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Daddy! Wake up! Where is all my money?

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
Archives
April 14, 2005

- The only thing that made me gasp this week was that the banks suddenly dumped $22 billion in bonds last week. Kinda weird, but things have been more weird, I think.

Of course, the Treasury is still issuing debt with both hands, bringing us to almost $7.9 trillion. The interest on the national debt totaled $321.6 billion in 2004, which works out to an average of 4.1%, and it, and the total debt, will obviously be higher this year.

- Nursing a killer hangover and flipping through the TV dial in my boredom, I ended up watching C-SPAN 2, which is this strange television station that shows what is supposed to be the floor of the U.S. Senate, and they have these actors portraying elected officials in this weird format where everybody is a nitwit. In this episode, I vaguely remember watching what is, I assume, a formal debate between two Republicans and two Democrats about the Social Security "crisis." It was painfully obvious that the Democrats, as is their brain-dead wont, are idiots, and they do not have the slightest comprehension of the issue, or, if they DO have the slightest comprehension of the issue, are not the least bit embarrassed to conceal the fact. The Republicans, although they were much more well-informed as to the problem, are equally moronic about how the stock market works, as is a crucial tenet of the Social Security Privatization, for which they are so hot to get passed into law.

Like I said; nitwits. For one thing, for all their preoccupation with Social Security, they don't even mention Medicare, which is, according to Comptroller General David Walker, "is a seven to eight times greater problem than Social Security."

To clear this up, the Mighty Mogambo (MM) will take some of his precious Mogambo Time (PMT) to explain that the "crisis" in Social Security is that the Congress is aghast that they will have less and less money to spend on their collective idiocies for the next 45 years. This is because the Social Security tax (and it is a tax, regardless of what anybody tells you) to fund the Social Security welfare program (and it is a welfare program, no matter what anybody tells you) produces more than enough money to fund this welfare program for the next forty or fifty freaking years!  They all agree on this one point. This is a "crisis?"

Now, for normal people like me, a "crisis" is something bad that is either happening right now (such as my wife banging on my head with a skillet, screaming "Maybe this will knock a little sense into your damn thick head!"), or a crisis is something bad that will happen very soon (such as my wife planning to hit me on the head with a skillet as soon as she gets back from the kitchen with it). So Social Security, for the next forty or fifty years is in fine shape, which is more than you can say for me. Or the skillet.

But this is not about me and my comic misadventures with kitchen cookware. So, and follow closely here, I swerve to get us back to the topic, and reiterate that more money is coming in from SS taxes than is needed, and money will continue to come in for, as we recall from a previous paragraph, the next forty or fifty years. But, and this is the crux of the matter so I will change that to "BUT" as an indication of emphasis so that you know that this of some significant import, the Congress takes the rest of the money, calls it a "surplus,"  and spends it on their collectivist/socialist stupidities!  Thus, a surplus is reduced to, in round numbers, zero! It's all used up!  But they act as if there is actually some money to "protect!" Hahahaha! I told you this was funny stuff!

Like waking up in the morning and looking in the mirror, this is the ugly fact of the matter: The Social Security debate is NOT about saving the Social Security welfare program in the future by boosting some mythical "credit balances" in the "trust fund," because there is no freaking money in the trust fund and there never will be. Some is spent by giving it to the current Social Security beneficiaries, and the rest is spent by Congress, which thinks that (and this is proof of their incompetence) because they put a "special IOU" in the "trust fund," that it is as good as money!  Hahahaha!  Even President George Bush, who has every incentive to lie, admitted "The trust fund is just an empty IOU, just a piece of paper. You pay your payroll tax; we pay for the people who have retired, and if there's any money left over, we spend it on government. That's how it works."

So where is the crisis? The "crisis" is, therefore, that this glorious "surplus" will be gradually reduced, year after year, as more and more seniors start collecting their Social Security welfare checks, and fewer and fewer worker contribute a larger and larger portion of their wages. At this point, if you think that this is still not a crisis, then you are right! Allow you gaze to follow the Mogambo Pointing Finger (MPF) to the real "crisis," which is that the Congress will then have less and less to spend on themselves, their friends, and their socialist idiocies, as year after year they will have even less and less to spend.  Then, finally, after the forty or fifty years have passed, they will have nothing, zero, zip, zilch to spend, because that is when the "surplus" disappears.

