This article originally appeared at The Daily Reckoning.
-- The Federal Reserve is still increasing Total Fed Credit, which increases credit in the banks, which increases loans, which increases the money supply, which increases prices, which increases my wailing and crying about how we are all freaking doomed by inflation, and last week they increased it by only another $3 billion, which was used (apparently) to buy stocks and bonds. A quick look at the Repo market ("peep") shows that the Fed is providing money like crazy, and last Thursday there were more than $20 billion of Repos in one day! One day!
The foreign central banks are still plowing money into the US, and last week Custody Holdings of US Debt held at the Fed ballooned up another $8.2 billion, which seems to demonstrate a very, very low level of intellectual capacity, as the dollar lost about 7% of its value in the last month alone, socking them with nice losses! Hahaha!
Probably because of the huge amounts of credit and money being created by the world's central banks, I seem to notice more and more people referring to this massive and irresponsible "printing" of money as the beginning of a new Weimar era, which is itself a reference to the massive printing of money by post-WWI Germany and the utter economic devastation that resulted.
But this not about whether the rulers of the old Weimar Germany were buttheads (they were) or whether the rulers of America's economy are buttheads (they are) but about the horrible economic price that a nation pays for such irresponsible stupidity. And don't look to me for a solution, as there isn't one, because if there was a painless solution to this insane system of a fiat currency created by debt, then at least one other person in all of history would have thought of it already. And when you also allow banks to operate with zero reserves (and thus infinite multiplication of deposits), the absurdity of thinking that there is a solution becomes even more ludicrous. And when you further allow the massive increase in the size and cost of government, then asking for a solution becomes so ludicrous (the audience shouts out "How ludicrous, Mogambo?") I can do little but laugh hahahaha!
The sad, ugly truth (SUT) is that there is no way out of a devalued currency caused by a government printing up too much of it. That is why the Founding Fathers specifically wrote into the Constitution that money shall only be of silver and gold, because the government cannot print silver and gold, and this prevents the necessity of a "solution"!
A hand goes up in the front row. "So, if so," he says quizzically, "whither silver and gold in such a situation?" Well, instead of endless theoretical debate, that question can perhaps be answered more easily by seeing what happened in the last "Weimar" over-production of money and credit. And for that we owe thanks to Phil for the chart showing that in 1919 Weimar Germany you could sell (or buy) an ounce of gold for 170 Reichmarks. In 1923, a mere four years later, you got 87 trillion Reichmarks when you sold an ounce of gold. Nice investment there, in nominal terms! Of course, a Reichmark couldn't buy very much in 1923, as the money was devalued to essentially zero. But 87 trillion of them would buy you an ounce of gold!
As for silver, it went from 12 Reichmarks an ounce to, in the same four years, 543 billion Reichmarks. Nice investment from, again, a nominal standpoint!
-- Judging by the tone of the panicky emails I have been getting recently, people other than I think that things are getting weird and inexplicable. Relatively predictable ratios are not making sense anymore, open interest is behaving weirdly, share prices and fundamentals are diverging, etc. etc. etc., resulting in more sense of unease, trending to frantic panic, and these poor, deluded people think that an idiot like me could possibly supply some explanation.
Well, it is my Tremendous Mogambo Pleasure (TMP) to announce that I actually DO have an answer for all of this current weirdness! And the reason I am so happy is that the answer is simplicity itself: The Federal Reserve is on record as saying that they will happily intervene in any market, at any time, with any level of participation, and that they have the legal authority to do it by virtue an Executive Order of the President of the USA! So the answer is easy, my Darling Mogambo Grasshoppers (DMG); the Federal Reserve (in cooperation with all the other central banks of the world who are in this thing up to their eyeballs) is doing exactly what they said they would do!
And why are they doing this? Because our creditors have us right where they want us, which is when they can dictate terms to us, because they have the power to destroy our economy with the flick of a finger. Yes, they would suffer, too. But they will not die, unlike our stupid, malignant economy composed primarily of the twin idiocies of financial services and massive government spending.
