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Theater of the Absurd
weirder and weirder

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
April 14, 2004

Last week, we took our camera into the bowels of the Federal Reserve and searched out Fed Custody Holdings, and I remember remarking to myself that foreigners had, for the first time in a long time, actually decreased their holdings of US debt assets by, as I recall, $16 billion or so. I remember it because that $16 billion figure is the exact same amount as the estimated weekly cost of the tranquilizers that trained professionals want to prescribe to calm me down and keep me from screaming about the economic deep doo-doo that we are in. And in saying that you also probably immediately recognize why I said we were taking our cameras into the bowels of the Fed.

Well, I am proud to say that these sneaky foreign devils, some of whom actually drive on the wrong side of the road, I suppose because the steering wheels of their cars have been installed on the wrong side, so you can just look at their automobiles to tell how smart they are, have been reminded who has the most nuclear missiles, and who are the biggest bullies on the block. Almost immediately those foreign dudes with their funny-sounding foreign languages and odd customs have been brought back into line. To prove it, they bought up $16.7 billion of our debt last week. This is good news, because the Treasury admitted to issuing almost $21 billion in debt last week, and they were frantically parading up and down the street looking for somebody to buy that mountain of paper.

As an aside, being the kind of slow-witted, low-IQ dude that I am, nobody ever asks me to do any adding or subtracting, except when I show off for Uncle Jed, showing him and Ellie Mae that I can cipher real good. But that is only when, for mysterious reasons that have professional mental health experts scratching their heads, I think I am playing Jethro Bodine on TV's "Beverly Hillbillies," although in real life whenever I actually do mathematical computations they are always simplistic, sophomoric things that are too easy for your average third-grade kid, who can usually do them in his, or her, head. So, as a case in point, I take the $21 billion weekly issuance of debt, multiply it times fifty-two weeks, and compare that annual debt issuance to, oh, let's say, income. Oh, not YOUR income of course, because you are so smart and handsome and you make the big bucks. No, I'm talking about the national Personal Income, which is listed as $9,364 billion, a figure that includes the pathetic contribution of us ugly little trolls out here slaving away at our pathetic little low-paying, dead-end jobs, and then coming home at night to listen to someone else whine about THEIR pathetic little low-paying dead-end job, although we have no interest in her damn day, and I think I speak for all us trolls when I say that we seethe with envy at your good fortune.

Anyway, so when I calculate all that out that, I find that the federal government, our lackluster elected officials, are putting us in more debt, to the tune of 11.5% of our income. Just this year alone! I can see that this little revelation has impressed you, and in your sudden panic your eyes involuntarily dart toward the door of the armed and armored Mogambo Bunker, and how your computer-like brain has instantly calculated that if you can make it in there and slam the door, that you will be safe from the coming conflagration. But I gotta warn you; you won't make it. No, you have to remain out here in the open and live with your fear, like the Mogambo used to do in the old days, before he hit upon the plan to use the Second Amendment in the way intended by the Founding Fathers; forging an impregnable fortress that can spew out a continuous fusillade of hot lead in every direction at the slightest provocation.

The purpose of this pointless exercise in mathematics is that we used to get worried when consumer Installment Debt went up by a measly ten or fifteen billion a month! And speaking of which, all is not well in America, land of the Clueless Leftist Bozo (CLB), as consumer credit growth slowed markedly last month, which means that total debt only increased by only five billion bucks, to a 2.5% annual rate. In the USA we have been accumulating debt at such a tremendous rate, for so long, that five billion smackeroos a month is chump change, and a measly 2.5% monthly growth in debt loads is an alarming slowdown. Einstein was right! It IS all relative! Hahahaha! Five billion a month, versus twenty-one billion a freaking week! Hahahaha!

Okay, I realize this is not funny to those of you who cannot appreciate the humor inherent in Theater of the Absurd, but believe me when I tell you that for those of us who appreciate such a thing, this is funny as hell (FAH)!

