A trillion dollars were created this past year.

As of the beginning of October 2011, US Money Supply (M2) officially stands at $9.65 trillion dollars.

Last year M2 was measured at $8.76 trillion dollars, for a year-over-year growth in M2 of 10%.

To put this in perspective... consider the Eiffel Tower, which I am looking at right here.

This amount of printing translates into a printed stack of $100 bills the height of the Eiffel Tower ... about every 3 hours.  For an entire year.

Quantitative Easing my ass.  There's no way that we can print that much physical money.  So we just add zeroes in the servers that tally the ledgers and in bits and bytes, currency is born.

Inflation

Officially, inflation is only running at about a 3.5% annualized rate.

Now if Money Supply is growing at 10% but 'official' inflation is only 3.5%, then this would imply that somehow we are able to keep price growth of our daily necessities at just 35% of growth in paper dollars available to chase real stuff.

This doesn't make a whole lot of sense.  When the amount of fiat dollars in circulation rises, the prices of everything rise in tandem, with tangible commodities rising faster as the market recognizes their store of value to be greater than that of currency being depreciated through excessive printing.


I like coffee in the mornings.

But it's gotten a lot more expensive in the past year.  About 18% more expensive, not 3.5%.

Now coffee has some wild swings looking back over many years (many of them weather-related) so it's not all just inflation.

But the trend is consistent for a wide range of commodities... here in this link looking at fuel and non-fuel components together... shows a price increase of about 15% (not 3.5%)

Some components show flat or slight decreases, but the net effect of those up sharply means price impacts on different parts of society are severe, and uneven with specific categories.

Like food.


Inflation-driven poverty:  Minimum Wage and Food Distress

Okay so 15% may not sound like a lot in a year (it's a lot to me).

But over time the fact that prices for necessities such as food and energy rise faster than official inflation translates into real pain for millions of people, especially those linked a static wage, linked to a wage that grows only with the official rate, or who are on fixed-incomes.

Let's expand the time frame of the Food Price Index to look at 10 years, from 2001 through 2011.

Astounding.  Food prices are 114% greater today than they were in 2001.

But according to the official measure of inflation by the Bureau of Labor Services, inflation has 'only' grown a cumulative 28% during that same time frame.

Incidentally... 28% / 114% = 25%, not much lower than the (1 year) 35% figure above!!

Now the minimum wage was set in 1997 at $5.15 per hour.  It remained there for almost 10 years before a succession of hard-fought increases to its present level of $7.25 per hour.

This represents a 2001-2011 cumulative increase of 40.8%.

For shits and giggles.. a 40.8% increase in the minimum wage divided by a 114% increase in food prices equals 35.8%. 

Put another way, this means price of food is growing ~3x faster than the ability of people on minimum wage to pay for food.

Does this correspond to increasing demand for Food assistance?

I think so.  

The above link shows that as of August 2011 45.8 million people were on the Supplemental Nutritional Aid Program (SNAP), formerly, the Food Stamp program. For anyone counting, that's about 1 in 7 Americans.  1 in 7.

In 2006 there were only 26.5 million people requesting aid.

Going back 10 years to the end of the year 2001there were 18.7 million people on the program. 

The cumulative growth of people falling into food distress over 10 years is then calculated:

(45.8 million people in 2011 / 18.7 million people in 2001) - 1 = 144% cumulative growth.

Not far from cumulative food price increases of 114% shown above.


Scrooged

Those what-nots in Congress and the Federal Reserve are currently trying to figure out a way to bail out the boat they've all shot to hell.  

To summarize we have a history that looks something like this:

1. The cumulative effect of our political game over the past several decades has led to massive deficits and little in the way of tangible solutions to pay it back.  
2. They have been putting band-aids on this by printing more digital currency to pay back debts with conjured money, since our economy is not growing fast enough to provide the tax revenues to do so (and no thanks to ill-timed tax cut packages).  
3. The more money that is printed, the faster the prices of real things, such as food, energy, and necessities must rise.
4. Printing money is easier for them to do politically in the short-term, vs. raising taxes on the wealthiest.  This pattern will likely continue. 
5. The official rate of inflation is lower than the tangible rate for real things;  we saw that Food has risen at about 3x the official rate of inflation over 10 years. 
6. Wages for many people are tied to the official rate or lower, meaning their income by definition cannot keep up with the price of food.
7. This leads to greater food distress, and increases demand for Food Stamps.
8. Looking forward, more Baby Boomers are retiring every year and their future income from Social Security will be tied in some measure to the official rates of inflation.
9. We can expect increased demands from Food Stamps, Food Banks, and extended family support to grow as the gap between official rates and actual rates continues to diverge.

