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