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Mogambo (Now armed & dangerous)

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
July 28, 2004

Foreigners continue to speak with funny accents and to pile up our debt, as if owning 40% of our debt is not enough, and last week they managed to choke down another $4.8 billion to stash at the Fed. The Fed itself created some more money out of thin air and bought outright another $2.5 billion of US government debt, committing that ugly, blatant fraud again, which takes their 12-month total up another $40 billion, to a grand total of $692 billion.

Russ Winter, in his essay on Kitco.com entitled "Fed's Bluff and Bluster: Where's Sgt. Friday?" has also taken a look at this monetizing of debt, and notes that "Prior to May 5th, and for the previous 52 weeks, the Fed 'bought outright' (monetized treasuries typically) about $577 million a week. But starting May 5th, the orgy began. The 12 week average is $1,395,000,000 per week. The last 8 week average purchases were $1,532,000,000 - 266% more than the pre-May 5th level. And for good measure the Fed has elected to be 'diligent' about fighting inflation by adding $13,345,000,000 in permanent injections into the system over the last two months." This shows what a dry sense of humor Mr. Winter has, because it is NOT "diligent" about fighting inflation when you are creating $13.35 billion in two months. And remember that this is the original High-Powered Money, which is multiplied via the suicidal fractional reserve Ponzi scheme by almost 100. So multiplying $692 billion by 100, the Fed has created, literally out of thin air, roughly $70 trillion, which is a lot of money!

The Treasury has also been busy, and total federal debt hit $7.3 trillion. If any of this means anything to you, you know three things right off the bat.
1) The Mogambo is scared out of his freaking mind and is now, according to official sources, an armed and dangerous lunatic who has barricaded himself inside the Mogambo Bunker, because 2) all this money eventually translates into higher prices and 3) the dollar is headed lower, which means that people are going to start getting angry very soon as they instinctively react negatively against their standards of living going lower and lower, and then one day I will be looking out at you through my periscope and watch how YOU manage to get along with these angry people.

Greenspan, the most despicable man in American financial history, in his testimony in front of the laughable lame-oids of Congress last week, said that he is insistent on inflation remaining less than 2.5%. To show what kind of a liar he is, his own precious CPE is already running at over 3%, and Barron's uses the figures of 3.3% as "rate of inflation, % (annual unadjusted)," and the Economist magazine listed 3.1% as the American rate of inflation. And remember that these are lagging statistics from prices a month ago; the current readings show inflation running north of 4.5% and accelerating.

So everybody, including the Mogambo who we see is standing on his chair and screaming at the top of his voice that we are going to all be killed by inflation, just like all the other dirtbag countries that tried to buy their way to prosperity by printing up money, knows that inflation is waaayyyy more than Greenspan and his little playmates say it is.

Greenspan demonstrated his unbelievable incompetence when he said, "We cannot be certain that this benign environment will persist and that there are not more deep-seated forces emerging as a consequence of prolonged monetary accommodation. Accordingly, in assessing the appropriateness of the stance of policy, the Federal Reserve will pay close attention to incoming data, especially on costs and prices."

For one thing, things are NOT "benign." And even if they were, it will not persist, because there is not one example, and remember that I said "not one example," of rampant "monetary accommodation" in all of history that did not end in inflationary disaster, and to think that one lying, clueless old man has succeeded where every other person, group and country in all of written history failed is to make me laugh, hahahaha!

So the magical 3% inflation rate is now surpassed. And in case you are unfamiliar with the significance of 3% inflation, this is the level of inflation that is supposed to make central bankers jump out of windows, preferring the relative honor of suicide rather than be fired for gross incompetence.

In a related vein, Ron Paul, one of the very few guys in all of government, at any level, that comprehends economics, reminded him that inflation is, in the final analysis, a monetary phenomenon, and Greenspan, surprisingly, was backed into such a corner that he could not disagree. And with that in mind, we turn to Ken Gerbino, who has his own eponymous investment management company, and who has taken a jaundiced look at the money supply, as reported in the M's. He thinks, as I think, that M2 and M3 are not really money, and that the only real money is M1. To that end, he wanted to know just how much money IS there in that M1 statistic? It turns out, as a result of his being on the phone with a Fed official that he does not name, that M1 is actually close to $3.3 trillion, although it is being reported in the official figures as $1.3 trillion. Big difference!

Tom Dyson, handsome and witty bon vivant at the Daily Reckoning website, notes "But what's this? M2 and M3 are collapsing too. Latest figures show that year-over-year M2 growth has dropped to 3.72%, the slowest rate of growth in the money supply since October 1995, also forewarning a slump in real GDP growth."

