This article originally appeared at The Daily Reckoning.
-- I was totally, totally unprepared for Total Fed Credit going up only $352 million last week. Less than a half-billion dollars! I mean, if you are going to continue to goose the economy and destroy the dollar with more and more money at cheaper and cheaper interest rates, like the wildly-irresponsible Federal Reserve has been doing for a decade, this is NOT how you do it.
Quickly, I looked to Securities Bought Outright, and it was actually down by $364 million! And Currency in Circulation was also down by almost a billion, too!
Even foreign central banks seem to have paused in their ravenous gluttony for American government and agency debt, and their stash held at the Fed was down $1.6 billion last week. But even so, it's a mere pittance down from the record set last week, when their hoard rose to $1.687 trillion.
Perhaps this has something to do with the article "Reserves underscore China's financial clout" by Andrew Brown of the WSJ. He writes "The latest data from the U.S. Treasury Department show that, as of June 2005, China's public and private sectors held a total of at least $527.3 billion in U.S. securities, including about $450 billion of long-term U.S. Treasury or agency debt. Roughly 70% of the Chinese reserves are believed to be in U.S. dollar assets, 20% in euros and 10% in other currencies, including the Japanese yen and Korean won, according to Brad Setser, an economist at Roubini Global Economics."
This glut of money has resulted in, naturally, inflation, and now "Chinese central bankers also worry that the plentiful supply of yuan is overheating China's economy and causing unwelcome inflation. Asked by reporters last month about the size of the reserves, central-bank governor Zhou Xiaochuan said: 'We think we've got enough.'"
Knowing that, it doesn't seem so odd that Chuck Butler of Everbank reports that an official at the Russian central bank says they are "prepared to begin buying Japanese yen with their currency reserves. Mr. Butler says that when they say "currency reserves", you should "read dollars." Cleverly putting the pieces together, I figure it means that they are getting out of dollars.
Mr. Butler's opinion is that "In the past, those types of statements usually brought a Japanese official out of the wall to strongly suggest that they will not tolerate any strong moves in yen.... (this is a part of the manipulation of the currency). However, last night, Japanese Finance Minister Omi said that Japan 'welcome Russia's decision to raise yen exposure in their currency reserves'.'"
Perhaps this is all part of the "something bad is happening" that has the despicable government fascists (a loathsome, incestuous merging of government and business) trembling, as I gather from the WSJ article, titled "Paulson Pulls for U.S. Markets". Mr. Paulson, the Secretary of the Treasury, is, by virtue of his ascension to the throne, now the head of the shadowy President's Working Group on Financial Markets (which was created by Presidential Executive Order 12631, which, according to the article, "coordinates government policy on financial markets"), and that he is insisting that they meet more often, namely every six weeks!
This whole Working Group thing was originally set up as a fallback, ad-hoc, if-then defense to deal with possible economic emergencies, but now they are routinely meeting every six weeks!! He has even ordered Jim Wilkinson, his chief of staff, to "oversee the creation of a Treasury command center to track markets world-wide and serve as an operations base in a crisis"! World-wide! The American government is moving to take control of the world-wide economy as the result of an anticipated crisis? Yikes!
So a lot of hubbub is obviously being cause by some approaching upheaval, perhaps reflected in something sent to me by good ol' Phil S., which is the GlobalEurope Anticipation Bulletin N°8, which reminded us that last May they predicted that the economy would have a "phase of acceleration" that would begin in June, and it "would be spread out over a period of a maximum six months", which it subsequently did. They said then, and are saying again now, that a "phase of impact will begin in November 2006", and that this impact phase would be "the explosive phase of the crisis."
This "phase of impact" that is due to begin momentarily is, they explain, "a period when a series of brutal crises starts affecting by contamination the total system. This explosive phase of the crisis, which will last six months to one year, will affect directly and very strongly financial players and markets, the owners of investment schemes with fixed incomes in dollars, pension's funds and the strategic relations between the United States on the one side, and Europe and Asia on the other."
Or perhaps it was an item on Reuters that has everyone all atwitter, which reported that the Federal Reserve Bank of Richmond said that "Manufacturing activity in the central Atlantic region was flat to slightly lower in October." Specifically, the Richmond Fed said that its "seasonally adjusted composite index -- its broadest measure of manufacturing activity -- declined to -2 from a reading of 9 in September. Among the index's components, shipments dropped sixteen points to -7, and new orders moved down eleven points to -1. The jobs index trimmed four points to finish at 4." Huge, huge moves in a bad, bad direction!
