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The Mogambo pours scorn on the inflation numbers...but finds common cause in the notion of “product substitution”...
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The Federal Reserve will drop interest rates to increase borrowing, to increase debt, to increase the money supply, to increase demand and spending, to increase inflation in prices, to increase the rate of people eventually dying a financial death. And so while even little kids know the terrible price we will pay for our stupidity and greed, there is a salvation! Adrian Ash at bullionvault.com writes, "the last time America's credit rating came into crisis - during the late '70s - inflation ate both equity and fixed-income investors alive", but "Gold, on the other hand, rose by 510% for dollar-based buyers.
Gold! Just like I have been yelling about! See? I'm not as stupid as you though
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If you are innocently asking, "Whose money supply is rising so alarmingly that inflation in consumer prices will destroy that country, and therefore a terrific strategic plan would be to set up underworld contacts and smuggling routes now, in preparation of making a fortune in the arms and contraband smuggling racket, as the future becomes a bitter class struggle between the government and desperate, rebellious citizens?" I immediately reveal that it is, alas, the U.S. money supply that is growing so fast!...
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I think that there is a link between this inflationary monetary nonsense and the bad economic news that, as columnist Ernest Hooper reports in the St. Petersburg Times, a restaurant owner friend of his is saying that around this part of Florida the usually-slow summer business season, "is so bad this year that even beer distributors are noticing a difference." There are probably a lot of theories why St. Pete customers aren't going to restaurants to swill beer like they used to, and he cites a marketing director saying that beer sales may be down because "people are consuming at home" because of "declining real estate values and other economic factors."
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Investors who are still sitting on their stocks apparently have a Big Undying Belief (BUB) in the ability of the Fed, Wall Street and the Plunge Protection Team (that was created by an Executive Order issued by President Ronald Reagan to "manage" any stock market "surprise") to keep the markets from falling, or are very stupid, or are all playing with someone else's money, or are whacked out on drugs either prescription, over-the-counter or illegal (or all three at once), or something even more bizarre, like believing in the complete absence of counter-party risk in the hedge "insurance" provided by buying enormous amounts of mysterious derivatives at huge degrees of leverage. The tragic summary is that in the beginning of a monetary inflation, "Everyone benefits and no one pays." Unfortunately, at the end, "Everyone pays and no one benefits. This is the full cycle of every inflation."
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The current market price of road kill is still a very economical zero, which may explain why it is not included in the Lehman Brothers' ingredients cost index, which "covers cocoa, coffee, oats, tea, soyabeans and milk, among other commodities and which is based on spot rates." This index, in case you were wondering, "rose 14.9% in the first half of the year", which "follows a 16.5% increase in the second half of 2006." Yikes! Prices of foodstuffs are up over 30% in
twelve months? Yow! And what is the biggest gainer? "The biggest increase has
occurred in powdered milk prices. These have nearly doubled compared with the same period a year ago. Barley prices have also shot up 53%, while corn prices
are up 68%." So it is no wonder that people are complaining about prices!
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The stock market may be going up because there is a huge, towering overhang of short interest, and if there is one trick that the sharks of Wall Street reliably pull to eat their fill when short interest expands like this, it is by suddenly running the market sharply up and squeezing the shorts, who buy in a panic to cover their enormous short positions and to keep from losing more money if the stock price continues to rise, making prices go up even more, spooking more shorts, who then
buy to cover, making prices go up some more, spooking more shorts. And a lot of buying is resulting from lots of foreign investment money coming here, too...
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In Barron's this week we learn that Macro Mavens estimates that "based on the share of ARMs in some state of negative equity at the end of last year and the decline in home prices so far in 2007, a stunning $693 billion in mortgage loans are already in the red." Wow! And even worse, "Assuming lenders are able to recover 70% of those assets - which seems optimistic given the massive amount of housing inventory yet to be unwound - that means mortgage lenders are already grappling with $210 billion in outright losses." And worse - much, much worse - is that based on the insanely risky degree of leverage that is so pandemic these days, "the total financial exposure to these claims is many multiples of that."
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The phenomenon of disappearing coins must be happening almost everywhere, too, as all currencies are being debased by their central banks, and coins with a low,
fixed denomination on them are doomed as the buying power of the coin falls below the melt value of the metal in the coins. The metal in the Canadian penny is worth so much more than the one-cent face value of the coin that pennies are, just like in India, being hoarded. To make up the shortfall, the Royal Canadian Mint was
forced to increase production of pennies to 1.4 billion last year, enough pennies to represent "63 percent of total circulating coin production."
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A gold standard also constrains fiscal policy of the government, too, as they don't dare just spend and spend, because borrowed money has to be paid back by raising
taxes! And the spending had better be good, too, because if it isn't then the gold will actually flow out of the country as foreigners get scared of our idiocy and take their money away, actually shrinking our money supply! Therefore, under a gold standard, the government and the banks had to be smart and act smart. Now they don't. And obviously aren't...
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