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- Total Fed Credit was up only $1.6 billion
last week, and while the custody holdings of foreign banks
at the Fed was up a strong $9.2 billion last week, I chose
to start off the lecture by dryly saying "The big news,
to me, is that the dollar has started collapsing. There are
so many ugly ramifications of this that I would not even know
where to begin. So, let me merely say that the dollar falling
is Unalloyed Bad News (UBN), which means that you and your
family are all doomed to die horrible financial deaths, screaming
in pain and anger, and let it go at that."
The room erupted in panic and confusion until
they finally remembered that I am an idiot, and I obviously
don’t know what I am talking about. Then they all felt
better, until Doug Noland, he of the Credit Bubble Bulletin
at the PrudentBear.com site, said "Everyone wants to
believe that an orderly decline in the dollar poses few problems."
Mr. Noland, if I understand him correctly (and
the chances of that are pretty damned slim, given my obvious
cognitive limitations and deficits), is slightly less pessimistic
than I am about the possibility of an "orderly decline"
in the value of the dollar. I am so pessimistic (audience
shouts out "How pessimistic, Mogambo?") that security
camera video footage reveals screaming in fear, actual foaming
at the mouth, and I seem to have embarrassingly peed in my
pants, too, out of the same fear. Now, THAT'S pessimistic!
Mr. Noland, because he is a real smart and
classy guy, doesn't even mention the dark stain on my pants,
but presents, instead, a lot of tightly-argued reasons why
an "orderly decline" of the dollar seems improbable.
I, on the other hand, am The Mogambo! And I am sure, absolutely
sure, more sure than anything I have ever been sure of, and
in fact, this is probably the single-most thing that I have
been the most sure of in my whole horrible, wasted life, and
that is that the decline of the dollar will NOT be "orderly."
It will be abrupt and ugly. A quote that comes to mind, although
uttered as a comment on people's lives, is "Nasty, brutish
and short."
My Infallible Mogambo Reasoning (IMR) is along
the lines of "Suppose I told you that your money would
gradually and continuously lose a lot of its value. Maybe
half. Or more. My intuition tells me that you would not be
happy."
I pause to gauge your reaction, which ranges
between homicidal anger and paralyzing fear. Exactly so! Then
I go on to say "But that same intuition tells me that
you WOULD be happy, very happy, if I told you that I knew
of a way to let you keep all your wealth, and you would not
lose anything!" Ha! I can see by that smile on your face
that I was right!
So how to achieve this miracle of wealth-preservation?
All you have to do is sell all your dollars and dollar-denominated
assets today, before the dollar is devalued further! Then
you'd like to stick someone else with the whole loss!
Now you are ready for today's Mogambo Daily
Pop Quiz (MDPQ). The question is "Would YOU stick around
to take your share of financial lumps, of up to half of your
net worth (or more), meted out month after month, year after
year, in a promised 'orderly decline', or would you sell out
now, and not take any lumps at all?"
Hahaha! Me neither! And neither will anybody
else! So it's a trick question! At first, a few will say "That
stupid Mogambo moron (SMM) is right, for once in his miserable,
pathetic life!" and they will rush to the exits to get
someplace to dump dollars. And then a few more will rush to
get out, as little light bulbs blink "on" above
their heads. And then a few more. And then more and more and
more until it is a stampede!
Hahaha! A stampede! Maybe it will be an "orderly
stampede!" Hahahaha! "Orderly decline, orderly stampede!
You say to-may-to, and I say to-mah-to!" Hahaha!
If, on the other hand, you answered "yes"
to the question, then I am sorry to tell you that you failed
the test, but I will not record your failing grade in your
permanent record if you write a little paragraph or two explaining
what in the hell is wrong with you, and then I will have pity
on you.
And it is not just the same dreary story about
too many prescription drugs, and too many over-the-counter
drugs, and too many illegal drugs, or even that all these
people left in a rude rush to dump dollars and dollar-denominated
assets, but that the more important point is "Where did
they go?" I'll tell you where they went! They went home
and quickly scanned the entire course of economic history
to find out where all the OTHER people in history went, when
THEIR economic system started down the crapper, thanks to
the same sorry stupid economic sins we have committed today.
