To negative infinity - and
beyond By The Mogambo Guru
I look around the Hopefully Impregnable
Mogambo Fortress Of Fear (HIMFOF) and wonder why I
am so scared. Things don't "feel" right. I am
nervous. I am edgy. I am, obviously, armed to the
teeth, trigger-happy and "an accident waiting to
happen".
My major problem is that money is
being lost by the ton all over the place, as
prices of assets are being discovered to be as
flimsy and whimsical as a Mogambo promise to let
someone else have the TV remote control "as soon
as this program is over", which is a lie and
everybody knows it. But as angry as they are
about
that remote control thing, I notice that people
get angrier about losing money - especially lots
of money.
Trust me; I know what I am
talking about. Like the other night when my son
sat down on the couch, 35 cents rolled out of his
pocket. So I, quick as a bunny, reached out and
scooped it up! Man, he was angry as hell!
And it is not just him. Lots and lots of
people are losing lots and lots of money. So I
look at Total Fed Credit, the magical fount from
whence springs credit in the banks, and I note
with some alarm that it is actually down by $3.181
billion last week. I gulp in horror! Down!
This means that people are losing money
and no new money is being created by the Fed to
replace it! Yikes! This is Bad, Bad News Of The
Monetary Kind (BBNOTMK), which is comically
indicated by the way my eyeballs quiver in their
sockets in my raw, unreasoning panic, meaning we
are freaking doomed!
I know that you don't
believe me, because I was at the street corner all
morning long, yelling this same news to all the
people who were driving through the intersection,
and none of them believed me, either! Weird! Lots
of horn blowing, obscene words and gestures, and
the throwing of half-empty coffee cups at me, but
no belief!
And they didn't believe the
sign I had hung around my neck, either, which
said, "Will work for food", which shows that they
are particularly good judges of character. The
fact that people can immediately discern that I am
a lazy, worthless bum who hates work is surprising
when these same people are so stupid about the
inflationary implications of the Federal Reserve
creating so much money and credit during a boom,
and are now showing that same degree of ignorance
at the bust! So I helpfully tell them "We're
freaking doomed, you moron!" but they drive away
without saying things like, "Hooray for the
Mogambo for alerting us to this very important
fact!" or "Bravo, brave Mogambo for exposing the
demons at the Federal Reserve and in Congress
(except Ron Paul)!"
So instead of
fruitlessly arguing with you, too, about the
implications of this drop in the creation of
excess money and credit, I will merely raise my
Bony Mogambo Index Finger (BMIF) and point you to
Ludwig von Mises himself, who noted, "The boom can
last only as long as the credit expansion
progresses at an ever-accelerated pace. The boom
comes to an end as soon as additional quantities
of fiduciary media are no longer thrown upon the
loan market."
And in case you are of the
weird and thoroughly-modern neo-Keynesian
persuasion which says that all that is ever needed
is more and cheaper money provided by the banking
system at lower and lower interest rates, which
means that you actually believe that there can
never be too much debt and that debt can grow
exponentially forever, then I will not come over
there and slap your ignorant face, but merely
again point to Mises, who says, "But it could not
last forever even if inflation and credit
expansion were to go on endlessly. It would then
encounter the barriers which prevent the boundless
expansion of circulation credit. It would lead to
the crack-up boom and the breakdown of the whole
monetary system."
It is times like now
that I realize the value of education, and wish
that I had paid more attention in school instead
of acting like some juvenile delinquent moron and
thus having to endure my parents endlessly arguing
with the principal about whether I am the spawn of
Satan or not. I now rue my ignorance because I
cannot calculate how much freaking money comes
from $3.181 billion of new credit when multiplied
times the fractional-reserve multiplier in the
banks.
I mean, if the banks must keep in
reserves 10% of deposits, like in the classic
textbook example, then the first bank in the chain
can lend out 90% of this new deposit of Fed
credit, or 0.90($3.181 billion) = $2.863 billion,
and when that loaned money is ultimately deposited
by the recipients into other banks, those banks
can then loan out another 0.90($2.863) = $2.577
billion, and then when that money is loaned and
ultimately deposited in other banks, those banks
can lend out another 0.90($2.577 billion) = $2.319
billion, on and on and on until the last dollar is
borrowed from the next-to-the last bank in the
chain and deposited into the last bank in the
chain.
To find the total amount of new
money created, you have you add it all up, hour
after hour of struggling with a stupid calculator,
making mistake after mistake and having to start
over again and over again until you are so
frustrated and angry that you hit the little
buttons so hard with your finger that you hurt
yourself, and there is blood all over the
calculator, and your finger is hurting like hell
and you are raving, screaming, insanely mad.
Then, demonstrating Heroic Mogambo
Determination (HMD), you finally, at long last,
your finger throbbing, find that the sum total of
new money created is actually equal to the inverse
of the fractional reserve multiplier times the
amount of money deposited!
This means I
could have merely multiplied the stupid $3.181
billion times 10 to get the answer, instead of
laboriously adding them all up, one by one! This
is a HUGE freaking time-saver, about which I
learned only AFTER the nightmare described above,
and that is why I remember it so well, with scars
and a ruined calculator to remind me of the
ordeal.
The point is that the "required
reserves" in the banks is still about the same
stinking $42 billion that it has been for the last
eight years! No change! In short, the banks loaned
every additional dime of the trillions of dollars
that they took in! And then more on top of that!
No additional reserves at all! Not a freaking
additional dime of reserves has been added in a
decade or more!
So you can see how my Puny
Mogambo Brain (PMB) is confused and stymied in
performing simple, first-day-of-class algebra; if
deposits went up but reserves remained the same,
then reserves are literally zero against new
deposits, and thus the fractional-reserve
multiplier is infinite! Infinite! How in the hell
do you multiply $3.181 billion times infinity?
I know, thanks to Awesome Mogambo Powers
Of Extra-Sensory Perception (AMPOESP), what you
are thinking. Half of you are saying to
yourselves, "What in the hell is this Dumb Mogambo
Moron (DMM) yammering about, and why in the hell
should I care about any of this? I am only here to
find a way to get rich quick! And so this banking
crap means nothing to me! Nothing! Let's get out
of here and grab some lunch early so we'll be done
by the time The Mogambo gets there, and then we
won't have to be disgusted watching him eat, or
keep him from stealing food off our plates!" And
the other half of you are thinking, "Anything
times infinity is infinity, you Brain-Damaged
Moron (BDM)."
Pausing a brief moment to
make a little note to myself to lower all your
grades and ruin your GPAs in Petty Mogambo Revenge
(PMR), either about that hurtful "lunch" crack or
out of envy at your mathematical skills, I then
say, "I can understand multiplying $3.181 billion
by infinity to get infinity, but if you remember,
which you probably don't because you are a bunch
of low-IQ, crack-smoking, teenage scumbag trash,
we are talking about a FALL of $3.181 billion in
Total Fed Credit."
Seeing the blank looks
of confusion on their faces, I explain, "Now
multiply it out, observing the signs, and you get
negative infinity, you ignorant human garbage!
Negative infinity! What in the hell is negative
infinity, you Lowlife Student Halfwits (LSH) who
won't even share one lousy little piece of pizza
with me? I hate you! I hate you all! And I will
probably end up strangling half of you before the
semester ends, and I will spit on your graves!"
Instantly, I could see that I had made a
big impression on them, because they all got up
and left, muttering under their breaths, probably
to go out and ponder the imponderable, think the
unthinkable, namely the existence of negative
infinity, only to reach the inevitable conclusion,
"We're freaking doomed!", thus attaining True
Mogambo Enlightenment (TME). Ommmm.
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
