01/19/11 Tampa, Florida – One of the reasons behind the Federal Reserve creating so many trillions and trillions of dollars in new money is so the stock market will go up so that more taxes will be collected, and the bond market will go up so that more taxes will be collected (and less interest paid by issuers, too!), and the housing market will go up so that more taxes will be collected, and prices of everything will go up so that more taxes will be collected, so that massive, backbreaking, bankrupting deficit-spending by the government can continue going up.
The astute Junior Mogambo Ranger (JMR) senses, as do I, an ominous theme in there somewhere, although any snap judgment may be hasty, as it is entirely possible that an alternative reason for the Federal Reserve creating so much money is that the Federal Reserve is, in a word, evil.
Or perhaps the Federal Reserve is filled with robots under the control of beings from outer space. Creatures from another planet are “softening us up” before their main battle forces get into their flying saucers and come eat us, enslave us, or (as seems to be their usual practice) probe our orifices.
So far, there is nothing about “monsters from outer space” at zerohedge.com, although you will notice that I said “so far.”
But I did see at zerohedge.com that Tyler Durden quotes SocGen’s Albert Edwards as saying, “I would suggest that although GDP growth may be more closely related to the absolute growth of the working population, asset price inflation may be more closely related to the proportion of workers in the general population.”
Of course, speaking as I do as a guy who invests solely to make a lot of money fast with minimal work, I have no idea what this would mean, or why I would even mention it at all, except as a question on the mid-term exam, such as:
Question #1: “GDP growth is to absolute growth of the working population as asset price inflation is to (blank).”
The exact answer is, of course, “proportion of workers in the population,” but I will also accept “We’re freaking doomed!” or anything along the lines of, “The damned Federal Reserve creating So Freaking Much Money (SFMM) that the prices of a lot of things will increase.”
I will also accept the answers, “The evil Federal Reserve destroying us,” “The loathsome neo-Keynesian econometric idiot-savants at the Federal Reserve are ruining the value of the dollar,” or anything that suggests that instead of taking some stupid test, they should be out buying gold, silver and oil with a frantic, manic hyperactivity as desperate protection against the catastrophic inflation in prices that will result from the Federal Reserve creating so monstrously much money.
But I soon saw that I was wrong in interpreting the importance of this interesting face, being blinded by my impatient greed, thus being so shortsighted that I missed the long-term implications of things, in a kind of “tendency” and “gravity” and “inevitability” kind of way.
He explains, “If that is the case, as the former baby-boomers start to retire, this burgeoning cohort will tend to liquidate assets. This only exacerbates the secular bear market for property prices (which have already begun to decline again), as well as the equity market.”
Hmmm! Fewer buyers, more sellers? It is the old supply/demand dynamic, and it’s pointing to lower prices, but – and probably very importantly! – curiously being offset by the Federal Reserve creating so much new money, to monetize so much new debt, so that all of this sheer, overwhelming tonnage of new money has to end up somewhere, and the stock, bond and derivatives markets are the only things which can absorb So Freaking Much Money (SFMM).
In practice, Mr. Edwards says, “This means that Bernanke for all his efforts may not be able to prevent the secular valuation bear market fully playing out until rock bottom valuations are reached.”
Mr. Durden says, “oops.”
I, on the other hand, say, “Whee!” because at stock market bottoms, one ounce of gold is about all it takes to buy the Dow, or buy the S&P500, or a few ounces for houses, or cars, or anything you can name, all because of the incredible rise in the price of gold, all because of the incredible rise in inflation, all because of the incredible rise in the money supply, all because of the evil Federal Reserve creating so incredibly much more and more money.
And with gold and silver still hovering incredibly at these low, low, bargain-basement prices, at the same time as so incredibly, outrageously much money is being created by the Federal Reserve and spent by the odious Obama administration, buying gold and silver is so glaringly obvious and childishly simple that you can’t help saying, “Whee! This investing stuff is easy!”
The Mogambo Guru
for The Daily Reckoning
The Mogambo Guru
Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning , and other fine publications. For podcasts featuring the Mogambo, click here.
