The world's most powerful currency
By The Mogambo Guru
The economic slowdown has been characterized as "consumers are de-leveraging",
which is an interesting turn of phrase that means that people are not borrowing
money to spend.
The importance is dependent on your perspective. Those people who are not
borrowing money to spend are thus suffering the pangs of a lowering of their
lifestyle, which depended on borrowing money to spend; and then they come
around, whining about stupid things like, "Daddy, things have gone up so much
in price that I need more money, which you would give me if you loved me. Don't
you love me? I love you! Won't you please love me, daddy?"
And so I ask, "Can't you love me if I don't give you any money?" and they say,
"No. You could borrow the money, and then we
would love you", and I reply, "I have been borrowing money and now I can't pay
them back" and so the kids say, "Then borrow some more!"
And, in a terrifying revelation, I realized that it is not only my children,
but all the rest of the economy that is totally dependent on everybody else
borrowing money to spend, too.
So now you see how Chaos Theory was right, and that all things are connected to
all things? If not, then pay attention to how they will now commence to all
drag each other down into the Nightmarish Hell Of Inflationary Insolvency
(NHOII).
And it doesn't take a real genius to see why, but the point is not that the
American people were stupid enough to think they could get a perpetual free
lunch by borrowing money to pay for it, or even that a smaller subset of those
who are suffering the pangs of a lowering of their lifestyle is composed of
those who also think that they can call me on the phone and either: 1. Ask to
borrow some money from me, or 2. Ask me to pay them back the money I borrowed
from them.
My response is the same, in that I give neither one of them any money because I
don't have any money; so to one I laugh in scorn, and to the other I say that I
have just put a check in the mail to them, and that they will get their money
soon, and if it hasn't arrived in a few months, call me back and I'll write you
a new check and get it right into the mail.
The point is that a much larger subset of those who are suffering the pangs of
a lowering of their lifestyle is composed of those people who think that they
can elect government representatives who legislate all problems out of
existence, that will tax me and then give the money to them, or the Federal
Reserve will create more money to loan to investors with which to buy
government debt so that the government can spend, spend, spend us into blessed
Utopia. Either way, it's Bad, Bad News (BBN).
And, alas, one way or the other, they are right. Unfortunately. And that is one
reason that I weep, alone, in the Mogambo Bunker Of Bunkers (MBOB), doors
locked, radio blaring, machine guns cocked and loaded, mostly drunk or nearly
so, soon to be blissfully comatose.
Another reason that I cry so piteously and drink so abusively is that all this
new government borrowing will create so much new money that it will destroy the
dollar's buying power, taking my own country down with it.
The only reason that I stop bawling like a little crybaby is the knowledge that
the people who own gold, silver and oil will get rich, rich, rich, and since I
own gold, then people will want me to loan them a few bucks out of my huge
stacks of money because they are starving, and their children are starving, and
I will say "No!", and it will be thin gruel indeed for them to hear my mocking
voice again echoing in their heads, "Buy gold, silver and oil, you morons,
because your stupid government is letting a private bank (that misleadingly
calls itself the Federal Reserve when it is, in fact, neither) to create so
damned much fiat money that it will produce catastrophic inflation in consumer
prices that will destroy the country, just like it has done to every other
stupid country in the last 4,000 years that let its stupid government increase
a fiat money supply at its whim! Hahahaha! Now you see why I always said you
were freaking doomed! Hahaha!"
But I feel terrible, as this constant infliction of inflationary pain by
heedless expansion of the money supply is so unnecessary, and that is why I was
pleasantly surprised to read in the Wall Street Journal the headline "Central
Banks Consider Gold" in its Commodities Reports column.
The reason is easy to see if you read the article backwards, in that there was
a question about central bank buying "last week, when gold saw a record
single-day gain", especially Chinese central bank buying of gold, which is
already the ninth-largest holder of gold in the world but which holds only 1%
of its foreign-exchange reserves in gold, although it actually said it would
like to hold more. And Mark O'Byrne at Gold & Silver Investments says that
he would "be surprised if the Chinese hadn't been nibbling at the gold
market,", which leads to the news that Asian banks "are seen as keen buyers" of
gold, which leads to the news that "other central banks are now far more likely
to be holders of gold", which leads us back to the second paragraph that
"Turbulence in the financial markets and recent US dollar weakness are helping
the precious metal claw back its reputation as the central monetary anchor
within the international monetary framework", which leads to the opening
paragraph of "Central banks may be starting to turn one of the few assets in
which they can invest; gold."
In short, those crafty Chinese, a fifth of the world's population, may be
getting ready to issue a gold-standard money, which will instantly make their
currency the strongest in the world, which is just what a country needs if it
wants to import a lot of things cheaply so as to respond to demand for internal
economic growth without stoking inflation in prices!
And, fortunately for those of us who both love to have large profits handed to
us and who also own gold, a Chinese gold-standard may soon make a dream come
true as gold would skyrocket when priced in suddenly depreciated US dollars.
Whee! This investing stuff is easy!
Richard Daughty is general partner and COO for Smith Consultant Group,
serving the financial and medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise to heap disrespect on those
who desperately deserve it.
(Republished with permission from
The Daily Reckoning. Copyright 2008, The Daily Reckoning.)
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