...the angriest guy in economics
August 18, 2004
The Treasury Gross Public Debt,
which is how much debt the brain-damaged Congresses that we elected
for the last half a century has borrowed and spent, soared to
another record. As of Friday TGPD is, in case you are keeping
score, $7.312 trillion dollars. Which doesn't look like much,
I know, but it comes out to about $52,600 for everybody who has
a job in the entire damn country. [Editor's note: Monday was a new all
time high - $7,335,563,157,880 and 75cents]
Of course, Custody Foreign Holdings at the Fed ballooned by another
$8.3 billion in the last week, since dollars are piling up overseas
and they have to get those damn dollars back into the USA so
that we can borrow them and use them to buy more stuff. So that
particular cesspool of debt rose to $1.256 trillion. I know that
the standard line of the Loony Left is that 1) all you gotta
do is love people and they will love you back and 2) if things
are not working out like you thought, then that means we do not
have enough love, and we will need to love each other even more,
and so I cannot imagine that foreign devils would use that massive,
huge, unbelievably glob of toxic debt in an extortion racket
of some kind. So just relax. Currency in circulation jumped by
a billion bucks, which I assume is still being used to bribe
the Iraqis into being nice with each other for awhile so that
Bush can have something to talk about during his campaign for
The latest Consumer confidence numbers are down, too, which means
to me that Americans are not completely a bunch of ignorant goons
shoveling anti-depressants down their cavernous maws during the
few brief moments when they are not shoveling everything else
into their ravenous mouths, gobbling gobbling gobbling up the
output and resources of the entire world. Apparently enough reality
seeps into our collective American brains that we sense something
Accordingly, the trade deficit leaped in June, as we, as is our
wont, consumed with both hands and made these grunting, slurping
noises as we did it. Barb at 321gold suffixed the report about
it with the phrase, "Mogambo's gonna be livid," and
she was right, if you define "livid" as "Running
down the street stark naked, screaming like a banshee, and outraged
parents are scuttling around gathering up their children so that
they won't see the naked crazy man, and I tell them that if they
think that THIS is bad, wait until you hear about the trade report!"
Even Stephen Roach of Morgan Stanley is also alarmed at this
trade deficit thing, although there are no reports about him
running naked down the street, but preliminary reports are sketchy
at best, so who really knows? But it appears to be alarming to
most everybody else, too, although most of them quickly change
the subject because it is verboten to say anything negative.
Anyway, Mr. Roach writes "America's record $55.8 billion
trade deficit in June was a shocker. Annualized, it is equivalent
to a $670 billion shortfall, or 5.75% of nominal GDP." The
reason was that imports jumped 3.3%, and exports plunged 4.3%,
what has been characterized as "the worst drop since September
2001." We bought more and sold less. Fabulous. Just freaking
Sean Corrigan, at Sage Capital Zurich AG, performs a little calculator
wizardry with some of the trade numbers and notes that "The
goods gap is now a massive and unprecedented 32% of two-way-trade!!!!!"
Note the five exclamation points he used! Five! This is important
stuff! And if Sean Corrigan says that this is important stuff,
then the rest of us mere mortals ought to pay attention.
Gary North has taken a look at the ramifications of this and
concluded, "The likelihood of a saving-short US economy
continuing to run ever-wider current account deficits without
suffering dollar and/or real interest rate consequences is close
to zero, in my view."
Bloomberg reports that the Labor Department says the consumer
price index went down by 0.1 percent. " The consumer price
index was up 3 percent from July of last year. Excluding food
and energy, it rose 1.8 percent from July 2003. The core rate,
which excludes food and energy, rose 0.1 percent." But beyond
that, Bloomberg also reports that "So far this year, consumer
prices are rising at a 4.1 percent annual rate, compared with
a 2.1 percent increase at the same time a year ago. Core prices
are rising at a 2.4 percent rate, up from 1.3 percent in the
first seven months of 2003." So prices are rising now.
"Energy prices, which account for about a 14th of the index,
fell 1.9 percent in July, the first decline since November, after
a 2.6 percent increase the month before." So the Saudis
and OPEC and Great Britain and Yukos and all the other producers
of crude oil pumping their little hearts out will make the price
of oil go down by a little bit? Wow! Who'd have figured? But
with refining capacity running around 95%, who is going
to turn that icky black goo into premium high-octane go-juice
for my car with the giant V-8 engine and power everything? Now,
and follow along carefully here, because this is the crux of
my New Mogambo Plan (NMP), all they have to do is keep this up
indefinitely, and gradually pump more and more and more oil!