I don't have a great deal of faith in our elected millionaire leaders with their fluffy pension pillows to really understand what is at stake here;  based upon their actions and statements about a good half of them would seem to prefer that all these Americans just die, and reduce the surplus population.

I can't solve this and neither can you.  But understanding the roots of what is happening today and where things are trending can be used to prepare, much as one does for a winter storm.  Watch what they say, and try to develop rules of thumb that make sense to your household...

Such as...

'When they say inflation is at 3%, my wages probably won't rise beyond 3% but food may rise 3x as fast in price, or 9%, so I better adjust.'

If you crash the car... have another! On the house!

The European Union is feeling the heat now..  and is considering a one-time write down of Greek bonds on the order of 50%.

ECB to consider a 50% write-down of Greek debt

Translation:  "we can't let the speculators who made the bad bets eat their own cookin."

This is another blatant example of how the big banks and their financier speculator brethren will get bailed out by central banks and governments when they put all their chips on red and should have chosen black (leveraged 20:1, of course).

But the average person won't get the same breaks.

Consider, who out there gets an offer from their bank to forgive 50% of their mortgage if they become unemployed?  Who out there gets offers from their credit card companies to have their debt slashed if they overreach and can't make the minimum payments anymore?  And furthermore who want to keep spending on those cards?

This is the irony of central-bank bailouts;  they represent a clear class delineation between who gets 'reset' button privilege and who has to remain in indentured debt servitude.

The net impact of these bailouts is inevitable currency debasement, which leads to higher inflation and subsequent cost of living impacts on those whose payscales take much longer to adjust.  This is how the bad bets of a select few are paid back by people who had nothing to do with making them in the first place.

The folks at Fox News would have us all believing the current protests spreading through America are just a rabble.  While they were curiously calling Tea Party rioters who literally spit on members of Congress 'patriots' during the health care debate, they have turned tail and disregarded the anguish millions of people are having by derisively calling them 'mobs'.

While there are many opinions expressed at these protests (as there were diverse opinions shouted by Tea Party mobs) the theme of unfair bailouts and related economic stagnation is constant.  Most of the Tea Party candidates are silent on the theme of bank bailouts, rather, they call for yet more tax breaks that would benefit the same financier/speculator class!

Look, call me old fashioned, but if you are driving reckless and crash the car, I don't think it's the responsibility of your neighbors to pick up the tab and buy you another.  There ought to be a safety valve in free markets that says something like... you make a bad bet, you go bankrupt and let your investors eat the losses.  Without such cross-checks the notion of discipline falls by the wayside and ... with the knowledge that the Federal Reserve, the ECB, or their governments will come riding to the rescue if you are foolish... the risks compound and get bigger and bigger with each cycle.

We should have been on the cusp of emerging from this crisis by now.  The original trigger (subprime US housing debt) was supposed to be ending about now:

This chart shows the mortgage reset waves.  The first hump was subprime debt, and all the damage of 2008 was wrought by that first wave.  Then there was a breathing spell during 2008 that should have been used to clean the books, settle the bad debts and let free markets work.

If we had allowed free markets to reallocate the capital from busted bets into areas that had greater discipline, we would likely be in a state of accelerating growth now, with those titans who drove us into the ditch relegated to to the dustbins of outrageous irrelevance, such as Enron, LTCM, and so on.  Instead, the bailouts continue which prolong and compound the moral hazard of wave #1 into wave #2, which is one reason our housing markets and economy remain crimped today and for the foreseeable future. 

These twerps who wrecked the car in 2007-8 are still running the same institutions and pulling down multi-million dollar compensation packages, this time operating with the full knowledge that they will be made whole if they bet right, if they bet wrong, or if they bet sideways.  Our governments won't let them lose.

