This article originally appeared at The Daily Reckoning.
-- I notice with dark dismay that the horrid Federal Reserve is now back on track to destroy the dollar as soon as it can, as evidenced by the fact that Total Fed Credit shot up by $6.4 billion last week. With the current insanely-low fractional-reserve ratio of the banks set by the Fed (literally zero for new deposits), this means that the banks can create (let me re-check the calculations again) 64 zillion kajillion dollars out of thin air, all of which devalues all the rest of the dollars already in existence.
At this point, I notice that I am getting kind of numb to these constant, insane increases in Total Fed Credit, seeing that it really started exploding way back in 1997, although $6.4 billion still has the family kind of edgy that I am going to go berserk again, like I usually do, and they are all cowering under the table. But the thing that really got me up and sprinting out to the Mogambo Bunker Of Screaming Panic And Fear (MBOSPAF) is that there is a new, ominous wrinkle in all of this Federal Reserve monetary insanity; an obscure, usually low-figure account at the Fed labeled "Other F.R. Assets" suddenly, out of the blue, registered a whopping increase of $4.3 billion last week! It ain't bonds and it ain't cash, things a bank normally gobbles up, so what could the Fed be accumulating? And why?
As I am slamming the door shut and arming the Mogambo Intruder Intercept System (MIIS), I am thinking to myself that I am not sure what in the hell that damned Fed is up to, but it is getting really, really weird. And as a guy who IS weird, I certainly know what I am talking about when it comes to weird, although I will probably be the only one in the police lineup, standing there with all the rest of the creepy (and smelly) scum of the earth ("Hi, Mogambo!" "Hi, Bob! Yo, Willie!"), when the cops soothingly say to the witness behind the two-way mirror, "Do you recognize the weird, lying little pervert, ma'am?" and I will start yelling "Weird? You want weird? Then get that weird old bat up here with me, because the Federal Reserve is destroying her damned money, and yet she is down here complaining about ME screaming at her to wake up and prepare to die a horrible economic death because of it! Now THAT'S weird!"
And speaking of weird, lying little perverts (being gratuitously disrespectful and nasty), even foreign central banks are tiptoeing back in the game of trying to keep the dollar from collapsing into nothingness, and they increased their holdings of US debt by another $1.7 billion last week, too. Not much, considering their long record, but enough to show polite interest.
Of course, we can always count on the loathsome Congress to sell us down the river, and so it comes as no surprise that the Treasury Gross Public Debt has ballooned ("BoooOOOOooing!") to an obscene $8.402 trillion, up $31 billion in just the last ten days, and up $232 billion since January 1! And it will get worse and worse, as the Treasury feverishly prints up and sells more and more bonds so that Congress can spend, spend, spend us into the poorhouse, further crippling the dollar.
So I am laughing in loud Mogambo scorn (LMS) at not only bond market bozos who are still buying bonds even as the prices fall and keep falling, but also the complete clods who are buying stocks at the same time, even as central banks are tightening, even as the Congress is spending outrageous amounts of borrowed money, even as the dollar is falling, but also (and I have to rub my eyes in disbelief) even when crude oil is nearing $70 a barrel! What kind of complete idiots are these jerks? I'll tell you who; idiot Americans who keep plowing their money into mutual funds and retirement plans loaded with non-gold equities and bonds, thinking that portfolio managers are some kind of magical wizards who will produce gains when nobody else can.
I mean, these bond market chumps are standing around, scratching their thick heads, and muttering "Huh? What? Huh? What happened?" as these bond-buying morons are losing money, and yet are still intent on locking their money up for up to 30 years by buying long bonds so that they can get tiny, less-than-inflation yields! What kind of stupidity is THAT? And when yields continue to rise and rise (and they will, as all central banks are starting to react to the inflation that is rising in their countries as a result of all of this creating of excess money and credit), they will get exactly what they deserve for their stupidity; huge freaking losses. The bad news is that this, as I keep yelling about, is YOUR money that they are managing, and all the bond portfolio managers will get for their laughable incompetence are huge salaries and outlandish bonuses. But they can't hold back the tides, and millions of people are going to get whacked for it. It's like Mother Nature said; "It's not smart to be so childishly trusting!"
And their bigger losses may come sooner than they think! In a GATA (Gold Anti-Trust Action Committee) dispatch of an article in the Financial Times, they have forwarded the news that "The US dollar extended losses in European morning trade on Tuesday amid a call from a Chinese politician for China to stop buying US Treasuries. Cheng Siwei, a vice chief of China's National People's Congress, was quoted as saying that ' China can stop buying dollar-denominated bonds, and gradually reduce its holdings of US bonds'."
