 Yoo hoo! Mogambo! We got money in here!
The Trap
Richard Daughty
...the angriest guy in economics
The
Mogambo Guru
June 9, 2004
It was a record-setting week in Economics World, as the Federal
Reserve increased Federal Credit to a new record of $749.6 billion.
A new record! And Foreign Holdings at the Fed are going parabolic,
now up another $10.6 billion last week, to $1.220 trillion. Another
new record!
The Treasury itself took us to, and by this time I am sure that
you are as tired as I am climbing up on that podium to accept
yet another gold medal, another new record in ridiculous, bankrupting
debt, this time to the eye-popping sum of $7.21 trillion, which
is, by sheer coincidence, the exact same figure as the average
number of insults I get per week, according to recent computer
surveys. This is a debt so big, so ingloriously huge, so monstrously
immense, so impossibly gigantic, a debt so humongous that I am
running out of descriptive words to convey the size of it and
am on the verge of lapsing into another long string of obscenities
in my anger that is only partially controlled by powerful medications,
and it is only the Supreme Willpower Of The Mogambo (SWOTM) that
keeps my rage under as much control as it is. But this debt thing
is so freaking BIG that the very senses are overwhelmed, and
when the Mogambo tries to demonstrate a number that big, he quickly
runs out of fingers and toes to count it, and in desperation
stretches his arms straight out to his sides as far as they will
go, comically overextending to the point where cartilage in the
joints is painfully snapping and tearing away from the bone,
and the jeering crowd suddenly stops laughing, and are awed to
see the Mogambo smiling serenely through his searing agony, knowing
that he felt that the sacrifice was worth it if it impressed
on your mind just how much freaking money and credit that was.
But incurring such debt, especially here at the start of World
War III, actually has a positive side to it, in a way! I mean,
it is one thing to be so abysmally stupid to amass debts this
big in every corner of our financial universe, but for foreigners
to actually loan us that much money, given the glaring facts
and figures on our loan applications and how we have to fill
in those applications with crayons because we are not smart enough
to be trusted with pens that might get ink all over our good
clothes, means that they are more stupid than WE are! Which seems
incredible, I know! But it is true!
And believe me when I say we got some world-class stupid guys
on our team, and I include Mankiw and that unholy crew on the
Council of Economic Advisors, and Greenspan and Bernanke at the
Fed, and all the rest of those bizarre people, both in and out
of the Fed and government, and including the nation's universities,
who make a mockery of themselves by actually having a Department
of Economics that espouses such a ridiculous and demonstrably
wrong economic theory, and thus brings into question their credibility
to teach the truth about anything, and who actually believe,
like dimwitted little children playing with matches, a bizarre
economic theory about how all that matters is interest rates
and government spending, and how lower interest rates and government
spending can cure any economic illness you can name, and if lower
interest rates and more government spending doesn't work out
in real life as well as it works out on their silly computer
models, then they lower interest rates and increase government
spending some more, and all the time spending, spending, spending!
And speaking
of dimwits, I have officially given up trying to get a Nobel
Prize. I have made this decision because 1) I am an idiot and
admit can't even impress little children with my intellectual
powers, and 2) the Economist sent me a copy of the 2004 edition
of their "Pocket World in Figures," and when I was
thumbing through the pages looking for the swimsuit section,
I find a table that shows "Nobel Prize winners 1901-2002."
One of them is for Nobel Prizes awarded in Economics. There have
been 42 Nobel Prizes awarded in economics in that time. The United
States has won 26 times! The next biggest winner on the list
was United Kingdom with 8. Everybody else got two or one!
Americans won over half of them? We have Alan Greenspan, a central
bank, a fiat currency, and an economics profession that has not
raised its voice one time in horror, and yet we won Nobel Prizes
in Economics over half of the time? I am aghast! I spring to
my feet and scream, with that patented Mogambo banshee wail of
anger and betrayal, "Noooooooooo!"
But out of the corner of my eye I can see an attendant turning
his back to me and quietly filling a syringe with tranquilizers,
as they can see on the security video camera that I am obviously
getting myself worked into one of my "spells," so let's
just crawl under the table and hope they don't see us. If we
stay real quiet and pretend that we are invisible while we are
waiting for things to settle down, let's move along into, for
a change of pace, a topic that doesn't appear in quite so many
court documents, namely currency. Thus I bring up one of the
more surprising things last week, namely the huge increase in
Currency In Circulation. It suddenly ballooned - boiiinnnngggg!
- up thirteen billion smackeroos!
Now currency is something that everyone can understand. You talk
about fractional banking or fiat currencies, and people's eyes
glaze over. And when you try and convey the horror that awaits
any nation of dimwits so stupid, so incredibly retarded in the
literal sense, so laughably moronic that they ignore their own
Constitution, the same Constitution that everybody swears to
uphold and defend, and for no good reason whatsoever switch their
money from being made of gold, as
freaking REQUIRED by the Constitution, to a money based on pure
promises, they go into kind of a trance.
