The Usual Suspects

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
September 1, 2004

Foreign Custody Holdings at the Fed ballooned another $12 billion last week, and the American banks themselves gobbled up another $11 billion in the same week. When you politely ask, "Hey, Mogambo! Where did all of this debt come from?" I wink knowingly and point to Official Treasury Debt, which is, as of 8/27, $7,353.5 billion, which is up $9 billion in the same week, $77 billion for the month.

Doctor Dinero, and you gotta love the guy's name, wrote an essay that sounded like something I would write. It was entitled "Screaming From My Soap Box!" with the subtitle "Or, Premonitions from the Past." He is one of those guys who can relate two disparate things to each other, and as such probably did very well on his SAT exams. You are probably wondering to yourself, "I wonder what the Mogambo means by that exquisitely enigmatic phrase?"

Rather than trying to explain and then having you show your intellectual superiority by verbally fencing me into a corner where I eventually contradict myself, I merely note that he combines "The Creature from Jekyll Island," the famous book about the Federal Reserve, with three classic novels about government gone insane ("Brave New World" by Aldous Huxley, "Fahrenheit 451" by Ray Bradbury, and "1984" by George Orwell) and then compares and contrasts all of that with where we are today. He notes that "In the book 1984 the newspeak slogans were: 'War is Peace,' 'Freedom is Slavery,' and 'Ignorance is Strength.'"

Then he posits that today, the "New slogans are 'Fiat is Money,' 'Debt is Wealth,' 'Ignorance is Knowledge.' " Hahahaha! I couldn't have said it better! Hahahaha!

And how did those three futuristic novels end? Were they happy endings, where beautiful people traipsed off into the sunset hand in hand, trailed by darling little puppies and everyone is laughing and smiling and flowers are blooming and birds are singing sweetly in the trees and there is economic prosperity for everybody? No. As I recall, they all ended the same way, which was "They're all out to get you, Mogambo!" This is what scientists in white lab coats call "The Mogambo Death And Destruction Scenario, Where Everything Is In Flames And Utter Ruin As Far As The Eye Can See Syndrome," but colloquially known as the TMDADS,WEIIFAURAFATECSS.

In a similarly clever vein, Jim Willie CB wrote his essay, "Alcoholics Anonymous View of US Financials," conceives of it as a problem of debt addiction. He writes "If debt addiction is deeply rooted, and evidence certainly points in that direction, then veteran treatment centers warn that three outcomes exist as final destinations for participants." A choice! At least we have a choice! How nice! And now The Mogambo feels awkward and silly after screaming and crying about how the end of the world is here and how the living will envy the dead, and how we will reap nothing but woe and misery because we acted like idiots with fiat money and fractional banking! But getting away from me for a moment, and this pains me more than it does you because I think that everything is about me and I want to spend all my time thinking about me, me, me, he says "Gamblers and debt abusers, much like alcoholics and drug addicts, find an ultimate endpoint in a cemetery, a prison, or an insane asylum."

These are the three choices? Yow! Okay, maybe I was a little hasty when I discarded the TMDADS,WEIIFAURAFATECSS, which has worked so marvelously up to now in predicting the future.

Marshall Auerback is pretty nervous too, and when Marshall Auerback is nervous, then the rest of us proletariat boobs out here ought to put down that bowl of popcorn and that TV remote and tune in to what he says. In his Prudent Bear website essay, he leapfrogs all of us, and goes right to "An American reckoning is going to have consequences for the entire world, but harshest consequences will likely be experienced by US consumers. The vast majority in the country will experience a major decline in their living standards to a degree unprecedented since the Great Depression. This will be remembered as the true legacy of the Greenspan Federal Reserve."

And if you want to want to get a little taste of what "a major decline" in standards of living is like, I figure that 80% of the population would have a permanent 60% cut in their real, inflation-adjusted incomes, and if you are the scientific type and want to replicate my experimental results at your own laboratory, the method I used to calculate that statistic was to pick numbers randomly out of the air.

