Gorging at an orgy of credit
In last Thursday's Wall Street Journal, we
read that the White House has a plan to divert $1 billion
from the fund that compensates the victims of crime. If they
were going to send that money to me, then of course I would
be a big supporter of such a plan. Unfortunately, they are
not, and you can tell by the way I am frowning and acting
like a spoiled little brat that I am not happy about it one
little bit. No, what they want to do is to use the money to
cut the deficit, see, as if one lousy billion dollars is going
to make a freaking tiny little teensy weensy dent in the budget
deficit, which is expanding at a pace that will take us to,
probably, close to a trillion dollars for the year! $1,000,000,000,000!
This is just the freaking deficit, and it is 8 freaking percent
of the damned economy! And this incomprehensible sum is just
the deficit part of Congressional spending, which is money
that they spend by borrowing, and thus putting us all deeper
into debt as a country.
Probably as a side effect of the medications I am taking so
that I don't go completely berserk about the monetary insanity
of the USA and wind up invading the Federal Reserve armed
to the teeth and determined to "clean out that nest of
mentally-ill rats and traitors to save America", I feel
an instinctual drive to add a crude insult to my opening remarks.
So let me add "the bastards!"
And why would I blame the Federal Reserve, when it is Congress
spending all this money? Because the damned Federal Reserve
creates the money to get borrowed! If there were no accursed
Federal Reserve acting like the brain-dead chumps that they
are, and adhering to the ridiculous tenets of their precious
New Age economic theory, as soon as Congress authorized such
deficit-spending extravagance, the world economy would come
unglued. Interest rates would go to the moon! Money would
flee the country, and the economy would tank! This feedback
mechanism is what used to keep Congresses from acting like
insane morons. No longer.
With a $2.2 trillion budget and a deficit of $1 billion deficit,
then it seems to me, remembering my old school days where
the teacher would ask me a question and I would reply that
I did not know the answer, if you divide one of these numbers
by the other one, you will show that the deficit is 46% of
the budget! And, if the damn Treasury keeps borrowing money
at this rate, the budget deficit as a percentage of GDP will
then exceed 8% of GDP! Hell, Japan, far and away the world's
biggest idiots as concerns monetary policy, is only running
a budget deficit of 6.5% of GDP, and we American bozos are
still "officially" at a budget deficit of "only"
4.4% of GDP, which is bad enough to cause old timers (which
is defined in the Big Mogambo Dictionary (BMD) as "anybody
who disagrees with the monstrous economic idiocy of constantly
stimulating the economy and thus fueling inflation and don't
start talking about inflation because that really sets The
Mogambo off and he is liable to have a heart attack ('urk!')
and plotz right here on the floor."
Bill Buckler, who writes the Privateer newsletter, and who
is, coincidentally, addressing this very topic, says "If
the US credit expansion does no more than stay on its fourth
quarter of 2004 trajectory, it will generate new credit to
the tune of $US 3.425 TRILLION over the current year. By the
end of 2005, the total will be close to 29.25% of the US GDP.
That is a TOTALLY out of control situation. At the present
level of expansion, total US credit markets will stand at
around $US 40 TRILLION in less than nine months. That total
will then be around 350% of the TOTAL US economy. Historically,
this is a debt load which breaks ANY civil economy."
The result is that "If the US federal government even
slows down their rate of deficit spending, the US economy
dives into an economic recession. If the Federal Reserve slows
down its credit expansion, the US economy dives into a steep
economic recession. Both institutions are fully aware of this,
so they will NOT slow down. This being the case, it is simply
a matter of time before the world slows down or even stops
its funding of US external deficits. The result will be a
US economic recession and a plunging $US."
Even the Chinese are doing this same silly crap! We read that
the China Daily has reported that "China plans to use
money tied up in state-owned assets to deal with a boom in
retirees expected in 15 years' time. State assets, such as
stock in large companies, will be converted into funds that
can help fill China's 2.5-trillion-yuan (300-billion-dollar)
This brings up two questions: 1) where is all of this money
supposed to come from? And 2) why are they doing this? Well,
they never get around to telling us where in the hell all
this money is going to come from that will 1) buy up whole
swaths of old, decrepit Chinese infrastructure, and 2) support
legions of Chinese retirees for the rest of their lives.
As to the "why" question, it is simplicity itself.
"To avoid a major financial crisis, China is trying to
abandon its previous 'pay-as-you-go' system, where people
in the workforce pay directly for the support of retirees
in the expectations that later generations will do the same
for them." Sound familiar? It should! It's the Chinese
equivalent of our Social Security system! Only this one is
in China, which is a large country on the other side of the
world, and it is packed full with 1.3 billion Chinese people,
according to press bulletins. The article goes on to say "Instead,
the government aims to establish a new system where each individual
saves money for himself on a personal retirement account."
Yow! Privatization of Social Security!
- If you want to see the face of the future of technology,
an historical milestone has been reached, according to "Meet
the Mind Readers", an article by Ian Sample in the 3/31/05
Guardian. His pithy summary is "Paralysed people can
now control artificial limbs by thought alone."
