 Another
night in the Bunker of Fear
Richard Daughty
...the angriest guy in economics
The Mogambo
Guru
Archives
February 10, 2005
- It has been a quiet couple of weeks, what with the G-7 (plus
China) and the federal budget all swirling in the air, and nobody
is making any waves with their weird stupidities. But one of
the interesting developments (I was going to use the word "weird",
but then I thought to myself, "Man! Everything is weird
nowadays, so one more damn little weird thing is NOT all that
weird!") is that total reserves in the banks have suddenly
gone up, and are at the highest level since the early 90's, which
in turn were the lowest levels for about a zillion years. These
reserves are supposed to provide the cushion needed in case all
of us paranoid lunatics got our knickers in a knot, twist or
wad (I've heard all three, so it makes me wonder, "What
do those British girls do that has such diverse effects on their
knickers?") and went storming down to the bank to withdraw
all of our deposits in a panic, run home, and bury the money
in the backyard as some hysterical over-reaction to something
that the government did, is doing, or will do soon. So these
reserves are supposed to keep enough money on hand to meet that
theoretical sudden demand for cash, although in my case, I have
so little money in the bank that they could pay me off with the
few coins that fall onto the floor, although that still doesn't
give them the right to hustle me out of the lobby, yelling "And
never come back, you horrible, smelly man!"
But what are the real chances
of a bank run happening? Nowadays, banks probably can't fail,
because the Fed system can give them all the money they need
to do anything they want, including paying off a few low-IQ Neanderthal
depositors like me. So there is almost no chance of you losing
your money due to a bank insolvency anymore.
Hell, the entire liability
of the banks is only about $4 trillion, which the Fed and the
Treasury could easily produce in an afternoon, with plenty of
time to run down to the bar and get really drunk in case the
damn Mogambo calls up and starts that screaming thing about how
all that new money is going to cause price inflation, and how
it is inflation that is going to eat us alive, and that there
is a big Mogambo lesson (BML) inherent in the French Revolution,
which was caused by the ruinous inflation that was caused by
this selfsame monetary idiocy, and the French people were chopping
off the damn heads of their butthead bankers and government minions,
and that maybe, just maybe, the damn Federal Reserve ought to
think about THAT the next time they are printing up all this
excess money and credit to desperately try and buy their way
out of the problems that they have caused by printing up the
excess money and credit in the first damn place!
But we are not anywhere near
the historical average on bank reserves, and maybe we don't really
need them when you have a fiat currency in a banking system that
is this corrupt. They can just print as much money as they want.
So don't get too excited and start thinking that this shows some
renewed prudent banking behavior (The Mogambo puts back his head
and laughs that scornful laugh of bitter contempt and disrespect
(SLOBCAD), which sounds sort of like "Hahahaha, jerks!"),
as the total reserves in the banks have been going down and staying
down for most of Greenspan's term as chairman of the Fed, even
as deposits and liabilities have soared. They have simply stopped
going down. But they are still absurdly low. In fact, reserves
would have to almost quadruple from here just to be back to the
low end of the "normal" range, figured as a percentage
of deposits.
I assume that this is all window
dressing for the benefit of the G-7, who are our creditors, like
when I pick up the old pizza boxes and fried-chicken bones up
off the floor before the social worker comes by, and I take all
those empty liquorbottles and put them in the neighbor's garbage
can so it looks like HE is the loudmouth lush who is screaming
in a drunken fury all night long about Federal Reserve policy.
But since some things never
change, I am able to report that the Treasury Department is still
sinking us into oceans of debt via a surprisingly linear program,
which works out to an almost constant $50 billion of new debt
per month. The chart of the growth of Total Fed Credit goes up
in an almost straight line since June of 2002. It is the most
amazing thing I have ever seen. Of course, there are many of
you out there who are so adept at math that you can easily multiply
$50 billion a month times twelve months to give us an annual
estimate of new debt, and when you do, all us math-challenged
idiots out here stagger to our feet and applaud. So, I, as one
of those math-challenged idiots, get up and walk over to where
one of these savants is sitting, and I peek over his shoulder
and look at his answer sheet. This is how I know that this comes
to $600 billion a year, which is a long, long, LONG way from
the asinine lies and distortions otherwise known as The Bush
Budgets.
For instance, I keep hearing
about how last year's budget deficit was "only" $412
billion or thereabouts. Ha! I got BIG freaking news for you,
pal! The lying bastards known as the Vicious Federal Government
That Is Out To Get The Poor Old Mogambo (VFHTIOTGTPOM) took us
farther into debt by more than $600 billion last year, which
is an error in the original claim of only a $412 billion deficit
of almost 50%. Not even close! What liars! And I don't care how
you dress up that pig budget with your off-budget items, and
your on-budget items, and your trust fund items, and your "black
budget" items that are so secret that nobody is even allowed
to know where the money is going, although I am sure that none
of it is flowing to ME, dammit. But the whole thing sums up to
just how much more debt you ended up with. And that sum is, as
I said, more than $600 billion last year.
