 Lawn
Sprinkler Economics
Richard Daughty
...the angriest guy in economics
The Mogambo Guru
Archives
May 19, 2005
-I made a solemn
vow to sober up, and this time I really mean it, when I read
that Total Fed Credit did NOT, again, climb, it did NOT, again,
remain constant, but last week it went down by $3.2 billion!
Naturally, I assumed that my bloodshot eyes are deceiving me
or that I have finally killed the few remaining neurons in my
brain that still work. Can this slowdown in Fed credit
be true, and I can get back to a life of drunken dissolution
with a clear conscience? Time will tell.
And what is
the significance of Fed Credit? Because this is the magical and
fabled Money From Thin Air, which is distributed to the banks
by the Fed merely pushing a button, which use it to make loans,
and when the bank makes a loan, real money is thus created, not
from thin air, but from the increase in their reserves, which
came from the increase in Total Fed Credit, which you realize
DID, if you have been paying attention, come from thin air. So,
without all this new money from thin air, the money supply has,
umm, stagnated.
Mark Lundeen,
a guy who literally drips data, sent me a graph showing the growth
of Fed Credit since 1938. Back then, even after that arch-communist
FDR was installing the socialist state in America, it was about
$10 billion or so, and it was gradually rising and rising, faster
and faster. Somewhere in the middle 70's, it finally grew to
$100 billion, but it kept on increasing, faster and faster. Then,
coinciding with the horrid Alan Greenspan being appointed as
the chairman of the Federal Reserve, it really got going.
Now it is at $783 billion.
Sure enough,
when we take a look at the money supply, as measured by the M's,
we notice that they all fell, too, although for reasons completely
different than why The Mogambo fell down, which was because I
was going to unsteadily go over and finish off that bottle of
tequila so that I would not be tempted to drink it. But the money
supply probably fell because of a lot of reasons, mostly because
more people were paying off their loans than were taking new
on new ones. But it was nothing to write home about, but it does
merit the kind of attention that one pays to small clouds on
the horizon, knowing that small clouds can grow to big clouds,
and then suddenly you get pelted by wind and rain and your new
portable radio gets all wet and is ruined, and nobody wants THAT!
So it pays to keep an eye on these damn clouds.
Even Randall
W. Forsyth, taking over for Alan Abelson in writing the "Up
and Down Wall Street" column in Barron's, remarked
"The money supply (which is hardly ever mentioned in polite
company anymore) has hit the wall, And while we're not high-church
monetarists, a collapse in money growth always has presaged an
economic slowdown and a punk market."
Now, let's
analyze the last phrase of that sentence. "(A) collapse
in money growth" which probably has nouns and verbs
all over the place, but who cares, is when money is no longer
being created. And since it can only be created by people borrowing
money (because that is how a fiat/paper money system works),
this has "presaged," probably meaning
something like meaning to "leading to" or "providing
advanced warning about" or something in that vein, "an
economic slowdown" which hardly needs any explanation because
everyone knows what an economic slowdown is, and if you do NOT
know what an economic slowdown is, then I know you are very young,
and you are now going to get an education as to why your parents
are probably the way they are, mostly yelling at me to stop watching
that damn TV and get some work done, a task that has now fallen
to my wife, who is even less successful at it.
Clif Droke,
editor of the Gold Strategies Review newsletter, notes that MZM
(money of zero maturity) has not been growing, and concludes
that this "makes an economic slowdown a near-certainty
in the months ahead."
Just as alarmingly
as people wanting me to do actual work, the Treasury has apparently
stopped selling new debt, which makes you wonder how in the hell
they are going to finance their megalomaniacal visions of empire.
But this is
not about how the federal government and their willing little
whore, the Federal Reserve, have apparently gotten tired of the
Mogambo screaming bloody murder about this monetary insanity
stuff, and have stopped this silly crap long enough to take a
nice nap or something. It's about how frauds (and our current
monetary policy is the biggest fraud in history) always come
undone and leaves everybody weeping and then I get blamed for
everything.
