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And how about the price of hazelnuts!

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
Archives
August 31, 2005

- With Alan Greenspan out of town, the Federal Reserve reduced Total Fed Credit by $2.2 billion. Even the foreigners who buy government and agency debt through their accounts at the Fed have suddenly NOT been buying more. In fact, they were net sellers of US government debt by $2.5 billion last week!

What in the hell does all this mean? Jim Otis, otherwise famously known as the Optimist, explains "liquidity can only be added, but it can never be removed. Removing the stimulus of the added money supply would cause the very deflationary depression that the money was injected to prevent. For each crisis that is solved by increasing the money supply, there must be a correspondingly higher inflation caused by an increase in the amount of fiat paper which is chasing the same amount of purchasing opportunities."

So, suddenly, your head is snapped upright! You instantly see the problem! Stimulus is not being added! The ultimate significance is that this is very bad news if you have money invested in anything, because the money that would enable higher prices suddenly isn't there anymore. Bubbles require constantly more money and credit. Without the additional money and credit, you cannot have a bubble. Suddenly, you achieve True Mogambo Wisdom (TMW) when you realize why you are hearing the sound of howling wolves in the soundtrack; we are not seeing more money and credit being created! WoooOOOoooo!

The reason that Alan Greenspan is out of town is that the annual secret meeting of the Fed and all their horrid little friends is underway in Jackson Hole, Wyoming. I usually refer to this as "The A-holes at the J-hole", because that pretty much sums up my attitude toward the whole thing. Namely, a bunch of posturing and preening idiots wondering why their idiotic economic theories are not working out in real life.

But it was Greg Ip in the Wall Street Journal that put me over the edge. It was last Friday when he wrote in his article "Greenspan's Legacy Explored" what I took as some congratulatory praise for Greenspan. I know that he is just an employee, but was it really necessary to so gloriously laud him as a "Fed chairman who presided over a decline in the U.S inflation rate and unemployment and successfully navigated several financial crises"? Hahahaha! For one thing, Alan Greenspan had nothing to do with the apparent fall in the inflation rate! The REAL reason is that China started providing us with stuff cheaper. THAT is what caused it to look like inflation fell.

In reality, the monster you call Alan Greenspan CAUSED runaway inflation in stocks, bonds, houses and government spending, by deliberately creating excess money and credit year, after year, after freaking year! He also participated in the fraud of distorting inflation statistics by not objecting to the horrid Michael Boskin and his infamous Boskin Commission, who came up with "official" ways to magically reduce inflation in prices with statistical mumbo-jumbo, such as the infamous adjusting for "quality", where you get such ridiculous results as "Yes, the widget costs twice as much, but it is a better widget. So after adjusting for the gain in quality, the widget is actually cheaper, even though it costs twice as much! So inflation in widgets went down, even though the price went up!" Hahahaha!

And as for the "several financial crises" that he is supposed to have successfully "navigated", he caused those, too! If it weren't for this despicable Greenspan bastard, we would not have had any financial crises in the first damned place, because you can't have bubbles and crises without somebody providing the financing. It's like when my idiot daughter says, "Well, daddy, I crashed the car. But I covered it up with duct tape, which covered the rusty spots, too, so now the car is better than it was!", my knees don't get all wobbly in praise of her "successfully navigating an automobile crisis!"

To the contrary, this low-life Greenspan bozo spent his entire 18-year career screwing up the economy of the USA by jamming unhealthy amounts of fat, cholesterol and calories into the economic system in the form of wildly excessive money and credit. Hell, since 1997 he has outdone even himself, and has been creating unbelievable amounts of money and credit at extremes never before seen in history! All the damned time, more money and credit! Every time you turned around, there was Alan Greenspan pounding interest rates down, making it profitable for borrowers to create more money and credit and debt, which the banks just happened, by coincidence or something, to able to supply. It's disgusting to watch, what with all that slobbering and slurping.

And all this money migrated into prices, and inflated the prices of things in one bubble after another, until everywhere you looked there was a bubble in something And then, when the bubbles burst, it causes "financial crises" which the damnable Federal Reserve and the damnable Alan Greenspan get credit for "successfully navigating"? Gaaaahhhhhh! I am so angry that sparks are flying out of my ears! And something flew out of my nose, too, that I hope was a spark, but probably something more booger related, and now I have to listen to everyone chanting "Booger-head Mogambo! Booger-head Mogambo!" which just makes everything MORE depressing. Which reminds me that alert reader Andrew M. cautions us to "just remember that depression is merely anger without enthusiasm". Which reminds me that outrage is merely anger with an AK-47 assault rifle.