Bill Buckler, of The Privateer newsletter, is a lot more rigorous about it, and does not utilize my patented "picking numbers randomly out of the air" method. He uses real numbers and real data, and calculates that, "The US can only 'solve' its twin (trade and budget) deficit problem by facing an internal contraction of the US economy amounting to about 12 percent."

Now, if 12% doesn't sound like that much to you, probably because you are so rich and famous and have forgotten what it is like to not be rich and famous and you can't remember when was the last time that you went picking through the neighbor's trash cans, he goes on to say that a contraction of that magnitude "would cause an economic recession/depression of historic scale, and all it would do is to bring the US economy back into global balance and balance the US Federal budget. If, in addition, the present internal US credit expansion was brought to a halt, another 11 to 12 percent of the present US GDP, which is currently being borrowed into existence, would disappear. Combined, these three items come to an enormous 22-24 percent of the present US GDP." Didja notice the part about "enormous"?

Rick Ackerman, who writes Rick's Picks, has entitled one of his essays "First Deflation, Then Gold-Mania" He says "Basically, then, I agree with those who believe the dollar will eventually be destroyed by inflation. How could it end in any other way?" I spill my café latte in my lap as I enthusiastically jump up out of my seat, shouting "Hurray! Hurray for Rick Ackerman! Tell it like it is, brother!"

He goes on to say, "I've asserted here many times before that the dollar is already fundamentally worthless. My disagreement with the inflationists is not over whether we will have inflation, but when. I see the prospect of a years-long period of deflation first."

But since we were talking about inflation, an article in the 8/11-9/3 Economist magazine entitled "Nought To Worry About" is a case in point. Namely, the debasement of the Turkish Lira by their central bank has gotten so bad that they are forced to scrap their old, worthless currency, and will issue a "New Turkish lira" that will replace the old devalued lira at a rate of 1,000 to one. The cartoon accompanying the article was a drawing of a guy slicing zeroes off of a roll of currency, a roll that looks like a roll of toilet paper! Hahaha! "Not all poems are written with a pen!"

The Turks figure that they are "the 50th country to pursue a re-denomination in recent years." Nice going, central banks! You have destroyed the currencies of fifty countries in the last few years!

But Mr. Ackerman also went on to talk about deflation. Deflation? Did he say deflation? So you mean that houses and stocks and bonds can go down in value? Wow! Who knew?

Well, apparently Stephen Roach of Morgan Stanley knew, and in fact he is on record as saying "Moreover, by subsidizing the US interest rate structure, foreign buyers of dollar-denominated assets are encouraging cut-rate refinancing of sharply appreciating property. Such equity extraction has been key to the monetization of the wealth effect of the incomeand saving-short American consumer. Who could ask for more? The record of history is quite clear in asking for more. So are the equilibrating tendencies of macro theory. Ever-widening current account deficits and ever-falling domestic saving rates are simply not sustainable developments for any economy. All foreign and US officials can do in such a climate is step up their efforts in containing sharp adjustments in asset prices and attempt to buy time."

This "sharp adjustments" means "values go down," which means "investors lose money," which is the dreaded deflation we were talking about.

"Buy time," he says. He says that all public officials can do at this point is "buy time." I can see by your face that, being the adorable and curious little grasshopper that you are, sitting in rapt attention at the feet of The Mogambo, you would like to know what is the price of this bought time. Let me steal an old line and tell you that if you have to ask, then you cannot afford it. No one ever has been able to afford it, and that is why those idiot countries that tried to "buy time" all failed in the attempt.

He goes on to say "There can be little doubt as to why foreign policy makers -- especially those in Asia -- have intensified their campaign to support the dollar; lacking in domestic demand and fearful that their external demand support would be eroded by stronger home currencies, they simply can't afford to face the alternative. There is a worrisome precedent for this shifting mix of foreign capital inflows from private to official funding. The last time it happened in the context of a US current account problem was in the months leading up to the stock market crash in October 1987." So the rapid increase in Official Custody Holdings at the Fed by foreign central banks is a redux of the market crash of 1987? Gaaahhhhh!

