Posted on 04/30/2003 3:19:51 PM PDT by arete
"...When someone in one of the next generations writes the book entitled 'The Rise and Fall of the United States,' I can sum it up in, oh, one sentence. 'In the end, everything about America was debased.' Ethics... Morality... Politics... Continuing on, the currency is debased. The budget is debased. The Constitution is debased. Even personal fitness and health is debased..."
The Mogambo Guru
April 29, 2003 - The Fed is still treading water, and under their aegis the vast, deep ocean of raw credit contracted a teensy little bit, but they found the time to buy up a little government debt. Sort of passing the time and just keeping their hands busy with a little something, I suppose. The part that is starting to get me worried is the recent stagnation and apparent decline of the Monetary Base. And I know that in the longer-term, bigger perspective, it is still within the broad trend of always-increasing. But it has not grown since January. I don't know if this is a worrisome inflection point, or just a statistical wiggle, or what. The only thing that I am pretty sure of is that it is NOT meaningless.
But one wonders about the possible mechanism that has the monetary base stagnant-to-declining at the same time that the monetary aggregates are being pumped up by the Fed.
- In case you missed it, the GDP Deflator jumped to 2.5% from the previous 1.8%. I certainly did not miss it. In fact, when I saw the news I happened to be standing on my feet, and it so staggered me that everybody assumed that I just had another heart attack that had just killed me, and they were comically bumping into each other in their rush to bury me in the backyard as soon as possible, for some unspecified "health reasons," and they were all sure, very sure, that a quick burial was something that I would have wanted. Well, that first shovel-full of dirt hitting my face broke the spell, and I jumped up out of that damn hole in the ground and rushed to turn on the TV, to see if anybody has any tips on getting to safety and escape the rioting in the streets. To my surprise, the world did not burst into flames upon hearing the news of the jumps in prices and deflators! In fact, up to the time I send this into cyberspace, I am apparently the only idiot on the planet that thinks that this is the least bit newsworthy. Weird!
Ditto the news that the budget deficit as a percentage of GDP went to 4.6%. It was a total non-event, news-wise! One of the restrictions of the European Union is that each country swore, cross my heart and hope to die, that they would never, no never, not in a thousand years and only then over my dead body never ever ever let their budget deficits grow to over 3% of GDP. And they voluntarily made this rule among themselves because they all realize, as everyone realizes, that persistent government deficits cause bad things to happen. They do not go as far as I do, of course, because I make the point over and over that merely increasing government spending at the rate of inflation is bad news in itself, and to run a massive budget deficit to achieve that goal is tantamount to putting poison in the pina coladas.
And I present my personal philosophy not in the calm and dignified way that everybody else does, but by literally jumping up and down on desks or chairs or, preferably, hugely expensive coffee tables, while screaming incoherently at the top of my lungs, and for hours and hours, until I sink, exhausted, to the floor in a disheveled pile, my mighty heart broken from the effort, using the last few precious drops of my strength to softly mumble obscenities, most of them merely variants on the "F" word.
Well, peaking of "F" words, France and Germany, which I realize is a "G" word and not an "F" word, but G is right next to F, and so is tainted by close association, are already well over that limit. And for the Euro area as a whole, it is 2.5%. On the global scene, only Japan beats us for sheer profligacy in this area, and their budget deficit is 7.7% of GDP. Yowser wowser!
This budget deficit indicator of inflation comes to you at the end of a long line of hotshots whose job it is to massage the specter of inflation from everything. And the data comes from the government itself. So these are not the prices of yummy cookies rising in the supermarket that everybody can see. So you can imagine the ill-disguised panic in my voice as I relate this news.
What makes it all the worse is that even the biggest inflation-doves at the Fed consider 1%-2% inflation to be some bizarre "ideal," and now the new number is NOT even in the range of this stupid "ideal" inflation.
Interestingly, the new Economist magazine had this fascinating tidbit: "American consumer-price inflation was 3.0% in the year to March, up from 1.5% in the previous 12 months."
Now, wouldn't you expect to hear something from somebody when the GDP deflator is up 39% in one year? But I will let that one go by without further comment.
But not one of these phony-baloney "journalists" had anything at all to say about consumer-price inflation being up 100% in 12 months? Not one? Jeez!
- Imagine Alan Greenspan's dilemma. Consumer prices are sure to rise in response to all of this money creation. It is one of the few constants in economics. We now have, in hand, evidence of the horrendous rising inflation that is sure to come. So what do you, as chairman of the Fed, do?
