To 321gold home page

please click banner to support our sponsor.
Home   Links   Contact   Editorials

How dumb are we?

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
May 26, 2004

For years and years, even before I was born and I was screaming my outrage from the womb, I have often said that there has been nothing new under the economic sun for thousands of years. There has always been government, and taxes, and money, and borrowing, and lending, and some measure of something akin to interest rates, and people sharpening their knives in anticipation of when the Mogambo would be born and then everybody would have fun tormenting me. Now a guy named Jörg Guido
Hülsmann has written an essay, entitled "Nicholas Oresme and the First Monetary Treatise," on the Mises site, which essentially says the same thing. He starts of with "Nicholas Oresme was born about 1320 in France. At some point before 1355, he wrote a treatise on the ethics and economics of money production. The book had the title Treatise on the Origin, Nature, Law, and Alterations of Monie. The most adequate modern rendering of the title would be 'Treatise on Inflation.'"

Anticipating Mises and the whole Austrian School, this Oresme guy wrote "Government meddling with money boils down to increasing the money supply beyond the level it would have reached on the free market; that is, it boils down to inflation."

So I go and look at the date that this old dude said this profound thing, and I note that the year was 1355. Vainly trying to impress you, I get out the calculator. Deftly entering the data with a flourish, I subtract 1355 from 2004, and after a few tries I have achieved several solutions, and most of the time the answer comes out as 649 years. So, the answer to question number three on our arithmetic homework is 649. What did you get for number two?

Either he doesn't know the answer either, or he didn't hear me or something, but he never tells me the answer to number two, but breezily goes on to say that Oresme considered the results of this excess of money and credit, and concludes "This policy is truly anti-social: it does not serve the community of money users as a whole; rather it benefits some members of this community at the expense of all others, thus pitting them against one another." In a zero-sum game like this, if you got a winner, you gotta have a loser. And so, looking on the bright side, who is this bunch of people who benefits? Can it be, hold still, my beating heart, you and me?

And perhaps another good question would be "What are these benefits and losses?" The benefit, obviously, is that the money will flow to some select group of people. The losses, however, are more un-quantifiable; the poor, for instance, didn't have any money to start with, and they won't have any money when it is all over, either. I know what you are thinking. You are wondering "So what is the 'cost' THIS group of 'somebodies' pays? Huh? Well, how much will they suffer, mister Smarty-Pants Mogambo who thinks he knows everything?"

Well, deftly dodging the question, which only proves that there IS some benefit to playing dodgeball as a kid, I reply that an easier question would be: who is going to PAY the benefits, and how? Well, we know that the banks and the rich will reap a benefit, as they run the system, and they make sure that they are going to benefit. And the middle class? Well, it will stay (hopefully) at a standstill, as their wages and benefits will (theoretically) increase in the general inflation. And what about the poor, who are living hand-to-mouth, forgetting for the moment the Mogambo who is living with his hand IN his mouth, making it hard to chew? Well, as usual, the poor will pay the whole price, as measured by a falling standard of living, through the standard expedient of inflation. THIS is the 'cost' paid by the poor.

So while the purchasing power of the dollar went down for everybody, the rich and the banks all got plenty MORE dollars by which they MORE than made up for the decline in the purchasing power of the dollar. The middle class will have had their wages and salaries raised enough to compensate for the higher prices, so they did not get richer nor poorer.

But the poor, of course, will not benefit at all, and they will suffer economic pain, and the amount of pain to be meted out to them depends on the amount of money expansion committed. And the pain spreads upward like a cancer, its poisonous tentacles growing, elongating, probing, sucking the life out of everything it touches, forcing its deadly way up from the poor and into the middle class, gnawing the guts out of the heroes and heroines like some science fiction horror thriller starring, hopefully, Sigourney Weaver. How far up into the other classes it extends depends on how much monetary fraud was committed, as the misery and destruction extends upward through the whole pecking order, the economy rotting from the bottom up.

Well, I can tell he doesn't like that "rotting" metaphor, as he hurriedly went on to say that Oresme wrote that "Inflation invariably entails exploitation and social strife." So, all the way back in 1355 they recognized that we have more social strife when people are more miserable, thanks to higher prices! "But this is not all. Inflation is not merely a zero-sum exploitation scheme in which some gain what others lose." At this point you should be saying "Yikes!" The "zero-sum game" thing is bad enough, but he is saying that there is something worse, as in "not MERELY a zero-sum game"? I feel a cold chill and a shudder goes up my spine, and naturally I think that it is my wife creeping up behind me with a meat cleaver in her hand and mayhem in her eyes. But swiveling around in my chair and getting off a few warning shots from my trusty sidearm, I find that there is nobody there. Then, I realize what it is. It i
s a ripple in the Force! The fact that I can detect these perturbations in the Force means that I am a Jedi warrior, and I can't wait to get my hands on that light saber! This is going to be so cool! So I politely ask "Is this it?"

He tacitly indicates "yes" to my question, and my blood cooled to icy crystals when he goes on to say, "It actually generates net losses because it deteriorates the very vehicle of social cooperation. Inflation makes money worse and thus people exchange less, which means they cooperate less, which means they are not as productive as they could otherwise have been." And when you are not more productive, you make less money? And having less money makes you more miserable? Now you know why I said "Yikes!"