And when
you try and provide a little education, doing my bit as part
of the No Child Left Behind Act, by grabbing their empty little
heads and holding them immobile by grasping fistfuls of their
greasy hair and start screaming hysterically into their faces
from a distance so close that the Mogambo actually gets some
of his Mogambo cooties (MC) on them, and lots of spittle, too,
about how having a fractional banking system AND a fiat currency
at the same damn time is not only stupid, but is a lead-pipe
cinch shoo-in to win the gold medal at the next Inter-Galactic
Morons Olympics, and how we should be locked away in an attic
somewhere. But after just a few hours of wasting my Precious
Mogambo Time (PMT) trying to educate them, they finally give
up begging and crying and start trying to distract me by praying
for death, which is irritating as hell, trust me on this one.
So don't even bother trying to teach these people anything, as
all you will end up with is strands of their nasty, greasy hair
on your hands, and when you try to wipe them on your pants, then
you end up with their greasy hair on your damn pants. So you
can't win. So don't try. I've tried, and it is a thankless task.
But currency!
Ah, that's another matter! Money! Wonderful, wonderful money!
The kind where you literally take ink and paper and print up
the stuff in big sheets, and then you cut them into little individual
bills, and then it is transferred to someplace in armored cars,
that then drive past my house on the way to the bank and the
driver honks the horn and leans out the window and says "Yoo
hoo! Mogambo! We got money in here! Why don't you come out and
get some? Come on! Drop your weapons and come out and get all
the lovely money you want, Mogambo, if that IS your real name!"
But here's a Timely Tip From The Vast Experiences Of The Mogambo
(TTFTVEOTM): if they come by YOUR house trying this trick, do
NOT go out there, because it is just a trap.
But there are many people who maintain, and with good reason,
that actual currency, the aforementioned kind made of the aforementioned
simple ink and paper, only becomes "money in circulation"
when somebody actually demands it, either by 1) sticking a loaded
handgun in the face of a terrified bank teller and ordering them
to load up this bag with money, and be quick about it, and don't
do anything stupid and nobody will get hurt, and don't touch
that alarm, because bells make me crazy and I already feel like
I've got spiders crawling on my skin, so hurry up hurry up hurry
up, or 2) writing a check against their account, and the teller
then gives them fistfuls of money, and then the guy turns around
and sticks it up under my nose and riffles through that big wad
of cash and says "Look what I got! You want some, and you
need some, but you don't have any! But I do!" and then they
laugh at me, and then I chase them out into the parking lot,
crying and screaming at him to act like a man and strap on some
pistols and we'll settle thing this once and for all, right here
in this parking lot, and I keep yelling at him about how they
are yellow-bellied cowards until they finally start their cars
and drive away, and then I go back into the bank and I have to
get at the BACK of the line because nobody would save my place!
I mean, my pain never stops!
As I said, this idea about how actual dollars bills don't become
money until they are requested and given to somebody is held
by many people, including one of the two guys who reads the MoGu
who wrote me one time a long time ago to impress on me two thing.
1) this point about how currency gets into the economy, and 2)
how if I ever talk to his daughter again he will punch me in
the nose. And with a reader base this small I can't afford to
anger anybody, so I now keep my opinion to myself about this
currency thing, assuming I HAD an opinion, which I do, but I
am probably wrong about that, too, but I don't care, as I have
other things to scare me to death.
I bring this up because I know that you have already figured
out that I am more scared and paranoid than usual here lately,
and your keenly-honed senses detected something was amiss, some
subtle ripple in The Force perhaps, probably subtly telegraphed
by the way I have this shotgun pointed at your head and my trembling
finger wobbling on the trigger. I apologize for that, but one
is never sure WHO one can trust these days, and if there is one
thing the Boy Scouts taught me, it was to Be Prepared. And for
God's sake keep your hands out where I can see them, and don't
make any sudden moves.
But I bring this up because the money was printed, and given
away, I assume, in Iraq, but knowing, as I know, as you know,
as everybody knows, that the money soon goes "sluuurrrpp!"
into the Global Body Economic, sort of like when pieces of the
Terminator 2 were absorbed back into the cyborg after getting
broken off chasing Arnold Schwartzenegger, and thus the money
supply of the globe is expanded, and thus the dollar is debased
some more, and thus imports cost more. The only difference is
that instead of money being created by being borrowed, the damn
government just gave it to somebody.
Sol Palha at the Financial Sense website rubs his eyes in disbelief
and says "We are witnessing something that has not been
seen before." Now, naturally, I assume that he is talking
about my spiffy new haircut, which makes me look almost normal
and how I seem to be acting more normal, too, as the data indicates
that I don't curse at strangers as much, which I habitually do
just because they irritate me for some reason, real or imagined.
But he is not. Instead he goes on to say "We have inflationary
and deflationary forces coexisting together in almost perfect
harmony."
