This article originally appeared at TheDaily Reckoning.
-- I was stunned to see that Total Fed Credit actually went down by $6.7 billion last week. Either there is a sudden drop in demand for new money, or the Federal Reserve (reversing their explicit policy of the last two decades) is not letting the banks create insane amounts of new money to accommodate the usual ravenous demand for money.
Either way, for a debt-soaked economy so twisted, so misshapen, so malignant and so absurd as ours (and, by extension, the world's), this is bad news in spades (BNIS). Which, connecting the dots, is why I am securely ensconced in the Infamous Mogambo Bulletproof Bunker Of Iron And Steel (IMBBOIAS), safe and sound, and scared out of my Mogambo freaking mind (MFM).
There was also a flurry of excitement last week when there was a rumor that the Federal Reserve had printed up, suddenly, $2 trillion in cash. My initial reaction was, of course, "Hahahaha!" and my reasoning is thus: why would they go through the hassle? They can make electronic money with the wave of a finger, so why go through the messy rigamarole of dealing with ink and paper and all the problems of transporting it and counting it and storing it and blah blah blah?
But I have some extra time on my hands, now that I had a jolly time using a .50 caliber machinegun to put a "shot across the bow" of some stupid neighborhood kids who thought that their youth and desire to retrieve an errant Frisbee negated laws against trespassing, and am using this "found time" to productively to think, and by thinking think that that maybe, just maybe, this whole "two trillion in cash" scenario has some, umm, merit, especially if you are thinking that foreigners dumping American securities (in revenge for us acting like such murderous buttheads) would instantly be reflected in instantaneous losses in bonds and meteoric rises in interest rates and the entire global economic machine would melt down. Bummer.
So maybe this could explain the "two trill in cash" plan: With this amount of cash, see, the American government can pretty much buy all the government securities that any foreigners want to sell, but the inflationary effects of creating so much money won't be felt in prices for awhile! Hahaha! They think this is clever!
And, besides, thousands of jobs will be created just to make, handle, account for, transport and store all this new money! Hahaha! And maybe the new currency could have those RFID tags to depreciate the value of idle cash, forcing everyone to spend all their money as soon as they get it! Surprised? Don't be, because is JUST the kind of financial and economic insanity that you see at the end of long booms fueled by excess money and credit, as the amount of corruption is, as they say, "off the freaking charts!"
And with corruption comes fear, and now here we have John Rubino on SafeHaven.com talking about the "Fear Index" that was created by Gold Money's James Turk back in the 1980s. The reason I am bringing this up is that Mr. Rubino says that as a market-timing device, Mr. Turk's Fear Index has, and I quote, "been nearly flawless." Now, when it comes to market-timing techniques, the Holy Grail of techniques is one that is "flawless", and so I scoot my chair up a little closer to make sure I don't miss a single word. He goes on "The Fear Index measures the relative importance of gold within the U.S. monetary system, and is calculated by multiplying the U.S. gold reserve (i.e., the weight of gold reportedly under the Treasury's 'control') by gold's exchange rate to get its total market value, and dividing this result by M3, the broadest measure of money supply."
All of this sounds like a lot of math to me, and so, as a guy who has had his share of the shame of Remedial Math and people saying to me "This is a five! Can you say five?", I am quickly getting pretty damned bored. I mean, all I'm trying to do these days is to make some money, hopefully a LOT of money, with little or no work, by investing the few lousy pennies I can sneak out of my wife's purse. So, naturally, with all this math flying around, I figure I am in the wrong classroom, and am starting to gather up my books and get the hell away from Mister Math Wizard here, when he continues "Assuming M3 grows at 8% a year over the next three years, and the Fear Index rises to 10%, implying that we're worried as in the 1970s, the Fear Index yields a target gold price of $4,961 per ounce." I stop leaving in mid-stride. Abruptly I sit back down. My brain is doing flip flops! While my face is a study in drooling blankness, mentally I am living it up and having a wonderful time! Why? Well, check this out: Over the next three years, this "nearly flawless" predictor says that gold will go to $4,961 per ounce. In three years! At a uniform rate of gain, this means that gold will more than double in price every freaking year! For three years running! Wow! Hahaha!