And with that kind of pure power, they can get otherwise-unattainable items, such as modern, up-to-the minute weapons and war technology that we paranoid, gold-bug, gun-nuts can't get from the Army-Navy Surplus store, and when we insist on Second Amendment grounds, they almost break their fingers dialing the FBI to "report" me.
This is not to mention, of course, their new ability to extort us to use our military muscle as hired goons, doing the dirty-work of some Asian Big Bosses (ABBs), primarily the Japanese and Chinese, who hold our economy in their hands by holding our debt in their hands.
And if you don't think that such slimy business is not being commonly done, more and more all the time, then let the Mocking And Scornful Laugh Of The Mogambo (MASLOTM) ring in your ears, my optimistic young ones! Hahahaha!
Even Bill Bonner at DailyReckoning.com seems to have has his finger on this pulse of rampant corruption when he writes "'Cheney rebukes Russians,' the front page of today's International Herald Tribune tells us. We had to a laugh. What's his beef with the Russians? Get this. They're using oil and gas as 'tools of intimidation and blackmail.' In other words, they're using their resources to get what they want, just as America does with its trade policies and foreign aid." Hahaha! Exactly!
But to show you how out of touch Cheney is, it is not just Russia, but Venezuela, Bolivia, Cuba, Iran, North Korea, China, Russia and others who are forming anti-bully, anti-American alliances, and they are using oil to hurt us back.
Now, let's also be sure and understand why Cheney uses the word "blackmail" which I assume he used correctly, as blackmail involves somebody knowing something nasty about something Cheney has illegally done, and now they are using it to extort money and cooperation.
And since we are talking about extortion by blackmail, let's not forget the warehouses full of incriminating evidence of felonious misdeeds of our politicians. And if you don't think that there is a lot of THAT going on in the world, then I am glad to meet you! This proves that you are one of the few people in the world (it seems) who are not blackmailing the poor, beleaguered Mogambo with copies of those embarrassing photos, showing him standing there with that stupid towel wrapped around him in the locker room while the Danish cheerleading squad is laughing and mocking him, which is, as I have previously explained, not the reaction I had expected, according to the graffiti I read on the men's room wall. So who's the real victim here?
So the Federal Reserve is intervening in the markets, and one of the ways to do that is to buy stock futures, and for them to then to tell the Wall Street houses, which is the other side of this trade, to buy stocks to cover their short position in futures, and for the Fed to buy some bond futures, and for them to then tell the Wall Street houses, which is the other side of this trade, to buy bonds to cover their short position in bond futures, too. This will keep stock prices high, keep bond prices high (and thus interest rates low), allow the Asian Big Bosses to make some more money on their hoard of American money, stocks and bonds, and let Wall Street make a nice pile of cash in the process, too.
And how much money are we talking about? Well, from 'Nihon Keizai', which is supposed to be Japan's leading economic newspaper, we learn that "Brazil, Russia, India and China, referred to as BRIC group that currently manifests the world's highest economic growth rate, have surpassed G7 countries in their forex /gold holdings for the first time in history.
"As of the end of March, the aggregate holdings of BRIC amounted to $1,292,200 million, according to estimates. As compared with the state of affairs in this respect as of the end of 2004, the forex/gold holdings of BRIC went up by 40 per cent.
"At the same time, the forex /gold reserves of G7 countries (Britain, Germany, Italy, Canada, the United States, France, and Japan) amounted to $1,253,900 million."
So relax, maybe take a little time away from yelling at your hateful, brain-damaged children, and get some more gold and silver, or maybe add another comforting layer of protective armor to your own version of the Mogambo Bunker Of Screaming Panic (MBOSP), or maybe even holding a few Mogambo Family Emergency Response (MFER) drills, which actually boils down to making sure that they get to the bunker before I do, what with that unfortunate "Shoot first and ask questions later" policy, which I have been meaning to change, but never did. But, man, on the other hand, you should see them hustle their little fannies now!
