Last week, the number of S&P 500 futures contracts exploded to a huge new record just before expiration. Being a big believer in conspiracy theories, especially ones that involve government meddling, I naturally look at “outside events” like this with a lot of interest.
This wholesale buying of futures, probably including the Fed, may seem unconventional to you and us doofus people who are still laboring under the impression that America has free markets. But remember that the Fed is on record as saying that they will stoop to anything – no matter how stupid, no matter how corrupt, no matter how low, filthy or underhanded, no matter how legal or maybe illegal, no matter how many pornographic websites they have to subscribe to – but dang-nabbit this economy IS going to respond to monetary stimulation or everybody will die trying. And getting out our secret decoder rings, we decipher that when they say “to respond,” it means to “go up in price.” And by “everybody,” they mean “you.”
I figure that the market is being rigged also for the foreign holders of U.S. assets, who are probably getting verrrrrrryyyy nervous right about now. And who want to sell. But it is such an enormous pile that selling that gigantic load of U.S. assets would have seismic repercussions of such size that they would probably destroy the world. Perhaps unleashing Godzilla, who is, as I recall, slumbering under a mountain outside of Japan, and believe me when I tell you that releasing Godzilla, or any giant, destructive, rampaging primordial creature, is the last thing that the economy needs right now.
Fiat Money Inflation in France: A Loss for Words
A solicitous reader named Hans Martin wrote in to The Daily Reckoning website to say he was depressed to read that I have been occasionally lost for words when describing the horrific stuff that the government does, as regards monetary and fiscal policy, and recommends “Euphuistic clap-trap,” which he assures me is defined in the Webster New World College dictionary as “artificial, affected, high-flown style of speaking + showy, insincere, empty talk, expression etc. intended only to get applause or notice.”
I cannot verify this, of course, since the only local copy of that Webster’s is in the library, and the librarian there won’t let me use the dictionary anymore, since she is sure that I and my hoodlum friends only use it to look up naughty words and then disrupt the whole place with giggling and poking each other and having a fun time. So we will accept Mr. Martin’s report as factual. Well, as grateful as I am, and with all due respect, I will soon again be writing about the egregious policy errors being made in monetary and fiscal policy, for the twin purposes of 1) holding those guys up to public ridicule, because that is what they deserve and that is the kind of lowlife gadfly bastard I am, and 2) having something to do with my day other than hiding in the closet and whimpering in terror from THINKING about the egregious errors being made in fiscal and monetary policy. And since he has the dictionary so damn handy, how about him supplying me with a word that means, “consciously doing something that you know is wrong, because it has been wrong every time any government has tried it for the entire course of human history, but now they are trying it again for some bizarre reason that is apparently not connected to reality as we know it, and expecting that now, after it has failed every single freaking time it has ever been tried, it will somehow work this one damn time and surprise the hell out of everybody, and shut me up once and for all, and the handsome prince marries the beautiful princess and they all ride off into the sunset on white horses and everybody lives happily ever after.”
Fiat Money Inflation in France: Politicians and Federal Reserve Chairmen
In MY dictionary, the one into which I insert new words that I make up in the margins, this is my definition of “Democrat Party, The,” but actually that is more of a phrase, and not a word. And even that definition is getting to be so “old school” now that the Republicans are acting the same way, only worse, to my everlasting sorrow and shame. So maybe the word that fits that definition should be “Politicians and Federal Reserve Chairmen,” which is STILL a damn phrase, and so obviously I need Mr. Martin’s help more than ever in finding that perfect word.
Nonetheless, a buddy of mine named Kevin, aka Dr. O, (well, he will be my buddy again if I ever pay him the money I owe him, and the chance of that ever happening is very slim indeed since if I had any money I would certainly use it to buy a refill on some of my prescriptions so that I could connect with reality long enough to at least open the mail to see if I won the Publisher’s Clearing House Sweepstakes, and that would be sweet indeed, and maybe pay a few bills, maybe a few of those that are marked “last notice” and especially those that say “We’re coming over there to your house to shake some money out of you, deadbeat”) has taken my bad advice and obtained a copy of the book entitled “Fiat Money Inflation in France,” and now hates my guts for it, because now he is scared of the future of America, too.