A clue as to what this means is provided by Doug Noland, who said "An unsound boom - and this one is of historic proportions - is inevitably vulnerable to devastating bust at any point that lending excesses subside. The All Too Clever Greenspan Fed will, at such time, have met its match. The Fed has committed a grave error in mobilizing speculative finance to accomplish its monetary policy objectives."

The government is trying to get more money into the hands of the low-wage worker and the poor. Examples of this are the Earned Income Credit section of the 1040 tax return, where the government actually gives money to the low-income worker. Other examples are, of course, welfare and Medicare and the various housing subsidies, which provide free food, free shelter and free medical care.

The latest wrinkle around these parts is to have everybody not only provide them with free phone service, as we have been doing for years, but to expand the eligibility, so that even MORE people can get cheap phone service, too! The headline in the St. Pete Times was "PSC Votes to Help Poor Pay for Phone Service." PSC, in case you were wondering, is the acronym for Public Service Commission, which is a Florida government commission that regulates various phone and utilities. I'm sure that you have something similar where you live.

Who are these new poor? Well, according to the rules, if your kid participates in the National School Lunch program, where the kid gets free lunches (and often breakfasts, too), then the whole family is automatically qualified to get cheap phone service! Otherwise, you gotta make less than 135% of the of federal poverty guidelines.

Now I would be a real hard-hearted person to deny the poor the chance to phone out for pizza or call up their friends to spread vicious gossip about me and say nasty things about me, which are mostly lies or exaggerations, but the part that really tickles the hell out of me is that the phone companies, and I gotta use an exact quote here so that you can get the full impact of the humor, "vowed to expand the income-based eligibility requirement when concerns were raised about their applications last year for record-high increases in basic phone rates."

So, to paraphrase, the phone companies decided that they wanted to hugely increase their rates because they are a greedy bunch of overpaid jerks who excel in mismanagement and they were all about to be fired. Ergo, the application to the PSC for a gigantic increase in phone rates. But since that would obviously be a hardship on the poor, they "vowed to expand the income-based eligibility requirement" so that they could saddle the customers who are not poor with BOTH higher rates AND an extra charge to insinuate more blatant communism into the phone service industry! Because, and you can quote me on this, every dime of that cost is added to my bill in the form of higher rates, particularly in an add-on called the "Universal Service Fund" that is on the phone bill every damn month.

Now, after I have been calmed down with massive amounts of intravenous medications, I can thus show 1) how the French Revolution could have been prevented and 2) how the communists won the Cold War. All that was needed was a system where everybody who consumed a utility could have more and more taxes piled onto the monthly bills, and then the State could have provided the poor with all these goods and services, just like we are doing. Then, Marie Antoinette would not have famously said "Let them eat cake" when informed that the French peasants were starving for lack of bread. They could have just added a charge to my loaves of bread, and then used the money to buy the poor all the bread they could eat!

Ergo, today's poor are not poor. They are only considered poor because they do not earn money to buy the things that they consume, because they get it all for free. They receive free food, free housing, free medical care, free monthly stipends, and, of course, free phones! And computers are installed at the free libraries, so that the poor can go on-line, for free, and do whatever it is that the poor do when they are on-line, which baffles the hell out of me, since most of them are functionally illiterate, and the ones that are not completely illiterate don't like to read, so they don't. So why in the hell they would want to go on-line is beyond me and my limited intellectual abilities.

The reality is that the poor are actually very rich; they have everything that they need to live, and they have nothing but free time to enjoy it, and of course, whine about how they want more and more, and how the government ought to wrest money from everybody and give it to them, which is, of course, the entire philosophy of the entire loathsome Democrat Party. Gary M. Galles is a professor of economics at Pepperdine University, and who wrote an essay on the Mises.org site entitled "A Screed on Need and Greed" that I think underscores this point. He writes, "As Joseph Sobran put it, " 'Need' now means wanting someone else's money. 'Greed' means wanting to keep your own. And 'Compassion' is when a politician arranges the transfer." He follows that up with a warning from Thomas Paine, "Beware the greedy hand of government, thrusting itself into every corner and crevice."

In a related vein, four members of the Florida Public Service Commission "face ethics inquiry," as a result of a complaint by a retired school administrators named Lloyd Brumfield. Now, I don't bring this up because another bunch of conceited, grubby government officials were apparently having a lot of fun and feeling quite popular, unlike me, and who got invited to parties, again unlike me, and went on all-expense paid trips to exotic locales, unlike me, by playing footsie with guys they are supposed to be regulating.

