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Putting lipstick on a pig makes the pig look better...
but nobody thinks it makes the farmer look smarter

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
August 11, 2004

The foreigners, out of nowhere, suddenly gobbled up another $8.5 billion dollars in debt last week, and they stashed at the Fed. $8.5 billion! Of course, this took them to a new world record.

The Federal Reserve itself increased Total Fed Credit by, and hold onto your hats, $5.4 billion, and I can tell by the way you are groaning under your breath that you are suddenly reminded of the hours and hours of hearing me drone on and on, over and over, my monotonous monotone buzzing in your ears, about this monster called Total Fed credit, and how it is so bad, and how it leads inexorably to ruination and economic destruction, and how if you had any sense at all you would run screaming into the woods. And of course this leads me directly to a discussion about "Mogambo's Monetary Madness (MMM)," which is often abbreviated to 3M. This handy expression is why I am so paranoid and angry that we are increasing money and credit out of thin air with such irresponsible profligacy. If Winston Churchill himself stood on this stage and "Never before in history have so many owed so much to so few, and have so little to show for it..." And by that we mean (and yes, I realize I am putting words in Winston Churchill's mouth, but I am only doing it because my conceited arrogance knows no bounds, and I am pretty sure that he is dead and therefore can't do anything about it) that what we have to show for our efforts is a big, suffocating debt, and that we owe this humongous glob of money, this awesomely immense fetid and toxic belching mass of debt, on a large pile of rusting, rotting, decaying, molding, melting, wearing-out stuff, all of which will ultimately (by which I mean any day now, by which I also mean probably this afternoon, if your luck is running about as good as mine) break and immediately fall to zero value.

Peter Hargreaves at the Money Telegraph wrote an article entitled "Prolonged Growth is Blotting out Some Harsh Realities." He writes "One day we shall know whether Alan Greenspan was history's greatest central banker, or whether the last dozen years have represented the greatest mismanagement of the world economy since the roaring '20s."

For those of you who are impatient, for those who are so ignorant of even the basic principles of economics, and for those of you who are too old to wait for the answer to the riddle because there is a good chance you will be dead pretty soon, I will tell you the answer. It is, without any doubt, the mismanagement thing. In fact, the continual rise in prices and the constant vainglorious attempts to invigorate the economy by punishing people who try and save a few bucks are proof -- PROOF! -- that he, and the Federal Reserve System as a whole, are complete failures. If he was NOT a failure, we would not have price inflation, and it is this constant price inflation which is the measurement of the fall in the standard of living of the citizens!

In other words, we are getting poorer and poorer as a nation, thanks to the Federal Reserve, and any chump that thinks that getting poorer as a nation is a hallmark of success of a central bank requires that you be stupid or a Democrat, which is, of course, a redundancy.

The NY Times says that official Internal Revenue Service sources reveal "The total adjusted gross income on tax returns fell 5.1 percent, to just over $6 trillion in 2002, the most recent year for which data is available, from $6.35 trillion in 2000." Now, remember that this is "adjusted gross income," and when we are talking about AGI, we are already on the back of the 1040 form! To get to this magical halfway point through the tax form we have, so far, already deducted payments to retirement plans, health insurance premiums, educator expenses(!), student loan interest, tuition and fees, half of self-employment taxes, moving expenses and some other ones that I don't want to think about, including the "alimony paid" deduction because if my wife finds out about it, I can hear her now, "I can get money out of you by divorcing you, you sorry piece of worthless crap? Get me a lawyer! Quick!" and while I have never actually paid alimony to anybody, the guys I have met who HAVE paid it are always real negative about it, so I figure from their response that paying alimony can't be a good thing, and that is why I am not bringing it up.

The point is that there are a lot of reasons why adjusted gross income would fall, as, for example, everybody who has ever lived within a rifle-shot distance of me has ended up moving, and so maybe we are turning, for example, into a nation of nomads, the expenses for which are all deductible. The piece goes on to say, "Because of population growth, average incomes declined even more, by 5.7 percent." Again, this may be because illegal aliens are flooding across the border or beaming down from another planet, swelling the population for all I know. So I can explain away all of them. All except one. Here is the clincher. "Adjusted for inflation, the income of all Americans fell 9.2 percent from 2000 to 2002."

9.2%! Wow! And you were wondering if Greenspan was a failure or not? Hahahaha! The people, all of them, on average, made 9.2% less money! And you are actually wondering if Alan Greenspan is a failure? Hahahahaha! But then the GDP report came out, and we find out that consumers spent less! Let me see if I have this straight: For years the average income of Americans has been dropping, their rate of saving (Keynesian "propensity to save" which is "bad") has been going down, their use of debt to finance additional spending (Keynesian "propensity to spend" which is "good") above the ability to spend out of current income ("your VISA is maxed out, dude"), and now, after all this time, Americans pick this precise time to stop spending?

