I am sitting across the breakfast table
from my surly son, and he has just concluded his
daily ritual of asking me to give him some money
for some stupid reason or other, like today when
he's whining about how his stupid abscessed tooth
is now so painful that it can't wait a few more
lousy days until, you know, my cash flow gets back
in its groove.
Then he asks if he could
borrow the money for the dental work, and
volunteers to pay me back! So I tell him, as a way of
changing the subject, about
the insane levels of debt in the world. I say,
"Almost every day I read some reference to high
debt levels that exist everywhere."
Like
the fact that US consumer installment debt is
increasing at a 5% rate, and is now at about $2.5
trillion.
Or like the biggest debt of all,
which was revealed when CNSNews.com carried the
report by David Walker, comptroller general of the
United States, that the latest estimates are that,
"the total burden in present value dollars is
estimated to be about $53 trillion. Stated
differently, the estimated current total burden
for every American is nearly $175,000; and every
day that burden becomes larger."
Well, I
got some bad news for Mr Walker, because that
$175,000 is for every man, woman and child in the
country, and I am here to tell you that only one
out of three people in the country has a job,
because every time we Real Mogambo Americans (RMA)
patriotically put the kids to work in a backstreet
sweatshop to make some money, the government
eventually comes along and raids the place!
Ruining everything! And hassling me like I did
something wrong!
And of that 1 out of 3
Americans who have jobs, 1 out of 7 employees work
directly for a government! When you subtract those
guys, there are less than 100 million people in
the country who work for profit, and it is these
guys who are the only guys who can make money to
pay that debt!
And so the ugly, ugly
reality (UUR) is that anybody who has a private
job owes not a piddly $175,000, but a full-Monty
$700,000!
So I graciously take some of my
Precious Mogambo Time (PMT) to explain to Mr
Walker, to my son and to the people at Suicide
Hotline whom he is talking to on the damned phone,
"It works like this, you imbeciles: Instead of me
working at some stupid, boring job to support
myself and my grasping, greedy, parasite family,
like my crybaby boy here, smart people live on
borrowed money!"
Getting warmed to the
role, I continue, "And the only thing us smart
people need is some stupid people who have money
to loan us, from whom we borrow some money, which
is one of the fine points of the scheme that seems
to constantly elude you morons, which is why you
are ridiculously asking me for money, because
although I am plenty stupid, I don't have any
money, you halfwit jerks! And because I am stupid
and am saddled with parasites like my family and
my creditors, I am probably not going to ever have
any money, either!"
I could tell by the
crestfallen look on my son's stupid face that he
was disappointed to get this same old lecture, but
you don't have to listen to me for your precious
proof of the veracity of what I am saying, as
Stephen Roach of Morgan Stanley Asia says "Aided
and abetted by the explosion of new financial
instruments - especially what is now over $440
trillion of derivatives worldwide - the world
embraced a new culture of debt and leverage."
It's like I tell the cashier and the other
people in the check-out line at the supermarket,
"Debt! It's how people do it, and it's how our
government does it. I mean, how many people pay
for groceries with a credit card, which is debt?
And what in the hell did you think the
government's 'deficit spending' was, you lowlife,
halfwit ignoramus, if it wasn't debt?"
I
usually find that stupid cashiers usually don't
want to continue in that conversational vein, and
the other people behind me are suddenly earnestly
looking at the tabloids displayed there,
apparently to learn which Hollywood stars have had
materials cloned from Elvis Presley's butt fat
injected into their lips and boobs, and who are
all apparently committing adultery, binge eating,
fad dieting and drug gobbling as part of the
Tinsel Town Tabloid Titillation clause in their
contracts or something.
With nobody in the
checkout line saying anything, I try to capitalize
on their lack of education and tempt the cashier
to accept a post-dated, third-party, out-of-state
personal check. I note that she's smart enough not
to be fooled by that one, but it's like they never
heard of the whole idea of "putting money to
work", which obviously means to borrow against
every dollar of equity you have in anything, and
use that money to invest in something else at
maximum leverage.
And if you manage to
show a profit, no matter how slight, in anything,
you borrow and reinvest that, too! At as much
leverage as you can swing, over and over and over.
Hahaha!
And so naturally, debt grows like
crazy, and that is why central bankers are not
really doing anything about price inflation: There
is just too, too, too much debt in the world,
everywhere you look. And the only way to service
that debt is with more debt.
So handing
the financial services industry a loss, wiping out
even a teensy, weensy, tiny, itsy, bitsy bit of
all that gigantic, staggering global clot of debt,
would be magnified by the degree of leveraging
used when the debt was incurred, which I figure is
at least 10:1.
So, suppose I had 10 bucks,
and I borrowed 100 to buy an asset for $100. Now,
unfortunately, that asset is worth only $80,
meaning that I have had a $20 loss. But I only had
$10 of "skin" in the game! Hahahaha!
How
much enthusiasm do you think I have to borrow more
money, so that I can pay off the $20 loss, when I
can just loot the employee pension fund and
hightail it to someplace far, far away? Hahahaha!
Me too!
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