So one of the new guys in class raises his hand and asks, "Isn't there some benefit to all this? I mean, you ARE increasing the supply of money and stimulating the economy, which ought to produce jobs, some of which will trickle down to the poor. Won't it?"

Well, at this the rest of the class started snickering, knowing that after I got through jumping on this poor idiot he would never be the same again, and several of them who had recently been on the receiving end of a Madman Mogambo Malicious Mauling screamed and clutched their hearts, reliving the horror, for saying something so stupid that the Mogambo purposely destroyed them verbally, hour after hour, until I am hoarse from screaming, and my feet hurt from comically jumping up and down in my boiling rage, and now my hands are cramped and hurt from continuously clenching them into little balls of hate and fury, and how the conversation inevitably gets around to some loose talk about a new Medicare-eligible neurosis called "Mogambo Syndrome" where people who have received one of Mogambo's patent-pending tongue lashings, and not a tongue lashing in the GOOD way, never trust their own judgment again, and spend the rest of their lives mumbling over and over "I dunno What do YOU think?"

But I fooled them. I walked calmly over to him and said "This newcomer is, as implied in the pronoun itself, new to us and our ways. We must not mock him, nor laugh at his primitive naivete. He does not know of which he speaks, and one does not kick the dog for not understanding the speech of the master. That is not the Way Of The Mogambo (WOTM). I shall shower him, instead, with the forgiveness of a loving father!" The rest of the class is stunned speechless at the beneficence! But I turn slowly to him, and I bend down until my face is mere fractions of a centimeter from his, by which I mean a fraction of an inch (and by the way why didn't those doofuses in the rest of the world merely make a centimeter an inch long? I mean, think of the confusion it would have eliminated!) and my words are all hollow, menacing malevolence, as I whisper to him with a voice that reeks of the Sulfurs of Hell and a stench of cheeseburger with onions, which I'm sure made the whole thing just that much more unpleasant, "But if you ever, ever say anything again that is even half as stupid as what you just said, you will pay a penalty that you will remember with horror all the days of your life, and as you lay on your death bed at some ill-fated time in the future, you will think again of what I did to you, and you will die screaming. Do I make myself perfectly, perfectly clear?"

Everybody relaxes as I motion to Mr.
Hülsmann to continue with his fascinating lecture, and he goes on to say "Now Oresme stressed that such manipulations serve no good purpose. A mere change of the nominal money supply does not help the economy at all. It merely changes all money prices." And now I jump to my feet, shouting, "And that's not all, dude! Now, what he COULD have gone on to say, but he did not, because he did not possess the Awesome Powers Of The Mogambo (APOTM), was that the same thing, and attend my words carefully, pilgrims, and I will start from the beginning to make sure you get the point, by saying that the same thing can be said of raising wages by government mandate!" At this the audience erupts in loud protests over my words and my musky bodily odors, and the speaker is banging his gavel - bang bang bang! - trying to restore order, and the next thing I know I am being hauled away with my hands handcuffed behind me, and I am dragging my feet and these two cops have me under the arms, roughly spiriting me away, kicking and screaming, and the theme song from "Cops" is playing in the background, which even you have to admit is pretty weird, and the singer is saying "Bad boys, bad boys, whatcha gonna do?" and the judge is banging the gavel "Assaulting a 649-year old man!" and the crowd is yelling and working itself into a frenzy and the judge is screaming "Let us show everybody that we lynch white boys, too!" and I'm screeching "I'm innocent, I tell ya! This is a frame-up! Get me Perry Mason on the phone! Quick!"

But calmly ignoring the ruckus and commotion, Mr. Hülsmann continues "Thus Oresme clearly grasped the important truth that the nominal money supply is, by and large, unimportant. The economy can operate with virtually any nominal money supply. At a higher supply, the prices are higher; at a lower supply, they are lower."

Lower prices? Hey! I got an idea! See if you follow me here, because I am apparently one of the few people on the face of the earth in the last 649 years who comprehends what this guy is saying. So here goes. If we have a lower money supply, see, prices will come down, and if the money supply is constant, then prices will stay constant, too. And so the guys in the 25% of the population that makes less than $18,000 per year, and those making minimum wage, which is $10,712 per year, will have a RISING standard of living, thus relieving them of their poverty! We can truly make the situation of people better by having a falling money supply? And we are not doing this because...?

The reason is simplicity itself: somebody is going to make some money on inflicting misery on the poor. Who are these people? He explains, "Inflation benefits those who create the inflation. It does not affect all money users at the same time, but at different points in time. It therefore creates winners and losers. Politically induced changes of the nominal money supply enrich the government at the expense of the citizenry. Oresme stressed that the government stood ready to gain from inflation; that the greed of governments was in fact the root cause of inflation; and that, once governments gave in to that temptation, they willy-nilly turned themselves into tyrants." Tyrants! "But whatever loss the prince inflicts on the community is injustice and the act of a tyrant." And let's remember what the community eventually did to the tyrants all the way through history, which is actually more to the point.