See how easy this stuff is? But before you start clapping me
heartily on the back and congratulating me on formulating this
brilliant, brilliant plan to make oil go down and down in price,
let's take careful note that although the near-term price of
oil is down by some tiny percentage, Bloomberg notes that oil
is "Up 14.3 percent from a year earlier."
On another sour note, consumer spending grew again last quarter,
but it grew at the weakest pace in three years because sales
of autos and other durable goods slumped. Bloomberg adds "The
slowdown may make companies more cautious about raising prices
to cover higher energy and commodity costs." So let me get
this straight: Energy prices and commodity costs are all higher,
and a lot higher in some cases, and yet producers are not raising
prices enough to cover these higher costs? So they aren't making
as much money? And yet people are buying and bidding up the shares
of these companies? Yow! What am I missing here?
The worst news, in my book, is that "The average weekly
earnings of U.S. workers after adjusting for inflation rose 0.7
percent in July, after falling 0.8 percent the month before.
The July increase was the first in six months." Which wasn't,
from the data itself, enough to make up for even the losses from
last month! So, at the end of the day, inflation is eating up
the wage gains of the workers! Fabulous. Just freaking fabulous.
It just gets better and better! I can only imagine with horror
the declines in the real and imputed incomes of those who are,
in effect, wards of the states and the federal government!
So everybody (except for the rich, I suppose, but I don't know
about those guys because they are too smart to be seen hanging
around with the likes of me, and every time I get around these
rich people they always pucker up their faces and motion to a
security guard to ask me what I am doing around here since they
can tell just by looking at me that I don't belong around decent
people and maybe I ought to be a good boy and just move along
and save myself a lot of trouble) is getting poorer in real,
inflation-adjusted terms. And now I probably have to listen to
another witless lecture about how Alan Greenspan and the Fed
are NOT incompetent, mental-defective charlatans, but instead
it is a Good Thing (GT) that people are suffering falling standards
of living, and how this is actually the earmarks of successful
monetary management or something.
Fred Sheehan, in his essay "Impoverishment: Then and Now,"
hits the nail on the head when he says "The methodical impoverishment
of the American people, particularly those who are living on
the edge, has been one of the few U.S. government success stories."
Martin Weiss of the Safe Money Report has also taken a look at
the trade gap and says "It JUMPED by a whopping
19 percent to $55.8 billion - the single biggest increase in
five years ... and the largest trade gap ever recorded in history."
But I know that Principal Skinner is going to be walking around
today filling in these new Performance Checklists, and by God,
this is the year when I am finally going to score some points
on "Uses age- and topic-related audio-visual (AV) teaching
aides and devices to facilitate an enriched learning environment
where mutant humanoid adolescents hopefully have some knowledge
instilled in their tiny little brains." So dimming the lights
in the room, I click the slide projector. Instantly, the screen
is ablaze with a photograph of my dog taking a big ol' dumpola
on the lawn in the backyard, and I say, as a professional-sounding
voice-over, "But the American economy is a huge, festering
glob of government spending and monetary inflation, and represents
a third of global GDP. As a result, piles of dollars are piling
up all over the place." With that, I click the button on
the slide projector, and in a series of perfectly apt slides,
I photographically present a sweeping, panoramic view of the
whole back yard, and there are piles of "American dollars"
everywhere! And if you look closely, in the one slide you can
see my neighbor Mrs. Kravitz peering over the fence, still bitterly
complaining about the smell of all those reeking piles of "American
dollars," and she is making a really rude gesture like she
So you can bet your sweet butt that to the rest of the world,
our trade deficit is a good news-bad news joke. "Hey, the
good news is that we sold more stuff to Americans. The bad news
is that after inflation and getting paid in a devaluing currency,
we ended up losing money! And by the way, whose damned dog is
leaving these stinking piles of American dollars all over the
Of course, as we have previously discussed, the world is divided
into two kinds of people. There are, on the one hand, those guys
who delight in cracking jokes like "The Mogambo will delighted
to pick up the check!" and there are the people who say
equally stupid/insanely ridiculous things like "The price
of energy doesn't matter" or "Deficits don't matter"
or "The price of food doesn't matter," or "The
trade deficit doesn't matter." All of these things are,
of course, wrong. And to those guys who like to either explain
the bad trade deficit news on higher energy prices, he adds "Nor
can this deterioration be explained away by surging oil prices."
