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Hey, Alan, the teddy bear's upside down

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
May 12, 2004

It was a busy week in Lake Woebegone as ...oops! Sorry! That is a rip-off of "A Prairie Home Companion." Apparently, I get so used to stealing other people's stuff that I apparently don't know when to stop.

Anyway, what I meant to say is that it was a busy week in Central Bank Land, which they all consider to be a big amusement park. Our Federal Reserve, for example, has started moving into "emergency" mode, and bought up $2.2 billion in government debt last week.

Foreigners who hold deposits at the Fed gobbled up a whopping $10 billion of American government debt last week, too, ballooning their holdings of that toxic waste to a new record.

The Treasury printed up another $2 billion in actual folding money, and the banks sopped up $2.8 billion for themselves.

To illustrate, with an incandescent clarity, the utter stupidity and barren cluelessness of the Federal Reserve, the released minutes of their last meeting show that "Despite the rise in energy and commodity prices and reports of increased pricing power in some sectors, many Committee members commented that persisting slack in labor and output markets would keep inflation low."

The next thing I know, I am standing on the steps in front of the Federal Reserve, furiously ringing the bell, ring ring ring! I'm yelling, "Hey, bozos! It's me! The Mogambo! Hello? Is anyone home?" I can hear them cowering behind the locked door, snickering and laughing at my annoyance, pretending that they are not home. I am trying to get inside so that I can explain to these dimwits that we have had, if you will check your notes, persistent slack in the labor and output markets for years now, and yet we already HAVE price increases! Which we proletariat chumps out here in the real freaking world think IS inflation because things cost more. So, obviously, slack in the labor and output markets now have NO effect on inflation! I can see Alan Greenspan through the window of his little office, and he is rocking back and forth in his little chair, clutching a teddy bear to his chest and mumbling to himself. I yell out, "I can see you in there! For one thing, you are holding that teddy bear upside down, so all the stuffing is running to his head! You obviously have no idea what in the hell you are doing, in anything you do, you big fat worthless piece of central bank crap!" He looks up in annoyance, gives me the finger, and draws down the shades. So he never answered my question, which is how in the hell can "persisting slack in labor and output markets" keep inflation low, when the exact same "persisting slack in labor and output markets" are NOT keeping inflation low right freaking now!

The action in NYSE breadth is breathtaking, as that graph is obviously rolling over big time, and that almost always means some rough sledding ahead.

The brilliant Jim Puplava, in an essay on the FinancialSense.com site entitled "Illusions," excoriates the government wonks who are lying with statistics, the derivatives market, the Fed, and the whole clot of brainless morons who infest the financial and economics world like a bad stink. In effortlessly exploding those fictions, it is child's play for him to explode the fiction of the recent report of big increase in jobs that got everybody so hot. "Last month nonfarm payrolls increased by a measly 7,000. After seasonal adjustments and statistical massaging, that number was magically transformed from a mere 7,000 to a magical market-busting 308,000."

John Hathaway of Tocqueville Funds, sounds a disapproving note about the cognitive abilities of the financial press when he writes "According to the Financial Times, 'Given that the global macro environment is now characterized by 'low inflation' and that 'independent inflation-targeting central banks are the norm', the risk is negligible that governments will debase the value of 'fiat money' in pursuit of their policies." Mr. Hathaway, being the polite and charming guy that he is, merely suggests that perhaps, just perhaps, in some small way, that the esteemed Financial Times just may be, and pardon my impertinence, misinformed. Now we take that genteel, measured reply and run that original FT opinion through the patented Mogambo Translator, punch a few buttons, enter a few variables, and out the other side comes the answer, "What a load of crap!" Well, in the interests of "accuracy in reporting," this is a paraphrased interpretation, and not the actual printout. But since I programmed the Mogambo Mega Computer, all output is naturally extremely vulgar and obscene, and "what a load of crap" alludes to the tone and timbre of the original, but highly sanitized so that obscenity filters on computers the world over will not start beeping and sending out coded signals to the Justice Department and the next thing I know there is John Ashcroft and ANOTHER whole boatload of FBI people assigned to my case, and of course they all have to come sneaking around and installing their OWN special brand of wiretaps and special software to poke around in my computer because all the other government spooks would rather eat live bugs rather than stoop to sharing eavesdropping devices or data collected from spying on the poor old Mogambo and my little PC is already bulging at the seams from all the wiretaps and surveillance gear they have crammed in there. Of course, after awhile they get bored and go away when it becomes obvious that I am just a deranged crackpot, and they get all honked off when they realize that there aren't going to be any awards or medal or promotions for any of them for their participation in Operation Get The Mogambo, and I am sure that I overheard many of them muttering under their breath "vowing to get even," for wasting their precious time and thwarting their career advancements, and for a guy who is ALREADY a paranoid and angry lunatic, this is NOT the best news I ever heard.

