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FILLED with The Fire of Gold!

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
Archives
July 13, 2005

- In case you are looking at the economic universe and see what appears to be a huge freaking storm waaayyyy out there on the horizon, that is the sight of the biggest decline in Consumer Installment Credit since 1990, as we bozo Americans apparently paid off $3 billion in credit-card debt last month, instead of going farther and farther into debt like we have been doing every month for freaking decades now. It's a piddly little bit, to be sure, compared to the total credit-card debt of $2.13 freaking trillion, which works out to some diddly little teensy fraction of one lousy percent of the total debt owed,. So $3 billion bucks, at this level, could be just a rounding error.

Being a real thick-headed doofus, you should realize that I cannot possibly comprehend what all this means, but I DO know, deep down in the dark, dismal depths of the heart of The Mogambo (DDITDDDOTHOTM) that for a nation whose only reason for economic existence is to consume in an orgy of raw gluttony, things are not looking particularly rosy in that regard. If they were, as I said, rosy, then Total Consumer Credit would have gone up. But it did not. In the mind of The Mogambo (MOTM) I hear the Horsemen of the Apocalypse, as this portends big changes. Big, important changes. Big, important and ugly changes.

If America, standing proud as the world's Ultimate Final Consumer, is not buying, then this means that nobody is buying stuff, because we buy all the stuff!. And this means that all those producers, a lot of them foreigners, all the way up and down the line, ain't a-gonna be making sales. This lack of sales will cause some businesses to suffer a fall in revenue. Which means a fall in profits. Which means that the shareholders are out for blood. Which means management will spring into action to deflect blame from themselves. And since the axe of retribution must fall around here, some sacrificial scapegoat has to be identified and fired. You can almost see the light bulbs appearing above their heads as they suddenly realize that The Mogambo is nearly at the end of the new-hire probationary period. Earning every dime of their obscenely-bloated paychecks, they make another of their many brilliant-but-exhausting executive decisions, and it's, once again, pink-slip time for Mogambo (PSTFTM). But they do not realize that the wily Mogambo has again turned the tables on them all! Hahaha! He has demonstrated his extraordinary forecasting powers by not only a) anticipating this moment, but has also been b) stealing office supplies and people's lunches for weeks in shrewd preparation! Hahahaha! I'll make a fortune in Post-it Notes alone!

But I actually feel sorry for them as they celebrate and laugh it up at their "Goodbye and Good Riddance, Mogambo!" party, with their damn cake and balloons, since none of them owns gold. A few of them wear silver crucifixes around their necks because they think it will magically keep me away. But I know for a fact that they do not accumulate precious metals, or commodities of any kind, as investments! I have spent my short time employed here ignoring my work to attend to the more important matter of constantly calling them on the inter-office phone, and sending them emails, to tell them, over and over and over again, about how the Federal Reserve is destroying our money, and how they are encouraging everyone and everything to plunge into a bottomless ocean of debt, which they do by creating so much money and credit and lowering interest rates to entice you to borrow, and how our many, many, many layers of government are destroying our country by creating so damned much government, and by creating so many more people and businesses who are totally dependent on government spending. So it is not like they do not KNOW about why they should own gold and silver! They know damned good and well why they should! But they don't! They just don't.

And not only do they NOT buy precious metals against the guaranteed continued debasement of dollars, but they make fun of me, and mock me, and say hurtful things, like "Hey, gold boy! I see gold is down two dollars! Let me tell you how much I made in my Google stock!" and "What idiot hired you?"

- If you take a look at all the people that are screaming at us Americans to grow up and act responsibly, you soon see that it is A-list of the whole world. Off the top of my head I remember some pointed criticism from the Bank for International Settlements, the World Bank, the European Central Bank, the International Monetary Fund, and then most countries, and The Mogambo, to name but a few. All of us are officially on record as demanding that Congress immediately address our glaring and totally irresponsible monetary and fiscal idiocies. I will point out, because the news media censors your news, that I am the only one who has actually formulated a workable plan, a wonderful plan, a Terrific Freaking Mogambo Plan (TFMP), which is to put me in charge of the Federal Reserve, give me awesome, god-like powers to hire, fire, and push buttons at will, and to have the IRS and police attack anybody who disagrees with me, sort of, you know, like Bill Clinton's administration.

So the question is, "Will Alan Greenspan continue down this rocky, ruinous road of ruthless, relentless monetary accommodation, in spite of unanimous world opinion, and in spite of interest rates being too low, for too long, already?"

