- I don't know if I am just confused as usual,
but I am unsure whether last week's $4.6 billion drop in Total
Fed Credit is cause for celebration (that the Fed has stopped
acting like profligate monetary morons) or panic (that the
economy is now totally dependent on the Fed acting like profligate
New Fed-created bank credit is supposed to mean
new debt and new money, but where is it? As a result, the
M2 measure of the money supply is just languishing all of
a sudden. It is not a good sign, and toting an Uzi with me
everywhere I go is not a good sign either, but they are both
connected. Why? My finger suddenly spasms, and a bullet unexpectedly
gets fired into the wall. My wife is screaming "What
in the hell was that all about?"
I fix her with a glare instead of explaining
that it might have something do with Ty Andros, of TraderView.com,
writing "The fiat currencies and debt creation model
the industrialized world has implemented will collapse unless
money and credit is continuously being expanded. It is basically
a type of Ponzi finance scheme where new buyers must take
out existing holders of assets at always-higher prices."
This is oddly in keeping with Puru Saxena, of
the Money Matters newsletter, who writes "In 1971, the
non-gold reserves of all countries were worth US$100 billion
and today these have grown to roughly $4.3 trillion - an alarming
43-fold increase in 35 years! Rampant monetary inflation fuelled
by the growth of credit turned the capital markets into one
giant casino as punters worldwide (often loaded with credit)
searched for the next opportunity to make a fortune."
And I notice with a grim Mogambo frown (GMF)
on my stupid face that Required Reserves in the banks actually
went down to the bottom of its range for the last zillion
years or so. Hell, picking a date in random, say, in May 1995,
which was eleven long years ago, total deposits in the banks
("savings") were only around $110 billion, and total
Loans and Leases on the books of the banks logged in at only
$204 billion. And against that, the banks were saddled with
$57 billion in Required Reserves.
Now, I notice how my blood has run chilly,
and how everything is dark and gloomy. Gaunt buzzards have
gathered in the trees to sit and lick their chops as they
glare into the deep, dark, dangerous depths of my soul. I
realize, in a sudden cold sweat, that the dollar and the banks
(as we professional Mogambo economists (PME) say) "are
The scene is now perfectly set to reveal the
ugly fact that Total Deposits at the banks are up to $5.2
trillion, which is 47 times bigger than it was in 1995. That's
a growth rate of 42% a year, compounded! And total Loans and
Leases is now $5.7 trillion, which is 27 times bigger than
in 1995, which works out to an annual growth rate of 35% a
year! Big, BIG increases!
Yet against that monstrous, cancerous rise
in both assets and liabilities, the Required Reserves went
DOWN from $57 billion in 1995 to only $42 billion today in
2006! Hahahaha! Surprise! Down! Required Reserves went DOWN!
Hahahaha! To keep the same 0.518 ratio of Required Reserves
against total deposits in the banking system in 1995, the
banks would have to have, right now, in Required Reserves,
$2.693 trillion! Instead, they have only $42 billion, 1.6%
as much! Hahahaha!
In short, more than ALL of the money and credit
created in the banking system since 1995 have been literally
created without any underlying cash deposits of any kind!
None! Zero money! This is an infinite multiplication of deposits!
Fractional-reserve banking at its insane, suicidal extreme!
But the latest stupid shenanigans of us Americans
and our precious little Federal Reserve are getting to be
almost insignificant. Bloomberg.com reports that China’s
Shanghai Securities News revealed that, for May, "the
Chinese M2 money supply growth rose 19.5% higher than the
level last year."
Anyway, Foreign Holdings in custody of the
Fed went up by a hefty $6.8 billion last week, which is, I
guess, how foreigners are trying to help us "manage"
the planned decline in the dollar.
And you wonder why it is that I am always screaming
that you buy gold and silver? Hahaha! Wonder no more!
