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Some days, it's not even worth chewing through the restraints Richard Daughty ...the angriest guy in economics The Mogambo Guru Archives April 6, 2005 - In last Thursday's Wall Street Journal, we read that the White House has a plan to divert $1 billion from the fund that compensates the victims of crime. If they were going to send that money to me, then of course I would be a big supporter of such a plan. Unfortunately, they are not, and you can tell by the way I am frowning and acting like a spoiled little brat that I am not happy about it one little bit. No, what they want to do is to use the money to cut the deficit, see, as if one lousy billion dollars is going to make a freaking tiny little teensy weensy dent in the budget deficit, which is expanding at a pace that will take us to, probably, close to a trillion dollars for the year! $1,000,000,000,000! This is just the freaking deficit, and it is 8 freaking percent of the damned economy! And this incomprehensible sum is just the deficit part of Congressional spending, which is money that they spend by borrowing, and thus putting us all deeper into debt as a country. Probably as a side effect of the medications I am taking so that I don't go completely berserk about the monetary insanity of the USA and wind up invading the Federal Reserve armed to the teeth and determined to "clean out that nest of mentally-ill rats and traitors to save America," I feel an instinctual drive to add a crude insult to my opening remarks. So let me add "the bastards!" And why would I blame the Federal Reserve, when it is Congress spending all this money? Because the damned Federal Reserve creates the money to get borrowed! If there were no accursed Federal Reserve acting like the brain-dead chumps that they are, and adhering to the ridiculous tenets of their precious New Age economic theory, as soon as Congress authorized such deficit-spending extravagance, the world economy would come unglued. Interest rates would go to the moon! Money would flee the country, and the economy would tank! This feedback mechanism is what used to keep Congresses from acting like insane morons. No longer. With a $2.2 trillion budget and a deficit of $1 billion deficit, then it seems to me, remembering my old school days where the teacher would ask me a question and I would reply that I did not know the answer, if you divide one of these numbers by the other one, you will show that the deficit is 46% of the budget! And, if the damn Treasury keeps borrowing money at this rate, the budget deficit as a percentage of GDP will then exceed 8% of GDP! Hell, Japan, far and away the world's biggest idiots as concerns monetary policy, is only running a budget deficit of 6.5% of GDP, and we American bozos are still "officially" at a budget deficit of "only" 4.4% of GDP, which is bad enough to cause old timers (which is defined in the Big Mogambo Dictionary (BMD) as "anybody who disagrees with the monstrous economic idiocy of constantly stimulating the economy and thus fueling inflation and don't start talking about inflation because that really sets The Mogambo off and he is liable to have a heart attack ('urk!') and plotz right here on the floor." Bill Buckler, who writes the Privateer newsletter, and who is, coincidentally, addressing this very topic, says "If the US credit expansion does no more than stay on its fourth quarter of 2004 trajectory, it will generate new credit to the tune of $US 3.425 TRILLION over the current year. By the end of 2005, the total will be close to 29.25% of the US GDP. That is a TOTALLY out of control situation. At the present level of expansion, total US credit markets will stand at around $US 40 TRILLION in less than nine months. That total will then be around 350% of the TOTAL US economy. Historically, this is a debt load which breaks ANY civil economy." The result is that "If the US federal government even slows down their rate of deficit spending, the US economy dives into an economic recession. If the Federal Reserve slows down its credit expansion, the US economy dives into a steep economic recession. Both institutions are fully aware of this, so they will NOT slow down. This being the case, it is simply a matter of time before the world slows down or even stops its funding of US external deficits. The result will be a US economic recession and a plunging $US." Even the Chinese are doing this same silly crap! We read that the China Daily has reported that "China plans to use money tied up in state-owned assets to deal with a boom in retirees expected in 15 years' time. State assets, such as stock in large companies, will be converted into funds that can help fill China's 2.5-trillion-yuan (300-billion-dollar) pension shortfall." This brings up two questions: 1) where is all of this money supposed to come from? And 2) why are they doing this? Well, they never get around to telling us where in the hell all this money is going to come from that will 1) buy up whole swaths of old, decrepit Chinese infrastructure, and 2) support legions of Chinese retirees for the rest of their lives. As to the "why" question, it is simplicity itself. "To avoid a major financial crisis, China is trying to abandon its previous 'pay-as-you-go' system, where people in the workforce pay directly for the support of retirees in the expectations that later generations will do the same for them." Sound familiar? It should! It's the Chinese equivalent of our Social Security system! Only this one is in China, which is a large country on the other side of the world, and it is packed full with 1.3 billion Chinese people, according to press bulletins. The article goes on to say "Instead, the government aims to establish a new system where each individual saves money for himself on a personal retirement account." Yow! Privatization of Social Security! - If you want to see the face of the future of technology, an historical milestone has been reached, according to "Meet the Mind Readers," an article by Ian Sample in the 3/31/05 Guardian. His pithy summary is "Paralysed people can now control artificial limbs by thought