The Golden Age of Things to Write Economics Term Papers About
"...Foreign dollar-holders took a nice whack to the head in the last month, and this is providing them with a real education. The kind that sticks with you for years..."
The Mogambo Guru
- Greenspan's Fed couldn't contain itself any longer. Total credit - Greenspan's Fed couldn't contain itself any longer. Total credit extended by the Fed jumped $12 billion last week. Twelve billion! Total Fed credit outstanding is now larger than currency in circulation. They managed to hold themselves to the relatively minor fraud of sterilizing a paltry $2.5 billion for the same week. The Treasury jumped in and released another $5 billion in fresh fiat currency.
Man, these are exciting times for economists. We are in the epicenter of the bizarre endgame of pandemic central bank corruption, and in the future this will be referred to as the Golden Age of Things to Write Economics Term Papers About.
- Thanks to Thomas Donlan of Barron's we know that tax receipts recorded by the Treasury are way down for this fiscal year already, and down about 11% for all of 2001. But spending is up 8%. Making less but spending more. Typical.
And the CBO agreed both that the government is going to borrow $55 billion in the next quarter, and that the total deficit for the year will probably hit $150 billion. But everything must be seen as being just peachy, so today the Treasury released an announcement that they were paying down $2 billion in debt. Hahahahaha!
Mr. Donlan also provided this pithy quote on the value of the dollar vis a vis the order of magnitude in anticipated raising of the government debt ceiling (now topped out at six trillion smackeroos): "But the United States of America will have taken one more step on the trail blazed by Argentina, Russia and so many other countries that are wealthy in resources and human knowledge, but foolish in the way they handle their finances. The dollar is only money because the world's people believe we won't abuse them."
Huh? The world's people trust us not to abuse them? Since when? Hell, the people of THIS country don't believe the government won't abuse them. The dollar is only money, to correct Mr. Donlan's error, because the world's people do not understand the mechanism whereby the ubiquitous dollar, which has been a Rock of Gibraltar for as long as anyone can remember, would lose value.
But foreign dollar-holders took a nice whack to the head in the last month, and this is providing them with a real education. The kind that sticks with you for years.
- A guy named Wicksell came up with the idea of a "natural" interest rate and a "market" interest rate. The natural rate comes from the idea that there is an interest rate that produces an aggregate savings that is equal to aggregate investment (otherwise, where would the investment money come from?). The market rate is the rate actually charged by banks. When the Fed pounds down the market rate, creating too much money and thus reducing the market rate of money, the two are in disequilibrium. And the upshot is that the divergence between the two will, says Wicksell, cause a change in the value of money. We are seeing this now.
And, as evidenced from the first paragraph above, the Fed and the Treasury are continuing to pound down interest rates by committing the overt fraud of sterilizing government debt at an accelerating pace, providing tons of credit to anybody that asks for it (like the IMF and World Bank), and printing up cash, further distorting the gap between the natural rate and the market rate, and thus further decimating the dollar.
- The Fed's criminally-stupid behavior is now predicated on the fact that the insurance industry, the retirement plan industry, the Wall Street industry, Federal tax revenues and other vitally interested parties all need to invest in stocks and have stocks move up forever. They want, and need, to pump that sucker back up.
Insurance premiums are already inflating at double-digit rates to make up for the fact that claims are increasing and investment performance is awful, producing losses for the underwriters. Corporate retirement plans are a-fixin' to require the companies to put much, much more money into them to make up for the losses. Federal tax revenues are suffering because of the drastic drop in reported gains to be taxed away. Tip o' the day: sell insurance stocks. Massively raising premiums to save your own butt does not mean that you will sell many policies at that high rate. Much better to just temporarily go out of business while there are still a few bucks left to start up again when things are better.
- The weak-dollar/strong-dollar argument is still making news. One of the arguments for a continued strong dollar is that the US dollar is a reserve currency of foreign governments. Huh?
