We are truly "The Idiot's
...the angriest guy in economics
August 4, 2004
If you have just gotten here from Mars, then you may not be aware
that inflation is the one thing I fear more than, umm, my wife
finding out about you-know-what, and if you knew what was best
for you, you would be very afraid of inflation, too.
And it is with that in mind, and remember that I am talking about
inflation and not you-know-what, that I blurt out that there
is not one indicator of inflation that is under 3%! And the latest
whack to the head is the newest Gross Domestic Product Deflator,
which just went to 3.2%. Last year at this time it was 1.1%.
So inflation has tripled in one year! Tripled! Inflation is waaayyyy
above 3% if the government's own lying Pollyanna press releases
admit to 3%!
Oil has now powered up to over $44 a barrel on its way to heights
that seem impossible. This is because the demand for oil is rising,
and to those familiar with the classic curves where supply and
demand cross, this means that prices rise, because there is more
demand than supply (I love it when reality proves theory!). But
the price of oil is also rising because the dollar is falling
in purchasing power, which is the direct result of the Bush administration
and Congress colluding to effectuate a mind-blowing spending
spree of such colossal size and scope that the history books
of the future will point to us and curse our names, because we
are the brain-dead people who elected these raving bozos to office.
And on top of that inexcusable calumny, we tolerated a lazy,
incompetent and corrupt education system, so that nobody could
learn how stupid we were, and a lazy, incompetent and corrupt
free press, to keep anyone from telling us how stupid this was.
We are truly "The Idiot's Delight Generation."
And speaking of oil, Peter Schiff of Euro Pacific Capital has
looked at the future of oil prices, and has some very bad news
in that regard. "Chinese oil demand today is only a small
fraction of what it is likely to become after the Yuan is floated.
Once that occurs, the value of the Yuan will rise to reflect
the true productive output of the Chinese. As oil prices collapse
in Yuan terms, hundreds of millions of Chinese will then be able
to afford oil that was previously too expensive. The result will
be a surge in oil demand emanating from China. However, additional
world productions will not be able to accommodate this new demand.
Instead, Chinese demand will be satisfied though reduced American
demand, because while the price of oil will collapse in Yuan
terms, it will increase substantially in dollar terms."
The Bush Administration and this Congress epitomize the most
profligate bunch of economic illiterates that ever disgraced
themselves, by admitting that they do not listen to the advice
of the Mogambo, mostly because they never heard of me, and there
are several confidential FBI reports on your desk right now that
are probably less than complimentary and containing several grainy
photographs of grinning idiots getting thrown out of a strip
club. And instead of heeding my wise counsel, they perversely
decide to do the exact opposite, and they mindlessly continue
to borrow and print money at insane levels! And then the next
thing I know I am out of my mind with outrage, and I am driving
past their houses late at night, honking my horn and calling
them rude names and putting curses on them and their little bastard
children, and then the next day the policemen are banging down
the door again, and want me to put down the machine gun, come
out with my hands up and go downtown with them to answer a few
To illustrate the point, what do crazy, economically-illiterate
people do with money? Answer: they do something crazy
with it. If you will dim the lights, I will now present a little
slide show. This first slide is a graph of national debt, and
notice how total national debt continues to climb at its eerie
linear rate, namely $52 billion per month! Look at that number
again. That's right; look at it! Look at the number $52 billion!
A month! Make sure that number is burned into your brain, because
years from now your grandchildren are going to be
sitting in the dirt playing with rat bones and dried doggie doo,
which are the only kind of toys you can afford to give them,
and they will be asking you, "How much money were you guys
spending, anyway, that has caused us to suffer such misery?"
To put it in perspective, it's $372 more debt, PER MONTH, for
everybody who has a job in this whole country, INCLUDING government
workers! And next month it is going to be ANOTHER $372, bub!
And then another and another and another! Month after month,
year after year, the government is putting you farther and farther
into debt. And this does not even include the debt that you voluntarily
take on, so that you can have those matching Jet Skis.
The last thing I remember, I was mulling this over in my brain,
and the next thing I knew I was at the supermarket, and I was
explaining how it's like we are all in a gigantic, global supermarket.