So while you are looking at your credit-card statement and that big pile of bills emblazoned with large red letters shouting "Past Due! Last Notice! We're Coming Over There To Get Our Money, Deadbeat!" and you are wondering how in the hell you are going to pay off that growing indebtedness without selling your irritating kids or robbing a bank, or sending that worthless kid to rob the bank for you, our elected chowder heads are plunging you farther into debt at dozens of times the rate that you do! And believe me when I tell you, and pay attention to the look of deadly seriousness on my face and stop staring in dumbfounded disbelief at the size of the inflamed pimple on my nose, that you are going to repay every dime of that borrowed-and-spent money, in the form of higher taxes and higher prices. Every freaking penny. Such are the Iron Laws Of Economics.

So, somebody is going to get beaten to a bloody pulp when bond prices fall as interest rates rise, due to the rise in inflation rates caused by all the monetary expansion (the "reflation"). So, in typical human fashion, why not let it be guys who we traditionally regard as "them," instead of us homies? And again I refer you to the nuclear missiles thing, and here is where the Mogambo holds up a finger, smiles and winks, and says "And let your mind focus, young grasshopper, on our recent track record of invading countries and killing a bunch of them!" Makes you think. Made them think, too, apparently.

Newsflash to the media of the USA! Dateline: Deep inside the Mogambo Defensive Bunker. "Flash! A heavily-armed raving lunatic posing as a Concerned Scientist with graphs and charts and all that scientific stuff has issued this important bulletin! He reports that, once again, Alan Greenspan has proved that you are a worthless collection of childishly-trusting lunatics, and are raving mental incompetents to boot, as he looks you right in the eye and tells you that the price inflation that you are seeing with your own eyes, at least before Greenspan started looking into your eyes and trying to hypnotize you, is not happening in front of your own eyes! And you believe him!" If you read down farther into the article, you will see where I say "I mean, import prices increased 0.9% last month, yet Greenspan has, according to the Wall Street Journal, 'discounted that risk' of inflation! Petroleum prices are up 6.1%, and Greenspan has probably also 'discounted that risk' of inflation, too! Export prices rose at the 'fastest rate in nine years,' surging at 0.9%. Greenspan, of course, has doubtlessly 'discounted that risk' of inflation, too." And in looking at the back pages of the Economist magazine at the Dollar Index of their Commodity Price Index, we note with alarm that, in the last year, All Items are up 32.8%, Food is up 27.3%, All Industrials are up 40.9%, Non-food Agriculturals are up 22.6%, Metals are up a blistering 58.5%, oil is up 22.6%, and
gold 29.3%! How in the hell everything can be up between 22% and 58%, and Greenspan and the other Fed pea-brains can claim that inflation is "low," is beyond me.

Well, the facts are not lost on everybody, as on Monday the Wall Street Journal had a front-page article entitled "Price Increases in Asia Fan Inflation Fears in U.S." After using a lot of ink relating the eyebrow-arching rise prices of everything that you can name, and even things that I cannot even pronounce, they quote a lot of Fed officials who are all in agreement that the Mogambo is an idiot, and if you think that inflation is rising just because prices are rising, then you, too, are an idiot.

They go on to announce that labor is about 65% of production costs in goods and services, which makes a kind of weird sense, since services HAVE no commodity costs inherent in them, which I can verify because I went to the barber last week and I did not see a single bushel of soybeans in the whole place.

On a more personal level, I report that the government is, as you are no doubt aware, out to get me, and sure enough, last week my washing machine finally quit. It was so old that the lousy timer to fix it was $61 freaking dollars. But my wife was getting tired of the rusted exterior, the dripping water, getting a shock when you touched it, the sparks flying, that smell of burning insulation, the weird permanent stains on the clothes when they came out of the thing, the banging and clanging and blah blah blah, so we bought a new one. It cost $320, tax, tag and title. But, and this is the part that kills me, the delivery charge would have been $70!

My mind reels! People can mine, ship and smelt ore, collect, ship and refine other materials, produce metal and plastic parts, assemble it into a heavy machine, pack it up, ship it across country, keep it in inventory, sell it to me, pay sales taxes of 7%, and all for $320. But to go that last three miles would cost almost another quarter of that!