In case you are a cub reporter for a great metropolitan newspaper, and you were thinking to yourself, "Yikes! I have a deadline coming! Hmm! I wonder what The Mogambo would say about Greenspan raising interest rates?" I say, and this is a direct quote, "yes". See, if he acquiesced to the demands of these slippery foreigners, who all speak with those strange, foreign languages so nobody ever knows what in the hell they are saying anyway, it would help cover his nasty little butt when the whole thing falls apart, as it will, as it must. Then, he could look into the camera and, with this wide-eyed look of innocence all over his stupid face, say "But I was doing what they all told me to do! And I did it in the spirit of international cooperation between the relevant monetary authorities! So it is all THEIR fault!"

On the other hand, if he ignores all the critics, and keeps on trying to expand credit via lower interest rates, then, when the whole thing finally falls apart as it must, he will go down in history as not only stupid, but stubbornly so. All of the other countries in the world would then strut around crowing, "We told them to stop! But they did not! Stupid Americans!" and then they will laugh at us ("Hahahaha!"), and you notice that even when they laugh, they even laugh with a foreign accent, that will make us even MORE angry because it is all so true, and now the guys we used to laugh at ("Ha ha! Dumb foreigners!") are laughing at us ("Ha ha! Dumb Americans!") and I, for one, don't like it one little bit.

But speaking of the Federal Reserve, for the last month and a half the Fed was not creating much new credit at all. But I knew that the Federal Reserve could not resist intervening in the markets for much longer. Finally, last week, the long string of week-after-week stasis in Total Fed Credit, which is the glorious, magical fount from which springs the fabled "money from thin air" in the banking system, has been broken, and is now increasing again, theoretically feeding the insatiable maw of America, the Ravenous Monster From Hell That Gobbles Things, Especially Imported Consumer Items And Real Estate.

But, and leave it to The Mogambo to find a dark lining in the silver cloud, incomes are not going up, which is a real bummer, because it takes money to pay money. If debt goes up, but income doesn't go up, too, then you are paying more but getting less, sort of like being married, ha ha. And I don't know how things work in YOUR neck of the woods, but around these parts, this usually means that things are not going as planned, and it was profits that were planned. And it is the thought of increasing profits that make stock prices go up.

- If I hear one more idiot claiming that inflation is low, my mighty Mogambo brain (MMB) may pop another circuit. It is so ludicrous! If my homeowner's insurance goes up by three hundred bucks a year, and my health insurance goes up by a few hundred bucks a year, and the power company charges me another fifteen bucks a month for a higher "fuel charge", and my property taxes go up by a few hundred bucks a year, and I have to spend an extra ten bucks a week at the gas pump, then pretty soon I don't have any money left over to buy any of the things I want. And THAT, my friend, is the true measure of inflation: "How much less stuff will I buy with my constant income?"

Perhaps I can illustrate this stupid point AND, at the same time, perform one of my required units in "Education Goals: Relationship Training For Young Minds". Ahem. Last month I bought thirty bags of food, ammo, pizza, pornography and cookies, and had, at the end of the month (as I do at the end of every month), zero dollars left over. This month, in contrast, I only bought twenty-nine bags of food, ammo, pizza, pornography, and cookies, although I again had zero money left over. How is this possible? Immediate and obvious conclusion: Some dirty, thieving bastard stole one of my damn bags of stuff, and I am going to track them down and delight in killing them slowly so that I can hear their screams of agony and laugh, haha! Or, using the latest theory, nobody stole one of my bags of stuff, but my money was devalued out of buying power, and thus each dollar was worth less, and so it could only buy less, and so I could only buy twenty-nine bags of the stuff I want, using the same pitifully small wad of cash. Thus, the dollars were devalued. Thus, you lose. This concludes the economics portion of today's lesson.

The thirtieth bag, the missing bag, the bag of stuff we could not afford to buy, is that stupid bag of crap that my wife always wants, like those stupid crackers that she likes but which really taste like crap, so it is a BIG waste of money, as far as I am concerned. Wasting money on these horrible crackers? Screw her! So I stopped buying them when I went to the store. And I stopped buying other stupid things she wanted, too. But then she, always trying to make a big damned deal out of every damned thing, like the whole universe revolves around HER or something, is complaining how she needs that particular brand of deodorant because the other kinds make her break out in a rash, and if she used one of them by mistake she could have a terrible reaction and she could die and blah blah blah, and I tell her maybe we could save a ton of money if she just took more baths instead. And then she gets this really smart-mouth attitude, and retorts how we would have to pay higher bills for the extra use of hot water! So I tell her that she could take cold showers, did you ever think of that? Huh! Did you, you horrible old woman who is probably thinking about killing me right now? And don't deny it! And she screams "Who's denying it? It's all I EVER think about!" and then, for no reason at all, she suddenly gets in one of her "moods", like it was ME that was acting like an idiot or something!

