Perhaps Mr. Bonner won’t need any testimony from me, and people will accept the things that he says as facts because they trust him. But when I say something like that, even with facts aplenty at my very fingertips, they want to argue with me like, for example, just the other day when I was taking a little walk in the morning and I ran across a group of kids waiting for the school bus, which was just pulling up as I got there.

So I am telling the kids, “You brats might as well quit school right now because there is no future for you since your own federal government has borrowed and spent this country into the ground, made possible by the loathsome Federal Reserve creating all the wildly excessive amounts of dollars that made it all freaking possible, which became, because it is, an inflation in the money supply, which is what will cause terrifying inflations in prices as all this money is used to bid for a relatively static supply of goods and services so that prices will always be going up and up, all your miserable lives, and at the rate that the idiot Leftist Obama government is deficit-spending money by the trillions of dollars, and the rate at which the foul Federal Reserve is creating new money by the trillions of dollars to finance it,  prices will rise so high that this Whole Freaking Country (WFC) is doomed to suffer catastrophic inflation! We’re freaking doomed!”

So, instead of everyone just accepting what I said, like they do Mr. Bonner, and maybe patting me on the back and saying something cheery like, “Masterfully said, Brilliant Mogambo Maven (BMM)! Thank you for the good education in bad economic governance!” the school bus driver is yelling at me to shut up and for the cheering kids to get on the bus and quit listening to “that damned crazy man”, but the kids are hesitating, and the driver is frantically calling 9-1-1 on her cell phone to report me to the police as some kind of deviant weirdo, and the kids are dancing around, chanting, “We’re freaking doomed! We’re freaking doomed” and the bus driver is yelling, “No, you’re not! Now get on the bus, kids!” and pretty soon some parents come up to see what all the fuss is about, and they start arguing with me, too!

To the adults who can appreciate adult-level conversation, I say, “If you are not concerned about the destruction of the buying power of the dollar because of the insane trillion-dollar increases in the money supply by the Federal Reserve or the ludicrous Obama deficit-spending trillions of dollars that necessitated it, then you’re an idiot!”

And then, out of nowhere, they start arguing with me about THAT, too!

So you can see the kind of crap I have to put up with all the time around here every time I open my mouth, and I imagine even Mr. Bonner would have trouble with these losers, too.

Apparently, Mr. Bonner has heard my sad, Cassandra-like tale of woe, and has decided not to press his luck in this neighborhood of what appear to be, in a word, idiots, and safely quotes some guys named “Professors Rogoff and Reinhart” who “show that when external debt passes 73% of GDP or 239% of exports, the result is default, hyperinflation, or both.”

At this point, most of us have stopped reading because we have had our fill – “up to here!” – of egghead professors finding some relationships between the horrendous condition of the US and impending calamity, as that is the continual state of the US today, and indeed the world, in terms of increasing human suffering, a terrible economy, a travesty of a monetary policy and flagrant, bizarre irresponsibility in fiscal policy.

And after a full day of reinforcing the Mogambo Bunker Of Desperate Refuge (MBODR) with another layer of aluminum foil just because of the terrors of these kinds of things, I am too tired for more horror, as if I could be more, you know, horrified at this point.

I mean, this is nothing new for a real Junior Mogambo Ranger (JMR), who knows that it is the same impending calamity that has impended every other time in human history after these idiotic kinds of expansionary monetary and fiscal insanities are rampant, and now we JMRs have, with heroic stoicism and serenity, moved away from constantly thinking of certain disaster and have started, instead, thinking about lunch. Or weekend plans. Or, if it is the weekend, lunch.

Fortunately, I was not too far immersed in plan making (other than I was already sure that it was going to involve bacon in some capacity), and so I was taken aback when these two professors said that “IMF data show the US already too far gone on both scores, with external debt at 96% of GDP and 748% of exports.”

I was hoping that someone would raise his or her hand (especially the adorable Peggy who said she would never, ever even be in the same room with me ever again, and now there she is – in the front row! – which only shows what a deceitful, lying, heart-breaking little tramp she is), and ask why we didn’t get “default, hyperinflation or both” when external debt passed 73% of GDP on its way to the current 96%, or after passing the point of 239% of exports growing to today’s 748%.

That way, I could spring to my feet, noisily interrupting, and state my own version of how it is easily possible that the largest economy on the planet, that for decades consumed the majority of the industrial output of the planet so that, at its zenith, our trade deficit was almost a trillion dollars a freaking year, was able to continue such stupidity by being financed, for a long while, by scared vendors frightened of their biggest customers not buying more stuff, all so that the USA could indulge its gluttony, its imperialism and its most far-fetched socialist dreams by being financed by the very people who made the stuff that we bought, using the money that the Federal Reserve created, that we gave them as a minimum monthly payment for the last batch of stuff that we bought from them on credit! It’s recycling, dude! Hahahaha!

Of course, this would lead me directly to a long harangue about how “You would have to be an absolute idiot not to buy gold, silver and energy stocks as an iron-clad defense against the aforementioned ‘default, hyperinflation, or both’, which, in this case, will be ‘both’ because the whole financial enchilada is a big leveraged bet where every little change is magnified many-fold into losses, losses, losses as far as the eye can see, growing bigger and bigger, and that our only hope is to riot in the streets, overthrow the current regime and install me – The Mogambo!  – as Wonderful Emperor Mogambo (WEM), where I will wage a never-ending battle for truth, justice and the American way, which is (now that you asked), the glories of free enterprise coupled with a fixed money supply.

Before I could even make a pitch for everyone stocking up on Mogambo Enterprises Riot Gear And Supplies (MERGAS) that they will need in their glorious popular rebellion to oust the government and put The Mogambo on the throne of absolute power, or even give me a lousy minute to hand out some brochures, Mr. Bonner, apparently embarrassed to have his presentation hijacked by a megalomaniacal power-hungry lunatic hawking insurrection, shoddy pitchforks and flaming torches, obviously alludes to it and says, “The rioters can go home, in other words. The system will collapse on its own.”

Well, if it is going to collapse on its own, then, like everyone else, I sigh, and figure, “Why bother?” So, instead, I take the easy way out because the easy way out is The Real Mogambo Way (TRMW), which, in this case, is to just buy gold, silver and oil because with the ugly, inflationary-collapse way that things are going, and which cannot be stopped, it makes you Giggle With Glee (GWG), “Whee! This investing stuff is easy!”

US Economic Outlook: Default, Hyperinflation or Both originally appeared in the Daily Reckoning.

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It is actually a horror that the level of private debt peaked last year at about $36 trillion, which is certainly a lot of money, especially since total GDP of the Whole Freaking Country (WFC) is only $14 trillion (and falling!).

In some kind of bizarre “good news/bad news” joke, total private debt has now actually fallen by a couple of trillion dollars to $34 trillion, which is bad news for an economy that depends on consumption, but is good news in that people have lighter debt burdens.

David Stevenson of the Money Morning newsletter at moneyweek.com notes that it’s not just us, but “private borrowing is slowing everywhere” and that “US consumer credit has shrunk for a record 11 months in a row.”

The interesting thing is that the Bianco chart goes back to 1952, and there has never, ever been a time when private credit market debt fell by as much as a dime! Although it, sometimes, did not go up for short periods, nevertheless, it has never gone down. Never!

Until now. Oops!

Note that the soundtrack has gotten all gloomy, which makes sense, because if total private debt has – gasp! – gone down, then the money supply is not expanding because people are not borrowing to buy and invest. Oops!

Parenthetically, the money supply is not actually shrinking that much, as you would expect, because the asinine neo-Keynesian theory says that the government should replace private spending with deficit-spending, which they do, thanks to the Federal Reserve creating the money, which is another whole subject about which usually results in a loud Mogambo Scream Of Outrage (MSOO), which is, I think, more of a wail of anguish and crushing despair than a scream, although it usually concludes with me howling, wolf-like, “We’re freaking doooooooooommmmed!”

