Come dressed up as the money supply
...the angriest guy in economics
October 14, 2004
- The Federal Reserve, tired
of waiting for us idiot Americans to drive down to the bank in
our almost-new SUV to borrow more money to buy new SUVs so that
the money supply can expand, is moving into Buying Outright Mode
to accomplish the same thing. This is, of course, the second-most
ultimate monetary fraud, whereas the most ultimate monetary fraud
being that you would accept an IOU from the Mogambo ("Money
down the rat hole!").
And when you look at the category known as "U.S. Government
Securities Bought Outright," it is up another $2 billion
last week. The way it works is that, and you gotta admire the
utter simplicity of it, the banks buy Treasury debt from the
government, and the government spends the money. Then, later,
when they think nobody is looking, the Fed sneaks around and
creates some money out of thin air, and uses that new money to
buy the debt from the banks, and then run that debt through the
shredder. And since that gives the banks their money back, the
banks use that new money to go out and buy up more Treasury debt,
so that the government can spend some more money! It's like a
The Treasury was likewise emboldened that nobody has raised so
much as a peep that they have exceeded the borrowing limit as
set by Congress, and so they went out and sold another big stinking
pile of American government debt, taking us to $7.420
trillion in total, which is up healthily over the statutory maximum
of $7.384 trillion. But let me go over my MasterCard
limit by a lousy ten bucks and all hell breaks loose around here
like I got into a fistfight with Mrs. Kravitz again or something!
And where is all this money going? Well, a lot of it went into
houses, of course, as everybody just knows that houses will always
go up in value, and so therefore there is no price that is too
high to pay for a house, and that everybody who ever buys a house
will always make lots and lots of money in profits on that house,
and one day we will all live in luxury by just buying and selling
houses to each other.
Speaking of houses, Rick Ackerman, who writes a newsletter named
Rick's Picks which is probably not coincidental, is in the middle
of the controversy as to which Economic Horseman of the Apocalypse
we will endure; inflationary destruction or deflationary destruction.
He says deflation. "Make no mistake," he says "K-wave
winter has begun, and debt is about to shrink precipitously as
forced saving increases commensurately. Anyone who wants to bet
against this prediction need only trade up to a much bigger house.
Regarding your question of how the money supply will decrease,
the answer is elemental: An epic wave of bankruptcies will cause
zeroes to disappear from the global balance sheet much faster
than the central banks can get us to borrow those zeroes back
And, getting back to this increase in money and credit going
somewhere, somebody is apparently buying a lot of commodities,
as the index of commodity prices is showing healthy strength.
Except for the grains, which is such an outlier among commodity
prices that we long-shot gamblers out here who have more money
than good sense are being tempted to take a long position in
grains, as they seem such a comparative bargain. Commodities
that are not showing price appreciation when the monetary and
fiscal levers are being pushed to the max, at the exact same
time that China is buying tons of the stuff, at the exact same
time as the dollar is losing so much of its buying power, is
such a contradiction that an eventual profit is seemingly guaranteed.
But weird things are abounding. The biggest surprise to me is
that there are a lot of idiots in the world who are not under
court-ordered supervision who are buying bonds at the exact same
time as interest rates are rising! Basic economic theory, the
stuff you learned on the very first day of Economics 101, says
that rising interest rates make bond prices go down. And if you
own bonds, then you lose money, capital gain-wise. But yet, here
these morons are, bidding up bonds, and thus saddling themselves
with lower yields for extended periods and potential losses!
Most ominous, of course, is that Consumer Installment Debt decreased.
The chart of how much debt us dimwitted Yankee morons are accumulating
shows that it has been pretty stagnant for about four months.
I know that I have not gotten any smarter in the last four months,
and have probably gotten even more stupid, as hard as that is
to believe. And so I assume that the average American has not
gotten any smarter either, especially since they have shown such
stupidity for so long that they have gotten themselves into this
much debt to start with. So there must be some other explanation
as to why my fellow Americans are not buying stuff with their
- The big news is that the new winners of the Nobel Prize in
economics, Edward Prescott and Finn Kyland, won the coveted prize
by essentially saying that Alan Greenspan and the idiotic course
of monetary policy they are rabidly pursuing is wrong! I love
this stuff! Ergo, they also win the Mogambo Prize (no money or
fame, but I take them on a ride around the neighborhood while
we play the radio read loud and honk at pretty girls), in that
they, to quote the Wall Street Journal, say that their theory
shows that "government policy makers invited long-term trouble"
when they ran around like idiots to address short-run problems
by throwing money and credit around by the profligate boatload,
when, by doing so, they operate at the expense of ignoring the
prudent long term goals of, I assume, low inflation and stable
In particular, again quoting the WSJ, "Most central bankers
around the world typically espoused a commitment to contain inflation,
but in practice central bankers would shift policy to tolerate
a little more inflation the short run as a trade-off for stronger
economic growth and rising employment." In other words,
the Mogambo was right, and Alan Greenspan and the other horrid
little central banking nitwits are morons! But am I, and my contribution,
even mentioned anywhere? No!
These two guys also deserve some credit for putting, what is
hoped, the last nails in the coffin of the whole stupid Keynesian
economic theory, where the government comes roaring in and tries
to desperately correct its nearly-fatal fiscal and monetary mistakes
with the added mistake of more rampant deficit spending.
But the lesson about inflation is not entirely learned, as in
the same October 12 issue of the WSJ, where we read an article
by a guy named David Henderson, who is a "research fellow
with the Hoover Institution and an economics professor."
