 I got your outrage right here, dude!
Richard Daughty
...the angriest guy in economics
The
Mogambo Guru
June 30, 2004
Once again, things were quiet last week, if you were referring
to the level of activity and changes in debt and money creation.
But if you were referring to what I personally did all week,
it was quite the opposite, and it is why I am tuckered out. Most
of the week was spent trying to claw my way out of a padded holding
cell, as I could not stop my screaming in fear. One of the things
that induced my most recent episode of what is now clinically
referred to as "Whatever in the hell is wrong with that
Mogambo jerk," was the statistic that GDP grew less than
the rate of inflation, and that means that in real, inflation-adjusted
terms, something is seriously wrong here.
Correlating police reports and the complaints from neighbors,
the data confirm that the majority of my screaming seemed to
concern something about stimulus programs that have entailed
over a trillion dollar's worth of stimulus, in just the last
year! A trillion! And the year before that was almost as bad!
Summoning all the willpower that exists within the mighty heart
of the Mogambo, I run into the empty nurse's station and lock
the door behind me. Grabbing a calculator from the desk, I think
to myself, "Hmmm. Let's see. A trillion dollars of direct
stimulus has resulted in a lousy 3.4% increase in a ten trillion
dollar GDP, and that calculates out as, wait a minute here while
I run this through the calculator, ummmm, $340 billion more goods
and services. But when adjusted for inflation, which is running
MORE than 3.4%, this means that the economy is really shrinking!
Like throwing water on the Wicked Witch of the West!
I'm shrinking! I'm shrinking! Aggghhhh!"
By this
time burly attendants were banging on the door ordering me to
open the door like a good boy. While the nurse is frantically
dialing "911"on her cell phone, I take advantage of
my momentary freedom. With superhuman effort I clear the calculator,
and divide that one trillion dollars of stimulus by the 130 million
people in this country who have jobs, and the answer is, and
I proudly note that I got it right on the first try, $7,692.31.So
for everybody that has a job, the government contributed, because
the Federal Reserve created the money so that it could be borrowed
and spent, on average, $7,692.31 of their salary. This is where
inflation initially comes from, as all this money will eventually
infest itself in prices, as there is nowhere else for it to go.
And the affected people will get angrier and angrier, and pretty
soon they are in the streets! Rioting! Threatening! Threatening
to riot! Rioting to threaten! Very ugly.
But no sooner had I performed this calculator wizardry than I
read that Doug Noland has taken a look at the Flow of Funds data,
and he notes that "Of the seasonally-adjusted $1.927 Trillion
of Non-financial Sector borrowings during the first quarter,
the federal govt. was responsible for $466 billion, State &
Local govt. $150 billion, Mortgages $1.096 Trillion, and Consumer
Credit $123 billion." Now he says "The first quarter,"
but I am betting he meant "at an annualized rate."
So as the attendants are now trying to break down the door to
get at me while simultaneously trying to calm the other inmates
who have come out of their rooms to see what all the ruckus is
about, I grab the calculator and quickly clear out the old numbers.
With a haste born of fear, I divide Mr. Noland's $1.927 trillion
by the 130 million of us that have jobs, and I get the incredible
number that $14,823.08 per worker was borrowed and spent per
year!
As I later
told the intake officer as I struggled to breath while tightly
strapped into this straight jacket, I seem to remember running
down the street screaming "The economy is shrinking! The
economy is shrinking!" although I could not explain why
crime-scene photos show me wearing nothing but an Attend adult
diaper and a pair of ladies red stiletto high heel shoes. But
that is not important, and I am trying to get them to focus,
focus, focus, instead on the fact that I was heroically trying
to hold back the Demons of Destruction with a machine gun that
I, you know, just happened to see lying around the house, although
I have no idea whose it is, or how it got in my house, and I
cannot explain why there are nobody else's fingerprints on it
but mine. But I figured it was worth a try to take that mysterious
machinegun and attempt to heroically fight the raging monetary
demons that were swirling around us, instead of taking it directly
to the police station to turn it in like any law-abiding citizen
would do, and which I was going to do later. And I seem to recall
that sirens were wailing, as through a fog, and there were these
flashing red and blue lights everywhere, and people were shouting,
and there were voices in my head commanding me to consume delicious
chocolate confections, especially the kind with nuts, and how
everything was spinning, spinning, spinning. And I didn't even
mention the part about how the Congress voted to increase the
national debt ceiling with an in - the - dead - of - the - night
- when - nobody - is - looking deal, namely attaching it as a
mere rider on a huge defense-spending bill. So you can see why
I am afraid and angry.
