I, Emperor Mogambo...
...the angriest guy in economics
May 31 2006
-- I was rudely and abruptly awakened by alarm bells ringing.
I reflexively shot off an entire clip of expensive ammunition
into the darkness before I realized it was not the Mogambo Homicidal
Wife Detector (MHWD) that was ringing, but the Mogambo Economic
Seismograph (MES). As I switch on the light, my wife peeks out
from under the bed, and is yelling "What in the hell was
THAT all about, you crazy stupid bastard?" I calmly reply,
trying to be soothing, "Shut your fat yap. It looks like
Total Fed Credit fell $1.8 billion last week, and at the same
time as foreign banks' holdings of US debt at the Fed decreased
by $7.8 billion, too."
I gulp at the news. My wife sees me gulp, and quickly slides
back under the bed. An economy based on debt-created fiat currency,
like ours, must have a continuously-rising level of debt just
to pay the interest on the existing debt, if nothing else. And
we need even more rising levels of debt to achieve "growth."
And now we don't seem to have it anymore. Again I gulp in fear.
But this is all just statistics proving the onset of the inevitable.
The announcement last month by the G-7, of which the USA is a
member, was that they all agreed that the US dollar has to be
massively devalued to address our gaping, terrifying trade and
budget imbalances. The current range of estimates of the total
proposed devaluation of the purchasing power of the dollar is
between 30% to 50%!
For one thing, at the most optimistic, least-damaging 30% total
devaluation of the dollar, and further assuming that absolutely
nothing else changes except the buying power of the dollar, this
means that we'll be buying crude oil for $95 per barrel.
And if you think that "nothing will change" when oil
is at $95 (and up!) per barrel and the dollar is 30% weaker,
then I am sorry to tell you that you are very, very wrong. And
if you further think that not being heavily-armed and heavily
into gold and silver bullion is a good idea at this particular
point of the boom-bust cycle, then I am also sorry to tell you
that you are wrong about that, too.
And while we are talking about the dollar and things that are
wrong, we bid farewell to John Snow, who is resigning as Secretary
of the Treasury. I don't know whether John Snow was as stupid
as he sounded, or whether he was somehow forced to say those
asinine things, such as constantly invoking the Laffer Curve
argument that low tax rates can mean higher tax collections,
or how even THAT ridiculous, special-case over-simplification
morphed into the absurd idea that lower taxes automatically produce
higher tax revenues! Hahaha! But the United States was not well
served by such silliness, except to convince the rest of the
world that we are a nation of greedy, raving imbeciles.
But government has always meant greedy, raving imbeciles, as
I gather from Sean Corrigan, at Diapason Commodities Management,
who writes "As the great Ludwig von Mises is apocryphally
said to have quipped, only the institution of government could
take an honest piece of paper and make it worth less through
the simple act of printing something on it."
And the result is inflation, and if you really want to see inflation
eating your guts out, then take a look at Bea.gov, where you
can find month-over-month percentage increases in "Personal
income", measured in current dollars. For the first four
months of this year, from January through April, the figures
were 0.7, 0.4, 0.5, 0.5. Sounds like nice little boosts to income!
As a subset, however, the "Disposable personal income"
for the first four months of this year were a little lower, and
came in at 0.3, 0.3, 0.4 and 0.4. Still up, but not quite as
However, (and here is the inflation monster you were warned about)
in chained (2000) dollars, increases in DPI are a LOT lower yet!
Check this out: The first four months of this year, DPI registered
MOM increases of -0.2 , 0.2 , 0.0, -0.1! Half the months showed
actual losses in income, thanks to inflation! Losses!
The same thing is evident in the Personal Consumption Expenditures
for the same first four months of this year. Measured in current
dollars, consumption rose spectacularly in January through April,
up by, respectively, 0.8, 0.3, 0.5, and 0.6 percentages over
the prior month. It is from these same robust figures that increases
that show up in the calculation of GDP.
In contrast, in testament to roaring price inflation, in chained
(2000) dollars, PCEs increased, MOM, only 0.3, 0.2, 0.1, and
0.1! Hahaha! What a ripoff!