Furthermore, his marriage is probably starting to founder on the rocks because of that book, as he did not take the precaution, as I did, of marrying a woman who doesn’t give a rat’s ass one way or the other whether he lives or dies, or whether he is panicked and borderline suicidal about monetary policy or not, and whose only demand is that if he DID die, then just go ahead and do it and get it over with, because she is getting a little more-than-tired of hearing his whining about economics-this and economics-that, so just go do it outside, for Pete’s sake, so it won’t make a mess in here because she doesn’t want to clean up any more damn messes.
But he is right to be scared, because this is the book that actually contains the blueprint for the disaster waiting for us. Because, as Henry Hazlitt himself so eloquently put it in his 1959 introduction to this book of extraordinary horror, “The broad pattern of all inflations, historic and modern, is the same. It is the persistence of delusions. The arguments of the inflationists, then and now, are essentially the same. The inflation in revolutionary France was begun to pay off a debt, and finance a budgetary deficit. Inflation was to be the short road to prosperity.”
To which I will add, circa today, in my own little foreword, “And the inflation in twenty-first century America was begun to pay off a huge pile of debts, too, debts so big that those wimpy French bastards would have choked on their baguettes and hopped around comically saying “Sacré Bleu and oui oui oui, I am – how do you American swine say? – choking! Oui oui oui!” if they had faced debts even HALF as big as we have right freaking now, even a QUARTER as big, so don’t get me started on how the freaking French had it so bad, boo hoo hoo.
Fiat Money Inflation in France: Proletariat Necks
“And now we are doing the same damn thing, to finance a huge, grotesque budgetary deficit, AND at the same freaking time – and you will note by the way my eyes pop out of their sockets and the spittle that flies off my quivering lips as I say this, that this is something very bad – they are proposing a new, massively expensive prescription drug benefit on top of a massive, record-exploding budget deficit! And tax rebates! And lower taxes! And waging continual, low-key international wars! And paying more money to the states! And the installation of a bigger Police State both domestically and internationally, so that government can keep its hobnailed boot on our nasty proletariat necks in case we start getting uppity and maybe out of line, and if you want to see how well THAT works out then go and read George Orwell’s book ‘1984’ again.”
To which I add, with a certain smug satisfaction, that in eighteenth-century France, it was us proletariat necks who eventually applied the guillotine to the wearers of the hobnailed boots. So when it comes time to choose sides, and it will, you might want to remember that fascinating little historical tidbit the next time you’re tempted to heed the latest euphuistic freakin’ hogwash to emanate from the rabid denizens of the Fed.
The Mogambo Guru
For The Daily Reckoning
June 30, 2003
P.S. Another solicitous reader wrote and asked if there was anything anyone could do to save our economic butts, or are we necessarily doomed? Well, I used to think so. And then I got an e-mail that opened my eyes.
A guy named Bow Slightly wrote, “Have you heard about the Mormon crickets that are overrunning the west? There are 110 million acres with something like 20,000 crickets per acre. I figure that at roughly $200 per cricket (shipping, handling, sales tax, and chocolate for dipping extra, of course) we could make about $44 trillion by selling them to the Chinese. Not only would this solve Medicare, Social Security and the hungry-critter problem, but it would also give us something to ship back to China in all those containers that just pile up on the western docks.”
The interesting thing about this idea is that just the other day I was commenting that we needed a burst of genius, and lo and behold, Mr. Slightly has come through for us. And now that he has enlightened us, all there is left for us to do is slap ourselves on the forehead and say “Of course! It’s so obvious now! Thank you, Mr. Slightly!”