He says, "The nefarious Feds have convinced the world to
look at inflation in terms of rising prices." This refers
to one of the ideas that is central to the Austrian School of
Economics, namely that inflation is actually an excess of money
and credit in the economy, and only LATER does it inevitably
turn into rising prices. But if you are like me, and if you are
then put on a clean shirt because the front of the one you are
wearing is now soaked with drool, you may safely use the term
"inflation" to mean rising prices, which have the predictable
effects of 1) making people dissatisfied with their reduced standard
of living because things cost so much that their pathetically
inadequate paychecks don't even cover the basics anymore and
they have to go home and listen to the wife nagging and whining
and complaining about how we don't have enough money anymore
and how I ought to go out and get a second job or at least get
up my fat butt and help out a little more around the house or
something, and 2) makes the Mogambo so livid with raw, incandescent
anger that he morphs into an alleged unstable, raving lunatic,
although I am trying to suppress alleged supermarket surveillance
videotape evidence that, allegedly, taped me allegedly standing
allegedly atop what may, or may not, be an alleged ice machine,
and an alleged person who looks like me, but is NOT allegedly
me, is screaming "What? Do you think I am made out of money
or something? These prices are insane! You're all a bunch of
robbers and thieves! "Robbers and thieves! I won't pay these
prices, do you hear me? I won't pay, because this is extortion!
You are all criminals! You should all be in prison for gouging
the customer like this! Prison!" and then they say "okay"
with this feigned air of calm complacency, but I can tell what
they are thinking because I have ESP and I can read their minds
and they are very angry at, allegedly, me. (As an aside, if you
really want to know what they are thinking, I can tell you, just
between you and me, that they are almost always a) thinking obscene
things to say to me if they are a guy, and how they'd like to
beat me up and take my bicycle, but they know that the Mighty
"Kung-Fu" Mogambo would kick their butts, or, b) if
they are a girl, they are thinking about how much they lust for
me and how they are burning with passion and desire for me, The
Mogambo, and the camera purports to show them starting to take
all my alleged groceries out of the basket, and then I see that
package of cookies being put back on the shelf and then I change
my mind like the wimp that I am, and I end up paying full price
for the damn groceries, but I keep grumbling under my breath
and sticking out my tongue at the manager to indicate my displeasure
the whole time.
He goes on to explain why they are focusing attention on rising
prices as inflation. "This way they have had free rein to
push the printing presses to the max and churn out trillions
of dollars." Not only that, but "They kept prices under
control by subsidizing everything under the sun and artificially
holding down the prices of gold and
silver." And he is such a gentleman that he doesn't even
mention that they are also holding down the reported prices of
everything, and they do this by the simple expedient of lying
their heads of about it, using the exact methodology as developed
by the horrid Michael "Henchman" Boskin, now of Stanford
University, and his infamous Boskin Commission, and when I die
and go to Hell the first thing I am going to do is look around
and find this guy and say "Nice going, jerk!" But you
don't have to pay attention to me rage on and on about this corruption
in government thing, but listen to Nelson Hultberg, who writes,
"Corruption in the markets is not the fault of capitalism;
it is the fault of government intervention into capitalism! Government
is not our savior; government is our biggest and most nefarious
corrupter."
And he intuitively knows that perhaps you won't pay any attention
to him, either, so he refers us to a guy named P. Ogden, who
writes about this same thing: "So Mr. Greenspan wants the
corporations to re-establish trust in the markets... by straightening
out their ethics and bookkeeping. Well what wonderful role models
corporations have in Mr. Greenspan and the FED, and the US Federal
Government (especially the Treasury).
"These institutions and their chief executives have for
years been actively involved in 'influencing, supporting, making
orderly' and in recent years flat out FIXING the markets. Through
their departments and practices they interfere with the major
stock indexes at key junctures, cap the precious metals markets,
run the printing presses at prodigious rates, cancel 30 year
government bonds, make extended and excessive rate cuts to manipulate
interest rates, manage the financial news, mount astounding levels
of debt, and constantly 'adjust' the official inflation and employment
indicators to downplay any less than positive news. These unethical
and unwise tactics remove the warning canaries from the economy,
create bubbles in stocks, bonds, credit, housing, debt, the US
dollar and substitute their personal views and goals for the
discipline of the market. The real criminal today is our omnipresent
Federal Government!"
So far this guy sounds exactly like me! The only difference between
us is that his writing style is witty, literate and educated
discourse, while mine is "none of the above" but with
an ominous undertone of anger and revenge. I again quote from
Mr. Ogden, "Its criminality permeates every facet of our
lives through its inflation of our currency that insidiously
steals our wealth; through its damned lies and statistics of
hedonic calculation; through its brazen use of the PPT to manipulate
the prices of equities and precious metals; through its egregious
fabrication of intelligence reports to justify war and global
hegemony; through its violation of our right to equality under
the law via its progressive income tax; through its buying of
millions of votes with pork and privilege to perpetuate its power;
and most despicable of all, through its relentless proliferation
of cancerous debt which must reduce the future lives of our children
to poverty and misery." At this point I hit the "pause"
button of the video portion of today's presentation, and point
out to you the wonderful alliterative phrase, "pork and
privilege to perpetuate its power," which will be, and I
am warning you to pay close attention, on the midterm exam.
He goes on "The list of corrupt acts is endless. The criminality
of our 'Washington protectors' is eroding our society like drug
lords decimate a clean and thriving neighborhood. Devastation
and depravity spring up where freedom and hope are supposed to
prevail."
The solution? He suggests "Get the government out of the
economy! End the 'mixed-economy' of corporatism and statism,
and restore the Founders' vision of a laissez-faire economy.
