Total Fed Credit, otherwise known as Federal Reserve Credit, ballooned by a
huge US$76.9 billion last week, taking the Fed's total "help" to the scumbag
banks to a nice, cool $1.9 trillion, of which a whopping $56 billion gob of the
money created last week by the Fed was used by the Fed itself to buy Treasury
securities for itself! Hahaha! What a scam!
In case you were wondering, this Fed Credit is the stuff that the Federal
Reserve magically makes appear, literally at the push of a button on a
computer, on the balance sheets of the nation's banks, where it sits until
someone wants to borrow some money from the bank, whereupon the banks can loan
out Huge Freaking Multiples (HFM) of the amount of the original credit by
virtue of the scam known as "fractional-reserve banking".
And when this new Fed-created credit is lent by the banks, at that
point it becomes "money", and it adds to the money supply, which expands. And
since the money is used to buy something (or else why else borrow it?), it bids
up prices, which is the inflation in prices that you get from an increase in
the money supply! A horror!
And you don't have to take my word for it, as Mike Hewitt and Krassimer Petrov
wrote the essay "Money Supply and Purchasing Power" at Dollardaze.org. They
looked at the money supply since 1971 to 2008, which is "the post-Bretton-Woods
period. Bretton Woods is the period that characterizes the international
monetary regime between World War II and 1971. After the Second World War, only
the US dollar remained convertible to gold at a rate of $35 per troy ounce.
During that period all other currencies were linked to the dollar at a fixed
exchange rate. On August 15, 1971, president [Ronald] Nixon unilaterally closed
the 'gold window' to prevent foreigners from exchanging their US dollars for
gold."
What they found was a "near-perfect inverse relationship between the amount of
money in circulation and its purchasing power. It reflects the simple
relationship that prices increase approximately proportionately to money
supply. Stated differently, it reflects the basic tenet of monetarism that in
the long-run, price inflation is a direct consequence of increase to monetary
inflation."
I know what you are thinking because I am thinking it, too. We want to know,
"What about the actual data? We ask because we have been listening to [Federal
Reserve chairman] Ben Bernanke and all the rest of those neo-Keynesian,
government lackey morons summarizing their data, and they say everything is
going along just fine, and that everything is wonderful, so now we are paranoid
and suspicious now that we know that we are being lied to at Every Freaking
Turn (EFT)."
Perhaps anticipating our question, they write, "Looking at the data, from
January 1971 to December 2008, the US money supply increased 16.8 times; this
was accompanied by an 81.1% drop in purchasing power of the dollar, as implied
by the governmentally-reported CPI."
And how did this affect gold? I'm glad you asked, because I have been pounding
the table like a demented village idiot for years that you should be buying
gold, and so people want to know "Is the opinion of The Ridiculous Mogambo
(TRM) as stupid as he sounds about this money inflation thing?'
My answer is, "No, not in the case of gold, but yes for most everything else I
say" while their answer is, "For the same period and using the same CPI
statistics, the purchasing power of gold has actually increased four times. The
price of gold is up from about $38 to about $822, which corresponds to an
increase in its price of almost 22 times, while the CPI is up from about 40 to
210, or about five times. Thus, for the period, the price of gold has increased
about 22 times, while the price level has increased about five times, resulting
in an increase in the purchasing power of gold of about four times; the exact
increase is 310%, which corresponds to purchasing power of a little over four
times" at the same exact time as "the purchasing power of major currencies is
down five to 10 times." Wow!
Naturally, I am halfway out the door to buy more gold, because with the Federal
Reserve, with their laughable equations based on the socialist madness of John
Maynard Keynes to give them a mathematical excuse to create vastly excessive
amounts of money and credit like proverbial profligate idiots, to a degree even
more horrifying than during the tenure of former Fed chairman Alan Greenspan
(the moron who single-handedly got the world into this mess), gold will go up
explosively, just like it already has and just like it has Every Freaking Time
(EFT) in all of history - In all of history!!!! - when a stupid government
continually spent more money by going farther into un-payable debt!
The sharp-eyed among you no doubt noticed the four exclamation points in the
paragraph above, which I cleverly used to indicate extreme emphasis, as one
should have gathered from the phrase "in all of history" but probably didn't,
thus the punctuation was chosen for your benefit, at no extra charge. You are
welcome.
So, what can we conclude from this whole analysis? I say, "Many things!"
Firstly, I conclude, "We're freaking doomed!"
Secondly, I conclude that I gotta get more gold, and from that I thirdly
conclude that I gotta get rid of one or more of the kids because I can't afford
both, and I can't think of a legal way, and it's a hell of a problem for me
right now.
Messrs Hewitt and Petrov think that "The overall conclusion is that gold is a
significantly better store of value than paper currencies" which pretty much
says it all!
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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Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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