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What can I say except, "Got gold?"

Richard Daughty
The Daily Reckoning

...the angriest guy in economics
The Mogambo Guru
December 9, 2004

- The cover of the 12/4-10/2004 issue of the Economist magazine has a cover showing a dollar bill being consumed by some caterpillar, with the caption "The Disappearing Dollar." This "disappearing dollar" is big-time important, because it directly affects how much imported things cost, and since we import almost all the things that we consume, it directly affect how much things cost, period. For confirmation of that cryptic statement, ask Bill Ridley, of Online Investors News, who writes "For the savvy investor who can read the writing on the wall this also means that the asset based inflation we have seen with gold, copper, oil, and other resources will continue to go up regardless of upward pressure on interest rates or the slumping dollar. The devaluation of the dollar will not make these commodities worth less." That is obviously true. It just makes them cost more.

Speaking of money, last week Total Federal credit shot up another $5.6 billion, the Treasury printed up another $4 billion in actual cash, foreign central banks bought up another $5.8 billion of US debt, as everybody tries desperately to keep this embarrassing economic monstrosity from collapsing under its own ponderous weight.

- Government people came out from behind the curtain and pronounced that GDP came in at 3.9% growth. And maybe it did. I have no idea. But the consumer confidence numbers went down as the consuming public's buying power went down, which makes sense to me. With much less buying power (thanks to a weakening dollar) and anecdotal reports of sluggish sales, I have a difficult time reconciling that with how the government says that the economy was up by 3.9%. People paid more, but they got less. The GDP numbers are all supposed to be adjusted for inflation, but I really, really, really, really have a hard time imagining that we had nominal growth of over 7%, that would adjust back down to 3.9% after backing out inflation of at least 3.2%.

If you want to see MY consumer confidence go down, all you gotta tell me is that something that I want to buy costs more money, and while the previous price was more than I could afford to pay, I was willing to stretch the point so that I can have everything I want now now now, because that is just the sort of childish, gimme gimme gimme attitude that is so characteristic of Americans in general and The Mogambo in particular. And it fits a whole lot of other people around the world, too, who are all up to their eyeballs in debt so that they could have things then then then and who are getting calls from bill collectors now now now who also want their money now now now and I keep telling them that the check is in the mail mail mail, and anyway, that guy moved, and me no speakee English so I am saying goodbye now (click).

- Microsoft is dispensing a whopping $32 billion to shareholders. Of course, I am convinced that they are only doing this as a result of some extortion from the government, which is desperate to get money into the government, to be spent into the economy. Tom Dyson of Daily Reckoning has looked at this and said, "The total sum that Microsoft will dispense to shareholders is $32 billion. But Liquidity Trim Tabs estimates that only $22 billion to $25 billion of this special dividend will find its way back into the equity market.

"The Microsoft special dividend will hit investors' accounts on December 2," Trim Tabs continues, "but some institutional investors could begin to spend the money a few days earlier using existing cash or debt. Our best guess is that between 25% and 33% of the reinvested $22 billion to $25 billion - between $5 billion and $8 billion - will be reinvested during the first week of December. The rest will probably flow into equities during the rest of December."

Just in time to keep the markets up so that when December 31 rolls around, taxable gains will be locked in, and so tax revenues to the government next year will be locked in, too. How special!

- "The China Factor and the US Dollar" is an essay by Frank Shostak on Mises.org "By printing the most popular international medium of exchange, the U.S. central bank enables the first receivers of dollars, that happened to be Americans, to divert real wealth from the rest of the world."

But it is not just Americans that have caught the money-printing bug. He continues "Between 1994 to 2004, the Eurozone money printer has been working much faster than its American counterpart. In other words, money growth in the Euro-zone relative to the growth of real goods and services has been much larger than in the U.S."

