Suddenly, I was jolted rudely awake by alarms ringing in the Mogambo Bunker Of Paranoid Delusions (MBOPD) at the news of a drop of $40 billion of Total Fed Credit last week. Wow! This is the “money” that magically appears, literally “out of thin air, as a new credit on the books of the banks, which they can then loan out some Huge Freaking Multiple (HFM) of that little bit of new credit, thus creating lots and lots of new money.

And this huge $40 billion downward swing of Total Fed Credit in one week is a Big Freaking Bunch (BFB), where the total effect on the banks is the reciprocal of the fractional reserve ratio, which is at least 10 times as much according to the classical textbook examples, but more likely a thousand times as much, seeing as how the Federal Reserve itself says that total bank assets are now a whopping $12.030 trillion and total bank liabilities are $10.780 trillion, against which the banks are only “required” to have $57.622 billion as reserves! Hahaha!

So what does that make the fractional reserve ratio? 187-to-one? Hahaha! We’re freaking doomed by out-of-control fractional-reserve banking!

And in that regard, the M1 and M2 money supplies are still growing, with M1 up 17% over last year and now hitting $1,596.2 billion ($1.696 trillion) and M2 up 8% from this time last year, now hitting $8,327.9 billion ($8.327 trillion).

Perhaps this is the reason the internationalforecaster.com quotes Nassim Nicholas Taleb, economist and author of the terrific book The Black Swan, as saying, “Bank nationalizations are ‘absolutely necessary’ to stop them damaging the financial system further with more losses.”

His sentiments are obviously echoed by New York University Professor Nouriel Roubini, who actually says the majority of U.S. banks are “insolvent”.

And as if anyone had to be told that bankers and politicians cannot be trusted, Mr. Taleb goes on, “You cannot trust the banks in taking risks,” and because we stupidly did, we now “have a very strange situation in which it’s the worst of capitalism and socialism, a situation in which profits were privatized and losses were socialized. We taxpayers have the worst.”

And one of the reasons that you can’t trust the banks is revealed by Bloomberg.com when it’s reported that one of the Federal Reserve morons, Dallas district-bank President Richard Fisher, said, “The Federal Reserve isn’t capable of offsetting the ‘flood’ of U.S. Treasury borrowing with its bond-purchase program, which is helping to revive credit markets.” Hahaha!

I got a Hot Mogambo News Flash (HMNF) for this dork: yes they can! There is nothing to stop them! Hahaha! Who’s going to stop the Federal Reserve from creating all the money that the federal government wants to borrow, and then the Fed using the money to buy all the new government debt? Hahaha! You gonna stop them? Hahaha!

Of course, he may be saying this because he and his Fed moron buddies have screwed everything up and he doesn’t want to talk about that, or how Mises.org reported that “The Federal Deposit Insurance Corporation (FDIC) list of problem banks grew to 305 in the first quarter, the highest number since 1994,” to which they then ominously added that “but of course the names of those banks are not released so that depositors can be forewarned.”

This is probably why msnbc.com had the headline “Most Banks Still Getting Weaker, Analysis Shows,” with an explanatory subhead of “First-quarter reports show bad loans increasing at 60% of banks,” which seems somewhat understated since later we read that “Overall, bad loans rose another 22 percent in the quarter.”

Even worse, it is even more lopsided than that, as, “While the 10 largest banks reported $10.2 billion in earnings for the quarter, the remaining 8,245 banks together lost $2.6 billion, according to the analysis,” which comes down to “One in five banks lost money in the quarter, and several lost big, weighing down the rest.”

The disintegration of the banking system, the fall of the dollar and the ruination of everything connected with them seems the perfect place to remind you that if you are not buying gold, silver and oil to profit from this governmental incompetence and stupidity, then there is something Very, Very Wrong (VVW) with you, which means you probably stopped paying attention already, which leaves the rest of us who ARE buying gold, silver and oil, meaning that there is nothing more to say about buying gold, silver and oil!

Whee! This investing stuff is easy!