He continues "By the end of 1970's, bonds had been dubbed 'certificates of confiscation' and being bullish on America was hazardous to one's financial health. The idea that stocks could provide positive investment returns was radical and socially risqué at the proverbial cocktail party." As those witty wags at the Daily Reckoning say "Stocks do not go up over the long run; they go nowhere. Up. Down. Sideways. Nowhere."

This is because inflation is such a booger that there is no investment that will provide positive, real returns over the long term. And so taking a look at the history of prices for stuff, the kind you eat, drink and drive around, the evidence is pretty striking; if you want to have a month's worth of retirement, you need to save a month's worth of money now. And stop gazing deep into the limpid pools of my darling blue eyes, but rather watch my luscious lips! Attend me closely, grasshopper, and thus insure that you don't miss a single syllable of the profound wisdom that I am imparting to you. Maybe you should even write this down. I'll wait while you get a pencil and paper. Okay, ready? I lean forward, and you lean forward, and I say, "You need to save a month's worth of money now, to have a month's worth of income when you are retired." I pause for effect, while you foolishly waste the time trying and figure out which smells worse, my breath or my feet. Then I whisper, "One for one," which would have appeared with a lot more boffo impact if you hadn't been all hung up on that odor thing. So again your lack of enlightenment comes back to bite you, my young one!

The statistics are pretty grim. After inflation and taxes, investment returns over the long term are almost zero. The correct interpretation of this surprising result is that you are merely getting back your own money. Admittedly, you get back MORE dollars than you put in, but each of those dollars is worth less. So you saved fifty cents when you were working, which was the price of a loaf of bread back then, and you got back a dollar in retirement now, which is the current price of a loaf of bread.

Mark Thornton at Mises.com commented on this in his essay, "The 'New Economists' and the Great Depression of the 1070's." He writes, "The experiments of the new economists also resulted in higher price inflation, as would be expected from the 'stimulating' fiscal and monetary policy of the 1960s. From the beginning of 1946 to the beginning of 1965 the consumer price index increased by 71.4%, but then increased 20% by the end of the decade. From 1965-when the experiment began in earnest-to the end of 1980 the CPI increased by 176.6%. The experiment had tripled the rate of inflation experienced by consumers."

Do you know of an investment that provided those kinds of returns? No. Nobody does. Therefore, everybody lost purchasing power, because prices went up faster than their profits.

To helpfully illustrate, I turn around and pick up a piece of chalk, and I write on the blackboard a big "3" and then I write a big "0," which I do because I am trying to signify the quantity "30." This is the visual part of the presentation. The audio part is when I say simultaneously say "If you plan to live thirty comfortable years in retirement, my precious darling, and I secretly laugh at your impudence, you are going to need to save 360 month's worth of income. I picked the number 360 NOT out of thin air, which is what I usually do when I need to provide a fact, but because it is the real answer to the perennial question, 'How much is 30 times 12?' If you get out your calculators, you can verify this for yourselves, since you won't listen to me because you think I hate you, but I don't, but I DO fear you, and we always end up hating the things we fear, so, yes, I guess I DO hate you, but that does NOT alter the fact that multiplying thirty years times twelve months (and here I write the number "360" on the blackboard) is 360! Wake up people! This is not celestial mechanics here!"

Your mind rebels! Your mouth drops open in shock when you realize, and I mean really, really realize, all the nuances and subtleties that over a period of working for thirty long years, day in and day out, the same old people saying the same old things, in the same old places, the same old crap, the same old enemies sabotaging my career and now I'm stuck in this horrible dead-end job which I have to keep because I am up to my eyeballs in debt and the judge says I have to support these horrible kids who hate me and all the people in the courtroom are pointing at me whispering to each other "Oh, he must be a bad father," and how I should feel lucky to have this job now that I am getting older and businesses don't hire old people. But I am not feeling lucky, but I am feeling more and more angry and resentful, and you look around at work and figure that one of these days one of them is going to finally snap and they will bring an assault rifle in here and kill all of us in some wild lunatic rampage that will be in the newspapers for days, and you feel this way because lately that's about all YOU can think of doing anymore! And you are scared to see yourself thinking these things! But, how much economic and social pain can you be in before you begin to welcome death? "Death! Where is thy sting?"

So we now know that you have to save a month's worth of income now to have a month's worth of income in retirement. The only part that is NOT simple is how to manage such a feat.

And it gets worse! He reports that "Real interest rates, defined as the 90 day T-bill discount rate less trailing twelve months inflation, are negative by approximately 100 basis points." And when you remember with a jolt that the little bit of money that you are getting in interest, which is not even enough to offset the decrease in purchasing power, is fully taxable, meaning that the damn government is going to take a quarter of that pathetic little pile of nickels and dimes in taxes! It doesn't take much work with a calculator to realize that real, after-tax interest rates make the "investment" truly one of those terrible "certificates of confiscation." As a case in point, and you should have trusted me that there was going to BE a point that I would be getting around to sooner or later, I offer the case of Brazil. The government employees of Brazil, and there are about 400,000 of them, are demanding a 50% immediate increase in pay. They need this money because inflation, that is running at about 6.7%, has delivered to them, each and every one of them, a nasty decline in their standards of living over the past few weeks and months and years and decades.