But I am apparently not alone, as the clever folks at the Daily Reckoning
site write that they have noticed that people are buying gold. Intrigued, I go and look at the recent price
action, and I note that it is, indeed, up, which means that,
as always, there are more buyers than sellers, and that is why
the price is up. It was then I realized that those damn Daily
Reckoning people have scooped me again. Anyway, since they have
done all of the work so far, I'll just continue to quote them
verbatim. "People aren't buying gold out
of fear of good times (inflation)... they're buying it out of
fear itself. They fear the whole shebang is in danger."
If they define "whole shebang" to mean "Everything
including the Mogambo, who is cowering in his dank little hole
in the ground, alternately crying like a little girl and firing
randomly at shadowy figures that move furtively in the underbrush,
both real and imagined" then, yes, I agree with them.
They go on to say "Mortgages now represent such a huge part
of the entire land mass of Debtor Nation that, should any problem
arise, the whole thing is likely to go belly up." I like
that "Debtor Nation" thing, and I suggest that if that
horrid little twerp Michael Moore REALLY wanted to make a movie
that would shake us to our foundations, then THIS is what he
should be making a movie about, instead of that stupid "Fahrenheit
9/11" thing. And if he DID still want to make "Fahrenheit
9/11," then he should first make a movie about the horrible
Bill Clinton and that whole awful administration, which would
give him a little credibility.
A reader sent Daily Reckoning an account of a financial crisis
in Australia in 1887, and in one part it read "Once again
the banks, dismayed by wildly fluctuating values, began calling
in overdrafts. Unfortunately, some of the leading banks had encouraged
speculation when money was plentiful, and ruthlessly suppressed
it when the inevitable reaction set in." Now, students of
economic history know that this scenario of a financial panic
is certainly not unique to Australia, but is, instead, the classic
script for boom-bust, and this is probably why all of you are
groaning and whining about how listening to me run my big, fat
mouth is such a big waste of your time.
No, what I REALLY wanted you to note was the next sentence, which
read "This traditional banking policy, aimed primarily at
safeguarding the banks' own interests, proved utterly ruinous
to the general community." So, as today's lesson in logic,
thoughtfully provided so that your idiot son or daughter can
finally pass the SAT's and maybe get into some tiny, dorky community
college in some hick town out in the middle of nowhere and which
is actually in the Guinness Book of World Records as the only
college so hard up for tuition-paying students that they once
admitted a live pig, named Arnold, as an incoming freshman because
the pig had been left a fortune in the will of some eccentric
millionaire farmer.
So, give your half-witted children an elbow in the ribs to wake
them up, and let's diagram this short paragraph. First off, we
note that there seem to be two mutually-exclusive parties involved.
Namely the bank, on the one hand, and what is referred to as
"the general community" on the other. We further note
that the bank is also the one making all the rules under which
all the parties involved must abide. Later on, we learn that
one of them gets ruined. At first we are puzzled and curious
as to who they are talking about, you know, being ruined and
all, because our short-term memory has really gone to hell in
these last few years. So a quick little re-read reveals that
this hapless group is, as it turns out, the aforementioned "general
community!"
Now, here is your "performance art" homework for tonight.
Go up to your mom's room and get some of her lipstick, and then
go to the bathroom and use the lipstick to write on the mirror
the words "the general community." Then step back,
take a look at the face you see in the mirror, and tell me if
that person doesn't look exactly like YOU! There is a reason
for that, which we will leave to a later lecture.
I can't seem to pick up a newspaper off of a neighbor's lawn,
or take a magazine out of his mailbox, or turn on a TV that I
borrowed off his porch last week without being bombarded with
morons from the Left who are agitating for a rise in the minimum
wage. Now For instance, John Kerry, who is a typical odious and
clueless Leftist chump who has spent decades as a Senator, and
so is actually personally responsible for us being where we are,
and who now wants to take us even farther down the same tired
path, and so naturally he's all gung-ho to raising in the minimum
wage. With a weary resignation, I get into the Mogambo Mobile,
crank it up, and I drive down there and politely explain to these
cretins that to raise the minimum wage is to increase the pain,
as it makes prices rise. And so the minimum wage worker will
soon be no better off, and it makes other guys a lot worse off,
namely guys who get NO wages, raised or otherwise, and are on
a relatively fixed income. And in fact, raising the minimum wage
ends up hurting the working poor, too, the very people they are
trying to help, as prices rise faster than their incomes. And
then they counter with "Oh, yeah? Well, what would YOU suggest,
Mister Uptown Hotshot who thinks he can come down here, stinking
up the place, and help himself to a free cup of coffee and who
snags at least six donuts out of the break room when our backs
are turned and who thinks he knows everything?" I am the
epitome of grace when I answer that, first off, I would wear
some clothes that fit me so I didn't look like some retarded
street bum, and while we are on the subject those shoes do NOT
go with that outfit, and 2) I would keep prices from rising.