This is SO much better than the government’s idea to fill those containers with dollar bills and American jobs! This way, we can keep the money AND the jobs, right here in America! And make new careers possible, namely cricket rounder-upper, or cricket cowboy! Yaaa-hooo! Ride ’em, cowboy!
Of course, if this DOESN’T work, then yes, we are doomed.
Mogambo Sez: You don’t need a crystal ball to realize that something bad will be here very soon.
We are amazed and aghast.
Federal budget expenditures in the second year of the conservative G.W. Bush’s reign are 20% higher than they were when the nation was under the lash of liberal, big- spender Clinton.
But last month, the aforementioned Mr. Bush gave taxpayers a break – a $350 billion tax cut measure was signed into law.
“By ensuring that Americans have more to spend, to save and to invest,” said Mr. Bush, “this legislation is adding fuel to an economic recovery. We have taken aggressive action to strengthen the foundation of our economy so that every American who wants to work will be able to find a job.”
What a wonderful, dizzy world we live in! George W. Bush, former baseball team owner, and now master of practically the entire world – from the Euphrates to the moon – joins another fabulous magician, Alan Greenspan, by offering to create money out of thin air. For how else could the government spend more…while taking less? Where does the money come from?
“Foreign central-bank holdings of Treasurys and agencies are up 21.9% in the past year and by 24.6% over the latest 6 months [annualized],” explains James Grant. “As the Fed buys securities to fix the funds rate, foreign central banks buy securities to manage the dollar exchange rate.” And finance the difference between what the U.S. government spends and what it collects in taxes.
And so we are even more amazed and aghast. While foreign investors grow anxious and sell the dollar off…foreign central banks (primarily those in Asia) buy U.S. Treasury obligations in order to hold the dollar up, so their export-led economies can stay in business.
Currently at $935 billion, foreign banks’ dollar holdings approach the $1 trillion level. “They have to keep supporting the dollar,” say U.S. economists. “Who else can they sell their exports to?” These neo-economists see a clear and happy division of labor in the world economy: foreigners save the money; Americans spend it. Foreigners make things; Americans buy them. Foreigners lend; Americans borrow. Thus it is and so it ever shall be; at least, they cannot imagine anything different.
And thus does the Dollar Standard Monetary System shuffle along in its 32nd year. If it lasts a year longer, it will have outlived Christ. But it bears such a heavy cross already – in addition to the nearly $1 trillion in central bank vaults, another $8 trillion burdens private hands. These private holders are neither so dumb nor so civic- minded as their central banks. They will sell dollars by the boatload if they think they could make a penny at it.
Already, they have sold a lot…and made a lot. They will sell more, because there’s money in it. And because there is nothing to stop them. The U.S. cannot defend its own currency. Because raising interest rates would pop the housing bubble…upon which the U.S. economy and G.W. Bush’s next term depend.
“Since U.S. policymakers will do nothing to defend the dollar, it can only continue its plunge,” concludes Kurt Richebächer in his most recent letter. “We are at a loss to say what will stop it.”
So, herewith, we change the subject: Eric Fry with the latest from Wall Street…
Eric Fry in the Big Apple:
– Bear market rallies, like banana splits for breakfast, are a perverse delight. Sure, they’re tasty. But they are hardly a healthy staple of a long-term investment diet. Feasting regularly on bear market rallies is no way for a portfolio to grow big and strong. A small taste of “bear market rally” won’t kill you, but don’t try living on the stuff. It’s about as nourishing as whipped cream.
– The most recent bear market rally, which kicked off in early March, may be drawing to a close…Last week, the fatigued market lost a little of the fluff holding it up. The Dow fell 211 points to 8,989, while the Nasdaq slipped 19 points to 1,625.
– Ironically, the stock market selloff accelerated after the Fed trimmed the Fed funds rate to a mere 1%…Apparently, Greenspan has either lost his magic touch, or he never really had a magic touch in the first place. Not only did stocks drop immediately after his latest rate cut, but the bond market also tumbled, sending long-term interest rates soaring…That’s no way to stimulate an economy.
