Losing Our Cents

by Rob Kirby, Kirby Analytics. July 24, 2006

This was in the news last week. Now tell me, does this make any sense:

Kill-the-penny bill introduced
Citing spiraling zinc costs, Rep. Jim Kolbe continues his quest to eliminate the 1-cent piece.
By Christian Zappone, CNNMoney.com staff writer
July 18 2006: 2:19 PM EDT
NEW YORK (CNNMoney.com) -- Representative Jim Kolbe wants to do away with the penny - and for a second time has introduced legislation that would effectively kill it.
The Currency Overhaul for an Industrious Nation (COIN) Act would force the rounding off of all cash transactions to the nearest 5 cents, making the penny coin useless for everyday transactions...
COIN also calls for organizational changes: Oversight of the U.S. Mint and the Bureau of Engraving and Printing would be transferred from the Department of the Treasury to the Federal Reserve Board. [RK emphasis]

Also in the news last week; What Can Happen When You Lose Too Much Cents

Zimbabwe: Country's Zeros Baffle Computers
Financial Gazette (Harare)
July 20, 2006
Posted to the web July 20, 2006
Rangarirai Mberi
Harare
NOW, even the computers are having trouble making sense of all those zeros. Some 72 representatives from commercial banks and the central bank have met to discuss the hard time their computers are having reading the zeros on Zimdollar transactions.
Apparently, software -- obviously written for normal economies – is now failing to handle "transactions amounting to trillions and therefore creating an urgent need for a solution", according to minutes of the meeting seen by The Financial Gazette.

What's Really Going On Here or The Dickens You Say?

Money is being debased on a grand scale - and increasingly more so over the past 15 – 16 years. In fact, so much money is being debased and on such a grand scale, I cannot help but feel that there are greater forces at work.

U.S. Money Supply Growth 1959 - 2006

Teaching New Dogs Old Tricks

Amazingly, as prices for anything and everything "spiral up" around the world, we are entertained by a mainstream financial press that attributes the price rises to any and everything but the real culprit – MONEY CREATION. America is not alone in this regard; China has learned how to play the game too:

Money supply growth unlikely to slow

China's money supply growth is unlikely to fall significantly in the second half of this year, as long as the economy and fixed-assets investment maintain roaring double-digit growth, experts said.

The People's Bank of China, the central bank, had set a growth target of 16 per cent for its M2, a broad measure of money supply that covers cash in circulation and all deposits, this year.

But the M2 had risen 18.43 per cent year-on-year to 32.28 trillion yuan (US$4.03 trillion) by the end of June.

It grew 18.9 percent and 19.1 percent in April and May respectively.

With a show of hands please; how many of you actually believe that China's money supply growth is not "coordinated" with U.S. money supply growth [pictured above]? Is it any coincidence that the Chinese do not bother to report M3 money supply too? If you think not, bark three times - silently.

The Price of Peace

With the Cold War allegedly being "won" at the turn of the 1990's – many western politicians busied themselves with thinking of new ways to "spend" the Peace Dividend. What a good many of these same politicians forgot – was something history has taught us all – namely, that peace comes at price:

"On the 13th May, 1919, Count Brockdorff-Rantzau addressed to the Peace Conference of the Allied and Associated Powers the Report of the German Economic Commission charged with the study of the effect of the conditions of Peace on the situation of the German population. In the course of the last two generations," they reported, "Germany has become transformed from an agricultural State to an industrial State. So long as she was an agricultural State, Germany could feed forty million inhabitants. As an industrial State she could insure the means of subsistence for a population of sixty-seven millions; and in 1913 the importation of foodstuffs amounted, in round figures, to twelve million tons. Before the war a total of fifteen million persons in Germany provided for their existence by foreign trade, navigation, and the use, directly or indirectly, of foreign raw material." After rehearsing the main relevant provisions of the Peace Treaty the report continues: "After this diminution of her products, after the economic depression resulting from the loss of her colonies, her merchant fleet and her foreign investments, Germany will not be in a position to import from abroad an adequate quantity of raw material. An enormous part of German industry will, therefore, be condemned inevitably to destruction. The need of importing foodstuffs will increase considerably at the same time that the possibility of satisfying this demand is as greatly diminished. In a very short time, therefore, Germany will not be in a position to give bread and work to her numerous millions of inhabitants, who are prevented from earning their livelihood by navigation and trade. These persons should emigrate, but this is a material impossibility, all the more because many countries and the most important ones will oppose any German immigration." – From John Maynard Keynes, The Economic Consequences of the Peace (New York: Harcourt Brace Jovanovich, 1920), pp.211-216.