Anyway, he wrote an essay entitled "A Nobel Tiger in the
Tail," wherein he characterizes Alan Greenspan as an "inflation
hawk"! I rub my eyes in disbelief, as he goes on to write
"In the last 17 years, U.S. inflation has averaged only
3%." Only 3%! Only! Three! Percent! My stomach churns in
outrage, my teeth grind themselves into power, and my trigger
finger spasms reflexively. Regaining control of myself with my
usual Mighty Mogambo Real He-Man Effort (MMRH-ME). Snagging my
calculator off the desk and furiously punching buttons in my
fury, hour after hour, until somebody mercifully takes it away
from me and uses it to figure out that that three percent inflation
for three years is a 9.3% increase in prices. Remember, you pay
prices with AFTER-tax money. Therefore, with a 28% tax rate,
do you really think that over the next three years that you are
going to get an increase in your before-tax income of 13%? You
had better, because this is the amount of increase that you need
to merely keep up with 3% inflation! If you do NOT think you
are going to get a cumulative 13% raise in the next three years,
then you will suffer a fall in your standard of living. NOW do
you think that 3% inflation is "tame"? Do you think
a 3% inflation is "low"? Huh? Do you?
I am too paralyzed with rage to continue, and anyway, passersby
are stuffing rags into my mouth to try and muffle my screaming,
and so will turn to someone who DOES comprehend economics, and
by this I mean, of course, Mark Rostenko, of the Sovereign Strategist.
He says that "The writing's on the wall, folks." So
I look over a the wall, and sure enough somebody has written
"The Mogambo is a big fat idiot!" But this is not what
he is referring to, as he immediately proceeds to say he was
referring to a figurative wall, in that "Long-term interest
rates are falling. Retail sales are slumping. The consumer isn't
making more money and the government is only making up job numbers.
Are we in for another round of recession? Before you answer,
consider that oil shocks = recessions."
Well, Mr. Rostenko's views gets immediately back to those two
new Nobel Prize winners Prescott and Kyland (which, now that
I think about it, is, by rights, MY prize and MY money, and not
only do I get neither, but they act like they never heard of
me and then they hang up on me when I call them up and demand
my cut and then I have to call them back and they say "We
no speakee English" and laugh at me and then they hang up
again), who say that supply-side shocks, like "a surge in
the price of oil," could have a big impact on economics,
mainly by "causing a recession or a boom." See how
all of this fits so neatly together?
Comstock Partners has apparently also looked at that figurative
wall, and they note that we are currently "At a time when
employment is still weak, consumer savings are at the low end
of its historical range and debt has soared to record highs relative
to GDP. For the first time in three years there are no tax refunds,
the Fed is raising rates, and mortgage refinancing is down 77
percent. Added to this mix are the high cost of energy and the
non-productive expenses of defending against the threat of further
terrorism. All in all, this is hardly a recipe for robust growth."
Since it is the season for giving prizes, Comstock Partners gets
the Mogambo Prize For Understatement.
- But it was a week of some other exciting theoretical developments
in the world, one of which is the new discovery by David Bond,
he of the Wallace Street Journal, who has revealed one of the
new Laws of Probability, namely the Science of Probalism. And
for this I have awarded him with the Mogambo Prize For Statistics
for his seminal work on the science of Probablism. In explaining
his marvelous breakthrough, he says "The science of Probalism
has its roots in the 2002 EPA Coeur d'Alene Basin Record of Decision,
and as a syllogism expresses itself thusly: If a thing cannot
be disproven, it is thereby proven." And you were thinking
that the EPA never did anything good for anybody, and yet, here
they are, helping Mr., Bond discover Probalism!
Quick to capitalize on such a momentous discovery, he writes
that he has decisively proven that Wallace, Idaho is the exact
center of the Universe. Quoting from the press release, "Similarly,
after a search of the literature, our government-contracted scientists
in Moscow, Boise and Seattle have, after years of diligence,
been unable to unearth one scintilla of proof that Wallace is
NOT the Center of the Universe. In the absence of such proof,
we are compelled to conclude that Wallace must therefore BE the
Center of the Universe." And sure enough, it now is! Wow!
I fall to my knees in awe!
- Kurt Richebacher has been comparing the USA and Asia, sees
some disquieting parallels. "Both are courting extraordinary
credit excess, but with a crucial difference: In the United States,
the credit excess went, and continues to go, overwhelmingly into
asset prices and personal consumption; in Asia, it goes overwhelmingly
into capital investment and production, essentially creating
a mass of overcapacity and malinvestments."
Well, we here in America have already created record-setting
amounts of overcapacity and malinvestment and we are all still
alive, so how bad can it be? Pretty bad, if you listen to Krassimir
Petrov, PhD, who says "Conditions in China now are in many
respects similar to the US in the 1920s." He further writes:
"Economists hail the growth of China, many not realizing
that China is undergoing an inflationary credit boom that dwarfs
that American one during the roaring '20s."
The 1920s? Hmmm. Wasn't there something unwholesome about 1929?
What happened that was so horrible at the end of the 1920's inflationary
credit boom that he is talking about?
Well, he notes that Murray Rothbard wrote that America's Great
Depression was caused by an unholy expansion in the money supply,
and indeed he says that "Over the entire period of the boom,
we find that the money supply increased by $28.0 billion, a 61.8
percent increase over the eight year period [of 1921-1929]. This
was an average annual increase of 7.7 percent, a very sizable
degree of inflation."
The scene shifts to modern day China, and we see an aging photo
of a smiling Mogambo pulling a rickshaw full of Chinese money
as Dr. Petrov says, "China is undergoing an inflationary
credit boom that dwarfs that American one during the roaring
'20s. (The) money supply for (China in) 2001, 2002, and 2003
grew respectively 34.2%, 19.3%, and 18.1%. Thus, during the last
three years, money supply in China grew approximately three times
faster than money supply in the U.S. during the 1920s."