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Another point of view: Could Bernamke be inflating the money supple to devalue the dollar, so we -the US – can increase our exports, and bring some fresh money into the economy to increase job growth and consumption.
Most European and other countris have a much larger percentage of thier GDP coming from exports.
Oh Richard, how can you, after reading the brilliant Mogambo, remain so blind as to parrot the lies of the media and the government? Have you learned nothing from Mogambo? And while you and others parrot away, so many unemployed ‘canaries’ are lying dead in the coal mine of the US economy. Yet another mass die-off to be explained away with increasingly ridiculous and insultingly silly “reasons”… like your explanation of the reason for the inflation. Allow me to give another point of view on your other point of view: the federal reserve STEALS our wealth through inflating the money supply which devalues the dollar and makes us POOR so we have to increase our exports and “bring some fresh money into the economy”, in other words WORK HARDER, so we do not STARVE TO DEATH. In summary: We were rich, Federal Reserve steals our money, Now we are poor and have to work like slaves. I think Mogambo got it right
Richard, Mogambo has it right. Listen to him and learn. Devaluing the dollar makes us poorer. It steals our money. Then we must all work a lot harder by increasing our exports to “bring in some fresh money” so we do not starve. This idea that Bernanke is our friend who will help us compete overseas is nuts. If the dollar remained strong and even strengthened, it would cause those who had been prudent to prosper. The imprudent would be the losers. This would encourage saving and reinvesting. It would, in fact, preserve wealth in the hands of those who created it.
The dollar is being devaluated (diluted) by evil people. In fact, everyone is evil and those who don’t exhibit their evil ways are just figuring that they can’t get away with doing their evil things.
I don’t do evil things because I can’t get away with them. Maybe you’re in the same position. However, many people can get away with doing evil things like starting (profitable) wars, devaluating dollars, squandering other people’s hard earned money to get kick-backs, etc. Then, when these evil people get tired, they get big retirement pay. Maybe even some get their very own statues.
Would it be nice if any such getting away was based only on the size of a city or a county or, at the biggest, the size of a state. Sounds logical. And sounds like secession is the route to go. Lacking that, maybe we can all get elected to a gov office and get a multimillion buck retirement on top of a few years of graft!
Here is a bad news: when gold price will be multiplied 10X by the bearded maniac at the FED, and you will have to sell a gram or two of your gold weekly to buy groceries, what will be the taxes that you will have to pay on your capital “gain”?
Inflating and devaluing they are laying out the basis to tax the hell out of us gold bugs when we will sell.
What is a shelf life of snickers candy bars!
Footnote:
Governments have tried to tax the heck out of gold, confiscate gold, tell people that gold hoarders are bad, etc. etc. etc.
All this does is drive gold underground, or drive owners of gold to other countries where gold isn’t condemned or taxed heavily.
Look up the term “smuggled gold” from your favorite search engine and you will see that, in spite of the best efforts of governments worldwide, getting gold out of one country to another goes on in spite of rules, laws and regulations.
Of course, JMRs would Never advocate breaking the law, we just mention what goes on in the world around us.
ALL AIR CONDITIONERS ARE DEHUMIDIFIERS. I AM ALSO VERY ALERGIC TO HUMIDITY AND WAS SCARED TO DEATH OF IT WHEN I MOVED FROM SAN FRANCISCO TO NEW YORK, BUT THERE HAVE NOT BEEN SO MANY TERRIBLE HUMID DAYS SO FAR, THANK GOD. I HATE IT HOT AND I HATE IT COLD. IN COLD, IT SENDS THE CHILL RIGHT INTO YOUR BONES, AND I THINK YOU ARE WORRIED ABOUT CHILL MORE THAN HEAT. BUY AN AIRCONDITION THAT HAS HEATING AS AN OPTION AND FIRE IT UP!
Many economists and FED itself believe that the housing prices will plummet another 40% if they don’t stop QE2, QE3, …They believe they are just making up for the loss. Or maybe what they’re trying to do is to annihilate foreign debt by hyperinflation. The debt is pretty big and still growing to become a hideous monster one day.