Foreigners have kept on jumping in and rescuing us, and on behalf of the American people I say "thank you," and last week they soaked up another huge $9.6 billion tranche of US debt at the Fed. The Fed itself decided that the party looked like so much fun that they took $1.4 billion of US debt, printed up the money to buy it, and then ran the debt through the shredder. Thus, they magically reduced US indebtedness, and in the process increased both the money supply and the confetti supply. And immediately after they committed that obvious fraud, they all sat around wringing their hands and wondering why the Mogambo does not trust them.
The banks, wondering what to do with all this money that has just turned up, as if by magic, actually found a few cubbyholes that could stand some filling, so they decided that what they would do is buy up $14 billion of US debt in one week, too, as those juicy less-than-inflation yields seem so strangely appetizing. They spent $14 billion to lock in some squat yields. Nice going, chumps.
John Crudele, writing in the NY Post, is one of those bright guys who know, by dint of unassailable proof, that the government is a lying bunch of weasels (LBOW), and has cast his jaundiced eye at the latest report of job creation. "By now my readers should have a PHD (pretty high disdain) for Capitol Hill math. This one, though, is a cake taker. I'll translate: Included in the 112,000 new jobs in January were 76,000 jobs that supposedly exist because people who weren't hired in December couldn't be fired in January. Got that? They didn't get hired in December, or fired in January, so they showed up as new employees in January as a statistical fluke. So, really there were only an abysmally small 36,000 new jobs in January."
Jim Puplava, writing on the website Financialsense.com, is also taking a look at the government lying when they bleat about how inflation is so wonderfully low. It is, in a word, not. Low, that is.
In fact, in the very first paragraph at the head of his essay, which is entitled "Looking for the Next Bubble," he writes "Inflation is everywhere." He makes hay with the observation of the Iron Law Of Economics (ILOE) that inflation is, at root, "an increase in the quantity of money and credit relative to available goods, resulting in a substantial and continuing rise in the general price level, an increase in the quantity of money caused by government."
But he then goes about "You will notice that this definition doesn't say anything about cost-push, profit-push, or crisis-push inflation." Yeah, I noticed that.
"It has been one reason why job growth in this latest recovery has been so anemic. Money and credit are no longer going into the real economy in the form of new investment in plant and equipment which would create new jobs. Instead credit and money creation is fed into the financial markets leading to multiple asset bubbles in the stock and bond markets and real estate."
In more prosaic terms, the government prints up the money, and then the money finds its way into the economy, and the excess of money and credit causes prices in some things to rise, and that will make the prices of other things rise, and then, back and forth and round and round, they make all prices rise. An old, old story. And a sad, sad story. An old, old, sad, sad story. Although this is all news to the Fed, of course, who are still under the impression that their gigantic brains are enough to negate any and all Iron Laws of Economics (ILOE).
One direct way that all this money causes inflation, of course, is when this humongous glop of money pounded into the economy causes the currency to fall in value, as is happening right now. And for proof of that, the latest reading on import prices is that they, and I use the word chosen by the Wall Street Journal, "soared" in January, as the prices of imports, and here I again use the word "soared," soared 1.6% in one month.
Now, I will not repeatedly embarrass myself by trying to multiply 1.6 percent inflation in one month times twelve months, but I can tell you, on an annual basis, and I will do this off the top of my head in a kind of flip, off-hand-remark kind of way that is supposed to be boyishly charming and make me look like I know what I am talking about, but that it is a hell of a lot more than Greenspan saying that inflation is "low." A HELL of a lot more!
It would have been worse than this, but, quoting again from the WSJ article who, in turn is quoting Alan Greenspan, and you are going to love this, "the impact of the falling dollar on import prices has been muted by importer's use of currency hedging and their acceptance of narrower profit margins."
But before you get lulled into the same idiotic complacency of Greenspan, let me remind you that the "importer's use of currency hedging" means that the brunt of the damage was borne by the morons who took the other side of the hedge, and so, in aggregate, somebody lost every dime. Not the importer, supposedly because the hedge saved him. But the guy on the other side of the hedge, who made up the losses of the importer, is probably looking at Alan Greenspan saying this, and muttering something obscenely disrespectful under his breath.
And as for the benefits of "acceptance of lower profit margins" only a clueless doofus like Greenspan, and I really like that "clueless doofus" phrase for its sheer poetry, could possibly imagine that lower profit margins is something that is not a horror.
Of course, I will not mention the bad news that the trade deficit jumped 11% in one month, or that our exports of goods and services fell.
The end result of decade after decade of this American brand of economic and financial idiocy is that, as Mr. Puplava puts it, "The U.S. economy has morphed from a manufacturing economy to a service economy and finally to a financial economy consisting of multiple asset bubbles."
