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Relax. You own gold, says Rat Boy

Richard Daughty
The Daily Reckoning

...the angriest guy in economics
The Mogambo Guru
December 23, 2004

Relax. You own gold. Nothing can happen to you. That is the joy of gold, and that is why one of the Three Wise men brought gold to the baby Jesus. The other two Wise Men brought frankincense and myrrh, although if they had ALL brought gold, then Joseph and Mary could have taken a taxi downtown and bought all the frankincense and myrrh they wanted, and maybe had enough left over for a nice room in a motel where it was warm, and maybe even call out for a hot pizza, and wouldn't that be nice on a cold Christmas Eve?

- In the banking sector, things are relatively calm, as they are no doubt awaiting Santa Claus to bring them some economic salvation.

- Sol Palha, of Tactical Investor, writes "Most individuals are completely ignorant to the fact that the rise in all the indices are nothing but inflation in disguise and that the markets are simply rising in value to compensate for the drop in the Dollar." I jump to my feet to declare that the markets are NOT rising in value. They are, however, rising in price. Big difference! And to demonstrate the difference, he has taken a look at the chart of the SP500 when translated into foreign currencies. He notes "The new highs in all the indices are illusionary in nature and that they are still in a firm down trend when priced in stronger currencies."

In a similar vein, Jim M. of the Optimist wanted to know, "When the US $ drops and the price of
Gold (measured in dollars) increases, is that change in the price of Gold due more to Gold rising, or to the dollar falling?" To answer that question, he has devised what he calls the MoreAU index. He explains "The MoreAU index is calculated by multiplying the closing price of Gold (in US $'s) times the closing price of the US $ (USDX trade weighted) and dividing by 1,000." Anticipating your question, I seize him by the lapel, draw his face close to mine, look him right square in the eye and ask him, "And what does this MoreAU index reveal about the value of gold versus the price of gold right now?" Without batting an eyelash, he replies "After bottoming in mid 1999, however, the value of Gold began a strong appreciation against not just the $, but against all paper in the form of international currencies. The rise in the value of Gold has formed a clear bullish channel which continues to signal that the value of Gold projects future gains which are independent of the trade weighted US $. Until the MoreAU index begins to fall down out of the bullish channel, investors can expect to be richly rewarded with a buy and hold approach to Gold." In short, more buyers than sellers is pushing up the real, currency-adjusted price, and will continue to do so in the future, which is the place on the time continuum where you would sell high, after buying low now.

But asking Mr. Palha to explain his little "senior moment" and accidentally confusing value and price, which we all do from time to time, is not the reason that I have asked him up here on stage to talk to you. Eventually he will get around to revealing how to make a buck, which is what we all want to know, on the falling dollar. I signal to him by holding out my hand, and rubbing my fingers together while raising one eyebrow quizzically, which is Mogambo Sign Language (MSL) for "What about the money?" He slaps his head in response to my handy reminder. "What we are going to suggest now is that one should wait for the Canadian dollar to pull back to its main up trend line and then go long this very strong currency. We would like to go on record to say that the Canadian dollar has the potential to become the strongest currency in the world; the day that 1 Canadian dollar equals 1 US dollar is not so far off. However a nice pull back is needed before this can happen."

I dunno about that pullback thing, as I am not sure about a lot of things. But I am sure of SOME things. For instance, I AM sure that 1) all things are connected to all things, especially all things economic. I am also sure that 2) Chaos Theory is a fact, which means that the farther out into the future you go, the more unknowable things are, until you reach (and rather quickly, too) the point where even pretending to predict the future makes The Mogambo laugh like a hyena at the naïve, arrogant impudence of making such a preposterous claim, and 3) I am also very sure that although I laugh like a hyena and smell like a hyena, I do not enjoy being called "Hyena Boy." In fact, I have qualities much more rodent-like than canine, and this leads naturally to my last point, which I cleverly number 4), and that is that "Rat Boy" is not such a hot nickname either, if you want my opinion.

But I am also 5) sure that the dollar has to fall a long, long way from here, and so is Stephen Roach of Morgan Stanley, who writes, "America today has a current-account problem that is almost twice as bad as it was in the 1980s but a dollar that has fallen only about half as much. For that simple reason, alone, I would argue that the dollar has at least another 15% to go on the downside." Note the use of the adverbial phrase "at least," if indeed it IS an adverbial phrase, whatever in the hell that is, because one day it will seem very significant to you.