What Oresme did NOT say, as the concept of central banking had not been invented yet, and in fact a whole lot of things had not been invented yet, like Oreos and yummy Cheese Doodles, which explains why none of Oresme's papers are covered with orange fingerprint stains and brown crumbs with bits of Double-Stuff icing, and why mine are, was that the bankers make most of the money today!

In the same vein, Chris Temple said, "In the end, of course, a fractional reserve system is guaranteed to bring unpleasantness." And what is the Federal Reserve except another private bank, only having been given awesome powers to enrich itself by controlling all the other banks, via factional reserve banking? What a racket!

"Were he to live in our day, he would probably qualify our monetary system as tyrannical and urge its reform."

As an illustration of the complete idiocy surrounding us, get a load of this. A guy named Daniel Kadlec wrote an essay in the May 24 issue of Time magazine, which I consider a Leftist rag, entitled "Why a Dose of Inflation is Good for You." Now as a guy who has spent his entire life fretting about inflation and the horrors that it causes, mostly in the vein of spending half my life hearing somebody telling me "No, you can't buy one of those because the price is too high, and anyway, one grenade launcher ought to be enough for anybody!" and the other half worrying about the Revenge of the Sheep / French Revolution scenarios where the poor, downtrodden-yet-teeming masses of poor people begin literally starving thanks to inflation, and they start rioting and setting people's cars on fire, and it will probably be the day after I wash and wax it, and so the whole day will have been totally wasted and I don't want to even GET into thinking about what that is going to do to my productivity numbers! Anyway, this idea that "inflation is good for me" comes as a complete revelation!

So I gather together some paper and pencils to take notes with, because I know that I am going to love this, and I will learn how inflation will be good for me, when it has never been good for me, or anybody else, in the past, and how all the rest of mankind has always dreaded inflation.

But, alas, it is not to be. This Daniel Kadlec character is apparently just another Leftist know-nothing, tooting his little horn because he needs to get his name in print. To show you the intellectual bankruptcy, I quote "Rising rates should be met with cheers, not jeers." I am here to tell you that anybody who celebrates rising rates with cheers ought to be locked up in here with me, having pills forced down his throat and solicitous psychiatrists asking "What are you so angry about?" and watch as I do this terrific Marlon Brando thing, like he did in the movie "The Wild One," and I say "Whatcha got?" and for some reason they never think that this is funny, and they always frown and write something down in my file when I do it.

But for some reason, this Mr. Kadlec character figures that rising inflation will "confirm the recovery," and that this news is worth the price. Ooooh! You will pay more, and your wages will not go up, and you will stand outside of the donut shop with your nose pressed against the glass and drooling all down the front of your shirt at all the donuts that you cannot afford to buy anymore, but this is somehow a good thing, because it, let me check that again, it "confirms the recovery." I shake my head and walk away.

But I do not leave, for as soon as I start walking around back to see if maybe they threw out some perfectly good donuts into the dumpster, I read where he goes on to say that, thanks to inflation, "Companies can start raising prices," which seems moronic, since if companies weren't ALREADY raising prices there wouldn't be any inflation to start with! So these companies are woefully behind the curve, as the prices that they are paying have gone up since other companies have already raised their prices, which caused the inflation, and now, belatedly, these morons finally wake up and slap themselves on their foreheads and say to themselves "Hey! We ought to raise our prices, too, or else we are going to be bankrupt!"

He even admits that inflation, even using the fraudulent Consumer Price Index, which is now just a brazen clot of lies, is rising at 2.45% annually. But he thinks that this horrid inflation rate is, dig this, benign, and opines that this level of inflation would not "provoke a dramatic Fed response." Well, I got some Big News (BN) for this guy. The REAL rate of inflation, the kind where you count your money after buying the standard basics of milk, bread, toilet paper, ammo, and a copy of this month's issue of "Paranoia! The Monthly Magazine That Confirms That You Were Right The Whole Time; They ARE Out To Get You!" is actually running around 8-10%, which ought to give you a heart attack if you are susceptible to that kind of thing, and if not, will make you run over to my house and start pounding on the locked steel door of the Mogambo Bunker, screaming "Let me in ! Let me in! For the love of God, let me in!" and I will laugh in that charming way that I have - hahaha! - until you get tired and go away on your own, or maybe you will persist until after I get off a couple of warning shots.

He finishes up, and you are going to love this, with "As long as rates move up slowly, everyone can celebrate," which is the same thing as saying "As long as prices move up slowly, everyone can celebrate," which is akin to saying "As long as you are being killed slowly, then you can celebrate." Now, as a dimwitted low-life dumbbell, I can dimly understand that when rates are moving down, people will celebrate for what they think are good reasons, but this guy is telling me that you can also celebrate when interest rates are moving up? Wow! Where the hell have I BEEN all this time? How can I NOT have heard this incredible piece of information? And does this mean that the only time when you do NOT celebrate is when interest rates are not moving up or down?

Another example of academic brain-rot is Allan Sloan of Business Week, which I consider to be just another piece of worthless Leftist periodical tripe and a complete waste of paper, and his article in the May 24 issue was entitled "Why $2 Gas Isn't the Real Energy Problem." I know what you are thinking. You are saying to yourself, like I said to myself "What? Huh? Two bucks a gallon is not the REAL energy problem? Where in the hell does THIS guy live, and how much money does he make that expensive gas is not a problem?" Well, he takes out his trusty calculator and after a lot of doodling around, finally figures that the average family will spend $25 more a month in gasoline at these prices than they would if gas was cheaper.

