The Mogambo Guru

Banks are Suffering from their Own Stupidity

Thu, 3 Jul 2008 13:58:06 -0400

The first half of the year is over, and now all those brokerage accounts and retirement accounts will be sending out statements to hapless account holders, and it is bad news in spades. This is why (I assume) the Plunge Protection Team (composed of the Federal Reserve, the Treasury and bank insiders) tried to drive the stock markets up on Monday, June 30 - to make those account statements look not quite as bad, and, hopefully, prevent people from dumping all of their stock and bond holdings in a desperate attempt to save something before the whole idiotic, fiat-currency, unlimited-fractional-banking thing just collapses.

Perhaps this drop in the market averages (as demand overwhelms supply) is what prompted John Williams at shadowstats.com to write, "Overhanging the markets for a number of years has been the question as to when the major holders of excess U.S. dollars in the global financial system might look to dump those holdings. An opportunity for that dumping is at hand."

The reason is that "Most central banks know that their unwanted dollar hoards are going to generate long-term losses, but the oil markets have opened up an opportunity to mitigate some of those losses. For the rest of the world, dollar dumping now would reduce inflation risks outside the United States."

This means that "Over the longer term, U.S. equities, bonds and the greenback should suffer terribly, while gold and silver prices should boom."

And it is not just him and me that are so gloomy, but a new study from the Bank for International Settlements (BIS) noted that a plunge in the dollar "may happen", as the dollar has slid 14% against the euro (EUR) in the past year, handing foreign investors in U.S. dollar assets "big losses measured in dollars, and still bigger ones measured in their own currency", and which is making people so nervous that "a sudden rush for the exits cannot be ruled out completely."

Bob Janjuah, analyst at the Royal Bank of Scotland, has also advised clients that "A very nasty period is soon to be upon us - be prepared," which goes along with that bank's warning that inflation has paralyzed the world's central banks, and that of a full-fledged crash in global stock and credit markets over the next three months looks more and more likely.

And the stupid banks (always the cause of all of economic troubles) are suffering from their own stupidity, and Bill Buckler of The-Privateer.com newsletter notes that "US Banks have suffered $US 391 billion of losses and write-downs from mortgage- related securities since the start of 2007, according to the data compiled by Bloomberg. US banks could lose another $US 300 billion on real estate loans during the year ahead."

What makes this $691 billion loss so special is that "such losses could jeopardize balance sheets because the US banking system had only $US 1,350 billion of equity capital". Hahaha! They've lost two-thirds of the banks capital! Hahaha! Morons!

Since all things are connected to all things, he says, "the sum of it all is that the entire US banking and financial system is so threadbare, fragile and short of capital that a collapse or crash in one place could knock the underpinnings out from under several other US financial sectors which would take even more down with them. A systemic crash - at any time - is today a distinct possibility."

This is all in addition to the fact that morons who have kept investing in the American stock market are suffering losses, proving once again that the majority of investors must lose money over the long term. Spengler at atimes.com notes that when he says, "American equity markets show no real capital gains since 1997. That is, an American who bought the equivalent of the Standard and Poor's 500 Index at $954 in January 1997 and sold today at $1,278 would have exactly the same number of inflation-adjusted dollars."

Mr. Spengler concludes, "My advice to individual investors? Invest in some popcorn, because the next six months will be something to watch."

Jim Sinclair of jsmineset.com is more humorously laconic when he says, "You can be sure something really stupid is about to happen."

He might have been referring to me, but I am usually stupid to start with, and so why would he just be mentioning it now? So, I think he means something more sinister. Much more sinister. And ugly.

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Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications. Click here to visit the Mogambo archive page.

Vaguely Resembling Real Price Inflation

Thu, 3 Jul 2008 13:53:40 -0400

by The Mogambo Guru

I was thrilled to see the headline "Nip Inflation Before It Gains Steam" on an article by Robert Samuelson of The Washington Post Writers Group, because he is exactly right; inflation is a Terrible, Terrible Thing (TTT), and it is imperative that there be a lot of nipping to stop inflation. Like Deputy Barney Fife famously said to Andy of Mayberry about children's misbehavior, you have to "Nip it in the bud, Andy! Nip it! Nip it!"

The classic example is the French Revolution, which was caused by ruinous inflation in prices of food and commodities, thanks to the idiotic French government creating so much money for years. A better-known example is Weimar Germany, and a lesser-known example is the Russian Revolution, which created the money to wage WWI and caused food prices to skyrocket.

Then Mr. Samuelson shows that he is apparently just a doofus who fills up his day by happily writing any crap that anybody in a suit and a position of authority will say to him. To show you what I mean, he writes that Ben Bernanke argued, "The economy today is much different from the mid 1970s." Mr. Samuelson opined, "He's right."

I thought that when he added that comment of "He's right" at the end, he would go on to explain that "In fact, things are much worse than in the '70s and the Irritating Idiot Mogambo (IIM) was right! The Federal Reserve creating so much money and credit has destroyed the dollar! We're freaking doomed!" But he did not.

Unbelievably, instead, he writes that the inflation in this country is about 4% and that unemployment is less than 6%, which is supposed to be good news because, "In 1974, inflation (as measured by the Consumer Price Index) was 12 percent. Unemployment in the parallel recession peaked at 9% in early 1975."

What this newspaper ignoramus is saying is that he is some big blowhard expert on economics, but yet he is not remotely aware of the any of the constant jiggling of the CPI over the decades by the corrupt government trying to destroy the inflationary evidence of its gross mismanagement of the economy, culminating in the despicable actions of the odious Alan Greenspan and the equally despicable Michael Boskin in the '90s to introduce such bizarre, inflation-concealing concepts such as "the substitution effect", "the wealth effect", and "quality improvement (hedonic) effects", so that the Consumer Price Index now has only a vague, passing resemblance to real inflation in prices.

This does not even get into the fact that the Bureau of Labor Statistics spent the last couple of decades constantly re-defining "unemployment", and thus who is "officially" unemployed, down and down, so as to make the government appear NOT to be completely mismanaging the country! Hahaha!

I laugh that Mr. Samuelson is also admitting that he is completely ignorant of John Williams and his shadowstats.com, where inflation is calculated the way it was actually measured in 1974, and which shows that price inflation is now HIGHER than it was in 1974, with inflation now being up around 13%!

And Mr. Williams also calculates unemployment the way it was measured in 1974, too, and it shows that unemployment is higher now, too, at over 10%!

Mr. Samuelson, for all his staggering ignorance, does admit that "all large inflations involve 'too much money chasing too few goods' as economist Milton Friedman often noted, and this episode is no exception". To underscore the point, he points out that "the Fed is holding its key interest rate at 2 percent, well below prevailing inflation." Negative interest rates!

He thinks that this is trumped by saying, "By contrast, today there's not yet a wage-price spiral. Inflationary pressures seem to originate mostly in rising raw materials prices." Hahaha! This is not only wrong, but also parochial and insane! There is no wage-price spiral in the U.S.A., admittedly, but foreigners all over the freaking world are seeing the incomes shooting up, sometimes by 10% or more! There's your freaking wage hike, and their rising demands for commodities are producing the price hike, so there is your wage-price spiral, you dumb weenie! Jeez!