This means ending the 'economic fascism' that is taking over
our country."
But he is not done yet! He continues, and I listen and applaud
as he says, "The other half of the blame for today's corruption
belongs in the realm of philosophy, most specifically to the
concept of moral relativism that has worked its way into the
fabric of our society during the 20th century. Much of what we
are reaping today stems from decades of teaching to Americans
the doctrine that there are no objective rights and wrongs, that
ethics is a matter of personal and cultural preference."
And another half, making, so far, three halves, is the idea of
Henry Hazlitt that is on the home page of Investment Rarities.com,
which shows that these guys not only recognize genius when they
see it, but incorporate it into their own lives and website,
as they quote the famous Mr. Hazlitt as saying "There are
men regarded today as brilliant economists, who deprecate saving
and recommend squandering on a national scale as the way of economic
salvation; and when anyone points to what the consequences of
these policies will be in the long run, they reply flippantly,
as might the prodigal son of a warning father: 'In the long run
we are all dead.' And such shallow wisecracks pass as devastating
epigrams and ripest wisdom.
"But the tragedy is that, on the contrary, we are already
suffering the long-run consequences of the policies of the remote
or recent past. Today is already the tomorrow which the bad economist
yesterday urged us to ignore. The long-run consequences of some
economic policies may become evident in a few months. Others
may not become evident for several years. Still others may not
become evident for decades. But in every case those long-run
consequences are contained in the policy as surely as the hen
was in the egg, the flower in the seed."
Now, my suggestion to the youth of today is to have this tattooed
on their backs, so when they go to the beach, people sitting
nearby can read and thus, hopefully, take a baby step toward
Enlightenment, and then next time they go to vote, perhaps they
will use some smarts for a change.
And a fourth thing, which makes, if you are keeping score, four
halves, is that we are mutating into a population of low-IQ mutants,
due to the fact that in all of human history the mental defectives
soon died of their own stupidity, and thus did not get a chance
to pass their defective genes into the gene pool. Nowadays, they
do not die, but live on like a cancerous mutants spreading their
spores, especially one hideous example apparently named "Wild
Man" according to my daughter's diary which she carelessly
left out in the open in the back of the closet under some dirty
clothes in a shoebox box tucked inside a G.I. Joe Machinegun
Nest Action Figure that she never even played with, who is trying
to get his defective genes into my daughter's gene pool, if you
catch my drift, and when he comes around asking if she is home,
I think to myself "She obviously IS, you moron, because
she is leaning out of the window of her room calling out 'Hey,
stud! Yo! Here I am!' so loud that the whole neighborhood can
hear," and the next thing I know I am frisking him in the
front hall and patting him down for concealed weapons because
the metal detector is going bananas - beep beep beep! - and she
comes down the stairs and sweetly says "Daddy, Michael says
that he admires you for pointing out that fractional reserve
banking is bad, and that having a fiat currency is worse, and
he thinks we ought to go back to gold
money, too! " and so I ask him "Is this true?"
and he replies "Uh, yeah! Whatever, dude!" The next
thing I know I am hugging him and my heart is soaring like an
eagle. At least I know that although he is a dimwitted lying
moron, at least he is clever enough to do it. I give him twenty
bucks and let them go, as part of my effort to, as I said, support
the No Child Left Behind Act.
Which brings up the point: where is the AARP in all of this?
This whole rotten screw job is to, as the name "screw job"
implies, cheat old people out of getting more money to offset
inflation in prices. You would think that there would be AARP
armored cars cruising up and down the streets in America with
loudspeakers blaring "Seniors! Rise up in revolt! Your own
government is slowly impoverishing you to death! The Mogambo
was right! They ARE out to get us! All hail Mogambo!" But
when I look out my window, all I see is unmarked black helicopters
circling my house like buzzards. He reports "What is worse
is that Japanese bought almost no T-bills in April, a potentially
troubling situation." This IS troubling, in the same vein
as my idiot kid coming to me and wanting some more money so that
she and her idiot hoodlum friends can go huff Freon or smoke
crack or whatever in the hell those morons do when I am not around
to scream at them and pry into every detail of her life, and
so I politely I tell her "Hell no," and then she does
that little pouting thing and says she wants to "borrow"
some money, and I find this amusing as hell, and I ask her to
tell me just how she is going to pay me back when she never has
any money, and she says that maybe she'll buy her own house and
wait twenty minutes for the price to go up and then she can go
to the bank and borrow against this extra equity like everybody
else is doing except her own idiot father who, for some reason
that she cannot possibly fathom, is the only guy in the whole
country that is NOT doing that, which only means that everybody
in the whole country, and probably the whole world, is much more
brilliant than me, which even I admit is probably true, and then
I suggest that she find somebody else to borrow money from, and
she says "Like who?" and I say "The Japanese,"
and she says that they have used up almost all their own money
funding the excesses of the USA, and have melted down their printing
presses in producing enough yen to loan to the USA, and now there
isn't enough left over to buy more US government debt, much less
loan some to her, and how she hates both me and the Japanese,
and how she thinks we are both exactly alike as far as she is
concerned, boo hoo hoo, and I remind her as she runs crying to
her room that if she had said that to me during WWII, then I
could have had her shot for saying that, and probably would have,
too! Mr. Palha obviously doesn't want to get into that whole
domestic dispute, and says instead that "The fed may have
to monetize their own debt, which means printing even more dollars."