So the fact that labor is a BIG part of production of goods may indeed be true. But the Fed boneheads think that because they can break those costs out of the price means, I guess, that it no longer has anything to do with inflation! Weird!

Then, to make matters worse, the WSJ had an article by Greg Ip on Tuesday that caused my blood to run cold. The headline was "Yellen Is to Head San Francisco Fed Following Parry." This flaming nincompoop, Janet Yellen, thinks that goosing employment is more important than controlling inflation, and is on record as arguing that inflation should not be allowed to drop below 2%! When I read that, all three remaining brain cells in my brain went into spasm.

This mental midget, and for those of you who have not been paying attention I remind you that her name is Janet Yellen, actually WANTS price inflation to rise, which, unless wages also rise by more than that, will cause a fall in standards of living! She wants us to have a falling standard of living! And since wages do not rise across the board, the people at the low end of the scale pay a heavy price, as their wages always seriously lag. So remember what I said about Janet "Jackass" Yellen, as you will find that you will spend a considerable amount of your time in the future cursing her name.

Greg Ip, bless his heart, wrote "Her appointment continues an unusual amount of turnover in Fed policy makers." This may be the biggest understatement of the century, as the Fed has metamorphosed into an America-killing inflation-machine, and if I thought Ben "Bonehead" Bernanke was bad, this Yellen succubus is a horror straight from hell.

In an article in Business Week entitled "Why Housing Is About to Go 'Pop!'" Mark Weisbrot referenced a guy named Dean Baker at the Center for Economic Policy & Research who has looked at national housing prices going back to 1951. Mr. Baker says "Prices pretty much track the rate of inflation up until 1995. But since then, average prices on new and existing homes have soared more than 35 percentage points beyond the overall rate of inflation. Is that unusual? You bet it is."

And although Mr. Weisbrot did not follow that up with a quote from the Mogambo, I will include it for you now. "When something is unusual, meaning that this meteoric rise in prices has never happened before in the whole history of economics, does it usually mean that something bad will happen? You bet it does!"

Robert Folsom's Market Watch writes "And while cycle patterns may not be rocket science, they can be powerful indeed. They capture when to expect a turn in the trend -- which is to say, cycles present a timing opportunity."

I'm a big believer in cycles, as things that have been going up can't keep going up. And so they have to turn down. And they can't keep on going down, either, so they have to turn back up. And when they do, you have a cycle.

Noting with satisfaction that I have a rough, tenuous grasp of what is meant by "cycle," Mr. Folsom says "Our analysis shows that such a moment has arrived in the Treasury market." Uh-oh! With a debt market so huge, so pandemic, so universal in the breadth of it's toxic breath, spanning international borders, crossing whole time-zones, and at yields that are so low that it seems impossible that they could get any lower, the cycle is being renewed. This is bad news, indeed.

But there is some good news to report. A couple of years ago I predicted that agricultural land would rise in price as the price of commodities increased. This has turned out to be true, so the reports indicate. So if you had followed the advice of the Mogambo, you would still be laughed at for your lack of self-respect for reading such trash, but your farm would be up in price.

Geocities.com posted "Cycle Pros" by a guy named Stephen J. Williams, whose philosophy is the kind of witty profundity that I would get tattooed on my arm, if I wasn't such a wuss about pain and needles. So tattoos are a long, long way from where my head is at, to lapse into the vernacular. Maybe I could have it printed on a T-shirt or something. Anyway, he says "I would rather be prepared and wrong, than to be unprepared but right." The message is that accumulating
gold in these modern times of upheavals is a good idea.

And this is the essential lesson of the Boy Scouts, whose motto is Be Prepared, although I point out that the damned Boy Scout handbook didn't say anything about fortifying yourself with
gold and large-caliber armaments, which may have been an oversight or a typo, I don't know.