With media like this, with schools like these, with a government like this, with a central bank like this, it's a wonder we lasted as long as we did!

More Bats and a Bigger Budget

Tue, 1 Jul 2008 14:01:43 -0400

by The Mogambo Guru

Many Junior Mogambo Rangers (JMRs) were correctly upset at the Washington Post story that bore the headline "Paulson To Urge New Fed Powers". The poop is (and you will soon see why I use that particular noun) that Treasury Secretary Henry Paulson is calling "for the Federal Reserve to be given new, explicit powers to intervene in the workings of Wall Street firms."

To show you what an unimaginative dork Mr. Paulson is (which is almost the same thing I have been saying for years), give The Mogambo "new, explicit powers to intervene in the workings of Wall Street firms, the Federal Reserve, Congress and the Supreme Court, and let me go stomping in there anytime I want, wielding a baseball bat in my Mighty Mogambo Fist OF Vengeance (MMFOV) and start imparting some monetary and Constitutional sense to those morons with (as the saying goes) a whack to remember it by, making them do anything I say, whether they like it or not! And extend my powers to total dominion over cheerleaders, too!"

Well, I should have known that Mr. Paulson wouldn't mention me or my wonderful, original idea that he mostly stole, and instead wants to give the Federal Reserve these awesome new powers to (get this!) "protect the financial system." Hahaha!

There is only one way to "protect the financial system", and that is to stop the damned Federal Reserve from creating all the excess money and credit that finances the inflated crap that ends up endangering "the financial system" because so many people have lied to so many people to have them invest so much money into so many over-valued things, and now losses are inevitable, and on a scale that dwarfs the economies of the world.

So, once again, I figure he is leading up to the point where he proudly tells the world that there is a new Big Mogambo Dog (BMD) in town, and that The Mogambo is (at last!) going to be given a huge salary, an unbelievably generous retirement and benefit package, free baseball bats, a chauffeured limousine to take him anywhere he wants to go, and CIA-level double-oh immunity to ferret out and deal with miscreants and lowlife halfwits, which, in terms of the Federal Reserve and Congress (except Ron Paul), I realize is redundant as hell, meaning that their heads are twice as thick, meaning that I will need more bats and a bigger budget. A much bigger budget! Whee!

Out of the corner of my eye, I see security guards descending upon my location in the audience! Looking furtively about with my beady, rat-like eyes to a route of escape, I was nevertheless frozen to the spot when he said, "Our nation has come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk."

I tried to leap to my feet to shout, "No! No! No! The Fed is supposed to protect the value of the dollar, which it has completely failed to do, and now it has created so much money and so much inflation in asset prices that they created the 'unacceptable systemic risk' you are talking about, you moron! In fact, the Federal Reserve is so incompetent and stupid that the dollar has lost almost 98% of its buying power since 1913 when the Fed was authorized by a few corrupt Congressional politicians on Christmas Eve, 1913 when everybody else was away! And now you want to give the Fed more powers? You're a freaking imbecile or insane! Or both!", but I found that was frozen in outrage! I could not move!

Hell, standing there immobile, I also remember that thanks to the complete failure of the Federal Reserve, the dollar has lost 40% of its value just since 2002! I feel the need to shout, "Why do you think prices have gone up, you ignorant, stupid halfwits?"

He correctly notes that the Fed "has neither the clear statutory authority nor the mandate to anticipate and deal with risks across our entire financial system." You're damned right they don't! It is crazy even to think about it!

But he ignores me and says, to his everlasting shame, the unbelievable sentence, "We should quickly consider how to appropriately give the Fed the authority to access necessary information from highly complex financial institutions and the responsibility to intervene in order to protect the system, so they can carry out the role our nation has come to expect."

Again, my mind screams out, "We expect you to do the job of protecting the value of the dollar, which is why the damned Fed was created in the first place, which the Fed has manifestly completely failed to do!"

I am sputtering in my outrage, and I could not even begin to fathom why in the hell Mr. Paulson is suddenly proposing something so bizarre and extreme.

Fortunately, Peter Schiff of Euro Pacific Capital perhaps answers the question by noting, "However, with its increased willingness to rescue the big financial firms from their own excesses, perhaps Paulson sees an expanded Fed as the best way to ensure the continued prosperity of his former pals on Wall Street." Hahaha! Exactly! The amount of corruption at the end of long booms is always off the charts!

And, to be fair, it is to rescue us all, as extrapolating to us all, America is such a dimwitted little nation that we have literally put all our investment/retirement monies, both public and private, into the stock and bond markets! Hahaha! We have put all our future in the one place where it is required by simple mathematical imperative that the majority must always end up with less buying power than when they started! The majority must lose over the long-term! What the hell kind of retirement do you think you are building when you are losing money? Hahaha!

And sometimes EVERYBODY will lose! Hell, the recent downdraft in the S&P500 index to just over 1300 means that anybody who bought shares in this index since October 2006 has lost money!

And now, because so many people are getting ready to lose so much money, here is the Secretary of the Treasury wanting permission to take over the finances of every company in America! Hahaha! Un-freaking-believable! We're freaking doomed! Ugh.

Funding the Bacchanalian Excess

Mon, 30 Jun 2008 14:19:48 -0400

by The Mogambo Guru

I could see that the audience of reporters and passersby was getting nervous, as I had just finished going through the explanation of how the Federal Reserve creates inflation in the money supply by creating too much money and credit, which causes inflation in things as all of this money enters the economy, and then eventually the inflations in stocks, bonds, houses and the size of government becomes so great that further infusions of money must increase in proportion to the increase in the aforementioned prices of the stocks, bonds, houses and size of government if they are to maintain a static percentage growth, and some of all that increasing avalanche of money starts getting into bidding wars for commodities, increasing the prices of commodities.

But they just weren't getting it. Even that cute little cub reporter from the Daily Planet wasn't getting it. In my imagination, I had hoped that she would immediately see the horror of what I was telling them; thus leaping, whilst sobbing and trembling, into my Manly Mogambo Arms (MMA), she would say, "Oh, save me from the horrors of such inflation in prices that comes from inflation in the money supply, Mighty Magnificent Mogambo (MMM)! And by the way, your Manly Mogambo Arms (MMA) get me hot! Take me! I'm yours!"

But they all just sat there with these stupid expressions on their faces. "Like food and gasoline getting so highly priced that you can't buy them, you freaking morons!" I exclaimed helpfully.

Then they all started yammering about how prices are so high and how the government ought to do something and blah blah blah.

So I asked, "Do any of you morons know what will happen if the government slows down its spending? Chaos! The government is so huge, and so many people now depend upon it for everything, that the government cannot stop spending! And so the Fed cannot stop creating excess money and credit, because there is nowhere else from which the government can get that much money! Inflation will turn to rioting in the streets!"

Well, they all thought that I was crazy, and that raising taxes on the rich and adding a few more government programs would solve everything.

With a weary sigh of resignation, I showed them an interesting article in Archeology magazine that refers to the Roman writer Seneca describing the feasting excesses of Rome, who asks, "We have all heard about the decadence of the ancient Romans, but how much of this is true?"

It turns out that researchers "are confirming the classical author's accounts of the Roman taste for luxury. Banquets were extravagant feasts where patrons competed to outdo and outspend each other".