Three times as bad! Three! We had the Great Depression, and now
they are setting themselves up for something three times worse
by expanding money and credit three times as bad!
He knocks on the door of the Mogambo Bunker where I have locked
myself in and am cowering in the corner, whimpering "It's
not happening! It's not happening!" to myself over and over,
and he whispers to me, "Unless there is an unforeseen banking,
currency, or a derivative crisis spreading throughout the world,
it is my belief that the Chinese bust will occur sometime in
2008-2009." I'm listening and crying out in my pain, "No!
No!" And then he says "Marc Faber, the foremost Austrian
authority in the world on Chinese economic development, believes
that the bust will occur sooner. Whatever the trigger of the
bust in China, there is little doubt that this will provide the
onset of a worldwide depression. Just like the U.S. emerged from
the Great Depression as the unrivalled superpower of the world,
so it is likely that China will emerge as the next."
Well, not only is this the current expansion of the Chinese money
supply three times as fast as we did in the 20's, but it is also
eerie that we are now expanding our American money supply at
the same rate we did during the 1920s, which led to the Great
Depression! So if you want to have a Halloween costume that is
guaranteed to scare the hell out of me, then come dressed up
as the money supply.
- David Morgan has posted "An Austrian Analysis of U.S.
Inflation," another article by the
aforementioned Krassimir Petrov, Ph.D. on his website Silver-Investor.com.
I will not go into the whole thing, as I strongly advise you
to go there and read
it for yourself. But I will jump ahead to his fifth item,
"V. MORE INFLATION AHEAD" as self-explanatory, and
without even pausing or using my turn signals, careen directly
into "VI. CONCLUSION" where we read "Only precious
metals will provide the ultimate safe-haven in such an environment.
Even though gold is the ultimate choice, I believe
that over the next decade, silver will outperform all investments,
whether boom or bust, inflation or deflation."
- Oil surpassed $54 a barrel, although we can all join with the
experts and breathe a heavy sigh of relief that it did not surpass
$55 a barrel, because the American economy can handle oil at
$54 a barrel, and so that means that this is the perfect time
to buy some stocks and beef up that old portfolio, but there
may be problems with $55 a barrel, because then we would be reading
how all the experts are so relieved that oil did not exceed $56
a barrel because they had all decided that the economy can now
handle oil at $55 a barrel, and so, (and here you have to really
pay attention because this is the crucial part of their whole
theory) that means that right now is the perfect time for you
to run out and buy some stocks.
- A Letter to the Editor in last Wednesday's Wall Street Journal
from Don Young (R., Alaska) and James Oberstar (D., Minn.), who
are, respectively, the Chairman and the Ranking Democratic Member
House Transportation and Infrastructure Committee, ought to give
you some pause and reflect how your vote actually has ramifications.
The reason for their letter is that they are arguing, of course,
that they should be allowed to spend as much money as they and
their little friends want on roads and bridges, and they are
upset that the editorial board of the WSJ condemned the always-bloated
Transportation bill as a "pork barrel monster." But
the two Congresspersons are happy to take precious time away
from their Making America Better By Passing More And More Laws
to set the record straight, and, in doing so, provide a little
free education to the editorial staff at the Journal, who are
obviously so childishly ignorant that they cannot see the genius
of government in general, and the Transportation Committee in
particular. And, as a taxpaying citizens, they also provide a
little free education to me (as part of the Leave No Proletariat
Bozo Who Does Not Recognize The Genius Of Their Elected Congressional
Officials Behind Act.
I don't know if the editorial staff of the WSJ appreciated the
effort, or was even paying attention. But I sure was! And what
an education it was! I still tingle with the excitement! They
start off with "Traffic accidents and congestion cost America
$300 billion a year." Wow! See what I mean? They do not,
unfortunately for us dimwitted bozos out here who desperately
need some of this free Transportation Committee education pounded
into our, or my, thick skull, or skulls, as the case may be,
exactly to whom this $300 billion is paid. But whoever it is,
or whomever they are, I am sure that they must be aghast that
the Transportation Committee wants to eliminate their incomes.
And another nagging question is "If the $300 billion is
potential income that was not earned due to this tragic traffic
congestion, where would an extra $300 billion to pay for this
economic activity come from, if this terrible traffic congestion
But I raise
my hand to inquire, politely but with an unmistakable tone of
underlying hostility and distrust, "Sir! Sir! I have a question!"
but they know what I am going to say, and so they purposely ignore
me and lead the rest of the class in laughing at my exasperation
and rage until I whip out my Concealed Weapon Permit and they
realize the potential folly of laughing at an armed lunatic as
so many others have learned the hard way.
I am crazed to lunacy. Crazy with the cognitive dissonance of
living in country that is literally swimming in colleges and
universities, that traditionally makes education a priority,
and at the same time being a nation of economic imbeciles. Because
I am here to tell you that cutting spending, which is all the
rage in speeches by politicians, is merely reducing one person's
income, and increasing the income of some another person or group
But this is not about my stupid theories about economics. No,
we are here to learn at the feet of Congresspersons. So without
further ado, I present another of their terrific educational
nuggets. They note that United Parcel Service estimates that
they lose $8 million for every minute their trucks sit in traffic.
Now, if those trucks work only 8 hours per day, 5 days a week,
52 weeks a year, then the bottom line of UPS will increase by
$124.8 billion if we eliminate traffic jams? Huh? Wow! And when
you add in FedEx, Airborne, and the Post Office and all the other
package-delivery outfits, pretty soon you are talking about a
trillion dollars, which means that 9% of GDP of the entire freaking
country is spent in traffic jams? Wow wow wow!