So Greg Ip should stop throwing kisses at this Greenspan monster, and instead be calling for us to march on the Federal Reserve and drag this despicable Greenspan butthead out into the street and beat the hell out of him!

Perhaps the most ridiculous thing I read was by Alan Blinder, who called Greenspan the "greatest central banker ever'', supposedly because Greenspan "presided over the longest economic expansion in U.S. history and kept inflation in check." Hahahaha! To hell with Alan Blinder! What a moron! The currency has lost over half its value in that time, and is still collapsing, debt loads have soared to terrifying new records in every nook and cranny of the economy, we have unbelievable and unsustainable bubbles in stocks, bonds, housing and government, we have record-level budget deficits that are literally out of control, a trade deficit of over $730 billion a year that is 6.3% of GDP, a national debt that has exploded to almost $8 trillion, and this is the best a damned central banker can do? Total failure is the best you can do? Total, abject, miserable failure makes Alan Greenspan into the "greatest central banker ever"? My God! I was right! We ARE freaking doomed!

And he makes me laugh ("Hahaha") with that "kept inflation in check" crapola! Hahahaha! If you are not laughing, then it is because you are not aware that Alan Blinder is, according to the Bloomberg article, "a Princeton University economist and former Fed vice-chairman." So you would think he would know inflation when he sees it, since newborn babies can see it when it is right in front of their faces and it is so scary to them that they poop in their diapers whenever they see it, for crying out loud! But Alan Blinder, who obviously considers himself to be a big shot, does not! That's the joke! Get it? Hahahaha!

But the article goes on to say that Blinder has "defended the Fed chairman's hands-off approach to asset bubbles." Again, I can't help but snort derisively at this Blinder doofus and laugh at his incompetence! Hahahaha! Keeping his hands off of bubbles? Hell, where in the hell does this Blinder guy figure the money came from to create the damned bubbles in the first damned place? You don't need a Junior Crime Scene Investigator Kit to see that his fingerprints are all over that crime scene.

And when the bubbles burst, here is Greenspan again, all over the damned place, pounding interest rates down (and thus screwing the people who depend on interest income) and making money ("increasing liquidity") available everywhere you look! So when exactly does this Blinder guy figure that Greenspan is keeping his "hands off"? Hahahaha!

And then there was Richard Bender of Morgan Stanley, who said "this year's conference was special, honoring and celebrating Alan Greenspan's brilliant 18-year tenure as Fed Chairman." Brilliant? Hahahaha! Did he say brilliant?? Hahahaha! I am laughing so hard that I think I tinkled in my pants! Hahahaha!

One other guy who thinks that Greenspan is a laughable failure is Ron Paul, the Congressional Representative from Texas, who has terrific bladder control and does NOT tinkle in his pants when he is laughing, but who said, "The greatest threat facing America today is the disastrous fiscal policies of our own government, marked by shameless deficit spending and Federal Reserve currency devaluation. It is this one-two punch - Congress spending more than it can tax or borrow, and the Fed printing money to make up the difference - that threatens to impoverish us by further destroying the value of our dollars."

Well, actually, the Fed did exactly that last week, when it created money out of thin air and bought up $2.2 billion of government debt! What a fraud! Right out there in broad daylight, too! What brazen nerve!

But this is not about how little intelligence, ethics or morals are on display in the world of economics, or government, or me. No, we were talking about inflation, and how it is never a good idea. Never. In fact, write this down in your notes; "Inflation is never a good idea."

Someone in the back of the room says "How about a little bit of inflation?" I slap the pointer against the blackboard with a loud whack for emphasis as I say "Inflation is never a good idea!"

Another jerk in the back of the class says "How about a little 'targeted' inflation?" and I scream out, "Ben Bernanke, you flaming idiot! Never! Inflation is NEVER a good idea!"

