| | | Page 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28 | Watch, Its happening ,the global economic change.
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User ID: 4830
2/13/2005 8:18 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Greenspanīs Whopper
Bill Bonner
The Daily Reckoning
February 14, 2005
The Daily Reckoning PRESENTS: There are some stories that just need to be told... the legend of the first Christmas, the chronicles of Christopher Columbus... and the epic tale of Alan Greenspan and the U.S bubble economy. Read on . . .
"You are wasting your life and your talents writing about Alan Greenspan every day," said an old friend.
For years, we have been working on Greenspanīs obituary. As far as we know, the man is still in excellent health. But we do not want to be caught off guard. Maybe we could even rush out a quickie biography, explaining to the masses the meaning of Mr. Greenspanīs life and work.
Perhaps our friend is right. But then again, we werenīt doing anything special before we started keeping up with the Fed chairman. Besides, we see something in Alan Greenspanīs career... his comportment... his betrayal of his old ideas... his pact with the Devil in Washington... and his attempt to hold off natureīs revenge at least until he leaves the Fed... that is both entertaining and educational. It smacks of Greek tragedy without the boring monologues or bloody intrigues. Even the language of it is Greek to most people. Though the Fed chairman speaks English, of course, his words often need translation and historical annotation. Rarely does the maestro make a statement that is comprehensible to the ordinary mortal. So much the better, we guess. If the average fellow really knew what he was talking about, he would be alarmed. And we have no illusions. Whoever attempts to explain it to him will get no thanks; he might as well tell his teenage daughter what is in her hotdog.
We persevere anyway, more in mischief than in earnest.
The background: The U.S. economy faced a major recession in 2001 and had a minor one. The necessary slump he held off by a dramatic resort to central planning. The "invisible hand" is fine for lumber and poultry prices. But at the short end of the market in debt, Alan Greenspanīs paw presses down, like a butcherīs thumb on the meat scale. The Fed quickly cut rates to head off the recession. Indeed, never before had rates been cut so much, so fast. George W. Bush, meanwhile, boosted spending. The resultant shock of renewed, ersatz demand not only postponed the recession; it misled consumers, investors and businessmen to make even more egregious errors. Investors bought stock with low earnings yields. Consumers went further into debt. Government liabilities rose. The trade deficit grew larger. Even on the other side of the globe, foreign businessmen geared up to meet the phony new demand; China enjoyed a capital spending boom as excessive as any the world has ever seen.
What the Greenspan Fed had accomplished was to put off a natural, cyclical correction and transmogrify an entire economy into a monstrous ECONOMIC bubble. A bubble in stock prices may do little real economic damage. Eventually, the bubble pops and the phony money people thought they had disappears like a puff of marijuana smoke. There are winners and losers. But in the end, the economy is about where it began - unharmed and unhelped. The households are still there... and still spending money as they did before... hand the companies still in business. Only those that leveraged themselves too highly in the bubble years are in any trouble - and they probably deserve to go out of business.
Even a property bubble may come and go with little effect on the overall economy. House prices have been running up in France, for example, at nearly the same rates as in America. But in France there is very little mortgage refinancing... or "taking out" of equity. The European Central Bank was repeatedly urged to lower rates in line with those in America. It refused to budge. Without falling rates, there was no "refi boom." Nor were European banks offering "home equity lines of credit." Property could run up... and run down... and the only people who cared would be the actual buyers or sellers, who either cursed themselves or felt like geniuses, depending on their luck.
But in Greenspanīs bubble economy something remarkably awful happened. Householders were lured to "take out" the equity in their homes. They believed that the bubble in real estate priced created "wealth" that they could spend. Many did not hesitate. Mortgage debt ballooned in the early years of the 21st century - from about $6 trillion in 1999 to nearly $9 trillion at the end of 2004. Three trillion dollars may not seem like much to you, dear reader. But it increased the average householdīs debt by $30,000. Americans still lived in more or less the same houses. But they owed far more on them.
We had given up all hope of ever getting an honest word out of the Fed chairman on this subject when, in early February, in the year of our Lord 2005, the maestro slipped up. His speech was entitled "Current Account." Jet lagged, his defenses down, the poor man seems to have committed truth.
"The growth of home mortgage debt has been the major contributor to the decline in the personal saving rate in the United States from almost 6 percent in 1993 to its current level of 1 percent," he admitted. Thus, he did bring the up the subject. Then, he began a confession: The rapid growth in home mortgage debt over the past five years has been "driven largely by equity extraction," said the man most responsible for it. By this time, listeners were beginning to put Mr. Greenspan at the scene of the crime. And pretty soon, even the dullest economist in the room was adding 2 and 2. Mr. Greenspan lowered lending rates far below where a free market in credit would have put them. With little to be gained by putting money in savings accounts... and a lot to be gained by borrowing... households did what you would expect; they ceased saving and began borrowing. What did they borrow against? The rising value of their homes - "extracting equity," to use Mr. Greenspanīs own jargon. The Fed chairman had misled them into believing that house prices increases were the same as new, disposable wealth.
But the worldīs most famous and most revered economist didnīt stop there. He must have had the audience on the edge of its chairs. He confessed not only to having done the thing... but also to having his wits about him when he did it. This was no accident. No negligence. This was intentional.
"Approximately half of equity extraction shows up in additional household expenditures, reducing savings commensurately and thereby presumably contributing to the current account deficit. The fall in U.S. interest rates since the early 1980s has supported home price increases," continues Americaīs answer to Adam Smith.
People take money out of their homes. With this source of spending power available to them, they see no reason to save. Instead, they spend - often on foreign-made goods. With no savings available domestically, America must look overseas for credit.
"The obvious and most important point is that rapid growth of U.S. mortgage debt did not come out of thin air," comments Stephen Roach. "It was, of course, a direct outgrowth of the Fedīs hyper-accommodation of the post-bubble era -- namely, short-term interest rates that have been negative in real terms for longer than at any point since the 1970s."
.
The crime of which Mr. Greenspan is guilty is fraud. Putting interest rates at an artificially low level, the Fed chairman intentionally misled Americans. Were it not for the Fedīs low rates and easy lending policies, Americans wouldnīt have thought themselves so rich. Their houses wouldnīt have gone up so much; they wouldnīt have taken out so much equity, because they wouldnīt have had any equity to take out. They would have had to spend less, which would have reduced the U.S. current account deficit and diminished household indebtedness.
"Lacking in job creation and real wage growth," explains Roach, "private sector real wage and salary disbursements have increased a mere 4% over the first 37 months of this recovery -- fully ten percentage points short of the average gains of more than 14% that occurred over the five preceding cyclical upturns. Yet consumers didnīt flinch in the face of what in the past would have been a major impediment to spending. Spurred on by home equity extraction and Bush Administration tax cuts, income-short households pushed the consumption share of US GDP up to a record 71.1% in early 2003 (and still 70.7% in 4Q04) -- an unprecedented breakout from the 67% norm that had prevailed over the 1975 to 2000 period... A long last, Chairman Greenspan owns up to the central role he and his colleagues at the Federal Reserve have played in fostering these developments."
Our own Fed chairman, guardian of the nationīs money... custodian of its economy... night watchman of its wealth...
How could he do such a thing? And yet he has done it. He turned a financial bubble into an economic bubble. Not only were the prices of financial assets ballooned to excess... so were the prices of houses... and so were the debts of the average household.
Where does it lead? The force of a correction is equal to the deception that preceded it. Mr. Greenspanīs whopper must be followed by a whopper of a slump.
Regards,
Bill Bonner
The Daily Reckoning
Editorīs Note: Bill Bonner is the founder and editor of The Daily Reckoning. |
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User ID: 8766
2/14/2005 12:00 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
mammon is rearranging the deck chairs on the titanic so that all the nations can get a good look at the US $ as it goes over the edge just before they do, and they all think they will take the cream and not suffer the same. |
| Anonymous Coward
User ID: 3758
2/14/2005 12:26 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
And you guys hope to be the beneficiaries of this īcorrectionī largesse? Morally, financially, socially?
Oh please get a clue idiots, if something awful happens to the stock market things wonīt be nice for ANY one. Even if you think you are rock-bottom now. |
| Anonymous Coward
User ID: 2283
2/14/2005 1:16 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
AC 12:26, That is what is so truly scary about this. If the house of cards falls which it will, everyone loses. I guess it comes down to would you rather have an economy in the gutter crippled by massive military spending or nothing at all and anarchy in the streets. |
| Anonymous Coward
User ID: 856
2/14/2005 1:17 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Iīm sure FHL(C) knows almost as much about the stock market as he knows about paleontology. |
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User ID: 5397
2/22/2005 3:00 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
It follows from the above that, as the level of debt relative to income rises, it should take larger expansions of credit to achieve any given percentage increase in demand, since the now high and climbing debt burden acts as a countervailing force to depress demand. Which is essentially what has been occurring for the past several years in the US: Americas federal debt is now $7.5 trillion, of which all but $1 trillion was built up over the past three decades, the last $2 trillion in the past eight years, and the last $1 trillion in the past two years. According to economist Andre Gunder Frank, All Uncle Samīs debt, including private household consumer credit-card, mortgage etc debt of about $10 trillion, plus corporate and financial, with options, derivatives and the like, and state and local government debt comes to an unvisualizable, indeed unimaginable, $37 trillion, which is nearly four times Uncle Samīs GDP. This rising level of indebtedness becomes a huge deflationary weight on economic activity once debt growth seriously slows. |
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User ID: 62
2/23/2005 10:21 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Something Strange is Happening Here
February 22, 2005
Richard Russell
News: Oh no, the bank of Korea announces that they are going to diversify their reserves into other currencies -- translation, "We have too."
On February 7, I received a brilliant report by Trey Reik of Clapboard Hill Partners. One particular chart in Reikīs report caught my attention. It was a chart showing total credit in the US as a percentage of the US Gross Domestic Product. The immediate lesson here is that itīs taking more and more credit in order to produce less and less of the US Gross National Product.
Happily, Alan Abelson must have received a copy of the same Reik report, and also happily, Alan reproduced Reikīs credit chart in this weekīs Barronīs.
A few facts from the chart. At the 1929 stock market high, total US credit was 176 percent of GDP. In 1933 with GDP collapsing and the Depression in full force, total credit rose to 287 percent of what was left of GDP.
Now get this -- in 2000 at the top of the late bull market, total credit was 269% of GDP. That was wild enough, but do you know where we are today? Currently, total credit is 304 percent of GDP!
In other words, under Alan Greenspanīs liquidity explosion and his mini-short interest rates, the United States is now awash with credit. And with it all, the Dow still canīt make it back to its 2000 bull market high.
And then thereīs the law of "regression to the mean." Somewhere ahead the credit bubble is going to burst. When it does, the bear market will be on in full. Or -- somewhere ahead the stock market will topple over. When that happens the giant credit bubble will fall apart. Either way, the Greenspan Fed has created the greatest credit-balloon this nation has ever seen. This credit-balloon has created inflation, which is just now becoming visible -- even in the governmentīs statistics.
Greenspan is now in the process of trying to "calm down" the credit bubble. Heīs doing it with his "measured" increases in short rates . But this is a very dangerous process. Itīs like rubbing a balloon with a pin rather than just puncturing the balloon. Will Greenspan be successful? Can Greenspan get out of office by early 2006 without triggering a disaster? Place your bets. Either way, it promises to be a fascinating year, and we still have ten months to go. ( This is the end of the piece that appeared over the three-day weekend ) .
.................................................. .............................................
What if the credit balloon actually does burst? What could we expect? One thought is this -- if the credit balloon collapses, thereīs going to be a panic for cash, cash to stave off bankruptcy on the part of tens of thousands of over-leveraged individuals and companies. This could set off a panic for dollars. Everybody would need dollars in order to stay "alive."
Which brings up another of the Russell scenarios. The giant US credit bubble constitutes a synthetic short position against the dollar. A credit contraction could trigger a mad rush to accumulate dollars. These dollars would be needed by individuals and corporations in order to remain solvent.
During the Great Depression of the ī30s everybody hoarded dollars. Nobody wanted to borrow anything, nobody wanted to lend anything. Dollars meant safety. Pessimism ruled. People hung on to their dollars as if their lives depended on those dollars. And in many situations, that was actually the case.
Remember, the Fed can create liquidity. But the public and corporations create the credit, and they create credit by borrowing. Saving, paying off debt, cutting back on economic activity is basically deflationary. And thatīs why the Fed is so deathly afraid of a trend toward less spending and more saving on the part of the US consumer.
Technicals -- April gold gapped up 7 dollars on the Korean "diversification" news. Todayīs move took gold well above its 50-day moving average ( 430 ) and moved gold into its "buy" mode.
At the same time the dollar gapped broadly below its 50-day moving average, and had the "look"ī of wanting to go lower.
March crude surged over two dollars, putting the price of March crude at over 51 dollars a barrel!
Up to this point, nothing has shaken the bullish composure of the US consumer. But if housing tops out, this, I believe, would finally cause consumers to turn cautious if not actually bearish.
Just for the fun of it, Faye and I visited numerous homes that are on the market here in La Jolla. My impression -- Itīs like a descent into madness, and, of course, Iīm talking about the prices. Even the meanest little shack in La Jolla costs near or above a million dollars. The scariest four words in the US economy today are the following -- "Regression to the mean."
Below we see the daily chart of the Financials. Big break here, and next to the housing picture, I guess you could place financials as equal in importance. Housing and Financials breaking down! How dangerous is this picture!
Something cracked in the markets today. Was is the swooning dollar? Was it the surging oil. Was is the plunge in the housing index? I donīt know, I only know what I see on the charts, and today was an "everybody out of the water day." In fact, you donīt see many days that are this damaging.
CONCLUSION -- As I said above, something "cracked" in the markets today. Oil surging, copper near a 14 year high, all home-building stocks down 2 to 6 points, gold up over 7, Fannie Mae under 58, Freddie just above 60, dollar whacked, breadth lousy -- and I ask myself, "Is the fun over." And the answer is that itīs too early to tell.
Richard Russell
Editor-in-chief - DOW THEORY LETTERS
[link to www.timebomb2000.com] |
| angelica
User ID: 6120
2/23/2005 10:24 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
did not read any of this! All I know is that i have lost my ass! |
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User ID: 12566
3/11/2005 12:08 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Stand Back, I Am Armed to the Teeth!
March 9, 2005
Richard Daughty
The Mogambo Guru ...the angriest guy in economics
Foreign central banks plumped up their account at the Federal Reserve and poured another $14 billion down the US debt rat hole last week. Seeing how much fun that was, the Fed itself created $4.1 billion in new Fed Credit, which is the ultimate in "money from thin air" as it was literally created at the punch of a button. After the banks finish multiplying that new credit by the fractional reserve multiplier that they now use (more than 100), it has the effect of creating $410 billion in new credit, just waiting for somebody to walk into a bank and take out a loan, which would turn the credit into real money.
Of course, I would be remiss in my Mogambo hissy-fit duties (MHFD) if I did not raise a big stink about the Treasury burying us under another $100 billion of debt in the last two months.
Chuck Butler, who is president of Everbank, writer of the Daily Pfennig newsletter and is a guy whose sense of humor is so developed that he actually sent me a fruit basket because I facetiously said, trying to make a joke that predictably fell flat, that he never sent me a fruit basket, writes that "The Peopleīs Bank of China (PBOC) announced today that they had spent 1.6 trillion renminbi ($193 billion) buying foreign currency in 2004 to keep the renminbiīs fixed exchange rate. For those of you keeping score at home, thatīs a 41% increase over the previous year!"
But he does not stop there, and also writes that things are not so hot in the industrial sector. "Yesterday the ISM index posted another lower number of 55.3. A year ago, this number was 62.8! Thatīs what I call a slumping sector... Not collapsing, but slumping!"
You would not know it from the US consumer, who went farther into debt by $11.5 billion in January. To make matters worse, the $3.5 billion debt increase reported for December was revised up to $8.5 billion. Letīs see here: There are about 160 million adults that went farther into debt by a collective $20 billion in two months, for an average increase in indebtedness of $125 each. Now in the last two months the Treasury has increased national indebtedness by $100 billion, so on a per capita basis, the average American adult is now on the hook to pay another $750 each! In just two months! Hahahaha! No wonder people on other planets come here in flying saucers to laugh at us! This is crazy!
Axel Merk, of Merk Investments writes, "The latest numbers available put the (trade) deficit at a record $60.3 billion, an annualized $724 billion, over 6% of the GDP." As an aside, the Economist magazine puts the trade deficit at $666 billion for the last year, which is a number that has all kinds of significances and overtones that remind one of the Biblical Book of Revelations, and now we are on track for another $60 billion higher next year? Wow! Spooky, huh?
Paul Van Eeden at Kitco has also looked at this trade deficit fiasco, and opines that "The US trade deficit is pumping hundreds of billions of additional dollars into their coffers every year. Even if these countries keep all the dollars they currently own but just not keep as high a percentage of the new dollars they continuously receive, the dollar will plummet. There really isnīt any way around it. Either the dollar falls sufficiently to eliminate the trade deficit, or the trade deficit will continue to put pressure on the dollar." Sort of like the old Mogambo Conundrum (MC): People hate me because I am a hateful, and I am hateful because they hate me. Hacking through the confusion, we are now sure of two things, namely 1) the dollar will be lower, and 2) I will be more hateful and more heavily armed. From this we learn two additional valuable lessons. 1) gold and oil and imported things will go up in price, as will everything else when domestic producers get wind of the high prices we are paying, and 2) stay away from me, as I am armed to the teeth and in a real bad mood about these high prices, among many other things.
Marshall Auerback of PrudentBear.com says essentially the same thing, only without that Mogambo Conundrum thing, when he writes, "With the government and external deficits both so large and the private sector so heavily indebted, it is said that satisfactory growth in the US cannot be achieved without a large, sustained and discontinuous increase in net export demand. After perusing the trade data from last year, it is doubtful whether this will happen spontaneously through a continuous fall in the external value of the dollar, and it certainly will not happen without a cut in domestic absorption of goods and services by the US " and then, after a pause, he goes on to show us the result of that, "which would impart a deflationary impulse to the rest of the world." Which could explain why the rest of the world is suicidally stuffing money into our economy.
If you think that the US is going to achieve export muscle anytime soon, he disabuses you of that notion when he reminds us that "The truth of the matter is this: Across three decades, only one economic event has been guaranteed to produce balanced US trade: a recession. When the economy is contracting, people naturally buy less of everything, including imports." Which, of course, brings us back to that "deflationary impulse" that he was talking about earlier.
Elsewhere, a report surfaces that the IMF may sell part of its gold reserves to help with third world debt relief. This is par for the course for the International Monetary Fund, which is a group of secretive communist idiots whose job it is, apparently, to take money from us to loan to countries that canīt make a go of it because they act like idiots, and then the influx of IMF money makes it all worse, and when they donīt pay back the loans, then the IMF helpfully suggests that you and I eat the loss and forgive the debt! This is the level of sophistication that you get when you appoint communists and idiots to anything, especially things like the execrable IMF and the Federal Reserve, and donīt get me started on those guys.
Jeffrey L. Ferguson wrote a prescient little essay entitled "Is a Secular Bear Market Inevitable?" on the Kitco.com site. Naturally, The Mogambo was immediately on the phone, dialing furiously, trying to get through to this Ferguson person, so that I could give him a little of that famous venomous Mogambo sarcasm (VMS), something along the lines of "What are you, some kind of putz? Do you think that bull markets run forever, you brainless moron? Do trees grow to the freaking moon, and all we have to do to get some of that delicious moon cheese is crawl up those trees? Is that what you think, you stupid bozo?" Well, while waiting for them to answer the phone and rehearsing my hysterical rant, I continued reading his essay, and soon realized that he was NOT a putz, and that, once again, The Mogambo has gone off half-cocked. Reading farther, we see that he writes, "Given that distortion of interest rates constitutes the fundamental force driving business cycles and the fact that interest rates continue to be distorted, by the Fed and through conduct of finance, combined with historical evidence indicating that very long secular cycles, punctuated by interim cycles, have previously developed as a consequence, the answer seems clear." This is where he paused, and I, for one, was on the edge of my seat. What was it going to be? Good or bad? Up or down? Finally, seeing that I was so worked up that I was straining not to pee in my pants, he takes a little pity on me and says "Yes, another secular bear market is inevitable." Naturally I jump to my feet and say "I knew it! I knew it all the time! You had me going there for awhile, but I always knew the answer!"
I was on hand for Greenspanīs testimony Wednesday for about halfway through his prepared remarks, as most of the time was spent hooking electrodes up to my heart and wrapping me up in a straightjacket (which was made all the more disagreeable because it smelled like a sewer and then it was pointed out that it was me that stinks so bad and then I figured, well, okay, that explains THAT, although it didnīt make it any more pleasant).
But I heard only half of half of his prepared remarks, giving, as I figure it, a quarter of his speech, as half the time I was screaming at the TV screen "You idiot! You liar! I hate your guts!" and throwing things at the TV, including my half-eaten sandwich, but it wasnīt a very good sandwich, so it was not a big loss, and most of the other stuff just bounced off the screen, although with a new patina of mayonnaise from where the sandwich previously caromed off the TV. But he was unusually blunt in some areas, especially in those areas that are not his fault, which is everything, because nothing is ever his fault. He is sure that he is completely blameless! The Federal Reserve steadfastly maintains that it has done absolutely nothing wrong, ever, in the entire history of the Federal Reserve, even though they have violated every single bit of historical evidence, anecdote, theory and practice since we were still one-celled creatures swimming around in the primordial soupy sea saying "Wow! Our music is crappy and Mozart wonīt be born for another 30 million years! Bummer!"
Greenspan showed his lackluster brilliance by saying things that were stunningly obvious, such as "As the latest projections from the Administration and the Congressional Budget Office suggest, our budget position is unlikely to improve substantially in the coming years unless major deficit-reducing actions are taken." Duh! Ya think so? After a few decades of budget deficits, you think that now, right now, the kind of "right now" where you look at your watch, it is not going to improve by itself? Wow!
I thought it was weird that he says, "I want to emphasize that I speak for myself and not necessarily for the Federal Reserve" which I figure he has to say because all the rest of the people at the Fed all say "The Mogambo is right! Alan Greenspan IS a big butthead!" Well, they probably donīt say that, but they ought to, because Alan Greenspan IS a big butthead! And if they donīt, then that proves that THEY are buttheads, too! Hahaha!
He even let go with a little statistical information that was probably news to the jerks on the committee, as he no doubt wowed them when he went on to read, "Under the intermediate assumptions of the programīs trustees, the number of beneficiaries will have roughly doubled by 2030, and the ratio of covered workers to beneficiaries will be down to about 2." Two guys working to support one old guy! These guys are going to stand around while half of their incomes are going to be taken away and given to me so that I can retire in comfort and free of care, and with my Viagra paid for, too? Hahaha! Like THATīS going to happen!
"Greenspan Pounds Away at Broken Budget Process" is an essay on Bloomberg, written by John M. Berry. He writes "The essential message Federal Reserve Chairman Alan Greenspan is trying to pound into the heads of members of Congress in his recent testimony is that the federal budget process is so broken that it has become a danger to the nationīs long-term economic health."
And last, but not least, if you have not read Peter Schiffīs essay, "Greenspan Walks Policy Tightrope", then you should, as he righteously jumped all over Greenspan, and easily shows, point by point, that Greenspan is a stupid old man who does not comprehend the basics of economics.
Caroline Baum on the Bloomberg.com site wrote "Everything that could go wrong did go wrong, yet the U.S. economy sailed right on through. If you consider the litany of negatives buffeting the economy since the bursting of the stock market bubble in 2000 and the 2001 recession, itīs something of a miracle that it managed to grow 2.3 percent in 2002, 4.4 percent in 2003 and 3.9 percent in 2004 (all on a fourth-quarter over fourth-quarter basis)."
She does admit that "The economy expanded in 2001 as well, albeit at a miniscule 0.2 percent rate."
Yep, and Iīll tell you how it is done, only in Hollywood style. The scene is set in the swanky offices of your typical CEO, or chairman of the Board, or majority stockholder, all of them ruthless tyrants whose names strikes horror in the hearts of the proletariat trash who toil under my brutal command, night and day, while I am living it up by seriously under-funding their stupid little pensions that I am trying to dump on the government, so they will end up with something, so what in the hell are they bellyaching about?
Suppose I sold a hundred widgets last year at ten bucks a pop. So total GDP = $1,000. This year, I sell 98 widgets at $11 each. GDP = $1,078, which is an increase of $78! The freaking economy is soaring by 7.8 percent! The economy is white hot! Yow! Buy stocks, any stocks, but especially shares of Mogambo Enterprises if the SEC hasnīt shut them down already.
In normal times, that is to say, during the entire freaking course of human history until the last fifty years or so when people really started losing their minds, probably something in the water, but when prices go up by 10 percent and sales go up by only 7.8 percent, you were typically in big freaking trouble. And then you started drinking heavily, which made everything worse. And especially so, ESPECIALLY SO, when total production was actually reduced by 2% to start with! I mean, itīs head for the hills time! And now you gotta finally make that decision whether to take your family with you, or abandon them to the wolves like they deserve, the ungrateful little leeches, and now that I think about it they were nothing but a millstone around my neck in the best of times, which werenīt such hot times to start with, and even those relatively wonderful days are gone, and now itīs every man for himself, so get outta my freaking way, Iīm coming through!
But nowadays things are different. Thanks to Michael Boskin and the Federal Reserve, those pesky questions about the ten percent inflation, and how this is supposed to be such a bad thing, can be easily explained away! Ainīt science wonderful?
It goes (pause for dramatic effect) like this: The government official looks at you like you are some kind of lowlife dimwit and who needs to be spoken to gently, or maybe weīll cry or something, and he says "You forgot to adjust for quality, stupid asker of stupid questions! I know thatīs you on the end of this phone, Mogambo, you stinking lowlife dimwit! But for the last damn time, last year the damn things caused three deaths." Then he holds up three fingers to make sure that I somehow grasp, with my obviously limited intellect, the whole concept of the number "three" and then I say "Iīm on the end of the phone, you moron! I canīt see you holding up three fingers!" and then he gets really huffy like only a dimwitted career government worker can get. Through clenched teeth he goes on to say "And this year only caused one person to bite the big one, and too bad it isnīt you, Mogambo, and why donīt you be the one to die, you horrible little man? So anyway, the whole point is that widgets are getting safer! Donīt you get it? So you are," he says, and I advise you to follow the logic closely here because this is apparently the nub of the whole thing, as this is the part where my brain goes "boooinnngggg" so I am not sure I completely comprehend the whole concept, "getting more widget for your money!" And so I say, "Huh? I was happy with the OLD widget, as I never had one where I drank a lot of beer or took medications that made me drowsy or took shots of straight liquor, mostly tequila, when I was consuming, operating or building a widget, and even then only under the supervision of an adult or a boss who hates my guts as much as I hate him, and I caution you to never try this at home, as I AM a professional at this widget thing."
But, somehow, the basic widget did NOT go up in price, see, and you merely paid extra for the extra quality! Therefore, and my brain is already reeling from the paradox, there was no inflation in price! Even though the price went up! And the explanation for this seeming impossibility is that you only paid more for the extra quality, sort of like paying $600 more for a car with a better stereo! But if you bring up the point that this is a really stupid thing to say because I never listen to the radio anyway because I am always too busy yelling at the other drivers on the road and criticizing their stupid lack of driving skills, and if I had the radio on, then I couldnīt hear their stupid replies (although I can always see their rude hand gestures, sometimes from the kids!), so a damn $600 dollar radio means nothing to me. But then they always "Say, what about the passengers? Wouldnīt they like to listen to something soothing instead of your stupid screaming all the time?" and I say "Screw them!"
But this is not about some damn radio, and why the car costs so much, which we wouldnīt even be looking at if the wife hadnīt decided that she is suddenly too classy and "uptown" to hitchhike anymore. No, this is about how, through the magic of mathematical wizardry and sheer nerve, then they can prove-- ya gotta love it! --that inflation was now, magically, zero! Zero percent inflation! Nirvana! Utopia! Economic perfection! Then (and this is the best part because the media, and the stock shills, and the bond shills, and the real estate shills all really eat this stuff up), and after you adjust GDP for inflation, you still had growth in GDP!
Of course, I gotta come home and listen to the wife moaning about the high cost of widgets, and then I politely tell her "You forgot to adjust for quality, you stupid woman! After you adjust for quality, they are NOT higher in price! Donīt you know any of this stuff, ya old bag?"
John Ing, who wrote The Debt Trap" on SafeHaven.com, says "Excessive spending and borrowing, sustained by cheap interest rates, has kept the US economy afloat. Despite six rate hikes, real interest rates remain at their lowest in 15 years." Now, we all know that the real interest rates are those that subtract inflation from the nominal (advertised) interest rate. And if inflation keeps rising (like it should), then no matter HOW high interest rates get, they will keep being negative! Interest rates of 20% can still be negative, if inflation is running at 21%!
From Richard Russell, of the Dow Theory Letter, we get a great Greenspan analogy. "By refusing to accept a recession following the market peak at 2000, Greenspan has now created a dangerous debt-monster. I liken the situation to a man in a burning building who refuses to jump out of the first-story window. In an attempt to escape the fire, the man climbs to the second story, the third, the fourth and the fifth. But the poor guy is still faced with the same problem -- how to get out of the building. Now heīs got to jump from the fifth story instead of the first. So thanks, Mr. Greenspan, youīve really done us all a great favor. Now see if you can just get us out of the building without our breaking both legs and maybe our neck."
One of the more interesting things this week is finding out that not everybody is as stupid as we are. From Business Wire we read "A study published by a research foundation in Dubai has endorsed the gold Anti-Trust Action Committeeīs findings that Western central and commercial banks have rigged the gold market, but have much less gold than they claim to have, and so are vulnerable to rising demand for gold." Well, nothing new so far, as I am the first to see conspiracies in everything, especially concerning money.
No, the interesting part comes next, "The study recommends that the oil-producing countries of the Middle East diversify their ever-depreciating U.S. dollar holdings into gold."
The study was entitled "The Role of gold in the Unified Gulf Cooperation Council Currency," and was written by for the Gulf Research Center by Eckart Woertz, who is vice president of CFC Securities in Dubai. The study concludes: "The paper dollar standard is a dead man walking. Debt, accumulated over the recent decades, is too high to be effectively repaid. It will either default or be inflated to such an extent that it will not īhurtī to pay it back. Therefore, the accrued imbalances in global finance and the inherent weakness of worldwide growth models that rely on a continuance of U.S. deficit spending are likely to usher in a serious crisis of currency systems in coming years."