Actually, no. This is, alas, the opinion of one of the morons who infest CNBC, who decided that the recent slowdown in buying shows that, and I quote, "Consumers are spending less." Wrong-o, jerkface! What is shows it that consumers are still spending every dime, but because things cost more, and the fact that they are not making more money, they are only capable of buying less! Spending more, but buying less is NOT "an economy that is poised for growth!" as the Fed puts it!

But then again, this is the kind of dimwitted, perma-bull analysis for which CNBC is already famous. Or infamous, depending on your perspective.

Drudge, a guy so famous that he gets by on one name, sort of like Cher and Mogambo, reports that President Bush, in the few waning months of his Presidency, has suddenly gotten the idea to replace the vast IRS bureaucracy with something simple, more streamlined, and more ( I assume) lucrative, as part of the Bush re-election platform or something. Something along the lines of, so he says the report mentions, a VAT tax, or flat-tax proposal of some kind. "Hahahaha!" That rude laugh is coming from a passerby, who is hooting because my eyes are bugging comically out in disbelief, and my mouth is hanging open in utter amazement and there seems to be some drool on my chin, and to top it off I seem to be exhibiting some waxy catatonia, all because I am stunned to immobility that somebody who is in power right now is telling me such a big, fat lie that I can't believe my ears, and I am in suspended animation, seemingly mid-step, waiting and waiting and waiting from somebody to tell me the punch line.

Quickly recovering my poise, I wipe my chin on my sleeve, and call out "Hold your hand up in the air if you think that will happen." The place gets eerily quiet, and no hands are raised. Finally, somebody coughs quietly. Some of the audience, mostly the ones who are repeating my course for the umpteenth time in a row because they are the most stupid of the stupid, the ones I call the "M's" because they are mutants, pure and simple, are slinking down in their seats and saying rosaries under their breath...

My voice drops to a chillier tone, and with a vague undercurrent of latent hostility I say "Is there anybody here who thinks for one damn second that millions of accountants and tax lawyers and tax lobbyists and tax preparation businesses will soon be unemployed?" The sound of my words echoed off into infinity, and every eye in the place was on me. Glaring at them, I snarl "Does anyone actually think, for even a tiny, fleeting moment of insanity caused by some kind of interstellar neutrino banging into just the right neuron in your brain at just the right time to cause some momentary brain dysfunction, that those legions of people, all those lunchbox-toting people involved in the printing and distribution of tax forms, not to mention the tables and schedules and sub-schedules and attachments, and all the instructional booklets for it all, some gigantic malignant maelstrom of paper swirling, swirling, swirling, will be thrown out of work at a stroke of a pen?"

No. What we will get is more taxes. And whether or not it comes through the current tax code or some other new taxing scheme, we will be paying more taxes, and it matters not whether you call it a VAT tax or a flat tax. The result is that you will (and you might want to write this down for future reference) keep less of your income and the government will get more.

"Borrowing More and More Isn't Fiscally Responsible" says an essay by Joe Mysak, who is a columnist on the Bloomberg site. I don't know the guy personally, but he gets my prize for "Most Awesome Use Of Restraint In An Editorial Piece Because If It Was Me, I'd Be Screaming Like A Banshee Right Freaking Now," or as it is known by the People Who Give Out Prizes To Each Other, "The Mogambo MAUORIAEPBIIWMIBSLABRFN Prize."

It starts out innocently enough. It was another report about another dirtbag state run by incompetent dirtbags that has hit the rocky shoals of laughably incompetent mismanagement. He reports, "The New Jersey court gave its advice in a ruling on a state plan to sell $2.5 billion in bonds backed by cigarette taxes and motor vehicle fees and use some of the money raised to balance the budget." Okay, by this time I am grabbing the phone, and yelling into the receiver "Get me City Hall! Get me my state representative! Get me my Congressional representative and Senator! Get me the President! Get me the Supreme Court! Get me the Mogambo!" And then I am reminded that I AM the Mogambo, and there is no point in calling me, because here I am.

