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People Who Own Gold

Richard Daughty
The Mogambo Guru
The Daily Reckoning
December 13, 2003

Foreign central banks are shifting into overdrive on their holdings of US debt last week, as evidenced by their balances at the Fed increasing by $9 billion to a new record. Hahaha! Dorks!

Just to show those jerk foreigners that they haven't cornered the market in stupidity, US banks also bought up a nice $4 billion themselves!

But, and if you really want to see something scary, walk with me over to where the Treasury holds sway, and we will cling to each other in fear and whimper pitifully as we watch vile specters swirl around us, and we note that they issued another $17 billion of debt in the same short week! The whole scene reminds me of the end of the movie "Raiders of the Lost Ark," where our intrepid hero, Indiana Jones and his perky girlfriend are bound to a post, and the Nazis are opening the Lost Ark of the Covenant and all those angels are swirling around. At first the specters are beautiful and friendly, like what happens when you first start printing money and creating excess credit. Everything is wonderful and lovely! Then, right before our very eyes, the angels metamorphose into shrieking, devouring demons, and everyone is killed and the earth is swept bare, except our hero and his lovely sidekick.

But getting back into something more attuned to reality as it really exists, we note that the Fed increased raw, fungible credit by $5.8 billion, too! In one week! And, I might add, to a new record, another new all-time new high, never before seen since the inception of the entire Federal Reserve System! A veritable avalanche of raw, naked credit, the original high-powered money if ever there were such a thing, the fabled Money Out Of Thin Air of story and song, money that can be multiplied by almost a hundred-fold, a thousand-fold, a million-fold, a zillion-fold, all through the miracle of fractional banking!

I say this even though people at the supermarket always look at me like I have lost my mind when I stand by the checkout counter and tell them about it, because taking a very, very rough estimate of the multiplier, I look at Required Reserves, $41.64 billion, and divide that by Savings/other Deposits of $4084.8 billion. And what happens when you do that? Well, if you are like me, and you have my powerful skills with calculators, then you get some weird series of answers because you did something wrong with all those confusing buttons and then, in desperation, you finally ask someone who is just walking by to please use come over here and figure this damn thing out for me, then we get the surprising answer of 0.01.

This means that for every dollar of deposits, they actually have only one cent of reserves in case people come looking for their money. Okay. Now, taking a look at Total Assets of the US banking system, we find roughly $4,381 billion. And when we compare that to the reserves of $41 billion, it is, likewise, one puny cent of reserves against a dollar's worth of some of those loans going bad. So that one cent in reserves, that one measly penny, is backing up both a growing contingency of souring loans going bad, AND people wanting their money! Whew!

And now, as part of the physical fitness component of your educational experience, I want you to get up off your fat behind, and let's have none of that moaning and muttering under your breath about how I am sitting here on my fat keester while you are being ordered about like a dog or something and how you have had just about all of this ill treatment that you are going to stand for, and just who in the hell do I think I am anyway blah blah blah, and go get a textbook, any textbook, on economics, and look up their example of fractional reserve banking. What is the standard amount of reserves that THEY use to illustrate the use of fractional reserves? Ten percent! They, meaning guys who write textbooks, would have an entire dime's worth of reserves for every dollar of deposits! And we have, in real life, a lousy penny! A penny!

And if you spend any time reading that section, you will note that nowhere in the text do the authors of those textbooks ever imply that reserves would get down to one lousy penny! Does that imply something to you?

Anyway, why is this so possible? Because we have a fiat currency, and a guy named Greenspan who will stoop to anything, and another guy named Bernanke and his printing press, and if the banks ever need any money, for anything, just let them know, and they and their Federal Reserve will just - presto! - print up some credit, and buy the holdings of the banks, which also went up last week, as I noted above somewhere. In short, commit monetary fraud on a grand scale.

They will even print up actual currency! Which I add with that hysterical arching of my eyebrows and high-decibel voice, arms flailing about like my arms were on fire, although without the leaping up and down because the old knees aren't what they used to be, they did just that, last week! Again! They printed up $4.4 billion in cash! Dollar bills! And they have printed up, in the last year, $38 billion! Lovely stacks and stacks, pallet after pallet, of tens and twenties and fifties and hundreds! About $138 for every man, woman and child in the whole country. And $4.5 billion in one week, which doesn't sound like that much, I admit, but it is for one lousy week, and can't you see where this is headed? Now imagine not just one week, but a month's worth of $4.5 billion weeks, a year's worth of $4.5 billion weeks, a decade's worth of $4.5 billion weeks! It adds up! And you think, and pardon me while I try and stifle this laughter, that the dollars that you are putting away today - tee hee! - into your retirement plan - giggle! - are going to maintain their - snort snort! - purchasing power when you - hahahaha! - retire? Pardon me, but hahahaha hahaha! I can't help myself! Hahahaha!