I will save you the trouble of getting up off
of your fat, lazy butt to find out, as I share your opinion
about getting up off of my fat, lazy butt, and all the damned
time, too. So I will simply tell you what happened: Those
who bought gold and silver preserved all of their wealth as
their currency and economy took a dump, and they actually
ended up with a fortune in gold. Everybody else did not.
And the reason may be contained in a witticism
by reader Greg, who opines "Gold acts as a magnet to
draw in excess fiat money."
Or the answer may be contained in the new tune
by Steve Dore, of Boogiewoogie.com, who posted his new tune
"Purchase Power" at FMNN.com. It contains this perfectly
true universal truth concerning price inflation vis-à-vis
gold, in a handy sixteen-bar format:
"It's not the metal that's goin' up, it's the dollar
goin' down,
Printing presses print away, but no store of value's found,
Over the years, as paper fails, as it will always do,
Gold endures the test of time, pure wealth, tried and true."
But no matter what the reason, they made money
by accumulating gold, and the guys who made a fortune in gold
went on to make bigger fortunes when they traded the gold
for stocks, bonds, houses and real estate at the lows of the
economic collapse, and they again prospered as the market
values of all these things eventually went back up in the
following decades after the collapse.
And if you want to see the advantage of gold
in real-life action, then listen to this, from an essay written
by Eric N. Young entitled "The Hyperinflation of Germany,
July 1922-November 1923". He writes that in 1923, at
roughly the height of the Weimar inflation and the end of
Reichmark, "Although a loaf of bread cost $200 million
marks in November 1923, it was possible to purchase an entire
city block of prime commercial real estate in downtown Berlin
for as little as $500 US dollars hard currency. The key was
to have real money in the form of gold or silver, or currency
backed by those metals."
An entire city block of prime real estate! Thanks
to a gold-backed money! Of course, it took a long time (made
even longer by WWII, which was, in turn, caused by the German
people rebelling against inflation and injustice), but what
is an entire city block of commercial real estate in Berlin
worth today? Hahaha! A very long time horizon, to be sure,
but that's how it works in real life!
So, from this fabulous bit of information we
can generate one Fabulous Mogambo Market-Timing Tip (FMMTT)
for those who are in the category of "Hyper-Aggressive
Speculator", and the sub-species "All-Or-Nothing
Risk Tolerance." At this stage of the cycle, the best
advice to these people is liquidate every dollar-denominated
asset they have (like cash, houses, stocks and bonds and everything
in their retirement accounts), and use the money to buy silver
and gold and commodities."
And the reason a lot of people don't do that
may be for the same reason quizzical reader Roberta R. wonders
about when she writes "I am writing to you about the
paradigm of cashing in gold for fiat (money). I firmly believe
in holding hard assets such as gold or silver; but what I
have always had a hard time with is the concept of cashing
in the gold. As you stated in your editorial, the Reichmark
collapsed so far down that it took 87 trillion of them to
buy an oz. of Au.
"This is where my brain begins to hurt. Now I am the
proud owner of 87 trillion Reichmarks (FRN's) and maybe I
can buy a couple loaves of bread. So, you cash out something
with a real intrinsic value and you get fiat junk. But it
just seems to me that you are back to square one the minute
you sell."
She finished with "Working on a headache, Roberta."
I was happy to tell her that she was exactly
right! She WAS back to square one! That's the beauty of gold!
The answer why is contained in the problem: How much gold
does it take to buy one loaf of bread, which costs $2 a loaf
when gold is at $700 an ounce? Answer: 1/350th of an ounce.
(You can buy 350 loaves of bread with one ounce of gold).
And then how much gold does it take to buy a
$200 million loaf of bread when gold is at $87 trillion per
ounce? Answer: 1/435,000th of an ounce! You can buy 435,000
loaves of bread with one ounce of gold! Hahaha! A little tiny
flake of your gold ounce ought to do it! Hahaha!
So, Roberta, thanks to gold, your buying power
has been preserved. THAT'S the beauty of the stuff! And in
this particular example, you actually got wealthier, as bread
became over 1,000 times cheaper in terms of gold! But notice
that the bread cost 100 million times more, in terms of dollars!
- Things are getting bizarre, as the huge losses
in the gold-manipulation scheme of the last couple of decades
comes unraveled, and the shorts are forced to either buy massive
amounts of gold to cover their enormous short position, or
do nothing and continue to lose more and more money. As a
result of this panic and desperation, the gold lease rates
are gyrating up and down, gold is zooming up and down, and
the shares bouncing around. It’s weird!