I am not sure whose quote this is, since I have been happily
cutting and pasting and now everything is all confused because
I think I got some of my medications all mixed up, but somebody
said that the historical precedents are gloomy, in that "As
America's external imbalance widened in mid-1987, the dollar
came under sharp downward pressure and US interest rates were
pushed higher. Those were the classic manifestations of a current
account adjustment that many (myself included) believe were at
the heart of the stock market crash of October 1987. Today's
external imbalances dwarf those of 17 years ago." And perhaps
you remember what happened to the stock market in 1987. It was
in all the newspapers and everything.
Martin Huchinson, posted an essay on The Bear's Lair entitled
"The Way We Live Now." He says "It is likely that
10 years from now, when the long recession/stagflation period
is at last beginning to lift, real U.S. living standards, on
average, will be as much as 20 percent below where they are today,
once the higher savings rates and higher tax levels of 2014 are
taken into account."
And if you want to know how much fun having a 20% fall in your
standard of living represents, divide your next paycheck into
five piles. Throw one of the piles in the trash. Write down in
your diary how much you like it. For you political science buffs,
Mr. Hutchinson asks "If Bush loses in November, it will
be interesting to see who gets blamed for this -- John Kerry,
in whose presidency the worst of the downturn will hit, George
W. Bush, who postponed the downturn by tax cuts but worsened
it by public spending rises, or Bill Clinton, on whose watch
the preceding bubble inflated (it must be remembered that liberals
blamed the Great Depression on the entirely innocent boom-era
president Calvin Coolidge for half a century after 1929)."
So after you and your friends have had a long heated discussion
about that, he remarks "The real culprit, of course will
be Alan Greenspan."
A writer named Danielle DiMartino wrote an essay entitled "U.S.
Debt Burden Is Higher Now than During Depression, Study Says"
The crux of the article is that, to use the exact quote, "The
United States is shouldering a greater debt burden today than
it did during the Great Depression. The total amount owed - by
consumers, businesses, governments and financial institutions
- totaled $34.4 trillion at the end of 2003, according to the
Federal Reserve. The economy produced $11.3 trillion of output."
For you statistics freaks out there, we owe three times what
we earn as a country. Or as Danielle says "That makes the
nation's debt triple its gross domestic product." Then,
when number-geeks at Gabelli Mathers mutual fund compared that
dismal statistic with 1933, where they found that debt back then
was "only" about 2 1/2 times GDP. So we are indeed
They go on to cite the usual laundry list of things that make
the Mogambo hide in the basement, clumsily dragging a heavy mini-gun
and full pack of ammo around while nervously locking and re-locking
all the doors and windows, such as "Consumer debt has doubled
in the last 10 years, to a record $9.4 trillion. Corporate debt
is at a record $5 trillion. Federal debt is $4 trillion but set
to jump to $10 trillion by 2014. Financial institutions ($11.4
trillion) account for most of the rest of total debt." This
huge bubble of backbreaking debt comes with the (now switch to
a voice that is loud and obnoxious, like one of those TV pitchmen
who hawk used cars) Lowest! Interest! Rates! In! Four!
Freaking! Decades! So, a lot of people have both borrowed lots
of money at very low rates (yay!) and a lot of people have loaned
their money at very low rates (boo!) Rates will rise to some
semblance of normality, and if you think things are bad now,
just wait. Or as Danielle says "When rates inevitably rise,
the burden will worsen."
Or, as those clever wits at the Daily Reckoning put it, "The
poor consumer has run out of money, out of time and out of luck.
New jobs are few. Real incomes are falling. Tax refunds have
been spent. And now interest rates are going up. To make matters
worse, he has more debt than ever before."
Wayne N. Krautkramer at onlypill.blogspot.com has a really good
real grasp of this whole economics thing, and he presents it
with such a clever and insightful style that I can only look
at and admire, and for which I hate his guts out of pure, raw
envy, because that is just the kind of petty little hateful person
that I am. And yes, I know it is a serious character flaw in
me. But most people know that I am armed to the freaking teeth,
and from that they have all wisely learned to keep their big,
fat yaps shut, if you get my drift.
