Deflation has been Defeated, Woe to us All!

4/19/2011 Portland, Oregon – Pop in your mints…

It is hard to imagine that the amount of negative news has ever been more abundant.  Reasons to worry abound.  At The Mint, we have speculated that bad news and the worry it causes is, to some extent, a seasonal phenomenon.  Not that the events that cause the news only occur during certain seasons, rather that mankind is more apt to worry about the news during the Spring and Fall in either hemisphere than during other times of the year.  It is a time when preparations for the upcoming summer or wintertime are being made and it is natural to worry as to whether or not one's preparations are adequate.

However, even discounting seasonal worry, the combination of troublesome events that are being reported at present is staggering.  Under normal circumstances, any of the catastrophic events and wars that have occurred recently on its own would be reason for a stock market collapse.  Taken together, it is a wonder that stocks even have a pulse.

Yet in what can only be described as the eighth wonder of the world (ninth, if you count Andre the Giant), the stock, bond, and commodity markets are all racing higher at various speeds.

Can the Economic Recovery rival Andre the Giant

 as the 8th wonder of the world?

What to make of it?  Here at The Mint, we look at the data and believe that there is only one reasonable conclusion:

The Central Bankers have won:  Deflation has been Defeated.

Mint.com for Android – Keep Your Money in Your Pocket

As you may recall, three and one half years ago, give or take, the Financial authorities realized that there was a four alarm fire occurring in the financial markets.  Soon, every major Central Bank and Government were on the scene and proceeded to pump liquidity into the system to avoid a deflationary collapse that, as we were told, would bring an end to the world as we know it.

Now, much like George W. Bush in Iraq, we survey the landscape in the financial markets and, with equal confidence declare "Mission Accomplished."

Just like the US Military in Iraq, the financial authorities are announcing plans for an "orderly handover of power" from the public sector to the private sector.  

Just like the US Military in Iraq, the financial authorities are finding the handover of power to be much easier in word than deed.

Now that the financial authorities have defeated deflation (or Saddam Hussein if you are still following the Iraqi war parallel), they are finding that instead of the smooth transition of power that they apparently had hoped for there exists a cadre of violent elements in the economy which are jousting to fill the vacuum that the financial authorities and governments of the world will leave as they begin to pull liquidity out of the markets.

Instead of supply and demand being in balance, even more grotesque ratios of debt to equity and skyrocketing commodity prices are emerging as the rule of the day and equity, bond and commodity markets are walking time bombs.  Essentially, the later condition of the markets is worse than the former.

Didn't Jesus say something about this in Luke 11:24-26?  More than a clean heart, Man needs to have his sinful nature cleansed from him.  In the same way, more than liquidity, the financial system needs to have its bad debts written off, no matter how painful it may be.

Free money (or liquidity) is not the ultimate answer to the imbalances in the financial markets just as democracy does not appear to be the ultimate solution to a peaceful and prosperous Iraq.  It may even be breaking down in the United States if the recent partisan wrangles over the budget and debt ceiling are any indication. 

No, we are just now beginning to see the "unforeseen" (yet strangely logical) consequences of flooding the world with liquidity.  The war against deflation has been won, but the pent up demand and distorted production patterns that the war has left in its wake are now threatening to unleash inflation on a scale not seen for nearly a century.

Woe to dollar holders everywhere, for this inflation is now taking on a life of its own.

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  Please check out our latest 72 Hour Call at www.davidmint.com

Key Indicators for Tuesday, April 19th, 2011

Copper Price per Lb: $4.26
Oil Price per Barrel:  $108.40 SKYROCKETING!!!!
10 Yr US Treasury Bond:  3.36%
FED Target Rate:  0.10% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,495  SKYROCKETING!!!!

MINT Perceived Target Rate*:  3.25%
Unemployment Rate:  8.8%
Inflation Rate (CPI):  0.5%
Dow Jones Industrial Average:  12,267
M1 Monetary Base:  $1,954,200,000,000 DESPERATION!!!!
M2 Monetary Base:  $9,045,900,000,000 DESPERATION!!!!