Source: Trusting Banks as Far as You Can Throw Them

The really chilling news is that investment banks are being changed into commercial banks, which gives them the right to create – out of thin air, and then loan – money using fractional-reserve banking! Yikes!

They are now banks! These greedy, thieving, lying, staggeringly stupid weenies who are at the epicenter of the biggest financial catastrophe in American history are now being given the right to increase the money supply at their whim to satisfy the willingness of customers, and themselves, to borrow the money! Astounding!

This is so monumentally freaking outrageous that every muscle in my body had an involuntary spasm, precipitating an accidental hail of bullets from an ever-ready Uzi which shot the hell out of my clock-radio and the shelf it was sitting upon. Of course, the wife and kids come running in, bellowing about how I almost shot them and how I am a crazy, irresponsible, horrible man and blah blah blah.

Not being in the mood for that whining crap, I thought that I could get them to shut up and go away if I reminded them that “A miss is as good as a mile”, and then relate some “up close and personal” anecdotes about how I can remember a dozen times, off the top of my head, when each of them has been a LOT closer to death than this relative non-event, as I remember plenty of times in the past that I wished I could have strangled each of them because they were just (pause) so (pause) damned (pause) irritating. “Sort of like right now!”

It didn’t work, and to make it worse, nobody else is upset about this investment-bank-to-commercial-bank thing, which warns me that it must be time to re-examine my assumptions, whereupon I discover that I have, indeed, made a mistake!

It’s just more of the same! Right now we have greedy, lying, thieving, staggeringly stupid weenies owning the banks, and tomorrow there will just be two more big banks owned by greedy, lying, thieving, staggeringly stupid weenies! Hahaha!

And it is not just the banks, as the FT.com article titled “The Shadow Banking System is Unravelling” by Nouriel Roubini explains that “Because of a greater regulation of banks, most financial intermediation in the past two decades has grown within this shadow system whose members are broker-dealers, hedge funds, private equity groups, structured investment vehicles and conduits, money market funds and non-bank mortgage lenders.”

Of course, this doesn’t mention that all the money being multiplied by the shadow banking system was first created by banks, which may be what led James Turk of Free Market Money & Gold Report to say, “No one can doubt any longer that the United States is run totally for the benefit of the banks.”

And thus it is no surprise that Bloomberg.com proposed that the Fed would soon be lowering interest rates, and that “Rate cuts would help the economy in several ways”, the first of which, of course, is to “boost banks’ profits by lowering their cost of funds, something that the $700 billion rescue package before Congress doesn’t do. That might encourage them to lend more freely.”

At this, I broke out laughing, and I was sorry that I did, too, because I was taking a sip of coffee at the time and it spewed all over the place and I got a bunch of it in my lap. It looks like I did something awful in my pants, which actually works out well, since I have found that people let you let you go to the front of any line, especially lines in restaurants, when they see you messed up like that and hear you muttering under your breath, “AIDS? I don’t have AIDS! Those people are crazy for saying I have AIDS just because I crap on myself! I’m going to kill them. Kill them all! Kill! Kill!”

Well, you may be laughing at my plight and jealous at the way I cut right to the front of the line, but you probably made a mess in your own drawers when you read that the Associated Press reports, “The Bush administration is asking Congress to let the government buy $700 billion in toxic mortgages in the largest financial bailout since the Great Depression”.

And then you learned that this staggering socialist economic putsch is made infinitely worse by learning that the AP’s use of the phrase “since the Great Depression” is Really, Really Stupid (RRS) because there has NEVER been a bigger bailout in this country, ever! Including the Great Depression of the ’30s!

And speaking of the Great Depression, Agora Financial’s 5-Minute Forecast notes that “The national debt ceiling will have to be raised for the second time in as many months to accommodate the request… this time to $11.3 trillion… boosting the national debt to over 70% of GDP. The highest the national debt got during the Great Depression was 44% of GDP.”

I was looking for a way to demonstrate that this is all the fault of the detestable Alan Greenspan, erstwhile chairman of the Federal Reserve who created all the money for all the leverage and all the bubbles since 1987, because without the money he created to pay for it all, there would not have been any bubbles to pop in the first place and we would not be in this fix.