It sounds like a lot, little realizing that $124 billion
a year won't even begin to cover the cost of constructing all
those roads and bridges and tunnels, and buying out all the present-day
owners of all that land, and the impact fees, and the amelioration
and restoration costs, and blah blah blah, and at the present,
which I indicate by pointing at my watch, these roads are now
costing up to half a billion dollars PER MILE to construct! Naturally,
I cite this figure as a fact, knowing that you probably won't
get up off YOUR dead butt and do the research to prove me wrong,
and yet you sit there with that smug smile on your face and want
ME to get up off of MY big fat ass and do the work, but I'm not
going to do that, because when it comes to lazy, you aren't even
in my league, punk! But I am merely mentally extrapolating from
a road that they put in around here lately, which cost almost
a billion dollars a mile, or a trillion, or a zillion, I forget
which, but I do remember that it was one hell of a lot of money.
And since we were talking about it, I also remember that one
day I was driving along, see, minding my own business, which
was mostly plotting righteous revenge on a cruel, cruel world
that rejected me boo hoo hoo, and how delicious it would be to
see everybody crying and regretting that they hurt the Mogambo,
and I could almost hear their cries of anguish "We're so
very sorry, Mogambo!" and I would laugh-- hah! --at their
suffering, just as they laughed at my pain!
But, in another Mogambo Magical Moment (MMM), I cleverly spew
productivity out of my ears as I simultaneously both 1) digress
and 2) save the best for last! And trust me when I say that you
are going to love this, because this is one of those little bits
of economic savvy that I live for and for months afterward I
wake up in the middle of the night, slap my forehead and say
"Why didn't I see that? It's so simple!"
Anyway, these two worthies have made economic history of their
own, as they have identified one of those elusive multipliers
that some economists believe are real and other economists believe
are not real! They have, all by themselves, ended the debate.
They have found the Elusive Multiplier Of Story And Song (EMOSAS)!
These two guys, who are obviously smarter than all of the rest
of us mediocre bozos out here in the real world put together,
confidently say that multipliers ARE real! And this is the best
part, because they tell us the actual size of the multiplier!
I can feel your excitement! In honor of the occasion, I suggest
that you have this number tattooed into your arm, because it
is going to come up with increasing regularity because its discovery
is such an Important Milestone In Economics (IMIE) that I am
amazed that they didn't win the Nobel Prize themselves, is precisely
6.2! I shall repeat that in honor of the occasion. 6.2! So, not
only IS there such a thing as a multiplier, but the size of the
multiplier is precisely 6.2!
They start off crowing about how this is going to be so cool
for employment, and that "Every billion dollars in federal
investment in our transportation system create 47,500 jobs."
Well, the Mogambo says that you can put a billion dollars into
anything, and you will probably get 47,000 jobs somewhere!
penetrating analysis does not stop there, but they go on to say,
and this is the moment you have been waiting for, that "That
same billion also creates $6.2 billion in related economic activity."
Eureka! There it is! A billion dollars is thus multiplied by
6.2 times! So the next time some lackluster economist or snotty
security guard wonders how you got past the security checkpoints
and how you can't just walk into the Federal Reserve and fire
everybody on the spot and start throwing their things out the
window, you can say "Well, maybe not! But multipliers are
real! Two guys on the House Transportation Committee, one of
them being the head of the committee, said so! And the multiplier
is exactly 6.2! Now, go tell Alan Greenspan I am here to tell
him what a putz he is!"
So let me get this straight for you, because it was hard for
me to understand it, too: When people work and earn a living
so that THEY can spend a billion bucks, no jobs are created and
there is no additional multiplier benefit. But when the federal
government (Sound of trumpets! The cavalry to the rescue!) spends
a billion bucks, suddenly 47,500 jobs are created, plus another
$6.2 billion in "related economic activity!" Wow! I
say that we should send ALL of our money to Washington right
But, to be fair, they are talking about a billion in deficit
spending, and actually the billion dollars was NOT taken out
of people's pockets! It was created out of thin air by the Federal
Reserve, because they are idiots, as two guys just won a Nobel
Prize for proving. Therefore, there actually IS a multiplier!
And it also multiplies the money supply, which multiplies inflation!
The camera records me swinging around in my chair, leaping to
my feet, snatching a piece of chalk and scribbling a long equation
that includes these multipliers and inflation deflators in a
huge mishmash of numbers and exponents and integral functions
and differential functions until, at the end, it equals to what
seems to be something so negative, approaching negative infinity,
that it can only be notated as a scream "Aggghhhhhhhhhhhhh!"
that echoes across the universe until it is picked up by the
sensitive antennas on my home planet, and then they will know
"Hahahaha! Earth has again learned that a fiat currency
in a fractional banking system is suicidal! Now, place your bets!
Will they now listen to the Mogambo?" Back across the universe
echoes their answer; "Hahahaha!"
- "Government Economic Reports: Things You've Suspected
But Were Afraid To Ask! --- Gross Domestic Product" by Walter
J. "John" Williams was graciously posted on the GillespieResearch.com
website as a way of trying to education the clot of blockheads
known as the American electorate, and was immediately picked
up by a lot of OTHER websites and again posted for the same reason,
and sooner or later somebody wakes me up out of a drunken stupor
and says "Here! You have to read this," and sure enough,
even my blurry eyes and slurred speech can't stand in my way,
and I read as Mr. Williams writes, "The GDP is compiled
and reported by the Bureau of Economic Analysis (BEA) of the
Department of Commerce. The distortions from bad GDP reporting
have major impact within the financial system. With reported
growth moving up and away from economic reality, the primary
significance of GDP reporting now is as a political propaganda
tool and as a cheerleading prop for Pollyannaish analysts on
Wall Street." And how good is this report on the size of
GDP? Not very. He writes, "Based on my analysis of the GDP/GNP
revisions and redefinitions over time, over-deflation and economic
reporting as published before later political corrections, reporting
of real GDP growth at present is overstated by roughly three
percent per year against a more realistic, pre-Pollyanna Creep
period." Three percent! A year! Three! Not only that but
he charges that these "upside growth biases have been built
into reported GDP with increasing regularity since the mid-1980s."
