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The gun-wielding gold bug raving lunatic is back

Richard Daughty

The Daily Reckoning
...the angriest guy in economics
The Mogambo Guru
September 14, 2004

- For those of you who pay close attention to these kinds of things, there was no Mogambo Guru last week. It was not, as is rumored, because I was responding to a rising popular clamor to just shut the hell up and seek professional help. No, it was because Hurricane Frances came through my home town and tore up the electrical grid, leaving me powerless for four long, hot, miserable days, which didn't do my attitude any good, which is always foul even on the best of days. Naturally, I was heroically braving the terrifying winds and flying debris to stay constantly on the phone to the power company demanding to be put at the top of the list for instant repairs, even as the brunt of the hurricane was still passing overhead. But as my reward for demonstrating Magnificent Mogambo Manliness (MMM) I had to listen to that tired song and dance about how hospitals and orphanages were being given top priorities. Naturally, I'm screaming "I don't care about no stinking hospitals or orphanages! I am The Mogambo! I am the only thing standing between us and the economic Armageddon that the idiots and halfwits at the Federal Reserve and Congress are unleashing on us! Can't you understand that, you stupid little twit?"

But as you can guess, there were storm-related problems with the phone lines, too, and every conversation with them ended the same way, with me saying "Hello? Hello? We must have been disconnected!"

- The government is still on a huge, unbelievable spending spree, and consequently the Treasury Gross Public Debt took another big rise of, and I hope you are sitting down for this, $22 billion last week alone! Total federal debt now sits at, let me check that number again, $7,376.5 billion, which is only a lousy $7.5 billion short of the statutory limit of $7,384 billion. You and I are not the only ones who are flabbergasted by this, and Barb at 321gold could not restrain herself from adding the comment "Jeepers!" to the link, which deserves some kind of award for understatement.

Just to show you that they are real Players, too, the Treasury also released another $6.3 billion in real, actual cash last week, which is, I suppose, being used to bribe Iraqis and keep things from appearing as bad as they really are, so close to the election and all.

Of course, the Custodial Holdings at the Fed shot up another $8.3 billion last week, as foreign central banks continued to underwrite our profligate consumerist stupidity by buying our debt. Warren Pollock, in an essay on the Prudent Bear site, notes "The US runs such large deficits that it needs buyers for its Treasuries willing to accept a rate of return that does not compensate for risk." If you are looking for evidence that foreigners are even more stupid than we are, keep this factoid handy. "US dollar purchasing power relies almost entirely on the difference between interest rates in Japan and the higher rates in the United States." This means that the poor Japanese people who save their money are having low interest rates crammed down their throats, which is, I assume, their way of paying us back for what we spent fighting them in World War II.

Mr. Pollock goes on to say "Let's recap: Japanese savings are invested in banks; banks purchase Japanese Treasuries; the Bank of Japan buys US Treasuries yielding a relatively high rate of interest and thereby making a profit. It is an intentionally contrived relationship that skims value from savings and encourages unproductive debt and investment. It puts Japanese savings at risk for the benefit of the US government, the US consumer, the Japanese worker, and politicians everywhere. Everyone gets a piece of the action. Risk is ignored so the United States has access to imported savings at below market cost."

And to show you that it is not only governments that are so stupid that they enjoy plunging themselves into unpayable debt, Americans got out their credit cards and charged up a storm, driving total Consumer Installment Credit up by another $8 billion in July, which translates to another $57 in debt for everybody that has a job in the whole country. In one month!

- An op-ed article written by Mary Anastasia O'Grady in the 9/10 edition of the Wall Street Journal entitled "Why Brazil's Underground Economy Grows and Grows" was very instructive. The thing starts out with (and I am twisting everything to suit myself and my own nasty personal agenda) a denunciation of the loathsome IMF and World Bank, and how those two pieces of Leftist garbage actually ruin everything and everybody they touch with their foul tentacles, which she justifiably calls "a disgrace."

But the big problem with Brazil is that, as if you had to be told, the government is just so freaking huge, and she reports that "Brazilian economists have for years been complaining about what they call the 'Brazil cost,' that is the heavy burden that the monstrous Brazilian government imposes on the economy." She then quotes William Lewis, former partner of McKinsey & Company, author of the book "The Power of Productivity," and founder of The McKinsey Global Institute, who says that his twelve years of research on the subject have driven him to conclude that "Most people don't recognize the destructive power of big government on economic development." So how big is the Brazilian government? I knew you were going to ask that question, because I know what a bright and inquisitive person you are! It spends, according to Mr. Lewis, 39% of GDP. Okay, now we are done yelling at Brazil for acting like stupid commie Big Government morons. Now, and this is the instructive part, we turn around in our chairs and look at the USA. How much does our own jackass government spend? It spends 37% of GDP! Hahaha! Theirs spends 39% and it is killing them, but ours spends 37% and everything is supposed to be just fine! Hahahaha!