*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 it Seasonal or is the US Dollar Losing Reserve Status more quickly than we think?

4/14/2011 Portland, Oregon – Pop in your mints…

This week we have witnessed a relentless increase across the board in the price of most commodities.  Some of this action is attributable to seasonal factors.  Spring is the time to plant in the Northern Hemisphere and the time to Harvest in the Southern.  These events create a flurry of activity in commodities because at this point there are many unknowns. 

In the North, they are trying to decide what to plant which creates a sort of statistical vacuum for speculators to fill with the assumption that there will be scarcity.  In the South, they are beginning to tally what the combination of the earth along with their toil has afforded them as sustenance for the winter.  Naturally, as when the votes of a big election are being tallied, there is a lot of speculation.  Speculators jump on this informational vacuum and the feeling of scarcity causes them to, you guessed it, bid up commodities.

The whole flurry of activity itself involves lots of John Deere tractors and combines, fertilizer, water and manpower and, you guessed it, oil.  All of which involves increased demand for various commodities and helps to create a general anxiety which sweeps the planet.

It should come as no surprise that God chose to ordain the two great feasts during these times.  The Passover in the spring of the North and the Feast of Trumpets in the autumn.

Some of this seasonality in commodity prices is new phenomena, some of this has been around since man first was called into being on the sixth day.  Whatever the underlying reason, the confluence of these events tends to cause prices to rise in money terms in the autumn and spring in both hemispheres.  Modern transport methods and global trade have helped to smooth this out but natural forces have always trump man's efforts.  Even the advent of the internet has not changed this fact.

But what to make of the recent run up in the prices of just about everything except paper money?  There is something more to these increases than the regular seasonal trends.  Yes, fellow taxpayer, it appears that the inflation that the FEDS of every nation on the planet have been baking in over the past three years is beginning to set up.   

George Soros, a famous investor who made a great deal of his fortune and reputation by shorting the British Pound in the early 1990's held an April 8^th conference that some are hailing as "Bretton Woods III", an homage to the past two conferences which reformed currencies and in turn created the present world order that we now live in, appears to have called for an end to the dollar as the world's reserve currency.  This is from an interview with Mr. Soros by the Financial Times in November of 2009:

You can read more about the speculation on Mr. Soros' intentions here.

Please follow this link for a long and interesting Q & A at the conference with Mr. Soros and Paul Volcker fielding questions.

The fact that this conference is being held, taken along with the fact that China has been amassing large amounts of gold and silver, is giving credence to the speculation that the Chinese currency may be in a position to take the baton of reserve currency status from the dollar.  If this is true, we cannot overstate what this means for currency and bond markets and more importantly the cost of everyday items for those attempting to pay for them in dollars.

To state what may be obvious, the US dollar will be worth much less in trade than it is today.

While the European and Chinese Central Banks have recently raised rates, the US FED still has the printing press on full throttle.  If our speculation here at The Mint is correct, the FED, like the driver of a semi-truck that is careening down a steep mountain road, may not be able to apply the brakes and save the remaining value of the US dollar.

Then again, maybe they don't want to.

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  Please check out our latest 72 Hour Call at www.davidmint.com

Key Indicators for Thursday, April 14th, 2011

Copper Price per Lb: $4.26
Oil Price per Barrel:  $109.41 SKYROCKETING!!!!
10 Yr US Treasury Bond:  3.485%
FED Target Rate:  0.08% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,462  SKYROCKETING!!!!

MINT Perceived Target Rate*:  3.25%
Unemployment Rate:  8.8%
Inflation Rate (CPI):  0.5%
Dow Jones Industrial Average:  12,285
M1 Monetary Base:  $1,954,200,000,000 DESPERATION!!!!
M2 Monetary Base:  $9,045,900,000,000 DESPERATION!!!!

*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.

Will the FED be able to Control its Short Term Fed Funds Rate when it needs to?

