We are truly "The Idiot's Delight Generation"
Richard Daughty
...the angriest guy in economics
The Mogambo Guru
August 4, 2004
If you have just gotten here from Mars, then you may not be aware that inflation is the one thing I fear more than, umm, my wife finding out about you-know-what, and if you knew what was best for you, you would be very afraid of inflation, too.
And it is with that in mind, and remember that I am talking about inflation and not you-know-what, that I blurt out that there is not one indicator of inflation that is under 3%! And the latest whack to the head is the newest Gross Domestic Product Deflator, which just went to 3.2%. Last year at this time it was 1.1%. So inflation has tripled in one year! Tripled! Inflation is waaayyyy above 3% if the government's own lying Pollyanna press releases admit to 3%!
Oil has now powered up to over $44 a barrel on its way to heights that seem impossible. This is because the demand for oil is rising, and to those familiar with the classic curves where supply and demand cross, this means that prices rise, because there is more demand than supply (I love it when reality proves theory!). But the price of oil is also rising because the dollar is falling in purchasing power, which is the direct result of the Bush administration and Congress colluding to effectuate a mind-blowing spending spree of such colossal size and scope that the history books of the future will point to us and curse our names, because we are the brain-dead people who elected these raving bozos to office. And on top of that inexcusable calumny, we tolerated a lazy, incompetent and corrupt education system, so that nobody could learn how stupid we were, and a lazy, incompetent and corrupt free press, to keep anyone from telling us how stupid this was. We are truly "The Idiot's Delight Generation."
And speaking of oil, Peter Schiff of Euro Pacific Capital has looked at the future of oil prices, and has some very bad news in that regard. "Chinese oil demand today is only a small fraction of what it is likely to become after the Yuan is floated. Once that occurs, the value of the Yuan will rise to reflect the true productive output of the Chinese. As oil prices collapse in Yuan terms, hundreds of millions of Chinese will then be able to afford oil that was previously too expensive. The result will be a surge in oil demand emanating from China. However, additional world productions will not be able to accommodate this new demand. Instead, Chinese demand will be satisfied though reduced American demand, because while the price of oil will collapse in Yuan terms, it will increase substantially in dollar terms."
The Bush Administration and this Congress epitomize the most profligate bunch of economic illiterates that ever disgraced themselves, by admitting that they do not listen to the advice of the Mogambo, mostly because they never heard of me, and there are several confidential FBI reports on your desk right now that are probably less than complimentary and containing several grainy photographs of grinning idiots getting thrown out of a strip club. And instead of heeding my wise counsel, they perversely decide to do the exact opposite, and they mindlessly continue to borrow and print money at insane levels! And then the next thing I know I am out of my mind with outrage, and I am driving past their houses late at night, honking my horn and calling them rude names and putting curses on them and their little bastard children, and then the next day the policemen are banging down the door again, and want me to put down the machine gun, come out with my hands up and go downtown with them to answer a few questions.
To illustrate the point, what do crazy, economically-illiterate people do with money? Answer: they do something crazy with it. If you will dim the lights, I will now present a little slide show. This first slide is a graph of national debt, and notice how total national debt continues to climb at its eerie linear rate, namely $52 billion per month! Look at that number again. That's right; look at it! Look at the number $52 billion! A month! Make sure that number is burned into your brain, because years from now your grandchildren are going to be sitting in the dirt playing with rat bones and dried doggie doo, which are the only kind of toys you can afford to give them, and they will be asking you, "How much money were you guys spending, anyway, that has caused us to suffer such misery?"
To put it in perspective, it's $372 more debt, PER MONTH, for everybody who has a job in this whole country, INCLUDING government workers! And next month it is going to be ANOTHER $372, bub! And then another and another and another! Month after month, year after year, the government is putting you farther and farther into debt. And this does not even include the debt that you voluntarily take on, so that you can have those matching Jet Skis.
