Consumers are Suffering Because European Governments Boosted Spending

Reddit

The biggest laugh I had all week was from Bloomberg.com reporting that “European consumers are ‘suffering as surging food and energy prices erode the value of their wages’, finance officials said” which is not itself funny, but the article immediately goes on that this is “urging governments to boost spending to help the poorest deal with the fastest inflation in 16 years.” Hahahaha!

Consumers are suffering because the stupid European governments boosted spending for a decade or more, the money financed by debt, and it is all of this spending that has made the purchasing power of the euro to fall. And now the governments are going to boost spending some more Hahaha!

But it’s okay, these guys are saying, because it’s “to help the poorest deal with the fastest inflation in 16 years.” Hahahaha! Idiots! As Strother Martin said of Butch Cassidy and the Sundance Kid in the movie of the same name as they went down the mountain to La Paz, “Idiots! I’ve got idiots on my team!”

For example, Jean-Claude Juncker of Luxembourg is quoted as saying, “The least well off in our societies are very seriously exposed to a loss of purchasing power due to the increase of oil prices, of commodity prices and food prices”, which is true.

Then, bizarrely, he says that this inflation-from-too-much-spending makes it imperative that “It’s up to public budgets to react to this loss in purchasing power by helping out the least well off”! Hahahaha!

And how does he suggest we do that? Naturally, anybody with an ounce of brains or education knows that the first thing you do is stop creating more money and credit, which is what causes a “loss in purchasing power” in the first damned place.

Naturally, I figure that since the solution is so simple that it was time to go out for something tasty to eat and something wet to drink, and then maybe take in a couple of XXX-rated movies, but I was wrong, as here comes European Central Bank President Jean-Claude Trichet saying that inflation will remain “high’’ for quite some time to come, and European Union Monetary Affairs Commissioner Joaquin Almunia saying “We need to do more,’’ because “Inflation is a socially negative tax on the poorest’’ people, which it is, and that is why it is so imperative to stop creating more money and credit nowm not create more, you idiots!

Participating in this Gang of Morons Idiocy (GOMI) is U.K. Chancellor of the Exchequer Alistair Darling, who “cut the tax bills of Britain’s poorest families by 2.7 billion pounds ($5.25 billion) in a bid to cushion the blow from higher prices”, which is a nice thing to do, especially if you don’t want to overlook the fact that they were taxing Britain’s poorest families to start with, which tells you all you need to know about the good intentions of the British government.

But the horror is that they are NOT proposing to stop creating more money and credit! They were proposing to create MORE money and credit, making everything worse, as we learn to our horror when Darling said he will “raise government borrowing to finance the decision as slower economic growth curbs tax revenue.”

John Stepek, writing in the Money Morning newsletter from MoneyWeek.com, writes “Gordon Brown’s response to the end of his economic ‘miracle’ is to rattle off yet another succession of bills. You’d think he’d realise that the British consumer is sick of bills by now. But no. The man once laughably described as the Iron Chancellor has thrown off all pretence of fiscal competence and is now flinging money he doesn’t have at problems he can’t solve.”

And speaking of inflationary things that people can’t solve, Christopher Laird of PrudentSquirrel.com writes that “There is a report that 25% of the world wheat crop is at serious risk of a new virulent wheat rust that chokes the wheat before it comes to head. The US has its own concerns over a wheat rust spreading through the Mid West. So, what are the chances of a record grain harvest in 08?”

Naturally, I have no idea about the chances of anything since I figure that neither my marriage nor my career will last until the weekend, and so Mr. Laird gives us a hint. “Just to give an idea of the concern about food,” he writes, “China just spent a $400 a ton premium on fertilizer that used to cost $170 a ton Jan 08. It was a huge order. Reason? They are afraid that if they don’t have great harvests this year, tens of millions may starve in 09.”

And in case you don’t care about Europeans but are concerned about the other hemisphere because that is where you live, SteveQuayle.com posted a news.bbc.so.uk story that “The price of tortillas, a staple food in Mexico, are set to rise 18% in the next few weeks, an industry group says”.

This is bad news because “Thousands of people protested against tortilla price rises in Mexico last year” when tortilla prices rose “by more than 10%.”

So, Mexicans rioted at 10% inflation, and now everyone is wondering what they will do about 18% inflation in tortillas? Hahahaha! Welcome to inflationary hell! Ugh.

The Mogambo Sez: Ahh, commodities! Verily I say unto thee; thy gold, thy silver and thy oil sustain me when all others wouldst betray me, as they now betray all those who were tempted by the charms and promises of “invest in the stock market, invest in the bond market, invest in the housing market, and invest in a larger government for the long-term!”

Mogambo Guru
for The Daily Reckoning Australia

Mogambo Guru
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.
Reddit

Comments

  1. Mr. Daughty says, “Naturally, anybody with an ounce of brains or education knows that the first thing you do is stop creating more money and credit, which is what causes a “loss in purchasing power” in the first damned place.”

    Yet, it is the lack of solid Credit Opportunity that drives Big Money to take their stock piles of cash and bid up prices on factor inputs of production. In short, Big Money is betting that as bad credit collapses, fewer workers will be about to buy stuff.