That’s, unfortunately, the bad thing that happens at the end of long booms produced by constant monetary stupidity, especially of the kind of stupidity found at the Federal Reserve, which explains why I say, with a loud, irritating repetitiveness that makes people run screaming from the room every time I open my mouth, to buy gold, silver and oil as your only defense against rampant government stupidity and insane levels of monetary over-creation of money and credit, as redundant as that actually is because of how incestuous they are.

I assume that you now understand the depth of the ignorance, stupidity and depravity of the government and the Federal Reserve (and, indeed, all the central governments and central banks of the world), and you are saying to yourself, “Hey! The Loud Mogambo Idiot (LMI) is right! Maybe he is not as stupid as everyone says!”

Fortunately, that knowledge is all that is required to be a Junior Mogambo Ranger (JMR), and now that you have begun on your path to economic enlightenment, I can let you in on a little secret; it’s going to get worse. Much worse. Much, much worse. Worse than anything, even that time when your First True Love (FTL) dumped you and started going out with that jerk from the baseball team, and how you still hate him for it, even after all this time, and you still love her in spite of it, even after all this time.

But you are not here to listen to my tale of love gone wrong, desperately loving someone who doesn’t love you, and rejects your aching heart over and over, and when you call her on the phone, her father answers and says, “My daughter says you are a creepy little rat-faced creep, so why don’t you just give up, kid?”

And so I did, on the spot, saying a final goodbye to her, through him, and with a tearful, heart-broken voice, and I told him to tell that scheming little lying two-faced cheating slut he calls his daughter, as a parting gift of wisdom from me, to “Buy gold, silver and oil when your idiotic government allows unrestrained creating of money and credit, and especially when the government deficit-spends said money to expand itself”, thinking, you know, that I would leave her with a fabulous piece of advice by which she could always remember me fondly.

Instead of him saying, “Well said, intelligent young man! I shall be honored to relay your wise advice to my daughter, and I shall act upon it at once myself!” he said, “What in the hell is that supposed to mean, you little punk?”

So I told him that he was obviously a moron about monetary policy, fiscal policy and raising demonic daughters and, judging by his reaction, burned another bridge behind me.

But I won’t need it! Hahaha! I have gold, silver and oil, and with them I can build all the new bridges I want, with riches untold, when his precious dollars and dollar-denominated assets turn into the crap that fiat currencies always become.

And his daughter, the tramp Carol? Now it shall be I who says, “Scram! Ya creep me out, loser weirdo!” Hahahaha!

Private Debt Decline: Good For US Bad for the Economy originally appeared in the Daily Reckoning.

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South Korea and Japan are both home to large numbers of United States troops and neither are going to invite a nuclear attack.  The Kuomintang, which the US backed, retreated to Taiwan when they lost power and China still asserts their ownership over the tiny island and the US continues to honor their agreement to defend Taiwan.  Russia has been discharging dollars and acquiring gold while Brazil is bucking the buck.  Neither China nor India have significant reported physical gold holdings; they need a hedge to the major currency illusions.  In my book The Great Credit Contraction the liquidity pyramid represents the FRN$ will be the last major currency to evaporate.

The Euro’s evaporation has increased and ultimately has only one outcome.  Sure, Germany wants to retain its voice on the world stage and is faced with a Hobson’s choice of bailing out Greece and eventually the other unproductive free-riding members of the Euro or let the Euro evaporate and lose their relevance on the world stage because Germany only matters if Europe as a whole matters.

CREDIT DEFAULT SWAPS

But the Damocles sword of credit default swaps, which is falling toward’s Greece, can, ultimately, be measured only against gold because gold is no-one’s liability.  Just like the Chinese have feigned their interest in acquiring gold; many sophisticated investors have feigned ignorance of gold’s monetary role.  Many sophisticated investors, like George Soros who broke the Bank of England doubled his gold position in Q1 2010, Paul Tudor of Tudor Investments, John Paulson, David Einhorn, Eric Sprott, Jim Rogers, Peter Schiff, John Embry and many others are likewise allocating their capital based on the premise that gold is a major world currency.

Even Janet Tavakoli, a former adjunct associate professor of derivatives at the University of Chicago’s Graduate School of Business, and author of six books on derivatives recently wrote:

U.S. credit default swaps currently trade in euros. After all, if the U.S. defaults, who will want payment in devalued U.S. dollars? The euro recently weakened relative to the dollar, and market participants are calling for contracts that require payment in gold. If they get their way, speculators on the winning side of a price move will demand collateral paid in gold.

The market can create an unlimited number of these contracts very rapidly. The U.S. wouldn’t have to ever default to trigger a major disruption in the gold market.

The fiat currency and fractional reserve banking system is merely a confidence game built on an illusion and fraud.  Fiat currency is to be valued like the common stock of a government and in gold.  As such the current system will end and holder’s of capital will demand to be shown the money.  Just ask Harry Reid about karma.

The price of gold in evaporating currencies would not so much create a disruption in the gold market as cause a serious loss of confidence in the current system which would result in a tremendous increase in gold’s liquidity, hopefully through use by individuals in ordinary daily activities like what happened in Zimbabwe last year.  After all, who really needs to use fiat currency illusions and why?  In this case, we are seeing both China and India demanding to see the IMF’s gold, the Damocles sword jitters and there is only one protection.  Assets with intrinsic value.

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Turning to the old tried and true, I soon learned that I had started too late, and I was not nearly drunk enough to have properly anesthetized my nerves when I chanced to read Agora Financial’s 5- Minute Forecast report that “The CBO’s latest numbers reveal that President Obama’s proposed fiscal 2011 budget would add $9.7 trillion to the national debt over the next 10 years.”

My hands shook and my guts churned at the horrific prospect of adding $9.7 trillion to the money supply, which means (I gulp in horror at the prospect) inflation in pieces like you never saw! Yikes!

I mean, (my voice rising in pitch and volume) the entire GDP of the USA is about $14 trillion, and the government wants to increase, over ten years, government spending by 70% of everything that this country currently makes!

Apparently eager to change the subject since I seem to be getting worked up about this and could, possibly, probably, almost certainly, damned near guaranteed, erupt into some loud Mogambo Hysterical Tirade (MHT) and make a shambles of everything, The 5 says, “Further, the CBO projects the national debt will be 90% of GDP by the end of this decade”, which I guess they thought would calm me down or something, but it didn’t, which was bad enough to cause me to have chest pains accompanied by loud howls of pain and outrage in another tiresome Screaming Mogambo Fit (SMF), but then went on to make it all worse by saying that debt will equal 90% of GDP, which is “higher than the 83.4% recorded at the end of fiscal 2009 last fall.”

Suddenly, there was an uproar as I jumped to my feet and shouted “What kind of bizarre crap is that? The national debt is already $12.5 trillion in a $14 trillion economy, and somehow you add $9.7 trillion to $12.5 trillion to get 90% of the economy which means that …that…that…”

Well, I knew what I meant to say, but did not have a calculator handy, and the security guards had me by the arms and were hustling me out of the room pretty quick.

I later found out that what I meant to say, but did not have the figures handy, is that this means that the CBO thinks that, unbelievably, in ten short years, a staggering $22 trillion of national debt will be 90% of the economy, which means that the CBO thinks that the economy in ten years will be, I gulp to report, $24 trillion, which is a whopping 71% higher than today! I am stunned!

What can one say but, “We are freaking doomed!”

Perhaps hearing my plaintive voice with its unmistakable undertone of angry paranoia and wanting me to calm down, The 5 says, “We’re 100% certain this comment will elicit the customary response: ‘Look at Japan, its debt is 170% of GDP…and it’s been running massive deficits for years!’”

