This massive creation of money and credit will lead to a lot of inflation in
consumer prices sooner or later (mostly sooner, and for a long time, too!),
because that is what always happens, which explains why I have gold and guns,
but does not explain why I wear an aluminum foil hat.
I wear it because it looks so snazzy and I get a lot of attention, which I
crave because I am a weird guy with a mental problem that I don't want to talk
about, mostly because I am sick of talking about it since it is the only thing
anyone ever wants to talk about, unless it is how my wife is such a "saint" for
putting up with me all these years, like living with her has been some freaking
picnic at the beach or something, especially after she started spewing out kids
one after the other, each needier and more demanding than the last.
And besides, if I am ever anywhere that I suddenly need aluminum foil to, for
instance, save a tasty bit of calorie-laden food
or form a makeshift tent in the event of a sudden downpour, I am ready!
But this is disputed by Barron's, which says, "Those who contend that the
expansion of central bank balance sheets is inflationary ignore the contraction
of balance sheets in the banking system, as well as the so-called shadow
banking system of assets and liabilities not recorded on banks' books."
"Like what?" I ask suspiciously, as befits talking about "shadow" banks. Well,
like Barron's having data from the Bank for International Settlements
suggesting that the wild expansions of the money supply by the Fed and the
Treasury were peanuts compared with the record contraction in the global
banking system as defaults cascaded through the system.
According to the BIS, total bank claims shrank by US$1.8 trillion in the fourth
quarter (or 5.4%), to $31 trillion, which is the biggest fall in bank assets in
history. Yikes!
I decided to rudely interrupt in protest, perhaps including some
amusing-but-hysterical arm waving and a few up-close-and-personal horror
stories about inflation in prices, like how you listen to your spouse and kids
whining on and on, day after day, about how things cost more money, and they
want more money, but you don't have any more money, and how they just won't
(pause) let (pause) it (pause) go, and it's all the time "gimme, gimme, gimme"
all day long until you finally, one day, just snap.
Before I could, however, get up a good head of outraged steam about how the
worst thing that could happen to us is inflation in the money supply creating
inflation in consumer prices, Barron's admits that "Inflation, as Milton
Friedman taught, is always and everywhere a monetary phenomenon."
This is exactly right! And exactly my point! How disconcerting for them to say
that, given their initial argument that monetary excesses are not necessarily
inflationary, which is (if you read between the lines) also that I am an idiot
and that is why they are out to get me like everybody else.
So I sit back down, puzzled, and deciding that I am truly, truly lost and
confused, and so I might as well go home and grab a snack. Maybe take a nice
nap!
But as soon as I decide to do that very thing, they go on to say that this
insane monetary excess seems to be, astonishingly, working!
Believe it or not, it actually looks like "the current central-bank expansion
is offsetting the contraction in the banking system - which Friedman criticized
the Fed for failing to do in the 1930s," which is the theoretical straw at
which we have successfully grasped! Amazing!
To say I am stunned is an understatement! Now, to hear it told, for the First
Freaking Time (FFT) in all of history, a country bankrupted from its own
gluttonous, low-IQ redistributionist excesses, paid for by an over-creation of
fiat money and credit, was able to - insert huge blare of trumpets declaring
victory "taaaa-daaaa!" - actually spend its way out of bankruptcy! Wow! Beyond
wow!
And, even better, overpriced assets did not collapse in market value to their
true value! Wow!
Naturally, Barron's reports that "new BIS data bear out the justification for
the Fed's actions, notwithstanding the critics' claims". They do not name these
"critics" or (as I am usually known) a "fringe lunatic", but judging by my own
criticisms, such gigantic creations of fiat money will produce killer inflation
in prices, and that the dollar, and the economy, have been murdered by the
imbecilities of grubby, greedy, corrupt idiots infesting the Federal Reserve,
Congress, and the Supreme Court, none of whom listened to me when I urged them
to go back to the gold standard to eliminate inflation completely, and to get
our nation's scientists working to develop a good 25-cent taco.
And on that score, all that new money produced a huge inflation, just as
predicted; it has started the re-inflation of an entire stock market bubble, a
bond bubble, a government bubble and (maybe!) a housing bubble!
Naturally, I leap up and scream, "Inflation! It just killed Zimbabwe, and soon
it will be on us, and inflation will kill you, too, unless you buy gold, gold,
gold!"
The next thing I knew, there were security guards swarming everywhere, and I
soon found myself outside, dejected for having been ejected, which gave
serendipitous rise to my boffo ending:
As the lights lower, I slowly sink into a very theatrical heap of collapsed
humanity to visually portray mankind’s complete loss of hope, dreamy dreams
dashed on the rocks of despair, the very essence of a desperate man who wants
gold to immediately shoot up in price so that he can get so suddenly rich that
he can skip town and start life over, someplace new, perhaps finding real
happiness, and without the three huge millstones of family, "friends" and
career around his pathetic neck, choking him until his twinkling blue eyes bug
out in fear ("boing!") as they drag him down, down, down to the cold, cold,
cold, dark, dark darkness and doom.
A moment of complete inactivity, and then, springing to my feet, I pass the hat
and remind everyone that gold can give deliverance from the predations of
government!
And with the low quality of people we have in Congress, the Federal Reserve,
the media, the schools and the Supreme Court, gold has the Mogambo Freaking
Guarantee (MFG) to not only deliver deliverance, but more! Much, much more!
More and more, as in, "Do you know how much an ounce of gold will buy in
Zimbabwe, the world's biggest idiots in terms of over-creation of money who
have now officially destroyed their own money? Hahahaha!"
In short, "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
