Washington Town Creates Currency for Local Use

Banking, Currencies, Monetary Policy, , , , ,

Andy’s Notes: The four requirements of any money are intrinsic value, a unit of account, a store of wealth, and a medium of exchange. These new minted ‘bills’ are able to be used locally, but the holders cannot compel any business or individual to accept them as legal tender. The US has legal tender laws that specify what may be used as legal tender. Does this make it a bad idea? Not necessarily. The USDollar doesn’t meet the ‘store of wealth’ requirement because of inflation and it is still accepted everywhere in the US. The Dollar also has little or no intrinsic value. The Tenino bills lack intrinsic value as well, but meet the other three requirements as long as everyone in the cohort is willing to accept them as legal tender and – this is a biggie – the bills are backed in such manner that whoever runs the printing press can’t print themselves a nice pile and go out and buy real goods with them.

The last sentence above is key to why banking systems fail over time. The temptation for the printers of money to run off currency beyond the backing is too much. This is why the banks of the 1800s failed so often. They’d over-issue silver certificates beyond the silver stored. The people would get wise to it and run the bank demanding silver and the banks would run out and have to close.

Since we no longer have redeemability on US currency, it makes over-issuance a real problem, especially in the digital age. Will the ‘wooden dollar’ experiment work? Time will tell. If nothing else, this is yet another signpost on the trek to the end of the road for the used and abused USPetrodollar.

Sutton/Mehl

TENINO, United States, July 9 (Thomson Reuters Foundation) – Tucked away under lock and key in a former railroad depot turned small-town museum in the U.S. state of Washington, a wooden printing press cranked back to life to mint currency after nearly 90 dormant years.

The end product: $25 wooden bills bearing the town’s name – Tenino – with the words “COVID Relief” superimposed on the image of a bat and the Latin phrase “Habemus autem sub potestate” (We have it under control) printed in cursive.

With the coronavirus pandemic plunging the United States into a recession, decimating small businesses and causing job losses across the country, some local governments are looking for innovative ways to help residents weather the storm.

For Tenino, the answer was the revival of the local currency that had bolstered the town’s economy in 1931 in the wake of the Great Depression.

“It was kind of an epiphany: Why don’t we do that again?” Mayor Wayne Fournier told the Thomson Reuters Foundation. “It only made sense.”

Tenino, a town of less than 2,000 people located about 60 miles (95km) southwest of Seattle, started printing the local banknotes in April, five weeks into Washington state’s lockdown.

Anyone with a documented loss of income as a result of the pandemic is eligible for up to $300 a month of the local currency.

Businesses up and down the town’s quaint Main Street accept the wooden note for everything except alcohol, tobacco, cannabis and lottery tickets.

Tenino’s city government backs the local currency, which merchants can exchange for U.S. dollars at city hall at a 1:1 rate.

Susan Witt, executive director of the Schumacher Center for a New Economics, a Massachusetts-based think tank, said alternative currencies like Tenino’s banknote are better than direct cash payments at boosting local economies.

“The City of Barcelona gave donations (in 2017/18) to sports teams and cultural groups as well as social programs (then) watched these donations go to big box stores,” she said in emailed comments.

“So, it created a local currency so that these ‘discretionary’ funds in its budget would circle back to support locally-owned businesses.”

‘WOVEN INTO OUR DNA’

Mayor Fournier noted that, for long-time Tenino residents, the wooden notes are nothing new.

The tiny town founded around a sandstone quarry achieved national prominence in 1931 when civic leaders printed a wooden local currency to restore consumer confidence after the town’s bank failed during the Great Depression.

“This is woven into the DNA of the community,” Fournier said. “My great aunt Erlene has the family collection all stashed away.”

The mayor brought the idea of resurrecting the town’s legacy project to the city council as a way to provide economic relief to businesses and residents suffering as a result of lockdown measures to slow the spread of COVID-19.

In April councillors approved the proposal to issue up to $10,000 in local scrip.

So far, 13 residents have successfully applied for the funds and some $2,500 worth of wooden bills have been issued, Fournier said, with donations upping the total funds available to $16,000.

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A Gamble for All Time

Bailouts, Banking, Consumer Finance, Economics, Geoeconomics, Modern Monetary Theory, Monetary Policy, National Debt, , , , ,

In 2008, the central bankers of the world revealed the true danger of Keynesian economic theory by staging the biggest bailout to date. There was a short flurry of complaints about the banking system being able to leverage the economy instead of just themselves and their filth-ridden balance sheets.

Fast forward 12 years. You guessed it – another massive bailout. The warnings issued after the crisis of 2008 went unheeded, banks leveraged to even greater levels than 2008 and brought the rest of the world with them. Now, not only has runaway Keynesianism enabled the banks to leverage themselves and the financial economy, now they’ve been permitted to leverage the entire world’s economy as well.

Central banks are gambling the next hundred years of economic history that they can print their way out of this mess. Instead of unwinding their malfeasance, they’re doubling down.

