Wednesday, January 16, 2008

Helicopter Ben as The Wizard of Oz

"I knew something was wrong. I was right, as I soon learned: Total Fed Credit exploded by $18.2 billion last week! Wow! Big Move! ... Of course, there are many other things that you can say about the [Fed], all of them uncomplimentary, and all of them said by me at one time or another. ... $30 billion of new money every two weeks? $780 billion more money and credit jammed into the economy in a year? Wow! We're so freaking doomed! Not surprisingly, 'The Fed announcement indicated that the auction process it began last month has been successful in providing a source of loans for cash-strapped banks.' Hahaha! Free money is popular? Hahaha! who knew? Hahaha! Popular? ... So tragically that they failed to provide 'stable prices', meaning zero inflation, that 97% of the original dollar's buying power of 1913 (when the Fed was created) is gone! ... To be fair, gold is not gaining value as much as the dollar is losing purchasing power, as is obvious if you look at gold when priced in barrels of oil, or bushels of wheat, or any of the tastier pork products or pizzas containing them, which hurts most of all", The Mogambu Guru (TMG) at, 11 January 2008.

Amen TMG, welcome aboard. We should adopt the "pizza standard", see my 7 January 2008 post. In about 1979, I concluded the notion of Fed "success" at anything was absurd, "Why won't the Fed lend me $5 billion at the Fed funds rate? I will put the proceeds in T-bills and return the difference to the Fed in a year". I can use cheap money. Why not? I'm a US citizen? Should I not have the same rights as say, Citigroup an artificial entity? Why can't all Americans borrow from the Fed? I estimate US prices are about 36X their 1913 level, indicating a 97.2% reduction in the dollar's value. TMG is in my ballpark! The official CPI is 21X its 1913 level, implying compound inflation of 4.3% annually for 73 years, my estimate is 5.1%, 0.8% more. However, more detailed analysis shows my excess arose after World War II. For example, the official 2007 CPI is 7.4X 1957's CPI, indicating a 4.1% compound inflation rate for the last 50 years. I estimate 2007 prices are 13X 1957 prices on average, a 5.3% average inflation rate, 1.2% more than the official CPI. Buy long-term bonds? Hahaha!

American's desire for free, or at least cheap money is old news. It's not well known, but Frank Baum's The Wizard of Oz, 1900, was an allegory on 1896's election. Dorothy was the American public; Oz, represented the gold ounce; the wizard was William McKinley; Dorothy's slippers were not made of ruby as in 1939's movie, but of silver; the American public was asked to follow the "yellow brick road", i.e., the gold standard; William Jennings Bryan was the cowardly lion; the Emerald City represented Washington DC and green paper money, and the Wicked Witch of the East stood for New York banking interests. "Political Interpretations of The Wonderful Wizard of Oz" at, explains the political significance of the book in detail.


winged unicorn said...

actually, it is fairly common knowledge among the literati that the wizard of oz is an allegory. there are those who think this is hogwash. a read is just a read...

Independent Accountant said...

It is fairly common knowledge in literary circles. However, it is not well known by financial people.