Or perhaps it was the article titled "Australian Treasurer Seeks Orderly Withdrawal From U.S. Dollar" by John Garnaut, of the Sydney Morning Herald. It starts out that Australia's "Treasurer Peter Costello has called on East Asia's central bankers to 'telegraph' their intentions to diversify out of American investments and ensure an orderly adjustment", as everyone is aghast that anyone in such a position of fiscal authority could be so blind as to not see their clearly telegraphed intentions a long time ago.
Heretofore, "Central banks in China, Japan, Taiwan, South Korea and Hong Kong have channeled immense foreign reserves into American government bonds, helping to prop up the US dollar and hold down American interest rates", which you would expect. But now, according to Mr. Costello, "the strategy had changed" because Chinese central bankers were now up to their Chinese knees in dollars, and are saying things like "How chow do pan ho wan?" which translates as "What in the hell were we Chinese dudes thinking when we decided to take in all these stupid dollars? Does eating Chinese food make us stupid or something?" The article does not address the alarming issue of food-borne stupidity, but merely notes that the Chinese are "now looking for alternative investments."
Nobody should have been surprised by this, as all creditors eventually reach a limit to their loaning money. In the case of my stingy father-in-law, the limit was reached at $345.72. What is causing peals of laughter around here is that this Costello doofus said "Of course you can have an orderly adjustment" in exchange rates and dollar holdings! Hahaha!
I'm cracking up here! "Orderly adjustment!" Hahaha! I am laughing so hard that I am coughing up actual pieces of lung! Hahahaha, cough, hack, hahahaha! "Be orderly!" he says. He might as well have said, "The dollar is turning into crap. So tell us when you are going to dump them, and then we can calmly and patiently line up to take our turn in getting out of dollars, so that the first people in line can escape unscathed, and maybe make a little money, and the last people in line can get screwed royally and end up in the gutter with that Mogambo idiot!" Hahaha! "Orderly adjustment!" That'll be the day!
And speaking of changes, there must be a lot of one-off buying of stuff in Germany, as Mr. Butler reports that "the Germans know that in 2007 a 3% VAT (value added tax) will be put into place." Hahaha! Just the thing that an economy needs; higher taxes! Hahaha!
Desperate for distraction, I was looking at the Market Laboratory-Economic Indicators page of Barron's this week, I was struck by the fact that the 6-month Certificate of Deposit is yielding 5.35%, and how this interest rate is way above almost every other listed money rate in the world.
-- "A Swap Story: Borrowed From The Bank of England", an essay by Rob Kirby of KirbyAnalytics.com, is very interesting. Noting that the Commerce Department reported that "U.S. gold exports rose 55.0% in August from the previous month, and was up 83.0% from the previous year", Mr. Kirby refers to an email he got that contained the interesting point that "With a deficit in gold supply world wide, it is highly unlikely that this is US owned gold leaving the country." If you are like me, then you suddenly have questions, like "Huh? Gold exports are up, but our gold is not leaving the country? How can this be? And how come we can put a man on the moon, but we still can't get a good 25-cent taco?"
The anonymous writer, rudely and foolishly ignoring my Important Mogambo Taco Question (IMTQ), answers the easier question (the gold paradox), by explaining "You should be aware that when a foreign central bank repatriates its gold from storage at the Federal Reserve Bank of New York, it shows up as an export credit in the trade data of the US." Wow!
So, using this fabulous, fabulous technique, when my snotty neighbor comes over here to angrily demand that I return his stupid barbeque grill that I am still storing in my garage after having "borrowed" it sometime last year (or maybe the year before, I forget which), I can now count the entire transaction on the books as a credit to me? Wonderful! Hahahaha!
This is terrific! Now, the next time someone, like my wife, for instance, starts up with me about how I don't make enough money to suit her, or the kids, or her friends, or her family, or the people I owe money to, or even complete strangers who reflexively just hate me for "me being me", I will whip out my thus-adjusted financial statements and shove that big, fat, juicy credit right in her hateful little face! "Chew on that, demon-woman!" Hahaha!
Apparently, nobody is interested in my little victory here, and instead want to know things like "So why are they doing this?" Well, there are, at last count, two prevailing theories. One theory is that the foreign central banks have, to their horror, deduced that "That stupid Mogambo loudmouth (SML) was right! Fiat currencies are crapola! We need to get our gold! And get some more, too! Otherwise, we're freaking doomed!"