alone." The actual moment in history is "There's a hand lying on the blanket on Matt Nagle's desk and he's staring at it intently, thinking 'Close, close,' as the scientists gathered around him look on. To their delight, the hand twitches and its outstretched fingers close around the open palm, clenching to a fist. In that moment, Nagle made history. Paralysed from the neck down after a vicious knife attack four years ago, he is the first person to have controlled an artificial limb using a device chronically implanted into his brain." - I thought it was funny that a recent study shows that Harvard student are dissatisfied with Harvard, at the same time as an op-ed piece by the horrid Michael Boskin appeared in the Wall Street Journal. Boskin is the Stanford economics "professor" who developed the actual statistical methods of lying about inflation, namely the infamous "hedonic" adjustments that have distorted the Consumer Price Index so much that it has become a joke among economists, so that the government could get off cheap. Speaking of which, this Boskin loser still thinks that the CPI is STILL overestimating inflation by 30-40 basis points! Hahahaha! What a lying moron! And Stanford University gave him a job? My god! Have they no shame? Is there nobody actually at Stanford that thinks that inflation is really only 1.6%? And that it still overstates inflation, so that inflation is "really" 1.2%? But, similarly, perhaps we can all admire Johnnie Cochran for being a great lawyer, although he used slimy tricks and despicable race-card bigotry to get O. J. Simpson acquitted of murder, even though Simpson was the most obviously guilty defendant in the whole history of jurisprudence, and not even Perry Mason would have taken his case. Likewise, I am sure that we Americans now equally admire the achievements of the whole Hitler government, as they were just doing their jobs, too, and they likewise did them very well! Hahaha! What a comparison! Cochran, Boskin and Nazis! I'm sure I will be hearing from their lawyers, who will be all gung-ho about suing the hell out of The Mogambo until they learn that I have no money, and in fact I don't even have a chance of ever earning any, mostly because I am just a stupid lunatic with a loud mouth, and if they are going after the honor of the thing, they soon realize that there is no honor in suing a guy who goes around wearing nothing except an adult-sized disposable diaper and a big stupid smile, and who spends his time standing on street corners holding a sign that reads, "Will rant hysterically about monetary policy for food!" But there are more and more people who receive income based on interest rates, which respond, theoretically, to inflation, as lenders don't ordinarily like lending muscular buying power to deadbeats like me, only to receive a piddly stream of income that provides less and less buying power because relentless inflation is chewing the dollar's guts out, and thus the lenders end up with less buying power than when they started, and then the lenders get all bent out of shape, and then they start calling all the people who are in arrears in their payments, and then the phone is ringing all the time, ringing, ringing, ringing, and I am hiding behind the curtains and telling my wife to tell them that I am not at home. No, tell them that I am out of town! No, wait! Tell them that I am out of the country! And the despicable Michael Boskin was hired to invent this method of lying about inflation so that the government could screw a bunch of recipients out of some of their inflation-adjusted income. And if these recipients ever discover that they are being systematically screwed out of buying power (because price-inflation obviously reduces the buying power of each dollar), then that is when Michael Boskin will wish he HAD taken the advice of The Mogambo, and ran off into the woods and hid in a cave, hiding his face, begging for forgiveness and crying like a baby. Maybe poop all over himself, too, since nobody wants to deal with guys covered in crap. At least, that is how it has worked out for me! And since we are talking about angry people getting screwed out of buying power, maybe I could mention a few of these people; Social Security recipients, people who save money and bondholders. Hahahaha! Speaking of screwing people out of money and justice, the government has now decided to stop adjusting the yields on savings bonds every quarter. Now that yields have bottomed, and interest rates have hit their historic lows and are obviously heading back up, the bastards in government changed the rules, and your savings bonds now have a fixed and permanently-low interest rate! Hahahaha! No matter how high inflation gets, or how high interest rates get, you will be stuck right here! Hahahaha! Chumps! You trusted government with your money in return for their promises to offset inflation? Hahahaha! You get what you deserve, you nitwit! - Kurt Richebacher's new sales piece is entitled "Here It Comes! The Dollar's 7-Year Slide," which is about as succinct as you can get; direction AND time. Heed and prosper, or ignore and suffer. - It looks like the idea that the future will be a battle for water is heating up. From the AP in Shanghai, China, we learn "In Beijing, each resident has access to only 10,593 cubic feet of water a year, compared with the world average of 35,310 cubic feet." And worse, the needle on The Mogambo Bad-News-O-Meter (TMBNOM) dips to the bottom of its range as we read "Meanwhile, experts warned that more than 300 million rural Chinese lack clean drinking water since most of China's waterways are fouled by industrial effluent, untreated sewage and runoff of agricultural chemicals from fields." Editorial Mogambo comment (EMC): Yuck. The article goes on to say, "Only 47 percent of water in major rivers is drinkable, while half of all lakes are heavily polluted. And 35 percent of ground water is undrinkable due to pollution." Perhaps the lesson is to invest in companies that deal with cleaning up or preventing pollution, and in desalinization devices, and maybe some share of bottled water companies, too! - Paul Hein has a