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Richard Daughty
...the angriest guy in economics
The Mogambo Guru
March 17, 2004

The most unsettling news, to me, is that Treasury Secretary John Snow has apparently requested a meeting with all 12 Fed governors. This cannot be good news, and you can take it to the bank, no pun intended, that they are going to cook something up to screw us over, in spades, as they have no options left. As desperate and scared, cornered rats, they are now reduced to doing awful, economically-suicidal things in their increasing clutching-at-straws desperation.

Perhaps it has something to do with what Stephen LaTulippe was writing about on the LewRockewell.com website, who wrote an essay entitled "That Strange Cloud Over the Horizon." He writes, "Sooner or later, foreigners are going to look at the balance sheet and realize that they shouldn't loan us any more money." He sums up his dour assessment of the American financial situation, and it is not a pretty thing, and refers to that cloud approaching over the horizon as "Could it be a giant flock ofchickens?? Yepand they're coming home to roost."

Those monstrous murderous chickens may be coming, but foreign central banks gobbled up another $8 billion dollars of US debt last week and stashed it at the Fed. They are doing this as a favor to us so that we, as a nation, can go heroically farther into unfathomable debt to buy things imported from those foreign nationals, the money for which ends up in their pockets.

But perhaps this Treasury meeting with the 12 Fed governors has something to do with the rumor that Japan is considering stopping this loathsome practice of printing yen to buy dollars. And without Japan taking more and more huge chunks of US debt, who is going to step up to the plate and absorb the gigantic supply of new American debt?

Or the Snow meeting with the 12 Fed governors may have something to do with the fact that Fannie Mae now has derivative exposure on its books that exceed one trillion dollars. Or maybe the fact that Fannie Mae has more than $900 billion of debt, making it, according to Reuters, "the second-largest borrower in the U.S. after the federal government, and more than either the French or U.K. governments."

Or maybe it has something to do with the new Bank for International Settlements estimates that global derivatives now total $208 trillion, or roughly 700% of global GDP! Leveraged bets that total more than seven times the total global output of all goods and services? It staggers the mind! Or it may have something to do with the fact that the stock market is now as overvalued as it has been anywhere in US history. Or it may have something to do with the fact that inflation is roaring along, and that means US bonds, which are paying negative real interest rates, are now so overvalued that there is no way that anyone holding American debt can even SEE value, even standing on tiptoes and using the Hubble telescope.

So something is going to be done. Something so horrible that future historians are going to have a field day with it. Trust me on this one. The part that is so tragic is that everybody knows the end result of this kind of money-madness excess. Nobody ever disputes it. Nobody even tries to hide the truth, as the history of the world is littered with the inescapable evidence. You will end up with, and you might want to write this down because it will soon seem very important to you, a high and ruinous price inflation caused by the high and ruinous monetary inflation. High price inflation will adversely impact that particular part of the population whose incomes are NOT growing as quickly as prices are going up, a demographic cohort whom I classify as, lacking a better word, "us." And then the part of THAT population that responds by being angry and sullen, sitting around in the dirt in the deep woods sharpening and re-sharpening a bayonet over and over, and muttering dark, sulphurous oaths under his breath, namely "me," will also be adversely affected. And the greater the disparity between incomes and prices, i.e. the farther the fall in the standards of living, the farther will rise the needle on the old "Grumpy-O-Meter."

The Federal Reserve itself, however, provided less credit to the banking system last week. Not only that, but the rate of rise of the aggregate Fed credit has slowed markedly over the last couple of months. This probably has something to do with the fact that borrowing for business expansion and rampant speculation is not, ummm, robust right now. And without a big demand for money, the Fed doesn't feel compelled to print it up for them. This is the old "pushing on a string" problem. And parenthetically, this "pushing on a string" dilemma is why the Fed is now cornered into creating so very much money and credit, and the Congress is likewise cornered into astounding feats of deficit-spending.

But, just to show you who is boss here (they figure THEY are) and the limits to which they will go (they figure, as a kind of rough estimate, to infinity), the Fed has kinda sped up its monetizing of debt by a couple of notches last week, and bought up over one billion in American debt.

Keeping those loose parameters in mind, the Fed is obviously within those guidelines, seeing that $1 billion is carefully treading that fine line between current levels and unimaginable infinity.