I will not quote extensively from Mr. Krautkramer, because if
I do then perhaps you will be intrigued, and then you will go to his site and read
his stuff for yourself, and then you will say "Hey! This
guy is great! Much better than that Mogambo jerk! Let's never
again read anything that stupid Mogambo says, and instead, let's
make fun of the Mogambo, and get all our friends to hate the
Mogambo, and send hate mail to the people who publish the Mogambo,
or who even refer to the Mogambo, or who admit under grueling
cross-examination by the Homeland Defense people to have even
heard of somebody called the Mogambo!"
But I will give you one little quote, which I hope doesn't whet
your appetite for more
of this Krautkramer guy, because, like I said, you would probably
want to go to his website and read more of this stuff and then,
well, let's drop it, shall we? But I am giving you this quote
because it is timelessly correct, and it has this eerie, spooky
ring to it when you stop to consider the ramifications. Anyway
he says, "Remember, there has never been an economy in history
that has based solely on credit. Neither earning power, nor asset
wealth is driving this economy! No one has ever seen anything
like this before."
And the reason that this has never been seen before is that in
every historical instance that anyone ever proposed such a stupid
thing, namely unlimited monetary excesses and continuous government
deficit-spending, the foolhardy jackass who postulated such untrammeled
idiocy was immediately hooted out of town, and all the other
people standing around, snickering and laughing, watched and
The WSJ uses its editorial page to give air to some of the weirdest
damn things you will ever read. Another example was in an August
12 essay by Dan Chung and Zachary Karabell, entitled "The
Greenspan Nation." It is in the fine print in the bottom
that you discover that these two guys are the two big cheeses
at Fred Alger Management, which is, I assume, a money management
firm, which means that they want you to give them your money,
so that they can buy investments with it for you, and they will
keep a lot of your money that flows through their hands, so that
it becomes their money, so that we both get rich, and if I don't
get rich, then at least they still make a lot of money, and if
I go bankrupt under their tender care, then at least they still
make a lot of money, and that is the whole point of the thing.
Well, of course I was hoping that this was going to be another
Greenspan bashing, but it was not. It was, to my dismay, laudatory.
They even say "Who is right? Alan Greenspan and the Fed."
I can hardly stop myself from groaning out loud, which is a lot
better than some other things that I recently did out loud after
I ate a bean burrito, as I read "Today, the Fed believes
that globalization is essentially deflationary and that IT continues
to change the nature of jobs and prices. That mean the current
recovery will not be like past recoveries. Political parties
(and bond investors who think the Fed is 'behind the curve')
don't understand that and don't believe it."
Of course it is deflationary! That is the whole damned point
of it! Prices are supposed to fall due to productivity! That
is how we get higher standards of living! Why else would we would
pursue globalization? And to try to reverse that wonderful result
with more monetary madness to make prices rise is to make me
jump to my feet, point my long bony Mogambo finger (LBMF) at
these two guys and scream "We don't get it? Did you say
we don't get it? Not only do YOU 'not get it,' but neither of
you seem to have any idea what in the hell you are talking about!"
Of course IT changes the nature of jobs and prices! Everything
always changes jobs and prices, because all things are connected,
by money, to all other things! And when you have a gigantic IT
investment, with whirring computers everywhere managing whole
oceans of data on a global basis, of course it will change jobs
and prices! My God! It changes everything in one way or another,
and to one degree or another. Everything changes everything else
in one way or another, too. What in the hell did you THINK would
be the effect?
And to think that we are in some glorious "recovery mode"
is one thing that we could argue about until I am blue in the
face and hoarse from screaming and then after awhile you finally
get tired of trying to get a word in edgewise, and then you finally
give up and angrily slam the door on your way out and then you
go home and yell at your wives and husbands about that "horrible
Mogambo jerk." But I am here to tell you that there have
NEVER been two recoveries that were the same in the whole freaking
history of recoveries! And the main reason that there have never
been any recoveries like this one is because, and you might want
to write this down, we are not in a recovery. Far from it.
They go on to say that the extremes of opinions by both political
parties contain half-truths and blah blah blah, and things are
not as gloomy or as rosy as people claim, and then they say "And
while median incomes have been flat, a closer inspection of census
data shows that averages are skewed down by singles, young people
and the elderly." I am not sure what political party these
two guys belong to, but I would be interested to know, because
I cannot imagine which one that would say "Screw the singles,
the young and the elderly!" Or perhaps this is how the federal
government reveals that, from now on, income data will have a
"core income, excluding singles, the young and the elderly."
