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I am starting to LOVE this Casey guy!

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
January 6, 2005

- In the last week of the year the Federal Reserve created $6.1 billion in high-powered money (the kind that gets multiplied by the banks themselves), the Treasury printed up $3.2 billion in actual cash, and the foreign central banks bought $5.6 billion of US debt, which they stashed at the Fed. This is all in just one freaking week, remember!

The big news this morning (Tuesday the 4th), as I was explaining to the paramedics who were trying to get my heart started, is that the official national debt jumped to $7.596 trillion, which is a jump of over $40 billion in one freaking week!
[Editor's note: Got news for you Your Guruship, it hit $7.601 trill. Tues PM] The entire year-long budget deficit is supposed to be some horrific $600 billion or so, and here they are spending one-fifteenth of that in ONE FREAKING WEEK! The trade deficit is likewise about $600 billion, and here the damned government is spending that much every fifteen weeks at this rate!

- Richard Benson of Specialty Finance Group has added back the hedonic deflators into the "official" Consumer Price Index, and figures that the actual rate of inflation is 6%, not the 3.5% that is advertised. I figure it is at LEAST that, but then I habitually take the alarmist perspective about everything. To show you that The Mogambo has a civilized side, I will, as a courtesy to Mr. Benson, try and keep from going absolutely ballistic about a 6% inflation rate, because the advertised 3.5% inflation rate is plenty unacceptable enough. To that end, I will place my own hands around my own throat, like this, and choke myself, like this, until I almost pass out, and then the lack of blood to my brain will make me forget about the 3.5% infl, ifla, iflana, ummm, 3.5%, ummm, things are fading, fading, I am starting to black out, yes, I am slipping from consciousness, my brain is slowly dying, and suddenly Keynesian economics and the idiot theories of the Federal Reserve starts to make sense to me and, and, and (fade to black).

While The Mogambo is passed out on the floor like that, my assistant will take a Magic Marker and write the word "idiot" on his forehead because that will be a big laugh when he wakes up and starts walking around, because if there is one thing that people love to do it is to laugh at The Mogambo and steal his lunch. While he is finishing up with that Magic Market, the rest of us will pay a visit to the DailyReckoning.com website, who have a few words to say about this dollar thing, although like a bunch of teacher's pet showoffs they say it with class and erudition and wit, and rub it in the face of The Mogambo who is none of those things, "U.S. policy makers, analysts, and the chattering classes seemed to think that the dollar could fall - thus helping to eliminate the need for the $2 billion daily fix, and making U.S. business more profitable - without any nasty repercussions. They thought they could disprove one of Newton's Laws - they expected an action with no reaction. But here at The Daily Reckoning, we have faith in the eternal and essential truths: There would be no
silver lining without a dark and ominous cloud attached to it."

And this brings up that Famous Eternal Truth Of The Mogambo (FETOTM), namely that all things are connected to all things, and that is why Chaos Theory is a fact, and thus
silver linings are connected to dark clouds, and dark clouds are connected to the sky-bone, and the sky-bone is connected to the tree-bone, and the tree-bone is connected to the ground-bone, and the ground-bone is connected to everything else, and everything else is connected to The Mogambo, and connected to you, too, and likewise everything is connected to everything you love in this world, and that is why the coming fall in the dollar is going to make you go berserk, and you will doubtlessly then go online to order a Mogambo Flaming Torch, a Mogambo Pitchfork, maybe a Mogambo Baseball Bat With Wicked Imbedded Nails In It, and a copy of The Mogambo's new bestseller book, "Currency Destruction and Resultant Inflation: Angry Drunken Mobs And What They Can Do About It".

Also on the Daily Reckoning site, and in keeping with this whole dollar debasement thing, they asked Doug Casey, "How high will the price of
gold go?" If you had asked The Mogambo that question, I would have replied "Well, before I can tell you how high gold will go, I have to know how low with the dollar will go. You tell me that, and I'll tell you how high gold will go, you moron! What a stupid question! I can't believe you asked me such a stupid question! What are you, some kind of mental defective? Is that why you are asking me a moronic question like that? Are you some kind of pathetic, stupid, brain-damaged retard?" which, now that I read it, probably explains why nobody asks me questions anymore, which is probably, you know, a good thing, now that I think about it.