The actual moment in history is "There's a hand lying
on the blanket on Matt Nagle's desk and he's staring at it
intently, thinking 'Close, close,' as the scientists gathered
around him look on. To their delight, the hand twitches and
its outstretched fingers close around the open palm, clenching
to a fist. In that moment, Nagle made history. Paralysed from
the neck down after a vicious knife attack four years ago,
he is the first person to have controlled an artificial limb
using a device chronically implanted into his brain."
- I thought it was funny that a recent study shows that Harvard
student are dissatisfied with Harvard, at the same time as
an op-ed piece by the horrid Michael Boskin appeared in the
Wall Street Journal. Boskin is the Stanford economics "professor"
who developed the actual statistical methods of lying about
inflation, namely the infamous "hedonic" adjustments
that have distorted the Consumer Price Index so much that
it has become a joke among economists, so that the government
could get off cheap. Speaking of which, this Boskin loser
still thinks that the CPI is STILL overestimating inflation
by 30-40 basis points! Hahahaha! What a lying moron! And Stanford
University gave him a job? My god! Have they no shame? Is
there nobody actually at Stanford that thinks that inflation
is really only 1.6%? And that it still overstates inflation,
so that inflation is "really" 1.2%?
But, similarly, perhaps we can all admire Johnnie Cochran
for being a great lawyer, although he used slimy tricks and
despicable race-card bigotry to get O. J. Simpson acquitted
of murder, even though Simpson was the most obviously guilty
defendant in the whole history of jurisprudence, and not even
Perry Mason would have taken his case.
Likewise, I am sure that we Americans now equally admire
the achievements of the whole Hitler government, as they were
just doing their jobs, too, and they likewise did them very
well! Hahaha! What a comparison! Cochran, Boskin and Nazis!
I'm sure I will be hearing from their lawyers, who will be
all gung-ho about suing the hell out of The Mogambo until
they learn that I have no money, and in fact I don't even
have a chance of ever earning any, mostly because I am just
a stupid lunatic with a loud mouth, and if they are going
after the honor of the thing, they soon realize that there
is no honor in suing a guy who goes around wearing nothing
except an adult-sized disposable diaper and a big stupid smile,
and who spends his time standing on street corners holding
a sign that reads, "Will rant hysterically about monetary
policy for food!"
But there are more and more people who receive income based
on interest rates, which respond, theoretically, to inflation,
as lenders don't ordinarily like lending muscular buying power
to deadbeats like me, only to receive a piddly stream of income
that provides less and less buying power because relentless
inflation is chewing the dollar's guts out, and thus the lenders
end up with less buying power than when they started, and
then the lenders get all bent out of shape, and then they
start calling all the people who are in arrears in their payments,
and then the phone is ringing all the time, ringing, ringing,
ringing, and I am hiding behind the curtains and telling my
wife to tell them that I am not at home. No, tell them that
I am out of town! No, wait! Tell them that I am out of the
And the despicable Michael Boskin was hired to invent this
method of lying about inflation so that the government could
screw a bunch of recipients out of some of their inflation-adjusted
income. And if these recipients ever discover that they are
being systematically screwed out of buying power (because
price-inflation obviously reduces the buying power of each
dollar), then that is when Michael Boskin will wish he HAD
taken the advice of The Mogambo, and ran off into the woods
and hid in a cave, hiding his face, begging for forgiveness
and crying like a baby. Maybe poop all over himself, too,
since nobody wants to deal with guys covered in crap. At least,
that is how it has worked out for me!
And since we are talking about angry people getting screwed
out of buying power, maybe I could mention a few of these
people; Social Security recipients, people who save money
and bondholders. Hahahaha!
Speaking of screwing people out of money and justice, the
government has now decided to stop adjusting the yields on
savings bonds every quarter. Now that yields have bottomed,
and interest rates have hit their historic lows and are obviously
heading back up, the bastards in government changed the rules,
and your savings bonds now have a fixed and permanently-low
interest rate! Hahahaha! No matter how high inflation gets,
or how high interest rates get, you will be stuck right here!
Hahahaha! Chumps! You trusted government with your money in
return for their promises to offset inflation? Hahahaha! You
get what you deserve, you nitwit!
- Kurt Richebacher's new sales piece is entitled "Here
It Comes! The Dollar's 7-Year Slide", which is about
as succinct as you can get; direction AND time. Heed and prosper,
or ignore and suffer.
- It looks like the idea that the future will be a battle
for water is heating up. From the AP in Shanghai, China, we
learn "In Beijing, each resident has access to only 10,593
cubic feet of water a year, compared with the world average
of 35,310 cubic feet."
And worse, the needle on The Mogambo Bad-News-O-Meter (TMBNOM)
dips to the bottom of its range as we read "Meanwhile,
experts warned that more than 300 million rural Chinese lack
clean drinking water since most of China's waterways are fouled
by industrial effluent, untreated sewage and runoff of agricultural
chemicals from fields." Editorial Mogambo comment (EMC):
Yuck. The article goes on to say, "Only 47 percent of
water in major rivers is drinkable, while half of all lakes
are heavily polluted. And 35 percent of ground water is undrinkable
due to pollution."