- In last Thursday's Wall Street Journal we were treated to a ridiculous piece of economic punditry entitled "A Personal Matter" written by Gregory Mankiw, the ex-Harvard University putz who is now chairman of the impotent President's Council of Economic Advisors, and who is rumored to be soon leaving that post, and good riddance. This is the same Gregory Mankiw who, the next day, (which you will find, in the footnotes, was Friday, December 17), said, "The economy looks very sound," and who has been the chairman of this Council the entire time that George W. Bush has spent more money, and promised to spend more money, and created the most expensive entitlement program (prescription drug benefit) in American history, and borrowed more money than any other freaking President in American freaking history.

He quotes Ed Prescott, the guy who recently won the Nobel Prize in economics, who opines, "a large part of the difference in performance between our economy and those in Europe is that Europeans work less because they are taxed more." Mankiw, for all his faults, correctly figures that this is not the direction we should be heading. No kidding! The Europeans are being taxed at over 50% of income, and suffering unemployment at more than 10% of the workforce. Although we are, I believe, if truth be told, not far behind them on both of those scores.

Mr. Mankiw, who has been the top moron of the CEA for the entire time while Bush has not vetoed a single spending bill and has run up more debt than any other administration, which is surely indicative of something bizarre, says that the new plan to save social security does not raise taxes. Instead, it runs up lots and lots of debt. Apparently, and incredibly, Mr. Mankiw is unaware that debt has to be paid for out of future taxes (which is de facto raising taxes) or by printing money, which will ignite inflation, which is, in the final analysis, a crippling tax in itself. So he is 100% wrong when he says that the plan to save social security will not raise taxes. It will. You would think that Mankiw would know this, but apparently breezily parading around Harvard like a supercilious twit in front of a bunch of undergraduates who are too scared to tell this moron that he is a jerk, and so he is unaware that he is a jerk. Sort of like around here, where nobody has the guts to tell me I am a big stupid jerk, probably because they are so lightly armed, and they would rather spend their money on rent instead of body armor.

But he, perhaps inadvertently, reveals the nefarious idea behind the plan, which is to, as if you had to be told, pump the stock and bond markets. He says that individuals will be given a choice on "How much to put in stocks, bonds or a money-market fund." Notice your abbreviated list of alternatives? Pumping the stock and bond markets is the only reason for this blatantly foolish silliness, and of course it will end badly. There have been many, many attempts by governments, governments who were peopled by guys who are a lot smarter than the current crop of morons we have in our governments, to pump markets. And while it sometimes temporarily drove prices up, it did not increase their value. And it this phenomena that reveals one of those pesky Iron Laws Of Economics, namely, that when price exceeds value, price will eventually fall.

And I know that you are tired of hearing the stupid Mogambo run his big fat mouth (BFM), so let me entertain you with a little numerical wizardry. If every worker in America, all 132 million of us, all put $1,000 into stocks and bonds, as per the Fabulous New Plan To Save Social Security or whatever that particular idiocy is being called, then that would only be $132 billion dollars per year. Hell, the damned federal government borrows and spends that much PER QUARTER! And not to be outdone, we Americans also have a trade deficit that is ALSO four times as big as this $132 billion windfall to the stock and bond markets.

But we have sunk every dime of every retirement plan of every American into the stock and bond markets, and our various levels of government have all budgeted huge taxation of capital gains into their spending plans, and now those markets are going to get pumped because the alternative is too horrible to think about. Thus, a new Plan To Save Social Security.

- Rumor has it that Argentina is mulling over a plan to force citizens to open up their safe deposit boxes to government snoops, in case the citizens tried to keep some money from being confiscated by that selfsame government. This is our future, although our program of confiscation will have some patriotic theme, since the mantra of "doing it for the children" doesn't elicit the same knee-jerk response as it used to, while calling something treasonous and poisonous to the intents and purposes of the Constitution the "Patriot Act" will make it sail through Congress like it was on greased skids.

- Kurt Richebächer, everybody's favorite Austrian economist, writes, "Bad economic news is bad for the dollar. We expect very bad news that will shatter the hollow optimism about the economy and the stock market. While economic growth is sharply decelerating, inflation is accelerating, a main reason for this being an accelerating rise in import prices. In such circumstances, the Fed will face a Catch-22. With CPI inflation above 3% at annual rate and a falling dollar, a new easing of monetary policy is absolutely impossible. Rather, the market will expect the Fed to continue its rate hikes. But doing so, it would prick the carry trade bubble in bonds with disastrous effects, first on the bond market and then on the economy."