And here, to show you the breathtaking constellation of talents of the Mogambo, I have prepared a home movie for you. The opening scene is the plush offices of the Mogambo, where the handsome hero, as played by a handsome Big Hollywood Star, is seated at his huge desk, talking on three telephones at once, surrounded by anxious world leaders who implore me to solve all their problems, and some scantily clad vixens (The Mogambo Maidens), who trill and titter to feel my bulging muscular biceps, which I randomly flex from time to time, and who, when not leaping tall buildings at a single bound, can be found writing the Mogambo Guru, a mishmash of macroeconomic hysteria. With, at no extra cost, lots of paranoid fear and hostility, born of reading history and then reading Hazlitt, who, as I recall, showed that all ruinous boom-bust inflations happen the same way, because people are the same greedy way, and governments are the same grubby way, and, well, you connect the dots.

I also, in my few precious moments of spare time, invent, out of common household chemicals, pills that reverse aging and make hair stop growing out of your ears and start growing on your head like it is supposed to, and that cost only "pennies a day." But the serenity of the Mogambo is suddenly shattered and he is galvanized into action! With the reflexes of a jungle cat I leap across the desk, scattering dignitaries and Mogambo Maidens alike. With an ease of such timeless and graceful beauty that it defies description by mere mortals, I hit the red panic button! This sets alarms sounding! Horns blaring! Sirens wailing! Lights flashing! All signaling, if you are up-to-date on your Siren Theory, a bona fide Emergency Situation!

Frightened children instinctively run to their mothers, and ask "Mother! Mother! What is wrong? Pray, tell us what is to become of us?" and the mothers hasten to remind them that the sirens merely mean that the Federal Reserve has created more money out of thin air- bink! --to make a large purchase of government debt! "Tut, tut," the mothers soothingly say, "Those sirens only mean that the Fed has created more money! And simultaneously it activated the Mogambo Emergency Response System. So, my little darling sweetie-pie snookums, all the little sirens are saying when they say 'toot toot' is that we are all going to die horrible deaths of deprivation and suffering when the Locust Swarms of Inflation swoop down upon us and eat our guts out. Now, stop worrying and go run outside and play, my precious sweetie!"

In order to comply with any possible grounds for Equal Opportunity complaints, I now want to warn those people who are deaf and dumb, since they cannot hear the sirens and horns and klaxons going "Ah-ooooooo-gah!" and cannot hear or read or see the flashing warning lights going blink blink blink. My plan is to teach volunteers to sign into the hands of these deaf-and blind-people "This is from the government," and then punch them in the stomach real hard and take their wallet while they are doubled over on the ground gasping for breath and puking up blood. I am sure that the deaf and dumb population will eventually be grateful for the highly educational metaphor.

Robert Prechter, he of Elliott Wave fame, still sees deflation in the cards, and points to the action in the money supply, which is, when I look at the chart, one of three possible scenarios: 1) slowing, 2) lacking in marked advance, or 3) stagnating, which are all de facto proof of monetary deflation. So, classically, we have less money chasing more goods, and prices should fall. Or, as has been noted by others, and probably more appropriately, more goods are chasing less money, which also means that prices should fall. So we can easily see where Mr. Prechter gets the well-founded idea that we are facing a deflation in prices.

But not all prices will fall in a deflation, just as some prices do not rise in an inflation. But I can easily see where houses, stocks, bonds, and collectibles and all that kind of thing would go down in price because they went down in demand. And because they are being supported at these prices by rampant monetary goosing by the Fed fostering insanely-low interest rates, and grossly irresponsible stimulus spending by Congress, these prices would seemingly fall a long way if demand faltered. This would be very bad news indeed, because the whole American economy is being supported by this huge speculative activity, and money roaring through the pipelines of the global economy. In fact, it has been pretty conclusively shown that speculative activity IS the US economy. I sigh and shake my head in weary resignation.