Just about the time that Alan Greenspan took over at the Federal
Reserve, I note with a grim satisfaction that always looks like
I am having some intestinal distress or something.
"The popularly followed number in each release." He
continues, "is the seasonally adjusted, annualized quarterly
growth rate of real (inflation-adjusted) GDP, where the current-dollar
number is deflated by the BEA's estimates of appropriate price
changes. It is important to keep in mind that the lower the inflation
rate used in the deflation process, the higher will be the resulting
inflation-adjusted GDP growth." Bingo! Just like that! Higher
GDP, which any self-respecting central banker would love to crow
about! Therefore you now more fully understand why the Fed and
the government are so intent on coming up with ways to statistically
lie about inflation. As Bob Wood enjoys saying, or hearing me
say, they are all a bunch of lying whores.
But it didn't ever stop there! They are still doing it, year
after year, after year, where now fully half of the items measured
in the Consumer Price Index are now subjected to this fraud!
But Mr. Williams is not so angry about it, and I admire his natural
self control, as I can only achieve such relative serenity with
the help of handfuls of powerful psychoactive medications, and
sometimes not even then, and his entertaining amity extends to
his remarks, too, as when he jocularly says "The upward
bias shown in the revisions is due to what I call 'Pollyanna
Creep,' where methodological changes regularly upgrade near-term
economic growth patterns."
He also makes a good point when he assails the idea that free
trade is always a boon to the world. He says that is not absolutely
true, and that "Free trade theory assumes all involved nations
are at full employment. When that is not the case, the wealthiest
and highest salaried countries end up with a declining standard
of living and redistributing their wealth to the other free-trade
participants, as is the current circumstance for the United States."
With a quizzical sideways look, I peek over at the economics
books that are everywhere, and I am mentally searching through
the extensive Majestic Mogambo Database (MMD) for an example
of a country that was prospering because was redistributing its
wealth to other nations in return for consumer items and a lower
standard of living. Whirr whirr whirr, my little brain neurons
are spinning. All I can come up with is that there is a short
time during the Jurassic Period of Earth history where the records
are a little spotty, and they MAY have had such a system, but
we are not sure.
He also takes issue with aspects of the calculation of GDP, when
he notes that "Personal income including what the average
homeowner would receive from himself in rental income if he charged
himself to live in his own house" is "an actual component
of the income side of the GDP"! Hahaha! What will those
government guys come up with next! Hahaha!
Other abuses abound, as when your bank offers you free checking,
for example. Mr. Williams notes that our government
counts this as "imputed interest income." And it gets
even more weird, as he reveals that "Not only did imputed
interest income account for 21% of all personal interest income
in 2002, but also it grew at an annual rate of 8.3%! As an aside,
renting the house you own from yourself gets imputed as 62% of
total rental income."
So when I back these imputed incomes out of my dollar-income,
how much is really left? I look in my wallet. It looks like three
dollars, give or take.
Of course, all of this calculation of GDP and inflation plays
right into the hands of Greenspan, who uses this, pardon my French,
crap to justify his bizarre fixation on productivity. And this
brings to mind a delicious quote by Richard Benson of Specialty
Finance Group, who writes "It does seem that the less we
produce, the more productive we are. Indeed, if America could
get rid of the last factories that produce the 45% of production
we consume, productivity could be made infinite!" Hahahaha!
What a card!
- Peter J Cooper posted the article "Linking Gold and Oil Prices" on the AMEinfo.com site.
"Historically, the ratio of the price of oil to the price
of gold has been relatively fixed: the number
of ounces of gold required to buy a barrel of oil has
averaged .06 ounces. For gold to
reach the historical standard - with oil prices at a more modest
price of, say, $42 per barrel - the precious metal would have
to trade at $700 per ounce. Put another way, by historical gold-price standards, oil should be selling at just
$24 per barrel."
Well, it is one thing to be able to do this kind of calculation.
Interpreting the result to make an investment decision is quite
another. He is taking words right out of my mouth when he says
"By most measures, then, buying gold
is currently a smart investment. Which would make Kuwaitis the
savviest investors in the Middle East, in terms of value. The
emirate saw the greatest surge in gold
consumption in the second half of this year, recording growth
of 28 percent. Saudi Arabia, the largest market in the Gulf,
saw growth of 23 percent, followed by the UAE at 21 percent,
Bahrain at 20 percent, Oman at 18 percent and Qatar at five percent."
And if one examines the historical record, then one would reach
the same conclusion that Mr. Williams did: "The last time
the world looked like it does today, gold
prices were on their way to $800 an ounce."
And, if I remember my history and I am sure that I don't, it
seems that there was another time that looked kinda like this,
and the invading Crusaders were about to get their butts kicked
by Saladin and some of his Islamic buddies.
And I am not the only one looking at these historical precedents.