Whatever happens to the Occupy movement in the near term, people are not going to forget this anytime soon.  The awareness generated by these assemblies will hopefully have an impact on the next election cycle in a positive way.

I hope DC is not as deaf, dumb and blind as they appear.  They don't need to wait until November 2012 to act. 

C'est La Vie

Google's French beats mine.

Okay, France is banning or restricting sales of silver and gold that exceed $600 USD / $450 EUR equivalent?

(link, click me:)

Buckle up.

Paper beats Rock. No... Rock beats Paper

Child's play

At their core, kids games are fun.  They provide learning mechanisms for socializing, working together as teams, learning about elements of chance, leadership, and (though it's not always framed this way) for learning how to increase your stature and/or wealth at the expense of another.

Ever see a Monopoly game with kids *not* end in fights and tears?

In the classic game of Rock-Paper-Scissors (some evidence suggests it has it origins thousands of years in the past) two or more people make a fist and count 1-2-3, then cast a shape with their hand on the third toss that signifies they are now a "rock" (fist), "paper" (open hand) or "scissors" (forked index and middle finger).

The rules are both simple and surprisingly fair:  scissors can cut paper so wins the toss against paper.  But scissors can be crushed by rock so scissors lose if the other party makes a rock.  Rock in turn can be beaten by paper since paper can cover the rock.  People are trying to outwit each other but the results have a fair degree of chance built into the logic.  Successive rounds eventually determine the winner and everyone is happy. 


Paper Beats Rock

Gold and silver are relatively rare in the earth's crust.  These metals like others are expensive to extract from the ground and refine into pure form.  They exist in such small quantities scattered throughout vast quantities of rock that are not always easy to get to, may exist in countries or locales that have poor infrastructure or oversight, and require one hell of a lot of capital to set up, with astute management needed at every phase for project success. 

Let's compare production rates of silver with equivalent production rates of fiat currency by the Federal Reserve over the past few decades:

The above graph plots the creation of fiat money by the Federal Reserve (M2) against the total world production of silver over time.  This shows that despite all the advances in deposit detection, mining and capital formation available to support new mining ventures, the world has only managed to double the production of silver bullion since 1980.  Over that same time frame the creation of fiat money supply in the United States has risen by 6.5 times.  Fiat money has grown three times as fast as mine production.

Our ability to print new paper money far exceeds our ability to mine silver.  

Or in our kids game paper (printing) beats rock (mining).

This isn't a good investment proposition for paper.  

Pop-Quiz (unscored)

Here's a pop-quiz.  Or things to ask yourself in the mirror.  

Ask yourself whether the following statements are true from (1) your own experience, (2) based upon conversations with other people, and (3) reflections of your own actions (not opinions).   

• Almost nobody you know owns physical silver or gold.  
• Almost everyone you know works to acquire paper dollars. 
• People talk about the rise and fall of silver and gold prices in paper dollars.  
• People do not talk about the rise and fall of the dollar price, in gold or silver ounces.
• I am not worried about cost of living becoming more expensive.
• Cost of living will be the same or lower tomorrow than it is today. 
• The value of the dollar never changes, it is gold to me.

Rock (value) beats Paper (value)

Fear Factor.  People fear purchasing bullion when it is high in dollar price, when it is low in dollar price, and when prices rise or fall.  This means they have completely shut themselves out of the market.  

I am not going to say people should put all their money chips on physicals.  I don't because I don't know the future.  If I did know the future I would double-down on that one strategy.  

I do know that silver is much more rare in dollar terms that it was 10 years ago, and based upon the rate of new bailout money being printed by the Central banks (currency wars), there is going to be more fiat floating in the system later than there is today.  

But we won't be able to ramp up mine production to match the rate of fiat production.  

Not by a mile.  

A better way to manage volatility in COMEX markets

COMEX is old school.

They either are genuine and are looking to manage volatility in the precious metals market (as is publicly stated) or are pimping for the central banks and enabling reckless fiat policy.

Their volatility management strategy involves raising the margins for speculative trades in big percentage jumps, thereby causing the rapid unwinding of global trading strategies and causing the very volatility they say they are trying to manage.