Wiping the tears away from my eyes, and my ribs really hurt from all that laughing, the Federal Reserve and the Treasury are debasing your money right in front of your eyes, and yet you think that - hahahahaha! - when you retire that every one of those dollars you are depositing today will be every bit as valuable years and years from now? Hahahaha! And you admit that you are watching the Fed and the Treasury debasing your money right in front of your own eyes, week after week after week, and yet you STILL believe that a dollar today is the same as a dollar tomorrow? Hahahahaha! Stop! Stop! You're killing me! Hahahaha!

Now far be it from me, taking a long breath and trying to calm down and be serious for a minute because I am such a classy guy deep down, to suggest that there is any connection at all between the Fed creating money out of thin air to buy up government bonds, and thus effectively extinguishing the debt through that particular fraud, and the fact that the banks suddenly decided to acquire more government bonds. Must be a mere, umm, coincidence. Hahahaha! Now I'm killing myself!

So, in one stellar example we have all had a good laugh, I have demonstrated the perils of a fiat currency, the danger of fractional banking, related it all to "Raiders" which is a helluva good movie, a classic, really, and now I predicted that we are all going to die, except for the PWOG, which is an acronym for People Who Own Gold, because you know what a sucker I am for acronyms, especially silly-sounding ones, because things are going to get really, really ugly one day real soon, and this may be the only bit of levity that we get out of it.

Except, of course, like I said, for PWOG, which sounds funny, instead of the more accurate PWOC, or People Who Own Commodities, which doesn't seem that funny somehow, but which I liken to the post to which Indiana Jones was lashed during the cataclysm of the banshees, and it saved his life. And, you will recall from the movie, that Indiana Jones was exhorting Marion, the aforementioned love interest and attractive eye-candy, who was also trussed up to the same post, "Close your eyes! Don't look at it!" and they turned away from being seduced by the allure of getting caught up in the whole messy thing, and thus their lives were spared.

So now the stage is set, and I am proud to introduce my new "Raiders of the Lost Ark" ending, which is my new bid for immortality in the field of Productivity, which is all the rage right now. MY particular genius in extracting awesome productivity from the film industry is for me to take other people's movies and merely pop on a new ending. Anyway, my exciting new release has Indiana Jones, played by me, and never looking more ruggedly handsome and virile, I might add, saying to the beauteous Marion, "Hold onto my PWOG!" which has a faintly prurient sound that means a bigger box office and adds a subtle new layer to swirling emotional and riveting climactic drama, and he does NOT say "Hold onto my PWOC" which only sounds like he has something caught in his throat, and which is, I dunno, icky, but is admittedly more accurate, given the metaphor that I am looking for here, but, well, you know.

Bob Landis, wrote a tidy little essay entitled "The Once and Future Money" that is enshrined in the files of the Golden Sextant Advisors, and he wrote "Lord Keynes, along with Vladimir Lenin, ranks among the most destructive forces unleashed by World War I. Keynes was a Fabian socialist who provided intellectual cover for inflationism. He's best known for authoring bogus economic theories that turned classical economics on its head, undermined Western values and philosophy, and enslave us to this day."

I agree, but regard the type of slavery to not be the kind where we toil in the fields harvesting cotton under the lash of a cruel taskmaster by day and singing uplifting spirituals by night, but to the kind of slavery where we are chained to the oars of a galley, doomed to go down with the ship, as our hubris-maddened leaders crash us onto the murderous rocky shoals of economic ruin.

But how does this happen? Bob, and I call him Bob instead of Mr. Landis because all the other guys named Bob that I have ever known have wanted me to call them Bob, and so I imagine that Bob here would say, "No, no! Call me Bob!" which explains why I call him Bob, but his point is that excess money and credit did not fall from the sky, but rather from the machinations of central banks, as when he says, "To begin with, it's worth noting that in each case the fateful errors were made by talented and well-educated people. These men did not take the road to ruin frivolously, but rather as a measured response to a set of exigent circumstances. The point is that governments are simply incapable of managing a money supply. The pressures and temptations always prove too great. Economically each episode began with good intentions and admirable restraint."

