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Stand back, I am armed to the teeth!

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
March 09, 2005

- Foreign central banks plumped up their account at the Federal Reserve and poured another $14 billion down the US debt rat hole last week. Seeing how much fun that was, the Fed itself created $4.1 billion in new Fed Credit, which is the ultimate in "money from thin air" as it was literally created at the punch of a button. After the banks finish multiplying that new credit by the fractional reserve multiplier that they now use (more than 100), it has the effect of creating $410 billion in new credit, just waiting for somebody to walk into a bank and take out a loan, which would turn the credit into real money.

Of course, I would be remiss in my Mogambo hissy-fit duties (MHFD) if I did not raise a big stink about the Treasury burying us under another $100 billion of debt in the last two months.

- Chuck Butler, who is president of Everbank, writer of the Daily Pfennig newsletter and is a guy whose sense of humor is so developed that he actually sent me a fruit basket because I facetiously said, trying to make a joke that predictably fell flat, that he never sent me a fruit basket, writes that "The People's Bank of China (PBOC) announced today that they had spent 1.6 trillion renminbi ($193 billion) buying foreign currency in 2004 to keep the renminbi's fixed exchange rate. For those of you keeping score at home, that's a 41% increase over the previous year!"

But he does not stop there, and also writes that things are not so hot in the industrial sector. "Yesterday the ISM index posted another lower number of 55.3. A year ago, this number was 62.8! That's what I call a slumping sector... Not collapsing, but slumping!"

You would not know it from the US consumer, who went farther into debt by $11.5 billion in January. To make matters worse, the $3.5 billion debt increase reported for December was revised up to $8.5 billion. Let's see here: There are about 160 million adults that went farther into debt by a collective $20 billion in two months, for an average increase in indebtedness of $125 each. Now in the last two months the Treasury has increased national indebtedness by $100 billion, so on a per capita basis, the average American adult is now on the hook to pay another $750 each! In just two months! Hahahaha! No wonder people on other planets come here in flying saucers to laugh at us! This is crazy!

- Axel Merk, of Merk Investments writes, "The latest numbers available put the (trade) deficit at a record $60.3 billion, an annualized $724 billion, over 6% of the GDP." As an aside, the Economist magazine puts the trade deficit at $666 billion for the last year, which is a number that has all kinds of significances and overtones that remind one of the Biblical Book of Revelations, and now we are on track for another $60 billion higher next year? Wow! Spooky, huh?

Paul Van Eeden at Kitco has also looked at this trade deficit fiasco, and opines that "The US trade deficit is pumping hundreds of billions of additional dollars into their coffers every year. Even if these countries keep all the dollars they currently own but just not keep as high a percentage of the new dollars they continuously receive, the dollar will plummet. There really isn't any way around it. Either the dollar falls sufficiently to eliminate the trade deficit, or the trade deficit will continue to put pressure on the dollar." Sort of like the old Mogambo Conundrum (MC): People hate me because I am a hateful, and I am hateful because they hate me. Hacking through the confusion, we are now sure of two things, namely 1) the dollar will be lower, and 2) I will be more hateful and more heavily armed. From this we learn two additional valuable lessons. 1) gold and oil and imported things will go up in price, as will everything else when domestic producers get wind of the high prices we are paying, and 2) stay away from me, as I am armed to the teeth and in a real bad mood about these high prices, among many other things.

Marshall Auerback of PrudentBear.com says essentially the same thing, only without that Mogambo Conundrum thing, when he writes, "With the government and external deficits both so large and the private sector so heavily indebted, it is said that satisfactory growth in the US cannot be achieved without a large, sustained and discontinuous increase in net export demand. After perusing the trade data from last year, it is doubtful whether this will happen spontaneously through a continuous fall in the external value of the dollar, and it certainly will not happen without a cut in domestic absorption of goods and services by the US " and then, after a pause, he goes on to show us the result of that, "which would impart a deflationary impulse to the rest of the world." Which could explain why the rest of the world is suicidally stuffing money into our economy.