So, intrigued about the possibility of this kind of thing becoming a fad again (Oh, boy! Oh, boy!) and maybe somebody we know will host one of these Bacchanalian excesses involving un-dreamt of depravity and gluttony and invite us, we naturally want to know, "How much would one of these Roman feasts cost today?"

The answer is "$10,000 for a party of 15 revelers."

I know what you are thinking. You are thinking, "Is that all? At a lousy $667 per reveler? It almost costs that much to fill the gas tank on my damned car! Hahahaha!"

Well, that's not exactly true, I admit, but $667 per day times 365 days a year is $243,455 a year, which used to be a lot, but these days, thanks to the rampant inflation of the last few decades, it is not all that much anymore, and half of all government workers probably make that much when you add in the full value of their overly-generous benefit packages!

And even half of that, or $334 a day, is $121,727 a year, which, if taxed as income, would yield net-of-tax about what the full Social Security, Medicare, Medicaid and welfare packages now deliver per recipient! Free food, free medical care, free housing, and literally given cash to spend!

But this is not about how little it costs to stage a Roman feast, but about what happens when people are used to getting free gluttony, and then suddenly they are not. Perhaps a clue can be found when the Roman author Seneca "wrote that his friend, the food writer Apicius, drank poison and committed suicide rather than give up the gluttonous lifestyle he could no longer afford."

The bad news is that today's feasters, gorging themselves at the government trough, are not going to commit suicide. They are going to riot, and elect politicians to continue the feast, regardless of the cost. Regardless of the cost! Hahaha! We're freaking doomed!

The Mogambo Sez: Gold, silver and oil. That is all that one can say when asked about investing in such a crazy world: gold, silver and oil.

And note how even the words are soothing; gold, silver and oil. Ahhh! I feel better already! Get some, and you will, too!

Gold, silver and oil! Ahhhhhhhh!

Gold Bats a Thousand on Softball Questions

Fri, 27 Jun 2008 15:48:11 -0400

by The Mogambo Guru

I don't like to quote Alan Abelson from his Up & Down Wall Street column in Barron's because (I admit) I am jealous of his talent and success. And while we are talking about me, I also admit that I am a petty and vindictive kind of creepy guy who is not very smart, but very paranoid and armed to the teeth.

And I use not only this as an excuse for my rotten behavior, but also the fact that he never quotes me, either, as he has an obvious disinclination towards idiots like me, and has, in fact, apparently instructed his receptionists (even the temps!), to never put my calls through to him, and to never take a message, because I have simply lost count of the times when I tried to get through to Mr. Abelson so that I could tell him that the damnable Federal Reserve is creating so much money and credit that the resultant rise in prices is going to destroy this freaking country, like inflation in prices has destroyed every other economy in the entire history of the world when any country was so stupid, so brain-dead, so retarded and so deliberately obtuse that they inflated their money supply with a stupid fiat currency http://dailyreckoning.com/rpt/fiathistoryWP.html and the willing collusion of corrupt banks and government regulators.

Of course, this leads me to extolling the virtues of a gold standard money, which the government could not inflate/debase, which means that prices cannot inflate unless alchemists found a way to turn other metals into gold! Hahaha!

But this not about the gold standard, but about how Mr. Abelson quotes S. Dewey Keesler of SDK Capital saying that emerging markets are in for some significant declines, including the Shanghai exchange, with is "already down 50% from is peak".

Not to make light of a 50% drop in a stock market, but I already knew this, but I was not prepared for his follow-up remark that the Shanghai exchange still has "a long way down to go." Yow!

I was going to use this as more proof (as if I needed it) that it is a mathematical certainty that a majority of investors must lose money in the long-run so that a small minority can make a profit, which would, of course, lead me to get viciously snotty and also note with some venom that the Wall Street middlemen will make fortunes for doing a lousy job, and then I will get apoplectic that the government got used to all the taxes on all the profits for all those years and created permanent programs with the money, also paid for by the losing majority of investors!

And now it ain't gonna keep happening, and it's all over, by which I mean, of course, "We're freaking doomed!", which may have been what prompted Mr. Abelson to report that Mr. Keesler correctly sees that "there's no way out for developing nations" except to "adopt more stringent monetary policies." Hahaha!

What makes me laugh is that Mr. Keesler got credit for such a real softball, slow-pitch question, as there is NEVER any way out of ANYTHING inflationary except to "adopt more stringent monetary policies"!

And since we are talking soft, fluffy, slow-pitch questions, I'll ask one: What monetary policy is the best and most stringent? Easy one: The gold standard!

And how much gold is there in the world to accomplish this feat? There are about 120,000 tonnes of gold in the world, of which they say that 30,000 tonnes are owned by central banks, and the other 90,000 tonnes of gold are privately owned by people around the world.

There are, in case you were wondering, 32,150.75 troy ounces per tonne, making all the world's gold worth about $3.4 trillion, at $900 an ounce.

In America, the national debt is $9.4 trillion, almost three times the value of all the gold in the freaking world!

The total, accrued obligations of the American federal government now total around $70 trillion, which is 21 times more than the value of all the gold in the world!

And yet you do not see that gold is thus grossly, preposterously, ridiculously under-priced, so much so that I laugh in scorn at those who are not buying it? And don't get me started about how silver is so much more under-priced, as it makes my eyes pop out in disbelief at its low price, and to tell you the truth, all that popping makes my eyes hurt like hell.

Anyway, Mr. Abelson sums up the economic situation by saying, "the consumer is plainly hurting from the tightening squeeze of skimpy income and stingy hiring, on the one hand, and on the other, the remorseless inflation that's daily causing him (and her) so much angst. The longer investors refuse to face up to the bitter truth about the economy, the credit mess, the shambles that is housing, contracting corporate profits and the shaky underpinning of the market, the worse the shock when the day of reckoning comes."

And then, echoing the sentiments of The Mogambo even though he is unaware of it, he ominously says, "We hope we're wrong. We're convinced we're not."

Love/Hate Inflationship

Thu, 26 Jun 2008 17:00:58 -0400

by The Mogambo Guru

Michael Nystrom of BullNotBull.com is writing at depression2.tv, which shows how weird things are getting when he is writing at a place called "tv".

I am sure there is an explanation, but I am sure that I will miss the point even if it was explained to me, and I am already reeling under the onslaught of so many confusing things lately that I don't want to hear about it.

So I decide to send an unmistakable signal for him to start entertaining me by cleverly lowering my head to my chest and start dozing off, making these cute little snarky, snoring sounds that (so I say) resemble kittens purring.

And since everybody like kittens, then shut the hell up about my snoring, or it will prove you hate kittens.

But before I could even get started with my little pantomime, he immediately writes that the nominal Dow Industrial Average "has been in an uptrend for the last 34 years", although he does not say why the year 1974 is so particularly important to have caused such a thing, but I assume there is a reason for that, too, which I also don't want to hear about, unless it is because I graduated from college in 1973 and my genius immediately caused the 34-year uptrend, which I doubt.

Neither does he adjust the nominal prices of the Dow for inflation. Since it is my mission here on Earth to raise awareness of the effects of inflating the money supply, which, in turn, causes higher prices (which everybody seems to love) for assets like stocks (e.g. the DJIA since 1974), bonds, houses and government, and it causes higher prices (which everybody seems to hate) for consumer goods, like higher prices for food and energy.

