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The Dark Side of the Mogambo

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
Provided as a courtesy of DailyReckoning

Archives
Nov 16, 2007

Total Fed Credit was up only $1.7 billion last week, and foreigners only bought up only $311 million in US government and agency securities, which seems odd that interest rates mostly fell, and the rate on 3-month T-bills dropped to 3.6%, almost a full percentage point below the Fed Funds rate.

And the page at 321gold.com showed $32 billion in repos last Thursday [Nov 8, 2007].

And it is not just us moron Americans that are acting like corrupt scumbags, but the European Central Bank is just as shallow, as we learn from Mr. Gonzalez-Paramo, the ECB's "market operations" top dog.  According to the Financial Times headline, he says that the ECB is "ready to take emergency action 'for as long as needed'".

Apparently, my scathing email message ("What in the hell is 'for as long as is needed' supposed to mean?") got through, because later in the article he "clarifies" things by explaining that "To the extent that money markets remain subject to tension, we will stay there as long as necessary".

Tension? What the hell is "tension"? Naturally, I became angry at this continual evasion, and I was not surprised that my next email did not go through, seeing that it was just one long, rude, obscene, angry, threatening and vaguely homicidal message from the Very Dark Side Of The Mogambo (VDSOTM).

Part of the problem that necessitates such meddling in the markets may be found in the essay "Is Another Dot-Com Bust Imminent?" by Robert Morley and Richard Palmer, and forwarded to me by JMR Terry L. The question and concern is plain; are stocks high enough to crash and take the economy with it? They explain, "If you try hard enough, any number of reasons can be found to justify paying high prices for stocks with little earnings (and sometimes there may be a good reason). But the question is, why would so many choose to when the economy is flashing clear warning indicators of trouble ahead?"

I thought he was asking a question, and I was already rising to my feet to helpfully explain that a lot of really stupid people have been taken advantage of by unscrupulous people, and these unscrupulous people still have mortgages to pay, too, and children to send to college, and bills to pay, and us stupid people have to continue to be fleeced so that the unscrupulous amongst us can continue to pay their bills, and how I blame the Federal Reserve for creating all the excess money and credit, and how I blame the Congress for allowing them to create all that excess money and credit, and how I mostly blame the Supreme Court because they are the corrupt, lying, thieving buttheads who always ruled that the Constitution does not say what it clearly says about what money is, and what it is to be made of, and how it is to be valued, and now we are stuck with a fiat currency in the hands of a corrupt central bank being used to grow the size an debt of the government, which is the opposite of what was intended in the Constitution.

Since this is one of my favorite harangues, you can imagine the look of horror on their faces as they see me licking my chops in anticipation. They quickly head me off and hurriedly interject the invitation, "Let's recap."

And then, in a sudden avalanche, they recite the long litany of problems, starting off with,  "The housing market is collapsing and the bottom is still nowhere in sight. Foreclosures have doubled over the past year. Subprime borrowing, which used to be over 10 percent of the total market, has virtually dried up. Home inventories are rising while home prices are falling like rocks across most of the country. People are no longer able to use their homes like ATM machines every time they refinance their mortgages."

By this time I am reeling, but they unrelentingly go on, "Consumer spending is almost sure to take a hit.  The home construction industry is seizing up, with thousands being laid off. The banking industry is being walloped by a credit crunch that Federal Reserve chief Ben Bernanke considers so serious that he almost immediately cut interest rates. The banking sector is hemorrhaging. The biggest bank in the United States reported a 57 percent drop in third-quarter earnings. Bank of America, the second-largest U.S. bank, reported a 32 percent drop in earnings. The leading U.S. savings and loan, Washington Mutual, says it expects a 75 percent drop in profits, while Merrill Lynch had to write down $5.5 billion in bad subprime and leveraged-loan losses for June to September. Thousands of people in the real-estate, mortgage lending and banking sectors are being laid off."

And to show that this not entirely news to anyone, they note that, as you would expect, "In August, investments totaling a record-breaking $163 billion fled the U.S., according to the latest Treasury Department figures. For the first time since 1998, foreigners on balance sold U.S. government treasuries. The dollar is at its lowest level ever. The Canadian loonie is now worth more than the U.S. dollar. The euro continues to rise against the dollar."

Then they stab me right in the heart with the thing that I fear most; inflation in prices. "Prices of commodities including wheat, corn, milk, oil, gold and silver are all soaring-also not good news for consumer spending or the economy.  And, amazingly- in the face of all this bad news -investors continue to buy U.S. stocks that could well be significantly overvalued."

And notice that he does not mention how bonds are so grossly overvalued, and how the system of overlapping/incestuous/expensive governments is grotesquely overgrown, too, all of which is because so damned much money has been created by the central banks to finance all this additional government debt, and all of these oceans of money had to end up somewhere, and there is nothing else that CAN literally spend or absorb that enormously much money! So naturally everything is overpriced!

In short, things are starting to get really weird out there.  Perhaps Mike Whitney of InformationClearingHouse.info sums it up best when he says "The news is all bad. The nation's economic foundation is in shambles. US credibility is shot. Bush and Greenspan have put us on the road to ruin. Now their work is done. We're flat broke."

Flat broke? Yikes! I remember the first time I told the family that we were flat broke, which was bad enough what with all their whining and yelling, but made all the worse by having to admit it was because of my own indolence and stupidity, and then made even worse than that by having to repeat the same thing week after week, until I finally had a bellyful of their whining and complaining, and I finally got up off of the couch, took a shower, and went out and got a damned job, which at least shut them up for awhile.

So it is surprising to me that I am looking out of the periscope of the good ol' Mogambo Bunker Of Ultimate Refuge (MBOUR) and marveling that the world is not actually in flames, and the idiots collectively known as "the American public" are not out rioting in the streets.

Then I remember the old adage that "ignorance is bliss", and then perhaps it all makes sense again. Then I remember that I am pretty ignorant about a lot of things, too, like interpersonal skills, compassion and ordinary civility. Then I wonder why I am not blissful.  I figure it is a plot by the CIA. Or my hateful neighbors.  Probably Bob.

Nov 14, 2007
Richard Daughty

email: RichardSmithGroup@verizon.net
Daughty Archives
Provided as a courtesy of Agora Publishing and The Daily Reckoning


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.

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