For one, GATA,
the Gold Anti-Trust Action committee, is back with Eric Hommelberg
leading the charge, who has even more strident denunciations
of the manipulation of the gold market. That the gold market
is manipulated is beyond doubt, but then so are all the other
markets, too. One current example is the precious metals markets,
and Ted Butler remarks "(T)he tech funs have never booked
a real profit in gold or silver due to their buy-high, sell-low
approach." An interesting detail is that "the dealers
have never booked a loss." He notes that there are some
who suspect some type of collusion between the dealers and the
techs, me included, but then I always suspect collusions and
betrayal, as that is all I have ever experienced.
But there is
good news in this, as Mr. Butler explains. "It has been
the remarkably predictable trading pattern of the tech funds
that has made the analysis of the COT (Commitment of Traders)
so reliable. It is the predictability of the tech funds' behavior
that has enabled me to consistently identify low and high risk
points in the silver market for the past few years."
But before
you jump up out of your seat to delve into this revelation and
make a few bucks for yourself by following the behavior of the
tech funds, here is the interesting part: Things are suddenly
different! In fact, he says so himself, as he writes "The
numbers are different than anything we've seen in the past"
and he surmises that it may be time to "throw the old COT
guidelines out the window" because a lot of other big-money
dudes have noticed this weird relationship, and are moving in
to cash in on it, too.
So what to
do with gold and silver if you buy it? Well, James Turk, who
writes The Freemarket Gold and Money Report, writes that "Last
year, State representative Henry McElroy introduced HB 1342,
which has been dubbed the New Hampshire Sound Money Bill.
This bill enables people to use gold and silver in their transactions
with the state of New Hampshire."
If this passes,
then New Hampshire will finally be free of the inflationary shackles
of the illegal fiat monetary system that has been pounded down
our throats since Wilson allowed the establishment of the Federal
Reserve, and (as he has been called by Vin Suprynowicz) Franklin
Delano Mussolini, who used it to destroy freedom from government
in America and put us all in the thrall of the government and
the banks, which was a big, big mistake, as you can see by just
looking around you.
But Mr. Hommelberg
is addressing gold when he says "Knowing that the price
of Gold was managed paved the road for the 'in the know' bullion
banks to accelerate their profitable gold carry trade (selling
gold being lend by the Central Banks). A declining gold price
was win-win situation for many." How was this a win-win
situation? Well, for one thing, the banks lent the gold
and got a higher price for it, and they still had the damned
gold on their books, if not actually in the vault! The
guys who leased the gold sold it, and now they can repay the
borrowed gold by buying it cheaper on the open market!
Not only that, but Mr. Hommelberg notes "The US government
welcomed a lower gold price since it lowered inflation expectations
and strengthened the dollar." Now, the failure of the price
of gold to rise did not, of course, prevent inflation. It just
made it LOOK like there was no inflation, since people were not
scrambling to trade in their depreciating money for gold.
He goes on
to write, "This effort [by the Federal Reserve, Bank of
England and BIS to turn back the gold price] was later described
by Edward A. J. George, Governor of the Bank of England and a
director of the BIS, to Nicholas J. Morrell, Chief Executive
of Lonmin Plc 'We looked into the abyss if the gold price rose
further. A further rise would have taken down one or several
trading houses, which might have taken down all the rest in their
wake. Therefore at any price, at any cost, the central banks
had to quell the gold price, manage it. It was very difficult
to get the gold price under control but we have now succeeded.
The U.S. Fed was very active in getting the gold price down.
So was the U.K.' "
In a related
note, Switzerland has finished, as of March 30, with its sales
of roughly 1300 tonnes of gold that it started in 1999. The odd
thing is that even as they were selling, the prices of gold went
up almost from the very day that they started selling it!
-The Depository
Trust Clearing Corp. has announced that in 2004 they cleared
over one quadrillion dollars in securities trades, which translates
into $4.5 trillion every day, which further translates into buying
and selling securities at a rate that equals the entire US gross
domestic product, GDP, every 2.7 days.
This bizarre
gambling mentality is one of the earmarks of the end-game of
a long boom, born of inflation, where so much money has been
created and so many things have been created to absorb all of
that money, that it degenerates into nothing more than raw speculation
and gambling.