He didn't specifically mention the recent scrapping of the Growth and Stability Pact of the European Union, but I will do it for him, as it, too, is "fateful errors made by talented and well-educated people (who)....did not take the road to ruin frivolously, but rather as a measured response to a set of exigent circumstances."

Okay, we have thus begun another "episode," as he calls it. Now what? Well, cutting to the chase, Bob says, "At the end of the day, as Voltaire observed back in 1729, 'Paper money eventually goes down to its intrinsic value - zero.' " I note that we have a paper money. So do the Europeans and most other countries, but I say "Screw them! What have they done for me?" No, I am wondering about my country's currency in general and MY currency in particular. And Voltaire, who is only one of many people who has something important to say about this very important subject, states categorically that it will eventually go the way of all the other fiat monies, namely down to squat.

And Bob seems to agree. "Which brings us at long last to our own experiment in fiat money, the biggest and boldest of them all. Thirty years on, there are a number of striking similarities between our own adventure in fiat money, and its historical antecedents. For the most part, they're obvious, and I won't dwell on them: the winners and losers, the rise of the speculators, the rise of the debtors, the obliteration of thrift, the corruption. Read any newspaper, and you see that the nature of the excesses and distortions is pretty much the same." Which eerily parallels Henry Hazlitt, who noted that economies always proceed along this same perilous and putrid path to perdition, which is today's gratuitous alliteration, which I do for no particular reason other than as a pathetic plea for love and attention, which I never get, so I probably won't be doing it much longer.

And to show you the delicious sense of black humor that Bob has, he says, "The technical term for this explosion in monetary aggregates is 'nightmare.' "

And he concludes with the final prediction that we will not just wither away, but will go out with a bang, and he writes "When it comes, the final collapse will be a sudden breakdown, what we call today a non-linear event. It will also, in all likelihood, take everything else down with it."

The market went bananas when it was revealed that productivity, or output per hour per worker, went up at some fabulous degree that nobody had ever seen since the invention of fire or something.

Is there some way that the Mogambo can rain on this parade? Well, suppose that the company fired all its employees and sold their entire inventory to Big Lots. Statistically, productivity was almost infinite, as all production was sold, and the only employee left is Ralph, the part-time night watchman. And when you divide one tired and sleepy part-time worker into sales, you get productivity that is almost infinite! Brilliant! Now average that gigantic number in with all the other companies who are still reporting ordinary productivity. Yep, you get a huge increase in aggregate productivity!

Or maybe creative accounting took another quantum leap, and now these detestable, lying little bean counters are recording POSSIBLE future production as a sale, and not even going through the rigamarole of routing bogus sales of actual production through shell corporations. And, to get the productivity figures up, the accountants, whom I previously referred to as detestable, lying little bean counters, so there is no point in going through that whole thing again because I am sure that you get my drift here about accountants and how they are the latest poor group of double-dealing schnooks to wander into the crosshairs of the Mogambo Sarcasm Machine, are accruing the savings that will occur between the time when the company fires all the employees, but prior to actually declaring bankruptcy, so that labor expense is lessened in the current period! Genius! Productivity soars!

Or maybe those clever government-types have figured out some new hedonic measurement of productivity, such as recognizing that a goodly part of each hour of managerial labor is wasted on things such as butt-covering, late-trading, excuse finding, work-dodging, responsibility-shifting, scapegoat-identifying, making personal phone calls, party planning, downloading porn from the Internet, dealing with idiot children and their problems, brown-nosing the boss, and other non-work-related activity. So actual output, which is unchanged, is measured against fewer hours actually on the job, so productivity again soars!

Or maybe they have decided to adjust productivity calculations by noting that there are many more security cameras installed everywhere, and so employee theft and pilfering are down, and thus total labor is unchanged, or even increased, thanks to their not taking so much time stealing stuff, but that shrinkage is down, so actual productivity, which in this case is non-stolen output measured against hours worked, automatically rises!

Or maybe they are just lying, because they are the government, and as far as I know the Webster's New World Dictionary defines "Government" as "A bunch of thieving lying weasels, who are out to get the Mogambo." Well, I'm not sure about that last part there, where they are out to get me and all, but I am pretty confident that the government is a bunch of lying weasels, so I think my point is pretty much made, don't you?