And the reason that it is never a good idea is that somebody, and by that I mean those people at the lower strata of the socio-economic pile (me) and those in the lower end of the IQ distribution (me, again), have to pay the full price of inflation. To prove it, my wife received a copy of something called a "2005 Legislative Update", distributed by our Leftist state district representative in Tallahassee, whose name is, I swear, Charlie Justice. It is a happy little glossy two-color (black and green) brochure-type thing that shows how the compassionate Florida government is heroically responding to the inflation that the money and credit that the Federal Reserve has been creating all these years. In a nutshell, the poor are getting hammered, as prices have gone up so high that these low-end people literally cannot survive anymore. Instead of dying, these people, more and more and more of them every day, are now totally dependent upon the government.

You would think that since this Charlie Justice guy is on the Commerce Council, and the Economic Development, Trade and Banking Committee, too, that he would have a little something on the ball, economics-wise. So I expect more from him. A LOT more. But I get less. A LOT less, as it turns out.

Of course, as the human race on this planet is being taken over by mutant blood-sucking communist leeches that rose out of the foul slime at a nuclear plant in the light of a full moon some cursed night in the 60's, we are, after all these decades of this folly, deep, deep, deep into socialist/communist takeover of the government. It follows naturally that the state is actually under an obligation to step in and "fill the breach" and help this new batch of poor wretches that have been destroyed by inflation, just like they have been taking care of more and more and more people every year since 1933.

For one example, we already have a school lunch program, where taxpayers provide free food to students (At first, you had to be poor to get the free grub, but no longer), that morphed into the school breakfast AND lunch program, that morphed into the school meals program. My Mogambo Extra-Sensory Powers (MESP) are suddenly tingling, which means that I know what you are thinking. You are tilting your head back, scratching your chin and wondering "Now that we taxpayers are already paying for their breakfasts, lunches and dinners, what is left? Snacks? Hahahaha!"

But as funny as that would be, the answer is no. It is worse than that. It has now been expanded again, with funding from the federal government (which means that I expect it to be in YOUR state, too), to require "each district school board to develop a plan to sponsor a summer nutrition program." The kids are not even in school, but we are still feeding them three times a day! Why? Get a load of this reason to spend enormous sums of taxpayer money every year for the entire duration of civilization itself; "During the summer months, many children do not have the opportunity to have the same nutritional meals that they receive during the school year!" Well, duh! My mom sure as hell didn't make a lunch for me during the summer that could compare to the extensive menu at school!

And why don't they have the same food? Because their moms are as bad as mine? Because she blamed me for being born and ruining her life? And that is why she drank so much and that a lack of a mother's love is why I am such a terrible man, a worthless father and a horrible husband? No. You're not even close! It's because their parents can't afford to feed them! My God! See what I mean about prices? The parents can no longer afford to feed their own kids, and now the government has again responded! Not, as you would expect, by traveling up to the Federal Reserve in Washington DC in a large caravan of armor-plated RVs full of angry citizenry brandishing flaming torches, vowing that if Alan Greenspan did not stop creating the inflation that drives more people onto the welfare rolls, then by God we have enough flaming torches, and The Mogambo has enough raw firepower, to take matters into our own hands and do it ourselves!

But nooOOOooooo! Instead, they respond by increasing the size of the government bubble and the number of its dependents! And thus increase the cost! Just like they always do. But this is not a lecture about people not taking care of their hateful little snot-nosed children, or whether the government has to take care of their hateful little snot-nosed children. This is a lesson about inflation, and who pays it.

Okay, I am getting off of my soapbox, but in a surprise move, I leap to my high horse! Once perched loftily above the crowd, I make a big stink about how taxpayers are being asked to pay for day care, to make sure that people do not even have to pay for the damned day care for their nasty brat kids ever again, or keep them at home until their constant, irritating noise starts getting on your nerves and pretty soon your fists are clenched in rage. Florida "began development of voluntary pre-kindergarten (VPK) program for Florida's 4 year-olds." Already, harried and penniless mothers and fathers who have had it up to here (insert video footage of a guy pointing to his neck) with those damned kids, now have "a minimum 540-hour instructional school year program" already in the works, AND another "300-hour summer Pre-K program" being finalized! So, all year long, those horrible whining kids are off your hands-- for free! --for at least 840 hours per year! All paid for by the taxpayers. And you can rest assured that there are those advocating for the same thing for kids who are three! And then two! And, like Arnold Schwartzenegger's character in the film The Terminator, they will not stop.