But, and here is the Relationship Training moral of the story, did you notice how, when I don't give a flying crap about what in the hell she wants, or doesn't want, it causes a lot of friction in the nuclear family? You did? Good! Then that successfully concludes the Relationship Training portion of the lesson plan. And a job well done, if I say so myself!

But the fact that a bunch of Chinese factories are willing to produce consumer items at lower and lower prices, and thus sell them to me at lower and lower prices, does not mean that inflation is low. If inflation was, as they say, low, then how does one reconcile that statement with the glaring inconsistency of roaring inflation, as measured with the new Mogambo Ultimate Definition Of Inflation (MUDOI).

"Golly, Mogambo!", you are probably saying to yourself in amazement and awe. "What is the Mogambo Ultimate Definition Of Inflation, which you have cleverly shortened to the charming acronym MUDOI, which sounds vaguely, oh, I dunno, Asian-- perhaps Chinese! --as is all the vogue nowadays?" I say, and you can quote me on this, "29 bags!" I am outraged at only 29 bags! I used to get 30 bags, and now I only get 29 bags! To the streets, my people! The time for revolution is here! Our rallying cry will be, "Remember the 29 bags! Remember the 29 bags!"

This week we are fortunate to have not just one, but two, examples of how this principle, the famous MUDOI, works. Firstly, I have heard that drive-aways are increasing. This is the desperation ploy of filling your car with gas and then, hopping into your car, start the engine and speed off without paying. How desperate do you have to be to have to resort to stealing thirty buck's worth of gasoline? Out in the open? With bright lights everywhere? And security cameras everywhere? And with those beady-eyed little cashiers squinting at me through the window, furtively writing down my license plate number, like they are some hot shot employee who's going to help the police catch some desperate criminal, and they will be a hero, and maybe get a reward or something. So how does this relate to MUDOI? Well, this drive-away thing is a way to replace that 30th bag! The thief is a guy who is upset at that missing 30th bag! He looks at the 29th bag, and he realizes that half the beer and all the potato chips were in that 30th bag! Oh, nooooooo!

And the second example that I promised you earlier was also at the grocery store. The customer was making a big stink because she claimed that she handed the cashier a fifty, and the cashier was saying, and showing, how there were no fifties in the drawer. These are the kinds of things desperate people will do, and more, when they look at that 29th bag, and they realize what was in that missing 30th bag.

The point is, and I usually get around to it sooner or later, is that I don't give a rat's patootie WHAT the inflation statistics can be made to show, especially after the government gets to pick and choose what they are going to use to measure it. The best measure of real world inflation, MUDOI, is how much more desperate the poor are, and how much more desperate the working-poor are, and how much more desperate the middle class are, when they can buy only twenty-nine bags of stuff instead of thirty bags like last month. And, soon, they will only be able to buy twenty-eight bags of stuff.

It should make you think. And when you think, you should run screaming down the street, screaming "The Mogambo was right! We're freaking doomed!"

- Of course, the recent weird action in the stock market brings out the rumors swirling about that the Put Protection Team, namely the Federal Reserve acting anonymously, has been behind the recent strength in the stock market, as they rushed to "provide liquidity" to the stock markets, which is, defined as "making damned sure that the prices of stocks always go up."

I, as someone who is always ready to believe the worst about a government or a central bank, admit that it seems that SOMETHING is happening, and it would not surprise me a bit to discover that they were in there, buying futures contracts out the wazoo, forcing the writers of those SP500 futures contracts to hedge that huge bet by buying the underlying stocks. Presto! The market goes up, instead of collapsing like it should, in the face of all of this buying! "Hooray!" they think to themselves. "We're heroes!"

But I am shaking my head and screaming at the TV, "No! No! This can't be happening!" I mean, oil is over $61 a freaking barrel! And yet people are buying common stocks? Wow!