-From the Financial
Times we read, "Real wages in the US are falling at their
fastest rate in 14 years, according to data surveyed by the Financial
Times by the Economic Policy Institute. Inflation rose
3.1 per cent in the year to March but salaries climbed just 2.4
per cent, according to the Employment Cost Index. In the final
three months of 2004, real wages fell by 0.9 per cent."
And speaking
of wages, the Labor Department reported last week that 274,000
jobs were created in April, although a close reading of the data
shows that most of them (257,000 of them) were assumed to have
been created (like the Federal Reserve creates money, out of
thin air), as an expedient to make the numbers look good, as
all government statistics are now massaged to make the government
look good. But maybe there were more jobs created, as the Bush
administration came up with another request for another $80 billion
for their empire-building in Iraq and Afghanistan and all that
money has to go somewhere.
But, then again,
maybe not, as first-time claims for jobless benefits rose 4,000
last week to 340,000, which is waaayyy over 300,000, which used
to be bad news ("As long as first-time claims stay below
300,000, then it is okay!"), but is not even mentioned in
polite company anymore.
Moreover, the
Labor Department also reported that factories eliminated 6,000
positions, on top of the 7,000 that were shed a month earlier,
which probably explains part of the reason why the index of New
York state manufacturing surprisingly fell this month. The index
is now at the lowest level since April 2003, ending two years
of growth in that particular index.
But even without
wage gains or employment growth, some consumers apparently found
a way to justify going farther into debt, and so consumer spending
went up 1.4 percent in April, and is actually running at a stronger
pace in May. The really interesting part is that some retailers
mentioned that the number of transactions declined, but that
each customer bought more. Hmmm.
At least most
people got into the debt thing a little deeper, perhaps except
the guy who wrote to Richard Russell, of the Dow Theory Letter,
who was complaining because his credit card company has now raised
the minimum monthly payment, and now he can't pay that much money,
and is considering filing for bankruptcy as a result! Can you
believe this? What a moron! He has gorged himself with
so much stuff that he can only afford to make the minimum payment?
Well, to show you what a class act Mr. Russell is, he only addressed
the facts and was solicitous and gracious as usual. Whereas if
he has written to The Mogambo with his pathetic little whining
snot-faced tale of woe, I would have called up his mother and
had her go over there and slap his stupid little face to 1) teach
him a lesson in the benefits of going into un-payable debt and
2) punish him for embarrassing her by admitting to such stupidity
in public, and now when she walks into the grocery store she
can feel everyone's eyes upon her, and she can hear them whispering
to each other "I wonder how much farther in debt her idiot
deadbeat son got? She must be a bad mother!," and
I tell her that she now knows how I feel when I go to the store,
and I could hear them whispering "There's that stupid Mogambo.
He must have had an insane mother! And father!"
On the other
hand, discount retailers reported weak result in April, as we
lower-income proletariat scum, who primarily shop at discounters,
and whose wages are falling, are finding it difficult to consume
our way to nirvana, as it the current vogue.
-An essay entitled
"Shanghai Surprise" on the DR site by Karim Rahemtulla
has an interesting anecdote about the coming re-pegging of the
yuan. "My Big Mac meal in Shanghai set me back $2.19 - about
half what it would cost in the United States. This is a good
indication, along with the 15 cents I paid for a Snickers bar
and the 30 cents I paid for 16oz Pepsi, that the Yuan could appreciate
quite a bit from current levels." Which I conclude means
that the dollar could depreciate "quite a bit from current
levels."
Beyond that,
he thinks that "China is a conundrum. It defies economic
principles with low inflation, high growth, and huge money supply,
and a socialist government all in one...someone is lying somewhere."
Putting these two pieces of information together, he says "My
advice on investing in China is this: To really profit
from China, fly over with a few suitcases and spend as much as
you can, buying goods at artificially low price,"
which is probably real good advice, since when the dollar depreciates,
you will only be able to buy less stuff. So buy now, before the dollar falls, and get
more stuff! It's the American way!
-As my latest
stupid bid to win that elusive Nobel Prize in Economics, I have
happened upon what I think may be the defining metaphor for what
is going on. I call it the Mogambo Lawn Sprinkler Theory (MLST).
Like Newton having an apple fall on his head, whereupon he supposedly
invented gravity, I, too, have had such an epiphany.