I close my eyes and use the Mogambo Extra-Sensory Powers (MESP), and as I peer into your brain I note that you are wondering if now, finally, after having to read paragraph after paragraph of pure tripe, I will be getting to the damn point, which affects these Congressional buttheads so profoundly that they refer to it as a "crisis." To that I smile enigmatically, and reveal "Maybe yes, and maybe no, but mostly no." The problem is that erstwhile "surplus" was not spent on a pleasant day at the beach. No, it was spent on creating enormous, permanent programs, all staffed by people who went out and bought houses, and are raising families because they think that this program is permanent, and there is also a whole cohort of the "private" economy that is selling goods and services to these programs, and all of THOSE people went out and bought houses and are raising families because they, also, think that the programs are permanent. But it is impossible to keep these programs permanent when you know you will have less and less money coming in. Especially when every halfwit Democrat actually believes that creating more and more programs, to funnel more and more money to selected recipients, is, and I quote some of them, from Clinton on down, as saying it is "the business of government!" They actually say it in so many words! So what are these idiot Congresspersons going to do with their precious Congressperson time all day when there is no more money for them to start more programs? Oh, the horror!

It is, instead, all about letting the Congress have lots of money to spend as they try to buy our love and our votes, such as more malignant expansion of the size and scope of government, which distorts the economy more and more, as if this is a good thing, which it is not. In fact, it is a very bad thing, as we are about to find out. And it gets worse than this; not only is all that Social Security "surplus" spent on on-going programs, but it is completely insufficient to pay for the wants and needs of government, as they are already on track to borrow another $700 billion's worth of "budget deficit" this year alone! And the cost of all the programs and deficit-spending to date has produced the National Debt of close to $7.9 trillion dollars!

On the other hand, the idea to force Personal Savings Accounts down the ravenous maw of the gluttonous American population is a blatant attempt to force people to put money into the stock and bond markets. And it will be done, one way or the other. If we do not, then these two ridiculously overpriced markets will "revert to the mean" and fall to their true values, which would wipe out the entire American economy, as financial services and government ARE the economy nowadays.

This point is not lost on Alan Abelson, as he notes, in his "Up and Down Wall Street" column in Barron's, that "Earnings of financial companies now account for some 40% of all corporate earnings, up from a mere 4% two decades ago, and they represent 25% of total stock market capitalization, versus 5% in the 'Seventies."  They make a whopping 40% of all earnings, and their shares are a quarter of the entire stock market? Wow!  See how important they are? Now you know why Bush is pushing this idea so hard! 

The problem is that it cannot work. For this stock market and bond market stupidity to succeed would be exactly the same as sitting down to a game of poker (and you can call me "Doc" Mogambo, as in "Hey, Doc! Stop dealing from the bottom of the deck or I'll punch your stupid nose again!"), and expecting that everybody will win!  Hahahaha! You sit down at the table, and you are dealt a hand of stocks and bonds and houses, you bet like crazy, (of which the house, namely the government, takes a percentage), and then you bet some more, and gamble some more, and drink beer, and smoke cigars, and get drunker and drunker, and at the end of the night, after weaving down the road singing "How dry I am," we wake up the next morning and our heads are pounding, and our spouses want to know where in the hell we have been all night, and we call our buddies on the phone trying to get some answers, and then we find that everybody went home with more money than they had at the beginning? Hahahaha! People believe this can happen? Well, the Republicans do!  Hahahaha! Morons!  But you never see these posturing, preening weenies saying that people ought to take their Social Security taxes and play poker with them! Hahahaha!

So, when you cut through the lies, stupidities and outright frauds, the entire "Saving Social Security" exercise is to 1) get at least the same, and hopefully more, money for the Congress to spend since the Social Security program will be throwing off smaller and smaller "surpluses," and 2) funneling lots of money into the financial services sector of the economy, since it already produces 40% of the corporate earnings in the whole freaking country. That is all there is to it. Simple, huh?

Even AFL-CIO President John Sweeney criticized the Bush privatization plan, calling it "a risky scheme for America, but a sure bet for the financial services industry."

And if anybody tells you different, like these four Congressional blockheads, then you know who is trustworthy and who is not, which ought to make your voting chores very easy next November, when you have a chance to throw these lying, despicable jerks out of office and elect someone who is, hopefully, competent and trustworthy. Like you. Or somebody just like you. Preferably you.

But it is also another blistering indictment of the stupidity of the Baby ("We Love Everybody!") Boomer generation, as once again try and pump up the economy via mandating that people put more and more money into retirement plans, so that we can get a little short-term pleasure from watching our assets go up in price, and maybe that will make our houses go up in price, too, so that we can take some of that additional equity and borrow it, which we will because interest rates will be low, low, low as a result of our buying so damned many bonds with this forced investment, then we can take all that wonderful, glorious money and go shopping! And we will buy more consumables and gobble them up, gobble gobble slurp!  As Dr.
Richebächer so pithily puts it, "The United States is the one and only country in the world where monetary policy was systematically designed toward the goal of inflating the market value of assets - stocks, houses and bonds - virtually making wealth creation through inflating asset prices their explicit goal."

