The velocity of worthless money
By The Mogambo Guru
I couldn't believe my eyes when I saw Federal Reserve chairman Ben Bernanke
refusing to discuss the size of a proposed fiscal stimulus in the form of the
government again sending out money to taxpayers, which he had just recommended
that the US Congress do! He thinks it is a good idea to send out the money, and
such a thing would have a whopping huge impact on his whole economic theory
encompassing the standard economic theory of idiotic neo-Keynesian,
econometric, deficit-spending crapola and outright socialism.
But here he is, refusing to talk about how much money the government should
send out! Hahaha! This is the same econometric weenie that publishes statistics
and forecasts with three-decimal place precision, and yet he can't come up with
a rough estimate of something so huge that US$300 billion is
bandied about? Hahaha! I told you these Fed guys were charlatans!
He is, of course, panicked at his own failure and incompetence as chairman of
the Fed, so that he is now "forced" to nationalize banks, nationalize private
assets, and crank out new money at the rate of over a trillion dollars a year,
to no apparent avail as things continue to get worse and worse, and yet he has
no opinion on how much freaking money the damned Federal Reserve is going to
have to create so that somebody can borrow the money to buy the debt that the
Congress is selling to get the money to give to the people in the first place?
Hahahaha! Moron!
Bernanke is the worthless and insane chairman of the same loathsome Federal
Reserve that created our problems by creating too much money and credit for too
long, and who is irresponsibly following in the footsteps of Alan Greenspan,
former chairman of the Federal Reserve, who did most of the damage to us, and
Bernanke is continuing to create the money used to bid up the prices of stocks,
bonds, houses and size of government spending in bubbles that are now bursting.
Anyway, I saw his photo on the front page of the Financial Times, and the
photographer caught him at the exact time that he was bowing his head in
prayer, "Please, God, don't let the Mogambo Guru see me saying the stupid crap
that I am saying, as he will painfully and rightfully excoriate me in his MoGu
newsletter for being an idiot and a complete failure, but which will probably
be okay, now that I think about it, since only brain-damaged nobodies on this
planet read his stupid newsletter because he is so stupid and the government is
out to get him!"
But this is not about how I am proud that Mr Bernanke is scared of me, or how,
unfortunately, I am ashamed that nobody but mental defectives read my stupid
newsletter, but about another part of the Financial Times newsletter, namely
James Altucher's column, which is titled "Reasons to be cheerful in troubled
times", which couldn't have come at a better time this time, and right on time,
too!
But whatever it was he was talking about that was so cheerful, I forgot it all
instantly when he said, "It is estimated the government is not just putting
$700 billion into the system as per the bail-out package passed by Congress but
$2,250 billion once you add in the AIG bail-out, Bear Stearns and the
commercial paper facility." Yow! Over two trillion bucks!
My Sensitive Mogambo Guts (SMG), already raw and sore from puking up bile and
blood in fear of what the Fed and Congress have done, and are doing, to the
economy with all this new money and spending, churned anew in raw terror at the
thought of $2.25 trillion being instantly dumped into America's $14 trillion
economy, and suddenly I desperately needed to, like Greta Garbo, "be alone",
and by "be alone" I mean locked inside the Soothing Mogambo Safety Bunker
(SMSB) with an Uzi in one hand and a tasty sandwich or refreshing beverage in
the other, looking out of the periscope for evidence of the onset of the
rioting in the streets about the inflation in the USA, and probably burping and
farting a lot, especially if there had been onions on the sandwich.
Anyway, once in the SMSB and after I've calmed down after a couple of hours of
steady drinking, I am finding that my eyes don't seem to want to focus, making
it hard to continue reading Mr Altucher's column.
It turns out that it was indeed fortunate that I was so becalmed and
cross-eyed, as he goes on to say, "It is estimated that there is a 10x
multiplier for every dollar the government puts into the banking system", which
translates into the result that this new "$2,250 billion does not equal $2,250
billion in benefits to the economy. It equals $10,000 billion - $20,000
billion." Yikes!
He goes on, "Every dollar that goes into the banking system will then get lent
out to someone, who will then use that dollar to buy goods from someone, who
will then use that dollar to hire people."
Although this ignores the ugly effect of taxes, which inexorably grinds the
original dollar down to zero as it goes from hand to hand, it is also a good
example of the velocity of money (the number of times per year that a dollar
changes hands) and with overtones of the multiplier inherent in
fractional-reserve banking, as banks are allowed to loan out a multiple of
every dollar of deposits!
So a measly 10x multiplier makes me laugh at the estimate of an effective $20
trillion addition to the money supply because the actual reported reserves in
the banks of the USA have been, month after month, year after year, the same
piddly little $42 billion or so for over a decade! Hahaha!
In the meantime, as those years and years rolled by, bank assets went
gigantically up, bank liabilities went gigantically up, but the reported
reserves held against those liabilities and assets in the banks hardly changed
a dime! Hahahaha! Talk about a multiplier! Hahaha!
Of course, this means that another $2.25 trillion shoveled wholesale into the
USA economy is actually fodder for an infinite increase in the money supply,
just like all the other increases.
And it also means that I am NOT coming out of this bunker, except to buy more
gold, silver, oil or tasty victuals. Maybe wave to the wife and kids, but
that's it!
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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