This article originally appeared at The Daily Reckoning.
-- I was surprised to see that Total Fed Credit was not exploding last week. I was even more surprised to see that Foreign Holdings of U.S. Debt held at the Fed was actually down by $8 billion last week, too. Even the banks were not making fools of themselves, as is their wont, by gobbling up huge fistfuls of government debt. It was, in a word, quiet. In the movies, when somebody remarks how quiet it is, the hero says "Too quiet!" and the next thing you know there are arrows and/or bullets flying all over the damned place.
So I nervously remark that it is, indeed, the proverbial "too quiet", because I know that there are enemies out there. For one thing, crude oil prices are up to around $66 a barrel, although to think that oil exporters would NOT factor in an increasing devaluation of the dollar into the price of oil, in the face of enormous American trade deficits, monstrous American budget deficits and stupefying rises in American business and household debt levels, is to insult their intelligence. And in that regard I will note, with a snide Mogambo sneer (SMS), that they were smart enough to grab the global real estate that had most of the oil, while we took the part that is next to Mexico and South America, places so corrupt and stupid that economic refugees are flooding into the USA to get away from there!
And for another thing, bonds are rising in yield, meaning that bonds are falling in price, meaning that all those billions of people around the world who own US bonds lost some money and are getting ready to lose some more as interest rates keep rising. Beyond that, two other noteworthy things happened last week: The Federal Reserve has now officially stopped reporting M-3, the broadest measure of the money supply, and we have the new Treasury Statutory Debt Limit of $8.965 trillion, up by the $781 billion approved last week by Congress at the last minute. Potent stuff!
I hear a rustling in the bushes off to my right, and my trigger finger spasms. This is the economic enemy of loans/leases at the banks increasing to a record $5,569 billion, and savings deposits also soaring to a record of $5,238 billion, yet Required Reserves in the banks fell to a microscopic $40 billion. Hahaha! The record low was in 2001, when Required Reserves sank to $38 billion, which was the "insurance" against losses in their much, much, MUCH smaller books of loans/leases and deposits. You wanted fractional-reserve banking carried to ludicrous extremes? Well, brother, you've got it now!
Off to my left I see figures furtively sneaking around, and it is the action in the Treasury Department. These guys have borrowed, in the first 24 days of March alone, almost $100 billion dollars! In three weeks! My eyes have a glassy look in them, and I am gurgling incoherently as my puny little Mogambo brain (PLMB) refuses to accept the fact that the government is borrowing money at a rate that equals, on an annual basis, 10% of GDP! Gaahhh!
All of this ties in with Ben Bernanke, the new chairman of the Federal Reserve, the evil place from which too much money (TMM) is magically created, which pushes prices up, which destroys economies and countries, which is the Iron-Clad Lesson Of History (ICLOH). But this is not about how the Federal Reserve has destroyed America by creating so much money and credit, but about Ben Bernanke. On Money.cnn.com I read where Ben Bernanke said that the "global saving glut helps to explain both the increase in the U.S. current account deficit and the relatively low level of long-term real interest rates in the world today."
I see reporters suddenly bolting for the doors and cowering under the seats, because they all think that The Mogambo is going to go freaking Mogambo ballistic (FMB) over this "savings glut" remark by Ben Bernanke. But, you will be surprised to learn, I am NOT one of those pooh-poohing this "savings glut" thing, as he is exactly right; there actually IS a "savings glut"! And it IS responsible for the "relatively low level of long-term interest rates in the world today." Parsimonious foreigners are saving their money instead of spending it all, like their insane American and British counterparts.
But, hell, in comparison to America, even The Mogambo has a "savings glut" just because they threw me out before I could spend my last dime buying another round of tequila shooters for me and my hoodlum friends at the Hot Mama Jamma Bar, whose charming motto is "Cheap women, cheap thrills and cheap liquor for cheap scumbags like you! No cover charge!"
But this is not about how funny I looked as the bouncers tossed me into the parking lot, or how everybody laughed when they called me a "stinking pervert", but about how the big freaking question (TBFQ) is "Where did these foreigners get all this glut of money to save?" Instantly, the lightning reflexes of the Mogambo (LROTM) spring into action, and I hit the answer button! The buzzer sounds, and I triumphantly shout out the answer "Ultimately, from the Federal Reserve, Alex! Hahaha! The damned Federal Reserve has created so damned much money and credit over the last couple of decades that it spawned a huge stock market boom, plus a gigantic bond market boom, plus an explosive size-of-government boom, and a monstrous housing boom! All this money piled up overseas, thanks to the trade deficit! And, since we are talking about the horrible things that the Federal Reserve has done by creating so much damned money, it also created the 'savings glut'!"