I think to myself, “Okay, they just take time to raise the blade of the guillotine higher and higher, but the end result will be the same, and if anyone thinks that Japan proves otherwise, then I laugh the Mogambo Laugh Of Scorn (MLOS) at them and turn around to wave my buttocks in their faces in a final fillip of disrespect!”

The 5, in what I imagine is said with a deliciously snotty tone, says, “To which we can only sigh and respond: ‘Exactly.’”

Well, I can do more than that, because I am, after all, The Loudmouth Mogambo (TLM)! And I say that if all prices doubled, today, GDP (which measures spending) would instantly double, too! Hahahaha! Everything costs twice as much, but the economy looks like it boomed! Hahahaha! Welcome to Inflationary Hell!

I often marvel that it’s a good thing that the poor are usually ignorant or stupid, because if they could, or would, comprehend how this huge explosion of money is going to make prices rise and make them enormously poorer and more miserable, worse and worse, and probably for the rest of their lives, they would go freaking berserk.

As for the middle class, they are supposed to be smart and educated enough to know this stuff, but they don’t, and so they don’t understand the sheer enormity of how much poorer and miserable they will be for decades to come, either, and they will suffer, too.

Then there are those of us who are buying gold, silver and oil to protect ourselves against the ruinous, crushing, cataclysmic inflation in prices that this inflation in the money supply, and debt, will cause, because then, for us, it all becomes idle dilettantism and pleasure, which is, once you boil it down, the whole point of investing, isn’t it?

And could anything be easier? Whee! This investing stuff is easy!

CBO Budget Projections and the Horrors of Inflation originally appeared in the Daily Reckoning.

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His story starts off that “The FDIC is even more broke than it was three months ago” to which most people rudely say, “Welcome to the club! Waddya think, we got some kind of picnic at the beach going on out here in the real world while you pretty-face hotshots talk about who is smarter and about some idiot named Mogambo who must be an idiot because otherwise he would not have such a stupid name!”

Mr. Wiggin goes on undaunted, perhaps buoyed by the knowledge that no matter what happens, he’ll still be better looking than The Mogambo. And smarter, too. And younger.

Maybe that’s why he did not seem to be registering horror at the news of the bankruptcy of the FDIC, and, as if to underscore my suspicions, you can almost hear the confidence in his voice as he explains, “The fund the FDIC uses to ‘insure’ your bank account went $20.9 billion in the red during the fourth quarter of 2009. That’s more than twice the deficit reported when the fund first entered negative territory in the previous quarter.”

Naturally, if these were the old days when the money supply was more-or-less constant, this would cause panic: “Our bank deposits are uninsured! Yikes! The Mogambo said we’d be wiped out and here it is, and he said to buy gold, silver and oil, and we didn’t, and now look at us! Oh, woe!”

But nowadays? Relax! We have a fiat currency that the Federal Reserve can, literally, create at will, at a stroke, all the money necessary to make sure that every Last Freaking Dollar (LFD) dollar in your account is fully protected against actual nominal loss; you had an electronic or paper buck, you will still have and electronic or paper buck!

Unfortunately (and you can tell there is a “catch” by the way the soundtrack suddenly turns gloomy and there seems to be the sound of somebody, in the distance, throwing up into a toilet) this huge, sustained increase in the money supply guarantees – guarantees! – that you will lose buying power in every one of your precious dollars, so you are kind of screwed, either way, when you stop and think about it, by Federal Reserve policies.

My Sensitive Mogambo Nose (SMN) detects (sniff, sniff, sniff!) detects panic. So, desperate for money, I look to prey on the superstitious, and suggest that maybe you should just send all of your “tainted” money to me so that my hoodlum friends and I can have a big ol’ party, where we will raise our glasses in a long series of toasts to you, to your health, and to your good luck because – hey! – attracting the attention of deities, paranormal powers, transcendental influences and cosmic forces could, conceivably, work!

Mr. Wiggin is not enthusiastic about my latest rip-off scam, which I suggest only because I am out of ideas and I am desperate for money. He suggests a perfectly legal and good way to get some money, which is, “As long as banks can continue to borrow from the Fed at 0.25% and park it in 10-year Treasuries for nearly 3.7% (and leverage it up, of course), we don’t see this changing”!

He’s right, of course, but before you rush out to start a bank and get your piece of this Federal Reserve stupidity, perhaps you should consider something along the lines of buying gold, silver and oil in some kind of wild, paranoid, knee-jerk reflex as a small, small part of a whole constellation of symptoms known collectively as Screaming Fear Of Outrage (SFOO) of the inflation that will be caused by such massive increases in the money supply, now additionally caused by the needs of the FDIC, but he goes on that it will get worse than that, as, “On top of that, the FDIC’s list of ‘problem banks’ grew during the fourth quarter from 552 to 702” he says! Yikes!

A long, haunting howl of dismay escapes my lips, perhaps not unlike the sound of ravenous, starving wolves howling, “oooOOOOOOooooooooh!” as they close in on your bloody trail as you crawl along, dressed in rags, wounded, bleeding, in the snow, at night, in the mountains, in a snow storm, with freezing sleet, and you realize that you can’t buy them off with your paper fiat money, but with a flash of True Mogambo Enlightenment (TME) that has come tragically too late, you realize that with the heft of a kilogram of gold in your hand, you can beat the living hell out of anything that comes near you that is metaphorically wolf-like in economic nature, or, with literal wolves, something spewing out .45 caliber bullets in a semi-auto fashion, putting us one more leg-up (as if we needed it!) on wolves of the literal kind, with politicians being of the metaphorical kind of ravenous wolves, thus mixing up literal with figurative, back and forth, up and down until you are in a panic, all confused and bewildered, wondering what’s real and what’s not, and your first instinct is to just start blasting, blasting, blasting until your trigger finger is bloody and cramped, and you manage to clear out a “Mogambo Dead Zone Of Safety (MDZOS)” all around you.

And you probably would have, too, if you had not remembered that you bought a lot of gold, silver and oil just to take care of situations like this! And it’s working perfectly! Ahhh!

But this thing about the “FDIC’s list of ‘problem banks’ grew during the fourth quarter from 552 to 702” is, as I notice with alarm, not only a number that is a huge (almost) 50% higher in just one quarter, a statistic which sets my Sensitive Mogambo Senses (SMS) tingling, as with two data points, a desperate-yet-handsome man like myself can quickly, and easily, discern some kind of Trend Of The Ugly Kind (TOTUK), to which I am particularly alert ever since I noticed that the entire freaking course of human history in the world, a world you call Earth, is the sad, stupid story of one stupid country after another borrowing money and getting into debt that they can’t repay, which is always resolved with inflation in prices, a bankruptcy of assets, and a ruinous war with somebody as we attempt to shift the cost of victim-hood from ourselves to foreigners so that there is, indeed, a free lunch for us.

Mr. Wiggin is not impressed with my penetrating analysis, which is in line with what everyone else agrees is pretty stupid and not worth reading or even admitting that they had even read, even in part, but I notice that he immediately takes up on my idea of “trend” that just I mentioned, and – surprise! – he finds, “Hmmm, let’s see. The number grew 27% in just one quarter. At this pace, every bank in the country will be on the problem list by the fourth quarter of 2012.”

An involuntary “Yikes!” escapes my lips. That’s a trend!

I, as are most normal people who understand how this “economics thing” works, am horrified by all of this, and the only saving graces were that I had gold, I had silver, I had oil, and I had enough firepower – within reach! – to provide calming relief to an otherwise paranoid, screaming, hysterical man, such as myself, pumping adrenaline from every pore in his primal outrage at the sheer terror that is being created by the Federal Reserve.

For some reason, I can actually feel your scorn, as you deride what you think is just another paranoid gold-bug gun nut Loonie-Tunes weirdo since the Federal Reserve can just create all the money and credit that the FDIC needs, so why don’t I, as I asked my kids, just shut up?