See, what happened
was that my good lawn sprinkler finally bit the big one, and
now I am on auxiliary back-up sprinkler, which is so cheap that
it was probably a free gift inside a box of breakfast cereal
or something, or a gift from a realtor wanting to list my house
for sale and then make a big fat profit, and then where would
I live? With my parents? They're dead, you moron!
I can't GO home! But we are not here to talk about
how I am now a pathetic orphan with no mommy or daddy, boo hoo
hoo, or how realtors are beating the bushes for houses to sell,
as if anybody would move into my run-down rat trap, much less
pay money for it.
So here I am,
trying to maneuver this damn sprinkler around the yard, a little
at a time. And that means that I have to go out there and physically
pick the damn thing up to move it to another spot that needs
some water. So I am crimping the hose with one hand to stop the
flow of water that comes shprutzing out of this damned little
sprinkler, but you can never completely stop it. No matter how
hard I crush that stupid hose, there is always a little spray,
sort of a mini-shprutzing, and so you have to be real careful
when handling it or you will get wet. And you are almost never careful enough, because
sooner or later you are going to get spattered by drops of water.
And then the next time you are out there, adjusting the sprinkler,
you are being extra careful, but you STILL get shprutzed by that
damned hose! And then, just when your clothes have dried
off a little, you gotta go change it again. But this time,
having gotten wet the last two times in a row, you are being
extra, EXTRA careful, holding a cold beer in one hand and a cigarette
with the other, while simultaneously holding and dragging and
manipulating the damn hose, but it's flipping and flopping, and
you can't seem to maneuver it into the exact damn spot you want,
because this has got to be aimed correctly or some damn little
stupid place is not going to get as much water as the wife thinks
it needs, and then she is saying to me, with that ill-disguised
undertone of loathing and disgust that is the bedrock of our
marriage, "My (insert name of some dumb plant that
I never heard about that she planted within the last five or
ten years that looks like a weed to me) didn't get any
water! Now they are dry and dying!" Naturally, because
I am The Mogambo, I politely tell her that maybe the plants would
feel better if I came over there and shut her fat yap for her,
and then she suddenly goes all weird on me (probably hormones
or something).
But it was
during one of these sprinkler-turning episodes where it suddenly
occurred to me that economics is like a cheap water sprinkler;
you can't do stupid things with it, and if you do, you will get
very wet, because you are going to get a little wet anyway, even
if you do NOT act stupid. And when that happens, it will
look like you peed in your pants, and the neighbors come out
and start pointing at you and laughing, "Hahaha! Mogambo
peed in his pants!" and then I say "No, I didn't!"
and they say "Yes, you did" and I say "No, I didn't!"
and then I start to cry. Then the bitter tears of rejection
and desolation are dimming my eyes, and everything seems watery
and indistinct and surreal, and now the tears are starting to
sting my eyes with all the salt, and I can't get a good aim at
any of them, and my bullets are going everywhere. As my vision
clears, I see that my shot pattern looks like I am some kind
of rookie, and I end up wasting a whole clip of very expensive
ammunition for nothing.
So, just as
getting wet is a bummer, so is the price inflation that is inevitable
when the money supply expands so much, and now getting some more
ammo is making a dent in my budget. That may explain why my kid
wakes up in the middle of the night, screaming about monsters
under his bed. I patiently explain that there are no monsters,
and so therefore there cannot be monsters under his bed. And
then he says "Well, the government says that there is no
inflation, and they are liars! Therefore, you are probably
lying to me, too, and that is why everybody hates you! And you're
all wet, too!"
And while getting
wet from a stupid sprinkler is bad enough, you will dry eventually,
but your clothes are ruined. And so it is with inflation, as
eventually it will end, too. But while your clothes will
not be ruined, everything else about your life will be.
-The Texas
Hedge Report talks about the goings-on at the Berkshire Hathaway
meeting where they discussed the gigantic fraud of Fannie Mae.
They quote Warren Buffett saying, "Fannie's earnings were
off by $9 billion from what the company originally said.
Freddie's were off by $5 billion. People weren't necessarily
negligent. It's just hard to estimate. A lot of relatively small
assumptions go into the numbers. If you change one even slightly,
it could have a big effect on the bottom line."
