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Be Afraid. Buy Gold and Silver

Richard Daughty
...the angriest guy in economics
The Mogambo Guru
Archives
Sep 14, 2005

- I am reporting from deep inside The Secret Mogambo Ultimate Bunker Of Secrecy And Redundant Redundancy (TSMUBOSARR), so if you are having trouble receiving this message, just remember that it is almost certainly because the CIA, or the FBI, or some other people (everybody) want to hurt The Mogambo, and are jamming my transmissions. Or just making me crazy for sport. I dunno which.

For an example of "making me crazy for sport", last week, the Federal Reserve bank came slinking out from under whatever stinking rock it is that they hide and increased Fed credit, for the zillionth time in a row, but only by $1.4 billion. So I guess the good news is the news could have been worse. And usually is.

Staying in the putrid, stinking area known as "the banks", they suddenly bought up, in the same short week, $28 billion in "other securities", whatever in the hell that is.

The Treasury, of course, is another story, since they are an actual government agency, and the Federal Reserve is just a bunch of private businessmen getting together in 1913 who convinced the Congress to give them to give them complete, absolute power over the all the banks.

That in itself is, under a gold standard, no big deal, and it could actually be very beneficial. But then (and notice how the soundtrack has switched to dark, deep and chillingly ominous music, conveying a sense of scary foreboding that is almost palpable), to seal the deal that sealed our fate (which is a nice turn of phrase, if I say so myself), we became just another idiot country that started down the ugly trail of tears known as, according to the Mogambo Big Book Of Economics Stuff (MBBOES), "a period of time otherwise referred to as 'Bankruptcy And Misery Every Freaking Where You Looked Because The Money Was Debased.' "

Anyway, we were talking about the Treasury, which spent the entire week printing up, literally, $6.1 billion in actual cash. Perhaps this has something to do with the fact that they have ballooned the national debt to $7,949 billion, which is up $20 billion in just the last week alone. In the last WEEK! WEEK!

And when you add in the $62 billion in hastily-passed New Orleans-related federal authorizations, suddenly you have a big freaking pot load of money pouring into the USA, because the banks will eagerly lend money now against a guaranteed flood of money in the near future.

How much money is this compared to Louisiana? Well, $62 billion is more-- more! --than the entire total of ALL the retail sales, in the whole state of Louisiana, for the whole of last year. THAT'S how much money that is! The damned place is going to be deluged with money!

And to show you the really weird part, the dollar did not fall precipitously like, utilizing the Mogambo use of an ugly metaphor as a literary device (MUOAUMAALD), a big piece of dog crap that fell off the curb into the gutter.

The fact that the dollar did NOT collapse to utter worthless in the face of this rampant monetary and fiscal insanity only proves that Americans are not the only people in the world who are complete idiots. Whew!

- One of the interesting things was that a guy named, appropriately, Michael. Moscow, who is a Governor of the Federal Reserve, decided that 3.2% inflation was at the "top" of the range of inflation that it is, in his opinion, "consistent with price stability." Hahahaha! I laugh, and because I was drinking a cup of coffee at the time, I got an icky Mogambo mess (IMM) all over everything. But what a howler! Hahahaha!

After the laughter died down, I was left with the predictable Mindless Mogambo Rage (MMR) and I am soon standing in the front yard, firing an anti-aircraft cannon at invisible CIA helicopters and Klingon battle cruisers with cloaking devices, and screaming, "The Federal Reserve is killing us with inflation!"

And as proof that, as I said "The Federal Reserve is killing us with inflation", I am going to subpoena this Moscow character to testify at my trial, which is actually more of a sanity hearing, which will show the judge WHY I was firing an anti-aircraft cannon without a permit, and in a residential area, which was because, as I have already patiently explained to the policemen, I freaking live there, you stupid morons! Where else was I supposed to fire the damned thing?

But this is not about how my local Gestapo goon squad police are totally ignorant of the finer points of the Second Amendment to the damned Constitution. This is about how, in my agitated state, it is no wonder why I cannot possibly conceive of how anybody, especially a Governor of the Federal Reserve, could possibly think, even as a joke, that inflation at ANY percentage rate above zero could be defined as "price stability", except in Bizarro Land, where everything is backward.