The one that really takes the cake for me is something called "CS/SB 1486 Property Insurance/Hurricanes". Whatever in the hell it is, it "Requires the Department of Community Affairs (DCA) to establish a low-interest loan program for hurricane loss mitigation." Hahahaha! Cheap money by order of the government! If you are collecting material for a book about the stupidity of American government and the American people who elected these nitwits, and how this cruel synergy destroyed the United States, then this is a really good one for the archives.

But Rep. Justice is not merely reporting the activities of a brain-dead, socialist government that is spending itself to bankruptcy like all collectivist governmental idiocies. He is, and I shake my head in dismay, an active participant! He stands up all proud and self-righteous that he "supported legislation that will provide matching grants to employers who continue to pay wages to their employees who are Florida residents serving on active duty." What? I'm paying federal taxes to pay a guy in military service who volunteered for reserve military service, who was hoping to get a long list of benefits on the cheap instead of active duty, and he is already augmenting this soldier's income by still getting a paycheck from his employer? And now I'm going to be paying MORE taxes to pay his employer back? Jeez! Gimme a freaking break, Charlie!

He also initiated legislation to pay for life insurance policies for those serving in the National Guard, as the soldiers, I assume, don't want to pay for the group SGLI insurance that the military offers military personnel. They need, or want, all their paycheck, and they don't want to pay for no steenking insurance. Now nobody from Florida has to buy their own SGLI insurance anymore, like all the other military personnel have done for the last zillion years or so.

It is all of this, and much, much more, and for years and years, one boondoggle transfer program after another, that explains why the state budget of Florida has ballooned over the years, and is how $64 billion a year. With only 17 million residents, this comes to almost $3,800 per man, woman and child in the whole freaking state. And since 60% of Florida's residents are children, retired, unemployed, that leaves only 6.8 million people with jobs who can pay taxes. And roughly half of those are either employed directly by a government, or by a company that contracts directly and solely with the government. So that leaves 3.4 million people to, in effect, pay both the taxes and the higher prices, as businesses try and pass along their cost increases. This now comes to $18,823 per worker who is not paid with money that comes from a government! This is important because all government costs are dead-weight costs, and they cannot make a profit with which to pay anything! Only people working in profit-making businesses can pay all the costs of everything!

But the madness doesn't stop there! The federal government spends a budgeted $2.4 trillion on its 290 million citizens, and another $500 billion of "off-budget" spending. This comes to $10,000 per man, woman and child. Again, 60% do not work. And of the remaining 40%, half of them get money that comes from a government. So that means that there are only 58 million people in this country who do not get their income from a government. And it is these people who have to somehow work hard enough so that, at the end, the federal government can spend $50,000!

Being a simplistic and obviously brain-damaged kind of guy, I tend to do things simplistically as possible, no matter how silly or ridiculous it is to do such a thing, and then only if I can't just run away from the responsibility in the first damned place, hiding from my duties, like the worthless and lazy little creep that I am. For reasons that I will not go into because she is watching me like a hawk, I cannot run away. Gritting my teeth, I begrudgingly set to work. The quickest way out is to add these two sums together. They sum to $68,823!

I feverishly add the numbers again to check the answer, as my eyes cannot comprehend what I am seeing. But it always comes out to $68,823!

I scream, over and over, in pain and outrage! To make sure that my idiot neighbors get the message, I open the window and scream, long and loud, until I hear the sirens of squad cars responding to the rash of calls to 911. They are soon yelling at me to throw my guns down and come out with my hands up, but I just scream back, "But each worker in the private economy has to create, somehow, out of productivity and taxes, $68,823 just so that the federal government and the state government can spend at their current levels!"

My cries of anguish go unanswered. I think to myself, "Perhaps they are on the phone ordering Alan Greenspan to stop acting like an irresponsible little twerp!" I take a quick look. I see SWAT team guys getting out of a van and point to me and start circling around behind me.

All of this is made bearable by the comic relief provided by Condoleezza Rice, per a NY Times headline, which read "Rice Warns China To Make Major Economic Changes." Hahahaha! We're warning China about their economic policy? Hahahaha! Thanks, Condoleezza! I needed that! Hahahaha!