The Economist magazine opines that, "The global financial system is a giant money press, as America's easy-money policy has spilled beyond its borders." But to show you that not even the vaunted Economist magazine can get it right all the time, went on to say, "This gush of global liquidity has not pushed up inflation. Instead it has flowed into share prices and houses around the world, inflating a series of asset-price bubbles." This is, the ridiculous opinion of the magazine to the contrary, inflation. If a house costs more to buy than it cost last year, how is it a "bubble" and NOT inflation? Explain to the guy buying the house how this is not inflation! "The price is higher, but is not inflation!"

One of the things that is getting a lot of airplay is the idea that if a debtor cannot pay, this is only of concern to the parties involved. Not true! Not true by a long, long shot, and don't make me bring up that thing about how a butterfly flapping its wings makes it rain in Chicago after a few days. Instead, let me give you an example from my personal life. Let's suppose that I cannot honor a debt. Naturally the creditor calls me up and wants me to pay. Naturally, I tell him the check is in the mail. Then, after a few days, he sees through my little ruse, and starts harassing me anew. So far, things are working out just like they say; it is only a problem for me and the guy I owe. Then things start getting messy, because the guy HE owes money to is now calling me on the phone, saying that he can't get paid until I pay the guy I owe. And so I naturally tell him that the check is in the mail. And then the guy HE owes is calling me, too, and saying that the guy who owes him can't get paid until I pay the guy I owe. And so I tell HIM that the check is in the mail. And then the guy, well, you get the idea. The Law Of Economics (LOE) is that all things are connected to all things, and in fact there are very few things that are of concern only to the guys directly involved, and money ain't one of them.

- The folks at the Daily Reckoning are not just a bunch of handsome, beautiful people who sit around all day sipping mocha espresso lattes, discoursing learnedly on economics and making jokes at the expense of The Mogambo ("How is The Mogambo like a turkey? They are both stupid and ugly, and neither of them likes being poked with a stick! Hahahaha!"). For example, they said "The Japanese, meanwhile, watch in horror as the dollar drops. They have 800 billion worth of dollars in their central bank vault. Each penny the dollar loses, takes $8 billion off their balance sheet." Each penny!

They did not say how much their government and their citizens will lose when the dollar drops in value AND interest rates climb, but it must be a lot. For the last umpteen years in a row they have been buying over-priced American debt (thanks to interest rates being pounded artificially low) and now all of that humongous, gigantic load of toxic crap is going down in value, and there is nobody to sell it to.

- Personal income went up by 0.6% and spending went up 0.7%. Stephen Roach of Morgan Stanley has looked at the numbers and says "I found the report appalling. What caught my eye was a further reduction in the already sharply depressed personal saving rate -- down to 0.2% in October from 0.3% in September."

Savings hitting a new low of 0.2% is a statistic that I cleverly demonstrate by using this pile of 500 yummy cheeseburgers to illustrate your total income for the year. Your entire savings would be represented (I hold up one cheeseburger) by one cheeseburger. That is the amount of money that you are saving? How big do you think one cheeseburger can grow? Wake up, dude! And look! The Mogambo, representing the government, is taking a big old bite out of that cheeseburger! And now The Mogambo (what a talent!) is representing the financial service industry, which is also taking these little bites out of your one lousy cheeseburger!

Drew Matus, who is an economist at Lehman Brothers, writes "The savings rate fell to 0.2 percent. That means for a person earning $40,000 per year, they are saving $80. Put another way, that person is saving a little over $1.50 per week."

Reader Arlo S., obviously thinking along the same lines as these guys, writes that "What he didn't say is that if the whole household only makes $40,000 per year, then the average family of 3.2 persons only saves just under 47 cents per week per person. These people are planning to survive on about a half of candy bar per week." Upset that this Arlo S. character makes a better point than me, I notice that he did not say anything about the effect of inflation on the price of this hypothetical candy bar! I leap from my chair to thrust myself unbidden into the conversation and maybe get a little glory for myself. Out of the corner of his eye he sees me coming, he suddenly realizes his mistake, and in capital letters writes, "IF IT STAYS AT TODAYS PRICES."

