Great stuff from the Mogambo Guru today!
dailyreckoning.com
The Mogambo Guru
- The Fed continues it's panic-driven exercise in blatant destruction of the currency, as it rammed another $11 billion into the banks last week. And somebody is doing something with plain old currency, as six billion of it was drawn out of banks and into circulation. Maybe it has something to do with Santa Claus.
But all this money being created will result in a huge price inflation, because that's what always happens. The threat of resultant inflation is the only reason that prevents governments from printing the damn money in the first place. If it weren't for the fact that terrible, awful things happen when governments print up excess money, there would be no proscription against it. As it is, every country has safeguards in place - hey! Stop laughing so I can finish the sentence! - to prevent the government from doing this.
Addison Wiggin included the following as the introduction to his recent screed about gold, "Unfortunately, any period in history of government-backed, or 'fiat' currency, has led to disastrous bouts with inflation." And since the current period of time is just another period in history, we know what will happen, since there is never a "New Era" that allows up to be down, black to be white, or monetary excesses to be benign.
There is already inflationary talk about how the twenty-year price doldrums of commodities is over, as evidenced by the 24% rise in the CRB alone.
- And, to add insult to injury, the price of oil is over $32 a barrel. Of course, there is always the talk about how OPEC wants to sell oil at a lower price, to which I laugh uproariously hahaha! In all the businesses in all the world, through all of space and time, only OPEC wants to make less money, and is dismayed when they make more! To which I sarcastically note that if they really wanted to make less money, then why don't they just charge less? There is nobody holding a gun to their heads and demanding that they charge $32 a barrel.
- As confidently predicted by me, the huge increases in taxes on cigarettes in New York City has resulted in huge increases in smuggling of cigarettes. And, as was also easily predicted, the government revenue windfall from the higher taxes did not appear.
So what is the next step you are asking? Well, let's take a look at the two alternatives. On the one hand, Bloomberg can reverse the onerous taxes, dropping the prices of smokes, and let New Yorkers buy them legally while simultaneously putting the smugglers out of business. This will also demonstrate the Laffer Curve, in which lower tax rates paradoxically result in higher tax collections. Or he can hire anti-smuggling cops, ram more legislation prescribing more draconian punishments for people selling and smoking the illegal butts, revert to typical police-state mentality, and raise the taxes on cigarettes even higher to pay for it all.
But there is actually a third alternative, namely letting the smuggling continue by turning blind eye to it, with the occasional police crackdown to keep it all back-alley. The cold hard fact is that smuggling and selling bootleg cigarettes by the pack is a job for the unemployed and various street-people, and it puts money in their pockets. This cuts down on panhandling, purse-snatching, the occasional vicious mugging and the provision of City services to these poor people. Therefore, allowing the smuggling would cut down on crime and the cost to the City, perhaps. And, the smokers would be saving a little money every day to spend on other things. So everybody wins!
- Continuing with the line of thought and remarking on politicians, Addison Wiggin perfectly encapsulated government ineptitude when he wittily concluded that "government fiscal responsibility" is an oxymoron.
Continuing on a streak, Addison notes that, "According to Lipper, the average stock mutual fund is down 21.7% for the year. Of the 41 fund categories Lipper tracks, only three will end 2002 with a gain: all three are gold funds and they're up an average of 62%."
Not content to merely enumerate history of some investment classes, he dryly writes that, "In the past decade, the US money supply has doubled from $4 trillion to $8 trillion, with a full 25% of that coming in the last 18 months while the Fed tries to
reflate the economy."
Well, now you know one of the reasons why gold did so well this last year. And since Greenspan is the worst Fed chairman in the history of the worst idea of the twentieth century, namely the concept of the Federal Reserve as a central bank, you can expect things will not get any better. They will get worse.
And if you hear another snot-nosed, clueless PhD in Economics who talks about how the economy is poised to "recover," or how Greenspan is such a wonderful Fed Chairman, or how monetary policy has the power to fix everything, then you know that the end is not yet in sight. It is only when these idiots and chumps slink away, shunned by virtuous people and snarled at by dogs, that there will be a hope for a brighter tomorrow.