The other, more accepted, and probably correct theory is enunciated by Mr. Kirby himself, who explains "You can't blame these ECB banks! When a nation drops habeas corpus and the Geneva Convention, a little matter like theft of other nation's stored gold is not a stretch."
He then Mr. Kirby puts dry numbers on the wet human face, and says "Amazing to think that the U.S. Trade Deficit would have been another $2.5 - 3 billion worse without the inclusion of this 'export', ehhh?"
"Ehhh" indeed, the lying, manipulative, greasy bastards! Well, that's what I think anyway. But Mr. Kirby is far too refined to stoop to screaming insults until his throat is raw and sore, but, instead, makes the same point in a more roundabout way, like using "the words of former Secretary of the Treasury [Clinton Admin.] Robert Rubin as he revealed the motivation or drivers of crisis management in the interaction between himself, Lawrence Summers, the ESF [exchange stabilization fund], the IMF and presumably the Maestro at the Fed - during the Clinton administration.
"On pages 290 - 291 of his book, In An Uncertain World, referencing the Brazilian financial crisis of the late 1990s, Rubin outlines how very expensive 'bad decisions' can buy time. Sometimes, he asserts, these bad decisions have a great deal of merit because they can, '....Probably defer the impact of the collapse for six or eight months, and that will more than justify the effort.'"
Wow! So applying Rubin Theory to a real life situation, suppose I went into debt to buy a new, expensive custom golf bag, a very, very expensive set of golf clubs, and a new, very, very, very expensive country club membership, but I ain't got no money, and ain't a-gonna get any, either.
So, obviously, I need to hide this from my wife for another six to eight months, at which time I will merely declare bankruptcy, start drinking heavily, maybe some drugs, ruin everyone's life, desert the wife and kids, try to collect welfare, get into a fight when they say no, end up in jail and die of a brutal beating from fellow inmates who, it turns out, hate me as much as my family and neighbors. But I get six or eight months of free golf!
So, using Extreme Rubin Theory, if I cleverly kill anyone who knows I have them, then it is worth it, because it bought me some time? Hahaha! Situational ethics at its finest!
Actually, this is an old idea, because if you have ever watched any old Perry Mason episodes on TV, starring Raymond Burr, then you know how many murderers confessed, on the witness stand at the episode's last minute, that they killed someone to get "a little more time!"
Thus life, and politics, and the economy, imitate television? Things are worse than I thought!
-- The good news, I suppose, was that "consumer prices in the U.S. fell last month by the most since November 2005, reflecting a decline in energy costs that may temper inflation in coming months. The consumer price index dropped 0.5 percent in September following 0.2 percent increase in August, the Labor Department said in Washington."
In response to this silliness, I am in the back of the room making rude noises that sounded like flatulence, which may or not have contained actual flatulence (depending on who you are talking to), and which may be what motivated them to admit that "Excluding food and energy, so-called core prices rose 0.2 percent for a third month."
Since no government agents stormed the room and kidnapped anybody to prevent bad news from getting leaked, they apparently felt emboldened to also admit "Today's report also showed that core prices rose at the fastest pace in a decade in the 12 months through September, showing inflation has yet to dissipate."
Still, no government goon squad agents crashed through the doors arresting everyone. You could feel their confidence rising as the report went on to say "Core prices rose 2.9 percent from a year earlier, the biggest 12-month jump since February 1996, after a 2.8 percent gain."
I gulp. By this time, my beady, rat-like eyes are nervously eying the locations of exits, mentally scoping out lines of retreat and the whereabouts of people I can grab to use as a human shield during my getaway.
Feeling stronger by the minute, they reveal "So far this year, consumer prices are rising at a 3.4 percent rate. Core prices are rising at a 3 percent rate, after a 2 percent pace during the same period last year. Food prices, which account for about a fifth of the CPI, rose 0.3 percent in September after rising 0.4 percent the month before."
Gaahh! By this time I am edging my way towards a window I can jump out of, as this is still terrible news! I can't believe that the Bush administration would allow these Labor Department people to keep "poisoning" the American people with their vile, un-American exposure of the truth about the horror of inflation all around us!
