Gold News

Doomed by Fed Credit

The starting point of how credit-becomes-money-through-debt just keeps ballooning...

SO I COME TO MY SENSES and I find I'm in some dingy little bar on the other side of town, stinking drunk, writes the Mogambo Guru for The Daily Reckoning.

What's more, the bartender has grabbed me by the front of my shirt to haul me unceremoniously halfway across the bar, and is rudely – in my face – telling me through gritted teeth that if I want to stay there, I am going to have to "Shut the hell up about the Federal Reserve creating so much money and credit in the banks, as there is nobody in this whole freaking bar who gives a rat's ass about Total Fed Credit one way or the other."

I look to my left and see a drunken woman named Shirley (I think to myself, "How do I know her name is Shirley?") winking at me and saying, "Give 'em hell, Tiger! Now, let's all have another drinkie-poo! Hic!"

Spinning around, I can see that the bartender was right – there doesn't seem to be anybody here who can even say "Total Fed Credit" without slurring their words and probably getting some of their foul breath on me, stinking of cigarettes and (sniff, sniff) onions and garlic with a hint of pepperoni.

But whether they care or not, the fact is that last week the Federal Reserve boosted Total Fed Credit, namely the amount of fresh credit that appears on the books of the banks, by another staggering $245.4 billion! In One Freaking Week (OFW)!

And this whopping increase in Total Fed Credit (TFC) is just the beginning of the credit-becomes-money-through-debt cycle, where this original $245.4 billion is multiplied, theoretically, by infinity, as there has not been an increase in Required Reserves in the bank since 1994, and it always hovers around $43 billion, which is still exactly what Required Reserves is today, too! Hahaha!

You can see how this constant, piddly $43 billion in reserves is chump change when compared to how Non-Borrowed Reserves in the banks has surprisingly zoomed to a NEGATIVE $363.1 billion! Hahaha! Hell, Free Reserves, which used to always run about $1.5 billion or so, is now a NEGATIVE $407 billion!

Hahahaha! We are so freaking doomed!

And, since you ask, the US Monetary Base has exploded to $984.717 billion from $911.454bn the week before, and it's up from $827.367bn just 12 months before. So money is being expanded at Unbelievable, Unbelievable, Freaking Unbelievable Rates (UUFUR).

Most of it, of course, is being used by the government to fund its dumb programs, as the Treasury Gross National Debt is now $10.326 trillion, up from $10.245 trillion the week before, and up by a staggering $1.271 trillion from the $9.055 trillion in national debt only 12 months ago.

Yikes! We really are freaking doomed! Because all this mountain of money and credit will have disastrous consequences, which I was going to turn into a long, eerie wail, like a hungry banshee keening from beyond the dead as a "performance art" thing that I have been working on in my spare time.

But instead we have John Embry of Sprott Asset Management jolting me back to reality, which is the fact that I can't change anything, and so I am only in this to make a lot of money betting on the stupidity and failure of the Federal Reserve and Congress abusing their stupid fiat currency and stupid central bank to finance some bizarre regime of perpetual deficit-spending.

To this end, Embry succeeded admirably, and he captured my full attention with his essay's title "Rescue Will Send Gold to Surreal Price Level", mostly because I am so familiar with things surreal, like my wife coming home early and yelling, "Why in the hell aren't you at work, and who's been eating all the Girl Scout Thin Mint cookies like the big, fat pig that he is?" (Which makes it sound like there are two people involved when there is only one. Weird...! See what I mean about my experiencing "surreal" first hand?)

I noticed that Mr. Embry was appreciably staggered, although it turns out he was not affected by my surreal experience, but about how "The recent events that have occurred on the US financial scene can only be described as mind-boggling." And I know which way I am betting – and soon, I will be wistfully wasting the day away, marveling at the lovely, lovely profits I will make and all the wonderful, wonderful things I will buy, and all the lovely, wonderful things I will do with all that lovely, lovely, wonderful, wonderful money when Gold Bullion and silver zoom higher in price as they must.


And then, lost in a reverie of such sweetness, secret sins and delicious depravities, nothing seems all that important anymore. Like finishing this stupid column. Sigh...

The angriest guy in economics, the Mogambo Guru is Richard Daughty, general partner and COO for Smith Consultant Group, serving the financial and medical communities. The Mogambo Guru economic newsletter – an avocational exercise to heap disrespect on those who desperately deserve it – has been quoted frequently in Barron's, The Daily Reckoning and other fine publications.

See the full archive of Mogambo Guru articles.


Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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