Perhaps the lesson is to invest in companies that deal with
cleaning up or preventing pollution, and in desalinization
devices, and maybe some share of bottled water companies,
- Paul Hein has a nice essay entitled "Give No Quarter"
on the LewRockwell.com site. He must have been looking at
how the metal in coins now cost more than the coins are worth,
and he says to relax. "The mint says that the coins cost
a nickel to produce. Americans will have to pay 25 cents apiece
for them. This is a 'profit' of 20 cents per coin, and the
mint, remember, is going to stamp out half a billion of them,
for a net gain of 100 million bux. Nonsense! The actual cost
of producing the coins is - nothing. If you can pay for money
with money, how can it cost you anything?" The Mogambo
is delighted with Mr. Hein, and I hop up and down and clap
my hands together in childish glee! Exactly! Hahahaha! He
goes on to give an example, "How much would a bunch of
grapes cost if you could pay for it with a couple of grapes?
Suppose you pick up a large bunch of juicy, delicious grapes
at the supermarket. The checkout clerk says, 'Those will cost
you three grapes.' So you pick off three grapes and give them
to her. Were the grapes expensive? Can you continue to afford
them, even if the cost doubles to six grapes?"
Then he gets very philosophical, but important, if you think
that casting aspersions on fiat currency is important, and
I do. "If a slave-owner in the 19th century printed up
some nice chits bearing pictures of himself (using his slaves
to do the work, and produce the paper and ink) and then distributed
them to the slaves as 'payment,' they could exchange the chits
among themselves as money. Of course, they would have no claim
on any assets of the master, but that wouldn't occur to them.
That is precisely what defined their slavery, even if they
thought of themselves as free: their chains were made of paper.
So are ours."
- In his essay "The Decline of Paper Currency",
Chris Mayer writes, "Inflation, as it is commonly known,
has not always been the normal state of affairs." That
is because the normal state of affairs is people trying as
hard as they can NOT to let inflation get started. And I will
tell you that a damned government letting a damned central
bank actually try and create inflation ("to prevent deflation")
is not normal for people who are not insane, either. But Mr.
Mayer doesn't want to talk about that, and instead motions
for me to sit back down and take a pill. With me safely out
of the way, he quotes James Grant, who is the editor of Grant's
Interest Rate Observer, who said "From George Washington
to the A-bomb, prices alternately rose and fell... As Alan
Greenspan himself has pointed out, the American price level
registered little net change between 1800 and 1929."
Now Mr. Mayer extrapolates from that "It took Rome four
centuries to destroy its currency," he said. "Germany
and Austria reached that point in just nine years, ending
in the famous hyperinflations of the 1920s, and before that,
Russia managed it in only five years."
Hahahaha! And if you think that is funny, then you will probably
bust a gut to learn that Greenspan has devalued our money
by 30% or so in the last few years alone, and the poor old
dollar has lost about 98% of its value since 1913 when the
filthy Federal Reserve was created! And if you think THAT
is funny, then you are will probably fall down on the floor
and die laughing to learn that the value of the dollar goes
lower and lower every damn day, and will probably continue
to do so for the rest of your life!
Then, like the poet that he obviously is, he writes, "Like
the biting winds of nature that sculpt rock and carve stone,
inflation and taxes will grind the greatest piles of fortune
to dust over time. The road to extinction may be of indeterminable
length, but the final destination of that road is not in doubt.
The same can be said of all our paper currencies, be they
yen or pounds, pesos or ringgit. All of them are on the same
Niklas T. is another of those guys who comprehends the enormity
of the problem. He writes, "Since all money is borrowed
into existence, it is just a big Ponzi-scheme all of it. The
entire world is victim of compound interest, and we know where
that will end - eternal exponential growth of debt. Oh, not
eternal really. It get interrupted by crashes." Hahahaha!
And that is why Ponzi schemes are illegal when we citizens
- Dan Ferris, of the Real Estate Shareholder letter, has
an interesting take on housing as an investment, which is
all the rage these days. "Experience plus my research
into real estate has taught me that a house isn't really much
of an investment, contrary to what everybody will tell you.
It doesn't pay me a penny in rent or interest or income of
any kind. I can't spend it without going into more debt. With
investments, you're supposed to earn interest, not pay it!
And if I sell my house, I have a choice to make: either use
the proceeds for more real estate, or pay a big capital gains
tax. My only return is the benefit of living in it."
Bill Bonner of the DailyReckoning.com site, is not just another
pretty face, or even just a guy who has a face that is prettier
than my face, which is everybody, as far as I can tell. So
while I am dancing around singing "I feel pretty, oh,
so pretty!" in some pathetic attempt to lie to myself
so that I will not cry myself to sleep, he is doing actual
economics work that concerns housing, and has noted that the
bubble in housing has also created some problems for owners
who think that they are going to rent out the expensive houses
that they are buying, and make the mortgage payments with
the rent money.. He says, "Likewise, houses now sell
at an implied P/E of 34. That is, annual rental income for
the average house would equal only 1/34 of the purchase price."
