The jillions of dollars in municipal bonds issued by United States' cities and
states over the last half century are getting a lot of attention lately, mostly
because a lot of people own municipal bonds, either directly or indirectly, and
now cities and states seem to be sliding, sliding, sliding towards an obvious
and unavoidable default, like everyone else, sort of like how my wife noticed
my decades-long slide into lazy worthlessness and irritability, reducing my
value as a husband and father to zero, thus wiping out all her stupid
"investment" in me.
She was, and still is, angry about it, which is instructive in that muni bonds
falling in price normally means that the bondholders suffer, who would likewise
make a big, angry stink about it, resulting in the wholesale ouster of such
incompetent politicians as bondholders put some of their remaining money to
work accomplishing just that.
Ah, but those are the "good old days" of fiscal prudence and
intelligent management, and now all long-term debt to fund states and cities
giving eye-popping salary, benefit and retirement plans to government workers,
plus funding millions of ridiculous programs and projects, has been leveraged,
probably a hundred-fold or more for all I know, with derivatives financed with
short-term debt, which is debt that needs to be constantly rolled over by
issuing new short-term debt! We're freaking doomed!
Mark Lundeen, in his weekly Race to the Bottom newsletter, looks at the
surprising new yield gap between municipal bonds and Wall Street's best-grade
bonds since 1937, and writes, "Since 1937, Muni Bonds have paid less than
Corporate Bonds because of lower risks", but now, for the first time since
1937, "seeing Muni yields spike up above best grade Taxable Corporate Bonds is
telling us that someone is selling their Muni Bonds, while they still can."
So, given the fact that "the current yield gap between muni bonds and best
grade corporate bonds is historic", having never happened before since 1937,
his interpretation of the facts suggests, "another American default credit
crisis and derivative blowup is not far away". Yikes!
Then, after I am terrified by this "for the first time since 1937" thing for a
few days, my stupid boss has me come to her stupid office so that she can tell
me that the way I have been behaving lately is "bothering" her, and it's
eliciting more grievances from my idiot co-workers who are also, I gather,
"bothered" by my behavior, and if I have any explanation.
Naturally, I reply, with a look of incredulity on my face, "With the Federal
Reserve creating So Freaking Much (SFM) money and the horrid Obama
administration deficit-spending So Freaking Much (SFM) money, the only thing
that ‘bothers' you is the way I act? Is that what you said? Answer me, woman!"
I imperiously command.
Well, she sits there with this big, stupid look on her stupid face, stunned at
this sudden change in the interpersonal dynamic, stuttering and stammering, as
I hit her again with, "You could be more profitably 'bothered' by the St Louis
Fed Bank's report of the monetary base, which shows that it is still falling,
in fits and starts, and has been for almost an entire year, although, oddly
enough, the M2 money supply is rising, just like always, which is a worrisome
enough paradox without the additional news that the M3 money supply, which is
the broadest measure of the money supply because it includes everything that
could possibly be considered as 'money,' is going down, too!"
By this time she recovered her senses, and she angrily reminded me who is boss
around here and who is definitely not. I deftly parry her vicious attack by
telling her that she is boss only because of being a woman and management is
under pressure to hire more women, not because of any particular talent of
hers, and maybe she is just too ignorant to understand the horror of the money
supply moving up and/or down like that.
With a snarl, she easily parries my argumentative thrust and delivers a telling
riposte by reminding me that she is smarter, more competent, younger, more
educated, better liked, better dressed and better looking than I ever was or
ever will be. Ouch! I didn't expect the Full Frontal Assault (FFA)!
Instantly recognizing the need for a different Mogambo Plan Of Attack (MPOA), I
tell that I, for one, am at least smart enough to be "bothered" that consumer
installment debt is still falling as consumers are "paying down debt", which
sounds good but which is actually bad because everything about the Modern
American Economy (MAE) depends on people always borrowing more money with which
to buy more things. And now they ain't! Oops!
She easily brushes away my new attack and comes back at me with the fact that
consumer installment debt hit a record of almost $2.6 trillion in September
2008, and the beleaguered consumers still have a whopping $2.4 trillion of
personal debt on their credit cards here in August 2010, having spent since
October 2008 - almost two years! - paying down a measly $200 billion!
Instantly, I was confused and completely disoriented by her blindsiding me with
this because this is exactly what I have been arguing! Huh? I am attacking
myself? What? Huh? What is going on here?
So, with such a distracted foe, I was easily defeated and ordered out of her
office and back to my stupid little desk, to do my stupid little job, where I
was to somehow find a way to stop "acting weird".
Then, by surprise, I found that just thinking about how gold, silver and oil
will protect me against the predations of the government and the Federal
Reserve actually calmed me down!
And then I found that when I looked at how easy it is to profit by betting
against the competence of the government by just buying gold, silver and oil, I
just muttered to myself and said, "Whee! This investing stuff, and not acting
weird, 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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