4/11/2011 Portland, Oregon – Pop in your mints…

Alas, the sober reflection that we had hoped for in the form of a US Government shut down did not occur.  The nation will resume its journey down the path towards self destruction that all Empires are destined to follow.  The foreign wars and other shenanigans that occupy the country's attention can now presumably continue until at least September of 2011, assuming that the upcoming debt ceiling vote doesn't accelerate the Armageddon scenario that is unfolding in the Bond Markets!

In case you have just joined us, the US Government will exhaust its borrowing authority sometime in mid May, according to Treasury estimates.  Friday's showdown over passing the 2011 budget has shown that a vote to raise the debt ceiling is no sure thing, neither is an agreement on the 2012 budget, which the GOP has in theory linked to approval of increasing the debt ceiling.

It is good to pass an expense budget, as the Government has done.  It is bad to be unable to finance those expenses via tax receipts and borrowing.  If Congress fails to raise the debt ceiling, the expense budget will require radical and unpredictable modifications essentially at gunpoint due to a collapse of the US Treasury bond market.  With such serious consequences, you can see why this vote should be a sure thing.

Apparently Bill Gross, the Chief Investment Officer for PIMCO which manages some of the largest bond funds in the world, has his doubts.  PIMCO's total return fund, which recently dumped all of its US Government debt holdings, apparently has taken this movement a step further and is now short approximately $7 Billion of US debt.

If you would like to follow Mr. Gross' lead, our Affiliates TradeKing and Zecco.com will be more than happy to assist you.

If the entire thing simply makes your head spin, contact our Affiliate APMEX Gold and Silver about exchanging paper dollars for silver and gold and stop worrying about such things!

Mr. Gross must have smiled as he opened the Wall Street Journal this past Thursday.  The Journal ran an interesting article titled, "Concerns Emerge as a Fed Rate Falls."  In summary, the FED has traditionally used the FED funds rate (one of our Key Indicators here at The Mint) as its weapon of choice to drive monetary policy.  This rate is the interest rate at which FED member banks can borrow funds from each other overnight when they settle their accounts and collectively feign solvency.

The FED controls this rate via what it calls open market operations, which means that the FED either buys or sells short term securities on a scale necessary for the market to settle transactions at a yield that is near the FED's stated target rate, which is currently between 0% and 0.25%.

The FED leveling Bond Market Sand Castles with their QE program

The FED, being able to print money out of thin air, theoretically has unlimited ammunition to impose its will on this market.  Over time, it became understood that the FED and its buddies (member banks) played at the entrance to, or short term end, of the Bond Market sandbox while everyone else was forced to play in the rest of the sandbox.

With the advent of QE and QE2, the FED began to play capriciously in the rest of the sandbox, leveling out everyone else's sandcastles and kicking sand in their face.  The sandbox (Bond Market) is enclosed and once people enter to play in it, the only way to leave is to leave your buckets full of sand at the entrance, where the FED and its member banks have trying to level out the sand to keep it smooth.

Now all of the sand from the sandcastles that the FED has been leveling is beginning to pile up at the entrance of the sand box and the Wall Street Journal article seems to indicate that this sand (money marching out of long-dated bonds) is beginning to overwhelm the FED on the short end to the point where it is losing control of its stranglehold on short term interest rates.

It is no wonder that participants are fleeing the Bond Market, with the US Government's shenanigans and the FED kicking sand in everyone's face, the game is simply not fun anymore and frankly, a bit too dangerous!

Seriously, if the FED came in and leveled your sand castle, wouldn't you pick up and leave, too?

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  Please check out our latest 72 Hour Call at www.davidmint.com

Key Indicators for Monday, April 11th, 2011

Copper Price per Lb: $4.44
Oil Price per Barrel:  $109.41 SKYROCKETING!!!!
10 Yr US Treasury Bond:  3.57%
FED Target Rate:  0.10% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,462  SKYROCKETING!!!!

MINT Perceived Target Rate*:  3.25%
Unemployment Rate:  8.8%
Inflation Rate (CPI):  0.5%
Dow Jones Industrial Average:  12,368
M1 Monetary Base:  $1,978,000,000,000 DESPERATION!!!!
M2 Monetary Base:  $8,961,500,000,000

*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.