A clever guy named Larry Powers has written poem entitled "Miscellaneous Raving," which is a profound and funny poem about, of all things, macroeconomics. I hereby include two excerpted stanzas, although there are many more, and the rest of them are clever and funny, too, but I choose these because they are the only two I am pretty sure that do not contain subliminal, hidden insults about the Mogambo or messages to the FBI to come over to my house and rough me up a little.

"And what about the dollars that our bankers
Keep printing out of nothing, like the wankers
They truly are? The thing I find surprising
Is the ones who should be recognizing
And warning of this blatant counterfeiting
Are claiming that the whole world's benefiting.
"But paper money's always lost its value
When backed by nothing, and it ever shall. You
Can never print your way out of crisis.
You'll always bring about exploding prices.
But that's exactly what our Fed is doing.
That's why I think that there is trouble brewing."

Gillespie Research has posted a nice essay entitled "A Primer on Government Economic Reports-- Things You've Probably Suspected but Perhaps Were Afraid To Ask" on their website. They pull extensively from a guy named, Walter J. "John" Williams, who is a guy who has been toiling among the vineyards of government financial reporting so long that he is an expert on them and the ways that they have been manipulated for decades, by one Presidential administration after another, and if you want to know how it just gets worse and worse and worse you should ask him.

I will skip over that long part about how the government is a lying bunch of weasels, and get right to the numbers stuff. "As a result of the systemic manipulations, if the GDP methodology of 1980 were applied to today's data, the second quarter's annualized inflation-adjusted GDP growth of 3.0% would be roughly three percent lower (effectively netting to zero percent or below)." So, we have zero economic growth, or less!

He goes on to say "In like manner, current annual CPI inflation is understated by about 2.7% against the pre-Clinton CPI methodology" and that using the original methodology, inflation would be about 5.7%! That exclamation point is mine, but the revelation seemed to call for one.

"The unemployment rate is understated by about seven percent against its ori ginal design" and that actual unemployment is about 12.5%. The unemployment rate, using the methodology that was good enough for everybody all the way through time and space until now, is 12.5%!

In that vein, perhaps it is time to bring up the latest government release of GDP, and how it is up only 2.8%, whereas they had been expecting something above 3%, and that was down from expecting more than 4% at this time last year. So things are even worse!! Note the TWO exclamation points!!! Now look! There's three of them!

Well, they also figure that the federal government's 2003 deficit was an eye-popping $3.7 trillion, "as reported by the U.S. Treasury, versus the reported cash-basis $374 billion." $374 billion is bad enough, and causes the Mogambo to seethe with his patented hostility. But $3.7 trillion is ten times as bad as that! TEN FREAKING TIMES BIGGER!

This is, of course, both 1) an actual deficit that is ten times as large as they say, and 2) only possible if we let the government apply their own rules, which they make up to suit themselves as they go along, instead of "the application of accrual accounting and generally accepted accounting principles" like everybody else in the whole damn world does.

An article in last Thursday's Wall Street Journal entitled "Fickle Inflation Data Are Quandary For Bush" was instructive on many levels. First, there is the quote by a guy name Mr. Long, who says he thinks "The Bush administration could do something to hold down prices." Yes, they could, Mr. Long! But they don't want to! They actually want prices to go up more and more! Unfortunately for you, Mr. Long, and me, Mr. Mogambo, and also unfortunately for our wives who are known as Mrs. Long and (according to her T-shirt) Mrs. "I'm With Stupid," it is this senseless, relentless and destructive creation of money and credit that makes the damn prices go up! And it is the halfwits of this world, mostly Democrats because the Democrat Party is the traditional political party of the laughably stupid and the pathetically ignorant, who are always bleating that they want the government to "do something," which translates as "give me something for free," and which makes prices go up even more! And as along as there are grubby little people who want something for free, there will never be a time when there will not be calls for the government to hand out more free things.