Their paychecks, which are already supplemented by bonuses equal to 32% of their salaries, are actually fine when the bonuses are counted in. But the employees look you right in the eye and say that they feel that granting them bonuses in that range is not good enough! Not nearly good enough! Oh, the money is good enough, alright. But, and it is so cute the way they stick out their lower lips and pout like that, it is not permanent! But they want the security and satisfaction of having their increases made permanent! They don't want any of this uncertainty of depending on the whim of government, while they think it is entirely appropriate that we out here in the private sector suffer the same sad uncertainty, which is a nice piece of alliteration and rhyming that I obviously stole from Edgar Allan Poe's "The Raven" and embellished by the Mighty Mind of the Mogambo, at the hands of our mean and hateful employers, ones who are also suffering from the stress of dealing with reduced business revenues and impending bankruptcy, and how they take their frustrations out on me, and they blame everything on me, and how everything is MY fault, and how I'm the only guy in the whole world who would take that last donut.

But the essential lesson is NOT that Brazilian government workers are some kind of greedy and selfish mutant humanoid. No. In that regard, since we are already talking about it, ALL government workers the world over are exactly like that, because once a government employee finds out that they can reach into the bottomless pockets of taxpayers, they all undergo this transformation, like salmon that swim upriver to spawn and in the process mutate into these ugly, malformed looking things. And let's not forget, that we have also given the same government employees the powers to legislate, and thus make legal, any damn thing they please, and also awesome police powers to arrest us and keep us incommunicado while they look into my background and want to know why it is that one man has to carry so many loaded guns around with him all the time, and exactly why am I so angry at the United Nations, anyway?

Anyway, if you want to have nightmares, close your eyes for a minute and consider the fate of the retirees of Brazil, whose incomes are not going up and whose costs ARE going up. And when the cost of giving the government employees those raises filters through the system, it will make prices just that much higher and inflation just that much worse. So, toeday's Essay Question is a two-part question. 1) how much DID that Brazilian retiree have to save each month when he was working to finance his retirement today? 2) Compare and contrast that with the situation of an American worker who is fixing to retire now, and one who is thinking about retiring in thirty years.

And it is happening right here, too. As James R. Cook of Investment Rarities says "Let's fact it, we're living through one of the greatest periods of money and credit expansion in history. It's bound to show up in the prices of everything."

And it will get compoundingly worse, until it is like the old joke about how you wake up out of a coma years from now, and you call your broker on the phone to see how much your shares are worth. He says they are up from ten grand to a million dollars. A million dollars! You're rich! At this point the telephone operator breaks into the conversation and says, "I am sorry, but your time is up. To continue talking for another three minutes, please deposit another fifty thousand dollars."

Mr. Hathaway continues "A core deception of the moment is the notion that a few up ticks of 25 to 50 basis points in short term rates will be sufficient to arrest the forces of inflation set in motion by the most aggressively accommodative Federal Reserve in history." You tell 'em Hath! Hahaha! That piddly little increase in interest rates will just make price inflation worse! In satisfying the demands of us moron gimme-gimme Americans, price means nothing! It's all just a simple matter of finding something to hock, or tap into, or extract equity from, or refinance. And so an increase in interest rates pitted against inelastic demand means that interest costs will be merely added to the final cost of output. Ergo, price inflation!

On a slightly different note, Mr. Hathaway wryly notes, and the Mogambo is laughing his ass off about, that Argentina sold its entire
gold reserves, all 124 tonnes, and invested the proceeds of $1.46 billion in US treasury bonds. He says "Our math says that Argentina received approximately $342/ounce or 13% less than the current market, to invest in a depreciating asset." Brilliant! Just freaking brilliant! The one thing that they sold went UP in value! And here I am doubled over laughing, the one thing that they bought went DOWN in value! Hahahaha! I can't stand it! Hahahaha! So I'm rolling around on the floor in uncontrollable laughter, and pretty soon somebody calls 911, and then sirens blare and Emergency Medical workers are trying to put a mask over my face, but I am laughing too hard to keep it on! "Selling something that immediately went up in value? And buying something that then immediately went down in value? Hahahaha!" I grab the poor EMS worker by his stethoscope and I am laughing and shouting into his face, "Hey! I can do that well! If that's all it takes to be an overpaid, big-shot money manager, then count me in! Count me in, I tells ya! Because believe me, buddy, being a complete moron like I am, it is second-nature to me to make those kinds of mistakes without even trying!" Hahahaha!