And the bag boy is putting our groceries in bags, but he is putting
the bread in the bottom of the bag, and then he puts all the
heavy canned goods on top of the bread! And if you dare even
mention it, much less complain about it, then the manager comes
out and gets all huffy wants to know what the hell is going on
and who is making all that damned racket, and I say "It's
me! The Mogambo! We citizens are like the bread that goes on
the bottom, and we are having $52 billion-dollar cans put on
us! We're not taking it anymore, and I am not taking it anymore,
either!" and then I started hurling cans of creamed corn
at the "Customer Service" sign. Apparently, he did
not grasp the significance of what I was trying to say nor the
deeply poetic way in which I was saying it, but I'll explain
it to him at the preliminary hearing and maybe I can get him
to drop the charges, which would be real nice.
In the last, short 25 months we bozo Americans have accumulated,
in spooky straight-line fashion, another $1.3 trillion in new
federal debt. Even if all of this money was loaned out at a lousy
2%, then the interest expense alone, which is one of those federal
budget line items, is rising by $26 billion a year! At 3%, it's
another $39 billion! At 4%, $52 billion! At 6%, which is closer
to where short-term rates should be historically given the current
inflation rate, we will now be paying $78 billion a year more
in interest costs on that new debt! That's $557 for everybody
who has a job in America!
And where does this money go? Who is going to end up with that
$26 billion a year? To the guys who had money to start with,
and who loaned it to the government! And who are these guys?
Well, it ain't the poor, who don't have any money to lend, and
it ain't the Mogambo, who was trying to borrow money from the
poor, and we all know how well that worked out. So, once again,
the rich got richer and the poor got poorer.
And how did the poor get poorer? Well, the Bush people just put
a nice big tariff on imported shrimp, and now the price of shrimp
is going to go up. So the poor are going to pay for this by suffering
a decline in their standard of living, which translates into
their not being able to afford to eat shrimp anymore. And everybody
else will pay the old fashioned way, which is digging deeper
into the wallet to pay higher prices for the more expensive shrimp
cocktail. And then there will be the added costs of shrimp smuggling,
and a huge government law enforcement bureaucracy to combat the
scourge of shrimp smuggling, and the building of new prisons
to house all these convicted shrimp smugglers, and the halfway
houses needed to ease the smugglers back into useful employment
once they have paid their debt to society.
Now, there are many of you guys who are so mathematically gifted
that your computer-like brains instantly recognize that if you
multiplied $52 billion per month times twelve months, then you
get $624 billion per year. This number probably has many unique
qualities about it, but the one that strikes me is that it is
a hell of a lot bigger than any estimate of government deficit-spending
that I have ever heard from anybody connected with the government,
who are forever prattling on about how the deficit is down to
$445 billion or some such low-ball number.
I finally got the book "A
Term at the Fed" by Laurence H. Mayer, and I gotta tell
you that it is slow going, as I have never read anything more
outrageous in my life, and several times per page I have to stop
and scream out loud, venting my frustration and anger that people
as economically clueless as these morons are actually making
monetary decisions that affect us. Every page is crawling with
their idiocies, such as, for instance, how Janet Yellen, a Governor
at the Fed, is so stupid that she argues that "There are
also significant costs to very low inflation. If there is zero
inflation, for instance, then monetary policymakers cannot lower
the 'real' interest rate below zero." This is a "significant
cost?" Nobody is suffering the privations of inflation,
and yet this is somehow a "significant cost" because
the horrid Federal Reserve cannot play its little games with
money so as to insure that people WILL suffer the miseries of
How about this one? "Furthermore, she said, a little inflation
'greases the wheels' of the labor market. Relative wages across
different industries and occupations must be free to change,
thereby signaling workers to migrate from one industry to another.
If there was no inflation, some wages would rise, but other would
have to fall."
This just shows what a complete jackass Janet Yellen is, as she
thinks that inflation in workers' wages will offset the destruction
to the whole society caused by inflation. What a complete moron!
And this pinhead is sitting on the Board of the Federal Reserve
right now! What a book! You can bet your sweet butt that I am
going to be commenting on this book many times in the coming
ContraryInvestor.com is one of the places you can go to correctly
see the horrific downside of leverage, especially the leverage
found in fractional banking. In their essay entitled "Different
Bubble, Different Outcome?" they ask "Alternatively,
a severe downturn in real estate values that triggered real mortgage
loan defaults would, in part, act to set into reverse the US
banking system fractional reserve multiplier mechanism."