But the "median income" is that one, tiny slice of
America incomes that is the exact middle between the highest
income (what you make in your high-paying, glamorous job and
then you go out at night to fabulous nightclubs and hang out
with your rich Hollywood friends) and those who make the lowest
income (me). But the rich have been getting richer, as even they
admit ("the upper echelons of pay scale are doing better"),
but notice that the median income did not also go up! This means,
from a pure arithmetical imperative, that the lowest pay scales
must have gone down by an equal amount! As they say, they are
"skewed down" by those damned singles, the young, and
To tip you off, these guys also believe that America has, "an
inflation rate of barely 2% a year." Note their use of the
soothing word "barely." So calming! But (cue loud crash
from the kettle drums) here is nothing "barely" about
2% inflation! To keep this in perspective, let's review. And
believe me when I say you are going to want to remember this,
because it WILL be on the final exam, but 3% inflation is the
exact cutoff point in inflation that separates "grave concern"
from "panic zone." More than that, it is provably disastrous
to have inflation beyond 3%, based on massive, irrefutable amounts
of historical evidence, namely the entire corpus of recorded
history. And that is why the European Union adopted 3% as the
cutoff point in their grudging tolerance of inflation.
They sum up with how we ought to not listen to what anybody says,
and history books are nonsense, too, but they advise us that
"If we want to actually comprehend what's going on, we should
look to the Fed. They may not get interest rates exactly right,
but they do understand what's happening with our economy."
Hahahaha! A central bank that understands what is happening with
an economy! Hahahaha! I am laughing so hard that I am choking
up bile and what tastes vaguely like Fritos! Hahahaha! A central
bank that understands what is happening with an economy!
Okay, now that Emergency Medical Technicians have injected whatever
was in that bottle that the "man in black" FBI man
gave him, and now that I have had a few deep breaths of oxygen,
I have composed myself. Whew! But you gotta admit, that is funny!
Robert Blumen wrote a powerful essay entitled "Debt and
Delusion," which originally aired on Mises.org. He quotes
a guy named Warburton, who calls the "The recent period
'an excursion into the realm of financial fantasy.' The fantasy
is that central bankers have found a way to inflate without any
I never met this Warburton guy, but from his penetrating analysis
of what central banking is doing, I can only conclude that he
must have a big brain and is using it all, because it takes a
guy with brains to take the diametrically opposite position of
every lackluster politician, media bozo, the horrid schools,
the despicable Fed itself, and every loudmouth huckster who has
both 1) something to sell me and 2) my phone number or my e-mail
address, because every single one of them spends their entire
freaking day blathering on about how there is no inflation, and
how inflation is "low," and how inflation this low
is actually "benign," and how the Mogambo is a raving
lunatic because he says the exact opposite and seems to lack
knowledge about even the basics of hygiene or "Interpersonal
Communication Skills; Gets Along With Others," and they
are running around shoving these stupid silver crucifixes in
my face, trying to make me go away. And then I have to take some
MORE of my Very Valuable Mogambo Time (VVMT) and stop my righteous
and hysterical screaming at them about monetary policy, and how
the Greenspan Fed is so bad that the history books of the future
will point to us as the worst example of global insanity whose
credo seems to be "stupiditum ad infinitum," to tell
these ignorant blockheads that silver crosses only work with
vampires, or maybe werewolves, or maybe both, I dunno, but it
doesn't matter because it doesn't affect me one way or the other.
And then these same morons slam the doors of their offices in
my face ("Go away, Mogambo!") and then I go home and pay higher bills and higher prices
for damn near everything, and gumble about how in the hell can
we be spending so damn much money every month, and just what
in the hell are you DOING with all the money, and she
says "Me? It's you that's spending all the money around
here, buster!" and you say "Oh, yeah? Well, the only
reason that I am spending it is because you are always wanting
me to buy things for you, like gasoline and taxes and food!"