But when the party inevitably ends (as it must, because if there WAS a way to get rich by constantly going deeper and deeper and deeper into debt, somebody else in all of history would have made it work, and they all tried, and they all failed), then the Baby ("All You Need Is Love") Boomer generation, now fat, older, and more stupid than ever, will let out a gigantic burrrrrrrrrrp, poop in the diaper of America, and their own children and grandchildren will be called in to work like slaves to clean up the mess.

How embarrassing to be a Baby ("It Takes A Village") Boomer.

From another perspective, namely the Up Close And Personal view, Social Security is like when I tell my kid to get a paper route and start making some money mowing lawns and babysitting somebody's brats. And I will, as the benevolent father who loves her and wants to protect her, will take -- poink! -- a sixth of everything she makes, off the top. She starts yelling and screaming "Mom! Daddy took a sixth of my money, and he won't give it back!" and so my wife yells up the stairs for me to give the money back, and so I go out into the hall and patiently and calmly explain my terrific new plan to Save Our Daughter's Future, which I cleverly call The Mogambo Plan To Save Our Daughter's Future (MPTSODF), by yelling back "Shut yer hole, ya crazy old bag, before I come down there and shut it for you!" which was apparently the wrong thing to say, because the next thing I know, I hear shells being loaded into a pump 12-gauge shotgun and she is yelling "You stay right there, mister! I have had all of the Mogambo crap I am going to take!" Deciding to test whether the window is a good emergency fire exit, I quickly found myself outside,  and so I went to the bar and had a few rounds, and then everything started looking better. I wrote an IOU on a bar napkin, which I thought was really poetic in its own way, but I probably won't get any credit for THAT, either!

But sitting there on that barstool, hour after hour, gave me time to think about how I will tell them that I am taking this money ONLY to save it for her college and eventual retirement, and how this is in her best interests, and how everything will be wonderful, if you trust me. I mean, I give a little of the money to her older sister, who is obviously closer to needing an education and a retirement, and the rest I spend on myself and my hoodlum friends. But instead of admitting that I am stealing her money outright, because it sure as hell LOOKS like I am stealing her money outright, and since everybody knows the kind of dirty, treacherous back-stabbing gutter-rat that I really am, I will leave the aforementioned IOU in the piggy bank! Then it will NOT be stealing, see? Then when she gets ready to go to college, and she looks into the piggy bank, and all that is in there are these IOUs that smell like stale beer and cigarette smoke and one of them has the phone number of someone name Trixie written in lipstick, which is a lot harder to explain than you would think. Then, when she is grown and banging on the door, shouting "Daddy!  Wake up! Where is all my money?" then all I have to do is tap her younger sister on the shoulder, hustle her lazy butt out the door to get a paper route, pick up some extra money mowing some lawns, and babysitting somebody's brats. Then I will take a FIFTH of HER earnings, which is more than enough to pay back some of the IOUs, and there is still plenty still left over for me to spend on myself and my hoodlum friends! Whoopee!  And then I can take my new-found expertise onto the campaign trail, so that I can get elected as a Congressman from one of the blue states, which actually believe this kind of crap, and then I can parade around and explain how I want to Save Social Security by doing this exact same thing, and everyone will love me, and re-elect me year after year after year.

- In case you were idly wondering, "Hmmm. Methinks, whither interest rates?" vis a vis the Fed, the Optimist newsletter is "happy to advise that the next FED meeting will result in an interest rate increase of no more than a quarter point, and the meeting after that may well be a surprise reduction in interest rates! Even though inflation will be increasing at a rate which cannot be disguised by clever hedonic adjustments, the Optimist offers the positive view that interest rates will not be permitted to rise to the level where the few remaining USA jobs are threatened. Since jobs will be the limiting factor, the Optimist is happy to share the good news that interest rates will be kept well below the true rate of inflation for the foreseeable future." Which is, oddly enough, exactly what I figure will happen. So what does one do with the fabulous information, other than sending me and this Optimist bunch a lot of congratulatory bouquets of roses with cards that read "Bravo, Mogambo!" which will probably be real confusing for the people at the Optimist?