In case you were wondering, Mr. Turk's Fear Index is now 1.23, which is still a very, very low number, although it has been climbing over the past few years. But who cares? We now know all we mindless, greedy Mogambo money-sucking machines (MGMMSMs) need to know, namely that a flawless predictor has spoken! And if you are like me, you really, really REALLY like the sound of the word "flawless" when it comes to predictors, especially financial predictors, and so you rush home and call up all your friends and family again, and beg them for the zillionth time that they have GOT to, please, please, please, finally get up off of their stupid, fat butts and get some gold, and get their IRAs and 401(k)s into gold, too! But do they? No! Instead, they say hurtful, cruel things, like "Who the hell are you?" and "I want my chainsaw back, you thieving bastard!"
But Fear Indexes mean nothing to these people! Perhaps because fear indexes are not new, and even the little community I live in, Pinellas Park, has maintained its own "Mogambo Fear Index" since 1997, which is easily calculated from police logs. Simply take the number of complaints about The Mogambo screaming that the dollar is being killed by the Federal Reserve (indicating raw fear and panic), and divide that by the number of complaints from pretty women who are disgusted by my accosting them with crude, slavering invitations to "Mambo down with The Mogambo!" (indicating laughable optimism). And, since you are keeping score, right now the Mogambo Fear Index is zooming without precedent, indicating something, (being as understated as I can manage), very ugly.
But the Treasury is still selling bonds like money is going out of style, which it actually is! Hahaha! Well, perhaps this is not the most clever Mogambo bon mot (CMBM) in history, but it is nonetheless apropos because the entire REST of history has shown that currencies that are depreciating from over-issue are seldom "in style", and sometimes (after a government/central bank creates waayyy too much money and credit, like now) they go so far OUT of style that they are never heard from again! I bring this up partly because this is, sadly, the ultimate fate of the US dollar, as this is always the fate of the currency of any country, world or planetary system that is so ignorant, or so stupid, or so impossibly corrupt that it would try, and try, and try, to buy national prosperity by creating a wildly-inflating fiat money and credit to buy it with! Hahaha! And, I sheepishly admit, I also bring it up partly because that is just the kind of hateful, gloomy and miserable little twerp I am, always seeing the dark side of sheer economic stupidity.
I mean, if this COULD work, if this could POSSIBLY work, if thus could even conceivably, in anyone's wildest DREAM, work, then it would be truly fabulous! Not only would poverty and universal wealth be painlessly achieved, but (even better!) the Mogambo Logical Next Step (MLNS) would be that it IS possible for me to buy my youth back! I can literally be young again! Gloriously, wonderfully young, young, young! And I can achieve this miracle by merely dating young girls, which is the whole point of being young! And now, thanks to the Federal Reserve proving it, we know that all we need is more money!
So the NEXT damned time they catch me hanging around the junior college, acting (as they allege in court documents) "suspiciously and furtively, rat-like in nature", I can proudly say "Hey! Take these handcuffs off of me, you fascist pig cops! I'm just buying my youth back, just like the Federal Reserve is trying to buy prosperity by creating money and credit, you stupid Gestapo goons!" and they will have to say, politely, "Oh! Of course! Well, okay then! Why didn't you say so earlier? Sorry to have bothered you, sir!"
But not everyone is a gullible as campus police, and the yields on bonds are rising, which means that, lately, people are buying bonds and immediately losing money on them! But they keep on doing it! Buy bonds, lose money. Buy more bonds, lose more money! Hahaha! It is so ludicrous that I state, with that rare Mogambo Degree Of Absolute Certitude (MDOAC) that this is a trend that will not last very long! Hahaha!
And when people stop buying bonds, then the traditional textbook response is that the price of bonds will drop (making the yield rise) until they become attractive again. That's the way markets are supposed to work.