This shows, clear as any bell, even as clear as that bell that
The Mogambo rings every morning at dawn while yelling "Wake
up! Wake up and face economic death by inflation, you stupid,
sleepy morons!" that the consumer is not buying more, but
is merely paying more. Which is how monetary inflation shows
up in price inflation. And here it is!
On an even worse note, the same government report noted that
"Personal saving -- DPI less personal outlays -- was a negative
$146.8 billion in April, compared with a negative $128.2 billion
in March. Personal saving as a percentage of disposable personal
income was a negative 1.6 percent in April, compared with a negative
1.4 percent in March." As if we have to be told, they add,
helpfully, "Negative personal saving reflects personal outlays
that exceed disposable personal income." In short, not only
are we Americans spending every dime we have on higher-priced
goods and services (due to inflation), but we are increasingly
going farther into debt to do it! Yow!
But this horrible news is apparently lost on stock speculators,
as the AP reports that people think that the Federal Reserve
would soon stop raising interest rates, as "A sharp drop
in April orders for big-ticket manufactured items drove hopes
that the Fed has lifted rates enough to slow a robust economy."
So will the Fed stop raising interest rates? According to the
Mogambo Interest Rate Computer (MIRC) and James Turk in that
famous Barron's interview this week, "It took Paul Volcker
bringing real interest rates up to 6%, 7%, 8% in a short period
of time before the market was convinced he was going to save
Inflation, measured the old tried-and-true way that Volcker knew,
is running at about 9%. So, add 8% to that to get the "real"
interest rate, and that means that for Ben Bernanke to convince
the world that the dollar can be saved right now, he should have
already pushed the Fed Funds rate to 17%.
And since the Really, Really, Really Bad News (RRRBN) is that
inflation in prices has only gotten started, you can look forward
to a Fed Funds rate of 25% and long-bonds yielding 30%.
-- But the Fed is not going down without a fight, and the Fed
processed $20 billion of repos last Thursday alone, which is
not a new record, but it is right up there.
-- Congress is crafting an "immigration bill" that
is the poster child for everything that is wrong with America.
On the one hand, the Democrats are parading their bigotry and
filthy racism by fawning over trespassing, border-jumping illegal
Mexicans as merely darling wayward little brown children, who
just need grown-up white people to take care of them.
Democrats forget completely that these Mexicans are fully-grown
adults from a democratic republic, and these are the same people
who have, decade after decade, deliberately elected a corrupt,
economy-destroying government. It has now finally gotten so bad
there that millions of them desperately want to escape the dysfunctional
economic, political and social system they deliberately created.
Talk about Americans underwriting moral hazard!
The despicable Republicans, on the other hand, also want an immigration
bill, only one that will supply them with lots of cheap, disposable
strong-back labor ("It's not slavery! Same wages and benefits,
but they can leave anytime they like!"). Republicans further
want employers to be allowed to pass the enormous costs of health
care and the other crippling transfer costs (contained in the
hundreds of welfare-type programs made available to these exploited
working-poor) to the general public. Their argument is that this
is desirable since a low cost of agricultural and manual labor
keeps inflation low! Hahaha! Wrong, morons! Jeez! How morally
and intellectually bankrupt can you be?
This is the same ridiculous argument that I get from my own kids.
They say that they can easily live on a part-time, minimum wage,
no-benefits, slave-labor job! No problem, as long as they can
live free at my house forever, eat my groceries, stay on my health
insurance plan, and maybe get a few bucks from me every once
in a while. Hahaha!
What in the hell does this have to do with economics? Just this:
Whatever happens, it will be expensive. Very expensive. And for
a long time, too.
-- Alert reader John J sent me a link to Ben Bernanke's response
to some questions posed by Jim Saxton of the Joint Economic Committee.
Mr. Bernanke was explaining the use of the Personal Consumption
Expenditure index as "the" inflation figure, instead
of the Consumer Price Index figure, which is usually higher.