Because, and don't get me wrong, I love my country, but I hate the governments, because I am scared of my governments, just like all thinking persons have always feared their governments, and rightly so, because the whole history of governments is that they are inherently evil, that is why we went through the hassle of writing the Constitution, and that explains why the Supreme Court spends so much time insisting that the Constitution does not say what it clearly DOES say.

The point is that higher productivity is not really that much of a good thing. If you really wanted some good news, I would argue in that irritating little nasal whine of mine that FALLING productivity is good news, since it means that more people will be put to work making products and providing services. Instead, rising productivity is bad news, as it can be defined as fewer people making products and providing services. With falling productivity we would have MORE people working and making an income with which to buy the goods and services being produced by all those other people, but with rising productivity we have fewer people making an income with which to buy the goods and services being produced in the economy. And it is people making money and then spending money that makes an economy. And so that is why I argue that rising productivity can be bad news, just to be, as is my nature, contrary.

Last Tuesday in the Wall Street Journal was an article about how Wal-Mart is going to reduce their acceptance of Mastercard debit cards. Now I know this will come as a big shock to a lot of Leftists out there, but the higher costs of transacting business ARE always passed on to the consumer, as is attested to by a spokesman for Wal-Mart, who said "We chose to eliminate the option rather than pass the costs on to our customers. We believe the move will help us eliminate extra costs that get passed on to consumers in the form of higher prices."

So who was this idiot who dared to challenge the dearly held assumption of loudmouth Leftist weenies that higher costs, such as higher taxes and fees, do not get passed on to the consumer in the form of higher prices? None other than Michael Cook, Wal-Mart's assistant treasurer and vice president of finance, who is probably a lot more knowledgeable about it than clueless newspaper employees and government morons, who are fond of saying the exact opposite, which is why I usually brand them as clueless weenies.

Also in last Thursday's WSJ was a thing on the op-ed page entitled "States of Recovery," which quotes actual government figures, referenced as "U.S. Department of Commerce, National Income and Product Accounts," and shows that the revenues being remitted to the states and local governments are actually rising, reaching a new quarterly record, which is $1.4 trillion. Sure enough, an accompanying graph shows that revenues, per quarter, are now over $1.4 trillion per quarter. A quarter? So, the states are taking in $5.6 trillion per year? In an $11 trillion economy? Huh? The whole freaking GDP, namely all the goods and services that the whole freaking country produces in one lousy year, is about $11 trillion, and the dimwits in state and local governments end up with $5.6 trillion, or 51% of it?

The scene abruptly shifts to scenes of ambulances turning off their flashing emergency lights and driving slowly off up the street, police lazily rolling up yellow "crime scene - do not cross" tape, and anonymous SWAT teams are clambering aboard unmarked black helicopters, shouting "We were not here, and you were not here, and this did not happen!"

The camera pans in on the Mogambo, lying on the floor, drops of sweat glistening on his manly brow, shirt ripped open to reveal EKG leads plugged into a machine, who says "I'm okay, I'm okay. I was hyperventilating there for a minute, but I am okay now, and that" pointing to the EKG machine bouncing on the desk, whose pens are slashing like rapiers across the paper readout - clack clack clack! - "tachycardia thing is normal after a jolt like that. But it means that things are worse than I thought. Much worse."

Do I dare add this $5.6 trillion in local and state government receipts to the $1.2 trillion, being as generous as I can, that the federal government gets in receipts? Do I? Do I dare? "Yes!" I say. "Yes! I am the Mogambo, and I dare!" And the total is, and for a little flourish I will add this up in my head to demonstrate the powerful 1000-horsepower brain of the Mogambo, let's see here, $5.6 trillion plus $1.2 trillion is, umm, carry the one, i before e except after c, and they both have those decimal points and all, so, ummm, well, let's just say that it is a whole hell of a lot of money, and is more than most of us make in a whole year, and in fact is 62% of everything the whole damn country makes in a whole year, too!

Doug Casey, editor of the newsletter International Speculator, writes about the stock market, and he thinks, "What we've seen for the last year is nothing more than a cyclical bounce upwards, a classic 'sucker rally,' similar to what happened in 1930. Stocks are selling for outrageous prices. So I recommend you take the money and run. But run where? I think the precious metals are the only place to be. But I've said for years that, this cycle, gold isn't just going to go through the roof. It's going to the moon."