Although they
didn't mention it, this is the whole point behind Chaos Theory,
which proved that any tiny, teensy-weensy, insignificant little
change, in any of a thousand variables, or a million variables,
or a billion variables, WILL give you a result that is wildly
different than what would otherwise occur.
Here is a real
life example. Every Saturday morning, my wife wakes me up with
an exercise program, wherein she takes a pillow and jams it down
over my face, which wakes me up, kicking and screaming. Since
I can't breathe, I start struggling to get that damned pillow
off my face. But she is pressing down hard, and by the time I
manage to free myself, I have worked up a good sweat and am wide
awake, ready to face the day. But this morning she did not, as
she was out meeting with a lawyer, who advised her to get a handgun,
and so I completely overslept. Thus I missed today's episode
of The Brady Bunch. See what I mean? The slightest change produced
wildly different results.
Now, I'll be
the first to admit that Warren Buffett is a smart guy, which
I surmised from his never taking a call from me (in fact has
his secretary tells me "Mr. Buffett is not here.
May I take a message?" and I can HEAR him standing behind
her, laughing at me!). So you gotta wonder why he says
stupid things like "I'm not crazy about gold as a hard asset,
compared to, say, oil, See's Candies, or Coke. If the value of
the dollar dropped by half, we'd sell See's chocolates at twice
the price." Huh? You notice that I am uncomfortable with
this whole pricing concept, the theory of which eludes me completely. I
mean, if raising prices is so easy, then why in the hell doesn't
he raise prices NOW, and make twice as much money NOW?
That's what I would do, and so would you, and so would every
kid that struggled through microeconomics, because he or she
knows that microeconomics is solely concerned with achieving
optimal performance and profits. So, Warren Buffett, the
fabled Sage of Omaha, says that is performing at, at most, 50%
of potential? Jeez! How in the hell did this guy
get such a great reputation?
He also shows
a kind of weird logic when he says, "If you go back to 1900,
gold sold for $20 an ounce, and has risen to just $400 since
then." Well, duh! In 1900, the dollar was DEFINED
in terms of grains of gold, for crying out loud!
I know that
this ragging on Warren Buffett is dangerous business, as he is
a rich genius hot shot and I am just a guy, an ordinary guy,
a guy with a broken heart and song to sing, a guy stupid enough
to think that he can poke fun at Warren Buffett and moronic enough
to think he can get away with it.
So, naturally,
my folly reminds me to start praying, (as Marlon Brando said
in his role in the movie "Mutiny on the Bounty" as
he was putting Captain Bligh adrift in that little boat in the
middle of the ocean), to "whatever pig-god you pray to."
Well, as it turns out, whatever pig-god that Captain Bligh prayed
to is a pretty nice dude, as they miraculously made it to safety
and testified against the handsome and young Marlon Brando and
his fellow mutineers.
So while I
am not advocating that we worship a pig-god, even though it seemed
to have worked out great for Captain Bligh, I nevertheless turn
to the religious side, since the country seems to be waxing religious,
which is one of the things that you will notice as things get
progressively worse and worse. So there I am on one side, calling
them a bunch of hypocritical, Bible-thumping cowards and morons
who can't comprehend the Constitution, and everyone else on the
other side, doing hurtful things like calling me "spawn
of Satan" and "ugly, smelly little creep" and
yelling "Hey! Quit trying to steal my lawn sprinkler, you
thieving bastard!"
So turn to
your Mogambo Religious Book (MRB), and after I recite a relevant
passage from the Book of the Naughty Nymphettes, you chant the
appropriate response, which has been thoughtfully provided by
The Mogambo, which you will find conveniently enclosed in parentheses. The congregation shuffles nervously
as I adjust my religious headgear (the Propeller Beanie Of Infinite
Compassion And Holiness (PBOICAH)), and in my squeaky little
voice I begin, "And verily I say unto you, who the hell
knows what gold would have been worth if the dollar was then,
as it is now, a dumb-ass fiat currency?" ("The Mogambo
knows!"). "And who amongst us knows what gold
would have been worth if the banks and the Fannie Mae's had not
been allowed to insanely expand the money supply then, like it
does now?" ("The Mogambo knows!"). "And who
is it that walks in our midst who can tell us what gold would
have been worth if the government was then, as it is now, some
giant borrowing- and money-distributing machine? ("The Mogambo
knows!").
