|
|
|
|
Happy New Year. I hope things do not turn out to be as horrible as I think.
|
|
|
- The national debt run up by the government,
otherwise known as Official Public Debt, now stands at $7.528
trillion, up almost by $600 billion in the last year.
- Ted Butler, renowned silver analyst, says
that the amount of above-ground gold in the world is four
times MORE than the amount of silver, making silver, surprisingly,
more rare than gold. And the big paradox is that gold is selling
at historic multiples of silver, which is the exact opposite
of what you would expect on the basis of sheer rarity. Mogambo
Tip O’ The Day (MTOTD): buy silver.
- Franklin Raines, disgraced former head of
Fannie Mae, proves that perfidy and failure is worth a retirement
package measured in tons of money and benefits. Fannie Mae
was originally set up to help poor people buy houses. Remember
the phrase “poor people” because it is important.
Instead, Fannie Mae has grown like the government cancer that
it truly is, and is now so big that it is now one of the top
two or three biggest corporations in the whole freaking country!
And not only that, but it is an absolute, total,
colossal freaking failure at its mission. Their job was, to
refresh your memory, to help a few poor people buy some cheap
house, probably something out near where I live, as I seem
to depress property values wherever I go and only very poor,
very desperate people with literally no place else to go would
even think of living near me. Homeownership was supposed to
give these poor people a cuddly feeling of security, but which
evaporated as soon as they learned that they had to fix anything
that broke, and they couldn’t just call up the landlord
and yell at him to fix things anymore.
Instead, and I say this with that look on my
face that means “I can’t believe my freaking ears
when I hear it or my eyes when I read it”, Fannie Mae
has actually driven up the price of housing to the point where
not only can the POOR not qualify for a loan to buy a house
anymore, but in some places not even the freaking middle class
can afford to buy a house anymore, either! And why can’t
these people afford to buy a house? Because housing prices
have been going up in price at double-digit inflation rates
for years now, thanks to Fannie Mae. And now houses just cost
too damn much, and that, and I stretch out my arm and to point
at THAT, is the horror of inflation, which is, if you are
up-to-speed on The List Of Things That Make The Mogambo Go
Out Of His Freaking Mind In Fear (TLOTTMTMGOOHFMIF), Number
One on the list.
But this is not about me, although I love talking
about me, and having people wait on me hand and foot, and
cater to my every whim, and if I can’t have that, is
it too much to ask to be able to go ten lousy minutes without
somebody throwing a roll of flaming toilet paper at me? I
mean, I’m trying to get some work done here! But we
were talking about Fannie Mae on the horrid Franklin Raines
and that whole horrid Fannie Mae bunch and how they have not
only failed at what they were supposed to do, but they actually
made the situation much, much worse! And it is worse for many,
many more people! Talk about your typical government program,
eh?
And yet, here these guys are, getting fired
and receiving these enormous retirement packages.
But we were talking about houses and the prices
of those houses. And why do they cost too much? Because Franklin
Raines and his stinking, grubby friends (which is, of course,
Congress, the courts, the banks, and the powerful friends
of either one) at Fannie Mae provided seemingly unlimited
funding to buy mortgages. And where did they get all this
funding? From investors. And where did the investors get all
that the money? From the Federal Reserve, which created it
out of thin freaking air and loaned it to the investors. And
all this new money increased the money supply as it increased
debt loads.
And here is where we take a short journey down
a pleasant path that I hope will impress you. It is with great
pleasure that I present a Mogambo Axiom Of Economics (MAOE)
that has a lot of mathematical mumbo-jumbo that I can make
up on the spot, mostly long and complicated formulas with
all these cool mathematical symbols everywhere, and that rigorously
proves that “All money must go somewhere.” I hope
is more profound that it looks, because it looks like nothing
on the page. I originally thought of it at a recent Christmas
party, and I admit that I was pretty blasted, and to tell
you the truth I am amazed that I remembered it at all because
I have apparently forgotten most of everything else that happened
at the party, judging by my wife suddenly referring to me
as Satan and how she is always making the sign of a cross
when she looks at me, which is weird, since she is not Catholic,
and a lot of policemen are suddenly asking me some very embarrassing
questions. So, do me a favor here: Give it awhile to sort
of sit in your brain, and then perhaps you will leap to your
feet and say, “The Mogambo is not as stupid as we thought!