Then he gets to the reason why he is recommending gold in the first place, and why The Mogambo is always screeching the same thing whenever he gets the chance, and why the Founding Fathers wrote into the Constitution that money shall only be made of precious metals. "gold will be a suitable means of asset protection and ultimate payment in such a scenario. It will preserve the wealth of individuals and central banks alike and will ensure important maneuverability for the latter."
The author sounds just like The Mogambo, but without the usual litany of obscenities or actual gunfire, when he says, "The Middle Eastīs oil-producing countries are especially obliged to heed the Gulf Research Centerīs study because their economies are based on a wasting asset, oil, whose depletion will leave them with little more than sand if the payment they receive is substantially depreciated or defaulted upon. In exchanging a real asset for paper assets that represent only unpayable debts, oil-producing countries are at imminent risk of massive expropriation."
They now have oil and sand, and when the oil is gone they are going to be left with sand and paper dollars, which, in buying power, will be practically worthless? Hahaha! Chumps!
To show you why Venezuela never won any prizes for economics, consider that Patrick Markey from Reuters writes (from Caracas, so the news canīt be fresher than THAT), writes "Venezuela on Thursday devalued its bolivar currency by 10.7 percent to take advantage of high oil prices and generate more revenue from petroleum sales to bolster its finances for the year." Huh? The buying power of the currency is devalued by almost 11% because, and you can tell by the way my voice is now a high-pitched squeal that makes the dog uncomfortable, that this is too, too, TOO weird. They get more money (measured in sheer wads of currency), but having the same buying power? Whatīs the point? And where are all of the Venezuelan economists standing with The Mogambo outside, chanting "No! No! The Mogambo says no!" over and over until the words lose all meaning?
The adjustment of the fixed exchange rate is 2,150 bolivars to the dollar, up from 1,920 bolivars. One minute I can get a Venezuelan hamburger for 1,920 bolivars, and the next minute I can get the same hamburger for 2,150 bolivars? On the other hand, and this is your Mogambo Travel Tip Of The Week (MTTOTW), if you want to go down to Venezuela and pester the hootchie-coochie dancers and act like a degenerate deviant pervert like The Mogambo, then this is the perfect time to do it, as your money will go a long way, until prices catch up to the increase in the money supply, and then the poor will rise in anger because they canīt afford to buy food anymore and the streets will run with blood, which really has a chilling effect on hootchie-cootchie dancers. So, like I said, time is running out.
US Senator Harry Reid is reported to have said, "Iīm not a big Greenspan fan. I voted against him two times. I think heīs one of the biggest political hacks we have in Washington." Hahahaha! Well said! Even though I knew he was an economics hack, I did not realize he was also a political hack, too! A double threat!
My sentiments on removing the ceiling from wages subject to Social Security and Medicare surtaxes drew the predicable response from high-wage earners (Youīre an idiot, Mogambo!"), but (and this is another case of "The dog that didnīt bark" that made Sherlock Holmes so damn famous but it never does anything for me), I received no hate mail from low-wage earners, who, I guess, would have said things like "Stop making the high-wage people pay the same percentage tax on their wages as we do! It is not fair that that rich pay the same 15.3% of wages as we do! They should pay less! And if they start to complain, like we do, īHey! This is a hell of a bite out of my check every freaking week, and liquor is getting pretty expensive, and if you think I am going to, cold sober, face my horrid little family and my horrid neighbors and my whole horrid life, then you donīt know the Mogambo!ī And the rich are far too busy and important to have to complain to their Congressperson about how it is so hard to make ends meet and how they ought to focus their damn attention on the Federal Reserve to make them stop creating so much money and credit that always shows up in higher prices!" Well, to be fair, Iīm not sure that the low-wage earners say that, but they should!
But since we are talking about Social Security, here is my New Mogambo Retirement Plan (NMRP). Since Social Security is a scheme to tax our children, then all you gotta do is, as they say, "think outside the box"! Suppose you need, oh, say, $60,000 a year to fund your retirement, including your plan to take several trips a year to the United Nations building and scream at them "I hate all of you!" Now, showing off with my awesome calculator skills ("Watch me cipher, Uncle Jed!") if you could get $2,000 a year from 30 people, youīd have the whole $60,000, right? Now, notice how every morning there are groups of damn kids, which we are going to tax one day anyway, standing at street corners all over the damn place, waiting for their school bus to come and pick them up so that they can waste their time and my tax dollars by getting a third-rate education that teaches them to be government-obeying robots.
Now, I think you will agree with me that it wonīt take many groups of these kids to make up your 30. So merely go up to 30 them, and hand each one of them their four Mogambo Remittance Vouchers (MRV), so that at the end of the quarter they have to each send you $500! See how easy this is?
I mean, they can move back the date at which we can collect Social Security benefits, requiring us to retire later. So why canīt I move up the date at which the kids pay Mogambo Retirement Taxes (MRT)? And it goes directly to the recipient (me) cutting out all kinds of middlemen, thus achieving complete value for your money! And yet, even when I explain it to them, they all look at me like IīVE done something wrong!
The Bureau of Labor Statistics announced 262,000 new jobs in February, although the unemployment rate edged up to 5.4%, percent. Paradoxical, I know, but that is the way of modern statistics.
George Ure of the UrbanSurvival.com also noted that "Hours worked in manufacturing jobs declined. Weekly earnings were unchanged." And then he added, to save me the trouble of mentioning it,"youīll notice that they didnīt keep up with inflation." The actual BLS quote is "Over the year, average hourly earnings grew by 2.5 percent and average weekly earnings increased by 2.2" Which is, if you have been watching, less than the increases in prices that you pay for all kinds of stuff.
Safehaven.com is another bunch of savvy dudes who also looked at the payroll numbers at the BLS site, and noticed that, "The March 2004 total nonfarm payroll employment estimate was revised upward by approximately 203,000 or 0.2 percent." Their reaction went like this: "So folks, on my planet we back 186,000 out of the 262,000 published number and we now have a grand total of 76,000 new jobs. But we are not done yet. The BLS uses another hedonic measure called the birth/death model. As you can see here, an additional 100,000 jobs were added to the headline number published."
Now, if you are like me, all these numbers are making your head swim and you are looking at your drink and wondering if somebody put poison in it. But we are spared both the onerous task of re-reading the passage and sending the drink out for analysis, and they handily summarize as "So backing this number out of 76k and we actually lost 24,000 jobs without the use of hedonics." Hahahaha! Jobs were lost!
None of this has escaped the attention of Frank Barbera, in an essay on Financial Sense Online website, entitled "Stagflationary Collapse: Prelude to īThe Greater Inflationī " He writes, "Few economic observers note the continued shrinkage in the Labor Force Participation rate, which now ratchets down to a 17 year low, as more and more workers simply give up looking for jobs. Never before in Americaīs history has an economic recovery unfolded against the backdrop of a shrinking labor force." Yeah, and never before in American history is it possible for so many to live without a job! Hell, I and most of the people I know have a hard enough time getting along WITH jobs, mostly because our wives want stupid things like curtains and dishes and glasses, even though, for instance, when you buy Big Gulp at a convenience store, you get a perfectly good drinking glass in the bargain! But I donīt know who these guys are, but I am pretty sure that they are 1) a bunch of geniuses and 2) single!
But he doesnīt want to talk about how he and I are a couple of first-class doofuses, working away at our boring little jobs, like some tragic ants toiling anonymously in some grubby ant hill. Ignoring me, he goes on say "Tragically, few people seem to comprehend the altered nature of government statistics, wherein unemployed and under-utilized workers are no longer counted in the unemployment rate, which, in reality is much higher than the widely touted 5.2%. In fact, unknown to most, the īunofficialī unemployment rate stands closer to the rate seen in major European countries such as Germany and France, between 9% and 10%."
I was driving my wife to the airport and we were talking about the housing market, and she says how she heard on All Things Considered, and I quote, I think, "They said that the middle class is stuck in the middle, as housing is too expensive on both coasts." Hahaha! Middle class in the middle! Hahaha!
Then I told her how most mortgages are now adjustable-rate, and how a big part of total mortgages are for interest-only mortgages, and how this seems so preposterous, and then we laughed some more--- hahahaha! --and then she said "Wipe off your chin, stupid" as I always get spittle on my chin when I laugh, and so I wipe it on my sleeve, which was harder than it looks because it was a short-sleeve shirt, and then sheīs yelling "Not on your sleeve, you idiot!" conveniently forgetting to compliment me on my lithe agility, worthy of a circus acrobat half my age, and how I twisted my head all around like that, WHILE driving, WHILE laughing, WHILE wiping my chin. But do you think I get any credit? No! I just canīt win around here!
Anyway, this brought to mind that Thomas Jefferson quote about how if we are so stupid as to have a central bank and a fiat currency and astonishing levels of fractional reserve banking, then we would end up as slaves on our own continent. So, and here is how Jefferson is going to be proven right; the dollar sinks so low that Chinese guys and Japanese guys and Indian guys all find that the price of land in the US is cheap, when computed back into their own currency. So they start buying houses here, and then their governments (who hold a lot of US debt and so can extort "favors" from Congress), start coming over here on special visas and running their businesses via the Internet and hiring guys like you and me to clean their pools and shine their cars. And the reason that we take these stupid low-paying jobs is that the price of oil, in dollars, is going up and up, and chicks donīt like guys who donīt have cars. And that means gas, and that means that $80 per barrel oil is real important to me, and that is why I was particularly attuned to the comment that somebody at OPEC or something said was reasonable to expect oil at $80 a barrel within two years. And using the postulate that "things proceed apace" it is reasonable to expect during that time the price of oil will NOT stay at current levels and then, on the stroke of midnight two years from now, jump to $80 a barrel. No siree, young grasshopper! In fact, if you set your alarm go "beep!" exactly two years from now, you will be able get up from a long, long nap, and go outside, and opening your bloodshot eyes to take a look around, look backward through time! And then you will notice that, while oil is now $80 a barrel, it was $75 a barrel last month, and it was $70 a barrel for a few months before that, and it was $65 a barrel for quite awhile before that, and it was $60 a barrel for a long time. In short, gas got pricier and pricier the whole freaking time.
But the housing bubble gets worse than that, as from the DailyReckoning.com we get the news "Friends are teaming up to buy houses - they have become too expensive for a single couple to afford on its own." Fabulous. Now that housing and merely living has gotten so expensive that grown children are still living at home, Americaīs future has two families living in one house, and now there are TWICE as many people screaming at me to please get out of the bathroom, which is stupid because this is the one damn room in the whole house where I can get away from those damn people! Why do they think I am in here, to actually go to the bathroom? When I can just as well go behind those bushes in the backyard as I usually do?
But the problem is not confined to America, as we learn, when we read on, that "But the phenomenon is not limited to America. Real estate bubbles have been spotted all over the world. And money supplies are bubbling up as well - particularly in Asia." Terrific. Not only are those dumb foreigners doing that same silly thing as we, when they could be practicing their English so that when they talk we wouldnīt say "Ha! They speak with funny accents!", but they donīt even have any illegal Mexicans immigrants to do the lawn work and watch our kids and work for coolie wages and thus keep those labor costs down so that we can buy stuff cheap. I mean, what are they thinking about?
But this shows, and notice how this again proves that all things are connected to all things, and this is especially so for how money things are connected to all money things, how the Federal Reserve, acting like the profligate morons that they are, has produced a glut of money all over the world, which has to go somewhere or it wouldnīt have gotten borrowed to start with. And when more money starts chasing a fixed basket of goods, then prices go up. Itīs as simple as that!
The Washington Times article entitled "Watch Your Wallet" by Bill Bergman ought to give you something to think about if you are thinking about having money during your retirement. They write "The Consumer Price Index (CPI) has now gone up every year since 1955. Last year, it rose ījustī 3.3 percent, following a 1.9 percent increase in 2003. During the past 15 years (1990-2004), the CPI has increased 51 percent."
Up close and personal, they offer the analogy that "The best data available indicate a family earning $50,000 in 1990 would have had to earn about $72,250 last year to maintain its 1990 standard of living. Thatīs the cost of inflation."
I bring this up because that precious little financial plan prepared by your darling little mutual fund salesman always assumes that inflation goes to zero at the moment you retire! Hahahaha! The reality is that, if the inflationary idiocy of the last fifteen years continues when you retire, whatever stash of money you have will lose half its buying power in 15 lousy years!
I can see that you are not convinced, and that maybe the inflation of the last 15 years is an aberration of some kind. My Mogambo Mind (MM) starts screaming "Not so!" But before I can get the words out of my mouth, Mr. Bergman shoves me away from the microphone and says to the class, "Since abandonment of the domestic īgold standardī in 1933 and the subsequent official suspension of gold redeemability in 1971, the CPI has moved in one direction only: up, more than 450 percent since 1971." That comes out to "only" 4.5% a year.
And speaking of inflation, the CRB Index is the highest since January 1981. As Reuters comments, "The index gained 7.1 percent in February, the most in any month since August 1983." Seven percent in one freaking month? Yow! And gas is back over two bucks a gallon? Double yow!
I saw Ted Kennedy on C-Span arguing about the minimum wage and how this is so vital, because people cannot survive on minimum wage. Then I got to see John Sununu informing that Kennedy butthead ("Yay, John!") that raising the minimum wage prices low-wage workers out of the marketplace. He did not even mention that increased labor costs drive up prices because the employer has to maintain his profitability, and if profitability does not increase, then this is one MORE damn job that The Mogambo got fired from, so you can bet your sweet butt that prices are going to increase, and pronto. And since the working poor pay prices, too, the working poor wind up back where they started; their paychecks are not enough to live on anymore because prices rose higher than their incomes.
Senator Sununu did not ask the jackass from Massachusetts why these people are so poor, nor did he ask the people of Massachusetts why they keep electing this laughable moron. But the poor are poor because prices are high. And why are prices high? Because the damnable Federal Reserve created so much money and credit that all that wonderful, magical money chasing the same basket of goods and services will bid up prices until all that money is incorporated into prices. Ugh.
**** The Mogambo Sez: The action in gold is impressive, and I am sure that you are glad you got some, and gold mining stocks, too. And oil is knocking at the $55 a barrel level, too, and I am likewise sure that you are glad you got some of those stocks. And if you are not glad, then it is not too late to get some, and then one day YOU will be glad, too.
[link to www.321gold.com] |
| Anonymous Coward
User ID: 11307
3/21/2005 5:23 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
."And how do you miraculously get low interest rates at a time of increasing demand for large amounts of credit, credit in such abundance that bubbles are created? You use a central bank that is under the control of guys who actually believe, and I know that you find this as hard to understand as I do, that while our problems are caused by too much of everything and insufficient capacity to pay for everything, necessitating debt, that the solution to the problem of too much debt is more of the same freaking thing! This is insane! Borrowing your way out of debt? Actually going into more debt as a cure to relieve the miseries of too much debt? This is beyond insane! The next thing I know I am running down the street, screaming like a madman, "Weīre doomed!" |
| .
User ID: 11307
3/21/2005 5:28 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Dear Diary, Today the Mogambo Says...
March 17, 2005
Richard Daughty ...the angriest guy in economics
The Mogambo Guru
321.gold
A lot of things scare me nowadays, and the two biggest things I fear are 1) that my wife wants to go on the Jerry Springer show to tell me something, and 2) that the US Treasury issued $49 billion in new debt, which they did, in ten lousy days. Annualized, this rate of issuance runs to $1.78 trillion, which is, by strange coincidence, the exact amount of money it would take to buy enough tranquilizers to make me NOT scared of this, or hearing Jerry Springer say to me, "Come on out, Mogambo, and hear what your wife wants to tell you, you worthless little bastard!" and as I walk to the stage I can hear the audience chanting "Bas-tard! Bas-tard!" and I will instinctively know that THIS is not going to be good, either.
Foreign banks only plopped $1.6 billion into their custody holdings at the Fed. This may have something to do with how they want to "diversify" their holding of foreign reserves, as many of them have hinted in the last few weeks. This means that they do not want to hold more dollars, but what else is there? The world is awash in the things, they are accumulating more of them at the rate of $660 billion a year in trade deficits, and there are more dollars and dollar-denominated assets sloshing around the globe than practically all the other currencies combined! They want to diversify? Into what? And how?
But when you take a look at the chart of the dollar, one is hard-pressed to come up with a bullish case, and that means that the value of the dollar will continue to go down, which means that oil will continue to go up, which means that oil equities are going to go up, and that means that (if you believe in cost-push inflation) that the price of everything is going to go up because the cost of energy has gone up, and that means that gold should go up, and silver should go up, and uranium should go up as one country after another looks at their predicted energy consumption and discovers that only nuclear power has the necessary most-bang-for-the-buck to even try and pull it off.
For the bulls, the bad news is that Total Fed Credit, that original source of magical money-from-thin-air, is down by $7.2 billion this week. The amount of credit being created by the Fed is surprisingly muted here lately. If this keeps up, you can kiss the stock market and capital gains goodbye, as an economy as bizarre, as large, as expensive, as government-centered, and as malignant as this one cannot exist without more and more money being created all the time, and at ever-greater rates. So this change in credit-creation is so potentially important that you might want to make a note of this in your diaries, "Dear Diary, Today The Mogambo says to keep an eye on Total Fed Credit, and if it does not start shooting to the moon soon, then we can all kiss our butts goodbye. P.S. I saw David in the hallway at school today. He is so cute!!!!! I hope he asks me to the prom!!!!!"
Perhaps this "cute David" thing is what alarms Jim Shepherd, of the Shepherd Investment Strategist. Or maybe it is the strange goings-on with Fed Credit. I donīt know. But something sure has him spooked, as he has a new flier out that says, simply, "Huge Crash Near." I could not have said it better!
- This is a bad time of year for me, as my infrequent big bills all hit at once, and when combined with the monthly bills, hits me like a sledgehammer between the eyes, Well, auto insurance; up. Health insurance; up. Monthly bills; up. Food; up. To the sharp-eyed detectives among us, after a while you recognize a pattern. And for those of us who are not so gifted as to be able to recognize patterns, here is the answer. The pattern is that things are going up in price.
And, in fact, they have been going up in price for quite awhile now. Years, in fact. And every time you pay the higher prices, you vaguely recognize that things are a little more expensive these days. But you chuckle knowingly to yourself-- heh heh -- and accept that "a little the inflation is one of those things that you canīt do anything about." And month after month, prices keep going up some more. More and more. Always more and more! And then one day, perhaps a day like today, and in fact a day that was EXACTLY like today, because it WAS today, I went over the tipping point, and all the years and years of prices hitting five, ten, fifteen percent per year increases has finally, one day, produced a number on a bill that is so large that instead of writing the check, I rush to the window, fling it open, and shout "Iīm mad as hell and Iīm not going to take it anymore!" And then everybody realizes that I stole that line from the Howard Beale character in the movie "Network" and that proves that everyone was right, and I AM incapable of demonstrating originality or any real creativity, and thus I am actually handicapped by more than just looking funny and smelling bad . Iīm creativity impaired, too! Iīm a Creativity-Impaired American! But when you go down to try and get one of those fabulous Handicapped Parking stickers for your car so that you can get one of those choice parking spots, they laugh at you and say "no!" Just like that! No!
Then if you ask them did they know about how the Federal Reserve is creating more and more money and credit, and how the government is going more and more into debt, and how this is going to create an inflationary firestorm that will more than decimate the worldīs wealth, they admit, "No, we did not know that" and so I shout "Ha! That proves you are imbeciles!" which was, apparently, the wrong thing to say because somebody called security and things got, for me, real ugly, and real fast. So this proves that their reaction to inflation was anger. Anger and uniformed security personnel. Well, their whole reaction to inflation was anger and uniformed security personnel and pepper spray.
But pepper spray making my eyes water and forcing me to gasp for breath does not change the fact that the universal reaction to inflation is rage AND outrage, which both contain the word "rage", so right off the bat you get a good idea of the tenor of the situation.
You watch, helpless, as prices rise faster than your after-tax, after-benefits, after-deductions, net net net take-home wages, that pitiful little bit that is left after everybody has had their chance to chew the guts out of your paycheck, like ravenous vultures. This brings up your homework assignment for tonight. I want you to perform a spreadsheet analysis that assumes that your income is slashed by five percent. You must now make cuts in discretionary spending to balance your budget. Detail these cuts in spending to achieve a balanced budget under the new paradigm of lower purchasing power.
Then, for the next year, take another five percent loss of income. Again detail the cuts to achieve a balanced budget. Then the third year, take another five percent loss of income. Detail those spending cuts, too. And the fourth and the fifth and the sixth year do the same thing. And then you notice, which I call The Mogambo Moment Of Enlightenment (TMMOE), that the price of inflation is measured in the aggregate price of happiness lost. And the sheer tonnage of lost happiness accumulates, year after year, as prices rise year after year, and it adds up and up, and pretty soon you realize that life ainīt fun anymore, and all your money goes to pay for necessities, and they, as I said, ainīt fun.
- "Europeīs House Prices Create a Puzzle for the ECB" is an article by Matthew Lynn. He writes, "Three countries recorded house-price increases of at least 10 percent in 2004: France, Spain and Ireland. Several others showed appreciation that could be described as robust by any historical standards: In Belgium, Denmark, Sweden, Finland, Portugal and Italy, property prices rose 5 percent to 8 percent. There is no mystery about what is driving house prices up across most of Europe: the lowest interest rates in six decades."
And how do you miraculously get low interest rates at a time of increasing demand for large amounts of credit, credit in such abundance that bubbles are created? You use a central bank that is under the control of guys who actually believe, and I know that you find this as hard to understand as I do, that while our problems are caused by too much of everything and insufficient capacity to pay for everything, necessitating debt, that the solution to the problem of too much debt is more of the same freaking thing! This is insane! Borrowing your way out of debt? Actually going into more debt as a cure to relieve the miseries of too much debt? This is beyond insane! The next thing I know I am running down the street, screaming like a madman, "Weīre doomed!"
These idiots in charge of the central banks acknowledge that every government in all of history, in every corner of the globe, all wanted to find a way to spend more money. Everybody wants to spend as much money as they want. There has never been a government that wanted to spend less money. But they all succumbed to the siren call of deficit-spending to one degree or another, and after awhile they suffered for it. And then, in the past, as their desperation mounted, countries and their indebted monarchs tried spinning gold out of hay, raising geese that could lay golden eggs, capturing unicorns, experimenting with alchemy to turn lead into gold, etc. They all failed, and in the end the governments ultimately turned to robbing somebody, either their own citizens or the citizens of other countries, to getwhat they needed.
The crucial difference is that today, with fiat un-backed currencies, central bankers and equally low-IQ governments actually believe that the remedy for too much money and credit and debt, is MORE money and credit and debt! Look! Look at me! Look at how my eyes are open wide in stunned disbelief as my brain refuses to comprehend that grown adults, whose educational specialty is actually economics, could think such lunacy! They believe that there is, literally, no end to the amount of debt you can owe? And there is no price to be paid for it? Wow!
- An interesting thing came across my desk, entitled, "Last Will and Testament Of Jesse Franklin Cornish." I excitedly read the thing to see if he left The Mogambo a few bucks, but, alas, he did not. But he did say a lot of the things that I routinely screech about, and so, without further ado, here are some excerpted words of wisdom from a guy, presumably, on his deathbed. "My generation found a way to lead the good life by borrowing from yours. We have lived out the last thirty years in a credit īdream worldī of luxury and affluence and monetized the massive debt by offering the next two generations as collateral. The material wealth I leave to you will not even begin to pay your share of the bill we ran up during your lifetime and it will haunt you and cause you to ask, īHow could my dad do this?ī
"Please know it was not what I did, but rather, what I failed to do. I just didnīt bother to get personally involved in the affairs of government at any level. I filled my days to earn large sums of dollars and spent too may nights celebrating when I did. Like millions of others, I stood by as inept elected officials bought votes with your money and changed America from a capitalistic, free enterprise nation to a land ever-approaching mandated socialism." But this is nothing new, beyond giving The Mogambo an openingto give a heap of contempt and disrespect on socialist, communist, collectivist, statist stupid bastards in government (especially the ones from Massachusetts).
But then he goes on to say that if you think that you are going to "invest" over a long period of time for the purpose of showing gains and accumulating wealth, you are wrong wrong wrong. He correctly says "The conventional investments I planned for your future failed the break-even point years ago. Savings, common stocks, and money funds were tied to the shrinking dollar and eroded away with inflation and taxes, just as they will when this economy turns around to monetize the most massive debt in history."
This "monetizing" thing he refers to is where the government creates money and buys the debt with the money, and then it takes the debt down to the basement and throws it in the furnace, and then they all shake hands and congratulate themselves on how smart they are. Net result; less debt, but lots more money supply, which will eventually find its way into prices, and prices will unfortunately rise until all of the money is used in paying prices.
He goes on to write to his children, "Over the past 15 years, most of my income was taken away in taxes to finance the enormous bureaucracy that now has a strangle hold on every aspect of our economy." He is right there, too! While only 22 million people work directly for governments, there are about three times that many people whose incomes come from performing activities under government contracts. Ergo, about half of the working people in America get paid by a government!
And if you really want to know what I think, I think that if there is a multiplier for this kind of thing, and if it is like all multipliers, then it is about 5, and thus government money pays for 110 million jobs, or 79% of the whole freaking job market!
Already, over 45% of all spending is by government, and, not surprisingly, about 50% of income is paid to governments, in the form of taxes or fees, according to mwHodges.com and his Grandfather Report.
And I saw another article, this one by Helen Huntley, who is the Times Personal Finance Editor for my hometown Leftist rag of a newspaper, the St. Petersburg Times, about how different asset classes perform over time. Her article in last Sundayīs paper was entitled "Despite history, stocks are no sure bet" which made me sit up and go "Huh? Here is a newspaper writer who is not perpetually optimistic on stocks? Wow! How refreshingly novel!" But in the articleīs sub-head, she reveals herself as she writes "Over the long run, stocks have produced a 7.1% return after inflation. But there is no crystal ball - or guarantee." Her table shows that stocks return 10.43% annually, calculated before inflation? Wow! Her bond return was, before inflation, 5.44%? Hahahaha! What world is she living in? What is the annual return of stocks since the bubbles burst in 2000? When is the last time you saw any bond in America yielding 5.44%? Hahahaha! 5.44%!
I consider these kinds of returns as, searching for the perfect phrase, wildly optimistic. Even if you accept at face value these kinds of incredible gains, most of that "gain" contains the anomaly of the explosive, insane run-up in stock prices since 1982, when tax-advantaged retirement plans were being authorized by Congress, and then in the 90īs when everybody really started getting in on the bubble.
Donīt believe me? Then take a look at stock prices for the whole century, and notice how tprices only went ballistic in the last couple of decades or so. If the last two decades of the SP500 had kept on the same trend with the first 80 years, then the annual nominal returns would have been down in the 5% range or less. And after deducting for inflation and taxes on the gains, you would have been freaking lucky to have broken even, because most people would have LOST real, inflation-adjusted buying power!Which only proves that The Mogambo was right all along: Most people will not increase their wealth in the stock market, as it is impossible. At best, the majority will break even, in terms of buying power. Some will lose a lot. In reality, most will lose some, and many will lose a lot.
And how about bonds? Forget it. As for the near term concerning bonds, I will turn the podium over to Martin Weiss of the Safe Money Report, who goes out on a big limb and declares "Greenspan Is Between A Rock And A Hard Place - No Matter What He Decides Next Week, Bonds Will Plunge." Both a time and a direction! Gutsy call!
- Thanks to Richard Schlessel, I now have a silver round ounce of pure silver that has a picture of Alan Greenspan engraved on it, encircled by the phrase "The Mogambo was right! I am an idiot!" Hahaha! On the reverse side, it has the phrase "We donīt need no stinkinī Federal Reserve Notes." Hahahaha!
- Tom Dyson of Daily Reckoning has taken a look at a lot of this stuff, and got to wondering about the fundamentals of stock valuation. "We grabbed A Modern Approach to Graham and Dodd Investing by Thomas P. Au. Itīs not hard to argue that equities are fundamentally overvalued. On almost any measure ˇ dividend yield, p/e ratio, discounted cash flow valuations ˇ the major indices are massively overvalued in relation to historical precedents.
"With the Dow at 10,787 in 2000, the author calculated IV to be 3,036, valuing the Dow at a 255% premium to its underlying investment value. The message is simple. A simple reversion to fair value would cut the Dow in half, and then some. It may seem unlikely, but who are we to argue with history...?"
Yow! No wonder Bush is so hot to get Social Security contributions into the stock and market! A big shot of fresh money, especially in a constant, never-ending stream, can do wonders to stock prices. Well, in the short run, anyway. And sometimes in the intermediate run, too. But never in the long run. And the proof is simplicity itself: If it was possible, someone would have succeeded at it before now.
And let me assure you that even if it DOES succeed in the short run, there is nothing in their precious little theory that says that prices will not increase, and it completely ignores the stark, ugly reality that prices WILL increase faster than incomes.
And if you want a REAL important Mogambo lesson in economics (RIMLIE), it is that when prices are increasing faster than incomes, then standards of living have to go down, and when standards of living go down far enough, people get real grumpy.
So no wonder Bush is trying so hard to get Social Security money into the stock market indeed! But I can tell you, with all the steely-eyed conviction that The Mogambo can muster, that the Congress will pass something that will have the effect of forcing taxpayer money into the stock market, and into the bond market, too. And I loudly say, with the entire weight of economic history of the entire world on my side, that I know this because the government, our government, like all governments, will stop at nothing. Absolutely nothing.
And while even their own precious theory says nothing about the ruinous resultant inflation, the government actually lies to you about how bad inflation is! This corruption is part of the "price" that one (meaning you) must pay for "flexibility" in the conduct of monetary policy, which is the catchphrase mantra that they use to justify their idiocy. The Federal Reserve, which is just a damn private banking corporation, has so abused its power that that the dollar has suffered a 98% loss of value since they took over in 1913. And now we are sitting on the biggest set of not one (stock market), or two (bond market) or three (real estate market) or four (size of government) of the most egregiously overvalued bubbles in history, but we have them all at the same time! Gaaahhhh!