And it promises to get worse and worse for us, as both of our main Presidential candidates are falling all over themselves promising
more spending, more programs, more government!

Now you know why I say, with that irritatingly smug and snotty know-it-all way that I have, that in America today the government IS the damned economy. And that is why the lowest interest rates in 45 years, and the biggest stimulus programs ever, have had so little effect; the demand for goods and services is dictated by the growth of government, which grows slowly, although continuously. And as such, the old-school economic-theory calculus of interest rates vis-à-vis economic growth has little, if any, effect on investment, as there is very little real private demand, financed by real, private funding, left in America. It's now all government, all the time. But government cannot grow as fast as an economy needs to grow. This is why our economy is limping along despite massive tax cuts, cash-on-the-barrel-head tax rebates that pumped raw consuming power into people's pockets, the government itself borrowing and spending itself into a frenzy of consumption, people going nuts with their credit cards, and negative real interest rates producing roaring inflation in housing, which produced paper-equity that was immediately borrowed (at miniscule interest rates) and spent.

- George Ure on his UrbanSurvival.com site took a look at the rising problem of inflation, which is the One Big Thing (OBT) that I am constantly screaming about, and screaming about, and screaming about, until I am hoarse from screaming in fear about it, and my throat is so sore that I am now reduced to writing apocalyptic warnings on large placards and standing by the side of the road, maniacally waving them at people who are stopped at the traffic light. Even my dog has started whimpering and frantically scratching at the door to be let out every time he hears the word "inflation."

Mr. Ure notes that crude goods prices are up 22.4% year over year, and that intermediate goods are up 8.1% y/y. This is inflation writ large. But somehow finished goods are showing no inflation! How can that possibly be? Well, with so much competition engendered by a Federal Reserve banking system that gave loans to anybody who wanted to start or expand a business, firms that raise prices makes fewer sales, so the firms have to eat the higher costs. He says "What it means is that prices paid for crude and intermediate goods that are used to make finished goods have continued to increase while the pricing power for finished goods has only kept pace with inflation - if that. It squeezed profits generally and that leads to layoffs."

And, if I may add my usual snide remark, companies that are laying people off are not famously known for simultaneously raising wages, except to the weird computer models and the hundreds of weird little low-IQ "economists" at the Federal Reserve.

But wages are not rising as fast as prices, which means that people buy less with their static paychecks, which means that factories sell less, which means that factories produce less, which means they don't need as many workers, which means that there is a glut of labor, which means that wages are not increasing due to a lack of demand for labor, which gets us back to the beginning where we learned that The Mogambo is screaming, screaming, screaming that wages are not rising as fast as prices. Mr. Ure goes on to say "As anyone can see, the mass layoffs in July were up significantly and we have to wonder what the August report will look like. The mass layoff picture clouding up again is not a uniquely American problem, either. We note for example that in Germany, Volkswagen is saying that up to 30-thousand jobs are at risk if workers don't accept wage freezes and benefit reductions."

"Wage freezes and benefit reductions" is another way of saying "Your stinking little paycheck ain't a-gonna buy as much stuff from now on, my darling little Herrenworkers and Frauworkerettes, and you might as well get used to having a lower standard of living, and I'm not even going to mention the fact that every year from now on your standard of living will get lower and lower and lower until you finally can't take it anymore and you scream 'The Mogambo was right! They are out to get us!' and you reflexively grab flaming torches and pitchforks and rise up in an angry rebellious mob bent on blood revenge."

Kurt Richebächer, who is everybody's favorite Austrian economist-type dude probably because he is a real nice guy and is not, like me, a foul-mouthed gun-wielding gold bug raving lunatic bastard who is always on the verge of going berserk in a blazing rage of homicidal fury, is also up to speed on this inflation and wage thing, and says "Looking for clues in history, we have pored over the data of past economic recoveries from recession in the United States. Altogether, America experienced six upturns during the postwar period." So, let's see here; that's about 60 years, and there have been six upturns. Quickly reading ahead so it looks like I have a thoughtful, cogent comment, I innocently ask "Mr. Richebächer, what did those six upturns have in common?" Playing right into my hands, he says, "They had many features in common, both in speed and pattern. Most striking among them was their extraordinary vigor in employment and income growth. Manifestly, all the recoveries were job and income driven."

Makes sense to me! If you make more money, you get to spend more. If you spend more, factories will produce more. If factories produce more, they must hire more labor, which bids up the price of labor, which means you make more money, which means you get to spend more. Man, I love this economics stuff!

