your father’s
Oldsmobile, and that was not a good thing. In the same way, between QE,
Operation Twist, and near zero short-term rate targeting, Ben Bernanke
has so severely mangled the Fed’s balance sheet with his tinkering that
maintaining the integrity of the US dollar and US Treasuries as any sort
of measure of reliable benchmark is all but impossible.
Now, the engine of the Fed’s debt based currency is beginning to lose
speed via negative nominal rates, and Janet Yellen is looking into the
toolbox, only to realize that Ben left most of the tools rigged in the
engine of the Fed’s Balance sheet, and that moving any one of them will
cause a catastrophic failure of the currency. Not to mention that
long-awaited, highly inflationary wage – price spiral is about to kick
in.
Academic economists will one day struggle to explain what is
happening now, while inflation rises, interest rates continue to dip
further, going negative at the top of the financial food chain, and the
Fed is left with nothing but rhetoric with which to attempt to execute
monetary policy. This is likely to get ugly and, if possible, defy the
laws of finance and perhaps even mathematics before the game is up.
Stay tuned and
Trust Jesus.
Stay Fresh!
David Mint
Key Indicators for July 14, 2014
Copper Price per Lb: $3.25
Oil Price per Barrel: $100.51
Corn Price per Bushel: $3.78
10 Yr US Treasury Bond: 2.52%
Bitcoin price in US: $618.00
FED Target Rate: 0.09%
Gold Price Per Ounce: $1,339
MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 6.1%
Inflation Rate (CPI): 0.4%
Dow Jones Industrial Average: 16,944
M1 Monetary Base: $2,961,000,000,000
M2 Monetary Base: $11,284,500,000,000