The last thing I remember, I was mulling this over in my brain, and the next thing I knew I was at the supermarket, and I was explaining how it's like we are all in a gigantic, global supermarket. And the bag boy is putting our groceries in bags, but he is putting the bread in the bottom of the bag, and then he puts all the heavy canned goods on top of the bread! And if you dare even mention it, much less complain about it, then the manager comes out and gets all huffy wants to know what the hell is going on and who is making all that damned racket, and I say "It's me! The Mogambo! We citizens are like the bread that goes on the bottom, and we are having $52 billion-dollar cans put on us! We're not taking it anymore, and I am not taking it anymore, either!" and then I started hurling cans of creamed corn at the "Customer Service" sign. Apparently, he did not grasp the significance of what I was trying to say nor the deeply poetic way in which I was saying it, but I'll explain it to him at the preliminary hearing and maybe I can get him to drop the charges, which would be real nice.
In the last, short 25 months we bozo Americans have accumulated, in spooky straight-line fashion, another $1.3 trillion in new federal debt. Even if all of this money was loaned out at a lousy 2%, then the interest expense alone, which is one of those federal budget line items, is rising by $26 billion a year! At 3%, it's another $39 billion! At 4%, $52 billion! At 6%, which is closer to where short-term rates should be historically given the current inflation rate, we will now be paying $78 billion a year more in interest costs on that new debt! That's $557 for everybody who has a job in America!
And where does this money go? Who is going to end up with that $26 billion a year? To the guys who had money to start with, and who loaned it to the government! And who are these guys? Well, it ain't the poor, who don't have any money to lend, and it ain't the Mogambo, who was trying to borrow money from the poor, and we all know how well that worked out. So, once again, the rich got richer and the poor got poorer.
And how did the poor get poorer? Well, the Bush people just put a nice big tariff on imported shrimp, and now the price of shrimp is going to go up. So the poor are going to pay for this by suffering a decline in their standard of living, which translates into their not being able to afford to eat shrimp anymore. And everybody else will pay the old fashioned way, which is digging deeper into the wallet to pay higher prices for the more expensive shrimp cocktail. And then there will be the added costs of shrimp smuggling, and a huge government law enforcement bureaucracy to combat the scourge of shrimp smuggling, and the building of new prisons to house all these convicted shrimp smugglers, and the halfway houses needed to ease the smugglers back into useful employment once they have paid their debt to society.
Now, there are many of you guys who are so mathematically gifted that your computer-like brains instantly recognize that if you multiplied $52 billion per month times twelve months, then you get $624 billion per year. This number probably has many unique qualities about it, but the one that strikes me is that it is a hell of a lot bigger than any estimate of government deficit-spending that I have ever heard from anybody connected with the government, who are forever prattling on about how the deficit is down to $445 billion or some such low-ball number.
I finally got the book "A Term at the Fed" by Laurence H. Mayer, and I gotta tell you that it is slow going, as I have never read anything more outrageous in my life, and several times per page I have to stop and scream out loud, venting my frustration and anger that people as economically clueless as these morons are actually making monetary decisions that affect us. Every page is crawling with their idiocies, such as, for instance, how Janet Yellen, a Governor at the Fed, is so stupid that she argues that "There are also significant costs to very low inflation. If there is zero inflation, for instance, then monetary policymakers cannot lower the 'real' interest rate below zero." This is a "significant cost?" Nobody is suffering the privations of inflation, and yet this is somehow a "significant cost" because the horrid Federal Reserve cannot play its little games with money so as to insure that people WILL suffer the miseries of inflation?
How about this one? "Furthermore, she said, a little inflation 'greases the wheels' of the labor market. Relative wages across different industries and occupations must be free to change, thereby signaling workers to migrate from one industry to another. If there was no inflation, some wages would rise, but other would have to fall."
This just shows what a complete jackass Janet Yellen is, as she thinks that inflation in workers' wages will offset the destruction to the whole society caused by inflation. What a complete moron! And this pinhead is sitting on the Board of the Federal Reserve right now! What a book! You can bet your sweet butt that I am going to be commenting on this book many times in the coming weeks.
ContraryInvestor.com is one of the places you can go to correctly see the horrific downside of leverage, especially the leverage found in fractional banking. In their essay entitled "Different Bubble, Different Outcome?" they ask "Alternatively, a severe downturn in real estate values that triggered real mortgage loan defaults would, in part, act to set into reverse the US banking system fractional reserve multiplier mechanism." And since the fractional reserve multiplier is about 100 at this point ($45 billion total reserves versus $4,478 billion in deposits), then one dollar of losses translates into $100 of lost loaning power.