Even though inflation is building and building, if you are retired, don't look for Social Security to save you, as "Today's report also suggested retired U.S. workers receiving Social Security benefits will earn about $33 more each month beginning in January, a smaller increase than they received this year. The estimated monthly payment will rise 3.3 percent in 2007, compared with a 4.1 percent increase this year that was the biggest since 1990. The adjustment will bring the monthly average to approximately $1,035 from this year's average of $1,002."
And, out of that $33 a month increase, Medicare Part B premiums will increase $5 a month, dropping the net increase to $28 a month. About four bucks a week. Whoopee.
In a related point, Dean S. who is a pharmacist, writes "In the past, indigent and handicapped adults that qualified for Medicaid benefits were paid for out of state funds, a portion of which were provided by federal funds. Most of those beneficiaries are now in Medicare Part D plans paid by federal funds." And so, even relieved of the expense of medical care for the indigent by dumping it on the federal government, the states are still spending like crazy? We're freaking doomed!
-- Reader Earl M. has calculated that the silver situation is astonishing, as "since 1500 A.D., the number of cumulative refined ounces available per person rose from 3 to 8.1 ounces, but has now fallen back towards 3 ounces per person." He finds it "amazing" that "production has increased 300-fold, yet the silver available per person is headed towards a 1,000-year low."
And it will get worse, as TedBits.com notes that the Barclays Exchange Traded Fund (ETF), which stores and sells shares of a hoard of silver, "has filed to buy and move to the warehouses over 1 year's production of silver." Thus, "There are more buyers and users of silver than silver for sale."
"Who, what, where, when, why?" you exhaustively ask. Too lazy for that crap, as it would involve actual work to find out, I direct you to David Bond, of The Wallace Street Journal, who helps explain who is helping to gobble up all this silver and what they are doing with it. He writes that in the latest Sharper Image catalogue "were the latest products featuring the latest in nano-silver technology, to wit, quilts, bedspreads, pillows, socks, foot massagers, sandals and slippers, all impregnated with silver nanoparticles to keep the bugs, bacteria and (yecch!) mites and mold away.
"Though not featured in this catalogue, everything from household washing machines and refrigerators to commercial water- and air-purification systems utilizing silver as the nonpareil bacteria-killer that it is, are on the market now, in use, worldwide."
As if that were not enough extra demand to fuel a huge rise in silver prices, he goes on to report "The British Army is issuing silver undergarments to its troops in order to cut down on the fungus and bacteria that attack soldiers occupying less-than-hygienic conditions. And now soon yuppies will be pampering their feet with it."
And it gets even more interesting when he reports "One factoid we picked up at the China conference, courtesy of Silvercorp's Cathy Fong, was that silver consumption in China is growing at an even faster rate than China's phenomenal growth in GDP."
Naturally, I ask, "Are they hoarding it so that they make a big ol' freaking pot full of luscious money when silver explodes to the upside? Huh? Are they? Huh?" He coolly answers "It's not because Chinese are hoarding the stuff, though there may well come a time when they will; it's because 300 million Chinese have joined the industrialized middle class, with another 1 billion to go."
All in all, add it up, extrapolate out a few years, and you can't help but go "Wow and double-wow! Talk about increasing demand for silver! Gimme, gimme, gimme!"
-- From Yahoo.com we learn that the Conference Board's leading indicator index "rose 0.1 percent." So the future economy ain't so hot. Next, they go on to report that the "index of coincident indicators, a gauge of current economic activity, was unchanged in September after rising 0.2 percent the prior month." So things ain't so hot, right now, either.
They don't mention the fact that the Lagging Indicator is a sort of measure of inflation, but dryly note that "The gauge of lagging indicators rose 0.2 percent for a second month."
And speaking of inflation, MoneyWeek.com, commenting on the latest inflation statistics from Britain, notes that food stores hiked prices "by 2% in the year to September."
And inflation in prices everywhere is going to get worse, a lot worse, as Puru Saxena of Money Matters newsletter notes that, around the globe, growth in the money supply aggregates, which causes growth in prices, are still going bananas, with Australia up 10.4%, Britain up 13.7%, Canada up 6.5%, the U.S. up 4.9%, and the Euro zone as a whole up 7.4%. Yowser! Run for your lives!
He also notes the interesting fact that "total non-gold international reserves worldwide have grown to US$4.6 trillion today; a 46-fold increase from the 1974 level of US$100 billion!" 4,600%? Yikes!