In fact, it’s brilliant! Because if a lot of money flows
into one area of the economy, then prices in that area will
increase. And then other capitalist entrepreneurs will start
moving into that area, attracted, like moths to a flame, to
all that lovely, lovely money flowing in, because they also
have wives and children and mortgages, and they are also up
to their eyeballs in debt, and things aren’t going so
hot here the last couple of years, and at this point I am
pretty much willing to do anything for money, especially try
and flip a few houses. And the increase in tax collections
is like manna from heaven to stretched local, state and federal
governments.”
At that, my eyes bug out and I stand back and
look at you in absolute awe! I had no idea that you were that
educated in economics! And then I remember that, like Buddhism,
macroeconomics only takes a few minutes to learn, but a long
time to acquire wisdom. I humbly bow to your achievement!
Now, what I want as my reward for coming up
with this brilliant new economic verity is to be the new head
of Fannie Mae. If all it takes to get fired and received a
multi-million dollar annual retirement package is to spend
a few years growing into a malignant a cancer and be worse
than a total failure, then THAT is the job I want! If there
is one thing that I am good at, it is failure. I’m a
natural! So now, everywhere you go, I want to hear it loud
and clear, “Mogambo for Fannie Mae! Mogambo for Fannie
Mae!”
And in a similar vein, Bob and Barb at 321gold.com
have a pithy quote from Henry Ford on their site that shows
that old Henry knew about more things than cars and assembly
lines, and I want to get it into my own stupid newsletter
because I take my hat off to old Henry, which is what I call
him because he is dead and there is nothing he can do to make
me stop calling him by his first name, and in this way maybe
somebody will think “Hey! That Mogambo is quite a fellow!
He knows lots of important, famous guys!” But Henry
said, “It is well that the people of the nation do not
understand our banking and monetary system, for if they did,
I believe there would be a revolution before tomorrow morning."
So here is Fannie Mae providing these selfsame
“people of the nation” with a glaring example
of the misery of how our government, banking and monetary
systems have run amok, and not only is there no freaking revolution,
but the guy responsible is going to retire rich as a reward
for being a complete failure!
Not only that, but Fannie Mae has a $2.306 trillion
Book of Business, but only $29 billion in capital. That comes
out to a leverage of 80:1! This is the range of leverage that
caused Long Term Management to go belly up!
Wasn’t it H.L. Mencken who said something
like “The people in a democracy decide the kind of government
they want, and they ought to get it good and hard”?
Well, we are about to “get it good and hard.”
- Chris Gaffney of the Daily Pfenning newsletter
writes, “First I expect interest rates to continue to
rise globally and therefore, interest rate spreads will pretty
much remain stable. Take advantage of any short-term dollar
rally in these thinly traded markets to get currencies on
the cheap.”
This advice, namely to capitalize on short-term
rises in the dollar by using that temporary strength to buy
foreign currencies, applies also to precious metals and other
commodities, especially oil. OPEC is apparently being pressured
into reducing the price to keep the idiotic economic mess
we have created from collapsing before December 31. It can’t
last and it won’t. In November, oil imports into China
rose 46 percent, to 11.12 million metric tons from a year
earlier. In October, their oil imports were 34 percent higher
than a year earlier. Does exploding demand sound like a scenario
for lower oil prices in the long term? Hahahaha! It does?
Hahahaha! You must work for the government!
- Peter Schiff of EuroPacific Capital quotes
Chris Dialynas, who is a managing director at PIMCO, who has
written an essay entitled "Trouble Ahead, Trouble Behind.”
To quote Mr. Schiff, “In deadly serious terms, the paper
argues that America's Asian creditors should forgive a portion
of the debts owed to them by the U.S. government in exchange
for the U.S. government imposing what amounts to a broad based
austerity program, resulting in a substantial decline in American
living standards. The paper further proposes that America's
creditors would agree to this restructuring because in its
absence, their eventual losses would be far greater, as the
U.S. government would have no choice but to default on its
sovereign debt.
“This raises the obvious question of what
credit rating PIMCO believes U.S. government debt actually
deserves? A triple A rating basically implies a zero probability
of default. Since this paper argues that default is all but
inevitable, it would imply that not only should U.S. sovereign
debt not be AAA rated, but that it should fall into the category
of junk.”
Congratulations, Alan Greenspan! You took an
America we were all proud of, and turned us into a bankrupt
nation where our bonds are so worthless that they are junk
bonds on the verge of default. And congratulations, Congress,
which said or did nothing to stop, or even slow down, the
idiocy. And congratulations, news media, who were so ignorant
and stupid that they did not raise the alarm, as was their
damn function. And congratulations, school system, which teaches
that this is all correct, and special congratulations, universities,
who actually make it their business to teach this ridiculous
economic theory to the virtual exclusion of Austrian economics!