I am naturally upset that he has stolen my thunder, and I am left with mulling over even worse news, such as that sent by Geoffrey W., who sent an article entitled "Real Wages Falling, Maryland Professor Says" from CBSMarketWatch.com. The article starts out with a quote from Peter Morici, business professor at the University of Maryland. "With average hourly wages up just 0.1 percent in November, take-home pay for most U.S. workers is falling behind the rising costs of energy and health care. American workers can expect their paychecks to buy less and less each month," he said, while painting a grim picture for job growth in the near term. "Economic growth is already likely to slow in the first and second quarters of 2005, and further interest rate increases will further chill growth and jobs creation, without having significant effects on inflation." This is stagflation writ large, in case anyone asks you.

Peter Schiff of EuroPac.net put it rather cleverly when he wrote, "The first rule of holes is that when you find yourself in one, quit digging. Not so for Americans, who simply buy larger imported shovels." Hahahaha!

- "Resurrection of the Islamic Gold Dinar" is an interesting essay by J. Kent Willis of AGAPI Financial, who writes "Very few understand the horrific implications of the wholesale bypassing of the USD by the rest of the world. Regardless of how Americans view our lovely, crisp, counterfeit-resistant (to everyone but us!) IOU's provided almost free by the Federal Reserve, the opinion of the rest of the world regarding their value will ultimately determine our economy stability, military success, way of life and our place in history. Will it be a worthy epitaph? Or shall we reside in disgrace in the rubbish heap alongside the vulture-picked carcasses of every other banana republic who believed they could have lasting prosperity by issuing ephemeral fiat?"

For once in my whole life I have read my homework assignment, and I know the answer to this one! Oh, how exciting! My heart is pounding, but before I could raise my hand to answer the question, he answers it himself, the bastard. "All students of financial history are aware of the economic ruin which follows every nation, without exception, that debases their currency in pursuit of national pre-eminence."

National Review Online has apparently read the homework assignment, too, and they write "Those advocating a weak dollar to redirect trade flows do not have history on their side. While a depreciating currency is assumed to boost exports and shut off the demand for imports, this is only the first effect. Eventually a weak currency invites inflation, which neutralizes the effect of the lower exchange rate. Persistent currency depreciation has never brought lasting prosperity to any government in the history of the world. If the dollar continues to depreciate it will bring higher inflation, higher interest rates, lower real growth rates, and a reduced standard of living for most wage earners."

And this is for starters! If you really want to get into it, take a look at what happens AFTER you have had all of this downside, and then you will know why the fear of inflation has always been so intense throughout history, all the way up until the current crop of economic blockheads took over, and who now infest the Federal Reserve, the government and the universities with their ridiculous theories.

And it was all for gluttony. We just wanted to consume, and consume some more, and consume without end. In a similar vein, Gary North writes in his Reality Check newsletter essay entitled, "Chips, Dips And Red Ink.", this timeless classic line from the Bible warning of the prices to be paid for gluttony, " 'And put a knife to thy throat, if thou be a man given to appetite.' (Proverbs 23:1-2)."

But Mr. North can be counted on for much more than just good lessons from the Bible. He is also facile with numbers, and also notes that, "The unfunded liability of Medicare and Social Security is in the range of $45 trillion. By 2008, it will be over $51 trillion. Most of this shortfall -- 86% -- is Medicare-related. Congress is doing nothing to deal with this looming crisis. The Bush Administration pushed through a huge prescription benefit law, which will speed up the fiscal erosion process. As a people, we are eating our way to national bankruptcy."

- The recent fall in oil is a gift, just in time for Christmas, or Hannukah, or whatever you celebrate, and if you are still undecided, I suggest selecting a religion or philosophy that doesn't involve a whole lot of gift-buying, and especially one that has absolutely no gift-wrapping, what with all those confusing bows and ribbons and stickers and tags and tape and there is never enough paper on the roll to finish wrapping this damn present, and anyway what is the point of wrapping the damn thing, as if some flimsy gaily-colored paper can possibly disguise a .50-caliber machine gun with tripod mount, for crying out loud? One such holiday is, of course, Mogambo Day (MD) which also occurs right around this time of year, and it involves no wrapping whatsoever. You just gather up a big gob of cash and send it to me, addressed to "Occupant," and then me and my Mogambo Hoodlum Friends (MHF) take the money and drive around bearing gifts of single-malt scotch, whooping and hollering "Happy Mogambo Day!" out the windows of the car until we get a supernatural vision or the police pull us over for no reason. Okay, I do not have big plans for Mogambo Day becoming a national craze, but if you are one of those who are always searching for The Next Big Thing In Holidays (TNBTIH) this could be it, so this is your chance to get in on the ground floor.