Warming up
to the role, I raise my arms dramatically, and peering off into
the infinite distance as if perceiving wisdom from the reaches
of the, again, infinite universe, I loudly conclude "And
who resides in the bosom of our community who can know the person
responsible for this calamity that soon befalls us? ("Alan-freaking-Greenspan,
the chairman of a damned private bank they named the Federal
Reserve!")
Now that we
have finished quoting scripture, it is time for the sermon.
Mr. Buffett is right, of course, when he says that people who
hold gold "would have to pay for insurance and storage."
And he is also right that "The Dow, by comparison, was at
60 or so in 1900; it's now around 10,000-and has paid dividends
along the way." And while he conveniently forgets, taxes
were paid, and you paid your brokerage all kinds of fees and
costs and commissions, too!
And let's not
forget that indexes are manufactured, where the custom is to
drop any companies in the index if they go bankrupt, which may
explain why the Mogambo Money-Grubber Company cannot be found
in any index nowadays. Notice that there is no accounting for
the losses that were incurred by the holders of the bankrupt
stock that used to be in the index. How convenient!
Mr. Buffett
is also anti-gold, as he proves when he says, "Gold is just
about the last thing we'd want to own. Other alternatives have
utility, which gives them value. I'd rather have the ability
to sell a pound of candy 20 years from now." Well, so does
everybody, dude! That is the whole point! We want you to be ABLE
to sell a pound of candy twenty years from now! And a destroyed
economy is NEVER conducive to selling chocolate candy!
Seeing that
I am winded and out of breath, I reach out and slap the hand
of the Texas Hedge, signaling them that since we are in this
tag-team match together, they ought to get into the ring with
Mr. Buffett awhile. Bounding over the ropes, they say, "We
do not disagree with Buffett in that under most circumstances
gold is a poor asset to hold when compared with a solid operating
company over long periods of time. However, this is no ordinary
time. The Fed and the powers that be are attempting to debase
our currency like no time in recent financial history. Buffett
himself has seen fit to take $21 billion in a basket of foreign
currencies for the first time in 50 years. He recognizes the
same trade and current account issues that make people bullish
about gold."
But it is not
just gold they like, but also, as does Warrant Buffet, silver.
They note that "Silver, for instance, has a wide range of
industrial applications. We are more bullish on silver than gold
for supply/demand fundamentals." Then they give Mr.
Buffett a whack about his 130 million ounce silver purchase!
Hahaha! Take that! Hahaha!
But they, like
The Mogambo, can't stop thinking about all that candy.
"Likewise, the ability to sell a pound of candy versus holding
a quantity of gold is a point well taken, but paying an absurd
multiple for the right to sell that candy (akin to the expensive
stock prices prevailing today) versus purchasing gold still near
the lower end of its 20-year bear market range and with a once-in-a-generation
current account problem doesn't seem so foolish to us."
Sitting ringside,
nursing a bruised jaw while watching the action, I say, to no
one in particular, "That's what I figure, too."
-In my younger
days as a young larva, I would spend the warm summer days in
my cozy cocoon, trying to think of some way that I, The Mogambo,
could come up with a way to get us out of this suicidal economic
mess caused by creation of too much money and credit, made worse
by operating in tandem with a fractional-reserve banking system,
and then made suicidally worse by being coupled with a fiat currency,
all under the control of a monstrously large and expensive central-planning
government that is trudging down that same tiresome road
to socialism that lead everyone else to ruin. All my hoodlum
friends said to me "Quit wasting your time!
Everyone in history has grappled with this problem without success!
Why don't you figure out a way to get us some reefer or some
beer?"
Bill Bonner
of the Daily Reckoning.com, who has neither reefer nor beer,
or if he does, he isn't sharing any of it with me, says roughly
the same thing when he says "Greenspan is trapped. He needs
to 'normalize' rates to encourage saving and investing, otherwise
the economy cannot really grow in the future. But he needs to
lower them too; otherwise the economy might collapse now."