The central banks are (and have been) doing everything they can to prevent the dollar from rolling over, but that may soon be history. Paul van Eeden writes that "Mr. Hu Jintao, the Chinese President, is scheduled to visit Washington later this month while the United States continues to put pressure on China to let its currency appreciate against the dollar. It seems China is going to comply: In December Mr. Yu Yongding, who is a member of the monetary policy advisory committee to the People's Bank of China, said that China should weaken the link between the yuan (renminbi) and the US dollar."
If you notice that you heart has stopped and people around you are furiously dialing 911, then congratulations! You correctly realize that this means that if China starts reducing its holdings of US debt and assets, or even slow the pace of buying more, then who is going to finance our current account deficit and the federal budget deficit? Net result? The dollar goes lower, and things that we import (like oil and damned near everything else) will cost more. Much more.
The good news about a falling dollar is, they say (and as a "Mogambo Heads Up (MHU)", they are wrong) that this lower dollar thing will make US exports cheaper on the world market, and so the trade deficit will automatically shrink because we are exporting more and importing less. Hahaha! Convulsed as I am with laughter, I am almost too incapacitated to tell you that when you have been around capitalist swine as long as I have (with all their precious "rules" about coming to work on time (every damned day!) and not harassing the secretaries and blah blah blah), as soon as these greedy corporations find that their prices are lower than the competitor's, they will raise prices! I've seen it a million times!
So we will have the worst of both worlds; higher import prices and higher domestic prices! Nice work, Federal Reserve jerks!
And speaking of GATA, Alex at Leg2Capital.com shows that not only was he was paying attention in physics class while me and my stupid hoodlum friends were poking each other with pencils in the back of the room and giggling about how we wish we were drunk, or more drunk, but that he can extrapolate classical physics to the eye-popping rise in the price of gold. "For every action," he starts off, quoting Newton, "there is an equal and opposite reaction." Then he takes that and says that the rise in gold is thus foreordained. "It's now obvious the Central banks have done a terrific job of suppressing the gold price. It's now out there for everyone to see who cares to look at the information (thanks to Bill Murphy and GATA). Therefore an extraordinary suppression of the Gold price well below the inflation-adjusted price of $1800 has created an equal and opposite reaction of an extraordinary rise. Hence the move on the gold chart." And before you think that it is too late to get in on some of this action in gold, he says not to worry, and that the big moves are "yet to come."
And in talking about Newtonian physics and "big moves", Robert Prechter, of Elliott Wave fame, says that the recent huge (>40%) losses in middle-Eastern stock markets is just prolog. "This year the U.S. stock market is shaping up to drop at least as fast. Generally when stocks levitate into a market cycle, they make up for it by crashing. In 1929, stocks rose for 2.5 years into the 2.7-year cycle. Then they lost 50 percent of their value in 2 ½ months. In 1987, stocks rose for 3.1 years into the 3.3-year cycle. Then they lost 40 percent of their value in 7 weeks."
If you think you got the guts to weather a 40% drop in your portfolio, maybe you ought to re-think that optimistic assessment when he goes on to say "But given that the bear market is of Grand Supercycle degree, the largest in nearly 300 years, the coming drop should dwarf both of those crashes."
And what happens in crashes? People run to gold in sheer panic. Peter Spina at the GoldForecaster.com says that the time to buy gold is still here, and that they have " elevated the gold price target to $720 an ounce." And this is their anticipated price BEFORE anything crashes!
-- The continuing surge in silver is no surprise to either Ted Butler or me, although, of the two of us, only I am leaning out the window screaming "Buy silver now, or be left in the financial dust to die, you stupid morons!" which I think is a really nice shorthand way of getting the message across. Mr. Butler, ever the calm and deliberate one, builds his case from the facts. "The COMEX silver short position," he says, "stands out from any other commodity. The gross COMEX short position (open interest), for futures alone, is now over 700 million ounces. This is greater than total world annual mine production and greater than any world inventory amount than I have seen published. In no other commodity can this statement be made."
I interpret this to mean that if you have ever heard of the meteoric rises in prices when there is a "short squeeze" but have never really seen one, then you are in for a real treat.