He goes on to say that China "has virtually eliminated the
manufacturing sector in every western country. The average factory
worker in the US earns about 15 dollars an hour. The average
Chinese worker earns 1 dollar a day," and that this is deflationary
to us.
"So on one side you have effects of inflation due to rising
energy and base material prices, on the other hand you have deflation
because of China. Later you have problems because these companies
have to keep lowering prices, while their expenses keep going
up. At some point in time the cheaper labor costs won't be enough
to keep them alive."
I raise my hand and offered that perhaps this had something to
do with the recent releases of the Commerce Department and the
Labor Department that said that, and here I quote from the Wall
Street Journal, "U.S. productivity showed continued strength
in the first quarter. Unit labor costs rose and factory orders
dropped."
But Mr. Palha ignored me, and continued "It's going to be
interesting to see what happens one year from now, when we have
printed a trillion more dollars."
He also notes that "This fear of the future and rising energy
prices will be the catalyst to start the raging bull in the precious
metals sector. Out of fear and desperation people will turn to
Gold, as they won't know what to do."
He even alludes to the strong psychological underpinnings of
the market when he says "There is no stronger emotion in
the universe than fear." And it was Robert Prechtor who
said that the markets follow mood, not the other way around.
We look up and see, George Paulos, who is a friend of Mr. Palha,
coming to join the conversation, and adds "We have a hyperinflationary
policy regime all over the world where governments and central
banks are creating money at unprecedented rates. The Perfect
Storm is an excellent analogy for the meeting of the two storm
fronts of hyperinflationary policy and deflationary economics."
Bloomberg reports that "The European Central Bank left its
benchmark interest rate at a six-decade low of 2 percent to support
an economic recovery in the dozen euro nations, even after oil
prices pushed inflation above the bank's limit." Price inflation
in the euro-zone has gone up to 2.5%, and so naturally the corrupt
ECB has kept interest rates below this, at the lowest level since
1946, which is exactly what you would expect from the President
of the ECB, Jean-Claude Trichet, who is, according to what I
can discern from everything he has ever said or done, and everything
I imagined he would say or do, a lame-oid, commie, pinko central
bank mentally-ill whack-job from way back. Interest rates at
less than the inflation rate. It sounds stupid even to say it.
Apparently this Trichet bozo doesn't realize how stupid it looks
to DO it.
I am certainly glad that there is no inflation, although somebody
forgot to tell my healthcare insurance carrier, as they sent
me a nice little letter telling me that my monthly premiums will
increase another 12%, as part of their twice-a-year price increase
regime.
Jay Taylor: "While our own monetary measures may be growing
at a reasonably modest pace, globally it is exploding. For example,
according to my stats, M-3 over the past 52 weeks has grown by
about 4.5% to 9,244 billion (or 9.244 trillion). By comparison,
Global U.S. Dollar Liquidity has been on a tear. This measure
of global liquidity, which is comprised of a monetary base plus
foreign bank holdings of U.S. dollars, has risen over the past
52 weeks at an astounding rate of 20.39%! Clearly what has been
happening is that the central banks have been printing their
own currency and then buying our dollars (mostly U.S. Treasuries)
in a 1930s-like beggar-thy-neighbor currency devaluation scheme."
Tim Wood of Mineweb wrote an essay entitled, "Oil-Gold Ratio is Out
of Whack" in which
he quotes some statistics by Patrick Chidley, a New York based
sell-side analyst for Barnard Jacobs Mellet, who said, in a recent
note, "Since 1971, the number of ounces of gold required to buy one barrel of oil has averaged
0.06oz/bbl. At recent prices, the ratio soared above 0.1oz/bbl.
- a level seldom seen in the past 34 years since the United States
delinked the dollar from gold. Each
breach has been short-lived, usually followed by a dramatic fall.
At recent prices, the ratio soared above 0.1oz/bbl. - a level
seldom seen in the past 34 years since the United States delinked
the dollar from gold. Each breach has been short-lived,
usually followed by a dramatic fall." So he figures that
either oil has to drop in price, or gold
has to soar in price. Which do YOU think it will be?
Mark Thornton, in an interesting article entitled "Housing:
Too Good To Be True" gets into that thing about how the
inflation figures are being distorted. "Housing accounts
for 42% of the basket, with housing 'prices' representing almost
25% of the entire basket. However, housing prices are calculated
with 'Owner's equivalent rent' which is an estimate of the rent
that people would have to pay for their houses. With home prices
rising and rental rates stagnant, CPI underestimates the real
rate of price inflation over the last year by about 50%."
So, since reported "official" inflation was around
3.5%, that means that real inflation was, and I hope you are
sitting down for this, north of 7%. This is where you should
start getting very, very scared.