My voice now probably sounds strange to you, but that can be easily explained, as I am now in lockdown mode here in the Mogambo Impregnable Fortress Of Fear (MIFOF), as a strange chill came over me when my tiny little mind absorbed the enormity of what I just said.
And here is that glorious moment in Mogambo history (GMIMH) where theory meets practice. My prices are rising faster than my income, and I am real, real grumpy.
And if you want a real- world example of how things really work, ask the pretty little secretary who is behind on the rent for a third month in a row, about the remedies that the slimy little pervert of a landlord suggests. For now, the landlord is satisfied with the transfer of computer technology and weapons. And fairly soon the pretty little secretary starts relying on bigger and bigger transfers of technology and weapons, and keeps spending the rent money.
Then, one day, the lecherous landlord has all the computers and technology and weapons that he needs, and starts casting his lecherous eye over her willowy figure, outlined in that flimsy negligee by the full moon shining through the open windows. He was licking his lips and wringing his hands in eager anticipation of the coming debauchery, whereupon Lance, home from the Marines, bursts into the room, picks me up by the seat of my pants and throws me out of the window! The same window, mind you, that just a few sentences ago I was reveling in the radiance! Like this is my fault or something!
- On the front page of the Wall Street Journal last Wednesday in the Business and Finance section, we read that Fannie Mae has to fix certain "deficiencies" in their accounting practices, including, and I love this, "The new requirements include policies banning falsified signatures on journal entries and limiting employeeīs ability to alter databases."
My Mogambo mind immediately looks to turn this to advantage! I say, in that manly way that I have, "Hey! Look! You are allowed to falsify signatures until you get caught, and then they merely say you have to write a policy that you canīt do that anymore! And you can alter the data, too! And when you get caught, they merely tell you that you have to write a policy that you canīt do that anymore!"
- The government of France recently issued 50-year debt. Fifty years! Some mental defective bought that debt, and has locked in some of the lowest yields in history for the next fifty freaking years! Naturally, Germany and the UK are looking at the free gift, and you can bet your sweet butt that all the rest of them are looking at that, too, and saying "We can issue 50-year debt at yields that will certainly prove to be the low of the next fifty years? Wow! P.T. Barnum was right! There IS a sucker born every minute!" And then they will laugh.
- When Alan Greenspan took office in 1987, the national debt stood at $2.3 trillion. Now it is over $7.4 trillion. John Myers of Outstanding Investments never says it in so many words, but that is a LOT of money. But he does allow that "Currently Uncle Sam is carrying around a debt of $7.4 trillion. It is almost impossible to really understand just how big $7,400 billion is. But to put it into some perspective consider the following about Americaīs federal debt: It is twice the value of all the oil beneath the sands of Sandi Arabia. It is larger than the combined GDP of Germany, France, England and Canada. It is 15 times more than the value of all the gold that has ever been mined since the dawn of mankind."
This is all thanks for Alan Greenspan and the Federal Reserve. Bill Fleckenstein calls Alan Greenspan "The most incompetent and irresponsible Fed chairman in the history of the world." I say the same thing, only with more obscenities and at a higher volume.
- Michael Berry was looking at the price of silver, and he notes that "Historically, for hundreds of years, their prices traded in a tight band around 16 to 1 (16 pounces of silver for each ounce of gold). The current value of the ratio is 59.7." Mogambo note: This is one of those six-sigma events, probably having something to do wit the manipulation of the silver market as alleged by Ted Butler, and there is obviously going to be lots and lots of money made as the ratio corrects back to the mean. The only question is, when? I look at my watch. I look at what is happening. I look at silver. I look at my watch again. I donīt know when. But I keep looking at my watch, which is a clue to my gut feeling.
- Robert Prechter, of the Elliott Wave, notes that the housing bubble may be rolling over. "January brought the first wave of mark-downs. The median sale price on new U.S. homes plunged 13%, from $229,700 to $199,400. The decline is the largest one-month fall in the history of the data, which goes back to 1963. Total new home purchases dropped 9.2% from the level of December, while existing home sales were down 9.5%."
Even Alan Abelson, of the Up & Down Wall Street column in Barronīs, quotes Phillippa Dunne and Doug Henwood of the Liscio Report, who note that housing is slowing up here lately. "The construction sector may follow" they opine.
A look at bank portfolios of mortgages they hold, however, shows that they are still hitting new records, so the bubble may not quite be popped. But when prices are this high in relation to income growth and GDP growth, it doesnīt take an over-active imagination to see goblins in every shadow.
And it is not like the labor market is going to improve and give everybody a new, high-paying job. In fact, the wags at the DailyReckoning.com site looked at the employment numbers and wrote "The fastest growing categories are administration, health care, construction, real estate, and restaurants. Many of the new jobs, in other words, involve building houses for people and serving them dinner. Nearly all of them are related to consumption... and practically none of them help ease Americaīs trade deficit. Nor do they help Americans out of their holes of debt. Just the contrary - it is as if Americans had been put to work digging themselves deeper!" Hahahaha!
And how big is this hole that we are digging for ourselves? They go on to say "Total consumer credit in America is at 305% of GDP. A bigger hole has never been dug."
They note that today, Americans routinely spend 5% more than they make, as "That is the implication of a $600 billion current account deficit in a $12 trillion economy." This is also the number that Warren Buffet came up with.
And it is not just the crappy type of jobs and the level of debt. But worse, the purchasing power of the dollar is going down! The Daily Reckoning people also have a few choice words to say about that, too. "Americans are getting poorer. They donīt realize it. No newspaper tells them. No politician dares even to whisper the truth. No Fed economist proposes a remedy. Still, real wages are less today than they were a year ago... and no higher than they were at the bottom of the recession in November 2001. Worse, unmentioned in the īrealī calculation is the cost of housing."
- Marshall Auerback of Prudent Bear writes prophetically with, "Given the parlous state of Americaīs national finances, it is clear why Tokyo, with its huge repository of savings, is being brought in effectively to help underwrite this policy (although why the Japanese have gone along so compliantly, other than a longstanding historic rivalry with China, is less clear). With these 3 global behemoths engaged in an increasingly fraught competition over an increasingly scarce resource, it is clear that the global economy will pay a higher price for oil, not only in dollar terms, but also in blood for every additional gallon of oil which we seek to consume. The great game has truly begun."
- An essay posted at Speculative-Investor.com by Steven Saville opines that "we are now a few years into a secular bear market that will last at least 10 years and take the Dow/gold ratio back to near the bottom of its long-term channel." In fact, the chart suggests that the bulk of the downside in the Dow relative to gold is yet to come. This does not, of course, mean that the Dow will experience a large decline in nominal dollar terms, although the most likely way for the secular trend to reach its ultimate target would be via weakness in the Dow alongside strength in gold."
He figures we are now "a few years into a secular bear market that will last at least 10 years and take the Dow/gold ratio back to near the bottom of its long-term channel. In fact, the chart suggests that the bulk of the downside in the Dow relative to gold is yet to come. This does not, of course, mean that the Dow will experience a large decline in nominal dollar terms, although the most likely way for the secular trend to reach its ultimate target would be via weakness in the Dow alongside strength in gold."
Either way, gold goes up, and that is all you really need to know.
- The Fedīs Beige Book noted that inflation is still "well-behaved" and then, abruptly changing lanes without signaling, goes right on to say that manufacturers in a number of districts are "finding it increasingly easy to pass along price increases", including increasing costs of higher oil and other commodity prices. The Beige Book also noted that retailers say that while prices were "generally flat or up modestly", but that businesses are getting hit with "rising input costs", of which one is, of course, labor, and the report said that more and more businesses were, indeed, seeing "Sharp increases in benefit costs, particularly health insurance."
And with crude oil rising to over $55 a barrel and a gallon of gasoline hitting new highs, you will see more benign-sounding "rising input costs."
And it is not only other Americans who are noticing, as the Financial Times had an article actually entitled "US Industry Passing On Higher Costs" by Andrew Balls.
He says the same thing, and adds another complaint. "US manufacturers are finding it easier to pass on higher energy and other raw material costs to their customers, and companies are finding it harder to hire skilled workers, a Federal Reserve report said." Again with the education thing and how our American kids are the most ignorant, of all the developed countries!
- M.A. Nystrom at Financial Sense Online talks about, and this is my take on it, how the rich get richer and the poor get poorer. Which is bad enough, but there is another downside to that. "Since the rich save more money than the poor, the concentration of wealth in fewer hands increases savings and decreases consumption. As demand drops, and economic growth fails to keep pace with growth in the labor force, unemployment rises. But when wealth becomes concentrated, the number of less affluent people increases, as well as their borrowing needs. These less affluent people, who now make up the majority, have fewer assets and are thus less credit worthy. Even in such an environment, BANKS CANNOT AFFORD TO BE CHOOSY -- they must make loans in order to stay īcompetitiveī with their peers and simply to stay in business. As the concentration of wealth rises, the number of unhealthy banks with shaky loans also rises in a dangerous spiral, INCREASING THE POSSIBILITY OF SYSTEMIC FAILURE." Notice the use of capital letters!
- Now here is something REALLY spooky, especially if you are holding any US debt. The heads of the Risk Unit at Moodyīs Investor Services testified to the House Ways and Means Committee "What we have concluded at Moodyīs is that almost every country will default on its pensions. Including the U.S." This apparently was taken from a March 8 release entitled "What We Know Now".
Please notice that there is no mention of The Mogambo saying the same thing, which he has been, and you can bring in that surprised cashier at Kentucky Fried as a witness, who will verify, under oath, my claim. But you donīt see ME getting quoted in some fancy-schmancy testimony. Oh, noooOOooo! Or even treated with a little respect, as I am rudely shoved into position in the lineup, and bright, merciless lights are shone into my eyes, and I can hear some smarmy little policemen saying, "Now, maīam, look closely at these suspects, all of them probably guilty of something. Doesnīt number one, the one on the left, look exactly like the guy who was screaming into your face about monetary policy? Sure he does! That is the guy who was hitting you on the head with a loaf of French bread and bellowing about how the Federal Reserve is killing your money!"
It was at this moment that I leap forward and admit that it was I, The Mogambo, who was indeed whacking her over the head with the loaf of bread because she is an economics doofus, and she deserved to be punished for her inexcusable ignorance! But I say "I strongly object to being referred to as īnumber oneī, when I have a name, and that name is (pause for dramatic effect) The Mogambo!" A woman screams! Pandemonium erupts! People are shouting! Doors are slamming! Immediately, I reach for my sword so that I could carve the letter M on the wall ("The Mogambo was here!") and I noticed that I donīt have a sword, and I am trying to gouge an M in the wall with my shoe, and it is not working, and after awhile I get real tired, and then I quit and sit down, huffing and puffing, and the whole moment was ruined. So Iīm kind of bitter about that, too.
- The sun has changed its polarity, as it periodically does. The bad new is that the relationship between the sunīs polarity and the earthīs polarity is now altered. This is alarming to The Mogambo, who has seen far too much Discovery Channel, and Nova, and the History Channel, and who has also seen Star Wars, and there are lessons to be gleaned from it all. Synthesizing, these are ripples in the Force, and you will notice that when Jedi knights sensed distortions in the Force, they always took it seriously and got ready for battle.
Steve Quayle on his website had a report from the India Times, which said "The tectonic plate movements, especially under the oceans, have gone up by many times." They go on to say "It is evident that the tectonic movements have gone up by several folds in the last nine months." Furthermore, "Many researchers are now concerned about these developments. They are saying the probability of a mega or multiple mega volcanoes is very high now. According to some there is 74,000 year cycle of mega volcanoes and that is due in 2012."
In a possibly related story, George Ure of UrbanSurvival.com notes that "Barring a late season weather miracle, snowpack in the Pacific Northwest is running at around 4% of normal. Already, the Columbia River, source of both hydro power and irrigation water is far below normal levels. This means in all likelihood there will be very little - if any - northwest power to sell to hungry southwest states including California. There will also be a shortage of water for agriculture."
I bring these things up because I never see a documentary or movie on TV that shows a newspaper headline that says something like "Super-volcano to destroy world! Everyone is dying of thirst and hunger! Dow goes up!"
This is the kind of thing that produces stupefaction in The Mogambo, and I do not know what to say. By this point I am in total lockdown in the Mogambo Bunker, alarm systems set to "loud", locks set to "100% security", fire control systems set to the extreme position called "Hail of lead" and trigger sensitivity is set to "hair". I know that these cosmic changes are not a good things, but how much of a bad thing are they?
Some, like me, have postulated that this magnetic tug on the earthīs core is at the heart of the seeming increase in earthquakes and weather patterns, and some of us (me, again) use this as the basis of my latest "Repent, sinners! The end is near!" rant. And that postulate is now accepted as fact, now that Chaos Theory has shown that even the faintest flap of the wings of the most obscure butterfly in the most inaccessible region of an Amazon forest can tip the scales of probability as to whether it will rain in Chicago five days later. And when you have this gigantic flipping of the polarity of the sun, which is a million times bigger than the earth, so we are talking one big freaking butterfly effect! And this huge freaking butterfly effect is bigger than Mothra, and that damn Mothra was so big that Iīve seen movies where it almost ate Tokyo a few times, because even cannon fire just bounces off of it, and it could spew flames and laser beams out of its mouth, too! And now Iīm talking bigger and deadlier than THAT!
So it is a foregone conclusion, according to Chaos Theory, that SOMETHING will happen, and in all probability, a LOT of things will happen.
- From Reuters we read "The United States posted a record $113.94 billion budget deficit in February, above most Wall Street forecasts, as higher government receipts were not enough to cover a spending increase. The government took in $100.87 billion in February, nearly $9 billion more than a year ago, but outlays rose more than $26 billion, causing the budget gap to stretch."
As bad as that is, in Doug Nolandīs Credit Bubble Bulletin column on the Prudent Bear.com site he reports that "The Goldman Sachs Commodities index increased 2.3%, increasing year-to-date gains to 20.4%. Commodities price gains were broad-based, with the CRB index surging 4.1%. The CRB is up 12.2% already this year." This year? This year? This is only the middle of March, for crying out loud, which is far, far, farrrRRRrrrr too early to talk about things like 12% inflation "so far, this year"!
- I got an email joke entitled "Typical computer help center" showing a room full of computers and a monkey manning each work station, actually looking like they are working at being real on-line customer-support help.
And I think that this is a great moment in measuring how much a guy is underpaid or overpaid, and in fact I suggest that you refer to this as the Mogambo Monkey Measurement Metric (MMMM), which is a length of time it would take to train a monkey to do a job. For instance, you could easily train a monkey to do Alan Greenspanīs job as chairman of the Federal Reserve, as all he does is wave his hand in the air and create more money and credit, as if that is the answer to everything. Obviously, Alan Greenspan is grossly overpaid.
And I bring this up because I hear Disney is looking for a new CEO, and perhaps I could provide some guidance on proper compensation.
- Reader Carol F. has identified a new psychiatric disorder, this one "attention to deficits disorder -- the malady of paying no attention to serious, raging budget and trade deficits while claiming that all is well." Hahahaha!
- Speaking of inflation in commodities, Steve Sjuggerud reports one of those weird things that make your mind go "boing!" He writes, "A penny now costs two cents to produce!" Going back to the U.S. Mintīs last annual report, dated September 30, 2003, he notes that back then "It cost the U.S. government 3.8 cents to produce a nickel and 0.98 cents to produce a penny." So the government was still making money on making money, showing a small profit. But it may be too early to celebrate just yet, as he goes on to say "We havenīt heard from the Mint since then, but metals prices have nearly doubled. By my quick math, as of this morningīs metal prices, it would cost 1.7 cents to produce a penny and 7.2 cents to produce a nickel today" Hahahaha! It costs more than a nickel to make a nickel? And it costs more than a penny to make a penny? Hahahaha! Talk about your basic monetary mismanagement!
He suggests that we could go into business buying coins from the Mint at face value, melting them down, and selling the raw materials back to the Mint at a profit. "We buy freshly minted pennies and nickels for 1 cent and 5 cents respectively, melt them down, and then sell the metal back to the mint for 1.7 cents and 7 cents. Itīs the perfect business." Hahahaha! Yes, it is! And this is just ONE of the weird things that happens as inflation destroys the purchasing power of your money.
He admits that they would never let you get away with that. But he does ask a relevant question, as we watch the literal destruction of our money, "You do own gold coins by now, right?"
- I got suggestions that I ought to comment on the surprising way that the idea of Mexico adopting a silver coin has been making its way through the government. Relax and forget about it. There is no way in hell that a government or a central bank, especially a Mexican one, is going to willingly give up the power of creating money out of thin air or submit to the healthful, intelligent strictures of metallic money.
Ugh.
**** The Mogambo Sez: Chuck Prince, chief executive of Citigroup, said: "The possibility of a liquidity bubble around the world concerns me. A very cautionary thing is that it feels like the world is changing and traditional indices may not give a complete picture." To this I say, "Hahaha! Wrong-o!" This gives a very complete picture, as it is nothing more than the death scene played out in the last pages of the ABCT, (Austrian Business Cycle Theory), where the mal-investments paid for by the excess money and credit has to be reversed. Perhaps the picture would be more complete by the addition of a caption that reads "Weīre freaking doomed, you morons!"
[link to money.cnn.com] |
| .
User ID: 4114
3/25/2005 12:33 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
I Seem to be at a Loss for Words!
March 23, 2005
Richard Daughty
...the angriest guy in economics, The Mogambo Guru
321.gold
Total Fed Credit expanded by $7.8 billion last week, and after it gets through being multiplied by the fractional reserve banking system, another few jillions of dollars of potential money was created. Now all you gotta do is walk up and borrow some of it to make it into money!
Enrico Orlandini of the Lasco Report also has been thinking about this stuff, too, and has a new essay entitled "Panacea." He writes "Mr. Greenspan has printed more dollars than all the other Federal Reserve Chairmen put together. It also doesnīt quite capture the fact that the monetary growth seems to be gathering speed. For the week ending March 7, 2005, the M-3 increased another $31.5 billion and thatīs more than $160 billion since the last week in January. If this pace continues, we are on the road to a staggering trillion dollars plus growth in the money supply for 2005. Impressive to say the least!"
But as impressive as that it, life is not all cookies and chocolate milk. He also notes that history shows that "The implementation of paper money almost always begins with fiscal responsibility and good intentions, and it almost always ends in war and the collapse of social order." A relevant homily is that the road to hell is paved with good intentions.
"In conclusion," he says, "watch the money supply and look for larger and larger increases. And remember, you can print it but someone still has to want it. Every day there are less and less people willing to hold dollars. Iīm seeing a trend in Latin America that was unthinkable just a couple of years ago. Stores are refusing to take dollars and companies are now writing long term contracts in local currencies. Thatīs never happened before. How far have the Americans fallen? Not nearly as far as theyīre going to!"
As mad as that makes me, and as much as that scares me, and as much as that makes me write long, rambling hate-filled letters to the Federal Reserve about how they are suicidal idiots who are killing us all by destroying our money, I was not prepared for the how much Total Public Debt ballooned here lately. If you are a spineless coward like I am, then skip the rest of the MoGu and go have a chili dog, which would probably hit the spot right about now. But for the rest of you brave souls who laugh-- hahaha! --at danger, the numbers show that the Treasury and the spendthrift Bush White House and the moronic Congress have borrowed, in sixteen lousy days, $72 billion! Dollars! $72 billion dollars in sixteen days!
Now, let me get out that damn calculator and wipe the chili stains off the keyboard, and notice how my face is a study in concentration as I first enter amount of money recently borrowed, namely the $72 billion. The little screen on the calculator reads "72." So far, so good. Now, divide that by 16 days. With a flourish of calculator magic, the little screen blinks "4.5." Now, that doesnīt sound like much. And even when you put a dollar sign in front of it, making it $4.50, it still isnīt that much. A couple of chili dogs and a root beer, maybe a small fries, tops. But when you add "billion" to it, making it read $4.5 billion, suddenly we are talking about a LOT of money! Probably more than you make in a whole month, Iīm not sure, because numbers this big actually seem to fail to register with me. And when you are talking about $4.5 billion per freaking DAY, then you are talking big, BIG, BIIIGGG huge freaking sums of money! A number that is so high that I could actually pay off most of my bills and maybe have a few bucks left over, with which to buy something to eat. Chili dogs, maybe.
So now, if they are borrowing and spending $4.5 billion per day, how much is that per year? I leap up and shout "Is this going to be a problem where we multiply two numbers together?" and everyone agrees that it is, so I excitedly plead, "Let me try! Let me figure it out! I can do it!" And so, with trusty calculator in hand, I multiply $4.5 billion per day times 365 days a year. I punch the button. Then everything went black.
Unfortunately, that is all I remember, because when I saw that this meant an annual budget deficit of $1.6425 trillion, I literally heard neurons in my brain go "zzzt!" and fizzle out. But I seem to remember that I was in a kind of thick, soupy fog, and there was a bright light at the end of a tunnel, and I hear my wife whispering in my ear, "Walk toward the light, you hateful little twerp!" and then turning to yell at the paramedics "He says he wants you to pull the plug and let him die!" and they are explaining to her how I am not hooked up to any machines at all, and seem to have merely fainted, and then she said a bad word.
But this is money of such a huge degree that, that, that. Hmmm. I seem to be at a loss for words! I mean, this rate of borrowing is 64% of the entire freaking federal budget! It is 14% of the whole freaking $12 trillion GDP of the whole damn country!
Tired of seeing me standing there with my mouth open, at a loss for words (but still making some weird humming sound) Michael Hodges of the Grandfather Report jumps in and takes over, and keeps the show going by revealing that "America has become more of a debt ījunkieī than ever before with total debt of $40 trillion, or $136,479 per man, woman and child. 66% ($27 trillion) of this debt was created since 1990, a period primarily driven by debt instead of by productive activity." And I note with a shudder that Alan Greenspan took over the Federal Reserve in 1997, just three years earlier.
He identified this debt load as representing "All U.S. debt" which is the "sum debt of federal and state & local governments, international, and private debt, incl. households, business and financial sector debts, and federal debt to trust funds."
And then when you divide this $40 trillion cumulative debt by the 70 million people whose jobs are not government jobs or jobs that are paid with government money, then those poor 70 million private-sector workers have to work to pay off $571,428 apiece! Hahahaha! Whose idiotic idea IS this? Hahahaha!
Anyway, I get to thinking about these things, and I wonder how in the hell we got where we are, which is one of the downsides of being stupid, as I am always confused as to how I got where I am. Then I receive a forward from my old budderoo, Phil Spicer, who thought I would be interested in reading an article entitled "Burning Bridges and Halfway Houses" by Antal E. Fekete, who is the Professor Emeritus at Memorial University of Newfoundland, dated 21 March 2005.
Prof. Fekete writes about the idea of the liquidity trap. "The term originated with Keynes himself," says the professor, "who, in the second half of the 1930īs, noted that his contra-cyclical prescription to inject new money in the economy through central-bank purchases of bonds in order to combat falling prices wasnīt working. In fact, it produced just the opposite effect of what he had hoped. Deflation got worse, not better." Bummer, huh? Keynes and his stupid little economic theory are a dismal failure, and now everybody looks like a bunch of idiots.
Even Kurt Richebacher has a few choice words in a similar vein about this same stuff happening today. "The U.S. economy has been treated with the most opulent monetary and fiscal stimulus in its own history and also in comparison to the rest of the world. And what did people in America get out of all that artificial stimulus? It is, actually, Americaīs worst recovery by far in jobs and income since World War II or the Great Depression."
Whatīs the problem? Well, Prof. Fekete goes on to write, "As the ownership of monetary gold was made illegal in 1933, the only competitor to government bonds was removed from the arena. Owners of monetary gold were forced by the strong arm of the government to invest in government bonds - not a very pretty sight in itself, even if the matter ended there. But the matter did not end there. As holders of gold were competing for the limited supply of government bonds, which rightly or wrongly they considered as the safest thing to have second only to gold, bond prices were driven to unprecedented heights and interest rates were plunged to unprecedented depths." Again, just like today! People today are (and my voice always rises to a high-pitched whine, like some hysterical snot-faced little whining girl when I talk about this anomaly) actually buying bonds, and long-term debt to lock in yields that are less than the rate of inflation! Which is rising! And it is rising at the same time as general interest rates are guaranteed, by the Federal Reserve itself, to keep rising from these historically-aberrant lows! Everybody is piling into bonds as the government is issuing oceans of new bonds, and the Federal Reserve is creating the credit that will be turned into money by everybody borrowing money to buy the bonds, thus creating a supply-demand imbalance that drives up prices, which drives down interest rates, which hands a tidy profit to all the people who borrowed money to buy the bonds, which makes a bunch of OTHER guys say "Hey! Maybe we ought to borrow some money to buy some bonds, too, so that we can make this easy money!" And so they do! And that worsens the supply-demand imbalance, which makes prices go up more, which makes interest rates go down more, and everybody is making scads and scads of money on this scheme! Weird!
Prof. Fekete says, "Deflation is present in the economy in the first place, in which case it is made worse than it need be by prompting speculators to buy bonds in tandem with the central bank. Interest rates fall and through the mechanism of linkage prices fall, too, as the flow of money from commodities to bonds accelerates. In the worst-case scenario a vicious circle is activated and the economy plunges into depression."
Of course, a sane person would have started a large ceremonial fire in the front yard and danced and chanted "The Mogambo was right! This is stupid! We MUST go back to gold as money!" But noooOOOoooo! What did they do instead? Well, they kept that silly philosophical crap up the whole time, trying and trying and trying until it was made to work, until now we have, as he explains "The world center for liquidity-trap studies and for the inflation-targeting cabal is the Woodrow Wilson School at Princeton University in New Jersey. Under the leadership of department head Ben Bernanke a team consisting of Paul Krugman, Lars Svensson, and Mike Woodford has been busy investigating the liquidity trap and finding ways to unplug it through inflation-targeting should it get clogged again."
These evil people are the ones who want to destroy you with inflation as a remedy for the mess made by this very stupidity! Gaaahhhh! Iīm screaming and trashing about on the floor until I bang my head on the leg of the desk and then I segue into a phase of loud crying and whining, and having people look to see if my head is bleeding, and maybe they ought to rush me to the emergency room, and maybe we could stop off for a couple of burgers on the way, and they always say "no", probably because they want me to suffer and die, and then they turn right around and want to know why I am so mean to them all the time! I mean, like duh!
Then Mr. Fekete links this all to an infamous essay entitled "Can Deflation Be Prevented?" by Paul Krugman, and written in February, 1999. Mr. Krugman explains their weirdness like it is the most natural thing in the world. "Yet here we are, with deflation turning out to be a serious problem after all - and with policymakers finding that it is not as easy either to prevent or to reverse as we all thought. The point is that deflation should - or so we thought - be easy to prevent: just print more money. How can we get finance ministers and central bankers, who have spent their whole careers preaching the evils of inflation and the virtues of price stability, to accept the idea that price stability may not be an available option?"
How do you get people to get over the silly notion that shooting a bullet into your own brain is a bad idea? Is that what Mr. Krugman wants to know? How do you get people to do something that is irrational and stupid, when every relevant source, in-freaking-cluding all of history, the Bible, and common sense, all say it is irrational and stupid?
Well, Hans Sennholz, famous Austrian economist that he is, says that it may be a hard sell, because, like me, he sees it again and again all the way through history. "The popular notion that an increase in the stock of money is socially and economically beneficial and desirable is one of the great fallacies of our time. It has lived on throughout the centuries, embraced by kings and presidents, politicians and businessmen. It has shattered numerous currencies, inflicted incalculable harm, and caused social and political upheavals. It springs forth, again and again, no matter how often economists may refute it."
While Dr. Sennholz does not mention the Princeton group by name, he obliquely refers to "American statisticians and economists want to make us believe that America is a new-paradigm exception in this respect, being miraculously able to generate unprecedented productivity growth with zero savings and record-low fixed business investment. The consensus readily believes it. For us, this is macroeconomic rubbish."
Mr. Fekete goes on to lay out more bad news. "Without any hesitation they took the advice of Krugman, abandoned policies īconventionally regarded as responsibleī, unilaterally betrayed their mandate, burnt the halfway house of price stability, and hit the warpath of inflation, euphemistically calling it īinflation-targetingī." I leap to my feet! "Yes! Yes!" I shout! That is EXACTLY what makes the poor old Mogambo go berserk and is what he has been screeching about at the top of his voice all these years, and now he is hoarse and raspy and older, and now thanks to Permanent Restraining Orders there are whole swaths of the country I canīt even go to anymore because I make such a stink about monetary policy wherever I go, and now this Fekete character does such a good job of explaining it without even raising his voice, and now I feel my life is wasted, and nobody loves me and boo hoo hoo.
But I was going to try and save a little of my tattered career as a lovable lunatic by talking about how serious this was, but before I could even open my damn mouth, Prof. Fekete, Mister Know-It-All Fekete, Mister Never-Let-The-Mogambo-Get-A-Damn-Word-In Fekete as we call him around here, was already talking about it, so I sat back down in a petulant huff and started feeling sorry for myself again, and I could hear him say "The seriousness of the problem cannot be overstated. A steep rise in interest rates at this juncture would be the horror of horrors. Normally higher interest rates would strengthen the value of the currency as they attracted foreign investors. Not this time. Apart from the problem of pricking all the bubbles in the economy starting with the housing bubble, and ballooning the budget deficit into outer space, there is an even larger and more immediate problem. And that is the effect that steeply rising interest rates have on the value of bonds, widely held at home and abroad. The effect is inevitable and instantaneous. Higher interest rates make bond values collapse."
Now if we have a gazillion dollarīs worth of bonds out there, which we do, and there are owners of those bonds, then what is the economic effect of a gazillion dollarīs worth of bonds collapsing to those guys? Hahahaha!
The only thing left for me to do, to try and grab a little of this elusive limelight, is to insult the Fed and Krugman and Bernanke and all the rest of these crumb-bum losers, but even HERE this Fekete dude is busting my chops! He goes on to say "Krugman has convinced us that the money-managers at the Fed have got rid of their last scruples, if they ever had any. Paraphrasing him, if you really believe that runaway inflation is now a global threat, you should also believe that only policies lying outside of the realm what is conventionally regarded as responsible will contain that threat. One irresponsible monetary policy deserves another. The contingency plan to prevent a steep rise in interest rates will have to involve a conspiracy between the Fed and the Bank of Japan to punish speculators short-selling the dollar and dollar bonds. There is nothing else left in the Fedīs bag of tricks but the check-kiting scheme with the Bank of Japan that could hold back the forces of monetary destruction waiting in the wings."