His opinion of your spending $25 more a month is exemplified by a big yawn, as he goes on to say that $25 isn't much money, and that is the same sum, roughly, as what you spend when you buy a "Big Gulp, a hot dog and some chips" while you are in the gas station filling up the tank. So his brilliant solution, and I know you are going to flip over this as much as I did because it is so brilliant that I wish I had thought of it, and I am sure that you are going to jump up in your chair and exclaim "Wow! This solves the problem!" is - are you ready for this? - don't buy the Big Gulp, the hot dog OR the chips! Presto! Higher gasoline prices are not a problem anymore! You have all the money you need to pay for the expensive gas!

It's the Fed's "substitution effect" fraud run rampant! In short, if gasoline, or anything else gets to be too expensive, then stop buying other things! If you merely reduce your standard of living, which USED to include a Big Gulp, a hot dog and some chips, then you will have all the money you need to fill the tank every week!

And I know that he is a real busy guy, seeing that he has to fill up pages of Business Week magazine with this kind of useless crapola, so let me take the next step for him. If you stop buying your idiot kids all those expensive school supplies, then you can save a bundle right there! Clothes? A waste of money! Think of the gasoline you can buy if you stop buying clothes and wear rags! Medicine? Another big waste! You are going to die one day anyway, so wasting your precious money vainly trying to forestall that fateful day is merely taking money out of your gasoline budget! Putting money into a retirement account? Foolishness, as even when you are retired you have to do something to fill up your day, so you might as well work! See how easy this stuff is?

And in the Business Week magazine of May 31 we are treated to an essay entitled "Let's Make Gasoline Prices Even Higher," by a guy named Gary S. Becker, who, according to the bio blurb, is "the 1992 Nobel Laureate, teaches at the University of Chicago and is a Fellow of the Hoover Institution."

At look at that impressive string of accomplishments, and then I look at the title of the article again. I look at his picture. I look at his bio again. I look at the title. The bio. The title. The bio. Title. Bio. Title, bio, titlebio, titlebiotitlebio. By this time my head is spinning around and I am dizzy and nauseated from the vertigo.

Then I realize that I am NOT nauseated by the dizziness, nor by the pungent smell of my own filthy feet, but by the absurdity of somebody even saying such a thing! But in the first paragraph, he says that the "sharp rise in oil prices" is due to fear of terrorists and the internal problems of oil producers. He does NOT say however, that the rise in price is the result of the debasement of the dollar, with which oil prices are paid. If the damn dollar had not depreciated - about, what? 30% in the last few ears? - but had instead achieved purchasing power parity, then gas would NOT be higher in price right now! Oil would still be around $31 a barrel! But the damn dollar went down in value, thanks to the horrid Federal Reserve, and now it take 41 of them to buy a barrel of crude, whereas it used to take only 31 of them! THAT is the effect of a devaluation of the dollar, which the Fed and the government continues doing every damn day of the week.

Anyway, responding to the slaps to the back of my head and the admonition to "get back on track here," he says the way to salvation and glory is through 1) an immediate fifty-cents per gallon tax, and 2) expanding our oil reserves. In this way, see, consumption by you and me would be cut, although the government will increase its buying, as he wants the additional taxes put into expanding of the oil reserves as a bulwark against terrorists disrupting our fuel supply, while also promoting wind power, hydrogen cells and nuclear generation. Well, I am not going to go into that thing about how the hydrogen cells are a net-loss alternative, in that the immutable laws of physics dictate that you must use more energy to create the hydrogen than you will ever get back, as I am sure that at the University of Chicago they have a physics department and he can just call over there and maybe they can explain it to him.

But in the same ridiculous vein, Caroline Baum of Bloomberg, who is usually pretty good about these things, had to prove that she is as lackluster as this and all the other knotheads who call themselves "economists." In this case, and remember we are talking about gasoline and the taxes thereupon, she says, "It's axiomatic that higher gas prices act like a tax on consumers. It's also dead wrong. There is nothing about a demand-driven rise in oil prices that will discourage oil production and reduce the quantity supplied to the market, which is precisely the effect of a tax." The Mogambo spills his mocha latte on himself in his haste to leap to his feet and say "Hold on there! The effect of a tax is to reduce demand because of the resultant higher price. Taxes, by themselves have NO effect on production OR demand."

What idiocy! Gasoline at $2 a gallon with zero tax is exactly the same as free gasoline with $2 tax. The only difference is who ends up with the money; the government or foreign oil producers. Of course, nobody pays any attention to the Mogambo since it looks like he has wet himself, but those who were there realize that it is spilled mocha latte, although laboratory tests indicate a distinct smell of ammonia, but if you check the report you will notice it was MOSTLY mocha latte, so everybody is right for a change.

