- 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
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
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
"It's not the metal that's goin' up, it's the dollar goin'
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
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
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.
****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!
Richard Daughty, the angriest guy in economics
9241 54th Street North
Pinellas Park, FL 33782
727 546 5568