I was halfway through a pitcher of cheap beer when I began to have visions. I
thought that a pretty girl at the end of the bar was flirting with me, but that
turned out to be wrong when I heard her tell the bartender that she thought I
was "creepy".
I should have known I was hallucinating, as I have no idea what women want,
except that I discovered that they don't like it when I salaciously leer at
them and lick my lips.
On the other hand, hallucinations or not, I know exactly what an
economy needs, which is a stable currency and zero inflation, but, again, no
lascivious leering and lip licking.
My head suddenly cleared, and that is when I knew that my nightmare visions of
the proposed "aggregator bank" were correct, in that it is stupid and
disastrous because it will expand the money supply by unknown trillions of
dollars.
This "aggregator bank", in case you were wondering, is where taxpayers will be
forced to pony up the Treasury capital for a new bank that will buy worthless
securities from other banks, and is being pushed as some kind of bizarre
"savior" of the economy, which is now predictably suffering from the outrageous
stupidities of Alan Greenspan, former chairman of the despicable Federal
Reserve.
This reminds me of Junior Mogambo Ranger (JMR) David K, who sent a quote from
Ludwig von Mises that I had not seen before, which is "Economic history is a
long record of government policies that failed because they were designed with
a bold disregard for the laws of economics."
Of course, I have plenty of charts and graphs that show this, but perhaps I
will let Ken Gerbino of Kenneth J Gerbino & Company summarize ... "The laws
of economics are very real and the mumbo jumbo from the Fed and Washington and
the well-known economists will mean nothing when once again a logical cause
creates a logical effect".
And what is this effect? Inflation! He explains: "An island that produces 10
coconuts and has $10 in circulation will see each coconut valued at $1. That's
the way it works. Someone showing up with a motor boat and a printing press and
creating another $10 on the island won't make any more coconuts, but will
certainly make the price of coconuts go to $2."
Now, the scene changes, and the island is in an age of fractional-reserve
banking. There are still 10 coconuts, but only $1 in cash is needed, and the
bank creates $10 to loan to people who want to buy coconuts, and out of
necessity everybody bought coconuts on credit. Still, there are only 10
coconuts and 10 bucks.
Now, fast forward a few years as Gilligan and the crew of the Minnow run up
enormous debts to buy coconuts, which must be ample because we find that a
coconut diet has allowed the captain to be a fat lard-butt, but now the
islanders can't pay the interest on all the money the owe, their retirement
accounts are wiped out, and everybody is broke because they borrowed so much
money to buy coconuts on credit that they can't now borrow more.
Pretty soon, they start looking at the horizon and anticipating the arrival of
the boat bringing more money, and then they remember that they sent The Mogambo
to get it with an all-girl crew and an Internet uplink to download cheap
pornography, so they soon realize there will not be a boat returning with more
money.
That is when they turn to Plan B, which is the stupid idea to create an
"aggregator bank" to buy up all of the debt extant, so that those who bought
coconuts on credit, and whose loans for them have suddenly gone bust since they
can't pay any longer. The island bank merely created 10 more dollars, buys up
everybody's debt, the former debtors will have a brand new dollar, which they
will use to bid for coconuts, driving the price up!
Usually, this is where I start screaming that people with any sense at all
should see that this is insanity, and we should all be scrambling to buy gold,
silver and oil, because the Fed is creating not only Big Freaking Money And
Credit (BFMAC), but now they are expanding them also using an "aggregator bank"
to bail out their filthy banker buddies and vastly expand the money supply!
Perhaps this is why Adam Hamilton of Zealllc.com writes "Big Inflation Coming",
where he reports the startling statistic that starting in October 2007,
year-over-year growth in MZM - money with zero maturity, a measure of money
supply - "was running 11.9%. This soared to 16.4% YoY growth by March 2008. The
growth rate then slowed considerably in Q3 '08 to 9.0% at worst, and then
accelerated again during the panic to 12.6% in late December."
Instinctively, I knew that this was a big increase in the money supply, but so
many numbers always make my head hurt and I need to go lie down for awhile,
maybe drinking a beer and looking for Gillian Island reruns on TV.
Perhaps noticing my eyelids drooping, Mr Hamilton quickly sums it up as:
"Overall, average annual MZM growth since the stock slide started measured
13.1%!"
My eyes flew open as I thought to myself, "Whew! When all that money starts
seeping into the economy, we are going to have some Serious, Serious Inflation
(SSI)! I need more gold, silver and oil!"
But before I could dial the phone to place my order, he continues that it is
even worse than that, as "M0 [another money-supply measure] has gone parabolic!
Year-over-year in December 2008, it was up 98.9%! This is so shocking it defies
belief. In late September as the stock panic started, it had grown by 9.9% over
the past year. By October, this rate ballooned to an all-time high of 36.7%. In
November, it rocketed again to 73.0%. And in December, it surged up to the
staggering 98.9% you can see above. Ben Bernanke's Fed has doubled the monetary
base in a single year!"
I was mulling over deducting a few points from Mr Hamilton's grade for
correctly using exclamation points in his introductory sentences, but only one
exclamation point there at the end when such horrific news as doubling the
monetary base in one year obviously calls for at least two! Maybe three!
But feeling magnanimous, I decide that maybe it was a typographical error, and
was on the verge of not deducting any points at all when he said, and I quote,
"Holy cow." Note the complete lack of exclamation points!
Immediately, I got my red editing pencil out and I am slashing at the essay,
deducting points and grievously lowering his grade to such an extent that he
will think, "Wow! I will never make that mistake again!"
He then provides a summary, which is that "inflation and deflation are and
always have been purely monetary in nature. Supply and demand can drive prices
all over the place, but it is only a changing money supply that can truly spawn
inflation or deflation. And the money-supply data is crystal clear. The Fed is
growing the fiat-dollar supply by frightening rates, all the way from
double-digit broad-money growth down to a scary doubling of the monetary base!"
Actually, it is more than double, as the Monetary Base has risen to $1.741
trillion, up from $820 billion last year, meaning that the monetary base is up
112% in One Freaking Year (OFY)!!!
With a note of satisfaction, I note that concluding my sentence with three
exclamation points should be instructive to Mr Hamilton, but he is exactly
right that a doubling of the monetary base in one year means "big inflation is
coming; it's already baked into the pipeline".
And if there is one thing that makes the prices of gold, silver and oil go up,
it is inflation in prices! Whee! This investing stuff is easy!
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 2009, 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