We love inflation and we hate inflation! So, it's a love/hate relationship! The most confusing kind! No wonder my head is spinning all the time!

But it is much more than merely confusing, as it causes societal breakdown when prices have risen so much that people can no longer afford to buy all the fun stuff like they could before, and then one day they can no longer afford to buy the necessary stuff like food and shelter, and no matter how loud I must yell, it seems that idiot Earthlings will never, ever understand the inflation in the money supply makes prices go up, JUST LIKE THAT, YOU FREAKING MORONS!

I have been thanklessly laboring at this task of getting the Earth admitted to the Federation of Planets ever since I took the stupid job on this stupid planet after my parents accidentally crashed our flying saucer in Roswell, New Mexico in 1947.

In case you were wondering, the crash was caused by mom and dad arguing. My dad was yelling that Earthlings are the stupidest morons in the entire galaxy, and mom was (like my own wife, family and coworkers) disagreeing with him just to disagree and be disagreeable, hateful and deliberately argumentative. Anyway, the argument escalated, something happened, and we crashed.

Well, I was young back then, and I arrogantly thought that I, thanks to my enormous talent and gigantic, extra-terrestrial intellect, would make some progress in educating the dominant life form of the planet Earth towards qualifying to join the Hyper-Galactic Federation of Planets.

The dominant life of Earth turned out to be, surprisingly, beetles, which still holds true, as far as I know, as there are a hell of a lot more beetles in the world than humans. Or anything else, for that matter.

The good news is that beetles already knew about the horrors and dangers of a fiat currency and the economic catastrophes it always entails, and that is why beetles evolved like they did, and they still, after all these billions of years, do not have a fiat currency! Amazing, but true!

I naturally figured, "Wow! This is going to be an easy gig!"

So, imagine my dismay to learn that beetles are not interested in the Federation of Planets, and only mankind, the most "intellectually evolved" of all the animal species on the planet, is interested.

Unfortunately, humans are uniquely ineligible for membership, since they are the only species that still believes in such crap as "something for nothing", which is actually defined in the Mogambo Big Book Of Economic Stuff (MBBOES) as "Fiat currency (n.): Money made of paper, or electronic entries in a computer, which is the ultimate 'something for nothing', in that the money supply expanded with money that nobody worked for, nobody earned, but somebody got to buy some things with it, artificially increasing demand for those things, making prices go up and up and up until you are screaming your guts out."

So, with reluctance, I see that duty calls. I took the plate of delicious nachos off of my lap in preparation for standing up to enlighten Mr. Nystrom about inflation.

With all the politeness that I could muster, I politely asked, "Hey! Have you adjusted for inflation?"

A careful review of the tape shows that he was nervous at my sudden question, and I notice that he kept a wary eye on my nachos, perhaps fearing that I would use them as a weapon, or maybe that he hoped to snag a little corny/cheesy snack for himself at my expense.

Whatever it was, he kept his emotions under control as he went on to explain that of COURSE he had adjusted for inflation, and that is how he knows that "the Dow measured in gold began its crash long ago, resulting in the decimation of over 75% of the Dow's real value." Yow!

So this means that the inflation-adjusted Dow is up only 25% over 34 years? Less than one-percent per year? Hahaha! And who in the hell is going to finance a retirement with THAT kind of stupid return? Hahaha! We are so freaking doomed!

Using Modern Economics to Scare Children

Thu, 26 Jun 2008 16:58:53 -0400

by The Mogambo Guru

There was an interesting article in last Tuesday's Wall Street Journal titled "Watch Out for Sovereign Debt Risk" by Carmen Reinhart and Kenneth Rogoff, a couple of economics professors at U. of Maryland and Harvard, respectively.

I thought that it would be about all those dollars that foreigners have in their "sovereign wealth funds", thanks to the damned Federal Reserve creating it all, and then us borrowing it and then spending it on imports of foreign goods and services, enough to produce a merchandise trade balance deficit of almost $850 billion a year!

Or maybe the article would be about how all that money being wielded by sovereign wealth funds is actually not worth the paper it is printing on, and if they think that they can conduct business with worthless collateral and assets, then we should all rise and say, "Welcome to American Fantasy World, as we Americans have constructed an entire economy based on this very same stupid idea, and convinced everyone else to go along with it! And now you are stuck with it! Hahaha!"

Naturally, I was breaking out the nachos and tequila to celebrate the fun we are going to have watching these foreign weenies go berserk when they find out that they have been bamboozled by a fiat currency, and everyone will start to look at the dollar with a look of disgust, like my fellow workers look at me when I come to work in the morning; warily, suspiciously, filled with envy and thinly-disguised hate.

Yes, envy! They are jealous and envious that I am smart enough to be buying gold and silver with every dime I can get my hands on (well, I would if I could get my hands on an extra dime these days!) in response to the preposterous monetary policies of this country and the world, but they are all so stupid that they are NOT buying gold and silver in response to the blatant idiocy that is Modern Monetary Economics, which is so stupidly dangerous that even little children immediately see that it is total crap!

If you don't believe me, try this little experiment; walk up to some strange little kid, it doesn't matter how young, and grab the youngster by the shirt, yank him right up off the ground and haul him to eyeball level, and snarling right in his surprised little face forcefully enough to make sure that that you are heard loud and clear, say, "Hey, you stupid kid! What do you think about the Federal Reserve creating monetary inflation by creating too much money and credit, which immediately causes a dollar-for-dollar increase in debt AND sets the stage for a raging, crippling, terrible, long-lasting inflation in consumer prices, which means that you are going to watch your mother and father screaming as they are financially killed by the ruination of all their assets and their money, and they will lose everything, thanks to the Federal Reserve. And then all of you will die horrible, painful deaths! How do you like Modern Economic Theory so far, you doomed, ugly little rug-rat?"

Repeated trials will prove that any kid, not matter how young, will invariably be upset at this kind of Federal Reserve policy, usually resulting in screaming and crying, kicking and writhing, and teeth gnashing, which is the Classically Correct Appropriate Mogambo Response (CCAMR), and which does not even mention the violence and obscenities, mostly from the stupid kid's parents and directed at me, like it's all my fault or something!

Thus it is proved: The supreme idiocy of the Federal Reserve, abetted by a corrupt Congress that lets them get away with it, is so obviously and tragically wrong that even little kids, and even little kids who don't even speak English, react the same way, as they instinctively know how catastrophically, terribly wrong it all is!

But this is not about the damned Federal Reserve or the horrid Alan Greenspan, as the Journal article notes, "Already, a good share of Argentina's debt is in default. What else to do you call it when a government that owes over $30 billion in inflation-indexed debt manipulates its consumer price statistics?" Hahaha! I call it, "Welcome to the real world, chumps!" Hahaha!

The scam boils down to the fact that "the government is publishing an understated inflation rate that is used for calculating indexation payments", which we Americans know as business-as-usual, thanks to Alan Greenspan and Michael Boskin rigging the Consumer Price Index, which is then used to compute increases in the Cost Of Living Allowances (COLAs) to make sure that Social Security payments, welfare payments and all kinds of payments to all kinds of people (and lots of them!) keep up with the ravages of inflation in prices.