And speaking of real estate, Eric Fry, in his Rude Awakening
column entitled Nobody's Fool, quotes Susan Walker, of Fox
News, who says that Warren Buffet, the smartest and most successful
investor in the world, "is not investing in real estate,
an all-too-tempting alternative for regular folks who have
some money they would like to invest but who don't trust the
stock markets. In fact, as the most recent issue of 'The Elliott
Wave Financial Forecast' points out, many people are 'now
captivated by the concept of easy wealth through real estate...According
to the National Association of Realtors, a stunning 25 percent
of the 7.7 million homes sold in 2004 were purchased strictly
as investments.'' Of course, these people figure that there
is always going to be somebody coming along down the street,
some dumb guy, like me, who will say "A jillion dollars
for a house? Sure! Why not?"
- There are some guys who go beyond the problems with our
monetary systems, and one of them is Dr. Edwin Vieira, Jr.,
Ph.D., J.D, whose essay on the NewsWithViews.com site is entitled
"Will the Coming Monetary Crisis Provide Opportunity
For Reform?" I think he answers his own question when
he replies, "No! We're scroomed!!"
And since a currency crisis is inevitable, then what happens
next? Well, this is where Dr, Vieira comes in, who reminds
us that it is not just the economic problems that will bedevil
us, as history has shown us the depths of corruption to which
legislators will stoop when their own spending/philosophical
stupidities inevitably backfire on them. He says, "Even
the most abusive precedents established under Roosevelt, however,
will not define the outermost reaches of the 'emergency' powers
contemporary public officeholders will seize in the event
of a new monetary and banking crisis. Rather, they will employ
whatever police-state tactics they deem necessary to deter
and punish violations of their 'regulations, limitations and
restrictions'--from fines and forfeitures of property to incarceration
in prison cells, internment in prison camps, and interment
in graves....As O'Brien told Winston Smith in Orwell's 1984,
if one wants a picture of the future, imagine a boot stomping
on a human face--forever." Or, as Edwin Clarence Riegel
may have put it, "Not money, but a false money system
is the root of all evil"
To show you an example of depth to which governments must
sink when these Ponzi schemes get out of hand, the South Korean
government, to quote the last Thursday's Wall Street Journal,
"Made a last-ditch effort to tackle the country's household
debt problem by announcing a package for Koreans with little
or no income that practically writes off their debt."
The idiocy is that those who are on welfare are not obligated
to repay their debts, and, as a bonus, are also relived of
being stigmatized as "credit delinquents", so that
they can continue to borrow more money from unsuspecting lenders,
which they never have to repay, either!
If you are on welfare in that country, you don't have to
repay the principal or even pay interest on your debt as long
as you remain on welfare, which brings up the point about
who in their right mind would ever get OFF welfare with a
sweet deal like that?
The problem is that Korea is in recession, see, and the whole
country has been, like the US, gorging at an orgy of credit.
Which brings up a nice quote from the Elliott Wave International
people, who were researching the history of major depressions
in the U.S. from 1830 on. They say they were "impressed"
that they were "All were set off by a deflation of excess
credit. This was the one factor in common." Exactly!
It's the Austrian Business Cycle Theory, over and over and
But what is NOT answered in the little sidebar was what happens
to the Korean lenders, the people who are owed the interest
payments, which they are not going to get, or the original
money that they expect to get back, which they are ALSO not
going to get. Hahahaha! Chumps! It is exactly what they deserve,
the morons! I mean, how stupid do you have to be to loan large
amounts of money to people on welfare? Welfare pays so much
in Korea that the recipients have so much money that they
can afford to not only buy things, but also pay the high interest
charges? My God! And they though this could last? Hahahaha!
It embarrasses me to mention it, I happen to be, uniquely,
one of the most stupid people on the planet, and yet this
even sounds stupid to me! But what is going to happen is that
the creditors are just going to raise prices and interest
charges on the people who DO pay, and that will be an "unexpected"
consequence. And then when these people see how they are being
screwed, and what a sweet deal this is for people on welfare,
they are going to want a little of this gravy, too! And then
people will run for office on a platform of "no payments,
no interest loans for the little guy!" And that will
be another "unexpected" consequence.
- Richard Greene's March 25, 2005 essay is entitled "Gold
- The Forgotten Asset Class". He notes that "It
has been over two decades since gold was widely referred to
as an asset class by Wall Street and the media. It would probably
be generous to say that even 1% of American investors have
an adequate understanding of why at least a 10% portion of
their assets should be safeguarded in gold and silver, primarily
in bullion. An even smaller percentage understands that they
must have physical possession or a custodian that can prove
that they are holding their purchased gold in a segregated
account. Unfortunately, we have found that the vast majority
that has moved to protect their portfolios with investments
in the precious metal sector are foreigners."
Foreigners have been buying gold? Is that why the price is
over $400 per ounce? Well, who are these people, since it
is not us hotshot Americans? He answers "The really sad
part is investors from China, Japan, the Middle East, and
India are taking advantage of any pullback to keep adding
to their gold and silver holdings." So what does one
do? I start to get to my feet to offer my suggestion, which
is, of course, to buy gold. But he sees me stirring, and quickly
adds, "The fundamentals for gold get better every single
day as money expansion continues. Use declines in the prices
of metals and the stocks to build a position as part of your
portfolio. Speaking of gold, I notice that the gold lease
rates have collapsed, which brought out a lot of leasing,
which they turned around and sold, which could explain why
the price of gold dropped last week". Most of us figure
that gold is being manipulated down by the fabled Gold Cartel,
the one that GATA and the Metropolecafe.com people are always
Want more proof than the idiotic Mogambo standing in the
middle of the road haranguing people as they drive by that
gold is being manipulated and that this represents a golden
buying opportunity, if they will excuse the pun, which they
never do? Well then, maybe you will listen to the Charleston
Voice when they say, "It is now becoming widely accepted
that the world's central banks have shorted (sold) as much
as 15,000 tons of their gold reserves in a concerted effort
to suppress gold's price as measured in paper currencies."