It is a sad story of failure, failure, failure all around.
- Kurt Richebacher writes, “Just consider
that the dollar has ‘only’ fallen 8.3% the past
year, but it translates into a $124 billion loss for foreign
stockholders! (And that's regardless of whether their stocks
are up or down!). How long will foreign investors stand losses
like that? How long would you? If the dollar keeps slipping,
foreigners will start dumping their U.S. investments - selling
for any price they can get. The flood of unwanted shares will
utterly destroy stock prices. The major indexes will hit lows
not seen in decades! And the money people have in stocks or
bonds will vanish.”
So how long can this go on? Well, Mr. Richebacher
has looked at the evidence, has looked at the historical precedents,
and after running the data through his gigantic brain and
his years of experience, figures that “If history is
any guide, this dollar crisis could last seven to nine years.”
And I think so too, and probably much longer than that, much
as I never regained by teenage glory, which was a hell of
a lot longer ago than some stinking seven to nine years, and
Rome has never regained her glory after 1,600 years.
- “The Specter of Deflation” an
essay on the LewRockwell.com site, by John Calverly, has this
timeless observation: “Deflation is a new and troubling
threat for all of us, brought up in an era of continuous inflation.
Almost nobody alive today, even the venerable Mr. Greenspan,
was an active market participant or policy-maker in the 1930s,
the last time the United States suffered deflation. Yet, during
the 19th century and right up to the 1930s, deflation was
common, indeed even normal, while inflation was usually only
seen at the height of economic booms and in wartime.”
This is because up until the current historical
period, business was left alone, and gold was money, and fiat
currencies were still only in nightmares and the historical
record that documented the unstoppable destruction that results
from any economy so suicidal as to use one. And it is Adam
Smith’s Invisible Hand of the marketplace that pits
one producer against another, each one trying to produce things
that are better and cheaper and newer. And all that money
thus freed up was available to be spent on other things, new
things, exciting things, and thus increasing the standard
of living for everybody.
Then, and you can tell by the way the soundtrack
has gone all moody and somber, we now live in an historical
period where idiots, with new and idiotic economic theories,
have installed a cartel of central banks around the world.
Nowadays, thanks to these corrupt bastards and the ignorant
morons that constitute America’s general population,
we NEVER have prices that gently go down, we NEVER free up
money to be spent on other things, thus we NEVER increase
everyone’s standards of living. Now, all we get are
constantly higher prices, a bigger and more repressive system
of governments, a currency that grows more and more worthless
every day, and a constantly falling standard of living. And
as bad as this sounds, it is only PART of the egregious result
of having a central bank and a fiat currency that is spiraling
out of control.
As an example, world dairy prices have almost
doubled since 2002. Doubled. In two lousy years.
- For those of you concerned that the unequal
tax treatment of your gold holdings, and judging by my email
there are a lot of you, J. Kent Willis has reported that “Joint
legislation from Nevada Senators Reid and Ensign aka ‘Fair
Treatment For Precious Metals Act’ passed the US Senate
in 2004 with a vote of 92-5. The House has not approved it
yet, but will soon.” The bill will treat gold bullion
investments as it does other equities, with short and long
term tax rates of 20% and15%, instead of continuing to treat
gold as a collectible, and thus taxable at the 28% rate.
For those of you who are impatient, he goes
on to say that “There are legal ways around it now anyway,
including but not limited to, holding bullion in an approved
self-directed IRA, provided you withdraw it properly so it
is treated as ordinary IRA income.”
- Barry Down and Bill Matlack are stockbrokers
who have written an interesting paper entitled “With
Paper Money- Confidence is Suspicion Asleep”, which
is a quotation from Disraeli, who was once the Prime Minister
of Great Britain.
They write, “From its peak in 1985, the
dollar dropped by a third, but the US current account deficit
is much larger now than it was in the 1980s. Conclusion: over
time the dollar has a long way to drop, perhaps destined to
lose over 30% of its current value, thus pushing the euro
exchange rate to over $1.80.”
These two guys are stockbrokers who “specialize
in gold and mining equities”, so maybe they are a teensy
bit biased in their judgment. But I rise to my feet and shout
“Huzzah! Huzzah!” when they say, “But make
no mistake about it, irreversible damage to confidence will
be inflicted on the world's paper currency system and the
stage will be set for the inevitable repudiation of all unbacked
paper currencies. Eventually, a new system of currencies centered
around gold will be initiated, and confidence will then be
restored and suspicion will be asleep, at least until some
other future generation also tries to substitute paper for
gold.”
