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The $5 Trillion Coin
Gimmicks the government could use to resolve the debt-ceiling debacle.
By Annie Lowrey Posted Friday, July 29, 2011, at 4:48 PM ET
The countdown clock to the Debtpocalypse now stands at four days, give or take. Soon, the Treasury will start receiving bills it cannot pay, and the United States will fall delinquent on billions of dollars in promised payments to Social Security recipients, government contractors, and so on. Congress remains deadlocked. So, the chattering classes have started getting creative. If you cannot lift the debt ceiling, maybe you can vault over it.
One option is coin seigniorage--aka, the "really-huge-coin workaround." The United States has a statutory limit on the amount of paper money in circulation, but no such limit on coins. The Treasury secretary has the authority to mint certain coins of any denomination, with no need for the value of the metal to equal the value of the coin. (It gets a bit technical.) But the idea is that Secretary Timothy Geithner could order the Mint to make a, say, $5 trillion coin. It could then use the coin to buy back and extinguish debt from the Fed, pushing the country back under the ceiling. Or it could deposit it, and the Fed could counteract the inflation by selling government debt.
Annie Lowrey reports on economics and business for Slate. Previously, she worked as a staff writer for the Washington Independent and on the editorial staffs of Foreign Policy and The New Yorker. Her e-mail is annie.lowrey@slate.com.
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Tiny US Wildcatter Discovers $1.2 Billion Alaskan "Oil Jackpot"
And this explosive exploration company acquired this "Oil Jackpot" for a mere $4.5 million – a monster 99.6% discount! It's one of the best market buys in the history of the oil industry. Early investors could make huge gains off this once-in-a-lifetime oil bargain.
Underlining Key Points in the Debate Over What to Do With Your Capital
Joel Bowman
Reporting from Vancouver, Canada...
A joke for you, Fellow Reckoner. This one comes in the form of a headline we saw this morning in Canada's The Globe and Mail newspaper:
"Fix The Mess, Banks Tell Congress."
Get it? Like all good humor, the punch line here lies in the unexpected ending, the dangling modifier. It catches you off guard. "Fix The Mess" might not have been so funny if it were a request from a customer to, say, a plumber, or an electrician or even a doctor. But this request, made (as we learned in the article) by the mightiest bankers in the land, was directed to Congress...Congress!...the very cause of the mess, in other words. You don't ask a hurricane to put your flattened town back together, or a drunk to mind the bar. Why ask Congress to do anything at all?
The debt ceiling debate – which prompted the banks' comically misguided request to Congress – is certainly drawing a lot of attention in the States. Markets were down for a fifth straight day yesterday. They're down again this morning, too...off one hundred points last we checked. The reason? Well, we have no idea. But The Wall Street Journal thinks it knows.
"US Stocks Drop As Growth, Debt Worries Predominate; DJIA Falls 102" reads the headline.
Apparently, folks worry about what will happen if their politicos don't "act," if they don't clean up the mess they themselves caused. Some individuals have taken to the streets, protesting down in Washington DC, in the belly of the beast. In another article, for example, we saw a picture of a man – a Tea Party activist, the captions tells us – who was on the march around Capitol Hill. Why? His sign reads, admirably enough:
"We Are Watching Your Every Move. Cut Spending! Cap. Balance."
For some reason, the word "balance" was underlined...as were "are," "every," "move" and "cut." This man had a piece of cardboard and a stick...and he wasn't afraid to use either of them. Clearly, he was out to make a point. But to whom? And does all this debt ceiling stuff even matter anyway? Rick Rule put it thus in an excellent presentation here at the conference earlier in the week:
"The debt ceiling will be reached...when the US can't sell its paper."
Rick's point – a key one, we believe – is simply that all this talk amongst the various policy wonks is more or less meaningless. It's a sideshow. A circus. Ultimately, the market will decide the threshold of investor patience. Move the ceiling, don't move the ceiling. It probably doesn't matter much either way. What does matter is the kindness of strangers...and the expiration date on that kindness.