- Former Fed Governor Ben Bernanke, and now chief of the inbred little clique that "advises" President Bush about things economic, is recently famous for suggesting that there is global saving glut, and that is the explanation of our gaping current account deficit. We are, being the darlings that we are, doing the world a big, fat favor by absorbing those savings by borrowing them. But notice that he does not mention where that glut of savings came from in the first damned place. It came from the hateful Federal Reserve, pounding out new money and credit, year after year after year, and eventually the money all finally found its way, via our trade deficits, into the pockets of people who finally saved the money, namely foreign nationals.

But is there really a glut of foreign savings? Apparently there is some disagreement about that. In 2004, the IMF's global flow-of-funds pegged the world saving rate at 24.9% of global GDP. Stephen Roach said, "While that marks the second consecutive yearly increase in this measure, it is only 1.9 percentage points above the 23% norm that prevailed from 1983 to 2000. Yes, the global saving rate has edged up from its longer-term average, but this hardly qualifies as a glut."

But notice the period quoted. It starts in 1983. Ever wonder why? Individual Retirement Accounts got going, as I recall, in 1982, the year before. Suddenly, and then more and more, and then more and more, the stock market went up with the growing tsunami of money inflows. And, always ready to make a bad situation worse, Congress spent their time busily extending this "benefit" to government employees, too! Up and down the line, people are paying money into their own retirement accounts, and even raising their own taxes to pay for government employees and recipients of government spending to invest some money in the stock market, too, all of which put even MORE money into the stock market! All of which caused the stock market to go up, which caused a lot of money to flow into the stock market, too, and that made it go up even higher!

The problem is that the stock market is so over-valued, and has been over-valued for so long, so that the returns from the stock market over the last five years -- five long, worthless years -- have been, on average, about zero. And with gains hovering around zero, it is no wonder that Bob Pisani of CNBC made the comment that traders are finding that their hardest job is trying to convince people not to sell and get out of the stock market. All of the dissatisfied clients want to, as he said, invest in real estate in Naples!

Exactly! Money goes where it is treated best, and making zero return for five long, dreadful years in the stock market is NOT treating money well at all, especially when the dollar has lost about 40% of its buying power in that same period of time! Investors in stocks suffered a double-whammy! On the other hand, real estate has been on a roll for quite awhile, treating money VERY nicely!

But, and here is the Mogambo Tip O' The Day (MTOTD), forget houses. What you want is commodities trading, so that you can ride the coming inflation in commodities and make some serious money.

And speaking of commodities, the CRB index gained 2% last week. It is up 9.1% since the beginning of the year. Even more astonishing, the goldman Sachs Commodities index is up 28% since January!

- If you want to talk about housing, and it seems that everyone does, a recent study by The Wall Street Journal found that in 55 places, the prices of housing had risen by at least 30 percent, AFTER inflation, over three years! And when you add up the market values of all housing in the whole country, it looks like these few 55 markets now account for an astonishing, and apparently completely unprecedented anywhere, 40 percent of all the sum total of the entire value of all the housing in the United States! Hahahaha!

According to the National Association of Realtors, who are quoting an outfit called Loan Performance, which is a mortgage data firm, who said that almost one-third of all new mortgages are mortgages with low required monthly payments, because the borrower only pay the interest, and you pay squat towards paying off the damn loan. Your debt never actually goes down.

Beyond that, some mortgages are supposedly appearing with the option to pay even less than that! You can pay less-- LESS! --than even the interest payment that is due! You can pay as little as you want! The bank merely adds the shortfall to the loan balance, happily putting you farther into debt! Arrgghhh! And it is the banks, always the damned banks, that are the ones doing this silly crap! The banks are going waaayyyyyy out on a limb with these risky, insane mortgage options, proving once again that all financial calamities, back and forwards through time, are caused by the banks acting stupidly.

The major difference is that today, they all believe that just because they can lay off the risk, by bundling and unbundling and slicing and dicing the debt, and then selling the risk piecemeal to somebody else, that there is no problem! Hahahaha! Losses are losses, dude! Hahahaha! See what I mean about banks acting stupidly? Hahaha! It never changes!

And who is the idiot that is putting up the money for the other side of these ludicrous mortgage bets? Who is so bereft of even common sense that they are loaning so unbelievably much money to these high-risk, guaranteed-loss customers? Well, guess what? It's, once again, the only guys who CAN get stuck with the bag so big, and therefore they MUST get stuck holding the bag. And, to paraphrase a famous Pogo dictum "We have met the suckers, and the suckers are us!" And who are, in the particular, these suckers? Well, for starters, pension funds, banks, holding companies, cities and counties and states, mutual funds, investors both foreign and domestic, and all kinds of guys and gals with visions of capital gains in their eyes, investing "for the future!" As it turns out, this long list of investors now holds $4.6 trillion in mortgage-backed securities! Hahaha! At last the banks have figured out how to get rid of whole mountains of crappy loans! So this is proof-- proof, I tells ya! --that Barnum was right! The sucker is not going to get an even break! It just gets worse and worse!

