It was no big surprise that Total Fed Credit was up a whopping US$9.6 billion
last week as the Fed continued creating money and credit to bail out its nasty
little friends on Wall Street to prevent the boom, that resulted from decades
of the Federal Reserve stupidly creating too much money and credit, from
turning into the bust that is, alas, inevitable.
And to help fund it all, the Fed's account, known as "US Government Securities
owned outright", was down by $32.2 billion
last week! Wow! This is about 5% of the bonds it owns! In one shot!
And the banks themselves are still showing a negative "non-borrowed reserves"!
Now get this: total reserves are $43 billion (about the same as it has been for
more than a decade!), and out of that total, $17 billion of it is borrowed from
the Fed! Hahahaha! We are so freaking doomed!
Not to be outdone, or maybe to shut me up because they are tired of hearing my
voice wailing and bewailing what's going on, foreign central banks came
charging in and bought up another $17 billion of US government and agency debt
to stash in their $2.2 trillion account at the Fed, which is simultaneously
astonishing and unremarkable in comparison to the sheer, staggering supply of
dollars that the Fed has created over the past couple of decades or so, and
that is why prices are going up in dollar terms and my screams of fear and
outrage are going up in decibel terms.
Dan North of Euler Hermes says that Americans have "basically polluted the
world with dollars", which I think is a good metaphor for the situation, and
please marvel as I wax ecologically lyrical when I write. "And as you dip your
hungry and thirsty lips into the polluted ocean of commerce for your eat and
drink, you will surely die of dollar poisoning, and on your financial deathbed
of ashes left by the fires of price inflation, you will hear the mocking, rude
laughter of The Mogambo ringing in your ears, and you will recoil in horror as
you realize, albeit too, too late, that the Loudmouth Idiot Mogambo (LIM) was
right and the Austrian School of economics was right; the creation of excess
money and credit (monetary inflation) leads to consumer price inflation, which
is a Very, Very Bad Thing (VVBT), and that buying gold and silver are the two
best things that you could have done with your money!"
Well, it is not King Lear, I guess, but you get the point. But part of the
reason why the Fed is doing all of this crazy stuff may perhaps be found at the
famous "Mortgage-Lender Implode-O-Meter" website, which reports that "Since
late 2006, 241 major US lending operations have 'imploded'."
Or maybe it's enough to see the results, regardless of the cause, and
MoneyandMarkets.com can supply part of the answer when they write "the
difference between the interest rate on high-yield corporate bonds and the rate
on equivalent Treasury issues - is a key credit crisis indicator."
And with that in mind, they go on to note the chronology of:
July 30, 2007: Crisis Indicator Surges: More Than Doubles to 576!
August - October, 2007: Fed's First Massive Response: Crisis Indicator Falls to
354
March 10, 2008: Credit Crisis Indicator Explodes: This Time to 774 Points!
March 14, 2008: Fed Deploys the Nuclear Option
By which he means all of these astonishing, sudden, massively all-or-nothing
Fed actions.
And I agree that it is perhaps appropriate to have all-or-nothing acts of
desperation, as the situation is truly desperate, for which most of the problem
may be found in the Wall Street Journal writing about the "US Debt Reckoning".
They report that "American household debt has more than doubled in a decade to
$13.8 trillion at the end of 2007 from $6.4 trillion in 1999, the vast majority
of it in mortgage and home equity lines, according to Fed data."
I sigh and groan when I realize that the rest of the article contained no
explanatory statistics about these facts, and that means that the calculator
and I are going to meet in combat again, like I knew we would, and it's man
against machine.
The answer, finally wrought out of sweat and blood, is that household debt went
up by $7.4 trillion in eight years, which is close enough to say that this one
subset of consumer debt increased by a whopping 1 trillion dollars a year for
eight years! I involuntarily shout, "Yikes!" at the revelation!
This new money, produced by
borrowing it, was the fuel that made the boom. Now
it's gone, and it ain't coming back. And so what
is going to power the boom that is supposed to get
us out of this bust and make everything alright
again? Oops!
No matter how adept you are with calculators, the answer is actually 7734
upside down, which is not 666, to be sure, but it still means "We're freaking
doomed!"
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.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