And ESPECIALLY when that 3.2% is of the "persistent, grinding type" of inflation, like the inflation that we have had since (checking my watch to be precisely accurate), forty freaking years in a damned row. So you would think that this Moscow bonehead would know, as any kid in kindergarten even zonked out on Ritalin and too much sugar can immediately see at a glance, that prices going up is NOT prices being "stable". And if the kid had a sick sense of humor, then he (or she) would have immediately starting laughing "Hahahahahaha!"

And in case you are something of a history buff, then you know that in the entire history of economies stretching back over 100,000 years, all the way back to when cavemen were financing mastodon farms, 3% inflation has proved to be the cutoff between "worrisomely high inflation" and "We're screwed! Emergency! Emergency!"

So it is only a man who is forced to be a liar, and I am talking bald-faced liar, and I am talking complete freaking bald-faced liar lying his head off and making himself look ridiculous as point-man in a desperate assault on common sense to frantically try and cover up the most egregious incompetence in the whole history of banking, which is the hallmark of the Federal Reserve in general and Alan Greenspan in particular, would say such a preposterous thing. Only this man, this poor, wretched, pathetic little man who is watching his who career going up in flames as a result of what he did, and did not do, as this credit and debt monster grew to where it is now so big (audience yells out "How big, Mogambo?"), that it will eat us alive, would stoop to conclude that price inflation of 3.2%, which is what results AFTER the damned government has done doing everything it can to disguise inflation with their new "hedonic adjustments", had anything at ALL to do with "price stability"! You can't even SEE price stability from an inflation rate of 3.2%!

In case you ain't heard (and don't be ashamed if you hadn't because here is a perfect case of a guy who should know, who is paid to know, but apparently does NOT know by his own admission), that "stability" means "zero" only things that are NOT moving are stable. As a corollary, all things that are moving are, and you can check my math here, "not stable."

And zero it must be. Inflation must not be allowed to go over zero. Prices must not increase, and the money supply should not increase (with, if you insist, enough increase to account for the increase in the population). And if you DO increase the money supply with wildly inflationary expansions of debt and the money supply, then you are going to get price inflation! And that what really, really, really ticks people off.

This "ticking off" does not even start to convey the horrors of bubble inflation in asset prices, which will come down, which is the dreaded "deflation" that destroys wealth and destroys whole economies, especially one as highly-leveraged, as deeply leveraged, as chronically leveraged, as insanely leveraged as this one, where every freaking dollar that some hustling speculator fast-money gambler can get his hands on is used as nothing more than a lousy own payment, and the rest of the investment is made using borrowed money! Gaaaahhh!

As a guy who has read about what the hell happens when you leverage so much, so, so very much, in creating wildly expansive speculative bubbles in anything, I am scared out of my freaking Mogambo mind (FMM). Why? Well, the Tulip Mania bubble comes to mind. And the French Revolution comes to mind. And the hyperinflation of the Weimar Republic in Germany comes to mind. And the Great Depression comes to mind, too. All of these were caused by wildly expansionary monetary policy.

And the worst offender of all is the government! They have borrowed and spent, to date, not only a zillion or so dollars, but they have put us on the hook for, already, $44 trillion dollars in liabilities! Four times what we produce as a country in a whole year! We already, thanks to the communist/socialist/fascist morons we call, collectively, Congress, owe four times as much as we make, as a whole freaking country, in a whole freaking year! Your lesson will be revealed, my darling grasshopper, as you are on the True Path To Mogambo Enlightenment (TPTME) when you re-read this last sentence, again and again and again, hour after hour, until you are so angry that you are gagging up vomit, and you now consider a 3-day "cooling off period" before you can get a gun, a big gun, a great big freaking gun and plenty of bullets, to be a complete travesty of justice!

And all of our problems are directly attributed to inflation, which is directly attributable to the Federal Reserve, which includes this Moscow nitwit. Achieving price stability (which is defined by people on this planet as a zero increase in prices) is the damned DUTY of the damned Federal Reserve by charter! That is why, so we are told, they were given control of the banks in the first place! So they could achieve "price stability" and thus, hopefully, prevent the boom-bust cycle! But look at them!