Mr. Bernanke writes that the evidence indicates that "the
PCE weights are measured more accurately than the CPI weights."
I leap to my feet, waving my hand in the air like an idiot, and
say "Huh? You change the weighting of an item in the market
basket in accordance with the change in the price of the item,
at a rate seemingly consistent with whim, and then you have the
nerve to tell me that one way of doing this is more precise than
the other? How stupid so you think we are, you arrogant little
But he does not address my question, but quickly changes the
subject by saying "The PCE measure also has some disadvantages
relative to the CPI; most important, its broader scope necessitates
the inclusion of some prices that are not derived from market
transactions and so may add some noise to the overall index as
a proxy for the cost of living."
Hahahaha! If I was Jim Saxton, I would have that little Bernanke
twit hustle his arrogant butt into my office and explain to me
exactly how it is that some prices are going up, but are not
counted as inflation, and how this is because they are not "market
transactions", meaning that they were imposed by, I guess,
governments or monopolies. Do you mean to tell me that some rising
prices are not counted as inflation because of WHO is getting
the money, or HOW they arrived at their prices? What am I, some
kind of stupid guy with his finger up his nose who is going to
listen to this condescending crap and say 'Well, duh, okay! If
you say so!' "
The article on MarketWatch.com reported the letter with a headline
"Price Indexes Overstate Inflation, Bernanke Says".
The article goes on to say "Commonly used government price
indexes overstate the level of inflation in the economy, Federal
Reserve Chairman Ben Bernanke said Thursday." I will note
that, normally, I would wax increasingly hostile at such a blatant
lie, usually ending with me calling the Federal Reserve in a
big huff and screaming into the phone "Put me through to
Bernanke, the lying butthead!" They never do, but I can
hear the Homeland Security guys who are tapping my phone trying
not to laugh, so it was a small victory, after all.
The truth is that the way the government calculates inflation
grossly UNDERSTATES actual inflation, and everybody knows it.
People laugh at us for it. Now, John Snow resigned rather than
continue to look like an idiot, but I think it is expecting too
much of Mr. Bernanke to follow him out the door for the same
-- The Gross Domestic Product figure came out, and the economy
is, so the number implies, growing. That the economy was still,
according to this new GDP figure, expanding gave the stock bulls
a reason to invest, driving the averages up. Or the Plunge Protection
Team was at work, clandestinely manipulating the markets with
the public's money. Or both. I dunno.
Whatever it is, it ain't working so well. Kurt Richebächer,
writing for DailyReckoning.com, figures that business in America
is bad, and is reflected in "America's worst profit performance
in the whole post-war period." He reports that profits are
down to "3% of GDP. Measured as a share of GDP, profits
today are at their lowest level in the whole post-war period.
During the last year of the boom, in 2000, before-tax profits
of nonfinancial firms were equivalent to 4.3% of GDP. That was
down from 6% of GDP in 1997."
So while profits may be down, they are still profits, and nobody
ever denied that you would get economic activity if the government
deficit-spent almost a trillion dollars a year (the increase
in the national debt plus the Social Security surpluses) which
is about 8% of GDP! If you did NOT get a boom would be surprising!
Then add in another infusion of money as foreign central banks
bought another $200 billion in government debt last year, and
put it on deposit at the Fed. Then add in $600 billion of new
So, suddenly, we're talking about $1.8 trillion dollars of new
spending pumped into the economy last year! Almost 15% of GDP!
And you think anybody in their right mind would NOT expect a
If you are not laughing at the idea of deficit-spending 15% of
GDP, then you have not achieved True Mogambo Economic Enlightenment
(TMEE). As a little Mogambo Tip, the instant that TME happens
to you for the first time, expect to vomit up blood in your panic
and fear, and to cry like a little baby. Maybe make a mess in
your pants, too. Don't worry; it's perfectly natural, and we
all went through it.
The downside, of course, is that all of this spending came at
the expense of going farther into debt, in an economy based on
government spending. I don't use the words "suicidal"
and "economics" together more than seventy or eighty
times a day, but this is one economic paradigm where the use
of that word is entirely apropos.