He also reports "Even HUD is getting into the act of expanding
the housing bubble. The newest program from the Housing and Urban
Development Department will provide grants to low-income families
to pay their down payment. The current inability of many to do
so, according to HUD Secretary Alphonso Jackson, is "the
single-greatest obstacle to homeownership."
Now, I think that this guy, Alphonso Jackson, ought to get some
award for this profundity. Many times in my life when I have
been shopping for things, I have ended the day in tears, piteously
crying my little eyes out and kicking my nasty little feet in
my frustration, since I was prevented from owning the objects
of my desire. My problem was that I did not have enough money
to buy them, and my credit rating was so bad that my credit report
had these red labels stuck all over them screaming "Warning!
Warning!" And there was always somebody standing there who
reminded me "You could buy those things if you did not already
spend all of your money on candy and Yosemite Sam mud flaps for
your bicycle, you jerk."
But now I find that I have been discriminated against just because
I had no job, and no money, and everybody hated me. But thanks
to Mr. Jackson, relief is on the way!
So I am going to cut this short while I write a nice letter to
Mr. Jackson, and tell him of my pitiful plight.
"Dear Mr. Jackson,
"Recently I went shopping for an M-1 Abrams tank as the
basis of my personal home self-defense program, which is, if
you have been paying attention at all to the news here lately,
absolutely necessary these days. It had a really spiffy 102mm
cannon, for 'stopping power,' and I can't rave enough about the
all-terrain treads. So imagine dismay when I found that I was,
and I know you share my pain, unable to buy one! Why, you ask?
Well, thanks for asking! The reason is, and I know that this
will cause your eyes to well up and your heart will break
in your deep and compassionate solicitude, that I did not have
enough money!"
Now, and here is a tip for you letter writers. Don't just complain
and threaten physical violence if you don't get your way, but
also suggest a possible solution to the problem that will be
mutually agreeable to both parties. So, keeping this in mind,
I continue the letter "However, I find that you have perceived
this same problem in the poor, who cannot buy houses because
they have no money, because they always spend all their money
and they never save anything. Me, too! Your solution was brilliant,
which was to give them money, so that they can buy a house that
they cannot afford! So here's my idea, see: if I promise to live
it in for awhile, sort of fix the place up, maybe put up some
curtains and some paint, perhaps something in a powder blue to
match my eyes, could you please send me a nice check for a million
or so dollars for the down payment on that cool tank? Thanks!"
Stephen Roach of Morgan Stanley is one of those guys who works
for a brokerage, but actually sounds like he knows what he is
talking about. He notes that "Income short consumers have
turned, instead, to two exogenous sources of purchasing power
- a steady stream of tax cuts and the extraction of equity from
their favorite asset, the home."
"The temptation of low interest rates and ever-rising property
values simply proved irresistible to income-short US households.
This was a sure-fire way to make ends meet in tough times. The
only catch in this sure thing is the means by which it occurs
- debt. The American consumer has never - repeat, never - gone
on a debt binge the likes of which has occurred in recent years.
Household sector debt now exceeds 85% of GDP - an all-time high
and about 20 percentage points higher than the ratio a decade
ago."
Not only that, but people are loading into Adjustable Rate Mortgages,
where the interest rate can go up, or down, but almost certainly
up. "In May 2004, the ARMs share of the dollar volume of
new mortgage originations rose to 50%, up sharply from the 20%
average that had prevailed from 2001 through mid-2003. This recent
rush to ARMs leaves overly indebted American consumers increasingly
exposed to the upside of the interest rate cycle at just the
point when the Fed is about to embark on the march to policy
normalization." If it was the Mogambo writing this, he would
have ended with "Jerks! Hahaha! Morons!"
But Mr. Roach is a real classy guy, which is why he works for
a big shot brokerage with offices all over the world and gets
a lot of respect and everybody loves him, while I have to clang
a bell everywhere I go and shout "Unclean! Unclean!"
to warn people to stay away from me. So instead of mocking Americans
who are doing this ARM thing, he soothingly says, "In other
words, the American consumer has upped the ante on the carry
trade at precisely the wrong point in the rate cycle. And they
call that rational?"
You know that I am completely convinced that there are conspiracies
everywhere and that an alien intelligence from outer space is
controlling my thoughts and making me eat delicious high-fat
dessert-oriented foods against my will. There is no counter force,
of course, against these creatures from outer space. But as for
the corrupt conspiracies thing, I am consoled that in
their sheer numbers they do sort of cancel each other out to
a great degree. But you don't have to listen to the Mogambo,
and you don't have to smell me, either, if you just move upwind,
moron.
But perhaps you will listen to Martin Goldberg of FSO, who noticed
that "But at the very moment when it appeared as if the
Nasdaq was in severe technical peril, an apparent large buyer
of the QQQ index stepped in and saved the day. As is usually
the case when a head and shoulders neckline is whipsawed, this
was followed by a sharp and tradable rally. Is there a defensible
'conspiracy theory' affecting recent market action?"
You bet! The entire economic world is now tied to stock prices,
and everybody's retirement is tied to stock prices, and the revenues
from most layers of government are tied to stock prices, and
people borrowed against their houses to buy stocks, and how the
entire economy of the USA depends on financing things. And yet
you think that the most corrupt and reckless and lying government,
the one currently holding sway in the United States, is going
to let the market go down without trying to intervene, when it
forcefully and constantly intervenes in every other aspect of
your entire life? Hahaha!