Regardless of the future of gold-backed currencies,
the drop in the dollar guarantees a 30% higher price for gold
as a result of a 30% drop in the dollar. Unless, of course,
the rest of the world suddenly stops believing in gold and
are willing to part with theirs at lower and lower prices
in their own currencies. And with the economic upheaval that
is bearing down on us, I don’t see much chance of that!
And neither do they, as they keep buying more and more and
more gold at higher and higher prices.
- To demonstrate the economic lunacy of Gregory
Mankiw, who is the chairman of the President’s Council
of Economic Advisors, I turn to his own textbook, “Principles
of Economics” and look up “debt” in the
index. There are two, count ‘em two, references to debt.
One is “debt, government, 555” and the other is
“debt finance, 544.” On page 544, we read that,
“The sale of stock to raise money is called equity finance,
whereas the sale of bonds is called debt finance.” Nothing
much there about debt.
So we go to page 555 to find out about government
debt. When we get there, we find that the entire subject of
government debt is summed up in two sentences. “When
the government spends more than it receives in tax revenue,
the shortfall if called the budget deficit. The accumulation
of past budget deficits in called the government debt.”
This is the extent of the problems of government debt, according
to Mankiw.
Then he gets into the ”crowding out”
theory, which is the hypothesized result of the government
running huge budget deficits, and coming into the credit markets
and borrowing all the money that is available to lend, thus
keeping any other borrowers from getting the financing they
need. Mr. Mankiw, of course, does not mention that the “crowding
out” effect, which is obviously true, has never actually
been witnessed in real life. The reason? The damn Federal
Reserve is going to create more money and credit at the first
sign of any stinking “crowding out” effect and
the upward pressure on interest rates. Mr. Mankiw does not
mention this important fact, either because he is ignorant
of it, or because he has written a very poor textbook on economics,
or he is trying to conceal the inevitable rampant fraud and
corruption that stems from having a central bank and a fiat
currency. Especially when you have a judiciary that ignores
the Constitution whenever they sense what they think is a
“good justification” which is something left over
from last week’s MoGu which has really stuck in my craw,
for some reason. And that reason for THAT being that it is
this spreading corruption and lying is how countries and societies
and cultures are destroyed from within.
It is not my place to figure out which of these
he is. Parenthetically, when I am in the mood for an argument,
which is all the time, I use that fact to prove that God does
not exist, because if a truly loving God existed, then surely
He would have put The Mogambo in charge of tracking these
people down and charging them with the crime of treason to
the Constitution. But whatever it is, the very fact that he
thinks this bizarre way is reason enough why this man should
not have been appointed to the President’s Council of
Economic Advisors, and especially why he should not have been
a Harvard professor of economics in the first place.
As a final dig at this Mankiw guy, listen to
this thing he calls “Keynes’s Interest Rate Effect”
on page 689. When prices are falling, see, households need
less money to meet their needs, and they seek to invest their
excess money in something to earn a little interest. No problem
so far. But here is where it gets weird. “As households
try to convert some of their money into interest-bearing assets,
they drive down interest rates. Lower interest rates, in turn,
encourage borrowing by firms that want to invest in new plants
and equipment and by households who want to invest in new
housing.”Why in the hell firms would want to invest
in plants and equipment in the face of slack demand in beyond
me. But he doesn’t listen to my complaints, and goes
on to say “Thus, a lower price level reduces the interest
rate, encourages greater spending on investment goods, and
thereby increases the quantity of goods and services demanded.”
(Italics in the original). Notice the weird way that originally
there was no demand for goods and services, and that is why
there was all this excess money lying around in people’s
accounts, ready to be loaned to somebody. But suddenly, thanks
to lower interest rates, there is all this new demand for
the same goods and services that people didn’t want
originally! Weird, huh? And trust me when I say that the deeper
you go into this whole modern economics thing, the weirder
it gets, and if Buck Rogers was in a spaceship going someplace
that was this weird, he would turn that spaceship around,
go home, and take the beautiful Dale Arden out for a pizza.
- Doug Noland quotes Jennifer Hughes in the Financial Times
as saying “US high yield, or junk bond, issuance, has
reached record levels this year as companies have sought to
take advantage of investors’ appetite for risk.”
Memo to Jennifer Hughes: Nobody has an appetite for risk.
They only have an appetite for yield. And people are desperate
for yield, as Alan Greenspan has tried to correct his previous
horrendous monetary policy mistakes by pounding interest rates
into the toilet for a couple of freaking years. And with prices
rising at rates higher than interest rates the whole time,
people are desperately searching for something, anything,
that will earn more money so that they can at least try and
break even.