With that, I thought it was all over, until he went on, “Another tidbit from the FDIC’s report: Bank lending last year dropped at the biggest clip since 1942”, which was the year after we entered World War II, which seems important, but was a long time ago, and we don’t get to watch watching terrific war footage with things blowing up and – blam blam blam blam! – guns are firing! Things are on fire! It’s all exciting as hell!

Instead, we will note, much more soberly, that this is today we are talking about, not some ancient yesterday, and Americans are not the “good guys” bravely freeing Europe by destroying it all so that our industrial advantages are completely spared, but are, instead, the biggest bunch of feel-good, hyper-leftist morons that the world has ever seen where, despite a national emphasis on education, ample historical evidence, and the Constitution of the United States requiring that money be only of gold and silver, the citizens have allowed a pure fiat money and every kind of slimy flimflammery that such unbridled money supply would allow, which was, as you would guess, anything you could imagine.

The bad news is actually beyond that of mere bank lending being down, since nobody (except governments) wants to borrow money, since nobody has the money to buy anything anybody makes, so why invest money to make something that nobody will buy. The worse news is that bank lending is how money is created.

Money is, by definition, being destroyed, so that there is less money around with which to pay debts.

You know, without me telling you, that all this ain’t good! And these are the times when you are glad that you are safely invested in gold, silver and oil, and the only thing you have to worry about is, for instance, the usual stuff of keeping an eye out for party-killing suspicious strangers who may know your wife or boss, checking for suspicious pods growing near where you sleep, and protecting yourself against vampires, werewolves, and other blood-suckers, which leads us back to politicians deficit-spending, which leads us back to the Federal Reserve creating more money, which leads us back to buying gold, silver and oil in fearful response, which leads me back to, “Whee! This investing stuff is easy!”

Using Gold to Fend of the FDIC and Its “Problem Banks” originally appeared in the Daily Reckoning.

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But the surprising gunfire was not my fault, as I had just read that the Federal Reserve is being as dangerously incompetent as ever by continuing to massively increase the money supply (which is so horrible because it causes inflation in prices) so that they can buy up (monetize) at least a part of the massive, monstrous, mega-moolah Treasury debt issuance that will be necessary to fund the unbelievable sum of, as I understand it, $1.9 trillion in government deficit-spending in the upcoming One Freaking Year (OFY) as a result of the massive spending of the terrible, awful, worse-than-I-had-feared, demon-from-hell Obama administration, plus trillions more for the needs of the private sector, and a trillion or so in Congressional “supplemental appropriations” throughout the year as Congress periodically, almost ritually in a Satanic kind of way, “discovers” that their original estimate of their borrowing needs was inadequate, and – surprise! – that these slimy, lying bastards need LOTS and lots more money!

I can see by rereading that paragraph that I was so wrapped up in heaping Massive Mogambo Scorn (MMS) on the arrogant, radical-Left Obama, on every sniveling Democrat in the place, most of the Republicans, and on the despicable, guilty-as-charged, incompetent Federal Reserve that I never actually got around to telling you how much money and credit the Fed created last week, which was the original point I was going to make for some reason other than decrying such irresponsible expansions of the money supply that will guarantee horrific, economy-destroying, dollar-destroying, soul-destroying inflation in prices, but I forgot what I was planning to say about it, to tell you the truth, but with or without it, the increase in Fed Credit last week was another $5.2 billion, which (although terrifying), is less than his usual increase, and at $5.2 billion, is merely twice the usual weekly rate of money and credit creation by the monster Alan Greenspan, former chairman of the Federal Reserve, who – single-handedly! – created all the economic mess of the world by merely creating $10 billion-or-so per month of new Federal Reserve money and credit!

Now, Fed chairman Ben Bernanke, a clueless academic, still stubbornly hews to that same, tired, insipid-yet-stupid neo-Keynesian econometric theory that has now been shown to be not only wrong, wrong, wrong, but also stupidly and catastrophically wrong, which doesn’t say anything at all about the morons, like Ben Bernanke and Alan Blinder, who are themselves mere representative examples of the neo-Keynesian econometric bozos rampant in the world today, all of whom believe in such imbecilities as their precious economic theories in the face of, literally, overwhelming evidence to the contrary! It is absurd on its face! Ya gotta laugh! Hahahaha!

Interestingly, a crucial part of the stupid Keynesian nonsense holds that the government can, by virtue of borrowing the money, replace any perceived lost “consumer demand”, in any economic downturn, by merely borrowing and spending money, even if borrowing and spending money was the cause of the original downturn, and that there are no repercussions that cannot be solved by more borrowing and spending, and that inflation in prices has nothing to do with the money supply but with irrational exuberance! Which doesn’t even make any sense! Hahahah! It doesn’t even freaking make sense!!

Sharp-eyed Junior Mogambo Rangers (JMRs) will recognize the two exclamation points as indicators of something, usually the preceding sentence (as in this case), as being very important, as, now that I notice, it is, in this case, in that it is Beyond Freaking Crazy (BFC)!!!

Horrors! The punctuation using the rare triple exclamation point! You can tell I am on a roll here! I suggest you go to someplace safe in your house where your enemies would have to attempt a painful frontal assault against you, and as you wait, you think to yourself, “Obviously, this is extremely important! As indeed it is, now that I think about it after it has been drawn to my attention, thanks to the Magnificent Mogambo (MM), because you do not get anything except total, unmitigated disaster from inept management by people who cannot be controlled and who are Beyond Freaking Crazy (BFC)!”

I am very proud of you for thinking this, as it shows that it has all become clear: The preponderance of people on this planet, and in our universities, and in our media, and in our governments, and in our central banks are BFC lunatics if they think that borrowing (racking up debt) and spending money will “cure” the bust of the boom produced by borrowing (racking up debt) and spending the money! Hahahaha!

I immediately think of the joke, “Doctor! I’ve been gorging myself, but I never lose any weight!” but it doesn’t seem to fit the conversation, somehow, and it doesn’t really seem to have anything to do with anything I was talking about, which makes me think that maybe my subconscious is telling me that I SHOULD have been talking about it, which doesn’t make any sense, either, because I don’t think anyone needs advice on how to gorge themselves, and in fact, people seem quite disgusted when I do it, although it makes their kids laugh, meaning that the kids like me better than they like their own parents, which is a small victory for me and, although small, is a victory.

So I say to the kids, who just showed how much they love me, “Hey, kids! Tell your parents that they are idiots unless they buy gold, silver and oil right now, because unless they do, they are going to be poor when excessive government deficit-spending and excessive Federal Reserve over-creation of money and credit make prices soar as the buying power of the dollar falls, which means that you will be poor, and you tell them how you don’t want to be poor, and how you have been thinking about, in an idle sort of economic self-defense way, the many, many advantages of being too young to be charged with a capital crime should they fail to acquire the aforesaid gold, silver and oil!”

This is where the parents turned around and gave me this “dirty look”, which I interpreted to mean, “I surrender, under protest, to your magnificent, powerful presentation of the case for gold, silver and oil, enhanced by the paranoid notion that my own children are threatening to kill me in some bizarre extortion racket involving gold, silver and oil that you have planted in my head, which I realize is all for my own good because I now see that only an idiot would not buy gold, silver and oil when the government and the banks are acting so despicably! Thank you, handsome stranger!”

The name’s Mogambo, ma’am. It’s my job.

Borrow and Spend Economics to Pay for Borrowing and Spending originally appeared in the Daily Reckoning.

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Related posts:

1. True Fiscal Insanity: Creating Money to Buy Government Debt
2. Gold, Silver and Oil: Buying the Essentials in Tough Markets
3. Using Gold to Fend Off the FDIC and its “Problem Banks”

Grabbing the bare necessities (a couple of pistols, a few Uzi submachine guns, a rocket-propelled grenade launcher and a lot of spare ammunition) I rolled off the bed onto the floor with the idea of scuttling into the closet to cringe in a defensive posture, bristling with weapons, making my enemies stop and think before killing me, giving me, I figure, a additional three more seconds to live!