I mean, any idiot can produce inflation! All you have to do is print money! Anybody can do it, in their spare time, with just a few minutes of work a week! So you don't turn over the entire banking system of the United States to a private bank if you wanted to produce inflation, you blowhard idiot! And you can tell by Mr. Moscow's face that he knows that I am not talking about just him, but everybody in government since 1933, when we changed to an asinine fiat currency, which made this possible.

As John (not Hugo) Mackenzie, of the newsletter M2, said, "We're pretty much morally and ethically bankrupt."

And speaking of blatant incompetence and a moral and ethical bankruptcy that is killing people, New Orleans shows what happens when boneheaded people elect morons, year after year, who increased government spending by hiring their friends, dispensing oodles more government money to everybody with a sob story and connections, and who deliberately neglected the fragile condition of the levees, which they had known about for more than twenty years! But every time there was an election, the morons of New Orleans, and Louisiana as far as I can tell, all trooped out with big, stupid grins on their stupid faces, and did the stupid thing again, and elected another slate of incompetent, socialist/redistributionist jerks. And whichever way it works out, it will provide a handy example for the rest of the world, who can now point to New Orleans and say "See what happens to you when you act like childish idiots and crackhead trash?"

And in case you were wondering, I don't care what the media, Congress, President, or any of the President's people think, including his damned father, but the "blame game" is the ONLY game there is. It's how you find out who is an incompetent little pipsqueak jerk and who is not, and then you fire The Mogambo because nobody likes him anyway, and next time you will not have an incompetent bozo screwing things up. That's their damned job! Don't let some jerkface, incompetent, blowhard "public servant" tell me that I am going to have to pay extra taxes, and bear heavier burdens, because they don't want to get rid of some other criminally incompetent jerk who is to blame! That THEY hired! Servants don't talk to me that way, dammit! So all of these people saying that we should NOT play "the blame game" obviously need a good face-slapping, a smack so hard that will clear out so many mental cobwebs that they will remember the instant they were born.

And giving these despicable halfwits $2,000 each as a reward for acting completely irresponsibly and embarrassing themselves (and America) really gripes my butt, because the money is going to be spent by the damn federal government, the money for which will be created out of thin air by the damned Federal Reserve, which will increase the money supply, which will make inflation rise, which will make everybody's situation worse in the long run, and which will increase the national debt that is already so large that it will crush us one day.

And speaking of the national debt, America obviously has no intention of ever paying off the national debt (since the debt is so large that it is no longer even freaking POSSIBLE to pay off the national debt). But we still have to make interest payments on all of it, which, in case you ain't heard, already consumes over $320 billion freaking dollars a year, which comes out to over a thousand dollars for every man, woman and child in the whole damned country! Every freaking year! Or, in terms of workers, just paying the annual interest on the national debt takes $2,300 per worker in the country.

Peter Schiff of Euro Pacific Capital sort of agrees with me, although he does NOT get so mad that he wets his pants and then everybody laughs at him, that New Orleans is an metaphor of something very ugly. He writes, "Unfortunately the situation in New Orleans is a microcosm of our nation as a whole. Although our reliance on foreign savings and production are widely known, and most economists accept the fact that a real economic disaster would ensue should foreigners discontinue such subsidies, dump their hoards of U.S. treasuries, and refuse to exchange real goods for paper dollars. However, rather than perusing policies to rebalance our economy, we simply do nothing, and hope that day of reckoning never arrives. However, just as that strategy backfired in New Orleans, so, too, will it for America as a whole."

- With gold exploding to the upside, perhaps the eye-popping collapse of gold lease rates was merely the insiders pounding gold down so that they could take long positions at cheaper prices. The lease rates are what the central banks charge bullion banks and outright speculators to borrow gold and sell it in the open market, with the understanding that the borrowers would repay the gold in the future. It is a way for central banks to make a little money on their stored gold, which brings in no revenue at all. And it helps the government keep the price of gold down so that the yellow metal would not tip off the unwashed masses that we are in big, big, big freaking trouble.

But maybe not. As Victor Hugo of Vega Asset Management reminds us, "Before gambling with the piggy bank and buying only gold shares, remember that there are powerful interests keen to protect the US$ and dump gold. Credibility for gold is the last thing they want." But anybody who is even vaguely familiar with GATA, or has bought gold in the last couple of years, already knows that. It's just one more fraud committed by our government and Federal Reserve.