Conveniently, radical COMEX changes in margin reserve requirement take the pressure off COMEX to settle in physical delivery or high cash premiums, since the prices fall in a disorderly fashion.

The COMEX just shot another rabbit these past two days, and raised the margins for trading on silver by 16%, after several successive increases in May (during the last sell off in paper price).  The fact that the unwinding and sell off came in advance of the announcement would indicate news of the margin increase leaked, but that's another story.

I believe the official rationale of the COMEX is horse crap, by the way.


If they are genuine, there is a much simpler and better way to manage volatility in the COMEX trading markets that gets no discussion. 

All the COMEX has to do is require fiat security of equivalent percentage interest in the underlying contract be held, not a fixed fiat amount.  Right now if a speculator wants to take a position on a 100 oz gold contract, they are required to put up a fixed amount of dollars, regardless in the price fluctuation of the price of gold per oz.

This is why I believe the COMEX is just blowing smoke in everyone's face when they state their goals, because there is no way that so many trade-smart people could do something so asinine and old school in a hypertrade environment.

Right now as the fiat price of gold rises, then the percentage held as security (a fixed fiat value relative to ounces bullion) of the total value shrinks.  The price of gold rises and rises until the COMEX decides to raise the margin requirement and yank the rug out from the trade assumptions, causing a catastrophic and disorderly unwinding of global positions and increasing volatility.

This generally causes prices to move in the negative direction, to the delight of central bankers who need the intrinsic value to flow back into fiat paper for their inflation games.  

In the logical scenario, security interest in the contracts would adjust automatically with the fluctuations in price.  If the price of silver in the markets rose by 10%, then 10% more security fiat would have to be posted by the speculator with the COMEX.  If it fell by 10%, then the speculator would be credited or refunded a like amount.

Given we are in an electronic world where money moves as fast as electrons allow, an electronic ledger would not be onerous to set up. No one writes checks anymore.

This would provide a better system for volatility management, since it is a natural braking system for extreme price moves in the upwards position.  Price spikes would be slowed by ever-increasing calls for collateral posting, and likewise mitigated in the downward direction, since more capital would be relinquished to the market by the COMEX for redeployment into undervalued classes.

The fact that this is not the way the system runs today tells me a great deal, that the COMEX is either:

1. Too stupid and clumsy to adjust and find a better way, or
2. Is an extension of the corrupt central bank games to continue fiat expansion at the expense of the everyman and maintain the status quo.

Whichever it may be doesn't matter for me right now.  Buying physical whatever with depreciating fiat is a winning move.  Someday I may move more seriously into the trading games, but for right now what I see from the ringside is a rigged game.  Not an impossible one... but one w/ a shark rule or two I need to learn first.

Too hot to handle. Ebay bows out.

Received via email today...

*****************************************************

eBay Bucks Update

Dear ______________:

As always, eBay is committed to bringing you amazing deals on gold and silver. However, to do so, we can no longer offer eBay Bucks for purchases from the Bullion category within Coins & Paper Money. This change will take effect October 1, 2011. To learn more about earning and redeeming eBay Bucks, visit the Frequently Asked Questions page. And remember that you can always tell whether an item qualifies for eBay Bucks by looking for the earn amount below the price on the item description page.

To review the updated eBay Bucks Terms & Conditions, please visit http://pages.ebay.com/rewards/terms.html.

We appreciate your eBay Bucks membership and hope you'll continue to enjoy the benefits provided by the eBay Bullion Center, including great savings and fast, free shipping from Featured Sellers—and eBay Buyer Protection for your purchases.

Sincerely,

The eBay Bucks team

*****************************************************
I long ago ceased buying from the bullion category on eBay, thought there were too many fakes being pumped out by China to make it worthwhile.. but is curious that they are dropping out.  With high-dollar transactions still continuing to rise I guess the Bucks program was just too hot to handle?

(:-\

Gamers Solve Decade-old AIDS Enzyme puzzle

"Online gamers have achieved a feat beyond the realm of Second Life or Dungeons and Dragons: they have deciphered the structure of an enzyme of an AIDS-like virus that had thwarted scientists for a decade.

...

Games provide a framework for bringing together the strengths of computers and humans. The results in this week's paper show that gaming, science and computation can be combined to make advances that were not possible before."


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