Is that to imply that there are just so dangity-dang many dollars floating around the world that they are now just another commodity, but somehow immune to the vagaries of market forces?
And is that to imply that the dollar is being used for buying and selling
foreign products and services between foreign nationals?
And is that reserve currency thing implying that those governments will always be happy to intervene in the currency markets to support the dollar by selling their own currency?
And is that implying that foreign nationals are a dim-witted lot, always eager to have lots of devaluing money? So how valuable is a currency when the underlying economy is going down, the government is speeding down the highway to socialism, the citizens themselves and every level of government are a bunch of under-educated, self righteous, over-indebted yahoos, and the central bank is actively pursuing policies to devalue the currency and foster inflation?
- The 2001 Financial Report of the United States Government had an interesting statement by Treasury Secretary Paul O'Neill. He noted that when the government uses the same accounting method that corporations are required to use, the federal deficit in 2001 was $515 billion. The government, that ignominious cartel of liars and idiots, said the budget had a surplus of $127 billion!
The accountants working at the government had to invent a fictitious $17 billion expense ("disappeared down a rat hole line item") to nominally "balance" the books.
- Got a call from a guy named Ty who was adamant that the Fed is frantically buying up both equities and government debt to support the market. Well, duh. What was it supposed to do, sit there and let the chips fall where they may? After Greenspan has spent his entire Fed career working feverishly to foster one ridiculous bubble after another, committing one financial fraud after another, one egregious pile of flummery and stupidity on top of another? Now, after all that, he is going to let this bloated and cancerous mountain of preposterous economic glop collapse before he has a chance to retire? Hahahaha! Stop! Stop! I'm laughing myself sick here!
And that brings up another interesting point; who is going to replace Greenspan? What congenital idiot would voluntarily walk into that mess, knowing that he or she is going to be blamed, his career and reputation ruined, for forcing childish and greedy Americans to stop eating candy by the literal pound? Not me!
Of course, if you just wanted more Greenspanism, just give a retarded monkey the power to create more preposterous credit-creation by waving his little paw in the air. It worked for Greenspan. He became the most powerful man on earth with nothing more on the ball than the awesome power to create money out of thin air!
- Gary North penned a nice overview of the large overhang of central bank short positions in gold, measured in the hundreds of tonnes. This came about as these banks loaned out their country's gold at essentially 1% interest to miners who sold it, instead of having to dig the stuff out of the ground. Now the banks still have the gold in their vaults, but it is not theirs anymore. The banks are mere custodians. Now the miners are in the un-envious position of having to repay the gold to the central banks at less than the market price of gold. They lose money on every ounce they dig up. A worrisome prospect, according to Dr. North, is the upheaval that will ensue when the citizens of those countries find out what has happened to their gold.
He also had an unflattering remark about University of Chicago economists, with which I totally agree. Today's crop of economists resemble nothing more than the geocentric, Copernicus system of the cosmos, with astrologers wearing pointed hats decorated with half-moons, calculating complicated epi-cycles of the planets. Very entertaining and time-consuming, but completely worthless.
- The SP500 is back to where it was in April of 1998. That's four years ago. So now the four-year results of using the trading system of selling short the market when it rises is paying off almost 100%. The only dip that hasn't been covered is the post-WTC September 2001 low. The beauty of this amazing New Theory ("only $39.95 from Whiz-bang Products! As seen on TV!") is that it requires no computers or even thinking. If the market goes up, sell short. When it falls some profitable distance below where you sold it short, buy it back and pocket the money. It has worked every single time (except, temporarily, the one) for more than four years running. The big upside blow off of the SP500 didn't really get started until January 1995, when that index was around 450. That was seven years ago.
It peaked in April 2000, with the index standing at around 1,500. At the height, it was quadruple where the index stood in the early 90's. Perhaps coincidentally, that was shortly after Clinton (ugh) and Greenspan (double ugh) took over and had a chance to get up a head of steam, by the way.