But I am premature, which may explain why the wife is always so moody, but the ugly part of Mr. Mysak's piece is that, and here we take up exactly where we left off, "The court said this was unconstitutional" and I stop the tape right there. I yell out "turn up the lights!" and then I walk out to the end of the stage, and I lean out over the audience, and overpowering them with raw decibels, I scream "The New Jersey court says it is unconstitutional! That may very well be. But it is much, much more than that! This is also very, very STUPID! So you hear me? I said this is stupid! The legislature of New Jersey is STUPID, and the people of New Jersey are stupid for having elected these awful people!" I then march back to the blackboard in a huff, swinging my arms and stamping my feet like some snot-faced little petulant brat of a child, I snatch up a piece of chalk and I write on the blackboard "Stupid!"

So now, falling back to the programmed portion of today's lecture, I slightly rewind the tape and push the "play" button and the tape player starts back up " ...budget. The court said this was unconstitutional, but let the state do it this year, anyway, saying overhauling the current budget would result in a 'great disruption' otherwise."

Gaaahhh! I'm really screaming now! It is unconstitutional, but they are going to let them do it anyhow? Aggghhhh! Remember how the Supreme Court in 1933 allowed FDR to abandon the part of the Constitution that said money shall only be silver and
gold? Remember that black day in US history? And you already know how horrible that was because, well, just look at the US dollar! Well, the supreme court of the state of New Jersey also says that they are going to 1) be as stupid as FDR and disregard their own constitution and 2) allow deficit-spending! And why are they doing this? Get a load of this! They are doing this because nobody wants a "great disruption!" Hahahaha! Nobody wants a "great disruption!" Hahahaha! Of course nobody wants a "great disruption," you jackass posturing weenies! This, I guess, more than anything, demonstrates how New Jersey has got to be in the running for some kind of award for "Most Stoopid" and I misspelled it on purpose to make a little joke out of it.

But it isn't just New Jersey! It's almost all of the states. All of them! And the cities, too, that took every dime of all that one-off tax money that flowed into their grubby little hands during the 90's as part of Greenspan's asinine Great Money Giveaway, and are getting more in the Greenspan Great Mortgage Money Giveaway, and spent it, and still spending it, on expanding services, establishing parks and trails and "green spaces," and erecting public services buildings, and adding new roads, scenic overlooks, hiring Urban Foresters and contracting armies of services from the private business community and hiring oodles of other public employees, and all the time spending, spending, spending!

But now New Jersey runs around wringing their hands and shouting "Oh, dear! Oh, dear! What shall we do? Whatever shall we do? We don't want a great disruption!"

But this raw fraud is, like all raw frauds, unsustainable, as Mr. Mysak explains. "Every time the state sells such bonds, it has to take more and more of those future taxes and fees off the table. The state is not only saddling a future generation with debt; it's also eating up a portion of the available tax base. In order to keep spending now, the state eats up its future taxes and other revenue." So you are going to have less money in the future, exactly when you are going to need it to fund the stuff you are creating now with the extra money! Remember what I said about "stupid?" Or "Stoopid?"

Mr. Mysak also helpfully tells us how much farther states and counties and cities are going into debt. He says "$214 billion in municipal bonds sold so far this year." So, we are on track to issue about $400 billion in new municipal debt this year? Gaaahhhh! I think I swallowed my tongue in my outrage! Of that, he says that "$76 billion were general obligations, according to the Bond Buyer newspaper. General obligation bonds are backed by your taxes, and more often than not, you have to approve them." The rest are, I assume revenue-anticipation bonds or something.

"So how does all this borrowing get done?" he asks innocently. Then he tells us. "State and local officials create special entities called 'authorities' to sell bonds backed by specific revenue." In other words, a bunch of un-elected connected people are given the responsibility for something, and from that they acquire authority to encumber the state into perpetuity, without any oversight from the people who will be paying the money! Wow! What a racket!

Remember how I told you that the Economist magazine had posted 3.1% as the American inflation rate in consumer prices? Well, it is now 3.3%! "Not much!" you say? Au, contraire, my little grasshopper! It is 3% more! And notice that the difference between 3.3% and 3.1%, is 3.2%! 1-2-3! It's cosmic! Ommmmmm!

And we ought to contemplate on this cosmic coincidence for awhile, trying to get a little joy out of it, because you can trust me when I tell you that this is the ONLY thing about inflation that is not horrifying.

Bill Gross of PIMCO "America's and, therefore increasingly, the world's economy is unstably founded on a base of cheap money used as leverage to support certain asset prices of dubious value. If and when the cost of those funds moves sharply higher for any reason ­ a dollar crisis, inflation, foreign central bank sales of Treasuries, increasing budget deficits, to name a few ­ then the flaws of a levered economy will be quickly exposed." Personally, I would have said "ARE being exposed."

And bad things are going to happen, because you never see an economics book that starts off "Before the economy could soar, the leaders wisely created excessive cheap money to leverage overvalued assets."