G. Lammert, whom George Ure describes as a "fractal analyst,"
writes "The daily and yearly markets represent a continuous
fractal plot and graph correlative of ongoing credit availability
with periodic market saturations and contractions." This
is usually the case, apparently. But when there is an exception
to this rule (and notice how the soundtrack music is all gloomy
and scary), and he cites several all the way back to Cathage,
Something Bad Happens (SBH), and that something is "the
destruction of a government and its dependent markets."
I think he is suggesting that we are seeing one of those exceptions
right now, and to tell you the truth, it wouldn't surprise me
- Dan Denning of Strategic Investment made this interesting comment
that makes you stroke your chin and go "Hmmm." Well,
that's how he affects me, anyway. Anyway, he was recently writing
about the strength or weakness of currencies. He writes "Things
that make a currency a buy: high interest rates, a stable central
bank, low inflation in domestic prices, and a growing economy."
Then he follows that up with "Things that make a currency
a sell: high government debt-to-GDP, low economic growth, inflation,
and unstable central banks, and a stagnant economy."
Obviously, he doesn't like the dollar, and he doesn't like the
euro, either, which he calls the "John Kerry of Currencies,"
namely because people are attracted to John Kerry just because
he is not George Bush, and likewise they flock to the euro just
because it is not the dollar. But, when you get right down to
it, neither of them is worth a toot. And don't get me started
on gold again, because you know how I get.
- Another round of debt relief for poor countries is gaining
momentum, which seems only natural, since the poor countries
who come begging and pleading for more and more money have never
paid back a dime of any loan that I know of, and always got debt
relief before. Now the IMF and the World Bank are meeting with
Britain and America to come up with some new plot to eliminate
the un-payable debts of these deadbeats.
Britain, of course, is our main rival in this permanent welfare
idiocy, which history has proved over and over and over again
just breeds more welfare idiocy. Quoting an Economist magazine
article entitled "Clean Slate" in the October 8 issue,
Britain wants "debt relief of up to 100%" for all poor
countries, and Gordon Brown, the chancellor of the exchequer,
says that "Britain would pay its share (10%) of the debt
service owed by poor countries to the World Bank and the African
So let me get this straight: the government confiscates money
from the taxpayers to give to the World Bank, which loans it
out, and then when the recipients of these loans continue to
act like corrupt Marxist morons and don't pay back the loan because
they have wasted the little bit that they didn't embezzle, we
are now going to turn right around and give the damn World Bank
MORE money to pay them back for making the soured loan in the
first place? My God! And I am supposed to have the least respect
for any of these jackasses? Well, I don't! And I don't have to!
As the Libertarian candidate for President famously said "Anywhere
I stand is a free-speech zone!"
But this is almost a fait accompli, as so much debt has been
written off that the Economist notes that "More than half
of HIPC debt stock has been written off, saving the borrowers
$900 million a year in debt-service payments." And yet even
this is not enough! To hell with the IMF and the World Bank!
And the damnable United Nations, which I realize is not even
mentioned in all of this, but I hate to miss an opportunity to
throw an insult at the U.N. only because they so richly deserve
to be insulted and run out of town and if they want to know who
is calling them up at one o'clock in the morning and calling
them "Big doo-doo heads" and hanging up, it's me! The
FBI knew it was me whole time, but they didn't tell you because
they don't like you either!
- Paul Kasriel of Northern Trust, has a new article out entitled
"Investment Implications of the Inevitable Rebalancing of
the U.S. Economy, or Making Lemonade Out of Lemons." The
interesting part is that when I went to the site, the little
button on my toolbar said that I had opened something called
"Phase One of Fed Tightening Is Nearing an End." Hmmm!
I am running it through the Mogambo Master Computer to see if
it is some secret message or something.
- David Bond, the editor of the Silver Valley Mining Journal
and the newsletter Wallace Street Journal, has written a witty
article entitled "Gold, silver
and Winchester blue" The story is that a guy named Steve
Quayle posted on his website, www.stevequayle.com, an essay written
by another guy. The Executive Summary, for you busy people out
there who don't have the time for long explanations about how
it is YOUR turn to pick up the check because I picked it up last
time, is thoughtfully provided by Mr. Bond himself, and I include
it only because it so completely captures both the thrust of
the entire article, and is so well written that it even includes
gratuitous sarcasm, which means I can save my venomous scathing
sarcastic barbs for other worthy targets like, oh, I dunno, like,
maybe, Alan Greenspan, but you knew I was going to say that!
Admit it! You had a feeling I was going to say him! "Bottom
line is, Bush and the neocons have out-scammed even the Fed,
which is no mean feat, and they're also hocked our silver and
The article, in case I forgot to mention it, was written by Al
Martin, which would serve him right because he never mentions
me and when he writes, and when he walks by, he never even says
hello or even drop a lousy quarter in my tin cup, so to hell
with him. Anyway, his are that he is "Retired US Navy Intelligence"
and has written something called "Bushonomics Explained
(Part IV): Where Are the Missing Billions?"
He writes that, among other things, the Bush-Cheney White House
has "presided over" (and you might want to take a seat
because you are not going to get out of here early as this list
is pretty extensive and extensively plagiarized) "aggregate
budget deficits of some $1.5 trillion, an aggregate merchandise
trade deficit of yet another $1.5 trillion, an increase in total
national debt of some $2 trillion, a 38% decline in the trade-weighted
exchange value of the U.S. dollar, depletion of all inherited
accrued fiscal reserve balances, as well as all contingency reserve
accounts of all federal agencies, sold some $5 billion worth
of metals, minerals, fuels, fibers and food stuffs from the so-called
national strategic stockpiles without the required congressional
approval, drawn down (since March 2001) about 2900 metric tons
of gold from the national gold
reserves, completely depleted the national silver reserves without
prior consent of Congress, depleted what little remaining cash
balances were left in the nation's 42 public trust funds."