If you think that the US is going to achieve export muscle anytime soon, he disabuses you of that notion when he reminds us that "The truth of the matter is this: Across three decades, only one economic event has been guaranteed to produce balanced US trade: a recession. When the economy is contracting, people naturally buy less of everything, including imports." Which, of course, brings us back to that "deflationary impulse" that he was talking about earlier.

- Elsewhere, a report surfaces that the IMF may sell part of its gold reserves to help with third world debt relief. This is par for the course for the International Monetary Fund, which is a group of secretive communist idiots whose job it is, apparently, to take money from us to loan to countries that can't make a go of it because they act like idiots, and then the influx of IMF money makes it all worse, and when they don't pay back the loans, then the IMF helpfully suggests that you and I eat the loss and forgive the debt! This is the level of sophistication that you get when you appoint communists and idiots to anything, especially things like the execrable IMF and the Federal Reserve, and don't get me started on those guys.

- Jeffrey L. Ferguson wrote a prescient little essay entitled "Is a Secular Bear Market Inevitable?" on the Kitco.com site. Naturally, The Mogambo was immediately on the phone, dialing furiously, trying to get through to this Ferguson person, so that I could give him a little of that famous venomous Mogambo sarcasm (VMS), something along the lines of "What are you, some kind of putz? Do you think that bull markets run forever, you brainless moron? Do trees grow to the freaking moon, and all we have to do to get some of that delicious moon cheese is crawl up those trees? Is that what you think, you stupid bozo?" Well, while waiting for them to answer the phone and rehearsing my hysterical rant, I continued reading his essay, and soon realized that he was NOT a putz, and that, once again, The Mogambo has gone off half-cocked. Reading farther, we see that he writes, "Given that distortion of interest rates constitutes the fundamental force driving business cycles and the fact that interest rates continue to be distorted, by the Fed and through conduct of finance, combined with historical evidence indicating that very long secular cycles, punctuated by interim cycles, have previously developed as a consequence, the answer seems clear." This is where he paused, and I, for one, was on the edge of my seat. What was it going to be? Good or bad? Up or down? Finally, seeing that I was so worked up that I was straining not to pee in my pants, he takes a little pity on me and says "Yes, another secular bear market is inevitable." Naturally I jump to my feet and say "I knew it! I knew it all the time! You had me going there for awhile, but I always knew the answer!"

- I was on hand for Greenspan's testimony Wednesday for about halfway through his prepared remarks, as most of the time was spent hooking electrodes up to my heart and wrapping me up in a straightjacket (which was made all the more disagreeable because it smelled like a sewer and then it was pointed out that it was me that stinks so bad and then I figured, well, okay, that explains THAT, although it didn't make it any more pleasant).

But I heard only half of half of his prepared remarks, giving, as I figure it, a quarter of his speech, as half the time I was screaming at the TV screen "You idiot! You liar! I hate your guts!" and throwing things at the TV, including my half-eaten sandwich, but it wasn't a very good sandwich, so it was not a big loss, and most of the other stuff just bounced off the screen, although with a new patina of mayonnaise from where the sandwich previously caromed off the TV. But he was unusually blunt in some areas, especially in those areas that are not his fault, which is everything, because nothing is ever his fault. He is sure that he is completely blameless! The Federal Reserve steadfastly maintains that it has done absolutely nothing wrong, ever, in the entire history of the Federal Reserve, even though they have violated every single bit of historical evidence, anecdote, theory and practice since we were still one-celled creatures swimming around in the primordial soupy sea saying "Wow! Our music is crappy and Mozart won't be born for another 30 million years! Bummer!"

Greenspan showed his lackluster brilliance by saying things that were stunningly obvious, such as "As the latest projections from the Administration and the Congressional Budget Office suggest, our budget position is unlikely to improve substantially in the coming years unless major deficit-reducing actions are taken." Duh! Ya think so? After a few decades of budget deficits, you think that now, right now, the kind of "right now" where you look at your watch, it is not going to improve by itself? Wow!