But whether or not it is a Mogambo Day present or not, the fall in the price of oil is nonetheless a gift by Saudi Arabia for some reason, who are leading this charge, and who are paradoxically pumping more of a wasting asset (because all oil is finite in quantity) of their only asset (unless sand is a new asset category that I haven't heard about) at a cheaper and cheaper price both in nominal terms (dollars per barrel), but also especially in real terms (as the purchasing power of those dollars falls). What in the hell could they be thinking?

I mean, here is the situation as I see it, and I'm pretty sober right now, which ought to help a lot. Oil, which is the only thing they have that anybody wants to buy, which they are also rapidly running out of, at a time of increasing demand, at the limits of world refining capacity, they are now selling oil at lower and lower prices! And, to top it off, they are getting paid with a currency that is becoming ever more worthless! Wow! Hey, Saudi guys! What in the hell do they TEACH you in those schools of yours?

This could show that the mental processes of Saudi Arabians are out of whack, or there is quid quo pro in operation, or something else of which I am totally unaware, which is usually the case. Either way, I suggest that we all run out and buy oil futures and the shares of oil companies, because there is no way in hell that the price of oil will NOT rise and rise, probably for the rest of your life, until the day comes when it is so expensive that alternatives will be developed in desperation, and the Problem Will Eventually Be Solved (PWEBS) after years and years of gigantic government-financed programs full of actual government programs, federal grant money to universities and corporations, and/or research and development tax credits out the wazoo, plus a million other ways to take taxpayer money and give it to their friends, and thus distort the economy more and more.

- Phil Spicer, he of the Central of Fund of Canada, is also something of an expert on inflation, and he is so productive at his job that he has lots of time on his hands. But then again, he doesn't have to keep checking in with his probation officer or going downtown in squad cars to appear in police line ups, which is SO time-consuming, and he doesn't have the embarrassment of hearing people saying "That's him, officer! That's him!" and then the intercom goes dead, and we are left alone, all of us standing there in a line, looking at one another. We can hear muffled voices coming from behind the one-way mirror, and after awhile this voice comes over the intercom and says in a deadpan voice, "Number three. Step forward and say, 'The Federal Reserve is killing your money, so they are killing you, you big, dumb freaking idiot'. "

Hell, not having THOSE hassles would free up a lot of time for ANYBODY! Nevertheless, the point is that he has the time to do interesting, research-oriented things and I don't, like when he writes that the "FED shows CPI index of 51 in 1800 and 25 in 1900." So prices for commodities went down by half over a hundred year period (annual appreciation in purchasing power = 0.715%), when we were on the gold standard, as "Dollars gained purchasing power." That gaining of purchasing power is, I might add, one of the beauties of being on a gold standard.

So you can see that if I had the spare time like Phil here, I could come up with interesting, data-heavy things like this, and don't tell him that I called him "Phil" because he's probably a real big guy and he probably doesn't like to be called "Phil" and being a Canadian he's probably getting real arrogant and snooty that his money is gaining purchasing power (getting stronger) while our wimpy little dollar is losing purchasing power (getting weaker), and if there is one thing that I have learned in my years on this planet which you call Earth, it is that it is the same here as it is everywhere else in the universe, and that is that the strong survive, the weak die, usually because the strong kill the weak, and then they eat them.