He sums it up by saying that interest rates will purposely lag inflation in prices for a long, long time. "Greenspan and the Fed can do all of the tough talking they'd like about standing ready to raise interest rates if inflationary pressures even sneeze. But the reality is that they will not be able to tolerate a pop in the mortgage finance bubble."
And I am happy to announce that I am not the only one that disdains today's students and the misbegotten educational system that spawned them. Bill Bonner, one of the few guys at the Daily Reckoning site who does not send me hate mail, and in fact one of the few guys in the whole world who doesn't overtly hate my guts, writes "The average American college student - as near as we can tell - is about as well educated as a person with an 8th grade education 100 years ago. Some explain this as a kind of inflation of the education system. A dollar is worth about 5% of what it was worth 100 years ago, so is a college degree." Hahaha! Cleverly said!
And while Mr. Bonner may be too polite to say it, the advantage of being naturally rude is that I will come out and tell you right to your face that the new version of the SAT has been dumbed-down again, so the typical college student of the future will be even dumber that he, or she, is now. Recent high-school graduates who took the new SAT test, which is supposed to show how much they have learned during twelve long years of formal schooling, scored higher on the new test! But those taking the old test continue to get more and more stupid and/or ignorant. So while the students got dumber, their scores went higher, which makes everybody feel better.
The Mises site posted an essay entitled" The Cultural and Spiritual Legacy of Fiat Inflation" by J.G. Hülsmann." He writes "As Austrian economists have argued in some detail, fiat inflation is an inherently unstable way of producing money because it turns moral hazard and irresponsibility into an institution. The result is frequently recurring economic crises."
Beyond that, he says that with a fiat money, the government can print up as much money as it wants, which "allows the government to tap the property of its people without having obtained their consent, and in fact against their consent." He then gives us the very bad news that derives directly from this, and without mincing his words, says "A man in his thirties who plans to retire thirty years from today (2004) must calculate with a depreciation factor in the order of 3. That is, he needs to save three dollars today to have the purchasing power of one of these present-day dollars when he retires. And the estimated depreciation factor of 3 is rather on the low side!" And to throw my two cents in, I say that this is not even counting the taxes that are due, nor any of the myriad little fees that we are constantly being charged on those saved three dollars! So if you really wanted to add it all up, thanks to inflation, you need to save four or even five dollars today to have one dollar's purchasing power in the future! Bummer! I'll bet that perky little optimistic financial planner never explained THAT to you! And I'll make the same bet that it doesn't show up in the little graphic presentation of your Personalized Financial Plan how bread will be five dollars a loaf, a cheap car will cost $100,000, and a copy of Armed and Dangerous (the award-winning magazine that is the favorite of the average paranoid lunatic) will cost $200 an issue!
Mr. Hülsmann closes his eyes and reveals one of those Laws Of The Economic Universe that I was going to wax philosophical about, and maybe get a little glory, but now he has beaten me to it. The use of fiat money is a bad thing in general, and that "Fiat inflation is a powerhouse of social, economic, cultural, and spiritual destruction."
As a case in point, I was listening to NPR, here comes a clueless dimwit from ACORN telling the world that increasing the minimum wage will put money into people's pockets, which will spur investment, and thus grow the economy! So increasing minimum wage is a good thing, he says! He was admittedly young, in his early twenties or something, but somebody ought to tell him that there comes a time in everyone's life when callow ignorance is no longer a valid excuse to say stupid things, especially very stupid things.
The fact is that when businesses pay workers more, the firms must charge more. So every dime that is put into the pockets of the workers will be taken right back out again when the workers go to the store. And the fact that workers have more money, makes them bid up the prices of things. Prices thus go up, and businesses get back all of that extra money they pay out in wages, and more. And the total effect on society is one of, in the aggregate, increasing misery for society as a whole, all caused by the aggregate falling standard of living caused by higher prices.
You can look it up if you don't believe me, but the number of workers in the whole damn country who will benefit in the short run from a higher minimum wage is peanuts compared to the total number of people whose incomes will NOT go up, but all of whom will have to pay the higher prices nonetheless, and all of whom will be angry and irritated at their lower standard of living. It is a Ripple in The Force.