But fortunately for us, Mr. Williams does more than toss off timeless bon mots and remind me how the Boy Scouts left a lot unsaid. He also reveals one of the more strategically-oriented indicators. He writes "The frequency of Help Wanted Ads seems to be a much more sensitive indicator of economic health, as compared to quarterly Federal Deficit figures. Right now we are seeing an extremely low ad frequency rate. This, perhaps better than any other statistic, demonstrates the recession of the current employment market."

He is also a very funny fellow, and I figure his Vegas stand-up routine is a killer. He says that his forecast "is the optimistic one... DJIA 5600 area by 2010 and 3300 by 2014. In the same timeframe I expect
gold to reach $2000 oz and silver as high as $90 oz."

This is optimism? Hahaha! What a card! Hahaha! Hey wait! Maybe there IS an upside to this! Let's take a look at that silver figure there! Snatching the calculator out of the trash where I threw it in my frustration from my last exhausting skirmish with it, my fingers quickly fly over the keyboard, playing that HP12-C like a master violinist. With silver selling at around $8 an ounce, then P=$8! FV=$90! N=10! And the interest rate that makes that these numbers work out, that glorious compounding interest rate, that fabulous, magnificent compounding effect that Einstein said was a miracle, and I admit that I am as giddy as a schoolgirl as the number flashes, is 27.38%! Wow! Talk about an investment winner!

I know that you remember how the Mogambo heaped scorn on the whole idea of the Fed creating more money and credit to produce a reflation. I know what you are thinking. You are saying to yourself "The Mogambo never said anything about reflation, because all he ever talks about is how alien beings from another dimension are tampering with his mail." Well, that is true. So let me correct that oversight, and say that inflation is always bad, and that reflation is merely putting a New Age prefix on inflation, but which results in an added piquancy of a delightful hint of benefit to it, like a refreshing hint of Spring or something, as it makes the price of assets rise. But reflation is just inflation dressed in a frilly hat. So why would any government that had an IQ above that of a slug do such a thing as try to reflate/inflate the economy? Ah, my darling quizzical one! My heart soars to hear you speak with the Wisdom of the Ages! But you are not the first one to ask that question of the Mogambo. In fact, the only question MORE popular among the Seekers of Enlightenment that sit at the feet of the Mogambo is "What is that stink?"

But the Mogambo is now saved from any future threats of exertion such as thinking or answering questions, as now all I need to is to smile knowingly, languidly raise my finger, and point to this website, and the novice can read for himself, or herself, where Mr. Williams has provided the answer. "Inflation is a stealth tax and has a very efficient built-in collection scheme... everyone holding Dollars is affected and everyone's purchasing power is diminished, therefore the collection of this 'tax' is 100% efficient. And to make it even better, there is no paperwork to fill out, no check to send in, no harassing telephone calls from the tax collector, and the government can continue to print all of the dollars it wants so it can continue a free spending policy." And, of course, higher prices means, ceteris parabus, more sales tax collected at the state level, with which to fund THAT particular cancer.

And although he did not mention it, I will do a little of the heavy lifting and denounce the $275 billion transportation bill that is wending its way through Congress as the poster child for this "free spending" thing. Senator Byrd was wrong when he declared that Congress was the "greatest deliberative body in the world." Congress is, to the contrary, the world's premier bastion of criminal fiscal irresponsibility and abysmal economic ignorance, and for Senator Byrd to say otherwise marks him as a real dimwit.

So, do ya wanna know how much money it will take to keep the reflation going for a year? Me, too. If you asked me how much money it would take to fund a general reflation for year, I would avert my eyes and give my usual classical, textbook Mogambo answer, which is to shrug my shoulders, and mumble "I dunno," and then turn it back on you and give you a vicious third-degree on "Why you want to know? And why are you asking ME that question anyway? You trying to make trouble? Is that what you want? You want a piece of me? Huh? Is that what you want? You want a piece of me, punk?"

