02/06/09 Tampa Bay, Florida I am hoping that someone from the media will ask me about my current thoughts on the “deflation or inflation” debate, but they probably won’t, since the last time I held a Mogambo Press Conference (MPC) where they asked me that question, the reporters screwed it all up and seemed to fixate on the fact that I yelled at them, “If you think that the government or the Federal Reserve is going to allow a true deflation, which is a fall in the money supply, when they have the ability and authority to create as much fiat money and credit as they want (literally without limit!) then you are the biggest idiots in this entire Quadrant Of The Galaxy (QOTG)! Get out! Get out of my office, you morons! Get out before I kill you all!”
Naturally, they reported in great depth about that and how I chased them into the parking lot with a baseball bat, blah blah blah; but what they did not print (a glaring omission that fits with all the other shortcomings of a biased liberal media), was that I was yelling at them the whole time, “And if you think that a temporary fall in prices due to temporary lack of demand means that prices will remain down when all the other producer costs of taxes, insurances and labor are NOT going down, but instead are going up, then again I laugh (hahaha!) in rude scorn and contempt at your stupidity if you think everyone will remain in business when they are always losing money!”
I thought that they would at least pick up on my last memorable line, “Then how much will a macaroon cost when nobody makes macaroons? Hahaha! Run! Run out and get sterilized immediately before you pass on your defective genes by producing any mutant children, too, you morons!”
So as I wait for the phone to ring for Round Two, it occurs to me that I’m not sure I know what in the hell I am talking about, because if total loss of wealth in America is around $10 trillion or so, then a few trillion in proposed deficit-spending and TARP spending is certainly not going to offset that! Ergo, if unrealized losses are counted, then the money supply will be going down despite the wild injections, right? Deflation! Not inflation!
Many people look at this contradiction as further proof of my Mogambo Schizoid Nature (MSN), but it is not, as there will come a time when some chart in the future will show the upward-sloping curve of monetary and fiscal excesses of the Federal Reserve crossing the downward-sloping curve of falling asset prices, and then the Super- Duper Hyperinflationary Hell (SDHH) will truly begin!
So the Big Freaking Question (BFQ) is: How long before the hyperinflationary phase about which I have been yammering begins – bringing back up the prices of stocks, bonds and houses so that the moronic government can once again wallow in a sea of tax receipts? Hahahaha!
The rude laughter in response to the BFQ is because, in case you are just arriving here from Mars and are not up-to-speed on current events, the terrible mission of the despicable Fed and stupid Congress at this point is to create so much money, so damned much money, so staggeringly damned much money that they will, literally, be able to buy everybody out of bankruptcy, thus explaining the “Hahahaha!” because such massive amounts of money will drive lots of other prices to the moon, too, and the rioting and suffering of chaotic social unraveling because the prices of food, energy and necessities are so high will mean that nobody is going to care about some stupid stocks, bonds or houses! Hahahaha!
Well, as one would expect in a declining economy, Bloomberg.com reported that “U.S. business activity shrank in January for the fourth consecutive month,” which they say is “a sign the downturn in manufacturing may worsen this year.”
At this, I laugh and say, with the usual gratuitous snotty attitude, that “The fall in employment in the manufacturing sector for the Last Few Freaking Decades (LFFD), as jobs and whole industries were shipped overseas, has been a sign that manufacturing ‘may worsen’, you morons!”
I added that “you morons!” at the end so that Mr. Bloomberg would see it and say to himself, “Hey! This guy is right; manufacturing employment has been falling for years and years! This means that the people who currently write for me are a bunch of idiots! I’ll offer this Mogambo fellow a nice, cushy job at a huge salary to write for me and then people will see what in the hell is going on!”
Well, as a guy who is incorrigibly lazy and incompetent, I understand that a job offer would truly be a miracle, but I am getting used to needing miracles, and with the way things are going, I will need a miracle to keep my job, my marriage, and my life since I just know that one of the damned kids or a co-worker is going to be “Et tu, Brute?”