An economy based on leveraged betting. How special.
And it gets even better, as the latest result of the international comparison of the educational competence of children, we are now eighteenth from the top. But we managed to edge out, so I heard, Latvia. The American kids that are going to lead us to a brighter and brighter future, with higher and higher standards of living, through the sheer power of their American high-powered brains, is falling farther and farther behind.
The good news is, I guess, that I now publicly admit that I am not above sarcasm, and in my most sarcastic voice let me say how happy I am that the SAT tests may be revised again next year, and they will doubtlessly "norm" the results so that the scores go up, and make it look like the students aren't getting dumber and dumber, and more ignorant, by the day, although they are. And this is not the first time that the scores have been "normed," in which the raw scores are "adjusted for quality" or something. If we knew the truth, we would all probably plotz right here.
David Tice, writing in the annual report of the Prudent Bear funds, writes "Our analysis of the current macroeconomic environment convinces us that our system is in the midst of a final episode of credit and speculative 'blow off' excess."
And why is all this rampant credit and spending happening? Because the economy is in a funk. And the reason it is IN a funk is clear as a bell to me and Ron Paul, our main man in Congress; "The unwillingness to blame the slumps on the Federal Reserve's previous errors, though the evidence is clear, guarantees that greater problems for the United States and the world economy lie ahead." Why does it guarantee future problems? Because the boom came from the Fed, the boom caused the ultimate slump, and now the Fed is supposed to produce another credit and money-fueled boom that will prevent any more slumps? Hahahaha! I'm laughing like a hyena here!
But Mr. Paul does not stop there. How refreshing it is to have one member of Congress so hip to economics that he will write, "Failure to admit and recognize that fiat money, mismanaged by central banks, gives us most of our economic problems, along with a greater likelihood for war, means we never learn from our mistakes."
But Mr. Paul forgets that we are Americans, and it is axiomatic that we do not learn from our mistakes, and one only has to look at the parade of putzes that we have elected to Congress year after year to find the iron-clad proof. The same putzes, I might add, who have deliberately legislated the means by which the central bank has ruined us.
Gordon Rollins, a reader with a gift of wit, writes "Communism failed because it could not produce the goods and services to support itself. Meanwhile, fiat-currency based capitalism fails because of the opposite problem: it produced so much that the society hangs itself on mountains of debt from frantically buying all it can ever want. So, one system dies of starvation, while the other dies of gluttony."
Mr. Rollins has cleverly laid it all out in one short paragraph, and one immediately sees that the end result of both systems is something about things dying. And perhaps, and I'm just throwing this out for discussion, just maybe that explains why the history books are so devoid of successful examples of either one.
I got one of those flyers in the mail that asks me to subscribe to an investment newsletter, and how if I will only get up off my lazy butt and send them a check to get on their subscriber list, then I will show my true genius, and will make oodles and oodles of money following their sage advice, and will end up wealthy enough so that I won't have to whine about how I don't have any friends, because I will be able to hire as many as I want. Nobody believes that last part, as most people would rather starve to death rather than be nice to me, but the flyer included one terrific quote from none other than Lord John Maynard Keynes himself, and I will fill up a little space here and quote it, and him, exactly, because it shows that he was not a complete dunderhead. "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
Well, that "one in a million" thing may have been true at one time, but it is not true anymore, because all of us out here now recognize it at a glance. That is why the Congress and the Fed are being so careful NOT to debauch the currency by printing up so much of it, and, and, hey! Wait and minute! I've lost my mind! In fact, the latest infrared satellite telemetry shows that the area around Washington DC is glowing red-hot from the heat of all those printing presses cranking out money by the ton.
But since the Fed and the Congress are such big fans of Keynes, and Gregory Mankiw actually named his dog "Keynes," you think that at least ONE of these preening prom queens would have read that pithy quote of their own hero, wouldn't you? Apparently not.
You may not know who Porter Stansberry is, but you should, and one reason is that he doesn't waste a lot of time with excess verbiage. As an object lesson, here is his latest: "What should we do when individual investors are wildly bullish, but insiders are selling at a record setting pace? It's simple. We sell the market. Regards, Porter Stansberry."
The steady drumbeat of the whining about jobs being lost to China and India is still reverberating in my head, and you can hardly turn on the TV without some guy in a suit predicting an apocalypse unless steps are taken to "save America's jobs" and blah blah blah. I am reminded of the seminal book by Henry Hazlitt entitled "Economics in One Lesson," although it is a whole book, and so the concept of "one lesson" seems preposterous, and when you look inside the book you will immediately notice that there are no pictures, but there are lots and lots of chapters full of nothing but words, although most of them are short. But that doesn't detract one iota from my original complaint, which is how in the hell a whole book can be considered one lesson, and then that brings up the fact that I am an American and I want things easy, preferably in pill form, and cheap, and instantly available 24/7.