John D. Markman on the Money Central site writes an article entitled "Prepare For Worst, Market Seer Warns." He starts off by saying that "Six months ago, astride the great Nasdaq rally of 2003, just a handful of analysts raised their voices to express concern about the dangers of a stock market driven forward far more by highly simulative government tax and monetary policy than by fundamental business conditions." One of those voices was Michael Belkin, who is an independent researcher and former Salomon Brother analyst, and another one was the Mogambo, who spends his time standing out in the parking lot at the mall screaming "We're doomed! Run for your lives! We're all doomed!"

Nobody wants to know what the Mogambo thinks, because if you ask what I think, I will tell you, and it quickly gets pretty weird with this odd undertone of homicidal hostility. But we read that Mr. Belkin's more thoughtful view is that the real bear market is only now set to begin. By allowing the official overnight federal funds rate to lag well behind the inflation rate, he says, the Federal Reserve made the worst of all possible central bank mistakes -- encouraging unproductive speculation.

Or, as Stephen Roach of Morgan Stanley says "This is shaping up to be a policy blunder of epic proportions."

Or, as Bill Fleckenstein, of the Contrarian Chronicles says, "Alan Greenspan is the most irresponsible and incompetent Fed chairman in history."

Or, as the Mogambo of Mogambo Guru says, "We're doomed! We're all doomed!"

H.L. Mencken was one of America's true intellectuals and essayists, and he is a great favorite of mine, especially since he detests FDR as much as I do, and whom he calls a "nefarious imbecility." But besides fulminating on the basic stupidity of Americans, whom he also refers to as "Boobus Americanus," he also has a natural hatred, born of distrust, of politicians. In an essay entitled "The Varieties of Envy," he writes "The politicians devote themselves ardently enough to robbing A, who is an honest and useful man, eager only to pay his way, in order to bribe and flatter B, who is lazy, stupid and incompetent, and a very large part of the national income is dissipated in the process."

I do not blame the aforementioned lazy, stupid and incompetent, as we are what we are. We certainly didn't ask to be born this way. But simply transferring money to us losers in some grand, commie-think scheme of income redistribution is NOT the stuff from which economies are made. It is the stuff from which economies are destroyed.

I bring this up to underscore the vacuous stupidity of John Kerry and the low-IQ commie putzes that infest the Democrat Party, the former being a megalomaniac who wants to be President and who is theoretically NOT lazy, stupid nor incompetent, but actually sounds exactly like one every time he opens his mouth, and the latter is a group of childish, touchy-feely jerks who champion him for reasons probably too ugly to contemplate, but that have the unfortunate effect of destroying the economy. This chump actually promises to shrink AND balance the budget, reduce taxes, correct the trade imbalance, pay off the national debt, be all things to all people, and all at the same time! And nobody laughs in his face when he says it! Except the Mogambo. Of course.

The fact that he is already a Senator who has not done one damn positive thing in his entire career as a lackluster politician except to make things worse, which makes him actually part of the very REASON why we are in the fix we are in, and that alone ought to be enough to disqualify him from even THAT post, much less running for President of the United States. If the Democrat Party was not populated by world-class commie-think morons, he would not be running for President, he would not be a Senator, and in all probability he would be another worthless unemployable scumbag, fighting with the Mogambo over some tasty scrap retrieved from a dumpster behind WalMart, which I am glad he is not, because he is a big guy, and could probably take me in a fight, and he might even hurt me.

Of course, if Americans were not morons, then George Bush would not be President either.

Much has been written about how China is tightening up credit to prevent inflation from rearing up, which is a result of their economy being so hot. This is an error. Raising interest rates will not cool it down, since the growth comes from real demand. And when there is real demand, the reluctance of banks to supply credit is just an annoyance that increases pent-up demand. Entrepreneurs will get the funding one way or the other. Loan sharks. Smuggling of funds. Back door loans by the banks. Private funding. Something. As Jeff Goldblum's character in "Jurassic Park" said, "Nature will find a way." Therefore, all Chinese authorities can do is make inflation worse and make people grumble, as the higher cost of money will be simply added to other costs to produce a higher final price.

As long as there is more demand than supply, then price inflation will keep rising. And as long as the money supply keeps expanding, then there will be fuel for financing demand. And a few lousy basis points of additional interest costs can easily be overcome by a little productivity enhancements of the part of the producers. Ergo, in this week's installment of "Advice From The Mogambo That You Can Take To The Bank," keep adding oil-related stocks and
gold and commodities to your portfolio, as this Chinese colossus cannot be stopped.

And on this topic you might want to heed the advice of Bill Buckler of the Privateer Newsletter, who seems to know a lot about this stuff, and who writes "Commodities are NOT 'paper assets'. They are the beginning of a long chain which has, at the other end, consumer prices. A rise in commodity prices inexorably brings a rise in producer prices which in turn inexorably brings a rise in consumer prices."