- David Tice writes that , "The current period is eerily reminiscent of the last 1920s and 1930s. Regrettably, the debates that took place relating to prices, markets and monetary management were anything but satisfactorily resolved in the economic history books. In the end, the Monetarists 'won' the debate and historical accounts of the period were revised to blame the Depression on a shortage of money and liquidity."
Well, what did you expect? Guys who control the spigots of money always think that everything is a function of their beneficent control of the money, including the Depression and the very orbits of planets. And while nobody in the Fed will stand up and say that they believe that printing money is the same as creating wealth, their actions speak loudly that this is exactly what they believe. And as far as the monetarists "winning," I have certainly not conceded the argument. I steadfastly maintain that the Depression was the result of the monetary excesses of the Fed and the banks during the 20's, just like now, and that the Depression was the inescapable result. This is because there is no cure for pandemic, devouring monetary excesses, except letting the whole shebang collapse and then starting over with a fresh resolve to never, ever, not now or in a million years, ever have a central bank again. Or, alternatively as our own history has shown, getting into a World War and bombing all industrial competitors. So I have not conceded the argument at all, and stick out my tongue in a rude fashion at those who think I have.
And neither has David Tice, who immediately goes on to say, "In our view, they got it absolutely wrong and we are paying the price for this mistake today." I am enchanted by his use of the term "we," which my conceit immediately jumps to the conclusion that it includes me, although I am sure that he means him and his associates, as I am sure that he is completely unaware that I am even alive and that is why he does not answer my calls or letters asking for a small loan of a few bucks to sorta get me through the weekend.
And he faintly echoes my shrieking denunciation of the Federal Reserve when he goes on to say, "Amazingly, virtually no one today is willing to admit that Federal Reserve policy has been an unmitigated disaster just like it was in the late 1920s, as the problem was too much credit, which caused inflation in asset prices, which caused massive imbalances and a maladjusted economy." Hey! David! Here I am in the back of the room waving my hand like a demented windmill to signal that I am willing to admit that Federal Reserve policy has been an unmitigated disaster! Yo! David!
- The imbalances of state government finances are so huge that there is no amount of cost-cutting that can bring them into balance. And to raise taxes at anytime is usually the wrong thing to do, and to raise taxes in a time of general economic upheaval is always the Wrong Thing to do with a capital W and a capital T, which I have thoughtfully done for you. You're welcome.
That they will go to the federal government and whine for money is their only way out. Unfortunately, the federal books are in even worse shape. The only thing to do is to have the Federal Reserve, you had better sit down for this one, crank up the printing presses even more, expand their mandate even more, and stick their noses into more and more private-economy stuff, until that sorry day when they belatedly notice that the poor old dollar is just another dirtbag currency of another dirtbag debtor nation of indebted, greedy, and economically-ignorant dirtbags.
- A group calling themselves the Raelians say that they have cloned a human. We have the predictable backlash, as everyone wishes to parade around, running their mouths, and waving their piety and self-professed ethical superiority as badges of honor.
The lesson in economics is that we can do these cloning things here in the USA or we can force them to go somewhere else, but they are going to get done by somebody. You would be surprised to discover how little weight the smug self-righteous opinions of boneheads in the US Congress, Hollywood actors, and talking-head TV personalities carry in the world, especially as regards something cutting-edge and involving potentially big bucks to everyone concerned. So, it all comes down to deciding which country is going to lead the pack, us or somebody else.
- Got the latest mass mailing from James Cook, and in it he has an interview with Dr. Kurt Richebacher. Not much new, and the good doctor gives another broadside at the maladjusted, weird and manifestly bizarre economic structure that the Fed's cancerous credit-creation has produced.
Then Mr. Cook reiterates his call that silver is the place to be, if you want to make a few bucks. Well, I gotta agree that there is something seems out of whack. Throughout history gold usually ran at some more or less steady multiple too silver, and whole Presidential campaigns of the past were centered on this very ratio. So silver ran somewhere around one-sixteenth the price of gold, give or take in some broad range.