I thought it was weird that he says, "I want to emphasize that I speak for myself and not necessarily for the Federal Reserve" which I figure he has to say because all the rest of the people at the Fed all say "The Mogambo is right! Alan Greenspan IS a big butthead!" Well, they probably don't say that, but they ought to, because Alan Greenspan IS a big butthead! And if they don't, then that proves that THEY are buttheads, too! Hahaha!

He even let go with a little statistical information that was probably news to the jerks on the committee, as he no doubt wowed them when he went on to read, "Under the intermediate assumptions of the program's trustees, the number of beneficiaries will have roughly doubled by 2030, and the ratio of covered workers to beneficiaries will be down to about 2." Two guys working to support one old guy! These guys are going to stand around while half of their incomes are going to be taken away and given to me so that I can retire in comfort and free of care, and with my Viagra paid for, too? Hahaha! Like THAT'S going to happen!

"Greenspan Pounds Away at Broken Budget Process" is an essay on Bloomberg, written by John M. Berry. He writes "The essential message Federal Reserve Chairman Alan Greenspan is trying to pound into the heads of members of Congress in his recent testimony is that the federal budget process is so broken that it has become a danger to the nation's long-term economic health."

And last, but not least, if you have not read Peter Schiff's essay, "Greenspan Walks Policy Tightrope", then you should, as he righteously jumped all over Greenspan, and easily shows, point by point, that Greenspan is a stupid old man who does not comprehend the basics of economics.

- Caroline Baum on the Bloomberg.com site wrote "Everything that could go wrong did go wrong, yet the U.S. economy sailed right on through. If you consider the litany of negatives buffeting the economy since the bursting of the stock market bubble in 2000 and the 2001 recession, it's something of a miracle that it managed to grow 2.3 percent in 2002, 4.4 percent in 2003 and 3.9 percent in 2004 (all on a fourth-quarter over fourth-quarter basis)."

She does admit that "The economy expanded in 2001 as well, albeit at a miniscule 0.2 percent rate."

Yep, and I'll tell you how it is done, only in Hollywood style. The scene is set in the swanky offices of your typical CEO, or chairman of the Board, or majority stockholder, all of them ruthless tyrants whose names strikes horror in the hearts of the proletariat trash who toil under my brutal command, night and day, while I am living it up by seriously under-funding their stupid little pensions that I am trying to dump on the government, so they will end up with something, so what in the hell are they bellyaching about?

Suppose I sold a hundred widgets last year at ten bucks a pop. So total GDP = $1,000. This year, I sell 98 widgets at $11 each. GDP = $1,078, which is an increase of $78! The freaking economy is soaring by 7.8 percent! The economy is white hot! Yow! Buy stocks, any stocks, but especially shares of Mogambo Enterprises if the SEC hasn't shut them down already.

In normal times, that is to say, during the entire freaking course of human history until the last fifty years or so when people really started losing their minds, probably something in the water, but when prices go up by 10 percent and sales go up by only 7.8 percent, you were typically in big freaking trouble. And then you started drinking heavily, which made everything worse. And especially so, ESPECIALLY SO, when total production was actually reduced by 2% to start with! I mean, it's head for the hills time! And now you gotta finally make that decision whether to take your family with you, or abandon them to the wolves like they deserve, the ungrateful little leeches, and now that I think about it they were nothing but a millstone around my neck in the best of times, which weren't such hot times to start with, and even those relatively wonderful days are gone, and now it's every man for himself, so get outta my freaking way, I'm coming through!

But nowadays things are different. Thanks to Michael Boskin and the Federal Reserve, those pesky questions about the ten percent inflation, and how this is supposed to be such a bad thing, can be easily explained away! Ain't science wonderful?