Unfortunately, all those armaments were heavy, and it was pretty stupid of me to carry so much weight, now that I think about it, and I fell on the floor with a big clanking noise.

Still, nothing!

Then I saw why: it wasn’t attackers at all! The family had cleared out because my Mogambo Machine To Measure Magical Money (MMTMMM) was going nuts, banging and beeping, and clanging and cleeping, which is not even a real word, which only shows you how freaked out I still am when I instantly saw why: Federal Reserve Credit (the magical “money out of thin air” of story and song, which the gold standard would prevent), jumped a massive $31 billion last week – $31 billion in One Freaking Week (OFW)! – taking the total to a record $2.264 trillion.

The banks, for their part, can take this new credit that has appeared, as if by magic, on their books, and loan out Huge Freaking Multiples (HFM) of this $31 billion, according to the Fed’s preposterously-low required fractional-reserve ratio which is (and has been for almost two full decades) almost a zillion-to-one, which (multiplying a zillion times $31 billion) is slightly more than, as I understand it, a freaking gazillion.

Well, apparently, none of this reached the banks, as the Fed bought up, for itself in a disgusting orgy of monetization of government debt, in One Freaking Week (OFW), a massive $53.6 billion of “Securities bought outright”! The Fed created the money to buy government debt! Gaaaaagakkk!

That last word, properly pronounced with a guttural ending, was to indicate another in a series of Timeless Mogambo Truths (TMT), which, in this case, is don’t eat a burrito while you are reading Bad, Bad News (BBN) because you will gag and choke, mostly because it makes a big mess all over everything and the guy in the next cubicle starts whining, “Hey! Stop spitting on me!”, but also because transcripts of the people bugging your office will read it as “unintelligible, followed by gagging and choking”, which proves my point about eating burritos while reading BBN, although I am not sure if it works with, for example, tacos, so they are still OK as far as I am concerned.

In case you were wondering how much credit the Federal Reserve has made, so that it can use up some of it to buy, for itself in a loathsome fraud known as “monetizing the debt”, government debt, that particular horrific total comes to a record of $1.967 trillion, which is an astonishing $1.397 trillion higher than this time last year!!

As you would expect, the money supply is still rising, and the monetary base rose a whopping $56 billion in the last week, which is more than $560 for everybody in the Whole Freaking Country (WFC) that has a non-government job! In One Freaking Week (OFW)!

As Junior Mogambo Rangers (JMRs) know, perhaps intuitively or perhaps because I (as a proxy for the Austrian school of economics but who, if you call them up and ask them, say, “We never heard of this Mogambo person you speak of! Goodbye!”, but you can tell by their suspicious change of mood that they have) never seem to shut up about inflation being properly defined as an increase in the money supply and that inflation in consumer prices is a result of that, and here it is!

This increase in the money supply usually, firstly, has a stimulating effect or, in our case, prevention of the Big Freaking Bust (BFB) and economic devastation that we so richly deserve for a ridiculous, laughable half century of experimental socialist governmental deficit-spending and “putting every leveraged dollar to work!”, and the abysmal, total failure of the loathsome Federal Reserve to control the money supply so that the damned government couldn’t do crap like that without entering the money marketplace and bidding for the funds, like any other borrower, thus driving up interest rates, which made the economy slow down, which infuriated worker/voters, and the government would stop doing that fiscal incompetence immediately, or as soon as the next election rolled around, ignoring the possibly of a recall election in the interim, or even a general insurrection and revolution, perhaps ending with the people carrying me on their shoulders, a hero to rule the country as Emperor Mogambo (EM) who immediately installs a gold standard to protect the people’s money from inflation (which keeps from making the poor poorer because of the inevitable higher prices that the additional money causes), and, also as a treat for all my adult loyal subjects, dovetailing the arrival of 3-D TV with hearty encouragement to develop, at great speed, a brave, new world of 3-D pornography, leading America to a new golden age in many, many, many ways! I can hardly wait!

In the meantime, however, accumulate gold, silver and oil, especially using some kind of Dollar-Cost Averaging scheme, which has not been improved upon, either in its simplicity (you spend the same number of dollars per month, month after month) or its efficacy; it kicks butt over a long trend, as you are always buying more when they are cheap, and you buy less when they are more expensive.

Or, if you are like most people, you are an impatient, greedy little bastard who wants to make the biggest, most maximum profit possible, as soon as possible, by taking maximum risk that gold, silver and oil will never be cheaper than they are now, then you should rush out and buy as much gold, silver and oil as possible Right Freaking Now (RFN), exhausting every source of credit you can get your clutching, grasping little hands on, and then selling the kid’s stuff and buying more gold, silver and oil with that money, too!

Somewhere in between these extremes you will find yourself, my budding Junior Mogambo Ranger (JMR)! The effects of massive increases in the money supply (horrifying inflation) will lead you to True Mogambo Enlightenment (TME) about how economics really, really works, and in a blazing moment of incandescent, transcendent clarity, you will suddenly realize you have to buy gold, silver and oil, right away, because, “Whee! This investing stuff is easy!”

True Fiscal Insanity: Creating Money to Buy Government Debt originally appeared in the Daily Reckoning.

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Related posts:

1. Calm in the Face of Fiscal Insanity
2. Hyperinflation: The Inevitable Result of Government-Manged Money
3. Borrow and Spend Economics to Pay for Borrowing and Spending

Oh, I am sure that there are those who disagree with my interpretation of what a dead president meant when he said he was a “cream-filled pastry”, and there are those who dispute my understanding of the vital role of the taco (“The prefect snack, any time!”) and the candy bar (“Perfect for times between tacos!”) in today’s modern, health-conscious world, too, so go figure. Idiots!

Regardless, the state of my mental faculties or the fact that I sound, look and act exactly like an idiot is not the point. The point is about the importance of owning gold, silver and oil when the truly idiotic Federal Reserve keeps increasing the supply of credit and money, especially as it is used mainly to buy an avalanche of new government debt (monetizing the debt! Gaaaah! We’re freaking doomed!), and how the title of his article, “More Spending is Always the Answer”, is so ludicrously ridiculous that I could not believe my eyes that Senator Ron Paul, of all the people in the world, is saying that “more spending is always the answer”, because nothing could be farther from the truth, and it is, instead, waaaAAAaaay out there past the outermost, frigid fringes of Truth, a place where we find “The promise of True Love” and “The check’s in the mail.”

It turns out that he was being sarcastic, as I should have known, and he says, “Continually increasing the debt is one of the logical outcomes of Keynesianism, since more government spending is always their answer. It is claimed that government must not stop spending when the economy is so fragile. Government must act.”

The problem is that “when times are good, government also increases in size and scope, because we can afford it, it is claimed.” Exactly!

In short, the blockheads in Congress, the Federal Reserve, the majority of the laughably-incompetent university economics professors in the country, the morons of the President’s council of economic advisors, and all Democrats, all believe that “There is never a good time to rein in government spending according to Keynesian economists and the proponents of big government.”

As a case in point, “Last week, the House approved another increase in the national debt ceiling”, he says, meaning that the idiotic American government can now legally borrow $1.9 trillion more, on top of the $12 trillion already borrowed and owed, “to stay afloat and avoid default”, although he did not mention that this monstrous new load of debt is only expected to last until just after the mid-term elections this year, at which point Congress will take us farther and farther into a deadly financial quicksand with another extension of the debt limit! Hahaha!

In this regard, Junior Mogambo Ranger (JMR) Alan L. writes, “Call one drop of water a dollar. Five drops equals one milliliter. Question: What is the volume of water of $14 trillion?”