And if you look up "Consumer prices, rise of" in your Mogambo Dictionary and Encyclopedia, you will notice that the whole section is emblazoned with skull-and-crossbones icons and maps showing emergency routes out of town. There is a reason for that.

"The Rosetta Stone to the US Code: A New History of Taxation," is a lecture by Charles Adams being presented by the Mises Institute. He is also an author of some books, also published by the Mises Institute. The blurb is "His three books on the topic have highlighted the role that the state's relentless drive for more revenue has inspired wars, revolutions, and every manner of political upheaval."

The blurb says it all, and you can get another heaping helping of fear and loathing of government from "May Day," an essay posted on the Investment Rarities website By Rod D. Martin, which looks at the rise of the gigantic government that sucks the life out of everything it touches and whose mission in life it is to irritate and confound The Mogambo. He writes, "Marx's atheology created the greatest idol of all, the idol of the omnipotent state. This idol appealed to men more than any other in history, because it made all morality relative and it gave ambitious men the means to become gods themselves. But it also appealed precisely because it was not an idol of stone or wood, but an idol of power: prayers to it could be answered, needs and greeds fulfilled. And because it indulged all of man's basest instincts while ever appealing to his noblest motives, it was exactly the sort of god man wanted to create, a god in his own image."

Thanks to suggestion by Jon Ashenbrener, I am going to reveal the Real Story of Mogambo, because he thinks people want to know how I came up with that name. If this is true, and this is how you spend your life, then I pity you. I cannot believe that anybody's standards are so low as to read the MoGu to start with, and snort that you are curious as to How The Mogambo Got His Name. Well, to pander to your idle curiosity, there are two versions of that. The one I give to the press, The Official Version, is that I wear a mask made of the shirt of my dead brother, who was a Texas Ranger but was murdered by bushwhackers, and now I fight tyranny and corruption in the quest for Truth, Justice and the American Way. And then there is the real story.

But first, I wish to recognize a milestone in the History of the Mogambo, in case there ARE any Mogambo Historians, and if there are, I am appalled at your lack of taste. But today, let's see, Friday the 7th, at about three o'clock local time, the phone rings. On the other end, and remember that his guy is calling ME, and not me calling him up trying to get somebody to loan me a couple of bucks, or maybe let me borrow his barbeque so that I don't have to use mine because it gets all sooty and dirty and I hate that, or could I borrow his car because mine is almost out of gas? Anyway, it's this Jon Ashenbrener guy, who is a dealer in silver, calling me up, and he did not know who I was either when he dialed my number, which I assume he got off a prospect list of "People Who Are Idiots And Are Confused A Lot Of The Time." So we were strangers. But in the course of the conversation, I cleverly steered the conversation to where I could ask him to spot me some silver, or loan me a few bucks, or let me borrow his barbeque, all of which he politely ignored.

But it came out that he is the first guy, numero uno, who did not previously know me, who actually reads the Mogambo Guru! What a coincidence! I was naturally flattered and surprised that he did. Thanks, Jon! He admits that he read the stupidities that spews like flecks of spittle from the lips of the Mogambo, but, for the record, he never claimed he was proud of himself for it, or anything like that, so don't get me wrong.

But, hey! It may not seem important to you, and to people LIKE you, who are all so popular, and handsome, and beautiful, and how everybody just loves you all to pieces, and you get invited to the prom, and go on actual dates and have fun, and have normal lives, and you were born of actual Earthling parents, like that gives you some special status or something.

But having an actual stranger actually reading my stuff is a First Time Event (FTE) to me. And it is Big Stuff to people LIKE me, who dwell here on the outskirts of humanity, armed to the teeth and randomly getting off a few rounds just to how 'em who's boss around here. These are The Moments We Will Remember when we are older, mostly for the purpose of having something else to talk about, because everybody has grown bored with all my other stories, mostly about how alien robots from the Planet of the Robots took over all the offices of power, and how THEIR boring stories are so boring that I am bored out of my freaking bored mind I'm so bored, and by the way, did I tell you about the time me and Jimmy uncovered this invasion by the Amazon Women From Mars Who Dress Like Vixen Cheerleaders?

This is a completely new experience that I plan to include in my autobiography that I whimsically call "The Big Book of the Mogambo, Now It Can Be Told," which vaguely suggests some salacious scandal, and maybe somebody will then buy a copy thinking that they are going to get something juicy and salacious, don't you think?

Well, the BBOTMcommaNICBT is mostly, I admit, mostly my own crude drawings for kids to color with their crayons, mostly featuring scantily-clad ladies in high heels brandishing sub-machineguns, the spent cartridges arcing through the air like a brass rainbow as a stream of steel-jacketed hollow-point death puts a lot of bullet holes in something (or somebody!) off the page, but you can't get a copy of this magnum opus even if you wanted to, because the government is censoring me and keeping all the publishers from printing my book! They won't even talk to me on the phone anymore!