Mr. Casey's reply was much more refined, which explains why he is a famous and respected guy and I am just an angry and lonely man whose only wish is to live long enough to get my revenge on all of you nasty bastards, replied, "There are many ways of determining what it 'should' be worth, based on fundamentals. The US Government owns a reported 261.6 million ounces of
gold. If they were to back all the dollars represented by M-1 with gold, based on an M-1 of $1.31 trillion, it would require $5,000 gold." Suddenly, my head snapped to attention! $5,000 an ounce for gold? Yow! I am starting to LOVE this Casey guy!

He ignores me as I am dancing in the aisles, and I am singing, "We're rich! We're rich! Whoopee!" in that ridiculous falsetto voice I have when I get really excited, and he goes on to say, "If we use M-3, which is $9.04 trillion, it would be $34,570
gold." Now I am REALLY dancing up a storm here! $34,570 per ounce for gold!

"Just to cover this year's foreign trade deficit of $600 billion would require $2,294
gold," he says. One lousy year's trade deficit! I have to laugh to keep from crying, although I end up doing both, and it must have looked pretty weird, because Mr. Casey actually turned away from me in disgust. He addressed the rest of the crowd and concluded his remarks about the trade deficit with, "And that's not the accumulated deficit, or those that may be run in the future." So it just keeps getting better and better! Finally, and I am all out of breath with excitement, he says, "If gold were simply to return to its 1980 high, it would be close to $2,000 in today's dollars - and the situation is much more serious now that it was in 1980."

It should be worth $2,000 today? If the telephone were ringing right now, it would probably be you, calling me up, and asking "Hey! Mogambo! Did you know you were an idiot?" and I would say "Yes" and then you would want to know "Why isn't
gold selling for $2,000 today?" And that, my little grasshopper, is the big question that GATA wants answered, because it looks like the whole thing is being manipulated, and if there is one sure-fire lesson about manipulations, they never last. And that means that, one day, gold WILL rise to its true value. And then we will see how accurate Mr. Casey is! If we can stop dancing for joy, that is.

And speaking of
gold and its manipulated market, the guy who writes the LeMetropole.com site is just as bitter about this manipulation of the gold market as I. He writes "Gold has become unwatchable for me. Constantly witnessing the blatant manipulation all day long is just not worth it these days. All I do is get angry at what is transpiring and furious at the dimwits in the mainstream gold world who always fail to whisper a peep about the obvious. Thus, I have taken to stepping away from viewing the market action not long after the opening." Me too! And although I am as angry as any, my real reason is that an episode of Bewitched is on another channel.

- Bob T. from Milwaukee wanted to know a few things, one of them being the likelihood of Russia attacking the USA with nuclear bombs, as is all the rage among a certain set of people. The answer is zero, as there is no advantage to them doing that, as nobody can make money by creating a radioactive disaster area. And since everything is about the money, there is no reason for them to attack us. The whole point is to make it SEEM as if there were some military threat, so that Congress can spend money on the military-industrial complex, and confiscate our money and our stuff and our basic freedoms guaranteed under the Bill of Rights by appealing to our sense of patriotism. And if that doesn't work, then they will cram our patriotism down our throats and our Constitutional freedoms up our butts, like that filthy fascist bastard Woodrow Wilson did in 1917. And the Russian government can do the same thing to THEIR people. That's how the thing works.

- Make no mistake about it; the government of the USA is going to do everything in its power to make sure that the stock market does not go down. Instead, they are going to do everything they can to make sure that it goes up. The reason is that they only get taxes from people and firms reporting profits. If there is no profit, there is no tax due. If, horror of horrors, there are losses, they are the old double-whammy to the government's head; not only do they not collect any taxes, but they have to let the person or firm deduct losses from gains! And they only pay tax on that part that is labeled as a "gain."