In the end, the banks and the capitalists are richer, the government is bigger and more expensive, the workers are right back to where they are, and the rest of America, the majority of America, which includes the young, the old, the sick, the handicapped, the retired, and the Mogambo, whose problem is mostly one of laziness and complete lack of ambition, all will be worse off.
If the minimum wage worker had any intelligence or education, he would take more care in who he elected to public office, and thus maybe a reconstituted Congress would show a little education and rein in the horrid Federal Reserve to prevent the monetary inflation in the first damn place, which would prevent the price inflation, which would prevent having a paycheck that gradually buys less and less, and thus a tiny subgroup of Americans end up needing a government-mandated raise in pay, to the complete detriment of everyone else.
The fact that this is a lesson that is immediately obvious to the average fourth-grade child, but is beyond the ken of this mouth-breathing dork from ACORN, is testament to the egregiously bad job of the American education establishment and the American press, both of which are the worst in the western world, and about whom I never tired of heaping scorn. Both are infested with Democrats, who actually glory in celebrating ignorance and sloth.
Barb at 321gold keeps an eye on the national debt and the daily goings on at the Fed's desk, where they announce their injections and reserve additions and repurchase agreements and securities lending and all of that monetary stuff when they meddle in the economy. Last Thursday she added the comment "National Debt Stupidity Jackpot!" which is taking words right out of my mouth.
On Prudent Bear, they had the blurb "I.R.S. Says Americans' Income Shrank for 2 Consecutive Years (NY Times)," followed by "Rise in Home Values Boosts Tax Receipts (L.A. Times)" Your income shrank, but your tax bill goes up! How long do you think you can keep THAT up?
Steve Sjuggerud is not shy about what he sees, and he asks the seemingly rhetorical question, "REPEAT OF CRASH OF '87 COMING?" But he is not being rhetorical at all, and goes on to say, "We've just recently entered 'Super Red Light' mode on my 1-2-3 Model...something that basically never happens. Over the last 30 years, we've only entered Super Red Light mode three times...just before the Crash of '87, in mid- 1994, and late 1999."He says that when we get into his Super Red Light mode, "watch out!"
He patiently explained to me, over and over, until I think I am finally beginning to understand, that in his 1-2-3 model there are three things to watch: "1) Is the market expensive? 2) Is the Fed in the way? 3) Is the market acting badly?"
Interpreting the model is simplicity itself. "If we're 'in the clear' on all three of these, it's green light mode. If one of the three is against us, it's yellow light mode. And if two or more are against us, then it's red light mode. It's extremely rare when all three are against you (occurring less than 2% of the time)." Like right now. Oops!
Mark Weisbrot, Business Week, wrote a nice essay entitled "The Unbearable Costs of Empire." He writes "The U.S. is entering this new age of empire with a gross federal debt that is the highest in more than 50 years as a percentage of gross domestic product. For fiscal 2005, which begins in October, the U.S. gross federal debt is projected to be $8.1 trillion, or 67.5% of GDP." Remember that gross federal debt, looking at my watch and saying "right now," is currently $7.3 trillion, and it is growing at an almost-constant $52 billion per month, so that between now and October 2005 that estimate looks just about right.
"The post-9/11 age of American empire will close not with a bang but a whimper, suffocated by the laws of arithmetic, the constraints of public financing, and the limits of foreign borrowing. What remains to be determined is how much the U.S. will pay -- in lost and ruined lives, as well as bills for future generations -- and how many enemies it will make throughout the world, before coming to grips with reality."
How many enemies? An interesting question! Well, after I counted the girl behind the counter at the donut shop, all the people at the grocery store, all the neighbors and relatives, and miscellaneous government people, I got tired of counting. Fortunately, here comes Gary North, who puts out the newsletter "Reality Check." He couldn't help but overhear our little conversation, and notes that our invading Iraq and Afghanistan has "turned the entire Muslim world against us," according to a Zogby poll of the region. Well, since we have old Mr. Zogby on the phone there, ask him about how much we Americans favor Muslim terrorists? Say, "Hey, Mister Zogby dude! How many American people love Muslim terrorists? Huh? How many?" I'll bet not many! I'll bet that the headline would read "News flash! Killing Americans, and trying to kill more Americans, and promising to keep trying to killing Americans until we are all dead to the last man, woman and child, and even murdering people who have mere business relationships with Americans, have turned Americans against us!"