And here's my reasoning: If prices never rose, see, then nobody
would have to raise the minimum wage, and everybody would be
happy. And if prices gently floated down in a nice little deflation,
which is whole the damn promise of the "productivity miracle"
that Greenspan keeps running his stupid mouth about, then you
would be able to buy more and more stuff every week with the
same income! And that is what I see as the goal of economics:
raising the standards of living for everyone.
Lew Rockwell backs me up on this, even though if you ask him
he will deny it, when he wrote an essay entitled "Your
Right to Deflation." Mr. Rockwell, who is the guiding
light behind the Mises.com site where you can learn about real
economics as it really works in the real world, writes "Our
intuition tells us that falling prices are great for our pocketbooks
because they leave more left over for savings or other forms
of consumption. It is just as good for society at large. Our
money becomes worth more and more, and hence our remunerative
labors grow in value too. If inflation works as a stealth tax,
deflation works as a tax refund."
And then they are all crowding around my feet, some of them clamoring
to know how I can keep prices from rising and how everything
be wonderful as a result, and others wanting me to switch my
long distance carrier. I snatch the microphone from the stand,
bring it close to my lips, and with a magnificent rumbling basso
profundo voice from deep down inside my Manly Mogambo Chest (MMC),
I say "Simple." My arm slowly rises until it stands
directly out from my shoulder, and the only sound in the hushed
stadium is the whir of videotape machines. Suddenly, with a flick
of my wrist I motion to the band, and we launch into my rousing
hit song, "Bring Me the Head of Alan Greenspan!" The
first verse is kinda catchy, and it goes;
"To
keep prices from rising,
Don't print up money,
And don't print up credit,
Because if you do, I'm telling you,
You can bet your bootie you're gonna regret it." The boffo chorus was supposed
to have these loud clashing, slashing chords with the drums going
crazy, boom-a boom-a boom-a, and the lead guitar wailing some
tasty blues-inspired licks high up in the background, and the
lyrics were supposed to go;
"Because
all that new money makes prices rise,
Like those of houses and burgers and fries,
Because the money has to go somewhere, that ain't no surprise,
But don't tell Alan Greenspan, who is one of those guys
Who thinks those are lies.
And if you question him he replies
That interest rates have got to be low,
And then the economy will always go,
And inflation will always be low,
Because we say so
And if you say "no"
Then up we say "Up yours, Mogambo!" Because we are the Federal
Reserve, I said we are the Federal Reserve, and we are the ones
causing inflation in prices because we are all a bunch of idiots
playing with our ridiculous theories about how low interest rates
is some kind of magic spell or something that can literally reverse
the negative consequences of irresponsible, pandemic creation
of both money AND credit, like turning the bird crap on your
car into gold
nuggets by waving a magic wand
back forth a few times, and I am so freaking freaked out that
my own country is doing something so pathetically stupid that
I am probably going to have a heart attack and die right in front
of your eyes, because everything is about the money, or more
specifically let me rephrase that to say that everything is mostly
about NOT having enough money because prices get so damned high,
and central bank creation of excess credit is where you GET the
money that eventually makes prices rise so high."
Well, the idiot musicians that I hired couldn't work that last
part into the chorus of the song, so it was finally shortened
to "Doo wah, doo wah, yeah yeah yeah!" which really
sucks, as far as I am concerned.
But we were not talking about my becoming a rock star and cranking
out hit songs like this, and what a talented guy I am. No, what
we were talking about is raising the minimum wage. And, by extension,
let's talk about the people who have worked and raised themselves
up to the point where they already make $7 an hour. What about
them? Aren't they going to be grumpy as hell that all their hard
work, and getting here on time every damn day, butt-kissing that
little snot of a boss and laughing at his stupid jokes, and all
my hard-won advancement and seniority gets me exactly squat?
I've worked like a dog all this time, and now some new-hire off
the street makes my identical wage from the get-go?
And then what about the guys above THEM? And thus the pressure
reverberates up the income ladder, one pay scale after another,
until it reaches guys at the level of Dick Grasso, the disgraced
former head of the NYSE, whose buddies let him make over a hundred
million dollars a year, plus benefits, as an employee of a non-profit
organization in an oligopoly marketplace.