– “Sanford C. Bernstein strategist Vadim Zlotnikov calculates that every half-percentage point rise in the 10- year Treasury note keeps another three million potential home buyers from qualifying for a mortgage on a median- priced home,” Barron’s observes. “Higher rates would also cut into the expected $80 billion in consumer liquidity expected to come from mortgage refinancing this year. The 10-year note yield is up almost exactly half a point since its low of 3.08% two weeks ago.
– “The other major burden of proof for the bullish believers, who have become bolder in recent months, is internal to the market itself – the question of whether investor sentiment has gotten too excited and complacent for stocks to hold these levels. It’s an ambiguous picture, though cause for at least some concern.
– “The Investors Intelligence poll of newsletter writers has shown a drastic skew toward professed bulls for a few weeks, and last week’s American Association of Individual Investors poll (which is deeply flawed in its survey sampling) flashed a huge and rarely seen 89% bullish reading. All these items stack up as evidence the upside move is imperiled, pointing to more downside risk than immediate appreciation potential.”
– Maybe 13 straight rate cuts, coupled with a soaring money supply, is inflationary after all…especially in the housing market. “Bubbles have a certain smell to them,” ContraryInvestor observes, “and what’s going on in the housing and mortgage markets is emitting that odor – i.e. they’re up a lot on unsustainable, uneconomic behavior. – “As interest rates have come down, old and new homeowners have refinanced their mortgages, typically taking more than they owed and spending more than half of it. In addition to using mortgage borrowing to finance their current consumption, they tilted toward adjustable rate mortgages because these rates are lower…raising their vulnerability to rising interest rates. It wouldn’t take much of a rise in interest rates or fall in real incomes to cause major mortgage default problems.”
– …And neither it would it take much of a rise in interest rates to cause major stock problems!
Bill Bonner, back in London:
*** An 81-year-old Englishman has won at Wimbledon…at croquet!
*** And here on page 6 of the Times is a marvelous picture of 30 naked people…who are protesting against genetically modified crops by, what else, taking off their clothes in East Sussex.
*** But we have been thinking about the dead, dear reader…so rather than read about the near-dead, or those who just look like they died, we turn to the obituaries. Not finding our own name, our spirits lift…and our thoughts move on.
*** But what have we become, my sweetish friend?
We have been thinking about the dead. We do not worship them, just because they are defunct. We’re just curious; what do they think of us?
As we approach the July 4th holiday, we wonder…
…what do the generations of Republicans, now in their graves, who believed so strongly in balanced budgets for so many years, think of the current Republicano in the White House…who has proposed the most unbalanced budgets in history?
…and how about the millions of dead Americans who immigrated to the U.S. to find freedom; what do they think of the country now? They came believing that if they minded their own business, they would be left alone to do what they wanted. But now, every pettifogging pecksniff with a GS rating is on their case.
…and they can’t escape even by leaving the country and going back home. U.S. tax agents follow an American wherever he goes…and the U.S. army, which was warned by George Washington to mind its own business, seems to find no business in no hellhole nowhere on the whole dingdong planet too remote or too forlorn not to want to stick its nose in…
…and look at what we have done with this ‘land of the free and the home of the brave’ that they left us: frail, bent grandmothers have their shoes x-rayed at airport terminals. No one really believes that the old ladies pose a threat to public safety – but why take chances?
The dead. Do they praise us? Or curse us?
The Honorable Ron Paul, Congressman from our President’s home state, recently expressed similar concerns about ignoring the dead. In a speech addressed to Benjamin Franklin, Paul warned that despite the best designs of the nation’s forefathers, America has descended helplessly into the hands of an angry mob.
“Democracies,” Paul quotes James Madison, “have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their death.” Is this the America presaged by its founders?