And if you are raising your hand to ask "When bonds will become attractive?", let me tell you a little story that ties all of this together. Once upon a time, there was a rich, but ugly, troll who scored big-time with the chicks. But the troll got that way only by living more luxuriantly than he could afford, and when the debts finally got too high, he lost all his money, and then he lost all the chicks, too. Then he wondered "When will I be attractive again?" and he thought he would come over to my house and borrow some money to tide him over while he, patiently, waited to be attractive again.
But there was an unfortunate "accident" with an Uzi machinegun and the police didn't even come over to look at the dead ugly troll, and it lay out there for almost a week until one of the neighbor's dogs grabbed it and took it back home with him, and a little while later I could faintly hear Mrs. Kravitz screaming "Oh, my God! What in the hell is THAT?" Moral of the story: Nobody loves you when you are down and out.
Now substitute "dollar" for "troll" and "everybody else, especially foreign investors" for "Mrs. Kravitz" and write a fifty-word essay on the topic "Why we should capture and sterilize people who are so stupid that they hear that particular Timeless Mogambo Economic Parable (TMEP) and yet they do not run out to start dumping dollars and start buying silver and gold and oil with both hands."
-- And speaking of indicators, Paul Kasriel of the Northern Trust Company writes that the flat-to-inverted yield curve (the strange occurrence of long-term interest rates being lower than short-term rates) of late is not the only weird thing in the economic firmament. He says "I have plotted the spread between the 10-year Treasury security yield and the fed funds rate - one of my, though not Bernanke's, favorite leading indicators." The spread has narrowed, as you would expect.
So what does this mean about the future? Well, Mr. Kasriel can't help showing off because he is a respected big shot in the world of finance and economics, while I am just a horrible little man, stinking of urine and cheap pizza, who is always screaming about doomsday monetary policy. Effortlessly. Mr. Kasriel waxes both witty and, at the same time, profoundly horrific. The exact quote is "The spread narrows well ahead of the onset of recessions while consumers are blissfully confident about their current situation until just before they lose their jobs." Hahaha! Happily looking at the blue sky while they walk off the end of a pier! Hahaha! Splash! I told you it was funny!
-- Ned W. Schmidt, publisher of The Value View Gold Report, reminds us that "Money illusion is when the amount of money one has rises, but the real value of that money is declining. The value of money is not the accounting concept of how many dollars, pesos, or roubles one possesses. The value of money is an economic concept, or what that pile of money will buy."
Since I have already taken and flunked this economics course three times already, I don't need another lecture about "money illusion". But before I can sit down and let out a big sigh to show him how bored I am with him and his stupid "money illusion" lecture (I mean, what's he gonna do? Flunk me? Hahaha!), he cleverly expands on it by saying "Perhaps one of the greatest monetary illusions of all times is in the recent era. That being that the value of housing, particularly in the U.S., has risen. In simplest terms, the monetary value of one house will buy just one house."
I slap my forehead in delight, and say "He's right! I never thought of it that way before! The value of one house is one house! Hahaha! How clever!" And then everyone starts yammering, "How come the stupid Mogambo can't be clever?"
So while everyone is laughing and having a great time at my expense, we almost didn't notice that he has segued to the ugly side of inflation, such as how the price of a house, measured in ounces of gold, has been declining. "A year ago," Mr. Schmidt says, "about 440 ounces of Gold bought the typical house that traded. In the latest month, only about 380 ounces of Gold were required. Since July, the Gold price of a single family U.S. home has collapsed by about 25%!"
And not only that, but "For speculators, the unrealized losses are compounding. Suppose a speculator bought the median priced condominium in February of last year and sold last month. This speculator put down 5%, borrowing the rest. For a year the speculator has been making loan, association, utility, property tax, and insurance payments. Rent for the period was zero, as qualified renters have been rare. The seller pays a standard agent fee on the sale. The cash return, before any and all tax ramifications, on the cash investment is approximately NEGATIVE 200%."
Hahaha! Brilliant investing, Mister and Missus Real Estate Investor! And how brilliant of the brilliant Federal Reserve to make all that money available, so as to make it possible for this brilliant, brilliant, brilliant scheme to have "lost $2 for every $1 invested in the past year." Hahaha! Brilliant!