And it is not just the gold and silver markets that are being
rigged, but all the other markets, too, as chronicled in "The
Invisible Hand (of the U.S. Government) in Financial Markets",
written by C. Robert Bell and posted on Financialsense.com.
His summary is "The U.S. government is manipulating all
major U.S. financial markets-stocks, treasuries, currencies."
The rest of the highly-informative article "shows how
it is possible and how it is done, why it is done, who specifically
is doing it, when they do it, and where they get the money
to do it."
Even George Ure at UrbanSurvival.com reported that an article
has appeared that indicates that The Mogambo was right when
he said that that monetary policy, now operating for most
of the last decade with all the taps open full, will prove
ultimately to be a failure, even though the government is
freely manipulating the markets via fiscal policy to keep
it from failing. To wit: "Tax money was sent to the Office
of Special Brokerage Services (OSBS), to which management
of the reconstruction funds was assigned. The OSBS, quietly
through third parties, purchased approximately $5 billion
in stock in February, 2004. Another $9.2 billion was invested
the following month. More than $14 billion earmarked for reconstruction
was actually invested on Wall Street. The memo's author and
date are unknown. This portion of the apparently classified
document -- marked 'page 3' -- was mistakenly sent to Mid-America
Seed Savers, a nonprofit organization in Lawrence, Kansas
whose members had filed a Freedom of Information Act request
for documents related to the Army's alleged distribution of
genetically engineered wheat seed to farmers in Iraq"
according to Stan Cox, who is a plant breeder and writer in
It is all part of a gift to the Iraqis, they say, as "The
OSBS has assigned portions of the fund's assets to individual
citizens, based on voting rolls from the January election.
Although he or she is not yet aware of it, each and every
Iraqi voter now owns a Personal Reconstruction Account (PRA)".
Until the unrest settle down, they figure that the accounts
that will "continue to grow in value, safely, until violence
in Iraq subsides and normal economic activity can resume.
At that point, Iraqi citizens will be able to draw on their
PRAs as needed, putting that money to work in their economy
and stimulating private-sector solutions to the problem of
reconstruction." Hahahaha! This is what passes for economic
and financial management! Of course, the US markets going
up will have wonderful domestic effects, too, and that is
the whole point of it, because if we really, really, really
cared about Iraqis we would have given them the money before
we killed a couple of hundred thousand of them.
Everybody assumes that this is a hoax, especially since it
came out on April Fool's Day. But after seeing the lies and
frauds being committed every day by our own government, I
am not so sure.
- John Hathaway of Tocqueville Asset Management notes that
he views the news that the "EU member states have agreed
to relax constraints their budgets are subject to under the
Stability and Growth Pact which underpins the euro" as
containing very positive news for gold, probably the most
positive news for gold in the past two years.
Why is he so bullish on gold from reading this? He explains,
"The money supply of euros, according to the European
Central Bank, is 6.6 trillion euros (M3 as of 1/05), equivalent
at current exchange rates to $8.6 trillion. On the other hand,
the monetary supply of gold, assuming all central bank gold
is for sale (which of course it isn't at any given moment),
is around $1 trillion. Removing central bank gold from the
equation leaves a residue of monetary gold of approximately
half this amount, a fraction of the euro money supply."
What does this mean to you and me? I'm glad you asked! And
the reason I am glad you asked is that I don't have to say
a word, and I can just sit here sucking a banana daiquiri
through a straw, and all I have to do is point the Bony Mogambo
Finger of Fate (BMFOF) to where Mr. Hathaway writes, "The
bull market in gold, which commenced in August of 1999, will
shed its stealth mode. We stand at the end of the beginning
of the first leg in a multi year bull market in the metal."
- On Bloomberg we read that "Mexico's central bank today
raised interest rates for a ninth consecutive month to slow
inflation as commodity prices rebound and workers in Latin
America's largest economy push for higher wages." Wow!
Apparently, not everyone in this hemisphere is as sanguine
as Greenspan and the Fed about inflation!
- And if you want the Mogambo Prediction (MP) on inflation
rates, you don't have to wait around for me to sober up, but
you can easily figure it out for yourself. All you have to
do is go to the back two pages of the Economist magazine,
and look at the huge rises in money supplies around the globe,
and notice how many countries have short-term interest rates
that are essentially at, or in many cases below, their own
reported inflation rates! Money is so freaking cheap, around
the damn globe, that it is insane!
All this cheap money is pumping up the prices of assets,
which, in turn makes Ben Bernanke of the Federal Reserve start
wetting his pants when he thinks that the prices of these
ludicrously-overpriced assets might fall in price ("deflation').
His answer? More money! More inflation! Inflation-targeting!