- If you want an example of how far down the road to hell we have gone, a recent letter from David B.C. is a valuable clue. He writes, " I had occasion this past summer to ask one of my colleagues in the law school who also served as a clerk for Ginsberg about the supreme court's tendency to go outside their jurisdiction. I asked whether they knowingly turn a blind eye to the constitution when it seems 'expedient.' He said that they would never admit it, but that most believe that they do. I mentioned the, 'make money out of only
gold or silver' part and he noted that such a case is indeed an example. It didn't register with him as particularly problematic because he could see the context of the depression as such a powerful justification."

So laws and Constitutions are just pieces of paper to be dispensed with if there is some "justification"! This is such good news that I immediately went to the grocery store and started hauling groceries out to the parking lot and piling them into my car without paying! Normally, when the police come roaring up with their stupid sirens blaring and lights flashing, I usually try to act real nonchalant, like it is normal to be weaving up and down the sidewalk, drinking discount whiskey out of a brown paper bag at 9 a.m. But this time is different! This time I have nothing to fear. I have justification! I had spent all my money on cheap cigarettes, cheap booze and expensive pornography. Since I obviously did not have any money left with which to buy food, I am thereby justified in taking the food! On my second trip to the car, with the store manager grabbing the shopping cart and yelling at me, I was rudely interrupted by this snippy police officer, and so now I am forced to take a lot of my Precious Mogambo Time (PMT) to explain to BOTH of these dimwitted people how laws don't have to be obeyed if you have "justification." But suddenly, in the middle of my explanation, the cops are trying to jam me into the back of a squad car, and I am yelling "I have justification! I have justification!" but to no avail. Fortunately, I am due to be arraigned soon, and the guys locked up with me in this holding cell all think that I have a hell of a good case, so naturally the judge will have drop the charges, since I have "justification." And I will get to say "nyah, nyah, nyah" to the bonehead policeman and the store manager as I walk, free as a bird, out of the courtroom. I can hardly wait to see his face! This is going to be so cool! I only wish I had found out about this "justification" thing earlier!

- John Crudele at the New York Post is one of the people who is aghast at the way the governments distorts price inflation to suits its whims. "Hedonics isn't the only way the government quietly adjusts consumer prices. The concept of Geometric Weighting is another convenient tool that keeps price increases from screaming at you in newspaper headlines. Geometric weighting is simply this: If a product goes up in price, it gets a smaller weighting in the consumer price index. If the price goes down, it counts for more." He says how he figures that "It's easy to see how this would distort the CPI."

We are shaking our heads in amazement and thinking to ourselves "I certainly CAN see how this would distort the CPI! And I'm getting a little testy about it, too!" So I was getting up out of my chair to go down to the Federal Reserve so that I could scream at them, "Stop creating excess money and credit, you morons, because it causes prices to go up, and then these weenies have to lie to us about inflation, which just makes us angry, and it makes me come down here to yell at you, and if you want to know the truth, neither one of us likes me coming down here to yell at you, you sorry stupid bastards!" which is, of course a lie, since I LOVE yelling at these moron cretins since they won't let me just march in there and slap their nasty little faces. Even thought I have "justification" and everything!

So as I was making a beeline for someplace where I could get out of a cold lecture and into a warm burrito, he stops me in my tracks when he said, "But things could get worse. The government is now working on something called the Chained CPI, or the C-CPI. In the experimental C-CPI, if a product becomes too expensive you won't buy as much of it."

And this timely tip could not have come at a better time, as my wife has recently been to the annual Cookie Day with her mother and sisters, whereby they all bake cookies by the ton, which they all take back home for their families and friends. So when it came time for breakfast this morning, I naturally suggested that the official government way of selecting a breakfast is to consume what you have the most of. And what we have the most of is cookies. Ergo, following these government guidelines, we should eat cookies for breakfast. Alas, I am sorry to report that these government weighting schemes don't work in the private sector, and we did not have cookies for breakfast. I got oatmeal and a lecture about proper nutrition instead.

- John Mauldin, who is one of the Big Thinkers in the economics and investment biz, gives us a little technical investment savvy when he writes in his latest FrontLineThoughts.com newsletter "In 1996, the New York Federal Reserve did a study on what indicators were the most reliable predictors of a recession. The only one of six indicators that was significantly reliable was an inverted yield curve. They later did a private study with over 20 factors and still the only dependable indicator was the inverted yield curve. While today the US yield curve is slowly flattening, it is nowhere near an inverted yield curve and not signaling a recession. But I have spotted an inverted yield curve in the world, across the pond, in England." Oops!