If he stopped right there he would have a compelling message. I mean, the existing short position of COMEX traders is larger than the annual global output of silver! And being short, they have to one day buy silver to cover their shorts! But he probably figures that everyone is as dull as I am, and continues, making sure that we get the point. "The net commercial COMEX silver short position is also larger, by a disproportionate amount, than any other commodity when compared to real world production and inventories. Along with the 60-year continuous structural deficit, the depleted inventories, the paucity of below-ground remaining resources, and the stunning rarity of silver compared to gold, the uneconomic short position in COMEX silver is key to the real silver story. It is the resolution of this outrageous short position that will dictate the major moves in the price of silver." And that major move is, as if you have to be told, up and up and up.
Then he touches on the topic that is Number One With A Bullet: "Currently, there is a vocal debate about the prospective Barclays silver ETF and what effect the proposed maximum filing of 130 million ounces could have on the market. But why is there no debate about the 4 largest traders on the COMEX who are already net short more than 200 million ounces and what effect that has had on prices? Or about the 8 largest traders who are already short almost 300 million ounces?" I stand up in the back of the room and shout "Yeah! How come nobody wants to talk about THAT market-rigging scam?"
Amid rude calls of "Shut the hell up, Mogambo, you stinking idiot", Mr. Butler graciously defuses the situation by immediately going on to say "Make no mistake; this short position must be resolved. It is not possible for a short position that is larger than all the silver in the world, or could be produced, to last indefinitely. The only question is how quickly investors of the world learn the real silver story and rush to take advantage of it." And if you want some Real Good Mogambo Advice (RGMA), then jump in the car, drive like a bat out of hell, running red lights if you have to, and "rush to take advantage of it" by buying silver. And lots of it! Then sit back and relax, as your fortune is as good as made.
-- Phil S. sent this timeless quote from my favorite curmudgeon, the famous H. L. Mencken. Although he does not actually use the word "inflation", he is obviously referring to it when he says "Unquestionably, there is progress. The average American now pays out twice as much in taxes as he formerly got in wages." Hahaha! And woe betide the poor retired people, the young people, the handicapped people, the unemployed people and the stinking lazy people (me, for one) who do not HAVE wages that increase because they don't have a job! All we get is higher prices! And then I am going to be on the phone, calling, calling, calling you up, day and night, trying to borrow some money. Welcome to the horror of inflation!
- - I get a lot of email from people who first pay me a compliment (e.g. "You're probably not as stupid as everybody says!") and then want me to reveal a Glorious Mogambo Plan (GMP) so that people of very modest means can amass a fortune. Quickly. Amass a fortune quickly. With little to no money. Preferably, no money.
My first reaction, of course, is to go over to their houses, ring the doorbell ("ding dong!"), and when the door opens, leap upon them, grab them by the throat and slap their stupid faces as I scream "Make a lot of money quickly? Using little money of your own? What a stupid thing to ask! You deserve to be poor, you whining little piece of dog crap! Now, stop crying and go tell your mommy and daddy that I want to see them!"
Unfortunately, several adverse legal rulings have made me belatedly realize that this normal reaction is too harsh for crybaby Earthling humans, whereas on my planet we have accepted the fact that no organism ever learns anything without getting ALL the pain that comes from making stupid mistakes. To do otherwise is to "make stupidity pay", which engenders more stupidity, and then MORE stupidity, and the next thing you know, you have a Congress like ours and a Supreme Court like ours and a Federal Reserve like ours.
But the hard, ugly fact is that there is NO way to amass a fortune quickly with very little money, except by pure luck, because if there WERE a way, it would be just as easy to amass a BIGGER fortune with a LOT of money, and the world is full of guys who have learned that (and you might want to write this down) there is no way to amass a fortune quickly, except by luck, and they took their chances, trusting in luck, and the dice came up craps, as it usually does after awhile.
And if you want to get rich, it will not be by mindlessly buying and holding stocks, or bonds, or houses, or insurance policies, or collectibles, or anything else, as it is mathematically impossible for everyone to get back more than they put into these things. In the long-term, it's a zero-sum game, and to have winners, you must have losers. And if you let Wall Street or Congress tell you any different, then you deserve the misery you are going to get, because you are really, really, really stupid.
But this is not about how America is full of imbeciles, but about making money. In that regard, I now offer The Glorious Mogambo Plan, known far and wide as TGMP: "Spend less than you make. Save the rest. Buy some gold. Every freaking month of your life."
And, parenthetically, start going to Mises.org and learn about Austrian economics. Then you will know a) what to do with your huge pile of accumulated wealth and b) what to teach your children when they ask "How did we get so damned rich?" and you are too embarrassed to say "I mindlessly followed the advice of an idiot named Mogambo who told me to buy gold, and it worked, but I don't know WHY it worked!"
