Gold Obsession Based on Money Creation

"And an epic scale in the creation of money and credit…means inflation in consumer prices of an equally epic scale!…That is why I am so freaked out, and why I am always saying, 'We're freaking doomed!' and why I am obsessed with guns and gold…"

by The Mogambo Guru

When I woke up, I knew something was wrong. There was a feeling of desertion, of aloneness, of total serenity of not having spouses or kids all over the damned place complaining about something, or a neighbor banging on the door demanding that I get my car off of his stupid lawn, when he should be congratulating me on being able to drive the stupid car that far, seeing as how drunk I was! Hahaha!

Then I remembered that I was not drunk, which explains the absence of a hangover, which would explain why yet another neighbor is not hammering at the door, although it does not explain why everyone has mysteriously disappeared. Cautiously, I crept out of bed and looked around, noting that all the suitcases and all their clothes are still here, which means that they are not gone for good in some Twilight Zone kind of thing, to which I say, for obvious reasons, "Damn!" I should have known it was too easy to be true.

To make a long story short, they apparently took off in the car, probably blubbering in fear, when they saw that Total Fed Credit, the actual spigot of "money from thin air" controlled by the Federal Reserve, was up by a whopping $7.1 billion last week! And they correctly knew that when I woke up and saw the news, it was going to be High Mogambo Alert (HMA) around here, which I call "preparedness" and they call "weird paranoia".

And it was a good thing that they left, too, because when I saw the $7.1 billion increase in Total Fed Credit last week, the sound of my scream of outrage and fear was so loud, and so anguished, that it actually reverberated off the houses for blocks around, and set off more than a few car alarms! I think I damaged my own hearing! A new record!

So my throat was already sore when I again screamed in fear and panic that foreign central banks bought another $7.6 billion of U.S. and agency debt last week from the Fed!

My Diminutive Mogambo Brain (DMB) is stunned, completely nonplussed at all of this money, and my panic and sense of betrayal was running so high that I was particularly attuned to when Barron's asked Jim Rogers, who is identified only as an "investor", the question, "As we head into the new year, what is your greatest worry?", to which Mr. Rogers said, "The Federal Reserve, which is totally out of it. They are destroying the currency and driving up inflation, which will result in higher interest rates and a worse economy."

As if that is not bad enough, he goes on, "We now know the Fed does not understand markets or economics, but is trying to bail out ifs friends on Wall Street at the expense of 300 million Americans, nay, of the whole world."

This reminds me of an email from Junior Mogambo Ranger (JMR) Michael M., who sends a quote from Richard Karn: "A large portion of my outrage has always been based on the betrayal inherent in monetary inflation: it victimizes those least able to protect themselves, which is why I equate central bankers with pedophiles. A system that purposefully cannibalizes its own is genetically unfit for existence." Exactly! And well said! The perfect amount of disgust and perversion!

Mike Larson of Money and Markets is willing to go farther than that, and says, "Never before in the history of central banking have we seen so much money handed out so liberally to so many institutions that have only themselves to blame for the problems they're facing."

And if they have only themselves to blame, they at least have the taxpayer to pay for their mistakes! Hahaha! This is illustrated by Paul Tustain in his essay, "Train Wreck Imminent?"

He writes, "British government's guarantee to bail out Northern Rock's creditors is worth a staggering £100 billion. That's £5,000 [$10,000] per British household." I gulp at the enormity of so much money!

Then he goes on, "This week the European Central Bank made $500 billion available through money market operations. And only last week $110bn of new money was created by central bank loans with artificially low rates and reduced-quality security. This is money creation on an epic scale." $500 billion in one week? Yow! He is right! Epic scale, indeed!

And an epic scale in the creation of money and credit (monetary inflation) means inflation in consumer prices of an equally epic scale! Yow yow yow! That is why I am so freaked out, and why I am always saying, "We're freaking doomed!" and why I am obsessed with guns and gold and why the sociological problems that will arise from such terrifying inflation in consumer prices means I never turn my back on any of you people for an instant, and that means you, too, mom!

And the inflation in the money supply was, I am sorry to say, met with increases in the money supply of foreign nations, thanks to the trade/current account deficits. And now it has gotten so bad that Ambrose Evans-Pritchard, writing in The Telegraph, says, "A message issued by 26 leading clerics" has warned that "inflation has reached intolerable levels in the Gulf kingdom."

And how bad is it? "CPI inflation is 5.35pc in Saudi Arabia, the highest in over ten years", and the neighbors have their own inflation problems, too, which have "reached 10.1pc in the United Arab Emirates and 12.2pc in Qatar." Yow! Prices are rising quickly! No wonder people are grumpy!

Now you are probably wondering if I know the reason for this widespread inflation in prices. As it turns out, I do! The reason is that they are freaking swimming in money! It's everywhere! They are drowning in dollars because oil is selling for more than $90 per barrel!

And where does all of this increase in dollars come from? Mostly from the Federal Reserve, which can magically create credit, to be made available in the banks, which turns into money when somebody borrows from the banks, which turns into an inflation in Saudi Arabia's money supply when the borrowed money is spent on oil, and it ends up in their bank accounts, piling up and piling up, unless the bank prints up more and more of their own money to exchange for the dollars, which increases their own money supply, which creates inflation in prices, and it's more and more every day until the bank calls up and begs you to please, please, please spend the money because the bank is up to its freaking knees in money!

And with more and more inflation in the money supply to add to the world's daily auctions of goods and services, there is going to be an increase in prices of all goods and services until all the money is used up in supporting, at the point where demand equals supply, a new system of higher prices for every freaking thing under the sun, going round and round in some diabolical spiral from hell seeking equilibrium! From hell, I tells ya! Hell!

And now you see how I would love to connect this to Alan Greenspan actually being Satan instead of Dick Cheney, but I can't, since I already have Santa Claus and his accursed "Naughty/Nice List" on my case, and there is no reason to get argumentative and accusatory right after Christmas, but you can see where I was heading with this!

And I never got around to using this as a lesson in why you should be buying gold. I'll try not to make that mistake in the future!

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The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications. Click here to visit the Mogambo archive page.

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