I had cleverly and wisely taken the precaution of locking myself in the Mogambo
Bunker Of Screaming Homicidal Anger (MBOSHA) before gobbling a couple of
handfuls of various tranquilizers and washing them down with bourbon, but even
so, I was not prepared for the shock of Total Fed Credit shooting up by an
historic US$43 billion last week alone! Gaaaahhhh!
And this ain't no ordinary, everyday increase in credit! No, sir! This is the
infamous total Fed credit, which is the increase in credit that appears in the
banks as if by magic, which the banks can compound via the equally infamous
"fractional reserve banking", whereby a single dollar of deposits can be used
as the "reserves" against $150 in new loans, as I surmise from the fact that
total reserves in the banks is still a miniscule $47 billion (which is actually
the highest of the last decade!) against about roughly
$7,000 billion in liabilities and another $7,000 billion in loans and assets!
Hahaha! We're freaking doomed!
Part or all of that, I assume, is to create the credit that creates the money
that buys government debt that prevents the implosion of a monstrous deflation
in asset prices, in the short-run, as from Bloomberg.com we learn that "The
Treasury is selling $100 billion in short-term debt to enable the Federal
Reserve to expand its balance sheet, a sign of the strains created by the
biggest extension of central bank credit to financial companies since the Great
Depression." Whoa!
"To enable the Federal Reserve to expand its balance sheet"? What in the hell
is THAT supposed to mean? Instantly, I smelled a rat, which was a welcome
change from smelling my own feet, which are always referred to in various
degrees of "stench", and was soon on the aforesaid feet, screaming my head off
at the outrage of it all and how all this new money is going to create
inflation in prices that is going to freaking kill us all!
Then, I was midway through my opening remarks ("We're freaking doomed, you
morons!"), when I realized that this new technique is too, too tasty to leave
to government scumbags!
Instantly, I was out the door, into the car, careening crazily down the streets
on my way to the bank! Bursting into the loan officer's office, I said, "How
much money you got? I'll borrow it all!"
You should have seen the look of happiness on his face, and soon we were having
a wonderful time, and everything was going along swimmingly until he wanted to
know what I wanted the money for. So I explained, "First off, jerk, this is a
way to enable this local bank to 'expand its balance sheet' by making a big
loan to me, just like the Federal Reserve is creating the new money to buy the
new debt offered by the Treasury! You're expanding your balance sheet, you
moron! That's obviously all you need to know! You're expanding your damned
balance sheet! So shut up and give me the money!"
Well, the loan officer is obviously a dimwitted little provincial lowlife
bastard who ain't up on the latest banking wheezes, and I did not get a loan,
but neither did they expand their balance sheet, so I am expecting them to call
with an apology and a loan any second now.
Anyway, while I am striking out locally, the government and Fed are succeeding,
as Bloomberg goes on, "The program started today with a $40 billion auction of
35-day bills" and "Another $60 billion will be sold tomorrow", although when
"today" and "tomorrow" are, I do not know, as it is not important, and if you
think they are, then you are detail-minded like my boss, who is always prying,
"Where in the hell have you been all morning?", or "Where in the hell have you
been all afternoon?", or "What in the hell is that stench in your office?"
Later on, we learn, "The proceeds will 'provide cash for use' by the Fed as it
seeks to boost liquidity in credit markets struggling from $515 billion in
writedowns and losses since the start of last year. The new bill auctions will
help to ensure financial institutions have ready access to Treasury securities,
which have been in short supply recently as firms try to maintain liquidity."
From CNN we get the news that it is not just us Americans, as "central banks
around the world are pumping billions of dollars into money markets in a bid to
ease the current financial turmoil", which makes sense if you are a stupid
halfwit lowlife investor who is only smart enough to look at the nominal gains,
but is too, too stupid to look at the real inflation-adjusted losses that you
will suffer from such an expansion of the money supply.
Perhaps this foreign central bank monetary expansion crap is to what Mr Paulson
was referring when the Financial Times quotes him as saying, "I will be
pressing my colleagues around the world to design similar programs for their
banks."
Anyway, the level of this particular fraud is that the world is full of corrupt
morons, as it adds up to a "package of up to $247 billion" that "comes from the
US Federal Reserve, the European Central Bank, the Swiss National Bank, the
Bank of England, the Bank of Canada and the Bank of Japan."
As if it was felt necessary, the article said, "The injection of cash, which
amounts to an expansion of up to $180 billion in available funds, is an effort
to fuel economic activity."
With this happy news in hand, I go back down to the bank and again burst into
the loan officer's office, and say, "I know that you are hiding under your
desk, you worthless bastard! So come out here and give me my loan, because not
only will it 'expand your balance sheet', but you can swap pieces of my loan
for worthless assets from bankrupt people! It will fuel economic activity! Now
get out here and give me my money, you treacherous little coward!"
Again, not only did I not get a loan from this small-minded little coward, but
we learned who is small enough to fail, and the true power of an "effort to
fuel economic activity" by offering new loans to guys who can't make payments
on the loans they already have!
And how does this translate into buying gold, silver and oil? Either buy it and
prosper or watch and learn! Hahaha!
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
