If I wasn't already massively loaded up on prescription medications and raw
liquor as part of my charismatic, cute, charming way of frantically dulling the
grim, ugly reality of the US Federal Reserve killing the US dollar by allowing
the federal government to borrow and spend so much money, I would have been
staggered to see total Fed credit soaring by US$15.5 billion last week! Wow!
This is a huge, huge, HUGE load of new, out-of-thin-air money created by the
Fed (a private corporation with shadowy ownership), which they can
(unbelievably) legally do at their total discretion, and which shows up in the
books of the banks (also private corporations, only overtly profit-making, yet
every bit as shadowy), so that the banks can loan the money out to some
borrower or (in this case) bail the banks out by giving them the
reserves they need to keep from being literally bankrupt.
The tremor that went through me at the news made me immediately realize that I
was not wasted enough, and I was far, far too sober to absorb such sobering
news. Taking another long drink out of a bottle of Bandito Bob's Discount
Tequila to dull and thus steady my nerves, I was further staggered by the news
that foreign central banks bought up another $23 billion of US government and
agency debt last week, expanding their accounts at the Federal Reserve to a
mind-blowing $2.345 trillion, and up $363 billion in the last 12 months alone!
Egads!
I piteously cry out, "How can interest rates rise, to cool down raging
inflation, when there is this damned much buying of bonds, driving up their
prices and driving down their imputed yield?"
David Galland of Casey Research dismisses me with a mere wave of his hand, and
suggests that there is more to this than I obviously know, as "if the Fed
raises rates to prevent a sell off in dollars, they'll crush the highly
indebted and already struggling populace and, in so doing, unleash a serious
economic crisis. But if the Fed keeps rates where they are, or even lowers
them, they'll trigger a dollar sell-off and unleash a serious economic crisis."
So what is the solution? He agrees with me; there isn't one, and that "Either
way, the story ends the same: a serious economic crisis."
This probably explains why other countries are looking to get away from the
dollar, although it doesn't explain why I personally don't have any dollars,
which is due to an entirely different reason, namely that I am a lazy,
worthless skunk who not only doesn't make much money, but who spends it on
himself about as fast as he can get it, which I do as a Brilliant Mogambo
Stratagem (BMS) to keep my stupid, selfish family from getting THEIR grubby
hands on it and spending it as fast as they can get it on themselves!
But what should these other countries, especially those who are making a
zillion dollars a day exporting oil, do with their currency in the face of such
a deluge of dollars flooding over their economies and causing horrendous price
inflation in consumer prices and now there are signs of serious public unrest
as a result?
Some morons suggest that they should peg their currencies against a basket of
other currencies! Hahaha! I may be drunk out of my Freaking Mogambo Mind (FMM)
on some really cheap hooch, but even so, I am sure that this is a Particularly
Bad Idea (PBI), as those other countries are pegging their currencies to the
dollar, too! Hahaha!
Noticing that I am drunk enough to be slurring my words, I am not sure that
they understood me when I got right in their stupid little faces and explained
that "If you don't want to peg your damned stupid currency to the stupid
dollar, why in the hell would you want to peg your stupid currency to a basket
of other stupid currencies that are being pegged to the stupid dollar, ya
moron?"
At least when they pegged to the dollar, too, they could at least manipulate
the peg! But valuing against a stupid basket of other stupid currencies
eliminates even that! Morons!
I can see that I am pretty belligerent at this point of my Mogambo Drunken
Tirade (MDT), so I know that the calming effects of quantities of various
chemicals are on their way, soon to do their tranquilizing magic, and I will be
blissfully comatose soon, probably covered in vomit.
So, instead of being even MORE belligerent and calling them worse names, I get
right to the point as to what they should be doing, being as polite as possible
under the circumstances: "You should be buying gold with every freaking dime,
you morons!"
Oops! More drunken name calling! Sorry 'bout dat! Holding one eye open with a
finger so that the utter, utter sincerity in my eyes can add powerful credence
to my words, the lesson is that one day, because there is not that much gold in
the world compared with the mountains of money that exist, and especially
compared with the more mountains of money that that will exist as central banks
around the world try to buy their way out of inflation, and because gold is so
grossly, grossly under-priced Right Freaking Now (RFN), these foreigners will
soon, by dint of so much money turned into gold, own all the gold!
Then, with the security, real growth and zero-inflationary effects of a real
gold standard, they can dictate terms to the rest of the inflationary world!
Hahaha! They will take over the world!
By this time I realize that I am staggering drunk and nobody is paying any
attention to me. In fact, I am dismayed that most of them are throwing popcorn
and insults at me, and making bets on when I pass out or get punched out. So I
was relieved that Bill Bonner here at The Daily Reckoning stepped up to take
over for me, and he further explained that pegging against a basket of
currencies, or anything else that is pegged to the dollar, is a loser because
"The dollar has fallen against other major currencies. Against the euro, for
example, it is worth barely half what it was at its high, which was reached
shortly after the euro was launched 10 years ago. Against gold, it is worth
only about a third of what it was worth 10 years ago. And against oil … the
loss has been even greater - it's down about 80%."
In short, any basket of currencies would have fallen against the dollar,
against oil, and against the euro, the most laughable of all the fiat
currencies in the world! A single monetary policy but individual fiscal
policies! I laugh "Hahaha!" even to think of the dollar losing value against
the euro! Hahahaha!
Then I think of the horror of the inflationary effects of a falling currency,
and shout, "No! No! It can't be!", but it is, and I am suddenly despondent
again. Then angry. Then fearful. Then more anger. Lots more anger.
And owning gold and silver is how anger at monetary stupidity is turned into
profit! Whee!
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
