

-- Posted Friday, 1 August 2008 | Digg This Article | Source: GoldSeek.com



Martin Hutchinson, writing at PrudentBear.com, reminds us that "It was established pretty convincingly by Milton Friedman and proved beyond all doubt in the inflationary episodes of the 1970s and 1980s that if you want to bring inflation under control you must set interest rates at a margin above the current inflation level." How much above? He says that savings returns should be roughly "a normal level of 3% plus inflation." So if "official" inflation is at 5%, like it is now, then this means that savings rates should be 8%? Sweet! But real inflation, as measured by John Williams at shadowstats.com, is roaring far above a measly 5%, and while "annual CPI-U Surges to 5.0%", as per the headlines, inflation measured the older, pre-Clinton way is 12.6% in June! Which is up from 11.8% in May! Yow yow yow! We're freaking doomed! So if inflation is actually running at 12.6%, the interest paid on savings should be 15.6%? Even more sweet! This prompted me to do a little research, and I found that in the whole universe there are only three species of organism where the majority of the population do not comprehend the horrific implications of inflation that is more than 3%, which is recognized everywhere in the cosmos as the cutoff between, "Mommy, I am scared!" and "Mommy, something big and ugly ate daddy, and it is looking at us and licking its lips!" But since I don't want to get into a big argument about the relative stupidity of Earth creatures versus, for instance, the Glarth species on Remulac V, which are actually a kind of slug, but which has a gold standard for their money and thus they keep their money supplies strictly controlled. Instead, I want to look at how, with an "official rate of inflation" of 5%, the bank money market rate is 0.72%, a one-year certificate of deposit pays 2.25%, while a five year certificate of deposit pays 3.39%! Hell, the 30-year T-bond barely yields 4.6%! Hahaha! 8% on bank savings? In our dreams! Mr. Hutchinson continues ominously, "The overall lesson is as usual bearish. Almost all the world has abandoned proper anti-inflationary discipline and is destined to suffer a period of high inflation and recession in the coming years." Naturally my mood turns dark at that assessment, which may be what prompted The Economist magazine to remark, "countries, like people, behave dangerously when their mood turns dark." They don't actually explain what they mean by that, but the magazine correctly said, "The credit crunch is in part the consequence of a flawed regulatory system. Lax monetary policy allowed Americans to build up debts and fuelled a housing bubble that had to burst eventually." This was eerily presaged by last week's stirring Mogambo Minute Of Outrage (MMOO) editorial, which started off similarly, "The credit crunch is, in part, the consequence of", but which continues, "corrupt Congressional scumbags getting corrupt Federal Reserve scumbags to act irresponsibly stupid to implement bizarre, impossible, laughable neo-Keynesian econometric theories by creating a continuous flood of money and credit so that an unfolding bust would be reversed and they could all make a lot of money, and their friends would make a lot of money, when the economy again booms under such an onslaught of new money, but which will cause horrendous inflation in consumer prices and people will get grumpy as hell, but about which we won't talk at all and we'll pretend that suffering and misery inflicted by higher prices doesn't exist in reality because it doesn't exist in their stupid, stupid, stupid little econometric models." So, I conclude, we need to get rid of the Federal Reserve, which, I am delighted to say, is also the opinion of the esteemed Gene Epstein. In his Economic Beat column in Barron's this week, he says, "The abolition of the central bank is just a major first step�But it is a necessary first step" to the prevention of boom-and-bust cycles! Hooray! And well said! None of this has penetrated the thick head of Joseph Stiglitz, however, who is not only a laughable Leftist loser of a staffer at Columbia University, whose PhD is obviously an acronym signifying Pin Head Doofus, but also a guy who won a Nobel Prize in economics. You would think that a guy as ostensibly smart as that would, well, be smart, but this moron has never, found anything wrong with anything the Fed has done, ever, and in fact spent his career slobbering over Alan Greenspan in fawning servility and losing money at the World Bank. And now that the profound stupidity of serial bubbles has finally burst, here comes the ridiculous Stiglitz, writing an essay in The Financial Times titled "Fannie's and Freddie's free lunch". He says that the "core of the problem", putting his powerful brilliance to work, is that "millions of Americans were made loans beyond their ability to pay." He does not mention that the ridiculous loans were made by the ridiculous banks seductively enticing borrowers of all stripes, including speculators eager to recoup some of the money they lost in 2000, and all done with the blessing of the Fed, with the blessing of the government regulators, with the blessing of Congress and with the blessing of PhD poseurs like him, and every step of the way. He says, as is totally consistent with his ridiculous Leftist/Marxist/Commie ways, "We need to help them stay in their homes, including by converting the home mortgage deduction into a cashable tax credit and creating a homeowner's Chapter 11, an expedited way to restructure their liabilities." Hahaha! Giving people actual cash with which to buy houses they cannot afford! Hahaha! And then giving them a fast and easy way to stiff their creditors, too! Hahaha! Perfect Leftist giveaway idiocy! But, to be fair, this is standard Stiglitz thinking, as he is such a weird Leftist loony tunes kind of guy, but Columbia University has this guy on its faculty? Hahaha! And now Columbia will soon have Fredric Mishkin, too, a thoroughly repugnant Fed governor who actually endorses an asinine policy of pursuing an "inflation target" (which is the most despicable and outrageous damned thing anybody could say, and for which he should be shunned as the intellectual leper and laughable fool that he is), of about 2% a year! Purposely creating inflation! Wow! This is truly insane! The question is, "Why is Columbia staffing itself with people like this? And what is the real value of a degree from Columbia, given their faculty?" In fact, what will be the value of any college degrees when there are no jobs? Maybe, because we got rich because we bought gold with which to capitalize on such monumental economic stupidity, we can hire some of them to help count all the gold we have! How ironic that would be! Hahahaha! P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed. Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.



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

-- Posted Friday, 1 August 2008 | Digg This Article | Source: GoldSeek.com

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