But fortunately it didn't come to that, as James Cook of Investment Rarities, in his article "Boom or Bust," has helpfully done the math for us, and he figures that about three trillion bucks ought to do it. Now all we gotta do is ramp up three trillion smackeroos and have somebody borrow it all, and put that mountain of money into stocks, and bonds, and houses. See how simple this economics stuff is? This stuff is easy! I mean, how much do we overpay this Alan Greenspan character and all those other Fed guys anyway? A retarded chicken pecking at a computer console, mindlessly pressing a button emblazoned with the words "Increase credit" could do every bit as well. And if a mental-defective chicken WAS appointed as Fed Chairman, whenever this new chairman gave a speech, the people in audience might even get an egg, which is, I am sure you agree, a lot better than what the audiences who listen to Greenspan speak get, which is to have their heads filled with lies and optimistic mumbo-jumbo, which has no nutritional value at all. So what do you want? An egg that you can make into a delicious omelet, or vacuous mumbo-jumbo? The choice is yours.

All it takes, and you might want to pay particular attention here because this is the crux of the matter, is to convince a bunch of guys to borrow the money and, for reasons that befuddle me, invest it in those overpriced assets. Then the prices of the assets will go up some more. Or, as we say in the economics biz, reflates.

And with the right incentives, notably tax-related, there is no reason to suspect that it cannot initially work. Will Congress step up to the plate and do something heroic and stupid, a kind of desperation-induced "clutching at straws" legislative nonsense? Who knows? Congress knows. And since you know Congress, you know the answer, too.

Mr. Williams is such a nice guy that he also gives us, as a sort of going-away present that you can think about on the way home in the car so you won't have to listen to the wife going on and on about the egregious social errors of my every word and deed in the last two months and how she and her loudmouth friends think I'm such a big jerk, a little tidbit that is interesting. He reports that "The total value of items sold on eBay in 2003 was $24 billion, up 60% from 2002's $15 billion. "

I forgot where I got this, probably Bloomberg or somebody, but they reported that "The Senate delivered American companies more than $80 billion in pension savings Thursday, sending President Bush legislation that provides additional relief to steel companies and some airlines that had clamored for the help."

What a deal! Hell, all I wanted was for them to tell the FBI that if they want to spy on me, then do it with more modern wiretaps that didn't squeal and pop in my ear, and I can't even get that! But here these guys are looking for a legal way to screw a lot of old guys out of their pensions, and the Congress is falling all over themselves to be accommodative!

"A group of Democrats called it unfair because it failed to afford the same financial benefits to some smaller union pension funds." Typical Democrat response, which is spreading a thick uniformity of pain, which is their definition of "fairness."

But, to their credit, some of the backers of the legislation admitted that said that it was only a temporary fix, but that they were holding their noses and voting for it anyway, because it "would help keep some major employers solvent and competitive." Which is also, I hasten to add, also "a temporary fix."

To add a little farcical humor, Senator Judd Gregg, who is a Republican of New Hampshire and which doesn't say much for New Hampshire, says "It is really the ultimate jobs bill." It is not. It's an ultimate jobs bill when you pay me a thousand bucks to hire someone at a hundred bucks. THAT is the ultimate jobs bill. Screwing a bunch of employees out of their pensions so that management can have a little more time to extract larger paychecks and prepare to abscond with golden parachutes is NOT a jobs bill.

The change is explained as "The legislation, a top priority of business groups, saves companies substantial amounts on their pension plans by changing the way their required contributions are calculated. The legislation ends a requirement that contributions be tied to interest rates on 30-year Treasury bonds; it substitutes a rate based on a composite of long-term corporate bonds for 2004 and 2005." So, it is the old Dilbert witticism, "We changed our projected income by modifying our assumptions." In this case, the change in assumption is that accounts containing retirement monies will somehow, in some mysterious way that eludes me, automatically grow at a faster rate simply because they are being benchmarked to corporate bonds, which pay a higher yield than Treasury bonds! Hahahaha! Pension accounts aren't growing at the old lower rate when they were tied to T-bonds, but now -- and I'm laughing so hard that I think I made a mess in my pants here! --they are going to grow faster because, becauseHahaha! I can't go on! Hahahaha!