But once you read the book, and I take a lot of pride in the fact that I DID read the book, and now the aggregate total of books that I have read is, let me check those figures again, one, which is more than none, although the number of books that I have read AND understood still stands at zero, you finally understand what he is trying to say. In fact, he was so sure that the Mogambo would NOT understand what he was trying to say that he took the time to actually state the whole lesson thing right near the beginning, page 12 to be exact, and I reproduce it here for you. "The whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate, but at the longer effects of any act or policy; it consists in tracing the consequences of that policy, not merely for one group, but for all groups."
So, the lesson, or as Mr. Hazlitt might say, The Lesson On Page Twelve, consists of thinking beyond the immediate concerns of the complainers. In this case, the jobs going overseas will give those foreign workers an income, which they will use to, theoretically, buy US exports, and so jobs will be created here. And the cheaper goods that these foreigners make means that you can still fill up your shopping basket on payday with all the things you want, and still have money left over with which to buy more things, because things are being produced so cheaply by foreigners. And buying more things is, at the root, the meaning of the term "rising standard of living!" It's a win-win!
And the devaluation of the dollar means that there will be more and more foreign people who can afford to come here on their vacations, and so there will be a growth industry in package vacations, translators and foreign language schools, escorts, hotel accommodations, car rentals, tour guides, tourist attraction maintenance and construction, and all that stuff. And, if Tom Arnold, star of stage and screen and erstwhile husband of Roseanne Barr, has any insights worth considering, then these foreign visitors will want what Tom thinks are the ingredients for a great party, and I quote, "Hard liquor, handguns with live ammunition, and pony rides for the kids." So say goodbye to the old jobs, and start your own distillery, buy the shares arms manufacturers, and load up on pony futures! It's the wave of the future!
But poor old Gregory Mankiw, the president's chief economic adviser, chairman of the White House Council of Economic Advisers, the Big Cheese of Financial Wheeze, correctly said that the outsourcing of jobs was "probably a plus for the economy in the long run." Apparently, this remark angered Democrats, who not only cannot comprehend Henry Hazlitt's One Great Lesson of Economics, but take their simpleminded stupidity to new heights and who now "see unemployment as a key battleground in this year's presidential election."
Five decades of bigger and bigger government was never a "key battleground." The ruination of the dollar was not a "key battleground." The eye-popping overproduction of money and credit by the Fed was not a "key battleground." The decimation of American manufacturing was not a "key battleground." The production of bubble after bubble was not a "key battleground." Debt loads growing to record-setting levels was never a "key battleground." But now, after the damage has been done, suddenly one of the inevitable results of their inattention is a "key battleground." Fabulous.
The Washington Post, in an editorial, to their credit notes that "Mr. Mankiw is right." So what happened? Typical government elected yahoo reaction: They all attacked him.
Speaker J. Dennis Hastert of Illinois, who has the Latin-sounding title of "Moronus Maximus," oops, I mean, is the top Republican in the House, joined with the Democrats to pass legislation that Mankiw could be shot on sight, well, not really, but you know what I mean, because he said that the movement of American jobs to less expensive sites overseas could possibly have any - say it ain't so, Joe! - economic and trade benefits. Another prattling Congressional doofus named Burr actually called for Mankiw to be fired! Fired! Tip to the electorate: get out your calendars, and turn to November, and make a note to vote against both of these guys on election day, because both of them are obviously woefully unqualified to hold any position of authority, much less Congressperson.
Mr. Hastert even stepped up to the microphone and said that he understood that Gregory Mankiw, was a "brilliant economic theorist. But his theory fails a basic test of real economics. An economy suffers when jobs disappear." Apparently Mr. Hastert is bright enough to see that you usually need a job to buy things, but he is woefully short in the smarts department when he does NOT see that the jobs disappearing are the direct result of him and his moron friends passing ridiculous legislation year after year, decade after decade, so that, finally, after enough asinine, crushing legislation has been passed, moving jobs overseas becomes the only way for a company to keep from going absolutely bankrupt..