The Seattle Times reports, "A Seattle labor group said it has new evidence that Microsoft is shifting high-level work to foreign contractors, including work on the next version of Windows." I say that this is wonderful news, fabulous news, as Microsoft software is horrible, full of bugs and stupidities, all the time seizing up and opening my computer to hackers and viruses, so much so that the names of the entire crew of lackluster dimwits that constructed Windows ought to be published, and employers should agree to permanently prevent any of them from ever working on software for the rest of their lives. I assume that it was only the modus operandi of the ferocious Microsoft marketing and running roughshod over competitors that allowed their ridiculously inept software to be where it is, because there is no way that it could have competed against any competent software on its own merits.

The Boston Globe: "China has ordered emergency shipments of coal by road and waterways to help ease severe energy shortages said to be the worst in two decades, state media reported Thursday."

These severe shortages are the result of high demand. Remember that the next time somebody tells you that that Chinese economy will not continue to grow.

Pete Spina at Goldseek.com is one of those guys who recognizes important stuff when he sees it, but is somehow completely blind to my need to borrow his car so that I and my hoodlum friends can drive around in it, honking at pretty girls and practicing our drunk driving, which is a skill that will always comes in real handy sooner or later.

In this case, it is a blurb from the Stock Traders Almanac Investor newsletter. They said "The bull market in
gold should continue. Gold thrives on inflation and fear. This time, it's also a question of supply and demand, a vanishing U.S. dollar and enormous trade and federal budget deficits for which any solutions seem remote."

If you look up the word "remote solutions" in your Mogambo Dictionary (MD), you will see that it is defined as "Equal to zero, so rather than even bother with it, let's order a pizza and watch a flick on TV."

I got this quote from someplace that I forgot. So without further ado, "The Bank of England boosted its key interest rate to 4.75 percent Thursday to try to stifle the inflationary effects of rocketing house prices and strong consumer spending. In a widely expected decision, the Bank's Monetary Policy Committee raised its base rate by 0.25 percentage points. It was the Bank's fifth rate hike in 10 months."

And what is this horrendous inflation rate that is making these limey inflation hawks act in a responsible manner? 1.6%! Half of ours! So, even though Brits are as stupid as we are in certain respects, in light of them electing the nitwit Tony Blair and us electing the nitwit George Bush or being asked to elect the nitwit John Kerry, at least their central bank is not so similarly handicapped by having morons crawling around the place and making funny noises. So now I guess I will have to listen to my British friends gloating about how they, at least, show some smarts in the monetary arena, while we still have the terrible Alan Greenspan and all the rest of those incompetent Fed jackasses stinking up the place.

Of course, the Fed did just raise the Fed Funds rate by 0.25 percent, bringing it to 1.5%. Hahaha! Like putting lipstick on a pig, it makes the pig look better, but nobody thinks it makes the farmer look smarter.

One thing that really jumped out at me, and that last thing I need these days is another thing jumping out at me, was that NYSE Member Short Sales was reported as being an astounding 1,942,612,00 shares, according to the NYSE Member's Report item in Barron's this week. "Must be typo," I figured.

And then, I remembered that Congress had just changed the law on short sales, and you can now sell short on a down-tick! I know what you are thinking. You are sitting there, scratching your chin in wonderment, "Coincidence?"

Now we have two possibilities; innocent typo or a deliberate, filthy, lying, cheating scheme, with the secondary goal of attacking and harassing me personally, probably involving secret departments of the FBI or something, because governments are always paranoid that someday people will suddenly wake up out of their stupor, and in their anger they rise as one, declaring that "The Mogambo was right! Everybody IS out to get us!"

The odd divergence of the advance/decline line with the Dow Jones Industrial Average is another thing that is spooky to me. Since breadth and price tend to trend together, these kind of divergences always resolve themselves, because they must, by logical imperative, either by the price rising to the A/D line, or the A/D collapsing to the lower price. Which will it be? Hmmmm.

And if you want to know another thing that is spooky to me, I'll tell you. It is that the difference between the assets and liabilities of the banks, which I do by subtracting "savings" from "credit" as reported by the banks themselves, has been lower only once before in history. And that time was in, a little drum roll, please...

...August 2002.

And speaking about banks and how it is always the damn banks that cause economic calamities, it brings up the odd occurrence that total reserves have started heading up a little bit. Not enough to do handsprings about, like they had seen the error of their ways or something, or stopped acting like greedy little scumbags willing to believe anything, but a trend that seems to be developing. Of course, it is hard to imagine that reserves could get any looser, as they have actually declined to, as I said, a record slim margin.