Hell, apparently these two college professors don't know that, right now, the United States is paying, on its inflation-index bonds (TIPS), less than inflation (as measured the old-fashioned way; changes in prices), meaning that if you hold one of these piece of garbage Treasury Inflation Protected Security bonds, you are paying money to loan money to the government! Hahahaha!

And don't get me started on how increases in Social Security payments have lagged increases in prices for years and years, because I hear plenty of that from people who depend on Social Security checks.

I thought that they would note by my disrespectful remarks that this is old news. They admit, "Fudging indexation clauses to effectively default on debt is an old game", and then they go on to note how India essentially did it in the '70s, Brazil did it in the '80s, and the USA did it in the Great Depression by revaluing gold to $35 an ounce from $20 an ounce, "effectively rewriting the contracts of foreign holders of U.S. debt."

And now we are doing it again, just like everybody else! Hahaha! As Bugs Bunny once slyly put it, "Ain't we stinkers?" Hahaha!

Economic Egomaniacs

Thu, 26 Jun 2008 16:56:45 -0400

by The Mogambo Guru

Goldnews.Bullionvault.com notes that Henry Hazlitt, economist extraordinaire and erstwhile Newsweek and New York Times editor, categorically stated that "The word 'inflation' originally applied solely to the quantity of money. It meant that the volume of money was inflated, blown up, overextended."

Mr. Hazlitt went on to say that "To use the word 'inflation' to mean 'a rise in prices' is to deflect attention away from the real cause of inflation and the real cure for it."

This reminded me that it was time to wade through the piles of potato chip bags, empty pizza boxes and beer bottles all over the floor and go over to the Mogambo Economic Detector Unit (MEDU) and see what happened with Total Fed Credit last week, as TFC is, literally, the money from thin air to which Mr. Hazlitt was referring in his classy, educated way, and which The Mogambo screeches and wails about in terror in his Loud Mogambo Way (LMW), which is neither classy nor educated, but it gets the point across via volume.

Anyway, Total Fed Credit was actually down by $4.2 billion last week, which is good news and bad news, all in one, as it means that the Fed is not inflating the money supply (and thus creating price inflation) for one damned, lousy week, which is good news; but it also means that the Fed is not inflating the money supply to finance buying and selling to make undeserved profits, which is bad news.

This brings up John Mauldin of Frontlinelthoughts.com, who writes, "I remember in the summer of 2006 I would face my blank computer screen on a Friday and wonder, what I could write about?"

Immediately, I started thinking about my own "Summer of 2006", and then I remember that's when I started drinking heavily to forget the summer of 2006, when you-know-who found out about you-know-what, and now that I think about it, I realize I never did get my barbeque tongs or rubber handcuffs back, either, which made everything worse! Damn! See the kind of crap I have to put up with around here all the damned time?

But this is not about me or some stupid ancient scandals with a troupe of traveling acrobats from Romania, but about how in 2006 it was, as he says, "Goldilocks, all the time. Today, there is such a target-rich environment. The problem today is trying to decide what not to write about"! Exactly!

In 2006, for me, there was always Alan Greenspan to write about, making a fool of myself in print and in line at the grocery store when I loudly and indignantly denounce that worthless, corrupt egomaniacal bastard as the, well, worthless, corrupt egomaniacal bastard that he is, and I could, and did, go on for pages and pages about how he and the Federal Reserve destroyed the dollar by creating so damned much of them, about $10 billion of them every freaking month, month after month, year after year, since 1997!

I know that you are sick of hearing me talk about it, but all this new money is the classical definition of inflation, which immediately shows up as a rise in some prices (usually stocks and bonds), and later shows up as a rise in more prices, and then more prices, until it has shown up as rises in all prices for everything, which is also popularly called inflation, but it isn't, as Mr. Hazlitt explained in the '60s.

And this doesn't even mention the cancerous growth in the size of government, which grew by borrowing a big chunk of all the money that the Fed created, and taxing the profits everybody else made with what was left, and the government used it to create incomes for more and more people, until the federal government now supports half of the population, all of whom unfortunately need more money because of the higher prices.

Now, total government taxation consumes half of all incomes, all of which goes around and around until my head is spinning and I wonder how it is possible that any country with as many schools, colleges and universities as we have can be so freakishly, perversely, brain-dead as to believe that such idiocy was even freaking possible?

Then there was, and still is, Ben Bernanke to write about, another worthless corrupt piece of Federal Reserve arrogance with blind allegiance to a laughable academic econometric theory of one bizarre kind or another, which is peculiar because even a complete idiot like me can look at the economic landscape it has engendered and immediately recognize the importance of getting gold and silver immediately, because this is truly economic stupidity on a grand scale!

I thought that maybe Mr. Mauldin would want to add a few remarks along those lines, but he says the more immediate evidence is that nobody has a damned job with which to make money with which to buy gold and silver, as the latest news is that unemployment rose to 5.5%, and "we probably saw a decrease in jobs of at least 100,000. The market was upset with 40,000."

Then he ominously asks, "What will it do when the monthly number prints 100,000 later this year? And it likely will." Yow!

Naturally, I want to know how he knows that, and I raised my hand to ask the question. Apparently he was ready for me, and says that "The Federal Reserve projects that unemployment will rise to 6%. That means there are a lot more jobs to be lost."

Since he did not say HOW many jobs would be lost, I figure that a civil labor force of 145 million means that another 725,000 jobs will be lost. Suddenly my life flashed before my eyes, as I see the ax coming, and once again I will be tossed out onto the street, rudely advised by in-house counsel and stupid co-workers to "never come back."

And my slim, slim chances of surviving a corporate cutback grew even more bleak when he said, "And that is if unemployment stops at 6%, which would be a very mild recession indeed." At this, I gave out an involuntary little yelp.

I could see that he was tired of dealing with me, so he turns me over to The Liscio Report for the next part of my flogging, which immediately said the employment figure for "March was revised down by 7,000, and April by 8,000. We've now had four consecutive months of downward first revisions, and also four consecutive downward second revisions - unusual strings that support the picture of a weakening employment trend."

If you are like me, then your sensitive Mogambo Economic Senses (MES) are tingling at the news of "unusual things", like "unusual strings of downward second revisions" of unemployment estimates, and suddenly you are bathed in a cold sweat of fear as you again think of being fired from your stupid job just because you made a few mistakes, goofed off most of the time, and you took a lot of "sick time" to go off playing golf and bar-hopping with your hoodlum friends.

That is why I was cheered when Mr. Mauldin revealed the technical analysis gem that "One of the best indicators of the direction of employment is temporary employment. If the workload is shrinking, the first thing you do is lay off your temporary help, or simply do not hire them."

Sure enough, he says, "Temporary employment is down 5.7% year over year and is showing continued monthly deterioration with each passing month since last October."

I think to myself, "Terrific news! Maybe they will lay off the temps, and keep me!"

Especially if I start the rumors that I have incriminating photos of everybody doing something illegal or kinky, which has just recently become the cornerstone of my new Save My Freaking Job (SMFJ) campaign! Here's hoping!

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications. Click here to visit the Mogambo archive page.