Theoretically, if the stock market crashed far enough, and losses were accumulated widely enough, then all the governments that rule us with an iron fist, a boot of steel and a subpoena of paper, would collect zero money. And not just for this year, but for years and years to come, as those aggregated losses are gradually whittled away, deducted from gains (if any) one by one. And it will continue until that glorious day, out in the distant future, when there are no more losses to deduct from gains. Then, and only then, will the damn governments get back into the business of taxing everyone at 100% of gains.

So what does this mean for stock investments? Well, they are hoping that their slimy backdoor manipulations of the stock and bond markets, plus the forced savings of workers to require them to "invest" money into the stock or bond markets as part of the Fabulous Plan to Save Social Security, plus continued deficit spending may all combine to keep the stock and bond markets up and producing gains.

And although that dimwitted, ignorant blowhard Larry Kudlow is convinced of the contrary, it is evident from the fact that it has never happened before that there is no freaking way that everybody will prosper by continually investing in the stock market, and it is lunacy for him to even say it. But he did, as part of a remark by him that this Fabulous Plan To Save Social Security is a good one, and that we ought to raise the retirement age, and then I heard with my own ears that we people are going to be grateful that we will all be wealthy from investing in the stock market.

- David Morgan of Silver-Investor.com, in a hypothetical letter, remarks that he is considering issuing a
silver "round" with the inscription "I stayed Long and Strong!!" on the face of the coin, indicating that he never lost faith in silver, and that he kept buying it. But of course, in our infantile, smirking way, and me and my hoodlum friends down at the far end of the playground are all huddled around saying "I stayed Long and Strong" and giggling and poking each other in the ribs, and we all vowed to get some of these silver rounds so that we can show the girls and tell them that we got them as medals in the Love Olympics. But regardless of what is inscribed on them, one-ounce, pure silver coins are a nice thing to have, as you will soon see. And while the delicious sexual innuendo enshrined in the phrase "Long and Strong" thing doesn't work that well with any of the girls I know, the silver will keep you from being destroyed by the coming collapse of the dollar, and there will be a certain cachet in that!

- Richard Russell of the Dow Theory Letter writes, "My obvious conclusion is that the US has become a nation of spenders and debtors. The world has never seen anything like it. Looking ahead two things must happen. Either we'll print the paper in an effort to finance all this debt, and that will be highly inflationary, or we'll be unable to handle all the debt, the dollar will swoon, and the US will sink into a recessionary deflation. Either way, it seems to me that the dollar will be in extreme danger. If we inflate, it will simply be a dilution of the purchasing power of the dollar. If we deflate, the very viability of the dollar itself could come into question." In this, he is exactly right, and there is no painless solution, that is why, heretofore, all thinking civilizations tried to NOT get into this fix. But of course we got the morons in Congress to spend borrowed money and sending us to our well-deserved bankruptcy, and we got a moron in the Federal Reserve System (Alan Greenspan) to create the money that they spent, and both of them are, judging by the results they have achieved, bastions of morons. I mean, look at us! Does our fatal economic situation sound like something a competent Congress or Federal Reserve would get us into?

- Scott K. asks, "Where are all of those mindless economists trumpeting how great disaster is for growth? According to them Sri Lanka should be an economic powerhouse any day now. Not to make light of the situation, but shouldn't something like this end the stupid debate once and for all about the broken window fallacy?"

This is where you made your big mistake, Scott, as you should not have been asking that idiot Mogambo, but instead you should have been asking Chris Westley on the Mises.com site, who has written an essay about that very thing, entitled "Where are all the guys who say that disaster is good for the economy? Are Tsunamis Good for the Economy?" He writes that he was, like you and me, "surprised to hear the Institute for International Economics' C. Fred Bergsten (known affectionately as See Fred) this morning (December 29th) on National Public Radio's Morning Edition explain how this crisis would actually provide long-term benefit to that region of the world. Bergsten said,

"Like any disaster, you get negative effects through destroying existing property and people's health, but you do get a burst of new economic activity to replace them, and on balance, that generally turns out to be quite positive. Over time, properties that have been destroyed will be fully replaced, and probably by better and newer substitutes, so at the end of the reconstruction process, the countries will probably be wealthier.