And if for some reason that I cannot fathom you want to know another thing that is spooky to me, it is that corporate bonds are actually up in price, not only for this week, but for the year! Look at my face! Can't you see my look of stunned stupefaction, as my mind refuses to believe what I am seeing? Can't you feel my churning, inner turmoil? This is too, too weird! The St. Louis Monetary Base is keeping up it's linear growth of 4.4%, as the Fed continues plowing money into the economy with both hands, trying to buy a recovery out of the mess it has created.

The Commodities Corner of this week's Barron's has some guy named Joseph Quinlan who works for, according to the article, the Banc of America, to which I say that if they were real Americans, then why are they spelling "bank" with a "c?"

But anyway, this guy figures that OPEC is worried about high oil prices too, since "they know that at some point it becomes a trigger point for alternative investments, or a slump in demand that causes prices to come down for the wrong reasons."

Now, I never met his Quinlan guy, and my knowledge of the oil business is almost nil, although I am vaguely aware that gasoline is made from oil, and I know how to put gasoline into a car without spilling too much all over the place and I am acutely aware of how much it costs, per gallon. But I am sure of a couple of things. For one thing, there are no good alternatives to oil, and there never will be, because when you are talking about how much energy per gram of weight you get, when you want a material that is available in vast amounts, is easily obtained, transported and stored, a material whose atoms are so amenable to manipulation, about which so much is known, and is a material that so much of the existing economy already depends, you can be sure that if there WAS an alternative to oil, somebody would have discovered it by now. And they haven't.

The other thing I am sure about is that if you are an oil producer, there is never a "right reason" for prices to come down. And so I am telling you and this Quinlan character that OPEC is not, despite your fears, worried that prices will come down for the "wrong reasons." And to suggest that there is a case where the price of oil coming down is a good thing for OPEC members is to make me laugh in my most disrespectful and haughty voice, hahahaha!

The Mises site posted an essay entitled "The Wages of Sinful Economic Arguments" by Tom Lehman, who is an Associate Professor of Economics at Indiana Wesleyan University. He says "Forcing larger rival firms to pay higher minimum wages will not necessarily lead them to raise prices for their goods and services, as some small business owners apparently believe." Well, although he did not mention me by name, I am certainly one of those people who believe that! And if this Lehman dude wants to score some points around here, he has better start believing it, too. Business owners may not be able to raise prices now, but they will assuredly take steps of one kind or another to, in effect, raise prices or cut costs, because their only alternative is to make less money. And business owners also have expenses, and wives who are upset that things cost more, and are hollering that I am not bringing home more money with which she can buy those things, and how her happiness is totally dependent on her getting these things, and I am sure that these business owners are, like me, desperately trying to find ways of bringing in more money because the last thing we want in this world is for her to be less happy than she is now.

So after I spent the whole day on the phone talking to his secretary and demanding to be put through to this professor Lehman, if that IS his real name, so that I could scream at him until he changed his opinion, he did finally admit that "It is probable that large firms faced with artificially higher labor costs will find it more advantageous to invest in additional technology and capital equipment that would replace the lowest skilled employees who earn the minimum wage. In the end, the singular most likely outcome is that a hike in the minimum wage will harm low-skilled employees who currently have a job working for a large firm by throwing them out of that job."

Well, that may be true. But I could not help but notice that he did not mention that the inevitable outcome will be higher prices for everything, for everybody! And as bad and sad as the low-income worker's situation is, there are a hell of a lot MORE people in this damn country whose situation is as bad and worse, because those other sad-sack persons don't even have jobs! They are the old, and the crippled, and the severely handicapped, and the sick, and the chronically unemployed, and for emphasis let me add, in capital letters, ET AL, which means, of course, "among others," because every damn person in this whole freaking country is going to be harmed by the rise in prices, and I am getting sick to death of people whining about the minimum-wage worker, who is just a small little tiny subset of the gigantic pie chart of people who are suffering the miseries of rising prices, because everybody has to pay higher prices. And the only damn reason that these minimum-wage people need more money is because the prices of things are now so damned high!

The only difference between the segments of the population is in the ability to pay the higher prices. But at least the damn minimum-wage income worker has the ability to command wages, so quit crying for them! The minimum wage worker can thus directly affect their own well-being! The fact that they spend a large portion of their income on crack and booze and tattoos and fancy cars and the luxury of ostentatious bling bling, instead of investing that surplus into education, is just one of their problems, and if they would just stop buying that silly, dysfunctional crap, they would probably find they have lots of money at the end of the month.