I am not the Optimist, and in fact I am a HUUUUUUGE pessimist from the word "go" and that is why I don't trust anybody, and I think you should not trust anybody either, not even your own father or husband, and if you think I am kidding, then all you have to do is ask my daughter or wife about that, and for the next several hours they will happily give you a real education about that particular point. So while they are the "glass is half full" people and I am the "glass is half-empty and I'll bet that they guy who drank half my beer has cooties, and if I drink the last half of this beer I will catch the cooties and probably die, or worse," but we are eerily similar when we reach the same conclusion, which I will reveal by quoting these Optimist guys when they say, "silver and gold investments will prosper greatly over the years ahead."

- Reuters  reports that Alan Greenspan, chairman of the Federal Reserve, has again urged Congress to take steps to curb the growth of both Fannie Mae and Freddie Mac, saying this "was vital to cut the risks the mortgage finance giants pose to the U.S. financial system." Hahahaha! The guy who made all the money available to create these mortgage giants and create all these debts now figures that that they "pose a threat"? Where in the hell has he been for the last freaking decade?

But how to do this? Who is going to pick up almost a trillion dollar's of mortgage debt? The article says "In testimony prepared for delivery to the Senate Banking Committee, Greenspan said stiffer regulation alone was not enough to ease, and could worsen, the risks the two government-sponsored enterprises (GSEs) pose."  My God!  If regulation will not do it, then what in the hell is left?

Reuters also reports that last Thursday, U.S. Treasury Secretary John Snow, who has been more than instrumental in our government amassing the most debt per year, both nominal-wise and percentage of GDP-wise, wants to get his two stupid cents into the mix and said, "Mortgage giants Fannie Mae and Freddie Mac could threaten the economy if Congress fails to curb their investment activities."

Hell, they should leave the investment activities alone, and start homing in on the fraud and corruption in Fannie Mae! According to Dan Gainor, writing an essay entitled "Fannie Mae's Bailout Tab" writes in the Washington Times, "Fannie Mae, the government-sponsored mortgage association, has been battling a mounting scandal since last year. It has accounting errors of about $11 billion. That's more than nineteenfold Enron's $567 million error." Wow! Nineteen times bigger!

But it doesn't even stop there! He continues, "Fannie Mae's whole mess caused the departure of Chief Executive Officer Franklin Raines and several other top executives. At the same time, Fannie Mae stock has dropped roughly 30 percent: from nearly $80 a share to around $55." And, lest we forget, for this egregious mismanagement and fraud, Raines has awarded himself a nice pension of over $120,000 a MONTH for the rest of his damn life! Hahahaha!

Even Doug Noland has been looking at this Fannie and Freddie mess, and if it catches HIS eye, then it must be bad. But as bad as it is, it is just the tip of the iceberg, as we learn when he writes, "Fannie and Freddie, with their combined books of business of $3.8 Trillion backed (hopefully) by a little sliver of shareholder's equity. Troubled GM and Ford have total liabilities of $740 billion with equity stated at $45 billion and absolutely dismal prospects. AIG has total liabilities of almost $700 billion (SH Equity of $83bn). Combined, these five companies' exposure of almost $5.3 Trillion is in the neighborhood of 30 times reported equity."

He is pretty gloomy as to what this means, because if you are even vaguely familiar with the Austrian Business Cycle Theory, or have ever passed by economic textbook that was laying on somebody's desk and you were drawn to it because the guy who owned the book was sitting there trying to read it, sitting with his head in his hands and muttering to himself "This is scary as hell!,"  then you realize that we are, hmmm, what is the word that means "really, really, really, really screwed"? I shall call on the Awesome Powers Of The Mogambo (APOTM) and come up with a new word, a neologism is you will, and that will be, umm, let me think, ummm, how about "hyperscrewed"? Or better yet, "hyper-mega-screwed." But Mr. Noland says merely, "To witness such a massive and pervasive Credit system problem at this pinnacle stage of system excess and asset inflation portends a devastating down cycle."

- Kurt
Richebächer, one of the most incandescent stars in the school of Austrian economics, who never has any time for The Mogambo (except for him yelling into the phone "Will you PLEASE stop calling me, you horrid little man? Go away!  I am NOT going to loan you any money!" and rudely hanging up, time after time after time). But I notice that he apparently has lots and lots of time to talk to OTHER people, and probably let them borrow his barbeque grill, and maybe fork over a few bucks to tide them over until payday, and yet he still has time to write a newsletter. It is from one of these that we read that he agrees with The Mogambo, in that this our current economic mess is nothing new, as everybody and every country, in every era of time, all tried to buy more stuff than they could afford, and they went into debt to do it, and there were always sharp-tongued hustlers who were whispering to them "Go ahead! You can pay back the debt with your higher income!" Hahahaha!    But he does not even mention The Mogambo when he writes "Sharp falls in saving and soaring trade deficits are nothing new in history. Yet compared to the past, there are two great differences now. One is in the contrasting reaction of policymakers, investors and economists; the other is in the enormous, unprecedented size of today's imbalances."