War and natural disasters are not good for the economy, regardless of what anyone tells you, including this Bergsten character. To even say things like that makes me want to add the Institute for International Economics to my list of people to whom I send hate mail to assail their intelligence (For example, my recent missive to Congress starts out, "Dear Butthead Moron," so that they know right from the get-go that I am privy to their dirty little secret!)

- Mark Rostenko, of The Sovereign Strategist, writes that perhaps we are being too pessimistic! He writes, "If the dollar falls in a nice & tidy fashion, if the rest of the world maintains faith that an effectively bankrupt nation can continue to meet its financial obligations, if real estate values can keep rising indefinitely, if Americans can continue to pay increasingly higher prices for their homes and if they manage to defy the odds and stay above water despite having no savings whatsoever, then all will turn out just swell." See? Don't you feel better now? What were you worrying about?

- Arlo S. sent an essay that quoted Edmund M. McCarthy talking about the net trade balance of the United States with the rest of the world. It is not a pretty picture, and if you are familiar with the concept of compounding, then it is scary as all hell. And this brings up the point that the next time some snot-rag halfwit starts crowing about how he never used mathematics after he graduated from high school and so that proves that math is useless, remind him that you DO use the math you learned in high school, and to serious advantage, and that is why you are acutely aware that when something is compounding against you, it means that you are doomed as soon as that line starts going straight up in the air in some blazing asymptotic acceleration, and that is why you are feverishly buying
gold and precious metals as a defense against it, while he, with this smug and stupid look on his face, is NOT using the math he learned in high school, and that is why he is ignorant about the tsunami of horror that is rushing down upon us that is inherent in the basic concept of compounding, and that all of this is proof that Mother Nature despises the stupid and the ignorant. Mr. McCarthy says, "a sizeable portion of the foreign net position is invested in debt instruments. Only in the recent past has this grown to the point that the U.S. not only has the net deficit position but also now has a net payable of INCOME to foreigners. This will continue to compound, exacerbated by any increase in interest rates. Not only will the seemingly impossible to diminish trade deficit contribute to the increasing net deficit position, but also now an increasing net income payout. The amount of the net negative is now approaching the combined GDP's of Japan, China and India as an illustration of the magnitude! "

We are paying whole countries as much money per year, as interest payments on the money we borrowed from them, as they collectively earn from working? Yeah, that gives me a REAL good idea of the magnitude!

And the Daily Reckoning people sum it up as, "They (mainly Asians) make. We take. They save. We spend. They lend. We borrow. They sell. We buy." Very cleverly said! So clever, in fact, that I am momentarily freed from my usual crushing worrying, and am happily, although temporarily, luxuriating in the sheer poetic beauty of it. Then they lapse right back into the ugly prosaic when they say, "Most observers see a kind of symbiosis in this arrangement. But what we see is parasitism." If there is one thing that is not pleasant to think about, it is parasites, and to prove it, ask my wife, who characterizes me as some kind of mutant parasite that has sucked her life dry of any joy.

- Emily W. sent an interesting quote from a guy named Sir Josiah Stamp, who is, or was, the Director of the Bank of England. This guy says, "Banking was conceived in iniquity and born in sin. Bankers own the earth. Take it away from them, but leave them the power to create money, and with a flick of a pen, they will create enough money to buy it back again. Take this great power away from them and all great fortunes will disappear, for then this would be a better and happier world to live in. But, if you want to continue to be slaves of the bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit."

And the reason that you don't hear much about this guy is that we are doing exactly what he warns us NOT to do, and so he has probably gone off to hide in the woods, not far from where I live in the woods, in a cave, not far from where I live in a cave, and who also spends his days moaning and groaning about the horror of having a fiat currency in a fractional reserve banking system, especially one where the whole banking system is now merely an arm of the government. And doubly especially when there are places like Massachusetts that keeps electing commie pinko bastards to Congress, like that drunken, lying Leftist coward Ted Kennedy, and that lying piece of Leftist crap John Kerry, and all the rest of those ignorant Massachusetts buttheads, and to which I say to hell with Massachusetts, for they have directly caused our present situation, which is the worst of all possible worlds. A pox on Massachusetts!

And since it continues getting worse and worse today, so is only going to get worse and worse tomorrow.