The Mogambo falls to one knee, weeping piteously, his mighty
shoulders heaving with each sob, when he thinks of the inevitable
pain that is surely ours if we continue to listen to such
Well, creating more and more money is always the solution
to every problem, asposited by the horrid Ben Bernanke, who
has, thankfully, been appointed to the toothless, powerless
and ignored intellectual wasteland known as the President's
Council of Economic Advisors, and thus he is no longer in
danger of doing damaging, stupid things as a Governor at the
Federal Reserve, because if ever there was a lunatic halfwit,
this Bernanke character is it, although he does not wear a
cape and a propeller beanie like the Mogambo, who is ALSO
a lunatic halfwit, and (for those of you who are new to the
ways of the Mogambo (WOTM)) you can always tell the difference
between only one of us has such a classy sartorial style.
Plus, Bernanke will be perfect for the job as economic advisor
to President Bush, as Bush is intent on spending us into the
poorhouse. And creating more money and credit and spending
it like there is no tomorrow is Bernanke's prescription for
everything, which is all they teach in the universities anymore,
and which also that proves, beyond a doubt, that we Americans
are the biggest bunch of idiots that ever walked on the face
of the earth, because it takes a huge group of real morons
to not only think that the problems caused by too much creation
of money and credit, and the amassing of un-payable levels
of debt, is MORE money and credit and debt, but they actually
teach this preposterous idiocy in our universities! And to
mix it all with a fiat currency, a central bank overseeing
a fractional banking leverage of historical proportions, and
a huge government that combines the worst elements of communism,
socialism and fascism that, as I have argued before the Intergalactic
Council back when Zorgg the Tyrant was crowned as Omnipotent
Overlord of the Galaxy, proves that Earthlings are dumber
than the Zylonian Glog-people in the Rigelian star cluster,
which always gets a big laugh.
The New Age twist is that if everybody does it, then somehow
it is OK. It reminds me of a cartoon I saw one time, where
this scientific egghead type has covered the blackboard with
a dense series of complicated equations, leading to the result,
down at the end, where he has written "A miracle happens",
and he is saying to a colleague, "It works perfectly
until this last step here." Hahahaha! Welcome to Modern
New Age Macroeconomics! Hahahaha!
But this is not about how stupid we are, but about how to
use this natural, pandemic stupidity to make some money for
ourselves, so that we can spend the rest of our lives living
large and saying to friends and relatives and those snotty
employees at the grocery store, "You laughed at me and
I mean, it looks like it will work! Theoretically, when the
prices of everything go up, so will the prices of stocks and
bonds and houses, thus preventing deflation in those assets!
And that is the point of the whole thing! What they refuse
to acknowledge, to my astonishment, is all of the other problems
that inflation cause.
To that end, Doug Noland has not only looked at the data,
but has provided us with a little statistical analysis when
he writes, "May crude oil jumped $2.43 to $57.27. For
the week, the CRB index rose 1.6%, increasing y-t-d gains
to 9.8%. The Goldman Sachs Commodities index surged 4.5% to
a record high, pushing 2005 gains to an impressive 26.2%."
And when prices increase faster than incomes, you are in a
world of hurt.
And it is not just you and me that are pouring straight bourbon
into a glass and chugging it down, hoping to calm our nerves
at the signs of roaring inflation and maybe also help deaden
that shrill harping from our wives who want to know when we
are going to get up off of our big fat butts and do something
useful around the house. No, others are also alarmed, as he
relays a Dow Jones blurb by Arden Dale, who wrote "Investors
in emerging-market mutual funds and hedge funds reversed course
dramatically in recent days, staging a big pullout due to
worries about inflation."
And if you think that oil is going to get cheaper, then the
Amazing Mogambo (AM) closes his eyes and discerns that you
are an idiot and have a wife that is sorry that she did not
listen to her friends and family before she married you because
they clearly told her that you are an idiot and even talking
to me on the phone was a big mistake and now she is going
to make me pay Big Time (BT) for that mistake, and although
it is commonly said that only idiots would read the Mogambo
Guru, I am sure that none of you actually think that oil is
going to get cheaper, so that proves that you are NOT idiots.
And if you ARE an idiot, and you think that oil is going to
get cheaper, then you can throw off the shackles of your idiocity
(SOYI) by merely reading this sentence from Bloomberg; "China's
consumption of oil this year may rise 10 percent to 354 million
metric tons because of surging demand for fuels, the China
Petroleum & Chemical Industry Association said."
- Byron King, of the website Whiskey and Gunpowder, has written
an interesting article entitled "A Hole in the Ground."
Which was mostly a very interesting article about oil drilling
and the problems associated with them, as if I haven't seen
enough old movies on TV where the oil well suddenly gushes
oil all over everybody and everything, and how they are all
dancing around in their glee, and all I can think of is that
I am glad that I am not getting that oil all over me because
I am sure that I would have been wearing my good shoes, or
my good pants, or my good shirt, or something, and they would
have gotten ruined, and then my mother would be screaming
and hollering and all hell would have broken loose and pretty
soon I would be thinking of oil, as Byron King's title does,
as just a nasty hole in the ground.