But all is not lost for us gold bugs, as Richard Russell, of the Dow Theory Letters, explains. "The trend among nations has for years been to collect dollars as reserves. But now there are questions about the US finances, and as a result central banks are starting to diversify to other currencies. The key, the absolute KEY to US prosperity is the continued willingness of other nations to accept dollars. The test of the dollar is the number of dollars it takes to buy a euro or a yen or an ounce of gold.

"This is the great drama that lies ahead. How long will the rest of the world continue to accept a reserve currency, the dollar, a dollar that is backed by the world's greatest debtor nation. It's almost crazy that a nation that is running massive deficits should possess the world's reserve currency. And I'm wondering how much longer this incredible situation will last. Remember, the euro was created to compete with the dollar. The Chinese yuan will be competing with the dollar. And gold, real money, always competes with the dollar."

So the dollar will go down, and your gold, priced in dollars (but with real value determined by everybody else in the world), will go up. It's all but guaranteed.

Steve Saville, of The Speculative Investor, has mulled this over and said, "The main reason we don't think gold's recent advance is the start of the next major upward leg in its long-term bull market is that gold-related investments are rising in price alongside rises in the prices of almost all other assets." In short, it is being treated as just another commodity, as ALL metals are up!

He demonstrates the point with "The gold/GYX ratio (the gold price divided by the Industrial Metals Index) is evidence of this lack of monetary premium in the current gold price and the generally low level of risk aversion prevailing today in the financial markets. Putting it another way, the low price of counter-cyclical gold relative to the average price of cyclical metals such as copper, nickel and zinc, tells us that most investors believe the economic growth to be real (not inflation-induced). The lack of a monetary premium means that the financial markets are presently not differentiating between gold and other metals."

Why can't this be the start of a bull market in gold? He thinks "Genuine gold bull markets are all about increasing risk aversion and declining confidence in central banks."

But he sees me clenching my fists, and afraid that I will come unglued, he adds "The fact that gold is not receiving a significant monetary premium and is, therefore, incredibly cheap right now compared to almost everything else greatly enhances its longer-term upside potential."

So you would think that The Mogambo would be standing up and declaring that this is the time to buy gold. And you would be right! But as I am standing up to walk over to the microphone, I am stopped in my tracks by him saying "However, one of the INITIAL effects of a sharp downturn in the stock market and/or the commodity market will most likely be a further decline in inflation expectations and a consequential rise in REAL interest rates, a negative development for gold. As a result, although gold and gold stocks should be eventual standout beneficiaries of downturns in pro-growth investments, they are likely to be initial casualties."

Well, I hope so! Wouldn't that be nice? Another chance to buy gold cheaply? But methinks that somebody, and I am not naming any names, has forgotten that for gold to go down when priced in US dollars, a lot of other things must happen. One, the dollar must not depreciate against other currencies where people buy gold. If foreign money gets stronger against the dollar, then this means that they can buy the gold from us cheap, even if the price of gold in dollars stays the same! And if they start to buy up American gold to take advantage of the cheap price, then all that added demand will drive the price of gold right back up.

Secondly, I don't think that inflation is going to cool down, mostly because I think inflation is already raging right now, mostly because of the way my wife is screeching in that penetrating shrill harangue (PSH) about how I don't make enough money to pay the bills any more because prices have gone up so much, and she is so persistent about it ("Wake up and get to work, you lazy bastard!"), that I assume it must be true.

And now we turn to Peter Spina and his Gold Forecaster newsletter, which reports that China is very interested in the future of oil. This is only natural, as befits a huge country containing a third of the people of the whole world. Anyway, these Chinese guys have looked around and decided that oil will rise to $90 per barrel by next March, and they "expect global oil production to peak at 94-100 million barrels per day during the next five years." Mr. Spina cautions us to "Please note the word 'during, not 'at the end of.' "

These Chinese dudes expect demand for crude oil to rise 9.7% this year. In 2004 they imported 120 million tons of oil, and are thus on track to use up 135 tons this year, and even at that prodigious rate, "China is facing oil shortages on the eastern coast."

I am getting ready to ask Mr. Spina what in the hell this Chinese oil thing has to do with gold. Anticipating my stupid question, he says that, considering that the ratio of the price of a barrel of oil to gold is "nearly 7", concludes that "Gold is well undervalued by a minimum of 50%." Fifty percent? Wow! Now you're talking!