- Fannie Mae, which has turned into a gigantic
cesspool of corruption, lying and deceit, has already admitted
to $11 billion in "mistakes", mostly tied to the
managers massaging the books to award themselves outlandish
bonuses while hijacking the majority of the American mortgage
market. Beyond the fact that it IS bad, it also LOOKS bad,
according to Alex S. Gabor, who is a freelance writer appearing
on OpEdNews.com. He opines that "Allowing Fannie to continue
to trade tells the rest of the world that the corruption is
not yet over. America has gotten so fat it cannot reach around
and clean up its own messes without keeling over." Hahaha!
- The latest "official" annual rate
of inflation is 4.2%. Four point two percent! Even after all
the rubbing and scrubbing and statistically falsifying of
the raw price inflation numbers and "adjusting"
the contents of the market basket they are measuring, this
is the best lie they can come up with? Hahaha! I laugh in
contempt until little specks of spittle start flying off my
rubbery lips, as disgusting and obviously revolting as it
is to the other people around me in the restaurant, huddled
together in their stupid booths, eating their stupid hamburgers
while plotting against me and saying terrible things about
me behind my back.
In weird contrast, the official "Gross
Domestic Product Deflator" went down from 3.5% to 3.3%.
Hahaha! In case you have forgotten, the "Gross Domestic
Product Deflator" is the rate of inflation that they
use to statistically adjust nominal GDP (which is essentially
the prices of all the things that were bought in a year, times
the number of units bought). This wrings out the effect of
inflation to arrive at real, honest, inflation-adjusted growth,
and reported as "real" changes to the Gross Domestic
Product, which ain't a-going nowhere, even with all of this
Perhaps this has something to do with total
nominal retail sales being up a scanty 0.1% in May. And remember
that these are "nominal" sales, meaning the only
thing actually being reported is total money spent. When you
adjust for inflation in prices, you derive the increase/decrease
in the standard of living.
Failing that, you can more accurately derive
the famous Mogambo Standard Of Living Index (MSOLI) as part
of your professional duties (and therefore tax-deductible!)
by repeatedly going to local "gentleman's" clubs
and keeping careful records of how many dollar bills are tucked
into how many ladies' garters per unit of time, cross-referenced
by ugliness of the girl (a high reading indicating that times
are so good that men are, from the sheer ennui of constant
beauteous bounty, looking for less comely ladies in a quest
The dollar, as reflected in the dollar index,
is still in a dead-cat bounce; it is still slightly rising
when it should be crashing. I bring this up because the standard
of living is connected with the value of the dollar. If the
dollar buys a lot of stuff, you feel good, sort of like when
I came home from my strenuous research at the Club Wanda Wanda
Wanda, situated, as it is, way out on the dusty outskirts
of town, where regulations are few, where police are scarce,
where they have no cover charge, and where they serve hard
liquor really, really, really cheap. This means you get can
drunker for the same amount of money, which is the same as
having a strengthening currency. This, in turn, means you
don't care or even notice that the girls are older and uglier.
But that means, again in turn, that you can tip them less,
and they are still grateful as hell! I keep telling my wife,
"But going to Club Wanda Wanda Wanda is a rise in the
standard of living!" But not being a trained economist,
she obviously just does not understand the whole concept.
So, retail sales and both sets of MSOLI data
are in agreement; total units sold are down, total dollar
bills tucked are down, and only pretty girls are getting the
- The Labor Department said that prices paid
by Americans rose 0.4% in May, which is plenty bad enough,
but marginally better than in April, which showed a 0.6% increase.
MarketWatch.com figures "In the past year, the CPI has
risen 4.2% -- and at a 5.2% annual rate so far in 2005."
The CPI-U, a subset of the Consumer Price Index
(CPI) figures, on the other hand, increased 0.5 percent in
May, which is 25% higher than the headline CPI of 0.4%. Annualizing
and compounding 0.5% inflation results in an annual inflation
rate of 6.2%! Yow!
And none of this wholly, or sometimes even partially,
reflects the big rise in energy prices, which are rising at
the annual rate of 31%!