So there you
have it! If you want to be famous, like I do, and if you want
future generations of people to sing your praises, like I do,
then all you have to do is solve one stinking little economic
problem, like I can't! And you owe a debt of gratitude
to Mr. Bonner here, who has just told you exactly how to do it!
All you have to do is to simultaneously a) lower interest rates
to stimulate the economy and b) raise them to choke of inflation
at the same time! If you find a way to do that, then you
have it made, and thus your genius will enable people to forever
buy more and more stuff, going farther and farther into debt,
forever buying more and more stuff! And you better hurry,
because they are so sodden with debt that you can actually
hear them slosh when they walk past me without leaving any money
in my hat as I play my guitar and singing the blues, mostly plaintive
16-bars of heart-wrenching pathos and desperate despair along
the lines of "Oh, the Federal Reserve destroyed our money,
and now we're going to die (doo wah, doo wah),. Oh, the Federal
Reserve destroyed our money, and now we are going to die (doo
wah, doo wah).My woman done left me, I don't know why.
But it may be that she is tired of me just because I can't hold
a job, and I can't hold a job because my bosses are government
goon-squad robots (doo wah, doo wah)."
If you do NOT
find a way to solve this riddle, then Mr. Bonner provides a little
incentive for you. "Empires do not always die gracefully."
Even Bill Fleckenstein,
who writes the "Rick's Picks" newsletter, [editor's note: Rick
Ackerman writes "Ricks Picks." Bill Fleckenstein writes
"Market Rap."] says that he agrees with me and Mr. Bonner,
although he is quick to add that while he DOES agree with Mr.
Bonner, he does NOT agree with me about anything, mostly because
I am an idiot. So naturally I get all huffy and explode "But
we are saying the same thing, you butthead!" and he says
"I know. But he never called me a butthead" and I reply
"But I didn't call you a butthead until you said that you
did not agree with me!" and then he says "See there?
You called me a butthead again!"
Seeing that
this is going nowhere, I drop the whole subject, and merely report
that he says "Sane adult central bankers throughout history
have tried to avoid asset bubbles, because the aftermath of them
is so ugly. The Fed, though, has decided that bubbles are not
dangerous, as they think they can remedy their aftermath."
Then he goes
on to agree with Mr. Bonner, The Mogambo and the entire corpus
of economic history, from the present all the way back to when
the first primitive creatures walked up out of the sea and started
putting up condominiums on the beach, where it has been proved
time and time again that "Bubbles are not solvable. They
are only preventable."
-When things
start getting weird, things start getting weirder. The latest
example is the announcement from the Pentagon, although they
are currently fighting belligerents all over the damn place,
has announced plans to close 180 military installations, including
33 major bases. Weird enough. But, I guess, budgets
being what they are, there has to be a little belt-tightening.
So how much is this going to save? You're going to love
this; $48 billion over 20 years! Twenty years! That comes to
$2.4 stinking billions per year! Per YEAR! Hahahaha!
Hell, we need that much money per DAY, every damn day of the
week, just to balance the trade deficit! And that is roughly
the amount of money that is being spent per DAY by this year's
budget deficit alone! And these base closings are so important
because we are going to save $2.4 billion a year? Hahahaha!
And it is spread
over twenty years! Hahaha! They can't project a damn thing from
one month to the next, but here they are promising to save money
over twenty years! Hahahaha!
But offsetting
money is being spent in other places, such as Florida, which
will see a big benefit, including $47 million for an Armed Forces
Reserve training facility right here in my little town of Pinellas
Park, to train reservists, which I figure is just a cover, and
they are turning out the robots to be used as federal goons squads,
and they are going to be coming over here, and then one day I
will just disappear, and everyone will say "Whatever happened
to The Mogambo?" and someone will tell them "The government
robot goon squads came and got him," and then everyone
will nod their heads knowingly.
So, on net,
regardless of the $48 billion in saving, all the spending is
continuing.
Then we go
on to learn that tens of thousands of direct jobs will be, in
those locations, eliminated. And not like when they fire
The Mogambo, which involves them shooting tranquilizer darts
at me from behind the water cooler and I wake up under a bush
in the park (and it's a good thing, too, because if they don't,
then I scream and throw things and break everything and make
death threats against everybody, including that snotty little
mailroom kid).