Out of the corner of my eye I can see the cameraman trying not to laugh, and Alex Trebek sneers at me and says, "Wrong! Sorry, Mogambo, but Jeopardy rules require that your answer must be in the form of a question", and the sound-effects guy makes a rude "awwwk!" sound, and then the whole Jeopardy audience and the other two contestants are laughing at me. My face stinging with shame as their hooting derision rings in my ears, I am thinking to myself "Go ahead and laugh, you stupid bastards! Just wait until this whole Federal Reserve/fiat money economic piece of crap explodes, and gold and silver and commodities soar! I'll be so rich that Mister Big Shot Alex 'Jeopardy' Trebek himself will be begging me, on bended knee, for some gold or silver, and I'll laugh with scorn (LWS) and say "Wrong! Sorry, Alex, but the Mogambo rules say that your plea must be in the form of beautiful naked ladies!" And then I'll bend down until my nose is almost touching his, and I'll scream that horrible sound at him, "Awwwk!" And then I will laugh- Hahaha! -and slam the door in his face!
But this is not about how I was cruelly cheated out of my chance to make some big money on Jeopardy because Alex Trebek acted like a real butthead about his precious "rules", but, rather, about the glut of savings in foreign hands. In that regard, my answer was perfect: Thanks to Alan Greenspan's 18 years at the Federal Reserve, money has been pouring out of the Federal Reserve and out of the government's checkbook into (mostly) the economy of the USA, and, by virtue of the trade deficit, the money pours right back out and into foreign countries, and into the hands of people who make the stuff we are buying with that trade deficit, who then save the damned money. Thus, the Federal Reserve created the "savings glut"! Hahaha!
And speaking of Ben Bernanke, George Ure of UrbanSurvival.com, commenting on Ben Bernanke's first speech, noted that Bernanke cited himself as an authoritative source! And not just once or twice, either! Mr. Ure says that Bernanke "included himself in 4 out of 7 notes - a remarkable 57% of the time." Hahaha! What arrogance!
But I love this novel approach, and I can't wait to use it myself! "I call, for my first witness, me!" Then I will testify how I, as an expert, pronounce me sane, sane, sane, and the only insane people around here are my family and neighbors who are trying to get me locked up! And I will also testify, as an expert, that if they are NOT being driven crazy by all of these central banks creating outrageous amounts of credit and money, then THEY are either crazy or too stupid to have an opinion about anything! And, therefore, they probably knocked over their own stupid birdbaths and spray-painted their own houses with the words "Our money is being destroyed by the freaking Federal Reserve!" And if that is not enough evidence for the judge and jury, then I will call myself to the witness stand again, time after time, citing even MORE of my expert testimony!
But if the "savings glut" starts disappearing, then I know where the money is going to go. Notice how I astutely surmised this from Steve Sjuggerud's commentary at DailyWealth.com, where he said his buddy Jeff Clark told him that "About 10 weeks from today - maybe sooner - Federal Ban 18 will be lifted from Chinese Law. On that day, Chinese companies listed on American exchanges will be allowed to return home - and sell shares for the first time in history on the local markets of Shanghai and Shenzhen. And for the first time in history," he says, "Chinese citizens will be allowed to buy them. That's when the REAL China Boom begins."
-- An article by Patrick Barta in the Wall Street Journal quotes a Macquarie Bank report that suggested that after looking at the data for the last 100 years, "All commodity prices tend to move in tandem. So when oil, gas and metals prices surge, agricultural commodities eventually should follow." Now, they figure, with the current prices of food being so low, we "could be at the start of sustained rally" in agricultural commodities, too!
And let's be sure we differentiate between his "rally", by which investors get rich by investing in commodities, and "inflation in food prices", by which we working poor proletariat slobs get poorer by buying commodities, mostly because food costs so much, but arrogant Social Services workers won't let you put your stupid kids on subsistence rations, but instead want YOU to play less golf and use the money to buy them food!
And if you want another way that inflation destroys the economy, I found out that the Sonny's Barbeque restaurants in Orlando have now fired their cashiers, and are simply making the waitresses take care of the money, too. Unemployment and heavier workloads DO result from inflation!