He continues by saying the "CPI crept to 29.7 by 1913" which was, of course, both an average inflation of 1.3% over those thirteen years, AND it was the year that the murderous monstrosity known as the Federal Reserve was created, "and rose to 567 in 2004." So what does that work out to, inflation-wise? 3.29% per year! Before the Federal Reserve, money tended to be stable in purchasing power, and actually gained purchasing power as the free enterprise miracle known as Adam Smith's Invisible Hand worked its magic. But ever since the loathsome Federal Reserve took over the whole banking system of the United States without firing a shot, we have had persistent, grinding inflation, year after year!

He also attached a BLS inflation calculator that showed that a dollar's worth of stuff in 1980 cost $2.32 in 2004. And what is that, as an annual inflation, for that measly 24 years? 3.57% a year, compounded! If anything, inflation is getting worse under the horrid Greenspan, who took over the chairmanship of the Fed in 1987.

The lesson is, I guess, that the Federal Reserve can be counted on, if 91 years of continuous history is any guide, to whack us with constant, simmering, grinding, impoverishing inflation of over 3% a year. And you think that the piddly little money you are putting away into your precious little IRA or 401(k), which is growing at less than that and has been for the last five years, is going to somehow grow into some glorious pot of money with which to enjoy a long and luxurious retirement? Hahahaha! No wonder the United States always tests out as one of the most math-illiterate of all the developed nations! Hahahaha! Even when our whole future depends on these retirement accounts, we are so stupid that we cannot see that we are losing money the whole time? Even when the evidence is right in front of our eyes? Hahahaha! Americans! What a bunch of idiots!

Mr. Spicer has also confirmed that, for the first time since 1980 (!), "The Fear Index has reconfirmed the bull market in gold. This new high in the Fear Index suggests that gold's uptrend will continue, which is not too surprising, given the problems with the dollar and all other reasons to worry." This Fear Index is calculated as being equal to (US gold reserves X gold's market price)/M3. Using actual numbers, it is written out as (261 billion ounces of gold X $448.98 per ounce)/ $9.300 billion.

- Chuck Butler, who is president of Everbank, the author of the Daily Pfennig newsletter on the Daily Reckoning.com site and is probably a real good dancer, too, took a look at the jobs report number and said "For what good does it do the economy if half of those jobs are minimum wage, temporary, or seasonal? Instead, why doesn't the market look and examine the numbers I do from this report? The average hourly earnings, and work week hours. These will tell us more about the shape of the economy than any report that contains 'ghost' jobs and birth/death models!"

So I say, "Okay, Mr. Butler! That is probably good advice! I will go and look at these numbers! " Without further ado, I go to the BLS site and I note that "The average workweek for production or nonsupervisory workers on private nonfarm payrolls decreased by 0.1 hour in November to 33.7 hours, seasonally adjusted. The manufacturing workweek also declined by 0.1 hour, to 40.5 hours." Okay, now we have taken a look at the average workweek, per his suggestion, and it was grim. What was that other thing he advised us to look at? Average earnings? Okay, let's take a look at average earnings. The report says "Average weekly earnings decreased by 0.2 percent over the month to $533.47. Over the year, average hourly earnings increased by 2.4 percent, and average weekly earnings grew by 2.1 percent." Which is, I note with that grim look on my face that means that The Mogambo Ain't Happy (TMAH), less than the rate of inflation.

George Ure at UrbanSurvival.com has also looked at the employment report, and has noticed that "Over the year, the number of persons who held more than one job increased by 346,000 to 7.6 million, not seasonally adjusted. These multiple jobholders represented 5.4 percent of total employment in November." So while the number of positions filled went up, a lot of the jobs were taken by people so desperate for money that they took yet another job!

Mr. Ure also prefers to look at something else. "The unemployment rate which matters to us is the Table A-12 Alternative Measures of Labor Under-utilization which shows that again this month 9.1% of the workforce is either unemployed or seriously under-employed."

- Bill Bonner, the handsome top dog at Daily Reckoning, has a new essay entitled "The Fabulous Destiny Of Alan Greenspan". Now, he is not a big fan of Alan Greenspan either, and he writes "Fatal to Greenspan's judgment was a combination of bad information, bad theory and a human nature that - though unchanged for many millennia - seems to have slipped the attention of central bankers." So what was this "bad theory"? "Greenspan's theory was that by carefully controlling the cost of credit and the money supply he could avoid serious economic downturns."