Now, this is all well and good, and it does nothing for you when you are trying to hide the television remote control from your wife, and she is looking all over for it, and you don't want to give it to her because she will want to change the channel to watch one of her dumb shows, the ones I hate. But the lack of specifics and the fact that the remote is safely hidden under my big, fat butt are the only things making his comments bearable. But then he shatters ("kerrr--rash!") our placid little world when he writes, "Typical of the superficiality of economic thinking in the Anglosphere is the indifference to the changes occurring in the composition of GDP growth, however drastic these may be. During the four years 2000­04, personal consumption captured 87.1% of U.S. real GDP growth, as against a longer-term average of 67%." American? Gluttons? Americans over-consuming? Americans going into debt to consume more and more stuff? Shocking!

But while we are enjoying a good joke at the good doctor's expense, he apparently gets a little cheesed off about it, and hits us right between the eyes when he goes on to write "Including government spending, overall consumption absorbed well over 100% of GDP growth. At the same time, net national saving plunged from 5.8% to less than 1% of GDP. Nor do they find anything wrong with the fact that this consumption-driven pattern of economic growth is causing a horrid escalation of indebtedness."

But he acknowledging that consumption-via-debt is pandemic in the world, as he admits "In Britain and Australia, the associated borrowing-and-spending binges are even worse than in the United States. Central bankers who celebrate this as 'wealth creation' and even explicitly animate people to exploit the possibilities of easy credit to lift their spending on consumption are unique to America."

- Tony Allison, in a guest editorial at FinancialSense.com entitled "Delayed Gratification, the Case for the Roth IRA," writes "Despite the economic storm clouds and general gnashing of teeth, there are ways to prepare and protect one's golden nest egg. Which brings us to the Roth IRA. Of all the retirement vehicles, it is the only one that allows all savings and investment earnings to be withdrawn (after age 59 12) totally tax-free. No income tax. No capital gains. Zippo. That may not seem like a big deal today, when you can get a tax write-off with a regular IRA, but it could be a huge deal in 10 or 20 years from today."

Theoretically, he is right. But to that I say, and you can quote me on this, "Hahahahahaha!" If you think for one minute that the government will allow you to keep tax-free gains, when they are obviously going to desperately need as much tax revenue as possible, and how you are one of "the blessed" in this country, to quote one of the loathsome Democrat loser weenies I had the stomach-churning misfortune to have witnessed her saying recently, I forget her name or where she is from, but she thinks that people with money are "blessed" and so these "blessed" people should be happy to share their bounty. And when it comes to bounty, I can see them peering at you with high-powered telescopes and noticing that you are doubly-blessed, as you, firstly, had enough money to sock away in a Roth account, and then blessed again that you made money with the money, and now you have a BIG chunk of money that is, and forgive me to keep harping on this one point, you "blessed" but you are not going to pay any tax on it? Fear not! The socialists and communists in the Congress of the United States will share it for you! Hahahaha!

Hell, he admits himself "the future appears to be inexorably moving toward an environment of higher inflation, higher interest rates and ultimately higher tax rates."  So all of us chumps out here, working in our pathetic little jobs and paying higher taxes and higher prices, which is making our domestic lives into a hell on earth because we can't afford to do any of the things she wants to do or buy any of the things that she wants to buy, are going to sit here like morons, watching you cashing in your fabulous tax-free gains and living it up out in Hollywood, cavorting with starlets who are willing to both believe that I am a Hollywood producer (Movie Producer Mogambo (MPM)) and that I can make her a movie star (Mogambo Big Fat Lie Number Twelve (MBFLNT))?

Recognizing the gruesome reality of my words, he concludes that "There are those (including some in this office) who believe that the U.S. government will unceremoniously pull the rug out and renege on the Roth's tax-free withdrawal status at some point down the road. That threat will continue to exist."  But even so, he says, it is better than the alternative, because you can choose what to invest in, as "For most 410-k owners, their savings can only be invested in a very limited spectrum of choices, usually plain vanilla stock and bond funds and company stock."

He then may have inadvertently given us a tip on a good investment when he asks the question, "Would you rather have the flexibility to invest in the Central Fund of Canada (gold and silver bullion) or be stuck in stock and bond mutual funds?"

I raise my hand! I know the answer to this one!  Call on me!  But he has left the stage, and I am here with my stupid hand in the air, hoping he will come back and call on me to answer the question, and people are laughing at me "Look at the stupid Mogambo with his hand in the air! Hahahaha!"