US Government on the Brink of Shut Down, a Large Scale Debacle in the Making

4/7/2011 Portland, Oregon – Pop in your mints…

Oh fellow taxpayer, we are getting our money's worth, so to speak.  As of this writing, President Obama, House Speaker John Boehner, R-Ohio, and Senate Majority Leader Harry Reid, D-Nevada, who have become the key figureheads in what is essentially an ideological battle over an extremely small portion of the Federal Budget, still have not come to an agreement as to what the Federal Government's budget should be for a year that is already more than halfway over.  

To say that this is ridiculous is an understatement, but not for the reasons that may immediately come to mind.

At The Mint, we do not marvel that representatives of such ideologically divided constituencies should fail to come to an agreement as to how to spend money.  This is normal.  What is abnormal and what make these circumstances a "Debacle in the Making," as we like to call it, is the fact that these representatives hold the purse strings to roughly $3.6 trillion dollars, or roughly 25% of the nation's GDP.

The mere thought of it fills us with awe.  Imagine, sending 25% of your gross income to a group of 535 people (or 0.000174% of the US population) and expect it to be distributed in a manner that maximizes the general welfare of 308 million persons.  Wait a minute, those of us who live and work on American soil do not have to imagine it, this is our reality!

The implication of our insane system, then, is that these 535 persons are extremely wise, clairvoyant, and devoid of personal ambition.  As Yakov Smirnoff would say, What a Country!

Naturally, if someone is paying 25% of his or her income for something, they are likely to be somewhat demanding as to what they are getting for their money.  Some expect a pension in the form of Social Security, health care, education, food, road maintenance, and defense against foreign invasion.  Still others expect to land a large contract to build new housing or infrastructure or to launch a spaceship. 

And the list goes on.  With 25% of the nation's income theoretically at their disposal (in practice nearly 45% of it is borrowed or created out of thin air, as is now the case), one can imagine that the demands made of these 535 persons are numerous and incessant.

Yet what puts this house of cards in jeopardy, apparently, are disagreements over whether or not to fund abortions, regulate the very air we breathe, and frivolous warfare in far off lands.

Yes, with all of the pork at the disposal of the group of 535 which could be cut from the Federal budget, one side cannot cede funding Planned Parenthood and the EPA, while the other side cannot cede funding the Military.  At stake is a mere $12 Billion, or 0.003% of the giant albatross that is the US Federal Budget and the activities that it represents.

And they are already more than 6 months late?  With this sort of leadership, we may be better off if the entire thing shut down.

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  Please check out our latest 72 Hour Call at www.davidmint.com

Key Indicators for Thursday, April 7th, 2011

Copper Price per Lb: $4.38
Oil Price per Barrel:  $110.31 SKYROCKETING!!!!
10 Yr US Treasury Bond:  3.56%
FED Target Rate:  0.09% FED LOSING CONTROL OF TARGET RATE!!!!

Gold Price Per Ounce:  $1,458  SKYROCKETING!!!!

MINT Perceived Target Rate*:  3.25%
Unemployment Rate:  8.8%
Inflation Rate (CPI):  0.5%
Dow Jones Industrial Average:  12,409
M1 Monetary Base:  $1,978,000,000,000 DESPERATION!!!!
M2 Monetary Base:  $8,961,500,000,000

*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.

US Government Fails to Reach Budget Deal, Bernanke Mumbles Rate Increase to Avert Widespread Dollar Dumping

US Government Fails to Reach Budget Deal, Bernanke Mumbles Rate Increase to Avert Widespread Dollar Dumping

4/6/2011 Portland, Oregon – Pop in your mints…

The past two days have been surprisingly calm on the currency front given what we are witnessing.  We have no illusions that reality will express itself in the currency markets anytime soon.  The currency market manipulation is the largest ongoing market intervention in the world.  Daily flows there dwarf the precious metals and US Treasury debt markets.  With so much riding on the currency markets (namely, the illusion of controlling the world), it should come as no surprise that this market, which moves $4 Trillion in daily volume, around 37% of it through London, is the most closely "managed" market on the planet.