And to be fair, the current Bush White House makes the Democrats look good, and it makes Republicans look really, really stupid to nominate the irresponsible spendthrift George Bush for a second term as President, when all we have to take a glance at what he has done since Jan 2000 to know that this is a huge, huge mistake.

Second, the article quoted a woman named Janet Jia is wise beyond her years when she says "Hourly warehouse workers are hurting because wages aren't keeping pace with inflation." At last we have some economic smarts shown by, what I assume to be is a member of the general public!

That, Ms. Jia, is the whole problem with inflation! And it is not just wages that are not keeping pace! Incomes in general are not keeping pace with the rise in prices! But at least the warehouse workers can ask for a raise, work longer hours, or take a second job. There are millions and millions of people whose incomes are similarly NOT "keeping pace" with inflation who would LOVE to be able to affect their income, but they can't. In fact, there are lots and lots of people in this country who make NO income at all, or have an income that is, for all practical purposes, fixed. And each and every day of their lives they are going to be more miserable, and able to buy fewer things, and their pathetic lives will spiral down and down, every damn day getting poorer and poorer.

And upheavals and revolutions are not caused by a few people getting rich, but by the legions of people who get poorer. And that is what we have now, in spades.

To show you how far removed from reality John Snow is (and for those of you who don't keep up with local politics, this guy is the Treasury Secretary of the United States), Business Week magazine sat down with him to listen to him flap his lips in this optimistic way, and it is from that interview that we learn that that we should "Give people more control over their own lives, empower them to take greater responsibility for their own retirements, health care and economic security." Hahahaha! Where the hell has this guy been? Take responsibility? We're suddenly going to act responsibly for our own actions? Now? Hahahaha! The very essence of government today is that it works day and night to make up for everybody's mistakes, so that nobody ever has to take responsibility for anything! But it doesn't stop there! He goes on to say "People are intelligent in the U.S.; they can make intelligent trade-offs." Hahahaha! The Mogambo springs to his feet, and whipping out a Magic Marker, quickly draws some graphs on the wall. As the security guards drag me away, you can hear the Mogambo yelling out "When one charts the apparent IQ of Americans through the decades, which is shown by this upper line that is sloping down and to the right, simple extrapolation dictates-- dictates! --that we are provably, beyond any shadow of a doubt, much more ignorant, probably because the average IQ has gone down, than at any other time in American history! I mean, just look at us!"

Well, obviously I was not there for the rest of the interview, entangled as I was with the security personnel, and I was trying to gently calm them down by screaming right into their faces that they can't arrest me because I am The Mogambo, and they are infuriating me by acting like they never heard of me, and you should have heard the disrespect they showed for my License To Kill status! Jerks.

Anyway, so it is to the actual magazine article that we turn, and we read that Mr. Snow figures that we need to fiddle with tax policy to encourage savings. So far, so good! The reason is, and I love this, that he says that it "plays into long-term growth rates, because if you invest more for the future, you have higher real wages, higher per capita income, higher prosperity."

This is where we part company on this savings thing, because I am here to tell you that while we DO want investment from savings, we do NOT want higher real wages OR higher per capita income. We want prices and wages to remain perfectly stable! Zero inflation. If we do that, then the Miracle of Productivity kicks in! Prices go down while income stays up, and part of the extra money saved per week (the marginal propensity to save function) lowers interest rates, and the remainder (the marginal propensity to spend) provides the extra demand to soak up the additional production! So textbook! So classic! So deliciously perfect!

And that is the reason why I am dragging my feet as the security people were dragging me down the hall, screaming as loud as I could, that John Snow is an idiot, because even a moron as intellectually impoverished as me can immediately realize that the only real end result from higher wages and higher per capita income, what he envisions as our future, is that it necessarily breeds more income inequality, which is characterized by richer rich, a middle class that raises its prices to cover its increased costs (and thus merely offset the inflation in prices), and that leaves a large, and growing, class of people who do NOT have a higher income, but have to pay the damned higher prices. These are your standard categories of your old, infirm, handicapped, homeless, mentally ill, young, abandoned, weird, anti-social homicidal lunatics, the unemployed and the unemployable, and various assorted others, like the Mogambo, who embodies a little of all of these people, if modern psychiatric diagnostic techniques are as good as they claim.