I suddenly find myself dancing gleefully around chanting "Make more! Spend more! Whee! Produce more! Make more! Spend more! Whee!" I am up on his coffee table dancing my little Mogambo heart out in happy celebration, when out of the corner of my eye I notice that Mr.
Richebächer is calmly cautioning me to take notice of the fact that income growth is flat at best, and maybe even declining when viewed another way, and perhaps even plummeting like a stone when viewed through The Prism Of The Way The Mogambo Views The Whole World And Everybody In It (TPOTWTMVTWWAEII), which is to see treachery, betrayal and impending catastrophic doom in everything.

This is where the Natural Instincts Of The Mogambo (NIOTM) are made manifest, as I hear that (and follow my logic closely here) all previous recoveries had "extraordinary vigor in employment and income growth," but our current "recovery" has neither of them. I fixate on the part that says all recoveries have extraordinary vigor in employment and income growth. I stop dancing. I sit down. I stand up. I look around. I notice that we do NOT have extraordinary vigor in employment and income growth. I ask with a plaintive cry in my voice, "Hey, Mr.
Richebächer! Do you see any extraordinary vigor in employment and income growth?" He says nothing, but shakes his head sadly, which I assume means "no."

This means that, ummm, it means that, ummm, well, I admit that I have lost my train of thought. But it seems to me that there was something significant about the fact that all previous recoveries had extraordinary vigor in employment and income growth, and the fact that we currently have neither extraordinary vigor in employment or income growth seems like it should mean something significant. I can't exactly put my finger on what it means, but maybe you, with your giant, computer-like brain and your fancy-schmancy education can make something out of it and then explain it to me.

But since the significance of those two things escapes the Perpetually Confused Mind Of The Mogambo (PCMOTM), it seems obvious that I could not possibly come up with a remedy. But it would be foolish to discount the government not coming up with a plan! If wages are not rising as fast as prices, then (and I hope you love this as much as I do) let's do something about prices! And since we cannot actually lower prices, then the next best thing is to do what government does best: lie and keep lying!

UrbanSurvival notes that the government has already employed "creative lowering of the measured inflation rates through hedonic pricing and other devices." And not content to show how much smarter they are than that idiot Mogambo, they even give the reason why the government is doing that. "Always keep in mind: One less percentage point in inflation equals one percentage point higher in productivity growth. In other words, GDP growth is grossly overstated."

Those irrepressible clever dudes over at the Daily Reckoning site who delight in effortlessly coining memorable phrases that roll trippingly off the tongue, besides chronicling the way America is spiraling down into economic ruination, comically crack wise that going to war with Iraq is beneath us, in that "Kicking the scrawny butts of nearly unarmed Third World nations is not the sort of thing that epic poems and granite monuments typically celebrate." I bring up this witty and profound comment not because it has something to do with economics, but just because it tickles me so much, and makes me wish I had said it, but I did not, although just between us I would appreciate it very much if you would tell people that I did, so that maybe somebody would reply "The Mogambo said that? Wow! He's not as insipid as I thought he was!"

But getting back to economics, they also noted that Ernest Hemingway, who was a whiz-bang author and heavy-drinking gun nut, but who was NOT an economist, could clearly see, even through a heavy haze of alcohol and gunpowder, that "The first panacea of a mismanaged nation is inflation. The second is war."

Bill Bonner himself provides some historical instances of this when he writes, "Germany was so unsettled by the financial calamities of the '20s it welcomed a whole new team of scoundrels. Italy welcomed Mussolini largely because the nation was bankrupt. The Argentine generals launched the Falklands war in order to divert the public from its financial catastrophes." And of course our own Revolutionary War and the Civil War were essentially about a nasty money-grubbing, fascist government trying to forcibly extract more money from hapless citizens, who were so distraught that they rose up in armed rebellion. In fact, one of the many grievances included in the Declaration of Independence was that the British government "erected a multitude of new offices, and sent hither swarms of officers to harass our people, and eat out their substance." Some things never change, except now it is our own American government doing it to us.

And it is a sad, sad commentary about the United States that Hemingway, a writer whose knowledge of economics was apparently limited, as far as I know, to running up a tab at various saloons and what he could read before he passed out in a drunken stupor, knew that mismanaged countries resort to inflation and war to solve the problems they brought on themselves. And yet today we have a Federal Reserve (grrr!) and a federal government (double grrr!) and a whole constellation of cold-sober halfwit idiot-savants with PhD's in economics (triple grrr!) who can come up with impossibly-convoluted mathematical models but can't comprehend what a novelist instinctively recognized. And furthermore they can't see, even when pointed out to them, that the entire history of the world for the last 8,000 years in a row is essentially that one sad lesson, over and over, and they refuse to acknowledge it, even though I never seem to tire of pointing it out to them in long, rambling letters that all start out by addressing them as "Dear Ignorant Butthead" which I purposely do so that they will know from the get-go that they are a bunch of idiots and if they continue reading they may learn something. But they never do.