Many of you read our piece on ‘modern monetary theory’ last summer. That is now in play as well. This summer we’ll analyze the next move in an epic economic game of chicken. And there isn’t a person on Earth who will be left unaffected. Coming Soon…

Sutton/Mehl

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‘Modern’ Monetary Theory Paper – Please Read and Distribute

Consumer Finance, Economics, Geoeconomics, Modern Monetary Theory, Monetary Policy, , , , , ,

This paper is attached to an older blog entry, but given the fact that the world’s central banks are busy enacting the 5 planks of MMT as we write this, we thought it pertinent to refresh that post. Please feel free to distribute this paper to anyone you know who might be interested in finances or is confused about what is going on financially/economically. If you re-post, we just ask for a simple citation. The timeliness of the material far surpasses the need for any ‘credit’. There is a lot of misinformation going on right now. We have some of the best thinkers out there as readers. Keep thinking! Fear disables critical thinking. We have not been given a spirit of fear, but that of a sound mind. Don’t forget that.

Sutton/Mehl

Modern Monetary Theory – Sutton/MehlDownload

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Liberty Talk Radio – Bailout 2020 Edition

Bailouts, Banking, Economics, Geoeconomics, Interest Rates, Liberty Talk Radio, Monetary Policy, , , ,

Dear Readers, Andy was on Liberty Talk Radio again with Joe Cristiano to discuss the 2020 economic stimulus package recently passed by Congress. We’ve reached a critical inflection point as a country – we now ‘need’ these stimulus programs / bailouts to continue to function in our current monetary and economic system. During the crisis of 2008, there was a chance to change course. With the passing of 12 subsequent years, so has the chance to sufficiently alter course. We’re locked into the petrodollar system until the next currency model emerges.

For convenience and at the request of several readers, we’re adding the audio from the discussion in mp3 format. You may listen below or download it by right-clicking the link. More updates to follow.

Sutton/Mehl

https://www.andysutton.com/blog/wp-content/uploads/2020/03/ltr_03282020.mp3

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US Treasury Rates – 3/27/2020

Economics, Interest Rates, Monetary Policy, RIsk Management, , ,

The following chart shows the yields on USTreasury securities during month of March. These are end-of-day figures. Intraday, the 1-3 month were negative during the middle portion of the week.

As of Friday, 3/27/2020, the 30-year bond is paying 1.29%. This is slightly off the bottom of less than 1% on 3/9, but is still very negative in real terms (when using the CPI to discount for price inflation). You may click the thumbnail below to enlarge. We are also posting the link to the Treasury’s site as well for your convenience.

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

Sutton/Mehl

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Retirement Accounts Part of Next Bailout? (We’ve Already Addressed This)

Banking, Consumer Finance, Geoeconomics, Monetary Policy, RIsk Management, , , , ,

Today, for the first time, a prominent national politician mentioned on television news that portions or potentially all of the pension systems in the United States might have to be ‘nationalized’ to fund additional bailout measures.

It is already abundantly clear that the $2+ Trillion measure that just passed the Senate won’t be nearly enough. We have lived by debt for many years with seemingly few – if any – observable consequences. The old saying says ‘live by the sword, die by the sword’. Perhaps we’re about to find out.

In 2013 there was a bank raid on the tiny Mediterranean island of Cyprus. Panic ensued with depositors losing the ability to withdraw funds, a bank holiday followed and a bail-in resulted. A bail-in? Yes, that’s not a typo. We penned a volley of articles dealing with what transpired in Cyprus and closed out with some possible mechanisms by which US retirement assets would be seized to protect national security interests.

Rather than re-write all of that content we’re going to just re-post what we penned at that time. Tomorrow (hopefully) we’ll be able to take a short guided tour through those articles and apply some of what is going on now and how this whole thing might come together. A friendly reminder. We are not asking for any money. We don’t want any. We are not giving advice. We are providing information and analysis based on almost 50 combined years of studying economics, financial markets, and geopolitics. The link to the compilation – in PDF format – is below. Until next time,

Sutton/Mehl

Cyprus Banking Crisis SeriesDownload

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1-3 Month T-Bill Yields to 0%

Economics, Interest Rates, Monetary Policy, , , ,

An expected consequence of the flight to ‘safety’ (sarcasm ours) has been a decrease in interest rates. While rates have been far into negative territory for quite some time now, today is the first day that nominal rates have gone to 0.0%. What this means is, at the current price, the 1-3 month T-Bill series is paying zero interest.

While this is not disimilar to what most consumers have been experiencing in their checking and even savings accounts for some time now, these are perceived to have even less risk than USGovt. debt. In our next post we’ll go a bit deeper into the various kinds of risk associated with various financial instruments. This is something we probably should have dedicated an entire column to some time ago even though we often referred to various types of risk.

Put simply, there is more generalized systemic risk (non-diversifiable) than at any time in the history of US financial markets. We are certainly living in interesting times. We will re-post an article that was written nearly a decade ago on risk in very general terms. Stay well and stay tuned.

Sutton/Mehl

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Dissecting the Disaster – Liberty Talk Radio Returns

Consumer Finance, Economics, Liberty Talk Radio, Monetary Policy, National Debt, Stock Market, , , , , ,

Readers: A huge ‘thank you’ to Joe Cristiano for having me on for his debut! We kept the time down, but did talk about a few angles to this whole financial/economic wash out that haven’t really been covered. A few have been totally ignored. It’s our hope that keeping these shorter will encourage more people to listen in. Thanks again Joe and it’s good to have you back!

