Martin Hutchinson 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." (See
Volcker's best apprentice, Asia Times Online, July 30, 2008.)
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 they have 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!
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 fueled 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 Federal Reserve
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!
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.
(Republished with permission from
The Daily Reckoning. Copyright 2008, The Daily Reckoning.)
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