I liked that phrase, "Gold isn't just going to go through the roof. It's going to the moon," so much that I used it in a conversation recently. But the effort was wasted when she said, "Excuse me? I asked if you wanted cheese on that burger." But anyway, it is a catchy phrase, and maybe you will have better luck than me in working it into a conversation.

Anyway, he goes on to say, "How do I know? Because I've been in this market for 30 years, and I've seen it happen five times in the past (1973, 1980, 1983, 1987 and 1996, to be precise as to the peak years). But this one will be the biggest of them all, because not only will gold (and commodities, in general) be running, but the public - trained by the 1983-2000 bull market - all have brokerage accounts, and will be looking for the next hot sector. And the gold-resource story will tell exceedingly well. What's coming up is going to be a mania for the record books. And I personally expect it to be the wildest bull market, of any sort, I've ever seen."

Man! As a guy who has a little gold, and my wife has some gold fillings in her teeth that I have had my eye on, and which I am including in my pathetic net-worth calculations, this kind of happy-talk about gold being in a record-setting bull market mania really appeals to me in the greedy, I'm going-to-be-so-rich-I can't-wait way. If you had listened to the Mogambo and bought some gold, too, then you would also be doing a little dance and singing "We're in the money! We're in the money!" Well, maybe not quite yet. But soon!

The November 22 issue of the Economist magazine wonders aloud why stock markets are so wobbly. They ponder that perhaps people are worried that "America's rebound is unsustainable, being based on seemingly reckless fiscal policy, unusually low interest rates and a consumer borrowing binge." Well, I can't speak for anybody else, but if you are walking by the offices of the Economist magazine you can pop in and tell them that the Mogambo certainly does not wonder about that, but rather is absolutely, 100% sure, your money back if not satisfied, take-it-to-the-bank positive, no doubt in my mind whatsoever, that "America's rebound is unsustainable."

The magazine also notes that China and that whole region are now assuming the mantle of the engine of growth, as the Mogambo has confidently predicted they would. I mean, a third of the world's population rapidly building infrastructure, unencumbered by consumer debt, and in slavering anticipation of consuming at much higher levels will combine to, as the saying goes, put us in the shade.

The Economist magazine gets more things right, as when they say, "But do higher house prices really create wealth, and thus substitute for the need to save? In its latest 'Inflation Report' the Bank of England says that it is not clear that rises in house prices cause households to be wealthier in aggregate. Those who have yet to buy a home or who want a bigger one face a higher cost of living. Thus increases in house prices largely re-distribute wealth rather than create it. Moreover, the price of homes can fall, whereas debt is fixed in value."

This is the reason for one of the planks in the Mogambo Presidential Platform, which is that the price of housing should be discouraged from ever rising, as all prices for everything should be discouraged from rising, as it serves no purpose whatsoever, except to make housing more expensive, and make everything else more expensive, and thus eats up a larger and larger fraction of people's disposable income.

I mean, if you sell your house for more money, you are just going to have to buy someone else's house for more money than HE paid for it, so you are not any better off, unless you plan to live under this bridge with me, and there isn't enough room under here for you, too. The governments, of course, get more money when houses are bought and sold for higher and higher prices, and government fees and taxes are always a percentage-based scheme. But you, as the hapless homebuyer, are not better off. Plus, when it generates enormous amounts of taxes, the local governments use it to create more idiotic government services and programs and departments that are unsustainable over the long run, unless you can be sure that housing will always keep going up and up in price forever, or another replacement source of higher taxes is imposed on the people if it doesn't. So, at the end of the day, higher house prices make the economy worse off.

But the Economist magazine is not immune from looking ludicrous, as in Daffy Duck saying "What a bunch of maroons!" as when they say "Rising productivity ought to mean that future generations are richer and will be able to afford bigger tax bills." Huh? Man, I never heard that before! Rising productivity translates into an aggregate increase in wealth, and thus it makes higher taxes affordable? My God! What in the hell are those guys smoking? Or, perhaps, what have I NOT been smoking that I SHOULD have been smoking?

Steve Puetz, the big-brained guy behind the Steve Puetz Letter, writes, "The US financial bubble is huge. And it requires huge amounts of new money and credit simply to meet interest payments due on the outstanding debt."