    Thus, those manufacturers that remain shall fight it out for resources.

    It’s the Efficiency of Money that counts.

    Most folks will tell their false beliefs about inflation like this.

    “Inflation is a net increase in money supply”

    or

    “Inflation is a net increase in money supply and credit. Deflation is the opposite.”

    or

    “Inflation is a rise in all prices.”

    or

    “Inflation is a rise in the General Price Level.”

    Yet these folks never stop and then start to think about the phrase “money supply.”

    Buyers and sellers act and swap Commodities, one for the other.

    Money is a commodity. It’s the thing you trade for another thing, say wheat for money.

    Man must depend on the graces of nature to deliver wheat, even with his science of farming, while he can wily print as much money as he thinks he can scam others with until credit relationships break down.

    Where you find offers of money (supply), you find calls for money (demand). What gets swapped (sold) is money down now for a promise to pay more money through time.

    Said another way, notes and coins that you can spend now get swapped for the right to collect more notes and coins in any future.

    Inflation is a process used by those who control the economy to increase the Efficiency of Money.

    The goal of inflation is to increase the growth of Commerical Credit for NEW OUTPUT of manufactured, mined and farmed goods. When this happens, we call this growth Economic Expansion.

    Under Central Bank systems, Central Bankers use Inflation to cheapen the price of money hoping to expand Capital Opportunties through cash renting for manufacturing and production (mining, farming) purposes.

    Inflation happens when those in power (Central Bankers) want to increase internal trade (Home Economy) through these: increased number of opened contracts, increased rate of cash payment for transaction settlement.

    In truth, an increase in money is an effect of inflation. A wanted increase in Commercial Credit relative to Money is the wanted EFFECT of inflation.

    When Money Men swap money for right to collect more notes and coins in any future, money buys capital. Capital comes from cash rented (money down now) put to use for manufacturing, mining or farming.

    Capital is not a thing that you have that you invest. There is only money, a commodity, which can be swapped for rights to other commodities — wheat, corn, gold, shirts, pants, brake pads, future money. When men swap now money for rights to future money, we call those rights — CAPITAL.

    The man who buys capital, buys a right to claim either a stream of payment — a bond — or the payoff of a bet — expected dividend. Capital comes from cash rented used for manufacturing, farming or mining.

    The Cash Rentee who sells his rights to future income (Capital) gets cash down now sold to him from the Now Money Seller. Next, the Cash Rentee buys resources — workers and their labor capital, metals, fuel.

    The rate of growth of New Commerical Capital in ratio to the money base (notes and coins) is the True Inflation Rate.

    Should inflation work, more New Issues of Preferred Stock, Commerical Paper and other investment instruments arise to attract Money.

    Should inflation work, more folks gain goods and jobs as manufacturers, farmers, miners hire workers.

    Likewise, Central Bankers use Deflation to raise the price of money in hopes of Recession (Excess Speculative Credit Shrinkage).

    Using deflation, Central Bankers try to stop the growth of credit that gets put to use on ever crazier new product ideas.

    When the growth of credit for bad ideas happens, circumstances become dire. When bad credit collapses, excess money made from credit must go somewhere and it does.

    Those winners holding money from collapsed faulty credit bets bid up prices on existing things, resources which can become future inputs to manufacturing.

    Money is the highest form of Credit and Credit is another word for Debt. Credit and Debt are other names for Capital.

    The man who buys capital puts at risk his cash (now money of notes and coins). The danger the Capital Buyer faces is Total Loss less any insurance (side bet) and Return from Salvage at street prices for assets of the venture.

    In the advent of the demise of a venture, the buyer of capital might get back some cash for assets to be sold under bankruptcy.

    When credit relationships collapse and before the mad dash to bankruptcy, those who were first to get paid hold Actual Money.

    When Big-time Money Holders of US Dollars cannot find new capital to buy, these High Rollers buy Futures Contracts on Resources. They use Actual Money to bid up prices on manufacturing factors, factors from farming and mining (oil, wheat, rice, timber, etc).

    Holders of rights to real stuff (Sellers of Resources) believe they must get paid sooner rather than later. They lack belief in any future with Credit (=Debt = Capital) Relationships.

    Prices rise because of the lack of quality Capital Opportunities — new issues of preferred stock, infrastructure bonds, commercial paper– and because of a lack of quality consumer loan cash rentees.

    Always, someone gets paid with money from credit bets. Contractors and workers who built houses were paid. Lumber yards were paid. All were paid whether the price of houses went up or down, whether houses get sold or not.

    Those who buy Capital from Builders or Bankers might not get paid. Builders could get stuck with houses that they cannot sell. Bankers who buy capital (house loans) from mortgagees (cash rentees) might not get paid.

    Good Commerical Credit built the world folks. When the focus of credit becomes Consumer Credit or Speculative Credit, moneyquakes follow.

    The Many confuse gambling (secondary market speculation of price appreciation) with investment (cash rented for return; aka capital in primary markets).

    It’s speculation that where men corrupt capital, not investment. It’s gambling where men find pervert capital.

    Smack MacDougal
    May 29, 2008
    Reply

Leave a Reply

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au