And this meddling in the markets by the Federal Reserve has not gone unnoticed in the cosmos. You puny Earthlings don't know it, but most of the UFOs visiting Earth these days have bumper stickers that say "Glorb blaanga Earth!" which is difficult to translate into English, but is, surprisingly, a literal translation from an ancient Germanic-Nordic phrase "Grosse bigga dum auf dem Stupum kopfen glob glob globber" which means, again literally, "Big stupid mistake, diggers of mushrooms!"
- Alert reader Jerry D. writes that he eats a lot of oats, and that oats cost $1.58 per bucket for a couple of years, but "yesterday I paid $2.08 for them. That's roughly 25 percent on plain raw oats in less than 12 months from the same local grocer."
Perhaps it is the oats talking, but he also opines "I believe that there is no longer any nobility in any major government, and that a large network of collaborators are inching us toward Orwell's worst-case scenario." Exactly! And if that is any indication of the clear thinking that oats give you, then I am now a big fan of them, too!
And it is not just oats that are costing more, as we found out from alert reader Rebecca I., who says "I have definite proof I am personally experiencing inflation. I just received the breakdown of my benefits package and its costs. In 2004, the total cost was $15,731, as compared to 2005 when it was $17,469, for a total increase of 11%."
-- For those of us who are dismayed at the decision by the Federal Reserve to no longer publish the M3 numbers, which is the broadest measure of the money supply, alert reader Tom McC. thinks like we do, but with a nautical bent. He says "I refer to the government's refusal to publish M3 statistics going forward as the Depth Gauge gambit, as it is akin to disconnecting the depth gauge as a means of combating flooding in a submarine."
-- From the AP we get the headline "Ginsburg: Congress' Watchdog Plan 'Scary' " by Gina Holland. She reports that Sen. Charles Grassley said last week that "the judiciary wasn't doing enough policing of itself." Naturally, he has a plan. Ms. Holland writes "His plan would create an inspector general to oversee federal courts including the Supreme Court. The inspector general would be directed to report any judicial misconduct to the Justice Department."
Naturally, here comes Ruth Bader-Ginsburg, one of the most worthless of the Supreme Court judges, and Ms. Holland reports that that Ginsburg "told a gathering of the American Bar Association that lawyers should stick up for judges when they are criticized by congressional leaders." Hahaha! What chutzpah!
It's apparently okay with Ms. Ginsburg and her precious Supreme Court for the Congress and our idiotic President to ride roughshod over the Constitution, the Bill of Rights, and to monitor, regulate and spy on every detail of every American's life, but she is aghast that she and her loathsome Supreme Court ilk should have to suffer the same indignities! She says that "My sense now is that the judiciary is under assault in a way that I haven't seen before." I agree, as we have never had a Supreme Court as so deserving of contempt before! Well, maybe back in 1933 when the Supreme Court let FDR ignore the Constitutional requirement that money will only be of silver and gold, which started us on the path to where we are today, a country bankrupted by a fiat currency.
But she doesn't mention her own calumny, but instead wails about how she was upset by "proposals by senior Republicans who want an inspector general to police judges' acceptance of free trips or their possible financial interests with groups that could appear before them." Hahaha! Now she has apparently found that the Constitution allows corruption by the Supreme Court! Hahaha!
-- If you want to know the kind of idiocy that is being taught in upper-level economics these days, economics student Anna says that she spends her time taking "the second order partial derivatives of a generic Cobb-Douglas equation and then solving for the input equations in terms of the constants." Hahahaha! This is economics? Hahaha!
But this is the incredible stupidity that passes for economics these days, and then you wonder why I am always standing on the side of 49th Street, yelling at people in cars "Your money is doomed and you are doomed!"