- I read an interesting statistic arguing that, in the last four years, the U.S. dollar lost nearly 40% of its value against other currencies. That means if you had loaned me $10,000 in the year 2000, it is now worth only $6,000 in purchasing power! So do you know what that means? It means you owe me, you little rat! I have had to put up with your incessant phone calls for the whole four years, always whining and threatening the poor old Mogambo, always yelling about wanting your damned money back, always yammer yammer yammer about the damn money I owe you. But do you even spare a lousy minute to think about me? Have I not lost purchasing power, too? If you cut me, do I not bleed?

Sean T. sends along this quote from Rep. Perry Clark of Kentucky, who apparently has some natural smarts, and said, referring to the coming re-pegging of the US dollar to the yuan, "if we don't successfully act in time to avert an uncontrolled collapse, my question is, does the U.S. have a fallback position? The fact is that even a 40% adjustment in the value of the dollar would actually be sufficient to wipe out about 80% of my constituents within 30 to 90 days. They would be destitute, and this would especially affect retirees."

Well, the case may be overstated, as the dollar has lost about 40% of its value in the last few years, and nobody is destitute yet. But he is exactly right, in that everyone in his district, and everyone else's district too, has suffered a huge loss in buying power. And in case he asks you, no, there is no solution, and that is why it is so important that you NOT allow the banks to expand the credit system at their whim, and why only having gold and silver as money will naturally prevent that, and if he really, really, really wanted to get on the good side of The Mogambo, he would get his butt back to Congress and help Ron Paul re-establish the dollar in terms of gold and get us out of the clutches of the banks!. And since we are talking about money, I notice that currency in circulation, the kind that you can put in the G-string of dancers at almost any, um, gentlemen's club, jumped by an eyebrow-raising $6.6 billion since a week ago, or about $25 for everybody old enough to hold money for transaction purposes. So who in the hell is holding more money, and why? People are stealing gasoline because they are so desperate, so it is not them! Obvious answer? People involved in something illegal, as those things settle in cash.

- John Mauldin thinks that Ben Bernanke will be the next chairman of the Federal Reserve, which is probably true. The Federal Reserve is a complete failure in every regard. Ben Bernanke seems to be the worst economist and central-planning/Big Government fanatic that has ever been catapulted onto the public stage, and I make no bones about he fact that I consider him to be an arrogant, pretentious, self-possessed pretender whom I hate for getting all the attention that I crave but can never have. I am sure that he harbors similar feeling towards me, although if you ask him for his opinion of The Mogambo, he will say he never heard of me. But you can tell that he has, and he hates (pause) my (pause) guts.

It is therefore almost ordained by Fate and our headlong rush to kakistocracy (a system of government by the worst and most nqualified people) that he be given the reins of power, so that we can accelerate our entry into the history books as the ultimate chumps in the sad, sorry story about how another thriving and prosperous nation was brought to ruination by the damned banks. Or fiat money. Or fractional banking. Or, and you should feel a chill go up and down your spine at the mere suggestion and your brain should scream out in horror because this is where the concept of painful economic suicide comes from, all of them at once! Like we have! Hahahaha! We're freaking doomed!

And if you don't agree with me that the Federal Reserve has been an abject, total failure, then get up and go look out of your window. Or, if you are like me and are too lazy, or too drunk, to actually stagger unsteadily to your feet, just sit there for a few more years, as things will continue to get worse and worse and worse, and what is outside your window will come to you, grab you by the throat, and take away everything you love, and leave you at home, all day, with your family, all of whom hated your guts BEFORE you went bankrupt and lost your job, and now they hate you even more than ever, and they have a lot of time on their hands, which they spend criticizing everything you say or do.

- Last Thursday, the House of Representative voted by a lopsided 398-15 vote for a non-binding resolution that calls on the Bush administration to block the CNOOC bid because it "would threaten to impair the national security of the United States." Representative William Jefferson of Louisiana said "We cannot, in my opinion, afford to have a major U.S. energy supplier controlled by the communist Chinese." Hahaha! Our money? Sure! Our economy? Okay! Our debt? No problem! But our gas? No freaking way, dude! Hahahaha! We can think this way because we're Americans! We're special! Laws of the universe do not apply to us!