-- I keep looking in wonder at the action in precious metals,
and I wonder to myself "I wonder what in the hell is going
If I was the head honcho in China, then I could tell you what
I, Emperor Mogambo, would be doing that could explain it. I would
be accumulating gold, and lots and lots of it, because my clever
Asian reasoning ran along these lines. "Confucius say; 'Do
you honestly think that foreign investors are going to invest
long-term in China, when Chinese history is one long and sad
tale of xenophobic, confiscatory, imperialist, repressive government,
just like all the rest of the world's governments, only this
time we are communists, too? Why in the hell would anyone trust
China or Chinese money?' "
To answer the question, I would cleverly review American history,
especially that part where America rose from nothing to be an
economic superstar and dictatorial overlord of the world. In
doing so, I would discover ("All hail Emperor Mogambo for
his discovery!") that it was done by gold being money.
Then perhaps, as the new Chinese leader, I would take a few grudging
minutes away from auditioning pretty dancing girls for my new
Fabulous Mogambo All-Girl Review (FMAGR) to read the Sandra Ward
interview of James Turk, founder of Gold Money.com, in Barron's
magazine this week. It is entitled "Yes, $8,000 An Ounce"
which is a real nice way to get my attention, which it did. She
writes that Mr. Turk, speaking about Ben Bernanke, says "he
seems to be focused on the deflation in the 1930s, and this is
quite alarming. What we don't need today is a greater supply
of dollars. What we need is a greater demand for dollars. The
way you improve demand for dollars is to take those steps that
will give people confidence in the dollar and its purchasing
power for a long, long period of time."
With typical Chinese logical precision, I merely come to the
conclusion that since we Chinese own so damned many dollars and
dollar-denominated assets, and since gold is cheap, cheap, cheap
by any metric, then the optimal strategy would be to accumulate
ALL the world's gold, starting with the biggest hoarder of gold,
the Federal Reserve.
And as the All Powerful Mogambo (APM), glorious new emperor of
China, I would instruct my ministers to tell that little pipsqueak
Bush that I want him to pack up all the gold and ship it to me,
collect, or I'll sell his stupid bonds and stocks so fast that
he will probably crap in his Occidental pants as he re-discovers
exactly who is actually the boss in the creditor/debtor relationship.
And, to make matters worse for the dollar, there are also indications
of an Asian Currency Unit forming, mostly consisting of China
and Japan, to trade goods and services their currencies, too.
And it is not just the Chinese setting up shop, or the Iranians,
or the South Americans, but also now the Russians have decided
that they want to open an exchange to trade in oil, gas, and
other goods, and for it all to be paid for with rubles.
Another big reason, aside from the prestige, is that the velocity
of money will, necessarily, increase, as it comes pouring through
the many intermediaries in the Russian marketplace. No doubt
Mr. Putin was looking at the past century, where gigantic money
flows in the American oil market produced American-made fortunes,
as each American intermediary raked off another few bucks as
the money went boinka, boinka, boinka through the system, and
then, multiplied by the Required Reserve Multiplier, into the
economy as "growth." And that is good for profits,
higher local real estate values, wages, economy, standard of
living and a feeling of prosperity that makes for easy-pickings
in the corruption department.
How soon will all of this happen? Well, Julian Phillips of the
that Putin said "work on making the national currency
fully convertible should be completed by July 1, almost six months
ahead of the original January 1, 2007 deadline." July first!
Of this year!
So are foreigners ganging up on us? Yeah, I figure they are.
And for good reason: We Americans treat every treaty like the
ones we made with the American Indians. Without exception (as
far as I can tell), we Americans gave them the short end of the
stick. From there we lied, broke every treaty, stole everything
they had, and then killed most of them if we ever had the slightest
reason, no matter how slight or temporary, to do so.