No, I bring this up because Mr. Brumfield said something that illustrates an Iron Law of Economics, namely that at the end of booms, and especially at the end of long booms, the whole system is corrupt. The money was so easy, so plentiful, that sooner or later everybody stuck their hand into the cookie jar, and then once they were in that far, it became easier and easier to stick their whole arm in. Mr. Brumfield said, referring to the microcosm that is Florida, "As far as I am concerned, the state of Florida government is corrupt from top to bottom." As indeed it must be, and if you are doubtful of it, I refer you back to that Iron Law Of Economics about how corruption flourishes during booms.

Marc Faber, the international intellectual heavyweight, is hip to this stuff, too, and writes "All maturing societies have experienced decaying moral and deteriorating public financial conditions." This is caused by the ready availability of the money that made it all possible, as governments always take the easy way out and try and print money to buy prosperity, which causes prices to rise, which causes unrest, which causes government to print more money, which causes prices to rise, which causes more unrest, which causes.... Anyway, he goes on to say "The rate of currency debauchment has always accelerated as societies aged."

And to show you what a class act I am, I am now going to 1) extrapolate from Florida to the federal government, supra-national governments (the hated United Nations), local governments, country governments, and state governments, and every other body of elected or appointed numbskulls who have the wherewithal to levy taxes or extort money, and 2) write this whole thing down so that you can cut it out and carry it with you in your wallet. Just fill in the blank of this sentence...

"As far as I am concerned, the ___________________ government is corrupt from top to bottom,"

...and you will be right, as you must be, because, and again I refer you back to that Iron Law of Economics, at the end of booms, especially long booms, corruption is every freaking where.

As proof that the education establishment of the United States is comprised of morons, let me present, as evidence, the Pinellas Country School Board announcement of their spiffy new proposed tax increase of 6.96%, which I will round out to 7%. I suppose that they are being pressured to provide counter-cyclical deficit spending, because they say that higher taxes are "Required under state law in order for the school board to receive $254,931,595 in state education grants." It can't be that they are getting less money from property taxes, which are rising as the assessed values of houses rise and rise, as their own accounting shows that this item actually went up by $813 thousand. This is, as a gratuitously rude aside, thanks to the idiotic housing boom engendered by the horrid Federal Reserve and their equally horrid GSE's, Fannie Mae and Freddie Mac et al. So let me get this straight: the state is collecting more tax from me, the taxpayer, but they will not give it to the local school boards until they ALSO take more money away from me? They both have more money to spend, and I end up with less money to spend? And thus society is enriched? And this is part of what stupid economic theory that I never heard of?

I grab you by the lapels and drag you closer to my face so that I can scream into your face "This is ridiculous! This is beyond lunacy!" This unfathomable economic stupidity is certainly NOT what I expect from a school board, who are actually supposed to be in the education business! What kind of school system do you have when greedy, low-IQ morons are in charge? I'll TELL you what kind! The kind where the kids who graduate grow up to be as clueless as this current crop of bankrupting weenies, and they run for office on the school board, and then one day somebody else's kid is writing an insulting essay about the jackasses on the school board.

Oil is powering up and up as the dollar is powering down and down, which shows that All Is Right With The World And God Is In His Heaven, because that is exactly what you would expect. Today it hit $42 a barrel again, on its way to $50 by year end, according to guys who say they know what they are talking about, and perhaps we should listen to them, as I obviously have no idea what I am talking about.

The part that one would NOT expect is that
gold is not, also, powering upward. This apparently anomaly is perhaps explained by the central banks manipulating the market to suit themselves and cover their nasty butts, as they have, over the years, leased all that gold to make a few bucks for themselves. And the guys who leased it sold it, figuring that they could replace the borrowed gold later. So there is a gigantic short position in gold. And you know what happens when there is a big short position in something: the shorts get squeezed if the price goes higher. So to keep the guys who borrowed all this gold from folding their tents and skipping the country, sticking the central banks with the bill, the central banks have a vested interest in manipulating the market to keep the price low. Given the general trustworthiness of government, it sounds right to me!

But there are those who think that this paradox cannot last. The Mogambo is one, and Nigel Maund, who writes on the CliveMaund.com website, is another. He writes, "Faced with overvalued stocks, bonds and real estate, and a collapsing US dollar, rising oil prices (towards US$ 50 - 55 by end 2004), accelerating inflation, and, finally (as the Fed's hand is forced), accelerating interest rates, the World's No 1 economy, the USA, looks to be headed for the 'Economic Train Wreck of All Time'. This will bring the Global Economy, including China, to its knees. Under this scenario, investment demand for all the precious metals could quite simply take off to levels hitherto thought improbable."