nice essay entitled "Give No Quarter" on the LewRockwell.com site. He must have been looking at how the metal in coins now cost more than the coins are worth, and he says to relax. "The mint says that the coins cost a nickel to produce. Americans will have to pay 25 cents apiece for them. This is a 'profit' of 20 cents per coin, and the mint, remember, is going to stamp out half a billion of them, for a net gain of 100 million bux. Nonsense! The actual cost of producing the coins is ­ nothing. If you can pay for money with money, how can it cost you anything?" The Mogambo is delighted with Mr. Hein, and I hop up and down and clap my hands together in childish glee! Exactly! Hahahaha! He goes on to give an example, "How much would a bunch of grapes cost if you could pay for it with a couple of grapes? Suppose you pick up a large bunch of juicy, delicious grapes at the supermarket. The checkout clerk says, 'Those will cost you three grapes.' So you pick off three grapes and give them to her. Were the grapes expensive? Can you continue to afford them, even if the cost doubles to six grapes?" Then he gets very philosophical, but important, if you think that casting aspersions on fiat currency is important, and I do. "If a slave-owner in the 19th century printed up some nice chits bearing pictures of himself (using his slaves to do the work, and produce the paper and ink) and then distributed them to the slaves as 'payment,' they could exchange the chits among themselves as money. Of course, they would have no claim on any assets of the master, but that wouldn't occur to them. That is precisely what defined their slavery, even if they thought of themselves as free: their chains were made of paper. So are ours." - In his essay "The Decay of Paper Currency", Chris Mayer writes, "Inflation, as it is commonly known, has not always been the normal state of affairs." That is because the normal state of affairs is people trying as hard as they can NOT to let inflation get started. And I will tell you that a damned government letting a damned central bank actually try and create inflation ("to prevent deflation") is not normal for people who are not insane, either. But Mr. Mayer doesn't want to talk about that, and instead motions for me to sit back down and take a pill. With me safely out of the way, he quotes James Grant, who is the editor of Grant's Interest Rate Observer, who said "From George Washington to the A-bomb, prices alternately rose and fell... As Alan Greenspan himself has pointed out, the American price level registered little net change between 1800 and 1929." Now Mr. Mayer extrapolates from that "It took Rome four centuries to destroy its currency," he said. "Germany and Austria reached that point in just nine years, ending in the famous hyperinflations of the 1920s, and before that, Russia managed it in only five years." Hahahaha! And if you think that is funny, then you will probably bust a gut to learn that Greenspan has devalued our money by 30% or so in the last few years alone, and the poor old dollar has lost about 98% of its value since 1913 when the filthy Federal Reserve was created! And if you think THAT is funny, then you are will probably fall down on the floor and die laughing to learn that the value of the dollar goes lower and lower every damn day, and will probably continue to do so for the rest of your life! Then, like the poet that he obviously is, he writes, "Like the biting winds of nature that sculpt rock and carve stone, inflation and taxes will grind the greatest piles of fortune to dust over time. The road to extinction may be of indeterminable length, but the final destination of that road is not in doubt. The same can be said of all our paper currencies, be they yen or pounds, pesos or ringgit. All of them are on the same slide." Niklas T. is another of those guys who comprehends the enormity of the problem. He writes, "Since all money is borrowed into existence, it is just a big Ponzi-scheme all of it. The entire world is victim of compound interest, and we know where that will end - eternal exponential growth of debt. Oh, not eternal really. It get interrupted by crashes." Hahahaha! And that is why Ponzi schemes are illegal when we citizens do them! - Dan Ferris, of the Real Estate Shareholder letter, has an interesting take on housing as an investment, which is all the rage these days. "Experience plus my research into real estate has taught me that a house isn't really much of an investment, contrary to what everybody will tell you. It doesn't pay me a penny in rent or interest or income of any kind. I can't spend it without going into more debt. With investments, you're supposed to earn interest, not pay it! And if I sell my house, I have a choice to make: either use the proceeds for more real estate, or pay a big capital gains tax. My only return is the benefit of living in it." Bill Bonner of the DailyReckoning.com site, is not just another pretty face, or even just a guy who has a face that is prettier than my face, which is everybody, as far as I can tell. So while I am dancing around singing "I feel pretty, oh, so pretty!" in some pathetic attempt to lie to myself so that I will not cry myself to sleep, he is doing actual economics work that concerns housing, and has noted that the bubble in housing has also created some problems for owners who think that they are going to rent out the expensive houses that they are buying, and make the mortgage payments with the rent money.. He says, "Likewise, houses now sell at an implied P/E of 34. That is, annual rental income for the average house would equal only 1/34 of the purchase price." And speaking of real estate, Eric Fry, in his Rude Awakening column entitled Nobody's Fool, quotes Susan Walker, of Fox News, who says that Warren Buffet, the smartest and most successful investor in the world, "is not investing in real estate, an all-too-tempting alternative for regular folks who have some money they would like to invest but who don't trust the stock markets. In fact, as the most recent issue of 'The Elliott Wave Financial Forecast' points out, many people are 'now captivated by the concept of