Anyway, the Real Story of the Mogambo Guru is that I stole the name Mogambo, as it was the name of a dessert-for-four called the Mogambo Extravaganza, that was served at a restaurant named, as I recall, Wolfie's, in Orlando Florida, pre-Disney, which is, as I recall, defunct. Not Disney, or course, but Wolfie's. But it was a huge dessert! It was huger than huge! Waitresses had to have help bringing the damn thing, staggering to the table of the partying jokesters who ordered it! And anyway it was a long, long time ago and I was in college, and my memory isn't all that hot to start with, but I remember that I took a few girls there on dates, ones that I was trying to impress for some reason, and you can probably guess WHAT reason, and I had, for reasons that I cannot discern, money to pay for it, which is, if you know me, something of a stretch, since I am both lazy and suffer from a complete lack of ambition, and yet I can walk right into the local Disability Office and politely ask to speak to somebody about please getting my hands on some nice, cushy Disability Benefits or something, and they start getting all bent out of shape because they insist that they do not recognize either Lazy-Impaired NOR Ambition-Challenged as "disabilities," and I put that in quotes as my petulant way of showing indignation at anyone even THINKING that I am not disabled! I mean, listen to me!

Well, anyway, the next thing you know, words are said, and by the way the receptionist at the Disabilities Office DID look like a fat weasel so I think those charges are going to be dropped, and pencils were thrown, and progressively heavier object were heaved about, and chairs are hurled, and obscene screaming was, well, screamed, and computers were ripped out of the freaking wall and used to smash other computers to little bits of broken plastic housing, and sizzling, sparking electronic doo-dads are all over the floor going "zzzzt!" and one thing led to another and then the next thing you know these short-tempered police are running around everywhere and their damn sirens are blaring "rrrrRRRRrrrrr" and you can hardly hear yourself think, and they are all looking at ME, like it is MY fault or something! But getting back to our highly interesting story wherein you pry into my private life and hope to discover my Secret Identity and maybe learn the location of the Mogambo Cave, when I started out in this business, many years ago, I was trading OEX options and writing a newsletter that forecast the likely movement in OEX options over the next week. I needed a name for the newsletter. It was small, so I needed something big! It was cheap and ugly, so I needed something grandiose! It was dull and trite, so I needed something mysterious! It was stupid, so I needed something that was NOT something stupid! But not TOO smart-sounding, because anybody subscribing to MY newsletter can't be that smart to begin with. So I chose the name Mogambo, which I defined as meaning "Biggest and Best," but which turns out to be not only something that sounds stupid and is hard-to-remember, but is also apparently some kind of a demon in India, and is a movie starring Clark Gable, which was a really bad movie, and it is the name of a couple of amusements parks and restaurants in Asia. I can hear you thinking "Nice going, chump!"

So, to those who are wondering, that is the story of How The Mogambo Got His Name. The rest, as they say, is history.

Jay Taylor, of Taylor Hard Money Advisors, writes "The underlying dynamics of debt deflation do not change, because just as certainly as night follows day, there are limits to debt and there are limits to inflation."

Well, right away you know two things. 1) this guy is NOT a spokesman for the Fed, because they do not believe this heresy, as their entire silly computer model and all their assumptions are programmed with the idea that there IS no upper limit on debt until you run out of memory space on the computer big enough to store a number that big, and 2) because the phrase "dynamics of debt deflation" is just too, too alliterative, and you don't normally think of Fed wonks as alliterative.

He goes on, "Debt is by nature deflationary. Debt is the raw material from which fiat money is manufactured. Therefore, all attempts to outrun deflation by printing an ever-accelerating amount of money are doomed to fail because as debt grows much more rapidly than nature's limits allow income to grow, reversing the inflation of the money supply to a deflation is inevitable."

I am looking at the strength of the dollar, and I say to nobody in particular "Yow! A dollar that gets stronger?" and passersby say "Did you say something to me?" and I say "Yes! I said a debtor nation that has already indebted to the tune 350% of it's GDP already, with zero savings to pay it with, with a budget deficit that is 5.1% of GDP, with a trade deficit that literally dwarfs the next ten biggest economies on the whole freaking globe COMBINED, and that is so huge and gigantic that it blocks out the sun with it's gigantic hugeiosity, both in terms of the mountains of absolute dollars ($556 billion per year!), but also in terms of percentage of GDP (5%)! The mind goes 'boiiiinnnnnngggg!' " And then they look at me all weird-like, and they toss some coins to me and quickly leave, and some of the Catholics cross themselves for good measure.