Steve also offers a reason why the money supply is contracting. "With borrowing levels way down, it's not enough to offset interest payments being sucked from the monetary pipeline by foreign creditors and US banking institutions. As a result money supply is contracting."

Furthermore, noting that retail sales are contracting for the third month in a row, Steve says, "And three months of declining retail sales are usually the first sign that recession is on the way."

Mark Rostenko, of the Sovereign Strategist, writes "The quarter million jobs created between September and October? Hogwash. Unless you consider increasing numbers of hamburger-flippers and local government employees to be some major sign of cyclical economic growth. (The bulk of the new 'job creation' was in food service, government and temporary work.)" And, I parenthetically note, a lot of healthcare workers and teachers, too, none of which is exportable and thus applicable to ameliorating our crushing trade deficit.

I also quote him as saying, "According to Peter Beutel of Cameron Hanover, over the past 30 years every move in crude oil above $30 per barrel has been followed by a recession in 15-18 months." Well, I got some news for Messrs. Rostenko and Beutel, as I, the Mighty Mogambo, figure that oil will probably never again be less than $30 a barrel for any appreciable length of time, because if it does get that cheap it will mean that the members of OPEC are more stupid than they already look.

Mr. Rostenko also opines, "Just about everything we purchase, use, rely upon, etc. has its foundations in crude oil. Nothing you buy gets to the store without crude oil. And newsflash: most companies don't eat the higher costs of energy. They pass it on to consumers." Now I know that this is again completely contrary to the Leftist trash who constantly insist that companies do NOT pass along increased costs in the form of higher prices, and that prices have no relationship to costs, but there it is.

Lance J. Lewis, of Daily Market Summary.com, says, and I know this sounds like I am putting words in his mouth but I am not, "I think Uncle Al will go down in history as the most reckless and clueless Fed chairman in history." Isn't that so Mogambo-like? He goes on to say, "But even he must realize that he can't allow the market to push the dollar off a cliff here. The dollar's continued inability to rally on positive economic data is saying fairly clearly that the Fed's gamble of trying to inflate our way back to prosperity is not going to work. The only thing that is going to slow the dollar's decline is rising interest rates, and that's precisely what stocks and the economy cannot handle."

John Myers, of Outstanding Investments, as concerns gold, says "Take the number of ounces of gold needed to buy a share in the Dow Jones Industrial Average. When gold became unrealistically priced at the end of 1980, one ounce of gold would buy one share in the Dow. That was when gold was at $800 per ounce and the Dow was at 800. In early 2000 that ratio became an incredible 42-to-1."

"In the same vein oil is also cheap. In 1980 it took 22 barrels of oil to buy one share in the Dow. By 2000 that ratio reached an astounding 545-to-1. Today, the ratio is still 312-to-1."

So, gold and oil are cheap, and savvy dudes and dudettes like you and me should be accumulating both, because the history of prices is that things that are selling for less than their real value do not stay cheap for very long, and that buying them now constitutes "buying low," and when prices have risen it will mean it is time to "sell high."

Putting it all together, he says "With China's economy growing by leaps and bounds and a national will to become a modern society, many of the Earth's already taxed resources will fall into bidding wars that will drive up their prices not by 20%, 30% or 50%, but by 200%, 300% and 500% before this decade ends." And how far away is the end of this decade? Six years? And five hundred percent over six years is what annual percentage? 31%! Wow! Making 31% for six years running? I love this stuff!

Jim Cook, of Investment Rarities, writes in his latest newsletter that "I believe we are in the blowoff stage of the current megaboom and a crash is imminent. The time is fast approaching when you will be face to face with the most important of all financial principles - keeping what you have. Month by month you will be faced with new and worsening circumstances."

Murray Rothbard, one of the brighter lights in the economic firmament of superstars, once said something so profound that when they removed the Ten Commandments from the lobby of that Alabama courthouse lobby, they should have replaced it with these words inscribed in stone, "It is clear that prolonging the boom by ever larger doses of credit expansion will have only one result: to make the inevitably ensuing depression longer and more grueling. The way to prevent a depression, then, is simple: avoid starting a boom."

"Avoid starting the boom." This is the distillation of the entire wisdom of the Austrian school of economics, too. And it is this one, crucial piece of advice that Greenspan and the Fed disregarded that has caused all our problems, and now we are going to pay the price.