Then he sums it up in particularly poetic form. "Never mind that it is īconventionally regardedī as irresponsible. Never mind that it is illegal. Never mind that it is criminal. Nothing else will defer the day of reckoning."
I guess the lesson is that there may be life left in the stock and bond markets yet, as the Fed is now reduced to these odious, market-manipulating remedies.
- While everyone was cheering the seemingly wonderfulness of the Leading Economic Indicator, which is an indicator of future production, which was actually a big nothing this month, Iīm riding in my car, careening wildly and almost out of control, horn blaring, leaning out of the window shouting, "But look at the Lagging Economic Indicator, which is a proxy for inflation! It was up a full point, from 98.6 to 99.6! Inflation is going to kill you, you dumb freaking morons!" and then they always want to know who Iīm calling a moron, and I say "Iīm calling YOU a moron, you moron!" and then, to show them how moronic they are, I step on the gas and speed out of there real fast, so that by the time they get to their car and start it up, Iīll be long gone! Hahaha! Morons! The Mogambo strikes again!
- The Indian government has come up with a new policy that would allow Indians to buy virtual, or "paper," gold in denominations as low as $2. Currently, they use their money to invest in previous metals, mostly in the form of necklaces, bangles and coins . "It is a step, analysts say, toward bringing millions of poor Indians into the banking system and unlocking the untapped investment potential of more than $200 billion worth of privately held gold in India."
Not everyone is convinced that the new policy is as benign as it is purported to be. Me for one. Another one is Pinank Mehta, who is an asset manager, asks "What is the reason Iīm buying gold? The reason for my purchase is a lack of trust in the present institutions. Now why would I buy physical gold and give it back to the same guys who are the cause of my not trusting the present system?" Hahahaha! Exactly! You tell īem Pinank!
He was referring to Indiaīs fabled trusting of gold, particularly in the face of their "long history of turbulence: millennia of foreign invasions, rising and falling empires, political consolidations and disintegrations and avaricious governments." In short, Indians are not stupid, and they have had many front-row seats to economic catastrophes, and have seen what happens to fiat currencies, and they have seen what has NOT happened to gold. And that is why they like to buy and hold gold. And me, too. And you, too, if you know what is good for you.
The unhappy reason for this change of banking philosophy is that everyone now realizes that Americans cannot keep going into debt forever to perpetually buy the worldīs output. When Americans start reaching the limits of their financing, then there has got to be another set of people willing to be remorseless buyers of stuff (RBOS), and who are also willing to go enormously into debt to do it. So, the question is, "How to get them to buy things?" Well, start by getting them to extract equity in their assets, which, in this case, is gold. It would work sort of like how Americans are taking equity out of their houses. Thus, we will soon see if Americans will have the company of Indians in the loony bin of those who accumulate of un-payable debt and think that nothing bad will happen to them.
- Ron Paul, the Congressman from Texas and one of the very few in Congress who actually comprehends economics, has a new essay entitled "Deficits Make You Poorer." In it, he sees eerie parallels. "The economic situation today is reminiscent of the 1970s. The economic malaise of that era resulted from the profligacy of the 1960s, when Congress wildly expanded the welfare state and fought an expensive war in southeast Asia. Large federal deficits led to stagflation-- a combination of high price inflation, high interest rates, high unemployment, and stagnant economic growth." But the reason that I called them "eerie parallels" is revealed when he goes onto say "I fear that todayīs economic fundamentals are worse than the 1970s: federal deficits are higher, the supply of fiat dollars is much greater, and personal savings rates are much lower. If the federal government wonīt stop spending, borrowing, printing, and taxing, we may find ourselves in far worse shape than 30 years ago."
The bad news is that even if the government DOES stop spending, then we will ALSO find ourselves in worse shape! Get Alan Greenspan on the phone: I have a new conundrum for him! This is because the economy is so distorted by the leviathan of Big Government that the government IS the economy nowadays. Ergo, and I know you love it when I say "ergo," if the economy stops spending, then everyone else stops spending, too! And the reason is, in case you were not paying attention to the previous sentence, that the freaking government IS the economy!
This is probably not news to Alex Wallenwein, who is the editor and publisher of "The Euro vs Dollar Currency War Monitor". He sees bad news for the dollar, mostly involving the fact that we have more debts than we can ever hope to repay. He writes that the demise of the dollar will be either a slow one, or a fast one.
If it is a slow death, he says that "If it happens slowly, maybe the dollar in its current fiat incarnation (you canīt really call it an īincarnationī because there is really no īfleshī on its bones) can survive as a currency in some form of use by some people."
On the other hand, if it is an instant death, then "the dollar and its underlying economy will disintegrate on impact." His summary was brief and to the point, and thus constitutes the soul of wit: "Dead - Either Way."
- If you have filled up the tank of your car lately, you may have noticed that gas prices are suddenly a lot higher, which shows how perceptive you are, but you never get any credit for it, and secretly you are bitter about it. If you think that the price of oil is going to come down, as do many of the idiots of the world, perhaps you, and they, should read Marshall Auerbackīs new essay "The View from the Summit of Hubbertīs Peak" on the PrudentBear.com site. He says "Last yearīs increase of 2.65m barrels a day in global oil demand overshadowed the modest rise of 700,000 b/d in global refining capacity in 2004. U.S. refineries are working close to capacity, yet no new refinery has been constructed since 1976. And oil tankers are fully booked, but outdated ships are being decommissioned faster than new ones are being built." So allow me to sum up, if I may; Demand for oil is increasing, and will continue to increase. Oil is being pumped as fast as it can be pumped. Even if you could pump more oil, there are not enough tankers to carry the oil from one place to another. And even if they could get it to a refinery, there is not enough spare refinery capacity to do anything with it! Hahaha! And yet you think that the price of oil is going to go down, especially when the oil is priced in a declining currency? Hahahaha! All this laughing is making my sides hurt! Hahahaha! Stop! Stop! Hahahaha!
His reference to Hubbertīs Peak is the idea that there is only a finite amount of oil in the world, and therefore there must come a time when the oil is half gone. That point is referred to as Peak Oil. That date is the subject of quite some debate, but it looks like old Hubbert was pretty close with his estimate, which is, checking my watch for the correct time, right about now, but probably a few days ago, and maybe as long ago as a decade or two. Who the hell knows? But regardless of whether or not Peak Oil is now or last year or a decade ago, the result is the same: We are now on the declining side of that oil supply growth, and that now we are using more oil than we are finding in new oil fields. "Clearly, it is not an overstatement to say humanityīs way of life is on a collision course with the basic facts of oil geology. The descent from the peak of Hubbertīs summit is likely to be far more painful than the ascent, yet few have offered anything in the way of serious contingency planning to deal with this oncoming problem."
On that point, I suggest that you buy oil and oil-related stocks. So there IS at least one guy who has a plan to deal with this problem; capitalize on the rise in prices and you will have enough money to buy all the premium unleaded you want, and you donīt care how much it costs to fill up the tank!
Larry Edelson of the Real Wealth Report also has a word to say about the decline of the dollar, and he says, "Donīt count on the dollarīs decline being a gradual descent to a īsoft landingī. Foreigners who invest in the U.S. dollar are NOT likely to act with moderation or compassion."
- The Beijing Peoples Daily Online had this intriguing report. "The Ministry of Labor and Social Security of China announced the third batch of new professions recently. [The] ten new professions are: credit management specialist, internet editor, real property planner, professional information analyst, toy designer, analyst for gold investment, enterprise culture specialist, home textile designer, micro hydropower technician and intelligent building automation technician."
George Ure of UrbanSurvival.com noticed what a lot of us noticed on that list. "Of special note are the gold investment analyst and micro hydropower technician. Looks like China at least is getting ready for a shift towards hard currency, and preparing to maintain an electric lifestyle even in the face of rising oil costs. Interesting, no?"
Everyone was looking at The Mogambo to see if he considered this to be interesting, and they noticed that my hair was standing on end and I was having trouble breathing, so they figured that yes, this is interesting. VERY interesting!
- Jay Bookman, deputy editorial page editor of the Atlanta Journal Constitution, has looked at this idea to privatize Social Security and opines that the Bush plan to privatize wonīt pass, and he even titles his op-ed piece, "Bush Plan to Privatize Wonīt Pass". He writes, first off, that Bush is unusually forthright in his assessment of Social Security. He notes that President Bush actually said, "Some in our country think that Social Security is a trust; in other words, thereīs a pile of money being accumulated. Thatīs just simply not true. The money - payroll taxes - going into Social Security are spent. Theyīre spent on benefits and theyīre spent on government programs. There is no trust." And you know what? The presidentīs absolutely right! Although I am sure that there are many people, including that halfwit Al Gore who was almost elected as President, thinks otherwise, and spent his entire failed Presidential campaign mouthing such stupidities, and then he sat around wondering why he lost the election, while I sat around wondering how Democrats could be so stupid as to nominate that idiot for the position of coat-room attendant, and he would probably have screwed that up, too.
Now Mr. Bookman is not interested in my opinion of Al Gore, nor by the fact that I have lots and lots of other opinions about lots and lots of people, and so he takes over and writes, "Every surplus dollar that working people contribute to Social Security is diverted immediately into the general fund and then spent. This year alone, $169 billion in surplus Social Security funds will be diverted to run the day-to-day operations of government, raising the total debt owed by future taxpayers to the trust fund to $1.8 trillion. In 10 years, that number is projected to grow to $4.4 trillion, a truly intimidating number." And that is using only a $440 billion annual budget deficit, which is so wildly optimistic that I snort in contempt, which brings up the point that if you are going to snort in contempt, then make sure that you donīt need to blow your nose, or it gets real messy and disgusting, or, as we say around here "About par for the course for The Mogambo."
- Patrick Geryl has taken a look at the The Dresden Codex of the Maya, and found, as in lots of other places, that it, too, contains the secrets of the sunspot cycle, which is spookier than we mere mortals imagine. "The conclusions that follow are even more staggering. At a certain moment, when the sunīs magnetism reaches a crucial point, the sunīs surface will be subjected to immense storms. Enormous electro-magnetic forces will then be liberated - with unknown strength - from the interior of the sun. Giant sun-flames will send a gigantic wave of particles to the earth. When there is a big change in the magnetic field of the sun, the earth will turn upside down. Giant quakes will occur. Earth plates are moving, mountains are rising where first there was nothing, land parts break open and collapse, mountains collapse, land is sinking into the ocean, volcanoes erupt in many places. In short, the most terrible nightmare cannot be terrible enough to describe this worldīs destruction."
It sounds exactly like me when I am talking about monetary policy and the horrible Federal Reserve, doesnīt it? But I gotta tell ya that this may explain why the worldīs bankers and governments act like they have lost their freaking minds.
- My association with the American healthcare industry is that I pay insurance premiums in the range of "kindīs ransom", and then get screwed by the actual providers, too. Enough to hate them all and swear blood revenge, but hardly enough to qualify me as somewhat of an expert on the healthcare system of America.
But it happens that I spent the weekend jamming music with my buddy Bob Snyder, who is both a drummer and an executive at a hospital, but, in case you were wondering, he canīt get us any powerful psychoactive drugs that will keep my head from exploding at the economics mess of the world AND maybe let us get a nice little buzz on, too, so donīt bother asking, because Iīve already tried it.
But during one of the lulls, mostly spent by everyone commenting to me, "Hey, jerkface! You really suck as a musician!" we got to talking amongst ourselves. But they soon tired of comparing my limited musical talents with those of various animals, mostly rodents, and the subject finally got around to how business is going. As for me, I tell them that chicks arenīt attracted to guys who scream and get hysterical about the enormous amounts of debt, and how we are all going to die horrible deaths because of the Federal Reserve and their constant creation of more money and credit, and so this economist gig ainīt exactly what I had hoped for, since it does not involve driving around in convertible cars, honking at pretty girls and offering them rides and alcoholic beverages. And so I say, "And how about you? Boinking any cute nurses lately? Hahaha!" and he tells me to grow up, which really ruined my little joke, and everybody said "Yeah! Grow up, Mogambo! And eat with your mouth closed! Yuck!"
But Bob did note that while services rendered at the hospital are up, the number of customers that they call "self-pay" are up 40% over last year. 40%! Now, you and I know that when you are a "self-pay", it means (wink wink, nudge nudge) that you are not privately insured, you not a Medicare patient, you are not a Medicaid patient, and you are not anything, which equals zero, which also equals, by sheer coincidence, the amount of money that these patients are going to pay on their hospital bills, AND it also equals, by sheer coincidence, the amount of money that they have with which they COULD pay their hospital bills, even if they wanted to. And there is a quite a bit of controversy about that, too!
To compound the problem, the private physicians in the area are grumpy that Medicare and Medicaid are not reimbursing them at the rates with which they think they deserve, and so are dumping these patients onto the hospitals, too!
The bottom line? Revenues down, costs up, which is the predictable result of the damn Congress ruining healthcare by passing more and more laws requiring hospitals to provide services to anybody who shows up at the door, whether or not they can pay.
- As an interesting aside, the Members of the NYSE sold a huge clutch of stocks last week, amounting to 137,724,000 shares, which is a lot of shares, even for them.
- Paul Craig Robertsī essay, "Americaīs Has-Been Economy", says it all pretty well when he writes "Falling pay and rising prices of foreign made goods will squeeze US living standards as the declining dollar heralds Americaīs descent into a has-been economy."
The declining dollar is what made the price of imports go up, especially gasoline prices, and now from Yahoo News we get the report "Nationwide gas prices soared over 12 cents during the past two weeks to reach a record high and an analyst predicted more sticker shock at the pump in the days ahead. The average retail price for all three grades increased 12.74 cents to $2.13 per gallon between March 4 and March 18." That comes out to a six percent increase in prices, which is pretty hefty inflation!
- Another scary thing is that Bill Bonner of the Daily Reckoning.com site notes that the stock of General Motors says that the company is worth, all told, $15 billion. "But it owes bondholders $300 billion," says Mr. Bonner. It owe twenty times its entire capitalization? And people buy the stock? Hahahaha!
- Recent Federal Reserve data show the ratio of interest payments compared to household income has hit 13.3 percent. To put this number in perspective, in 1994 (the start of the last tightening cycle) interest payments consumed only 11 percent of income. We have indeed hit new records in total indebtedness, both in terms of sheer dollars, and also as a percentage of income. Ugh.
**** The Mogambo Sez: The action in gold lately has me scratching around under the cushions on the couch to try and find some money to buy more gold. Any pullback in price is an opportunity to buy. Especially since Eric Fry, who writes the Rude Awakening column, figures that "Gold will recover its footing later this week, as surprisingly strong PPI and CPI readings cross the newswires." With a newly ascendant gold market, Mr. Fry goes on to conclude that "The current ībuying opportunityī offered by the gold market may prove to be more remunerative than most, simply because the gold market has quite a bit of catching up to do." Ainīt life sweet?
[link to www.321gold.com] |
| av0
User ID: 9940
3/25/2005 1:40 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
eir is a bunch of phreaking dumbshits man
...
itīs funny watching all of this unfold... all of these people so īagainstī everything going on... but then the īsolutionsī proposed by these īdissident elementsī are simply more collectivism (state control over everything)...
letīs face it... the physical america is dead... the only liberty you will ever find is between your ears and/or in your heart...
but of the physical world... in it we are seemingly presented with an endless procession of poisonous īsolutionsī... none of which promote personal liberty... it doesnīt bode well for the future of the individual...
i noticed over on libertyforum that they blame everything on the jews.... well if this is all a jewish plot the goyim must be a bunch of real dumbshits... because no one... i mean nearly no one... is standing up for personal liberty on the one hand or responsility for oneīs own actions on the other...
instead itīs all īyou owe me this or thatī or īgive us more social shit so we can feel safe and secure in our witto teletubbie cocoonsī.... oh and give me another mcdonaldīs hamburger so i can be big and fat and numb....
rant off
av0 nli |
| .
User ID: 4132
3/28/2005 11:27 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Golden Escape Pods
March 28, 2005
Edgar J. Steele
321 gold
What is gold really worth today? While the accurate answer simply is whatever someone will pay for it, there are historical measures which indicate that it is seriously undervalued. Could it stay that way? Only if the central bankers are correct in what they tell you about gold and also are correct that economic depression and monetary hyperinflation are things of the past. Even so, the gold market will require ongoing rigging, because there are a great many people around the world who quite simply donīt believe the central bankers - and with good reason.
Iīm going to go through a quick analysis of the value of gold, one of many ways in which a value can be derived, I might add. It almost certainly will require you to read through it a few times to get the drift, because it is not the point of this article to be an exhaustive treatise on gold or investing, after all. Rather, I wish only to construct an argument for gold being used as a defense against the economic war being waged against us.
By 1945, 63,570 tons of gold had been discovered and mined, worldwide. In 2003, 144,092 tons existed, a 127% increase. Very little gold actually is used industrially or otherwise (as in dental work), unlike so many other precious metals, so most of the gold ever discovered still exists and is sitting in someoneīs vault.
In 1945, 68% of all gold was in central bank vaults. In 2003, 12% of all gold was in central bank vaults.
The total outstanding value of gold outside bank vaults in 2003 was about 100 times the total outstanding value of gold outside bank vaults in 1945.
In 1945, the total money in circulation throughout the world was about $300 billion. In 2003, the total money in circulation throughout the world was about $30 trillion, a one-hundredfold increase, which itself suggests a proper price for gold in the area of $3,500 per ounce (100 x $35).
Expressed as a pro-rata portion of the total money in circulation in 1945, each ounce of gold then in existence accounted for $147.48. Expressed as a pro-rata portion of the total money in circulation in 2003, each and every ounce of gold then in existence accounted for $6,506.26.
Some would call the analysis done at this point and claim that gold is worth between $3,500 and $6,506 per ounce. I am not one of those, some of whom use alternate analyses to derive values of up to $20,000 per ounce.
By the way, some actually suggest that the correct analysis is to divide the total money supply by the number of ounces of gold in central bank vaults, since that represents the extent to which outstanding money is "backed" by gold. In that case, the per-ounce value of gold turns out to be an incredible $54,218.94. However, this neglects to calculate a similar figure for each country with money outstanding, then weight each result appropriately. Some countries, such as America, reportedly have almost no gold left in central bank vaults, though none will allow inspections.
Americaīs Consumer Price Index (CPI) in 1945 was 18. The CPI in 2003 was 183, representing a 10X increase.
Americaīs Gross Domestic Product (GDP) increased by 9X from 1945 to 2003, after adjustment for inflation (CPI).
The worldīs money supply, expressed in dollars, increased 100X from 1945 to 2003. Americaīs broadest definition of money, M3, increased by about 36X during the same period.
Note that the money supply increased significantly faster than did either GDP or the CPI or, for that matter, Americaīs population, which has doubled.
The Dow increased by 10X during the same period, too.
While American post-WWII productivity increased by about 3X on a per-capita basis, the money supply (M3) increased beyond productivity by a factor of ten, which squares with the CPI increase. When I was a child, those purple first-class postage stamps cost 3 cents, but today they are more than ten times that amount, an external validation of our statistical analysis. I recall todayīs $1 ice cream cones costing but a nickel a scoop.
In other words, our money has been robbed of 90% of its value in the last fifty years by excessive expansions of the money supply, with most of the loss taking place in just the last 30 years. Meanwhile, the per-capita supply of gold actually has declined by about 40%. Whatīs the problem, you might ask - after all, gold went up from $35 to $330 in the same time period, approximately the amount of inflation. Hereīs the problem: at both points, the price of gold was being artificially constrained by the central bank, both directly and through its surrogate, the American government.
The real question is what happens to the price of gold if the bank loses control of it and, particularly, if the dollar swoons significantly, as seems to be occurring at the time of this writing.
EXECUTIVE SUMMARY
Yes, this is the way financial analysis is done. Assemble all the relevant statistics, analyze them with statistical devices like regression analysis, adjusting for extraordinary events and external manipulation. Move them around on the table before you, trying the pieces in different positions, like a jigsaw puzzle. Eventually, a picture emerges. Only then is a rationale developed to fit the result that one thereby intuits.
What I have done herein is a very clumsy approximation of that procedure, if indeed it can be dignified with so organized a word as "procedure." Nevertheless, a picture has emerged and I am pretty confident of its parameters.
Clearly, the current price of gold represents about the lowest it ever has been, when adjusted for the various factors we have considered. Therefore, it represents an eminently safe vehicle for getting through the coming economic meltdown. The wild card is its up side, which could be significant. It seems safe to say that gold will see some serious swings, but that they will be upwards and almost certainly never again below the current value.
In Roman times, an ounce of gold could buy you a good suit of clothes, it is said. The same was true in 1929. Today, a good manīs suit will cost between $1,000 and $2,000. By the "suit theory" alone, gold has a long way to go.
If gold were to take over the job of money in todayīs economy, all other things being equal, its value most assuredly would go to somewhere between $6,000 and $10,000 per ounce. However, there are other vehicles of value that would also pick up the slack, such as silver and platinum and backhoes and seed corn and...well, you get the idea. But gold neednīt step into the breach; the dollar need merely abdicate its position as the worldīs reserve currency, as now seems inevitable. Gold will be revalued to the levels that it would assume if it and the other precious metals were the only medium of exchange, even though some form of fiat money inevitably will be thrown into the breach.
I spent a lot of time in my earlier life analyzing stock and bond price movements, then financial statements from both a corporate treasury standpoint and that of a bookkeeper and an auditor. I learned that, like everything else, accounting and finance is an art. I cannot articulate precisely how I calculate the ultimate value for gold that I have, but I feel pretty good about its validity. The danger of exact formulae is in the likelihood of error creeping in. Broad-brush analysis, such as this, keeps the entire forest firmly in view at all times. Yes, I could throw some calculations down here and derive the very numbers I am about to give you, but in honesty that would be contrived. Contrived, that is, as in precisely how financial analysts always have plied their trade.
I believe that gold will spike to as much as 3 or 4 thousand dollars per ounce in terms of todayīs dollar, no later than 2010 and probably much sooner, then settle in at around $1500, in terms of the dollarīs 2005 purchasing power. I see $1000 as the likely bottom of goldīs ultimate range, which itself provides a profit potential in excess of 100% over todayīs price.
CHECKING OUR WORK
A "sanity check" of my valuation can be made by updating the price of gold from some past point in time to today, using something that reflects the general decline in the purchasing power of the dollar. The problem is in getting accurate figures. Roosevelt pegged gold at $35 in the 1930s and kept it there through the end of the war. Many believed that to be a fair price at the time. If so, then simply multiplying $35 by the 36X increase in the M3 money supply yields $1,260 per ounce. Pretty close.
Another "sanity check" can be derived from the price of gold in the mid 1970s, which ranged around $150 per ounce, probably a pretty good free-market-driven price from just prior to the massive inflation of modern times. The Dow-Jones Average bottomed out in 1974 at about 575 and likewise probably was a pretty good derivation of free market forces. Todayīs Dow is hopelessly bloated by the monetary inflation of the past several years, so cannot be used directly. Fundamentals dictate, via traditional price-earnings ratios, a proper level today for the Dow of about 4,500. This can quickly be calculated simply by dividing the historical "square-up" corporate stock price-earnings ratio of 12 by todayīs average price-earnings ratio of about 28, then applying the resultant fraction to todayīs Dow.
Fundamentals, remember, are what square up stocks with other forms of investments. Applying our adjusted increase in the Dow of 683 percent to the 1973 gold price of $150 yields $1,025, a conservative figure in that the earlier periodīs bottom for the Dow is used in the calculation. Using other Dow figures from the 1970s produce todayīs gold value as ranging up to around $2,000 per ounce.
Since gold will, as pointed out above, likely spike well above $1,200, if one chose to bail out at, say, $3,000, then real estate likely will be the safest transition investment at that point, particularly if real estate values continue with the very recent deflation which now seems to be taking hold. If the stock market has crashed, as in 1932, then buying a bundle of penny Blue Chips could prove to be very advantageous in the long run. Staying in gold, of course, is the sure bet, just as always.
The Real Allure of Gold
Is gold safe? You bet. In fact, it looks to be one of the best investments around just now, with silverīs fundamentals even better. But the central bankers donīt want you to know that.
This becomes even more urgent if one takes the view, as do I, that we have seen Americaīs "last hurrah," with other nations, particularly China, assuming the ascendancy in world financial affairs as we move into the future. Stripped of its value, the dollar likely never will recover. An emergency "escape pod" from the trap that the American economic system is becoming is a necessity today. Gold can serve as that escape pod.
[link to www.321gold.com] |
| .
User ID: 4132
3/29/2005 5:17 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
just for all those who think silver and gold will the answer to all ills, please read the whole book of revelation and think again, there are very specific refrences to what the worth of these commodoties will be and how they will be treated in the light of His arrival. |
| Anonymous Coward
User ID: 1862
3/29/2005 5:20 AM | | 5150 - Bill
User ID: 6470
3/29/2005 6:02 AM
 | | Re: Watch, Its happening ,the global economic change. | Quote |
I am in awe that the great super crash has not yet occurred. I am clueless as to what in the world holds the wolves of reality at bay. When it happens, it will of course be global.
It canīt possibly go beyond the end of July 2005, but everytime I say this, the bubble just gets bigger. But that is my prediction, by July... but probably sooner.
Mankind has not progressed one inch from the slime which spawned it. |
| .
User ID: 5501
4/6/2005 12:50 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
The Invisible Hand (of the U.S. Government) in Financial Markets
April 3, 2005
by C. Robert Bell
Financial Sense
Summary: The U.S. government is manipulating all major U.S. financial marketsstocks, treasuries, currencies. This article shows how it is possible and how it is done, why it is done, who specifically is doing it, when they do it, and where they get the money to do it.
Most people probably believe that the major capital markets in the U.S. are basically true markets with, occasionally, maybe very occasionally, a little bit of rigging here and there. But evidence shows that the opposite is the casethe rigging is fundamental with a little bit of true markets here and there. I have discussed how this works concerning U.S. and some other stock markets in an earlier article.[1] Here I will primarily discuss the rigging of currency and U.S. Treasury markets.
Perhaps the main reason for the urban legend that major markets are not generally rigged is that they are assumed to be too big; the millions of independent buyers and sellers, worldwide because of globalization, make effective and sustained coordination impossible. The implicit assumption is that any market could be systematically rigged if it were small enough, or at least small enough at some critical choke point.
LITTLE MARKETS
In the case of the market for U.S. Treasuries, the Financial Times summed up exactly how small it really is in two major stories, one just under the masthead on page one, on 24 January 2005. One story began, During the past few years the US has become dependent, not so much on millions of investors around the globe but on a few individuals in a few of the worlds central banks.[2] In 2003 these central bankers bought enough treasuries to cover 83% of the U.S. current account deficit, and 86% of those purchases came from Asian central banks.
The two main sources of money for U.S. Treasuries are the central banks of Japan and China. Japan held about $715 billion in U.S. Treasuries, as of November 2004, and China held about $191 billion.[3] All the other nations central banks hold altogether, about the same amount again, roughly another trillion.
As the total of all obligations is about $4 trillion, two central banks obviously hold about one quarter of the total. They are in the position to pump or dump the Treasury market all by themselves. They can sell what they have or simply stop buying when the Treasury sells.
Since the money comes from a handful of foreign central banks, the possible rigging of the Treasury market equals the possible rigging of the foreign exchange markets. These central banks have to buy dollars before they buy Treasuries. Even Alan Greenspan has acknowledged that the two go together, admitting that Asian central banks may be supporting the dollar and U.S. Treasury prices somewhat.[4]
U.S. stock markets are also capable of being systematically rigged, and for the same reasona handful of players can dominate if they coordinate their actions. The key choke point is in the number of mutual funds, which themselves hold about 20% of all the stock in the major markets. Of the over 8000 all-stock mutual funds, a mere 497 hold roughly three-fourths of the stock. This is easily a small enough number to pump the market, whether through coordinated buying disguised as programmed trading, or simply a follow-the-leader mechanism. All the other thousands of funds and the millions of individuals around the globe putting their money into these markets can do little more than follow the momentum. No major U.S. stock market writer, advisor or player seems to publicly acknowledge this, as far as I know. But the CEO (PDG) of the French insurance giant AXA has acknowledged it: Claude Bebear wrote in his 2003 book Ils vont tuer le capitalisme (They are going to kill capitalism):
today, shareholders are relegated to the role of quasi-spectators. The small shareholders that are now called individual investors know that they have little weight. All together, they only represent a small percent of capital because the investments of households are more and more in the form of mutual funds, pension funds (fonds communs de placement) or life insurance funds. The shareholders today are thus the institutional investors. [5]
Bebear, in charge of one of the worlds biggest stock portfolios, adds:
We are no more, in effect, in a world that one reads in the economic text books, with innumerable investors of various characterizations, choosing each in his own way the stocks that hell put in his portfolio; the results of their millions of decisions generating a sort of changing market equilibrium, but a stable one. The truth is that for several years, the reasoned investment on a stock has almost disappeared in favor of more and more mechanical behavior.[ii] [6]
PLUNGE PROTECTION
Programmed trading in an utterly concentrated stock market pretty much guarantees the possibility of systematic and continual market rigging. But to accomplish this, and coordinate it with the currency and Treasury markets, some sort of orchestrating mechanism would need to exist. It does; it is known as the Presidents Working Group on Financial Markets, occasionally referred to in the business press as the Plunge Protection Team. Then President Ronald Reagan signed it into existence on 18 March 1988, with the specific intension to avoid another stock market crash such as that of 19 October 1987. The Working Groups existence is no mystery. See for yourself. Go to Google and type in Executive Order 12631. You will find the Executive Order, and even a 14 November 2003 statement from Secretary of the Treasury John Snow giving a brief history of the Working Group, describing its policy advisory activities, and concluding with these words: It also is a forum used to exchange information during market turmoil through ad hoc conference calls and meetings.
Presumably Plunge Protection doesnt hold these ad hoc conference calls and meetings just to be passive bystanders. Executive Order 12631 specifically authorizes them to coordinate buying: The Working Group shall consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market participants to determine private sector solutions wherever possible.
So not only is the fix in, it is legal.
In a 1989 Wall Street Journal article, then Federal Reserve board member Robert Heller even suggested a market intervention strategy: Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole.