This is not lost on Robert D McHugh, Jr. PhD, writing in the Financial Markets Forecast & Analysis newsletter. Not only does he talk about gold and silver, but uses these to provide another handy technical analysis device. He writes, "From early 2004 through now, the Gold to Silver ratio oscillated between 50 and 70, stabilizing and narrowing toward a mean of 60, which is about where we are now. If this ratio rises from 60, this important and correct prognosticator is declaring tough times ahead. If this ratio declines from 60, expect improving times.

"So what is this ratio telling us on September 7th, 2005?" he asks. I shrug my shoulders to indicate "I have no freaking idea, dude", he goes on to say "Since June 2005, this ratio has increased 18 percent, from 55 to 65. This is a huge increase in a mere three months. It is telling us it is not happy about prospects. This rapid increase in the value of Gold relative to Silver is warning us of dangerous times ahead. Watch for a breakout above 70. That would start a new intermediate term uptrend, and spell major trouble."

- The OECD, another supranational loathsome bastion of Keynesian buttheads, has warned that the eurozone could be damaged more than the US by the soaring oil prices, and is urging the European Central Bank to run a "very expansive' monetary policy" in order to avert "an economic downturn."

Its chief economist, Mr. Cotis, warned that "elevated [oil] prices may be here to stay for some time", adding that the shock caused by their jump has not yet "reached its conclusion."

In short, these monetary dimwits advise the ECB to print more money!

Fortunately, the Financial Times article notes that "Mr. Cotis' appeal goes against the ECB's restrictive monetary philosophy, which is based on the idea that economic growth should be stimulated through structural reforms by governments rather than by the ECB pumping cash into the economy. The ECB considers its main objective is to avoid inflation." Hooray for the ECB! I say let's turn over the Federal Reserve to the ECB!

- In his monthly investment outlook, Bill Gross advised investors to "cut the fat" from their portfolios, which is real good advice most of the time, as I never recall an instance when I heard someone advise that people should start stuffing their portfolios with fat. But this is not the important part. The meat of the issue is that Mr. Gross said the housing bubble is likely to "either stop inflating, deflate or pop within the next few months, leading to a slowdown in economic growth." I direct your attention to the phrase "within the next few months", which is the exact length of time before millions and millions of people who bought houses in the last year or so say to themselves "What in the hell have I done?"

Stephen Church, who is an investment consultant, in an essay entitled "Consumer Cash Flow", analyzes "the sources and uses of household cash flow. We use the basic corporate cash flow statement format to identify operating, investing, and financing cash flow."

Right off the bat, he says "The Household Cash Flow Statement shows that households need to generate minimum new cash of 13% of GDP during a year in order for us to have a 'normal' economy." This is NEW cash flow! Like, yesterday we had all this cash sitting around, not flowing, and we can just walk over and start it, ummm, flowing.

And why do we need all this new flow of money? "The Statement of Cash Flows is dominated by one number: Increases in Debt," he says. "The statement shows that 'Net Cash provided by Operating Activities' is not sufficient to provide for Repayments of Debt. Households have to borrow just to pay principal payments on debt. Effectively, no investing activity occurs without additional borrowing." And if people don't continue acting stupidly, and do not take on more debt? Thinking I had him cornered, I smugly smile and sit down. But apparently he had heard this question before, and had an answer ready. "Any reduction in access to debt financing for households," he writes, "will cause a significant decrease in new cash flow."

And is this a problem? Well, yes. "This Statement shows that on-going access to financing is the single biggest household concern. If the access to financing diminishes, it is likely to cause a nearly immediate reduction in either consumption or investment." In short, if you spend every dime you make, then, if you want to spend more, you have to borrow it! And if you don't, then you consume less! Hahaha! That ought to make the GDP soar! Hahahaha!

And how bad is it now? "As of 2005, about 86% of household cash flow is sourced through debt. This annual new debt accounts for nearly $1 of $8 spent in the economy." Gack! At that, my heart stopped beating and I saw a light in the distance, and there was Saint Peter calling me home. Goodbye, cruel world! Fortunately I woke up after my wife had dragged my body out to the curb when she gave me a kick in the head, "Just to make sure you were dead", she explained. Returning to my computer and holding my aching head in my hands, I re-read that amazing statistic and wondered if I really wanted to be alive, because I see doom in all of this. Doom! Doooooooommmmmmmmm!