- Contraryinvestor.com commented on how up-scale Nordstrom had a boffo Christmas, while low-end Wal-Mart did not. They write, "Clearly, we do not mean to be wealth discriminatory or elitist in any sense of the word, but we are looking at two retailers whose clientele are derived from two very differing wealth demographics. What this chart tells is us is that the lower wealth and income strata in the US have not benefited from historic Fed and Administration accommodation efforts as has the upper income strata." In short, it was the classic "the rich get richer and the poor get poorer" and yet the butthead Wal-Mart voter keeps electing and re-electing the same Congressional buttheads time after time after time! And knowing that they do that, it is getting harder and harder for me to feel sorry for them and their increasing poverty, which is directly attributable to their poor choices at the voting booth.

And apparently Hans Sennholz is on the same wavelength as I am, and he writes, "In its first term, the Bush administration increased the Federal debt by $2.2 trillion. Congress raised the Treasury debt ceiling three times, by $450 billion in 2002, by $984 billion in 2003, and by another $800 billion on November 19, 2004, to $8 trillion 184 billion. The ready willingness of Congress to finance such deficits is a clear indication of the political and ideological mold and make of most members of Congress and the public that elects them." Look! A mistake! This gives me a chance to get up out of this uncomfortable seat, and so I spring to my feet, and I say "Mr. Sennholz! Mr.Sennholz! You said that Congress is financing the deficit, but the damned Congress doesn't finance anything! The Federal Reserve is creating the money, so the damn Federal Reserve is responsible for all of this mess!" A murmuring buzz went through the crowd! The Mogambo (usually known as "That big stupid idiot Mogambo") is challenging Dr. Sennholz!

Well, we'll never know what he was thinking, because I could see him mouthing the words "Big stupid idiot Mogambo!" as he stormed out of the place in disgust, complaining in that precise, clipped Teutonic voice of his about how he has never been so insulted, and probably thinking about how in the Old Country he could have had me killed. But notice that I am so polite that I don't even mention that in THIS country, politicians and their friends can have people kidnapped and killed, too, any time they want to, and they do it all the time! And if you don't believe me, then ask the Afghani people, or the Iraqi people, or Ron Brown, or Vince Foster, or Randy Weaver, or damn near any people you want to ask, and they will be happy to get you up to speed concerning limits on aggression and arrogance of the American political class.

So get used to it, Wal-Mart shoppers, because the insane inflation of the money supply by an incompetent, corrupt Federal Reserve means more and more inflation in prices, and so you will suffer declining real incomes for at least a decade to come, almost certainly culminating in a complete collapse of the economic system. And that is when you will understand why the Founding Fathers were so careful to write into the Constitution that money shall only be of
silver and gold, because that was the only way to prevent the banks and the Congress from doing what they are doing, which is to print up excess money, which is going to destroy us all. And you can thank the horrible series of calamities known as the various incarnations of the Supreme Court, which committed treason against us all and allowed them to get away with it.

But you may be comforted to know that as long as the Federal Reserve keeps this crap up, the rich will continue getting richer while you continue to get poorer and poorer. So at least somebody is benefiting! It's just too bad it is not you.

- An anecdotal story from Gary North's Reality Check newsletter, entitled "Saving For A Rainy Quarter Century", ought to tell you the sad story of inflation. He tells of a guy named William Jones, who retired and figured he was going to live out his life having some fun. But in the 14 years since he retired, he figures he has "lost about 35 percent of the buying power of his pension." His real income, adjusted for inflation, has been cut by more than a third by the simple fact that things went up in price but his retirement benefits did not. This is the horror of inflation. He had to return to work.

And that is why, when you read that you need $400,000 to retire, you should laugh. That $400,000 is if you retire today. If you retire ten years from now, you will need at least double that, and probably triple that. Or more.


**** The Mogambo Sez: Now that we got those minor holidays out of the way, it is time to get ready for the Big Glorious Holiday (BGH), by which I mean, of course, Mozart's birthday, which is on the 27th of January. So things are not as bleak as they seem!

Jan 5, 2005
Richard Daughty
email: scgcjs@gte.net

The Daily Reckoning

Richard Daughty is general partner and C.O.O. for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise the better to heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications.

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