Criminally irresponsible deficit
spending By The Mogambo Guru
Doug Noland of the "Credit Bubble
Bulletin" at PrudentBear.com notes that some
idiotic people are still borrowing like crazy, and
that "Bank Credit has now posted a 14-week gain of
$423 billion (18.2% annualized)." Yikes! Eighteen
percent a year growth!
Additionally, he
quotes Gillian Tett in the Financial Times as
reporting the horrendous news that, "Never mind
the fact that the risky tranches of
subprime-linked debt (the so-called BBB ABX
series) have fallen 80% since
the start of the year; in a sense, such declines
are only natural for risky assets in a credit
storm."
Never mind an 80% loss? What the
hell am I, made of stone, like my prostate gland?
Apparently, she doesn't want to go there, and
instead of poking at my poor old prostate with
what I assume is a pointed stick with one hand and
emptying my wallet with the other, like the doctor
does, she says, "Instead, what is really alarming
is that the assets which were supposed to be
ultra-safe - namely AAA and AA rated tranches of
debt - have collapsed in value by 20% and 50% odd
respectively. This is dangerous, given that
financial institutions of all stripes have been
merrily leveraging up AAA and AA paper in recent
years, precisely because it was supposed to be
ultra-safe."
My God! I put up ten bucks to
borrow a hundred with which to buy this debt, and
now I am down by 50%? I have lost five times as
much money as I put up! My God! My prostate
involuntarily quivers in shock, proving that there
is life in the old boy yet!
And it is
worse than that, as those asset bets were made
years ago, using dollars that had much more buying
power, and now that buying power is gone, thanks
to the loathsome Federal Reserve creating
inflation in the money supply by creating excess
money and credit, which debased the existing
currency, and now things cost more dollars because
each dollar buys less. So a 50% nominal loss is
actually more like a 75% loss of buying power! I'm
freaking doomed!
Bill Bonner of the
DailyReckoning.com hears me yammering about
inflation, and, as a result of long association,
knows that once I get started complaining about
inflation, I never shut up, and that means I will
not go home and let anyone get any work done. So
he comes in and cleverly says, "The Economist puts
the rate of price inflation on 'all items'
(otherwise known as consumer price inflation) at
over 16% per year. But member banks can borrow
money from the Fed for less than 5%. You can do
the math later, dear reader."
Math? In a
panic, I realize I have got to do something to
stop this damned pop quiz in math! So I leap up
and say, "Hey, Mr Bonner! If you think that is
weird, how about all the morons who are buying
bonds, especially government bonds in the face of
all of this inflation? These drooling halfwits
have driven the price of bonds up so high, and
thus have driven the imputed yields on them so
low, that these 'investment professionals' are
locking their money up, for up to five years, to
earn less than 4%! Hahaha! And they are getting
less on 10-year bonds than the 4.5% Fed Funds rate
itself! It makes you want to laugh so hard that
you pee in your pants"!
My helpful little
"constructive interruption" did not quite have the
effect that I was hoping for, which is that
everyone would say, "You're right, Mogambo! You're
a genius, Mogambo! Don't pee in your pants! Here's
twenty bucks! Go buy yourself a nice pizza!"
Suddenly finding myself alone, I realized
that I have heaped disrespect on bond buyers
again, and I further realize that I have been
doing it for so long that you think I would be as
bored with it as everybody else is obviously bored
with hearing me talk about it.
So I will
take just a few precious moments of your time to
say that if you are buying bonds, then you are
stupid, and if you know anybody who is buying
bonds, then they are stupid, too, and you can tell
them that I said so, unless that person is a
beautiful nymphomaniac college cheerleader, and
then just call me up and give me her name and
number, and I will take it from there, because if
she is buying bonds too, then I know that she is
stupid enough to believe that I am a Hollywood
talent scout and I can make her a star if she is
"nice" to me.
I'm not sure that even
Hollywood dumbbells know that the despicable
Federal Reserve lowered the Fed Funds rate by
another quarter point to guarantee crippling
inflation in prices and the destruction of the
economy in the long run so that the results of
their heretofore egregious and suicidal monetary
policies can be covered up in the short run, since
the Federal Reserve is nothing if not corrupt in
their slavish service to finance monstrous stock
and bond market bubbles and scams, and criminally
irresponsible congressional deficit-spending.
Rick Ackerman of Rick's Picks is not that
interested in my "talent scout" charade to take
advantage of a nubile ingenue, but asks the
pertinent questions, namely "Can the lowering of
administered interest rates much affect an economy
that currently requires upwards of $8 in new
borrowing to create a mere single dollar's worth
of growth? And more to the point, does the will to
borrow that $8 still exist with home prices
falling?"
One day the answer will
obviously be "no", and the real question is "Is
that 'one day' now?", unless we are talking about
that nymphomaniac little cutie who wants to know
if I can make her a movie star, in which case the
answer is "yes".
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.
Republished with permission from The Daily Reckoning.
Copyright 2007, The Daily
Reckoning.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