- Speaking of people laughing at me, there have been an embarrassing number of people writing to inform me of things like errors in recent issues of the MoGu, mostly involving some typographical mix-up between millions and billions and trillions, and of course there is the old classic misunderstanding where I innocently asked some woman for directions to the train station and she makes this big, shrieking, hysterical scene because she mistakenly thought I had offered her ten bucks to strip down to her skivvies, dance the hootchie-cootchie and pant like a dog. So you can see how innocent mistakes are made. Sorry. But apologizing and promising to do better in the future is what I always do, and nothing ever changes.

- Dan Denning, of Strategic Investing newsletter, writes that the low VIX, which is a measure of market volatility and is now indicating a remarkably calm stock market, reminds us that  "It's one of the market's strange ironies that low readings on the VIX do not actually mean the market is stable, but that pressure is building for a big move."

Which way will the market move, up or down, when it DOES move? He ignores my question, yet answers obliquely when he says "Let me put it in plain terms for you: America is increasingly dependent on foreign central banks to sustain the value of the dollar. High consumption is made possible courtesy of the world's savers. We are getting a free ride into indebted servitude to foreign bondholders. The ride into indebtedness may be free, but getting out is going to be very expensive."

As a case study in how the Mind Of The Mogambo (MOTM) works, I will re-write Mr. Denning's last line as "It is a lot easier falling into an open cesspool than it is to climb out of one, all covered in greasy, slimy crap, and trying to crawl up the side of that stinking hole and sliding back down into it, and there is your neighbor, The Mogambo, standing over you, laughing at your plight, and he is saying 'I told you not to go down into that debt-financed consumption crap, using a fiat currency, in a banking system utilizing out-of-control degrees of fractional-reserve leverage!' and you are screaming 'Don't just stand there, you idiot! Throw me a rope!' and The Mogambo laughs even harder and replies 'Oh, so now it's moral hazard insurance you want, is it? You always want somebody to come bail you out of your messes, never taking any responsibility for yourself' and of course by this time you are yelling and crying and begging, and the stink is starting to make you woozy, and to tell you the trust it is also causing my eyes to smart, too, so I think I'll just go around to the other side of the hole and stand upwind, and continue to laugh at you Americans some more, and then I'll go home and watch the Simpsons. And maybe grab a brewski.

Okay, I can see where that is a little long, so perhaps it is best that we use Mr. Denning's original phrase, "The ride into indebtedness may be free, but getting out is going to be very expensive."

But, wait!  Now that I think about it, this is MY damn newsletter! So, in my unbridled arrogance, I will take another crack at tearing this Denning guy down, so that maybe I can make myself look like a big shot. And since he is not here and thus not able to defend himself, I consider him a sitting duck. Sucker!  But still smarting from my abortive attempt to improve on his original phrase, I now choose to, instead, expand on it, thus showing that he only gave you half the story ("The cheap bastard!"), while you can trust The Mogambo ("All Hail The Mogambo!)  to tell you ALL the facts, (audience rises as one and cheers "Yay, Mogambo!") and these facts are that when he says the word "expensive," he does not only mean the money. Higher prices can be called "misery," and if you have ever seen me blow my whole allowance on one lousy donut when I really wanted two donuts, and I remember the days (last month) when I could buy two donuts, but now they have gone up in price and I can only afford one stinking donut, and when you stick it into your mouth in one bite so that your cheeks puff out like some bizarre squirrel, it doesn't last very long, either. Then you will know that there are many, many subtleties to the word "expensive," one of them being how miserable I am looking in through the window of the donut shop, drooling all over myself and everybody is complaining to the manager about the street bum in the drool-soaked shirt licking the window and scratching his butt, which stinks so bad they can actually smell it THROUGH the glass, then the total suffering from higher prices, and the inevitable well-meaning-but-disastrous response of Congress, will give you a whole new perspective on the meaning of the word "expensive." And when you truly comprehend the enormity of it all, it will give you the screaming willies and one lousy donut, which is never enough to cure a case of the screaming willies.

- MarketNugget.com has taken a look at the projected growth of China and India, and has come to the same idea that The Mogambo came to, namely that money will be made from, as Jeffrey Simon says, "the industrialization of Asia. A solid portfolio can be built around the growth story of the decade." Decade? Hell! Longer than that!

But it will be a long, hard road, as the monetary looseness (monetary inflation) of all the world's central banks, including China's, is feeding into the world-wide resurgence of price inflation, and will continue to do so for a long time, right up to the time when everything is re-ordered in relative value and all the money is finally incorporated into prices.