Seeing the effect that this has one me, Mr. Church changes the subject, and he seamlessly segues into a nice bit of technical analysis. "Low M-1 growth usually precedes a recession, and M-1 tends to grow at a high rate during a recession. A sudden large increase in M-1 growth is an indication that households are increasing liquidity due to the economic uncertainty associated with recessions." But before you get all worked up and start creating charts of M1, with lines and squiggles all over it, he adds a word of warning when he notes "The slowing of M-1 is not as reliable a signal of economic stress as it used to be."

Perhaps this "borrowing to create cash flow" has something to do with Peter Schiff, of Euro Pacific Capital, writing that "The personal 'savings' rate has fallen to a new all time record low of minus 6%. Rather than curtailing consumption, Americans have merely responded to higher gas prices by borrowing more money. Therefore, the immediate damage isn't reduced consumption by increased debt. As a result, the actual damage is only being postponed, but with even greater consequences for future consumption, as not only will Americans be required to pay more for energy tomorrow, they will have to pay interest and principal associated with today's purchases as well. What America has succeeded in creating is not an economy impervious to 'shocks,' but merely one which enables their consequences to be postponed to a later date. Unfortunately, that date may have finally arrived."

- Alert reader Don M., who manages the purchasing for his company, writes that it is not my imagination, but inflation really IS gnawing the guts out of us. He writes "Lately, I have been seeing fuel surcharges on just about everything we order, including from companies that we have a state contract with when previously the shipping was included at no charge since so much is purchased."

And the print shop that does our printing has complained that UPS has upped their prices a lot here lately.

- From the Financial Times we learn that "House prices in England and Wales fell for the sixth month in a row in August, according to the FT house price index, the most reliable guide to the prices achieved by sellers in the property market, published on Friday. After another small monthly drop of 0.1 per cent last month, the annual rate of house price inflation has declined from 15.2 per cent in August 2004 to 3 per cent. "

As bad as that is for speculators who have more guts and credit than common sense, the article goes on to say "House prices have not increased since December last year, with an average property fetching £190,833 on the market in August. In Greater London average house prices have fallen by 0.6 per cent over the past three months, while they have dropped by 0.15 per cent in the South East."

And it is not just the Brits that are in for a rude surprise. Steven Sjuggerud, writing an essay for the Daily Reckoning website, notes that things are similar in the USA. "The median price of a house fell in July by 7.2 percent." The Yahoo.com news site also reports "No one has noticed, but the bubble may have popped. Houses are down 14 percent since April. Housing stocks fell 10 percent last month."

Nicholas Yulico on TheStreet.com writes "For the first time, the median price of new homes is below that of existing homes. Sales of newly constructed homes rose 6.5% in July and 27.7% from a year earlier. But the median sales price dropped to $203,800, the lowest level since December 2003, from $219,500 in June."

Even Howard Ruff, he of the famous Ruff Times newsletter, writes that "the collapse in the real estate market will be apparent over the next six-months."

What does this all mean? To Bill Gross of PIMCO, it means that the "End of the bubble is nigh. Get rid of stocks, real estate, corporate and junk bonds." To The Mogambo, it means "We're freaking doomed!"
And it is not just me and Mr. Gross, whom I will call Bill so that you will think I actually known him, who think this way. Robert McHugh, Ph.D. of TechnicalIndicatorIndex.com, has been looking at the charts and writes "The price action in the Dow Industrials in 2005 has been nearly identical to the price action of 1987. The difference is, the 2005 action is about one month ahead of the 1987 price action. If this analog holds up, the Dow Industrials are set up to crash beginning the next week or two. If this continues, the downside target for the Dow Industrials is close to 8,000." Noticing that I am screaming in fear, he interprets this as meaning that I am taking this news rather hard. Hoping to calm me down and talk me back off the ledge of the building, he says "Analogs don't have to hold up, but often they do. History does repeat itself - often. No guarantees, of course, but wow." Wow indeed!