And (fast-forwarding to today) like the dirty, deal-breaking,
little back-stabbing crooks that we now are, we have also allowed
Alan Greenspan and the Federal Reserve to renege on the international
deal whereby every country gave up pegging their currencies to
gold and, instead, pegged their currencies to the dollar, while
we, (aka "Great White Father in Washington"), would
promise to faithfully hold the dollar constant, in terms of buying
power, thus achieving the stability of the gold standard without
all those inconvenient gold-standard duties, not to mention the
restrictions on government spending and bank revenue.
Although nobody literally said "We smoke-um peace pipe.
Make mark on white man's treaty paper!", the result was
exactly the same. And now they are angry, and simply want their
money back. Or at least get the hell out of the system.
One result is how Jim Willie CB of GoldenJackass.com sums it
up when he
writes "World finance ministers have lost confidence
in the US Dollar. The G7 Meeting communiqué, announcements
by Japanese leaders, statements from European bankers, warnings
out of Beijing, outcries from South Korea, criticisms from Russia,
agreements in Asia, even statements by the IMF, they all add
up to a global banker revolt. US imbalances are not being rectified.
The Russian finance minister Kudrin openly questions the US Dollar
as worthy, given substantial and chronically dangerous deficits."
Alert reader John P. is walking by and I shout out, "Hey!
John! What's happening, dude?" and he says, laconically,
"the world is sending loud signals that that support is
about to end and badly."
And what happens next? Mr. Willie says "Expect a rocky several
months to contain turbulence, minor panics, and some derivative
accidents (likely in bonds)."
And let's remember that derivatives are merely big, big, big
bets used as, theoretically, insurance against movements in interest
rates or currency exchange rates for contracts that contain fixed
notional amounts of money. How big is this market? I thought
you would never ask! Estimates put it somewhere around, oh, say
$300 trillion to maybe $450 trillion dollars, which is ten times
bigger, 1,000% bigger, than the entire global GDP of every person
and every company in every country on the face of the planet
Julian Phillips says that this Russian ruble thing is "the
second most significant step in removing the U.S.$ from the throne
of sole global reserve and trading currency! Should any more
oil producers take this step, it will precede a U.S.$ crisis
and create massive potential instability in the globe's foreign
exchanges." He goes on to say that this is "important
I raise my hand to ask "Why is the ruble trading in the
markets 'important to gold?' " Mr. Phillips immediately
realizes that I am the "slow one" in the class, and
wouldn't understand the answer even if he explained it to me
a dozen times. So he answers by merely repeating, "Needless
to say, these moves are very, very positive for gold." And
it worked! Now I am fixated on the use of the phrase "very,
very" as a modifier to the subsequent phrase "positive
for gold"! My Grubby Mogambo Greed Antenna (GMGA) actually
Then he asks, I assume rhetorically, "If Putin keeps his
word on the gold front, we should expect Russia to enter the
gold market as a buyer soon, too?"
I almost broke an arm, waving it in the air, excitedly crying
out "Yes, it does! It means exactly that! They had better
be accumulating gold! And the reason that I think so is simplicity
itself: Would YOU trust the Russians, or the Chinese, or anybody
to maintain exchange stability, using a fiat currency, so that
you could invest long-term with confidence? You would? Hahahaha!
Why in the hell would you do that?"
I notice that my laughter rings hollow in the empty room. They
have all gone. Nevertheless, I provide, as a coda, "You
can ask all the experts you want, but not one of them can name
one instance where, long-term, people who trusted governments
came out ahead. Go ahead! Name just one! Hahaha! They can't!
- Peter Schiff of Euro Pacific Capital, Inc. writes
"While bad news for savers and investors, higher inflation
is actually the government's best friend and is the most politically
expedient way to resolve America's economic imbalances and reduce
the real burden of repaying its own debts."
Suddenly, my head was spinning because it just occurred to me
that while this may be true of governments because they increase
their tax revenue as inflation raises prices and incomes, but
is it also true for the rest of us that we can REALLY inflate
our way out of our debts?