He was getting ready to go into more of his, and I will say it in pig-Latin so as to not offend the ears of children who may be nearby, apola-cray, when suddenly the assembled reporters were scattered as the Mogambo Mobile pulls to the curb in a controlled four-wheel slide, horn blaring, brakes locked up, tires screeching on the pavement, trailing clouds of burnt rubber, middle fingers raised. Springing from the driver's seat and deserting his stunned and dazed passengers, the Mogambo leaps onto the top of the Mogambo Mobile. Shunning a microphone and P.A. system, Mogambo the Magnificent raises his mighty stentorian voice to shout, "And just who, Mr. Hastert, CAUSED the loss of jobs? Hmmmmm Who? Hmmmm? Who?" And I keep saying "Who? Hmmm?" over and over, and pretty soon all the reporters and anchor people from the major networks are all saying in unison, like some ghostly and demented Gregorian chant, "Who-hmmm-who-hmmm-who-hmmm-who?" And he knows by the way I am drilling into him with an icy penetrating stare that sees into the foul recesses of his very soul, and that can only come from the fabled Eyes of The Mogambo, that I am talking about him. Watch him squirm beneath my glare ! Hahahaha!
And that is why Greg Mankiw is where he is, and I am where I am, because if this Hastert fella had said that about me what he has said about Mr. Mankiw, when Mr. Mankiw is exactly right, and therefore I would also be exactly right, then the six o'clock news would have had a real field day as their cameras caught on tape the sight of the Marauding Mogambo coming down those steps three at a time, cape flying in the wind, teeth gritted in controlled anger, grabbing that little Hastert squirt by the head and throwing him to the ground, taking the microphone cord and wrapping it around his scrawny little neck and beating him on the head with the microphone, shouting the whole time, "Die, you ignorant little bastard! You are too damn stupid to live!" And then the audience watches in rapt fascination as Patriot Act security goons swarm all over me, whisking him away, with him massaging his bruised neck and battered head, and me being restrained by grunting burly and surly men in black suits trying to drag me into an unmarked black helicopter as I am shouting after him "Let me at him! This isn't over Hastert, you ignorant, lying piece of dog crap! Not by a long shot!"
Because it is Hastert and his little Congressional playmates that have passed so many stultifying laws with which to suffocate the American economy, spent so much money and twisted the tax code to try and make up for passing the onerous laws, and then the Fed has printed up so much money, so very much money, so impossibly much money, so horrifyingly much money, so terrifyingly much money, to pay for it all, that there is nothing left for Hastert and his nasty little friends to do except parade around saying terrible things about people who say inconvenient, yet truthful, things just before an election. Therefore, the Way of the Mogambo is to move to Illinois, register to vote, and then leading a crowd of loud, angry townspeople to the polls to vote against Mr. Hastert this November, throwing him out of office, and then he can join me in living our lives in bitterness and anger, reviled and rejected by the world, and then we'll see how he likes living in the America he made, what with all that irresponsible fiscal stupidity. And if you are from Illinois, then you don't even have to move there to do that! So what could be easier? Remember: Hastert is out, and so is Burr.
But, Mr. Mankiw showed that he is a gutless little coward and loves his little job, and issued an apology, instead of going on the attack like the Mogambo would, screaming into microphones that the critics are ignorant bozos, and as such should be ignored at best, and run out of town, pursued by angry mobs brandishing flaming torches, at worst.
Greenspan was on TV testifying before Congress, which mainly consisted of jackass Congresspersons demonstrating that they are either clueless, or that they couldn't care less, since they are there at the testimony apparently only as a welcome respite from their regular duties of spending us into the poorhouse, and passing more and laws that make living in American more and more unpalatable and uneconomic.
Now, to tell you truth, I did not hear much of the testimony, as I usually get so angry at the vapidity of the questions or the glib evasiveness of Greenspan's answers, or the outright lying, or his saying that he does not want to discuss this in public and how the questioner ought to drop by his office so they can close the door and that Greenspan can tell him how things really work, or maybe he would prefer to have some of Ashcroft's Patriot Act armed-and-armored agents drop by the Congressperson's house, late one night, so that THEY could explain it to him, if you catch his drift, and so I usually just stop watching the damn show, and missed most of the testimony. Almost all. I hate it.
But Mr. Eavis says he watched the testimony, and Mr. Eavis is the Senior Columnist for theStreet.com, and he wrote a nice piece about Greenspan's testimony, which he entitled "Probing Greenspan's Easy-Money Madness." With a title like that you know he is probably as dyspeptic as I am about the whole thing. He writes, "But one line in Greenspan's testimony Wednesday shows that he is unfazed by the soaring debt levels of the U.S. He said: 'All told, our accommodative monetary policy stance to date does not seem to have generated excessive volumes of liquidity or credit.' "
If Mr. Eavis says that this is what Greenspan says, then I have no reason to doubt him. So I'm going to believe him, especially since Greenspan has already proved that he is unreliable, and will lie to me just for the sake of lying, as far as I can tell, like when I finally get through to him on the phone, and as soon as he hears my voice he says "This is a no Mr. Greeniespan. Him gone. Me clean office plenty fine, chop chop" and then he hangs up, but I know it was him. He isn't fooling anybody.