GUESS WHOSE MONEY IS USED TO BUY STOCK MARKET INSURANCE?
There is even a potentially unlimited source of money to do this pumping. Federal government contractors operate under a special law, CAS, in their defined benefits pension plans. This gives them stock portfolio insurance, something which small fry players would obviously like to get, but cant find anyone willing to issue. Should the pension funds of the federal government contractors lose money in their investments to the degree that they fall below minimum reserve requirements imposed by other federal laws, they can simply make up the difference by adding it on pro-rata to subsequent items sold to the federal government. The vast sums of federal tax money devoted to plugging the holes in the pension fund for the largest Pentagon contractor, Lockheed Martin, were discovered by Ken Pedeleose, an analyst at the Defense Contract Management Agency. He was concerned about staggering cost increases for the C-130J transport but a chart he made public showed the mind boggling per plane cost increases for a number of Lockheed Martin airplanes. The chart amounted to a Rosetta Stone for the military-industrial complex. It showed, essentially, how the military-industrial complex linked to the stock market through the Lockheed Martin pension fund, and by extension through all the others covered by the same law.
Is there a corresponding source of tax money to pump the currency and Treasury markets? There is an official one for currency, the Exchange Stabilization Fund. It was established in 1934 to prop up the dollar in foreign exchange markets. But it can be used for any purpose determined by the Secretary of the Treasury. In mid-1995, the fund contained $42 billion.[iii] The actual amount varies depending on how well the Treasury does on its currency transactions. The money originally came from the sale of U.S. government gold, but the Treasury kept the money as a private fund, not under Congressional control. Since it is a finite amount of money, not appropriated by Congress, it probably is not often used to pump the stock market or even the market for Treasuries.
The markets for Treasuries, and also currency, are being pumped using the tax code and pension fund laws. But to understand this we have to first look at why pumping might be necessary.
TREASURIES EXCHANGED FOR JOBS
The U.S. Treasury holdings of Japan and China are essentially a consequence of a trade imbalance between the U.S. and these two countries, with the balance heavily tilted to the latter. To maintain the imbalance, which they both clearly want to do, both countries must keep their currency pegged against the dollar at a lower rate than it might otherwise be. If they did not do that, the Toshiba computers, Toyota cars and other quality items made in Japan would be more expensive, and so Japan wouldnt sell as many of them in the U.S. A similar case holds for vast numbers of Chinese manufactured items sold pretty much everywhere, but notoriously at Wal-Mart. To keep the items relatively cheap, the central banks of those countries keep their currencies cheap by buying a corresponding amount of dollars, thus supporting the dollar against their currencies. The dollar may essentially collapse against the euro, but not against the yen and the yuan.
With the dollars the Japanese and Chinese central banks have bought, they can buy something denominated in U.S. dollars; the item of choice is U.S. Treasuries since it is like holding dollars that pay interest. So this has the effect of pumping the price of Treasuries too. Because the items made in China and Japan are cheaper than those of corresponding quality made in the U.S. (in the case of many Japanese items, there may not be U.S. items of similar quality), the effect is to create manufacturing jobs in those countries while simultaneously losing them in the U.S. In effect the jobs are exported and foreign currency is imported to buy dollars and then Treasuries.
This has an advantage for the Bush administration, which has the ruinously ridiculous policies of simultaneously cutting taxes and waging wars or building up for them. In effect, the basic racket is: the Bush administration exports jobs to these countries, and in turn they finance Bushs fiscal deficit so he can continue his wars and cut taxes for his friends. The deficit for 2005 will be at least $400 billion, according to the Congressional Budget Office.[7] The Pentagon budget for 2005 was about $400 billion. Add in two supplemental requests for the costs of his Iraq war and the Pentagon figure is roughly $500 billion. It is interesting to note that the military budget is about the same order of magnitude as the fiscal deficit, said veteran Pentagon waste fighter Ernest Fitzgerald.
The tax cuts were at least in part intended to stimulate spendingthe purchase of all those Toshibas, Toyotas and Chinese whatnots. So the fiscal deficit is intimately linked to the current account deficit. If the money had been taxed away to pay for Bushs current war and arms build-up for future ones, it would not be in peoples pockets to pay even for the down payments on the Toyotas.
But wont the Japanese and Chinese central banks ultimately get burned by holding vast quantities of dollar denominated assets? Sure, if the dollar ever collapses against their currencies too. The dollar having fallen roughly 30% against the euro since the beginning of the war in Iraq, the same fate or worse could await these Asian currencies. With currently issued Treasuries paying a coupon rate of no more than 4%, they would be materially shafted on their investments in U.S. Treasuries. Then why dont they bail out?
THE EMPERORS REVENGE
For the Chinese, the basic racket is too delicious and too ironical. They industrialize their country at the expense of the de-industrialization of the U.S. Not only is it sweet revenge for more than a hundred years of humiliation at the hands of Europeans and Americans, but also at the end they are relatively strong and the U.S. is relatively not. What do they care if the deal isnt quite as good as it would be in a perfect world and they lose a third, half, two-thirds of their savings in U.S. Treasuries? Besides, in an even mildly less imperfect world, the U.S. President would not make such a blatantly corrupt bargain against the people of the U.S. Billionaire investor Warren Buffett calls this system of indebting U.S. citizens to foreign governments a sharecroppers society, to distinguish it from Bushs supposed ownership society.
No wonder Chinese central bank governor Zhou Xiaochuan told a press interviewer at the time of the G-7 session in London in early February, now is not the time to revalue his currency, the yuan.[8] Of course it is not. He is clearly not stupid. The time to revalue is after China has sucked all the remaining jobs out of the U.S. that it can or just before the U.S. gets a less dishonest government. For the Japanese, the basic sweetness of the deal plus geopolitical strategic reasons may keep them tied to the U.S. There is also the spirit of J. Paul Gettys famous line: If you owe the bank $100 thatīs your problem. If you owe the bank $100 million, thatīs the bankīs problem. Some Japanese clearly think they have a problem. Prime Minister Junichiro Koizumi said on 11 March 2005 concerning his governments U.S. dollar holdings, I believe diversification is necessary. This instantly shook the currency markets, causing the director of the Japanese finance ministrys foreign exchange division, Mastatsugu Asakawa, to blurt out, We have never thought about currency diversification.[9]
Mr. Asakawa has been kept busy making this point. On 23 February 2005 he had already stated, We have no plans to change the composition of currency holdings in the foreign reserves and we are not thinking about expanding our euro holdings.[10] He added, Valuation loss is not our primary concern. My opinion is that I dont have to care seriously about that.[11]
There are, of course, other major single party buyers of dollars and Treasuries besides the central banks of Japan and China. In fact Mr. Asakawas earlier remark was precipitated by a market panicking statement on 22 February from the Bank of Korea. They indicated they were considering diversifying some of their $200 billion in currency reserves, 70% of which were in dollars. The dollar plunged 1.2% against both the yen and the euro. Part of this was due to programmed trading which kicked in with sell orders after the dollar hit a threshold of $1.3210 to the euro.[12] After the dollar suddenly fell, South Korean officials quickly announced they wouldnt sell any of their existing dollar reserves, leaving open the possibility of putting new reserves into other currencies.
South Korea, presumably, can be muscled. Other central banks are less susceptible to pressure. On 5 February 2005 Russia announced that it would no longer peg the ruble to the dollar, but instead to a shifting weighting of dollars and euros. Russia had been selling dollars and buying euros since October 2004, during which time the U.S. dollar had tumbled significantly against the euro.[13] This of course corresponded to the period when Bush was seen to be back in power for another four years.
The overwhelming consensus of financial writers was that both the dollar and Treasuries would really hit the skids in the new year, 2005. The consensus was global. For example, the French financial paper, Les Echos wrote in its edition of 21-22 January: Until now, it was a question of the great bet adopted nearly unanimously by foreign exchange tradersthe dollar will fall in 2005.[14]
Of course, as implied by the quote, the dollar did not fall. Nor, of course, did its fat twin, U.S. Treasuries, which are little more than interest paying dollars. Is this because the trade deficit improved? Not really, although it showed a slight gain in early February, long after the dollar and Treasuries had materially improved. The dollar had gone up 3.6% from 1 January 2005 until 22 February 2005. Why? Did Bush raise taxes, thereby erasing some of the fiscal deficit? Not at all. On the contrary, he cut taxesas usual for a select groupand thats why the dollar rebounded.
PLUNGE PROTECTIONS NEW CASH
In late October 2004, the U.S. public was looking the other way when the tax cut was passed. Most people were obsessing over who would win the presidential election. Few were paying much attention to what the Republicans in Congress were doing, which was giving billions in tax cuts to U.S. corporations which had profits parked in tax havens around the world, such as in Ireland or Singapore. Bush signed the law enabling this tax giveaway on 22 October 2004. The tax changes were noted by a few at the time, even before the law changed. But the general level of financial journalism is so bad that they got no real echo in the press. Most people speculating against the dollar had no idea they were about to get stung. Obviously a few knew what the implications of the tax law were. They made out, more or less literally, like bandits. But one cannot legitimately claim insider trading since the tax law changes were publicly available knowledge, and even made it to the internet on various accountant websites in October. But they dont seem to have gone much beyond these specialists. On 15 January 2005, I had a long talk in Paris with a top European stock market guru. Well connected and with a devoted following which he obviously did not want to burn, he had in all sincerity advocated buying gold to a gathering of thousands of his devotees a couple of months earlier, in November, after the passage of the U.S. tax law.
Most speculators were caught unaware on this source of currency pumping money, so it is unreasonable to assume that there will not be other surprises, which will be announced in due course.
The law Bush signed in late October 2004 goes by the obscenely false name, the American Jobs Creation Act. If there is one thing it will not do is to create jobs. It will instead create takeovers, which nearly always produce losses in jobsin the name of synergy. Takeovers are on the limited menu of activities companies are permitted to do with the money they can repatriate under this law. Not that the limited menu makes much difference, since the money brought in does not have to be fenced off in any way. So if $10 billion were spent by a company on takeovers, that frees up another $10 billion to do whatever was prohibited under the law, such as paying dividends, buying back stock, or filling the pockets of executives with extra bonuses. Normally such profits earned in foreign subsidiaries of U.S. companies would be subject to a tax rate of 35% if they were brought home, which is why the money had stayed parked in the tax havens. But the law gives companies a one-year window for the repatriation of this cash at a tax rate of only 5.25%. Nobody knows how much will be brought in. When the law was passed in October, the general expectation reportedly was that the figure would be about $135 billion.[15] But one player has estimated it at $319 billion. This has some investment bankers salivating, wrote David Wells in the Financial Times.[16] But how much would be converted into dollars from other currencies? According to two different investment banks, the figure is somewhere around $100 billion.[17] That would be the minimum available from this source to pump the dollar for one year. Recall that the Exchange Stabilization Fund has less than half that for eternity.
The Bush administrations use of repatriated foreign profits to pump domestic markets shows that they are not going to let thin ice signs stifle their version of the economy, at least not without a fight. However, the underlying weakness of the economy because of the twin deficits remains, so basically all that Bush and his Plunge Protection team are doing is moving the thin ice sign out onto thinner and thinner ice. The weight of the Bush team will eventually crash through that ice into exceedingly cold water.
But what about those drooling investment bankers? They will claim that this harvested money used in takeovers will eventually produce U.S. jobs, despite initial job losses due to the takeovers themselves. Investment bankers, who engineer many if not most takeovers, nearly always argue that the takeovers ultimately create jobs in the long term. The investment banks themselves, however, nearly always insist on being paid substantially in the short term through the transaction fees. Their employees, the investment bankers, are also substantially paid short term through annual salaries and bonuses. They get paid now; others can wait for the long term.
PANIC BUYING
One short-term thing the money has already done is to pump the dollar. The mechanism by which this is accomplished is quite simple and is signature Plunge Protection. It is the device of the short covering rally. This is what happens when speculators sell an assetstocks, Treasuries or dollarsshort. With stocks, this means that they sell the asset without actually owning it. They borrow the shares they sell, betting the stock will fall. They then buy it at the reduced price and return those shares. Another way to accomplish essentially the same thing is through options. The risk in a short sale is that the stock will not go down but instead go up. The short seller literally is exposed to unlimited losses in this case. This is the basis for a short covering rally. Non-shorters buy in sufficient volume to force up the price. The price rise scares the shorters into buying right away before the price goes too high and they lose too much. This results in panic buying as large numbers of short sellers feel compelled to buy to limit their losses. Often when the stock market suddenly blasts up out of a long slide for little or no reason, we are watching a short covering rally. There have been several such rallies in the currency and Treasuries markets so far this year, and there will probably be quite a few more.
According to a J.P. Morgan survey, the year 2005 began with most U.S. and international speculators holding short positions on U.S. bond markets.[18] Obviously this is because they had foolishly looked at the underlying economic reality, and failed to understand the profound import of the American Jobs Creation Act. Most people were utterly unaware of it until at least January 13, when the U.S. Treasury, under whose direction the Plunge Protection team works, announced the specifics of what the grand skim could and could not be spent on. As noted, the list included stock market pumperstakeovers.
The $100 billion (minimum) that will be brought in is not petty cash. One currency strategist at ABN Amro, Greg Anderson, has been quoted as saying, The U.S. trade deficit is probably $600 billion in 2005, so this flow will be financing a sixth of the deficit all by itself.[19] Thus this amount is clearly enough to have some impact on currency markets, especially if used to trigger short covering rallies.
Whatever is the actual amount that is brought in, it is exceedingly unlikely to be all brought in at about the same time. The companies have full discretion as to when to bring it in, and Plunge Protection is there to make sure they dont do it at the wrong time. Various of the ad hoc conference calls referred to above by Secretary Snow could include fund managers and Chief Financial Officers of companies with chunks of cash lined up to bring in. Would this incestuous network of essentially insider traders be legal? It would be very difficult to prosecute without impeaching the President himself. As cited above, Section 2b of Executive Order 12631 states: The Working Group shall consult, as appropriate,
with major market participants to determine private sector solutions wherever possible. (emphasis added) Obviously a major currency plunge is exactly what Plunge Protection is charged with avoiding.
The major market participants involved in these money pumping rackets would not only be making money, but would view each other as true patriots. They would simultaneously serve themselves and serve the national interest. And, if the story ever got out, they would be unlikely to serve any time. They would also get the reputation for being currency-timing geniuses. Each time they brought in cash from euros or pounds, the foreign currency subsequently fell. Their timing would appear impeccable. Never mind that they and some government officials are creating the timing.
How big are these chunks of cash? Johnson & Johnson announced in February that they would bring in $11 billion.[20] Pfizer put its planned figure at $37.6 billion.[21] But are these figures big enough to pump the dollar? You bet. An ABN Amro currency strategist, Aziz McMahon, has been quoted as saying, The sums are so large that if even a small proportion is transferred from other currencies, the positive impact on the dollar could be substantial. According to that banks calculations, each $20 billion pumped in from other currencies pumps the dollar against a broad index of currencies about 1%.[22] So the announced amounts would be sufficient to trigger both momentum trading in the dollar and trigger short covering rallies which themselves would trigger further momentum trading.
Even the announcements of the currency repatriations can trigger short covering rallies. ABNs McMahon added, The psychological impact a wave of announcements could have on structural short-dollar positions should also not be underestimated.[23]
JUST PRINTING MONEY TO PUMP MARKETS
Short covering rallies certainly played a role in the prolonged stock market run up which followed an initial Iraqi War bombing rally in March 2003. But there is more. A respected gold market analyst, Michael Bolser, has shown how the Fed quite simply pumped money into the markets during this period, with massive cash injections often timed at local stock market bottoms. His article, Repurchase agreements and the Dow, should be required reading for anyone who wants to understand rigged markets.[24] According to Bolsers analysis, the Fed was simply flooding the economy with liquidity just before and during that rally. Using data available on the Fed website, Bolser plotted the injections of cash from the Fed when it bought Treasuries on the open market, which means buying them from the 22 banks that deal directly with the Fed. The simple buying of existing Treasuries by the Fed is called a Permanent Open Market Operation (POMO). By contrast, buying back a certificate with a specific repurchase (buy-back) date is called a Temporary Open Market Operation (TOMO). Bolser observes, There were four closely spaced Permanent Open Market Operations just prior to the 1,000-point mid-March DOW launch. In addition, there was another POMO on March 13th of $710 Million coupled with a net TOMO injection of $3.25 Billion which resulted in a 303 point DOW gain on that day.
Bolser also clarifies the relative market impacts of these cash injections: Permanent Open Market Operations [POMOs] are usually much smaller in magnitude than Temporary operations but have a far greater effect on the market. Experts have suggested that there is a nine times market multiplier effect inherent in permanent open market operations.
STUFFING WADS OF TREASURIES INTO PENSION FUND HOLES
But what about all those billions that are already parked in dollar denominated tax havens, such as Puerto Rico? Among the Treasury Department permitted uses of the repatriated cash, is benefit plans, including pension benefits. Most of these plans are nowhere near recovery from losses suffered during the late 1990s bubble. Normally, the repatriated money would go straight into the stock market, thus pumping it--except for one thing. A number of companies do not have sufficient money in the reserves of their defined benefits pension funds to meet their contractual obligations to their retirees. If a pension fund goes broke, a federal agency, the Pension Benefit Guaranty Corporation (PBGC) takes on some of the obligationstypically pensioners collect 25 cents on the dollar. But the PBGC is itself broke, with companies defaulting or threatening to do so. For example, the PBGC has moved to take over the defined benefits pension funds of United Airlines.[25] And this is probably just the start of many such takeovers. By November 2004, the plans PBGC insured were under-funded $450 billion, an increase of $100 billion in just one year. Companies whose debt was evaluated at less than investment grade (a group that could soon include General Motors) were under-funded by $96 billion, an increase of $12 billion from the previous year.
So the PBGC could require another gigantic federal bailout, Some have compared this to the savings and loan crisis of the early nineties, said James Moore, who is in charge of pension products at a major bond fund, Pimco.[26]
But the U.S. government is also brokebecause of Bushs pro-war, anti-tax policy combination. Are there solutions? Sort of. One is just to fake the numbers, reducing the required reserves in these pension funds. Bush also plans to change the rules for investing for defined benefits pension plans in a way to reduce their likelihood of defaulting. Stocks can be down when pension payout demands are up. The right kind of bond could deliver the money at the right time. The new rules have not yet been announced, but seem certain to encourage the buying of Treasury Inflation Protected Securities (TIPS) by the depleted pension funds. Some funds are already jumping in to avoid even higher prices later. With the long dated TIPS pumped, the dollar looks less unattractive to Chinese and Japanese central banks and others. Masayuki Yoshihara, who manages, with others, over $9 billion at Japans fourth biggest life insurance company, Sumitomo Life Insurance Company, said Pension funds will continue to be overweight the long-end of the curve. We expect the yield curve to flatten even more, [27] What? Translating from finance-ese, he says that pension funds will keep buying long dated Treasuries, which will pump up their price and thus reduce their effective interest yield. (The interest is fixed, literally printed on the bond. So if buyers pay more to get the same printed interest rate, their effective yield goes down.) With long term interest rates falling and short term ones rising, the graph which represents these rates is becoming more and more of a flat straight line.
So there are a lot of relatively new sources of money for official manipulation of markets: federal contractor pension fund money, nicely insured under CAS; POMO and TOMO money, freshly printed by the Fed; the American Jobs Creation Act money, conveniently parked off shore; trading partner money, sometimes willingly given, sometimes extorted.
One nice thing about rigged markets is that they permit updating trite stock market axioms, such as Buy on the rumor, sell on the news. For Treasuries, this has now become, Buy on the rumor, buy again on the news, and then sell it to the Chinese or Japanese central banks.
All who imagine that the mythical market forces will prevail seem to deliberately avoid actually looking at what the so called markets really are, including their concentrations, Plunge Protection mechanisms, and Plunge Protections extensive access to a variety of pools of other peoples money. The mechanisms and the market concentrations permit the Bush administration to systematically sell off U.S. assets to pay for its more wars/less taxes policies. The Bush administration is comparable to a group of corrupt trustees for the family fortune of a lazy and incompetent heir. They siphon the money out by selling off the inheritance while the heir is too stupid or drunk to notice. He still has his mansion, his fleet of big cars and his monthly check, and he doesnt notice that the assets are shrinking. He may not for a while. This familys fortune is big and there are a lot of assets still to sell off.
© 2005 Robert Bell
Robert Bell, Chairman of the Economics Department, Brooklyn College, N.Y., is the author of seven books, including: Beursbedrog (The Stock Market Sting), De Arbeiderspers, Amsterdam, 2003; Les peches capitaux de la haute technologie (The Capital Sins of High Technology), Seuil, Paris, 1998; Impure Science, Wiley, N.Y., 1992
REFERENCES
[1] See The U.S. Governments Bubble Blowing Machine.
[2] U.S. Dollar Becomes Dependent on Handful of Central Banks, Financial Times, 24 January 2005, p. 2
[3] Treasuries Drop Before U.S. Begins Auctioning $51 Billion of Debt, Bloomberg.com, 8 February 2005
[4] U.S. 10-Year Treasury Note Rises on Optimism For Tame Inflation, Bloomberg.com, 7 February 2005
[5]
aujourdhui, les actionnaires sont cantonnes das un role de quasi-spectateur. Les petits actionnaires que lon appelle aujourdhui << actionnaires individuals >> savent quils ont peu de poids. Tous ensemble, ils ne representent que quelques pour cent du capital car linvestissement des ménages est de plus en plus sous forme de Sicav, de fonds communs de placement ou dassurance vie. Les acctionnaires, aujourdhui, ce swont donc les investisseurs institutionnels. (p. 187)
[6] Nous ne sommes plus, en effet, dans le monde que lon decrit dans les manuels deconomie, avec des investisseurs innombrables aux determinismes varies, choisissant chacun a sa maniere les titres quil va mettre en portefeuille la resultante de leurs millions de decisions generant une sorte dequilibre de marche changeant, mais stable ! La verite, cest que, depuis quelques annees, linvestissement raisonne sur une valeur a presque disparue au profit de comportements de plus en plus mecaniques. (p. 122)
[7] $1.3 trillion deficits forecast over decade, latimes.com 25 January 2005
[8] Dollar Rises Versus Yen; Chins Zhou Says Yuan Not Undervalued, Bloomberg.com 7 February 2005.
[9] Koizumi puts markets in spin, Financial Times, 11 March 2005, p. 1
[10] Feisty Greenback Inches Ahead, Financial times, 24 February 2005, p. 30
[11] Central Banks Seek to Calm Dollar Fears, Financial Times 24 February 2005, p.7
[12] Dollar Has Weekly Decline on Concern Banks May Slow Purchases, Bloomberg.com 26 Feb 2005
[13] Russia Ends De Facto Dollar Peg and Moves to Align Ruble With Euro, Financial Times, 6 Feb 2005
[14] Jusqua present, il sagisait du grand pari adopte par la quasi unanimite des cambistes: le dollar baissera en 2005.
[15] U.S. Tax Amnesty Could Rake in $100 Billion, Financial Times, 31 January 2005, p. 17
[16] Repatriated Cash Raises M&A Hopes, Financial Times, 31 January 2005
[17] U.S. Tax Amnesty Could Rake in $100 Billion, Financial Times 31 January 2005, p. 17
[18] Andrew Coggan, The Short View, Financial Times 12 February 2005, p. 15
[19] U.S. Tax Amnesty Could Rake in $100 Billion, Financial Times 31 January 2005, p. 17
[20] Repatriated Cash Raises M&A Hopes, Financial Times 2005
[21] U.S. Tax Amnesty Could Rake in $100 Billion, Financial Times, 31 January 2005, p. 17
[22] Positive Signs For Dollar Emerge, Financial Times, 21 January 2005, p. 28
[23] Positive Signs For Dollar Emerge, Financial Times, 21 January 2005, p. 28
[24] [link to financialsense.com]
[25] Battle over United pension plans heats up, Financial Times, 12-13 March 2005, p. 8
[26] A Case of Pension Deficit Disorder, Financial Times, 24 February 2005, p. 31
[27] Treasuries May Fall Amid Concern Demand Will Fall At Auctions, Bloomberg.com, 9 February 2005
Claude Bebear, Ils vont tuer le capitalism, Plon, Paris 2003, p. 186
[ii] Claude Bebear, Ils vont tuer le capitalism, Plon, Paris 2003, p. 122 (translated from the French by R. Bell)
[iii] The Exchange Stabilization Fund: How It Works, Economic Commentary, Federal Reserve Bank of Cleveland, December 1999
[link to www.financialsense.com] |
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User ID: 13629
4/10/2005 9:09 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
There are so many pertinent signs in this article, that if you dont take note , you will suffer the effects described therein.
Some Days, Itīs Not Even Worth Chewing Through the Restraints
March 2005
Richard Daughty, ...the angriest guy in economics
The Mogambo Guru
321 Gold
In last Thursdayīs Wall Street Journal, we read that the White House has a plan to divert $1 billion from the fund that compensates the victims of crime. If they were going to send that money to me, then of course I would be a big supporter of such a plan. Unfortunately, they are not, and you can tell by the way I am frowning and acting like a spoiled little brat that I am not happy about it one little bit. No, what they want to do is to use the money to cut the deficit, see, as if one lousy billion dollars is going to make a freaking tiny little teensy weensy dent in the budget deficit, which is expanding at a pace that will take us to, probably, close to a trillion dollars for the year! $1,000,000,000,000! This is just the freaking deficit, and it is 8 freaking percent of the damned economy! And this incomprehensible sum is just the deficit part of Congressional spending, which is money that they spend by borrowing, and thus putting us all deeper into debt as a country.
Probably as a side effect of the medications I am taking so that I donīt go completely berserk about the monetary insanity of the USA and wind up invading the Federal Reserve armed to the teeth and determined to "clean out that nest of mentally-ill rats and traitors to save America," I feel an instinctual drive to add a crude insult to my opening remarks. So let me add "the bastards!"
And why would I blame the Federal Reserve, when it is Congress spending all this money? Because the damned Federal Reserve creates the money to get borrowed! If there were no accursed Federal Reserve acting like the brain-dead chumps that they are, and adhering to the ridiculous tenets of their precious New Age economic theory, as soon as Congress authorized such deficit-spending extravagance, the world economy would come unglued. Interest rates would go to the moon! Money would flee the country, and the economy would tank! This feedback mechanism is what used to keep Congresses from acting like insane morons. No longer.
With a $2.2 trillion budget and a deficit of $1 billion deficit, then it seems to me, remembering my old school days where the teacher would ask me a question and I would reply that I did not know the answer, if you divide one of these numbers by the other one, you will show that the deficit is 46% of the budget! And, if the damn Treasury keeps borrowing money at this rate, the budget deficit as a percentage of GDP will then exceed 8% of GDP! Hell, Japan, far and away the worldīs biggest idiots as concerns monetary policy, is only running a budget deficit of 6.5% of GDP, and we American bozos are still "officially" at a budget deficit of "only" 4.4% of GDP, which is bad enough to cause old timers (which is defined in the Big Mogambo Dictionary (BMD) as "anybody who disagrees with the monstrous economic idiocy of constantly stimulating the economy and thus fueling inflation and donīt start talking about inflation because that really sets The Mogambo off and he is liable to have a heart attack (īurk!ī) and plotz right here on the floor."
Bill Buckler, who writes the Privateer newsletter, and who is, coincidentally, addressing this very topic, says "If the US credit expansion does no more than stay on its fourth quarter of 2004 trajectory, it will generate new credit to the tune of $US 3.425 TRILLION over the current year. By the end of 2005, the total will be close to 29.25% of the US GDP. That is a TOTALLY out of control situation. At the present level of expansion, total US credit markets will stand at around $US 40 TRILLION in less than nine months. That total will then be around 350% of the TOTAL US economy. Historically, this is a debt load which breaks ANY civil economy."
The result is that "If the US federal government even slows down their rate of deficit spending, the US economy dives into an economic recession. If the Federal Reserve slows down its credit expansion, the US economy dives into a steep economic recession. Both institutions are fully aware of this, so they will NOT slow down. This being the case, it is simply a matter of time before the world slows down or even stops its funding of US external deficits. The result will be a US economic recession and a plunging $US."
Even the Chinese are doing this same silly crap! We read that the China Daily has reported that "China plans to use money tied up in state-owned assets to deal with a boom in retirees expected in 15 yearsī time. State assets, such as stock in large companies, will be converted into funds that can help fill Chinaīs 2.5-trillion-yuan (300-billion-dollar) pension shortfall."
This brings up two questions: 1) where is all of this money supposed to come from? And 2) why are they doing this? Well, they never get around to telling us where in the hell all this money is going to come from that will 1) buy up whole swaths of old, decrepit Chinese infrastructure, and 2) support legions of Chinese retirees for the rest of their lives.
As to the "why" question, it is simplicity itself. "To avoid a major financial crisis, China is trying to abandon its previous īpay-as-you-goī system, where people in the workforce pay directly for the support of retirees in the expectations that later generations will do the same for them." Sound familiar? It should! Itīs the Chinese equivalent of our Social Security system! Only this one is in China, which is a large country on the other side of the world, and it is packed full with 1.3 billion Chinese people, according to press bulletins. The article goes on to say "Instead, the government aims to establish a new system where each individual saves money for himself on a personal retirement account." Yow! Privatization of Social Security!
If you want to see the face of the future of technology, an historical milestone has been reached, according to "Meet the Mind Readers," an article by Ian Sample in the 3/31/05 Guardian. His pithy summary is "Paralysed people can now control artificial limbs by thought alone."
The actual moment in history is "Thereīs a hand lying on the blanket on Matt Nagleīs desk and heīs staring at it intently, thinking īClose, close,ī as the scientists gathered around him look on. To their delight, the hand twitches and its outstretched fingers close around the open palm, clenching to a fist. In that moment, Nagle made history. Paralysed from the neck down after a vicious knife attack four years ago, he is the first person to have controlled an artificial limb using a device chronically implanted into his brain."
I thought it was funny that a recent study shows that Harvard student are dissatisfied with Harvard, at the same time as an op-ed piece by the horrid Michael Boskin appeared in the Wall Street Journal. Boskin is the Stanford economics "professor" who developed the actual statistical methods of lying about inflation, namely the infamous "hedonic" adjustments that have distorted the Consumer Price Index so much that it has become a joke among economists, so that the government could get off cheap. Speaking of which, this Boskin loser still thinks that the CPI is STILL overestimating inflation by 30-40 basis points! Hahahaha! What a lying moron! And Stanford University gave him a job? My god! Have they no shame? Is there nobody actually at Stanford that thinks that inflation is really only 1.6%? And that it still overstates inflation, so that inflation is "really" 1.2%?