- From Bloomberg we get Wing-Gar Cheng, who
writes, “China’s crude oil imports in November
rose at the fastest pace in five months as government measures
to slow the economy failed to curb fuel demand growth.”
Well, duh! The only way growth is curbed is when profits disappear,
usually due to the horrendous cost of high interest rates
that swamps the returns of the business venture, and there
is little to no chance of that happening any time soon in
China!
As if that wasn’t enough to be bullish
about commodities, the China Daily reports that a “leading
water official” says that “China is likely to
experience a ‘catastrophic’ drought next year,
threatening water supplies and grain production.” And
with reduced supply of grains due to drought and increased
demand due to increased wealth from the growth, those two
curves will equilibrate at much higher prices. And it is a
truism that you make money by buying low now, and selling
high in the future.
- According to the Office of the Comptroller
of the Currency, the latest Derivatives Report shows that
Total U.S. Commercial Bank Derivatives expanded to $84.18
trillion, which is up 26% from one year ago. 26% of $84.18
trillion is $21.88 trillion. So, the derivative positions
in the banks increased by twice the entire GDP of the USA!
My head is spinning around like a demented Christmas toy!
The damn banks increased the money at risk in derivative contracts
by twice the total value of all the goods and services created
in the whole freaking country in a whole year? My God! And
you DON’T think we are headed to disaster?
- Henry T. took exception to my phrase in the
last MoGu, “You own gold. Nothing can happen to you.”
Like a lot of other people who are fearful of another confiscation
of gold by the government, like the commie bastard FDR did
in the 30’s. He says “Wrong. Hoards will be confiscated.
None are more hated than those who foresaw disaster and took
proper steps to avoid it. Especially if we told them so. Then
we ants learn that grasshoppers are carnivores.”
- I got this from somewhere that I forget where,
but “Brokerages and investment banks will award average
bonuses of $100,400 per employee to roughly 158,000 people,
up from $99,700 a year ago.”
And where did all this money come from? You
and me. They might have gotten commissions on our trading
and retirement accounts, so we paid. They might have “done
a deal” where the ultimate price will be paid by the
customers, which is you and me again. They might have gotten
it from their own trading, which came from, again, you and
me.
Make no mistake: All the money that these guys
got will have to come from you and me, the final consumers,
as there is no other place that it CAN come from, and that
means that the prices we will pay will be higher than they
otherwise would.
- John Crudele at the NY Post has taken a look
at how the U.S. Treasury posted, on its Web site, a financial
statement for the USA, but done in the same way that private
sector companies are required to keep their books. The reason
that they did this was that they had to, as ”This method
of accounting for the government’s finances, namely
using Generally Accepted Accounting Principles (or GAAP),
is now required by law.”
Mr. Crudele paraphrases to note that “In
the fiscal year 2004, government revenues were $1.9 trillion
. . . The net cost of the government's operations was $2.5
trillion . . . Total revenues less operating costs resulted
in a net operating cost of slightly more than $615 billion.”
In short, he say that “the government ran a deficit
of $615 billion,” which a little calculator work will
convince you comes out to a cool $5,802 for every worker in
the country who has a non-government job. And that is just
the deficit!
When you get right down to it, that $2.5 trillion
that the government spent last year comes to $20,661 for every
American worker in a non-government job!
“Now, allow me to translate” he
says. “Look at the last line called Total Assets minus
Total Liabilities & Net Responsibilities. The liabilities
grew to $45.9 trillion at the end of 2004, compared with liabilities
of $34.8 trillion at the end of the previous year. In other
words, what the accountants call the net present cost of unfunded
future obligations grew by a massive $11.1 trillion in just
the past year.”
That $11.1 trillion figure ought to be familiar
to you: it is equal to the sum total of GDP in the United
States. In one year, we went on the hook for an amount equal
to the total value of all the goods and services produced
in this country for an entire year. We took on so much more
debt, in one year, that the additional obligation equals everything
we made for the year.Ugh.
**** The Mogambo Sez: It is the last Mogambo
Guru of the year, and I feel compelled, like so many others,
to writing my concluding optimistic remarks, and extending
my best wishes for a prosperous New Year. So let me say that
I hope things do not turn out to be as horrible as I think.
But they will. But at least I am optimistic about it!
*****
The MOGAMBO GURU, e-economic newsletter
Richard Daughty, the angriest guy in economics
9241 54th Street North
Pinellas Park, FL 33782
727 546 5568
e-mail: scgcjs@gte.net
|
