Agora Financial's 5-Minute Forecast conveniently distills the Truly Horrifying
News (THN) of recent US Federal Reserve action by saying, "In a single breath,
the Fed committed another US$1.15 trillion to the credit quagmire" with "$750
billion for purchasing mortgage-backed securities from Fannie Mae and Freddie
Mac (on top of the $500 billion the Fed has already promised)" plus "Another
$100 billion directly toward Fannie and Freddie's debt. That's also atop a
pre-existing $100 billion program."
We all agree that this is truly breathtaking stuff, and the "knockout blow" is
that "the Fed will officially begin buying 'longer-term' US Treasury notes. The
FOMC [Federal Open Market Committee] said they'd spend at least $300 billion
over the next six months" which is known as "sterilization" and I say is a
lowlife
stinking fraud where the Federal Reserve creates money out of thin air, then
uses the money to buy Treasury bonds, agency debt and/or (literally) buying
anything that they want, as much as they want, anytime they want, which they
are doing because the Federal Reserve has destroyed the economy by creating so
damned much excessive money and credit that nobody in their right mind is going
to buy any stinking Treasury bonds yielding (in the original Spanish) el squato
when inflation will be raging higher than the puny yield, meaning that bond
prices will collapse and interest rates will rise, which is the last thing that
the Fed or the government wants.
As the comedian Dana Carvey's Church Lady character used to say, "Now isn't
that special!"
Of course, there are people in the world who are not as stupid as us Americans,
and they look at this and say to themselves, "Holy crap! The American central
bank, with what appears to be cowardly compliance from their federal
government, has committed the ultimate economic sin, and we had better get our
money out of that stupid currency before it loses all of its purchasing power!"
which resulted in a fall in the dollar on the forex market, or, as The 5 puts
it, a "2.7% drop for the dollar index - its worst one-day performance since
1971 when the index began."
Neil Irwin at the Washington Post reported, with that subtle-yet-unmistakable
hint of panic, "The Federal Reserve yesterday escalated its massive campaign to
stabilize the economy, saying it would flood the financial system with an
additional $1.2 trillion."
Aghast, I raise a shaky index finger to direct your attention to Mr Irwin's
appropriate use of the adjectives "massive", "flood" and "additional" to
describe the sudden scary appearance of "$1.2 trillion" in promised expansion
of the money supply by the Federal Reserve, which is so scary that this is
where Mr Irwin lost valuable Mogambo Stylistic Points (MSP) when he forgot to
extend "$1.2 trillion" into a phrase that would reflect the preceding phrases.
So, according to the Mogambo Big Book Of Economic Editorial Style (MBBOES), it
should have read (in light of preceding adjectives "massive", "flood" and
"additional"), "$1.2 trillion, which is a freaking unbelievable orgy of
monumentally irresponsible monetary and fiscal insanity that not only makes you
pee in your pants in terror of the inflation in consumer prices that will
inevitably follow such enormous expansion of the money supply, but is even more
terrifyingly that this same deficit-spending lunacy is forecasted far, far into
the future, too, making the total situation of such a horrific magnitude that
you can be fully justified in screaming your brains out in horror and outrage,
being, as you are, 100% sure that it will destroy us completely by the simple
expedient of destroying the purchasing power of existing dollars by creating
too many new dollars!"
Bill Bonner here at The Daily Reckoning notes, "In response to the Fed's latest
move, the yield on 10-year Treasuries fell more than any time since they
started keeping records in 1962. From 3.01% it had fallen to 2.48% when last we
looked", which seems paradoxical, since normal people would look at this
massive creation of money and know that it means higher consumer prices, which
means that bond yields would rise! And yet bond investors bought bonds, driving
their yield down! Weird!
But this is the kind of stupidity that makes investing in gold, silver and oil
so easy and cheap! 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 2009, The Daily Reckoning.)
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