MOGAMBO GURU: Back On The 'Scared And Paranoid' Side Of Life

[Tace]

Richard Daughty, the angriest guy in economics

email: [e-mail]

-- I am officially back on the "scared and paranoid" side of life, and while it is not "good to be home," it is, at least familiar, and there is a certain comfort in that, as at least I know where all the pistols and cookies are stashed around here. But then again, my homecoming is only because I was temporarily in a distant, disturbed place, where even shadows spook me out, and where my nights were spent entirely without sleep, night after night, because my brain no longer waited for me to fall asleep before I started having nightmares about the economy, and I am here to tell you that that is unnerving, to say the least.

My problem seems to be that nothing makes any sense anymore. A story in The Post says essentially the same thing when the author notes, "In the past few weeks, the world's financial markets have acted in a confused, counter-intuitive, bipolar fashion." Doug Noland entitled his Credit Bubble Bulletin this week "Conundrums." Mike Hoy writes, "I have never seen as many red flags being raised at one time as what I see right now." It's everywhere!

I mean, inflation is up, but bond yields are down, which is the exact opposite of what you would expect. In fact, the yield on the 10-year T-note is barely over 4%! Foreign demand for US debt is down, yet prices for debt go up, the exact opposite of what you would expect. Inflation is up, yet gold is down, again the exact opposite of what you would expect. Demand for oil is up, yet prices are coming down, the exact opposite of what you would expect. The economy is slowing, yet stocks are soaring, the exact opposite of what you would expect. It just goes on, day after day, item after item, which explains why I am cowering in the hall closet, gobbling tranquilizers and whimpering, "It doesn't make sense! It doesn't make sense!"

Perhaps Bill Bonner sums it up best for me when he says, "And then we stand back and wonder: what kind of monster is this? It has such a strange, Frankensteinian look to it. The world's richest, most powerful country depends on the savings of the world's poorest. The world's most dynamic, flexible economy offers its money at negative real interest rates ... and is afraid to 'normalize' them for fear the whole thing will collapse. Americans buy what they cannot really afford ... and the Chinese build factories to produce what their principal customers don't have the money to buy. And the whole world economy advances -- apparently -- only so long as house prices in America continue to rise at three to five times nominal inflation and an infinite multiple of household income, which went backwards in 2004."

But what has made some sense of it all is that Total Fed Credit, which has not been snowing its usual parabolic rise here of late, has started back upward, and expanded by $4.3 billion last week. So at least we know where the money is still coming from.

(more)

http://worldnewstrust.org/modules/AMS/article.php?storyid=749

[teryang]

1. It is wacky and unbelievable

What does America do? We build and furnish houses. Where do we get the money? We refinance our homes.