It goes (pause for dramatic effect) like this: The government official looks at you like you are some kind of lowlife dimwit and who needs to be spoken to gently, or maybe we'll cry or something, and he says "You forgot to adjust for quality, stupid asker of stupid questions! I know that's you on the end of this phone, Mogambo, you stinking lowlife dimwit! But for the last damn time, last year the damn things caused three deaths." Then he holds up three fingers to make sure that I somehow grasp, with my obviously limited intellect, the whole concept of the number "three" and then I say "I'm on the end of the phone, you moron! I can't see you holding up three fingers!" and then he gets really huffy like only a dimwitted career government worker can get. Through clenched teeth he goes on to say "And this year only caused one person to bite the big one, and too bad it isn't you, Mogambo, and why don't you be the one to die, you horrible little man? So anyway, the whole point is that widgets are getting safer! Don't you get it? So you are," he says, and I advise you to follow the logic closely here because this is apparently the nub of the whole thing, as this is the part where my brain goes "boooinnngggg" so I am not sure I completely comprehend the whole concept, "getting more widget for your money!" And so I say, "Huh? I was happy with the OLD widget, as I never had one where I drank a lot of beer or took medications that made me drowsy or took shots of straight liquor, mostly tequila, when I was consuming, operating or building a widget, and even then only under the supervision of an adult or a boss who hates my guts as much as I hate him, and I caution you to never try this at home, as I AM a professional at this widget thing."

But, somehow, the basic widget did NOT go up in price, see, and you merely paid extra for the extra quality! Therefore, and my brain is already reeling from the paradox, there was no inflation in price! Even though the price went up! And the explanation for this seeming impossibility is that you only paid more for the extra quality, sort of like paying $600 more for a car with a better stereo! But if you bring up the point that this is a really stupid thing to say because I never listen to the radio anyway because I am always too busy yelling at the other drivers on the road and criticizing their stupid lack of driving skills, and if I had the radio on, then I couldn't hear their stupid replies (although I can always see their rude hand gestures, sometimes from the kids!), so a damn $600 dollar radio means nothing to me. But then they always "Say, what about the passengers? Wouldn't they like to listen to something soothing instead of your stupid screaming all the time?" and I say "Screw them!"

But this is not about some damn radio, and why the car costs so much, which we wouldn't even be looking at if the wife hadn't decided that she is suddenly too classy and "uptown" to hitchhike anymore. No, this is about how, through the magic of mathematical wizardry and sheer nerve, then they can prove-- ya gotta love it! --that inflation was now, magically, zero! Zero percent inflation! Nirvana! Utopia! Economic perfection! Then (and this is the best part because the media, and the stock shills, and the bond shills, and the real estate shills all really eat this stuff up), and after you adjust GDP for inflation, you still had growth in GDP!
Of course, I gotta come home and listen to the wife moaning about the high cost of widgets, and then I politely tell her "You forgot to adjust for quality, you stupid woman! After you adjust for quality, they are NOT higher in price! Don't you know any of this stuff, ya old bag?"

- John Ing, who wrote The Debt Trap" on SafeHaven.com, says "Excessive spending and borrowing, sustained by cheap interest rates, has kept the US economy afloat. Despite six rate hikes, real interest rates remain at their lowest in 15 years." Now, we all know that the real interest rates are those that subtract inflation from the nominal (advertised) interest rate. And if inflation keeps rising (like it should), then no matter HOW high interest rates get, they will keep being negative! Interest rates of 20% can still be negative, if inflation is running at 21%!

- From Richard Russell, of the Dow Theory Letter, we get a great Greenspan analogy. "By refusing to accept a recession following the market peak at 2000, Greenspan has now created a dangerous debt-monster. I liken the situation to a man in a burning building who refuses to jump out of the first-story window. In an attempt to escape the fire, the man climbs to the second story, the third, the fourth and the fifth. But the poor guy is still faced with the same problem -- how to get out of the building. Now he's got to jump from the fifth story instead of the first. So thanks, Mr. Greenspan, you've really done us all a great favor. Now see if you can just get us out of the building without our breaking both legs and maybe our neck."