And since the fractional reserve multiplier is about 100 at this
point ($45 billion total reserves versus $4,478 billion in deposits),
then one dollar of losses translates into $100 of lost loaning
He sums it up by saying that interest rates will purposely lag
inflation in prices for a long, long time. "Greenspan and
the Fed can do all of the tough talking they'd like about standing
ready to raise interest rates if inflationary pressures even
sneeze. But the reality is that they will not be able to tolerate
a pop in the mortgage finance bubble."
And I am happy to announce that I am not the only one that disdains
today's students and the misbegotten educational system that
spawned them. Bill Bonner, one of the few guys at the Daily Reckoning
site who does not send me hate mail, and in fact one of the few
guys in the whole world who doesn't overtly hate my guts, writes
"The average American college student - as near as we can
tell - is about as well educated as a person with an 8th grade
education 100 years ago. Some explain this as a kind of inflation
of the education system. A dollar is worth about 5% of what it
was worth 100 years ago, so is a college degree." Hahaha!
And while Mr. Bonner may be too polite to say it, the advantage
of being naturally rude is that I will come out and tell you
right to your face that the new version of the SAT has been dumbed-down
again, so the typical college student of the future will be even
dumber that he, or she, is now. Recent high-school graduates
who took the new SAT test, which is supposed to show how much
they have learned during twelve long years of formal schooling,
scored higher on the new test! But those taking the old test
continue to get more and more stupid and/or ignorant. So while
the students got dumber, their scores went higher, which makes
everybody feel better.
The Mises site posted an essay entitled" The
Cultural and Spiritual Legacy of Fiat Inflation" by
J.G. Hülsmann." He writes "As Austrian economists
have argued in some detail, fiat inflation is an inherently unstable
way of producing money because it turns moral hazard and irresponsibility
into an institution. The result is frequently recurring economic
Beyond that, he says that with a fiat money, the government can
print up as much money as it wants, which "allows the government
to tap the property of its people without having obtained their
consent, and in fact against their consent." He then gives
us the very bad news that derives directly from this, and without
mincing his words, says "A man in his thirties who plans
to retire thirty years from today (2004) must calculate with
a depreciation factor in the order of 3. That is, he needs to
save three dollars today to have the purchasing power of one
of these present-day dollars when he retires. And the estimated
depreciation factor of 3 is rather on the low side!" And
to throw my two cents in, I say that this is not even counting
the taxes that are due, nor any of the myriad little fees that
we are constantly being charged on those saved three dollars!
So if you really wanted to add it all up, thanks to inflation,
you need to save four or even five dollars today to have one
dollar's purchasing power in the future! Bummer! I'll bet that
perky little optimistic financial planner never explained THAT
to you! And I'll make the same bet that it doesn't show up in
the little graphic presentation of your Personalized Financial
Plan how bread will be five dollars a loaf, a cheap car will
cost $100,000, and a copy of Armed and Dangerous (the award-winning
magazine that is the favorite of the average paranoid lunatic)
will cost $200 an issue!
Mr. Hülsmann closes his eyes and reveals one of those Laws
Of The Economic Universe that I was going to wax philosophical
about, and maybe get a little glory, but now he has beaten me
to it. The use of fiat money is a bad thing in general, and that
"Fiat inflation is a powerhouse of social, economic, cultural,
and spiritual destruction."
As a case in point, I was listening to NPR, here comes a clueless
dimwit from ACORN telling the world that increasing the minimum
wage will put money into people's pockets, which will spur investment,
and thus grow the economy! So increasing minimum wage is a good
thing, he says! He was admittedly young, in his early twenties
or something, but somebody ought to tell him that there comes
a time in everyone's life when callow ignorance is no longer
a valid excuse to say stupid things, especially very stupid things.
The fact is that when businesses pay workers more, the firms
must charge more. So every dime that is put into the pockets
of the workers will be taken right back out again when the workers
go to the store. And the fact that workers have more money, makes
them bid up the prices of things. Prices thus go up, and businesses
get back all of that extra money they pay out in wages, and more.
And the total effect on society is one of, in the aggregate,
increasing misery for society as a whole, all caused by the aggregate
falling standard of living caused by higher prices.
You can look it up if you don't believe me, but the number of
workers in the whole damn country who will benefit in the short
run from a higher minimum wage is peanuts compared to the total
number of people whose incomes will NOT go up, but all of whom
will have to pay the higher prices nonetheless, and all of whom
will be angry and irritated at their lower standard of living.
It is a Ripple in The Force.