This whole inflation and static wage thing is also the subject of an essay entitled "Inflation's Impact on Americans - 'You're Fired!!' " by Barry Down and Bill Matlack, on the Kitco.com site. "The US is suddenly finding itself being sucked into the center of the perfect storm: a globalized and fiercely competitive economy; an American economy where living costs demand wage levels far exceeding foreign competition, resulting in outsourcing of good paying mainstay American jobs; and a society leveraged to the hilt and unable to cope with a future decelerating economy."

As a guy who lives in Florida and who is writing this with one eye on the weather channel on TV, watching as Hurricane Ivan is being controlled by the CIA to slam into me personally, I am therefore closely attuned to anything referred to as "the perfect storm," and I am torn as to which of these two storms I fear the most. On the one hand, the Ivan storm will be gone in a few days, and on the other hand the economic storm that is unfolding will bedevil us for the rest of my pitiful life, and probably destroy the United States, which pretty much deserves to be destroyed for acting like childish jackasses and pointedly ignoring its own Constitution concerning the requirement that money is to be only of silver and

But they don't care about me and my stupid hurricane phobia, and they continue on as if I was not even here. "What is the likely economic scenario facing Americans for many years to come? It is one of being caught up in a degenerating economy contending with both deflationary and inflationary forces (the worst of all worlds) and dealing with a long, protracted decline in living standards." I note, to bring a little "up close and personal" to the discussion, that it is funny that they use the phrase "worst of all worlds," as that is how my wife describes both knowing me and being married to me! But, again, my pathetic attempt at levity does not impress them, and since they seem to be getting irritated that I keep interrupting them, I sit down in a huff with a scowl on my face and stick out my lower lip to show my petulance.

They look at each other as if to say "What in the hell was THAT all about?" But they quickly regain their composure and continue along, saying "Perhaps the worst problem will be the highly-leveraged state of the economy and the dislocations the US debt burden will have on a whole cross section of the economy, as the decades of cumulative distortions and imbalances are corrected by market forces." Not to mention, of course, the troubles that foreign lenders are heaping on themselves by loaning us monstrous, almost unimaginable sums of money so that we can buy more and more stuff, more than we have places to put it all.

And Sean Corrigan, whose gigantic intellect is currently in service at Sage Capital Zuerich AG, has a fabulous new essay entitled "The Twin Deficits- Myths and Truths," also has something to say about inflation. He says that "A falling dollar would be welcome by some producers and politicians, but the country's consumers would be left with no more goods than before, and just higher prices. This is the legacy of an insidious transfer of wealth out the hands of the private sector and into those of the state and of its creatures."

Beyond that, he says, perhaps we should also consider a couple of other deficits. "The mental deficit which has lead otherwise reasonable men and women into this hazardous entanglement and the moral deficit which allows them to continue along this path, regardless of the longer-term consequences." Yeah! Go get 'em Sean!

- Gillespie Research looked a the ISM (Institute for Supply Management) July numbers and noted that "July was the 29th consecutive month of increasing prices." Those facts are as plain as the big ugly Mogambo nose on my face, and we have Gillespie to thank for making the effort of looking them up, because you know that I am not going to get off my big, fat lazy butt to do the work. But yet not a day goes by when there is not some knucklehead from the Fed, or some other government agency, or some whack-job "think tank" yahoo that gets his money from a government grant, that is not telling me with a straight face that there is no inflation, or that inflation is "tame" or that inflation is "benign" or some other lie that makes me scream ("aarrrggghhh!") in indignation at being asked to swallow such a huge bald-faced lie.

In a similar vein of looking at inflation, Peter Schiff at Euro Pacific Capital notes that "Import prices registered their largest monthly gain in 20 months, increasing by 7.2% over the past year, with the non-petroleum component increasing by 3.2%, the fastest rate in nine years. Meanwhile, July export prices actually declined by .5%."

- An article in last Thursday's WSJ was entitled "IMF Memo Faults Argentine Debt Restructuring." Apparently the dolts in charge of leading Argentina down the path of stupidity and ruination don't like a new IMF report that intimates as much. For one thing, the Argentines assume that any debt that they have, or ever will have, will never be repaid, but that debt, and any more debts they happily accrue, will be rolled over indefinitely because they are such a nice bunch of sweethearts or something, in essence going continually farther and farther into debt because everybody out here in the real world has no problem with lending them more, and more, and more money forever, and that accumulating gigantic unpayable external debts is not something bad. Hahaha! Chumps!

- An editorial in Thursday's WSJ by Albert R. Hunt entitled "The Illusionary Domestic Agenda" has the memorable phrase "To tackle any of the bigger issues will require a much sharper and more politically sophisticated domestic policy team; the Bush economic team is simply mediocre."