And I figure that the big reason, the Big Reason, the BIG REASON that this area will prosper is that the population, per capita, is relatively unburdened by debt, and they can all qualify for credit cards!  And when consumption starts surging as they begin consuming more stuff on credit, which means more imports of raw materials and widget parts, they are going to need a strong yuan to keep inflation down.

To show you the vacuity of thinking by American elected officials, which seems to be an oxymoron, the Associate Press reports that politicians in Washington, D.C. are NOT down on their knees, begging China NOT to devalue the dollar and please, please, please do not cut the yuan's peg to the dollar. Instead (and I find this hard to believe), the AP reports "Congress, for the second time in two days, gave notice to both China and the Bush administration that it will take action if nothing is done about undervalued Chinese currency that gives Chinese goods an advantage over U.S. competition."  U.S. competition? Hahahaha! And if the Chinese currency is, as they assert "undervalued," then the dollar is automatically "overvalued"? Wow! Wait until OPEC hears that they have been selling oil, their only asset, for too little real money! Who was that talking about $100 per barrel oil? Now you know where they got that idea!

- Doug Noland, who takes a lot of time to read lots of stuff, is pretty gloomy as to what this all means, because if you are vaguely familiar with the Austrian Business Cycle Theory, then you realize that we are, hmmm, what is the word that means "really, really, really, really screwed"? I shall call on the Awesome Powers Of The Mogambo (APOTM) to come up with a new word, a neologism is you will, and that will be, umm, let me think, ummm, how about "hyperscrewed"? But Mr. Noland says merely, "To witness such a massive and pervasive Credit system problem at this pinnacle stage of system excess and asset inflation portends a devastating down cycle."

- Paul van Eeden has posted his latest essay, "Word from the World Bank" at Kitco.com, and his attitude has not improved much, either. He reports that "According to the World Bank, the global economic recovery has peaked. The bank sees the best-case scenario as a mild slowdown in global economic growth over the next few years, yet warned that a new global recession is a possibility."

He goes on to say "The bank specifically suggested that the US shrink its budget deficit, as it saw the US's need to borrow from foreign entities to finance its trade deficit as a major risk factor for the global outlook." Hahahaha!  The government is going to shrink the budget deficit? Hahahaha!  It makes you wonder what the World Bank has been smoking!

- It looks to me like the gold lease rates are going back up, so the orgy of selling (to get the price of gold down with this influx of massive new selling of this newly-leased gold), should be about over.

- Will Reishman, who is writing for Euro Pacific Capital, has penned an essay that shows that he is truly cognizant of the real source of all the world's problems, and this highly-informative essay is entitled "The Hirelings Are Running the World." If you don't believe me, then here are his own words: "With corporate scandals, accounting fraud and the like in the headlines again, allow me to share a bit of my personal understanding of what's at the root of all this. Other than, of course, the fallen condition of sinful humanity, a prime cause of corporate corruption is that the U.S. financial system is founded upon dishonest money, originating with the institution of the Federal Reserve in 1913."

- I read the Democratic National Committee's "week in Review" and of course they say they are all wonderful and Republicans (in general) and the Bush White House (in particular) are all a bunch of stinkers, and oddly enough I agree with the second half of that statement, and I have gotten into the habit of laughing at Democrats as a reflex. But the truth of the matter is that they are telling the truth when they write "Democrats have proven they can lead our country in delivering critical services AND cutting government debt!" because the facts show that debt always goes up a lot more when Republicans are in control! Weird!  What the hell happened to the small-government, low-tax, low regulation Republicanism, so that now, even I use Mogambo Scorn Of Contempt (MSOC) like it is going out of style on them AND the damn Democrats alike? My world is being torn asunder!  As part of the MSOC Syndrome (MSOC) I refer to all of them as "scumbags" and they usually refer to me as "the defendant."

But the Democrats, of course, still take the lead in idiocy, as they want the government to do a long list of things to benefit one population subset or another, and then end it with their "Quote of the Week" in which, out of all the things that a Democrat said all week, they highlight this gem:

"The first lesson we teach children when they enter competitive sports is to respect the referee, even if we think he might have made the wrong call. If our children can understand this, why can't our political leaders?"  -Senator Jim Jeffords (I-VT), New York Times 4/8/05. discussing Republicans who seek to undermine the Courts because they do not like their decisions."