But the point
is that there will be a roughly corresponding increase in other
places, so, on net, again, there is not much reduction in anything,
including employment.
And the funny
part is that these are only recommendations, and the closing
process can't even start for six years! Even if the plan is adopted
right now! Which it won't be, because there is a long and arduous
appeals process, and input gathering and blah blah blah, which
means more money for lobbyists, and individuals and companies
that provide the dog-and-pony shows, and the data gathering,
and again the blah blah blah, and at the end of it, historically
usually only about 15% of the recommendations are adopted anyway.
What a system, huh?
-The going
rate on Certificates of Deposit has been moving up, although
still in the range known in Mogambo-ese as "junk assets"
as it pays an interest rate that is less than the inflation rate
plus the tax rate, so you are steadily losing money by buying
one. And the rate is now 133% of the rate they paid just twelve
months ago, up from 1.5% to the current 3.47%. Still crappy,
but the percentage move in the yield is pretty impressive!
So CD holders,
when they renew their CD's, are going to be relatively happy,
as they are now going to get a yield that is more than twice
as big! Much more than twice as big!
Of course,
they will never make up for all the buying power that they lost
for the last five years as prices climbed and their interest-income
dropped below the rate of inflation, as Alan Greenspan and the
asinine Federal Reserve pounded interest rates into the toilet
to bail themselves and the damned banks out of the mess they
created in goosing the stock markets to insane levels. And even
at the now-relatively princely interest rate of a 3.47% rate,
depositors are still underwater, simply because they will owe
the marginal tax rate on the 3.47% yield, which, at 25%, means
that the take-home, after-tax yield is reduced to 2.6%, at the
same time (Hahahaha! I can hardly stop myself from laughing!)
as inflation is twice as high as that! So people
who own certificates of deposit can actually chart exactly how
much poorer they got: How much interest did you collect last
year from your certificates of deposit? Then you lost that much
buying power! But it is better than the calculations of
last year, when they were losing triple the going rate! Hahahaha!
"We're from the government, and we're here to help you!"
Hahahaha!
-Speaking of
inflation, last Friday the Labor Department said that U.S. import
prices rose 0.8 percent in April. As if that was not bad enough,
March's import price numbers were revised up to a 2.0 percent
gain, up from an initially reported 1.8 percent rise.
For those of you who like your inflation statistics spread over
a longer period of time, total import prices have risen 8.1 percent
on a 12-month basis. 8.1%. Horrendous inflation!
And it is not
just import prices that are rising, but April export prices were
up 0.6 percent, too! Prices are increasing everywhere!
They also said
that, so far this year, producer prices are rising at a 5.6 percent
annual rate compared with a 4.4 percent increase at the same
time last year. Costs of intermediate goods, those used in earlier
stages of production, rose 0.8 percent last month and were 8.2
percent higher than they were in April of last year. Prices of
raw materials, used at the earliest stage of the production process,
rose 2.7 percent and were up 11.8 percent in the past 12 months.
And yet all
I hear is how inflation is "contained" and "low!"
-Dan Denning,
of Strategic Investment, has been taking a look at the deflation/inflation
debate, and has concluded, as I have, that "I haven't changed
by long-term view that tangible assets will be in a bull market
while financial, retail and housing stocks will 'deflate.'
In fact, there's abundant evidence that the entire commodities
complex is in the midst of a long-term super-cycle secular bull
run."
-An outfit
called Investec published an interesting article entitled, "Howzit
my China?" which is a nice piece about China and how it
is the future and blah blah blah, but they took time to note
that all financial crises are always the fault of the damned
banks, and in the US they remind us that. "During
the period 1873 and 1914, there were 11 banking crises; from
1884, they occurred every three or four years[1]. Between
1875 and 1900, 700 railroads with over 50% of the nation's track
or 100,000 miles went bankrupt."
And things
are no better. Now that the moronic idea of the Federal Reserve
has plunged us into such extraordinary levels of debt, debt owed
to banks, that financial crisis is inevitable.
Ugh.
***The Mogambo
Sez:
The lease rates for gold on the Kitco.com site show that the
rates are rising a lot. This should cut down on the current push
to crush the price of gold. Theoretically.
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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