- One of the more interesting things this week is finding out that not everybody is as stupid as we are. From Business Wire we read "A study published by a research foundation in Dubai has endorsed the gold Anti-Trust Action Committee's findings that Western central and commercial banks have rigged the gold market, but have much less gold than they claim to have, and so are vulnerable to rising demand for gold." Well, nothing new so far, as I am the first to see conspiracies in everything, especially concerning money.

No, the interesting part comes next, "The study recommends that the oil-producing countries of the Middle East diversify their ever-depreciating U.S. dollar holdings into gold."

The study was entitled "The Role of gold in the Unified Gulf Cooperation Council Currency," and was written by for the Gulf Research Center by Eckart Woertz, who is vice president of CFC Securities in Dubai. The study concludes: "The paper dollar standard is a dead man walking. Debt, accumulated over the recent decades, is too high to be effectively repaid. It will either default or be inflated to such an extent that it will not 'hurt' to pay it back. Therefore, the accrued imbalances in global finance and the inherent weakness of worldwide growth models that rely on a continuance of U.S. deficit spending are likely to usher in a serious crisis of currency systems in coming years."

Then he gets to the reason why he is recommending gold in the first place, and why The Mogambo is always screeching the same thing whenever he gets the chance, and why the Founding Fathers wrote into the Constitution that money shall only be made of precious metals. "gold will be a suitable means of asset protection and ultimate payment in such a scenario. It will preserve the wealth of individuals and central banks alike and will ensure important maneuverability for the latter."

The author sounds just like The Mogambo, but without the usual litany of obscenities or actual gunfire, when he says, "The Middle East's oil-producing countries are especially obliged to heed the Gulf Research Center's study because their economies are based on a wasting asset, oil, whose depletion will leave them with little more than sand if the payment they receive is substantially depreciated or defaulted upon. In exchanging a real asset for paper assets that represent only unpayable debts, oil-producing countries are at imminent risk of massive expropriation."

They now have oil and sand, and when the oil is gone they are going to be left with sand and paper dollars, which, in buying power, will be practically worthless? Hahaha! Chumps!

- To show you why Venezuela never won any prizes for economics, consider that Patrick Markey from Reuters writes (from Caracas, so the news can't be fresher than THAT), writes "Venezuela on Thursday devalued its bolivar currency by 10.7 percent to take advantage of high oil prices and generate more revenue from petroleum sales to bolster its finances for the year." Huh? The buying power of the currency is devalued by almost 11% because, and you can tell by the way my voice is now a high-pitched squeal that makes the dog uncomfortable, that this is too, too, TOO weird. They get more money (measured in sheer wads of currency), but having the same buying power? What's the point? And where are all of the Venezuelan economists standing with The Mogambo outside, chanting "No! No! The Mogambo says no!" over and over until the words lose all meaning?

The adjustment of the fixed exchange rate is 2,150 bolivars to the dollar, up from 1,920 bolivars. One minute I can get a Venezuelan hamburger for 1,920 bolivars, and the next minute I can get the same hamburger for 2,150 bolivars? On the other hand, and this is your Mogambo Travel Tip Of The Week (MTTOTW), if you want to go down to Venezuela and pester the hootchie-coochie dancers and act like a degenerate deviant pervert like The Mogambo, then this is the perfect time to do it, as your money will go a long way, until prices catch up to the increase in the money supply, and then the poor will rise in anger because they can't afford to buy food anymore and the streets will run with blood, which really has a chilling effect on hootchie-cootchie dancers. So, like I said, time is running out.

- US Senator Harry Reid is reported to have said, "I'm not a big Greenspan fan. I voted against him two times. I think he's one of the biggest political hacks we have in Washington." Hahahaha! Well said! Even though I knew he was an economics hack, I did not realize he was also a political hack, too! A double threat!