But I can see how he figures that he IS fooling me, since he does it every six months in front of Congress, who are supposed to be so bright and trustworthy and educated and upholding the Constitution, and the only one who really seems to fit that mold is Ron Paul of Texas, who is one of the only guys I send money to as an election contribution, even though I am not from Texas, but I have been IN the state of Texas a couple of times, and own a really comfortable pair of cowboy boots.
And speaking of Ron Paul, and this is an object lesson to all the other members of Congress, he is running unopposed in his district. So well-loved and respected is he for his staunch belief in sound money and limited government and low taxation that no Democrat is willing to challenge him! None! How comes this makes no impression on our other elected Congressional ignorant yahoos? Because they are, as revealed in the question, ignorant yahoos.
But the productivity thing just won't go away, and it has as much credence as another of Greenspan's follies, namely that inflation is so low that it doesn't even register on the old Inflation-O-Meter.
Let me give you the scoop on that idiocy, namely that inflation is low, but it is too easy, as it can be successfully dismissed by anybody in the whole freaking country who has spent money, as the prices of everything are up, and many of them spectacularly so. So we have proved that he is a clueless weasel about inflation.
Now, let's attack him about this productivity thing, but we are again stopped at the front door of the Fed by some tough-looking security guards, so we turn around and decide that we will confine ourselves to attacking him verbally, and by that I mean in writing, so you can see how confused I am in my anger. But even in my current fugue state, and I am sure that I am using that term in the wrong way, I obviously have a lot more on the ball than this Greenspan fella.
Anyway, suppose you, as a successful capitalist swine, hire a hundred guys to make a hundred widgets, and sell the widgets for a dollar apiece, and thus GDP is $100. So far, so good. Then a few days pass, and we wake up with a blinding headache in a strange, seedy little hotel on the outskirts of town with a one-eyed woman who says her name is Darla, and when we frantically call in to the office, we find that you raised the price to two dollars, and you also figured out a way to make widgets with only fifty employees! The hike in price, unfortunately, reduces widget sales by 25%. But GDP jumps to $150! And because you fired half the employees, labor costs plummeted, and the next thing you know Alan Greenspan jumps on an airplane and flies down to visit your factory and give you an award as Proud Poobah of Productivity, which you deserve because productivity has soared. In the old days, it took a hundred guys to make a hundred widgets. Now it takes only fifty guys to make seventy-five widgets, and you doubled the price to more than make up for it. You're a genius!
But unemployment is up by 50%, total sales volume is down, and inflation has soared to 100%. Only a Fed chairman as clueless as Alan Greenspan could possibly see just an upside in this.
Richard Benson, who publishes Benson's Economic and Market Trends, wrote a very interesting essay entitled "Debt vs. Income: At the Point of No Return." One of the most important things, to me anyway, since it is so simple and I like simple things because I am a simple man and that's why everybody thinks I am a simpleton, wrote, "Last year, personal income increased about 2%. Individual debt increased about 10%."
"What is perfectly clear from simple arithmetic is that without a sudden increase in the number of jobs and the wages they pay, individual debt can not be serviced by personal income. Worse yet, not only are people not saving, but their financial reserves are not in real cash. The only thing keeping the 'national Ponzi scheme' going is the illusion of wealth created by the Federal Reserve's low interest rates and liquidity that has allowed stock market valuations and housing prices to artificially inflate."
Philip Spicer, handsome as ever, sent the following, with the header "Some things never change" and it shows the truth of that statement. "The national budget must be balanced. The public debt must be reduced; the arrogance of the authorities must be moderated and controlled. Payments to foreign governments must be reduced, if the nation doesn't want to go bankrupt. People must again learn to work, instead of living on public assistance." The quote is attributed to Marcus Tullius Cicero, circa 55 B.C.
A little later, he sent me an updated version, as an historian appended that to note that, yes, some things never change: the government killed him.
I'll tell you what was spooky. One day last week, when I am just minding my own business, going through the motions of the normal routine, and the next thing I know, I'm running down the street screaming in fear, and banging on the doors of neighbors, and when they make the mistake of opening the door in response to my repeated knocking, and ringing of the doorbell, and kicking the side of their house, and peering in the windows and yelling "Hello? Hello? I can see you in there! Why won't you answer the door?" then when they do finally open the door, then I'm grabbing them by their necks and screaming in their faces, yelling that "Alan Greenspan has just testified that he sees no evidence of excess liquidity! Do you know what this means? Do you?" By this time my voice has risen an octave and gradually working to higher and higher decibels, and in my unfathomable rage I'm spraying their faces with flying specks of spittle. "Do you understand me?" I'm screeching. "Do you have any idea of the profound and horrific consequences of a chairman of the central bank to say that he sees no evidence of excess liquidity? Do you, you pathetic little worm? DO YOU?" And by this time my grip on their necks has tightened in my primordial fury, cartilage snapping, and they are having a hard time breathing, and their eyes are bugging out, and pretty soon the parents come rushing up, all huffy and concerned, and demand that I let go of their little brat, and then I do, and I turn my attention to them to start from Square One to explain it to them, but they will not listen to me! They grab the kid and drag it back inside and slam the door! Slam the door!