But the only thing I have at hand is Juan Cole, president of the Global Americana Institute, who saying essentially the same thing, but he credits it to the borrowing needs of Congress, not speculators. He says, “You don’t run big deficits of $300 and $400 billion a year in good times, according to Keynes. You save the deficit spending for a recession, when the economy needs a jolt. If you’re already racking up a big deficit every year in a good economy, you have no way of making a difference during a significant downturn except by then going for a truly mega-deficit, which risks destroying the value of your currency abroad.”

Sensing an opportunity to seize the stage, I prepared to interrupt him and take that “destruction of the currency” thing as a springboard to launch into another Unbidden Tiresome Mogambo Tirade (UTMT) about how the smart people are buying gold, silver and oil right now, and how the stupid people are NOT buying gold, silver and oil right now, which I use to conclude that it seems like a public service to slap their stupid faces until they smarten up and get some gold, silver and oil, or at least some silver.

Perhaps sensing my clever plan, Mr. Cole heads me off by wryly saying it seems pretty hopeless to start with, in that “In a service economy like that of the US, a dollar with a declining value might not even help the economy via exports very much, since the manufactured goods are being made down in Mexico now, anyway.” Hahaha! Our few goods exports are being made in Mexico! Hahaha!

And, finally putting my plan into effect, people are not buying gold and silver in the face of such a malignant economy? Hahaha! Morons! Their faces should be slapped! Hahaha!

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Source: Big Banks and Bumbling Idiots

Google says the term “solar powered car” is one of the hottest search trends on the internet, as Americans seek alternatives to high fuel costs.

According to a recent Lehman Brothers report, the solar-powered-car revolution may not be coming anytime soon. The Wall Street bank in predicting crude oil prices at $83 a barrel in 2009 and as low as $70 in 2010.

Perhaps part of the humor is that this comes at the same time as the price of gasoline went up 3 cents to another record high of an average of $3.70 a gallon. This is up 22% from this time last year! 22 percent! 22! Hahahaha!

Just when I thought I had completely lost my sense of humor, I ran across a MoneyNews.com article titled “Lehman Bros. Report: Oil Bust in the Cards”. Hahahaha! Thanks, Lehman!! Hahaha! I needed the laugh!

“Perhaps part of the humor is that this comes at the same time as the price of gasoline went up 3 cents to another record high of an average of $3.70 a gallon,” says The Mogambo Guru. “This is up 22% from this time last year! 22 percent! 22! Hahahaha!

“It gets even funnier when Lehman is not just predicting lower prices, but “Lehman is now predicting prices at $83 a barrel in 2009 and as low as $70 in 2010.” At this point I am laughing so hard that my stomach hurts, and since I am on the verge of pooping in my pants, I am desperately trying to stop laughing by sticking my own thumb in my eye, but it does no good!”

Good day… And a Tub Thumpin’ Thursday to you! No earth shattering moves in the currencies overnight like yesterday morning, so we’ve got that going for us! Hey! I heard from my friend The Mogambo Guru yesterday… He tells me that he’s doing fine, and that it was his third heart attack, and that he’s the proud owner of five cardiac stents now.

The Mogambo brings many smiles to yours truly, and the people on our trading desk, so that’s good news… Not that he’s had three heart attacks, but that he’s doing fine!

OK… Currency traders and participants tried to take profits yesterday, and some did, but the currencies, for the most part, remained range bound on the day, after the big move the previous night. Once again, stocks have rebounded the past couple of days, and that has put carry trades back on the table. And, we all know what that means, right? Yes, that means the low yielding currencies get sold (read Japanese yen (JPY), and Swiss francs (CHF)) and the high yielding currencies get bought (read Aussie (AUD), kiwi (NZD), and even Iceland (ISK)). This carry trade has had more comebacks than a retired heavyweight boxer!