- My sentiments on removing the ceiling from wages subject to Social Security and Medicare surtaxes drew the predicable response from high-wage earners (You're an idiot, Mogambo!") , but (and this is another case of "The dog that didn't bark" that made Sherlock Holmes so damn famous but it never does anything for me), I received no hate mail from low-wage earners, who, I guess, would have said things like "Stop making the high-wage people pay the same percentage tax on their wages as we do! It is not fair that that rich pay the same 15.3% of wages as we do! They should pay less! And if they start to complain, like we do, 'Hey! This is a hell of a bite out of my check every freaking week, and liquor is getting pretty expensive, and if you think I am going to, cold sober, face my horrid little family and my horrid neighbors and my whole horrid life, then you don't know the Mogambo!' And the rich are far too busy and important to have to complain to their Congressperson about how it is so hard to make ends meet and how they ought to focus their damn attention on the Federal Reserve to make them stop creating so much money and credit that always shows up in higher prices!" Well, to be fair, I'm not sure that the low-wage earners say that, but they should!

But since we are talking about Social Security, here is my New Mogambo Retirement Plan (NMRP). Since Social Security is a scheme to tax our children, then all you gotta do is, as they say, "think outside the box"! Suppose you need, oh, say, $60,000 a year to fund your retirement, including your plan to take several trips a year to the United Nations building and scream at them "I hate all of you!" Now, showing off with my awesome calculator skills ("Watch me cipher, Uncle Jed!") if you could get $2,000 a year from 30 people, you'd have the whole $60,000, right? Now, notice how every morning there are groups of damn kids, which we are going to tax one day anyway, standing at street corners all over the damn place, waiting for their school bus to come and pick them up so that they can waste their time and my tax dollars by getting a third-rate education that teaches them to be government-obeying robots.

Now, I think you will agree with me that it won't take many groups of these kids to make up your 30. So merely go up to 30 them, and hand each one of them their four Mogambo Remittance Vouchers (MRV), so that at the end of the quarter they have to each send you $500! See how easy this is?

I mean, they can move back the date at which we can collect Social Security benefits, requiring us to retire later. So why can't I move up the date at which the kids pay Mogambo Retirement Taxes (MRT)? And it goes directly to the recipient (me) cutting out all kinds of middlemen, thus achieving complete value for your money! And yet, even when I explain it to them, they all look at me like I'VE done something wrong!

- The Bureau of Labor Statistics announced 262,000 new jobs in February, although the unemployment rate edged up to 5.4%, percent. Paradoxical, I know, but that is the way of modern statistics.

George Ure of the UrbanSurvival.com also noted that "Hours worked in manufacturing jobs declined. Weekly earnings were unchanged." And then he added, to save me the trouble of mentioning it,"you'll notice that they didn't keep up with inflation." The actual BLS quote is "Over the year, average hourly earnings grew by 2.5 percent and average weekly earnings increased by 2.2" Which is, if you have been watching, less than the increases in prices that you pay for all kinds of stuff.

Safehaven.com is another bunch of savvy dudes who also looked at the payroll numbers at the BLS site, and noticed that, "The March 2004 total nonfarm payroll employment estimate was revised upward by approximately 203,000 or 0.2 percent." Their reaction went like this: "So folks, on my planet we back 186,000 out of the 262,000 published number and we now have a grand total of 76,000 new jobs. But we are not done yet. The BLS uses another hedonic measure called the birth/death model. As you can see here, an additional 100,000 jobs were added to the headline number published."

Now, if you are like me, all these numbers are making your head swim and you are looking at your drink and wondering if somebody put poison in it. But we are spared both the onerous task of re-reading the passage and sending the drink out for analysis, and they handily summarize as "So backing this number out of 76k and we actually lost 24,000 jobs without the use of hedonics." Hahahaha! Jobs were lost!