Now, for you Mogambo historians out there, and I pity you and your pathetic, worthless life if you are, it was this whole thing of interest rates always guaranteeing wholesome, healthily rising economic activity that first caused me to say "Economics is full of, pardon my French, crap!" Fortunately, my quest for something that was NOT full of, pardon my French, crap finally took me to Austrian economics, and then I found out that economics is NOT full of, again pardon my French, crap, but only that American economists and their stupid theories are full of, as the French say, crap, and which the Spanish call "el crapola." You and I, one of us being a normal human being, are already aware that just because interest rates go down does not necessarily dictate that borrowing and spending will go up.

To add credence to this, Doug Nolan quotes from his favorite "monetary" economist, Ralph G. Hawtrey (1879-1975). "The focus of Mr. Hawtrey's analysis of the 'Trade Cycle' was the instrumental monetary role played by traders and merchants borrowing to increase the inventory of goods and commodities. 'When prices are rising, a very high rate of interest may fail to deter merchants from borrowing; when they are falling, an apparently low rate of interest may fail to tempt them.' "

- David Bond, in the latest issue of his Wallace Street Journal, reports that he is in England, and he is thus reporting from the selfsame England, and it is entitled "Metals Are In For A Nice, Long Ride", which has a nice ring to it if you are into metals, which you should be. (And speaking of David Bond, he and David Morgan have a new website, SilverMiners.com, which has such low literary standards that they will stoop to posting my stupid Mogambo Guru, so you can see they deserve no respect whatsoever).

He writes "China is now consuming 20 percent of world aluminum production and 33 percent of its steel output and has made purchase commitments throughout South America for alumina, iron and steel." So, I assume, South America is going to be having an increase in revenue, which I assume is good for a country and region, since I never heard of a news story that started out "The country had so much money coming in, that they went bankrupt", or "Economy collapses due to excess of revenue!", or "Businesses go belly-up, choked to death on too much income".

So here's another Mogambo Tip O' the Day (MTOTD), but delivered in true Hollywood style in case any rich Hollywood producers are looking for leading men to sign lucrative long-term contracts. For my audition, I am re-enacting that famous scene where a family friend is talking to Benjamin, as played by Dustin Hoffman, in the movie "The Graduate."

I put my hand on his shoulder, and I say "Mr. Hoffman, I mean, Benjamin, you are a rich guy, and you could afford to loan me some money. Do you have ten thousand dollars?" and he says, "Of course I have ten thousand dollars!" So then I say, "Now we're getting somewhere! Can I borrow those ten thousand dollars? " and he looks me right in the eye and says "Of course not, family friend!" So I say back to him, "And so you still want some free investment advice, you cheap little movie star bastard?" And he says "Of course, trusted giver of advice!" So I tell him, "Okay, invest in South America somehow. I don't know how, but just keep your eyes open, because this is a long-term deal." And so Dustin Hoffman, in the role of Benjamin, says "What about plastics? I seem to remember something about plastics" and I say, and my eyes glint with excitement, "Screw plastics! That was from the original movie forty years ago, chump! South America, dude! South America!"

Well, that is all well and good. But there is a bad side to it, says Stephen Briggs of Societe Generale. 'But China's growth numbers do not fully explain global metal use, because much of China's consumption is a mere relocation - up to perhaps 30 percent- of the world manufacturing base from Europe and the Americas to Asia." They have gobbled up thirty percent of the world's manufacturing base? My God!

Mr. Bond goes on to say, "They are scared to death of the US dollar and don't want to be left standing when the music stops." Who are "they" and what is this music that is playing? Well, he never does identify the music, but he goes on to say that "they" are the rich and the powerful, and their fear may explain the sudden interest by these rich and powerful, who are royalty and such, in this year's Mining Journal conference in England, only their third such meeting since 1890. The other meeting was last year. In short, everything was fine since 1890, and then, only 113 years later, they needed to have a meeting. And then, the next year, (this year), another one. Hmmm!