easy wealth through real estate...According to the National Association of Realtors, a stunning 25 percent of the 7.7 million homes sold in 2004 were purchased strictly as investments.'' Of course, these people figure that there is always going to be somebody coming along down the street, some dumb guy, like me, who will say "A jillion dollars for a house? Sure! Why not?" - There are some guys who go beyond the problems with our monetary systems, and one of them is Dr. Edwin Vieira, Jr., Ph.D., J.D, whose essay on the NewsWithViews.com site is entitled "Will the Coming Monetary Crisis Provide Opportunity For Reform?" I think he answers his own question when he replies, "No! We're scroomed!!" And since a currency crisis is inevitable, then what happens next? Well, this is where Dr, Vieira comes in, who reminds us that it is not just the economic problems that will bedevil us, as history has shown us the depths of corruption to which legislators will stoop when their own spending/philosophical stupidities inevitably backfire on them. He says, "Even the most abusive precedents established under Roosevelt, however, will not define the outermost reaches of the 'emergency' powers contemporary public officeholders will seize in the event of a new monetary and banking crisis. Rather, they will employ whatever police-state tactics they deem necessary to deter and punish violations of their 'regulations, limitations and restrictions'--from fines and forfeitures of property to incarceration in prison cells, internment in prison camps, and interment in graves....As O'Brien told Winston Smith in Orwell's 1984, if one wants a picture of the future, imagine a boot stomping on a human face--forever." Or, as Edwin Clarence Riegel may have put it, "Not money, but a false money system is the root of all evil" To show you an example of depth to which governments must sink when these Ponzi schemes get out of hand, the South Korean government, to quote the last Thursday's Wall Street Journal, "Made a last-ditch effort to tackle the country's household debt problem by announcing a package for Koreans with little or no income that practically writes off their debt." The idiocy is that those who are on welfare are not obligated to repay their debts, and, as a bonus, are also relived of being stigmatized as "credit delinquents", so that they can continue to borrow more money from unsuspecting lenders, which they never have to repay, either! If you are on welfare in that country, you don't have to repay the principal or even pay interest on your debt as long as you remain on welfare, which brings up the point about who in their right mind would ever get OFF welfare with a sweet deal like that? The problem is that Korea is in recession, see, and the whole country has been, like the US, gorging at an orgy of credit. Which brings up a nice quote from the Elliott Wave International people, who were researching the history of major depressions in the U.S. from 1830 on. They say they were "impressed" that they were "All were set off by a deflation of excess credit. This was the one factor in common." Exactly! It's the Austrian Business Cycle Theory, over and over and over again! But what is NOT answered in the little sidebar was what happens to the Korean lenders, the people who are owed the interest payments, which they are not going to get, or the original money that they expect to get back, which they are ALSO not going to get. Hahahaha! Chumps! It is exactly what they deserve, the morons! I mean, how stupid do you have to be to loan large amounts of money to people on welfare? Welfare pays so much in Korea that the recipients have so much money that they can afford to not only buy things, but also pay the high interest charges? My God! And they though this could last? Hahahaha! It embarrasses me to mention it, I happen to be, uniquely, one of the most stupid people on the planet, and yet this even sounds stupid to me! But what is going to happen is that the creditors are just going to raise prices and interest charges on the people who DO pay, and that will be an "unexpected" consequence. And then when these people see how they are being screwed, and what a sweet deal this is for people on welfare, they are going to want a little of this gravy, too! And then people will run for office on a platform of "no payments, no interest loans for the little guy!" And that will be another "unexpected" consequence. - Richard Greene's March 25, 2005 essay is entitled "Gold - The Forgotten Asset Class". He notes that "It has been over two decades since gold was widely referred to as an asset class by Wall Street and the media. It would probably be generous to say that even 1% of American investors have an adequate understanding of why at least a 10% portion of their assets should be safeguarded in gold and silver, primarily in bullion. An even smaller percentage understands that they must have physical possession or a custodian that can prove that they are holding their purchased gold in a segregated account. Unfortunately, we have found that the vast majority that has moved to protect their portfolios with investments in the precious metal sector are foreigners." Foreigners have been buying gold? Is that why the price is over $400 per ounce? Well, who are these people, since it is not us hotshot Americans? He answers "The really sad part is investors from China, Japan, the Middle East, and India are taking advantage of any pullback to keep adding to their gold and silver holdings." So what does one do? I start to get to my feet to offer my suggestion, which is, of course, to buy gold. But he sees me stirring, and quickly adds, "The fundamentals for gold get better every single day as money expansion continues. Use declines in the prices of metals and the stocks to build a position as part of your portfolio. Speaking of gold, I notice that the gold lease rates have collapsed, which brought out a lot of leasing, which they turned around and sold, which could explain why the price of gold dropped last week". Most of us figure that gold is being manipulated down by the fabled Gold Cartel, the one that GATA and the