Greenspan said that, and I am quoting a headline from the Washington Post, "Workers' Lack of Skills Lowers Wages." What a clueless putz!

First, off, very few nominal wages, of anybody, have been lowered. In fact, wages are "sticky downward," meaning that they don't have a tendency to fall. If you are in Washington DC and you happen to run into this Greenspan idiot, please tell him that the damn monetary inflation that he is persistently causing is making the prices of everything go up, and THAT has the same effect as a wage cut; the amount of money that you make is insufficient to buy the things you need. Skills and education have absolutely nothing to do with it.

I am here to tell you that there are plenty of people in this country who were not born with stratospheric IQ's, me for one, and that we are not going to benefit from more education. And even if they do somehow manage to acquire this vaunted education, the ugly fact remains that there are lots and lots of mundane, non-thinking jobs that have to be done, and most of them require only the ability to read and follow directions, and many of them require no education at all. And in fact, there are very few jobs in the United States that require any real education at all other than the ability to read at a fourth-grade level, as employees are merely handed a set of instructions ("company policy" and "job description"), and it is your job to perform them by rote.

The problem facing American workers and their wages is that the damn Federal Reserve has created so much money and credit that it has destroyed the value of the dollar, so that it takes more and more of these devalued dollars to buy food and rent, and wages are not rising as fast as prices. It's as simple as that. And it has nothing at all to do with education, except for the woeful lack of education and smarts evidenced by the Fed, the press who lets them get away with it because the term "journalist" is now just a euphemism for "parroting idiot," and the brain-dead education establishment that indoctrinates American children to trust the government and the press. To save myself from getting hoarse in another of my patented screaming hissy-fits, I will merely point to the handy chart that reveals that the minimum wage was last increased seven short years ago, and prices have risen 17% in that time. (To save you the time and trouble, this works out to be only 2.3% per year, compounded). And inflation was very low during this time, as foreign producers kept flooding us with low-cost consumables. Those days are over, and inflation is now double that, and heading higher still. So even if the jerks that infest government offices actually do pass legislation mandating a higher minimum wage, the poor and the low-wage worker will be right back in the same fix in only another three years. Or less. And it will worse.

Remember the buzz about how the Islamic countries are going to issue the
Gold Dinar? Well, according to Tim Wood, the "fiasco continues," and the whole thing has quietly collapsed. Personally, I had my hopes that they would actually do it. But, as usual, the only guys who would benefit by such a thing are the people themselves, who are sick and tired of continually getting poorer and poorer, thanks to having prices continually rise, thanks to a fiat currency. But no government wants to be hamstrung by adherence to some strict regime that restricts their acting like morons, and the Islamic governments have now proved that they are no different fromm the other corrupt government of the West. Thus, the Gold Dinar died, and went the way of all good ideas that conflict with government jackasses acting like, well, jackasses.

Marc Faber reports "The Bank of International Settlements (BIS) calculates the value of global derivatives (as of 3/31/04) at $392 trillion. This is a 31% increase y/y, the biggest gain since the 55% surge in Q1 of 2001, or just before recession in the US began." This figure is ten times more, 1000% more, than the total value of all the goods and services produced in the world. And the money for this colossal pile of toxic debt was graciously provided by, you guessed it, central banks.

Democracies end in hyperinflation or bankruptcy, and this is because citizens learn to vote themselves benefits from the public treasury. Or, as Fredrick Bastiat famously said, "Everyone trying to live at the expense of everyone else."

In reality, they are voting for clueless knotheads, like John Kerry, who thinks that offering businesses tax credits for providing health insurance to their employees is not what it is: stark communism. In effect, the government is taxing you, requiring businesses to provide you with health insurance, then offering the money to employers to pay them back! This is insane!

But, of course, even this idiocy pales in comparison to the unbelievable excesses of the horrid Bush administration, which is now firmly ensconced as Number One on the All-Time Hit Parade Of Fiscal And Monetary Excesses.


*** The Mogambo Sez: Bill Clinton recently stated that he considered FDR to be the greatest president of the last century. He was not. FDR was the worst president we ever had, as he started us down that long, lonely path to our current socialist and communist proclivities, which are destined to bankrupt the United States.

Jul 27, 2004
Richard Daughty
For 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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