This is eerily in line with
the thoughts of Bill Buckler, who writes the Privateer newsletter,
and I am glad to see that I am thinking more and more like normal
people. He writes, "The United States is expected to borrow
$US 670 Billion this year, according to estimates made by the
Organization for Economic Cooperation and Development (OECD).
That much wanted money is simply not to be found, even searching
for it right around the world. That amount of money exceeds the
rest of the world's net financial savings by about 20-25 percent."
Hahahaha! We are borrowing
more than the entire world saves! We are financing our grubby,
gluttonous consumerist lifestyles by borrowing more than every
bit of savings stashed away by everyone on the entire globe!
Hahahaha! Yeah, sure! THIS is a situation that will surely last
a long, long time! Hahahaha!
But it is not just me that
finds this incredulous. In fact, the wags over at DailyReckoning.com
even use the word "credulous" when they opine that
"America's consumer economy, too, will be bankrupt and discredited.
Economic historians will marvel at how so many people who had
taken Econ 101 could have been so naïve, so credulous and
so stupid. How could they believe that they could live off foreigners
for so long? How did they think they could prosper without savings?
Why did they think they could live beyond their means forever?
Perhaps they will look back at George W. Bush's State of the
Union Address, and gape at how a nation that couldn't save a
dime thought it could save the entire world."
Which brings us to Consumer
Installment Debt, which rose $3.1 billion in December to $2.104
trillion, on top of the $2 billion increase in November, even
though the government originally said that there was an $8.7
billion DROP in consumer debt in November, which, again, which
only shows what a bunch of liars and incompetent nincompoops
the government workers are.
- Rumor has it that 99N, the
mysterious trader who always comes roaring into the futures market
and buys whole carloads of SP500 futures whenever there is a
risk of the market going down in any substantial way, is back
at it full time. The paranoid fruitcakes among us (and leap to
my feet and with a loud, irritating voice proudly announce, "I
am Mogambo, their king!"), believe that this is the Fed
itself intervening in the market to keep it up. And if I was
as desperate and scared as they are, then I am not sure that
I wouldn't do the same thing, assuming that I was a cowardly,
gutless, retarded corrupt little weasel, which, of course, I
am.
Their skills may be sorely
tested, as the shape of the graph of the earnings of the SP500
has an unmistakable aroma (similar to the smell of the Mogambo
feet (MF), only without the rancid undertone) of rolling over.
Oops! And if earning are not going up, then the chances of the
stock market going up strongly from here are, if you are the
kind of person who rounds things off, zero. Maybe not in the
very short run, where all kinds of magical, miraculous, things
are possible to infinitely-capitalized entities like 99N, but
in the longer run, where titanic forces always overwhelm such
manipulations.
And it isn't just me who sees
these things, and Chad Hudson at Prudent Bear.com, went over
the earnings that are coming out, and that is probably why he
titled his essay "Higher Interest Rates and Slower Earnings
Growth". He summed up with "It is doubtful that the
economy will be able to continue to expand without inflation
pressure or margin compression. This will happen at the same
time as earnings growth slows and should have a negative impact
on earnings multiples."
- Mark O'Byrn, in a column
entitled "Commodities
& Precious Metal Markets Weekly Analysis", makes
note of the fact that "India is very much the largest importer
of gold in the world and it is estimated that
they will import some 880 tonnes of gold
bullion this year alone. To put 880 tonnes of demand into perspective,
one must realise that total mine production, the largest element
of supply, is only some 3 times larger." Now, if you are
as baffled by British spellings as I am, and you are as irritated
as I am that our American women are fascinated with men like
this O'Byrn who have charming foreign accents, and they are also
fascinated with men who have nice cars, and men who have jobs,
and men who bathe regularly and brush their teeth and do all
of that "grooming" stuff that is so boring and time-consuming,
then you were so discombobulated that you missed the actual meat
of the thing. So, I will put it in terms that even a moron like
me can understand: "India alone will import a third of all
the gold mined this year."
He also quotes Mr. Fan Gang,
the Director of the National Economic Research Centre in Beijing,
who says, "In our opinion the US dollar can no longer be
seen as a stable currency since it constantly depreciates and
therefore is a permanent source of problems." Now, I don't
know to whom he is referring when he say "OUR opinion",
but I am afraid that it shows that the Chinese are not as stupid
as we think they are. Or at least these two Chinese guys aren't,
and so we can only hope and pray that all of the REST of the
Chinese people are gullible chumps like us Americans, and that
they WILL see our stupid fiat money as NOT constantly depreciating,
and that our stupid fiat dollars are NOT a constant source of
problems, and that they are so dimwitted that they will want
to get more and more dollars.
But I am afraid that Mr. O'Byrn
figures that there are more than just these two Chinese guys
who are smart, and that this is "ominous for the dollar's
long term survival as the petrodollar and global reserve currency."
No kidding? You mean that foreigners are NOT the boneheaded morons
that we think they are? Oops!