Metropolecafe.com people are always yelling about. Want more proof than the idiotic Mogambo standing in the middle of the road haranguing people as they drive by that gold is being manipulated and that this represents a golden buying opportunity, if they will excuse the pun, which they never do? Well then, maybe you will listen to the Charleston Voice when they say, "It is now becoming widely accepted that the world's central banks have shorted (sold) as much as 15,000 tons of their gold reserves in a concerted effort to suppress gold's price as measured in paper currencies." And it is not just the gold and silver markets that are being rigged, but all the other markets, too, as chronicled in "The Invisible Hand (of the U.S. Government) in Financial Markets", written by C. Robert Bell and posted on Financialsense.com. His summary is "The U.S. government is manipulating all major U.S. financial markets-stocks, treasuries, currencies." The rest of the highly-informative article "shows how it is possible and how it is done, why it is done, who specifically is doing it, when they do it, and where they get the money to do it." Even George Ure at UrbanSurvival.com reported that an article has appeared that indicates that The Mogambo was right when he said that that monetary policy, now operating for most of the last decade with all the taps open full, will prove ultimately to be a failure, even though the government is freely manipulating the markets via fiscal policy to keep it from failing. To wit: "Tax money was sent to the Office of Special Brokerage Services (OSBS), to which management of the reconstruction funds was assigned. The OSBS, quietly through third parties, purchased approximately $5 billion in stock in February, 2004. Another $9.2 billion was invested the following month. More than $14 billion earmarked for reconstruction was actually invested on Wall Street. The memo's author and date are unknown. This portion of the apparently classified document -- marked 'page 3' -- was mistakenly sent to Mid-America Seed Savers, a nonprofit organization in Lawrence, Kansas whose members had filed a Freedom of Information Act request for documents related to the Army's alleged distribution of genetically engineered wheat seed to farmers in Iraq" according to Stan Cox, who is a plant breeder and writer in Salina, Kansas. It is all part of a gift to the Iraqis, they say, as "The OSBS has assigned portions of the fund's assets to individual citizens, based on voting rolls from the January election. Although he or she is not yet aware of it, each and every Iraqi voter now owns a Personal Reconstruction Account (PRA)". Until the unrest settle down, they figure that the accounts that will "continue to grow in value, safely, until violence in Iraq subsides and normal economic activity can resume. At that point, Iraqi citizens will be able to draw on their PRAs as needed, putting that money to work in their economy and stimulating private-sector solutions to the problem of reconstruction." Hahahaha! This is what passes for economic and financial management! Of course, the US markets going up will have wonderful domestic effects, too, and that is the whole point of it, because if we really, really, really cared about Iraqis we would have given them the money before we killed a couple of hundred thousand of them. Everybody assumes that this is a hoax, especially since it came out on April Fool's Day. But after seeing the lies and frauds being committed every day by our own government, I am not so sure. - John Hathaway of Tocqueville Asset Management notes that he views the news that the "EU member states have agreed to relax constraints their budgets are subject to under the Stability and Growth Pact which underpins the euro" as containing very positive news for gold, probably the most positive news for gold in the past two years. Why is he so bullish on gold from reading this? He explains, "The money supply of euros, according to the European Central Bank, is 6.6 trillion euros (M3 as of 1/05), equivalent at current exchange rates to $8.6 trillion. On the other hand, the monetary supply of gold, assuming all central bank gold is for sale (which of course it isn't at any given moment), is around $1 trillion. Removing central bank gold from the equation leaves a residue of monetary gold of approximately half this amount, a fraction of the euro money supply." What does this mean to you and me? I'm glad you asked! And the reason I am glad you asked is that I don't have to say a word, and I can just sit here sucking a banana daiquiri through a straw, and all I have to do is point the Bony Mogambo Finger of Fate (BMFOF) to where Mr. Hathaway writes, "The bull market in gold, which commenced in August of 1999, will shed its stealth mode. We stand at the end of the beginning of the first leg in a multi year bull market in the metal." - On Bloomberg we read that "Mexico's central bank today raised interest rates for a ninth consecutive month to slow inflation as commodity prices rebound and workers in Latin America's largest economy push for higher wages." Wow! Apparently, not everyone in this hemisphere is as sanguine as Greenspan and the Fed about inflation! - And if you want the Mogambo Prediction (MP) on inflation rates, you don't have to wait around for me to sober up, but you can easily figure it out for yourself. All you have to do is go to the back two pages of the Economist magazine, and look at the huge rises in money supplies around the globe, and notice how many countries have short-term interest rates that are essentially at, or in many cases below, their own reported inflation rates! Money is so freaking cheap, around the damn globe, that it is insane! All this cheap money is pumping up the prices of assets, which, in turn makes Ben Bernanke of the Federal Reserve start wetting his pants when he thinks that the prices of these ludicrously-overpriced assets might fall in price ("deflation'). His answer? More money! More inflation! Inflation-targeting! The Mogambo falls to one knee, weeping piteously, his mighty shoulders heaving with each sob, when he thinks of the inevitable pain that is surely