And they did all of this before lunch!
Whew! I'm exhausted. With my last remaining strength, I raise
my hand and ask "And where are we getting the money to deficit-spend?"
Hold onto your hats, because he says "The budget and trade
deficits being accrued by the policies of the current regime
were consuming 78.4% of the entire planet's net savings rate,
a figure that has now grown to 81.3%, in order to finance U.S.
debt." Gaaahhh!! Now, not only are we consuming 81% of the
world's saving, but the Government Accounting Office (GAO) notes
that, if we continue on this path of spending and acting like
irresponsible dimwits, that "by the second quarter of 2009,
the U.S. would no longer be able to service its debt" because
"the economies of the rest of the planet could not generate
sufficient capital in the form of savings for the U.S. to borrow
in order to finance its debt." We will have to borrow more
than the entire rest of the world saves, every freaking year!
And this 2009 he is talking about is only five short years away!
Now you know why I said "Gaahhh!!
This dovetails perfectly with Peter Schiff''s comment about the
latest jobs report, that "As I have written repeatedly,
an economy in which consumers borrow money to buy imported products
is an economy incapable of producing significant job growth.
America's beleaguered manufacturing sector, once the source of
its industrial might, shed another 18,000 jobs. It is worth noting
that the jobs added in the over-bloated service sector should
be considered temporary as they are completely dependent on the
American consumer/borrower, who intern depend on the continued
irrational behavior of the foreign producer/lender." The
ones who are already loaning us 81% of everything they can save!
He continues "In order for foreigners to continue exporting
products to America, they must continue importing inflation from
America." This is where I jump to my feet, and show a little
prescience, as one day we are going to be very disrespectful
of all foreigners. I say "Well, to be fair, these are filthy
foreigners, remember, and we Americans don't care about foreigners,
we don't HAVE to care about no stinking foreigners, as we only
care about 'What is good for America' and so I say to hell with
foreigners!" He looks at me with that look of disgust and
loathing that I have come to expect from arresting officers,
and then without even acknowledging my remarks, goes right on
to say "This one-sided game is nearing its end, as foreigners
will soon tire of paying higher and higher prices for oil and
other commodities while watching Americans indulging on the fruits
of their labor. Soon they will tire of sacrificing current consumption
by lending to Americans, while watching the value of their savings
vanish as a result of their efforts to support the dollar."
Well, I hate to disagree, but I think that these foreigners are
too stupid to put that all together, and instead they will resemble
Americans, who are also unable to put that together, either,
and those filthy foreign devils will just get angry at watching
prices going higher and higher, and how they still don't have
anything to show for it, and they will rise up yelling and blame
the Mogambo, even though it was ME that was telling them to stop
that silly crap years ago because this is what would happen to
them! But did the Chinese listen to the Mogambo? No! Did the
Americans listen to the Mogambo ? No! Did the Japanese listen
to the Mogambo? No!
He sums up with the comment that "Indeed, should the current
regime remain in power, the economic outlook for both the United
States and the world remains bleak", to which I note that
apparently this guy has not been talking to David Morgan, of
the Silver-Investor.com newsletter, who has put a lot of thought
into this thing and said it doesn't matter who in the hell wins
the election, because "The American election on November
2 will be a matter of determining who is skipper of the Titanic
after she hits the iceberg." And I have to agree, both because
Mr. Morgan could pound me to a pulp anytime he wanted, and also
because even the Mogambo himself, armed with photon torpedoes
and fully-charged lithium crystals, could not save this economic
Speaking of David Morgan, and if you are talking about silver
then sooner or later you're talking about David Morgan, says
that he loves you so much that he is going to repeat himself
so that even a dunderhead like me will know the importance "China
is going to need, want and use silver. And a lot of it."
He says this because they want TVs and refrigerators and all
kinds of electrical thingie-bobs, too, all of which consume silver.
Seeing the look of blank, uncomprehending stupidity in my eyes,
he does not realize that this is the natural state of affairs
for the Mogambo, and helpfully repeats himself, "China-silver,
China-silver, China-silver." I nod, thus signifying that
I now understand, and as my way of saying "thank you"
for waiting for me to catch up with you and your big brains,
who saw the China-silver connection a long time ago.
- Talking about the Philippines in his article on the Mises.org
website entitled "Raiders of the Taxpayer's Money,"
Grant M. Nulle writes that their own clot of elected idiots are
now "Staring acute financial hardship in the face, government
officials are imploring the nation, particularly Filipino taxpayers,
to bail them out of a crisis of their own making." And what
is this crisis? Is the Mogambo coming to town? No, but close
enough! The crisis is that they acted like Americans! They run
large budget deficits, issued a lot of bonds as "the government
also resorted to public spending to stimulate growth."
And guess what? They now find that their situation is exactly
as the Mogambo predicted, and just as everybody who has the faintest
notion of how economics really works and/or who has ever read
any history of economics at all could have predicted with their
eyes closed and their hands tied behind their backs, and we are
now standing around with our hands tied behind our backs alternately
pleading to be untied and laughing at the Philippine government
and the people who elected them.
But Mr. Nulle is not interested in making fun of the Philippines
or laughing at the Philippines or pointing fingers at the Philippines
and saying hurtful things like "Philippines! Stupid as America!
Nyah nyah nyah!" and politely elects to talk only about
economics, and says "Government servicing of these obligations
could become impossible to manage if global interest rates continue
to rise and recurring budget deficits cannot be attenuated."
Attenuated recurring budget deficits? Ha! Like THAT'S going to
But the Standard & Poor's people have a plan. "The S&P's
advice indicates a proper method to resolve the Philippines debt
situation, albeit not in the manner the rating agency advocates.