If you don't have any money, then a one-dollar loaf bread is more attainable than a five-dollar loaf of bread. And if you are homeless, then a studio apartment at $50 a month, utilities included, is a lot more attainable than an apartment costing $1,500 per month, plus utilities and security services to keep the poor people away.

And when you gather all these poor, miserable people into one place, you will immediately notice that there are a lot of them. And I mean a lot! Out of a population of 290 million that are currently living in America, 150 million do not work at all! Of the 140 million who DO work, fully 22 million of them are direct employees of a government! And the rest of the country is merely engaged in selling goods and services to the government and each other.

So how many people are going to benefit by higher wages and higher per capital income? Let's find out! I walk up to the microphone, and announce "May I have you attention please? Stand up if you think you are going to benefit from a policy aimed at producing higher wages and higher per capital income. Be honest." After a lot of shuffling of feet and mumbling and grumbling, I look out over the audience. With a sneer in my voice I say "I see the usual suspects standing. Lawyers, politicians, power-brokers, and of course the damn bankers. Perfect. Absolutely freaking perfect."

And all the rest of the people, that vast, engulfing sea of people who are not playing in the game for one reason or another, are going to suffer because of somebody else getting higher wages and higher per capita income, which makes prices go up. And increasing the suffering of more than half the population of the United States is not in Mogambo's Definition Of Economic Success (MDOES).

In a similar vein, the Associated Press reported that the Census Department figures that "The number of Americans living in poverty increased by 1.3 million last year, while the ranks of the uninsured swelled by 1.4 million." Well, rising immigration could explain that, I suppose.

In the same light, "Approximately 35.8 million people lived below the poverty line in 2003, or about 12.5 percent of the population. That was up from 34.5 million, or 12.1 percent in 2002." Well, that could be a statistical error, and all-in-all one could make the argument that things are, roughly, about the same, and if adjusting by immigration, then things are actually better!

But there is no escaping dollars and cents, and in that regard they report that "The median household income, when adjusted for inflation, remained basically flat last year at $43,318."

And I am here to tell you that the government-massaging of actual statistics only partially compensates for the real level of price inflation, and if you fully adjusted incomes for the effects of inflation, then the median household income went DOWN, and has been going down for years!

Sprott Asset Management has released their blockbuster report on the manipulation of the gold market by what is commonly referred to as the Gold Cartel. You can find it on their website at Sprott.com. And if you are raising you hand to ask if The Mogambo believes in these conspiracy theories, then let me answer you with a resounding "Yes! Yes I do!" There is absolutely no doubt in my mind whatsoever that if anybody in power has the power to manipulate things to their advantage, they will do so. And these gold cartel players certainly have the power. And so, following this to the logical conclusion, of course they are trying to manipulate the gold market! And somebody is manipulating the stock market! And the bond market! And the currency market! And the real estate market! And the commodity markets! You name it!

Greenspan had a few remarks at the recent Jackson Hole conference of central bankers and their willing half-witted hangers-on. He said, "As I have noted previously, the bipartisan policies of recent decades directed at deregulation and increasing globalization and the innovation that those policies have spurred have markedly improved our ability to channel saving to its most productive uses, and as a byproduct increased the flexibility and the resiliency of the U.S. economy." He is right. We have channeled foreign savings into investments in those selfsame foreign countries! We did this by borrowing their savings and spending it on stuff that they produce!

He also said, "One policy that could enhance the odds of sustaining high levels of productivity growth is to engage in a long overdue upgrading of primary and secondary school education in the United States." Note to Greenspan: It could, conceivably, but it won't. A country that is so stupid that it cannot see the effects of a fiat currency, controlled by fractional banking, in a system of a gigantic, corrupt government is NOT going to benefit by education.