Ambrose Evans-Pritchard, writing for the Business Telegraph, reports that "The European Commission is examining the legal basis for 1970s-style exchange controls to stop the euro surging to destructive levels." Now, we here in America have been regaled for years about how a strong currency is such a wonderful thing, and how all things good will accrue to those with a strong currency. But here are these Europeans, who apparently have not been listening, contemplating serious steps to prevent the Euro from getting stronger. So somebody is wrong. But who? Or, if you prefer, whom?

The report concludes : "Should extremely disturbing capital movements endanger the operation of economic and monetary union, Article 59 EC provides for the possibility to adopt restrictive measures for a period not exceeding six months." I love that last part, about how it could be for a period "not exceeding six months." Hahaha! Every time you turn around, here are the Europeans breaking rules and disregarding pacts and treaties and in general acting every bit as snotty and profligate as us American dimwits, who don't let the niceties of any legal restrictions, or Constitutional proscriptions, or ethical considerations, or common sense, or historical imperatives get in our way of doing as we damn well please.

Australia has raised interest rates twice in the last couple of weeks, trying to head off the surging inflation that is the result of their having exploded their money supply for the last year or so.

Richard Russell, he of the Dow Theory Letters, writes memorable things, and that is partly why is newsletter is so successful for the last four or five decades. For instance, he penned "All the gold mined in the history of the world amounts to about $1.4 trillion. And there's the US government spending an amount equal to 70% of that in just the single year 2004. And then we have the years 2005 and 2006 to worry about."

He also opines that "The system of fiat money is really immoral, almost evil. It will not last." Well, most of us already know that. But what is the time frame? He says that it is shorter than you think, and that "Most of us will live to see the complete destruction of the US dollar." And when he says "most of us" he obviously means himself, too, and that is why he used the term "us," and I note with some alarm that Mr. Russell ain't no spring chicken. So the time frame must be pretty short.

Gary North, erudite writer of the highly informative newsletter Reality Check, does a nice piece on John Templeton, the guy who made a billion-jillion dollars for himself and his clients at the Templeton Funds. Writes Gary, "He is now a bear. To say that he is a bear barely does him justice. He has looked at the economic fundamentals, and he sees a bad moon rising."

Commenting on an article in Equities magazine, Mr. North writes that Mr. Templeton says, "Most Americans believe that the stock market will always go up. They also believe that real estate is a sure thing. Both assumptions are wrong." As for the stock market, he believes that it is inexorably progressing toward "the greatest financial crash in world history."

Okay, that takes care of the stock market. How about the housing market? Well, Templeton says that houses won't be a buy until, and this is a quote, as I have indicated by the clever use of quotation marks, and if you paid closer attention I would not have to spend so much time pointing these things out, "After home prices go down to one-tenth of the highest price homeowners paid."

So, he figures houses will bottom out at a 90% loss.

Goldman Sachs has come out and said gold may top $450 an ounce within a year. As long as we are talking about what "may" happen, the Mogambo said that gold may go to $450 an ounce within a week, too. You never know, especially when you have governments who are always anxious to "do something."

A judge has decided that surviving relatives of the victims of the 9/11 high-jackings can sue the airlines for damages. This despite the fact that the FBI saw no danger, that airlines could not legally confiscate box cutters, ethnic-profile passengers, reinforce cockpit doors, or take any reasonable action whatsoever. The only action that the airlines could possibly, legally make was to advise all the passengers on every flight to not fly at all, and therefore the high-jackers would have been alone on the plane. And so, in summary, the airlines are being sued because they did not take illegal steps to prevent an unanticipated event, and for this a judge, and I use the term to indicate that the guy IS a judge and not that he deserves to be one, says that they may be liable.

There is no doubt that the plaintiffs will lose either here or on appeal. But the cost, measured in upteen millions of dollars and hundreds of who people will make a substantial part of their income from this case, far outweighs the right of this dimwit, Leftist judge to keep allowing such expensive, terrifying, ridiculous, wasteful and destructive frivolities. And I blame, ultimately, the damnable Supreme Court, who have not stepped on these cockroach tort cases, or the judges who allow them, or the political swine who allow such ridiculousness.

I offer this as one more piece of evidence of the depth of depravity of the American system, the same one that we are trying to cram down the throat of the whole world. And so you can imagine their seeming reluctance to accept our generous offer, and it may offer a clue as to why so many of those people are trying to kill us.