and then the whole thing degenerates into a heated discussion
about which one of us is fatter, and who is more stupid, and
who is more hateful, and how one of these days she is going to
strangle me in my sleep and how I ought to "think about
that," and I do, and now it is all I can think about, and
suddenly this whole economics thing doesn't seem so important
To help me re-focus here and shake off a fresh case of "the
willies," let's stop talking about my fascinating,
fascinating life, and get back to Mr. Blumen, which is what we
started off talking about. He says, "While the effects of
money supply growth can be confined to stocks and bonds, inflation
is hidden in plain sight." Well, so eaten up with jealousy
at his intelligence and talent that I just want to smash his
little face, I jump up, roughly shoulder him aside and grab the
microphone. I say, actually, "snarl" would be more
accurate, "I notice he says 'CAN be confined to stocks and
bonds,' but I am pretty damn sure he is using the word 'can'
in the context of 'they are doing it right now, so they obviously
can' and he does NOT infer an alternate meaning that 'they can
ALWAYS do it any time they want, and so they can guarantee perpetually-higher
stock and bond prices,' because if they could do that, then everything
will be fine! That would truly signal the end of the dreaded
'business cycle' of boom-bust! We could have nothing but boom
from now on! Everybody COULD get rich from investing in the stock
market!" I look over at Mr. Blumen, and I am puzzled by
the look of sheer horror that distorts his face as the force
of my words sink into his mind.
I help him back to his feet, dust him off and surreptitiously
frisk him for guns and canisters of that damned pepper spray,
and if I NEVER get sprayed in the face with that stuff again
it would suit me fine, and I hand the microphone back over to
Somewhat shaken, he continues "The adjustment of relative
prices between financial assets and consumption goods cannot
be postponed indefinitely." He looks nervously over at me
to see if I am coming at him again. I am not. With an audible
sigh he turns back to the audience and says "The unwinding
will not be easy or painless. Surely central bank follies now
threaten economic disaster."
Well, I don't know what kind of a work-a-holic, responsibility-shouldering,
All-American go-getter, duty-doer you are, but anytime somebody
tells me that my future will "not be easy or painless,"
the Mogambo Phrase Translator (MPT) in my puny little brain interprets
that to mean "difficult and painful." And if there
is one thing that defines The Essential Mogambo (TEM), it is
that I shy away from things that are difficult (like, for example,
taking responsibility for my own actions, and that kind of thing),
and I especially avoid things that are painful, and you had better
believe that when something is both difficult AND painful, I
am, or soon will be, miles away, hiding behind a dumpster or
something and whimpering like a crybaby little wuss.
The central banks of South Korea just lowered rates, according
to the Financial Times, to a record-low 3.5%. They are worried
that spending might fall just because people are up to their
necks in debt, and this worries them more then the inflation
that higher energy prices are causing. Inflation is already running
So it is not only brain-damaged Americans and Australians and
British dorks that are drowning in debt. And it is not only the
central banks of the selfsame Americans and Australians and British
that erroneously, and stupidly, think that deflation of overvalued
assets is worst than inflation.
Not only that, but the article went on to say "Economists
said Thursday's decision could be the first in a series of cuts
if the economy remained sluggish." But some guy name Mr.
Park warned that "Reduced interest rates would have little
impact unless the economy's structural problems, such as heavy
household debt, are were also tackled." Well, duh! It is
the heavy debt that is making them do this monetary insanity
to start with!
Peter Schiff, of Euro Pacific
Capital, has taken a look at inflation in China, which is
a neighbor of South Korea in a way. He writes, "This week
we learned that Chinese inflation, a direct result of pegging
the Yuan to the U.S. dollar, just hit a seven year high of 5.3%
In fact, for all the talk about Chinese exported deflation, the
reality is that America's greatest export to China is inflation."
And I am sure that the Chinese are real grateful, probably just
like they are grateful to the Japanese for starting that urban
redevelopment thing in Nanking in the 30's.
Gary North explains how this whole Keynesian thing is supposed
to work. When the economy falters, "Counter-cyclical policy
stimulus -- fiscal as well as monetary -- can fill the void,
sparking an inventory and production dynamic that spurs income
and spending growth. From there, the 'multipliers' take over,
and the self-sustaining recovery can then successfully be weaned
from policy stimulus." So much for the theory. He goes on
to say "It's a bad theory, and it has never worked. It was
as wrong in 1936 as it is today. " He then goes on to show
that "A dollar created by the FED (is a) a multiplier whose
effect is to raise prices and thereby lower real wages, which
was the dirty little secret of Keynes' theory: a way to fool
workers into accepting lower wages."
If you want to know exactly how the Chinese are going to eat
our lunch, here is the answer. Bloomberg reports that "The
number of people in China's cities of Beijing, Shanghai and Guangzhou
holding a credit card increased to 22 percent of the population."
The world already makes all the stuff anybody could want. Now
all we need for a complete economic system is people to buy all
that stuff. Up to now, it has been Americans. We are tapped out.