I suddenly want to shout "Dear Butthead Jeffords," which is what I am now calling everybody who says such things, and every time the phone rings there is always somebody on the line who is, as it turns out, a butthead. And now, since we are talking about buttheads, I will take a few moments to demonstrate a little glimpse of the high-efficiency side of The Mogambo (THESOTM).  When I tell you what it is, you are going to slap yourself on the forehead and say to yourself, "Brilliant! Why didn't I think of that? Bravo Mogambo!" But here is my official entry in this year's Efficiency Award contest; I now answer the phone with "Hello, butthead" instead of just "hello," which lets them know -- right off  the bat!  -- that I know that they are a butthead, and so they can stop wasting everybody's valuable time saying things that make them sound like a butthead (e.g. "How's the weather where you live?" or "Quit tampering with the brakes on my car!"), and they can get right to the point of their damn call, which seems to be that they are spying on me and delight in waking me up from a nap, or interrupting me when I am watching TV, or eating something, or sitting on the toilet wishing I had not eaten those leftover burritos and thinking about how this is the perfect damn metaphor for my whole stinking life, or I'm yelling at a neighbor about how his bratty kid is also a perfect metaphor for the irresponsible monetary policy of the Federal Reserve and the idiotic avalanche of deficit-spending by the Congress that is going to destroy us all, as both of them are fat and bloated, it makes me sick to look at them. Anyway, the reason that these people are bothering me with their incessant phone calls is that usually, they wanting to know when I am going to be sending them some money on my account which, according to their stupid records, is seriously in arrears, or they want to warn me to stay away from them or their families and stop bothering them all the time, just  because I promised, in a moment of weakness, that if they loaned me some money that I would stop bothering them, but I lied, and now they are all real pissy about that, too! And I got up and answered the phone for this?

But I was going to, before I got sidetracked with this butthead thing, explain to this Jeffords weenie how stupid and laughably ridiculous for a grown adult to blindly accept the say-so of judges and referees, who get senile, and mentally ill, and stupid, and corrupt, just like the rest of society, by which I mean, obviously, Congress and all government weenies. And so their decisions, due to the awesome power these judges and referees wield, must be examined in excruciating detail, so that we can more quickly find out who is losing his or her marbles. And when you examine the decisions of the Supreme Court, you soon figure out for yourself that MOST of them are incompetent jerks.

- People send me stuff that they think is interesting, a lot of it concerning the pacts and alliances and cross-border dealings around the world, mostly with China, and how we Americans are being cut out of the deals. Exactly. This is what happens to the big, rich bully when the big, rich bully ain't so big or rich anymore.

But first there has to be a lot of extortion, as, for hypothetical instance, making us Americans spend over $250 billion dollars, more than a quarter freaking trillion dollars, on rebuilding whole swaths of the world over the last year and a half, so that China, India and Russia can have a lot of buyers with an intact infrastructure when they take over the economic throne.

- The trade gap widened again last month, so that, for February, exports are $61 billion more than exports. CBS News.com opines that, laughably, the falling US dollar will one day reverse the deficit. They write "The U.S. dollar has been declining for three years, a fact that should help narrow the trade deficit by making imports more expensive to American consumers while making U.S. exports cheaper." My eyes bug out in disbelief. Imports will cost twice as much? I raise a trembling hand to my perspiring forehead, and with a stupefied monotone I ask, "Where is the freaking benefit of this stupidity?"

If the dollar dropped by half, then imports would cost double? We would have 100% inflation? And even if the dollar DID drop by half, wouldn't American exports STILL be the most expensive in town?

Unfortunately for CBS and the rest of the clowns who parrot this silly stuff, Peter Schiff of Euro Pacific Capital has looked at the data and has concluded "If anything, the statistical record is showing an inverse relationship between the dollar and the deficit. The more the dollar falls, the higher the deficit rises. The reality is that a falling dollar, by itself, only exacerbates the trade deficit, by increasing the cost of imports."

And although Mr. Schiff is too polite to mention it, I do not have a polite bone in my body, and with a loud, screeching voice and spittle of outrage flying from my lips, I say that this devaluation of the dollar is the inevitable result of the damnably incompetent monetary arrogance of Federal Reserve policy and their ridiculous theoretical trash known as, I assume, neo-Keynesian crapola. Or maybe just crapola. I dunno. But either way, it is highly descriptive of Federal Reserve policy, and what we are going to find ourselves in up to our necks as a result. Ugh.

**** The Mogambo Sez:  Drive-offs, which is when a guy fills up his car with gas and then speeds off without paying, has gotten real bad around here lately. But totally expected: When the country is so indebted, and so short of money that they are charging living expenses on their credit cards, they are suddenly going to have MORE money after a near-doubling of energy prices in two years? Hahahaha!  Welcome to the down side of the monetary inflation! Now you will learn why all educated people actually tried to NOT to get to this point, and why the current fashionable trend of actually encouraging indebtedness and inflation is so damned insane.

Or, as reader Robert B always appends to his emails, " "If a Nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be"  -Thomas Jefferson.

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.

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