Instead of devoting more of their income to Manila's debt problem,
the Filipinos should press the government to repudiate all outstanding
obligations to multilateral and private lenders alike."
I can see the headlines now. "Philippines to World: Drop
Then he finished up with a clever, memorable sentence. "Hopefully,
debt repudiation by the Philippines would serve notice to prospective
lenders that states, the only entity in society besides criminals
that exist at the expense of others, are parasitic and wasteful
consumers of capital, undeserving of investment."
- I am surprised that nobody has brought up the fraud of the
Ownership Society. The way it works is this: My neighbor says
he can get me a great deal on a car. So I give him my money to
buy the car. He buys the car, rides around in it, continually
borrowing more money from me to make the payments and put gas
in it, but he never drops the car off. Later, much later, when
it is finally worn out and broken, he drops it off in front of
my house, brakes squealing, leaking oil, wheezing and backfiring,
the paint gone and the body panels dented and rusting away, tires
deflating, radio dead. He honks the horn, and says "Yo!
Mogambo! Come on out and take possession of your new car!"
and walks away.
And this is the answer to Question Number Four on last night's
homework assignment, "What is the difference between getting
this car and getting control of a bankrupt Social Security system,
a healthcare system that is ridiculously expensive and an entire
economy that is bankrupt and over-indebted?" The answer
is C, "With the car, you get a horn that goes beep beep
- I watched the Presidential candidate debate Friday night, and
almost got physically ill from my seething rage about the constant
talking about Iraq Iraq Iraq. So when the subject finally got
around to the economy, I stopped making crank phone calls to
the Federal Reserve ("Hello? Fed? Do you have pizza? You
don't? Then why don't you print up a few billion dollars and
go get one, you ignorant monetary jackasses who are killing us
with your constant creation of money and credit? Hahahaha!")
and when the audience member finally asked what kind of jobs
are we supposed to get in the future, that is when I really started
getting excited. "This is going to be so cool!" I said
to myself. "Now all I have to do it listen carefully, and
I will find out what kind of job I can get tomorrow, so that
I can move into a nice half-mill McMansion of my own! And buy
some new SUVs! And a few plasma-screen high definition TV sets!
And jet-skis all around!" I have to admit that my mind started
to wander a bit as I started thinking of all the wonderful things
I was going to buy when I got one of these fabulous jobs, and
I snapped back to reality when John Kerry mentioned that an example
would be in child care. Child care? CHILD CARE? Did this guy
think that I can afford a house with a half-million bucks in
mortgage debt on what I can make as a child care worker? Does
he even know what child care IS?
Well, maybe the government is actually moving into child care,
because the employment report showed that manufacturing lost
13,000 jobs (showing a net job loss for the millionth month in
a row) and government payrolls increased by 37,000 jobs. I told
you that things get really weird at the end of these long booms.
Well, sadly, this is the end of the list of specifics on how
these two hotshots are going to revitalize the economy. But at
least we got a few laughs! For example, we can look forward to
an economy composed of taking care of each other's children!
(hahaha!) Both Presidential candidates plan to cut the deficit
in half in four years (hahaha!), which means bringing the budget
closer to being in balance (hahaha!), which means cutting spending
(hahaha!) or raising taxes (hahaha!) or reducing the growth of
entitlements (hahaha!) by also reducing the number of new groups
of people who want to be given money (hahaha!). Oooh! My stomach
hurts from laughing!
Of course, there was also a lot of talk about tax credits (the
government literally giving money back to people) and tax cuts
(the government not taking as much money away from people), all
of which makes the budget deficit worse.
- The Aden sisters, who publish the Aden Forecast, have also
apparently watched the debates, and as a result are bullish on
gold, and as far at the Presidential election
is concerned, "The bottom line is that there isn't much
difference between the two candidates as far as how it would
affect the metals markets. As investors, this means you want
to continue buying and holding gold, silver,
and gold and silver shares. These markets should
continue to do well, outperforming other markets in the period
ahead, and the action is currently very good." This is,
I assume because the chart action for gold
is in a "C rise" wave, which, I gather, is really good
news as far as rising prices are concerned, but I am not sure
I could tell a "C rise wave" from a hole in the ground.
No, wait a minute! Now that I think about it, I'm sure that I
CAN tell the difference! I swear! You make money on a rising
C wave, and you don't with a hole in the ground, right?
- At least South America is consistent, and the AP wire reports
that Hugo Chavez, President of Venezuela, threatened Venezuela's
Central Bank that "if it doesn't allow him to use part of
its international reserves to fund his social programs for the
poor, he will get a Supreme Court order to do so."
He is reported to have said, and if you are a Leftist moron then
you will love this, "Be assured that I will fight until
I can get the last cent to give to the people."
It's too bad that "Central Bank directors have said that
using the reserves for government programs is illegal, and that
such use would undermine the local bolivar currency and harm
the country's standing in international financial markets."
But crushing the people by ruining their currency is okay, as
long as he can "get the last cent to give to the people,"
who will be dismayed to find that they can't buy much with the
money that has turned to garbage, and are now worse off than
ever. Some people never learn, and by "some people"
I mean, of course, Venezuela. And America.
He may be right. All money is in existence because somebody borrowed
it. So if that loan goes bad and disappears, will the money also
disappear? We'll see.
***The Mogambo Sez: The election is a couple of weeks
away. Theoretically, the bizarre behavior of the whole world
should abate soon after that. I sure hope so anyway, because
the things that are happening to keep this whole thing animated
until then is scaring the hell out of me.
October 13, 2004
The Daily Reckoning
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
and other fine publications.