-- Perhaps as a result of gasoline being more expensive, as a result of oil being more expensive, as a result of the dollar becoming more worthless in terms of buying power, the Consumer Confidence indicator dropped to 67.1 in May, which was down a lot from April's 89.4 reading. People don't spend when they are not confident.
-- Bob Wood, of KMA, was commenting on the jobs reports released last Friday, and specifically referred to the "birth/death model" that the Bureau of Labor Statistics uses to estimate the number of jobs created by new businesses (which are so new that the jobs created are not counted yet, including an estimate of the number of businesses that went under and whose employees are now looking for new jobs, even though they are still counted as "employed"). He writes, "Wow, another 138,000 new jobs, and only 271,000 of them are fake."
And, not content with the wry bon mot, he goes on to note that Table A-12 is "where we see that the unemployment rate is really 8.2%, not the 4.7% miracle engineered by the Bush team."
Perhaps this all squares with the government reporting the bad news of "Unit labor costs -- a key gauge of profit and price pressures monitored by the Federal Reserve for clues on wage inflation -- increased at a 2.5 percent annual pace." But the good news, I guess, is that when companies dump employee benefit programs, "Manufacturing unit labor costs actually declined, at a 2.6 percent annualized pace, after dropping at a 3.3 percent rate in the fourth quarter of last year, while compensation per hour advanced at the tepid rate of 1.5 percent."
Or maybe is has something to do with the news that, the Labor Department said new claims for state unemployment insurance benefits increased to 322,000 in the week ended April 29.
Or perhaps it was Ashraf Laidi writing the essay entitled "US Payrolls: Ominous Justification for Further Dollar Selling" and posted on SafeHaven.com. He sums it up as "It was the worst of both worlds (slower growth and rising inflationary threats)."
-- Noting that illegal aliens who came sneaking across the border into the USA assert that they have somehow acquired "rights" in doing so, I am now finally able to solve the problem of the homeless in America! So the next time that the Nobel Prize in Economics is awarded, along with that million dollar prize that would come in real handy right now, I am sure to win with my Fabulous New Mogambo Plan To Eliminate Homelessness (FNMPTEH). In a nutshell, if you are homeless, merely find a house being occupied by illegal aliens, wait until they go to bed, sneak into their house and relax! When they wake up in the morning, merely tell them that you agree with them that illegal trespassers have "rights"! They will, I assume, be happy to immediately oblige, providing you with a nice breakfast, and free housing, food, medical care and education for as long as you live! The problem of homelessness is thus solved! In my notes, I see where I have written "Appear humble as the adoring crowd applauds in awe and gratitude."
-- An interesting essay entitled "Bull in Bear's Skin?" by Antal E. Fekete, who is a Professor Emeritus at Memorial University of Newfoundland, has some tips for those of you who like techniques for timing markets, especially metals. He explains, "Basis is the name for the spread between the nearby futures price and the spot price. Backwardation is the market phenomenon whereby nearby futures are selling at a premium over the more distant. The normal condition for monetary metals is the opposite, contango, indicating that supply is plentiful. Backwardation in monetary metals is a foolproof indicator that supplies are getting tight. Its shrinking reveals that short selling is becoming counter-productive so that the shorts may be getting ready to cover. Conversely, the widening of the basis tells you that shortages may soon end, and the shorts are likely to start selling once more."
-- On SafeHaven.com we read the essay "The Silent Dollar Crash & Parallel Investment Universe" by Econotech which notes "When measured in the price of gold, the dollar and U.S. financial assets have already crashed. For example, relative to gold, as of Friday's close, since their last relative highs in June-July 2005, the U.S. dollar index has declined 39%, the 10-year Treasury bond 43%, and the S&P 500 31%. These declines have become free-fall in the last month or so."
They go on to write that, surprisingly to the International Monetary Fund, "capital is flowing from emerging markets to industrial countries (notably the United States), the opposite of what would be predicted by economic theory."