In the end, the banks and the capitalists are richer, the government
is bigger and more expensive, the workers are right back to where
they are, and the rest of America, the majority of America, which
includes the young, the old, the sick, the handicapped, the retired,
and the Mogambo, whose problem is mostly one of laziness and
complete lack of ambition, all will be worse off.
If the minimum wage worker had any intelligence or education,
he would take more care in who he elected to public office, and
thus maybe a reconstituted Congress would show a little education
and rein in the horrid Federal Reserve to prevent the monetary
inflation in the first damn place, which would prevent the price
inflation, which would prevent having a paycheck that gradually
buys less and less, and thus a tiny subgroup of Americans end
up needing a government-mandated raise in pay, to the complete
detriment of everyone else.
The fact that this is a lesson that is immediately obvious to
the average fourth-grade child, but is beyond the ken of this
mouth-breathing dork from ACORN, is testament to the egregiously
bad job of the American education establishment and the American
press, both of which are the worst in the western world, and
about whom I never tired of heaping scorn. Both are infested
with Democrats, who actually glory in celebrating ignorance and
Barb at 321gold keeps an eye on the national debt and the daily
goings on at the Fed's desk, where they announce their injections
and reserve additions and repurchase agreements and securities
lending and all of that monetary stuff when they meddle in the
economy. Last Thursday she added the comment "National Debt
Stupidity Jackpot!" which is taking words right out of my
On Prudent Bear, they had the blurb "I.R.S. Says Americans'
Income Shrank for 2 Consecutive Years (NY Times)," followed
by "Rise in Home Values Boosts Tax Receipts (L.A. Times)"
Your income shrank, but your tax bill goes up! How long do you
think you can keep THAT up?
Steve Sjuggerud is not shy about what he sees, and he asks the
seemingly rhetorical question, "REPEAT OF CRASH OF '87 COMING?"
But he is not being rhetorical at all, and goes on to say, "We've
just recently entered 'Super Red Light' mode on my 1-2-3 Model...something
that basically never happens. Over the last 30 years, we've only
entered Super Red Light mode three times...just before the Crash
of '87, in mid- 1994, and late 1999."He says that when we
get into his Super Red Light mode, "watch out!"
He patiently explained to me, over and over, until I think I
am finally beginning to understand, that in his 1-2-3 model there
are three things to watch: "1) Is the market expensive?
2) Is the Fed in the way? 3) Is the market acting badly?"
Interpreting the model is simplicity itself. "If we're 'in
the clear' on all three of these, it's green light mode. If one
of the three is against us, it's yellow light mode. And if two
or more are against us, then it's red light mode. It's extremely
rare when all three are against you (occurring less than 2% of
the time)." Like right now. Oops!
Mark Weisbrot, Business Week, wrote a nice essay entitled "The
Unbearable Costs of Empire." He writes "The U.S.
is entering this new age of empire with a gross federal debt
that is the highest in more than 50 years as a percentage of
gross domestic product. For fiscal 2005, which begins in October,
the U.S. gross federal debt is projected to be $8.1 trillion,
or 67.5% of GDP." Remember that gross federal debt, looking
at my watch and saying "right now," is currently $7.3
trillion, and it is growing at an almost-constant $52 billion
per month, so that between now and October 2005 that estimate
looks just about right.
"The post-9/11 age of American empire will close not with
a bang but a whimper, suffocated by the laws of arithmetic, the
constraints of public financing, and the limits of foreign borrowing.
What remains to be determined is how much the U.S. will pay --
in lost and ruined lives, as well as bills for future generations
-- and how many enemies it will make throughout the world, before
coming to grips with reality."
How many enemies? An interesting question! Well, after I counted
the girl behind the counter at the donut shop, all the people
at the grocery store, all the neighbors and relatives, and miscellaneous
government people, I got tired of counting. Fortunately, here
comes Gary North, who puts out the newsletter "Reality Check."
He couldn't help but overhear our little conversation, and notes
that our invading Iraq and Afghanistan has "turned the entire
Muslim world against us," according to a Zogby poll of the
region. Well, since we have old Mr. Zogby on the phone there,
ask him about how much we Americans favor Muslim terrorists?
Say, "Hey, Mister Zogby dude! How many American people love
Muslim terrorists? Huh? How many?" I'll bet not many! I'll
bet that the headline would read "News flash! Killing Americans,
and trying to kill more Americans, and promising to keep trying
to killing Americans until we are all dead to the last man, woman
and child, and even murdering people who have mere business relationships
with Americans, have turned Americans against us!"