Instantly, I am back in high school, feeling panicked and trapped because the teacher has asked me a question that not only do I NOT know the answer to, or how to figure it out, but I don’t even care, and I never WILL care about it because if I was ever actually on a train that was leaving Chicago towards Los Angeles, 2,000 miles away, going 60 miles an hour, and I knew that another train was leaving Los Angeles going to Chicago at 70 miles an hour, I wouldn’t get on the damn train! It’s that simple!

So I don’t freaking CARE how long it would be before they met and they crashed into each other with a big explosion and there are bodies everywhere and what a mess, because I won’t be there! I’ll read about it!

Apparently, JMR Alan saw the panic in my eyes, or perhaps it was the way I was reaching under my jacket preparing to shoot my way out of here if necessary, but either way, he was pretty quick coming up with the answer: “Twenty times the volume of the Great Lakes. That puts the entire area of the United States 50 meters underwater.”

Wow! I seem to remember some handsome rascal and clever bon vivant, with a twinkle in his dazzling blue eyes and a roughish grin on his boyish-yet-rugged face, say “We’re freaking doomed!” as a result of the abject stupidity of Congress and the Federal Reserve in the last 90 years or so since the Fed was created, and especially as a result of the stupidity of the last 40 years when Nixon refused to exchange dollars for gold, and doubly especially since 1997 when Alan Greenspan really started getting insane with monetary policy, and triply especially since 2008 when the unbelievably preposterous Ben Bernanke and his loathsome Federal Reserve doubled the money supply at a stroke! At A Freaking Stroke (AFS)! Doubled!

This – THIS! – is the worst thing that could happen for those of us whose fear of hyperinflation, which is guaranteed after a hyperinflation in the money supply, makes us buy gold, silver and oil with a fearful, frantic frenzy that precludes even thinking about spouses and children, except maybe about how they are a big, heavy weight around my aching neck and my only hope is to get more gold, silver and oil, which, when I do, make the whole problem worse and worse! I can’t win!

And don’t get me started on the hassles of having a few defensive fortifications in the backyard to further protect yourself against the massive social unrest that inflation causes. Neighbors are always whining about something, like maybe a couple of accidental shots, probably less than a hundred rounds all told, allegedly emanating from the Mogambo Bunker Of Trembling Terror (MBOTT), that didn’t even hit anybody, and the only real damage was Carl’s stupid barbeque grill, which was old, rusty and ugly to start with, and I didn’t think he would even mind, and there was some collateral damage to his stupid water heater, too, which was ditto on the old, rusty and ugly.

But the point is that the Federal Reserve is going to kill us with inflation in prices as a result of their relentless inflation in creation of money and credit as a result of the federal government deficit-spending so incredibly much money, and you should get some gold, silver and oil right away!

You will be glad you did, and you can fit a surprising lot of them in even the most modest-sized bunker, yet still have lots of room for supplies of ammunition, frozen pizzas and pornography. So, whee! This investing stuff is easy!

Money Supply Flood to Drown US Economy originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Related posts:

1. True Fiscal Insanity: Creating Money to Buy Government Debt
2. M0 Money, M0 Problems: Expect Massive Inflation in 2009 and Beyond
3. Consumer Debt and the Supply-Demand Dynamic

The aims of the Act are fairly simple to (1) repeal federal law which currently decrees unconstitutional forms of currency legal tender, (2) prohibit federal taxes on gold, silver, platinum, palladium or rhodium bullion, (3) prohibit States from assessing tax or fees on any currency or monetary instrument used in interstate or foreign commerce that has legal tender status under the United States Constitution, (4) repeal federal criminal code pertaining to gold, silver or other metal coins and nullify any previous convictions under those codes.

Like he has often been when attempting to restore the checks and balances of the Constitution on this issue with H.R. 4248 Dr. Ron Paul is the lone voice in the wilderness and has no co-sponsors.  To my knowledge the only legislation Dr. Ron Paul has introduced that has been approved and enacted is Public Law 99-185 and Public Law 99-61 which require under 31 United States Code 5,112 that ‘the Secretary shall mint and issue, in quantities sufficient to meet public demand, coins which’ contain .999 fine silver or fine gold.  When the public wants to buy gold or silver, lawful money, there should be enough!

H.R. 1207 – FEDERAL RESERVE TRANSPARENCY ACT OF 2009

On 26 February 2009 Representative Ron Paul of Texas introduced H.R. 1207 the Federal Reserve Transparency Act of 2009.  Most in the financial establishment chuckled, politicians ignored it and the general public was clueless as to its effect.  But because of rapid education of the public and the political pain they exerted on the politicians the bill now has 317 co-sponsors.

To fully understand the impact of the H.R. 4248 legislation it is important to take a short journey through American legal history.

CONSTITUTIONAL LEGAL TENDER

Under Article 1 Section 8 Clause 5 Congress is given the power to ‘Coin Money, regulate the Value thereof’.  Notice the Constitution does not say what money is only that it is something that is coined rather than printed.  The Tenth Amendment states, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”  The Constitution operates on the principle that if a power is not specifically delegated then it is prohibited.

In this case, the Federal Government is given no authority to make anything legal tender.  The Federal Reserve Act of 1913 was enacted by Congress creating the Federal Reserve and it would not be the first unconstitutional legislation.  They habitually violate their own laws.

Because Congress does not have the power to declare anything legal tender and because the Federal Reserve was created by Congress therefore it follows that the Federal Reserve cannot declare anything legal tender.  The individual States do retain the power to declare things legal tender but are restricted under Article 1 Section 10 Clause 1 from making any ‘Thing but gold and silver Coin a Tender in Payment of Debts’.   The creature cannot exceed the creator.

The Founding Fathers strongly supported the hard money system.  After all, they had just fought a Revolution after living through the tyranny of King George with the Stamp Act, Writs of Assistance, destruction from the the Continental hyperinflation and implosion of the economy.

Despite the constraints of the Constitution the monetary system of the United States has been perpetually in violation.  For example, the United States Dollar or Federal Reserve Note Dollar went poof multiple times last century including on 5 April 1933 when FDR decreed gold to be a dangerous weapon of mass financial destruction, deemed it a controlled substance and threatened any United States citizen with jail time for owning it,  on 4 June, 1963 and 24 June 1968 when silver certificate redemption was completely ceased and 15 August 1971 during the Nixon shock.

WHAT IS A DOLLAR?

Dr. Edwin Vieira, J.D., is the author of the preeminent legal treatise on monetary jurisprudence in American law Pieces Of Eight, holds four degrees from Harvard and practices law before the United States Supreme Court.  I highly recommend reading Dr. Vieira’s entire essay, What Is A Dollar?, which is quoted only in small part here:

2. Do the present monetary statutes intelligibly define the “dollar’”?

Unfortunately, the present monetary statutes do not define the “dollar” in an intelligible fashion.

a. Federal Reserve Notes. Most people associate the noun “dollar” with the Federal Reserve Note (“FRN”) “dollar bill,” engraved with the portrait of President George Washington. This association is mistaken.

No statute defines – or ever has defined – the “one dollar” FRN as the ”dollar,” or even as a species of “dollar.” Moreover, the United States Code provides that FRNs “shall be redeemed in lawful money on demand at the Treasury Department of the United States * * * or at any Federal Reserve bank.”⁴ Thus, FRNs are not themselves “lawful money” – otherwise, they would not be “redeemable in lawful money.” And if FRNs are not even “lawful money,” it is inconceivable that they are somehow “dollars,” the very units in which all “United States money is expressed.”⁵

b. United States coins. The situation with coinage is more complex, but equally (if not more) confusing. The United States Code provides for three different types of coinage denominated in “dollars”: namely, base-metallic coinage, gold coinage, and silver coinage.

c. Currency of “equal purchasing power”. The UnitedStates Code provides no answer to this perplexing question. Indeed, it mandates that the question should not even be capable of being asked. For the Code commands that “the Secretary [of the Treasury] shall redeem gold certificates owned by the Federal reserve banks at times and in amounts the Secretary decides are necessary to maintain the equal purchasing power of each kind of United States currency.¹⁴

The term dollar is used in Article 1 Section 9 Clause 1 and the Seventh Amendment.  Neither the slave-trade faction nor the right to trial by jury would have accepted these provisions without a clear definition of what the dollar is.