So, getting back to Mr. Prechter, you can see where the idea of deflation comes from. On the other hand, you can see where the idea of inflation comes from, too. We are a nation that imports a lot of the stuff it consumes, and a falling value of the dollar means that the price of imports has to rise, if the foreign exporter is to achieve a stand-still, profit-wise. I am thinking specifically of oil, which has not only gone up dramatically in price, but is destined to keep going up and up in price. And it has a HUGE impact on everything else in this country, too! And all in a bad, bad way, too, looking at it from the "price-inflation side." And US exports of grains and farm produce and raw materials will go up, thanks to the fall in the dollar, which makes US agricultural and livestock products very, very cheap on the world market. Which means that prices, in US dollars, have "room to rise." Which they will, if I know my greedy capitalist swine. And so, with the added demand from foreigners, food will also increase in price, as will, since we are talking about it, everything else.

And to show you that the indefatigable Mogambo has not given up hope of winning a Nobel Prize and that luscious million dollars in prize money, I now submit my latest foray into The Fabulous World Of Economics According To The Mogambo, and using strict economic terminology and mathematical mumbo-jumbo that seems to be so wildly popular, when the yuan (Y) is unpegged (U) from the dollar (D), and if the yuan rises (large multiplier, or LM) as predicted (P), then US agricultural products (USAP) and all things American (ATA) will become instantaneously cheaper (IC) for those Chinese dudes (CD) and probably everybody else, (EE) who has a currency (C) that is NOT the US dollar (NTUSD), but will ruin (DOA) all those who have US dollars (USD) or things denominated in dollars (TDID).

And now that the Fed has increased the prices you pay for gasoline and food by virtue of their ruining the dollar, you can understand where the idea of inflation comes from, and how it will make the other deflations in the economy seem of minor importance.

And speaking of gasoline, oil is now comfortably over $37 a barrel, meaning that the price of gas at the pump will be hitting another record pretty soon, too. And if this plays out like it should, which I call Mogambo Movement, you will have a front-row seat to see lots of new records in gasoline prices on lots of days "pretty soon," and lots of news stories on TV of the suffering and price inflations, probably referenced as "cost-push" inflation, and how we have GOT to provide more help to "the suffering children," which one does by raising taxes or going into debt, or both. And won't that be fun!

So which will it be? Like a dinner at a Chinese restaurant, I figure it will be a little from Column A and a little from Column B. And because the chef is drunk as a skunk, it will also be a little of something else that you hadn't planned on, and in fact nobody planned on, except the remarkable Mogambo, who just now accurately predicted that it will be something that we had not planned on, and sure enough, it was. Like a virus. Or a terrorist. Or an asteroid. Or alien creatures in UFO's using some kind of atomic blasters and shouting out, in their little strange, mechanical monotones, "Surrender, puny Earth people! Resistance is futile!"

He also takes note of the Kondratieff cycle, which is a mysterious 54-year long cycle where the whole shooting match turns to crud. And it does seem to be that way, when you look at the historical charts and graphs. And our position on that decades-long curve is where we are starting to go downhill. Mr. Prechter has also penned the immortal line, in his book "Conquer the Crash," that "For many people, the single biggest financial shock and surprise over the next decade will be the revelation that the Fed has never really known what on earth it was doing. Make sure that you avoid the disillusion and financial devastation that will afflict those who harbor a misguided faith in the world's central bankers and the idea that they can manage our money, our credit or our economy." And on that point we agree perfectly, although I am sure that Mr. Prechter's lawyers will soon be here to impress upon me that while Mr. Prechter may or may not agree with me on anything, he feels "soiled" to be associated with me in any way, and how all of them want me to stop it. Such is the life of the Mogambo.

And speaking of Mr. Prechter, while he has been fairly bearish on
gold, in his book "Conquer the Crash" he said that "If gold were to move above $400 per ounce, I would probably be convinced that a major low had passed." Next time I see him, which will be, if he gets his way, never, I will ask him if he is convinced that the "major low had passed." In the meantime, you can use the MoGu as a rough proxy, who says "gold will almost certainly never be cheaper in dollars than it is RFN." And if you are current with your MoGu-isms, then you instantly recognize this acronym to mean "Right Freaking Now."

Bill Fox, writing a real nice essay entitled "Id Monsters, Self-Deceptions and $1000
gold, " references Dan Ascani, who has calculated that the inflation in commodities from 1933-1997 was, in case you were wondering, 1,013%. Things are not twice as expensive. They are not thrice as expensive. They are not fice as expensive but they are the Full Monty, more than ten times as expensive! In 63 short years. But as horrible as that sounds, it is "only" 3.72% inflation per year!