- Many of us while away significant amounts of our working day thinking of ways to get rich quick so that we can abandon our hate-filled little families and take up with someone half our age but twice as nice. One of the ways to get wealthy that you always hear about is investing in the stock market. But I have some bad news in that regard. If you think that your genius will produce fabulous gains in the stock market that will put you miles and miles ahead of any posse or bounty hunter, then Adam Hamilton, of the Zeal Intelligence newsletter, has some real news for you. "The S&P 500 went from 108 in the late 1960s to 107 in the early 1980s, for a small 1% loss. That is bad enough, to not earn any money over more than a decade, but if you look at the same slice of time in the inflation-adjusted data, investors actually lost nearly two-thirds of their purchasing power over this same period!"

See what I mean about inflation? You got killed by inflation! And the damned stock market didn't help you out one little bit! Hahahaha! I'll be that little financial planner of yours never told you about THAT! Hahahaha! And even worse and more currently, the same thing can be said for the last five years, too!

So now matter what the clueless touts on TV say, neither stocks, nor bonds, nor houses will preserve your purchasing power over the long term nowadays. When you have a fiat currency, sooner or later you get deficit spending, and that means that inflation is guaranteed, and it will devour the purchasing power of every dollar you own.

But is there EVER a time when stocks preserved their purchasing power? If you had asked me, I would shrugged and said "Hell no, probably." But you did not ask me. All eyes are on Mr. Hamilton. Apparently he is ready for this question, because he immediately says, "Over the past half century from the absolute best-case moments in time to buy and sell for the long term, fully 7/8th of the gains investors could have reaped are illusory. These are wiped out by rising inflation decreasing purchasing power."

In case you, like me, missed the significance of that, they summed up by reiterating, "Thus inflation wiped out half of the best possible annual gains in the last half century or nearly 7/8th of the final compounded return."

While the audience goes "oooh!" and "ahhh!" at this revelation, I can almost hear him thinking to himself, "This Mogambo jerk is a real idiot! How can I summarize this in such a way that even a stray cat stumbling in here after eating a diseased rat can instantly understand?" Racking his brain, he finally says simply "Inflation has a huge impact." But I am wayyyYYYYyyyy ahead of this guy! I already knew that! I really did! I knew that already!

I know that with inflation, you can invest enough money to buy a Cadillac, and finally, after years and years of successful investing, you sell. After taxes and after inflation has eaten away at the purchasing value of your money, you get back enough to buy a Cadillac and maybe enough gasoline to get you home! Hahahaha! Invest a car and get a car! Real sharp investing there, dude! I can see that your retirement is well funded and in real good hands! Hahahaha!

- Alert reader Mike S. is asking that we not use the term "goldbug" and instead use the term "goldbull." I gotta admit that it sounds nice and all, and it is very descriptive of me and my friends in the "We love gold" community, but it is not nearly as funny.

- David Morgan, who is a real famous guy in silver circles, knew way back in 1998 that "In constant dollars, silver's purchasing power averaged $150 per ounce in 1998 dollars for 600 years. This is the average purchasing power for 600 years; obviously, silver has nothing close to that 'value' today, which provides one unbelievable investment opportunity."

And if you are like me, then your inner, greedy, capitalist pig, capital-gain seeking, thoroughly profit-grubbing mentality and love of money (from whence flows the fabled "Root of all evil") has sent jolts of electricity ("zzzzt!") to the part of your brain that should have been roused to action by scanning the phrase "unbelievable investment opportunity." Silver "should" be selling, by the overwhelming weight of raw, historical mathematical imperative, at about $150 dollars in 1998? For those of you familiar with the concept of "passage of time", 1998 was seven years ago. In those same sad seven sorry years, the dollar has lost a lot (maybe up to half, depending on your perspective and your "is the glass half empty or half full?" philosophy) of its value. And so silver "should" be selling for, maybe, $300 in 2005 dollars? And silver is actually selling for less than $7 an ounce? My God! My fingers tremble as I feverishly work out with the calculator, repeatedly dividing $300 by $7, and seeing getting the result of 42.86! Each dollar invested in silver would return $42.86 if silver appreciated to its long-term average? Wow! What's that as a percent? It's 4,286%!

