The front of a recent issue of Barron's asks, "Are Treasury Bonds Safe?" which
is a really stupid question since every doofus knows that Treasury bonds are
perfectly safe because a fiat currency and a lapdog Federal Reserve means that
they can print up all the money the Treasury needs with which to pay
bondholders!
So ... Safe? Hell yes they are safe! You'd think that Barron's would know that!
Jeez! If I had been there at Barron's, I would have suggested using this week's
cover for what I actually suggested for the cover of the employee newsletter.
At the meeting, I floated the idea of suggesting a splashy cover
page with words in blazing red letters that read, "That Creepy Lowlife Mogambo
(CLM), the same CLM that you plot against behind my back, was actually right!
Hahaha! In fact, consumer price inflation is higher than interest rates - even
the yield on the 30-year Treasury bond is less than 3%!"
In a second area on the cover, we put, "This means that anybody who is buying
any debt - when the central banks of the world are creating more and more money
and credit at such astronomical rates - is a real moron, or lunatic, or both,
because bond prices will fall when interest rates rise in response to the
inflation in prices, because that is the only response to the massive inflation
in the money supply from all that excess money and credit being created Every
Freaking Where (EFW) around the freaking globe!"
I interpreted their silence as thoughtful meditating on my terrific copy idea,
and so I went on to further suggest that, in smaller letters, sort of in a
power-packed subhead, "So buy gold now, you drooling morons, unless you think
that you are So Freaking Special (SFS) that you, and America, will be totally
unique in the last 4,500 years of various moronic governments creating excess
money and credit to satisfy their gluttonous, insatiable appetites for
spending, spending, spending, and then they all failed so miserably that their
entire economies were, for centuries, sometimes forever, in decline, and
everybody was ruined, and everybody was bankrupted, and Bad, Bad Things (BBT)
happened for a long, long time!"
"Then," I said triumphantly, "we add the teaser hook! We say, 'How do you like
them apples, morons?'"
Well, apparently their silence was not due to consideration and contemplation,
but to communicate with each other telepathically to gang up on me as,
instantly, almost in unison, it was moved, seconded and (against one lone
dissenting "nay" vote) otherwise unanimously decided to throw me out the
meeting and, if I understand the terms "And never come back!" correctly, ban me
forever! How rude!
Well, Barron's was no more receptive to my editorial suggestions than my
co-workers were, although Barron's then suggests, in smaller print, just like I
had recommended earlier, that the real reason is exactly what I have been
saying! They say, "Long-term Treasuries, now yielding less than 3%, could fall
25% in value as the recession ebbs and rates rise. If they're held to maturity,
the principal is secure, but you'd be stuck with today's low rates for years."
At this, I laugh, because every doofus knows this, too! Hahaha! What every
doofus does not understand, however, is that every day, of every week, of every
month, of every year, every one of those dollars will, by virtue of the Federal
Reserve continually creating so much excess money and credit so that Congress
can continue to borrow it to fund its outrageous deficit-spending to Somehow
Save America (SSA), be continually worth less and less in terms of buying
power, just like the dollar has suffered at the hands of the idiotic Congress
and the Federal Reserve since 1913, so that they dollar has now lost about 96%
of its buying power since 1913, and about a quarter of its remaining buying
power was lost in the last few years alone!
And this, together with the economic disaster that is already out there, only
proves the utter, utter failure of the Federal Reserve to "preserve the value
of the dollar", which is their freaking mission in life. Morons! Morons who
should be in prison, along with the Congress-morons who let them get away with
it! Vengeance! We want vengeance!
To illustrate this very point with a little comedy instead of seething hatred
and homicidal revenge, Junior Mogambo Ranger (JMR) Rebecca H sent a humorous
image of the "new" US$100,000 bill, which has the face of Fed chairman Ben
Bernanke on it, and is called, right on the front so you know exactly what it
is, a "Federal Reserve Thingy". Hahaha! Perfect!
Mark J Lundeen, independent market analyst, apparently has no time for comedy,
and traces the real problem back to "The problem 'monetary policy makers' were
having from 1954 to 1981", which was that "their liquidity was flowing into
CPI, consumer cost of living price inflation", which was running somewhere
around, ummm, a terrifying 10% or so and everybody was all freaked out and
angry.
As a result, Paul Volker, chairman of the Federal Reserve at the time, "raised
Fed Funds to 21%," which is "6% higher than the US long bond yield" which, in
1981, meant that "the US Treasury was forced to offer a 15% coupon for its
20-year bond." Wow!
This was also, as explained in the Mogambo's Investing Made Easy (MIME) home
study course, the exact time to switch from gold, which was setting a record of
$850 an ounce at the time, into bonds, which were yielding a juicy 15%, and
then make a fortune when those bonds zoomed in price as inflation in prices
fell and thus interest rates fell to, today, less than 2%! Wow!
Unfortunately, Mr Volcker wringing ruinous inflation from the economy at a
terrible cost was not to last. Things soon went back to normal, the difference
being that inflation in prices, he says, "stopped flowing into consumer
prices", and started going into financial assets.
I think that this was hugely aided by Congress authorizing the Individual
Retirement Account in 1982, along with many other tax-advantaged investment
vehicles over the years, which accidentally touches one of my sore spots, which
is that this whole stupid idea of "investing for the long term" is a Load Of
Hooey (LOH), and I am embarrassed for this country that we turn out so many
diplomas conferred on graduates who are supposedly thus certified as literate
in basic math, but yet they are all completely clueless that "investing for the
long term" is obviously a huge freaking scam since it is mathematically
impossible for the majority of people to take more money out of something than
they put into them! Hahahaha! But nobody saw this! Hahaha! What morons!
Mr Lundeen obviously does not want to get into a discussion where we are
calling people morons and laughing at them, making crude jokes about their
parents for siring such a mental defective mutant, all the while ordering round
after round of alcoholic beverages and putting them on his tab so that I can
drink and insult people until I finally pass out in my own vomit, and instead
says that the effect was less than stellar, as "The bull markets returns in
financial assets from 1982 to 2007 were mostly inflation", which is,
unfortunately true.
And inflation in the prices of something, or all things, will get worse and
worse from here, as the Fed is on record as saying that they will not let
deflation happen, and the European Central Bank is vowing to never let
inflation fall below 2%, which is such terrible news that the fact that Germans
are not rioting in the streets shows that they are now as stupid as the rest of
us.
Which is one more reason to buy gold, as if one needed any more reasons to buy
gold after already having hundreds of perfectly good reasons to buy gold
already, and especially now that president-elect Barack Obama and the Fed have
pledged trillions and trillions of new reasons to buy gold! Whee! This
investing stuff is easy!
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 2009, The Daily Reckoning.)
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