But, similarly, perhaps we can all admire Johnnie Cochran for being a great lawyer, although he used slimy tricks and despicable race-card bigotry to get O. J. Simpson acquitted of murder, even though Simpson was the most obviously guilty defendant in the whole history of jurisprudence, and not even Perry Mason would have taken his case.
Likewise, I am sure that we Americans now equally admire the achievements of the whole Hitler government, as they were just doing their jobs, too, and they likewise did them very well! Hahaha! What a comparison! Cochran, Boskin and Nazis! Iīm sure I will be hearing from their lawyers, who will be all gung-ho about suing the hell out of The Mogambo until they learn that I have no money, and in fact I donīt even have a chance of ever earning any, mostly because I am just a stupid lunatic with a loud mouth, and if they are going after the honor of the thing, they soon realize that there is no honor in suing a guy who goes around wearing nothing except an adult-sized disposable diaper and a big stupid smile, and who spends his time standing on street corners holding a sign that reads, "Will rant hysterically about monetary policy for food!"
But there are more and more people who receive income based on interest rates, which respond, theoretically, to inflation, as lenders donīt ordinarily like lending muscular buying power to deadbeats like me, only to receive a piddly stream of income that provides less and less buying power because relentless inflation is chewing the dollarīs guts out, and thus the lenders end up with less buying power than when they started, and then the lenders get all bent out of shape, and then they start calling all the people who are in arrears in their payments, and then the phone is ringing all the time, ringing, ringing, ringing, and I am hiding behind the curtains and telling my wife to tell them that I am not at home. No, tell them that I am out of town! No, wait! Tell them that I am out of the country!
And the despicable Michael Boskin was hired to invent this method of lying about inflation so that the government could screw a bunch of recipients out of some of their inflation-adjusted income. And if these recipients ever discover that they are being systematically screwed out of buying power (because price-inflation obviously reduces the buying power of each dollar), then that is when Michael Boskin will wish he HAD taken the advice of The Mogambo, and ran off into the woods and hid in a cave, hiding his face, begging for forgiveness and crying like a baby. Maybe poop all over himself, too, since nobody wants to deal with guys covered in crap. At least, that is how it has worked out for me!
And since we are talking about angry people getting screwed out of buying power, maybe I could mention a few of these people; Social Security recipients, people who save money and bondholders. Hahahaha!
Speaking of screwing people out of money and justice, the government has now decided to stop adjusting the yields on savings bonds every quarter. Now that yields have bottomed, and interest rates have hit their historic lows and are obviously heading back up, the bastards in government changed the rules, and your savings bonds now have a fixed and permanently-low interest rate! Hahahaha! No matter how high inflation gets, or how high interest rates get, you will be stuck right here! Hahahaha! Chumps! You trusted government with your money in return for their promises to offset inflation? Hahahaha! You get what you deserve, you nitwit!
Kurt Richebacherīs new sales piece is entitled "Here It Comes! The Dollarīs 7-Year Slide," which is about as succinct as you can get; direction AND time. Heed and prosper, or ignore and suffer.
It looks like the idea that the future will be a battle for water is heating up. From the AP in Shanghai, China, we learn "In Beijing, each resident has access to only 10,593 cubic feet of water a year, compared with the world average of 35,310 cubic feet." And worse, the needle on The Mogambo Bad-News-O-Meter (TMBNOM) dips to the bottom of its range as we read "Meanwhile, experts warned that more than 300 million rural Chinese lack clean drinking water since most of Chinaīs waterways are fouled by industrial effluent, untreated sewage and runoff of agricultural chemicals from fields." Editorial Mogambo comment (EMC): Yuck. The article goes on to say, "Only 47 percent of water in major rivers is drinkable, while half of all lakes are heavily polluted. And 35 percent of ground water is undrinkable due to pollution."
Perhaps the lesson is to invest in companies that deal with cleaning up or preventing pollution, and in desalinization devices, and maybe some share of bottled water companies, too!
Paul Hein has a nice essay entitled "Give No Quarter" on the LewRockwell.com site. He must have been looking at how the metal in coins now cost more than the coins are worth, and he says to relax. "The mint says that the coins cost a nickel to produce. Americans will have to pay 25 cents apiece for them. This is a īprofitī of 20 cents per coin, and the mint, remember, is going to stamp out half a billion of them, for a net gain of 100 million bux. Nonsense! The actual cost of producing the coins is ˇ nothing. If you can pay for money with money, how can it cost you anything?" The Mogambo is delighted with Mr. Hein, and I hop up and down and clap my hands together in childish glee! Exactly! Hahahaha! He goes on to give an example, "How much would a bunch of grapes cost if you could pay for it with a couple of grapes? Suppose you pick up a large bunch of juicy, delicious grapes at the supermarket. The checkout clerk says, īThose will cost you three grapes.ī So you pick off three grapes and give them to her. Were the grapes expensive? Can you continue to afford them, even if the cost doubles to six grapes?"
Then he gets very philosophical, but important, if you think that casting aspersions on fiat currency is important, and I do. "If a slave-owner in the 19th century printed up some nice chits bearing pictures of himself (using his slaves to do the work, and produce the paper and ink) and then distributed them to the slaves as īpayment,ī they could exchange the chits among themselves as money. Of course, they would have no claim on any assets of the master, but that wouldnīt occur to them. That is precisely what defined their slavery, even if they thought of themselves as free: their chains were made of paper. So are ours."
In his essay "The Decay of Paper Currency", Chris Mayer writes, "Inflation, as it is commonly known, has not always been the normal state of affairs." That is because the normal state of affairs is people trying as hard as they can NOT to let inflation get started. And I will tell you that a damned government letting a damned central bank actually try and create inflation ("to prevent deflation") is not normal for people who are not insane, either. But Mr. Mayer doesnīt want to talk about that, and instead motions for me to sit back down and take a pill. With me safely out of the way, he quotes James Grant, who is the editor of Grantīs Interest Rate Observer, who said "From George Washington to the A-bomb, prices alternately rose and fell... As Alan Greenspan himself has pointed out, the American price level registered little net change between 1800 and 1929." Now Mr. Mayer extrapolates from that "It took Rome four centuries to destroy its currency," he said. "Germany and Austria reached that point in just nine years, ending in the famous hyperinflations of the 1920s, and before that, Russia managed it in only five years."
Hahahaha! And if you think that is funny, then you will probably bust a gut to learn that Greenspan has devalued our money by 30% or so in the last few years alone, and the poor old dollar has lost about 98% of its value since 1913 when the filthy Federal Reserve was created! And if you think THAT is funny, then you are will probably fall down on the floor and die laughing to learn that the value of the dollar goes lower and lower every damn day, and will probably continue to do so for the rest of your life!
Then, like the poet that he obviously is, he writes, "Like the biting winds of nature that sculpt rock and carve stone, inflation and taxes will grind the greatest piles of fortune to dust over time. The road to extinction may be of indeterminable length, but the final destination of that road is not in doubt. The same can be said of all our paper currencies, be they yen or pounds, pesos or ringgit. All of them are on the same slide."
Niklas T. is another of those guys who comprehends the enormity of the problem. He writes, "Since all money is borrowed into existence, it is just a big Ponzi-scheme all of it. The entire world is victim of compound interest, and we know where that will end - eternal exponential growth of debt. Oh, not eternal really. It get interrupted by crashes." Hahahaha! And that is why Ponzi schemes are illegal when we citizens do them!
Dan Ferris, of the Real Estate Shareholder letter, has an interesting take on housing as an investment, which is all the rage these days. "Experience plus my research into real estate has taught me that a house isnīt really much of an investment, contrary to what everybody will tell you. It doesnīt pay me a penny in rent or interest or income of any kind. I canīt spend it without going into more debt. With investments, youīre supposed to earn interest, not pay it! And if I sell my house, I have a choice to make: either use the proceeds for more real estate, or pay a big capital gains tax. My only return is the benefit of living in it."
Bill Bonner of the DailyReckoning.com site, is not just another pretty face, or even just a guy who has a face that is prettier than my face, which is everybody, as far as I can tell. So while I am dancing around singing "I feel pretty, oh, so pretty!" in some pathetic attempt to lie to myself so that I will not cry myself to sleep, he is doing actual economics work that concerns housing, and has noted that the bubble in housing has also created some problems for owners who think that they are going to rent out the expensive houses that they are buying, and make the mortgage payments with the rent money.. He says, "Likewise, houses now sell at an implied P/E of 34. That is, annual rental income for the average house would equal only 1/34 of the purchase price."
And speaking of real estate, Eric Fry, in his Rude Awakening column entitled Nobodyīs Fool, quotes Susan Walker, of Fox News, who says that Warren Buffet, the smartest and most successful investor in the world, "is not investing in real estate, an all-too-tempting alternative for regular folks who have some money they would like to invest but who donīt trust the stock markets. In fact, as the most recent issue of īThe Elliott Wave Financial Forecastī points out, many people are īnow captivated by the concept of easy wealth through real estate...According to the National Association of Realtors, a stunning 25 percent of the 7.7 million homes sold in 2004 were purchased strictly as investments.īī Of course, these people figure that there is always going to be somebody coming along down the street, some dumb guy, like me, who will say "A jillion dollars for a house? Sure! Why not?"
There are some guys who go beyond the problems with our monetary systems, and one of them is Dr. Edwin Vieira, Jr., Ph.D., J.D, whose essay on the NewsWithViews.com site is entitled "Will the Coming Monetary Crisis Provide Opportunity For Reform?" I think he answers his own question when he replies, "No! Weīre scroomed!!" And since a currency crisis is inevitable, then what happens next? Well, this is where Dr, Vieira comes in, who reminds us that it is not just the economic problems that will bedevil us, as history has shown us the depths of corruption to which legislators will stoop when their own spending/philosophical stupidities inevitably backfire on them. He says, "Even the most abusive precedents established under Roosevelt, however, will not define the outermost reaches of the īemergencyī powers contemporary public officeholders will seize in the event of a new monetary and banking crisis. Rather, they will employ whatever police-state tactics they deem necessary to deter and punish violations of their īregulations, limitations and restrictionsī--from fines and forfeitures of property to incarceration in prison cells, internment in prison camps, and interment in graves....As OīBrien told Winston Smith in Orwellīs 1984, if one wants a picture of the future, imagine a boot stomping on a human face--forever." Or, as Edwin Clarence Riegel may have put it, "Not money, but a false money system is the root of all evil"
To show you an example of depth to which governments must sink when these Ponzi schemes get out of hand, the South Korean government, to quote the last Thursdayīs Wall Street Journal, "Made a last-ditch effort to tackle the countryīs household debt problem by announcing a package for Koreans with little or no income that practically writes off their debt."
The idiocy is that those who are on welfare are not obligated to repay their debts, and, as a bonus, are also relived of being stigmatized as "credit delinquents", so that they can continue to borrow more money from unsuspecting lenders, which they never have to repay, either!
If you are on welfare in that country, you donīt have to repay the principal or even pay interest on your debt as long as you remain on welfare, which brings up the point about who in their right mind would ever get OFF welfare with a sweet deal like that?
The problem is that Korea is in recession, see, and the whole country has been, like the US, gorging at an orgy of credit. Which brings up a nice quote from the Elliott Wave International people, who were researching the history of major depressions in the U.S. from 1830 on. They say they were "impressed" that they were "All were set off by a deflation of excess credit. This was the one factor in common." Exactly! Itīs the Austrian Business Cycle Theory, over and over and over again!
But what is NOT answered in the little sidebar was what happens to the Korean lenders, the people who are owed the interest payments, which they are not going to get, or the original money that they expect to get back, which they are ALSO not going to get. Hahahaha! Chumps! It is exactly what they deserve, the morons! I mean, how stupid do you have to be to loan large amounts of money to people on welfare? Welfare pays so much in Korea that the recipients have so much money that they can afford to not only buy things, but also pay the high interest charges? My God! And they though this could last? Hahahaha!
It embarrasses me to mention it, I happen to be, uniquely, one of the most stupid people on the planet, and yet this even sounds stupid to me! But what is going to happen is that the creditors are just going to raise prices and interest charges on the people who DO pay, and that will be an "unexpected" consequence. And then when these people see how they are being screwed, and what a sweet deal this is for people on welfare, they are going to want a little of this gravy, too! And then people will run for office on a platform of "no payments, no interest loans for the little guy!" And that will be another "unexpected" consequence.
Richard Greeneīs March 25, 2005 essay is entitled "Gold - The Forgotten Asset Class". He notes that "It has been over two decades since gold was widely referred to as an asset class by Wall Street and the media. It would probably be generous to say that even 1% of American investors have an adequate understanding of why at least a 10% portion of their assets should be safeguarded in gold and silver, primarily in bullion. An even smaller percentage understands that they must have physical possession or a custodian that can prove that they are holding their purchased gold in a segregated account. Unfortunately, we have found that the vast majority that has moved to protect their portfolios with investments in the precious metal sector are foreigners."
Foreigners have been buying gold? Is that why the price is over $400 per ounce? Well, who are these people, since it is not us hotshot Americans? He answers "The really sad part is investors from China, Japan, the Middle East, and India are taking advantage of any pullback to keep adding to their gold and silver holdings." So what does one do? I start to get to my feet to offer my suggestion, which is, of course, to buy gold. But he sees me stirring, and quickly adds, "The fundamentals for gold get better every single day as money expansion continues. Use declines in the prices of metals and the stocks to build a position as part of your portfolio. Speaking of gold, I notice that the gold lease rates have collapsed, which brought out a lot of leasing, which they turned around and sold, which could explain why the price of gold dropped last week". Most of us figure that gold is being manipulated down by the fabled Gold Cartel, the one that GATA and the Metropolecafe.com people are always yelling about.
Want more proof than the idiotic Mogambo standing in the middle of the road haranguing people as they drive by that gold is being manipulated and that this represents a golden buying opportunity, if they will excuse the pun, which they never do? Well then, maybe you will listen to the Charleston Voice when they say, "It is now becoming widely accepted that the worldīs central banks have shorted (sold) as much as 15,000 tons of their gold reserves in a concerted effort to suppress goldīs price as measured in paper currencies."
And it is not just the gold and silver markets that are being rigged, but all the other markets, too, as chronicled in "The Invisible Hand (of the U.S. Government) in Financial Markets", written by C. Robert Bell and posted on Financialsense.com. His summary is "The U.S. government is manipulating all major U.S. financial markets-stocks, treasuries, currencies." The rest of the highly-informative article "shows how it is possible and how it is done, why it is done, who specifically is doing it, when they do it, and where they get the money to do it."
Even George Ure at UrbanSurvival.com reported that an article has appeared that indicates that The Mogambo was right when he said that that monetary policy, now operating for most of the last decade with all the taps open full, will prove ultimately to be a failure, even though the government is freely manipulating the markets via fiscal policy to keep it from failing. To wit: "Tax money was sent to the Office of Special Brokerage Services (OSBS), to which management of the reconstruction funds was assigned. The OSBS, quietly through third parties, purchased approximately $5 billion in stock in February, 2004. Another $9.2 billion was invested the following month. More than $14 billion earmarked for reconstruction was actually invested on Wall Street. The memoīs author and date are unknown. This portion of the apparently classified document -- marked īpage 3ī -- was mistakenly sent to Mid-America Seed Savers, a nonprofit organization in Lawrence, Kansas whose members had filed a Freedom of Information Act request for documents related to the Armyīs alleged distribution of genetically engineered wheat seed to farmers in Iraq" according to Stan Cox, who is a plant breeder and writer in Salina, Kansas.
It is all part of a gift to the Iraqis, they say, as "The OSBS has assigned portions of the fundīs assets to individual citizens, based on voting rolls from the January election. Although he or she is not yet aware of it, each and every Iraqi voter now owns a Personal Reconstruction Account (PRA)". Until the unrest settle down, they figure that the accounts that will "continue to grow in value, safely, until violence in Iraq subsides and normal economic activity can resume. At that point, Iraqi citizens will be able to draw on their PRAs as needed, putting that money to work in their economy and stimulating private-sector solutions to the problem of reconstruction." Hahahaha! This is what passes for economic and financial management! Of course, the US markets going up will have wonderful domestic effects, too, and that is the whole point of it, because if we really, really, really cared about Iraqis we would have given them themoney before we killed a couple of hundred thousand of them.
Everybody assumes that this is a hoax, especially since it came out on April Foolīs Day. But after seeing the lies and frauds being committed every day by our own government, I am not so sure.
John Hathaway of Tocqueville Asset Management notes that he views the news that the "EU member states have agreed to relax constraints their budgets are subject to under the Stability and Growth Pact which underpins the euro" as containing very positive news for gold, probably the most positive news for gold in the past two years.
Why is he so bullish on gold from reading this? He explains, "The money supply of euros, according to the European Central Bank, is 6.6 trillion euros (M3 as of 1/05), equivalent at current exchange rates to $8.6 trillion. On the other hand, the monetary supply of gold, assuming all central bank gold is for sale (which of course it isnīt at any given moment), is around $1 trillion. Removing central bank gold from the equation leaves a residue of monetary gold of approximately half this amount, a fraction of the euro money supply."
What does this mean to you and me? Iīm glad you asked! And the reason I am glad you asked is that I donīt have to say a word, and I can just sit here sucking a banana daiquiri through a straw, and all I have to do is point the Bony Mogambo Finger of Fate (BMFOF) to where Mr. Hathaway writes, "The bull market in gold, which commenced in August of 1999, will shed its stealth mode. We stand at the end of the beginning of the first leg in a multi year bull market in the metal."
On Bloomberg we read that "Mexicoīs central bank today raised interest rates for a ninth consecutive month to slow inflation as commodity prices rebound and workers in Latin Americaīs largest economy push for higher wages." Wow! Apparently, not everyone in this hemisphere is as sanguine as Greenspan and the Fed about inflation!
And if you want the Mogambo Prediction (MP) on inflation rates, you donīt have to wait around for me to sober up, but you can easily figure it out for yourself. All you have to do is go to the back two pages of the Economist magazine, and look at the huge rises in money supplies around the globe, and notice how many countries have short-term interest rates that are essentially at, or in many cases below, their own reported inflation rates! Money is so freaking cheap, around the damn globe, that it is insane!
All this cheap money is pumping up the prices of assets, which, in turn makes Ben Bernanke of the Federal Reserve start wetting his pants when he thinks that the prices of these ludicrously-overpriced assets might fall in price ("deflationī). His answer? More money! More inflation! Inflation-targeting! The Mogambo falls to one knee, weeping piteously, his mighty shoulders heaving with each sob, when he thinks of the inevitable pain that is surely ours if we continue to listen to such idiocy.
Well, creating more and more money is always the solution to every problem, asposited by the horrid Ben Bernanke, who has, thankfully, been appointed to the toothless, powerless and ignored intellectual wasteland known as the Presidentīs Council of Economic Advisors, and thus he is no longer in danger of doing damaging, stupid things as a Governor at the Federal Reserve, because if ever there was a lunatic halfwit, this Bernanke character is it, although he does not wear a cape and a propeller beanie like the Mogambo, who is ALSO a lunatic halfwit, and (for those of you who are new to the ways of the Mogambo (WOTM)) you can always tell the difference between only one of us has such a classy sartorial style.
Plus, Bernanke will be perfect for the job as economic advisor to President Bush, as Bush is intent on spending us into the poorhouse. And creating more money and credit and spending it like there is no tomorrow is Bernankeīs prescription for everything, which is all they teach in the universities anymore, and which also that proves, beyond a doubt, that we Americans are the biggest bunch of idiots that ever walked on the face of the earth, because it takes a huge group of real morons to not only think that the problems caused by too much creation of money and credit, and the amassing of un-payable levels of debt, is MORE money and credit and debt, but they actually teach this preposterous idiocy in our universities! And to mix it all with a fiat currency, a central bank overseeing a fractional banking leverage of historical proportions, and a huge government that combines the worst elements of communism, socialism and fascism that, as I have argued before the Intergalactic Council back when Zorgg the Tyrant was crowned as Omnipotent Overlord of the Galaxy, proves that Earthlings are dumber than the Zylonian Glog-people in the Rigelian star cluster, which always gets a big laugh.
The New Age twist is that if everybody does it, then somehow it is OK. It reminds me of a cartoon I saw one time, where this scientific egghead type has covered the blackboard with a dense series of complicated equations, leading to the result, down at the end, where he has written "A miracle happens", and he is saying to a colleague, "It works perfectly until this last step here." Hahahaha! Welcome to Modern New Age Macroeconomics! Hahahaha!
But this is not about how stupid we are, but about how to use this natural, pandemic stupidity to make some money for ourselves, so that we can spend the rest of our lives living large and saying to friends and relatives and those snotty employees at the grocery store, "You laughed at me and mocked me!" I mean, it looks like it will work! Theoretically, when the prices of everything go up, so will the prices of stocks and bonds and houses, thus preventing deflation in those assets! And that is the point of the whole thing! What they refuse to acknowledge, to my astonishment, is all of the other problems that inflation cause.
To that end, Doug Noland has not only looked at the data, but has provided us with a little statistical analysis when he writes, "May crude oil jumped $2.43 to $57.27. For the week, the CRB index rose 1.6%, increasing y-t-d gains to 9.8%. The Goldman Sachs Commodities index surged 4.5% to a record high, pushing 2005 gains to an impressive 26.2%." And when prices increase faster than incomes, you are in a world of hurt.
And it is not just you and me that are pouring straight bourbon into a glass and chugging it down, hoping to calm our nerves at the signs of roaring inflation and maybe also help deaden that shrill harping from our wives who want to know when we are going to get up off of our big fat butts and do something useful around the house. No, others are also alarmed, as he relays a Dow Jones blurb by Arden Dale, who wrote "Investors in emerging-market mutual funds and hedge funds reversed course dramatically in recent days, staging a big pullout due to worries about inflation."
And if you think that oil is going to get cheaper, then the Amazing Mogambo (AM) closes his eyes and discerns that you are an idiot and have a wife that is sorry that she did not listen to her friends and family before she married you because they clearly told her that you are an idiot and even talking to me on the phone was a big mistake and now she is going to make me pay Big Time (BT) for that mistake, and although it is commonly said that only idiots would read the Mogambo Guru, I am sure that none of you actually think that oil is going to get cheaper, so that proves that you are NOT idiots. And if you ARE an idiot, and you think that oil is going to get cheaper, then you can throw off the shackles of your idiocity (SOYI) by merely reading this sentence from Bloomberg; "Chinaīs consumption of oil this year may rise 10 percent to 354 million metric tons because of surging demand for fuels, the China Petroleum & Chemical Industry Association said."
Byron King, of the website Whiskey and Gunpowder, has written an interesting article entitled "A Hole in the Ground." Which was mostly a very interesting article about oil drilling and the problems associated with them, as if I havenīt seen enough old movies on TV where the oil well suddenly gushes oil all over everybody and everything, and how they are all dancing around in their glee, and all I can think of is that I am glad that I am not getting that oil all over me because I am sure that I would have been wearing my good shoes, or my good pants, or my good shirt, or something, and they would have gotten ruined, and then my mother would be screaming and hollering and all hell would have broken loose and pretty soon I would be thinking of oil, as Byron Kingīs title does, as just a nasty hole in the ground.
But I would not a much of a lunatic gold-bug weird-o crackpot if I did not mention that it was the part about the durability of gold that caught my eye. He said that in the beginning of the oil boom, each barrel of oil "sold for about $10, equal to half an ounce of gold back in those pre-Civil War days in the year 1860. Ten dollars was the equivalent of a weekīs wages for an average working man laboring in a factory -- that is, if he worked all seven days of the week."
So oil is worth, compared to todayīs price of gold, a half ounce of gold, or roughly $223? So, looked at in this way, gold I either expensive or oil is cheap. Or maybe both. But then again, a weekīs total compensation for factory workers is a lot more than an ounce of gold, namely $426 at todayīs prices. So now we have to decide if either gold is cheap or labor is expensive!
In a similar vein, Adam Hamilton of Zeal Intelligence newsletter, in an essay entitled "Gold/Oil Ratio Extremes 2" writes that the "venerable gold/oil ratio hit an all-time low, an abysmal 7.7. Second, note the incredible correlation between gold and oil prices in the last four decades. This strong dance between oil and gold is what makes the gold/oil ratio so valuable. It is amazing to now see the gold/oil ratio at its lowest levels ever."
He goes on to note that "Oil is just mid-priced and gold is very cheap when the relentless erosion of the US dollarīs purchasing power via the Fedīs endless fiat inflation is factored in." And since the Fed is still engaged in "relentless erosion" of the dollar, oil seems destined to get pricier and pricier. How much pricier? Well, since we have Mr. Hamilton on the phone, letīs ask him! He says "In order to get to new all-time real highs, oil would have to catapult north of $95 per barrel and gold would shoot well over $1600."
In light of that, he goes on to say "Neither oil nor gold should be considered expensive today in light of history, regardless of Wall Streetīs incessant anti-commodity propaganda. Meanwhile gold is so darned low in real terms that it hasnīt even returned to mid-1990s levels yet! The folks who claim gold is expensive apparently donīt understand inflation."
Apparently Goldman Sachs is thinking the same thing, and they are recently famous for having said that oil could go to $100 a barrel in the next tightening cycle, and this has caused quite a stir, which will soon evaporate, of course.
Peter Schiff, of Euro Pacific Capital neatly encapsulates the dilemma facing the Federal Reserve, now that it is reaching the end of its irresponsible over-indulgence of cheap money, "To fight off the recession dragon, the Fed will look to brandish its only weapon, its interest-rate-cutting sword. However, the minute it does, it will be attacked by its other nemesis, the now much fiercer inflation dragon. To fight this monster, the Fed will reach for its other weapon, its interest-rate-hiking sword. Realizing that it cannot wield both swords simultaneously, it will slay neither, and be consumed by both." This is much classier than me yelling out of the window yelling "Weīre freaking doomed!"
This part just showed up as a result of cutting and pasting, so I donīt know who said it, but some woman asked. "So hereīs the most under-asked question of the year," she says. "If Warren Buffet[t] isnīt putting Berkshire Hathawayīs money in stocks [or in real estate], can this be a good time for anyone else to do it?"
Antal Fekete, writing on Free Market New Network, has penned several "Goldbug Variations" articles, which is a clever adaptation of the musical Goldberg Variations. In them, he does not actually mention Bach, which you would kind of expect, but instead writes, in Goldbug Variations I" that "Bond speculation introduces distortions into the economy that will inevitably cause the downfall of the regime of irredeemable currency. It may or may not be through runaway inflation as in France during the last decade of the eighteenth century. It may be through runaway deflation. In either case, there will be enormous economic pain."
In the third installment, cleverly entitled "Goldbug Variations III" that "One of the more imbecilic ideas of dismal monetary science is that devaluation of the currency helps the country to export more and import less, thus rectifying the trade imbalance. It is absolutely amazing that economists do not find it repulsive to parrot this trash, apparently on order from the grant departments of the FR banks (in whose interest the policy of currency debasement clearly is). Currency devaluation makes your terms of trade with the rest of the world deteriorate. This means that you can import less for every dollar of export earnings as a result of devaluation." So there is the rub. If the dollar buys less, we buy less, the foreign seller gets less, and thus has less money to "invest" in American debt, which provides the credit with which to buy the imports in the first place. He goes on to say "Virtually all export items have imported ingredients, so devaluation makes them more expensive to produce, not less."
Doug Noland has also tipped us off, courtesy of Bloomberg, that maybe putting a little investment money into cotton would be a good idea, because "China, the worldīs largest cotton consumer, will probably have a bigger shortfall next year because 2005 cotton acreage may fall about 11.5 percent, the National Development and Reform Commission said Prices of the fiber are expected to rise this year because global production may drop 9 percent while consumption may rise 2 percent, the commission saidciting international forecasts."
And for those of you who have seen the full-suit-but-empty-headed morons parading around the set of CNBC talking about how corporations have all this money just sitting around in their vaults getting mildew all over it and how this bodes well for capex spending, Kate Welling, in an interview with Doug Noland, said "Andrew Smithers did a neat job in a recent report (published by his Smithers & Co.) of using the Z.1 to show that U.S. companies are anything but flush with cash. His contention, in fact, is that theyīre currently paying out more, in (paltry) dividends and share buybacks, than theyīre earning in profits-a situation that clearly canīt go on forever, and has obvious negative implications for the stock market."
Then she gets back to something that always makes me prick up my ears when she ask (obviously playing the devilīs advocate): "As long as the governments of the world keep running their printing presses, whatīs wrong with a using a little inflation to keep things moving along?"
And here is where we see the big difference between me and Doug Noland. I would have answered that question by screaming "What are you? Some kind of brain-damaged halfwit? EVERYTHING is wrong with a little inflation, you silly little twit!" which is, of course, a line I stole from Monty Python. But Mr. Noland, always the classy guy, cooly answers: "There are consequences-and they are not all benign." And it is not even just us! He says that inflation is "everywhere in the world. Itīs gone global. Itīs endemic. Itīs commodities, home prices, bond prices, stock prices, foreign real estate, emerging bond markets, emerging equity markets, Chinese real estate, for gosh sakes." And it is not going to get better, as "We have very highly liquid competitors now. And we are bidding against them for whatever we want or need." And notice that he is too much of a gentleman to mention that inflation is guaranteed, since all of the worldīs governments are actively printing whole mountain ranges of money for the bidding war!
He then proceeds to give her a little education about how the economy has been distorted into the malignant monster that it is. He tells her, "When I talk about īfinancial arbitrage capitalismī, I mean you are what you eat. The economy is how the financial sector lends. So if everything is a spread trade and no one cares about the underlying credit or the underlying economic return, how could you expect that to work well for the structure of the economy? It canīt."
Then, looking at history, Mr. Noland talks about the crash 1929, "When the speculators got hammered and liquidity collapsed, the economy was so distorted that it couldnīt function without that speculative liquidity." And this is why the despicable Federal Reserve continues trying to pound money into the system. Will it work? Hahahaha! And while I am busy laughing at the question, Mr. Noland seizes the microphone and says "It will keep working amazingly well, but only as long as the liquidity keeps flowing." So what is the problem? Well, if you had kept listening and not rudely interrupted by asking the question, you would have learned what the problem is. In Mr. Nolandīs own words "Itīs not sustainable."