He cleverly sums up with a witty phrase: "Ninety percent of the time, mining is a money-losing proposition. Welcome to the 10 percent that ain't." Hahaha! I could use that line to steal the scene from Dustin Hoffman! I look around. He is gone! Desperately, I call out, "Mr. Hoffman! The profits should first show up in mining investments in South America! Did you hear me? Mr. Hoffman? Benjamin? Anybody?"

- I read recently that somebody said "If the United States is borrowing to finance its trade deficit, then somebody must be lending, which means someone is saving." Wrong. It could also mean that some government is creating credit in the banking system, which somebody borrowed, to buy our debt. Nobody saved anything.

- John Mauldin, who writes the FrontLineThoughts.com newsletter, was talking about gold recently, and so when his back was turned, I snuck up close to him so I could surreptitiously listen in and maybe get some free advice, which is always the best kind, and usually well worth the money!

He was wondering whether this recent action in gold was for real, "Or is it as I have maintained for years that it is simply a function of the falling dollar? There is no gold bull market in Europe and in other countries where the dollar is falling. Certainly in countries like China there has been a gold bull in terms of Renminbi, but that is because the Renminbi and the dollar are pegged." I agree. Gold is mostly an insurance hedge against the stupidity of governments, and, unlike most other insurances where even if you DO die with a big ol whole life policy in force, you aren't there to enjoy it because you are dead, so as far as YOU are concerned, it was money down a rat hole. But gold is one insurance that is always guaranteed to pay off sooner or later, because government cannot be trusted with money, and especially governments with paper fiat money, and especially especially governments with fiat money in a fractional banking system, like we have, and most other countries have, too.

So while gold has gone up in price, American and Chinese holders of gold are better off only in terms of amount of currency that we can get for our gold. But in terms of total buying power, we are both left unchanged. And since buying power is the measure of wealth, our wealth is unchanged. That is how insurance works; you are left unchanged, no matter what happens.

Not so the hapless holders of horrid, dorky dollars, and unless they are realizing yields of more than seven or eight percent after taxes, they are LOSING purchasing power! Even though they are making a few percentage points in nominal yield, thus increasing the amount of money they have, their total buying power has actually decreased! Hahahaha!

- John Mauldin also said "Did you feel the ground shake? The epicenter of the economic quake happened in Laos last Tuesday. Southeast Asian nations and China signed an accord to create the world's biggest free trade area by removing tariffs for two billion people by the end of the decade. In macro-economic terms, that is tomorrow. Leaders in the 10-member Association of Southeast Asian Nations (ASEAN) also signed a pact to create an ASEAN Community along the lines of a unified Europe by 2020. It aims to create a common market with common security goals. ASEAN members are actively talking of creating their own 'reserve currency' to compete with the dollar and the euro."

If you see any of these ASEAN guys hanging around outside sneaking a cigarette and talking into their cell phones telling each other jokes ("Hey! Did you hear the one about how The Mogambo is like a turkey?"), tell them that if the want a real reserve currency, then make their money gold. Otherwise, they will just be another bunch of foreign dirtbags with a fiat currency and a fractional reserve banking system. Big deal: We are already up to here in fiat currencies in fractional banking systems, and that is the freaking problem.

He goes on to say "On an even larger note, Japan, South Korea, Australia and New Zealand have all agreed to start free-trade talks with the ASEAN countries. (Just for the record, the Association of Southeast Asian Nations consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.)" I'm not sure, but looking over this list I think we Americans kicked all their nasty butts at one time or another, so you can imagine the bond between us.

Perhaps it is best summed up by Michael J. Panzner in his fabulous book "The New Laws of the Stock Market Jungle" when he wrote "In most countries around the world, politics and economics are firmly linked. Consequently, important issue such as unemployment, trade balances, interest rates and energy prices can sometimes create enough internal pressure to get government wheels spinning in an unhelpful direction, at least with respect to cross-border relationships."


** The Mogambo Sez: What can I say except, "Got gold?"

Dec 7, 2004
Richard Daughty
email: scgcjs@gte.net

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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