Therefore, their support of these provisions inferentially establishes what a literal reading of them straightforwardly suggests: to wit, that the noun “dollar” refers, not to a mere name applicable to whatever Congress whimsically might decide thereafter to call a “dollar,” but instead to a particular coin so familiar in American experience as to be beyond political transmogrification. … Obviously, Jefferson’s free-market, scientific approach is a world apart from the arbitrary way in which Congress has set up the mutually incompatible and internally irrational sets of silver, gold, and base- metallic coins that exist today.

2) The Coinage Act of 1792. Little more than a year after Hamilton’s Report, Congress enacted its principles into law.

Section 9 of the Coinage Act of 1792 contained the monetary definitions for the United States monetary system and defined

DOLLARS or UNITS – each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.

THE COINAGE ACT OF 1792

It is interesting to see the difference between how the Founding Fathers and the current politicians deal with those who engage in quantitative easing.  For example, on 21 November 2002 at the National Economists Club in Washington DC Federal Reserve Chairman Ben Bernanke said,

A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject’s oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services.

Section 19 of the 1792 Coinage Act provided:

SEC. 19. And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of fine gold or fine silver therein contained, or shall be of less weight or value than the same ought to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offences, shall be deemed guilty of felony, and shall suffer death.

As David Reilly of Bloomberg reported on 29 January 2010 in Secret Banking Cabal Emerges From AIG Shadows:

Later, when it became clear information would be disclosed, New York Fed legal group staffer James Bergin e-mailed colleagues saying: “I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals — too many counterparties, too many lawyers and advisors, too many people from AIG — to keep a determined Congress from the information.”

Think of the enormity of that statement. A staffer at a body with little public accountability and that exists to serve bankers is lamenting the inability to keep Congress in the dark. …

Now, I’m not saying Congress should be meddling in interest-rate decisions, or micro-managing bank regulation. Nor do I think we should all don tin-foil hats and start ranting about the Trilateral Commission.

Yet when unelected and unaccountable agencies pick banking winners while trying to end-run Congress, even as taxpayers are forced to lend, spend and guarantee about $8 trillion to prop up the financial system, our collective blood should boil.

Reuters reported on 8 December 2009 that the Chinese do not put up with this type of financial terrorism:

Yang Yanming was sentenced to death in late 2005 and took the secret of the whereabouts of 65 million yuan ($9.52 million) of the misappropriated funds to his grave, the Beijing Evening News said.

The report added that Yang was the first person working in China’s securities sector to be executed. …

Conscious that the growing gap between rich and poor could generate resentment, China is battling corruption and stock trading abuses. It has used the death penalty as a deterrent in serious cases.

It will be interesting to see if there is swing in the political attitude of the people towards the Federal Reserve engaging in quantitative easing.  As Dr. Ron Paul was the lone voice in the wilderness with calling for an audit of the Federal Reserve, is currently a lone voice about competing currencies and while he is joined by an increasingly shrill chorus condemning the bailouts he may yet become a lone voice in championing in introducing stiff legislation as a deterrent instead of rewarding the nefarious behavior with bailouts.  If legislation like the 1792 Coinage Act were to be passed then there would likely be a lot of rounding up to do.  Financial criminals, whether engaged in something large like unconstitutional legal tender or something small like a potential Monex fraud, should take heed.

CURRENCY CONTROLS

Many currency controls are in place which support the FRN$ by hindering its competitors such as gold, silver, platinum, palladium or rhodium.  H.R. 4248 intends to remove these barriers.  More may be implemented and holders of FRN$ may their usefulness and velocity frozen.

For example, there are ‘qualified intermediary’ rules the Infernal Revenue Service require foreign banks to follow even where legislation protects bank privacy.  The PATRIOT Act allows for ’sneak and peak’ warrants along with the ability to confiscate cash at will and in secret.

A particularly insidious but scarcely mentioned currency control was implemented by the United States Mint on 14 December 2006 which provided:

The United States Mint has implemented regulations to limit the exportation, melting, or treatment of one-cent (penny) and 5-cent (nickel) United States coins, to safeguard against a potential shortage of these coins in circulation. … Prevailing prices of copper, nickel and zinc have caused the production costs of pennies and nickels to significantly exceed their respective face values.

“We are taking this action because the Nation needs its coinage for commerce,” said Director Ed Moy. “We don’t want to see our pennies and nickels melted down so a few individuals can take advantage of the American taxpayer. Replacing these coins would be an enormous cost to taxpayers.”

Specifically, the new regulations prohibit, with certain exceptions, the melting or treatment of all one-cent and 5-cent coins. The regulations also prohibit the unlicensed exportation of these coins, except that travelers may take up to $5 in these coins out of the country, and individuals may ship up to $100 in these coins out of the country in any one shipment for legitimate coinage and numismatic purposes. In all essential respects, these regulations are patterned after the Department of the Treasury’s regulations prohibiting the exportation, melting, or treatment of silver coins between 1967 and 1969, and the regulations prohibiting the exportation, melting, or treatment of one-cent coins between 1974 and 1978.

The new regulations authorize a fine of not more than $10,000, or imprisonment of not more than five years, or both, against a person who knowingly violates the regulations. In addition, by law, any coins exported, melted, or treated in violation of the regulation shall be forfeited to the United States Government.

Better be careful with the amount of pocket change you take across the border into Mexico to buy gum.  You may find yourself unjustly criminally liable and headed to jail!

ECONOMIC IMPLICATIONS

The Federal Reserve Note is a bill of credit, a debt instrument.  As Murray Rothbard observed on page 18 of his 1963 America’s Great Depression, “It is true that credit contraction may overcompensate, and, while contraction proceeds, it may cause interest rates to be higher than free-market levels, and investment lower than in the free market.  But since contraction causes no positive malinvestments, it will not lead to any painful period of depression and adjustment.”

Mr. Rothbard continues the observation that government policy can hobble the adjustment process by: “(1) Prevent or delay liquidation, (2) Inflate further, (3) Keep wage rates up, (4) Keep prices up, (5) Stimulate consumption and discourage saving and (6) Subsidize unemployment.”

H.R. 4248 would hasten the liquidation of the FRN$ credit instruments and hobble the government and central bank’s ability to inflate further.  Because the monetary metals are safe stores of value it would encourage savings.  The cascading effect this would have on wage rates, prices and the inability to subsidize unemployment would allow the country to recover from this greater depression much quicker.

UNAVOIDABLE COLLAPSE

The current unconstitutional monetary system will collapse.  It is not a matter of if but when.  Tremendous resources are being mashelled in an attempt to stop the collapse but it is about as effectual as a lone man putting forth his arm to stop the might Amazon from flowing or some costumed King named Cnut decreeing that the tide should not rise.  Economic law will takes it course.

As Ludwig von Mises predicted decades ago in chapter 20 of Human Action, ‘The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. … But then finally the masses wake up. … A breakdown occurs. The crack-up boom appears.’

The fiat currency system with the Federal Reserve Note dollar as the world reserve currency is in the process of and will eventually completely breakdown and fail.  There is no easy solution.  The more capital is misallocated through bailouts the more painful the liquidation and correction will be.

Dr. Ron Paul’s legislative prescription to the monetary ailments is like taking a drug addict off drugs; the simplest, most ethical and most likely solution to put America back in a position to generate freedom, peace and prosperity.  To ignore H.R. 4248 and continue with the current monetary system is like giving an alcoholic a stolen bottle of whisky to cure his headache; while it may mask the pain in the short term it causes more damage, is immoral to steal the whisky and will lead to a worse headache later.