- Ted Butler, everybody's favorite
guy who exposes the corruption and manipulation in the silver market because none of us has the
guts to do so, says that he has been taking a look at the Commitment
Of Traders report in silver, and that "My personal take on
the COTs is still that the bottom is effectively in, and we are
at an ultra-low risk buy point. If I am wrong and we do take
out the January lows by a decent margin, it will only come with
heavy tech fund new short selling. This can only make the market
structure even stronger, as there is no way the tech funds would
then not be required to buy back their shorts at a loss. This
is a time to be aggressively invested." So if there was
ever a time when you wanted to go long silver,
this would seem to be the time and place!
David Morgan, of silver-Investor.com, does not directly comment
on this COT thing, although he probably would if you asked him
to, although it may be instructive to note that he would not
loan me his car even though I asked him to, but his optimistic
view of silver is also unmistakable. "The
silver Trap," he says "is composed of 1) Too little
silver in the world, 2) Too much demand for
silver from China and other countries, 3)
Dollar inflation. Put it in an equation and it looks like this:
1+2+3 = SPE", where SPE is an acronym for silver
Price Explosion.
- Reuters reports that "Half
of all U.S. bankruptcies are caused by soaring medical bills
and most people sent into debt by illness are middle-class workers
with health insurance."
But as terrifying as that is
busting our individual chops, it is Medicaid and Medicare that
are going to bust our collective chops. One out of six people
in this country is how many people get free health care from
Medicaid, according to an article in the Wall Street Journal
by Sarah Lueck, entitled "Surging Costs for Medicaid Ravage
State, Federal Budgets." In effect, the lesson is that when
the government requires the provision of free health care, the
explosion in demand makes prices go up, although apparently this
is never mentioned in any of the economics books that anybody
in government has ever read. And it is not just Medicaid, which
is for the poor and disabled, but also in the giant Medicare
program, where we play for the big numbers! And right now, even
as we speak, the Congress is teeming with little Democrat rodents,
their tiny little brains all tingly, and all anxious to prove
that they have these big, bleeding their hearts by expanding
both Medicare and Medicaid to include giving even MORE benefits
to even MORE people! The programs are bankrupt, thanks to their
infernal meddling and largess, and are expanding at horrifyingly
exponential rates, which means that they are going to eat us
alive as it is, and yet the halfwits known as Democrats want
to keep expanding them both! Hahahahaha! Morons!
Dr. Steffie Woolhandler, who
is a Harvard associate professor (and physician) who is referred
to as a tireless advocate for universal health coverage, said
the study concerning the horrifying number of people who are
pushed into bankruptcy because of the price of health services
"supported demands for health reform." Well, duh! Then
she goes on to say, revealing her for the brain-dead robot that
she is, "Covering the uninsured isn't enough. We must also
upgrade and guarantee continuous coverage for those who have
insurance". Hahahaha! When asked about how the high medical
costs are forcing people into bankruptcy, she evades answering
the direct question, and merely responds by saying we need to
cover more people with free insurance and to force the insurers
to pay more!
I almost break my neck getting
to the phone so that I could call up this Woolhandler chump!
As I am dialing, my finger a superhuman blur as I bip boop beep
the number, a whirlwind of questions race through my mind, mostly
revolving around just who in the hell is going to pay the enormous
cost for all of this "upgrading" and this "guarantee
of continuous coverage" in our nation's health care system?
But since she is a Harvard professor, she is not required to
show any smarts or offer solutions, and all she is required to
do to earn her a membership as a Whining Democrat Collectivist
is to complain that not enough free stuff has been given away
to as many people as she thinks needs it. This is the same kind
of lackluster mental acuity found at another ridiculous sewer
of Harvard, the economics department, which, together, makes
Harvard one of bulwark pillars of the Ridiculous Leftist Lunacy
(RLL) that befouls America and makes things stink so bad.
Nelson Hultberg, who is FMNN Alternative Political Policy Analyst
and Executive Director of Americans for a Free Republic, is as
dyspeptic as I am about all of this, although we are probably
talking about two completely different things. He writes. "Collectivism
with its regimented dream for mankind now had its Trojan Horse
effectively established throughout all the important nations
of the world. Marx's dictum that capitalism would fall, through
corruption of the language and the money, was proving to be horrifyingly
prophetic."
Notice the way I twisted his
words around to suit myself? Actually, he was talking about central
banking, but once I get started ragging on Leftist commie bastards
I can't stop myself. Anyway, about the central banking setup,
he writes "The central banking systems of the world are
in their death throes. In the next two decades, there will take
place a total discrediting of these monstrous blights on the
economic stability and prosperity of our civilization."
I am surprised that it will take twenty more years, as they are
already totally discredited in my mind!
But he explodes one of the
misconceptions about fractional banking. He writes, "Contrary
to popular opinion among hard money thinkers, the evils of the
system were not brought about by the policy of 'fractional reserve
banking' per se, but by the intervention of government authorities
to convey special legal privileges to bankers that violated the
basic laws of fraud." Hahahaha! Well put!
