Some days, it's not even worth chewing through
...the angriest guy in economics
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"
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.
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
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
- 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
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
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,
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
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"
- 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
- 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
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
- 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
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
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
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
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
- 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
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
*7 have been arrested
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."
Provided as a courtesy of Agora Publishing and The
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
and other fine publications.
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