CONCLUSION

With unlimited greed, insatiable and imprudent desires in Wall Street and Washington it must be that the whole operation must combine and climax in an unsustainable debt bubble that either implodes in a depression or erupts in hyperinflation.  But in the grand design, gold and silver’s primary role are not as economic tools, insurance against depression or hyperinflation, but guarantors of liberty when actually used in ordinary daily transactions.

Gold, silver and the other precious metals protect against confiscation through inflation which is a form of taxation without representation or due process of law.  These shiny metals are not mere barbaric commodities but essential checks and balances in the American political machinery.

Thus, the fight over of competing currencies is about more than just wealth.  It is a fight with only two destinies:  freedom of choice or coercion.  To realize the first and vanish the second will not have too high a price because without it you will have paid the ultimate anyway without a return.

Dr. Ron Paul’s H.R. 4248 the Free Competition in Currency Act of 2009 would return America to a Constitutional monetary system, lay the foundation for freedom, peace and prosperity and clear up the unintelligible federal law in these regards.  For these reasons I endorse this legislation.

Disclosures: Long physical gold and silver with no interest in the problematic SLV or GLD ETFs or the platinum ETFs.

Related posts:

1. Current Dollar Currency Controls
2. Is the “Free Market” to Blame for the Recession?
3. Gold Rising As A Currency

LAWS OF MOTION

Stated in layman’s terms the three great Newtonian laws of motion are:

1.  A body persists in a state of uniform motion or of rest unless acted upon by an external force.

2.  Force equals mass times acceleration” or “F = ma.

3.  To every action there is an equal and opposite reaction.

In regards to human action a body seems to stay at rest rather than work unless acted upon by some type of force.  The force can be either internal such as hunger, the desire for self-actualization or anywhere in between on the Maslow hierarchy of needs or external such as a saber-tooth tiger, boss or customer.  To sustain life the human body must consume fuel.

Capital is the means of production and the difference between production and consumption flows into or out of the store of capital.  Out of this dynamic human society has attempted to efficiently allocate capital to produce more and this has resulted in institutions, large and small, where individuals work in the attempt to produce in order to meet their needs and wants.  Of course, the great fiction of government is that everyone can live off someone else’s production.

MASSIVE FAILING INSTITUTIONS

The chains of habit are too weak to be felt until they are too strong to be broken.  The mass of the economy times its speed in the Information Age has resulted in a tremendous force.  But this mass has largely been built from the atomic level upon something which is inherently unstable and undefinable leading to chronic fingers of instability.  What Is A Dollar?

The problem is debt and because psychology is changing, The Great Credit Contraction has begun and the rate at which the mass of the economy is evaporating is truly scary.  While many attribute the ongoing financial crisis to the subprime mortgage mess, which is surely a contributing factor, the problem is much more systemic than a few defaulted mortgages.

UNEMPLOYMENT

But now the second wave of Option ARMs are getting ready to reset at the same time the Federal Housing Administration is requiring higher down payments.  But where are these renters going to find a job when over 6.1M people have been unemployed for 27 weeks or more?

And what about all the discouraged workers who are not included in the labor force because they have ceased looking for non-existant jobs?  The Detroit News reported:

Despite an official unemployment rate of 27 percent, the real jobs problem in Detroit may be affecting half of the working-age population, thousands of whom either can’t find a job or are working fewer hours than they want …

Mayor Dave Bing recently raised eyebrows when he said what many already suspected:  that the city’s official unemployment rate was as believable as Santa Claus.  In Washington for a jobs forum earlier this month, he estimated it was “closer to 50 percent.”

With so many unemployed almost all of the States, with California being the poster child, are under severe financial pressure.  For example, 40 state unemployment insurance funds are either broke or moving in that direction.  While there are people starving in the chaos of Haiti about 37M Americans are now on welfare state food stamp programs, the rate of acceleration is expanding at about 20,000 per day and 1.4M Americans filed for personal bankruptcy in 2009.  And this is a rosy situation considering the FRN$ is still the world’s reserve currency!

RETIREMENT CHAOS

The Baby Boomer generation has driven trends their entire lives because of their mass and acceleration.  From Gerber baby food to the housing booms and busts caused by costumed government officials gallivanting in genocide which caused serious aberrations in demographics and are now getting increasingly explosive politically as the 2016 election will see 78M Baby Boomers pitted against 112M Millennials.

Social Security and Medicare are out of control kudzu that are strangling the economy.  Additionally, virtually all pension funds in the United States are massively underfunded with epic games being played with the discount rate.  As Forbes reported:

The GAO study found that states’ cumulative unfunded liabilities were $405 billion, while Novy-Marx and Rauh figure $3.2 trillion is a more accurate number.

All those tax eating costumed government officials are going to be extremely happy when they realize their retirements evaporated.  But with unemployment benefits draining the capital of the economy like vampires while the productive members of society are punished via increased taxation and regulation the entrepreneur has either learned how to vanish or been turned to stone by the local Gorgons.

The result has been massive declines in State and local tax revenues.  Even Federal corporate income tax receipts were down 55% for the fiscal year ended 30 September 2009.

KICK THE CAN

So like a classic Ponzi scam the answer has been to attempt to bailout the State and local governments via Federal resources.

For example, a chief bailout recipient Citigroup is accepting California IOUs indefinitely at face value; a surreptitious Federal bailout of California in a preemptive attempt to keep them from seceding monetarily by taking the next step of unconstitutionally decreeing the IOUs legal tender for all debts public and private.  The Euro faces the same type of structural issues.

But if the States unconstitutionally decree FRN$ legal tender then why not their own little colored coupons? With 13% of US GDP a $30B deficit California should have nothing to worry about with a mere $30B+ cash-flow issue.  After all, the California Dollar could have a bear on it; the Florida Dollar an alligator, the Texas Dollar a long-horned bull and the New York Dollar a vampire squid.  They would be such fitting symbols!

And so the adjusted monetary base has exploded.

The FRN$ is destined to evaporate and the increase in debt is only hastening the rate.

CONCLUSION

Despite propagandist cheerleaders on television the economy is in horrible condition.  The Obama administration’s attempt to alter the speed and direction of the economy is textbook action for intentionally exacerbating the greater depression.  Like in the recently released movie Daybreakers soon the starving vampire squids of Wall Street, Washington DC, State and local governments will run out of their productive human livestock and only a few understand their true predicament.  They think they can ’save or create 3M jobs’.  Seriously?

No one knows how this ginormous mess will play out.  But the massive momentum of 2009 has largely shaped the direction for 2010.  While the FRN$ may rise in the short term it is an extremely risky play because of how fast hyperinflation could strike the FRN$.

Of course, among the chief uses of silver and reasons to buy gold, platinum and lead are to keep you and your property safe from the costumed vampire tax eaters who will likely spring Obama’s retirement trap by nationalizing retirement accounts and forcing purchases of US debt to bolster Treasuries.

Using force or intimidation against innocent people or their legitimately acquired property is unfair, immoral and unsustainable.  The current state of the economy and where it is headed is merely the result of cause and effect from economic law.  George Mason, the father of the Bill of Rights, observed this principle hundreds of years ago in his writings contained on page 966 of The Papers Of George Mason:

As nations cannot be rewarded or punished in the next world, so they must be in this. By an inevitable chain of causes and effects, Providence punishes national sins by national calamities.

Please, leave your thoughts on how you think 2010 will play out.

DISCLOSURE:  Long physical gold, silver and platinum with no interest the problematic SLV or GLD ETFs, the platinum ETFs or Treasuries.

Related posts:

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2. Intel Posts Explosive Earnings Up 875%: Continues Massive Momentum
3. A Simple Plan to Save California