Now you know why Congress and the Americans who elected them are held in such contempt, at home and around the world.

- For those of you who like to send me stuff about abiotic oil, okay. It seems that J. F. Kenney, a guy who is the chief executive of Gas Resources Corporation, thinks that we are all wrong about where oil comes from. I thought it came from storks, delivering barrels of oil dressed in little pink and blue diapers, but apparently I am wrong about that, too. He says it is nonsense to believe that oil derives from "squashed fish and putrefied cabbages," but notice he does not dare to address my stork theory.

In the Proceedings of the National Academy of Sciences, he states that it is impossible for alkanes, one of the main types of hydrocarbon molecule found in crude oil, to "evolve from biological precursors at the depths where reservoirs have typically been found and plundered." Using some whiz-bang "mathematical model incorporating quantum mechanics, statistics and thermodynamics", he says he can predict "the behaviour of a hydrocarbon system". Therefore he can show how a "complex mixture of straight-chain and branched alkane molecules found in crude oil could have come into existence only at extremely high temperatures and pressures-far higher than those found in the earth's crust, where the orthodox theory claims they are formed", which is of dead dinosaurs and grasses and organic, biological stuff rotting and turning, somehow into oil.

And what happens down there with those high pressures and temperatures? Well, he says that "he has shown that a cocktail of alkanes (methane, hexane, octane and so on) similar to that in natural oil is produced when a mixture of calcium carbonate, water and iron oxide is heated to 1,500° C and crushed with the weight of 50,000 atmospheres." And where is this magical place? He anticipates your question when he writes "This experiment reproduces the conditions in the earth's upper mantle, 100 km below the surface, and so suggests that oil could be produced there from completely inorganic sources." Hence, the term "abiotic" oil.

My response? Who the hell cares? Whatever way it is made is irrelevant. The point is that it is not being made, however it is made, at the rate we are using it, and by a long, long shot. And Peak Oil, the fabled halfway point where we start slowly start running out of oil, is a fact that is almost beyond refute. And when you add China and Russia and India into the mix, well, you already know how I feel about investing in commodities.

- The Bureau of Labor Statistics says 146,000 new jobs were created in June, but 184,000 of those jobs came from the infamous CES birth-death model. To make matters worse, 81,000 of those supposed jobs were in Leisure and Hospitality. The next biggest gain was in construction (29,000). Now, personally, I have no doubt that these numbers could be true. But you can't make an economy out of fast food and building houses.

The BLS report also says "Over the year, the health care industry has added 249,000 jobs. In June, job growth was concentrated in hospitals (12,000) and ambulatory health care services (11,000). Among other service-providing industries, financial activities employment edged up over the month, as credit intermediation and real estate showed continued strength. Employment in food services edged up in June after showing little change in May. Employment in child day care services rose by 8,000 on a seasonally adjusted basis in June, as layoffs were lighter than usual. Employment in warehousing and storage rose by 6,000." It may be instructive to note that not one of these jobs involves taking raw materials and making something to sell to somebody.

In contrast, "In June, manufacturing employment fell by 24,000. Motor vehicles and parts lost 18,000 jobs over the month. Job losses in nondurable goods manufacturing were small but widespread, totaling 12,000." So now we know what happened to the guys who DO take raw materials and make something to sell to somebody! They get fired!

But it is not all skittles and beer in the services sector, either. Challenger, Gray and Christmas issued their latest report, which showed, "Employers announced 110,996 job cuts in June, compared to 82,283 in May. June job cuts rose 73 percent from the year-ago period. So far this year, 538,274 job cuts have been announced this year, 14 percent more than the six-month total of 472,735 last year." 14% more job cuts! Cuts! Fourteen percent!

And C,G & C don't see it getting any better, either, as they go on to say "The pace of job cutting in the second half of 2005 is expected to stay ahead of last year, as employers continue to close facilities and consolidate in order to achieve maximum efficiency."

Martin Weiss of the Safe Money Report writes that Economy.com figures that over the last few years "real estate has added 700,000 jobs." Weiss also brings us yet another newsy tidbit with the news that TEC International surveyed 2,000 CEOs, and the consensus is that "high energy costs are currently the number one concern." Me, too! Hey! TEC International! Call me! I can tell you that higher energy costs, and costs of every freaking thing you can name, are my number one concern! But the really interesting news, because I think inflation is so scary that it is ALWAYS interesting news, "70% of the CEOs said costs have risen in the past year. Only 3% are reporting a drop in prices."

