Worthless money, worthless economy
By The Mogambo Guru
There comes that "Kodak moment" (elsewhere referred to as that "Wile E Coyote
moment" when he has run off the cliff and is surprised to see himself
momentarily suspended in mid-air) when burgeoning governments and the
dysfunctional economies that grow up around them have grown and evolved into
their final, grotesque, bloated maximum by constantly expanding their spending
via debt and taxes to the maximum, and then one day they suddenly cannot do
that silly crap anymore.
I know that the audience is dying to ask, "Why not, oh Wonderful Mogambo Master
(WMM), when it is you who counsels that with a fiat currency, it will always be
possible to finance infinite amounts of spending?"
I look at them with pity, as the answer is simplicity itself; they
literally run out of money because money is being lost so fast! Unfortunately,
I can't say anything, as my guts are churning so badly at the prospect of
universal bankruptcy that it is all I can do NOT to puke my guts out in fear,
which I prevent only with Heroic Mogambo Control (HMC) so that I will not get a
lot of angry people demanding their money back, which they paid for this stupid
seminar, as I already lost most of it in a crap game with the kitchen staff
before we even got started. Oops! Damn!
So I say nothing, but smile hopefully enigmatically and point them to
Bloomberg.com, where they can read for themselves the horrible news that "Wall
Street's mortgage losses have grown so large that some firms may pay little or
no taxes for years, widening New York City and state deficits and challenging
their ability to provide services, Mayor Michael Bloomberg said." Gaaaaahhhh!
The one industry that makes most of the money, the financial services industry,
will pay no taxes! And even worse, "Some companies are seeking refunds from the
city on taxes they prepaid, saying losses have cut their tax liability to
zero."
So not only are they not going to pay any taxes, but they want the city to send
them some money back! They can do this because they have already paid too much,
as, "The banks pay tax on 110% of earnings in advance as a 'safe harbor,'
protecting against penalties for underpayment."
The mayor dryly admitted, "I think it will be a number of years before Wall
Street starts paying taxes again" because "They will carry forward all of those
losses" and not pay any tax for a long, long time.
And, as if you need something else to worry about, ditto federal tax revenues
going down because massive losses will result in zero tax due. No wonder
Democratic putative presidential candidate Barack Obama is proposing all these
higher tax rates!
And if you think it won't happen, then I laugh in scorn at your misplaced
optimism, because it is already happening! The federal budget deficit tripled
in July to a record US$102 billion, taking government spending up by a massive
27% from this time last year, which is bad enough, but then everything is made
Much, Much Worse (MMW) by the stunning news that revenue was down 6%! Gaahhhh!
After $150 billion borrowed, put into stimulus checks, sent and spent, tax
revenue was still down 6%? Staggering! The economy is so bloated, indebted and
dysfunctional that $150 billion of additional raw spending produces 6% less
taxable income? Hahaha! We are so freaking doomed!
And it is not just here, either, as Peter Schiff of Euro Pacific Capital
reports that we Americans are "defaulting on hundreds of billions of dollars of
existing loans underwritten by lenders around the world."
This may have something to do with the Wilshire Trust Universe Comparison
Service reporting that, according to Bloomberg.com, "The return for all
institutional investment portfolios turned negative for the 12 months ended
June 30", and "the median contraction for master trusts, which includes pension
plans, foundations and endowments, was 4.49% during the year."
And you still think that you can fund a retirement by investing all your money
into the stock market? Hahaha!
And this does not even take into account, according to Agora Financial's
5-Minute Forecast, that the Federal Reserve opening the bank to any and all
borrowers resulted in the eye-popping news that the "Fed's TAFs and TSLFs
[lending facilities] have now dedicated over $1.6 trillion to quelling the
credit crunch"! $1.6 trillion! My God! We are freaking doomed!
Perhaps Junior Mogambo Ranger (JMR) Len M sums it up best when he says, "Honest
government, honest money. Dishonest government, dishonest money. Worthless
government, worthless money."
The worst part is that this is also true: worthless money, worthless economy. I
wish I could find a laugh in there, but I can't. Plenty to weep about, though!
And plenty of time to repent at leisure, too!
Unless you have gold, silver and oil, of course, but don't get me started on
their virtues or how obnoxious I will be when I am rich, rich, rich from owning
them and how far, far, far away the kids will be in some boarding school, and
how much fun, fun, fun life can be again, as I never tire of thinking about it
and I have far, far, far too much work to do.
Thanks.
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.)
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