Quoting a team of experts from Gavekal, he goes on to write, "Just like the US, the UK participated in the supply-side revolution of the 1980s and 1990s. But unlike the US, the UK's supply-side revolution is in danger of being rolled back. UK government expenditures relative to GDP have been on the rise for seven long years, and the government has accounted for virtually all employment growth since 2001."

Now, if you are like me, you couldn't care less about the British, so who cares if their stupid Leftist government has been on a hiring binge? But I am VERY interested in the concept, as in that regard I loudly posit that the government of the USA is the majority employer and economic engine of the entire US of A. Out of the total of 132 million American workers, almost 22 million are direct government employees. Essentially, one out of about every six people who has a job works for a government.

And those are only DIRECT employees, and does not include lots and lots of people whose paychecks ALSO come from the government. For example, Amtrak and their legions of retirees is a real good example. And let's not forget the huge farm subsidies, and ethanol subsidies, and bee-keeping subsidies, etc. and when I use the word "etc." you should assume that I mean lots and lots and lots of groups and people, people who number in the teeming millions once you have added in all THEIR support staffs and THEIR retirees and THEIR friends and THEIR daughters of their cousins and the sons of friends, and all those export subsidies, and, and, and, oh! I can't go on! The Mighty Heart Of The Mogambo (MHOTM) is breaking at the economic sin! Sagging to one knee, the audience is mesmerized by the sight of The Mogambo, head bowed, sobbing into his cape, his manly shoulders heaving under the weight of a crushing sorrow. Sob sob sob. I weep uncontrollably when I think of the sheer bulk of all those government-supported people, the sheer, staggering enormity of the twisted, mutant economy that has evolved and eaten our brains like a mutant spore from outer space, a foul virus-like creature that has grown and elongated, insinuating its glistening, gelatinous tentacles into specific parts of our brains, namely the parts which are responsible for connecting the thought "There IS such a thing as a free lunch!" to the area of the brain that makes you laugh, so that you involuntarily go "Hahahaha."

But we were talking about government paying people. Add them all up, and that is about another 22 million people, give or take. And then there are the out-sourced services, hiring private-sector contractors for all kinds of things, ranging from grounds keeping and maintenance, to direct health services. And that is about another 22 million people, again give or take, but I am rounding things off here, because I always take the easy way out.

So, the way I figure it, the various governments employ, either directly or indirectly, more than half of the workers in the whole damned country right now, and are employing more and more every damned day! And you think that such a foul idiocy could possibly survive in the long run? Hahahaha! I was right! We Americans ARE idiots! Hahahaha!

- Another benefit to China from having a yuan that is pegged to the US dollar is that their increase in foreign investment is bigger. So when we Americans invest in China, we are investing with a completely stable exchange rate. And with the dollar being held to an artificially overvalued rate, Americans are getting a big bang for their buck, as long as the dollar is held up in value.

This way, when you add together the expected yield of the investment with the increase due to exchange rate, suddenly you have a deal that investors love, and money flows like water running downhill. The Chinese get those huge investment inflows, which they can use to invest for their own growth. And they also get an incredible array of information, goods and services that is gathered through the normal course of business. Like when the Americans call them up on the phone and say, "Hey! Chinese guys! Can I invest some money with you?" and the Chinese guy says, "You bet, G.I.! Here is list. Please to send me things on list. Confucius say we do plenty big business, yes?" And please notice the superb job I did in writing that phrase, comically making fun of their stupid accents and laughable pidgin English, which they do so that we think they are so stupid and we can take advantage of them. And what is on that list? Who the hell knows? But that is the way things are done.

What you do NOT hear is what how the Chinese describe that same transaction. When they talk about us, they say things like "Hey! Let me tell you about the call I got from some American 'investors.' This American guy says to me, 'Like, hey, dude! Like, me and some of my friends, you know, like, we want to, sort of, invest some money with you awesome dudes because, like, that would be SO cool! You dig?' So I told him to send me photos of the nearest military installations and some naked pictures of his wife and I'd be GLAD to take his money, and he said "Okay!" Hahahahaha! Americans! The Mogambo was right: They ARE a bunch of morons! Hahahaha!" Then I figure that they go off and eat egg rolls or something and plot world domination.