In fact, here is a scene from the proposed new movie about the Mogambo, which has the working title "Hot Babes Prancing Around in Skimpy Outfits Use Raw Firepower To Help The Mogambo Seek Righteous Revenge Against The Very Idiots Who Caused Our Misery, Namely The Federal Reserve And Damn Near Every Jerk That Has Ever Been Elected To Congress For The Last Seventy Years In A Row."

As the scene opens, there I stand, magnificent and resplendent in my purple cape with the fancy
gold trim, and my propeller beanie was spinning.

As the camera pulls back I am revealed to be in the office of Ted Kennedy, as he is one of the most infamous of the foul manifestations of the Leftist Lunacy that's eating the guts out of America. I have grabbed this Kennedy bozo by the hair, and am shoving his unwilling head down to the desk, upon which is opened a copy of "The Statistical Abstract of the United States." I am screaming at him "You want a higher minimum wage, you pompous, preening putz?" He says, "Hey! That's alliterative!" and I shout back in a loud and abusive voice, so loud that I get specks of spittle on his face, "OF COURSE it's alliterative, you disgusting bag of Leftist crap! I am the Mogambo!"

With a mighty shove, I again slam his head down onto the book, and he says "Oof!" I lift his head by the hair until his faced is turned up to mine, and I scream at him, "Let's just see what has happened to the damn minimum wage since 1960, when you idiot Democrat commie-bastard Leftist losers started really cranking up that money machine with your damn deficit-spending and social-engineering insanity, shall we?" With a look of pure evil genius, I say through clenched and gritted teeth "Sure! Let's take a look at history!" and with that I slam his head down into the book yet again, so that he goes "Oof!" again, and I turn to the camera and say "Hahahaha! Now it's YOUR turn to suffer, you silly simpering socialist bastard, like you have made so many millions of people suffer for so long, eh?"

Unfortunately, banging Senator Kennedy's head down on the book actually scrambled his last three working brain neurons, two of which were used to prevent him from drooling and thus revealing his staggering mental incompetence. Anyway, this sets up another interesting plot development for the film, so that is all I am going to say about it, and you will just have to go and see the film when it comes out. But it promises to be a real tour de force of cinema veritas, and if you actually think that in real life that the real Ted Kennedy, the weird-o Senator from Massachusetts, has more than three working neurons in his whole brain after you have heard him speak and looked at the things he has done to this country, then I have to assume that you have very few working neurons in your own brain, so don't come whining to me.

In 1960 the minimum wage was $1.00 per hour, and at various times it was raised, and in 1997 it was increased to where it is now, $5.15 an hour. And I know from pure deduction that no Democrat knows how to use a financial calculator, or else they would not say the stupid things that they say. So once again an adult (me) will come to their aid and give them the answer. This rate of inflation in minimum wage works out to, compounded, 4.53% per year! And yet it is not enough to keep up with the rise in prices as it is!

And you can tell by the way I am gritting my teeth in raw, seething anger, that I am working myself into one of my "spells," that I am here to tell you that every time the new higher minimum wage went into effect, and on the very same damned DAY that the new higher minimum wage was put into effect, there were at least a dozen American guys who retired on a defined-benefit pension. And each of those guys watched in growing despair as their standard of living declined, month after month, year after year, as prices climbed but their income remained constant. And it just got worse, and worse, and worse, until the day they died in utter poverty. And if you could bring these guys back from the dead, they would say, in a ghostly unison "Listen to the Mogambo! Inflation will kill you! And since inflation is a monetary phenomenon, and since a monetary phenomenon is a central bank phenomenon, the Federal Reserve will, ipso facto, kill you!" which is, you gotta admit, pretty astute for a bunch of dead guys.

And if you think for one minute, and I am checking my watch to make sure that you get all the time you need to think about it, that the recent and current monetary excesses of the Greenspan Fed and all the central banks in all the world, which together comprise an unprecedented monopoly exercise in absolute monetary insanity, will NOT cause you to suffer the miseries of price inflation that inexorably follows the irresponsible increase in money and debt, then there is something very, very, very, very, very wrong with you, because even dead people show more smarts that you do.

John Mauldin, the brains behind Millennium Wave Advisors and now a famous author, has written the best-seller "Bulls Eye Investing," which I have not read, but instead am trying to steal a copy of another book that I more desperately need, entitled "How to Make Some Damn Money In The First Place So That You Can HAVE Some Damn Money Left Over At The End Of One Lousy Month That So That You Might Be Able to Finally Invest In Something." But I hear it is real good, and the economics scribblers crowd that I hang around are pretty effulgent in their praise of it, so I guess it is pretty good. But when he is not penning timeless classics, he has taken the time to write another of his famous essays, this one entitled "Lean, Mean Reversion Machine." He writes about Jeremy Grantham who is, according to Mr. Mauldin "a famous deep value investor."