Well, personally would be thrilled -- thrilled! --to have an economic team in the White House that is merely mediocre! I'd love mediocre! Mediocre implies merely lackluster and average. But the current crop of blowhard jackasses, namely the Council of Economic Advisors run by that academic nitwit Gregory Mankiw, are worse than lackluster. They are, in a word, horrid! These are the economic advisors to George Bush, a guy who has not vetoed one damn spending bill in his entire time in office! Not one! And beyond that, he has spent more money, and run up more debt, than any other President in history! And where has Mankiw and the rest of the jackasses on the Council of Economic Advisor been all this time while this was going on?

Perhaps Robert B. Gordon, Sc.D., said it best in an essay he wrote on the Kitco.com site, in which the title says it all. He writes "Do Not Believe American Economists. They Haven't Got a Clue About the Economy." And then he goes on to prove it. In spades.

Well, you can see by the drool on my chin and the rising decibel level of my voice I am working myself into one of my spells, so let's change the subject. Since we are speaking of the WSJ and idiot economists, in the same issue was a letter to the editor from a guy named Roger Brinner, PhD. This guy is, according to his bio, "chief economist at the Parthenon Group and was an economics professor at Harvard and MIT." Okay, with those credentials he should know that if he opens his mouth with something stupid then I am going to be gunning for him with both barrels. PhD economists all make it a point NOT to write letters to the WSJ if they have something stupid to say, especially when they are making the case for perpetually higher taxes and/or more government spending, because they know that I subscribe to that newspaper. And since I subscribe, I am probably going to read it, because I have nothing else to do all day except stay locked in the safety of my cozy little closet under the stairs and read the paper while scanning it for secretly implanted government micro dots that they use to spy on me. So I figure that this guy is new to the "letter to the editor game."

Anyway, he was writing because he wanted to comment on a story that the Journal ran about how local and state governments are desperately trying to get more spending money because the economic slowdown has adversely impacted their take. Their usual reliance on income taxes (and sales taxes, I assume) means that when we bozo citizens spend less money because we are suffering the woes of the business cycle, then the government also suffers because their tax revenue falls. He hates that, and he apparently wants government to always get as much money as they want. From that I assume that he is a clueless Leftist Democrat dweeb, if I may lapse into my usual gratuitous personal-insult mode. He helpfully suggests to remedy this by also taxing people's property, and making that a part of the whole "diversified portfolio" of taxes! Gaahhhh! This Brinner person (and notice that my voice is suddenly tinged with a raw, undisguised disgust and loathing) says that this is "a prudent strategy for states and cities to follow in both resolving temporary fiscal needs and providing more revenues for the long run."

(Long, long pause. Measured in hours).

Okay, now I am back from the Emergency Room. I heroically drove myself there, horn blaring, tires squealing, running red lights and stop signs, picking up a quick couple of tacos on the way, to get checked out by Trained Medical Professionals to see if I had a stroke or something. As I explained to the doctor, I thought I knew what the word "prudent" meant. But when I read that this guy thinks that it is "prudent" for some damn state, or some damn county, or some damn city, or some damn town, or some damn federal government, to maintain constant (or increasing) tax extraction, when the citizens are making less money in this phase of the business cycle, then I naturally figured that the Mighty Brain Of The Mogambo (MBOTM) had exploded. As such, it was incumbent upon me to get this checked out right away, and if true, to immediately apply for that precious Handicapped Parking sticker for my car! I mean, my freaking brain has exploded! How much more handicapped can you be, for crying out loud?

But there was nothing wrong with me, which I surmised from the doctors taking all the money out of my wallet and then throwing me bodily out of the emergency room, screaming "Quit wasting our time and stinking up the place, you filthy little bastard!" So I stood in the parking lot and yelled "But he said it was prudent! I used to know what prudent means!" When they started coming at me with syringes and straightjackets I got in my car and came home and looked up "prudent" in the dictionary. I was right! I actually DO know what it means! So increasing taxes is prudent? I snort, and as I snort with contempt (SWC), something came flying out of the Nose Of The Mogambo (NOTM), which makes the whole thing a little MORE disgusting, as if the idea of it being "prudent" to constantly extract more and more taxes out of beleaguered citizens during an economic slowdown is not disgusting enough.

He apparently likes this property taxation wheeze better than just raising other taxes, as it is more "progressive," in that poor people, who live in hovels and tenements and in their cars and under bridges and who carry their worldly belongings in old grocery carts which are too flimsy to mount a .50-caliber machinegun on the handle and so you mount it on the tripod and then there is not any room left in the cart for any ammunition and so I end up crying out "There is no God!" and sobbing in frustration, pay very little in property taxes. So, as the theory apparently goes, only the rich will pay the taxes. Hahahaha! I will let this idiocy pass, as anybody who thinks that the rich, who are rentiers and owners of business and political hucksters and religious charlatans and assorted getters-and-lenders-of-money are so stupid that they cannot figure a way to get their money back from us unwashed proletariat masses, and it never occurs to them to hire hotshot accountants and tax lawyers to do it for them! Hahahaha!