Then he says, right out of the blue, "Investment, however, cannot occur without saving." Hahahaha! We haven't had a dime's worth of saving in this country for decades! So it all depends on your definition of "savings," which, in this case, I assume he means More Money And Credit Via The Fraud Of Central Bank Fractional Reserve Lending.

Doug Noland's Credit Bulletin column at the Prudent Bear website had this intriguing item. "August 27 - Bloomberg: 'Venezuela President Hugo Chavez said the country's economy must move away from capitalism and large land holdings must be eliminated.' " And you thought that communism was dead except in Cuba! Chavez went on to say "I call on private businessmen to work together with us to build the new economy, transforming the capitalist economic model into a social, humanist and equality economy. The time has come to accelerate the transformation. The revolution has just begun." The lesson is to get the hell out of Venezuela because a country so filled with people so impossibly stupid cannot survive, because it is supremely stupid to turn right around and again go down the same destructive socialist road that ruined them to start with, and indeed, Venezuela does not deserve to survive.

Also thanks for Mr. Noland for doing the work, because now I can easily report that inflation in China is up, and the government there is actively trying to slow the economy to fight the dangerous level of inflation. South Korea has inflation over 4%. Philippines at 6%. India is "at a three year high." Vietnam is at 9.9%. It goes on and on, as the decades-long surreal monetary expansion of the Fed, and of the whole of the rest of the world, seeps into prices, day after day. And in every one of those countries are a bunch of guys who are upset at the rise in prices.

I am almost through Laurence H. Meyer's book "A Term At The Fed." I am repelled and horrified, but I cannot turn away.

So, what it is like at the Fed? Alan Greenspan makes all the decisions, and hundreds of eager-beaver economists toil to come up with new ideas, new theories, new approaches, blah blah blah, that will further their careers, especially if the new idea encourages more central bank interference in the economy and glosses over the startling fact that the Federal Reserve is a nest of incompetent boneheads. The rest of the people, including Mr. Meyer, merely hang out and give speeches that parrot the party line.

And then finally, on page 188, a page that will reverberate in Hell, we get to the revelation of what the Fed plan is. It is in several parts, and I shall number them to show you that I comprehend the theory behind numbering things, even if economics and common sense are beyond my Mogambo Grasp (MG).

1. The central bank should "Move quickly in the face of continued economic weakness, and in, effect, 'err on the side of ease.' " This takes out what Meyer calls "taking out 'insurance' against the asymmetric downside risks associated with deflation," whatever they are. And the way to do this is to "implementing a more stimulative monetary policy that might otherwise be justified." You can't justify it under normal circumstances, but since you have screwed things up so badly, you can justify them as a matter of "urgency?" Now you know why I spend a considerable amount of time locked inside Mogambo Bunker with the lights off, whimpering in the dark and nervously flicking the safety of a machinegun on and off, on and off, on and off.

2. "It is important to have a positive inflation target," he says. Finally we agree on something! We should have a target of zero inflation! But he says no. He wants real, prices-going-up inflation. And not only that! He wants and I quote, "price stability plus a cushion. By keeping inflation at some positive number, the central bank will not have to, theoretically, drop interest rates to zero." He wants us to suffer constant, grinding inflation so that it will make it easier for him and his idiot Fed friends to dig out from a future monetary fiasco? I scream in horror! I click the safety to "off."

3. This is another one that I am going to quote verbatim, "The third lesson was that policymakers should move more aggressively to raise inflation when inflation is below the target than they would move to lower inflation when it is above the target." He says that this is because "deflation is riskier than inflation." Huh? Who says so? He even quotes Lyle Gramley who uttered a phrase that will come to haunt you and then soon you will wake up in the middle of the night screaming in fear, "When you don't have much ammunition, shoot to kill!"