I write "Hmm!" which is my clever way of indicating
that I am thinking. After awhile, I answer with a definite "Yes
and no." Here's how I figure it: If I create and sell a
bond (take a loan) for a hundred dollars, and agree to pay my
creditor five percent when inflation is five percent, this works
out to me paying those crooked banker bastards $5 a year on the
debt. Theoretically, the bank is breaking even on the deal, as
the $5 in interest that I pay is exactly equal to inflation.
But I notice that I am still the only one paying money to somebody.
Now, if inflation goes to 10% per year, that old bond is now
worth $50 on the open market. So the idea is (and follow closely
here, as this is the crux of the whole argument), to borrow another
fifty dollars at 10% interest ($5 per year), when inflation is
running at 10%, to pay off the old bond (loan) at fifty cents
on the dollar. This is the place where the creditors, so they
say, "get screwed," as they lose fifty bucks by closing
out the asset at a loss.
But notice that they still have my new $50 loan on the books,
and I am paying 10% interest, too. So I am still paying the bank
$5 a year, the exact-o, same-o amount as the old debt, when measured
in nominal dollars. The only difference is that these are inflation-adjusted,
devalued dollars that don't buy much anymore. Big deal! We get
general inflation in all prices instead! This is our big stupid
And when inflation dies back down to 5% one day, as the cycle
goes around, paying that $50 loan at 10% interest will be very
onerous to me then, too, and the bond will be worth twice as
much on the open market. Then I will have to borrow another $100
at 5% interest, to pay off my $50 loan at 10% interest, that
I used to pay off the original $100 loan at 5%.
And notice that the bank makes money the whole time, and always
at the gradually higher interest rates that they will charge
as inflation gradually rises. So, for your essay question concerning
today's Fascinating Mogambo Lesson In Economics (FMLIE), you
will get an A+ if you can show how the creditor, in this case
the bank, got "screwed" out of anything. As the bonus
section of the test, deduce the identity of the guy who really
got screwed in that whole stinking inflation thing.
Mr. Schiff goes on to say "When higher interest rates really
start to take their toll on consumer spending and home prices,
the Fed will either do an about face and start cutting rates
in a desperate attempt to revive the economy, or it will continue
to raise them, deliberately pushing the economy deeper into recession.
Both scenarios are bearish for the dollar, and it is only a matter
of time before the market figures this out."
When the market "figures this out", the handling of
the horrible aftermath of the Alan Greenspan Era of Serial Bubbles
will be the highlight of economic history, as the guy (Ben Bernanke)
who is the chairman of the Federal Reserve is now a guy (Ben
Bernanke) who proclaims himself (Ben Bernanke) to be an expert
on the Great Depression, and he (Ben Bernanke) says he (Ben Bernanke)
knows exactly how to prevent it from ever happening again, although
both episodes were caused by excessive Federal Reserve creation
of money and credit (and debt) that produced massive inflation
in the prices of assets. In the '30s episode, assets subsequently
collapsed, taking everything else down with them.
Ben Bernanke's brilliant, brilliant, brilliant idea is that the
Fed gave up too easily in the 30's, and that he is now sure,
since he is a self-styled expert, that administering more poison
to a dying patient will, paradoxically, be the cure for poisoning.
Therefore, look for lower interest rates regardless of inflation,
and increasing Plunge Protection Team activities to gobble up
stocks and bonds to keep their prices up.
-- Adam D., commenting, as did many others, that the phrase "neither
a lender nor a borrowers be" comes not from the Bible, but
from Hamlet. "Specifically," he says, "it's from
Act 1, Scene 3, and it's part of the advice Polonius gives to
his departing son:
'Neither a borrower nor a lender be;
For loan oft loses both itself and friend
And borrowing dulls the edge of husbandry.'"
In other words, The Mogambo will not be paying you back, and
you will hate me for it, and now too late you realize that I
will never learn how to manage my money if chumps like you keep
lending it to me.
***Mogambo sez: If you are not buying gold, silver and
oil stocks now, then you are either a) not as bright as you look,
or b) already up to your eyebrows in gold and silver already.
There are no other permissible excuses.
May 31, 2006
Provided as a courtesy of Agora Publishing and The
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
and other fine publications.
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