But he goes on to say that the state and local weenies can tax everybody as much as they want, because the taxpayers can deduct the property tax on their federal income tax returns! So it is an offset! I erupt in derisive laughter, hahahaha! Apparently this guy, for all his PhD education, does not comprehend how the Schedule A deduction works. If you see him, tell him that it only means that you don't pay income taxes on the money you used to pay the state and local taxes. You still pay all the money! You just don't have the additional injury of paying income taxes on it! And if you think that is an "offset," then there is something seriously, seriously wrong with you!

I pause to wipe the tears of laughter from my darling Mogambo eyes that twinkle and sparkle like the stars in the firmament, at the spectacle of a PhD who taught at Harvard and MIT that is so clueless that he believes such a thing, because it is just too, too funny for words! Hahahaha! I can't stop laughing!

(Another long pause. Also measured in hours.)

It is now much later. According to my medical file, I was overcome with laughter and so my "attendants" hooked some electrodes to my head that ran to a machine, and the last thing I remember was the machine going "bzzzzz!" But he never bothers to question whether or not constantly extracting more and more money from the economy is good or bad. He naturally assumes it is good, and so I naturally assume, in turn, that he is worthless commie jackass or a Democrat, which I realize is highly redundant and insulting and I will probably be hearing from his lawyer, but I am not worried because he will be too gutless to prosecute the lawsuit because I can PROVE that he is, as I stated, a worthless commie jackass by using his own words against him, although he may not be, in fact, a card-carrying Democrat, but he probably is because that is exactly how they think. But every normal man, woman or child who is even marginally conversant in elementary economics, or who has ever paid a damn tax, knows that constantly extracting more and more taxes from an economy is not good. It is never good. It is bad. It is always bad. Very bad.

But here comes this Brinner character who says that extracting more and more taxes is, as he says, "a prudent strategy." And not only that, but it will alleviate both temporary budget imbalances, and will also, (my guts are making a noise that sounds like "urrrk orrgg" as they churn in outrage) provide "core revenues for the long run," although I suspect that the word "core" is a typo, and what he meant to say was "MORE revenues for the long run." Although if he DOES mean "core," then that implies that there will be OTHER taxes and fees and charges laid on top of it with which to cruelly torture the citizens, which brings us back to "more," which means "the government gets more and you get to keep less." And only in Democrat-land are the laws of economics so bizarre that economies prosper when the government gets more money and the citizens get less.

And this horrid, twisted little man, and you can tell from my use of that incendiary phrase that I am really starting to lose my cool here, has 1) a PhD in economics, and 2) actually taught economics at Harvard and MIT, from which I trust he no longer does because he was fired for mental insufficiency and utter, utter incompetence, as this is just the sort of socialist/communist/ big government nonsense that is all the rage in the Leftist economics departments of the major universities, as I gather from reading the Leftist drivel that comes out of those awful people, and that is why I helpfully suggest that you should never hire anybody who graduated with a degree in anything from Princeton, Harvard, MIT or Yale. But especially anyone with a degree in economics from one of them, which is obviously now more worthless than a degree in Education, which was heretofore the perennial winner of the Most Worthless College Degree Sweepstakes.

- Peter George, in an article entitled "Greenspan's Ducks Take Flight" we get a little lesson in technical market savvy. "When a market breaks below its 200 day moving average, it generally signals a long term change of trend. If a market stays down long enough for its 100 day moving average to turn down, and in turn break below the 200 day, it draws a line in the sand. Very rarely will a market then rally above the crossover point before beginning a major new slide which takes out previous lows."

This makes intuitive sense, since the averages declined because lots and lots people were selling for some reason, and "reasons" of that magnitude do not reverse on a dime. I can see that you are raising you hand, and I don't even need to call on you to know that you are wondering why he brought this up in the first place, and why I brought it up in the second place. Instead of me running my big fat mouth let me just quote Mr. George. "In the past two months, starting with the NASDAQ, but followed by the Dow, Europe and Japan, all major equity indices have largely met the above criteria, as a prelude to re-entering the next phase of continuing long term bear markets. All these markets will in due course go lower - much lower than the investing public presently anticipates." And what he did not say is that temporary bounces back over those 100-day and 200-lines do not usually stay there very long. So look out below!

Marc Faber is also handy with a technical tidbit or two, as he proves in his essay, "The US Economy Is The Next 9/11" He writes that "As a result of the decline in the rate of growth of money supply, 'excess money', as defined by the growth in money supply in excess of nominal GDP, has over the last 18 months also plunged. Usually, when money supply growth slows down so rapidly and when 'excess money' plunges, the economy follows with a brief time lag." How brief? Well, looking at my watch, any minute now, I figure.