Inflation in Spades

Thu, 26 Jun 2008 16:51:50 -0400

by The Mogambo Guru

The week was a bad one from start to finish, what with bonds selling off so much that, according to Barron's, "the yield on the two-year Treasury, which moves opposite its price, had the biggest weekly rise since '82." This means that the price of bonds went down! Think of it: trillions and trillions of dollars in bonds, and even more bonds all around the freaking world, all impacted by these huge sudden losses, the biggest move in 26 years!

Maybe this had something to do with the latest inflation figures from the Bureau of Labor Statistics, from which we learn the ugly news that the un-adjusted Producer Price Index for Finished Goods increased in price by 7.2% in May! At this rate, prices will double in 10 months! This is inflation in spades!

The door to the Bunker De La Mogambo (BDLM) automatically slammed shut at such terrible inflation news, accidentally trapping me outside and feeling very vulnerable, and I was so busy trying to claw my way back inside that I almost missed the news that producers of Intermediate Goods raised prices by 2.9% in May, which seemed a relief after that 7.2% Finished Goods report, but which didn't last but a second before we read that the Crude Goods index increased 6.7%! Gaahh!

And, lest we be misled by the facts that inflation is eating us alive, the new "official" rate of annual inflation from the government's wonks is 4.2%, which makes me laugh at the incongruity of the new BLS figures in relation to this. But this is horrendous news!

Hell, John Mauldin of FrontLineThoughts.com reminds us that 3% inflation was once considered so bad (and it is so bad) that "President Nixon instated price controls on the 15th of August, 1971. Inflation was a little over 4% at the time."

This terrifying news of rising inflation and rising bond yields had the curious effect of producing a sort of fight-or-flight reaction in the Mighty Manly Mogambo (MMM), in that I start involuntarily crying like a baby, screaming my guts out in fear and anger, and clutching my chest in agony as my heart was pounding, pounding, pounding, because the world is chock-a-block full of "black boxes" that have mysterious algorithms and equations to dictate buying and selling.

And every single one of these computers is now looking at the higher consumer prices and higher yields on Treasury bonds, and factoring them into the implied yields/returns of their various investment options, like stocks, and suddenly stocks and everything else look like the proverbial crapola.

And that explains a graph from the Federal Reserve, courtesy of BNP Paribas Economic Research, forwarded by Junior Mogambo Ranger (JMR) Phil S., showing the terrible news that growth in household real estate assets and growth in their financial assets have both plunged to literally zero! Zero! The chart goes back to 1960, and it has never, ever happened before!

In fact, the latest report is that the combined net worth of all U.S. households is $56 trillion, which is (as Bill Bonner here at The Daily Reckoning notes with, I assume, controlled horror) less than the $57 trillion accrued federal government's liabilities, meaning that we are technically bankrupt.

So, with wages stagnant, prices rising dangerously, government spending out of control, Federal Reserve creation of money and credit out of control, debts of every kind at record levels, and now this? My God! And you think that we're not freaking doomed?

Hahahaha! Thanks! I needed the laugh!

The Mogambo sez: You have two choices. For one, you can buy silver and gold and watch in delight as it goes up in price as the value of the dollar goes down, and make delighted squealing noises ("Whee") as you wax rich.

Or you can not buy silver and gold (thus reducing demand and making it cheaper for me to buy your share, for which I say thanks!), and then watching in horror as the purchasing power of your precious dollars and dollar-denominated assets go down and down, making prices go higher and higher, month after month, until it reaches a crescendo and everything collapses in chaos and brutal mayhem, after which things really get really, really bad.

It's nice to have a choice, eh?

Asking Too Much of a Fiat Currency

Fri, 20 Jun 2008 18:28:24 -0400

by The Mogambo Guru

"What's your solution?" asked a Daily Reckoning reader. "Or isn't there one? If the world's population is going to implode, will that be through mass starvation/dehydration? Or will we run out of beer and all end up killing each other? Or will a terrorist bomb wipe us all out first? Will technology save the day? Isn't the whole thing survival of the fittest? Is survival of the fittest really the best way of describing it for the human race? Or is it more 'luck'… Is there a solution, or do we just sit back and watch the world fall apart?"

Since The Daily Reckoning people did not laugh at that question, although it deserved it, neither will I, but I want to. The answer, sans laughing, is that, like the "combination" menu at an old-time Chinese restaurant, it is some from Column A and some from Column B, although instead of you chowing down on some delicious Chinese grub and making goo-goo eyes at the pretty little China-doll waitress, various poisons are crammed down your throat and almost everybody dies, and it costs all your money.

And the reason I say this with such conviction is that not once in 3,000 years of governments spending more than they had, even using a fiat currency that can be created at will in unlimited quantities, not once has it not ended badly. Very badly.

And the worst of all is when a government creates too much fiat money, like now, and now all that money that has been created around the world has to be spent on something, driving up the price, and the people who sold that something made a profit, and then they will spend the money on something else, driving up the price of that, too.

Around and around the money goes, and pretty soon the prices of everything are so high that people can't afford to buy stuff, like gasoline and food, and then they get all aggravated and panicky, and they will come over to my house asking me to loan them some money, piteously crying out "You're my brother! Help me!" and "You're our son! Help us!" and as I am slamming and locking the door in their faces, I yell out, "Me no speakee English! Go away!"

Experience has shown that they are not going to be satisfied with that response, nor with the explanation of why prices are so high, which I was going to give them in the form of Thomas Donlan's editorial commentary in this week's Barron's, who writes, "Bernanke told a credulous audience last week that higher oil prices were driving up the risk of inflation. This is exactly backward: Inflation has already happened. Price increases for oil and other goods are occurring now to reconcile the prices of things with the depreciated value of paper money."

Then he gets to the interesting part when he says, "The fundamental problem, however, is not paper money. It's not the long absence of a gold standard. Here and everywhere, the inflation problem is an absence of moral commitment to maintaining the value of money", and that all we need are "monetary authorities and political masters who read the markets and take action to maintain a constant value of money." Hmmmm!

Naturally intrigued, I tried this out by posing a similar situation to my wife, and asked, "Why do we need joint ownership of stuff? Let's put it all in my name and you can trust me!"

I will not describe her insulting response, but I will say that this reminds me of a past conversation with Junior Mogambo Ranger (JMR) Phil S. where I took that very stance. Phil, on the other hand, would have none of it, and easily countered my argument with the fact that to trust politicians and bankers to "do the right thing" and not buy votes, or make as much profit, by creating too much money, is too much to ask, as the entire history of mankind attests, with sad story after sad, miserable story of national suffering and pandemic bankruptcy at the hands of politicians and bankers doing exactly that!

And that is why the Founding Fathers, while writing the Constitution, scratched out the part where it said "Bankers and politicians will please refrain from destroying a fiat money by over-issuance", and instead revised it to read that it was, instead, illegal to "make anything but gold and silver coin a tender in payment of debts", and for the sole reason is that it is impossible to increase the money by printing gold!

Byron W. King at Whiskey and Gunpowder surprisingly says that even adhering to the Constitutional requirement of gold and silver as money to achieve a stable money supply may be old-fashioned, as "Oil is now serving as the source of global monetary discipline that gold used to perform. Oil supplies are severely constrained. Dollar supplies aren't. In the era of Bretton Woods, the global monetary system followed the golden rule: 'He who has the gold makes the rules.' But today, the 'rule of crude' dominates."