ours if we continue to listen to such idiocy. Well, creating more and more money is always the solution to every problem, asposited by the horrid Ben Bernanke, who has, thankfully, been appointed to the toothless, powerless and ignored intellectual wasteland known as the President's Council of Economic Advisors, and thus he is no longer in danger of doing damaging, stupid things as a Governor at the Federal Reserve, because if ever there was a lunatic halfwit, this Bernanke character is it, although he does not wear a cape and a propeller beanie like the Mogambo, who is ALSO a lunatic halfwit, and (for those of you who are new to the ways of the Mogambo (WOTM)) you can always tell the difference between only one of us has such a classy sartorial style. Plus, Bernanke will be perfect for the job as economic advisor to President Bush, as Bush is intent on spending us into the poorhouse. And creating more money and credit and spending it like there is no tomorrow is Bernanke's prescription for everything, which is all they teach in the universities anymore, and which also that proves, beyond a doubt, that we Americans are the biggest bunch of idiots that ever walked on the face of the earth, because it takes a huge group of real morons to not only think that the problems caused by too much creation of money and credit, and the amassing of un-payable levels of debt, is MORE money and credit and debt, but they actually teach this preposterous idiocy in our universities! And to mix it all with a fiat currency, a central bank overseeing a fractional banking leverage of historical proportions, and a huge government that combines the worst elements of communism, socialism and fascism that, as I have argued before the Intergalactic Council back when Zorgg the Tyrant was crowned as Omnipotent Overlord of the Galaxy, proves that Earthlings are dumber than the Zylonian Glog-people in the Rigelian star cluster, which always gets a big laugh. The New Age twist is that if everybody does it, then somehow it is OK. It reminds me of a cartoon I saw one time, where this scientific egghead type has covered the blackboard with a dense series of complicated equations, leading to the result, down at the end, where he has written "A miracle happens", and he is saying to a colleague, "It works perfectly until this last step here." Hahahaha! Welcome to Modern New Age Macroeconomics! Hahahaha! But this is not about how stupid we are, but about how to use this natural, pandemic stupidity to make some money for ourselves, so that we can spend the rest of our lives living large and saying to friends and relatives and those snotty employees at the grocery store, "You laughed at me and mocked me!" I mean, it looks like it will work! Theoretically, when the prices of everything go up, so will the prices of stocks and bonds and houses, thus preventing deflation in those assets! And that is the point of the whole thing! What they refuse to acknowledge, to my astonishment, is all of the other problems that inflation cause. To that end, Doug Noland has not only looked at the data, but has provided us with a little statistical analysis when he writes, "May crude oil jumped $2.43 to $57.27. For the week, the CRB index rose 1.6%, increasing y-t-d gains to 9.8%. The Goldman Sachs Commodities index surged 4.5% to a record high, pushing 2005 gains to an impressive 26.2%." And when prices increase faster than incomes, you are in a world of hurt. And it is not just you and me that are pouring straight bourbon into a glass and chugging it down, hoping to calm our nerves at the signs of roaring inflation and maybe also help deaden that shrill harping from our wives who want to know when we are going to get up off of our big fat butts and do something useful around the house. No, others are also alarmed, as he relays a Dow Jones blurb by Arden Dale, who wrote "Investors in emerging-market mutual funds and hedge funds reversed course dramatically in recent days, staging a big pullout due to worries about inflation." And if you think that oil is going to get cheaper, then the Amazing Mogambo (AM) closes his eyes and discerns that you are an idiot and have a wife that is sorry that she did not listen to her friends and family before she married you because they clearly told her that you are an idiot and even talking to me on the phone was a big mistake and now she is going to make me pay Big Time (BT) for that mistake, and although it is commonly said that only idiots would read the Mogambo Guru, I am sure that none of you actually think that oil is going to get cheaper, so that proves that you are NOT idiots. And if you ARE an idiot, and you think that oil is going to get cheaper, then you can throw off the shackles of your idiocity (SOYI) by merely reading this sentence from Bloomberg; "China's consumption of oil this year may rise 10 percent to 354 million metric tons because of surging demand for fuels, the China Petroleum & Chemical Industry Association said." - Byron King, of the website Whiskey and Gunpowder, has written an interesting article entitled "A Hole in the Ground." Which was mostly a very interesting article about oil drilling and the problems associated with them, as if I haven't seen enough old movies on TV where the oil well suddenly gushes oil all over everybody and everything, and how they are all dancing around in their glee, and all I can think of is that I am glad that I am not getting that oil all over me because I am sure that I would have been wearing my good shoes, or my good pants, or my good shirt, or something, and they would have gotten ruined, and then my mother would be screaming and hollering and all hell would have broken loose and pretty soon I would be thinking of oil, as Byron King's title does, as just a nasty hole in the ground. But I would not a much of a lunatic gold-bug weird-o crackpot if I did not mention that it was the part about the durability of gold that caught my eye. He said that in the beginning of the oil boom, each barrel of oil "sold for about $10, equal to half an ounce of gold back in those pre-Civil War days in the year 1860. Ten dollars was the equivalent of a week's