And the measure that the government uses to
estimate the cost of home ownership as part of the CPI, owner's
equivalent rent, jumped 0.6 percent last month, which was
"the biggest increase in 16 years." The blame for
this is that rents for housing are increasing, reflecting
higher demand for rental housing, reflecting increasing property
tax bites, reflecting higher property values (thanks to Greenspan's
monstrous Federal Reserve, which spawned the housing bubble)
and reflecting higher insurance costs, thanks to the Federal
Reserve keeping yields so low to make up for its own mistakes
that the insurance companies can't make any money from investing
your premiums in bonds.
Naturally, Treasuries fell, pushing yields on
two-year notes to more than five-year highs, which not only
means that the yield curve is inverted, but it also means
that bond prices are lower than five years ago. And they are
probably going to get worse after the big increase in May
consumer prices "cemented expectations the Federal Reserve
will boost interest rates again this month."
And all of this nervousness is not just me over-reacting
as usual, accidentally pulling the trigger at every bit of
bad news. Others beyond my wife, kids and obnoxious neighbors
are starting to get real nervous, too, as evidenced by the
VIX, an index at the Chicago Board Options Exchange that measures
stock market volatility. The index has risen to levels higher
than at any time in the last three years.
And if you think that gingerly raising interest
rates will stop a rising inflation, you are wrong, wrong,
wrong. Until the rates get so high that they cripple the economy,
higher interest rates only produce higher prices, which is
de facto inflation: As the producer of goods and services
borrows money to finance the on-going business, the higher
costs of that borrowing have to be figured into the higher
prices of the final output of goods and services so that the
business can make a profit. So in the short run, higher interest
rates actually cause higher prices. And that's another compelling
reason, as if you needed any more reasons, not to let inflation
in prices get started by letting inflation in the money supply
The only thing that will stop inflation is the
inability or unwillingness (or both) of consumers to consume
goods and services at those higher prices. This will cause
economic contraction in our grossly distorted, mal-invested,
twisted economy. And when those mal-investments fail, it is
going to take everything else down with them.
- Roger at the Rocklin Coin Shop sent me a one-ounce,
pure silver round that was, so I surmise, made in 1985 by
an outfit named Liberty Mint. The obverse has abstracted Article
1 Section 10 of the Constitution to read "No State Shall…Make
Any Thing But Gold and Silver Coin A Tender in Payment of
Debt", in the singular, whereas in the Constitution it
reads "… in Payment of Debts" the plural.
So this is an obvious mis-strike, and therefore worth lots
and lots of money to collectors, and the first one to get
over here with $100,000 in cash can have it.
The face of the "coin" has a beautiful
engraving of the old wooden square-rigger warship, the U.S.S.
Constitution, circumscribed around the outside of the coin
by the words "Honest Value Never Fails." Oh? Says
who? Gold ounces should be selling north of $2,000 right now,
which is gold's honest value, and silver should be easily
over a hundred dollars per ounce right freaking now, and that's
its honest value. But they are not!
And not only are gold and silver NOT selling
for "honest value", but they have a taken a huge
tumble in the last month, down from less than half their "honest
values" as it was!
The explanation? For honest prices, you have
to have an honest marketplace. But you can forget about that,
as Dan Norcini of jsmineset.com noted when he discusses the
recent price decline in gold. He, due to longstanding familiarity
with the commodity trading pits, says that the strange action
in the futures pits before and during the decline in the prices
of precious metals leads him to only one obvious conclusion;
it "was an orchestrated and deliberate attack by the
Central Bankers of the West to break the back of the gold
market and defuse the warning message that gold was sounding
- Rob Parenteau, a global strategist for RCM
and appearing at PrudentBear.com, writes "As of Q1 2006,
the gap between household sector expenditure and income widened
$100b to a nearly $700b deficit at an annualized rate."
Having recently mastered the "on-off" switch of
my calculator, this is a chance for me to show off my new
skills! So, deftly, I divide that $700 billion income deficit
by the 300 million people in the USA, and it means that very
man, woman and child in America spent $2,333.33 cents more
than they earned!
This may have something to do with the Labor
Department reporting that weekly wages, adjusted for inflation,
fell 0.7 percent last month. Even worse, wages are down 0.2
percent over the past year.
