-- Posted Tuesday, 23 October 2007 | Digg This Article
| Source: GoldSeek.com
The spooky, chilling news is that M3 is going up at an annual rate of over 14%, which is made worse by the fact that the rate of growth is getting faster and faster!
Naturally, the dollar went down in value, and now the dollar index has dropped to less than 78, which is about as low as it has ever gotten in modern history.
James Turk in his Freemarket Gold & Money Report asks, "Will the mismanagement of the dollar end in deflation as the mountain of dollar denominated debt collapses reducing the money supply, or will it end in inflation as the Federal Reserve pumps up the money supply in order to bail-out debtors - and in particular, the U.S. government - with an endless quantity of newly created dollars?"
Well, I was bravely gearing up to try and answer that question, hoping to impress that cute little reporter from the World Sun Times Herald newspaper with how smart I was, perhaps overcoming being handicapped in the romantic vein by her strong antipathy to my disgusting appearance, manners, odor, hateful attitude, vicious streak or old age, and I was really sweating bullets since I had no idea what in the hell he was talking about, making my odor problem even worse.
Fortunately, I was suddenly relieved to discover that I did not even have to try, as Mr. Turk went on to explain that, "The reality is that this debate is a red herring. Only half the question is being addressed, namely the supply of money. In other words, the debate centers on whether the supply of dollars will increase or decrease. What about demand? The antagonists to this debate ignore demand by assuming that the demand for dollars will continue to grow. But what if it doesn't? What if it drops?" In fact, he says, "In the end, demand is more important than supply."
When he said, "demand is more important than supply", it really hit home with me, as a recent analysis of my business records revealed that while I offer an unlimited supply of stupid economic and investment advice ("Go to hell and leave me alone!"), there is no demand! This instantly explains why my income is literally zero and I have no money, and his point is thus proved. Secretly, I have to laugh, because all this time I thought it was because my wife and kids were stealing me blind, and I have been making their lives into a living hell for it! Hahaha! I guess the joke's on me!
So I was naturally disappointed that he did not actually answer that question about what happens if demand for dollars does not grow, either, and I was raising my hand to tell him about how it is getting close to lunchtime, and if he needed someone to sum it all up, I was prepared to say, "We're freaking doomed!" and be done with it.
Well, I could see the blood drain from his face as he noticed that I wanted to interject a comment. Thus motivated, he quickly got to the point and answered by saying, "I expect that the demand for the dollar will eventually plummet as years of overspending, under-saving and over-borrowing in the United States eventually take their toll on an over-valued currency."
He explains, "Because the dollar is a liability (i.e., someone's promise), the quality of the dollar is only as good as the assets on the monetary balance sheet. It is these assets that give the dollar its value, a recognition based upon the most fundamental accounting premise that liabilities are only as good as the assets supporting them. If the assets did not have value, then the liabilities we call dollars would not have any value either and would not circulate as currency. Are these IOU's on the monetary balance sheet really worth $12,006.7 billion? That is the single question of paramount importance."
Perhaps this "what is it worth?" question that prompted the astonishing activity in the banks that FT.com announces with the headline, "Banks agree $75bn mortgage debt fund". The laughable details are that Citigroup (NYSE:C), Bank of America (NYSE:BAC) and JP Morgan Chase (NYSE:JPM) "announced plans for a fund to buy mortgage-linked securities in an attempt to allay fears of a downward price-spiral that would hit the balance sheets of big banks." Hahaha!
The New York Times helpfully explains that "the effort is intended to help SIVs [structured investment vehicles] that need to sell securities do so in an orderly manner."
What these banks are proposing to do is to collectively put up credit guarantees worth about $75 billion to $100 billion (or whatever it takes!) for this new fund, which will be named the Master Liquidity Enhancement Conduit (MLEC).
The Executive Intelligence Review News Service characterizes it as "Treasury Secretary Henry Paulson, of Goldman Sachs, and his sidekick, Treasury Undersecretary for Domestic Finance ('Plunge Protection'), Robert Steel, also of Goldman Sachs, are trying to orchestrate a crazy $100 billion bailout scheme, which dwarfs the $3-4 billion bailout arranged for hedge fund LTCM by the Federal Reserve in 1998."
Obviously, the purpose of the bailout is simplicity itself; nobody trusts the mortgage derivatives that the banks have created, which have now imploded and revealed as being toxic crap that may not be worth anything, since the financial instruments do not have any demonstrated market value simply by virtue of the fact that they have never traded on the open market, and so nobody wants to buy them. Now everybody is sitting on trillions of dollar's worth of these stupid, mysterious things. What to do?
And time is of the essence, too, as Reuters quotes Robert Arnott of Research Affiliates as saying, "We are coming off the greatest lending bubble in U.S. history. We will feel its impact for a very long time."
So, the Fed and the Treasury have all decided that they are going to set up a huge special fund, with untold billions of pretend dollars, drawing in more investors to which the banks will sell short-term paper to finance the bailout, so that the banks can trade derivatives around amongst themselves, thus establishing their "market price"! Hahaha!
Suddenly, I realize that I may be too hasty in dismissing this scheme! This remarkable idea has given me a terrific business idea! You are going to love this! You and I will go into business, see, and each of us will (believe it or not) sell dog turds back and forth to each other, priced at the same per-ounce price as gold! Hour after hour, we will busily sell them back and forth between us, you buying mine and me buying yours, thus proving that there really IS a market for dog turds, and they are provably worth their weight in gold! We, like these banks, will both make a fortune! Whee! Hahahaha!
Reuters decided not to report on my fabulous new Mogambo business venture (MBV) or my new Mogambo Dog Turd ETF, but they did report essentially the same thing when they wrote, "The fund that is being contemplated would bail out funds known as 'structured investment vehicles,' or SIVs".
This comes at a time (as just a coincidence I am sure! Hahaha!), when "Banks including Citigroup, Merrill Lynch & Co, and UBS have in recent weeks announced billions of dollars in asset write-offs and are still struggling to sell off billions of dollars in loans that financed acquisitions globally."
Ooops! If banks can't get rid of their own turds, then perhaps my own dog turd business may struggle, too! Damn!
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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 Tuesday, 23 October 2007 | Digg This Article | Source: GoldSeek.com
