The Debt-Ridden Tooth Fairy

"I am sitting across the breakfast table from my surly son, and he has just concluded his daily ritual of asking me to give him some money for some stupid reason or another, like today, when he's whining about how his stupid abscessed tooth is now so painful that it can't wait a few more lousy days until, you know, my cash flow gets back in its 'groove'."

by The Mogambo Guru

I am sitting across the breakfast table from my surly son, and he has just concluded his daily ritual of asking me to give him some money for some stupid reason or another, like today, when he's whining about how his stupid abscessed tooth is now so painful that it can't wait a few more lousy days until, you know, my cash flow gets back in its "groove".

Then he asks if he could borrow the money for the dental work, and volunteers to pay me back! So I tell him, as a way of changing the subject, about the insane levels of debt in the world. I say, "Almost every day I read some reference to high debt levels that exist everywhere."

Like the fact that Consumer Installment Debt is increasing at a 5 percent rate, and is now at about $2.5 trillion.

Or like the biggest debt of all, which was revealed when CNSNews.com carried the report by David Walker, comptroller general of the United State, that the latest estimates are that, "the total burden in present value dollars is estimated to be about $53 trillion. Stated differently, the estimated current total burden for every American is nearly $175,000; and every day that burden becomes larger."

Well, I got some bad news for Mr. Walker, because that $175,000 is for every man, woman and child in the country, and I am here to tell you that only one out of three people in the country has a job, because every time we Real Mogambo Americans (RMA) patriotically put the kids to work in a backstreet sweat shop to make some money, the government eventually comes along and raids the place! Ruining everything! And hassling me like I did something wrong!

And of that 1 out of 3 Americans who have jobs, 1 out of 7 employees work directly for a government! When you subtract those guys, there are less than 100 million people in the country who work for profit, and it is these guys who are the only guys who can make money to pay that debt!

And so the ugly, ugly reality (UUR) is that anybody who has a private job owes not a piddly $175,000, but a full-Monty $700,000!

So I graciously take some of my precious Mogambo time (PMT) to explain to Mr. Walker, to my son and to the people at Suicide Hotline that he is talking to on the damned phone, "It works like this, you imbeciles: Instead of me working at some stupid, boring job to support myself and my grasping, greedy, parasite family, like my crybaby boy here, smart people live on borrowed money!"

Getting warmed to the role, I continue "And the only thing us smart people need is some stupid people who have money to loan us, from whom we borrow some money, which is one of the fine points of the scheme that seems to constantly elude you morons, which is why you are ridiculously asking me for money, because although I am plenty stupid, I don't have any money, you halfwit jerks! And because I am stupid and am saddled with parasites like my family and my creditors, I am probably not going to ever have any money, either!"

I could tell by the crestfallen look on my son's stupid face that he was disappointed to get this same old lecture, but you don't have to listen to me for your precious proof of the veracity of what I am saying, as Stephen Roach of Morgan Stanley Asia says "Aided and abetted by the explosion of new financial instruments - especially what is now over $440 trillion of derivatives worldwide - the world embraced a new culture of debt and leverage."

It's like I tell the cashier and the other people in the check-out line at the supermarket, "Debt! It's how people do it, and it's how our government does it. I mean, how many people pay for groceries with a credit card, which is debt? And what in the hell did you think the government's 'deficit spending' was, you lowlife, halfwit ignoramus, if it wasn't debt?"

I usually find that stupid cashiers usually don't want to continue in that conversational vein, and the other people behind me are suddenly earnestly looking at the tabloids displayed there to, apparently, learn which Hollywood stars have had materials cloned from Elvis Presley's butt fat injected into their lips and boobs, and who are all apparently committing adultery, binge eating, fad dieting and drug gobbling as part of the Tinsel Town Tabloid Titillation clause in their contracts or something.

With nobody in the checkout line saying anything, I try to capitalize on their lack of education and attempt the cashier to accept a post-dated, third-party, out-of-state personal check. I note that she's smart enough not to be fooled by that one, but it's like they never heard of the whole idea of "putting money to work", which obviously means to borrow against every dollar of equity you have in anything, and use that money to invest in something else at maximum leverage.

And if you manage to show a profit, no matter how slight, in anything, you borrow and reinvest that, too! At as much leverage as you can swing, over and over and over. Hahaha!

And so naturally, debt grew like crazy, and that is why central bankers are not really doing anything about price inflation: There is just too, too, too much debt in the world, everywhere you look. And the only way to service that debt is with more debt.

So handing the financial services industry a loss, wiping out even a teensy, weensy, tiny, itsy, bitsy bit of all that gigantic, staggering global clot of debt, would be magnified by the degree of leveraging used when the debt was incurred, which I figure is at least 10:1.

So, suppose I had ten bucks, and I borrowed a hundred to buy an asset for $100. Now, unfortunately, that asset is worth only $80, meaning that I have had a $20 loss. But I only had $10 of "skin" in the game! Hahahaha!

How much enthusiasm do you think I have to borrow more money, so that I can pay off the $20 loss, when I can just loot the employee pension fund and hightail it to someplace far, far away? Hahahaha! Me, too!

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The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications. Click here to visit the Mogambo archive page.

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