He says, "Grantham's investment theory is that over time investment classes come back to the average. As Grantham noted, simply coming back to trend, which markets always do, without fail, no exception, will mean at best a sideways to down trading channel such as we have seen for some time now." Now the rest of the class is stunned to insensibility by the phrase "always.. without fail, no exception." Seizing the opportunity to get a little attention and maybe impress that cute little redhead, I raise my hand, demanding to be called upon, because I think I am such a hotshot that I love to argue with guys who actually know what they are talking about. Professionals assigned to my case have explained that in my delusion, I think that it will make people like me, but it doesn't. It only makes them hate me more. And then I end up hating them more, too. So pretty soon we are back where we started, only more intense, with more open hostility and spitting.

So I am heartened when he motions to me to stand up and ask my question. I slowly rise to my feet, languidly cross my arms, raise one finger under my chin like I am thinking real deep thoughts or something, and I finally say, "Yes, the theory is unassailably (pause for effect) true. I, the Magnanimous Mogambo (pause for another effect), will grant you that! But," I fairly shout, startling the crowd, "it is also unassailably true, my dear boy, and by the same mathematical imperative, that prices could, theoretically, stay high enough, for so long, that the average itself will rise! And then-- voila! --the price WILL be at the average again! Under this scenario, price would NOT 'revert' at all! Instead, the average would grow!"

Judging by the look on his face, I don't think he liked it when I used the French word "voila!" for one thing, and I could not help but notice that he 1) ignored answering my question directly and 2) made some kind of secret signal to the Security Police, who were suddenly locking the exits and were moving to surround me, crouching down and whispering into their little radios and carrying this stupid snare trap that that has cookies as bait, like I'm so stupid I'm going to fall for that trick again.

But when you examine the transcripts you will notice that he cleverly and indirectly provides a reply when he went on to say "When asset classes are well above trend" and here he paused and looked directly into my eyes, to make sure that I get the point about how Mr. Grantham would handle this long-term, high prices thing, "he avoids them." The phrase "he avoids them" doesn't look like much in black and white like this. But the WAY he said it was as important as WHAT he said, and he really stressed the word "avoids" as if to imply "You ignorant, stupid little twit, I treat you with mocking condescension! And I disdain your transparent stupidity, because only a moron as thick as yourself could possibly believe that anyone buys things that are above value!" to which I say to myself "Well, I know where your car is parked because I saw you drive up, and so I can leave and let the air out of your tires, and then we'll just see who has the last laugh then!" As I am snickering and giggling maniacally to myself at my own joke, he then goes on to finish by saying "And when they are well below trend he buys them," sort of like he is twisting the knife after he has stabbed me with it, just to be cruel. He does admit that "It can take a long time for some classes to revert to the trend," and to make this philosophy pay off you must have "time and patience." And then he fixed me with a glare, as if to say "And don't you dare go and let the air out of my tires again, you horrid little man!" and so I sat back down in my chair and sulked.

On another topic, Mr. Mauldin refers to Greg Weldon's Money Monitor, who has taken a look at the job picture and says how, and I am including his original use of all capital letters so that you can get a feel for his exaggerated emphasis, he "CANNOT envision a macro-nirvana-scenario that INCLUDES workers whose PRIMARY SOURCE OF INCOME ... is ... a PART-TIME JOB!!! The combination of DISCOURAGED job-seekers, and a sudden, sharp rise in workers willing to take multiple part-time jobs ... REEKS of desperation, in terms of GROPING FOR INCOME."

He is describing my life to a T, as I have even begun reconsidering my original plan to be a school-crossing guard, so that I could shake down the little school-age brats for their lunch money and their milk money as they cross the road on their way to school where they learn to be little robots. And I have actually convinced myself that I am providing a real educational experience by extorting money out of them, because they are going to have their money taken away by authority figures all the days of the their lives, so they might as well get used to it right now. You may hiss and boo all you want, but it was Ben Bernanke of the Federal Reserve that advised us to look for "unconventional measures," and robbing schoolchildren is, as is stated in my opening statement to the jury, certainly "unconventional." And I am providing real education, as I proudly do my part to "Leave No Child Behind."