But before I can interrupt him with this priceless
bit of information, he goes on to say "This deterioration
in the household financial balance has been going on since
Again desperate to show off my math skills,
I quickly subtract 1997 from 2006, and after a few tries,
I finally get the answer "9", meaning that people
have been spending more than they were making for the last
nine years. Again I raise my hand to interrupt Mr. Parenteau,
hoping to impress him with my fancy calculating, but he is
still not interested, probably because much worse news is
to come, namely, "Since early 2005, the rate of decay
has accelerated noticeably. The US household sector financial
balance is plunging."
- From Dr. Steve Sjuggerud at DailyWealth.com,
we find him taking a page from Marc Faber's book Tomorrow's
Gold, which he calls his "cheat sheet for the next ten
years." From the book he lists the things that gained
the most in the 1974-1980 period, which is highly reminiscent
Back then, oil topped the list, rising 1,866%
in price in that period of time. The next biggest winner was
gold, up 1,458% in price, followed by U.S coins (1,053%),
silver (739%), Chinese ceramics (607%), diamonds, farm land,
art, followed by housing (164%), stocks (81%), bonds (89%),
all of which sounds pretty good until you note that Mr. Sjuggerud
includes the fact that inflation (as measured by the CPI)
was up 110% in those six years.
Brian Hunt, also at DailyWealth.com, has an
interesting technical indicator. He reports that all three
times in the last 110 years that the stock market went three
years without a correction, "it always precedes a plunge
in the S&P 500." This seemingly-infallible indicator
has now ominously again occurred on March 15, 2006.
- From Reuters we read the horrifying news that
"The dollar slid to session lows against the euro and
yen on Thursday after the release of data that showed net
capital inflows into the U.S. in April were way short of expectations
and insufficient to cover that month's trade deficit. The
net $46.7 billion net inflow into U.S. securities in April
was the lowest since March last year."
- Edgar J. Steele of ConspiracyPenPal.com "You
may not have noticed, but the dollar lost one third of its
value under the first five and one-half years of the current
Bush Administration. You won't believe what's going to happen
during the next couple of years!"
He goes on to quote an "unattributed article
on Unknown Country's web site entitled "Dollar on the
Edge" which notes that "A 'run' on the dollar, caused
by panicking foreign holders attempting to sell into non-existent
buying, could cause the dollar to collapse very suddenly,
even over a matter of days."
To prevent that and to prove that we Americans
are now as corrupt as any other dirtbag nation on the earth,
the article continues "There is evidence that the US
is attempting to manage the decline by purchasing its own
debt. As Asian purchasing of US paper declined last month,
the slack was taken up by Caribbean and UK banks that would
not normally have the liquidity to make such purchases. Therefore,
they are acting for a third party, and the only party that
would buy dollars when a loss in value is inevitable is the
Why are we so intent on proving that we have
no morals or ethics? "By doing this," the article
concludes, "the US is hoping to prevent a sudden collapse
of the dollar and the subsequent unwinding of the US and world
economies in a fiscal disaster so profound that it will eclipse
the Great Depression."
Mr. Steele's summation was "In other words,
boys and girls, the dollar is doomed."
- I wish to happily confirm the rumor that I
am again invited to speak this year at the Silver Summit in
Idaho in September. Thankfully, the people who run the Silver
Summit obviously have very low standards and a peculiar penchant
for embarrassing themselves by the quality of the company
they keep. But if it weren't for those kinds of poor, pathetic,
deluded people, I'd never get out of the house at all! Hope
to see you there!
- Martin Weiss of the Safe Money Report takes
a trip down memory lane when he recalls that his dad said,
in 1970, "In past cycles, for each $100 billion in new
debts added to the economy, the level of short-term interest
rates went up by one full percentage point before the cycle
Instantly my ears pricked up! $100 billion
in new debt equals one percentage point higher interest rates?
Wow! Hell, the federal government alone amasses that much
new debt every two months!
