I was sitting alone in The Mogambo Bunkeroo (TMB) thinking to myself that it
seems unnaturally quiet around here lately, probably as a result of everyone
holding their breath in anxious dread and anticipation since the Federal
Reserve is not creating money with their habitual insane abandon, and Total Fed
Credit was actually down $1.2 billion last week, which, given the total Fed
Credit is a staggering $2.310 trillion, is a rounding error.
The InternationalForecaster.com has a different take on this unusual quietude,
and refers to “the deafening silence in the media and newsletters concerning
the Quadrillion Dollar Derivative Death Star”, which references the disgusting,
convoluted spider’s
web of weird derivatives, and derivatives on derivatives, all based on lies and
leveraged fraud, as far as I can tell.
If you want a way to understand leverage, remember there is only $927.6 billion
in actual US coins and paper money in existence. Thanks to the insanity of
derivatives like massive fractional-reserve banking (where the fraction of
deposits that are held in reserve against about $12 trillion in US bank loans
and leases, and another $12 trillion in deposits, steadily ran less than the
mere pittance of $40 billion for over a decade, thanks to that bastard Alan
Greenspan at the Federal Reserve at the time. And bank reserves are still only
$65 billion under Bernanke!), this little bit of cash money was morphed into
$17 trillion or so in the stock market, plus another $14 trillion or so in the
bond market, plus a housing stock valued at $17 trillion or so, plus a couple
of hundred trillion dollars in bizarre derivatives here and there.
In short, this piddly $927.6 billion in actual cash has been multiplied
thousands of times over, so that people could go into debt to pay for all these
things and so, so many more. And all of this in a $14 trillion GDP!
So you can see that derivatives dwarf everything else. The true size of the
total of derivatives outstanding is understandably hard to compute, and that is
why it was interesting that the Bank for International Settlements (BIS)
calculates that there are about $620 trillion of derivatives floating around
the world, and some estimates from others have gone as high as the
incomprehensible $200 quadrillion, all of which seems Too, Too Bizarre (TTB)
for words since global GDP – the sum total of all the goods and services
produced by the Whole Freaking World (WFW) in an entire year – is only around
$60 trillion!
But the BIS’s estimate of $620 billion in derivatives means that there are over
$10 in derivatives for every $1 of global economic activity, which is like one
guy at the roulette table betting $1 while five guys around him are each
betting each other $2 on whether the guy wins or loses!
I say this without fully understanding anything, which is OK with me since I am
kind of stupid and would probably get it all wrong, anyway, but I feel very
confident in my universal condemnation and disgust with the whole mess, mostly
since I never heard of anybody saying, “I got rich from derivatives!” and, in
fact, the opposite is manifestly true.
But this financial insanity is just a small, small part of the Sheer Economic
Insanity (SEI) of the Federal Reserve creating So Freaking Much Money (SFMM),
and as to the implications, I join with The International Forecaster in saying
that “if people truly understood the implications, they would be buying gold
and silver by the truckload, along with their related shares, which together
comprise your only salvation at this point.”
I know what you are thinking. You are thinking to yourself, “Well, maybe they
are both just saying that because The International Forecaster is as stupid and
crazy as that Mogambo lowlife idiot!”
Well, I doubt that, especially since I never heard my wife yell at them for
being idiots, or heard her say how the only real idiot around here is her for
putting up with them all these years, or go into one of those episodes where
she ends up crying out, “Oh, death, where is thy sting?” about something they
did, or didn’t do, but should have or shouldn’t have, depending.
Well, questions of my mental capacity aside, to buttress our joint opinion
about gold, they note that inflation in prices is showing up in imports, as
“The import price index reached 0.9% in April compared to 0.5% in March”, which
is bad enough inflation in prices to give you the shakes, but, worse, “Over the
year, the import price index registered 11.1% in April.” Yow!
And if the horror of 11.1% inflation in prices, or the looming horror of
disastrous hyperinflation in prices thanks to the central banks of the world
creating So Freaking Much Money (SFMM) is not enough to scare you into getting
into your car to drive like a maniac in a screaming frenzy to buy more gold,
zooming down the street and even onto the sidewalk when you have to (Honk!
Honk! “Outta my way, morons!”), then remember that the Treasury says they only
have 260 million ounces of gold (and this is assuming that all the gold is
still there, which I don’t believe for a second), which, at the ludicrously low
price of $1,230 an ounce, is worth only $319 billion!
Thus, all the gold in Fort Knox is worth, at these low prices, less than a
fifth of one year’s deficit-spending in the Obama budget! Wow!
You can “do the math” because I probably can’t, or, if I could, I wouldn’t
because it is pointless, since even an idiot like me can see that the price of
gold is Too, Too Low (TTL)! And by a Long, Long Shot (LLS), too!
And speaking as an idiot, I am happy that even an idiot can see it, which is
probably what makes me tingle all over and say, “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 2010, The Daily Reckoning.)
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