For a good reason why we
are in such Big Freaking Trouble (BFT), I note
that the Wall Street Journal, a big force in the
financial world, is bizarrely out of touch with
how things really work. And the reason I say this
is not because I am jealous and petty about their
preeminence in the financial world, although I am,
but about the Journal's editorial piece, "We're
All Keynesians Now", in last Friday's paper.
They were talking about the government's
new plan to literally give money to people to
spend as an economic stimulus, and the editorial
writer ludicrously says, "But the $250 or $500
one-time rebate check they may now receive has to
come from
somewhere. The feds will pay
for it either by taxing or borrowing from someone
else, and those people will have that much less to
spend or invest themselves. We are thus supposed
to believe it is 'stimulating' to take money from
one pocket and hand it to another." Hahaha!
Wrong-o dude!
Oh, I admit that there was a
time when the money supply was constant, and the
only money that could be had by a government was
by taxing it or borrowing it from people who saved
some money, giving rise to such quaint notions as
the federal government borrowing so much that it
would be "crowding out" private borrowers. But
those days have been long, long gone for over 20
years. You'd think the Wall Street Journal would
have noticed!
The way it really, REALLY
works is that the Federal Reserve creates more
credit by pushing the Magic Money Button in
Bernanke's office, which makes credit appear
magically in the banks, which the banks can now
lend out, which makes it easy for someone to
borrow the money and buy the bonds that the
government is selling!
Note that not only
does the government get a lot of new money to
spend, but nobody has "less to spend or invest
themselves"! Everybody has the same, or more,
money! Hahaha!
So you can imagine my
surprise to later read in this same editorial
that, "three of the four main economic issues
cited by Americans are price-related". The four
"economic issues" are; health care costs,
inflation/rising prices overall, the price of
gasoline, and high taxes.
For oodles and
oodles of extra credit on your homework assignment
tonight (and believe me when I tell you that most
of you can use all of the extra credits that you
can get between now and the end of the semester),
find one "economic issue" that is NOT
"price-related".
But this kind of
weirdness is all over the place, as I learned when
I watched some of Bernanke's testimony the other
day. The question was about how much this subprime
mortgage bust is going to cost. Bernanke replied
that there is about $1 trillion in subprime
mortgages, and that 20% are in arrears. So, he
says, assuming that ALL of the loans in arrears go
bad, then (and you gotta love this for quick
thinking on his feet!) if that is the end of it,
and THEN if prices rebound by 50% of the losses,
then the total loss will be only $100 billion!
Hahaha! I can't believe he pulled that crap right
in front of my eyes! Hahaha! Too much! We truly
ARE a nation of nitwits when he can do that to us,
and our elected dimwits, and get away with it like
that!
Fortunately, I was heavily sedated
and in a straightjacket at the time, tied to a
chair as the minimum precautions for watching
Federal Reserve chairmen appear in public,
especially in front of one clueless bunch of
congressional yahoos or another.
Although
the medications and restraining straps prevented
me from moving or making a sound, I thought I
could still spit at the TV in a mute display of
disgusting-yet-gripping anger and outrage as a
performance-art piece, maybe winning an award of
some kind, maybe one with a cash prize. I was
wrong. I could, instead, only drool and stare with
dead, lifeless eyes.
And so my juicy wad
of spit did not make it all the way to the TV
screen, as per plan, but dripped drowsily down my
chin into my lap, so it looked like I peed in my
pants.
Then I realized it was a "mute
display of disgusting anger and outrage" after
all, maybe not as gripping, but I smiled in
satisfaction. At least I think I smiled. It was
better than nothing, anyway.
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 2008, The Daily
Reckoning.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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