And it is not just me needing a miracle, but lots and lots of people, as the Institute for Supply Management’s “business barometer” has just “decreased to 33.3, the lowest reading since March 1982, from 35.1 the prior month.” Helpfully, they add “Readings below 50 signal a contraction”, as if the whopping 5% contraction was not enough to make your heart go “thud.”
This squares perfectly with the Commerce Department’s report that says, “Gross domestic product contracted at a 3.8 percent annual pace from October through December”, which is not only bad, but it is, instead, Bad, Bad News (BBN) in that “the U.S. economy shrank at the fastest pace since 1982 in the fourth quarter as consumer spending slid the most in the postwar era.”
Everything was bad, as the reading of new orders fell to 30.7 from last month’s 31.5 reading, “the production index declined to 29.7 from 32.4”, and, worst of all, the “employment index dropped to 34.8 from 39.2”, which is a stunning 11% drop! Yikes!
And, since all things are connected to all things, and apparently keeping with the “since the postwar era” theme, they add, “Slumping demand may lead to more firings this year after the economy lost 2.6 million jobs in 2008, the most since 1945.”
You are probably wondering why I am not bringing up signs of inflation in prices, since complaining about inflation in consumer prices and warning about inflation in consumer prices and screaming my guts out in fear of inflation in consumer prices is about all I do anymore, making life into a living hell for my wife, children and neighbors as a result.
Well, the reason is that I was saving it for last, figuring to play a little joke on you where I would wait until you got pretty bored with unemployment figures and “barometers” of various economic variables, and then when you were relaxed and unsuspecting, probably saying, “This is boring! Why am I reading this Stupid Mogambo Crap (SMC)?” I would hit you with it right between your eyes, and the impact would be so great that you would say, “Wow! We’re freaking doomed, and that Damned Loudmouth Mogambo (DLM) was right when he said to buy gold, silver and oil to protect ourselves from roaring inflation in prices, and we owe a real debt of gratitude to the DML for such uncommon wisdom!”
This terrible-although-instructive news is that the report includes the terrifying news that “A measure of prices paid for raw materials increased to 39.8 from the prior month’s 32.7 reading”, which is an 18% increase!! In one month!!!
Serious scholars who delve into the more arcane aspects of the Teachings Of The Mogambo (TOTM) instantly notice the surfeit of exclamation points in the above, as befits such a Serious, Serious Increase (SSI) in prices!
For an example of the horrors to come, The 5-Minute Forecast notes, “For the first time in their history, the Girl Scouts of the USA this week announced they will be making smaller cookies and putting less in each box…but still charging the same price.”
Lest one think that the Girl Scouts are a bunch of greedy, inflationary pigs like bankers and the Federal Reserve, Girl Scout spokesperson Michelle Tompkins explains that they are just another victim of the inflation in prices caused by the Federal Reserve creating all that excess money and credit (inflation in the money supply), and that the by-laws of the Girl Scouts of America forbids their being armed with AK-47 assault rifles with which to take Washington, D.C. by storm, which was my suggestion, as I figured, “Who would shoot a cute little Girl Scout?”
Well, she did not say that officially, of course, but her meaning was clear when she said that putting fewer cookies in each box, but charging the same old price “was the only alternative.”
Reflect again on gold, silver and oil, and now Girl Scout cookies, and be instructed!
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Recently the BOJ held a mopping up operation, in which they took money out of Money Market Funds. What was that money, and what was it doing there? Who put it here, did it really belong to anyone? I thought an MMF was a deposit through an investors account? Do banks routinely park money in these places, does it really belong to them if they do, and can the Fed take it back?
Is the same thing going to happen here, with the Fed soaking up the money their charter banks have parked in public accounts? Call me confused.
Richard – you Mogambo Moron,
I will take up your challenge on behalf of all right-thinking, honorable, and noble deflationists everywhere.
