Inflation: Death by Money Supply
A Daily Reckoning Special Report
by The Mogambo Guru

I had the Mogambo Bunker Of Paranoid Hysteria (MBOPH) in total lockdown, as I instinctively sensed something was wrong. Most things looked normal, however, and even though oil had risen to over $88 a barrel, the stock market was holding up fairly well, the bond market was holding up, and even Total Fed Credit (the stuff from which money-from-thin-air, the stuff of which price-inflation-from-thin-air, is originally created) was doing nothing much, either, and was actually down by another $3.2 billion.

“Animal spirits” and sheer guts to buoy the financial markets were still in evidence, too, as Doug Noland in his Credit Bubble Bulletin at reported that, “Bank Credit surged $54.5bn for the week (10/3) to a record $8.982 TN. Bank Credit has now posted an 11-week gain of $339bn (18.5% annualized) and y-t-d rise of $686bn, or 10.7% pace.” Wow!

And some interesting news from a “new milestone” perspective was that Foreign Holdings of U.S. government and agency debt stashed in their accounts at the Fed rose by a few billion bucks, making the total in those Federal Reserve accounts finally go over the $2 trillion mark, rising to the princely sum of $2,003,863,000,000, which is properly pronounced as “two trillion, three billion, eight hundred sixty three million dollars”, but in actual practice is pronounced with a foreign accent as, “You vill do vatever ve zay to do, or ve vill crush you, American pigs.”

I don’t know if it was coincidence or what, but as soon as we started talking about pigs, I started thinking about pork products, and how (looking at my watch to get the correct time) right about now was a perfect time to have a nice pizza smothered in a yummy variety of them, when, suddenly, here comes John Williams of!

And while I was poring over Mr. Williams’s latest missive, I noticed that he wrote that the “Year-to-year change in September retail sales was a gain of 5.0% versus 3.8% in August, before any inflation adjustments”, but that inflation is getting so bad that it “could wipe out much of the reported sales gain, after adjustment for pricing increases.”

The horror of what he was saying crept into my Puny Mogambo Brain (PMB); people paid more money, but bought less stuff! Yikes! What in the hell kind of bizarre economy do you call that?

Now, retail sales picking up like that appears to be healthy economic growth, until you remember that these are merely raw, nominal sales, which is the same thing as my wife taking the credit card and charging some clothes, food or medicine for herself and the kids, and when I open the bill, I thunder, “You bought food, clothes and medicine last month, too, and not only are you now buying them more, but you have never spent this much before! Where in the hell am I supposed to get this much additional money to pay for these additional frills, you worthless trash?” With a sniff, she says, “They aren’t additional frills! Prices are up so high that I actually bought less stuff, you stupid creep!”

I decide to ignore this evidence of inflation in prices, and decide that my wife’s explanation seems just a little too glib for me. So I question her further by saying, “Are you lying to me, you lying, spendthrift witch, who likes to see me be so poor that I can’t afford that snazzy new set of golf clubs that I need and you deserve to go to hell for it?”, and she yells back, “No, YOU go to hell, you cheap bastard!”

Naturally, I don’t accept this kind of underserved criticism, and I scream back, “No, you go to hell and take those ugly, mutant, halfwit Earthling children of yours with you!” which causes her to mysteriously get all angry, like I said something wrong! Even though SHE is the one spending all the money, and it is ME that is suffering for it! See what kind of silly crap I have to put up with around here all the damned time?

Mr. Williams appears completely disinterested in how my greedy, hateful family is spending me into the poorhouse, and actually seems to take their side in the argument when he says that inflation in prices is pushing up the bills for everybody for everything, and more and more people and entities are spending more and more money because prices are rising so fast.

He even says, probably thinking he was making a wry joke, “As to the happy news that the gimmicked federal deficit for fiscal year 2007 was just $162.8 billion, versus $248.2 billion in 2006, keep in mind that the gross federal debt rose by $500.7 billion in the same fiscal 2007, to $9.008 trillion.”