But I would not a much of a lunatic gold-bug weird-o crackpot
if I did not mention that it was the part about the durability
of gold that caught my eye. He said that in the beginning
of the oil boom, each barrel of oil "sold for about $10,
equal to half an ounce of gold back in those pre-Civil War
days in the year 1860. Ten dollars was the equivalent of a
week's wages for an average working man laboring in a factory
-- that is, if he worked all seven days of the week."
So oil is worth, compared to today's price of gold, a half
ounce of gold, or roughly $223? So, looked at in this way,
gold I either expensive or oil is cheap. Or maybe both. But
then again, a week's total compensation for factory workers
is a lot more than an ounce of gold, namely $426 at today's
prices. So now we have to decide if either gold is cheap or
labor is expensive!
In a similar vein, Adam Hamilton of Zeal Intelligence newsletter,
in an essay entitled "Gold/Oil Ratio Extreme 2"
writes that the "venerable gold/oil ratio hit an all-time
low, an abysmal 7.7. Second, note the incredible correlation
between gold and oil prices in the last four decades. This
strong dance between oil and gold is what makes the gold/oil
ratio so valuable. It is amazing to now see the gold/oil ratio
at its lowest levels ever."
He goes on to note that "Oil is just mid-priced and
gold is very cheap when the relentless erosion of the US dollar's
purchasing power via the Fed's endless fiat inflation is factored
in." And since the Fed is still engaged in "relentless
erosion" of the dollar, oil seems destined to get pricier
and pricier. How much pricier? Well, since we have Mr. Hamilton
on the phone, let's ask him! He says "In order to get
to new all-time real highs, oil would have to catapult north
of $95 per barrel and gold would shoot well over $1600."
In light of that, he goes on to say "Neither oil nor
gold should be considered expensive today in light of history,
regardless of Wall Street's incessant anti-commodity propaganda.
Meanwhile gold is so darned low in real terms that it hasn't
even returned to mid-1990s levels yet! The folks who claim
gold is expensive apparently don't understand inflation."
Apparently Goldman Sachs is thinking the same thing, and
they are recently famous for having said that oil could go
to $100 a barrel in the next tightening cycle, and this has
caused quite a stir, which will soon evaporate, of course.
- Peter Schiff, of Euro Pacific Capital neatly encapsulates
the dilemma facing the Federal Reserve, now that it is reaching
the end of its irresponsible over-indulgence of cheap money,
"To fight off the recession dragon, the Fed will look
to brandish its only weapon, its interest-rate-cutting sword.
However, the minute it does, it will be attacked by its other
nemesis, the now much fiercer inflation dragon. To fight this
monster, the Fed will reach for its other weapon, its interest-rate-hiking
sword. Realizing that it cannot wield both swords simultaneously,
it will slay neither, and be consumed by both." This
is much classier than me yelling out of the window yelling
"We're freaking doomed!"
- This part just showed up as a result of cutting and pasting,
so I don't know who said it, but some woman asked. "So
here's the most under-asked question of the year," she
says. "If Warren Buffet isn't putting Berkshire Hathaway's
money in stocks [or in real estate], can this be a good time
for anyone else to do it?"
- Antal Fekete, writing on Free Market New Network, has penned
several "Goldbug Variations" articles, which is
a clever adaptation of the musical Goldberg Variations. In
them, he does not actually mention Bach, which you would kind
of expect, but instead writes, in Goldbug Variations I"
that "Bond speculation introduces distortions into the
economy that will inevitably cause the downfall of the regime
of irredeemable currency. It may or may not be through runaway
inflation as in France during the last decade of the eighteenth
century. It may be through runaway deflation. In either case,
there will be enormous economic pain."
In the third installment, cleverly entitled "Goldbug
Variations III" that "One of the more imbecilic
ideas of dismal monetary science is that devaluation of the
currency helps the country to export more and import less,
thus rectifying the trade imbalance. It is absolutely amazing
that economists do not find it repulsive to parrot this trash,
apparently on order from the grant departments of the FR banks
(in whose interest the policy of currency debasement clearly
is). Currency devaluation makes your terms of trade with the
rest of the world deteriorate. This means that you can import
less for every dollar of export earnings as a result of devaluation."
So there is the rub. If the dollar buys less, we buy less,
the foreign seller gets less, and thus has less money to "invest"
in American debt, which provides the credit with which to
buy the imports in the first place. He goes on to say "Virtually
all export items have imported ingredients, so devaluation
makes them more expensive to produce, not less."
- Doug Noland has also tipped us off, courtesy of Bloomberg,
that maybe putting a little investment money into cotton would
be a good idea, because "China, the world's largest cotton
consumer, will probably have a bigger shortfall next year
because 2005 cotton acreage may fall about 11.5 percent, the
National Development and Reform Commission said
of the fiber are expected to rise this year because global
production may drop 9 percent while consumption may rise 2
percent, the commission said
citing international forecasts."
- And for those of you who have seen the full-suit-but-empty-headed
morons parading around the set of CNBC talking about how corporations
have all this money just sitting around in their vaults getting
mildew all over it and how this bodes well for capex spending,
Kate Welling, in an interview with Doug Noland, said "Andrew
Smithers did a neat job in a recent report (published by his
Smithers & Co.) of using the Z.1 to show that U.S. companies
are anything but flush with cash. His contention, in fact,
is that they're currently paying out more, in (paltry) dividends
and share buybacks, than they're earning in profits-a situation
that clearly can't go on forever, and has obvious negative
implications for the stock market."