In a way, this whole debt ceiling topic feeds into a theme we've been discussing all week, the theme of this year's conference – Fight or Flight: Your Capital at Risk. The impulse to stand and fight or to hightail it outta there is as old as nature itself. Our response is probably programmed into our DNA, hardwired. Do you take your cardboard and sticks to Washington, underline a bunch of words and implore the zebras in Congress to change their stripes? Or do you take your hard-earned capital elsewhere, looking for opportunities in places where it will be better treated?
The question is an important one, and one that is becoming more so by the day. We've heard a lot of speakers this week, each of them advocating one strategy or the other. Some, like Addison and the entrepreneurial individuals of Odyssey Marine, take their fight to the man. These are brave individuals, standing up for what's theirs.
In his opening remarks, Addison drew attention to a key difference between the American and French revolutions to make this point. The French, observed Addison, wanted the king's head so they could replace it with another one...another head of state...another political arrangement. The Americans, having largely existed beyond the control of the crown, sprawled, as they were, out across the continuously expanding western frontier, revolted for different reasons. They didn't want a new ruler. They wanted to be their own rulers. Self determination, in other words. They fought because they wanted to preserve what was theirs. They had been "flighters"...until they got to California and ran out of places to go. Then they turned and stood their ground. Those who wish to "take back what's theirs" usually advocate the stand and fight strategy.
Others, Doug Casey and Doug Clayton among them, prefer to hunt for opportunities abroad. In a way, they are like today's frontiersmen, always and forever searching for new and untapped opportunities in far off lands. We mentioned Mr. Clayton, managing partner at Leopard Capital, earlier in the week. His "sunrise" economies include the names of places most men – and their money – fear to tread: Bangladesh, Haiti, Ethiopia and Cambodia. But Doug knows his stuff...and, like all true pioneers, he'd probably prefer to explore foreign riches without the inconvenience of having to share the spoils with the rest of the investing herd. They can buy them from him later...for a price.
Mr. Casey, the original "International Man," goes a step further. During the Whiskey Bar Debate, fellow panelist, Gary Gibson, asked Doug what the ideal number of countries in the world would be. (Mr. Gibson knew full well Doug's answer, we suspect.) Mr. Casey didn't hesitate: "6.5 billion," he said.
Doug's point, and the point made by others advocating the "flight" strategy, is that borders are, in many ways, irrelevant. They are figments of The State's imagination, made real only by our compliance with and subservience to them. What's really important is freedom from borders, both when it comes to thinking about investing and, for all intents and purposes, living your life as a free individual. The State – be it France or America or any other geographical area over which the few live at the expense of the many – is a menace to liberty. It should be treated as such.
The fighters and the flighters both make excellent points. Your editor wouldn't want to be on the opposing side of a debate with either of them. But we suspect that there may be something else going on here, something deeper. As mentioned above, the impulse to fight or flee is as old as nature itself. As such, our tendencies are probably genetically interwoven, hardwired. That's not to say we can't change them, of course, only that it may be harder to do so than we might think. Besides, destiny likely has its own ideas, as the future will reveal to us in its own sweet time. More on this in future reckonings...
Meanwhile, Bill touched on the destiny theme in his presentation at this year's Agora Financial Investment Symposium, a condensed version of which we've included below as today's feature column. Please enjoy...
[P.S. Remember, you can get all the presentations from this year's investment conference – including breakout sessions, panel discussions and the like – on CD and/or MP3. The discounted rate ends Monday, so you'll want to be nimble if you want a set. Check the out here.]
Addison Wiggin's Apogee Advisory Presents...
Obama's Burning Shame Revealed Here...
This is the unspoken, burning shame that could kill Obama's presidency...
It could spell the end of his short political career...
The Great Correction: 4 Years...and Counting...Still No Recovery in Sight
Bill Bonner
I'm glad to be the last speaker. Nobody can come after me and tell you why I'm wrong about everything. Instead, I get to tell you why the other speakers were numbskulls. Besides, we all have a tendency to be most influenced by the last person we talk to. Or at least I do.