- George Ure or UrbanSurvival
has taken a look at the new $2.57 trillion federal budget in
terms of a $11.728 trillion economy. He figures that "Before
we make the obvious calculation, what percent of $11.728 trillion
is $2.57 trillion, we need to reduce the $11.728 trillion by
removing the $2.57 trillion. That's because the GDP figure includes
all kinds of activity on behalf of government - in other words
government which doesn't make anything other than 'governance'
swells the GDP from its 'closer-to-reality' $9.158-trillion.
When viewed in this light, government spending takes a whopping
28% of the Gross Domestic Product - and that's before we deduct
the other costs of government. These costs, which are not collected
centrally, include state and city governments, not to mention
counties."
And when you add it all up
you will find that The Mogambo was right: the governments of
the United States ARE the damned economy, and in terms of sheer
spending, governments, in one way or another, account for over
half of all spending in the country.
- Richard Ebeling, president
of Fee.org and who is the FMNN Economic Freedom Strategist, writes
that "Restrained by neither gold
nor the limits of taxation, governments around the world went
into an orgy of deficit spending and money creation that led
some to refer to a good part of the twentieth century as the
'age of inflation' ."
Dr. Lawrence Parks, Executive
Director of Foundation for the Advancement of Monetary Education
(FAME) is thinking along those same lines when he writes, "Because
there is no longer any market-based self-correcting mechanism,
i.e., what in the sciences is called a 'negative feedback loop,'
on increasing financial leverage, our monetary system will absolutely
blow up. That is, there is no longer any market mechanism to
constrain the ever-increasing amount of money that our banking
system is creating out of nothing. We will approach the time
when the 'dollar' may lose most, or all, of its purchasing power."
Notice that he did NOT say "lose SOME of its purchasing
power" or "lose a LITTLE of its purchasing power"
or "lose a LOT of its purchasing power."
He has an interesting solution.
"With this in mind, it is proposed that legislation be enacted
to distribute to all holders of U.S. Social Security cards, at
no cost, on a per capita basis, the gold
being held by the U.S. Treasury (approximately 260 million ounces)."
Since all the world's central bankers and their prancing, preening
pimps (mainstream "economists) all agree that gold is, to quote Keynes, a "barbarous relic"
then they shouldn't have any trouble with that! Think of all
the money they would save by not having to store it and guard
it!
- If you want an example of
how teachers in America, and the whole educational system which
they infest like a plague, are both worthless pieces of crud
(WPOC), get a load of what their students are saying in an article
in USA Today entitled "U.S. Students Say Press Freedoms
Go Too Far" by Greg Toppo. "One in three U.S. high
school students say the press ought to be more restricted, and
even more say the government should approve newspaper stories
before readers see them, according to a survey being released
today." Hahahaha! They never even heard of the First Amendment!
And they have no idea why it is in the Constitution to start
with! Idiots! These children are the ignorant blockheads that
are supposed to be so intelligent and educated that they will
wax prosperous enough to support us in our old age? Hahahahaha!
Now you have ANOTHER reason to own gold!
To be fair, just over half
of them have the right idea, as the article goes on to explain
that "The survey of 112,003 students finds that 36% believe
newspapers should get 'government approval' of stories before
publishing; 51% say they should be able to publish freely; 13%
have no opinion." A half of them got it right, so at least
that is something we can cling to in our fear.
And the reason that this should
concern you is also asked by Bill Bonner over at the Daily Reckoning
site, who asks, "Why are incomes falling? Again, we look
at the essentials. Labor rates in the U.S. are 10 to 100 times
higher than in China. We have no chance in competing on the world
market on price. We must compete on quality and innovation. But
that requires massive, long-term investment in technology, machinery
and training, which requires huge amounts of savings and a very
disciplined, far-sighted approach." Not to mention a workforce
that is not a clueless bunch of Big Government-educated robots
who can neither read nor write.
But this is par for the course,
as, according to Stateline.org, "Four hundred employers
surveyed estimated that at least 39 percent of recent high school
graduates lack basic skills to hold down a job." Well, we
just learned that half of them lack the basic skills to comprehend
the Constitution, so this is not surprising that they don't have
the skills necessary to hold down a job. For example, according
to the scores on the National Assessment of Educational Progress
(NAEP), which is the federal testing program to quantitatively
find out just how stupid these kids are, "only 17 percent
of graduating seniors are considered proficient in mathematics
and just 36 percent in reading." Hahahaha! Not only are
they ignorant, they can't even read so that they could learn
something!
- I watched the President's
State of the Union address, and I gotta tell you that I am aghast.
I spent the night in the Fortified Mogambo Bunker Of Fear (FMBOF),
because he seemed to be issuing a threat to everybody that was
not sufficiently democratic to suit him personally, which is,
as far as I can tell, everybody. Obviously, Saudi Arabia got
the message, as the price of crude oil immediately went obediently
down.
But there is more to King George
Bush than creating a New Holy War. I was amused that he has all
kinds of plans, Big Plans, Big Expensive Plans, to reform Social
Security because it is almost bankrupt. And why is it bankrupt?