In that same ridiculous May 31 issue of Business Week, the same issue mind you, there is another piece of Leftist nonsense entitled "The Working Poor: We Can Do Better," which, in fairness and full disclosure which is what you can expect from The Mogambo Broadcast Company, is listed as an editorial, which means "A halfwit bloviating while hiding behind anonymity." First the editorial goes into the facts, which is that a lot of people, a quarter of the working people, are making less than $18,000 a year. Which I agree is a lot of people, but not a lot of money, although you might have gotten confused, as I was confused, as I distinctly remember when $18,000 a year was a hell of a lot of money. And he wants to help them, and I would like to help them, too. So far, me and this unnamed editorial writer are strolling merrily down the same path, and we excitedly talk back and forth about how wonderful we are, our heart-felt compassion so big that we feel compelled to aid those less fortunate, and we have these big smiles of smug self-satisfaction all over our beaming faces.

His idea, of course, is to raise the minimum wage, which would initially help, even I admit, which is against my very nature and it really gripes my butt to agree with him, as I always disagree with anybody who is to the Left of me politically, and that is almost everybody, as far as I can tell, except Attila, and even he has been showing a decidedly softer side here lately. But then I remember that this path guarantees that the poor will eventually be harmed, and will be made worse off than they are now. And not only that, but there will be more of them then, too.

But he ignores me and the lessons of history, and doggedly insists that the minimum wage should be raised. He notes that the minimum wage was raised twice, once in '96 and once in '97, in steps, to the current $5.15 per hour. He says, "So it needs to be boosted again, at least enough to keep up with inflation." And there, right there, is where he puts his finger on the problem! The money that the damn government has been pumping into this economy for decades, and partially caused by the hike in minimum wages, which impacts not-quite-so-minimum wages, and which also impacts less-than-average wages, which also impacts average wages, and all of that is incorporated, penny by penny and dollar by dollar, into the prices that have to be charged by the producers of the goods and services, who are now paying all these higher wages. And, just like clockwork, it is now really showing up in prices, just like Austrian Theory of Economics says it should and does.

And yet, and yet, AND YET! which is my way of beginning the Mockery Phase of today's witless and hysterical diatribe, here is this guy saying we need MORE of the same! More! This guy says we need more inflation, which will make the poor, the very damn people he is trying to help, POORER! He wants to make them POORER! Are you looking at my face as I say these things, or are you fixated on watching my gun hand move slowly toward my holster? Can't you just feel the surreal outrage that has me in its grip like a big anaconda snake? Can you not hear the pathetic pleading in my plaintive voice, crying out in my pain, and I am on my knees, begging with my hands clasped together as if in prayer as I tearfully beseech "Please do not do this! Please do not raise minimum wage! If you do, then very, very soon you will be responsible for making the poor even poorer! You will be the instrument of torture, a tyrant, just as old Oresme said you would become, as you will be responsible for increasing the misery of the poor!"

Throwing off my cloak, the house lights come up as I spring to my feet, and there before you stands The Mogambo! I take out my sword and I slash at the wallpaper four times, carving an M that apparently came across looking like an asterisk, as the poor guy screams, "Do not hurt me, Senor Asterisk!" which I though was weird because I can't imagine how this thing got changed to Old Mexico, unless it was that Zorro-like thing with the sword and the carving an M into the wall.

But my voice echoes like thunder through a stony canyon as I bellow in that manly way I have, "How could you stand to live with yourself, sir, after you have done THAT to them?" And he says "What? Carve my initial on their walls?" and I remember I really started losing it right there, and the last thing I remember is that I was talking through clenched teeth when I said, "No, you (**#^&?/) jackass! I am The Mogambo, that is an M on your wall, and I am talking about how you want to literally increase the misery of the poor!" The rest, as they say, is history. Well, history and these new purple pills I now have to take. And the new restraining order, of course.

Dan Denning of Daily Reckoning has been explaining how the Fed is a clot of brain-dead chumps, and says that the "greatest of the policy blunders is the assumption that monetary policy can cause wage inflation. Because of this error, the Fed is about to discover that its entire effort to reflate the economy through low rates has failed."

"The Fed has succeeded in causing inflation nearly everywhere in the economy EXCEPT in consumer wages. But without rising wages, consumers can't afford to pay rising prices.

In other words, everything is going up in price... but consumers can't afford to pay those prices. This, ironically, is deflationary. As prices rise, consumers cut back on spending. The more prices rise on the margins, the less consumers consume. It is nothing less than the end of the consumption-driven American model - the model the rest of the world has tolerated because Americans have been buying on credit. The credit crunch is coming."

He finishes up with a nice little soliloquy that I will be using the next time I write a smash Broadway hit. Let me set the stage for you...

It's Act III, the hero is on his deathbed, and as the heroine holds the mighty head of The Mogambo in her hands, gently soothing his fevered brow, he says "A dollar sell-off is coming. Standards of living are going to fall. Land values will suffer, all because... The American government was just another government that couldn't pay its bills."

But we think we are in control. But it is a delusion. As Charley Reese so correctly said, "The United States is without a doubt the most self-deluded nation on Earth, and that nest of liars who occupy Washington work full time to maintain the delusions."