Notice any parallels with America today? Does this not resemble a script of Play It Again, Sam? Garden variety conspiracy is too light a word to describe our empirical realities, folks; this looks a whole lot more like HIGH TREASON to me. Look what has happened to much of American industry. It's gone already! With the onset of Peak Oil and energy [fertilizer] price increases - what has happened to American adventurism? How about the cost of food production? With labor being the other key component in the cost of food production – does this not begin to explain American immigration policies? Have labor costs not factually been held arbitrarily low? What happens if labor costs normalize?

For the answer to these questions, we should perhaps turn to another famous Keynes quote from the same "landmark" body of work, The Economic Consequences of the Peace, 1920 – pg. 235:

"Lenin is said to have declared that the best way to destroy the Capitalistic System was to debauch the currency. . . Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose."

The Cruelest of Twists

Does this not, more or less, sum up where we're at? I suspect we're losing a little bit more than our cents, folks. Imagine... a penny for your thoughts. As Keynes aptly put it on page 240 of The Economic Consequences of the Peace,

"If, however, a government refrains from regulations and allows matters to take their course, essential commodities soon attain a level of price out of the reach of all but the rich, the worthlessness of the money becomes apparent, and the fraud upon the public can be concealed no longer."

Got a sinking feeling the Fed will soon be telling us we'll all have better thoughts for a nickel? And of course, if they're better – it’s technically a quality improvement and therefore not inflationary, now, is it?

In closing, I'd like to share a famous quote that characterizes the very nature of soupy morass we're in compliments of Central Banking; one that is attributed to the beloved Rothschild Banking family,

"The few who understand the system, will either be so interested from its profits or so dependant on its favors, that there will be no opposition from that class." – Rothschild Brothers of London, 1863

As to the last item that was conveniently "tacked on to" the very end of the COIN Act – the part about transferring oversight of the U.S. Mint and Bureau of Engraving from the Treasury to the Federal Reserve – does this gang really exemplify the type of "straight shooting folks" anyone would really want in charge of their soup kitchen?

To this, I'd like to offer the following: more than few have cottoned on to the goings on. We're all in hotter soup than almost anyone could have ever imagined. At some point there will be hell to pay; the witch hunts will soon begin.

Now please Sir, may I have some more?

Today's Market

Overseas equities began the week on a negative note with Japan's Nikkei index losing 26 points to close at 14,794. Meanwhile, North American markets came in like a lion with the DOW up 182.67 to 11,051.05, the NASDAQ ahead by 41.40 to 2,061.80 and the S & P gaining 20.60 to 1,260.90. NYMEX crude oil futures added .62 to end the day at 75.05 per barrel.

On foreign exchange markets, the U.S. Dollar Index added .41 to end the day at 86.08.

In the interest rate complex, bond rates were one basis point higher across the board with the 2-year bond ending the day at 5.09%, the 5-year at 5.00% and the 10-year at 5.05%.

Precious metals had one of the most unusual trading days I can recall. COMEX gold futures were pummeled hard throughout the session but ended the day some 10+ dollars off their lows but still down 6.80 at 613.90 per ounce. COMEX silver futures, on the other hand, paid little heed to the beating being inflicted on their counterparts – gaining .06 to end the day at 10.93 per ounce. The XAU Index erased earlier losses to end the day up 2.22 at 135.70 while the HUI did likewise – ending the day up 6.43 at 316.13.

On tap for tomorrow, at 10:00 a.m. July Consumer Confidence data is due to be released – expected 106.5 vs. 105.7. Also at 10:00 a.m. – June Existing Home Sales are due – expected 6.70M vs. prior 6.57M.

Wishing you all a happy, safe and pleasant July evening!

Rob Kirby

Contact Information

Rob Kirby | Proprietor, Kirby Analytics Newsletter - Proprietary Macroeconomic Research
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