-- The mass demonstrations of immigrants, legal and otherwise, to protest new federal legislation that would make it a felony to be an illegal immigrant is about the money, and I know this because all things are "about the money". And who could blame them for wanting to come here? What's not to like? Gobbling up a vast smorgasbord of taxpayer provided benefits to give themselves a higher standard of living, and send money back home to those who cannot sneak across, too, is why they came here in the first place!
As sympathetic as I am to their poignant plight, the ugly fact is the economic pain we must pay as a nation to take care of every poor person who wants to come here will destroy us. It is unfortunate truism that the poorly-educated illegal immigrants who sneak across the border for the pitiful chance of toiling at our crappiest and lowest-paid jobs are a net drain on the United States. And please don't talk to me of how much they pay in taxes, as whoever was doing the jobs would pay the same taxes. And besides, that piddly little bit of income tax revenue is just a tiny drop in the bucket compared to the towering tens of billions of dollars in welfare, Medicaid, healthcare of all kinds, rental assistance, low-income mortgage assistance, aid to dependent children, special school programs and dozens and dozens and dozens of other federal, state and local aid programs that they consume.
And it allows continual huge increases in the illegal immigrant population, which means governments will have to provide more and more benefits, and thus higher and higher taxes must be raised, and there is concomitant further ugly distortion of the economy towards the inevitable bankruptcy of overt communism, where the government takes money from some and gives it to others to "even things out".
And if that were the end of it, maybe I could be persuaded to side with the illegal immigrants, as loathe as I am to waking up one morning to find that people have sneaked into my house and the government requiring me to adopt them. But, as you can tell from the way my eyes are rolling comically in my head from raw fear, it does NOT stop there. Because money is taken from some people and businesses, they have to ask for higher wages and prices to keep from suffering losses in their spendable income. So costs and prices go up. And then the federal government deficit-spends for both itself, and to get money to give the states and local governments to pay for all of these goods and services provided to the illegal immigrants, and then Federal Reserve (to its everlasting shame) creates more money so that somebody could borrow it and loan it to the government to pay for it all. And all that new money makes prices rise.
And the other side of the damned coin is that the flood of new illegal immigrants will be spending all that money and consuming all those services, keeping demand going higher, thus further increasing prices. This means that the government has to extract even higher taxes from some people and businesses, both to pay for the higher prices (on behalf of the current immigrants) AND even more to pay for more illegal immigrants, which again increases costs and prices. Thus it goes round and round. Bigger and bigger, always bigger and bigger! And prices rising higher and higher! All the time prices rising higher and higher, until my throat is raw and sore from screaming in fear and outrage, and cursing the Federal Reserve.
If you listen carefully to the soundtrack, you will notice that it sounds like kettledrums and werewolves howling. Or maybe werewolves playing kettledrums while howling. I dunno. But either way, that frightful music means, if you have ever been to the movies, that something horrible is getting ready to happen. And sure enough, you can dimly see, rising slowly out of the murky depths, a hideous monster rising up. Suddenly, someone shouts "Run for your lives! It's inflation, and it is going to eat the living guts out of our spending power and our standards of living!" Actually, in the movie, it turned out to be this scaly creature that lived in this lagoon, called the Black Lagoon, see, which the people manage to kill at the end, which explains why the rest of the audience laughed at me and shouted as I bolted for the door in my panic, "Good riddance, creep!"
But it's the same idea, only in real life the creature IS inflation, and it wins in the end, and the people are all killed. And eaten. And their kids. And everybody else, too, for years and years and years. Ugh.
****Mogambo sez: As I found out the hard way, l ife is hard when you are stupid and it is even harder when you act stupid. And if you want a definition of "acting stupid", then how about betting all your money and all your retirement that now, after it has failed every time in history, a government with the power to create unlimited money and credit (this time courtesy of a criminally compliant Supreme Court and Federal Reserve) will NOT destroy the currency and the economy by over-issuing money? Want to take that bet?
If, on the other hand, if you want to bet that this time, too, like all the other times in history, the over-issuance of money will destroy the currency and the economy, then buy gold. You heard it here, and you hear it everywhere that smart people, who know what they are talking about, say "Mogambo Guru who? Never heard of him!" And you hear it from people who have just gotten their retirement mutual fund account quarterly statements and they note that their gold holdings are up 22% in the first quarter and up 68% in the last year.
But, that said, maybe now is not the precise time to plow into gold, as the lease rates spread is again very wide, which means that the gold-market manipulators will again borrow and dump tons and tons of gold on the market, driving the price of gold down and compressing the lease rates so that they can profit when they again widen.