Wherever we go we tend to pick up the accents...and attitudes... of the people who are around us. We all know, because we're all good contrarians, and this is something we can all agree on, that whenever everybody thinks the same thing, nobody is thinking. But that's just what happens. We all come to share the ideas of the people around us...even without realizing it.
Right now, a 10-year US note yielding less than 3% is an illustration of this phenomenon. That gives that note a current yield that is actually – in real terms – negative. Consumer prices, as measured by the feds themselves – are going up at about a 5% rate, giving that Treasury note a current yield of MINUS 2% before taxes. After taxes, it's nearly MINUS 4%. What kind of group-think causes that?
Of course, I don't know if bonds will go up or down. I just know that when we see so many people are doing such an amazingly bizarre thing, it's worth looking at it more closely.
My wife and I were driving up to New York from Washington a few months ago. That's when I realized how easily we are influenced by whomever we're listening to at the time. My wife is always trying to improve the family. So, she got a tape recording of Virgil's Aenead for us to listen to on the drive. It's the story of the founding of Rome by refugees from Troy, read by a BBC actor in a grave and booming voice.
By the time we got to the end of the New Jersey Turnpike we had been listening to the story for a couple hours. I was thinking in Virgilian terms. So, when Elizabeth suggested that I ask the tollbooth operator for directions, I just blurted out.
"We have long travailed over hardened black earth...
"And now we seek the northern tribes...those of the reddened sox...
"Who – with the gods' help – crossed o'er storm-tossed seas to build great cities on the desolate coast among the savage Yankees."
Without a pause...the woman at the toll booth fired back:
"Yeah...well you're goin' to Brooklyn.
"Ah...destiny has brought us hither!"
"Yeah...and if you don't get movin' I'm gonna call the cops."
"Thank you oh sweet maiden, daughter of Venus and Minerva."
The story of Rome is a great story. And Virgil's account of its founding is very different from, say, press reports on the debt- ceiling hike or the coming of QE3.
The big difference is that Virgil thinks things happen for different reasons. There is more at work than just choices made by mortal man. Sometimes the humans in his story makes good choices. Sometimes they make bad choices. But that is not all there is to the story. There are the gods too...who are either jealous and treacherous, or generous and helpful. And there is something else – destiny itself. Fate. Or as the old Anglo-Saxons used to call it the "Weird.' "Your weird is set," they would say...meaning you're your goose is cooked and there is nothing you can do about it.
I only introduce this idea as a thought...provocation. Not even a hypothesis. Just an analogy. What if the US were...well...like Rome?
No one knows what will happen. "It is not given to man to know his own fate," as the saying goes. But it could be that there is more going on here than just a bunch of people trying to make the best decisions in a bad situation. Maybe destiny is involved too...and maybe that is why people all come to think the same thing at the same time.
If everyone thinks the US T-note is such a safe item that they're willing to take a negative yield just to hold it...maybe it's not safe at all.
And if destiny...or some huge historical force is involved...maybe the fight is hopeless. So why bother? Why get all bloody and dirty?
I know you all have to make investment decisions. So, I will try to bring this down to the practically level. The only place where I'm directly involved in giving investment advice or in taking it is in the Bonner Family Office. In a nutshell, I'm trying to figure out how to leave money to the next generation in a way that helps them...rather than destroys them. I've invited a few other families to help pay for it. We're not taking any new members right now...but Will will be happy to tell you more about what we do later on.
The trouble with fighting is that you don't notice a lot of things. You have to keep your head down. You have to stay focused on the fight at hand. And you have to believe in it...even when the facts don't necessarily support you. That's why zealots and believers are generally poor investors. They want to be proven right. They want their side to win...and they're willing to back it with their money. They put their money where their mouths are, in other words. Sometimes both get whacked.
It's all right to be a fighter when it's only your own money at stake. You can do with it as you please. But if you are custodian for future generations, it's probably better to lift your head and look around. You want to put your money on the fighter who is most likely to win...not the one you'd like to win.