For those who did not contribute enough to Congressional re-election campaigns, this largess does not apply to them, which is probably to teach them a lesson in The Democracy That We Are Forcing Down The Throats Of The World. But these bit players still get something. "A separate provision grants an estimated $1.6 billion in savings to airlines and steel companies with weak pension plans by allowing them to pay only 20 percent of what they would have to provide under requirements to bolster their pension funds."

In short, we capitalist swine business owners owe the employee pension fund a hundred bucks, but Congress says we only have to pay them twenty bucks. Blatant, but effective.

You know, deep down in the depths of your very soul, that I would not let the Antonin Scalia flap go by without a rude comment, an asinine observation, a worthless opinion, a feeble attempt at humor, a heaping helping of scorn, a lot of ridicule, some characteristic venom and hatred, and finally ending up with me lashing out in primordial fury at everybody and everything.

So let's get started, because today I am in just the sort of mood that is required for me to take on a Justice of the Supreme Court, a guy who has been doing this for so long that he knows where a lot of bodies are buried and can get a LOT of favors done, and who can tear the Mogambo a new one by just making a phone call, if you catch my drift.

But I stand unafraid, too stupid to comprehend my folly, to take on the powerful! I laugh -- ha! -- at danger, as I am (trumpets blow a fanfare as I slip into a handy telephone booth to change into the costume of the Mighty Mogambo) the aforesaid Mighty Mogambo himself!

Now garbed in fetching outfit accessories, mostly consisting of a snazzy propeller beanie and a cape with a big MM on the back, I spring atop a nearby dumpster. I pronounce, with all the sincerity I can muster, in a voice that is altogether too loud and irritating, "The guy should apologize for being an arrogant jerk!" My reasoning is thus: It is no crime, after all, to be an arrogant, conceited bastard. He is allowed to think that, because he is powerful Supreme Court Justice (SCJ), he is justified in demanding that whole swaths of the Constitution don't apply to us anymore, and that he can order us about, and order the confiscation of people's private property to enforce a paranoid whim that he forgot to tell anyone about.

To my embarrassment, I admit, and notice by the way I am hanging my head and shuffling my feet back and forth in my discomfort, that I sorta sympathize with him, in that I have tried that tactic before. But not anymore! Twice a week I attend the local chapter of Arrogant Bastards Anonymous, and I stand up and say "My name is The Mogambo, and I think that I am the center of the whole damn universe, and I further think that all of you pathetic losers owe me something."

I don't know what it was that caused the change in my outlook, but finally, after decades of arguing and whining, court-ordered professional help, my wife putting something in my food when she thinks I am not looking, or something, the clouds began to lift. Now I see that this is, to my everlasting regret, wrong. I am, and I still find these words difficult to say, not the center of the universe. But I am receiving treatment, but I still get no government checks for my disability to pay for my long, difficult road back to recovery, I am sorry to say. And when Mr. Scalia is ready to admit that he has a problem, then he will seek out his local chapter of Arrogant Bastards Anonymous. But, sadly, until then, there is nothing we can do.

I now turn my wrath, and if you are a big Hollywood producer I think you should pay me some big money for the rights to the story of The Mogambo, a story I call "The Wrath of the Mogambo," to the nasty little pipsqueak deputy marshal who, single-handedly, is the personification of American Goon Squad, and who just grabbed the guy's tape recorder and erased it, although she did not, I am happy to report, draw her sidearm and get off a few rounds just to show 'em who's boss around here.

Nevertheless, I hasten to demand criminal penalties for this arrogant storm trooper deputy marshal who confiscated a reporter's recording device and destroyed his property, as she operated as judge, jury and executioner for the crime of some guy taping a Supreme Court big shot giving a speech, in public, in a high school, where he has absolutely no expectation of privacy, and who forgot to post the restriction that he did not want to be recorded. That crap about "I was just taking orders" didn't work at Nuremberg, and it ain't gonna work here, either.