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Q&A Answers – 3/21/2020

Consumer Finance, Economics, Geoeconomics, Liberty Talk Radio, Monetary Policy, National Debt, , , , ,

Since we were unable to do Liberty Talk Radio again, I’m going to address the questions we received here. The chart below will be a point of reference for most of them.

The chart above shows the Dow Jones Industrial Average from approximately 1905. You’ll have to click to see the chart in detail and I apologize for that – it is hard to get a decent chart with that kind of timeline.

The first ‘peak’ if you can even call it that was the roaring 20s and the bursting of the speculative bubble in late 1929. The Dow would lose more than 75% of its value before the move ended.

The next events are pointed to as well. The main question people have is ‘How was the DJIA near 30,000 to begin with?’ It’s a good question. There are a couple of reasons. First is inflation (growth of the money supply). More money chasing after a relatively fixed set of goods produces higher prices, all else being equal. Let’s proceed through the timeline to get to an answer about Dow 30,000.

Inflation and the revocation of the Glass-Steagall Act allowed for the run-up and eventual blowup of the dot-com bubble. The fact that many of the dot -com firms never made a single penny in profits yet sold for hundreds of dollars a share contributed as well. We’d call this part a speculative bubble. Inflation put the money in the system to allow the bubble to reach the level it did.

After the 2002-03 recovery, the central banks (globally) began serious interference in markets, causing distortions and artificially low interest rates (aka cost of capital) that allowed the next bubble – the housing bubble to inflate. Again, more money in the system due to inflation and a lower cost to that money thanks to the central banks and voila! Boom.

If you thought that was dramatic, the federal reserve in the US and other central banks began something known as ‘quantitative easing’ or QE. This is a fancy term for printing money from thin air and injecting it into the financial system and economy. In the business we call it ‘hot money’ because it’s like a hot potato. It moves around very quickly. From 2009-2019, we had multiple opportunities for what is happening right now and each time, the central banks intervened with more hot money and you can see by the shape of the curve after 2009 how the slope increases dramatically.

This general shape of curve is consistent with monetary systems that are built on fractional reserve banking and that feature a unit of currency that isn’t backed by anything tangible. Until 1971, the USDollar was at least partially backed by gold. I didn’t mark the area, but if you look on the chart at where the curve really starts to accelerate upwards, that was right in the 1971 time frame.

There has been some speculation about fractional reserve monetary systems of late. The important thing to note is that this particular type of system allows for inflation (the creation of new money) when debt is incurred. A quick example is in order. I take 100 depreciated American dollars to the bank and deposit it. Joe Cristiano comes along and asks my bank for a loan, they will lend him up to around $90 of my deposit. However, the bank still owes me my $100 initial deposit. At this point, the money supply went from $100 to $190.

One of the often used misconceptions is that, therefore, when loans are repaid, that equals deflation (the destruction of money). It does not. Let’s use our above example. Joe repays his loan to the bank after 30 days. Let’s say they were very charitable and say they charged him 1% total interest for the 30-day loan. So, he would repay $90.90. Now, my initial $100 is still in there so the total is now $190.90. No deflation.

However, when people pay down loans instead of taking out more debt it does dramatically slow the rate of bank-created inflation. This happened during 2010. Governments don’t like this because they’ve invested a great deal of time convincing people that inflation is necessary for growth to occur. If the people won’t borrow, you can sure bet the governments will do it for them and that is exactly what took place in 2010.

A final thought. A few asked if what is going on would have happened if we didn’t have a global biologic event. As you can see by the chart above, we’ve been long overdue. The QE done by the federal reserve is unhealthy for the economy and if our economy was truly healthy, it wouldn’t need constant stimulus or massive federal, state, local, and personal deficits to function. The ‘solution’ for nearly 2 decades has been to print money and blow up bubbles. Put simply, at some point bubbles always burst and this most recent one was looking for its pin.

Sutton, Mehl – 3/21/2020

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Q&A Session on Liberty Talk Radio 3/19/20 @ 24:00 UTC

Consumer Finance, Economics, Geoeconomics, Geopolitics, Liberty Talk Radio, Manufacturing, Monetary Policy, National Debt, Pensions, RIsk Management, , , , , , ,

Hello Readers,

I will be on either a brief Q&A segment with Joe Cristiano’s Liberty Talk Radio or I’ll be releasing a short podcast this evening. I know many of you are not in the US so my apologies for the short notice. Please email your questions when you can and we’ll go from there.

Topics? While I have medical training, I am not qualified to speak on the issue of COVID-19 beyond the most general of terms. I would like to focus on the global financial markets and the very strong likelihood that another 2008-style event was imminent as early as last summer.

Now, with global markets shredded, economies left in doubt, and the population of a growing number of countries behind closed doors, what needs to happen next? We’ve heard some solutions. Are they the right ones?

We’ll be addressing these issues – and your questions – tonight. Don’t miss it!

Best,

Andy Sutton

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