-- A humorous Hallmark card reflects my sentiments about the Federal Reserve. It reads "I must admit, you brought religion into my life. I never believed in hell until I met you."
And speaking of the Federal Reserve, in a Sound Money column, Doug Hornig tells us that James Turk, of GoldMoney.com, said "We have all been brainwashed by politicians and the media into believing an ugly untruth: that rising prices are inevitable, and that inflation of two or three percent is low." I leap to my feet and shout "Not all of us, Mr. Hornig! I, The Mogambo, say that an inflation rate of 3% is terrible, terrible news!"
"Want proof?" he asks, insinuating that my Stupid Mogambo Opinion (SMO) is not sufficient "proof", the little snot. He then he further insults me by providing the perfect illustration by saying "The numbers don't lie. There are a lot of ways of figuring this, but let's consider the most common way of evaluating price changes, the CPI method. This takes a basket of goods and services that one dollar will buy in a given year and compares it with the cost of the same goods and services in another."
Noting that the Federal Reserve was authorized in 1913 ("A day of economic infamy!"-Mogambo Guru, 2006), it is highly instructive that, as he reports, "In 1913, what cost $1 in 1800 could be had for 79 cents. In other words, the value of the buck had actually increased, by more than 20%. That's pre-Fed. In contrast, what cost $1 in 1913 went for $19.63 in 2005!"
You ask "Why the difference?" Apparently alarmed at seeing me rise to my feet to start one of my long, loud, obscenity-laced tirades about the loathsome Federal Reserve and how much I hate them, hate them, hate them, to the relief of everyone he quickly headed me off by immediately concluding (as I would have, eventually), that "Since the creation of the Federal Reserve, which is supposed to efficiently manage the economy, the dollar has lost 95% of its purchasing power."
I've also heard 97%, and even a few 98% estimates. But they're all more than close enough to secure a guilty verdict and a conviction.
-- Reader Keith B. writes "Capitalism is a voracious beast that devours and is never satisfied. It is merely the rich man's game that separates wealth from the lower classes and concentrates it into the hands of the upper ones."
At first blush you think to yourself "Bah! Communist party-line rhetoric!", but quickly you realize it is not capitalism that is the voracious beast gobbling up the middle and lower classes, but government malfeasance and deficit-spending, as money must flow from the poor to the rich because the rich are the only ones who have enough money to loan to the government to finance the deficit-spending!
So the rich get back all the money they loaned to the government, plus more, due to the interest they collected, and thus they end up richer, over and over again, compounding and compounding. Simple.
And as for the poor and middle classes becoming poorer, well, again, where else could the money have come from, except from everybody else who is NOT rich and who are NOT loaning money to the government, but are instead merely paying money to the government to pay the rich guys?
As Representative Ron Paul of Texas noted, "Once we accept that the federal government needs $2.7 trillion from us-- and more each year-- the only question left is from whom it will be collected."
Welcome to the hell of government deficit-spending and the gaping income disparity it produces, dudes! And this doesn't even mention the inflation in prices caused by the damnable Federal Reserve creating the extra money to finance it all, making it get worse and worse, faster and faster! Gaaahhhh! Overcome, the mighty Mogambo sinks to his knees in utter despair, and weeps piteously at the horror.
"And," says The Mogambo, his voice resonating in a manly, husky whisper (MHW) between sobs of heartbreaking pathos, "the longer it goes on, the rich get richer, the poor get poorer, and they all pay higher and higher prices all their lives."
The curtain falls. The audience hated it. The reviews were bad. Ugh.
****Mogambo sez: Even through the steel-reinforced concrete walls of the Big Blooming Mogambo Bunker (BBMB) I can almost feel the coming cataclysm, and pity those who have not moved their money into silver, gold and other commodities, especially oil, or have otherwise bet against the dollar and the preposterous U.S. economy.
But they will soon learn a valuable lesson, as have all stupid people who have foolishly entrusted a government to issue fiat money, and as have all stupid people who have foolishly allowed the banks to engage in such preposterous amounts of fractional-reserve banking, and as have all stupid people who have foolishly allowed their governments to grow so large as to actually become their economy.
And it is a cruel lesson that their children will learn first-hand, too, and their children's children will learn second-hand. So there is, I suppose, an upside to it all, if increasing national smarts can be counted as increasing national wealth. Cold comfort, perhaps, but maybe better than nothing, which is what they deserve, and will get.