But Michael Derby in last Thursday's Credit Markets column in the Wall Street Journal is on the same wavelength as Mr. Denning, and the title of his essay was "Fed officials, Market Are Split on Inflation." He writes that the Fed believes, probably for the same reason that us mentally ill morons believe that Voices from Outer Space are talking to them, that without wage gains inflation is impossible. In short, you are not making more money, and their theory says that prices cannot go up, and therefore prices will not go up, although prices did, in the real world where you and I live although I am sure that your house is much nicer than mine and probably doesn't have dog droppings all over the place, go up. Mr. Derby goes on to write, "Wall Street economists say the Fed's inflation assessment is being driven in large part by what it believes is the main driver of prices pressures: the labor market. Such comments are being met with great skepticism in the bond market, which isn't buying the Fed's view because of what it is seeing in surveys of business activity and moves in commodity prices and consumer price data,", which shows that I am not the only one who disagrees, although I am the only one screaming hysterically about it. So we have policy wonks at the Fed saying that what people are seeing with their own eyes and paying out of their own pockets is just a figment of our imaginations, and these people are all wrong because there is no inflation, and they know this because their precious little economic theory that they hew to so fiercely says that only labor wage pressures cause inflation, and that nothing else can cause inflation. This is the laughable result of the execrable models that they build.

To debunk that stupidity, I call on Gene Callahan, as I see him sitting in the back trying to pass a love note to the cute new girl in class who is making goo-goo eyes at him, and I say "Mr. Callahan, what do the Austrians say about models?" He gets to his feet, and without missing a beat says, "Austrians are acutely aware of the gap between skill at modeling and the ability to interpret how models relate to the real world when it comes to economics. They have often noted that mainstream economists typically develop highly simplified models of some economic process, and then proceed to criticize the real economy because it does not fit the model."

If you want a REAL model, the wonders of the Internet can take you directly to the DailyReckoning.com site, where you can get one that fits perfectly with real economics. They explain "An economy has to breathe, dear reader. It breathes in...expanding its lungs with new credit, new jobs, new industries. Then, it has to breathe out the mistakes... the used up air and the bad ideas. Expansion... contraction. Boom... bust. Bull market... bear market. That's how it works!"

Mark Rostenko of the Sovereign Strategist is as dyspeptic as I am, and says "The Fed says we're recovering. Their action, maintaining Fed funds at an EMERGENCY rate of 1% says something is wrong. The sad reality is that we live in an age wherein governments that extol the virtues of free markets will stop at almost nothing to manipulate them to their own ends. We have a Fed Chairman who prattles on about low inflation as our bills rise on a monthly basis and gasoline prices routinely post new all-time highs. We have the Labor Dept. fabricating numbers that private economists and journalists like John Crudele routinely expose as being fat loads of hooey.

"If the economy is so bloody good, who cares if rates rise from a measly 1% to a just-slightly-less-measly 1.25%? Or 1.5% for that matter? Is this 'full-fledged' recovery to come under threat with a 50 bp increase? Surely a strong recovery can withstand a little rise from a nearly half-century low, can it not?

"Right there you have it, folks. The most telling indication that the stock market is in trouble, that all this ballyhoo about a strong economy is not quite what it appears to be. Reality: Stocks rallied because the Fed flooded us with easy money and encouraged (once again) rampant speculation by leaving investors with no reasonable alternative. NOW THAT THE PARTY IS OVER, THE MARKET IS RUNNING SCARED. And the economy has nothing to do with it."

In my last piece, I note with chagrin that I have mis-characterized a paragraph of Sean Corrigan's concerning deflation, and how he was merely posing a seemingly rhetorical question as a set-up to de-bunk it, and while we are talking about it, Joe Hobart is the only guy who was so tacky as to point out my mistake, although I hasten to point out to Mr. Hobart and any of you that are thinking of emulating him that pointing out the errors of the Mogambo soon gets to be an endless and thankless task, and he is advised not to start down that long and dark road, as many, many others have trod that path and have soon given up in disgust, as nothing ever changes, except to get, possibly, worse.

So to Mr. Corrigan I apologize, and I will try and do better in the future. And now that I have said that, I am sure that I am going to get another big slug of e-mails from people who correctly note that that is what I always say, and things never get any better.

If you want the Mogambo to supply an example of far-Leftist idiocy that will make you cry, look no further than an essay by Charles Krauthammer, who is "a syndicated columnist with the Washington Post Writers Group" by which I assume they mean "is a guy who cannot get a job doing anything else and now takes powerful psychoactive medications and spends his day randomly typing out bizarre manuscripts" although I will admit that I am ALSO a guy who cannot get a job doing anything else and takes powerful psychoactive medications and who spends his day typing out bizarre manuscripts, mostly in the vein of how much I hate and loath the United Nations, the Federal Reserve, the entire concept of central banking, fiat money, fractional reserve banking and people who look at me cross-eyed.

But we will leave my personal problems to the court-appointed experts and wait until their testimony is entered into the official record before commenting further, and while we patiently wait for that voluminous report we can get back to this Krauthammer person and his little essay entitled "We Blew Our Chance to Avoid Gas Crisis." I know that you are not going to trust me to paraphrase his egregious and laughable ridiculousosity, so I will limber up my index fingers and take the time to laboriously type it verbatim so that you can get the unadulterated full impact.