Two reasons: first, and I like to begin with the first thing,
the money that people have been putting into Social Security
has been devalued to, using the precise Spanish term, el squat-o.
So these retiring sad-sack people, year after year, all their
lives, have put a few thousand dollars into the Social Security
System, which was a nice chunk of change back them, and now they
need to get back tens of thousands of dollars to merely equal
the purchasing power of that original money.
The second reason, of course,
is that there is no money IN the Social Security Trust Fund,
as the commie-bastards in Congress have taken the money, replaced
the money with IOUs, and then spent the money! And the only reason
that it is not bankrupt right this freaking second is that people,
Ponzi-like, have to keep putting one-seventh of their gross incomes
into the damn thing or face a prison term!
And if you think that this
a healthy thing, then tonight, when you are asleep, I'll come
sneaking into your house and take all the money out of your wallet
and replace it with my personal Mogambo IOU (PMIOU). And don't
worry about it being good, because it is! When you need to redeem
it, I will again sneak into your house, take your money out of
your wallet, replace it with another PMIOU, and take the money
out of your kids' piggy banks and replace THAT with yet another
PMIOU, and then go around to the front door, ring the bell ("ding-dong!")
and hand you a nice stack of money! Won't that be nice? Well,
you SHOULD be, because you seem to be so happy with the current
system, which is exactly like the same thing! Hahahaha!
The Congressional morons all
kept struggling to their feet to applaud the idea of "strengthening"
Social Security, although none of them seemed remotely aware
that they are the direct cause of the crisis in Social Security,
as I imagined that people all over the country watching it all
rose to their feet to also applaud, although none of THEM seemed
remotely aware that the crisis in Social Security was their fault,
as they keep electing these collectivist morons to Congress,
year after year.
It reminded me of Marshall
Auerback's comment about the travails of the European Union,
"It comes around as regularly as the Super Bowl: Germany
violates a provision of the Stability and Growth Pact, the other
nations cry foul, and to assuage hard feelings the Germans respond
by calling for 'reform' in order to forestall the embarrassment
of being punished by a creature of their own creation."
- Jim McTeague of Barron's
newspaper says in his D.C. Currents column "Polls gauging
the public's perceptions about Social Security and retirement
income prove conclusively what stock and bond salesmen always
have known: Americans are soft in the head, especially when it
comes to money."
A case in point is provided
by one of my readers named Bud, who is retired in Stuart Florida,
and who is 75 years old. He is grumpy because he had to go back
to work, at his age, delivering pizzas. His desperate situation
is caused by, as if you had to be told, inflation: In short,
he needs money because prices have risen and his income has not.
He writes that he has personal experience with inflation, as
he remembers that the price of a new Ford was $900 in 1946. In
2005, a new Ford costs $25,000.
Being cold sober (was the light
in here always this damn bright?), it is easy to see that the
price of a new car has increased a lot. And even if I was drunk
I would be able to recognize that the price of a new car has
gone up a lot. And even if I was so sloshed that I was merely
moments from passing out, dying from alcohol poisoning, I would
be able to EASILY mentally calculate that the difference between
$900 and $25,000 is a lot of money, involving a lot of zeros,
which is a Mogambo vital clue (MVC) to determining if something
is large and/or expensive, and when combined under field conditions
involving alcoholic beverage consumption, it also involves a
lot of staggering about, slurred swear words, and probably getting
into a fight with somebody who is a lot smaller than me, and
a lot older than me, or a lot younger than me, but definitely
smaller and weaker. So the body of anecdotal evidence is pretty
conclusive that the rise from $900 to $25,000 constitutes a lot
of inflation.
I see that the pretty girl
in the front row is holding up her hand. I look at her and smile,
and I say "Yes, my little strudel, what would you like to
know?" She says "Exactly HOW much?" I smile with
my best Hollywood face, my voice like buttery velvet, and I lean
forward and leer at her like the little pervert that I am, and
I say, "For you, I am free! Free, my darling! Take me away
with you, and I shall ravish you and drive you to heights of
passion hitherto unknown, and maybe order out for pizza, too!"
Well, I expected her to blush and giggle, both reveling in the
attention and being embarrassed by it, and then sweetly clarify
that she was actually asking about how much inflation it was,
and then I'd apologize profusely, and then we'd share a laugh,
and then we'd go out for coffee, and then out for a drink, where
I would try and get her really drunk. But instead she starts
gagging and saying, "Ewww. Icky! Ewwww!" which is Earthling
female talk for "Just the thought of you touching me makes
my skin crawl, and the smell of your foul breath makes me want
to puke!"
You can tell by the way that
my breath has become fast and shallow, my face has become ashen
with fear and my heart is beating like, oh, about a zillion beats
per minute, that I am going to attempt one of the rare Mogambo
Mathematical Moments (MMM). And sure enough, I deftly key into
a calculator the appropriate data, and after a few abortive tries
I stand up and ask the class if there is anybody here who can
figure out this damned %##@ math problem, and then one of the
smart little punks hands me a piece of paper with the answer
written on it, and then I announce that a measly 5.8% inflation
causes the price of a new Ford to increase from $900 to $25,000
in 59 years! 5.8%!