What exactly are we witnessing?  At The Mint, we have our eyes trained on two events that, taken at face value, would cause generalized panic selling of the US Dollar.  This panic selling would first express itself in the FOREX, US Treasury, and Precious metals markets.  At this point, only the precious metals are sending a danger signal to the world.

On to the events.

The first event is the failure of Congress to take action on raising the US debt ceiling at this late stage.  Despite repeated calls from Ben Bernanke and Timothy Geithner that financial Armageddon will occur if this seemingly painless step is not taken.  This US Government's debt ceiling must be raised for the charade that is FED funded Government spending, via Quantitative Easing (money printing), to maintain the illusion of legitimacy.  Otherwise, the veil comes off and the Wizard of Oz is forced to leave the Emerald Palace.

What do you mean I've got to go?

The second is the failure to pass a budget more than halfway through the fiscal year.  Under normal circumstances, this would not be that big of a deal.  Strange as it sounds, the $3.6 Trillion dollar Federal budget has run on autopilot for longer periods of time in the past.  What is significant about this particular budget process is the dire straits in which the US Treasury finds itself.  Again, to keep the charade going, the government must make meaningful reductions in expenditures.  As if to underscore the point, Chuck Butler at the Daily Pfenning brought to our attention a glimpse of the fiscal insanity that passes as modern Government finances:

(CNSNews.com) – The US Treasury has released a final statement for the month of March that demonstrates that financial madness has gripped the federal government.

During the month, according to the Treasury, the federal government grossed $194 billion in tax revenue and paid out $65.898 billion in tax refunds (including $62.011 to individuals and $3.887 to businesses) thus netting $128.179 billion in tax revenue for March.

At the same, the Treasury paid out a total of $1.1187 trillion. When the $65.898 billion in tax refunds is deducted from that, the Treasury paid a net of $1.0528 trillion in federal expenses for March.

That $1.0528 trillion in spending for March equaled 8.2 times the $128.179 in net federal tax revenue for the month.

As you can see, the situation is extremely serious.  Yet the US Dollar remains the reserve currency for most of the planet, and the US Dollar index seems to be bouncing around on the floor.  The fact that this floor exists is a testament to the far ranging power of the Central Banks to control the FOREX markets.

But even the power of a Central Bank with the ability to print the world's reserve currency is not inexhaustible.  In a nod to inflationary pressures, Fed officials "raised the specter" of higher interest rates late Monday.

The Fed faces a grim choice, to sacrifice the US Dollar and most likely itself, by leaving interest rates low, or to sacrifice its Member banks, the US Government, and the US Economy (you and I, fellow taxpayer) by raising interest rates and saving the US Dollar to fight another day.

What will they do?  We do not pretend to know but that doesn't keep us from guessing!

Our 72 hour call at www.davidmint.com yesterday was for the US Dollar Index, which is completely a product of what occurs in the FOREX markets, to fall.  Check back on April 7 to see how we did.  We are currently 0 for 1, not counting our initial gimme, so currently it appears that one would do well to read The Mint's call and promptly bet against it.  In any event, we are glad to be of service, even if it involves frequently swallowing our pride.  Please share it with your friends.

If we continue on our current pace, the words "bet against The Mint" may become the akin to such sage advice as "don't bet against the Fed!"  Stay tuned at www.davidmint.com.

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, April 6th, 2011

Copper Price per Lb: $4.23
Oil Price per Barrel:  $108.34 SKYROCKETING!!!!
10 Yr US Treasury Bond:  3.48%
FED Target Rate:  0.09% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,457  SKYROCKETING!!!!

MINT Perceived Target Rate*:  3.25%
Unemployment Rate:  8.8%
Inflation Rate (CPI):  0.5%
Dow Jones Industrial Average:  12,394
M1 Monetary Base:  $1,911,900,000,000 DESPERATION!!!!
M2 Monetary Base:  $8,980,000,000,000

*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.