Niall Ferguson, of The Telegraph UK, writes "Americans Have Not Learned the Lessons of History." He has written a book that is due to be released soon, with the intriguing title "Colossus: The Price of America's Empire." His thrust is, after I have massaged his remarks to better illuminate my own thinking and thus twist his words to my personal vindictive agenda, that we Americans are an arrogant, dimwitted bunch who contribute nothing to the collective society except to prove that the USA has the worst educational system in the developed world, and which accounts for the profound observation that US policy in Iraq, US policy in fiscal and legislative matters, and in monetary policy are " in the hands of a generation who have learnt nothing from history except how to repeat other people's mistakes."

"Muni Underwriters Set to Hang Out Help-Wanted Sign" is an article by Joe Mysak, who writes, "States and municipalities are using the bond market more, to build bridges and schools and to fill holes in roads and gaps in budgets, among other things. More bonds are a fact of life. From 1993 to 2003, municipal bond issuance has averaged $276 billion, up from $150 billion the previous 10 years.

"Last year was a record year for issuance, $384 billion. It topped the previous record, which was posted the year before: $359 billion." Now that's a big ol' heap of debt that us taxpayers are going to have to repay in higher prices and higher taxes. But that is all ancient history. How is it going in the couple of months of this year? Worse. He says, "So far this year, $84.6 billion in municipal bonds have been sold, according to The Bond Buyer newspaper."

According to Eamonn Fingleton on his site at Unsustainable.com, who has been more vocal than most on the nightmare that awaits a country that has such an outsized trade deficit, "Figures to be published in March will show that expressed as a percentage of GDP the current-account trade gap has now topped the psychologically important 5 percent level. This is the worst performance since American economic records were first published in the 19th century. By comparison, the notorious U.S. trade crisis of 1971-72 was a mere blip. The trade deficit in 1972, at 0.5 percent of GDP, was less than one-tenth the current level. Yet the 1972 trade deficit seemed so troubling in prospect that President Nixon was forced to devalue the dollar and cut its erstwhile 'sacred' link with

He goes on to say, "Not only is a 5 percent current account deficit unprecedented in American economic history, but it is shocking by all previous world standards. Other major nations have incurred percentage deficits approaching this scale only at times of extreme economic distress, most notably during the two World Wars and in their immediate aftermath. The only time any of the six most economically important nations ever ran a trade deficit of more than 5 percent of GDP was Italy in 1924 - hardly an auspicious precedent given that economic problems helped pave the way for Mussolini's seizure of dictatorial powers."

Then he endears himself to my heart when he jabs at Greenspan, and urges him to resign.

"By making a graceful exit now, Greenspan can hope to be remembered for his intellectual courage in admitting his mistakes. On the other hand, if he hangs on, the result will be certain obloquy: he will be fated to be remembered as the man who lost America."

On the Lew Rockwell.com site, Jim Grichar wrote an interesting article entitled "Cutting the Federal Budget to Prevent U.S. Bankruptcy - Part I." The thrust is that the size and cost of the government has got to be greatly reduced or we will go bankrupt. Or worse. And that now, he figures, teetering on the edge of the abyss, is the perfect time to do it. He writes "An independent presidential candidate needs to state that the welfare-warfare state concept on which the U.S. government has been run for more than a century has got to come to an end. Otherwise, the U.S. will plunge into economic chaos."

It ain't a-gonna happen, Jimmy my boy. Not the chaos thing, which WILL happen, but the thing about ending the welfare state. Almost one in five people with jobs in this country work directly for a government. All those jobs, all those suppliers, all those sub-contractors, and whole multitudes of people are going to make sure that THEIR precious little jobs and income streams, which all stem from government, will not be affected. If you try, the parasite class will rise up and, drooling with fury, make a big stink, as is happening in Germany. This is one of the many, many, many reasons why it is so necessary that you NOT get into that Bankrupting Big Government Crapola Mode (BBGCM) to start with. And the only way to prevent it, and you knew that I was going to bring this up because that is the kind of simplistic, one-track mind that I have, is to prevent the damn government from getting the money and power to grow in the first place.