As proof, I refer you to Eric J. Fry, of RudeAwakening.com,
who notes that "During the month of April, more than
40,000 metals futures contracts were changing hands every
day, on average. That's double the volumes of the prior month
and TEN times the volumes of the prior year."
There have been a lot of happy guys on the long
side of those contracts that made a lot of money, while a
matching lot of other guys are un-happy because they were
the guys on the other, losing, side of those trades.
And they have plenty more potential losses due
to their still-outstanding massive short positions. Therefore
they are using their market-manipulating skills in a desperate,
life-or-death fight. To capitalize on their well-deserved
misery, and make a lot of money doing it, simply buy more
gold and silver every time they succeed in driving the price
down.
- Bob C., who works at JP Morgan, reports that
their bullion department reports that they are danger of exceeding
their computer data capacity, which "currently only caters
for a gold price of $999.999999. We have been asked to cater
for a possible $1000.00 gold price within the next few months."
Very interesting! Thanks, Bob!
- If you are thinking of selling options as
part of some money-making scheme, let me offer this bit of
news; the guy who makes the market in those options is allowed
to liquidate your short option position anytime they want
to, and you will not even know about it for days. In short,
you may be forced to absorb their losses. This happened to
me more times than I care to remember, and was certainly NOT
in the profit/loss options-trading model I had developed.
Soon I swore that I would never again go short an option.
And I never did, either.
- I get a real kick out of people, like the
Federal Reserve's chairman and governors, who admit that,
"Yes, commodities are rising in price like some kind
of rocket ship to the moon, but since inflation in a few,
selected statistics (that ignore food and energy) are low,
that means that the commodity price rises have not filtered
into final prices, and therefore we are justified in keeping
interest rates low." Hahahaha!
As an example, the Producer Price Index was
up by a blistering 0.9% in April. Yet, the "core"
rate was, after powerful massage, up only 0.1% or some other
preposterous figure. But the ugly fact is that prices were
up 0.9%! And ignoring them does not make that basic truism
disappear. Prices were up 0.9% in one month!! And take particular
notice the two exclamation points, which is a reliable measure
of how hard my teeth are grinding together in anger and fear.
But I grow weary of standing on the roof, dressed
in a darling ballerina tutu and firing an AK-47 assault rifle
into the air to get people's attention, just so that I can
wake these idiot people up to the fact that their money is
being destroyed by inflation, and how they are such idiots
to allow it, and how I hate them for their stupidity, and
what their stupidity has done to us. But my rooftop antics
don't work in practice as well as they do in theory, and I
may soon stop it altogether, although I'd hate to give up
the tiara.
So, taking a Bold, New Mogambo Tack (BNMT),
I am now in contention for the Pulitzer Prize for Best Editorial
Cartoon In Economics. It's a real nice two-panel job, and
in the first panel, see, the scene is this drunken guy driving
a beat-up, hopped-up convertible down a mountain road, and
he is popping steroids, tranquilizers and anti-anxiety pills
like candy. The car has "The Economy" written on
its side, and the steroids are labeled "Federal Reserve
credit expansion", and the pills are labeled "Fiat
Money", the bottle of liquor he is drinking is "Government
spending."
In the second panel, the car has, predictably,
careened off the cliff. As it begins to plummet to the bottom
of the cliff, a long, long way down, Federal Reserve officials
in the foreground are holding microphones as they look into
the camera, earnestly saying "Well, there is no damage
yet! So it looks like all is well! Thus, monetary policy is
still in 'accommodating' mode! Back to you in the studio,
Ted!"
Now, THAT'S a nice cartoon! I am sure to win
the fame and recognition that I so desperately crave, instead
of the humiliation and failure that I so richly deserve. And
it must be good, because Emanuel Balarie doesn't even try
to compete against me, and instead wimps out, resorting to
mere prose as he penned the essay "$1000 Gold: It May
Be Here Sooner Than You Think" on FinancialSense.com,
where he writes "I expect the high energy prices and
higher raw material costs to eventually pass through to the
Core CPI by the end of the year."
I am sure that he is right when he says "I
also believe we that we will have a spike in the Core CPI
that will force the data dependent Fed to both acknowledge
inflation and raise rates. Acknowledging inflation will drive
a further round of buying into Gold, which has always been
an anti-inflationary hedge. Higher rates will accelerate the
housing slowdown, curb consumer spending, and have an adverse
effect on the overvalued stock market. I do believe that we
will most likely experience a crash in the stock market, rather
than a slow decline."