So you want to know who is buying and stockpiling oil? Easy: "That's why today's oil buyers, like the late French President Charles de Gaulle, are so eager to exchange their dollars for a tangible asset. De Gaulle shipped France's dollar reserves across the Atlantic in exchange for gold bars from the vaults of Fort Knox. Today oil traders are shipping their excess dollars to the New York Mercantile Exchange in exchange for barrels of oil. The motives are identical. Only the underlying monetary asset has changed."

How interesting: Trying to preserve buying power with advanced purchases of oil! Sort of like buying gold and silver, but messier. Stick with silver and gold. You'll be glad you did, as your motives are the same as everybody else's, and nothing will preserve your buying power like precious metals! Whee!

Nothing to Be Done

Thu, 19 Jun 2008 17:41:37 -0400

by The Mogambo Guru

I was in the middle of one of my better bitter rants about the despicable Federal Reserve creating too much money and credit, and the equally despicable Congress that lets them do it, and I was really cooking about how only the biggest idiots in world history are not buying gold and silver in response to such profligacy, and how I support legislation that would require adults who do not own gold and silver to have their foreheads tattooed with the words "Me stupid" so that everyone would know who they were, and I would not have to waste my Precious Mogambo Time (PMT) trying to educate them as we wait in line to get our stupid driver's licenses renewed.

This prompted a lot of discussion ("Kill that Vicious Mogambo Bastard (VMB)!), and in the tussle I lost my place in line and wound up at the end of the line, which made me angry, and none of them said that they were persuaded to use their renewed licenses to drive out and get some gold and silver, which made me so angry that I peed in my pants.

After that embarrassment, you can imagine my jealousy and envy that Dominic Frisby in Moneyweek.com sums it up in just a few sentences, and in terms that the average person can understand: greed.

He writes, "In the long-term it does not matter what central bankers say. What matters is what they have done. Gold and oil are going to go a lot higher. But how high? I'll tell you. Perhaps $8,500 for gold and $400 for oil."

The more quizzical of us might ask, "Why?", and as if to anticipate the question, he writes, "Here's why; central bankers can't talk down inflation", which is timely, in that both the USA and the EU are making noises about how inflation is too high, and how they are going to get up off of their fat, stupid butts one of these days after it is too late to do anything about it.

What will they do? Hahaha! They will, reluctantly, raise interest rates a teensy-weensy bit and try, try, desperately try to cool off the raging inflation that is the result of decades of monetary over-issuance. It won't, obviously, work, and in fact, raising interest rates makes prices rise in the short run as it increases the costs of all the financing that is done, up and down the line!

Perhaps the fact that nothing can be done explains their inaction, because if something could be done, somebody would have thought of it in the last 3,000 years of idiotic governments destroying themselves with creating too much money and credit. Nobody ever has. Nobody ever will.

That, for me, explains why, as Mr. Frisby says, "Despite all the rhetoric, nobody has actually done anything yet."

In the meantime, he observes me bellowing that people are ignorant, raving lunatics about money and inflation, which perhaps explains why he asks "Why, oh why would anyone buy a bond or a gilt? You might get yields of 3%, 4% or 5%, but the cost of living is patently rising by so much more than that. Virtually guaranteed to lose purchasing power, it just doesn't make any sense."

From that, he concludes, "The bubble, if it's anywhere, is in bonds and they, in my humble opinion, will be the next one to pop."

And it will probably be because the banks went bust, as they are the ones who create all the money to buy bonds, driving their prices to these lofty heights and interest rates to these laughable lows. And that time may no be far off, as I conclude from Junior Mogambo Ranger (JMR) Stephen D., who looked at the latest release of the FDIC Quarterly Banking Profile report, and was stunned to see that in the fourth quarter of 2007, banks had reported $5.8 billion in income, while restatements caused fourth-quarter net income to decline to a lousy $646 million.

JMR Stephen says, "Note what the FDIC is saying here. The banking industry reported $5.8 billion in earnings to its investors, but restatements took that total down by 89%."

I guess that Agora Financial's 5-Minute Forecast hears us talking about the banks, and chimes in with "The combined profits of all FDIC-insured banks plunged 46% in the first quarter. Banks in the U.S. made $14 billion less last quarter than they did the year before."

So no matter how bad your life is, it could be worse; you could be a bank! Stupid, greedy and broke! Hahahaha!

Raising the Roof on the Debt Ceiling

Thu, 19 Jun 2008 16:43:36 -0400

by The Mogambo Guru

The bad news, of course, is that government spending will continue to increase because half of the people in the USA receive a government check of some kind every month for one reason or another, and they all need more money because their costs are going up, too, and the government will give them more by spending more, regardless of the debt incurred.

I say this because Bloomberg.com reports that "The U.S. budget deficit for May widened to $165.9 billion, bigger than the shortfall for all of fiscal 2007." The blame was put on a slowing economy that is cutting tax revenue, and the $168 billion tax rebate boondoggle where the government is literally sending money to people, as unbelievable as that sounds.

Bloomberg continues, "The Government spending since the fiscal year started Oct. 1 was up 9.7% to $1.993 trillion through May." Almost 10% more spending! Yow!

All this spending is not having much effect, because "revenue increased 0.3% to $1.674 trillion", which put the "year-to-date deficit at a $319.4 billion, more than double the eighth- month cumulative $148.5 billion shortage reported a year earlier". Double!

If there is one thing that I have learned on this planet you call Earth, it is that one huge pile of dog crap always means that there will soon be another big pile pretty soon, and sure enough, Agora Financial's 5-Minute Forecast reports that "The U.S. Congress has quietly approved the biggest government budget in the history of mankind", which comes out to a tidy $3.1 trillion. Astonishing! In an economy where total GDP is about $14 trillion!

Although everyone is too polite to say it, probably as a result of that "dog crap" thing, if the total Gross Domestic Product (roughly, the sum total of goods and services sold in a year) of the United States is $14 trillion, then government spending - alone! - is 24% of the economy! Almost one out of four dollars spent in the economy is done by the federal government!

Taking a long pull from a handy bottle of bourbon to get a little courage, I note that this $3.1 billion budget does not even count the unbudgeted $600 billion or so that the federal government will borrow this year, mostly through "emergency appropriations" they vote on at various times throughout the year.

Taking another long swallow of bourbon, and then another, I finally get up the courage to note that this does not count the couple of trillions of dollars in the budgets of state and local governments, either.

Things are getting a little woozy for some unexplained reason, and I take another shot of hooch to steady my nerves as they go on, with subtle, classic comic timing, tossed off almost as an afterthought like TV's Lieutenant Columbo, "Oh, and by the way, Congress earmarked a law in the latest budget to raise the national debt ceiling. The U.S. can now owe the world $10.6 trillion, an $800 billion increase."

In case you were wondering, the national debt ceiling is currently $9.815 trillion, and the debt itself stands at $9.428. The debt ceiling was raised less than a year ago from $8.965 trillion, which means that the despicable Congress (except Ron Paul) authorized themselves to spend about $500 billion, which is a lot more than the stinking little $165 billion budget deficit claimed by the lying, stinking Congress (except, as I said, Ron Paul).