In our family office, we are neither fighters nor flee-ers. We try to be careful observers. We'd rather get a good seat ringside, where we can see where the blows are landing...but not too far from the exit. Right now, we hold a lot of our wealth in cash. Not that we are tempted by a lot of the investment advice I've heard hear this week. But cash is like a seat by the exits. You don't want to sit there all the time. Too drafty. But it comes in handy if there's ever a fire...at least we won't get trampled trying to get out.
Most of the speakers you've heard from at this conference are fighters. They think they can either turn the country around...like Addison...or that the US will turn itself around, like John Mauldin...or that new technology will make us all rich and help us to live as long as Methusela, so we won't care.
But suppose the US really is like Rome? These guys can fight all they want. The Empire has its own destination in mind. And it will get there in its own sweet time.
Regards,
Bill Bonner, for The Daily Reckoning
Do You Stay or Go?
That's the question we're asking at this year's Agora Financial Investment Symposium in Vancouver, Canada. And, after listening to the plethora of incredible presentations by the world-class line-up of speakers here, the answers we're hearing, may surprise you...
Of course, we understand that Vancouver isn't right around the corner for most of you. That's why we've decided to record the entire line-up of speakers and make them available to you on both MP3 and CD formats.
So even if you weren't able to join us at this year's event, you don't have to miss out on a single piece of advice or recommendation.
And right now, while the event is still going on, they're available at a nice discount. Click here to get yours now. But hurry, the price will go up shortly after the conference ends.
Bill Bonner
Economic Reference Points
Reckoning from Vancouver, Canada...
We are batting cleanup at the Agora Financial Conference today; last in the line-up. Our job is to clean the bases...to wallop the ball over the fence so stranded runners can get home.
If you aren't familiar with baseball metaphors, dear reader, don't worry. We're not either. We might even have it mixed up with tennis or curling. And it doesn't matter anyway.
But everything we understand is by metaphor or analogy. Digits might be great for precision. But when it comes to understanding something, we're all analog.
"What's it like?" we want to know. "Does it taste like chicken?" The exact chemical make-up doesn't help. We need a point of reference.
The same is true in economics. If you tell us that the unemployment rate is – according to ShadowStats – more than 20%, it doesn't mean much...until you add: this is as bad as the Great Depression. Now we know what you're sayin'!
Yesterday, the Dow fell again, more than 60 points. Commentators said investors were nervous about the lack of a debt deal in Washington. Maybe.
All the papers tell us that disaster is at hand. If they don't do the debt deal, say the talking heads, there will be Hell to pay.
But, so far, the markets have barely reacted. Last time we looked, bonds were still remarkably expensive...with a yield on the US 10- year note of less than 3%.
We doubt that a debt default would be a big deal. Investors know it's only a technical default. They know the feds are good for the money – at least the kind of ersatz money they deal in. They're not really worried.
On the other hand, stocks are dropping...and probably looking for an excuse to go down. The Dow is still over 12,000. It's got to go under 6,000 or so before completing its rendezvous with destiny. It might take a few years...or a few months. But we've got time...
Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com
The Stock Market Squares Off Against the Economy So, the big question: who's right? The stock market? Or the economy? Which way is it going to go? Is the stock market going to fall to meet the real economy? Or is the economy finally going to recover to justify the kind of stock prices people are paying? Our money is on falling stock prices.
China: Where Money Is Treated Best I am sure that Mr. Pento is right because every country on the Face Of The Planet (FOTP) is desperately creating more and more money, and the money will eventually find its way to the place where it is treated best and/or has the best prospects, which is, in this case, Bob. Oops! I meant "China."
China to Overtake India as World's Biggest Gold Consuming Nation Much like how China has surpassed the US in so many manufacturing and economic milestones — and South Africa in gold production — the world's most populous country is now poised to topple India as nation with the strongest gold demand in the world. China has long been interested in amassing gold reserves...
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Another way of looking at it: Apple made about twice as much profit on mobile phones as Samsung, RIM, and HTC did -- combined. Nokia, Motorola, Sony-Ericsson, and LG all saw losses. Read »
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