First off, he notes that in 1986, 18 years ago, crude oil momentarily plunged to $7 a barrel. Now, and if you will look at your calendar you will no doubt notice that "now" is "today," and how this temporal moment is a long way from 1986, but he notes oil is, and we are still in the "present," $41 a barrel. This differential represented "a golden moment" to Mr. Krauthammer. He says that the way to lock in our gains then would have been, and I pause here because my brain has gone into shock and refuses to continue until I finish weeping for America that people such as Mr. Krauthammer here are placed in positions where their complete and utter economic ignorance are not kept under lock and key and only allowed to venture out at night, when there are no children around and most people are at home watching their TV's and so are relatively immune from this kind of - did I already use the word stupidity? - complete inanity. Okay, I am feeling some better, and I notice that my fingers have also begun to respond to commands from my brain, so that means I can continue typing the rest of his sentence "to artificially raise the price of gasoline with a tax that would suppress consumption, maintain consumer demand for fuel efficiency and, most important, direct much of the pump price into the U.S . economy (via the US Treasury)."

The specifics of this blatantly fascist plot is to keep the price of gas high. Little does this clueless bozo realize that the higher cost of gasoline will be added to all prices, and so all you will get is a nation of higher prices for everything and guys running around in wimpy little cars instead of gigantic SUVs so that when I honk the horn - beep beep! - to make people get out of my way because I am such an important guy that mere traffic laws do not apply to me, they will laugh at me and my impotence, whereas now I can put my armored personnel carrier in a lower gear and just run them over.

Now instantly you know that this guy has no idea how things really work. Where in the hell did he think that tax money went when the government was collecting at $2 a gallon? In case you see this guy, I am sure that he would appreciate knowing that the money went to programs that are now so large, so entrenched, and deemed so important by the weenies who are collecting outsized government-funded paychecks and fabulous benefit packages that these selfsame parasites raise their whining little voices to scream that their programs are absolutely crucial to the very existence of the United States, and that the very THOUGHT of reducing their funding by so much as a lousy dime should be enough to cause us all to slit our wrists in dismay, and that is why they need to raise my taxes. So the inevitable result of any nation that was so brain dead as to implement Mr. Krauthammer's laughable suggestion would find that they wind up with tacky little cars and a gigantic collection of government programs that necessitate huge, incessant tax increases to maintain their funding. That is the ONLY possible result.

In a refreshing essay entitled "Market Manipulation: A Theoretical Approach" by Francesco Carbone of the US Equity and Macro Lab, he writes "The starting point of this reasoning is simple and irrefutable: there's no doubt that the interest rates market, by far the most important market in the world, is manipulated by the worlds' central banks who, on the base of their own subjective appraisals, imposes with force, i.e. in a coercive way, a determined interest rate to any economic agent. This is not conspiracy. Central Banks' short-term interest rate manipulation is the key on which any monetary policy is based.

"The short term interest rate manipulation is a price fixing exercised by the Competent Authority (what an oxymoron!) that causes imbalances on the market. Although this phenomenon is not yet perceived, we already find ourselves on the threshold of a chaos destined to degenerate towards an increasing disorder."

As my Science Fair exhibit, I am going to demonstrate how, in the physical world, this very phenomenon is likened to the rise of cigarette smoke in a very still room. Since nobody is allowed to smoke anymore, perhaps I should tell you what the phenomenon is. If the air is very calm, see, smoke will rise from a cigarette straight up into the air in a thin, cohesive stream. Then, at some distance, nobody knows at exactly WHAT distance, but somewhere around eighteen inches or so, the smoke plume starts wavering and soon, very soon, there is increasingly complexity and dispersion, until the whole thing collapses into utter chaos.

Spooky stuff if you try and liken this to the same phenomenon everywhere else, too, to one degree or another, and then generalize from there to economics, and then late at night when you are lying in bed unable to sleep you start thinking about it, and pretty soon things start falling into place, and then you start getting more and more scared, and then you find that you can't sleep anymore, and pretty soon you are hearing people rustling around in the bushes outside the house, and the next thing you know, you are The Mogambo, and if you go look up Mogambo in the dictionary it won't be there because the government is keeping it out, but the true definition of "Mogambo" that would be in the damn dictionary if the government would let publishers include it is "Unreasoning, debilitating fear caused by knowing an unalterable and horrendously destructive calamity is about to unfold, but stuck in the 'angry' and 'fearful' levels of the Five Levels of Shock because it was obvious from the start that this is EXACTLY what has happened every freaking time all the way through freaking history, but intellectually and morally and ethically bankrupt elected officials made it possible, and who ought to all be rounded up and turned over to the Mogambo for a quickie kangaroo-court trial, a finding of 'guilty as charged,' a bang of the gavel and a sentence of thirty years of community service that must involve continuous heavy lifting, for a minimum of 40 hours a week, 52 weeks a year, unpaid."

As a glimpse into our own future, the BBC News has reported that corrupt clueless weenies running South Korea, too, have gotten their government into the business of bailing people out of their own debts. "Under the plan, those who repay 3% of their loans straight away will be allowed to pay off the rest interest-free over eight years."

Marshall Auerback, writing, as he does, at the Prudent Bear website, writes that "Capital expenditure, particularly in high tech, is in sharp decline. It is falling from an unprecedented lofty peak. It is being slowed down by the sheer burden of debt and the consequent inability to service that debt as saturation dynamics take hold."