Caroline Baum at Bloomberg has waded into that swamp about whether
or not there is such a thing as "cost-push inflation."
The theory behind "Cost-push inflation" is that if
your costs go up, then you have to raise your own prices to cover
your higher costs, and that this raising of prices is de facto
inflation. She says "No, Mogambo, but I can see why the
women all throw themselves at your feet and beg to be your love
slave" and she has indicated as much when she titled her
column "Costs Aren't Cause of Higher Prices. Demand Is"
She says "Prices respond to an increase in demand, which
is a response to an increase in the money supply." This
is entirely correct, and I stand and salute her, although the
entire clot of idiots at the Federal Reserve say otherwise, and
this is the reason why I have zero respect for anyone who works
there, especially that snotty receptionist who screams when she
sees me "You again? Help! Get him out! Help me! He's here
again! Help!" In fact, the idea of an excess expansion of
money and credit being the harbinger of higher prices and inevitable
calamity is one of the cornerstones of the Austrian School of
Economics, and the Milton Friedman/Chicago School thinks so,
too. So far, we are both on the same wavelength, and people are
starting to say we make a cute couple. Then she goes on to paradoxically
say "Costs don't push prices up."
Well, apparently she doesn't live where I live. My healthcare
costs are up, my taxes are up, the prices of everything are up.
If I want to break even, I have to raise my prices, too. There
is no way around it, because believe me when I say that if there
WAS another way, then at least one person in the whole world,
in all of history, would have found it by now.
But, and here is the symmetry for you yin-yang fans out there,
if I do NOT want to break even, probably because I am some kind
of mental defective who thinks that neither the Board of Directors
nor the stockholders will mind, or even notice, that we are not
making as much money as before, thanks to my expert management,
then it is not prices that are pushed up; it is profits that
are pushed down. Only THEN it is true that higher costs do not
push prices up. But my profits are pushed down, dollar for dollar
and cent for cent and zibglorp for zib oops, you don't use zibglorps
on this planet.
Sorry. Forget I said anything about zibglorps. And the difference
between the two, and remember we are talking about dollars and
cents here and not about zibglorps, is zero. The absolute value,
meaning that we ignore the sign, of the difference between costs
and prices is exactly the same whether or not I raise prices
to offset increased costs, or leave my prices unchanged. If we
raise prices to cover increased costs, then we continue to make
a constant profit. If we do NOT raise prices to cover increased
costs, we get the opposite, yin-yang effect (YYE ), what is known
as a "loss," although if we were calculating it in
zibglorps it would be known as a "gloggenflocker."
The only difference is in what they are called. One situation
is called profit and one is called loss, and they are exactly
equal to each other, if you ignore the sign. Anyway, we have
thus proved, therefore, that costs CAN and DO push prices (and
profits) up, and if they don't, then higher costs can and do
push LOSSES up. Yin-yang. Karmic balancing. It's as simple as
that.
She even quotes a guy named Jim Glassman, who she says is senior
U.S. economist at J,P. Morgan, who also says "Demand leads
prices. Prices lead costs. Demand drives everything.''
He is right, of course, but the errors he makes in relation to
our present situation are of two kinds. 1) He assumes that the
dollar maintains the same purchasing power, and 2) he is operating
under the old regime, where the demand in the USA was the sole
determinant of how things went. Those days are gone. Today, prices
respond more and more to demand in China and India, but we still
feel the effect. So, yes, it is demand that drives prices, which
are always somebody else's costs, but WHOSE "higher demand"?
Ms. Baum lets the cat out of the bag when she says that "Fed
policy makers are attempting to understand how inflation is accelerating
with plenty of slack in the labor market and unit labor costs
still falling on a year- over-year basis." This is because
the stupid model that the Fed uses is obviously wrong, and has
been demonstrably wrong four years running, and even before that
they were wrong, for the last sixty years wrong, but the salubrious
beneficial effects at the start of a bank-fueled boom made it
look like it was NOT wrong. But it was. As we are finding out.
And for the reason, I suggest that you go to the beach, slap
on some sunscreen, and look for a teenager, and then read the
tattoo on his back, which is, hopefully, the Henry Hazlitt thing,
and perhaps a light will turn on- bink! -over your head, my little
grasshopper.
Gary North of Reality Check and a regular at the Daily Reckoning.com
site, although I am not sure since I never get to attend one
of the meetings and thanks to Caller ID they won't even answer
the phone anymore and all my letters to them come back marked
"We're dead. We moved. No speakee English. Go away!"
Anyway, Mr. North says "Permanent debt is considered normal
-- a way of life. This begins at the top. There is no suggestion
by any respectable economist that any government, anywhere, will
ever repay its debt, or should." Well, in all fairness,
he is referring to living economists, as the very idea of such
stupidity of never paying down your debts is a recent invention.