Now the decline in the SP500 has, on average, wiped out four of the seven years of big, outsized Wall Street profits from owning stocks. Isn't there something in the Old Testament about Seven Fat Years? Then comes seven what?
- That some kind of war will be fought, if not actually declared, is a given. With the economic miseries besetting the USA and the rest of the world, a war is almost certain. Scapegoats must be found! The malefactors must, and will, be punished! Hooray for us, we're a-gonna get them rats and string 'em up!
And why not a war or threat of war? Didn't our government idiots just spend an entire few decades bribing Arafat and all the other Mideast terrorists to make nice? We played patsy for one expensive, pay-me-off-before-I-kill-again extortion after another for as long as anybody can remember, and now suddenly we're not paying off terrorists anymore? Says who?
- I figure that pretty soon somebody in government is going to get the idea to let IRA and 401(k) holders make limited, penalty-free, premature withdrawals from their retirement accounts. The gains tax would still be due, giving the Treasury some needed money, Congress some spending money, lessening the issuance of new debt, and giving the consumer a fistful of money to spend. And nothing really picks up stock prices more than rising demand for output. Even though such an increase in demand is thoroughly bogus, as it is merely more running down of savings. Present consumption at the expense of future consumption, and all that.
- Bank lending has stopped. Putting savings in bank accounts has also stopped.
- Foreign central banks are doing their part to keep the dollar alive; they have dramatically stepped up their purchase of US government debt. This does double-duty, as they first have to buy dollars (thus keeping the dollar strong) and keeps interest rates low (by buying debt and keeping prices up). This must be part of the "dollar as a reserve currency" argument that is so popular.
- The various incarnations of the monetary base have started to go ballistic, as has currency in circulation. However, the M's are not cooperating.
- The NYSE Members are still accumulating stocks with both hands, I assume because they anticipate a (another?) intervention by the Fed to funnel money into their pockets. The open interest of SP500 futures is going red-line also, as the end-of-half approaches. God forbid if investors have to open their mailboxes in July only to read that they lost yet another buncha money in the stock market. Ergo, it's time for the Fed to overstep it's bounds again, and engage in another huge scam of deceit, corruption and manipulation. All for "the good of America," you can be sure.
- Manufacturing wages were down, for the jillionth month in a row. Service wages were up a little. But government employee wages zoomed. Perfect. The one sector of the economy that produces no wealth at all, but actively destroys wealth, got the biggest boost in income.
Gains in spending also, for the jillionth month is a row, outpaced income gains, as Americans continue to rack up more debt on top of the other unbelievable amounts of debt to continue to finance a bizarre and dysfunctional lifestyle.
- It was with a laugh that I saw a poll that ninety percent of Americans
think that the stock market is too risky a place to be saving for their children's college tuition! Man! This is almost too rich!
- David Tice has penned an impressive narrative of the bear case in the semi-annual Prudent Bear Funds report. He particularly takes to task the GSE's, especially Fannie Mae and Freddie Mac, for acting like give-'em-anything jackasses. Perhaps we'll soon see the wisdom of putting Franklin Raines at the head of Fannie Mae; when all else fails, pull out the race card. That ought to keep Congress on a short leash in investigating the housing bubble that has been created by these GSE's.
- Many states are sharply raising taxes on tobacco to cover their budget shortfalls. This will not raise any money for them. It will, however, mean an increase in cigarette smuggling, associated crime, more extra-Constitutional powers for government agents, and more taxes and expenses to pay for it all. Ugh.
Mogambo Sez: Speculative money must surely be dried up. Not for nothing are federal and state revenues so drastically curtailed. The wealth effect is surely gone, and so where is all the cash for big, lasting rallies going to come from? Go short.
The Mogambo Guru Lives!
Richard Daughty is general partner and C.O.O. for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise the better to heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning, and other fine publications.
dailyreckoning.com |