Now here is your homework for tonight: Search the internet for a single instance of where a guy who multiplied his money by 4,286% did NOT make a whole big pot load of wonderful, wonderful moolah, and who did NOT go on to spend it foolishly by having a wonderful, wonderful time, living it up and having the time of his life until his wife and the IRS finally caught up with him, but by then it was too late.

- Michael Checkan, who is the chairman of Asset Strategies International (and with a fancy name like that you think the guy must know what he is talking about), says "The World Gold Council recently released supply-and demand statistics for the first quarter of 2005. Demand for gold in the first three months of 2005 is up 32%, year-on-year."

And as soon as I hear those words, I think about the supply side of the equation, and note that the supply of gold is not increasing. This is one of those Big Mogambo Moments In Economics (BMMIE), and I draw the supply line and the demand line, and then shift the demand line, and then I read over from the new place where demand meets supply, to see that price goes up! Yay! Using economics to make money!

And it gets better, too! Mr Checkan goes on to say "According to the Silver Institute (www.silverinstitute.org), statistics for 2004 show that a boom in investor activity was largely responsible for a 36% rise in the silver price to 17-year highs."

He goes on to say, "We have seen a significant drop in Central Bank sales of precious metals." And not only that, but there is "The lifting of the Japanese Bank Deposit Guarantee", which I don't know anything about, but apparently the Japanese government is no longer guaranteeing the safety of the depositors' money in the banks, which is another whole horror story in itself, I'll bet. But then again, these are the Japanese we're talking about, and they are famous for all kinds of monetary and fiscal insanities

He concludes (as I have likewise concluded, but I never get any credit for having thought of it, just because I have never had an original thought in my whole life that wasn't pornographic or related to pizza in some way) that "The good news for precious metals investors is that these pressures are almost exclusively geared toward increasing demand and reducing supply." In short, the price will go up. A lot. And if you are a greedy little pig who wants to make obscene amounts of profit so that you can quit your stinking job and spend the rest of your life watching TV and drinking beer and eating pizza, and get so stinking fat and disgusting that your wife leaves you for health reasons.

But this is not about me and little daydreams, but about gold and silver. And it is not the US Mint that is buying all this gold, I guess, as we read from the Charleston Voice that "For all of 2005 thru August, the Mint has coined 224,500 total gold ounces of all denominations. Comparatively, the total ounce production thru August 2004 was 374,000. That's a haircut of about 40%." So the Mint has minted 40% fewer gold ounces! Hmmm! So who is buying all the gold that has caused prices to rise even in the face of 500 tonnes of gold being dumped on the market by the central banks? Somebody smart, apparently, as they made money on it!

And it's the same story with silver! "Correspondingly, silver eagle production is down as well, 5,602,000 minted thru Aug '04 compared to 4,080,000 in 2005 thru August, so far. We know the US Treasury & Mint have no silver, having squandered the several billion ounces it once had. So, taking them at their word, they must be buying it from the markets or directly from mining companies." Now this is another instance where the mighty Mogambo strokes his chin and goes "hmmm!" (MMSHCAG"H")! I have no idea what it means, if anything, but it is very interesting, nonetheless!

- From the AP wire we read that "The number of bankruptcies in the United States surged to an all-time high in the second quarter of this year as financially troubled consumers scrambled to file before a rewrite of bankruptcy laws takes full effect." Which is in October, only two months from now.

- From Doug Noland we get some interesting bits. For one, we learn that inflation is NOT dead for everybody. It's only dead in the eyes of 1) lying government wonks and 2) lying Wall Street stock and bond touts. Speaking for myself, I reply to these guys saying how inflation is low, and how inflation is benign, and how inflation is under control, and how inflation is non-existent, with the Famous Mogambo Laugh Of Contempt And Scorn (FMLOCAS) which, when written out, is merely "Hahahahaha!" but which (in real life) sounds more like a hyena gagging up something disgusting. Mr. Noland is much more refined in his considered reply, which, in its entirety, reads "For the week, the CRB index added 0.6%, increasing y-t-d gains to 11.7%. The Goldman Sachs Commodities index jumped 2.2%, with 2005 gains rising to 40.7%."Hahaha! If that ain't inflation, then what in the hell IS it? Hahaha!