Personally, and I am happy to be in the majority on this one.
I, too, for a change, am generally against terrorists, and I
make it a point, call it one of the Bullet Points Of The Philosophy
Of The Mogambo (BPOTPOTM), to be naturally suspicious and fearful
of people who are trying to kill me. Over the years, I have enlarged
this BPOTPOTM category to also include people who are trying
to steal my stuff, people who live next door, people who were
rude to me in the hardware store, and people who cut me off in
traffic just because of some legal technicality concerning their
precious "right of way," yammer yammer yammer.
It was one of those moments where you had to have been there.
Slowly, methodically, point by point, I proved that the Mogambo
is NOT bound by traffic laws that pertain to mere pathetic mortals
like yourselves, in much the same way as President Bush is personally
empowered to invade other countries, kidnap their leaders, kill
citizens who disagree, and force an entirely new political regime
(democracy) down their throats in such as way to remind me of
the beginnings of the French Revolution, as the surrounding kings
and monarchs of Europe all watched in horror as their fellow
royals were beheaded in the streets of Paris.
And if Iran, or Syria, or Yasser Arafat's PLO, invaded Great
Britain, snatched the queen and Tony Blair, took them to Abu
Ghraib prison in Iraq, disbanded the government, and now England
is occupied by armed Iraqi troops enforcing a strict religious
dictatorship, who would WE root for?
Gary North, besides being an intellectual powerhouse and probably
a great dancer, you never can tell about these guys, is also
quite the humorist. He says "The war on terrorism is being
brought to us by the same high-efficiency organization that has
waged the war on drugs for five decades. We should expect similar
If you are one of those who belongs in the technical analysis
crowd, watching charts and graphs and lines intersecting and
stuff, I suspect that life will be increasingly weird
for you. This is because I cannot imagine that something so big
and so inevitable would happen without the insiders knowing all
about it, and taking action to get their money someplace safe,
which will produce technical indicators that are skewed.
The Democratic National Convention is finally all over. If you
watched it, you will have no doubt noticed that the Mogambo was
not invited to give an address. I never even appeared on the
podium one lousy time! That just goes to show you the ingratitude
of the Democrats, who are apparently unappreciative that I was
making the supreme sacrifice of graciously donating my time,
my Precious Mogambo Time (PMT) to come up to Boston and explain
to them how almost everything they said, thought, or did was
wrong. They are, in a nutshell, wrong about almost everything
in general and wrong about economics in particular.
I even offered, if their schedules were tight, to take the shortcut
and individually slap the hell out of every last one of them
until I knocked some sense into their thick little Leftist brains
(TLLB). But you have to be careful when you use this technique,
so I am warning you that I Am A Professional, so don't you kids
be trying this at home! The reason is that their brains are typically
so small to start with that if you inflict any damage at all
on them, it makes them sound silly.
And of course that brings up Al Sharpton, who is a real funny
guy, and who really cracked me up when he got on the podium at
the Democratic Convention and said, in that hypnotic sing-song
act of his, that it was the Democrats who provided blacks with
their civil rights! It was the Democrats who provided blacks
with all the opportunities of equal rights! It was the Democrats
who provided blacks with the power to organize and extract benefits!
And then he turns right around, in the very next sentence, and
says that he wants Bush to know that the black vote is "not
for sale!" Hahahaha! What a card!
Things are actually a lot better than they should be. We are
talking about gigantic bets, involving humongous amounts of debt,
the sheer size of which is literally beyond comprehension, that
span international borders and time zones around the globe, all
linked to a currency that is being inflated at frightening rates
by a country that has a massive trade deficit and budget deficit,
and is held together by artificially low interest rates that
are rising in response to inflation in prices. I'm surprised
it holds together at all! And I am sure, very sure, that very
soon it won't.
*** The Mogambo Sez: The surprising fact is that gold is not gaining in price around the world as
inflation heats up around the world. This is such a good deal
that I am surprised that so few are taking advantage of it, and
that is why gold is not rising more than it is. I am
sure that there are many reasons for this.
But for Americans, not buying gold shows
a lack of education. But Americans buying stocks and bonds instead,
in an environment of massive deficits, a falling dollar and rising
interest rates, shows a suicidal stupidity.
Aug 3, 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.