Hahahaha! You think that you
are going to get real, inflation-adjusted returns from the stock
market to equal that rate of inflation? Hahahahaha! What a chump!
Hell, your $900 investment is already down in terms of purchasing
power, and you haven't made a dime of real, inflation-adjusted
gains yet! Hahahaha! Brilliant investing there, dork!
And even if you did make enough
in capital gains and dividend income to offset the inflation
(which is actually deflation in your buying power), you still
haven't paid the damn taxes on the gain! So now it is time for
you to get out YOUR calculators, and you tell ME how much you
have make on your $900 investment to turn it into $25,000 in
fifty-nine years, net of inflation, net of taxes, net of fees,
costs and charges, net of commissions, net of "inactivity
fees" , net net net.
I figure that if you make a
profit of about ten percent a year, ought to be enough to just
break even! And if you think that you are such a hot shot investment
genius that you can do that consistently over 59 freaking years
in a row, then hahahahaha!
Thus is it with all of your
investments; your gains will be eaten up by inflation, cause
by horrid Federal Reserve which has created all this money which
caused all this inflation by destroying the purchasing power
of your money. Just ask Bud. If he put $900 into his retirement
savings in 1946 so that he could have a new car when he got to
be 75, he might actually get a new car. But his investment would
not do so well that he could also afford to afford the insurance,
much less the gas to put in it!
And to extend this to your
other retirement plans, such as your 401(k) or your IRA or your
company plan, you will get, at most, a week's worth of income
when you retire only if you save a week's worth of income now.
It's one-for-one. There will no compounding of your investment
through some magical multiplying effect (MME), and you will not
end up with some huge pile of money with which to retire in comfort
and style. Life is not that way, and the stock market is not
that way, either.
- The jobs number is always
presented as "the economy created more jobs." The truth
is that the government provided the money, somebody borrowed
the money with the idea that somehow he could make a profit,
and then the borrowed money provided the jobs. So not only was
the money supply expanded by somebody going farther into debt,
but the jobs are created out of that same debt.
Manufacturing, it should be
noted, dropped 25,000 jobs in January. And the reason that I
keep hammering away at this, flogging a dead horse over and over,
is that there is no such thing as an economy based on services,
because if you COULD make an economy out of services, then everyone
would do it. And nobody does it. Although we Americans, alone
in the history of the world, are trying. And failing.
I also note that the government
has added about 200,000 jobs in the last year.
- An article on Bloomberg entitled
"Argentine January Inflation Jumped to Two-Year High"
makes note of the fact that "Argentina's consumer prices
rose at their fastest pace in more than two years in January
as a government-ordered wage increase and tax breaks led consumers
to boost spending." This inflation in prices is what happens
when you have, as they have had, a "government-ordered wage
increase." These higher wages make costs go up for businesses,
which makes businesses raise prices, which is inflation, which
eats up the wage increases of the workers, which negates the
entire wage increase. At the end of the day, the only two things
that are changed are that prices are higher and more people are
miserable.
But the Argentine government
is not worried, although they are idiots. They say "The
central bank targets inflation of between 5 percent and 8 percent
this year". At 6.5%, which is certainly between 5 and 8
percent inflation, prices will double in 12 short years! Hahaha!
Double! Idiots! The article goes on to say "Da Fonseca,
who forecasts inflation will quicken to 7.3 percent this year,
said central bankers may be hesitant to cut money supply to hold
down consumer prices because that would spark a rally in the
currency that could hurt the country's export-led expansion."
I am stunned to speechlessness by the complete lunacy of such
a philosophy, as inflation at 7.3 percent makes prices double
in only ten years.
- George Ure at UrbanSurvival
has taken a look at the new employment report, and writes that
"the civilian workforce declined in January. From 148.203
million to 147.949 million. What happened to 254,000 people in
this month's report?" The answer, among many explanations,
is that they are "discouraged", probably at the piddly
amount of money that they can make from some dead-end job is
not enough to live on, and there is much more money to be made
in, for example, selling drugs to each other, stealing cars and
getting on some government programs where they give you money
and stuff.
- "Power By Any Other
Name" is an essay by DW McKenzie on the Mises.com site.
"While some still see the Republican Party as the party
of smaller government, it is hard to know why. Perhaps no one
else did more to create this impression than Ronald Reagan. In
his inaugural address Reagan declared that 'Government is not
the solution to our problem, government is the problem.' While
President Reagan's actions fell far short of is rhetoric, one
might excuse Reagan by noting that the Democrat-controlled House
frustrated many of his efforts. This excuse obviously does not
apply to the current Republican administration."
To prove the point, Mr. McKenzie
goes on to note "President Bush delivered more big government
regulations and spending in his first four years than President
Clinton did in his eight years in office. The first State of
the Union speech of his second terms promises to deliver more
of what we saw in his first term." Now you know why my hands
are shaking so much that I can hardly get a handful of tranquilizers
into my mouth.