- Richard Schlessel sums it up pretty well, and with an entertaining literary style, when he writes, "(A) there is already much too much debt (astoundingly true); (B) the economy is weak from loss of solid manufacturing jobs (sadly true); (C) low cost foreign labor will prevent the US economy from adding the dependable jobs that are needed for sustained growth (frustratingly true); (D) a perpetually weak economy cannot afford to pay the escalating debt service costs (frighteningly true); (E) the trade, current account, and budget deficits all add crushing new debt at an ever faster rate (unbelievably true); (F) the combined weight of all these negatives makes a depression unavoidable (inevitably true)."

- The goldForecaster.com says that with "Oil around $60 and gold around $425" the gold/oil ration has gone to 20-year, "historic lows!" Note their use of an exclamation mark to indicate emphasis! The ratio, they say, is at, and sometimes under, seven. The average historical ratio has been fifteen. To revert to the mean, that would mean $900 gold, even if oil stays at $60 a barrel! And if oil goes to $100 a barrel, or more, as it will, then gold will go, as Ralph Kramden would say "To the moon, Alice!" Yaaa-hoooo!

They also report that China will soon let the country's banks "sell gold bars to their customers." Up to now, Chinese citizens have only been allowed to own gold-backed certificates, which they trade instead of actual gold bullion.

The next few years ought to be very, very interesting in the gold market, and a third of the world's population is why.

- I got a real nice letter from Eric Y., who is a CPA in Norcross Georgia, whose unfortunate career has sunk to the point where he has to accept clients who are complete idiots, which I infer from him writing, and I quote, "I have several clients who are seriously considering acting upon your advice, i.e. to purchase gold, and possibly silver as well."

The Mogambo smiles benignly, and with the merest flick of an eyebrow confers instant enlightenment, if only from the angle of historical imperative, as this is what always happens! Finally, things get so bad that people will listen to an idiot like me, and run to gold in panic and desperation! "Sell the stocks! Sell the bonds! Get gold!" And your consciousness is blasted when you fully comprehend that investing in gold and silver right about now is destined to be another of those Famous Mogambo Stroke Of Genius And Dumb Luck Things (FMSOGADLT), and then you are filled-- FILLED! --with The Fire of gold!

For you have looked into the face of absolute total consciousness, and peered into the beating heart of the cosmos, and now you are, suddenly, one with the universe, and you realize that owning gold and silver and commodities is a damned, damned, damned good idea! Especially if you are a grasping, grubby, greedy little bastard like me, who would love to make a gigantic fortune by investing in gold and gold mining companies at these historically-adjusted, low, low, lower-than-low prices, so that when they do rise, as they will because they must, we will be rich! Rich! Hahahahaha! Gloriously, gloriously rich! We will be rich, and they shall be poor! Poor! And THEN we'll see who's sorry about you-know-what, and who is not allowed within 500 feet of whom!

The next item refers to the ever-present danger of government confiscation of people's gold, like that bastard FDR did, and did I think there was any danger of that? To which I answer, Hahahahaha! Hell, yes, you fools! This is the damned government we are talking about here! They can do anything they want, as long as the Supreme Court can be counted upon to back them up! Is there any danger of the government again confiscating gold, you ask? Again, the mocking Mogambo laughter goes "Hahahahaha!", echoing eerily off the mountains, which is pretty weird since there are no mountains in Florida. But this is not about mountains or how Florida got screwed big time in the mountains department. The real question is, where in the hell have YOU been for the last few decades that you wonder about the powers of the government to do something that that have already legally done once? Hahahaha!

Let's remember, that they can allow themselves the awesome power of making you turn in your gold. But they cannot, so far, compel you to take a loss when they steal your stuff. They have to pay you, in dollars, what the gold is worth. That part is guaranteed by the Constitution itself. So, theoretically, at the exact moment of exchange, your real worth is unchanged. One minute you had a bunch of gold worth X dollars, and the next you own that X number of dollars, but no gold. You are, at that precise legal moment, unchanged. What happens one nanosecond later, of course, is the problem, and that is why you wanted gold, and not dollars, in the first damned place!