The thing that I find particularly interesting was that "Almonds, particularly popular in US snacks and confectioneries, have more than doubled in price to $8,400 a tonne in the past two years. Cocoa beans have soared from £600 a tonne to £1,647." But as wonderful as that sounds, the price of hazelnuts, it turns out, has "risen more than fivefold from about $2,150 a tonne two years ago, to a peak of $11,120 earlier this year."

More ominously, he quotes Simone Meier on the Bloomberg site, who said that in July, "Money supply growth in the dozen countries sharing the euro unexpectedly gained at the fastest pace since October 2003." And if you don't remember anything that I taught you except for one thing, I hope that you remember that an increase in the money supply always precedes the resultant and unstoppable increase in prices.

It is an increase in prices which we common-as-dirt consumer sluggards out here in the real world call "inflation," which we hate, because when we get to the checkout counter and that mean old biddy in that stupid little apron hits that "total" button, I know that it is going to be higher than it has ever been before, and I am going to scream in agony and clutch my heart in mortal pain, and then she will laugh ("Hahaha!") at my distress, and say how she hopes I die! And then, when I naturally and reflexively lean over the checkout counter to slap that evil grin off of her nasty little face, then it's HER turn to yell! Hahaha! Now she can hear ME laughing at HER pain! Hahahaha! And then everybody comes running out of the back office, and they blame me for everything, and they all want to know if SHE is okay, when I am the one crying and screaming and getting pretty damned hysterical! It's like I did something wrong or something!

Anyway, this is not about Doris and how she is an evil mutant species of rat-like creatures from another dimension that assume human form during the day so that they can torment me, or how my wife is their queen. This is about how an inflation in the money supply precedes inflation in prices. So, here is the inflation in the money supply, and everybody in the grocery store knows about the increase in inflation in prices.

So how much is the money supply expanding? Ms. Meier writes, "M3, the ECB's measure of money supply, accelerated to a 7.9 percent increase from a year earlier." Well, that is true, and as bad as that is, what is NOT mentioned is that the narrowest measure of money supply (cash and equivalents), according to the Economist magazine, is increasing at 10.5% in the Euro area!

So what does all of this expansion of money and credit mean, as far as inflation is concerned? I am charmed that you asked me that, because it is inflation that is the thing to be feared more than all other fears, including monsters under your bed or the CIA spying on you and making your life a living hell. Like, for instance, how my water heater "mysteriously" suddenly sprung a leak recently. I mean, it was in perfect operating order (POO) for twenty years in a row, and suddenly, one day, for no reason at all, it breaks? Gimme a break!

But this is not about how government agents are beaming invisible rays into my brain ("Consume! Consume!"), but about how the inflation in the money supply for the last several years is already showing up in prices, and the continual increase in the money supplies means MORE price inflation in the future.

But there are those who think, especially idiots and people who have taken a lot of drugs, that a little inflation is a good thing. To these people I say, "Step up a little closer to me when you say that, so that I can reach out and slap your face for saying something so stupid."

If there is one thing that I want you to remember, it is that there is no acceptable level of price inflation above zero. Zero is the upper bound on acceptable inflation. And if you think otherwise, like the horrid Ben Bernanke and a lot of other morons who ought to have their faces slapped, then show me one other time in all of history when a "little" inflation was a good thing.

- The time has arrived for anyone wanting a fixed return to plow their money into 6-month Certificates of Deposit, which are paying about 4.02%, according to the Wall Street Journal, which is almost identical to the yield on longer government 5 and 10-year debt! Hahahaha! Only a real idiot, and I mean a REAL idiot, is buying American debt at these low yields! Roaring, crushing inflation is coming, and the Fed is already on record as saying that they will be raising rates for quite awhile yet. And so any moron so dull as to buy American debt is going to lose money as yields rise. Hahahaha! These are the guys who are running your pension fund? Hahahaha! Sucker!

Ugh.

***The Mogambo Sez: It just keeps getting weirder and weirder, and I get weirder and weirder, too. But the eerie way that the stock market keeps going up in spite of everything, and how bonds keep going up in spite of everything, and how gold keeps going down in spite of everything is taking a real toll on me. And I already have gold. So I can only imagine with horror the panic of people who do NOT have gold!

These grubby little manipulations of the gold market are a gift to you, allowing you to buy gold at artificial very low prices. Take it. And silver, too. So take some of that, too.

Aug 30, 2005
Richard Daughty

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


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

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