And then next thing I know, "professionals" with badges and awesome powers over me are wanting to know why I grab people by their throats, and I gotta patiently explain to these Neanderthals that if I don't, then they just slam the door in my face! And then how are they going to learn? Answer me that: HOW WILL THEY LEARN? And then I cross my arms and sit down with a look of smug satisfaction on my handsome face, the wisp of a smile curling the corners of my sensuous mouth. And they just look at each other in, I assume, puzzlement.
Like I said, Neanderthals.
So imagine my shock when I am waiting for the judge to say "Oh, so it's you again" and blah blah blah, when I read Doug Noland's column at the Prudent Bear website, and he is saying the same thing. Except he is able to put in it words, such as "He certainly knows better than to claim M2 as a contemporary indicator of liquidity, and Dr. Greenspan is also well aware that the greatest Credit excesses emanate these days from non-bank sources (GSE, MBS, ABS, Wall Street firms, captive finance, foreign central banks, etc.)."
See what I mean about being spooky? We're upset about the same thing! Anyway, Mr. Noland goes on to say, "I'm taking you down, Greenspan you old fool!" well, not really, but he DID say, "As for indicators of excess liquidity, we can begin with collapsed corporate spreads, surging stock prices, major equity fund inflows, the California Real Estate Bubble, $1 Trillion of 12-month mortgage debt growth, record total Credit growth, 4% 10-year Treasury yields, unprecedented marketable debt issuance, record junk and emerging market debt sales, $34 crude oil, surging prices for metals and many commodities, a dollar index near 7-year lows, and rampant speculation in myriad markets at home and abroad."
Whew! I would have added something about $44 trillion in promised government benefits and liabilities, and, oh, about probably somewhere around $150 trillion in weird derivatives action worldwide.
This brings up an interesting point of interest. Mr. Noland says "The greatest Credit excesses emanate these days from non-bank sources." I say no, they don't. I say that the money to pay for the non-bank asset has to come from someplace, and so a net increase in non-bank credit here, means a net decrease in some other non-bank credit there. There is no net increase in squat.
I say this because only the fractional banking system can create money out of thin air. Everybody else's balance sheets have to, as the term implies, balance. Money and credit does not come instantly from thin air; springing as it were from the fabled shimmering Pool Of Liquidity, which is a lost lake atop Mount Olympus where the ancient gods dwelled and went skinny-dipping and thought up tricks to play on people. Money and credit in the private, non-bank sector, come only from an offsetting entry on the other side of the ledger.
And I say this with utter, utter confidence, and I further say that this is my ticket to either a Noble Prize or a Pulitzer, as I am the first guy to stand up and say, "No!" Because, and believe me as a guy who has spent his entire life looking for The Easy Way Out, instantly increasing my money is the Ultimate Easy Way Out, and so I have spent an inordinate amount of my life looking for a way, thinking about a way, researching for a way, coming up with some possible way, to instantly increase my money.
I also spent, as an aside, a lot of time devising perpetual motion machines, to similar avail, and looking for a love potion, which didn't work out either, as evidenced by the fact that I am still unloved and universally despised, and all the other people in my social group won't even get in the same dumpster with me, no matter how rich the pickings. But I spent most of the time looking for, as you probably surmised, that money thing.
So I am somewhat of an expert of the subject of how to increase money balances, and that is why I can stand up and say, "Hello. My name is Mogambo and I have an anger management problem." No! Wait! What I mean to say is, that if someone COULD come up with a way for me to legally increase my money, then I would be a happy camper (HC), because then I could hire guys to guard my perimeter for me, and then I could let THEM get all involved in the legal system when the odd bystander is caught in some unfortunate crossfire incident, and let THEM try to explain to the judge that the intruder, excuse me, I mean "allegedly innocent victim," would have easily made it safely into the Neutral Zone if they had just shown a little more hustle, so who is the real victim here?
And I will go farther than that! I will also confidently say that if YOU could find a way to instantly increase YOUR money, YOU'D be a happy camper (HC), too. If EITWFC, which is, of course, an acronym for Everybody In The Whole Freaking Country, had a way of instantly increasing their money, then we would derive the acronym EITWFCINAHC, which is Everybody In The Whole Freaking Country Is Now A Happy Camper.