But silver is selling for under five bucks an ounce, while gold is running at close to $350, for a ratio that is in excess of seventy! Wow!
He goes on to say that all the silver that has been mined to date is all gone - poof! - used up in manufacturing and whatnot, and that there is a huge uncovered short position on the Comex and, and, and... Well, the bottom line is that the situation indicates that the odds are that silver will one day make a big percentage move to the upside.
As an interesting tidbit, Dr. Richebacher opines that the inflation and pricing statistics put out by the government are statistical nonsense. He concludes, as do all thinking people, that "When you see this statistical fudging, it makes us wonder if systematic delusion lies behind these practices." The government would lie to us?
Well, the unholy Boskin Commission was empanelled to do just that, in that their mission was to adjust price inflation for changes in quality. For example, if bread costs twice as much as last year, then we dummies out here think that inflation in bread would be 100%. However, the Boskin Commission decided that after you adjust the higher price for the new features of added vitamins, the New Stay-Fresh packaging, the crispier crust, the added texture, fewer pieces of dead insects and the removal of rodent droppings, that the price of bread per unit of quality is actually lower! Therefore, bread prices are now deemed to be actually lower, even though they are twice as high in terms of grubby dollars and cents. You can do these silly things if you are a government, or as Mel Brooks said, "It's good to be king!"
Continuing, Greenspan figures that the very fact that you bought a new computer means that your productivity automatically went up! Even if it is still sitting in the garage in the original packaging! Amazing! And, further, that although the computer went up in price by 90%, but the power of the new computer is 100% higher than your ratty old one, this automatically means that prices, adjusted for quality, went down!
Plus, they use chained prices, meaning that the old prices in the low-inflation days of yore are actually used to measure current inflation! I agree that yesterday that some prices were low, but they have absolutely no bearing on what I am paying today. I am paying today's dollars to buy today's goods and services at today's prices, and I have absolutely no interest in hearing any old-timers tell me about how I gotta average in yesterday's prices to measure inflation.
In short, higher prices can mean lower inflation! And Dr. Richebacher wonders if there is any systematic delusion?
I will let you draw your own conclusions, but as for me I will spend the next several moments shrieking in an hysterical manner, replete with running in circles and gesticulating wildly with my hands and arms, highly reminiscent of Daffy Duck in one of his manic phases, but without actually quacking.
Before we leave the good doctor, let me provide you with a quote from him that sums it all up. "Credit creates spending power out of nothing. Credit alone can't sustain a growing economy for long. Today's soaring debt load has to be repaid. I have little doubt that a debt crisis lies ahead. When most of the debt is used for unproductive purposes like consuming and speculation, it must eventually lead into a debt trap. The reckless pursuit of debt is economic insanity."
- Ty Andros called with the news that he recently felt some tectonic movement in the macroeconomic structure, and it was mirrored in the tea leaves of that technical charting thing. I felt a strange deja vu, probably similar to a Jurassic scene where one dinosaur is calling another dinosaur on the phone and saying the he felt an unnatural chill in the air.
I will not go into the particulars, mainly because I am not sure I even vaguely understand the arcana of waves and charting and retracements and recognition points and Fibonacci sequences, although I do seem able to recognize them when pointed out by someone who takes the time to lapse into the mode of speech that one uses when speaking to a small child who has a learning disability. Instead, I will leap to my natural inclination in life: jumping up and hitting the panic button repeatedly while yelling about how the sky is falling. Ugh.
--- Mogambo Says: Ahhh, the end of the year, when money managers are busily selling the losers they hold and buying the winners they don't. Too bad you can't do that anywhere else, eh? How sweet it would be at the track! Wait until just a few seconds before the horses cross the finish line, scurry over to the two-dollar window, and sell back the losing bets, and load up on the horse in the lead! Then strut around crowing about how we are such smart handicappers!
The Mogambo Guru Lives! |