Hey! That’s right! The government simply budgeted more borrowing, which they did, and so the budget deficit appears lower on paper, even though they borrowed and spent more than they budgeted! At that ugly news, I found my hands clenching into Powerful Mogambo Fists Of Outrage (PMFOO)!

JMR Mark Lundeen is doing what he can to calm me down, and sends along a clever quip about inflation from Pat Paulsen, who is listed as, “1968 Presidential Candidate & Comedian”. Mr. Paulson comically says, “On the issue of inflation, I think I could solve it no matter how much money it took.” Hahaha! This sounds exactly like the Federal Reserve and the moron “yes-men” with which they surround themselves!

Speaking of butthead “yes-men” morons, let me point out the idiocy of Martin Feldstein, who is noted as being a “professor of economics at Harvard and chaired the Council of Economic Advisers under President Reagan”, although you would not know it from the way he thinks.

For example, his tired, predictable little essay is titled, “A more competitive dollar is good for America”, which is (despite its argumentative title) ordinary for the most part, containing such hackneyed jewels as, “Since a falling dollar raises the cost of imports and increases the export demand for U.S. products, a dollar decline by itself puts upwards pressure on the U.S. inflation rate”, which is true, as far as it goes.

Then he takes a sharp turn into Bizarro Coo-Coo Land when he says, “But the overall inflation rate need not rise if the Federal Reserve sticks to its goal of price stability.” Hahahaha! What? Hahaha! What kind of insanity is that? Hahahaha! How can prices be rising in the first place if the Fed is achieving price stability? Hahaha!

If you really want to know, I’ll cleverly tell you what the Fed is really doing about “price stability” by trotting out the other witticism sent to me by Mr. Lundeen, penned by a Professor W.H. Hutt: “The technique of inflation demands that governments and their agencies shall continuously deceive the public about the fact, the speed and the duration of inflation intended. Ministers of finance have no option but to employ what has been called ‘the necessary untruth’.”

So I say with a smug tone to my voice, “Well, Mr. Feldstein, how do you like them apples, moron?” I notice that he doesn’t answer me directly, and rather just goes on that after his assumed “Federal Reserve sticking to its goal of price stability”, things would be better in that “relative increases in the prices of tradable goods would be offset by lower inflation in other goods and services.” Hahahaha! I can’t believe I am reading this stupidity! Hahahaha! Says who? Where in the hell did that come from? Hahaha!

Blithely continuing on and ignoring my raucous laughing and hooting in Raw Mogambo Contempt (RMC), he yammers about how, “Markets must look beyond the slogan that a strong dollar is good for America to recognise (sic) that a more competitive dollar will help sustain U.S. growth and is necessary to correct America’s trade deficit.” In short, the erstwhile government attitude that “a strong dollar is good for America”, which produced all the growth in the economy by keeping imported inflation low for decade after decade is now, for some unexplained reasons, wrong after all these decades, and that now some higher import inflation will magically “help sustain U.S. growth”! Hahaha! This is Too, Too Much (TTM)!

P.S. Yes, dear reader, we’re sure that even history’s greatest magicians – Houdini…Copperfield…Penn and Teller – would marvel at our government’s ability to devalue the U.S. dollar while simultaneously sustaining U.S. growth. But like all illusions, if you look closely enough, you can always see the mirrors. In this case, we hope you’ll try and protect yourself by getting more than you could ever imagine, for as little as possible.

For more Daily Reckoning articles that discuss inflation, see here:

12/03/07 – Traumatized by Inflationary GunfireBy The Mogambo Guru

11/15/07 – Inflation and the Asian Money TreeBy Bill Bonner

11/01/07 – The ‘I-Word’ is Back in the EquationBy Kate “Short Fuse” Incontrera

Additional Sources:

The Inflation CalculatorAdjusts a given amount of money for inflation, according to the Consumer Price Index.

The Big PictureFun info graphic in NY Mag on “High End” inflation.

Inflation ProjectionsRaises will average 3.7 percent, but there will be a lot of competition for those dollars given the price increases forecast for many basic expenses in 2007.

Inflation or Deflation in 2007? – Gary North examines the year’s flation data.

The Daily Reckoning