The crucial rub is that one day (and if you have been paying attention, you have noticed the sound track has this ominously low, rumbling music, with what seems to be howling wolves in the background going oowwWWWwwwww!), or maybe tomorrow for all I know, when the dollar is finally untied from the Chinese yuan, the dollar will fall like a stone. And here is where it gets ugly. If we are owed dollars, and not yuan, then the Chinese will be able to pay us off and buy us out for, literally, pennies on the real, inflation-adjusted dollar. If that!

And, of course, the headlines in all the newspapers and on the covers of all the financial magazines will be about the incredible bull market in
gold and silver and commodities, and all your friends will be forced to look at you with a new-found respect, because that is exactly what you have been screaming at them to invest in for all these long, lonely years. But would they listen? No! They laughed at you behind you back, didn't they? Then they started laughing at you to your face, didn't they? And then they started putting things in your food to see if you'd notice, didn't they? And when they visited, the next day one of your major appliances would suddenly crap out, didn't it? You bet it did!

But now you will have your revenge! When you go over to one of their dilapidated, neglected little houses, and they are standing on the curb wearing their "Will work for food" signs around their necks, you can conveniently take along one of the aforementioned newspapers and magazines, preferably one with a picture of The Smiling Mogambo (TSM) on the cover, to pour a little salt into their wounds. Then, through your kind generosity, they can catch up on how
gold and silver and commodities are the Big Thing Where Big Money Is Being Made By Smart People (BTWBMIBMBSP) and how people who owned gold and silver and commodities are all rich, rich rich, and all the people who put their money into common stocks lost their butts butts butts.

And then they could use the magazine to fill up their long, lonely days by developing a measure of how stupid they are by comparing their poverty with your opulence, and then writing essays whereby they could compare that (and contrast for extra credit!) with how they put all the money they had, or could borrow, into stocks and bonds at the exact worst time in all of recorded history, and people are writing term papers with the theme, "How could we have possibly been so stupid? A longitudinal study in mass chemical-induced psychosis."

- In preparing to read Doug Noland's Credit Bulletin column at PrudentBear.com, I thought I had prepared myself, and had gotten lots of sleep and water, had taken special care with my diet, and this new medication regimen is working out pretty good, although the number of pills I have to take to relieve my anxiety about the economy and how the Federal Reserve is killing us by killing our economy is now measured by the shovelful.

So, relaxed and confident, I settled myself into my chair, and as I buckled my seat belt and adjusting the strap on my spiffy new safety helmet, I remember chuckling to myself "I'm ready for you now, Mr. Doug Noland! Ha! You want a piece of me, Noland? Huh? Is that what you want? You want a piece of the Mogambo? Well, bring it on, dude!"

With that, I clicked the mouse button on my computer, and suddenly I was in Doug Noland's Credit Bubble Bulletin Land, which is a scary, horrible place that is populated only by economic nightmares and financial monsters.

But even so, I was quite unprepared for the immediate jolt, but who knew he would quick-pitch me like that? I mean, right at the top of the page, right from the get-go, he has a chart of the US current account deficit, which is bad, and seemingly, getting worse, as evidenced by it hitting a new all-time record, as we bought so much more from foreigners than we sold to them, that the sum total is now topping an annualized $700 billion a year, which is $5,303 for everybody in the country who has a freaking job!

Although the chart only goes back to 1990, if you don't want to have a heart attack, then don't think back to the last zillion or so years in American history, because if you do then you will undoubtedly jump up out of your chair, surprising the hell out of the cat that was sleeping in your lap, as you exclaim "The Mogambo was right! We are freaking doomed! Hurry! Let's speed straightaway to our steel-reinforced concrete survival bunker and arsenal!" It is then that you remember that you don't HAVE a steel-reinforced concrete survival bunker and arsenal, much to your dismay. Your head suddenly snaps around at full alert! There are angry government agents and desperate neighbors and even more desperate strangers banging at the door, because they have also finally realized that there is no such thing as a free lunch, and they are galvanized into action because they also suddenly realize, in their stupid small-brain little way that they have that makes you want to slap their faces and shout "Wake up, you moron! Your government is destroying your country right before your eyes!" that the only way they are going to eat lunch is to get money from, ummm, you! And don't suggest that maybe they ought to come and see me, because they have just come from the Mogambo Bunker, and they are still picking pieces of shrapnel out of their nasty little butts.

