In phony-baloney money we
trust? By The Mogambo Guru
My emotions ran the gamut as I prepared to
learn of the latest level of Total Fed Credit,
ranging from a carefree, "What in the hell do I
care? I'm rich! Or at least I will be when gold
soars in response to the Inflationary Bonfires
From Hell (IBFH) that the Fed is unleashing on us
with their disastrous, 'the-sky's-the-limit'
monetary policy!", to the distinctly more hostile,
"Kill everyone and burn their houses to ashes
before they can get me!", which is where you
always get bogged down wrestling with that old
question, "Does this include family members, too?"
So I was ready for anything, even family
members trying to kill me with a pre-emptive
strike (which is now, of course, legitimized as
the new theory and practice of the damned federal
government), when I saw that Total Fed Credit was
up US$6.7 billion last week, which is a hefty sum,
taking the total to $873.3 billion, which may seem
like a lot of money to you and me, but is
apparently just
chump
change for the average CEO these days, no matter
how incompetent.
And to help out, foreign
central banks bought up another $8.6 billion in
government and agency debt and stuffed it into
their custody account at the Fed, bringing their
total ownership of American future debt
obligations and American future tax dollars, in
this one account alone, to $2.15 trillion! Hahaha!
We're freaking doomed!
I shake my head in
bewilderment that America can wail in dismay about
how slavery was common, Bible-sanctioned and
perfectly legal for the last 30,000 years up until
about 150 years ago, and then enact legislation
bestowing wildly un-Constitutional special rights
and privileges on black people and all minorities
to somehow atone for it, but this same country is
completely guilt-free about happily selling its
children, and grandchildren, and
great-grandchildren, and great-great-grandchildren
into financial bondage to foreigners in exchange
for some money to splurge on itself today! Hahaha!
Of course, since we are talking about
hypocritical America, this is the same
intellectually bankrupt country whose own
constitution literally requires that inflation in
prices be zero (through the handy and fool-proof
expedient of money being only coins of gold and
silver), but which is a country that actually has
a money that is neither gold nor silver, but
instead its exact freaking opposite; a 100%
phony-baloney fiat money! Hahaha! How corrupt can
you freaking get?
And this fake money is
multiplied over and over through unlimited
fractional-reserve banking, so that the banks can
take a measly $1 of a new deposit and use that as
a "reserve" to make $10 of new loans, or make $100
of new loans, or make $1,000 of new loans, or
$1,000,000,000 of new loans, or any number you can
think of, as it is literally unlimited, and the
only thing standing in their way is a lack of
qualified borrowers.
And then one is
terrified when one is reminded that all of that
new money is actually the classical definition of
"inflation", and the effect of inflation in the
money supply is the disastrous inflation in
consumer prices, and there are food riots
everywhere, and pretty soon the desperate and the
curious start nosing around the Mogambo Bunker Of
Defensive Hostility (MBODH), which is the worst
mistake they will have made all day and a huge
expenditure in ammunition for me.
And
inflation in prices will grow worse with all the
slashing of interest rates by the Federal Reserve
as it grows evermore desperate to administer
soothing monetary palliatives as the economy
thrashes painfully around in its death throes, and
everybody will be dragged down, like interest
rates on Certificates of Deposit going
waaaAAAAaaay down, delivering a devastating whack
to the wallet to people foolish enough to try and
save money by buying Certificates of Deposit.
Hahaha!
I laugh like this because the
average rate that actual small-time savers will
receive on a six-month bank CD, as reported in
Barron's, is a ludicrous, laughably low 2.75%.
Hell, the best-case-scenario, "official government
estimate" of inflation is 4.3%! So buyers of bank
Certificates of Deposit are down 1.55% from the
get-go! Yikes!
So, as astonishing as it is
to say, every dollar is losing purchasing power at
the rate of 4.3%, but a bank CD pays a lousy
2.75%, meaning that not only is the investor
taking a real (inflation adjusted) loss, but that
lousy, stinking 2.75% of interest income is fully
taxable, compounding your loss! Hahaha! We're
freaking doomed, because this is the nation's own
government and central bank doing this to people!
And the good news is that CD buyers are
looking downright intelligent compared to the
morons buying two-year notes, which have been bid
up so high that they are nominally yielding less
than 1.5%! This means that, after deducting 10%
for taxes and 12% for inflation, these notes are
yielding a highly NEGATIVE interest rate of over
10%! Hahaha! Morons!
In discussing
possible alternatives, I am sorry to announce that
the Mogambo Hedge Fund (MHF) has gone "belly up",
or would have, if any investors had been stupid
enough to put any real money into it. Fortunately,
nobody did, and the whole thing never got past the
drawing board.
Of course, that has not
stopped me from trying some other scam, since
investors have proved themselves to be idiots,
especially when you dangle the promise of big
returns. So, I have cleverly used this as a
central marketing tool, and I am peddling the new
Mogambo High Yield Bonds (MHYB) with an interest
rate of 25%, which is higher than you get anywhere
else! Anywhere!
And yet, as unbelievable
as it sounds, I am unable to unload this massive
issue of worthless bonds! I'm offering 25%
interest, but nobody wants them!
Well, to
be fair to the intelligence of the investors, it
is not exactly a big secret that none of the
previous issues of Mogambo High Yield Bonds (MHYB)
have ever paid any money in interest payments, and
in fact every previous MHYB has immediately
defaulted and gone into bankruptcy and everybody
lost everything, where it was subsequently
revealed that this was my Mogambo Business Plan
(MBP) all along; sell bonds that were worthless,
and use a slow Ponzi scheme to pay myself a huge
salary and benefit program with a lot of the
money, as I dole out a few outsized dribbles to
the early investors, saving the rest to hire
lawyers to defend me against the inevitable
lawsuits filed by the late investors who got
nothing (Hahaha! Nothing! Suckers!) and to legally
drag, drag, drag things out until the plaintiffs
grow old and die or just get tired of pursuing me
or something. Hahaha! What a great plan!
My legal defense is two-pronged, in that I
not only claim that a Ponzi scam is the essence of
most bonds these days, especially government
bonds, but I also allege that the bond market is
predicated on pure idiocy, because it is idiocy to
think that the M3 money supply can inflate at 17%
a year (Thanks, John Williams at
shadowstats.com!), consumer prices can inflate at
over 10% a year in real life (and at
still-staggering 4.3% in "government life"), have
both the CRB the PPI indexes of inflation running
north of 10%, oil selling at over $100 per barrel,
and yet in light of this staggering evidence of
roaring inflation in prices, providing ample
warning to "Keep away! Overly-expensive!
Guaranteed loser! Run for your freaking life!",
you are nonetheless buying 10-year bonds that
yield 3.6% and 30-year bonds that yield less than
5%? Hahaha!
Pardon me for laughing, but
losing purchasing power at the rate of about 10% a
year to lock in a long-term return of less than 5%
a year makes me squeal, "Caution; professional
money manager at work"! Hahahaha!
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,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