The job numbers surprised Bob Wood of Kaizen Managed Assets, too, and he stopped demanding that I pay back the money I owe him to take a look at the employment numbers and says to me, "The BLS confirms110,000 new jobs, albeit with 179,000 of those jobs the result of the birth/death model! And Kudlow is glowing at how strong the economy and job market are!" So, after adjustment, the March Jobs Data is actually lower by 69,000? Hahahaha! 69,000 jobs were actually lost! Hahahaha!
- Stephen Leeb, senior editor of the Complete Investor newsletter, says that there is a consensus that they yuan may be worth "five or six times its current value." In fact, he says that the currencies of China and India are going to "jump against the dollar-by at least four or five times". Now, I donīt know how good YOU are at this investing thing, but for a loser like me, a 400%-500% gain is a nice investment tip !
But he is not done yet. Noting that the Chinese are producing stuff like crazy, he then extrapolates "Multiply 400%-500% unit growth times 400%-500% monetary growth, and you have yearly profits of over 20%... for the next 20 years." He deduces that you should have your money in China and India because that region will be "the main event - almost the only show on the planet -for the perhaps the rest of your life." How can this be, you ask? He has a ready answer, namely that that "half of the earth" is "no longer a mass of peons eking out an existence. Their 2.3 billion people are jumping from third-world status to first-world- in one generation."
Apparently even the sight of newsreels of the misery of the Depression is not enough to convince these people about the dangers of excess credit and money, and the horrors of the Weimar hyperinflation in Germany leaves them cold. I mean, you can see that the newsreels never show them watching TV, because they couldnīt afford TVs, and the kids are not playing video games for the same reason, and they donīt even have microwave ovens! And all because their money was debased to worthlessness, just like we are doing! I mean, how poor can you be?
And yet Bernanke and the rest of those low-IQ, New Age weenies at the Federal Reserve all say to look at how inflation is so low! It reminds me of the Monty Python sketch where King Arthur chops off the arm of the Black Knight, who denies that his arm is chopped off by saying "Itīs just a scratch!"
I got this in the mail, and it is supposedly some of the dirty laundry of the 535 members of Congress. This is, so the letter goes, their record:
29 have been accused of spousal abuse
*7 have been arrested for fraud
19 have been accused of writing bad checks
117 have directly or indirectly bankrupted at least 2 businesses
3 have done time for assault
71 cannot get a credit card due to bad credit
14 have been arrested on drug-related charges
8 have been arrested for shoplifting
21 are currently defendants in lawsuits
84 have been arrested for drunk driving in the last year
Given the general quality of the people we routinely elect to Congress, I assume this is only scratching the surface of that iceberg. Ugh.
**** The Mogambo Sez: My wife saw a sweatshirt in a Wireless catalog that has written on it, "Some days, itīs not even worth chewing through the restraints."
[link to www.321gold.com] |
| .
User ID: 13629
4/10/2005 9:12 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Amazing and astounding insights into insanity ,
stupidity, greed, foolishness and herd behaviour from the above.
Paul Hein has a nice essay entitled "Give No Quarter" on the LewRockwell.com site. He must have been looking at how the metal in coins now cost more than the coins are worth, and he says to relax. "The mint says that the coins cost a nickel to produce. Americans will have to pay 25 cents apiece for them. This is a īprofitī of 20 cents per coin, and the mint, remember, is going to stamp out half a billion of them, for a net gain of 100 million bux. Nonsense! The actual cost of producing the coins is ˇ nothing. If you can pay for money with money, how can it cost you anything?" The Mogambo is delighted with Mr. Hein, and I hop up and down and clap my hands together in childish glee! Exactly! Hahahaha! He goes on to give an example, "How much would a bunch of grapes cost if you could pay for it with a couple of grapes? Suppose you pick up a large bunch of juicy, delicious grapes at the supermarket. The checkout clerk says, īThose will cost you three grapes.ī So you pick off three grapes and give them to her. Were the grapes expensive? Can you continue to afford them, even if the cost doubles to six grapes?"
Then he gets very philosophical, but important, if you think that casting aspersions on fiat currency is important, and I do. "If a slave-owner in the 19th century printed up some nice chits bearing pictures of himself (using his slaves to do the work, and produce the paper and ink) and then distributed them to the slaves as īpayment,ī they could exchange the chits among themselves as money. Of course, they would have no claim on any assets of the master, but that wouldnīt occur to them. That is precisely what defined their slavery, even if they thought of themselves as free: their chains were made of paper. So are ours." |
| Ventura Highway
User ID: 13642
4/10/2005 10:32 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
So, uh, could you like summarize what you said in
layman´s terms?
In other words, the US economy has been sabatogued by the New World Order interests that want to see it crash. That way they can take it over with the rest of the world and be the new "Kings" of the world? |
| .
User ID: 12918
4/12/2005 9:22 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
You Need Us and We Need You
America and foreign central banks are locked in a codependent relationship: America is addicted to spending, and the banks cant stop throwing money at it in order to keep their currencies down. This is unhealthy for both parties, say the IMF and the World Bank. But is there any political will to change it?
April 12, 2005
The Economist
AMERICA has been warned many times in recent years that its profligate spending is dangerous, for itself and for the world economy. So far, however, Americans have ignored such doom-mongering, gleefully driving their current-account and budget deficits to record levels. Now the World Bank and the International Monetary Fund (IMF) seem to be trying to stage an intervention. This week, both have come out with reports on the global financial situationand both reports give warning that Americas fiscal irresponsibility poses serious risks to the world economy.
Neither organisation issues the kind of scathing indictment that might offend its most powerful constituent. Nonetheless, both make it pointedly clear that Americas copious spending is a real, and growing, problem for the rest of the world. Americas 12-month current-account deficit now stands at $665.9 billion, or 5.7% of GDP. Since a negative balance in the current account must be complemented by a positive balance in the capital account, this means that foreign funds are streaming in. America is mortgaging its future to pay for current spending.
Part of the reason this spending is so hard to get a grip on is that it is happening on multiple levels. With interest rates low, consumers have been tapping into their home equity and taking on credit-card debtthe latest figures from Americas Bureau of Economic Analysis show individuals savings were just 0.6% of their income in February. Meanwhile, even after massive tax cuts, the Bush administration has forged ahead with ambitious spending programmes. Thus, in 2004 the federal governments budget deficit hit $412 billion, a worrying 3.6% of GDP. It is projected to fall only to $365 billion, or 3% of GDP, in 2005.
The gap between income and spending has been financed by foreigners, especially central banks; more than half of all publicly available Treasury bonds are now held abroad (see chart). But the central banks that are buying up all this paper, particularly Asian ones, are trapped in something of a vicious circle.
The natural adjustment mechanism for Americas rapidly growing foreign liabilities would be a declining dollar, which would lower demand for imports and make Americas exports more attractive on foreign markets. But the Asian central banks are stalling this process because they want to keep their currencies from appreciating against the dollar and thus becoming less competitiveand buying sackloads of dollars and then dumping them into US Treasuries achieves just that. This simply enables America to borrow more, making the inevitable adjustment sharper when it comes. That risk, of course, makes dollar-denominated assets less attractive, meaning that the Asian central banks have to go to ever-greater lengths to keep their currencies from appreciating.
We cant go on like this
The World Bank estimates that roughly 70% of global foreign reserves are now in dollars. That growing portfolio of dollar assets is vulnerable to currency correction. This is not such a problem if the dollar declines gently, but an abrupt change in its value could spell trouble, as central banks find themselves with gaping holes in their portfolios.
Central banks have another problem: many are reaching the limits of their ability to sterilise their currency transactions. In order to keep their exchange-rate operations from causing inflation at home (the natural result of keeping ones currency undervalued), central banks sell bonds on the domestic market in order to mop up excess money supply. However, this is expensive, since in many cases the interest rates on domestic bonds are significantly higher than on the Treasuries the central banks are buying. The World Bank estimates that this differential costs emerging-market central banks $250m a year for every $10 billion they hold in reserves.
There are further, institutional, limitations. The Reserve Bank of India, which is forbidden to issue debt or sell rupee assets on international markets, is running down its inventory of securities to sell. Last autumn, South Koreas central bank bumped up against the annual limits on the sale of government debt. And China, a huge consumer of American debt, has been stuffing securities into its state-owned banks at below-market rates. This has made its already-fragile financial sector even weaker, and cannot go on indefinitely.
But as the IMF notes (and the World Bank agrees), dollar depreciation cannot be the only mechanism of adjustment for current global imbalances. They want developing countries with artificially cheap currencies to make their exchange rates more flexible. Europe and Japan are urged to stimulate domestic demand, taking the pressure off America to be the worlds customerthough this seems a little unfair to Japan, which has been energetic, if ineffective, in pursuit of consumer stimulus. And America, the Bank and Fund make clear, must get its fiscal house in order, cutting its budget deficit and encouraging consumers to save.
I can quit any time
Unfortunately, like much good advice, these recommendations seem to have little hope of being implemented any time soon. The political pressure in Asia to subsidise exports with low exchange rates is intense. Interest rates in Japan have been near zero for four years, giving the central bank little room for additional action; meanwhile, the European Central Bank seems to be preparing for a rise in interest rates this autumn, to keep inflation near its target of just below 2%, which will hardly do much for demand. And in America, the political will to reduce deficits seems to be all but extinct.
Given all these reasons to worry, it might seem surprising that both the IMF and the World Bank are broadly optimistic about the world economy. But as they point out, growth in 2004 was robust, and the world is currently enjoying high levels of macroeconomic stability. Alan Greenspan is expected to deliver steady increases in interest rates, slowing American demand, and forcing its consumers to rebuild shaky savings; it is hoped that this will help bring about an orderly adjustment in the dollars value. This will not be pain-free for the rest of the worlddeveloping countries that have got sweet debt deals from investors fleeing low American interest rates will find their borrowing less easy to finance. But the resulting decline in imports should allow central banks to cut back on the breakneck pace of growth in reserves. And who knows? Perhaps once ordinary Americans are forced to live within their means, they will start demanding the same from their government.
[link to www.economist.com] |
| .
User ID: 11888
4/19/2005 10:58 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Americaīs Riotous Real Estate
April 20, 2005
By Mike Davis
Asia Times
Last February the sirens howled in Hollywood as the Los Angeles Police Department (LAPD) rushed reinforcements to the 5600-block of La Mirada Avenue. While a police captain barked orders through a bullhorn, an angry crowd of 3,000 shouted back expletives. A passer-by might have mistaken the confrontation for a major movie shoot, or perhaps the beginning of the next great LA riot.
In fact, as LAPD Captain Michael Downing later told the press: "You had some very desperate people who had a mob mentality. It was as if people were trying to get the last piece of bread." The bread-riot allusion was apt, although the crowd was in fact clamoring for the last crumbs of affordable housing in a city where rents and mortgages have been soaring through the stratosphere. At stake were 56 unfinished apartments being built by a non-profit agency. The developers had expected a turnout of, at most, several hundred. When thousands of desperate applicants showed up instead, the scene quickly turned ugly and the police intervened.
A few weekends after this tense confrontation in Hollywood, another anxious mob - this time composed of more affluent home-seekers - queued up for hours for an opportunity to make outrageous bids on a single, run-down house with a cracked foundation in a nearby suburb renowned for its good schools. "The teeming crowd," wrote Los Angeles Times columnist Steve Lopez, "was no surprise given the latest evidence that Californiaīs public schools are dropout factories."
Los Angelesī underfunded, overcrowded and violent schools, according to a recent report by Harvard researchers, currently fail to graduate the majority of their black and Latino students, as well as one-third of whites. Parents, as a result, are willing to make extraordinary sacrifices to move their children to suburbs with functioning public education. This gives the old adage of "location is everything" in real estate a new twist: housing in southern California is universally advertised and graded by the prestige of local school districts.
The southern California housing crisis, of course, has a sunnier side as well. In the past five years median home values have increased 118% in Los Angeles and an extraordinary 137% in neighboring San Diego. Homes, as a result, have become private automated teller machines (ATMs), providing their owners with magical, unearned cash flows for purchasing new sports utility vehicles, making down payments on vacation homes, and financing increasingly expensive college educations for their kids. Second mortgages and home refinancings, according to a Wharton Business School survey, have generated an astounding US$1.6 trillion in additional consumption since 2000.
The great American housing bubble, like its obese counterparts in the United Kingdom, Ireland, the Netherlands, Spain and Australia, is a classical zero-sum game. Without generating an atom of new wealth, land inflation ruthlessly redistributes wealth from asset-seekers to asset-holders, reinforcing divisions within as well as between social classes. A young schoolteacher in San Diego who rents an apartment, for example, now faces an annual housing cost ($24,000 for a two-bedroom in a central area) equivalent to two-thirds of her income. Conversely, an older school-bus driver who owns a modest home in the same neighborhood may have "earned" almost as much from housing inflation as from his unionized job.
The current US housing bubble is the bastard offspring of the stock-market bubble of the mid-1990s. Housing prices, especially on the west coast and in the eastīs Bos-Wash (Boston-Washington, DC) corridor, began to rocket in the second half of 1995 as dot-com profits were plowed into real estate. The boom has been sustained by sensationally low mortgage rates, thanks principally to the willingness of China to buy vast amounts of US Treasury bonds despite their low or negative yields. Beijing has been willing to subsidize US mortgage borrowers as the price for keeping the door open to Chinese exports.
Similarly, the hottest home markets - southern California, Las Vegas, New York, Miami, and Washington, DC - have attracted voracious ant columns of pure speculators, buying and selling homes in the gamble that prices will continue to rise. The most successful speculator, of course, has been George W Bush. Rising home values have propped up a stagnant economy and blunted criticisms of otherwise disastrous economic policies. The Democrats for their part have failed to address seriously the crisis of millions of families now locked out of home ownership. In a bubble city such as San Diego, for instance, less than 15% of the population earns enough to finance the cost of a median-value new home.
Accordingly, if "values" were the basis for the Bush victory last November, they were property values, not moral principles or religious prejudices. In the face of the perverse housing bubble, the John Kerry campaign, as with health-care costs and the export of jobs, was simply running on empty. It offered no compelling alternative to the status quo. But the Republicans have more serious things to worry about than Democrats. As the real-estate bubble reaches its peak, George Bush may discover that he has been surfing a tsunami and that a towering cliff looms ahead.
The bubble has already burst in San Francisco, and the April 11 issue of Business Week headlined fears that a general deflation - perhaps of international magnitude - is nigh. What will life be like in the United States (or Britain or Ireland) after the home-equity ATM shuts down?
The business press, as always, reassures passengers that they are headed for a "soft landing", a slowdown rather than a crash, but even a mild jolt may be sufficient to end the current anemic recovery and throw all the dollar-pegged economies into recession. More ominously, some eminently respectable Wall Street economists, like Stephen Roach of Morgan Stanley, have been warning of a dangerous negative-feedback loop between the foreign-subsidized housing bubble and the huge US trade and budget deficits. "The funding of America," he has written, "is an accident waiting to happen."
At the end of the day, US military hegemony is no longer underwritten by an equivalent global economic supremacy. The housing bubble, like the dot-com boom before it, has temporarily masked a mess of economic contradictions. As a result, the second term of George W Bush may hold some first-class Shakespearean surprises.
Mike Davis is the author of Dead Cities and the forthcoming Monster at the Door: The Global Threat of Avian Influenza (New Press 2005).
[link to www.atimes.com] |
| Anonymous Coward
User ID: 1596
4/19/2005 11:49 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
try an original thought.
asshole. |
| Anonymous Coward
User ID: 1596
4/19/2005 11:56 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
I"M A BUYY!!! |
| .
User ID: 14033
4/20/2005 9:03 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Daddy! Wake Up! Where is All My Money?
April 14, 2005
Richard Daughty
...the angriest guy in economics, The Mogambo Guru
321 Gold
The only thing that made me gasp this week was that the banks suddenly dumped $22 billion in bonds last week. Kinda weird, but things have been more weird, I think.
Of course, the Treasury is still issuing debt with both hands, bringing us to almost $7.9 trillion. The interest on the national debt totaled $321.6 billion in 2004, which works out to an average of 4.1%, and it, and the total debt, will obviously be higher this year.
Nursing a killer hangover and flipping through the TV dial in my boredom, I ended up watching C-SPAN 2, which is this strange television station that shows what is supposed to be the floor of the U.S. Senate, and they have these actors portraying elected officials in this weird format where everybody is a nitwit. In this episode, I vaguely remember watching what is, I assume, a formal debate between two Republicans and two Democrats about the Social Security "crisis." It was painfully obvious that the Democrats, as is their brain-dead wont, are idiots, and they do not have the slightest comprehension of the issue, or, if they DO have the slightest comprehension of the issue, are not the least bit embarrassed to conceal the fact. The Republicans, although they were much more well-informed as to the problem, are equally moronic about how the stock market works, as is a crucial tenet of the Social Security Privatization, for which they are so hot to get passed into law.
Like I said; nitwits. For one thing, for all their preoccupation with Social Security, they donīt even mention Medicare, which is, according to Comptroller General David Walker, "is a seven to eight times greater problem than Social Security."
To clear this up, the Mighty Mogambo (MM) will take some of his precious Mogambo Time (PMT) to explain that the "crisis" in Social Security is that the Congress is aghast that they will have less and less money to spend on their collective idiocies for the next 45 years. This is because the Social Security tax (and it is a tax, regardless of what anybody tells you) to fund the Social Security welfare program (and it is a welfare program, no matter what anybody tells you) produces more than enough money to fund this welfare program for the next forty or fifty freaking years! They all agree on this one point. This is a "crisis?"
Now, for normal people like me, a "crisis" is something bad that is either happening right now (such as my wife banging on my head with a skillet, screaming "Maybe this will knock a little sense into your damn thick head!"), or a crisis is something bad that will happen very soon (such as my wife planning to hit me on the head with a skillet as soon as she gets back from the kitchen with it). So Social Security, for the next forty or fifty years is in fine shape, which is more than you can say for me. Or the skillet.
But this is not about me and my comic misadventures with kitchen cookware. So, and follow closely here, I swerve to get us back to the topic, and reiterate that more money is coming in from SS taxes than is needed, and money will continue to come in for, as we recall from a previous paragraph, the next forty or fifty years. But, and this is the crux of the matter so I will change that to "BUT" as an indication of emphasis so that you know that this of some significant import, the Congress takes the rest of the money, calls it a "surplus," and spends it on their collectivist/socialist stupidities! Thus, a surplus is reduced to, in round numbers, zero! Itīs all used up! But they act as if there is actually some money to "protect!" Hahahaha! I told you this was funny stuff!
Like waking up in the morning and looking in the mirror, this is the ugly fact of the matter: The Social Security debate is NOT about saving the Social Security welfare program in the future by boosting some mythical "credit balances" in the "trust fund," because there is no freaking money in the trust fund and there never will be. Some is spent by giving it to the current Social Security beneficiaries, and the rest is spent by Congress, which thinks that (and this is proof of their incompetence) because they put a "special IOU" in the "trust fund," that it is as good as money! Hahahaha! Even President George Bush, who has every incentive to lie, admitted "The trust fund is just an empty IOU, just a piece of paper. You pay your payroll tax; we pay for the people who have retired, and if thereīs any money left over, we spend it on government. Thatīs how it works."
So where is the crisis? The "crisis" is, therefore, that this glorious "surplus" will be gradually reduced, year after year, as more and more seniors start collecting their Social Security welfare checks, and fewer and fewer worker contribute a larger and larger portion of their wages. At this point, if you think that this is still not a crisis, then you are right! Allow you gaze to follow the Mogambo Pointing Finger (MPF) to the real "crisis," which is that the Congress will then have less and less to spend on themselves, their friends, and their socialist idiocies, as year after year they will have even less and less to spend. Then, finally, after the forty or fifty years have passed, they will have nothing, zero, zip, zilch to spend, because that is when the "surplus" disappears.
I close my eyes and use the Mogambo Extra-Sensory Powers (MESP), and as I peer into your brain I note that you are wondering if now, finally, after having to read paragraph after paragraph of pure tripe, I will be getting to the damn point, which affects these Congressional buttheads so profoundly that they refer to it as a "crisis." To that I smile enigmatically, and reveal "Maybe yes, and maybe no, but mostly no." The problem is that erstwhile "surplus" was not spent on a pleasant day at the beach. No, it was spent on creating enormous, permanent programs, all staffed by people who went out and bought houses, and are raising families because they think that this program is permanent, and there is also a whole cohort of the "private" economy that is selling goods and services to these programs, and all of THOSE people went out and bought houses and are raising families because they, also, think that the programs are permanent. But it is impossible to keep these programs permanent when you know you will have less and less money coming in. Especially when every halfwit Democrat actually believes that creating more and more programs, to funnel more and more money to selected recipients, is, and I quote some of them, from Clinton on down, as saying it is "the business of government!" They actually say it in so many words! So what are these idiot Congresspersons going to do with their precious Congressperson time all day when there is no more money for them to start more programs? Oh, the horror!
It is, instead, all about letting the Congress have lots of money to spend as they try to buy our love and our votes, such as more malignant expansion of the size and scope of government, which distorts the economy more and more, as if this is a good thing, which it is not. In fact, it is a very bad thing, as we are about to find out. And it gets worse than this; not only is all that Social Security "surplus" spent on on-going programs, but it is completely insufficient to pay for the wants and needs of government, as they are already on track to borrow another $700 billionīs worth of "budget deficit" this year alone! And the cost of all the programs and deficit-spending to date has produced the National Debt of close to $7.9 trillion dollars!
On the other hand, the idea to force Personal Savings Accounts down the ravenous maw of the gluttonous American population is a blatant attempt to force people to put money into the stock and bond markets. And it will be done, one way or the other. If we do not, then these two ridiculously overpriced markets will "revert to the mean" and fall to their true values, which would wipe out the entire American economy, as financial services and government ARE the economy nowadays.
This point is not lost on Alan Abelson, as he notes, in his "Up and Down Wall Street" column in Barronīs, that "Earnings of financial companies now account for some 40% of all corporate earnings, up from a mere 4% two decades ago, and they represent 25% of total stock market capitalization, versus 5% in the īSeventies." They make a whopping 40% of all earnings, and their shares are a quarter of the entire stock market? Wow! See how important they are? Now you know why Bush is pushing this idea so hard!
The problem is that it cannot work. For this stock market and bond market stupidity to succeed would be exactly the same as sitting down to a game of poker (and you can call me "Doc" Mogambo, as in "Hey, Doc! Stop dealing from the bottom of the deck or Iīll punch your stupid nose again!"), and expecting that everybody will win! Hahahaha! You sit down at the table, and you are dealt a hand of stocks and bonds and houses, you bet like crazy, (of which the house, namely the government, takes a percentage), and then you bet some more, and gamble some more, and drink beer, and smoke cigars, and get drunker and drunker, and at the end of the night, after weaving down the road singing "How dry I am," we wake up the next morning and our heads are pounding, and our spouses want to know where in the hell we have been all night, and we call our buddies on the phone trying to get some answers, and then we find that everybody went home with more money than they had at the beginning? Hahahaha! People believe this can happen? Well, the Republicans do! Hahahaha! Morons! But you never see these posturing, preening weenies saying that people ought to take their Social Security taxes and play poker with them! Hahahaha!
So, when you cut through the lies, stupidities and outright frauds, the entire "Saving Social Security" exercise is to 1) get at least the same, and hopefully more, money for the Congress to spend since the Social Security program will be throwing off smaller and smaller "surpluses," and 2) funneling lots of money into the financial services sector of the economy, since it already produces 40% of the corporate earnings in the whole freaking country. That is all there is to it. Simple, huh?
Even AFL-CIO President John Sweeney criticized the Bush privatization plan, calling it "a risky scheme for America, but a sure bet for the financial services industry."
And if anybody tells you different, like these four Congressional blockheads, then you know who is trustworthy and who is not, which ought to make your voting chores very easy next November, when you have a chance to throw these lying, despicable jerks out of office and elect someone who is, hopefully, competent and trustworthy. Like you. Or somebody just like you. Preferably you.
But it is also another blistering indictment of the stupidity of the Baby ("We Love Everybody!") Boomer generation, as once again try and pump up the economy via mandating that people put more and more money into retirement plans, so that we can get a little short-term pleasure from watching our assets go up in price, and maybe that will make our houses go up in price, too, so that we can take some of that additional equity and borrow it, which we will because interest rates will be low, low, low as a result of our buying so damned many bonds with this forced investment, then we can take all that wonderful, glorious money and go shopping! And we will buy more consumables and gobble them up, gobble gobble slurp! As Dr. Richebächer so pithily puts it, "The United States is the one and only country in the world where monetary policy was systematically designed toward the goal of inflating the market value of assets - stocks, houses and bonds - virtually making wealth creation through inflating asset prices their explicit goal."
But when the party inevitably ends (as it must, because if there WAS a way to get rich by constantly going deeper and deeper and deeper into debt, somebody else in all of history would have made it work, and they all tried, and they all failed), then the Baby ("All You Need Is Love") Boomer generation, now fat, older, and more stupid than ever, will let out a gigantic burrrrrrrrrrp, poop in the diaper of America, and their own children and grandchildren will be called in to work like slaves to clean up the mess.
How embarrassing to be a Baby ("It Takes A Village") Boomer.
From another perspective, namely the Up Close And Personal view, Social Security is like when I tell my kid to get a paper route and start making some money mowing lawns and babysitting somebodyīs brats. And I will, as the benevolent father who loves her and wants to protect her, will take -- poink! -- a sixth of everything she makes, off the top. She starts yelling and screaming "Mom! Daddy took a sixth of my money, and he wonīt give it back!" and so my wife yells up the stairs for me to give the money back, and so I go out into the hall and patiently and calmly explain my terrific new plan to Save Our Daughterīs Future, which I cleverly call The Mogambo Plan To Save Our Daughterīs Future (MPTSODF), by yelling back "Shut yer hole, ya crazy old bag, before I come down there and shut it for you!" which was apparently the wrong thing to say, because the next thing I know, I hear shells being loaded into a pump 12-gauge shotgun and she is yelling "You stay right there, mister! I have had all of the Mogambo crap I am going to take!" Deciding to test whether the window is a good emergency fire exit, I quickly found myself outside, and so I went to the bar and had a few rounds, and then everything started looking better. I wrote an IOU on a bar napkin, which I thought was really poetic in its own way, but I probably wonīt get any credit for THAT, either!
But sitting there on that barstool, hour after hour, gave me time to think about how I will tell them that I am taking this money ONLY to save it for her college and eventual retirement, and how this is in her best interests, and how everything will be wonderful, if you trust me. I mean, I give a little of the money to her older sister, who is obviously closer to needing an education and a retirement, and the rest I spend on myself and my hoodlum friends. But instead of admitting that I am stealing her money outright, because it sure as hell LOOKS like I am stealing her money outright, and since everybody knows the kind of dirty, treacherous back-stabbing gutter-rat that I really am, I will leave the aforementioned IOU in the piggy bank! Then it will NOT be stealing, see? Then when she gets ready to go to college, and she looks into the piggy bank, and all that is in there are these IOUs that smell like stale beer and cigarette smoke and one of them has the phone number of someone name Trixie written in lipstick, which is a lot harder to explain than you would think. Then, when she is grown and banging on the door, shouting "Daddy! Wake up! Where is all my money?" then all I have to do is tap her younger sister on the shoulder, hustle her lazy butt out the door to get a paper route, pick up some extra money mowing some lawns, and babysitting somebodyīs brats. Then I will take a FIFTH of HER earnings, which is more than enough to pay back some of the IOUs, and there is still plenty still left over for me to spend on myself and my hoodlum friends! Whoopee! And then I can take my new-found expertise onto the campaign trail, so that I can get elected as a Congressman from one of the blue states, which actually believe this kind of crap, and then I can parade around and explain how I want to Save Social Security by doing this exact same thing, and everyone will love me, and re-elect me year after year after year.
In case you were idly wondering, "Hmmm. Methinks, whither interest rates?" vis a vis the Fed, the Optimist newsletter is "happy to advise that the next FED meeting will result in an interest rate increase of no more than a quarter point, and the meeting after that may well be a surprise reduction in interest rates! Even though inflation will be increasing at a rate which cannot be disguised by clever hedonic adjustments, the Optimist offers the positive view that interest rates will not be permitted to rise to the level where the few remaining USA jobs are threatened. Since jobs will be the limiting factor, the Optimist is happy to share the good news that interest rates will be kept well below the true rate of inflation for the foreseeable future." Which is, oddly enough, exactly what I figure will happen. So what does one do with the fabulous information, other than sending me and this Optimist bunch a lot of congratulatory bouquets of roses with cards that read "Bravo, Mogambo!" which will probably be real confusing for the people at the Optimist?
I am not the Optimist, and in fact I am a HUUUUUUGE pessimist from the word "go" and that is why I donīt trust anybody, and I think you should not trust anybody either, not even your own father or husband, and if you think I am kidding, then all you have to do is ask my daughter or wife about that, and for the next several hours they will happily give you a real education about that particular point. So while they are the "glass is half full" people and I am the "glass is half-empty and Iīll bet that they guy who drank half my beer has cooties, and if I drink the last half of this beer I will catch the cooties and probably die, or worse," but we are eerily similar when we reach the same conclusion, which I will reveal by quoting these Optimist guys when they say, "silver and gold investments will prosper greatly over the years ahead."
Reuters reports that Alan Greenspan, chairman of the Federal Reserve, has again urged Congress to take steps to curb the growth of both Fannie Mae and Freddie Mac, saying this "was vital to cut the risks the mortgage finance giants pose to the U.S. financial system." Hahahaha! The guy who made all the money available to create these mortgage giants and create all these debts now figures that that they "pose a threat"? Where in the hell has he been for the last freaking decade?
But how to do this? Who is going to pick up almost a trillion dollarīs of mortgage debt? The article says "In testimony prepared for delivery to the Senate Banking Committee, Greenspan said stiffer regulation alone was not enough to ease, and could worsen, the risks the two government-sponsored enterprises (GSEs) pose." My God! If regulation will not do it, then what in the hell is left?