But it was the NEXT chart that made me, umm, have an "accident" in my pants, which is the one contingency I had not prepared for. It was a chart of the consumer price index, and even writing the words "consumer price index" still gives me the willies. I hope you are near a bathroom when I tell you this, but inflation is now at 3.5% and rising! This is horrible news! Because this is the official rate of inflation AFTER the government has massaged most of inflation away! And it is STILL at 3.5%! Gaaahhhh!

Inflation at 3.5%, especially when it is rising, is the kind of back-breaking, bone-splintering, economy-sundering, calamity-inducing, poverty-spewing inflation machine that people all the way through freaking history (ATWTFH) have had nightmares about! 3.5%! And rising! And just because Alan Greenspan and the other non-Austrian economist bonehead halfwits bizarrely say otherwise, which is to say that these chumps are the first guys in all of freaking economic history to ever dare to say that inflation at 3.5% was NOT a devastating calamity, it nevertheless is. In spades. It always has been, and it still is, and it always will be.

And, what's worse, Alan Greenspan and the rest of his non-Austrian buttheads also believe that the actual SOLUTION to economics problems, caused by the creation of too much money and credit, is to have MORE inflation through the expediency of creating MORE money and credit! Of all the solutions, in all the world, this is the only one that is exactly the wrong thing to do, and yet, this is what they want to do! And do, too!

And we Americans, to my dismay and embarrassment, lap this crap up! And we have our major universities conferring bachelor degrees and masters degrees and doctorate degrees to people who actually say this stuff! These guys see nothing wrong! And furthermore, they are absolutely sure that the Federal Reserve can fix it, if there IS something wrong! And when you ask them how this is possible, when every freaking dirtbag government in all of history has gotten itself into this exact mess, because it is so easy and pleasurable to do, when none of them, not even one, zero, zip, squat, even partially, even marginally, even a teensy-eensy little bit, was able to pull it off? And how is it that we Americans, of all the economies in all of history that have suffered through this, will be the only ones who did not suffer, when all the others suffered horribly over long periods of time, sometimes destroying their very countries? And when you tell them, "The Mogambo thinks you are an idiot" and then they ask "Who is The Mogambo?" and then I tell them "It's me, you big stupid moron, and you are ugly and you smell terrible, too! Phew! Big stinking moron!" and then they get all huffy like its MY fault that they are stupid, and that I am somehow responsible that they have this stupid econometric theory, which they actually believe in, for some reason that escapes me completely, which only proves how stupid they are!

But I am only one man, although admittedly a man with Mogambo Powers Beyond Those Of Mortal Men (MPBTOMM). But even so, I can only do so much. I stand at the street corner, like this, and yell at people who drive by, "You are not buying
gold and silver? Your own Federal Reserve is destroying your money and your buying power, and yet you not buying precious metals? Why? Are you are a stupid moron, or do you just enjoy looking like one? Yeah, I'm talking to YOU, you stupid freaking moron! Yeah, that's right! I'm talking to you AND your wife! You're both a couple of morons!" And then THEY get all freaked out like it was, again, MY fault or something that they are stupid!

So if those two people are morons who are not buying silver and
gold, who are NOT morons? Well, according to the South China Morning Post newspaper, "China is seeing a gold-buying surge as a hedge against the weakening dollar and negative real interest rates," which also shows that the central bank of China is just as intellectually corrupt as our own, and they are forcing interest rates down to below the rate of inflation. It also shows that the average Chinese peasant is smarter than the average American peasant, as the wily Chinese dude is prudently buying gold, whereas the idiot American is not. The paper also reported that "the gold buying has prompted a booming trade not only in bars, coins and jewelry but also 'paper gold', in which the investor does not take possession of the metal, but trades it like other financial instruments." Paper gold. Hmmmm! Sniff sniff! This smells like the beginning of gold-as-money.

- Bernard NotHaus of Liberty Dollar fame refers to himself as a Monetary Architect, which is a lot classier than any title I ever held, as most of my job experience rarely went beyond the period where I wore a badge that had "Trainee" written on it. Anyway, he sent me an interesting article by a guy named Hugo Salinas Price, entitled "Silver's Three Flags," in which he reports "This past 30th of November, the 31 governors of all the states that make up the Mexican Republic sent a communiqué to the 'Ways and Means' Committee of the Mexican House of Representatives, in which they expressed their unanimous approval of the monetization of silver and urged the Committee to approve a bill which aims to achieve precisely this objective." In summary, 176 Mexican newspaper writers, plus something called a "permanent organization of ex legislators," 96% of the viewers polled by a TV network, and damn near everybody approved of the monetization of the silver ounce. I assume that they are getting real tired of inflation that is over 16% and is so habitually bad that Mexicans are desperately trying to sneak out of that corrupt inflationary hellhole and smuggle themselves into the US.