But, and I say this as a guy who does not often venture outside of his house because he finds that all people are spooky and scary, and the society that they have fashioned is incomprehensible and bizarre, that there are probably not more than a few dozen people in the whole USA who are "happy campers," and the rest are almost undoubtedly homicidal lunatics who are out to get me. And would probably give you a good whacking, too, if they cornered you in an alley, so watch your back.
So I say, with confidence, that it takes a Federal Reserve to create credit out of thin air, and there is no way (NW), or better yet, no freaking way Jose (NFWJ) that us ordinary folks can perform that trick. Just the Fed and the banking system. Or, on those odd minutes of the day when the Federal Reserve people are all receiving their medications and taking their naps, a Treasury that can create money out of paper and ink, or the flip of a switch.
But Doug is not through with Greenspan yet. "Accordingly, the acquiescence of leveraged speculation ranks near the very top of the list of the radical Fed's most grievous errors." In this he is exactly, and I mean exactly, right. It is one thing to want to engage in dangerous leveraged speculation, and as a guy who has actually plunked down real United States dollars on a nag that went off at 100-1, believe me when I tell you that there are lots and lots and lots of guys out here who would absolutely adore engaging in some highly leveraged speculation. But unless some brainless dolt loans you the money, you can't do it. In that regard, we have Greenspan, the biggest brainless butthead on the planet, as far as I can tell, who has spent his entire time as chairman of the Federal Reserve providing not only all the money required by anybody to engage in the most fantastical and obscene leveraged speculations of every stripe, but is still doing it even as we speak! Even as we speak!
Greenspan also says, "Because of the fact that we are un-elected officials, it is mandatory that we be as transparent as we conceivably can. And remember that we are accountable to the electorate and to the Congress." So how can a guy who is un-elected be held accountable by the electorate? Huh?
But Greenspan is not through sounding stupid, and when I say "stupid" I mean this as a shorthand way of saying "horrifying, and you ought to be gathering up your pathetic few ratty possessions and moving out to some higher ground that can be easily defended," but not content with that, he goes on to plunge a dagger into my heart when he adds that he figures that he will adhere to, "...principles of the Constitution of the United States more so than one would ordinarily do." The Constitution is something that does not require adherence to principle, unless it is convenient? Gaaahhhh! Who the hell ARE these damn people?
In an article of the Executive Intelligence Review by Richard Freeman, entitled "Debt Overtaking Not Just U.S. Households, But National GDP," Mr. Freeman writes "However, a more precise measure would be to compare debt to the productive portion of GDP, which consists of the productive output of the manufacturing, agriculture, construction, mining, public utilities, and transportation sectors. According to U.S. Commerce Department data, the productive portion of GDP is less than 30% of total GDP. The productive portion of the economy produces the actual wealth from which, ultimately, the debt is paid off."
Mr. Freeman is one of those guys who are, like me, still under the impression that the output of the country should be concerned with people making and buying and selling things that they want. How old fashioned we are! Quaint, even.
Now here comes the part that ought to set you brain on fire. "The Commerce Department reports the 'manufacturing sector of GDP' in dollar, not output terms; and it adjusts it by the notorious 'Quality Adjustment Factor,' which artificially overstates production." So there, in one compact sentence, is proof that the government is a pack of lying, stinking weasels! I mean, check this out: prices went up! So GDP went up! But the inflation is actually backed out by discounting for supposed "quality improvements," so there is no more inflation, even though it was the inflation that produced the rise in GDP in the first place! Three lies in one! The brain reels! And while we are up to our knees in this stinking swamp of lying and deception, where is the media? Where is our vaunted "watchdogs" exposing government abuses, and leading editorial campaigns to force honesty in government?
As an example, if your economy produces ten widgets at a buck apiece, then GDP is ten bucks. And if your economy produces ten widgets at two bucks apiece, then GDP is twenty dollars, twice as big. And if the government notes that the new widgets have fancy hubcaps this year, then the quality adjustment means that GDP is even higher, maybe even three times as big!
Mr. Freeman goes relentlessly on, even as we beg him to stop, and thus end our torture. In the '80's "For every dollar of increase in productive GDP - which we here call real GDP - there was a $4.25 increase in debt; throughout the 1990s, for every dollar of increase in real GDP, there was a $13.90 increase in debt. However, in the 2001-03 period, when real GDP, even in its statistically massaged form, stagnated while debt grew hyperbolically, each dollar of increment in real GDP required a $63.51 increase in debt."
But not content with that, Mr. Freeman extrapolates beyond that, and notes that this whopping increase in GDP brought about by juggling the numbers and making assumptions about quality, "This signifies something else: The U.S. economy's current indebtedness can never be paid off out of the real productive portion of the economy."
