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Loaned, Sold, and Gone… But Still Owned

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


-- Posted Wednesday, 24 December 2008 | Digg This ArticleDigg It! | Source: GoldSeek.com

I was slurring my words pretty badly, and I forget where I saw it because it mysteriously disappeared in a frenzy of cutting and pasting back at the office, but I'm telling the bartender that some bozo was saying that if the Treasury's gold (or the Fed's gold, depending on who you figure has it) was revalued up from its current and historical book value of $42 an ounce, then the financial picture of the United States doesn't look so bad! Hahahaha!

I can tell by the look on his face that he is not a big fan of economic humor, and must be pretty much "all business" by the way he keeps repeating, "That'll be $6.50 for the drink, pal."

Cleverly, I reply, "I don't know if you are aware of it or not, my dear fellow, but the total amount of gold held by the government/Fed is only about 261 million ounces! That's all! Less than one ounce per person in the USA!"

He looked at me again and repeated, "That'll be $6.50, pal."

Undaunted, I went on, "And at $800 an ounce, that 261 million ounces comes to a value of $209 billion! Hahaha! A lousy $209 billion! Hahahaha!"

At this, I stand up and address the other patrons of the bar, saying, "And already something like $8.5 trillion over the next years in new spending/guarantees have been proposed! Not to mention the original $700 billion in TARP scams and schemes already spent, and more hundreds of billions in bailouts of every kind every day!"

Really warming up to it, I bellow, "Hell, the projected federal budget deficit for next year alone is upwards of a trillion dollars, almost 5 times as much as the total value of all the gold we have as a nation! And this is just the budget deficit! Hahaha! We're freaking doomed!"

I took a long pull of my drink, and taking in the bar with one long baleful look, I ignored the bartender interrupting me with his insistent, "That's $6.50 for the drink, you moron!" but I continued, "And this assumes that all the gold is still there, but the work of GATA.org seems to indicate that up to half of it may actually be gone, as, for one thing, the fraudulent accounting practices of the central banks allows them to loan gold, so as to make a few bucks and manipulate the price of gold down and thus keep it from rising so much that people scream in fear at the inflation that the rise in gold's price is proclaiming, and yet they can still keep it on the books as being 100% owned! Loaned, sold, gone, but still owned! Hahaha!"

I realize, too late, that accounting was not the long suit of the audience, so I say, "The guy to whom you loaned your car turned around and sold your car, kept the money, and you still think that you have the car? Hahahaha!"

Again, there was no response from the crowd as, apparently, fraudulent accounting and outright theft of their cars is not going to get these people riled up. So I try a different tack, and I say, "The inflation that is eating you alive is going to get worse and worse, and the money and credit is already being prepared with the creation of more Federal Reserve Credit, otherwise know as Total Fed Credit, which leapt up a whopping $123.7 billion last week - in one week! - taking it to a record $2.241 trillion! And even this staggering amount can be multiplied by the banks at insane multiples with literally zero reserves!"

I knew that I would not remember the exact statistic, so I pulled a piece of paper from my pocket and I ready aloud, "Doug Noland in his Credit Bubble Bulletin at PrudentBear.com says that Federal Reserve Credit has had a historic 13-wk increase of $1.353 trillion", and that it "has expanded $1.368 trillion y-t-d (163% annualized)"!

Well, it turns out that the whole thing was moot, as I did not have $6.50 for the drink, and indeed I found it grossly overpriced and watery, and told him so, explaining that it was now my patriotic duty to accrue as much debt as possible, like this $6.50 he keeps yammering about, so that I can borrow and consume more and more stuff, like the drink that he is trying to get me to pay $6.50 for, thus helping to drive inflation up and up, so that I can pay everyone back with devalued dollars!

The bartender just stood there looking at me with this stupid look on his face, comprehending nothing - not even vaguely aware that anything was amiss, even when confronted with the Bloomberg.com headline "Fed Readies for Balance Sheet Tool as Rate Nears Zero", which, says Bloomberg, would make the Fed's main interest rate equal to "the lowest level on record"!

And not only that, but that the Fed is preparing to launch "one of the boldest experiments in its 94-year history: using its balance sheet as the key tool for monetary policy."

Somehow, I dunno how, this detaches interest rates from money creation, whatever that is, as the article inexplicably goes on, "The last time the Fed detached money creation from setting interest rates was in 1979, when former Chairman Paul Volcker oversaw a violent upward move in borrowing costs. Dubbed the 'Saturday Night Massacre,' the effort was aimed at reining in inflation, which exceeded 13 percent that year."

Now, I assume that you have never experienced 13% inflation since you do not have stockpiles of gold, silver, oil, or guns, much less a bunker that bristles with defensive armaments and what looks like a big freaking cannon sticking out of the garage, but you will, very soon, because, "Bernanke has repeatedly invoked emergency powers not used since the 1930s and expanded the Fed's credit to the economy by $1.4 trillion."

I draw the reader's attention to Bloomberg's punctuation in the previous sentence, which ends with a mere period, when invoking "emergency powers not used since the 1930s" and "expanded the Fed's credit" in a $13 trillion economy by a whopping $1.4 trillion in just a Few Freaking Months (FFM) ought to merit AT LEAST one lousy exclamation point, because this is Big Time Stuff (BTS)! Hell, just commenting about it resulted in me using one right there!

But we are so freaking doomed that there is nothing to be done, so I say we buy a little more gold, silver and oil, call it a day, and try to relax a little before we finally trudge back to that freakish hell-hole we call "home and family."

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. Click here to visit the Mogambo archive page.


-- Posted Wednesday, 24 December 2008 | Digg This Article | Source: GoldSeek.com


Visit The Daily Reckoning's website.



 



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