On the Daily Reckoning website, Evan Pickworth has also looked at the history of prices, and has this to say about this very indicator of inflation: "Individuals are becoming increasingly disgruntled with the huge inflationary pressures they've faced ever since Reserve Banks and governments started printing worthless paper money. You see, the endlessly increasing money supply (inflation) we have experienced in modern times decreases the purchasing power of money." And now we have a little treat, as he gives us a little compare-and-contrast history lesson, "Consumer prices that had risen a meager 13% in 114 years since the founding of America, soared 1,500% in the ensuing 90 years." On an annual basis, this is one tenth of one percent per year for the first 114 years, then 3% for the next 90.

There are those, mostly congenital idiots, who say that 3.72% inflation is not a bad thing. The Fed, which is a bastion of idiots, says that it is not bad, which only goes to prove that only idiots think that 3.72% inflation is not bad, using my best circular logic. These people say that 3.72% inflation is benign, tame, a trifle, a piffle, non-existent, under control or some other soothing euphemism. These people say, as hard as it is to believe, that 3.72% inflation might actually be a GOOD thing! They are wrong. Let me show you why.

Let's take a personal look at 3.72% inflation. If you retired today with a retirement income of $50,000, at this rate of price inflation you would need $100,00 to finance the same lifestyle in twenty years after retirement. So how much do you have to save in that miraculous 401(k) plan of yours to finance that much inflation? How much? Hahahaha! And I am here to tell you that the precious little financial plan that the mutual-fund salesman provided you assumes that inflation ceases, instantly, at the moment you retire! So factor those revelations into your retirement plan and tell me how you still think that 3.72% inflation is "benign!" Hahaha!

Mr. Fox goes on to write that "The stagflationary 1970's provide an important precedent in recent American financial history, particularly since I believe the decade ahead will echo the 1970's, only worse." Actually, this guy, for all his gloom and doom, is actually kind of an optimist compared to Robert Prechter, who says "The ultimate consequences will be more severe and more confounding that the consequences of the 1929-1932 crash." Mr. Prechter goes on to predict that the whole bust phase will "last a century and comprise two or three major bear markets with one or two intervening bull markets." A bust that lasts a whole century. Wow. Mr. Fox continues his case that our problems really began in earnest when, "After Nixon removed the dollar from the $35 an ounce international exchange rate in 1971,
gold began a run up that culminated at a London PM fix of $850 an ounce Jan 21, 1980."

Mr. Fox, always the wry wit, defines "bad inflation" as "This type of inflation typically means an expansion of the money supply and bank credit ahead of gains from productivity and asset growth. More money and credit chasing fewer goods and services typically means higher prices over the long run." This is the kind of inflation that we have been subjected to by the Greenspan Fed for as long as I can remember, and I ain't no Spring chicken here.

"One reason why this is really bad inflation is because it results in an eventual loss in real purchasing power for the average consumer. This is a hidden form of taxation. Creating more money and credit per se does not in itself create any new wealth any more than a counterfeiting ring."

He doesn't pull any punches about the Congressional deficit-spending program that has produced budgets deficits that are already over 5% of GDP. He says this "stimulus spending typically creates the short-term illusion of prosperity at the long-term price of distorting the economy and debauching the currency."

He has also looked a the historical record and notes that "Price inflation may also remain initially muted because excess liquidity can first find its way into stock, real estate, or bond asset bubbles. It may experience a prolonged delay in running up commodity and consumer prices." Well, all we have to do is take a look around us to see that this excess liquidity has already found its way into stock prices and real estate and bond prices, just as he has postulated. And it is finding its way into commodity prices, too, although the government wonks who are supposed to be looking at this kind of thing are all asleep, or lying, or both.

Extrapolating on this "bad deflation" thing, he writes that "This is the kind of environment where
gold often outshines all other asset classes, and merits extended discussion. This is the overall underlying environment I believe we have been in since the Nasdaq top in March 2000, and it could last for many more years." So, and this is the important point, a guy who has been careful to look at the historical precedents figures that the bull market in gold could last for many more years. Very interesting.