- If you want the optimal, and probable, solution
to our nation's economic difficulties, here it is, as horrific
as it sounds: We get into a shooting war with a powerful group
of enemies that we owe money to, thus giving us the "right"
to default on our debt to them. Then the government declares
martial law and suspends the Constitution and Bill of Rights,
giving them the power to confiscate our property and lives.
And since I said "optimal", then expect the use
of biological weapons to kill the older people, thus solving
the Social Security and Medicare crisis, by reducing the population
of old people. And most importantly, most of our infrastructure
is destroyed, thus providing a lot of future work (and vast
fortunes) after the war.
This is the kind of repugnant, horrifying things
that have always become inevitable when you had a fiat currency,
especially one created by debt, and when the people let the
government (or, in this case, the Federal Reserve, the government's
willing whore) produce too much of it.
- With all the hoopla over the newly proposed
tax cuts, I would like to take this opportunity to declare
that tax cuts do not necessarily have an effect on the economy.
Either you spend the money, or the government takes the money
from you, and spends it. Either way, it gets spent. The only
difference is HOW the money is spent.
If both the government and I plan to spend the
money in the same way, say, on a new computer and a rocket
launcher, then the economy is boosted by the manufacture (and
sale) of one computer and one rocket launcher, no matter who
buys them. The economy gains, and is unaffected by who bought
them.
But if the government instead decides to spend
the money on, say, increased welfare benefits, then the economy
loses the sale of one computer and one rocket launcher, and
the incentive to produce more of them, but it gains more subsistence
consumption. Thus the economy mutates. But the same amount
of money is spent.
Nowadays, "growth" in GDP is created
only by increasing debt, which creates new money, which increases
prices, which is also a measure of an increase in GDP, and
then the inflation that produced the higher prices (and thus
the higher GDP) is ignored, making it look like the economy
"grew."
- The famous letter that Iran sent Bush has
been completely dismissed by the White House and by the American
press, but not here at the Mogambo Bunker. And the reason
is that it said that democracy has failed, and boy, oh boy,
are the Iranians ever right about that!
It is democracy run amok here in America that
has produced a huge, suffocating, expensive, socialist, communist,
fascist system of local, state and federal government that
consumes almost half of the income in the country. And then
gives a monthly check to almost half of the people in America.
And it is a government system that employs one out of every
six workers in the whole country.
And why is the government doing this? Because
the people, democratically, have created that kind of government!
Year after year after year, decade after decade, they elected
and re-elected people who actually campaign on a platform
of providing a free lunch to more, and then more, and then
yet more "deserving" people and organizations. This
is insane! This is absolutely, preposterously, my-head-is-exploding,
I-can't-believe-I'm-seeing-this insane! And if that ain't
failure of democracy, then what in the hell is it?
And as for the Iranian's call for a more "religion-based"
economy, the Bible is full of timeless, correct, and classic
economic wisdom, all the way from the insistence on honest
weights and measures to the admonition to "neither a
borrower nor a lender be."
If we had merely (if nothing else!) adhered
to the requirement of honest weights and measures, for example,
then our money would still be gold (or function like it),
inflation would always be zero, and there would be no frightening
income mal-distributions (which is the condition where there
are some people who are very, very rich, versus many, many,
very, very, poor, poor people), because it would have been
impossible with a fixed stock of money. It would be impossible
for the rich to accumulate so much money, as it would constitute
having accumulated ALL the damned money!
Instead, we have a fiat currency, produced
by excess creation of credit and debt by the banks, which
produces more money, which flows to the rich, creating obscene
income disparity, and the attendant woes, one of which is
the inflation in prices and social unrest that is going to
consume us in a roaring bonfire. Ugh.
****Mogambo sez: The recent $22 plunge in gold and $2 plunge
in silver is just the death throes of the scumbags who have
engineered the huge short interest in metals futures, and
are now being choked to death by it. Every dip like that is
Lady Fate smiling on you, letting you buy gold and silver
at a temporary bargain! Whee! Lucky you!
Richard Daughty, the angriest guy in economics
9241 54th Street North
Pinellas Park, FL 33782
727 546 5568
e-mail: RichardSmithGroup@Verizon.net
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