wages for an average working man laboring in a factory -- that is, if he worked all seven days of the week." So oil is worth, compared to today's price of gold, a half ounce of gold, or roughly $223? So, looked at in this way, gold I either expensive or oil is cheap. Or maybe both. But then again, a week's total compensation for factory workers is a lot more than an ounce of gold, namely $426 at today's prices. So now we have to decide if either gold is cheap or labor is expensive! In a similar vein, Adam Hamilton of Zeal Intelligence newsletter, in an essay entitled "Gold/Oil Ratio Extremes 2" writes that the "venerable gold/oil ratio hit an all-time low, an abysmal 7.7. Second, note the incredible correlation between gold and oil prices in the last four decades. This strong dance between oil and gold is what makes the gold/oil ratio so valuable. It is amazing to now see the gold/oil ratio at its lowest levels ever." He goes on to note that "Oil is just mid-priced and gold is very cheap when the relentless erosion of the US dollar's purchasing power via the Fed's endless fiat inflation is factored in." And since the Fed is still engaged in "relentless erosion" of the dollar, oil seems destined to get pricier and pricier. How much pricier? Well, since we have Mr. Hamilton on the phone, let's ask him! He says "In order to get to new all-time real highs, oil would have to catapult north of $95 per barrel and gold would shoot well over $1600." In light of that, he goes on to say "Neither oil nor gold should be considered expensive today in light of history, regardless of Wall Street's incessant anti-commodity propaganda. Meanwhile gold is so darned low in real terms that it hasn't even returned to mid-1990s levels yet! The folks who claim gold is expensive apparently don't understand inflation." Apparently Goldman Sachs is thinking the same thing, and they are recently famous for having said that oil could go to $100 a barrel in the next tightening cycle, and this has caused quite a stir, which will soon evaporate, of course. - Peter Schiff, of Euro Pacific Capital neatly encapsulates the dilemma facing the Federal Reserve, now that it is reaching the end of its irresponsible over-indulgence of cheap money, "To fight off the recession dragon, the Fed will look to brandish its only weapon, its interest-rate-cutting sword. However, the minute it does, it will be attacked by its other nemesis, the now much fiercer inflation dragon. To fight this monster, the Fed will reach for its other weapon, its interest-rate-hiking sword. Realizing that it cannot wield both swords simultaneously, it will slay neither, and be consumed by both." This is much classier than me yelling out of the window yelling "We're freaking doomed!" - This part just showed up as a result of cutting and pasting, so I don't know who said it, but some woman asked. "So here's the most under-asked question of the year," she says. "If Warren Buffet[t] isn't putting Berkshire Hathaway's money in stocks [or in real estate], can this be a good time for anyone else to do it?" - Antal Fekete, writing on Free Market New Network, has penned several "Goldbug Variations" articles, which is a clever adaptation of the musical Goldberg Variations. In them, he does not actually mention Bach, which you would kind of expect, but instead writes, in Goldbug Variations I" that "Bond speculation introduces distortions into the economy that will inevitably cause the downfall of the regime of irredeemable currency. It may or may not be through runaway inflation as in France during the last decade of the eighteenth century. It may be through runaway deflation. In either case, there will be enormous economic pain." In the third installment, cleverly entitled "Goldbug Variations III" that "One of the more imbecilic ideas of dismal monetary science is that devaluation of the currency helps the country to export more and import less, thus rectifying the trade imbalance. It is absolutely amazing that economists do not find it repulsive to parrot this trash, apparently on order from the grant departments of the FR banks (in whose interest the policy of currency debasement clearly is). Currency devaluation makes your terms of trade with the rest of the world deteriorate. This means that you can import less for every dollar of export earnings as a result of devaluation." So there is the rub. If the dollar buys less, we buy less, the foreign seller gets less, and thus has less money to "invest" in American debt, which provides the credit with which to buy the imports in the first place. He goes on to say "Virtually all export items have imported ingredients, so devaluation makes them more expensive to produce, not less." - Doug Noland has also tipped us off, courtesy of Bloomberg, that maybe putting a little investment money into cotton would be a good idea, because "China, the world's largest cotton consumer, will probably have a bigger shortfall next year because 2005 cotton acreage may fall about 11.5 percent, the National Development and Reform Commission said Prices of the fiber are expected to rise this year because global production may drop 9 percent while consumption may rise 2 percent, the commission saidciting international forecasts." - And for those of you who have seen the full-suit-but-empty-headed morons parading around the set of CNBC talking about how corporations have all this money just sitting around in their vaults getting mildew all over it and how this bodes well for capex spending, Kate Welling, in an interview with Doug Noland, said "Andrew Smithers did a neat job in a recent report (published by his Smithers & Co.) of using the Z.1 to show that U.S. companies are anything but flush with cash. His contention, in fact, is that they're currently paying out more, in (paltry) dividends and share buybacks, than they're earning in profits-a situation that clearly can't go on forever, and has obvious negative implications for the stock market." Then she gets back to something that always makes me prick up my ears when she ask (obviously playing the devil's advocate): "As long as the governments of the world keep running their printing