4. The fourth lesson that "fiscal policy need to be part of the stimulus package in a postbubble economy confronted with the risk of deflation." He says that "fiscal policymakers have to be prepared to shoulder more of the stabilization burden than they would otherwise," although he doesn't exactly say what this "stabilization" is or how it is to be achieved. He doesn't lay out exactly what in the hell Congress is supposed to do: Combat the inflation that wide-open monetary policy causes? Or actually work to augment the monetary insanity?

I guess this is why John Snow is recently quoted as saying "Monetary policy and fiscal policy continue to work together to accommodate growth." The biggest laugh I got, although it wasn't really laughing as much as I was choking in rage and spitting up blood, is that Mr. Meyer actually thinks that "It is easier to reduce inflation later than to dig our of deflationary spiral caused by deflation." Hahahahaha! Hell, Paul Volcker is still alive today, and this Meyer character could walk over to the United Nations building where Mr. Volcker is getting the runaround investigating the pandemic fraud and scandal of the United Nations' Food For Oil program, and Meyer could ask him how much fun it was reducing inflation! But he doesn't! Instead, he says idiotic things like this!

But Mr. Meyer did, however, admit one thing that made my heart soar like an eagle. It seems that there is someone in the United States who comprehends exactly what this Fed insanity really means, because says that he once received a postcard that addressed him as "Dear Spawn of Satan."

You know that I am a gold bug for the stupid reason that gold soared in value every other time in history has a country been so stupid as to do what we have done with our money and out banks and our government. But there is also a case to be made for silver. In fact, Richard J Greene, who is a Portfolio Manager with Thunder Capital Management, calls silver the "investment opportunity of the decade."

He says "The long run price of gold to price of silver ratio has been about 16 to 1. Currently, the ratio exceeds 60 to 1, which suggests that silver should appreciate several times the rate of appreciation of gold." And when you compound that by how little gold has gone up in comparison to the debasement of the dollar, then the potential for appreciation in silver may turn out to be exactly as he termed it.

Florida, my home state, likes to show that we attract low-IQ people as well as anybody, and we are preparing to vote on not only a higher minimum wage, but one that is also indexed to inflation, so that the minimum-wage will rise in the future.

The big question that rumbles through the news media around here, for reasons that I cannot comprehend, is whether or not raising the minimum wage will cause jobs to be lost. The answer is, "Who knows?"

All one can say for sure, and this is one of those Famous Mogambo Moments Of Transcendent Wisdom (FMMOTW), is that, and I will put it in quotes which gives it that little extra bit of smug arrogance "Raising the minimum-wage, as when raising any wages, as will raising any cost of doing business, will increase the costs that employers must pay." Whether or not that causes employers to eliminate jobs is an individual question.

The mere mention of rising costs sends the Mogambo into a dreamy reverie, and in that wispy state of half-remembered ghosts I reminisce about how all the previous employers I ever had (and there were lots and lots of them, mostly because the Probationary Period oddly coincided exactly with some mysterious "last straw" and then it was, like, "Scram, bozo!"), and I seem to remember that they were always looking for ways to cut costs, so that they could make more profit. Now that I think about it, they all seemed particularly preoccupied with the whole idea of profit, as a matter of fact! Anyway, their usual method of cutting costs was to work me harder by dumping more work on me, and to keep coming into my office and waking me up in the middle of the day, or calling me on my cell phone while I was out playing golf with my hoodlum friends, and always yelling, yelling, yelling about something, as I recall.

So I think back to my string of employers and their single-minded zeal for higher profits, and then I think about costs being higher thanks to the higher minimum wage. And then I think about how employers wanted bigger profits. And then I think about the higher costs of paying higher wages. Since they don't have the Mogambo around anymore to kick and blame for everything, whether it was my fault or not, and sometimes it wasn't, then the employer will have to 1) cut some other costs, and/or 2) raises prices. And his costs are somebody else's income, and so the extra money that the minimum-wage worker is getting is coming out of somebody else's pockets if the employer elects to cut costs that way. So, there is no change in total aggregate income at this first iteration of the system.