- Now that hurricane Katrina has brought out all of the charitable organizations, you will find it very instructive to ask the charity to which you were considering donating money to send you Form 990. This is the form where they are required to list the salaries of the top five executives. You will doubtlessly find it very instructive, especially if they tell you that the form is on file in their offices and you have to come down there in person to see it. And you will find it even more instructive when you go there and they jerk you around so that you never get a chance to see it.

- On Bloomberg we read that "California lawmakers approved a bill increasing the state's minimum wage to $7.75 an hour within two years, the highest of any U.S. state. The state's Democratic-controlled Senate today passed the bill in a 26 to 13 vote. It passed the Assembly in June." They already have a minimum wage of $6.75 an hour when the national minimum wage is still $5.15 an hour.

- I deliver my now-annual keynote address at the Silver Summit during the last weekend in September, and I will see old friends (one. Hi, David!) and a few people (everybody else) who think I will be paying them back the money I borrowed from them. Suckers.

The thing that is different this year is that I will also be embarrassing myself by sawing on the fiddle behind Steve Dore, a terrific boogie-woogie piano player, for a few tunes at the big party. If you are a bass player, we could use one.

- Butler Shaffer on LewRockwell.com writes that "People express surprise that government didn't come to the aid of stricken people sooner. But aiding people is not what government is about; that is the function of the marketplace and other voluntary activity. The state is about menacing, threatening, commandeering, and killing." Hahaha! Exactly! To prove the point, he noticed that there is a promised crackdown on the "looters" in New Orleans, but that nobody is talking about "a crackdown on the police officers and firemen who reportedly joined in the stealing of television sets, computers, and other valuables."

As Jim Cook of Investment Rarities quoted author Robert Higgs, "To continue on the road we Americans have traveled for the past century is ultimately to deliver ourselves completely into the hands of an unlimited government. We can have a free society or a welfare state. We cannot have both." That is why the authorities resorted to their typical low-IQ, fascist tendencies and started confiscating everyone's guns in New Orleans, contrary to the Second Amendment and Fourteenth Amendments. I hope they get sued. Remember this outrage when your Congresspersons next run for re-election and you are standing there in the voting booth. I certainly will. Sic Semper Tyrannus.

Speaking of New Orleans, the insurance industry estimates that they will pay over $40 billion in hurricane Katrina-related claims. And speaking of insurance companies, the major reason that your homeowner's insurance, health insurance and all other insurances have been going up at double-digit rates for the last five years or so is that the morons at the Federal Reserve produced a bubble (which they were chartered to make sure did NOT happen, which is de facto proof that the Fed is a complete and utter failure) in the stock market. Then, when the bubble predictably burst, and a lot of money was lost, the Fed desperately tried to "fix" their halfwitted, loathsome mistake by pounding down interest rates to squat. What's this got to do with insurance? Insurance companies have to invest your premiums today in order to pay claims tomorrow. Ergo, with bonds not paying, as I said, squat, the only other place to get the money to pay claims is to raise premiums. Which they did.

But the insurers must keep investing the money in bonds, even when interest rates are at these absurdly low yields as a result of the Fed screwing us over to fix their damned stupid mistakes. When interest rates get back up where they should be, then the insurance companies will have to eat a loss as these bonds fall in value! And think how nice THAT will be for the insurance companies and how it will impact your premiums!

Now insurers are going to have to pay over $40 billion MORE bucks, interest rates are STILL at less than the rate of inflation in the assets they are insuring, and there are already calls for the Fed to reduce interest rates (or at least stop inching them higher). Ergo, look for higher and higher insurance premiums for years and years to come. And look for higher prices for everything else, too, as producers pass on their higher insurance costs down the line, intermediary to middlemen to intermediary, until it finally gets to you, the final consumer, and you will pay this entire cost of paying for the Fed's mistakes, too, just like you have paid by not getting squat on your savings, certificates of deposit and money-market funds.

This is just one, one of many, one of mucho many, one of mucho many thousands of reasons why I loudly proclaim "Hurricane Katrina? Ha! The Federal Reserve is the biggest disaster ever to hit the United States of America!"

Ugh.

***The Mogambo Sez: Things are not like you think or like they say. Be afraid. Buy gold and silver, and hold onto it for dear life. One day you will be glad you did.

Sep 13, 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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