Econotech goes on to note that the International Monetary Fund, in their "Stability" report, notes that the risks of derivatives is pretty dramatic. Specifically, they say "credit derivative products have significantly enhanced the 'transferability' of credit risks by allowing for the increased specificity of credit exposures, to meet different investor demands, particularly in the 'primary' risk transfer markets." By this time I am starting to sneer in Utter Mogambo Disrespect (UMD), as I expect this to be just another laughable explanation (a la the Federal Reserve) about how "derivatives are so wonderful." I am halted in mid-spit, however, when they immediately go on to say "However, once transferred, secondary market liquidity risks and related contagion effects remain, and may constitute the most significant stability risk emanating from the structured credit markets."
Wiping the dribbled sputum from my chin at this surprising admission, the IMF correctly concludes "In the structured credit markets, we believe the risk of liquidity disturbances is material." What to do about it? Well, the IMF has an answer! "Whether and how these new risks materialize, and the severity of their impact, will critically depend on the degree to which the diversity of market participants increases, the various structural frictions are reduced, and market surveillance is improved."
In short, there has to be some new ways devised to, somehow, get more of the public to assume the risks ("diversity of market participants"), make it easier to lay on more derivatives (reduction of "structural frictions") and use some lies about "improved market surveillance" to get them to swallow it. Hahaha! The IMF! Hahaha! Some things never change!
-- John Spence and Myra P. Long wrote the essay "Weighing Gold Miners Against the Metal" in which they note "Two gold ETFs alone (GLD and IAU) have already pulled in over $7.1 billion dollars." In existence as financial entities for less than a year, and already they pulled in over $7 billion dollars? Wow!
They also weigh the pros and cons about mining stocks. They write "Mining stocks tend to be more volatile than the metal, though stocks receive kinder tax treatment than bullion. At the same time, holding gold removes the risk of company missteps and other factors, while giving precious-metals bugs - who tend to be a bearish bunch - the peace of mind of owning the physical bullion."
"But," I cry out in my anguish "there comes a point when all available room in the house is already being used to store huge quantities of gold, silver and ammunition, and everybody is always bumping into something, and then they are all whining and complaining! What do I do?"
Sensing my plea for him to please, please, please recommend holding stocks instead of bullion, Jon Nadler, an investment products analyst at Kitco.com., said "'Mining company shares are simply that -- 'a paper promise of performance by the company. Investment in the shares leads to currency, management and general stock-market risk."
Just as I was giving up the idea of owning mining stocks, Brien Lundin, editor of Gold Newsletter, jumps in and says "Mining equities leverage the gains or losses in metals themselves. On the way up, this can be a wonderful thing. On the way down, it can become quite a painful thing."
He added, "Investors need to know that sometimes this effect is muted, or even works against them." To prove it, he reveals that "Through the end of March, the StreetTracks Gold Trust ETF was up 27.2% for the previous 12 months, versus 63.5% for the average precious-metals mutual fund."
Mr. Nadler added that with gold bullion, holding it is equal to holding "pure value or pure asset; no one can default on it, there is no credit risk, there is no risk of issuing more shares or printing more money. It is the asset you would buy to protect against a potential decline in your other assets," he said. It "performs when paper does not."
Mr. Nadler is straightforward in his opinion about owning gold bullion, and said "There is no doubt that we remain strong advocates of fully-owned and fully-paid physical bullion. If one wishes to purely speculate, they could entertain ETF or options on gold, perhaps a smattering of mining shares, but that is about it." I couldn't have said it better myself, and God knows I've tried!
And speaking of ETFs, Jason Hommel of SilverStockReport.com reports that the Barclays silver ETF is going gangbusters. "Ominously," he writes "this week, 42 million ounces of silver were bought by the Silver ETF in the first 5 days of trading!" He goes on to note, continuing in the ominous vein, that things are heating up on the futures exchanges, too. "For a long time, only 1% of futures contracts resulted in delivery. Today, it is increasing toward 10% or more, which is growing ominous." Commenting on all of this, he says "The Silver ETF, which is acquiring allocated physical silver, may soon bring the paper silver trading games to an abrupt end." Thus you realize why he uses the word "ominous," especially if you are one of the market-rigging scumbags who is massively short silver as a result of this long-term market-rigging scam.