And all this higher labor cost has to be factored into prices,
and this forces prices up, and the next thing you know the Mogambo
is screaming in his irritating little pipsqueak voice about how
inflation is raging, and I am getting carpal tunnel syndrome
from writing long, rambling, angry letters to the editor about
how Alan Greenspan and the Federal Reserve are all lying about
how inflation is so low, and how the guy delivering the pizza
admits, under relentless pressure from me hollering and screaming,
that the pizza costs a lot more nowadays, but then he actually
calls my attention to the fact that they have stopped using real
pepperoni on the pizza, and have switched to using a rubbery,
pepperoni-like substance made from reprocessed garbage that was
once food, and then it wasn't food, and then it was made into
food again through the magic of chemistry and high heat. It has
this strange, sour after-taste, but the benefit is that you get
to expand your sensory envelope! And it is low in saturated fats!
And it helps reduce the amount of material going into the landfill!
So, when properly adjusted for these environmental and health-conscious
improvements, the cost of the pizza is actually lower! So, no
inflation!
Jim Puplava, writing "The
Unraveling" at the Financial Sense.com site, writes
"The financial markets are now forecasting that the federal
funds rate will rise to 2.25% by year-end."
Okay, now let's compare an interest rate of 2.25% to the present
1%, and we find that interest rates are going to rise by 125%!
Not just doubling, but MORE than doubling! If you were really
hip to this kind of thing, you would probably have swallowed
your tongue at that startling news and are now on your way to
the hospital in the back of an ambulance. But you pull the oxygen
mask off of your face, look into my soulful eyes, and you want
to know, "Where is the outrage?"
I got your outrage right here, dude! While the mainstream press
is controlled by the clueless Left, so you will never see that
horrifying headline, "Interest rates double!" anywhere
else, but here it is, blazoned across the pages of the Mogambo
Mutant Militia Press ("Where paranoid lunacy meets the Second
Amendment!"), your only trustworthy source for not only
the Truth, but also the News, and, of course, our trademark reviews
of Recent Pornographic Movie Releases (RPMR) where we take stills
from the movies and add clever captions to them, mostly involving
crudely insulting and derogatory remarks about Congress and the
United Nations and what they are doing to us in a figurative
sense, and it just goes on and on like that, page after page
of it, until the mind rebels, which probably explains the limited
subscriber base.
But Mr. Puplava goes on to say, "The Fed by its very nature
is an inflation creating institution. The ability to create unlimited
amounts of money and credit is the power to create inflation.
The rise in the money supply, the increase in debt monetization
and recent open market operations of the Fed all point to higher
rates of inflation."
Point to it? Did he say point to it? Ain't no need for no stinking
pointing, homey! The actions of the Fed are blazing like a Fourth
of July fireworks display, with those rockets like explode into
huge displays of streaming bright lights, and those screaming
things that go "eeeeeeee!" and the kind that go "bang!"
with a loud report, and the kind that whooshes up "shhhhhhhhhuuuuuuuuuu!"
all drawing your undivided attention to the fact that inflation
in prices is like a gigantic asteroid getting ready to smash
into the Earth, and it is going to come and whack us in the head
big time, or more accurately Big Time, or even better yet, Big
Freaking Time (BFT). He goes on to report that there is a pronounced
response, as people begin looking for ways to keep from being
destroyed and maybe make a few bucks on the deal. He says "You
are now starting to see institutions move money overseas and
into hard assets. They are looking for a hedge against a falling
dollar, inflation, and another bear market in paper assets."
He reports that several financial powerhouses have started commodity-related
mutual funds, and that other institutions are moving directly
into commodities by buying them outright and storing them in
warehouses.
And the reason that these guys are starting these funds? The
same reason that anybody starts anything; there is a demand for
them. And things that are going up in demand usually means that
prices are going to rise.
Marshall Auerback at PrudentBear who is no stranger to economic
wisdom but purports to be a stranger to the Mogambo, because
when you ask him about the Mogambo, he says "Who? Never
heard of him. And never mention that name in my presence again
or I'll kill you!" And notice how he is careful not to even
mention the Mogambo when he says, "Simply put, the current
global economic recovery has two locomotives: U.S. households
and Chinese capex. Both have been driven by unsustainable increases
in debt."
Notice the phrase "Unsustainable increases in debt."
Stay tuned, and you will learn how the American experience with
"Unsustainable increases in debt" turns out, and if
it will be different from all the other countries in all of history
who also accumulated "Unsustainable increases in debt."
And if you are one of the impatient types who can't wait to find
out, you can turn to the back of the book and read the ending.
The answer is "no."