- Chad Hudson, on the Prudent Bear website, wrote an essay entitled "Consumers Slowing Down." It is such a litany of bad news that I am under orders from Mental Health Professionals Who Charge The Big Bucks Although I Never Seem To Get Any Better to not spend any time trying to put in my own words, most of which would probably end up being loud obscenities. So I will merely quote him verbatim. "On Tuesday, the Chicago Purchasing Manager index dropped 7.4 points in August, reversing most of the 8.3 point gain in July. Most of the weakness was in production, new orders and order backlog. Prices paid jumped nine points to 86.6, the highest level since July 1988. "On Wednesday, the Institute for Supply Management released its survey of manufacturing purchasing managers. The headline number fell three points to 59, which is the lowest level this year. The more heavily weighted components dropped the most. Production fell 6.6 to 59.5,the lowest since September 2003, and new orders dropped 3.5, but remained well north of 50 at 61.2. The only components that rose were the two inventory measures and prices paid.

"Consumer confidence fell in August for the first time in six months according to the Conference Board. The 7.5 point drop was more severe than the 2.2 point decline economists had forecasted. Consumers were more cautious regarding the future as the expectations component dropped 8.7 points to 96.6."

Your homework assignment is to find one single, lousy piece of good news in any of that. Just one will be enough to earn an A. And if you can't manage to find one, and don't feel bad because I could not find one either, then you can still get extra credit by coming up with some damn way that this string of bad news will NOT be a portent of bad things happening in the future. I recommend that you take lots of powerful psychoactive drugs, measured in fistfuls, in completing this assignment, as there is no way in hell that anyone operating within the constraints of stark reality can complete it.

- The Labor Department reported that non-farm payrolls increased by 144,000 jobs. Pete Spina over at Goldseek.com, who is just the kind of party-pooper to do this kind of balloon-bursting research, went to the BLS website and found that 120,000 of those jobs were from the infamous "birth/death model." So jobs, net of these assumed jobs, was 24,000. Of course, there probably were some jobs to be realized that were not counted, but it takes a real optimist to think that there were 120,000 of them, given the other conflicting evidence from other reports.

The 9/11-17 issue of the Economist magazine also reports that "The unemployment rate edged down to 5.4% in July, though this was mainly because the labour force shrank by 150,000 during the month." Huh? The government says the labor force shrank? The freaking labor force shrank? How in the hell could the labor force shrink when we need 150,000 new jobs a month just to keep up with the growth in the damn population?

- A biography written by James Chaco about the 1912 election, entitled "1912: Wilson, Roosevelt, Taft and Debs," was reviewed in Barron's, and the reviewer quotes Taft as saying "A national government cannot create good times. It cannot make the rain to fall, the sun to shine, or the crops to grow, but it can, by pursuing a meddlesome policy prevent prosperity."

And I will amend that (even though Taft is long since dead and so he cannot heartily clap me on the back and say "Well said, Mogambo! Here's a tall, frosty beer and a big ol' government grant as my way of saying thanks!") to say that "Not only can the national government prevent prosperity, but after it prevents it long enough, it will produce bankrupting misery. It always does."

- Stephen King, but probably not THAT Stephen King, in an article posted at Independent News entitled "Bond Slump Shows Fragility Of US Recovery" writes about "the peculiarity is the performance of bond markets. When was the last time that US 10-year Treasury yields fell against a background of rising oil prices? When was the last time that 10-year Treasury yields fell at the beginning of an apparently prolonged period of monetary tightening? Why is it that investors are buying bonds - pushing up their prices and, hence, lowering their yields - when most economic fundamentals should be telling them to sell? Tighter monetary policy, higher oil prices: in normal circumstances, these alone would be enough to drive bond yields significantly higher. Yet as short-term interest rates have risen, long-term rates have come down."

Mr. King is such a class act that he does not come to the conclusion that The Mogambo instantly comes to, which is that there is rampant manipulation and outright fraud being perpetuated by governments who are desperate to make sure that nothing untoward happens to the markets before the election in November, and that there are scumbags in charge of financial centers who are willing to be complicit in those slimy frauds because it enables them to make lotsa money by screwing the hell out of people who are making sensible, realistic market bets based on education, smarts, history and common sense.

As if to underscore my irresponsible raving, Rob Peebles of Pru Bear posted a fascinating graph entitled "Weekly Program Trading as a Percentage of NYSE Volume" that carried the cryptic notation "Source: New York Stock Exchange, 'New Laws of The Stock Market Jungle' by Michael Panzner."

The crux of the graph was that since January of 2000, the level of program trading has increased, and it now accounts for over 50% of NYSE volume, and is spiking at around 70%!