Yesterday, we saw U.S housing starts continue to collapse when the March reports printed. Both housing starts and building permits showed a 59% fall from the high two years ago. Let me put this in perspective… In previous crashes, the decline from peak to trough has been 40-60%, so we are on the verge of breaking all records for a down-move. Nice to know that the men put in place to protect the economy, thought this meltdown had “bottomed” last August, eh?

After the report, Reuters reported that Fed Head Mishkin, was overheard saying, “THERE IS ROOM TO LOWER FEDERAL FUNDS RATE IF NEEDED”… This is what I’ve been talking about folks… The U.S. rates are going lower, and you can take that to the bank! OK, well… Maybe the legal beagles won’t like me saying that, so, let’s just say, I think that you should think that U.S. rates are going lower.

And rates in the Eurozone, Norway, Sweden, Australia, and New Zealand are remaining unchanged… And in some cases may see additional hikes.

Well, the high price of oil, has finally pushed across to consumer inflation… (Of course you and I know it already did, but the stupid CPI report is just now showing it, but not much of it!) CPI pushed higher in March to 4%, which is exactly where the “experts” forecast it to come in. You’ve got to love it when a plan comes together, eh? Of course over at the Shadow Stats, John Williams, has calculated consumer inflation using the 1980 methodology, and shows inflation much higher. Can you say, 12%? I knew you could!

You know me; I’m such a nut over inflation that this kind of information just gets me so riled up and yelling at the walls! Why will no one that’s running for President talk about this? Because… That would not make you “feel good”, and you sure wouldn’t vote for someone that didn’t make you feel good, right? Well, that’s what they think! Oh… And price of oil went up again yesterday, to $115! OUCH!

So… Remember when the euro (EUR) banged around 1.48, it seemed forever before finally moving past 1.50? I think it’s doing the same thing now, hanging around 1.58-59. 1.60 is a HUGE psychological level, so when it hits it, it could bounce back and forth as black box trades are executed… But think about that for a minute… 1.60 for the euro is practically double what it was in 1999/2000… Unbelievable! But… Look for some verbal intervention from the European Central Bank (ECB) at 1.60… Nothing serious, just some jawboning.

With every passing day, G-7 gets smaller in the rear view mirror, and their change of wording in the communiqué… Almost as though, it didn’t happen… But once again, I have the feeling that the markets just didn’t get what G-7 was saying… But talking the talk, without walking the walk isn’t going to get it done. In other words, they can talk about a stronger dollar, but unless they are willing to put some of their hard earned cash at work, intervening, I don’t think currency participants are going to pay attention.

The Canadian dollar/loonie (CAD) pushed past parity for the first time in a month yesterday. It’s back below this morning, but this move yesterday illustrates what I’ve been talking about for a month or so… The loonie has the commodities providing a floor, which will underpin the currency, while the Bank of Canada (BOC) cuts rates, keeping the loonie from going much higher. So… A trading range around parity is what I see for loonies for the time being.

I see by my trusty screen that shows me year-to-date returns on the currencies that the Swiss franc is still the best performing currency this year, followed by Swedish krona (SEK), Norwegian krone (NOK), euro, Danish krone, Japanese yen, Aussie, and kiwi… (G-10 currencies) I was asked last week to list my top six favorite currencies… So off the top of my head I said… Swiss francs, Japanese yen, Norwegian krone, Swedish krona, euro, Aussie… That’s pretty amazing that my top six is eerily similar to the official top nine.

I think if we could go back into the past, you would see that my top six hasn’t changed this year. A positive balance of payments goes a long way toward making a currency strong, and if you look, all of these have a positive balance of payments except Aussie.

The price of gold (and silver) surged yesterday after the housing starts report. Gold has been waiting for more “bad” news in the United States to move higher. I’m not suggesting here that gold will only move higher on “bad” news… But “bad” news does help put the focus back on gold, which is trading well below the $1,000 oz. figure it achieved last month. With inflation surging… One would think that would be enough for gold to move higher. We’ll have to see, eh?