And if there is no change in aggregate, total income, then the country is not better off, in terms of income! So why in the hell are we raising the minimum wage? And since, in the end, prices will have to rise, this depresses real, inflation-adjusted incomes! Which means that we are WORSE off than before!

How much better it would be if prices did NOT go up in the first place! The minimum wage worker would not need a raise because prices did not go up! And to achieve this happy result, all you gotta do is abolish the central bank and fiat money. If money is gold and gold is money, and the banks were forced to survive on prudent lending, then that is exactly what you would have. Exactly.

Verizon Business/Finance News had an item entitled "Stocks Dip on Consumer Income Report News", by Michael J. Martinez . It was about the Commerce Department's report of that showed a rise in consumer spending for July, but also reported that growth in incomes was nearly flat. He says "While consumer spending bodes well for short-term economic growth, the anemic rise in incomes cast a pall over longer term prospects, since rising income is key in overcoming inflation in consumer costs."

Well, duh! And how do you raise the incomes of people living on Social Security? How do you raise the incomes of people who do not have jobs? How do you raise the incomes of people living on fixed annuities?

At the website of New Scientist, Fred Pearce wrote an interesting article about "Asian Farmers Sucking The Continent Dry." His research suggests that Asians are pumping 200 cubic kilometers of water to the surface each year. "But only a fraction of that is replaced by the monsoon rains."

In China, they are pumping out 30 cubic kilometers more water to the surface each year by farmers than is replaced by rainfall. The upshot is that "Chinese officials warned this week that water shortages will soon make the country dependent on grain imports."

In India, water tables are dropping by 6 meters or more each year. Investment Tip O' The Day: start going long on commodities, because water, like oil, is being permanently depleted, and foodstuffs don't grow without water.

Daniel Denning of Strategic Investment writes that "Over 35% of U.S. Treasury debt has a maturity date of less than one year."

What does this mean to you and me? Let's find out! I reach out and pick up the Mogambo Phone (MP) and I call him up. The receptionist answers the phone. I say "Hello. This is Mr. Denning's uncle, in town for just a few hours. May I speak to him, please?" and she yells "No you're not! You're that horrid Mogambo!" and I am yelling back at her "No I am not! " and she is yelling "Yes, you are!" and then I scream "No, I'm not, you nasty little woman!" and she is screaming and crying, and then Mr. Denning himself comes out of his office to find out what all the fuss is about, and he grabs the phone from her and asks "Hello? Who is this?" And I say "Mr. Denning, what is the significance of the Treasury's debt having a maturity of less than a year?" and with barely disguised sarcasm in his voice he says "If you had bothered to read farther in the article, you irritating little twerp, you would notice that I already told you the significance of that." So I go back and look, and sure enough he said "That means any rise in interest rates makes it almost instantly more expensive for the government to borrow money. Bottom line: The interest expense of the federal budget -- already more than 20% -- is about to skyrocket." Yikes!

The jackasses of the world who raised the taxes on cigarettes are now reaping the predictable result. The GAO says that counterfeit cigarettes are now the most seized item by Customs. What to do? Well, if you are an idiot and you work for the government, then of course your response is to act like a zealot, which Ambrose Bierce defined as "someone who redoubles his efforts after losing sight of the objective." In this case, they want to pass The Prevent All Cigarette Trafficking Act, so that the ATF can increase their budget and maybe get some spiffy crime-fighting gear to Combat The Scourge Of People Trying To Get Cut-Rate Cigarettes Because Taxation Has Made Them So Expensive.

And if the ATF catches more crooks, what to do with them? Put them in prison? Hahahaha! We are already bankrupting ourselves from locking up more people, per capita, than any other country in the world, and now you want to compound that folly by imprisoning MORE people for the crime of desperately trying to circumvent onerous over-taxation of cigarettes? Hahahaha! Morons!

The only answer is to cut the damn taxes! But will they? Hahahaha!

Ugh.

*** The Mogambo Sez: The nearer to election day that we get, the weirder and weirder it will get, as hard as that is to imagine.

September 1, 2004
Richard Daughty
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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