None of this has escaped the attention of Frank Barbera, in an essay on Financial Sense Online website, entitled "Stagflationary Collapse: Prelude to 'The Greater Inflation' (click) " He writes, "Few economic observers note the continued shrinkage in the Labor Force Participation rate, which now ratchets down to a 17 year low, as more and more workers simply give up looking for jobs. Never before in America's history has an economic recovery unfolded against the backdrop of a shrinking labor force." Yeah, and never before in American history is it possible for so many to live without a job! Hell, I and most of the people I know have a hard enough time getting along WITH jobs, mostly because our wives want stupid things like curtains and dishes and glasses, even though, for instance, when you buy Big Gulp at a convenience store, you get a perfectly good drinking glass in the bargain! But I don't know who these guys are, but I am pretty sure that they are 1) a bunch of geniuses and 2) single!

But he doesn't want to talk about how he and I are a couple of first-class doofuses, working away at our boring little jobs, like some tragic ants toiling anonymously in some grubby ant hill. Ignoring me, he goes on say "Tragically, few people seem to comprehend the altered nature of government statistics, wherein unemployed and under-utilized workers are no longer counted in the unemployment rate, which, in reality is much higher than the widely touted 5.2%. In fact, unknown to most, the 'unofficial' unemployment rate stands closer to the rate seen in major European countries such as Germany and France, between 9% and 10%."

- I was driving my wife to the airport and we were talking about the housing market, and she says how she heard on All Things Considered, and I quote, I think, "They said that the middle class is stuck in the middle, as housing is too expensive on both coasts." Hahaha! Middle class in the middle! Hahaha!

Then I told her how most mortgages are now adjustable-rate, and how a big part of total mortgages are for interest-only mortgages, and how this seems so preposterous, and then we laughed some more--- hahahaha! --and then she said "Wipe off your chin, stupid" as I always get spittle on my chin when I laugh, and so I wipe it on my sleeve, which was harder than it looks because it was a short-sleeve shirt, and then she's yelling "Not on your sleeve, you idiot!" conveniently forgetting to compliment me on my lithe agility, worthy of a circus acrobat half my age, and how I twisted my head all around like that, WHILE driving, WHILE laughing, WHILE wiping my chin. But do you think I get any credit? No! I just can't win around here!

Anyway, this brought to mind that Thomas Jefferson quote about how if we are so stupid as to have a central bank and a fiat currency and astonishing levels of fractional reserve banking, then we would end up as slaves on our own continent. So, and here is how Jefferson is going to be proven right; the dollar sinks so low that Chinese guys and Japanese guys and Indian guys all find that the price of land in the US is cheap, when computed back into their own currency. So they start buying houses here, and then their governments (who hold a lot of US debt and so can extort "favors" from Congress), start coming over here on special visas and running their businesses via the Internet and hiring guys like you and me to clean their pools and shine their cars. And the reason that we take these stupid low-paying jobs is that the price of oil, in dollars, is going up and up, and chicks don't like guys who don't have cars. And that means gas, and that means that $80 per barrel oil is real important to me, and that is why I was particularly attuned to the comment that somebody at OPEC or something said was reasonable to expect oil at $80 a barrel within two years. And using the postulate that "things proceed apace" it is reasonable to expect during that time the price of oil will NOT stay at current levels and then, on the stroke of midnight two years from now, jump to $80 a barrel. No siree, young grasshopper! In fact, if you set your alarm go "beep!" exactly two years from now, you will be able get up from a long, long nap, and go outside, and opening your bloodshot eyes to take a look around, look backward through time! And then you will notice that, while oil is now $80 a barrel, it was $75 a barrel last month, and it was $70 a barrel for a few months before that, and it was $65 a barrel for quite awhile before that, and it was $60 a barrel for a long time. In short, gas got pricier and pricier the whole freaking time.

But the housing bubble gets worse than that, as from the DailyReckoning.com we get the news "Friends are teaming up to buy houses - they have become too expensive for a single couple to afford on its own." Fabulous. Now that housing and merely living has gotten so expensive that grown children are still living at home, America's future has two families living in one house, and now there are TWICE as many people screaming at me to please get out of the bathroom, which is stupid because this is the one damn room in the whole house where I can get away from those damn people! Why do they think I am in here, to actually go to the bathroom? When I can just as well go behind those bushes in the backyard as I usually do?

