Economist Robert P Murphy at the blog Free Advice must have heard me screeching
with Total Mogambo Disrespect (TMD) about Congress and Barack Obama
deficit-spending almost US$2 trillion this year, and he says, "If fiscal policy
is a disaster, monetary policy is even worse."
I interrupt and say, "You said it, dude! The inflation in prices from such an
inflation in the money supply will destroy us all, probably taking the
fast-food industry with it, and then where the hell will I be when I say, 'Boy!
I'd sure like a taco right now! Let's go out for tacos! Who has any money with
which to buy tacos?"
Well, Mr Murphy is apparently not that interested in my gastronomic concerns,
and notes that "Unfortunately, the issues
here get very complicated, and so it's difficult for the layman to know whom to
trust. Not only do left-wingers like Paul Krugman say that we need more
inflation, but even (alleged) right-wingers like Greg Mankiw are saying the
exact same thing"!!!
Careful readers will note the use of the rare "triple exclamation point," which
is used in this case to indicate raised eyebrows in an expression of
incredulity and scorn.
As an example of why my eyebrows are like that, Trace Mayer, J D, in an article
titled "Insane Psycho-Sociopathic Court Economists," writes that Krugman said,
"children can be taught that some problems (such as 2x + 6 = 0) have no
solution unless you are ready to invoke negative numbers. Maybe some economic
problems require the same trick." Hahaha! Negative money! Hahaha! Incredulity
and scorn! Hahaha!
Mr Murphy's analysis? "With all due respect, those guys are crazy."
While the enormous inflation in the money supply is already terrifying and
causing me to scream, "We're freaking doomed!" even louder than ever before, Mr
Murphy does not descend to such infantile crying and complaining, but says,
"Normally, I do my best unshaved-guy-wearing-a-sandwich-board routine by
showing the scary Fed chart of the monetary base. But every time I do that,
some wise guy argues that I don't understand how our banking system works, and
that because of 'de-leveraging' we are actually experiencing a shrinking money
supply."
His answer? "No, we aren't. It's true that there are forces tending to shrink
the money supply, but Bernanke has more than overwhelmed them."
So why haven't prices for necessities exploded and caused people to riot in the
streets like I figure is only a matter of time, and the only people who are
going to eat like kings are the ones with gold and guns?
Well, without getting into any of that, he calmly says, "Now the reason prices
haven't exploded is that the demand to hold US dollars has also increased
dramatically," which he relates to the 1980s when "the Reagan tax cuts and
Volcker's squelching of severe price inflation made it much more attractive to
hold dollars, and so the Fed got away with printing a bunch even though the
Consumer Price Index didn't increase wildly."
The bad news is that this is not a happily-ever-after thing, but that "Once
people get over the shock of the financial crisis, the new money Bernanke has
pumped into the system will begin pushing up prices," ending in "an avalanche
as people come to their senses".
But we have a lot of insanities to try before that, I guess, as he reminds us
that Janet Yellen of the Federal Reserve "argues that if the Fed could sell its
own debt, then it could drain reserves out of the banking system without
unloading its own balance sheet," which is so ludicrous that it could only come
from Janet Yellen! Hahaha!
She thinks the Fed should create and sell some bonds on itself, and create the
money to pay for them, which is just a variant of the idiocy that got us into
the mess we are in! Hahaha!
But an even better chuckle comes from "economists Woodward and Hall" who think
that "the Fed just needs the ability to charge banks for holding reserves. The
Fed already (recently) obtained the right to pay interest on reserves, and so
Woodward and Hall think the Fed should also have the ability to do the
opposite, ie to be able to pay a negative interest rate on reserves that banks
hold on deposit with the Fed"!
Mr Murphy correctly asks, "How does this avert the threat of hyperinflation?"
The answer is, "Simple, according to Woodward and Hall. If banks ever start
loaning out too much of their (now massive) excess reserves, and thereby start
causing large price inflation, then the Fed can simply raise the interest rate
it pays on reserves. Banks would then find it more profitable to lend to the
Fed, as it were, rather than lending reserves out to homebuyers and other
borrowers in the private sector. Voila! Problem solved." Hahaha! Either way,
money pours into the system! Hahaha! We're freaking doomed!
My stomach actually hurts from laughing that anybody who thinks this kind of
crap will "work", and I am terrified that those people vote, and yet are stupid
enough to not be buying gold to protect themselves against such economic
suicide!
And since I am sure that it will not work, I am buying gold so that at least
one of my favorite guys (me), can capitalize on such Sheer Economic Insanity
(SEI), and if you, too, buy gold, then I'll probably see you where the rich
people go to get away from all the busted-out morons who didn't!
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.)
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