presses, what's wrong with a using a little inflation to keep things moving along?" And here is where we see the big difference between me and Doug Noland. I would have answered that question by screaming "What are you? Some kind of brain-damaged halfwit? EVERYTHING is wrong with a little inflation, you silly little twit!" which is, of course, a line I stole from Monty Python. But Mr. Noland, always the classy guy, cooly answers: "There are consequences-and they are not all benign." And it is not even just us! He says that inflation is "everywhere in the world. It's gone global. It's endemic. It's commodities, home prices, bond prices, stock prices, foreign real estate, emerging bond markets, emerging equity markets, Chinese real estate, for gosh sakes." And it is not going to get better, as "We have very highly liquid competitors now. And we are bidding against them for whatever we want or need." And notice that he is too much of a gentleman to mention that inflation is guaranteed, since all of the world's governments are actively printing whole mountain ranges of money for the bidding war! He then proceeds to give her a little education about how the economy has been distorted into the malignant monster that it is. He tells her, "When I talk about 'financial arbitrage capitalism', I mean you are what you eat. The economy is how the financial sector lends. So if everything is a spread trade and no one cares about the underlying credit or the underlying economic return, how could you expect that to work well for the structure of the economy? It can't." Then, looking at history, Mr. Noland talks about the crash 1929, "When the speculators got hammered and liquidity collapsed, the economy was so distorted that it couldn't function without that speculative liquidity." And this is why the despicable Federal Reserve continues trying to pound money into the system. Will it work? Hahahaha! And while I am busy laughing at the question, Mr. Noland seizes the microphone and says "It will keep working amazingly well, but only as long as the liquidity keeps flowing." So what is the problem? Well, if you had kept listening and not rudely interrupted by asking the question, you would have learned what the problem is. In Mr. Noland's own words "It's not sustainable." - The job numbers surprised Bob Wood of Kaizen Managed Assets, too, and he stopped demanding that I pay back the money I owe him to take a look at the employment numbers and says to me, "The BLS confirms110,000 new jobs, albeit with 179,000 of those jobs the result of the birth/death model! And Kudlow is glowing at how strong the economy and job market are!" So, after adjustment, the March Jobs Data is actually lower by 69,000? Hahahaha! 69,000 jobs were actually lost! Hahahaha! - Stephen Leeb, senior editor of the Complete Investor newsletter, says that there is a consensus that they yuan may be worth "five or six times its current value." In fact, he says that the currencies of China and India are going to "jump against the dollar-by at least four or five times". Now, I don't know how good YOU are at this investing thing, but for a loser like me, a 400%-500% gain is a nice investment tip ! But he is not done yet. Noting that the Chinese are producing stuff like crazy, he then extrapolates "Multiply 400%-500% unit growth times 400%-500% monetary growth, and you have yearly profits of over 20%... for the next 20 years." He deduces that you should have your money in China and India because that region will be "the main event - almost the only show on the planet -for the perhaps the rest of your life." How can this be, you ask? He has a ready answer, namely that that "half of the earth" is "no longer a mass of peons eking out an existence. Their 2.3 billion people are jumping from third-world status to first-world- in one generation." Apparently even the sight of newsreels of the misery of the Depression is not enough to convince these people about the dangers of excess credit and money, and the horrors of the Weimar hyperinflation in Germany leaves them cold. I mean, you can see that the newsreels never show them watching TV, because they couldn't afford TVs, and the kids are not playing video games for the same reason, and they don't even have microwave ovens! And all because their money was debased to worthlessness, just like we are doing! I mean, how poor can you be? And yet Bernanke and the rest of those low-IQ, New Age weenies at the Federal Reserve all say to look at how inflation is so low! It reminds me of the Monty Python sketch where King Arthur chops off the arm of the Black Knight, who denies that his arm is chopped off by saying "It's just a scratch!" - I got this in the mail, and it is supposedly some of the dirty laundry of the 535 members of Congress. This is, so the letter goes, their record: 29 have been accused of spousal abuse *7 have been arrested for fraud 19 have been accused of writing bad checks 117 have directly or indirectly bankrupted at least 2 businesses 3 have done time for assault 71 cannot get a credit card due to bad credit 14 have been arrested on drug-related charges 8 have been arrested for shoplifting 21 are currently defendants in lawsuits 84 have been arrested for drunk driving in the last year Given the general quality of the people we routinely elect to Congress, I assume this is only scratching the surface of that iceberg. Ugh. **** The Mogambo Sez: My wife saw a sweatshirt in a Wireless catalog that has written on it, "Some days, it's not even worth chewing through the restraints." Richard Daughty email: RichardSmithGroup@verizon.net Daughty Archives Provided as a courtesy of Agora Publishing and 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. Recent Gold/Silver/$$$ essays at 321gold: Apr 16 Gold Stocks: Good Times Are Here  Stewart Thomson 321gold    Apr 12 Gold & Silver: The Start Of Something Big?  Morris Hubbartt 321gold    Apr 12 Gold, Miners Overboughtness  Adam Hamilton 321gold    Apr 12 Outside Reversals in Gold and Silver  Bob Hoye 321gold    Apr 11 L@@K Amazon Kindle and Paperback Books by...  Bob Moriarty 321gold    Apr 11 Silver - Finally a Breakout  Bob Hoye 321gold