Unless (and notice how the soundtrack is filled with ominous, spooky music, and how, off in the distance, a ravenous wolf pack is howling, "wooooooooOOOooooo" and you know what something bad is going to happen) the Supreme Court finds otherwise. So the real question is "Will the Supreme Court compel you to take a loss, contrary to the Constitution?" Well, let me quote of few of Mr. Y's own listing of the arguments that arise in favor of stealing people's gold, including the demonizing of people who are holding their wealth in the form of gold as hoarders, and how "Hoarders are the cause of our economic ills, gold is a weapon of terror by terrorists (new Islamic dinar), hoarders should not be allowed to unfairly profit, it rightfully belongs to the 'people', we have a national emergency." The Mogambo is, as the Indians say, "of two hearts" about that. One is, of course, hahahahaha! All these arguments will be tried, or thought about, or studies commissioned to explore, or talked about, or proposed, at one time or another, just like everything else!

My contrary objection to this obvious conclusion is that the rich, along with all the people actually in the government and the court system, are ALSO going to be affected by this. I assume that they have wealth that they want to protect, too, and they have family members to protect, like children and aging parents. And distant relatives. And friends. There are not many reasons to own gold, and most of them are about saving someone's butt from the depreciation of paper money.

But he did ask me to address some practical issues that seem to keep popping up. In what form would I recommend gold? Well, I like the idea of instant acceptance, so you don't have to go through the hassle and expense of having the raw gold assayed. But gold is gold, and that is what makes it gold. So I obviously favor, from strict theoretical and ease-of-use standpoints, pure gold in some form that is instantly accepted, such as Eagles and Maple Leafs and Austrian Philharmonics and Pandas and those kinds of things.

And almost finally, in what form silver? It comes down to, again, purity and acceptance, plus the cost of the space to store the stuff.

But, then again, like I said, anybody listening to the stupid advice from The Mogambo deserves whatever disaster awaits them. I have no respect for people who read my stupid newsletter, and so you can imagine my contempt for someone following my advice.

And, finally, how to sell it? This, my darling one, is one of the Mogambo constants of the universe (MCOTU), which states that if you have gold and silver in hand, you will always be able to find lots and lots of people who will eagerly trade things or money for it.

And for a second opinion, here is the Optimist, who writes "The good news is that government will not confiscate your gold. Government will, of course, impose a 90% windfall profits tax surcharge on gold and gold shares owned by the rich (defined as anyone who can feed his family and own gold too), because governments like to tax everyone, and especially rich people like you. Some of you may need to sell most of your gold or shares to pay the tax, but you can be happier in that process by knowing that the government will not take your gold from you.

"On the other hand, as all two-handed economists are fond of saying, government will confiscate your silver. The difference is that there is an abundance of gold around, and government doesn't really need yours. Government wants only the real wealth that your gold represents, and they have a wonderfully subtle program for efficiently extracting that wealth. That program is the Irresistible Retrieval System (sometimes abbreviated as IRS). silver, in contrast, is a rapidly vanishing essential resource, not only for world wide industry, but more important for U.S. Defense Contractors."

Always looking on the bright side, the Optimist says that they are "sure that our defenders of American freedom will waste no time before they declare a national emergency and immediately craft a new program to Systematically Transfer Every Available (oz. of silver) Legally (always abbreviated as STEAL) from you. What else can Congress do after it is too late to plan ahead?" Hahahaha! Well put!

But, like I said, you get a lot of dollars in return, for better or worse.

But perhaps we are being too alarmist, and we should look on the bright side, as without gold, there actually IS no alternative! That's the whole point! That is why it is always gold that everyone runs to. So why fret about it? .

- But it is not only we Americans who are trying to devalue our money. A look at the growth in foreign money supplies is enough to convince you of that. And what is the upshot of a global system where everybody is devaluing their own currencies? Larry O, quoting from the seminal Mises book "Human Action", says that on page 791 of the third edition, where Mises was discussing the results when nations operate on a floating currency exchange basis, wrote, "A general acceptance of the principles of the flexible standard must therefore result in a race between the nations to outbid one another. At the end of this competition is the complete destruction of all nations' monetary systems".

Ugh.

***The Mogambo Sez: If you were Spiderman, then your Spidey-senses would be tingling from the danger that is everywhere, and that would get to be a real hassle after awhile. Be thankful you are human, grasshopper, and you can buy gold and silver, and you can rest easy at night without your senses tingling and keeping you awake, tossing and turning, and the next day and you have to walk around in a daze, all grouchy and sleepy. And tingling.

Richard Daughty

email: RichardSmithGroup@verizon.net
Daughty Archives
Provided as a courtesy of Agora Publishing and The Daily Reckoning


Richard Daughty is general partner and C.O.O. for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise the better to heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications.

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