Reuters also reports that last Thursday, U.S. Treasury Secretary John Snow, who has been more than instrumental in our government amassing the most debt per year, both nominal-wise and percentage of GDP-wise, wants to get his two stupid cents into the mix and said, "Mortgage giants Fannie Mae and Freddie Mac could threaten the economy if Congress fails to curb their investment activities."
Hell, they should leave the investment activities alone, and start homing in on the fraud and corruption in Fannie Mae! According to Dan Gainor, writing an essay entitled "Fannie Maeīs Bailout Tab" writes in the Washington Times, "Fannie Mae, the government-sponsored mortgage association, has been battling a mounting scandal since last year. It has accounting errors of about $11 billion. Thatīs more than nineteenfold Enronīs $567 million error." Wow! Nineteen times bigger!
But it doesnīt even stop there! He continues, "Fannie Maeīs whole mess caused the departure of Chief Executive Officer Franklin Raines and several other top executives. At the same time, Fannie Mae stock has dropped roughly 30 percent: from nearly $80 a share to around $55." And, lest we forget, for this egregious mismanagement and fraud, Raines has awarded himself a nice pension of over $120,000 a MONTH for the rest of his damn life! Hahahaha!
Even Doug Noland has been looking at this Fannie and Freddie mess, and if it catches HIS eye, then it must be bad. But as bad as it is, it is just the tip of the iceberg, as we learn when he writes, "Fannie and Freddie, with their combined books of business of $3.8 Trillion backed (hopefully) by a little sliver of shareholderīs equity. Troubled GM and Ford have total liabilities of $740 billion with equity stated at $45 billion and absolutely dismal prospects. AIG has total liabilities of almost $700 billion (SH Equity of $83bn). Combined, these five companiesī exposure of almost $5.3 Trillion is in the neighborhood of 30 times reported equity."
He is pretty gloomy as to what this means, because if you are even vaguely familiar with the Austrian Business Cycle Theory, or have ever passed by economic textbook that was laying on somebodyīs desk and you were drawn to it because the guy who owned the book was sitting there trying to read it, sitting with his head in his hands and muttering to himself "This is scary as hell!," then you realize that we are, hmmm, what is the word that means "really, really, really, really screwed"? I shall call on the Awesome Powers Of The Mogambo (APOTM) and come up with a new word, a neologism is you will, and that will be, umm, let me think, ummm, how about "hyperscrewed"? Or better yet, "hyper-mega-screwed." But Mr. Noland says merely, "To witness such a massive and pervasive Credit system problem at this pinnacle stage of system excess and asset inflation portends a devastating down cycle."
Kurt Richebächer, one of the most incandescent stars in the school of Austrian economics, who never has any time for The Mogambo (except for him yelling into the phone "Will you PLEASE stop calling me, you horrid little man? Go away! I am NOT going to loan you any money!" and rudely hanging up, time after time after time). But I notice that he apparently has lots and lots of time to talk to OTHER people, and probably let them borrow his barbeque grill, and maybe fork over a few bucks to tide them over until payday, and yet he still has time to write a newsletter. It is from one of these that we read that he agrees with The Mogambo, in that this our current economic mess is nothing new, as everybody and every country, in every era of time, all tried to buy more stuff than they could afford, and they went into debt to do it, and there were always sharp-tongued hustlers who were whispering to them "Go ahead! You can pay back the debt with your higher income!" Hahahaha! But he does not even mention The Mogambo when he writes "Sharp falls in saving and soaring trade deficits are nothing new in history. Yet compared to the past, there are two great differences now. One is in the contrasting reaction of policymakers, investors and economists; the other is in the enormous, unprecedented size of todayīs imbalances."
Now, this is all well and good, and it does nothing for you when you are trying to hide the television remote control from your wife, and she is looking all over for it, and you donīt want to give it to her because she will want to change the channel to watch one of her dumb shows, the ones I hate. But the lack of specifics and the fact that the remote is safely hidden under my big, fat butt are the only things making his comments bearable. But then he shatters ("kerrr--rash!") our placid little world when he writes, "Typical of the superficiality of economic thinking in the Anglosphere is the indifference to the changes occurring in the composition of GDP growth, however drastic these may be. During the four years 2000ˇ04, personal consumption captured 87.1% of U.S. real GDP growth, as against a longer-term average of 67%." American? Gluttons? Americans over-consuming? Americans going into debt to consume more and more stuff? Shocking!
But while we are enjoying a good joke at the good doctorīs expense, he apparently gets a little cheesed off about it, and hits us right between the eyes when he goes on to write "Including government spending, overall consumption absorbed well over 100% of GDP growth. At the same time, net national saving plunged from 5.8% to less than 1% of GDP. Nor do they find anything wrong with the fact that this consumption-driven pattern of economic growth is causing a horrid escalation of indebtedness."
But he acknowledging that consumption-via-debt is pandemic in the world, as he admits "In Britain and Australia, the associated borrowing-and-spending binges are even worse than in the United States. Central bankers who celebrate this as īwealth creationī and even explicitly animate people to exploit the possibilities of easy credit to lift their spending on consumption are unique to America."
- Tony Allison, in a guest editorial at FinancialSense.com entitled "Delayed Gratification, the Case for the Roth IRA," writes "Despite the economic storm clouds and general gnashing of teeth, there are ways to prepare and protect oneīs golden nest egg. Which brings us to the Roth IRA. Of all the retirement vehicles, it is the only one that allows all savings and investment earnings to be withdrawn (after age 59 12) totally tax-free. No income tax. No capital gains. Zippo. That may not seem like a big deal today, when you can get a tax write-off with a regular IRA, but it could be a huge deal in 10 or 20 years from today."
Theoretically, he is right. But to that I say, and you can quote me on this, "Hahahahahaha!" If you think for one minute that the government will allow you to keep tax-free gains, when they are obviously going to desperately need as much tax revenue as possible, and how you are one of "the blessed" in this country, to quote one of the loathsome Democrat loser weenies I had the stomach-churning misfortune to have witnessed her saying recently, I forget her name or where she is from, but she thinks that people with money are "blessed" and so these "blessed" people should be happy to share their bounty. And when it comes to bounty, I can see them peering at you with high-powered telescopes and noticing that you are doubly-blessed, as you, firstly, had enough money to sock away in a Roth account, and then blessed again that you made money with the money, and now you have a BIG chunk of money that is, and forgive me to keep harping on this one point, you "blessed" but you are not going to pay any tax on it? Fear not! The socialists and communists in the Congress of the United States will share it for you! Hahahaha!
Hell, he admits himself "the future appears to be inexorably moving toward an environment of higher inflation, higher interest rates and ultimately higher tax rates." So all of us chumps out here, working in our pathetic little jobs and paying higher taxes and higher prices, which is making our domestic lives into a hell on earth because we canīt afford to do any of the things she wants to do or buy any of the things that she wants to buy, are going to sit here like morons, watching you cashing in your fabulous tax-free gains and living it up out in Hollywood, cavorting with starlets who are willing to both believe that I am a Hollywood producer (Movie Producer Mogambo (MPM)) and that I can make her a movie star (Mogambo Big Fat Lie Number Twelve (MBFLNT))?
Recognizing the gruesome reality of my words, he concludes that "There are those (including some in this office) who believe that the U.S. government will unceremoniously pull the rug out and renege on the Rothīs tax-free withdrawal status at some point down the road. That threat will continue to exist." But even so, he says, it is better than the alternative, because you can choose what to invest in, as "For most 410-k owners, their savings can only be invested in a very limited spectrum of choices, usually plain vanilla stock and bond funds and company stock."
He then may have inadvertently given us a tip on a good investment when he asks the question, "Would you rather have the flexibility to invest in the Central Fund of Canada (gold and silver bullion) or be stuck in stock and bond mutual funds?"
I raise my hand! I know the answer to this one! Call on me! But he has left the stage, and I am here with my stupid hand in the air, hoping he will come back and call on me to answer the question, and people are laughing at me "Look at the stupid Mogambo with his hand in the air! Hahahaha!"
Speaking of people laughing at me, there have been an embarrassing number of people writing to inform me of things like errors in recent issues of the MoGu, mostly involving some typographical mix-up between millions and billions and trillions, and of course there is the old classic misunderstanding where I innocently asked some woman for directions to the train station and she makes this big, shrieking, hysterical scene because she mistakenly thought I had offered her ten bucks to strip down to her skivvies, dance the hootchie-cootchie and pant like a dog. So you can see how innocent mistakes are made. Sorry. But apologizing and promising to do better in the future is what I always do, and nothing ever changes.
Dan Denning, of Strategic Investing newsletter, writes that the low VIX, which is a measure of market volatility and is now indicating a remarkably calm stock market, reminds us that "Itīs one of the marketīs strange ironies that low readings on the VIX do not actually mean the market is stable, but that pressure is building for a big move."
Which way will the market move, up or down, when it DOES move? He ignores my question, yet answers obliquely when he says "Let me put it in plain terms for you: America is increasingly dependent on foreign central banks to sustain the value of the dollar. High consumption is made possible courtesy of the worldīs savers. We are getting a free ride into indebted servitude to foreign bondholders. The ride into indebtedness may be free, but getting out is going to be very expensive."
As a case study in how the Mind Of The Mogambo (MOTM) works, I will re-write Mr. Denningīs last line as "It is a lot easier falling into an open cesspool than it is to climb out of one, all covered in greasy, slimy crap, and trying to crawl up the side of that stinking hole and sliding back down into it, and there is your neighbor, The Mogambo, standing over you, laughing at your plight, and he is saying īI told you not to go down into that debt-financed consumption crap, using a fiat currency, in a banking system utilizing out-of-control degrees of fractional-reserve leverage!ī and you are screaming īDonīt just stand there, you idiot! Throw me a rope!ī and The Mogambo laughs even harder and replies īOh, so now itīs moral hazard insurance you want, is it? You always want somebody to come bail you out of your messes, never taking any responsibility for yourselfī and of course by this time you are yelling and crying and begging, and the stink is starting to make you woozy, and to tell you the trust it is also causing my eyes to smart, too, so I think Iīll just go around to the other side of the hole and stand upwind, and continue to laugh at you Americans some more, and then Iīll go home and watch the Simpsons. And maybe grab a brewski.
Okay, I can see where that is a little long, so perhaps it is best that we use Mr. Denningīs original phrase, "The ride into indebtedness may be free, but getting out is going to be very expensive."
But, wait! Now that I think about it, this is MY damn newsletter! So, in my unbridled arrogance, I will take another crack at tearing this Denning guy down, so that maybe I can make myself look like a big shot. And since he is not here and thus not able to defend himself, I consider him a sitting duck. Sucker! But still smarting from my abortive attempt to improve on his original phrase, I now choose to, instead, expand on it, thus showing that he only gave you half the story ("The cheap bastard!"), while you can trust The Mogambo ("All Hail The Mogambo!) to tell you ALL the facts, (audience rises as one and cheers "Yay, Mogambo!") and these facts are that when he says the word "expensive," he does not only mean the money. Higher prices can be called "misery," and if you have ever seen me blow my whole allowance on one lousy donut when I really wanted two donuts, and I remember the days (last month) when I could buy two donuts, but now they have gone up in price and I can only afford one stinking donut, and when you stick it into your mouth in one bite so that your cheeks puff out like some bizarre squirrel, it doesnīt last very long, either. Then you will know that there are many, many subtleties to the word "expensive," one of them being how miserable I am looking in through the window of the donut shop, drooling all over myself and everybody is complaining to the manager about the street bum in the drool-soaked shirt licking the window and scratching his butt, which stinks so bad they can actually smell it THROUGH the glass, then the total suffering from higher prices, and the inevitable well-meaning-but-disastrous response of Congress, will give you a whole new perspective on the meaning of the word "expensive." And when you truly comprehend the enormity of it all, it will give you the screaming willies and one lousy donut, which is never enough to cure a case of the screaming willies.
MarketNugget.com has taken a look at the projected growth of China and India, and has come to the same idea that The Mogambo came to, namely that money will be made from, as Jeffrey Simon says, "the industrialization of Asia. A solid portfolio can be built around the growth story of the decade." Decade? Hell! Longer than that!
But it will be a long, hard road, as the monetary looseness (monetary inflation) of all the worldīs central banks, including Chinaīs, is feeding into the world-wide resurgence of price inflation, and will continue to do so for a long time, right up to the time when everything is re-ordered in relative value and all the money is finally incorporated into prices.
And I figure that the big reason, the Big Reason, the BIG REASON that this area will prosper is that the population, per capita, is relatively unburdened by debt, and they can all qualify for credit cards! And when consumption starts surging as they begin consuming more stuff on credit, which means more imports of raw materials and widget parts, they are going to need a strong yuan to keep inflation down.
To show you the vacuity of thinking by American elected officials, which seems to be an oxymoron, the Associate Press reports that politicians in Washington, D.C. are NOT down on their knees, begging China NOT to devalue the dollar and please, please, please do not cut the yuanīs peg to the dollar. Instead (and I find this hard to believe), the AP reports "Congress, for the second time in two days, gave notice to both China and the Bush administration that it will take action if nothing is done about undervalued Chinese currency that gives Chinese goods an advantage over U.S. competition." U.S. competition? Hahahaha! And if the Chinese currency is, as they assert "undervalued," then the dollar is automatically "overvalued"? Wow! Wait until OPEC hears that they have been selling oil, their only asset, for too little real money! Who was that talking about $100 per barrel oil? Now you know where they got that idea!
Doug Noland, who takes a lot of time to read lots of stuff, is pretty gloomy as to what this all means, because if you are vaguely familiar with the Austrian Business Cycle Theory, then you realize that we are, hmmm, what is the word that means "really, really, really, really screwed"? I shall call on the Awesome Powers Of The Mogambo (APOTM) to come up with a new word, a neologism is you will, and that will be, umm, let me think, ummm, how about "hyperscrewed"? But Mr. Noland says merely, "To witness such a massive and pervasive Credit system problem at this pinnacle stage of system excess and asset inflation portends a devastating down cycle."
Paul van Eeden has posted his latest essay, "Word from the World Bank" at Kitco.com, and his attitude has not improved much, either. He reports that "According to the World Bank, the global economic recovery has peaked. The bank sees the best-case scenario as a mild slowdown in global economic growth over the next few years, yet warned that a new global recession is a possibility."
He goes on to say "The bank specifically suggested that the US shrink its budget deficit, as it saw the USīs need to borrow from foreign entities to finance its trade deficit as a major risk factor for the global outlook." Hahahaha! The government is going to shrink the budget deficit? Hahahaha! It makes you wonder what the World Bank has been smoking!
It looks to me like the gold lease rates are going back up, so the orgy of selling (to get the price of gold down with this influx of massive new selling of this newly-leased gold), should be about over.
Will Reishman, who is writing for Euro Pacific Capital, has penned an essay that shows that he is truly cognizant of the real source of all the worldīs problems, and this highly-informative essay is entitled "The Hirelings Are Running the World." If you donīt believe me, then here are his own words: "With corporate scandals, accounting fraud and the like in the headlines again, allow me to share a bit of my personal understanding of whatīs at the root of all this. Other than, of course, the fallen condition of sinful humanity, a prime cause of corporate corruption is that the U.S. financial system is founded upon dishonest money, originating with the institution of the Federal Reserve in 1913."
I read the Democratic National Committeeīs "week in Review" and of course they say they are all wonderful and Republicans (in general) and the Bush White House (in particular) are all a bunch of stinkers, and oddly enough I agree with the second half of that statement, and I have gotten into the habit of laughing at Democrats as a reflex. But the truth of the matter is that they are telling the truth when they write "Democrats have proven they can lead our country in delivering critical services AND cutting government debt!" because the facts show that debt always goes up a lot more when Republicans are in control! Weird! What the hell happened to the small-government, low-tax, low regulation Republicanism, so that now, even I use Mogambo Scorn Of Contempt (MSOC) like it is going out of style on them AND the damn Democrats alike? My world is being torn asunder! As part of the MSOC Syndrome (MSOC) I refer to all of them as "scumbags" and they usually refer to me as "the defendant."
But the Democrats, of course, still take the lead in idiocy, as they want the government to do a long list of things to benefit one population subset or another, and then end it with their "Quote of the Week" in which, out of all the things that a Democrat said all week, they highlight this gem:
"The first lesson we teach children when they enter competitive sports is to respect the referee, even if we think he might have made the wrong call. If our children can understand this, why canīt our political leaders?" -Senator Jim Jeffords (I-VT), New York Times 4/8/05. discussing Republicans who seek to undermine the Courts because they do not like their decisions."
I suddenly want to shout "Dear Butthead Jeffords," which is what I am now calling everybody who says such things, and every time the phone rings there is always somebody on the line who is, as it turns out, a butthead. And now, since we are talking about buttheads, I will take a few moments to demonstrate a little glimpse of the high-efficiency side of The Mogambo (THESOTM). When I tell you what it is, you are going to slap yourself on the forehead and say to yourself, "Brilliant! Why didnīt I think of that? Bravo Mogambo!" But here is my official entry in this yearīs Efficiency Award contest; I now answer the phone with "Hello, butthead" instead of just "hello," which lets them know -- right off the bat! -- that I know that they are a butthead, and so they can stop wasting everybodyīs valuable time saying things that make them sound like a butthead (e.g. "Howīs the weather where you live?" or "Quit tampering with the brakes on my car!"), and they can get right to the point of their damn call, which seems to be that they are spying on me and delight in waking me up from a nap, or interrupting me when I am watching TV, or eating something, or sitting on the toilet wishing I had not eaten those leftover burritos and thinking about how this is the perfect damn metaphor for my whole stinking life, or Iīm yelling at a neighbor about how his bratty kid is also a perfect metaphor for the irresponsible monetary policy of the Federal Reserve and the idiotic avalanche of deficit-spending by the Congress that is going to destroy us all, as both of them are fat and bloated, it makes me sick to look at them. Anyway, the reason that these people are bothering me with their incessant phone calls is that usually, they wanting to know when I am going to be sending them some money on my account which, according to their stupid records, is seriously in arrears, or they want to warn me to stay away from them or their families and stop bothering them all the time, just because I promised, in a moment of weakness, that if they loaned me some money that I would stop bothering them, but I lied, and now they are all real pissy about that, too! And I got up and answered the phone for this?
But I was going to, before I got sidetracked with this butthead thing, explain to this Jeffords weenie how stupid and laughably ridiculous for a grown adult to blindly accept the say-so of judges and referees, who get senile, and mentally ill, and stupid, and corrupt, just like the rest of society, by which I mean, obviously, Congress and all government weenies. And so their decisions, due to the awesome power these judges and referees wield, must be examined in excruciating detail, so that we can more quickly find out who is losing his or her marbles. And when you examine the decisions of the Supreme Court, you soon figure out for yourself that MOST of them are incompetent jerks.
People send me stuff that they think is interesting, a lot of it concerning the pacts and alliances and cross-border dealings around the world, mostly with China, and how we Americans are being cut out of the deals. Exactly. This is what happens to the big, rich bully when the big, rich bully ainīt so big or rich anymore.
But first there has to be a lot of extortion, as, for hypothetical instance, making us Americans spend over $250 billion dollars, more than a quarter freaking trillion dollars, on rebuilding whole swaths of the world over the last year and a half, so that China, India and Russia can have a lot of buyers with an intact infrastructure when they take over the economic throne.
- The trade gap widened again last month, so that, for February, exports are $61 billion more than exports. CBS News.com opines that, laughably, the falling US dollar will one day reverse the deficit. They write "The U.S. dollar has been declining for three years, a fact that should help narrow the trade deficit by making imports more expensive to American consumers while making U.S. exports cheaper." My eyes bug out in disbelief. Imports will cost twice as much? I raise a trembling hand to my perspiring forehead, and with a stupefied monotone I ask, "Where is the freaking benefit of this stupidity?"
If the dollar dropped by half, then imports would cost double? We would have 100% inflation? And even if the dollar DID drop by half, wouldnīt American exports STILL be the most expensive in town?
Unfortunately for CBS and the rest of the clowns who parrot this silly stuff, Peter Schiff of Euro Pacific Capital has looked at the data and has concluded "If anything, the statistical record is showing an inverse relationship between the dollar and the deficit. The more the dollar falls, the higher the deficit rises. The reality is that a falling dollar, by itself, only exacerbates the trade deficit, by increasing the cost of imports."
And although Mr. Schiff is too polite to mention it, I do not have a polite bone in my body, and with a loud, screeching voice and spittle of outrage flying from my lips, I say that this devaluation of the dollar is the inevitable result of the damnably incompetent monetary arrogance of Federal Reserve policy and their ridiculous theoretical trash known as, I assume, neo-Keynesian crapola. Or maybe just crapola. I dunno. But either way, it is highly descriptive of Federal Reserve policy, and what we are going to find ourselves in up to our necks as a result. Ugh.
**** The Mogambo Sez: Drive-offs, which is when a guy fills up his car with gas and then speeds off without paying, has gotten real bad around here lately. But totally expected: When the country is so indebted, and so short of money that they are charging living expenses on their credit cards, they are suddenly going to have MORE money after a near-doubling of energy prices in two years? Hahahaha! Welcome to the down side of the monetary inflation! Now you will learn why all educated people actually tried to NOT to get to this point, and why the current fashionable trend of actually encouraging indebtedness and inflation is so damned insane.
Or, as reader Robert B always appends to his emails, " "If a Nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be" -Thomas Jefferson.
[link to www.321gold.com] |
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User ID: 14045
4/20/2005 10:17 PM | | .
User ID: 14176
4/21/2005 8:28 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
When individuals do it, it is a crime , when money corporations and governments do it , it is either wartime tactics or fiscal responsibility(not).
2 Brits Nabbed With $3 Trillion in Fake US Fed Notes
April 21, 2005
ABS/CBN Interactive, Manila
The National Bureau of Investigation (NBI) on Thursday said it has arrested two British nationals with $3 trillion fake US federal bank notes in their possession, DZMM reported.
NBI Director Reynaldo Wycoco identified the suspects as Paul Edward John Flavell and Sam Beany. The two listed their address as Unit 305 CEO Apartments in Jupiter Street, Makati City.
The suspects were not physically present during the press conference called by Wycoco at the NBI office in Taft Avenue, Manila. Only the suspectsī photographs were shown to reporters.
Wycoco said NBI agents have also launched a manhunt for two other British nationals involved in the syndicate.
The two other suspects are Seki Mehmet Bayram and Peter Whittkamp.
Flavell and Beanyīs arrest came following a tip from international cargo forwarder DHL Philippines Inc. on April 14, Wycoco said.
The tip was about a shipment consigned to two foreigners, which was pending at the company warehouse.
The forwarder said the cargo was bound for Zurich, Switzerland.
The NBI dispatched a team to the DHL office. The agents were able to chance upon the suspects as they were paying the airway bill amounting to P53,967.
Company records show the suspects paid using a credit card.
Wycoco said Flavell and Beany did not resist arrest after they were made to open the cast-iron boxes containing bogus federal bank reserve certificates.
[link to www.abs-cbnnews.com] |
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User ID: 7414
4/26/2005 12:42 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Temporary Stock Market Crash in America, and Then Sharp Recovery Based on False Rumor by Media?
Enormous money made with these rumors through put and call options!
April 23, 2005
Staff Reporter
India Daily
Something interesting happened in late trading hours of Friday in New York. Influential Wall Street Journal put in their Website a false rumor that US officials are telling the Chinese officials that North Korea may be ready to explode a nuclear Test device. The market literally collapses in fifteen minutes. Soon the market recovered equally violently once major players understood that it was rumor by major mainstream media rumor! Strong put option buying and then selling and after the fall, strong call option buying and selling at the end of the day showed how special interest can make money using false rumors spread by major media.
U.S. government officials, speaking on condition of anonymity to Reuters on April 22, said they had no definitive evidence North Korea is preparing a nuclear test but that "there has been lots of stuff suggesting interesting activity." The officials were responding to a report in the Wall Street Journal online edition, which said some U.S. officials, had asked China to warn Pyongyang against a nuclear test.
What really happened in New York is a classical example how public is regularly skimmed of their money in the stock market.
[link to www.indiadaily.com] |
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User ID: 7414
4/26/2005 12:54 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Canada: Class Action Accuses Banks of Illegal Creation of Money
April 19, 2005
New Media Explorer
John Ruiz Dempsey, criminologist and forensic litigation specialist filed a class action suit on behalf of the People of Canada alleging that financial institutions are engaged in illegal creation of money, reports Tom Kennedy, a Canadian activist for economic reform.
One of the best kept secrets is the mechanism of money creation in todayīs economic system. Although not really a secret at all, the fact that money is created not by and for the people who use it and not even by the government, but is issued by commercial banks when giving loans to private persons or government, is hidden by what could be described as thick clouds of smoke, put out by economists and government departments.
The complaint was filed Friday April 15, 2005 in the Supreme Court of British Columbia at New Westminster. It alleges that all financial institutions who are in the business of lending money have engaged in a deliberate scheme to defraud the borrowers by lending non-existent money which are illegally created by the financial institutions out of "thin air."
The legal action brings to the fore one of the major economic "drag factors" - the interest charged by banks for money that technically and legally is not theirs to lend, because even governments end up paying interest to banks lending money for public spending, and they in turn charge tax payers. A large part of every countryīs tax revenue goes first and foremost - before any "internal" spending - to payment of interest, largely because of the basic flaw in our way of creating money by the rich and for the rich.
Here is some more detail about the class action filed in Canada.
Class Action Suit Filed on Behalf of the People of Canada
forwarded by Tom Kennedy
New Westminster, B.C., April 15, 2005.
John Ruiz Dempsey BSCr, LL.B, a criminologist and forensic litigation specialist filed a class action suit on behalf of the People of Canada alleging that financial institutions are engaged in illegal creation of money.
The complaint filed Friday April 15, 2005 in the Supreme Court of British Columbia at New Westminster, alleges that all financial institutions who are in the business of lending money have engaged in a deliberate scheme to defraud the borrowers by lending non-existent money which are illegally created by the financial institutions out of "thin air."
Dempsey claims that creation of money out of nothing is ultra vires these defendantsī charter or granted corporate power and therefore void and all monies loaned under false pretence contravenes the Criminal Code.
The suit which is the first of its kind ever filed in Canada which could involve millions of Canadians alleges that the contracts entered into between the People ("the borrowers") and the financial institutions were void or voidable and have no force and effect due to anticipated breach and for non-disclosure of material facts.
Dempsey says the transactions constitute counterfeiting and money laundering in that the source of money, if money was indeed advanced by the defendants and deposited into the borrowersī accounts, could not be traced, nor could it be explained or accounted for.
The suit names Envision Credit Union ("Envision"), a credit union; Laurentian Bank of Canada ("Laurentian Bank"), Royal Bank of Canada ("Royal Bank"), Canadian Imperial Bank of Commerce ("CIBC"), Bank of Montreal ("BOM"), TD Canada Trust ("Canada Trust") and Canadian Payment Association ("CPA") as civil conspirators.
The plaintiff in the lawsuit is seeking recovery of money and property that was lost by way of confiscation through illegal "debt" collection and foreclosure. The Plaintiff is also seeking for the return of the equities which rightfully belong to the People of Canada, now being held by the defendant financial institutions as constructive trustees without color of right.
At all material times, these defendant banks and all of them have no legal standing to lend any money to borrowers, because:
1) these banks and credit unions did not have the money to lend, and therefore they did not have any capacity to enter into a binding contract;
2) the defendants did not have any cash reserve, they are not legally permitted to lend their depositorīs or memberīs money without expressed written authorization form the depositors, and:
3) the defendants have no tangible assets of their own to lend and all their "assets" are "paper assets" which are mainly in the form of "receivables" created by them out of "thin air," derived out of loans whereas the monies loaned out were also created out of thin air.
Other than bookkeeping and computer entries, no money or substance of any value was loaned by the defendants to the Plaintiff. In all of the loan transactions entered into between the Plaintiff and the Defendants, the financial institutions did not bring any equity to any of the transaction.
All the equities were provided by the borrowers. The practices of the defendant financial institutions alleged in the complaint starkly contrast the practices of responsible and ethical money lenders who actually lend real, tangible, legal tender cash money.
The complaint alleges that the loan transactions are fraudulent because no value was ever imparted by the defendants to the Plaintiff; these defendants did not risk anything, nor lost anything and never would have lost anything under any circumstances and therefore no lien has been perfected according to law and equity against the Plaintiff.
The foreclosure proceedings which comes as a result of the borrower defaulting on such fraudulent loans were carried out in bad faith by the defendant banks and credit unions, and as such, these foreclosures were in every respect unlawful acts of conversion and unlawful seizure of property without due process of law which always results in the unjust enrichment of the defendants.
The suit alleges that the defendants utilize fraudulent banking practices whereby they deceive customers into believing that they are actually receiving "credit" or money when in fact no actual money is being loaned to their customers. However, the complaint describes a practice whereby there is realistically no money other than ledger or computer entries being loaned to the borrowers.
Rather than real money being received by the borrowers, "electronic" or "digitally created money", created out of nothing, at no cost to the financial institutions are entered as "loans" into their customersī accounts. The borrowers are then required to pay criminal interest rates for the money they never received. The suit alleges that the defendants effectively turn consumers into virtual debt slaves, forcing them to pay for something they never received, and then seizing their properties if they can no longer pay the banks with real money.
There is no law in Canada that could remotely suggest that the defendant financial institutions have the legal right to create money out of nothing. Dempsey says: "only God has the power to create anything out of nothing."
The class action suit, the first and the biggest of its kind in Canada is intended to give the justice system the opportunity to prove to itself and to the People of Canada who is really in control or whether they would continue to allow itself to be used by the banks as a tool in their unlawful and fraudulent banking practices which always ends in the enslavement of the people and confiscation of the peopleīs properties.
Two other class action suits were filed by John Ruiz Dempsey against the banks. The first one was filed by Dempsey on behalf of Ian Dennis Gravlin of Calgary, Alberta and Pavel Darmantchev of Kelowna, B.C. versus the Canadian Imperial Bank of Commerce. This matter is set for case management conference hearing on April 26, 2005. The Plaintiff expects a stiff opposition from the defendantīs law firm. Madam Justice Garson is the case management judge assigned to the case.
A second class action suit was filed against MBNA CANADA BANK on behalf of Pavel Darmantchev of Kelowna, B.C., Ian Dennis Gravlin of Calgary, Alberta and Dena Alden of Vancouver, B.C.
[link to www.newmediaexplorer.org] |
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