The government, in the guise of the Federal Reserve, has been pounding interest rates into the toilet for a long, long, looooonnnnnggggg time now. When you woke up yesterday, for instance, interests rates were being pounded down into the toilet. When you woke up last year at this time, interest rates were being pounded down into the toilet. When you woke up one crisp March morning three freaking years ago, interest rates were being pounded down into the toilet. And this is the genesis behind my hit new song, "I Been In The Toilet So Long It's Beginning To Look Like A Marble Palace With A Built-In Pool, Or At Least I Thought It Was A Pool, But It Seems To Be A Cesspool For Somebody Named Alan Greenspan." Oh, I realize that my fabulous song will be suppressed by the government to keep its stirring lyrics and catchy beat from "over-stimulating the common clod and inflaming his animal passions to rebellion and non-compliance."

Mr. Fox has some views on that very subject, as when he writes, "If the free market were to price a bond, it would probably take into account this truer long term inflation rate, and add on top of that a risk premium of let's say a historical average of around 2.50% . That gives us 10.5% as a rational hurdle rate for setting a free market floor on expected interest rates. Now, let's deduct the aforementioned Thirty Year Treasury rate of 4.9%, and we get a possible real negative interest rate of 5.6%. For individuals in money market funds that pay less than 1%, the negative spread could be over 9.5%." So he is postulating, with a precise mathematical proof that astounds us simple folk to whom simple adding and subtracting constitute computational wizardry, that people putting money into money-market funds are actually slitting their own throats to the tune of 9.5% a year? Wow! Are we morons or what? And is this before-tax, or after tax? Because if this was the before-tax yield, then the actual real, inflation-adjusted loss after-tax is MORE than 9.5%! No wonder foreigners laugh at us! We're idiots!

He says that "British economist Prof. Tim G. Congdon noted 'As the double-digit annual inflation rates of the 1970s came as a shock to savers, it took them time to catch up with the new investment paradigm. Interest rates lagged behind inflation and real interest rates became negative, creating the ideal conditions for rising prices of
gold and other so-called 'hard assets (oil, real estate, commodities).' " See? He thinks just like the Mogambo, although I am not sure that he gets it from being an angry paranoid whacko (APW) like me, but then again, how can anybody who has looked at what is going on NOT be an angry paranoid whacko, APW?

He concludes that, "The magnitude of America's trade deficits and indebtedness suggest that the US will eventually wind up with double-digit interest rates and hyperinflation." Check out that "hyper" in "hyperinflation." Scary stuff.

The US dollar has bounced, for varied reasons that have nothing to do with actual business conditions, and is approaching what looks like the top of the channel. Theoretically, then, the next sustained move for the dollar is to resume its downward spiral to worthlessness.

John Crudele in the NY Post writes that "For the second straight month a forecasting outfit called Economic Cycle Research Institute said its inflation gauges have risen. Federal Reserve Chairman Greenspan keeps close tabs on ECRI's numbers first because he trusts them and, second, because the organization was founded by one of Greenspan's beloved former professors. And, I'm told, ECRI will start worrying about inflationary pressures and convey that concern to the Fed if there is a jump in this month's numbers, which will be reported in early April."

So this ECRI bunch says its "inflation gauges" have, and let me check to make sure of the correct word, "risen." In other words, there has been a rise, which I derive from the root word "risen," that has been detected by some monitoring sensors equipped with readout functions, otherwise known as "gauges." And these aforementioned "gauges" have, thus, "risen."

Yet, and you gotta admire their patient courage, as they are waiting and worrying, and Alan Greenspan at the Fed are walking around unaware! They do not know of the gauges! The ECRI did not tell them, and are waiting 'til next month to tell them! The poor Fed! Rushing towards the waterfall on the log, and completely oblivious to the fact! But listen to the ominous soundtrack, which has trumpets blaring and kettle drums pounding!

