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Inflation is Scarier than Skimpy Pizza

By: Richard Daughty, The Mogambo Guru - The Daily Reckoning

-- Posted Thursday, 18 October 2007 | Digg This ArticleDigg It! | Source:

I had the Mogambo Bunker Of Paranoid Hysteria (MBOPH) in total lockdown, as I instinctively sensed something was wrong. Most things looked normal, however, and even though oil had risen to over $88 a barrel, the stock market was holding up fairly well, the bond market was holding up, and even Total Fed Credit (the stuff from which money-from-thin-air, the stuff of which price-inflation-from-thin-air, is originally created) was doing nothing much, either, and was actually down by another $3.2 billion last week.

"Animal spirits" and sheer guts to buoy the financial markets were still in evidence, too, as Doug Noland in his Credit Bubble Bulletin at reported that, "Bank Credit surged $54.5bn for the week (10/3) to a record $8.982 TN. Bank Credit has now posted an 11-week gain of $339bn (18.5% annualized) and y-t-d rise of $686bn, or 10.7% pace." Wow!

And some interesting news from a "new milestone" perspective was that Foreign Holdings of U.S. government and agency debt stashed in their accounts at the Fed rose by a few billion bucks last week, making the total in those Federal Reserve accounts finally go over the $2 trillion mark, rising to the princely sum of $2,003,863,000,000, which is properly pronounced as "two trillion, three billion, eight hundred sixty three million dollars", but in actual practice is pronounced with a foreign accent as, "You vill do vatever ve zay to do, or ve vill crush you, American pigs."

I don't know if it was coincidence or what, but as soon as we started talking about pigs, I started thinking about pork products, and how (looking at my watch to get the correct time) right about now was a perfect time to have a nice pizza smothered in a yummy variety of them, when, suddenly, here comes John Williams of!

Naturally, I pretended that I was not going to order a pizza, ("Pizza? Who? Me? No!"), because then I would have to share it with him and all the other people who mysteriously show up whenever I order a pizza, and you know how I feel about that kind of crap.

So I look at him obliquely, and cleverly arch one eyebrow to non-verbally ask, "Yeah? What do you want? It better not be pizza because I'm not ordering a pizza! No, sir! No pizza around here!"

This is the part of the story where I realized that he was onto my little lie, and he decided to kill me for it, by giving me another heart attack! I couldn't believe my eyes as I watched Mr. Williams probing, probing, probing his brain for the perfect piece of lethal information to send me to that Big Mogambo Economy In The Sky (BMEITS). Suddenly - blam! - I get it right between the eyes when he says that the money supply is exploding, and that "September M3 Annual Growth Hit 14.7%".

My heart, as predicted, stopped beating at the shock, but my anger at the situation sent so much adrenaline into my blood that it started beating like a trip-hammer going, "Blam! Blam! Blam!" Again, I'm ready for action!

Then, also probably coming around to snag a little of my damned pizza, Peter DeGraaf of shows up to report that money is surging all over the place, and "The money supply worldwide is increasing about seven times faster than the supply of newly mined gold." At this, I had to laugh because that means that gold is getting more and more undervalued in terms of overvalued currencies with every waking moment, as the world's central banks are creating seven times more money and credit with every waking moment than the mines of the world can produce more gold!

Even though I rubbed my grasping, grubby fingers together in glee, I did not say anything, of course, in case somebody wanted to know something like, "How undervalued is gold?" and I would have to either lie my head off or admit I have no idea, which I actually don't because I am stupid, to my dismay.

So it was a tense few moments, but fortunately, Mr. DeGraaf took care of that little valuation chore, and said, "Adjusted for inflation, today's gold price of $740.00 compares to just over $300.00 in 1980 dollars." And in case you did not get the message, he explained it in capital letters; "GOLD IS CHEAP!"

Meanwhile, my heart is smashing through my chest with its incessant pounding, pounding, pounding at the inflation in the money supply. The reason is, obviously, that all this new money (monetary inflation) always means price inflation is coming, which is the worst thing that an economy can inflict on itself, and for which the penalty is measured in misery, bankruptcy, pain and suffering by the ton… Or, if you are on the metric system, tonne. Either way, it's a lot of economic agony!

Sure enough, Mr. Williams goes on to say, "Watch Out for CPI Annual Inflation Surge!", as all of the excess money and credit that the world has been pumping out has made the seasonally-adjusted September PPI rise "by a stronger than expected 1.1% (1.0% unadjusted) for the month, against a 1.4% contraction for August." One percent in one month! This is absolutely terrifying inflation in prices!

Ominously, he says, the change in annual PPI inflation literally doubled when it, "jumped to 4.4% in September, up from 2.2% in August."

By this time I am screaming, "No more! Please! No more bad news about price inflation, the one terrible thing to be feared above all things!"

And then my brain flashes to a pizza without delicious pork products, and I realize my mistake. So I hasten to amend this by saying, "No more! Please! No more bad news about price inflation, the one thing to be feared above all things, except maybe skimpy pizza! But almost as bad!"

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise 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.

-- Posted Thursday, 18 October 2007 | Digg This Article | Source:

Visit The Daily Reckoning's website.


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