And Congressional malversation ("improper or corrupt behavior in office, especially public office") is not the only thing that is really off-the-charts, as Jim Sinclair of jusmineset.com reports that the Bank for International Settlements has calculated that "the notional value of all outstanding derivatives now totals approximately $1.144 QUADRILLION", which I compute, after a long and laborious process, comes out to about $200,000 for every man, woman and child on the face of the freaking planet!

And, my new favorite statistic, non-borrowed reserves in the banks, was a negative $130 billion last week, as opposed to total bank reserves of $46 billion. I will note that this $46 billion, although laughably miniscule as bank reserves, is still a new high for the last (checking my watch for the correct time) zillion years in a row.

And where does all the money go? I'm glad you asked! We're sending to foreigners: The April trade deficit widened 7.8%, to $60.9 billion, which is over $730 billion a year, in case you are keeping score, and which is the biggest gap since March 2007. The current account deficit is almost $900 billion.

As a result, George Friedman told John Mauldin of FrontLIneThoughts.com that "the Saudis are taking in something like $10 billion a week!"

All of this means that the Fed will keep printing money to keep us from going literally broke, but destroying us as a result with all that new money, and it also means that I will be screaming in terror and anguish far, far into the night again at the inflationary horror that is descending upon us. As will you, very, very soon.

Many Thanks to the Damn Greedy Banks

Tue, 17 Jun 2008 15:37:36 -0400

by The Mogambo Guru

Ed Steer, who is called "correspondent-at-large" at Casey Research, says, "I see that the derivatives market expanded 44% last year (according to the BIS) and now sits at $596 Trillion dollars…that's spelled with a 'T'. If this pace keeps up, by this time next year, total derivatives will exceed one Quadrillion dollars…that's spelled with a 'Q'!!!"

Those of us who are chillingly familiar with the implications implied by three exclamation points gulp in horror. My daughter says, "What are you so afraid of, you Big Mogambo Sissy (BMS)!" and when she laughed at me, I realized that she is right! With a fiat currency, maybe all things ARE possible!

Trying heroically to calm down, I take another look at the sentence, and I can't help but note that global GDP is only about $50 trillion or so, while the Bank of International Settlements says that derivatives alone total $596 trillion, which is staggering enough, but then one's brain is overloaded with the concept of a quadrillion dollars! $1,000,000,000,000,000.00!

When you divide one quadrillion dollars by the measly 100 million workers in the USA who have a non-government job (and thus are the only ones capable of turning a profit through high value-added work), this comes to the amazing sum of $10,000,000.00 for each American worker! Bets are made that total 10 million bucks per private sector worker! How the hell can such bets pay off?

Hell, for the derivatives market to make a profit of 1% is equivalent to $1 million per worker! Hahahaha! It's so insane that it doesn't make any sense, and that is why you soon find your brain whirling, whirling, whirling and you whimper and cry in terror of the unknown and the terrifying unknowable.

Mr. Steer is made of sterner stuff than Big Crybaby Mogambo (BCM), and instead of screaming and crying like a little wuss, he calmly summarizes with "I don't think we're in Kansas anymore, Toto…"

And since we are already talking about derivatives and how I am such a wimp, David Morgan of silver-investor.com boldly says that he can "prove perhaps ONE HUNDRED TIMES the amount of silver exists on paper than exists in the physical world."

This affected me enormously; I don't know why. Maybe because I am so scared and paranoid at the economic horror that is looming in our future that I have been drinking heavily and consuming various medications in various quantities just so I can stop screaming, screaming, screaming in horror about inflation in prices, which is always (and necessarily) caused by an inflationary increase in the money supply, which is all thanks to the banks, the damned banks, the damned greedy banks.

But the prospect of 100 ounces of silver being sold short for every ounce of silver in existence was so exciting that I immediately noticed that I was grinning from ear to ear and that my hands were shaking at the Very, Very Happy Prospect (VVHP) of being on the squeezing side of a big short squeeze for a change! Hahaha!

Spontaneously, I started singing in joy, my Melodious Mogambo Voice (MMV) ringing through the spring air as I warbled that old time favorite, "We're in the money! We're in the money! We got a lot of what it takes to get along, because I have silver, and now for once in my pathetic, wretched life, I am going to be the squeezer, while some other sorry bastard is going to be the squeezee, and he'll lose his butt for a change, while we're in the money! We're in the money!"

Everybody was just kind of agog, looking at me with their stupid mouths hanging open, which I innocently mistook for interest and a desire for more, so the second verse went "We're in the money! We're in the money! We got a lot of what it takes to get along and hire lots of lawyers to file lots of nuisance lawsuits against my enemies, like my wife and kids, whom I sue just to show my OTHER enemies the kind of relentless, heartless, grudge-carrying bastard that I am so that they might more accurately anticipate the kind of non-stop, legal butt-kicking they can expect when I finally get around to them, which I will, because I got lots and lots of silver and I can afford it now that we're in the money! We're in the money!"

Mr. Morgan, as I gather from his lack of response to my fabulous song-and-dance act, is not a big fan of spontaneous musical theater, and neither applauded nor put any money in the hat I had conveniently placed on the ground in front of me, along with the helpful little placard that said "Put money in this hat!"

Instead, you could tell by the tone of his voice that he was singularly unimpressed, and went on to reiterate, "The derivatives markets are alive and well in both silver and gold" which is again made obvious when he says, "there is roughly one hundred ounces 'claimed' on paper for every physical ounce of silver."

And not only that, but Ed Steer of GATA puts it as "David Morgan of SilverInvestor.com and The Morgan Report today may have settled the question of manipulation of the silver market. In his new essay, 'Silver Price Manipulation,' Morgan notes that while there is no limit on the creation of paper promises to deliver silver on the New York Commodities Exchange, the exchange limits silver deliveries to 7.5 million ounces per month. That is, the exchange's rules are overwhelmingly stacked in favor of those shorting the metal."

Mr. Morgan says that this answers the question, "'Why doesn't some big investor come along and just buy up the remaining silver?" He says that the answer is that "It cannot be done. There are delivery limits now! Let me repeat!! It cannot be done, there are delivery limits NOW!!"

Even more ominously, he says, "Oh, you might ask, 'Is there any limit to the amount of silver that can be sold on paper?'"

Ominously, he explains that the answer is no, "there is no limit to the amount of paper silver that can be created!", which is bad enough, but apparently there is no limit on the amount of silver to be loaned, either, as Jason Hommel of the silverstockreport.com says that "If The Perth Mint is storing your metal, they admit that they may have loaned your metal out to AGR Matthey", which in turn, he says, shows that "AGR Matthey has well established relationships with the major bullion banks and regularly supplies to them on a contractual basis." What? Hahahaha!

And the proof is allegedly found in the notation that "The $880 million of precious metals deposited by Perth Mint Depository clients (note 17) was used in operations by Gold Corporation as inventory ($381 million - Note 8b)."

Unbelievably, this looks like they are taking your money and buying silver for you, and then loaning the silver to people who sell it, dumping it on the market, driving the price of silver down, which is the opposite of what you wanted when you bought the Perth Mint certificates! Hahahaha! What a scam! Ugh.