I notice that I am the only one laughing, and with a disapproving look in my direction, Mr. Schmidt dryly goes on to say, "At the end of this natural and often repeated progression, housing prices in the U.S. will be 50-75% below current levels, or the government will own the housing stock. That loss in value will be split between those that own the loans and those that borrowed the money."
And, to make matters worse, when their houses go down in value, so does yours, even if you own your house outright and have no debt against it!
-- Do you ever sit around the pub getting really drunk and start talking about how you are getting pretty disgusted by the distracting way I spit when I talk? Or because of the way I mindlessly scratch my butt and groin a lot? Or how my constant burping and farting is a real turn-off for you? Well, then, your prayers have been answered! I proudly present Puru Saxena, of the Money Matters newsletter, who beautifully and perfectly captures the entire horror of inflation when he writes, "The ultimate truth about inflation is that it always benefits the rich who are able to ride the inflationary wave by investing in assets, whereas the poor become even more impoverished as things continue to become more expensive."
And he speaks for us both when he goes on to say "At a human level, inflation is a tragedy and totally immoral." And why is that? Because there is no social force more destructive and horrific in the world than a lot of very poor people getting poorer and poorer. If you don't believe me, pick up a history book sometime and read a few pages. Or better yet, pick up a copy of the Bonner and Wiggin book "Empire of Debt."
Thus prepared, perhaps one day in the future, when you are old, some hot shot reporter from the local newspaper will want to interview you for their stupid little story about how things have changed in all the years, and they want to know how it was possible for America be so stupid about economics all at once. If the reporter is some cute little thing in a short skirt, then you can launch into your epic version of events about the persistent evils of fiat currency and fractional-reserve banking since, oh, say, the time of the Etruscans. But if the little reporter is just some pencil-neck jerk with bad breath who won't even inflate your hemorrhoid cushion, even though you said "please", then you can save yourself a lot of time by just quoting Jim Willie CB, of the GoldenJackass.com newsletter, who says, in his essay entitled "The High Cost of Inflation" posted at GoldSeek.com, "Numerous personal conversations with economics degree holders over the years have revealed to me an absolutely shocking display of ignorance regarding risk from debt in commerce, risk from debt in currency, lost control from foreign debt ownership, wreckage from pursuit of low-cost foreign solutions, insane reliance upon consumption instead of investment, acceptance of the entire lexicon of FedSpeak, and benign dismay of economic statistics. These people have been co-workers in industry, colleagues of friends, and acquaintances socially. One sure path to acceptance of chronic bad policy is to have it blessed by badly educated economics counselors. In fact, a full generation of badly educated economics professionals litters the Washington, D.C. and academic landscape. In a sense, the United States has 're-invented' economic theory. The movement coincides with the advent and growth of financial engineering, which is just a nice glib catch phrase for inflation & leverage."
It's even more corrupt than that, Mr. Willie! Even Keynes himself, their god of economics who, in the 30's, invented a believable but incomprehensible math-based economic rationale for deficit-spending, was careful to say that you HAD to pay back the debt out of the boom that the debt created! But nobody has EVER paid back a dime! Ever! But our "economists" in general and Ben Bernanke in particular (and don't get me started on that arch-villain, the greasy Alan Greenspan) don't even admit to having ever even READ such a thing as having to pay back debt! Hahaha!
If that seems a little wordy to you, or if you just want something more condensed, consider this excerpt from the essay "Central Banks, Weimar Germany and Gold" by Richard J. Green of Thunder Capital Management. He says "The neglect of savings and investment that is crucial to a solid foundation for economic growth has been replaced by central planning of the economy by economic illiterates."
And if you want the ultimate in brevity so you can politely get rid of the kid whom you have grown to really, really hate in the last thirty seconds, then merely quote alert reader Jan A., who calls them " Fediots". Hahaha! Fediots!