Now read again the part about how a fifth of the Chinese population
now has a credit card.
If you want to differentiate the Mogambo from his contemporaries,
nothing could be easier. Get out your Audubon books. Thumbing
through the pages and looking up "Mogambo, The," the
accompanying picture reveals that The Mogambo is heavily armed,
has shifty eyes that glint with an inner burning fear and hatred,
has a low-sloping Neanderthal-type forehead and appears to be
really, really stupid. Now compare that with everyone else. It's
easy to notice the difference when you know how!
But if you are still confused, then there is one other way to
distinguish The Mogambo from all other people in general and
all other economists in particular, in that I do not believe
that anyone other than banks can create money. In fact, one of
the leading Austrian-type economists, and I will not say who
because I plan to find out if he has a mountain cabin or a seaside
condo that I could use for free for a few days, or weeks, or
months, or maybe a couple of years, tops. But this guy starts
off correctly saying "Banks are only one of myriad institutions
that issue monetary liabilities. A diverse group of financial
institutions - including banks, GSEs, savings &
loans, insurance companies, brokerages, money market funds, finance
companies, 'captive' finance units (i.e. GE, GMAC) and Wall Street
structured entities (special-purpose vehicles, CDOs, MBS, ABS)
are all tightly linked through the money and capital markets.
These institutions issue new liabilities to each other and expand
assets (increase holdings of other's liabilities), creating marketplace
'liquidity' throughout the expansion process." Up to now,
I have no problem with any of that. Where we part company is
when he goes on to say "Funds are created among various
types of institutions through adjusting journal entries (debiting
and crediting accounts), and there is today absolutely nothing
special about bank 'money.'"
Well, I am here to tell you that all of these "myriad institutions
that issue monetary liabilities" can collateralize, securitize,
bundle, break into tranches, sell futures and puts and calls,
and do any and all of that financial wizardry until their hands
are sore and bleeding and they are so crippled that they can't
even dial out for a pizza for all I care. But all they are doing
is asking some guy out there, maybe you for all I know, to give
them money for some of that stuff. So, when we all got up in
the morning and went out to get the neighbor's newspaper, these
"financial institutions" had bushel baskets of this
stuff sitting in their lobby, and you had money in the bank.
Then the sun rose, and things happened. At the end of the day
when you get home, you have a bushel basket of that stuff and
they have your money. Where is any money created? The truth is
that there was no money created at all. It just got put into
somebody else's pocket.
The only way that you can create money is to be a bank, and have
the power of fractional banking. In that way, you can take in
an additional dollar of deposits and create almost a hundred
dollars of instant money to loan out to some sucker. THAT is
one of only two ways that money is created. The other way is
to literally print the stuff out of paper and ink, which nobody
can do, either, except the Treasury.
So the only way that these "myriad institutions" can
create money is for one of the parties in the initial transaction,
or in one of the subsequent transactions, to get a bank to loan
money to somebody. Whether they use the borrowed money to buy
the securities, or merely using the collateralized, securitized,
tranched, assets themselves, or a derivative of them, as collateral,
somebody has to borrow money to create money!
And so the banks themselves, collateralized by the Federal Reserve,
provide all the funding for any money creation. And all the banks
had to do was say "no," and this money stupidity would
never have happened. But they never said it. Not one time.
So when somebody asks you "Hey, dude! How is money created
out of thin air?" you can politely inform them that only
the banks or the Treasury that can create money. All other people
merely trade money for things.
The BBC reports that a guy name Bill McGuire of the Benfield
Grieg Hazard Research Centre said that there is this giant rock,
the size of an island, that is in the process of slipping into
the sea out there near the Canary Islands. If it does crash into
the sea, it will create this huge tsunami that will inundate
the eastern seaboard of the USA and Europe. The event that sends
it into the sea is likely to be the eruption of the of Cumbre
Vieja volcano. And this volcano, according to Professor McGuire,
Cumbre Vieja could blow at "any time." So that is one
MORE thing to worry about. It's always something.
*** The Mogambo Sez: Things are starting to really fall
apart, as evidenced by the insanely laughable things that are
coming out of the mouths of the Presidential candidates. The
latest wheeze is to force people to invest money, taken out of
their paychecks, into the stock market as part of a plan to save
It just doesn't get weirder than that!
Aug 17, 2004
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
and other fine publications.