So there I am, standing outside of the Federal Reserve building, doing my duty as a citizen, screaming as loud as I could, trying to be heard, to warn them of the danger, the real and present danger that the ECRI is withholding from the Fed! I'm screaming "The gauges! Look at the gauges!" And the police are frustrated and powerless to stop me because I have taken the precaution-ha ha! I am truly diabolical! -of chaining myself to the fence in anticipation of their attempts to get this raving lunatic someplace where trained professionals can monitor me and take appropriate action. Then after awhile, just as my voice was starting to give out from all the screaming, which was also about the same time as the Fed's mid-morning Medication Time and then a nice little nap, here comes Alan Greenspan himself, and he is right in my face, see, and he is telling me "Gauges? What gauges? We don' need no steenking gauges!" And then when the police closed in around me, I feel a sudden attraction, and was about to say "Are you happy to see me, or is that a gun in your pocket?" when it suddenly dawns on me that it WAS a gun in his pocket, and it was pointed right at Little Mister Mogambo, and I immediately got the drift, as in "not all poems are written with a pen," and unlocked myself from the fence and went home, and was grumpy all the rest of the day.

Mr. Crudele goes on to say "The most worrisome thing is that the inflation is occurring even though the U.S. economy is showing only modest growth and very little job creation." This I interpret, as far as I can make out, to mean that if the prices of things go up, but there are fewer people with jobs who are thus able to BUY the things, then it is "worrisome?" You're damn right it worrisome!

He has also taken a look at the budget deficit, and writes, "But that means that if the government didn't have its own accounting method and had to record costs like businesses do, the deficit would probably be more than $750 billion. For one year." And this ignores, if you are familiar with accrual accounting, the gigantic wad of accumulated deficits from years past, which is, using Official Public Debt as a minimum, now over seven freaking trillion dollars (SFTD).

"These sort of numbers will be a big problem for the financial markets when they start paying attention," he says. As soon as he said that, I went on a search of the macroeconomic literature, not by the dry and boring method of actual research and investigation, but rather by me reaching up and just picking something out of the air at random, and tried to find a reference to a situation where the phrase "big problem" was NOT something bad. The search came up negative.

Turning our telescope temporarily from spying on the neighbors as part of our duties as A Loyal American Under The Patriot Act, we look in regions of the commodities world, in Australia in particular, and we see that coal prices are up over 100% in the last year. Doubling in price in one year! And the port of Newcastle is, as reported, straining under the demand, where ships are lined up to the horizon to load up on coal.

We, here in America, have coal. Lots of coal. One day it will seem important to you to remember that.

And that day, which I assumed was a long way away from here when I said it, as did you, I am sure, is perhaps not as far away as originally postulated. By this puzzling reference I mean, of course, the Peak Oil thing, which is that the oil reserves of the world are peaking, or have peaked. By this, I mean that the discovery of new pools of oil lags far behind pumping and using of current oil reservoirs. The surprising statistic is that we use about four gallons of crude for every one gallon of new oil that we discover. In short, we are running out of oil.

To this I say, "Well, duh." It has always been known that oil was not being produced by the selfish Mother Nature at the rate at which we are using it. In the past, there were always new discoveries being made to replace those oil wells that went dry. Now we have apparently slipped over to the point where we are not finding new supplies as fast as we are using it. This should impress upon you that Mother Nature is NOT your friend, as she COULD be making more, if she truly loved us, but she isn't, and she sends her little animal buddies to bite us and sting us and crap all over everything, like the car.

Anyway, there is some controversy as to whether the oil is starting to run out, and, if so, when? The answer is, never. When supplies fall farther and farther, the price will rise and rise, and each rise in the price will provide an impetus to create some alternative energy source, and the high prices will reduce oil usage. And the higher the price goes, the greater will be the impetus to invent some new source of energy, or come up with some way to conserve energy.

Ergo, the hydrogen-cell idiocy, which just won't die, which obviously uses vastly more energy than you can possibly get back out. And the reason it won't die is because it is one of the few alternatives we have, and you can make it out of coal, which, if you have been paying attention, we have in spades, and it employs American workers, too. And not only in the digging and shipping and processing of coal, either! But in the babillions of dollars, the gagillions of dollars, and even all the way out to the zazillions of dollars it will take to install the infrastructure of a hydrogen-based society. Just let your mind dwell a little while, gently drifting, using all your senses, on all the money to be made! Empires to be built! Fortunes to be made! Grudges to settle! Relatives to hire! And the government loves it because it's jobs, jobs, jobs and contracts contracts contracts for everybody! And money money money, that lovely lovely lovely money, for everybody, too! Wheee!