But the problem is not confined to America, as we learn, when we read on, that "But the phenomenon is not limited to America. Real estate bubbles have been spotted all over the world. And money supplies are bubbling up as well - particularly in Asia." Terrific. Not only are those dumb foreigners doing that same silly thing as we, when they could be practicing their English so that when they talk we wouldn't say "Ha! They speak with funny accents!", but they don't even have any illegal Mexicans immigrants to do the lawn work and watch our kids and work for coolie wages and thus keep those labor costs down so that we can buy stuff cheap. I mean, what are they thinking about?

But this shows, and notice how this again proves that all things are connected to all things, and this is especially so for how money things are connected to all money things, how the Federal Reserve, acting like the profligate morons that they are, has produced a glut of money all over the world, which has to go somewhere or it wouldn't have gotten borrowed to start with. And when more money starts chasing a fixed basket of goods, then prices go up. It's as simple as that!

- The Washington Times article entitled "Watch Your Wallet" by Bill Bergman ought to give you something to think about if you are thinking about having money during your retirement. They write "The Consumer Price Index (CPI) has now gone up every year since 1955. Last year, it rose 'just' 3.3 percent, following a 1.9 percent increase in 2003. During the past 15 years (1990-2004), the CPI has increased 51 percent."

Up close and personal, they offer the analogy that "The best data available indicate a family earning $50,000 in 1990 would have had to earn about $72,250 last year to maintain its 1990 standard of living. That's the cost of inflation."

I bring this up because that precious little financial plan prepared by your darling little mutual fund salesman always assumes that inflation goes to zero at the moment you retire! Hahahaha! The reality is that, if the inflationary idiocy of the last fifteen years continues when you retire, whatever stash of money you have will lose half its buying power in 15 lousy years!

I can see that you are not convinced, and that maybe the inflation of the last 15 years is an aberration of some kind. My Mogambo Mind (MM) starts screaming "Not so!" But before I can get the words out of my mouth, Mr. Bergman shoves me away from the microphone and says to the class, "Since abandonment of the domestic 'gold standard' in 1933 and the subsequent official suspension of gold redeemability in 1971, the CPI has moved in one direction only: up, more than 450 percent since 1971." That comes out to "only" 4.5% a year.

And speaking of inflation, the CRB Index is the highest since January 1981. As Reuters comments, "The index gained 7.1 percent in February, the most in any month since August 1983." Seven percent in one freaking month? Yow! And gas is back over two bucks a gallon? Double yow!

- I saw Ted Kennedy on C-Span arguing about the minimum wage and how this is so vital, because people cannot survive on minimum wage. Then I got to see John Sununu informing that Kennedy butthead ("Yay, John!") that raising the minimum wage prices low-wage workers out of the marketplace. He did not even mention that increased labor costs drive up prices because the employer has to maintain his profitability, and if profitability does not increase, then this is one MORE damn job that The Mogambo got fired from, so you can bet your sweet butt that prices are going to increase, and pronto. And since the working poor pay prices, too, the working poor wind up back where they started; their paychecks are not enough to live on anymore because prices rose higher than their incomes.

Senator Sununu did not ask the jackass from Massachusetts why these people are so poor, nor did he ask the people of Massachusetts why they keep electing this laughable moron. But the poor are poor because prices are high. And why are prices high? Because the damnable Federal Reserve created so much money and credit that all that wonderful, magical money chasing the same basket of goods and services will bid up prices until all that money is incorporated into prices. Ugh.

**** The Mogambo Sez: The action in gold is impressive, and I am sure that you are glad you got some, and gold mining stocks, too. And oil is knocking at the $55 a barrel level, too, and I am likewise sure that you are glad you got some of those stocks. And if you are not glad, then it is not too late to get some, and then one day YOU will be glad, too.

Mar 08, 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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