Misdiagnosed Economic Insanity

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
Provided as a courtesy of Agora Publishing & DailyReckoning.com
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Aug 9, 2007

"The last thing I remember before blanking out is that this totals to about 80% of GDP! Or more! And even now I still feel kind of woozy about it! Losses suddenly totaling 80% of GDP? Yow!"

The financial and economic explosions are overwhelming, overwhelming, overwhelming. Perhaps coincidentally, my head is whirling, whirling, whirling and my heart is pounding, pounding, pounding in fear, fear, fear.

I am assuming that my fear and strange new habit of repeating myself, repeating myself, repeating myself is the result of some comical medication administration error, error, error, probably the result of my absent-mindedly taking my medicines willy-nilly by the freaking handful because I am so freaked out by the collapsing economy, or maybe thanks to the alcoholic beverages that I have been taking by the glassful - straight up, no ice, sometimes guzzling it right out of the bottle - also because I am so freaked out by the collapsing economy.

Or my problem may be that it has been raining like hell here for the last week, and I have not been able to play golf or do anything that will get me out of the house and a long way away from the family, who are also marooned here with me, and who are obviously getting on my freaking nerves more than usual, resulting in what mental health professionals assigned to my clinical case call "borderline psychotic and completely dysfunctional".

Then, in the middle of all of this, I saw the video of Jim Cramer (the über-irritating, hyperventilating stock pusher on CNBC) losing his mind, too! Only he was wailing about "Armageddon" because (as I understand it) his buddies in the financial services industry were losing their jobs. Hahaha! And that he was publicly calling on Bernanke, chairman of the Federal Reserve to immediately lower interest rates to save them. And America! Hahaha!

Actually, it may BE economic Armageddon if people don't want to buy that financial-engineering crap anymore, as that is what has provided most of America's GDP and 70% of America's profits during a decade of the biggest explosion of the rampant creation of money, credit and debt in the history of the world, enabling the slimeball banks, hedge funds and financial industry scamsters to leverage their lies into a monstrous, labyrinthine, secretive, off-balance-sheet behemoth of derivatives, totaling as much as $450 trillion, which is nine times the size of global GDP! Or more! Which is now collapsing! Yow! Sounds like Armageddon to me, too!

How big is this thing? Well, Jim Willie CB of the Hat Trick Letter figures that the total cost of the subprime/collateralized debt obligation fiasco "is an initial figure of $2 to 3 trillion in bond losses from CDO plus MBS bonds at a minimum. Match that with $4 to 6 trillion in home equity losses at least. Included in my estimate is the collateral damage of another $1 trillion in losses to high grade mortgage bonds and corporate bonds."

The last thing I remember before blanking out is that this totals to about 80% of GDP! Or more! And even now I still feel kind of woozy about it! Losses suddenly totaling 80% of GDP? Yow!

In fact, Bill Bonner at DailyReckoning.com reports that already "U.S. stocks have lost more than $1 trillion in value in the last three weeks - an amount equal to about 8% of annual GDP. Goldman Sachs - the alpha business of Wall Street - has lost 20% of its value."

So in light of all of this, why is everyone still continually participating in this speculative orgy of stocks, bonds, houses, currencies and government that everybody knows will turn out badly, and actually looks like it is turning out badly right freaking now?

As a distrustful, mean, horrid, hateful little man who has nothing good to say about anyone, I say that it's because most people are morons, and there are a lot of evil people who make a nice living convincing these gullible halfwits to gamble away their money in bets ("investing for the long term!") with the odds so laughably lopsided against them that the majority of people are guaranteed to always lose, which they always do.

And when they do, everyone is convinced that the corrupt Federal Reserve will supply unlimited liquidity (and especially so since the Presidential elections are next year!) at low, low, low interest rates like they always do nowadays, thus increasing monetary inflation, which will (on the one hand) make the economy perk along for awhile as this new money gets spent, and (on the other hand) make price inflation in something get worse and worse.

So, naturally, with a crazy, corrupt system like that, who could be surprised when Mr. Cramer essentially got his wish, as the Fed pumped up Total Fed Credit last week by a hefty $7.4 billion? Hahaha!

Until tomorrow,

Aug 8, 2007
Richard Daughty

email: RichardSmithGroup@verizon.net
Daughty Archives
Provided as a courtesy of Agora Publishing and The Daily Reckoning

Richard Daughty is general partner and C.O.O. for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise the better to heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications.

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