-- If you wanted real proof that demand for oil will continue to rise for a long, long time, then look no further than Doug Noland's Credit Bubble Bulletin at the PrudentBear.com site. He reports that "China's total power consumption during the first half of this year is expected to increase 11.5%, said the China Electricity Council." Twelve percent increase in a half year! Wow! And where did they get the fuel to produce that power? Oil!
And furthermore, they are building lots and lots of paved roads, avenues, streets, lanes, expressways, turnpikes and thruways, which is highly freaking significant (HFS) because merely creating roads is, as it turns out, the One Sure Thing (OST) to lead to macro- and micro-economic growth. And it takes oil, lots and lots of oil, to power all that construction. And the Chinese will be buying millions more cars per year with which to ride upon these selfsame highways and byways, all of which requires oil. Lots and lots of oil. And you thought oil might one day go DOWN in price? Hahahaha!
But Mr. Noland is not done pummeling us, and instead takes direct aim at my heart with a sharpened rapier when he quotes Bloomberg's Alex Tanzi as reporting "More homeowners received cash from home refinancings in the first quarter, according to Freddie Mac." I leap to my feet in surprise, which was unfortunate, as I was then immediately knocked to the floor with the further news "In the first quarter of 2006, 88 percent of Freddie Mac owned loans that were refinanced resulted in new mortgages of at least five percent more than the original mortgages." Five percent more debt in 88% of mortgage refinancings? Yow! Perhaps this headlong dive into the Lake Of Financial Stupidity explains the fact that the increase in the debt level "was up from 81 percent the previous quarter and is the highest since the third quarter 1990."
-- I would like to take this lull in the festivities to answer a of scenario suggested by readers who are probably a whole lot smarter than I, and seem to have no compunctions about demonstrating the fact, to the un-ending delight and amusement of my family and co-workers.
I refer to the conspiracy to eliminate cash money, and going to a completely electronic money. I declare with my usual Mogambo Supercilious Sneer (MSS) that it will not happen, as only cash is anonymous. Going to a purely electronic debit/credit format would require computer entries for every transaction, and thus there would always be a paper trail as evidence. Oops!
Therefore, there could be no political corruption and graft, no illegal activities of any kind involving money, and the IRS would be able to easily verify every taxable dime made by any taxable entity, including the kids who mow lawns and baby sitters. Like I said; it ain't a-gonna happen.
-- If you think this brouhaha with Iran will one day blow over, wrong-o. Iran wants, and needs, to have a war with the USA. Why? Let me quote from the Milken Institute Journal of Economic Policy. They note that in "1979, Iran's GDP roughly equaled Spain's; it pumped one-tenth of the worlds oil and nurtured a vibrant middle class. Today, per capita income is one-third that of Spain, oil production is down by 30% and the middle class is being squeezed by inflation, unemployment and stagnant wages." And it ain't just the middle class suffering, and by a long, long shot.
In short, the Iranian morons need a scapegoat for their self-inflicted problems just as much as American morons and the loathsome Bush crowd needs one, and for the same reasons; bankruptcy from sheer economic stupidity. And that has always meant war, and I have no reason to think that "this time is different." Ugh.
****Mogambo sez: It's not just you and me buying gold. I saw a report that Chinese economists are urging that China quadruple its gold reserves from 600 tonnes to 2500 tonnes. This is equivalent to about a year's worth of mine output. How's that for shifting the supply/demand dynamic to Mogambo Mega Bullish (MMB)?
But if the Chinese were as smart as they think they are, they would be accumulating silver, which is poised for explosive price rises in the coming years, perhaps even surpassing the price of gold! Buying silver now is your chance to show that you are smarter than 1.3 billion Chinamen!