-- Reuters reports that "Credit Suisse this week said silver could climb further in the medium-term, to $15 an ounce, hoisted by greater demand due to the ETF." And when Credit Suisse says "the" ETF, they, of course, mean the proposed new Barclays silver EFT. Well, I got some hot news for Reuters and Credit Suisse, and if you one day soon find yourself talking to either of them, you could casually mention "By the way, The Mogambo that there are a hell of a lot of people in this world who have a hell of a lot of money, and they don't need no stinking ETF to get a lot of silver and store it in the basement, and there are also a hell of a lot of other people and other countries of this world who are looking at this silver thing and saying to themselves, 'Hey! This is so simple that even The Mogambo could do it! Let's start an ETF of our own!'"
In short, the Story of Silver is just getting started, and is probably destined to replace the Story of The Mogambo, which chronicles how I was born in a manger on a planet far, far away and my family's flying saucer crashed in Roswell, New Mexico in 1947 and, and, well, you know the rest.
-- From the pile of stuff on my desk labeled "Very good reasons why more and more people hate America, and will for a long, long time", we have this item from AmericaHeraldSun.news.com, which reports " Vietnam War veterans and activists from six countries urged the US government today to compensate millions of people they say are victims of toxins in the military defoliant Agent Orange. Three decades after the war ended, Washington has yet to admit that the lethal chemical dioxin had harmed Vietnamese villagers and foreign soldiers through illness and birth defects."
They then trotted out a guy named Professor Nguyen Trong Nhan, of the Vietnam Dioxin/Agent Orange Victims Association, who said "This toxic chemical has destroyed the environment... and the lives of millions of Vietnamese people. From 1961 to 1971, US 'Operation Ranch Hand' dropped more than 80 million litres of defoliants, half of it Agent Orange, on southern Vietnam, exposing between 2.1 million to 4.8 million people to harm."
Well, I say "boo hoo hoo!" And I say that not because I dismiss the horror of what has happened to them, but because you ain't seen nothing yet! Even as we speak, the United States military is having a field day of horror (FDOH) in Iraq and Afghanistan, expending lots and lots of depleted-uranium rounds. When these rounds burst, they explode into a huge spray of radioactive particles, contaminating everything. And we are using tons and tons, thousands and thousands, of these things! So while Agent Orange is old history, now completely dissolved into whatever biodegradable hell these things devolve to and washed out to sea, the half-life of this radioactive contamination is 11,000 years!
And if you want to see real horror and an angry population, wait until our Iraq and Afghanistan veterans start dying from the teensiest, weensiest little speck of that radioactive "depleted uranium" crap that got into their lungs, and in their guts, and into their clothes, and burned its way permanently into their tissues.
And it is not just them, either! According to Karl W. B. Schwarz, Rense.com, co-author of the Aldermaston Report released in February, "The effects of those bombing attacks were registered as far away as the UK." Hahaha! Congratulations, war-criminal Pentagon buttheads! Having fun blowing up stuff with depleted-uranium munitions is contaminating millions of people and the entire continent, permanently!
And what does this have to do with Agent Orange? Well, not much. It has to do with money, and just as the Agent Orange victims are moving toward litigation, Mr. Schwarz envisions a huge class-action lawsuit as a result of this demonic depleted-uranium thing. "It would sort of be," he says, "The Citizens of the United States, Active Duty and Veterans of the US Armed Services v. The United States Government, certain Defense Contractors, Certain Individuals. My guess is the true price tag for their criminal negligence could easily top $1 trillion in damages the Plaintiffs should be entitled to."
And now think about the coming generations, for the next tens of thousands of years, as whole populations of people want to be compensated because of the radioactive contamination that resulted from the irresponsible, despicable way the America military acted today! Hahaha! And yet you want another reason why I am recommending gold? Ugh.
****Mogambo sez: I particularly like the way that the quarter ended, with the Lipper Mutual Fund Performance Indexes showing that gold funds came out in first place (gold got the "gold medal!" Get it? Gold wins a gold medal? Hahaha!) for the first quarter of 2006, up 22.5%! Whew! And gold-oriented funds also garnered a nice first place finish for the last twelve months, too, up 68%! Hahaha! This investing stuff is easy!
And the best news is that it gets better and better from here!