So the SEC is issuing a subpoena to Dick Grasso, the disgraced head of the NYSE, who arranged with his pals to award him and themselves with hundreds of millions of dollars in outrageous paychecks, fabulous benefit packages, and perks perks perks, very dime of which is gouged out of the fees and commissions and surcharges and custodian fees and administrative fees and transfer fees, all charged to all of the rest of us bozos out here, as a huge cost for merely trading stocks with each other, or merely owning them. It is just another example, as if we needed one, of the greedy, grubby and bankrupting mess you get when you give somebody the power to simultaneously set their own wages and benefits, and the power to confiscate the money of other people with which to pay said wages and benefits.

The local example around these parts is that my county is looking for a new district administrator for the lackluster school system. The position pays $300,000 a year, which is ludicrous, especially to a guy who has PhD in, get a load of this, "Educational Leadership," which is more worthless than a PhD in "Early Mesopotamian Interpretive Dance," as far as I can tell, as it mostly involves schmoozing people and gouging the taxpayers. At least with Early Mesopotamian Interpretive Dance you get beautiful scantily-clad ladies doing a cool dance.

On the Investment Rarities website, the Commentary of the Month is a March 10, 2004 essay by Daan Joubert entitled "An Exercise in Hedonic Alchemy." He takes a very clever and illuminating example to show you how the Boskin Commission, which I have always characterized as evil incarnate, showed the government how to make GDP growth appear as if by magic using price inflation, and then turn right around and showed how some more mathematical magic can prove that there was no inflation to start with! Amazing! In other words, they measure rising GDP with rising prices, and then deny that prices are rising! I recommend this essay highly, and I would put it on your Required Reading List if I could, but I am sure that you will voluntarily go there and read it if you want a real education in how the government is a lying bunch of monsters who are out to get you and kill us all. And if you do NOT want an education in how the government is a, well, lying bunch of monsters who are, as I said, out to get you and kill us all, then I am sure you do not own
gold, and your own folly will come to punish you.

A few years ago the State of Florida instituted a health-insurance program for the few "needy children," and now that program provides the health insurance for half of the state's kids. Half! This is just another fine example of how people all want to live at the expense of everyone else. And many of them do, thanks to complicit and corrupt governments and the lame-brain government employees who measure their job performance by the number of people "served."

Perhaps the best recent example lame-brain government employees (LBGE) is that of Senator Charles Schumer, D-NY, who is blaming all our economic problems on Bush's not successfully filling a government post ("jobs czar") that is charged with, get this, addressing manufacturing employment! Hahahaha! What a moron! And the people of New York who elected this horrible little man should be embarrassed to have someone of his low caliber representing them in Congress, as I am embarrassed as an American to have this guy representing American governmental competence.

But he is not alone in saying laughable things that give thinking people a splitting migraine headache and a bad attitude toward politicians, as Barney Frank, another mental-midget Democrat who somehow got elected to Congress against all odds, says that the problems of America could be addressed if only government was bigger! We are in the mess we are in, according to this horrible little man, because government is not big enough! I know what you are thinking: "This jerk is a Congressman?" Sad, but true.

But perhaps I am being too harsh. After all, Frank and Schumer are mere politicians, and as such are assumed to be shallow, corrupt, incompetent knuckleheads. But there is no excuse for Paul Krugman, the horrid little man who bills himself as an economist, but works as a columnist at the NY Times proving that he has no idea what he is talking about. For example, he writes, in his ridiculous article entitled "President Bush Out Of Excuses on Jobs," that "Franklin Roosevelt, in his efforts to combat economic woes, was famously willing to try anything until he found something that worked. George Bush, by contrast, seems determined to try the same thing, over and over again."

His own execrable Leftist proposal, which he calls "My Economic Plan," is, and get a load of this, "Extended unemployment benefits, temporary aid to state and local governments, and rebates for lowand middle-income workers." In other words, give money away to anybody with a hand out, which is the Leftist answer to everything.

What this prancing, preening dweeb doesn't bother to say is that George Bush has been doing exactly those things, and has also done everything that Paul Krugman and his brain-damaged Leftist buddies have been screeching about for the last seventy years, and how if FDR had only done those things, then the Great Depression would not have happened. To wit, massive Keynesian deficit-spending, flooding the world with liquidity, pounding interest rates to literal nothingness, growing the size and scope of government, and tax cuts galore. In short, there is nothing that the Leftist yahoos have ever even suggested, even in an offhand way, that Bush and the Fed have NOT done, in order to get the economy moving briskly.