But the amount of money necessary to just pay the interest on all this debt at the end of the month is a big wad of cash. He notes that "This debt service of $8.09 trillion and rising, cannot be paid. Were it to be paid out of GDP, it would require siphoning off three-quarters of the national product. Moreover, it would require siphoning off the equivalent of 2.5 times the productive portion of GDP (real GDP). The debt service requirements are so large that they could not be met: There would not be enough GDP left over to sustain human existence, by providing the market-basket requirements of enough clothing, housing, food, etc., and a sufficient amount to pay the debt."
So what does this mean to you and me? "A system is bankrupt when the debt-servicing requirements exceed its wealth generation, so that an individual or entity cannot pay back the debt service and meet the needs of human existence at the same time. The United States is bankrupt." Now if it was me, I would have inserted a long pause for emphasis, thusly: "The United States is (pause) bankrupt."
But bankruptcy is not an automatic thing, since hotshot managers and desperate executives will find ways to keep the thing going as long as they can. To that extent, "Some of the debt will be 'rolled over' i.e., refinanced with new debt, which swells the debt bubble even further. However, the Wall Street financiers can, and do, take measures to collect a significant portion of the debt service through extraction: They loot the population through fierce austerity; they do not replace run-down plant and equipment, etc. This is destroying the underlying physical economy upon which life depends. As the world financial disintegration increases instabilities, a spike in U.S. interest rates, a wave of defaults on over-priced homes, will ignite the $36.85 trillion debt into conflagration. The debt bubble has built into it the causes of its own destruction. The debt bubble's upward flight is nearing an end."
In a similar vein, Peter Eavis of theStreet.com is, along with me and Mr. Freeman here, aghast at the Bush presidency, and writes, in an article he entitles "Spending like a Drunken Democrat," the immortal line "George W. Bush will be remembered as the president who bankrupted America."
Martin Weiss of the Safe Money Report is no stranger to dyspepsia, and he writes "We Owe Foreigners at least $4.6 trillion. But the truly big threat comes not when foreigners stop lending us new money. It comes when they decide they want some of their OLD money BACK."
Dan Denning is a guy who got his job as the editor of Strategic Investments because he has a good idea what in the hell he is talking about, and writes "The end of the dollar standard in coming. But a lot of people have a vested interest in seeing it continue. They are not ready to switch from a world dominated by the U.S Consumer and U.S Treasury debt to...whatever comes next."
And that is why the world has a continuing fascination with US assets. There is nothing available to go into right now. That is why he figures, while stocks may well decline in the first half of the year, mostly because they are so damned overvalued already, that bonds will advance. "It will not be a shift out of the dollar; it will be shift WITHIN the dollar." But this is, if you have been paying attention, only a temporary phenomenon. One day there will be a shift OUT of the dollar, and then both stocks and bonds and everything else will go, in a charming metaphor, down the toilet.
Robert Freeman then asks, as I do, "How, then, does a nation deal with debts that so greatly outrun its ability to pay? All are unappealing. Most are calamitous."
The Chinese, like the Japanese before them, are growing tired of producing low-tech, low margin consumer items, and are in the process of ramping up computer chip factories so that they can make the big bucks. So soon we here in America will be reduced to producing only weapons of mass destruction, fingernail technicians, fast food workers, medical workers and government employees. And then, soon after that, medical workers and government employees will have to support us alone. And won't that be fun?
I went to the Treasury website for the public debt, publicdebt.treas.gov, and saw that the debt is $7.025 trillion, a new all-time record. Just for laughs I scroll down to the bottom, and the list ends 9/30/87, when the debt was $2.350 trillion. That is, oddly enough, approximately the date that Greenspan took over the Federal Reserve.
So, under this guy Greenspan, we have gone into debt to the tune of another $4.675 trillion. One lousy Fed chairman has tripled our debt in seventeen lousy years. I am appalled and disgusted. Ugh.
---Mogambo Sez: Readers want to know what I recommend besides gold. Well, let's see; oil, since that is going to be much higher in the future. But you can take it from me that filling up the bathtub and the sinks with it is NOT a good idea, and so perhaps you should stick to shares of companies that deal in oil somehow. And commodity futures, since they will rise in price greatly.
And be sure and pick up some defense stocks, since typically governments get us into wars in order to distract us peasants from our own wailing and whining. And with just these three, you will be just fine for the rest of your life.
This article first appeared
The Mogambo Guru Lives!
Richard Daughty is general partner and C.O.O. for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise the better to heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning, and other fine publications.
"Financial Reckoning Day: Surviving the Soft Depression of the 21st Century"
by Bill Bonner and Addison Wiggin.
You can buy it online from Amazon.