Over at the Daily Reckoning website, the effervescent Bill Bonner writes that getting into war, debt and love affairs can be fun and exciting. "It is getting out that is painful." Being a natural coward, of course, I don't get into wars, so that part eludes me. Being a paranoid schizophrenic halfwit loser, nobody would ever loan me money, so I have missed that fun, too. And as for love, I never actually noticed that any of the women that I have loved showed the least discomfort in telling me to take a hike, and in fact most of them seemed to oddly relish telling me to get lost and stay there, and then I seem to remember that their moods abruptly changed when they said they wanted back both the money and the toaster oven that I borrowed from them.

But getting out of things is always painful. And in that regard, have you noticed that nobody has ever suggested that getting out of any of them can be successfully managed by some theoretical "soft landing?"

But Mr. Bonner is the kind of witty guy who can effortlessly toss off these kinds of pithy and timeless bon mots while on vacation, and even while relaxing he has his eyes wide open. He comments that his travels have given him the perspective of looking at America as a whole. "What we find is a decent people caught up in an indecent conceit - an unshakeable belief in American Exceptionalism. Things that would be wrong - or imbecilic - in any other race are regarded as perfectly normal when applied to Americans. A pre-emptive attack, for example. Were any other people to try it, it would be unforgivable. But in America, it is public policy. If foreigners tried to get rich by buying each others' houses, it would be regarded as a silly fantasy. But Americans see no reason why they can't do it. Nor do they find anything unbecoming about living beyond their means, year after year, and counting on savers in poor countries to make up the difference. Yet, they'd think it was preposterous for anyone else to try it."

And they, meaning we, meaning Americans, would be right! And although he is much too polite and refined to even mention it, we Americans are going to get a real object lesson (measured in dollars and cents) in the permanence of what Mr. Bonner calls "American Exceptionalism." Some will call it "reversion to the mean." Some will call it "cyclical." Some will call it "getting what they deserve." The Mogambo will laugh, hahahaha!

Martin Wolf writes in his essay at the Straits Times site that "Last month was the 60th anniversary of the conference at Bretton Woods, New Hampshire, that inaugurated the post-World War II international economic order. The flood of analyses that this occasion brought forth has concentrated on that meeting's institutional progeny: the International Monetary Fund and the World Bank."

Well, I never saw any "flood of analyses," and to tell you the truth I was not even aware of the anniversary, and even if I did remember it I would not admit it, because my wife is going to say "What? You can't seem to ever remember the damn day we got married and ruined my life, but you remember the anniversary of some stupid economics bank or something from sixty years ago?"

But I am bringing this up to show you the benefits of modern psychopharmacology, as I am proud to say that I am NOT being wrestled to the ground by burly uniformed attendants at the mere mention of the IMF or the World Bank. I still hate them, as do all thinking people, of course, and call them rude names, and I still write crude and suggestive things about them on the walls of public restrooms. But I now do this only because they deserve it, and NOT because I have some "psychotic anxiety complex with hostility overtones" as alleged in some snotty court briefs.

David Bond, witty editor of the Silver Valley Mining Journal, has found an item broadcast by the BBC, concerning the water supply in England, to be of particular interest. He quotes, "Traces of the antidepressant Prozac can be found in the nation's drinking water, it has been revealed. An Environment Agency report suggests so many people are taking the drug nowadays it is building up in rivers and groundwater."

Well, perhaps this same explanation applies to America, too, or what Mr. Bond calls "The perfidious nature of the Greenspan Skull & Bones economy; where catsup is counted as a vegetable; where making burgers counts as a manufacturing job; where zinc, lead, silver, gold, copper, concrete, scrap steel, uranium, nickel and even molybdenum have shot the moon in the past 12 months and oil is 45 bucks. When we live in a time when the price of decent orange juice has nearly doubled and the Dow and NASDAQ are cratering and they tell us THERE IS NO ECONOMIC PROBLEM?"

Hey, take it from a guy who knows! A person having a court bailiff cramming large quantities of antidepressants down his throat can believe ALL of these things! And more! And don't tell Mr. Bond, but if the truth were ever known, everything you eat, drink, smoke and breathe is teeming with chemicals, hormones, pesticides, vaccines, bacteria, viruses, alien spores and plain-vanilla "stuff that is bad for you." And if you DON'T think it is bad for us, just look around you! Does this look like a society of rational, educated and literate people who have their wits about them? If it does, then for the love of God please send me a plane ticket so I can come live where YOU live, because imbeciles and homicidal morons are running amok in my community, and on Wall Street, and in Washington, DC!


*** The Mogambo Sez: I am scared. The stock market went up over a hundred points as soon as the Fed increased Fed Funds by a lousy quarter-point, which has been advertised for over a month.

This makes no sense. Now you know why I am scared. And now you know why I suggest buying
gold and large-caliber guns.

Aug 10, 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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