-- Posted Tuesday, 13 November 2007 | Digg This Article
| Source: GoldSeek.com
Doug Noland of the Credit Bubble Bulletin at PrudentBear.com notes that some idiotic people are still borrowing like crazy, and that "Bank Credit has now posted a 14-week gain of $423bn (18.2% annualized)." Yikes! 18% a year growth!
Additionally, he quotes Gillian Tett in the Financial Times as reporting the horrendous news that, "Never mind the fact that the risky tranches of subprime-linked debt (the so-called BBB ABX series) have fallen 80 per cent since the start of the year; in a sense, such declines are only natural for risky assets in a credit storm."
Never mind an 80% loss? What the hell am I, made of stone, like my prostate gland? Apparently, she doesn't want to go there, and instead of poking at my poor old prostate with what I assume is a pointed stick with one hand and emptying my wallet with the other, like the doctor does, she says, "Instead, what is really alarming is that the assets which were supposed to be ultra-safe - namely AAA and AA rated tranches of debt - have collapsed in value by 20% and 50% odd respectively. This is dangerous, given that financial institutions of all stripes have been merrily leveraging up AAA and AA paper in recent years, precisely because it was supposed to be ultra-safe."
My God! I put up ten bucks to borrow a hundred with which to buy this debt, and now I am down by 50%? I have lost five times as much money as I put up! My God! My prostate involuntarily quivers in shock, proving that there is life in the old boy yet!
And it is worse than that, as those asset bets were made years ago, using dollars that had much more buying power, and now that buying power is gone, thanks to the loathsome Federal Reserve creating inflation in the money supply by creating excess money and credit, which debased the existing currency, and now things cost more dollars because each dollar buys less. So a 50% nominal loss is actually more like a 75% loss of buying power! I'm freaking doomed!
Bill Bonner of the DailyReckoning.com reports hears me yammering about inflation, and, as a result of long association, knows that once I get started complaining about inflation, I never shut up, and that means I will not go home and let anyone get any work done. So he comes in and cleverly says, "The Economist puts the rate of price inflation on 'all items' (otherwise known as consumer price inflation) at over 16% per year. But member banks can borrow money from the Fed for less than 5%. You can do the math later, dear reader."
Math? In a panic, I realize I have got to so something to stop this damned pop quiz in math! So I leap up and say, "Hey, Mr. Bonner! If you think that is weird, how about all the morons who are buying bonds, especially government bonds in the face of all of this inflation? These drooling halfwits have driven the price of bonds up so high, and thus have driven the imputed yields on them so low, that these 'investment professionals' are locking their money up, for up to five years, to earn less than 4%! Hahaha! And they are getting less on 10-year bonds than the 4.5% Fed Funds rate itself! It makes you want to laugh so hard that you pee in your pants"!
My helpful little "constructive interruption" did not quite have the effect that I was hoping for, which is that everyone would say, "You're right, Mogambo! You're a genius, Mogambo! Don't pee in your pants! Here's twenty bucks! Go buy yourself a nice pizza!"
Suddenly finding myself alone, I realized that I have heaped disrespect on bond buyers again, and I further realize that I have been doing it for so long that you think I would be as bored with it as everybody else is obviously bored with hearing me talk about it.
So I will take just a few precious moments of your time to say that if you are buying bonds, then you are stupid, and if you know anybody who is buying bonds, then they are stupid, too, and you can tell them that I said so, unless that person is a beautiful nymphomaniac college cheerleader, and then just call me up and give me her name and number, and I will take it from there, because if she is buying bonds, too, then I know that she is stupid enough to believe that I am a Hollywood talent scout and I can make her a star if she is "nice" to me.
I'm not sure that even Hollywood dumbbells know that the despicable Federal Reserve lowered the Fed Funds rate by another quarter point to guarantee crippling inflation in prices and the destruction of the economy in the long run so that the results of their heretofore egregious and suicidal monetary policies can be covered up in the short run, since the Federal Reserve is nothing if not corrupt in their slavish service to finance monstrous stock and bond market bubbles and scams, and criminally irresponsible Congressional deficit-spending.
Rick Ackerman of Rick's Picks is not that interested in my "talent scout" charade to take advantage of a nubile ingénue, but asks the pertinent questions, namely "Can the lowering of administered interest rates much affect an economy that currently requires upwards of $8 in new borrowing to create a mere single dollar's worth of growth? And more to the point, does the will to borrow that $8 still exist with home prices falling?"
One day the answer will obviously be "no", and the real question is "Is that 'one day' now?", unless we are talking about that nymphomaniac little cutie who wants to know if I can make her a movie star, in which case the answer is "yes". Oh, very, very much "yes."
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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, 13 November 2007 | Digg This Article | Source: GoldSeek.com