Steve Saville, writing the essay "The Non-Stop Inflation" at SafeHaven.com, notes that "The correct definition of inflation is an increase in the supply of money that CAUSES a decrease in the purchasing power of money, but we usually define it as simply an increase in the supply of money." I say the same thing, but leave it at that. But Mr. Saville actually does real work, and goes to the hassle of looking at the total US money supply, as measured by M-3, from 1959 through to January of 2006, a period of 47 years. In conclusion, he says "apart from a very brief and shallow dip below zero during the first half of 1993, the year-over-year change in M3 has been positive throughout this entire period. The point is that inflation is a constant."
Inflation is a constant? At this terrifying news I started whimpering in fear, and my pitiful sobbing grew to a scream of mortal dread when he went on to say "The things that change are the rate of inflation and the parts of the economy that are the main beneficiaries of the inflation."
This is the worst news I have ever heard! Taking the coward's way out, I am putting the barrel of a pistol in my mouth, when it suddenly occurs to me that maybe I have a reason to live after all! Maybe I can make some money on this! How? Sadly, I discover that I have no freaking idea, so I put the barrel back in my mouth, and just as I was pulling the trigger, Mr. Saville reveals how! He says "When confidence in governments and the money they make legal tender is in a long-term decline -- as is the case right now -- then the inflation will boost commodity prices relative to equity prices and boost gold prices relative to commodity prices." Ah! Making a fortune in gold! My reason to live long and prosper, just like Mister Spock told us to! Thank you, gold!
And in case you plan on living a long time and survive the coming economic cataclysm, then you will want to know when to get back into equities and bonds. He says "when confidence is rising, the inflation will boost financial assets (stocks and bonds) relative to hard assets (gold and commodities)."
And for another look at how inflation in housing is affecting the economy, thanks to the housing boom which has driven the cost of housing to ludicrous extremes, companies and schools all over the place are complaining that they can't attract employees because the cost of housing is so high! The Washington Post reports that "Police departments around the country are contending with a shortage of officers and are trying to lure new applicants with signing bonuses, eased standards, house down payments and extra vacation time." Signing bonuses, house down payments and extra vacation time all mean higher costs and higher taxes, as does lowering the "standards" in the hiring process, which were put there to curtail a previous problem with unqualified, expensive, dangerous people being cops. Hahaha! Welcome to the world of inflation, chumps!
And there is (to show you that the misery of inflation never stops and that is why it is important not to let the damned Federal Reserve create so damned much money in the first damned place) also a tragically-irresponsible push to again increase the federal minimum wage, meaning employers will have to pay higher wages, and then employers will have to charge higher prices to recover their higher labor costs. And the higher labor costs of their suppliers, too, means that supplies will cost more, too, which means that the employer has to charge even higher prices to recover his higher materials AND labor costs!
And why do they want a higher minimum wage? To offset higher prices! But if they get higher wages, then prices will go yet higher! Now, if it stopped there, then I would have no problem with it at all, but it does NOT stop there. In fact, the overwhelming majority of the people in this country don't have jobs, and so they are NOT going to get higher wages. The young, the old, the sick, the handicapped, the unemployed, and the criminals are CERTAINLY not going to get higher wages to offset higher prices! It just makes them worse off! Worse off and angrier!
Well, there has already been a lot of suffering, thanks to inflation in prices, thanks to inflation in the money supply, and now the idiot people think that mandating higher wages will "make it all better"! Hahaha! Idiots! Prices are too high, but making prices rise higher will "make it better!" Hahaha! America is a nation of first-class morons, and that is why we richly deserve the misery we will be getting!
- In the March 25 issue of Economist magazine we have a photograph of Ben Bernanke that accompanies the article "Bernanke Ponders His Course." If you look closely at Bernanke's face, you can clearly tell by looking at his eyes that he is thinking "Oh, my God! That Mogambo idiot was right! We ARE freaking doomed!"
But the real news was the following article, entitled "The Issing link", which takes a look at the "huge divide in monetary policy thinking between Europe and America" such as any emphasis on money and the money supply. The article says "Yet, the odd thing is that the standard academic models used by most economists ignore money altogether. Inflation instead depends simply on the amount of spare capacity in the economy. Nor does the money supply play any role in monetary policy in most countries, notably America." The good news is that mainstream economic opinion is swinging back around to, again, keeping a lid on the money supply.
Of course, America and "most countries" are wrong, wrong, wrong, and a handy 30-year/40 countries chart of the inflationary effects of increasing the money supply, included in the article so there is no mistaking it, shows an almost 1-to-1 correlation! Therefore, increase the money supply by ten percent, and you will get ten percent price inflation!