And not only that, but foreigners are laughing their foreign asses off and making insulting comments about us in their foreign languages so that it comes out sounding like "Ze blah de la goombah avec splopgefunzen ola ha ha ha!" at the stupidity of a nation that acted so irresponsibly, and people of the future who might be reading the Mogambo which they found by sorting through the ashes of our ruined civilization are going to turn to each other and wave their tentacles at each other, as if to say "Boy, this guy sure is stupid! Maybe that explains why the rest of them, as exemplified by this Alan Greenspan character, were so stupid, too!"

And the best that John Snow and his whole Treasury Department can come up with is for him to avert his eyes and squirm in his chair and stammer out that George W. Bush and everybody he knows are all a bunch of real sweethearts, and they are committed - committed! - to halving the federal budget deficit by half within five years. Like this is some kind of good news! I mean, the guy has spent his entire Presidency burying us in unprecedented levels of debt, without vetoing a single spending bill the entire time, and now we are supposed to believe that he wants to reduce the deficit? As was once said in a Monty Python skit, "Go on. Pull the other one!"

So I get out my crayons and my calculator, and I note that the budget deficit is $550 billion a year now, and that is using wildly optimistic assumptions that never work out in real life, like, for instance, that the budget will only compound by 4% per year for the next five years. So that means by the time this hypothetical John Snow's Miracle Five Year Plan is done with, which ought to be about, oh, say five years from now, so mark your calendars, we will be ANOTHER $3.3 trillion more in debt! And we will STILL have a freaking budget deficit of $351 billion a damn year! This is GOOD news? This is the damned GOOD news with? Just the interest ALONE, at a measly 6%, on this new debt will eat up $198 billion of tax revenues! So am I supposed to think that this is something that I want to call up my kids about, waking them up at 3 a.m., so I can tell them the wonderful freaking news that in five years we are going to be another $3.3 TRILLION dollars in debt? And this is just the blangity-blang, dangity ding dong damned OPTIMISTIC plan? This is the BEST that he, and all his little playmates in government, can figure out? This is the gooooooooood news? And here is where the Mogambo steps back from the microphone, his voice trailing away until the echoes die down in the misty distance, and then there is only silence. He spreads his arms, or better yet make that "spreads his muscular and manly arms with muscles that rippled in a manly way." The audience is hushed, and they lean forward in their seats, straining their ears towards the stage upon which the Mogambo now stands, his manly and powerful jaw thrust defiantly forward. The Mogambo opens his mouth and says "And this - this! - is a country that is going to have a currency that gets stronger? Hahahahaha!"

Later, in the dressing room after the show, I confide to the reporters that I cannot think of another nation that tried this silly crap and made a go of it, although every single one of them, all the way up and down the corridors of history, tried it at one point or another, and always to their ultimate dismay, too, I might add. Some of them wrote this down, but others wanted to know if I had ever considered a sex-change operation, and so I said "No, but most of history is the story of one country going to war against another country, both of whom needed some money to pay their debts." Oops. Change that to "the overwhelming evidence of history." No, wait! Change that to "Dead-bang certainty that we are going to wake up one morning and find that we are toast."

To show you the utter insanity of Alan Greenspan, we have this. "We have, I believe, a reasonably good understanding of why Americans have been able to reach farther into global markets, incur significant increases in debt, and yet fail to produce the disruptions so often observed as a consequence." Well, well, well! For the first time in history, somebody has figured out how to amass crushing debts and NOT have it destroy the economy! And not only that, but he has a GOOD understanding of it! And the answer is, give me a drum roll please, market forces! He rhetorically asks "Can market forces incrementally defuse a buildup in a nation's current account deficit and net external debt before a crisis more abruptly does so?"

After spending his entire freaking career providing more money and credit so as to finance the world's all-time record-setting bubbles of debt in every market that you can name, NOW he takes the time to ask if market forces can take care of debt? Hahaha!

I see you raising your hand, wanting me to call on you so you can ask me a question that I probably can't answer and then I get all embarrassed. But instead of calling on you, I close my eyes,and Mogambo the Mentalist will read your mind! I close my eyes, and concentrate concentrate concentrate. You want to know how can "market forces" perform this miracle, this towering achievement that has eluded every other dirtbag government and every other dirtbag economist and every other dirtbag central bank in the entire history of the world? The answer is "market flexibility!" You heard me! He actually says "The answer seems to lie with the degree of market flexibility." Market flexibility! Of course! Market flexibility!

Greenspan goes on to say, and I know that he is hard to hear over my insane laughing and hooting in utter contempt and I keep making these rude sounds like I am having severe digestive-tract distress and am passing large quantities of gas, "In a world economy that is sufficiently flexible, as debt projections rise, product and equity prices, interest rates, and exchange rates presumably would change to reestablish global balance" My God! Why didn't I see it before? I slap my forehead in wonder! It all seems so simple when he explains it! In every other instance of the build-up of huge, bankrupting debt, we did not have, let me check that list again, product and equity prices! And interest rates were, of course, completely absent! And let's not forget that exchange rates were always completely non-existent! So NATURALLY "global balance" was not restored in those bad old days!