Ted Butler has put his whole life into commodities and silver,
and you can almost feel his excitement as he reports that "The
market structure in the COMEX metals (gold,
copper and silver) remains intact and exceedingly bullish. The
latest Commitments of Traders Report (COT) confirms the commercial
dealers have fled the short side in all three in unusual amounts.
The big concentrated commercial traders have their smallest net
short positions in recent times. While no one can predict the
exact day of liftoff to the upside, the COTs have been a remarkably
accurate indicator of major price directions in these markets.
Now they are indicating a low probability of a big downside and
a high probability of a major move to the upside."
David Bond, editor of the Silver Valley Mining Journal, perhaps
sees the same thing when he says "When the rush to silver
and silver stocks begins - our own crystal balls, the only ones
we have left, predict mid-August - it will be with an unprecedented
vengeance." So two guys deeply involved in the metals and
commodities markets are saying that the prices of metals is going
up, and one of them says it will start in mid-August, which is
a real nice thing to know.
Nigel
Maund, writing the essay entitled "The
Calm Before The Storm" opines that the two financial
giants, Fannie Mae and Freddie Mack, are in some trouble, and
that the Fed is busily trying to bail them out. "Like a
chess grandmaster in 'Zugzwang' (every move he now makes loses)
his worse nightmares are upon him. Monetizing Fannie's and Freddie's
debts must be at the forefront of his last remaining strategies.
However, this will only buy time. The end game is moving towards
his ultimate 'checkmate,' and the eventual destruction of the
US dollar as the world's reserve currency. Should such an event
occur, it will have enormous implications for global stability,
resulting in a fundamental power shift of epochal proportions.
Indeed, it will be 'one of history's turning points.'"
So pay attention to what is going on around you, as one day your
grandchildren will want to climb up out of the filth and dirt
of their excruciating poverty, and haul themselves into your
lap to hear stories about "one of history's turning points,"
and they will want to hear something other than you wailing and
moaning and gnashing your teeth about how you did not heed the
Words Of The Mogambo (WOTM), nor the Words Of The Nigel Maund
(WOTNM), and how that one mistake has doomed you all to an early
death by deprivation and misery.
The world waits with bated breath as the Federal Reserve meets
to decide interest rates. The July 5 issue of Business week has
Alan Greenspan on the cover. The headline says "High Stakes"
with the subhead "Alan Greenspan sounds confident. But beware:
He has a tricky task ahead."
Tricky? What an exquisite word for it! Tricky! Run that word
over in your head a little bit, and pretty soon you see that
the word "trick" is in there, and if you have ever
had anybody fan out a deck of cards in your face and asked you
to "pick a card, any card," you are pretty hip to what
a trick is. And using tricks is how Alan Greenspan is going to
try and get us out of this mess, this huge destructive mess that
he caused.
But talking about that card trick has put me the mood for a little
conjuring of my own. I am looking into my crystal ball, and I
am writing down my prediction about how a disastrous price inflation
will be the signal of his utter failure, and then, if there is
any justice in the world, everybody will stand around and say
"The Mogambo was right! Just because something has failed
every time in all of history that somebody has tried this, it
probably means that it is going to fail this time, too! All hail
the Mogambo for seeing the obvious!"
As an example, if the normal rate for short-term money is 1%
above inflation, and by inflation I mean the REAL kind, not that
adjusted and substituted crapola that the government spins out,
but the good old-fashioned kind where you are signing that credit
card slip and you look at the total at the bottom, and you wonder
how in the hell that little sack of groceries or that little
bag of stuff can possibly cost so damn much, and which is in
itself proof of inflation that is actually above 4%, and has
been for a long time now.
Then that means that the owners of the $5.5 trillion in certificates
of deposit and short-term money market would have made $275 billion
more money last year on those investments. But they did not.
Instead, the Federal Reserve pounded rates down so low that that
they made only about $75 billion. The difference is $200 billion
in lost income. People who are cautious and have put their money
into certificates of deposit got screwed out of $200 billion
in the last year alone. This is one of Greenspan's "tricks."
So somebody got screwed out of $200 billion last year, and over
the last four years they have sacrificed more $800 billion in
income. And they lost all that income because Alan Greenspan
and the rest of the jackasses at the Fed screwed up royally,
and they needed somebody to bail the economy out of the mess
that they created, and so they pulled a trick!
It makes you wonder what trick the Fed will try next. So, go
ahead. Pick a card. Any card.
Ugh.
---Mogambo Sez: Interest rates are rising, but people
are actually bidding up stock and bond prices. It's too, too
weird.
Jun 29, 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
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