In short, it seems I was right: The stock market is being gamed as large financial centers that have access to other people's money are speculating against each other, and every dime of that is coming out of somebody's hide, and it ain't them or their corrupt little buddies. It's you and me.

- The Economist magazine is not above printing execrable Leftist garbage, as evidenced by a recent article entitled "The Risks Ahead For The World Economy" by Fred Bergsten, who is the director of the Institute for International Economics in Washington, DC.

He starts off innocently enough, looking at the trade and budget deficits. "Of course, it is virtually inconceivable that the markets will permit such deficits to eventuate. The only issue is how they are to be averted. An immediate resumption of the gradual decline of the dollar, as in the period 2002-03, cumulating in a fall of at least another 20%, is needed to reduce the deficits to sustainable levels."

You gotta take that with a grain of salt however, as he went on to say "The budget and current-account deficits are not 'twin'. The budget in fact moved from large deficit in the early 1990s into surplus in 1999-2001." What a load of crap! And he should know it! The budget only went into putative surplus because the damn Congress conspired together to commit a fraud, and agreed to change what they counted and what they didn't count! As proof, all I have to do is show that if you were truly in a surplus, you would not be going farther into debt, as it is mathematically impossible to be going farther into debt if you are making more money than you are spending. But when you look at our national debt, we haven't shown a "surplus" in over 40 years! To the contrary, we have been constantly going farther and farther into debt, including the aforementioned 1999-2001 timeframe he comically alludes to!

He then puts his towering intellect to work, and says that he thinks that the high cost of oil should be brought down. Wow! Why didn't I think of that? He then says, and you are going to love this, "America should therefore seek agreement among importing countries (including China, India and other large developing importers as well as industrialised members of the International Energy Agency) to offer the producers an agreement to stabilise prices within a fairly wide range centred at about $20 per barrel." Hahahaha! They ought to love that! Using this fabulous plan, my neighbors and I are all going to run down to the local supermarkets and get them to agree to stabilize the price of pork chops centered at fifty cents a pound, stabilize the price of milk at ten cents a gallon and stabilize Oreo cookies at a quarter a bag! I am sure that they, like the oil exporters, will all leap to agree to such a wonderful plan!

But it would be a mistake to think that everything he says is laughable nonsense just because so much of what is spewing out of his mouth is laughable nonsense. He does say some things that are correct. To wit, he looks at China and notes "A sizeable renminbi revaluation is also crucial for global adjustment because much of the further fall of the dollar needs to take place against the East Asian currencies." Well, duh! It is those selfsame East Asians that are buying up all the dollars, thus keeping its exchange rate value high, that we are spending!

And then just as I was paying attention to him again, and thinking to myself that maybe I was too hard on him and that maybe I am just too stupid to comprehend what he is saying, he goes really bananas and says "Countries that undergo currency appreciation, and thus face reductions in their trade surpluses, will need to expand domestic demand to sustain global growth. China need not do so now because it must cool its overheated economy. But the other surplus countries, including Japan and the euro area, will have to implement structural reforms and new macroeconomic policies to pick up the slack."

Hell, it would seem that a guy who works for some hotshot organization called the Institute for International Economics would know that the American consumerist economy is so damn huge that it constitutes a third of global GDP, and it consumes the overwhelming majority of every scrap of goods and services that the world produces! And so there is no way in hell that tiny little Japan and the Euro area could possibly, ever, even in their wildest imaginations, suck up enough global output to even consume a quarter of what us Americans consume. Only China is big enough to perform such a gigantic feat, and he wants China to stay out of it!

I shake my head in weary resignation. This is the sorrowfully low level of sophistication of economics as taught, and practiced, here in America.


*** The Mogambo Sez: There is a theory going around that the dollar may soon, paradoxically, strengthen, because there is such a universal consensus that the dollar must fall in value. In short, the market does the opposite of what everybody thinks, and since everybody thinks that dollar should fall, it will rise.

The reason that people think that is should fall is that there is no fundamental reason for the dollar NOT to fall, as it is being actively devalued by the Federal Reserve every day of the week.

If it does rise, the price of
gold will probably fall. If it does, then try and contain your joy at what will probably be the last time that you will ever get to buy gold that cheap. If this does come to pass, I assume that, because you are a smart person, you will back up the truck and load up with the gift of cheap gold, as the long-term course of the dollar is inexorably down and the course of precious metals is, as a result, equally inexorably up.

And you don't have to listen to me, and only a real idiot would listen to anything I had to say. But you would be well advised to listen to Marc Faber, who also suggests the accumulation of
gold, "as it is the only sound money," and that "Gold should be accumulated continuously." But he agrees with me, even though I am sure that the very thought of agreeing with me about anything puts a bad taste in his mouth, that there is also a lot to be said for the bull market in commodities, and he especially likes the profit potential of "corn and coffee, and especially sugar and orange juice."

Me too.

Sep 13, 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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