But has all been for naught, as the economic deterioration continues unabated, just as the Austrian School of economics said it would. Ergo, Paul Krugman is one of those poor unfortunates who let their collectivist mindset get in the way of their education. Just like Schumer, and just like Frank, and just like Ted Kennedy, and all the rest of those Leftist losers, or as the Chinese say "Badgers from the same mound," whose asinine, foul "Big Government" philosophy got us into this mess, from which there is no escape.

Bill Buckler of the Privateer newsletter writes, "Since the money prices of real physical commodities and all the means with which to transport same are now soaring, and since all these COSTS are the input costs for all producers of real physical economic goods, it is only a matter of a few months, or even weeks, before the spectre of PRICE INFLATION raises its head especially in the United States."

But the Chinese economy is perking right along, and Mr. Buckler reports that "The lengthy Chinese coast line looks like the beaches of Normandy in 1944 because of the ships waiting at anchor and hoping to load or to unload as Chinese ports struggle with the export/import surge." And the Mogambo stands up and helpfully adds that it is bound to get worse and worse, as there has been recent movement of credit card companies setting up shop in China. As I have long said, all that is needed is a way for the Chinese peasants to bring consumption forward to today. And now they are getting it.

He also reports the gloomy statistic that "Chinese steel production is bigger than the US and Japan combined." Since the Chinese also have a bigger population that the US and Japan combined, it makes you wonder what OTHER future statistics will end with the phrase, "bigger than the US and Japan combined." Most of them, I figure.

Martin Weiss of the Safe Money Report, has done a little skull-work and figures that "The Dow is embarking upon a 1148-point decline; the Nasdaq, a 465-point plunge."

"Last year, the government injected the economy with the heaviest dose of steroids in history. So nearly all the muscle growth you've seen since is fake and unsustainable. And despite all the steroids, there is almost no job growth, no export growth, nothing even vaguely sustainable. But there is plenty of additional debt."

And if you are acquainted with the problems of crushing debt, then you see why he is figuring on a big fall in the stock markets.

Gerard Jackson, economics editor for BrookesNews.com, wrote a cogent article entitled, "Why the Clinton Boom Burst." He writes, in his usual flowing style, "As credit expansion is part of the money supply, it is the responsibility of the Federal Reserve to control it. Instead it allowed a reckless if not criminal expansion of credit to take place. It's now doing all it can to repeat its mistake. It was this credit expansion that fuelled the boom, triggered hi-tech stock mania, blew the current account out and encouraged reckless borrowing.

He doesn't see much to recommend the future, either, when he says "Credit has much in common with a house flooded by burst water pipes. Even though the water is turned off, it will still take time to drain the remaining water out of the structure and dry the place out. In other words, there is a time element."

There are many intelligent people who are predicting a long, long and a painful, painful economic recovery, because, using Mr. Jackson's metaphor, it is not just the house that is flooded. It is the whole damn neighborhood, stretching to the horizon in every direction, because it was the dam that burst.

James Turk of the Freemarket
gold And Money Report has taken a look at the new international gold-sales agreement in his article, "8 Reasons to Ignore the New Central Bank gold Agreement," which was posted on the Goldseek.com website. He examines the exact wording of the agreement, 147 words long, and found it to be, well, duplicitous, in that it is filled with half-truths, lies and omissions. In his words, "Central banks deserve our scorn, and for that matter, our enmity too for the interventionist, statist policies that they inflict upon us in order to sustain the fiat currency that they create, which the politicians then debase to our detriment." In short, Mr. Turk figures that the whole thing is a charade, designed to persuade you to not exchange your increasingly-worthless fiat money for gold and thus make them look bad. Ugh.

---Mogambo Sez: Things are seriously amiss, and getting more amisser by the hour. You should be scared. You should be buying
gold, and silver, and commodities, because that is what the future will look like very soon.

March 17, 2004
Richard Daughty

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.

The Daily Reckoning

"Financial Reckoning Day: Surviving the Soft Depression of the 21st Century"

by Bill Bonner and Addison Wiggin.

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