- Reader Brad T. did a research
paper in college on the subject of the ancient Roman economy,
and writes that "Rome had to pass a law prohibiting the
population (especially in Italy) from voluntarily selling themselves
into slavery in order to avoid the crushing tax burdens of being
a citizen. You hoped to find a kind master and/or sold yourself
to a relative. Imagine a situation so dire that the horrifying
life of a slave held more promise than being able to pay your
taxes."
- Chuck Butler, president of
Everbank and the writer of the Daily Pfennig column at Daily
Reckoning, writes "The Non-ISM data was very bearish to
me when I looked at it, and can't for the life of me figure out
who was asleep at the wheel when this data was printed, because
the markets missed this altogether! Here's some highlights or
low-lights however you want to look at it. First of all, the
Non-ISM index came in at 59.2 in Jan, below the 61.5 expected
and the 63.9 Dec printing. But that's not all! My trader friend
at RBC sent me this note: 'there was a huge drop in unfilled
orders from 56.5 to 48.0 - reflecting the first contraction in
21 months.' "
He also gives a snippet from
Jim Rogers, who "tells us in his new book, Hot Ccommodities,
that commodities are in a bull market that will not peak out
until 2015-17. BUT, he also says that stocks are an opposite
pattern and therefore should be in a BEAR market until 2015-17."
Sounds right to me!
- Bob Bronson of Bronson Capital
Markets Research writes that "The false new-high breakout
and bull trap is confirmed, notwithstanding the incipient fractional-retracement
rally." It has something to do with the 4-year Kitchin Cycle,
which is one of the shorter cycles, which is not important in
itself. What IS important is that the imminent resumption of
the bear market in stocks is, as he says, confirmed.
- If you want to hear something
ridiculous, get a load of this: People who, for reasons that
nobody can explain, have a reputation for having smarts, say
that the devaluation of the dollar is a GOOD thing, because that
means our exports will be cheaper to foreigners, and they will
buy our exports, but that exports will become more expensive,
and so we will buy less imports, and the balance of trade will
adjust, and everything will be wonderful as soon as that happens
and blah blah blah. The Mogambo laughs, which is unfortunate
since he was just taking a drink of Coke and now he has snorted
some out of his nose and those carbonation bubbles are stinging
the sensitive Mogambo mucous membranes (SMMM) in his nose, and
now he is snorting and sneezing and cursing and laughing all
at the same time, and it is not a pretty sight.
Ignoring the snot and soda
stains (SASS) on his shirt, the brave Mogambo goes on to ask
"And just where are these foreigners going to get the money
to buy all of our exports if we are not buying their exports
anymore?"
- Everyone is screaming "Euros!
Euros!" and how the euro is some magical antidote to the
poison of owning US dollars. Well, I am here to tell you that
the euro ain't no prize, either. And there are a bunch of other
currencies that are rising, although under normal global economic
conditions, they would be falling, if they had a strong dollar
to fall against. They will soon all be falling against gold, so they have that to look forward to.
The only constant is that they
are all losing absolute purchasing power, as almost all countries
in the world have positive consumer inflation rates of one degree
or another, some of them relatively low, and some of them terrifyingly,
heartbreakingly high. And it is not just inflation that is crushing
them, as Germany just announced that their official unemployment
rate is now 12.1%! And since it is the government reporting on
itself, this figure is almost certainly too optimistic. As the
Elliott Wave people put it, "A record five million Germans
are out of work. Last time the job situation was this dire was
right after World War I."
Which means, with mathematical
certainty, that gold must go up in price. And as the feature
of gold as a store of value starts to encroach
on the dimwitted mental disabilities of the American population,
some of them will look at the problem with their usual blank
look of incomprehension, and then, and nobody can explain how,
the primitive beast in them may sudden realize the value of gold. But I doubt it. Some people are too stupid
to learn, and I am afraid that Americans fit that bill, as evidenced
from the bizarre economic things that they believe and in the
idiots that they elect.
In fact, remember the scene
at the beginning of Arthur C. Clark's "2001: A Space Odyssey"?
All these monkeys hobbling around, screeching and blaming all
their troubles on The Mogambo, even though I would not even be
born for another 10,000 years, which only proves that the plot
to hurt me has been around a lot longer than anyone realizes.
Then, one morning, everybody awoke to find this big black monolith
in the middle of the living room. When one of the monkeys touched
it, bingo bongo, mental capacity is increased in the ones that
touch it, and there is this weird droning music in the background,
and you don't know if the sound is coming from the monolith,
because maybe it was a big loudspeaker for some alien home entertainment
system or something. We just don't know, and don't ask Mr. Clark
because he doesn't know either. Well, anyway, suddenly half of
the monkeys were making tools and inventing derivative financing
structures, while the other half was making weapons and trying
to trying to live off a system whereby everybody prospered by
taxing each other. All very modern.