Now let's turn to the tables in the back of the Economist magazine, and take a gander at the changes in the money supplies of those countries of the Anglo-Saxon persuasion, and we are looking at some with 2% growth in their money supply, and some with 6%, and some with 8%, and some with 12% and one in the 26% range, too. Bad news!
And it's not just me, either! Jim Puplava at FinancialSense.com writes "If you look at global money flows around the globe there isn't one central bank that isn't re-inflating at rates 2 or 3 times or 5 times their economic rates. So, what is happening now for the first time is you're seeing currencies depreciate around the globe against the real standard of money which is gold. I think what you're going to see first is stagflation, and eventually leading to hyperinflation. There's no way with $51 trillion of unfunded Medicare, Medicaid, and Social Security liabilities that we're going to go on some austerity program in this country. It's just not going to happen."
And if you think that houses are going to be your salvation, then think again, as we learn from Rob Peebles and his Random Walk column at PrudentBear.com. He writes that Robert Shiller, a Yale professor, "looked at housing data from 1890 to 2004. After looking at it, he and his calculator concluded that the average annual price increase over that period, adjusted for inflation, was a paltry 0.4%." Hahahaha! Owning a house provides, investment-wise, a long-term 0.4% gain? Hahaha! It's so low that it is in the range of statistic error caused by rounding!
As bad as this is, Mr. Peebles goes on to say that "The return would be even more pathetic if housing had not taken the baton from the withering stock market in the Great Asset Inflation Race." The same thing was reported from the history of houses on the Herengracht, a famous Dutch canal, that have been very popular ("location, location, location") since 1628. It short, it was boom and bust, cycle after cycle, resulting in a long-term gain of "just 0.2% a year adjusted for inflation." Hahaha! As if there could be any other result!
-- For a daily dose of Mogambo screaming about silver (MSAS), I offer this interesting PR Newswire bit of news. "Experts maintain that about 40 billion ounces of silver has been mined throughout all of human history, and that about 90% of that has been irretrievably consumed by industry, jewelry, and photography."
I stop the tape, and caution you to write in your notes that they said that 40 billion ounces have been mined in all of history. Secondly, they note that 36 billion of those 40 billion ounces of silver have been consumed and are now irretrievably lost.
I re-start the tape. "Most of the approximately 3-5 billion ounces of silver left is in the form of jewelry, mostly held in India." I don't know where you live, but around here the news that most of the silver is in India is like saying it is on the moon. The question on everyone's minds is "So how much silver is available for me to buy, so I can get in on the coming silver bonanza?"
While obviously deploring my raw greed, they nonetheless answer by saying "Silver that is in the form of above-ground, refined, deliverable, identifiable silver is about 150 million ounces, mostly held at COMEX." I am always surprised by this statistic, as the proposed Barclays silver ETF, alone, is supposed to suck up about 130 million ounces of silver! And there are other silver ETFs in the works around the world, too, and they could suck up hundreds of millions of ounces more!
As perspective, they write "The U.S. government once held up to 6 billion ounces of silver, but around 2002, the U.S. ran out, and had to buy silver on the open market for its Silver Eagle coin program. The COMEX once had up to 1.5 billion ounces of silver about 10-15 years ago, but today has less than 1/10th of that: 117 million ounces. Conclusion? If there really remains less than 150 million ounces of silver in above ground refined form, then there is about half of an ounce of silver per person in the U.S., which means that if you have a single ounce of silver, the SUA might say that you have 'more than your fair share.'"
-- If you want your investment advice mixed with the dreary recurring history of the world, era after era, then the guys at DailyWealth.com are just the guys you are looking for. They write "As the world's developing economies like India, Brazil, and China get richer and more developed," they say, they will probably "still have the desire to blow each other up. We wish it were not so, but the producers of guns, missiles, tanks, bullets, and fighter jets are doing a brisk business." As evidence of that, they note that "With America leading the way with a proposed $440 billion defense budget in 2007, defense contractors like Northrop Grumman (NOC), Lockheed Martin (LMT), and General Dynamics (GD) are enjoying a bull market in the $1 trillion global arms industry... driving the benchmark Spade Defense Index to new highs."
This may have something to do with George Ure of UrbanSurvival.com reporting that, suddenly, ammunition is very, very scarce. Ugh.
****Mogambo sez: The unusual action of silver and gold here lately is the result of lots and lots of guys, businesses and banks on the hook for billions and billions of dollars in short sales, year after year after year. The rise in the prices of gold and silver means financial death for them. So buy them with confidence, perhaps even with a little malice against those creeps, as they can't keep it up for much longer, and the prices of gold and silver will shoot to the moon when they finally give up.