Mr. Weiss goes on to say that in 1970 his dad
said, "Now, after adjusting for inflation, $1 trillion
in net new debts has been added. So, if the ratio holds up
in the next cycle, the short-term T-bill rate will have to
leap from about 7% where it is today to as high as 17% where
I think it will eventually peak."
The result of this prediction? "Precisely
ten years later, in 1980, that's exactly where the 3-month
T-bill rate peaked: At 17%. Meanwhile, the price of crude
oil rose by over tenfold."
Then he fast forwards to today. "Even
adjusting for inflation, today's numbers make America's 1970
debt pyramid look like an anthill by comparison."
So how high will interest rates go if this
rule of thumb (one percentage point higher rates for every
$100 billion in new debt)? Search me. How do you measure debt?
Do you include derivatives? I dunno. But comparing the end-state
17% interest rate of 1980 as an "anthill" to today's
insane levels of debt, I must conclude that 17% will look
- If you wanted more proof that the economics
profession has been taken over by grubby idiots (beyond the
proof offered by the fact that the Federal Reserve was chaired
by Alan Greenspan, and now by Ben Bernanke!), then get a load
of the Wall Street Journal editorial Tuesday that showcased
a letter by "500 prominent economists, including five
Nobel laureates" who signed a letter to President Bush
saying that "immigration has been a net gain for American
Their analysis is that they work cheap, see,
which helps keep prices down. This is the "net gain"
for America. In short, ruthless exploitation of the tragically
poor is a "net gain", while, somehow, the $80,000
in taxpayer money spent per illegal immigrant per year is
NOT supposed to be part of this "net gain" for America.
And this all comes at the same time the Democrats are working
feverishly to increase the minimum wage by 40% over the next
two years because wages are so low? Idiots! All of them! Idiots!
Next, look for a letter from these five hundred
filthy halfwits recommending that we re-introduce slavery
to America, since they will champion anything, no matter how
despicable, loathsome or laughable, that can be misrepresented
to show a "net gain" of some kind.
- Lester Brown of the Earth Policy Institute
says "This year’s world grain harvest is projected
to fall short of consumption by 61 million tons, marking the
sixth time in the last seven years that production has failed
to satisfy demand. As a result of these shortfalls, world
carryover stocks at the end of this crop year are projected
to drop to 57 days of consumption, the shortest buffer since
the 56-day-low in 1972 that triggered a doubling of grain
He goes on to say "Perhaps the
most dangerous threat to future food security is the rise
in temperature. Among crop ecologists there is now a consensus
that for each temperature rise of 1 degree Celsius above the
historical average during the growing season, we can expect
a 10 percent decline in grain yield."
None of this is news to alert reader Andrew
H., who says he has farmed in eastern Australia for 36 years,
who says that "The last 18 months is the worst I have
ever experienced. Large parts (90%) of New South Wales are
drought stricken (no winter wheat plantings) in Western Australia
they had the driest May on record ever, also no wheat planted."
- On Azcentral.com we read where Jesse Toprak,
executive director of Edmunds.com, says "Where the average
car loan in 2003 lasted for 60 months, it has crept up to
64 months today."
As horrified as I am at the concept of a car
loan for five and a half years, I run screaming from the room
when he reports that "Part of the reason is the introduction
of the 72-month loan." The introduction of the six-year
car loan is only part of the reason that the average new car
loan is longer? Wow! It is worse than I thought!
"Seventy-two months is sort of becoming
the norm," he said. "Unless you put a substantial
amount of money down, you will have negative equity."
That last cryptic remark stems from the additional
news that "nearly 29 percent of U.S. car buyers found
themselves 'upside-down' on their loans, owing an average
of $3,789 more than their trade-in value." Ugh.
****Mogambo sez: My advice on gold and
silver? Instead of me droning on, hour after hour, listen
to the succinct Mike Hoy, who says the same things I would
in few words. Writing an editorial on Gold-Esagle.com. He
says "I believe the reasons for owning the precious metals
have only intensified and become more obvious as each day
Richard Daughty, the angriest guy in economics
9241 54th Street North
Pinellas Park, FL 33782
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