Doug Noland of Prudent Bear website seems to say, as I say, that Alan Greenspan is a preposterous and incompetent old fool, and the fact that economists are not rioting in the street in protest at these comments by this clueless, horrible little jackass who is in charge of our central bank is a damning testament to the stupidity of economists in general and American economists in particular, and it says something pretty ugly about everybody else, too, that he could say such stupid things and get away with it. Mr. Noland says, "History will not be kind. Absolutely no degree of 'market flexibility' will mitigate our financial and economic misdeeds. There will be no painless defusing of U.S. imbalances. There has been no repeal of the Law of Economics. Finance is finance is finance."

And that is exactly WHY these kinds of debt and asset-inflation bubbles have never before, in all of history, EVER been "defused" by market forces or anything else. They are always destructive and usually fatal, and that is why we are supposed to have nightmares about getting into one of those situations, and that is why the Founding Fathers wrote into the Constitution this thing about money only being of
gold and silver, just so we would NEVER get into this mess to start with! And yet here we are!

Former Federal Reserve Chairman Paul Volcker is supposed to have once said, "No central bank can--or should, in my judgment--conduct policies for long that are out of keeping with basic, continuing objectives of the political system." For all the respect that I have for Paul Volcker, this is stupid beyond words, as what the political system wants is communism. With the rise in interest rates, and with the breadth in the advance-decline line of the NYSE now dropping like a stone, and with the ratio of insider-selling to outsider-buying of shares, and with the negatively-toned activity of NYSE Specialists and Members, and with the price of gasoline rising, and with a war, and with history being what it is, and the Laws of Economics being what they are The lights suddenly dim, the audience is instantly hushed, and all eyes are upon The Mogambo as he tragically drops to one knee, raises his arm in weary entreaty, and looks forlornly into the distance. With the haunting heartbreak of deep, gloomy emotion dripping from every tortured syllable, he says "How do I fear thee? Let me count the ways!"

The audience, I am sorry to say, instantly became restless, and they could see that this was NOT going to be one of my best moments in economics theater, and they all started going for the exit, and I sort of panicked. So I shouted out after them, "Or better yet, I could quote Doug Noland!" Well, THAT got their attention, alright, and they hesitated And then I said "And then afterwards we could all go out and get a drink!" So they all came back and sat back down.

Then I started the scene over. Dropping to one knee again, and raising my arm again, I say "How do I fear thee? Let me count the ways! Or better yet, verily let me quote Doug Noland!"

The face of the Mogambo was truly a work of performance art, with the sadness of wretched, aching loneliness etched in each line and shadow of his manly face. With a voice that trembled oh-so-slightly, and audience members later reported that they could literally feel his pain, so powerful was the performance, he breathes life into the words of Mr. Noland, "I hope future historians will grasp the essence of what went astray and comprehend that there were poor decisions made all along the way. It didn't have to happen this way. It shouldn't have.' " At that, the audience was transfixed in awe, hypnotized as they were, by the gut-wrenching, once-in-a-lifetime performance they were witnessing! The audience was hushed as my Mighty Mogambo head slowly sagged into my arm, and my whole body seems to deflate, as if the very living spirit was leaving it, mighty shoulders almost imperceptively shuddering with completely realistic and heart-rending sobbing, as the Mogambo heroically, and tragically, wept. Well, naturally, the audience went wild! Clap clap clap "Hoorah! Hooray!" Clap clap clap! It was the, without a doubt, best moment in live theater in all of history, but unfortunately everybody forgot to bring a camera and none of the critics bothered to come. But while they were all too busy to come see the Mogambo, put out a lousy tray of cocktail weenies and they are swarming all over the place like cockroaches, showing the that the taste of critics is all in their mouths.

But all is not lost! With the legal system being what it is, I have decided to sue the Oscars for not having an award, with a large cash prize, for "Best Completely Undocumented Performance." Which I would win hands down! But there IS no award for an undocumented performance, and so I didn't win anything! Nothing! Nada! I didn't get squat! And so that just PROVES that they are out to get me! Just like I've been saying all this time!

But the lesson is learned, and I might offer solace to Mr. Noland. I say, "Rest assured, Doug. They will. They will learn, and they will laugh at us, and they will marvel that human beings could, on the one hand, virtuously extol the mighty virtues of education, work and thrift. And at the exact same time - and I am talking simultaneously, or, in Mogambo-ese, "simul-freaking-taneously!" - consciously debase them all to worthlessness, like the hypocrite trash they are!


---Mogambo Sez: Take a deep breath. Let it out. Relax. Say "ommmmm." There is nothing you can do to save us. But the fact that you bought
gold and oil and commodities means that you have saved yourself.

Be content with that. Ommmmm.

May 11, 2004
Richard Daughty
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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