Martin Weiss of the Safe Money Report has come out with this predictions for 2004. They are a $1 trillion budget deficit, bond yields at 7% or higher, price inflation to at least double, the dollar to fall 20% or more, gold going to $550, and crude oil to $40!

The Mogambo says, for no apparent reason and admits to himself that even the Mogambo is surprised that it popped up, that he groks, which I seem to remember meant something on the order of "complete comprehension" in the novel "Stranger in Strange Land," although I cannot remember any other fact from the book - no! Wait! I think the cover was black, with a stylized figure on a barren landscape, looking up at a large, ummm, planet overhead! So that's TWO things I remember about that damn book! And it was thick, with small print, which I hated, but now that's three things I remember about that book! I'm on a roll here! - because I read it a long, long time ago, and if I did read it and remembered anything about it, then I would probably grok that I am making a complete fool of myself by admitting that I had read it, for one reason or another, because most of the other things that I did when I was that young I am sorry about now, sometimes tragically so. Not to mention the travails now visited on my psychiatrist, who has lately taken to bursting into tears in a fit of empathic overload at being confronted with so much emotionally draining pathos after only a few moments of me continuing to discuss my inner torment.

But, and here we are making the tires squeal as we suddenly veer back onto the road, all of these things cited by Mr. Weiss are all related to each other. And so if any one of them is true, and I have no doubt that at least ONE of them will come to pass, then won't all the other ones also come true, to one degree or another? Because, and here I pause as a subtle way of indicating emphasis, or maybe I pause because the CIA is beaming brain-controlling rays into my head, I don't know which, but I suddenly feel a need to hear and obey, aren't all things related to all things, as required by Chaos Theory? And so any tiny change in any one of these myriad things will cause far-reaching changes in everything else after only a few iterations of the system? Uh-oh! I feel faint, as all the little gears and cogs in my brain go whirling, whirling, whirling around and around, faster and faster, overwhelmed by the Mogambo's sudden trying to grok all the changes in everything in the universe. Perhaps it is best if we just move, as they say, on.

Marc Faber, one of the more clued-in dudes on the economics scene, writes on AMEinfo dot com, "If central bankers around the world are prepared to print money and to flood the system with unlimited liquidity at the first sign of weakness in the asset markets, then it is difficult to make a very bearish case for either US real estate or US equities in dollar terms." Because all that lovely money has to go somewhere, and where else can it go? In short, whatever is ridiculously expensive today can be more ridiculously expensive tomorrow if the government keeps printing up money to buy them with. The only crucial question is, can things get more ridiculously expensive forever?

He continues, "We know Mr. Bush wants to be re-elected at any cost, and that therefore, over the next 12 months, he and his lackeys at the Fed and the Treasury will only take economic policy measures that are designed to keep the American public happy...and keep the lower classes of society in good spirits and obedient."

Then he hits on the nub of the whole thing, "The US Federal Reserve Bank can, if it continuously floods the system with liquidity, keep asset markets up, but what it cannot do when it follows such policies is control the value of the US dollar against foreign currencies and its purchasing power." So, if a share of Cisco stock and a barrel of oil each go to a thousand dollars in price, are you REALLY that much better off? I say no. You, if you had any sense at all, and I think you do, or else you wouldn't be here reading this, probably also say no.

He goes on to say, "Examples of such stock price increases, which were based purely on monetary easing moves by central banks, can be found in the German hyperinflation period of the early 1920s, in Latin America in the 1980s, and, more recently, in Zimbabwe. In all these cases, stocks and real estate rose sharply in nominal terms, while economic conditions remained largely depressed or even deteriorated." Ooohh! How embarrassing for the Fed! To be equated with German hyperinflation, which ushered in the utter devastation of Germany and the rise of Hitler and WWII, '80's-style Latin American idiocies which turned practically that whole continent into a basket case and impoverished half the people in Argentina, and now the filthy thuggery in Zimbabwe, which has turned Zimbabwe into a hellhole of starvation and misery. How special for Alan Greenspan and the Federal Reserve, and all the other little central bank people around the world who participated in the thing. They must be very proud. Ugh.

---Mogambo Sez: This is the time of year when things are weird, end of quarter and a Triple Witching, end of the year and Quadruple Witching, which I just made up, the calendar deadline for fixing taxes, end of the whole thing, and then nothing left to do but tally up.

It's always weird and scary.

Richard Daughty
December 10, 2003

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The Mogambo Guru Lives!

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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