Well… The euro has seen some selling since I came in this morning and started to write. Overnight it hit a high of 1.5985… But right now, before I head to the Big Finish, it’s barely holding the 1.59 handle. I don’t see any news on the euro that would explain this selling, so… We’ll have to keep an eye on this today.

Currencies today 4/17/08: A$ .9365, kiwi .7885, C$ .9975, euro 1.5910, sterling 1.9790, Swiss .9955, ISK 73.75, rand 7.8630, krone 4.9660, SEK 5.90, forint 158.90, zloty 2.1470, koruna 15.67, yen 102.25, baht 31.45, sing 1.35, HKD 7.7920, INR 39.91, China 6.9830, pesos 10.46, BRL 1.6640, dollar index 71.59, Oil $115.08, Silver $18.53, and Gold… $947.05

That’s it for today… The Big Boss, Frank Trotter was just on Fox News, Business for Breakfast. He was talking about Bank Earnings… I received a call from a guy associated with the Glenn Beck show yesterday. Apparently, Glenn Beck recently read Craig Karmin’s excellent book, Biography of the Dollar which features me in Chapter 6 – and after reading the book, Glenn told his producer to get in touch with me! WOW! First it was the NY Times Magazine, and now Glenn Beck, that found me in the book. Thanks again Craig! The producer said he wasn’t sure if I would be on the CNN TV show or Glenn’s radio show. I was quick to inform the producer that I have a “face for radio!” OK… Yours truly is sneaking out today to head down to the ballpark for an afternoon game Cards/Brewers. I love day baseball… To me, it’s when the game should be played! So… I’ve got to get going here… I hope your Thursday is Tub Thumpin’!

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

The Mogambo Guru recently weighed in on the situation:

“The big problem with inflation is that people get low blood sugar when they are hungry, and soon their moods turn sour. I know this for a fact because if breakfast or brunch or lunch or coffee break or dinner or any snack is five minutes late, I involuntarily turn into a screaming monster from hell demanding to know who stole my food and vowing bloody revenge. I can only imagine the anger when hunger is caused because someone can’t afford to buy food!

This “inability to buy food” is one of the problems with inflation, and that ugliness is now here, as we read from Bloomberg.com that “The World Bank in Washington says 33 nations from Mexico to Yemen may face ’social unrest’ after food and energy costs increased for six straight years.” Hahaha! No kidding?”.

But it’s complicated, says the paper, because today’s inflation is “coming at a time of sharply reduced interest rates in the US, the opposite of the usual response to rising inflaton.”

Consumer prices in the U.S., Europe and other rich countries are projected to rise 2.6% this year, the highest inflation rate since 1995, the International Monetary Fund said Wednesday. In the U.S., consumer prices in February were 4% above year-ago levels. The 15 countries that share the euro currently see inflation of 3.5%, a decade high and well above the European Central Bank’s preferred range. Even Japan, long plagued by flat or falling prices, is seeing modest inflation.

“We are freakin doomed!” says a perplexed Mogambo Guru, who reckons we’re all perched on an economic fautl line of mammoth propotions.

“The Fed deliberately created so much money and credit, for so long, totally distorting the economy of the United States and the world into a grotesque, twisted, cancerous monstrosity so that the entire financial system is choking to death on the poison of un-payable debt loads, and now this same Federal Reserve is going to get MORE powers to create MORE weird distortions and more inflation in the money supply and more inflation in consumer prices like food?”

The WSJ reports that the “normally bearish” US Energy Information Administration forecasts that crude oil prices will remain above $100 this year.

Soaring demand in China, India, and Russia will continue to keep prices high. Lack of spare capacity worldwide will also continue to push up prices, according to the report.

Also driving up the oil prices are spiraling consumer prices in oil-producing nations, according to the Mogambo Guru.

“Currently, consumer prices in Venezuela are rising at 25% a year, Iran about 8% and Nigeria probably 15%.

“In short, apparently these countries need the price of oil to stay high to pay for their welfare expenses … which means that they will necessarily be raising oil prices again pretty soon, as inflation in prices is making these government welfare costs go up, which means that oil will be going up in price!”