All of our economic problems are caused by the US Federal Reserve creating the
excess of money and credit that produced the bubbles in stocks, bonds, houses
and size of government, but it doesn't have to be electronic money made from
electronic credit.
No, sirree! You can expand the money supply the old-fashioned way, as it can be
money made from plain, old, paper-and-ink! Fire up the presses! Monetary
inflation the old-fashioned way!
Perhaps that is why Mark J Lundeen, market analyst, writes that Currency in
Circulation (CinC) can also be an inflationary problem, as "The historical
period where the US saw double-digit CPI inflation occurred from the mid-1970s
to about 1982," which was a time when, "CinC's annual increase was pegged at
10% during
this period. The CPI Index soon followed." Yikes! Double-digit inflation!
Well, if you are like me, you are wary of references to the '70s and '80s since
someone is liable to bring up some of those embarrassing episodes from your
past that you had hoped were now forgotten, hopefully forgiven, but past the
statute of limitations in either event.
Thankfully, Mr Lundeen is not referring to any of that, and says, "CinC, after
falling for almost eight years, has just recently jumped up to this same 10%
year-over-year increase line that caused so many inflationary problems 30 years
ago." Yikes!
And besides, he says, "How can any economist claim that the Fed is fighting
inflation when the US Currency in Circulation has increased 20,000% in the past
95 years?"
Well, already overwhelmed by the terrifying increases in the money supply
thanks to the recent insanities of the Federal Reserve and Congress, my
Delicate Mogambo System (DMS) cannot take another shock.
So with trembling fingers I quickly verify this, and I see that, as of April
27, 2009, currency in circulation was US$903.3 billion, up $90.4 billion from
this time last year! He's right! An increase of MORE than 10%!
And if double-digit inflation is not bad enough, the news for the stock market
(representing everybody's retirement accounts) is bad, too, as explained when
he notes, "capital gains and dividend payouts lagged inflation for 10 years
after the surge of CinC inflation of 1971. If this pattern holds for the
2007/09 surge of CinC inflation, stock values, earnings and dividend payouts
will be woefully sub-par for a decade or more." Yikes!
Unfortunately, he seems to be being already proved right, as even he notes,
"corporate earnings are currently crashing. And," he asks, "without earnings,
how long can the DJIA, Barron's 50 and the S&P500 companies continue to pay
dividends?" Good point!
Naturally, he figures that he expects to see "big cuts in dividend payouts
within a year," and that bond yields will rise "higher than most 'experts'
believe possible," which makes perfect sense to me when I see how the 30-year
T-bond is priced so high that it now yields about 3 lousy percent, the lowest
since the mid-1950s!
And what is the problem with creating excess paper, fiat money? Well, ask the
people of Zimbabwe, whose moronic government has been creating so much of it
for almost 15 years that, towards the end, inflation in prices could only be
poorly estimated, as prices soared more than a million percent, or a billion
percent, or more. Nobody knows. A lot, though!
Well, the final upshot of constantly creating more and more money was provided
by Junior Mogambo Ranger (JMR) Arlo S, who made sure I got the news from
CommodityOnline.com that "Zimbabwe Declares Its Currency Dead."
The article read, "Super-inflated Zimbabwe declared its currency, the
Zimbabwean dollar, a dead one and is no longer being printed." The fiat
Zimbabwe dollar is worth zero!
Actually, this was inevitable, as nobody has used Zimbabwe dollars in a long
time anyway, and non-governmental commerce was being conducted in foreign
currencies and in grains of gold.
Later, we read that even such a catastrophic lesson has not penetrated any
thick heads, as "Speaking to reporters here Zimbabwe's Economic Planning
Minister Elton Mangoma said the currency could be returned as a different
currency or as notes once inflation was under control." Hahahaha!
And what will gold be worth then? And one day, what will you answer when
somebody asks you, "What will gold be worth at the end of the American
super-inflation?" Hahaha! I thought so! And that is why we both know that you
should be buying gold right now!
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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