Then she gets back to something that always makes me prick
up my ears when she ask (obviously playing the devil's advocate):
"As long as the governments of the world keep running
their printing presses, what's wrong with a using a little
inflation to keep things moving along?"
And here is where we see the big difference between me and
Doug Noland. I would have answered that question by screaming
"What are you? Some kind of brain-damaged halfwit? EVERYTHING
is wrong with a little inflation, you silly little twit!"
which is, of course, a line I stole from Monty Python. But
Mr. Noland, always the classy guy, cooly answers: "There
are consequences-and they are not all benign." And it
is not even just us! He says that inflation is "everywhere
in the world. It's gone global. It's endemic. It's commodities,
home prices, bond prices, stock prices, foreign real estate,
emerging bond markets, emerging equity markets, Chinese real
estate, for gosh sakes." And it is not going to get better,
as "We have very highly liquid competitors now. And we
are bidding against them for whatever we want or need."
And notice that he is too much of a gentleman to mention that
inflation is guaranteed, since all of the world's governments
are actively printing whole mountain ranges of money for the
He then proceeds to give her a little education about how
the economy has been distorted into the malignant monster
that it is. He tells her, "When I talk about 'financial
arbitrage capitalism', I mean you are what you eat. The economy
is how the financial sector lends. So if everything is a spread
trade and no one cares about the underlying credit or the
underlying economic return, how could you expect that to work
well for the structure of the economy? It can't."
Then, looking at history, Mr. Noland talks about the crash
1929, "When the speculators got hammered and liquidity
collapsed, the economy was so distorted that it couldn't function
without that speculative liquidity." And this is why
the despicable Federal Reserve continues trying to pound money
into the system. Will it work? Hahahaha! And while I am busy
laughing at the question, Mr. Noland seizes the microphone
and says "It will keep working amazingly well, but only
as long as the liquidity keeps flowing." So what is the
problem? Well, if you had kept listening and not rudely interrupted
by asking the question, you would have learned what the problem
is. In Mr. Noland's own words "It's not sustainable."
- The job numbers surprised Bob Wood of Kaizen Managed Assets,
too, and he stopped demanding that I pay back the money I
owe him to tak a look at the employment numbers and says to
me, "The BLS confirms110,000 new jobs, albeit with 179,000
of those jobs the result of the birth/death model! And Kudlow
is glowing at how strong the economy and job market are!"
So, after adjustment, the March Jobs Data is actually lower
by 69,000? Hahahaha! 69,000 jobs were actually lost! Hahahaha!
- Stephen Leeb, senior editor of the Complete Investor newsletter,
says that there is a consensus that they yuan may be worth
"five or six times its current value." In fact,
he says that the currencies of China and India are going to
"jump against the dollar-by at least four or five times".
Now, I don't know how good YOU are at this investing thing,
but for a loser like me, a 400%-500% gain is a nice investment
But he is not done yet. Noting that the Chinese are producing
stuff like crazy, he then extrapolates "Multiply 400%-500%
unit growth times 400%-500% monetary growth, and you have
yearly profits of over 20%...for the next 20 years."
He deduces that you should have your money in China and India
because that region will be "the main event- almost the
only show on the planet -for the perhaps the rest of your
life." How can this be, you ask? He has a ready answer,
namely that that "half of the earth" is "no
longer a mass of peons eking out an existence. Their 2.3 billion
people are jumping from third-world status to first-world-
in one generation."
Apparently even the sight of newsreels of the misery of the
Depression is not enough to convince these people about the
dangers of excess credit and money, and the horrors of the
Weimar hyperinflation in Germany leaves them cold. I mean,
you can see that the newsreels never show them watching TV,
because they couldn't afford TVs, and the kids are not playing
video games for the same reason, and they don't even have
microwave ovens! And all because their money was debased to
worthlessness, just like we are doing! I mean, how poor can
And yet Bernanke and the rest of those low-IQ, New Age weenies
at the Federal Reserve all say to look at how inflation is
so low! It reminds me of the Monty Python sketch where King
Arthur chops off the arm of the Black Knight, who denies that
his arm is chopped off by saying "It's just a scratch!
- I got this in the mail, and it is supposedly some of the
dirty laundry of the 535 members of Congress. This is, so
the letter goes, their record:
29 have been accused of spousal abuse
*7 have been arrested for fraud
19 have been accused of writing bad checks
117 have directly or indirectly bankrupted at least 2 businesses
3 have done time for assault
71 cannot get a credit card due to bad credit
14 have been arrested on drug-related charges
8 have been arrested for shoplifting
21 are currently defendants in lawsuits
84 have been arrested for drunk driving in the last year
Given the general quality of the people we routinely elect
to Congress, I assume this is only scratching the surface
of that iceberg. Ugh.
**** The Mogambo Sez: My wife saw a sweatshirt
in a Wireless catalog that has written on it, "Some days,
it's not even worth chewing through the restraints."
The MOGAMBO GURU, e-economic newsletter
Richard Daughty, the angriest
guy in economics
9241 54th Street North
Pinellas Park, FL 33782
727 546 5568