Personally, and I am happy to be in the majority on this one. I, too, for a change, am generally against terrorists, and I make it a point, call it one of the Bullet Points Of The Philosophy Of The Mogambo (BPOTPOTM), to be naturally suspicious and fearful of people who are trying to kill me. Over the years, I have enlarged this BPOTPOTM category to also include people who are trying to steal my stuff, people who live next door, people who were rude to me in the hardware store, and people who cut me off in traffic just because of some legal technicality concerning their precious "right of way," yammer yammer yammer.
It was one of those moments where you had to have been there. Slowly, methodically, point by point, I proved that the Mogambo is NOT bound by traffic laws that pertain to mere pathetic mortals like yourselves, in much the same way as President Bush is personally empowered to invade other countries, kidnap their leaders, kill citizens who disagree, and force an entirely new political regime (democracy) down their throats in such as way to remind me of the beginnings of the French Revolution, as the surrounding kings and monarchs of Europe all watched in horror as their fellow royals were beheaded in the streets of Paris.
And if Iran, or Syria, or Yasser Arafat's PLO, invaded Great Britain, snatched the queen and Tony Blair, took them to Abu Ghraib prison in Iraq, disbanded the government, and now England is occupied by armed Iraqi troops enforcing a strict religious dictatorship, who would WE root for?
Gary North, besides being an intellectual powerhouse and probably a great dancer, you never can tell about these guys, is also quite the humorist. He says "The war on terrorism is being brought to us by the same high-efficiency organization that has waged the war on drugs for five decades. We should expect similar results."
If you are one of those who belongs in the technical analysis crowd, watching charts and graphs and lines intersecting and stuff, I suspect that life will be increasingly weird for you. This is because I cannot imagine that something so big and so inevitable would happen without the insiders knowing all about it, and taking action to get their money someplace safe, which will produce technical indicators that are skewed.
The Democratic National Convention is finally all over. If you watched it, you will have no doubt noticed that the Mogambo was not invited to give an address. I never even appeared on the podium one lousy time! That just goes to show you the ingratitude of the Democrats, who are apparently unappreciative that I was making the supreme sacrifice of graciously donating my time, my Precious Mogambo Time (PMT) to come up to Boston and explain to them how almost everything they said, thought, or did was wrong. They are, in a nutshell, wrong about almost everything in general and wrong about economics in particular.
I even offered, if their schedules were tight, to take the shortcut and individually slap the hell out of every last one of them until I knocked some sense into their thick little Leftist brains (TLLB). But you have to be careful when you use this technique, so I am warning you that I Am A Professional, so don't you kids be trying this at home! The reason is that their brains are typically so small to start with that if you inflict any damage at all on them, it makes them sound silly.
And of course that brings up Al Sharpton, who is a real funny guy, and who really cracked me up when he got on the podium at the Democratic Convention and said, in that hypnotic sing-song act of his, that it was the Democrats who provided blacks with their civil rights! It was the Democrats who provided blacks with all the opportunities of equal rights! It was the Democrats who provided blacks with the power to organize and extract benefits! And then he turns right around, in the very next sentence, and says that he wants Bush to know that the black vote is "not for sale!" Hahahaha! What a card!
Things are actually a lot better than they should be. We are talking about gigantic bets, involving humongous amounts of debt, the sheer size of which is literally beyond comprehension, that span international borders and time zones around the globe, all linked to a currency that is being inflated at frightening rates by a country that has a massive trade deficit and budget deficit, and is held together by artificially low interest rates that are rising in response to inflation in prices. I'm surprised it holds together at all! And I am sure, very sure, that very soon it won't.
Ugh.
*** The Mogambo Sez: The surprising fact is that gold is not gaining in price around the world as inflation heats up around the world. This is such a good deal that I am surprised that so few are taking advantage of it, and that is why gold is not rising more than it is. I am sure that there are many reasons for this.
But for Americans, not buying gold shows a lack of education. But Americans buying stocks and bonds instead, in an environment of massive deficits, a falling dollar and rising interest rates, shows a suicidal stupidity.
Aug 3, 2004
Richard Daughty
For The Daily Reckoning
Richard Daughty is general partner and C.O.O. for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise the better to heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications.
321gold Inc
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