First let me paraphrase Bill Gross this week, co-CEO of that little-bitty bond fund known as PIMCO. “As long as Congress is arguing over mere hundreds of billions of dollars in stimulus, we are headed for a mini-depression. Congress needs to start writing stimulus checks to the tune of multiple trillions of dollars.”
And now the reason why: The multiplier effect works in reverse. If a bank takes in a loan payment of $1,000 and is too scared to recycle that payment into a new loan, $20,000 gets sucked out of the U.S. money supply (20:1 multiplier).
Read my lips, you Mogambo Mumbo Jumbo guy, the U.S. money supply is in the process of contracting like a Black Star. Any new money created by the Fed is almost immediately sucked up out of the money supply as loan payments on $20+ trillion in debts owed by American consumers, U.S. companies, states, cities, and the Federal government.
You’re wrong, Mugambo … but I’m still buying gold.
George Blackburne, III, Esq.
Mortgage Fund Sponsor
Author – The Reverse Multiplier Effect – When Crushing Deflation Destroys America
Hey George! I’m Hahahahappy to defend the Mogambo, with whom I completely agree.
Bill Gross is a very smart cookie and is on his upcycle in this deflationary environment; and he’s really good at assessing where his government friends are going to draw the line in failures of GSEs. He made billions by buying GSE (FNM and FRE) debt, while avoiding shares, and lo! he looks like Soros against Sterling. Shareholders got nuked. (He doesn’t know anyone like Paulson, does he?)
And I couldn’t disagree more with the stimulus measures (although a few are warranted) because they simply put our children in debt for the hereafter, and also let the scumbuckets who got us into this mess (you’re not one of them, George, right?) continue to do business when they should actually have their heads put on a Schumpeterian pike, letting rational and fiscally sound companies replace them. Wiping out their shareholders. But that’s creative destruction, and it is being blocked by the U.S.A. purchase of toxic assets from the idiots who created the problems. Much much better to guarantee depositors and up to a certain level of creditworthiness of the toxicity (CLOCOTT) on their books, then seize the banks that can’t make it and offer expansion to smaller but more responsible competitors. George, if you loan capital to a bank that is straight, with no significant toxic waste on the books, you can bet it will lend. If you put capital into Citi or the likes, it simply drops into a black hole and goes Poof!
It is so obvious that we are currently deflationary, and it is such an obvious consequence of the antecedent egregiously poor judgement and wagering by legions of different financial vectors. (Vector rhymes with Spector.) This deflation will ebb as reality returns to our financial system. The government’s job is to guarantee responsible investing that has been Madoffed (remember the French verb, Bobbiter?), not to prolong our agony by supporting rotten banks, as happened in Japan in the 1990s to the present.
If anyone thinks we are going to get out of this deflationary mess via stimulus, I have a wonderful bridge to sell. If anyone thinks we are getting out of this mess without a lot of pain, I have a second bridge to sell.
Your multiplier of 20:1 is a major reason we are in this black hole. That is wagering, and that is irresponsible. An American who opens a margin brokerage account has a max of 2:1. The banking multiplier has to come down. The high multipliers (even higher for investment banks) were great for bank profits when the wind was at their backs, and it was a disaster when the housing and credit bubbles popped. So the profits were privatized, and now you are supporting a virtuous public underwriting of the losses. Not my cup of tea.
About the money supply…. Do we really think it’s a bad idea for someone to pay down credit card debt or loans? That decreases the cash in circulation, and thereby the money supply. George, that is healthy. The government simply has to guarantee debt, including checking and money market accounts, so that Americans are not afraid to deposit paychecks in banks. Let the bad banks fail. Let the good banks rise to fill their shoes.
Remaining a strong Mogambo fan, and standing by both of your sides on gold purchases,
Sincerely,
Francis M. Weld
New York City
sponsor of nothing, author of nothing