He dismisses me with a wave of his hand, as if to say "Everybody
knows that, jerkface" but the official transcript says that
he went on to say "Worse, it is now impossible to repay
it without bankrupting the economy. The reason is the monetization
of debt. The central bank in every modern nation owns piles of
government debt. If the central bank were to sell off this debt,
it would have to buy some other asset to keep the money supply
from shrinking; otherwise, there would be a deflationary depression.
The central banks have created a monster: a government debt structure
that cannot be liquidated."
The reason that the old-timers had a problem with massive infusions
of money into the economy is that there is no way to prevent
the rise in prices. Rises in prices make the non-wealthy grumpy.
And when they get grumpy, the stage is thus set for something
ugly.
Pete Spina at GoldSeek.com provided a link to the BLS site where
the CES Net Birth/Death Model was posted, which showed that of
the 248,000 new jobs were reported by the government, 195,000
of them were merely assumed. John Crudele of the NY Post, who
can always be counted on to instantly expose this kind of lying
fraud when committed by the government, notes that the jobs were
in the leisure and entertainment industries, and part-time laborers.
Mr. Spina also put a little blurb up about how that the Swiss,
who have a lot of gold in their government vaults since the
Swiss franc is backed by gold, have
a problem as a result of their currency getting unacceptably
strong. They are finding that their exports and domestic manufactures
and services are being priced out of the market, and the voters
are getting real grumpy. So, in the classic "let's slit
our own throats" style that is so popular right now, they
are thinking about getting rid of the gold,
and thus reaping a heap o' cash, and then tomorrow they will
join the club of the other low-IQ dirtbag countries who attempt
to devalue their own currencies, and thus try and increase inflation,
which directly hurts the citizens. The question is, what to do
with the gold and the money?
The report notes that "The latest proposals include plans
to use part of the proceeds to support the country's social security
and education systems." He even quotes a guy named Garelli,
who said "Many governments have discovered that the central
banking system has accumulated a lot of [gold]
reserves which are actually not needed any more in the modern
monetary system." By which I assume this Garelli guy is
some self-important dude, although I have no idea, although I
guess I could easily have gone to the site and read the report
if I wasn't such an impatient and lazy sort of loser, and then
I would know who this Garelli character is, and perhaps glean
some information why is saying this thing. The idea is to sell
the gold, and for the government to use the
money to pay off deficits and buy things.
Pete, and I suddenly call him Pete because I now recognize a
true brother, adds his own delicious editorial comment that is
so venomous with stinging sarcasm that I wish that I had said
it first, and if I had said it first then I would still be calling
him Mr. Spina and he would still be referring to me as "Don't
bother me anymore, you damn lunatic bastard!" But Pete writes,
"Yes, Garelli is correct. In today's modern monetary system,
the central bank's function of destroying the value of paper
currencies is the ultimate priority, and gold's
function to promote value only hinders the devaluation process."
If the Swiss really wanted to help, they would buy up the now-cheap
assets, thanks to the strength of the Swiss franc, of all those
other countries whose currencies have been getting weaker, like
us, and put some pressure on the governments, like our US Congress,
and force them to get with the freaking program and start emulating
the Swiss, whose gold-backing has made their currency stronger.
If the United States had a currency that had strengthened over
the last couple of years, like the Swiss franc, oil would be
about $25 a barrel right now. Or less. Ceteris paribus.
Bob Hoye, market historian and editor of Institutional Investors,
wrote a guest commentary on the Prudent Bear site, entitled "Stocks
- The Big Picture." In looking at the SP500, he says "The
exponential growth of the trading cycle suggests a downside move
of 234 weeks from March 5, 2004." He thinks that if this
pattern continues, "Then this pattern will converge with
the lower support curve just below 400 in 2008."
Here is that rarity in economic forecasting: both a date and
a price. He comes to this startling conclusion by virtue of noting
that parabolas play a big part of things, and stock prices are
no different, and in fact he has a new book out that uses, so
I gather, a nifty low-tech device: a parabola that you lay over
the chart of historical data. Now I have no idea if I am even
describing this thing accurately, but the whole idea appeals
to me because I'm a big believer in parabolas since, everywhere
you look, everything is in a spiral of one kind or another, spiraling
in or spiraling out, spiraling left or spiraling right, spiraling
up or spiraling down, down into the murky depths of fear and
raw hostility, and you start seeing enemies everywhere you look,
like that pizza delivery man who doesn't think I see him surreptitiously
checking me out for chinks in my perimeter defense.
Ugh.
---Mogambo Sez: Arch Crawford publishes the Crawford Perspectives,
which tracks the astrological influences on the market. He says
"Sometime from mid-August to March 23, we think that the
market will crash again" and that this is due to a Mars-Uranus
thing that happens every two years. The Wall Street Journal reporter
who wrote this up notes that "It doesn't guarantee a crash
- but it has been evident during every crash for the last 100
years." Whether or not you believe in the stars and planets
influencing your life, if enough people DO believe in it, namely
people who will sell on the basis of it, then it WILL happen,
just like he said. And I note that there isn't a newspaper anywhere
that does not have a horoscope section, and even the home page
of my Internet server has one, too. And they are there because
people want it, and may even believe in it. So, it ought to be
an interesting time, to say the least.
Jun 8, 2004
Richard Daughty
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.
____________
321gold Inc
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