I am not sure of the specifics of "saturation dynamics" as pertains to debt, but I know what "saturation bombing" is and how hard it is to get a simple zoning variance through the wimps at the Building and Zoning Department to install such a self-defense system at my house. But as regards debt, this was the problem with Japan, and as regards that he says "The Japanese analogy is also instructive in many other ways. In the aftermath of such excesses, the unwinding generally persists for a long time and proves surprisingly impervious to repeated interest rate cuts." As we are seeing right now, I might add.

The jackasses of the world got themselves all atwitter when OPEC said that they would talk about increasing oil production. I may not be the most clued-in guy in town, but maybe the most clued-out guy in town, but if there was spare tanker capacity sitting around somewhere, or spare refining capacity sitting around idle, I think I would have heard about it. To the contrary, all I hear is how every inch of shipping and transportation capacity is being used to transport raw materials to China and finished goods to the USA, and how refiners are cranking out fuel as fast as they can, given the constraints placed upon them. So the Big Question (BQ) is: pumping more oil is one thing, but how are they going to get the oil from the wellhead to my car's tank?

Ferdinand Lips gave a speech entitled "Monetary Pollution and the Gold Standard" at the Arab Open University, Kingdom of Bahrain on May 6. He said, "We are standing on the threshold of a historic event. We are witnessing world history in the making. We are living financial history as no generation before us has. We are on the verge of a historic flight out of paper into tangible assets. This financial flight will reverberate throughout the world. The flight has only just started." He says, as regards the dollar, "The world's reserve currency, the currency in which most of the world's financial transactions take place and in which the central banks have invested their reserves, is fundamentally weak. It must be propped up each day. Last year the Japanese bought Treasury paper for $187 billion."

He also has some unkind words for John Connally, former U.S. Treasury Secretary, who Mr. Lips characterizes as "a man who later ended badly," who infamously said 'The dollar may be our currency but it is your problem.' How stupid for a man in such a high position and how arrogant." He also quotes a guy named Jacques Rueff, who poetically described the Bretton Woods arrangement, the secret closed-door deal of the world's powerful economic movers and shakers decided among themselves that the dollar would literally replace
gold as a financial asset, gave us Americans "the wondrous secret of deficit without tears. They could give without taking, lend without borrowing and buy without paying."

He also figures that the Kondradieff cycles are a fact of life, and says "The autumn or harvest phase came to an end in the year 2000. We are now in the winter phase. This is the worst phase. Since each Kondratieff phase lasts about 15 years, we are now facing very difficult times ahead, the Kondratieff winter phase."

But all is not gloomy. He says that precious metals will again come to the fore, and even goes to far as to say, "I am even more bullish about silver than I am on
gold. Silver has served as money for thousands of years. For thousands of years in history, the ratio between gold and silver was between 10 and 14 to one. One ounce of gold for 14 ounces of silver." Right now the ratio is 64 ounces of silver to one ounce of gold.

The results are clear, and I see it every time I take a surveillance sweep of the neighborhood, which is, as I understand it, required of all loyal citizens under interpretations of certain provisions of the Patriot Act, and to fail to do your duty is now treasonous, which if you thought that some of us paranoid whacko doom-and-gloomer lunatics out here on the raving hysterical end of the spectrum, mostly me, were fearful before, then believe me when I say that, in retrospect, "you ain't seen nothin' yet."

Or, as Edward Gofsky at FinancialSense.com writes, "When you put all of these pieces of the financial puzzle together, it is very bearish for the general stock market, bearish for bonds, bearish for real estate, bullish for precious metals and bullish for oil."

For a look at how much we as a nation are going into unfathomable debt, go to 321gold home page
and scroll down for a link to "US National Debt to the Penny," to which they sometimes append well-deserved commentary, which was, today "Nutso." I couldn't have put it better myself. The total, as of this morning, $7,193,240,510,846.79, which is probably more than you make in an entire month.

Jim Cook of Investment Rarities has again quoted the great Austrian economist, Ludwig von Mises, who famously said, "There is no means of avoiding the final collapse of a boom brought on by credit expansion." I bring this up because it is so profound that I do not want hear you ever say "But I didn't know! The Mogambo never mentioned it." Now he did, and I did, again.

Scott Burns of the Houston Chronicle has taken a look at a Federal Reserve Bank of Atlanta report entitled "Examining Contributions to Core Consumer Inflation Measures." He notes that they note, and now I am noting so that you can note, "The Atlanta study concluded that two-thirds of the sharp decline in core inflation from late 2001 through 2003 could be traced directly to rents and used cars. And both were the direct result of low interest rates. What does that mean? First, we aren't crazy. The millions who were skeptical about the reported 1.1 percent rate of core inflation (consumer prices, excluding food and energy) for 2003 had good reason to be skeptical. The price index was wacko. The inflation we experienced in our wallets was real."

This also means, since he asked what things mean, that the Federal Reserve is a bunch of clueless jackasses.


---Mogambo Sez: Insiders are selling, inflation is raging, stocks are at ridiculous multiples, bonds are at multi-generational lows, houses are unaffordable, interest rates are going to be raised, and yet people are buying? How dumb are we?

May 25, 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.

321gold Inc