And the only way to do that, and I am sure that you are waaayyyy ahead of me on this one, is to have a money that is
gold, as the government cannot print gold. And I am sure that you remember from reading the Bonner and Wiggin Book "Financial Reckoning Day," every country in the history of countries that has allowed their idiot governments to print as much money as it wanted ALWAYS ended up in -- what was that phrase Jim used? -- economic chaos.

And as much as Jim would love to save America, as much as I would love to save America, it is too late by a long, long shot. Your only option is to make money on the knowledge. Buy

Peter Schiff, the intellectual powerhouse at Euro Pacific, has taken a look at the economic tea leaves, and sees that "Since bond prices have not been supported by legitimate investor demand, but by leveraged speculators and foreign central banks, when the former tries to unwind its bets in an environment where the latter is no longer an aggressive buyer, bond prices will collapse and interest rates will surge. Given the high degree to which American consumers, U.S. corporations, and the Federal Government are dependent on low interest rates, a sudden and severe rise in rates will crush the economy."

Although Mr. Schiff is too polite to say it, the Mogambo is, among other things, genetically politeness-impaired, and I prove it as I spring to my feet and rudely interrupt Mr. Schiff to say not only are these agents dependent on low rates, but they have acted like dimwitted morons and borrowed and leveraged themselves so much that any small, incremental, tiny, little smidgen of a hint of a move toward higher rates will have all those deleterious effects, and more.

Now, it is one thing to look at tea leaves and see things, but it is another to remain calm when one extrapolates, as he does, the results of such things. The inescapable conclusion is, as he says, "As various forces interact in a series of self-perpetuating, vicious circles, the U.S. economy will enter a perfect storm of rising interest rates, consumer prices and unemployment, falling asset prices, and economic contraction." Exactly.

John Ing, who is the president and CEO of Maison Placements Canada and has a reputation for being a real
gold bug, was written up in the National Post, and the title of the article was "Is It Back To The '70s For Gold?" Says Mr. Ing, "My sense is the big move is coming for gold. I've been saying consistently that US$510 is my target, but I think it will be easily surpassed this year."

He notes that
gold is starting to move out and break out against the euro and the yen. "In other words," he says, " gold is going to start to outperform all currencies." He also figures, as I do, that the primary driver of gold will continue to be the debasement of the dollar, which we both a say is merely a symptom of a sick and twisted U.S. economy, which is, in turn, the result of having a sick and twisted Federal Reserve.

"One of the reasons I'm bullish is that China has less than 2% of its reserves in
gold," he says, noting that China and Japan hold a lot of US debt, but they may not want to hold U.S. dollar-denominated debt for the long term. He figures that "They are starting to look at diversifying," and one of the time-honored ways is that wonderful yellow metal we all love, gold. The Chinese did recently allow the Chinese citizens to own gold after all these years of suppression, and there is a lot of pent-up demand, so the theory goes.

But regardless of any of that, he is not optimistic that the Greenspan Fed has this inflation thing under control, even though Greenspan wakes up in the morning and screams "If there is a God, then please let the Mogambo be blind to the inflation I am causing!" Therefore, he is pretty confident when he says, "I can guarantee you interest rates are not going down."

The coming economic chaos is perhaps exemplified by the horror that is unfolding in South Africa, laid out in a new book by Dr Philip Du Toit, "The Great South African Land Scandal." According to the book, desperate poor people are invading and taking over private farms, robbing and killing the few South African farmers who are not similarly destitute, and the entire economy is spiraling down to complete collapse. In short, the farms of South Africa are disintegrating under pandemic corruption and lawlessness.

And these people are poor and destitute in large part because, as the South African President himself says, "They are unemployable." And considering the abysmal educational achievement of graduates of American schools, who consistently test out as the most ignorant and poorly educated knotheads in the developed world, we are not far behind them.

Perhaps this is why the International Data Corp. issued a report that showed "23% of all spending on U.S. white-collar technology work will be offshore by 2007."


--Mogambo Sez: It just keeps getting weirder and weirder, and I am struck by the fact that there has never been a published theory of economics that postulates that the basis of economic prosperity is monetary and fiscal stupidity.

April 13, 2004
Richard Daughty

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

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