The point is that I advised
Arthur C. Clark at the time to change the scene to a monolith
of gold, and then when the monkeys touched
it, they were, again, transformed by the experience in some mysterious
and strange way, and the monkeys organized their economy around
using gold as money, see, and then with the stability
of money values, the economy grows and soon all the monkeys are
walking upright. Oh, don't bother asking him about it, because
he will just deny he ever met me or even heard of me, which is
probably true, because when I call him up, somebody says "We
have Caller ID, you Mogambo idiot! Now go away, ya freaking weirdo!"
and the mail I send him comes back marked "Return to sender.
Address unknown. No such person. No such soul" which he
stole from the Elvis Presley song, the little plagiarizing bastard,
which only proves that this Arthur C. Clark is such a low-life
that he not only stole from me, but from Elvis, too, who is dead!
Stealing from the dead! Although I am sure he did not call it
"estate tax" like the government, which is also so
low that they will steal from the dead.
The point is that real things
are going to get more and more expensive here pretty damn soon.
And when that starts happening, it means that gold
will do what it traditionally does what it does best, namely,
saving your sweet butt from the fires of inflation hell, (insert
maniacal laughter with screams of pain and hopelessness in the
background).
- Also in Barron's this week
is an excellent editorial by Thomas G. Donlan, who is the editorial
page editor, entitled "The Union and The Dollar" with
the sub-head "Pride goeth before a fall". At first
I though he was describing marriage, as it is a union of two
humanoid people to produce a money-gobbling monster, and suddenly
your dollars have all gone into drapes over your windows instead
of an old army blanket stapled over the opening, and there are
several windows that have no defensive armaments at all any more!
And right where the command center used to be, there is some
dorky "entertainment center" where the Thought Police,
as department of Homeland Security, are beaming their thought-controls
rays into my house and into my brain. But he was not referring
to my marital difficulties. . He was, instead referring to inflation,
and reminding us that the value of the U.S. dollar peaked about
the time that Bush came into office. "Deflation never happened,"
he writes, "but there should be no debate about inflation.
It has already happened. There are already too many dollars."
He explains that the excess
production of money and credit has not seriously shown up in
prices because the Chinese and the Japanese and the European
Union and lots of other countries have been desperately soaking
up dollars, removing them from the system, so that their currencies
do not get stronger, because a strong currency would make their
exports more expensive, although if they did NOT try and weaken
their currencies, then their imports would become cheaper, and
the citizens of that country would have a nice boost in their
standard of living.
But one day, and probably when
we least expect it, those dollars are going to emerge like some
giant monster, and will probably attack Tokyo, as there is something
about that poor damn city that seems to attract large, angry
monsters, and if you are thinking "Godzilla", you are
right, although that is just ONE of the many, many monsters,
many of which could shoot fire out of their mouths, that have
bedeviled poor Tokyo over the last 50 years.
Anyway, getting back to the
point, he reminds you that "Unless we act quickly to slow
the creation of dollars, they will eventually come home to bedevil
the price of bread, meat, cars, and the rest of the CPI market
basket."
And you won't have The Mogambo
to get in your face and tell you of the horrors of inflation,
as Mr. Donlan adroitly does that for me. He writes, "If
you are under 45 or so, you may not know what inflation can do
to your investments. Believe us, or believe your parents, you
don't want to find out." And although he did not say it,
you also do not want to find out about what happens to lots and
lots of other things besides your investments when the inflation
monster comes striding down the street, and it is spitting fire
out of its mouth, and laser beams are coming out of its eyes,
and it is crushing cars, and you are standing in your front yard
yelling at it, "Tokyo is that way, you idiot! Get out of
here!"
Well, it won't be just us Americans,
as the new issue of The Economist magazine just got here, and
for the first time ever (as far as I remember) every stinking
country listed in their tables in the back section ALL now have
inflation bedeviling their populations. It used to be that there
were a few countries that were experiencing a slight deflation.
Now, every single country in the world is not suffering from
price inflation. Congratulations, butthead governments of the
world! You have now inflicted the pain of inflation on, literally,
every damn person in the entire world.
And inflation is right here,
too, as reported by Reuters, which notes that U.S. inflation
pressures rose in January, according to The Economic Cycle Research
Institute, which said that the rate of inflation, as measured
by their Future Inflation Gauge, rose 4.5 percent to a reading
of 120.0 in January. This, in turn, was from an upwardly revised
118.7 in December.
As a reminder to you to have
nightmares tonight when you go to bed, the index of future inflation
registered 3.4 percent inflation in December, which was itself
revised up. Ugh.
***** The Mogambo Sez: The latest swoon in gold
is another gift. gold lease rates have dropped again, as
the lenders dropped rates so that borrowers, which are effectively
net short, could lease the gold and
could flood the market with it, pushing the prices down and thus
saving their short position. These kinds of things can work in
the short run, but they cannot last in the long run for some
reason, as none ever has. That is why when it IS working in the
short run, like now, they are handing us a gift in the long run.
Buy and hold gold.
You'll soon be glad you did!
Feb 8, 2005
Richard Daughty
email: scgcjs@gte.net
Archives
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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