So does the monetization of silver? Fat chance! Hahahaha! Do you actually think for a minute that the government of Mexico is going to voluntarily agree to a money supply that cannot be expanded at their command? Limit government spending? Hahahahaha! Ask your own children, "Hey, kids! Would you like an allowance that was fixed in purchasing power, or one that you could raise anytime you want?" Not surprisingly, the Bank of Mexico, which is Mexico's Central Bank, is "adamantly opposed to this measure," mostly because it is banks that get to literally make money out of thin air, and then make a profit on it until it finally disappears in taxes. The bank reportedly "sent a group of twelve men to the meeting of the Ways and Means Committee on the 30th of November, in order to confuse and cow the members of this committee, and forestall a favorable vote on the bill to monetize silver."

Trust me, Mr. Price: The bank does not have to confuse them to get them to go along with deep-sixing this whole silver-money thing. It only has to tell them the truth, because while it would be a wonderful thing for Mexico and the people of Mexico to have a stable money and low inflation, thanks to the monetization of silver, it would be a constraint on the government's ability to spend spend spend. With a free market, capitalist entrepreneurial activity and money supply that is relatively constant relative to savings, the entire country will perpetually benefit from a gently rising standard of living. But it prevents the government from spending as much money as it wants, anytime it wants. And the rule is that the government gets what the government wants.

But while The Mogambo is rolling around on the floor laughing and holding his stomach at the very idea that the Mexican government would allow silver to be monetized, Mr. Price believes that there is a chance of it happening. He says "The idea of using silver as money that cannot be devalued, for savings by the people, is now firmly rooted in the public conscience of Mexico."

Then he waxes poetic, and writes "When Mexico monetizes silver, it will become a lighthouse of hope for the world, a light that shows the way out of the swamp of slavery and perpetual impoverishment that comes with paper money."

Which, of course, sends chills up the spines of our own corrupt government, who do NOT want to see any stinking lighthouses showing the way out of the monetary swamp where bankers and politicians cavort so merrily, especially by a bunch of stinking Mexicans who don't have a Constitution that requires that money shall be only of silver and
gold, but who DO have a money made of silver, living next door to us hotshot gringos, whose Constitution DOES require that money be only of silver and gold, and yet whose money is, paradoxically, not made of either silver or gold or anything remotely related to gold or silver.

Even David Bond of the Wallace Street Journal has taken a few moments to say a few words about this, as you would expect from a guy who thinks and writes about silver, much as you and I think and write about silver, and then we think "I wonder if I should write David Bond and ask him to give me some silver?" and then I think "Nah! He's probably too busy commenting about this Mexican silver-money thing to even answer the phone!" and sure enough, he does! Furthermore, he writes that as corrupt as the Mexicans are, their problems also stem from our old nemesis, Alan Greenspan, as the money and credit he created eventually flowed out of the USA and into every nook and cranny of the financial and economic world. "In other words," he writes, "our profligate banking practices are the root of Mexico's inflation and a corruption of its republican democracy, of its very humanity. Silver is Mexico's way out of this hegemony."

- Daily Reckoning also got a real charge out of George W. Bush's phrase about Iraq being a "catastrophic success" and they chuckled as merrily as I. They then cleverly relate that to the monetary policy of this country when they write "He might have said the same of Greenspan's massive dose of cash and credit; it successfully held off a serious correction, but only by luring consumers even further into debt and setting up a catastrophic correction in the future." Ugh.

*** The Mogambo Sez: Relax. You own
gold. Nothing can happen to you. That is the joy of gold, and that is why one of the Three Wise men brought gold to the baby Jesus. The other two Wise Men brought frankincense and myrrh, although if they had ALL brought gold, then Joseph and Mary could have taken a taxi downtown and bought all the frankincense and myrrh they wanted, and maybe had enough left over for a nice room in a motel where it was warm, and maybe even call out for a hot pizza, and wouldn't that be nice on a cold Christmas Eve?

Dec 22, 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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