If we get the Depression we so richly deserve, what better scapegoat than Alan Greenspan and his inflating of money in the face of rising inflation!
Or, do you tighten up and thus try prevent more inflation, again at the expense of the economy? Because once the money supply contracts, it is impossible to get a vigorous recovery. So, tough choice!
Maybe that is why Alan was asked to stay on at the Fed until he dies: nobody in his right mind would want the job. The economy is now brought to the brink of ruination by mammoth systemic debt loads, the fiat dollar is finally turning to trash, as is the fate of all fiat currencies, and price inflation is getting ready to make life miserable for everybody. In that terrifying milieu, what kind of idiot would want the job of Fed chairman? Your whole career will be spent in administering horrid-tasting medicine to a nation of greedy, whining morons.
- The cooperation of foreigners to hold US debt seems to be waning, in the short run. But still, since November, they have soaked up $155 billion y/y. It's just that it also looks so, so, oh, deflection-point-like.
- When someone in one of the next generations writes the book entitled "The Rise and Fall of the United States," I can sum it up in, oh, one sentence. "In the end, everything about America was debased." Ethics. Morality. Politics. I can demonstrate all of these first three by mentioning Bill Clinton, the sleaziest and most despicably worthless human garbage that America ever elected to the office of President of the United States. Continuing on, the currency is debased. The budget is debased. The Constitution is debased. Even personal fitness and health is debased. Then, there is, of course, the debasing of the education system. High school diplomas are now given to people who are actually illiterate and profoundly ignorant. College degrees are conferred on people who are ostensibly literate but profoundly and embarrassingly ignorant about the vast oceans of what one needs to know to be considered merely educated, much less being capable of making such momentous and weighty decisions.
Democracy itself depends on educated and informed people making educated and informed decisions when they vote. Otherwise, you end up electing people like Bill Clinton and Democrats. A society that celebrates ignorance and encourages the legions of these celebrants to vote, and who base their decisions on factors other than the facts as ordered by education, is doomed. There are horrific downsides to the debasement of education.
I say this when I read the surprising polling numbers of Al Sharpton to be President of the USA. Getting beyond what I consider his despicable bigotry and egregious personal shortcomings, this guy wants to have Constitutional amendments guaranteeing a "right" to education and health care. "But," I say, "everyone ALREADY has a right to education and health care. You can go out the front door of your house right now, jump in your car, take a little drive, and get as much of both as you want! Nobody can stop you! You have the right to consume as much education and healthcare as you please! You can literally read a textbook while getting your gall bladder out, in one huge orgy of conspicuous consumption! All you have to do is pay for them."
Ah-hah! Now we know what he really wants.
The answer to the whole health-care problem is more schools of medicine, more schools of nursing, more schools in all the medical technologies, and more hospitals. Let anyone who wants a license to do any of the above have one! Pretty soon you will be literally rolling in cheap, affordable, accessible health care as entrepreneurial competition devours the weak and rewards the strong. But noooOOOoooo! The number of medical schools in the US has not increased in over a decade! We are graduating the same damn number of doctors, at the same time that there is such a shortage of them! Screw the AMA! If Al Sharpton wants a platform plank, then let him come out for declaring the AMA a greedy, illegal, price-fixing cartel, and that he will arrest and prosecute everyone who ever got a paycheck from the AMA.
And to fix education, come out for vouchers and let the quality-enhancing and price-cutting of entrepreneurial competition work its magic.
And he could also tickle me my reining in the number of lawyers we graduate each year, as we already graduate over twice as many lawyers per year as doctors.
- Oil has plummeted to below $26 a barrel! This makes crude oil, adjusting for the decline in the US dollar, one of the biggest bargains in town, and I suggest that you construct a giant oil-storage facility in the backyard, because these bargain-basement prices cannot possibly last!
John Myers, the editor of Outstanding Investments writes, "I am as convinced as ever that we are headed past $50 a barrel of oil by 2006."
Now THAT'S an interesting thing to note.
And what will cause the price to go up like that? Two things come immediately to mind; the purchasing power of the dollar may be so low, or the demand for oil gets so high. Or, and this is the fascinating thing, maybe both. In that case, why stop at $50 a barrel, which is a rise of less than double from here? [see also: After Iraq... America's NEXT Crisis ]
- What can explain the recent behavior of stock prices? It may have something to do with the coming weakness of the dollar. Suppose that the dollar falls really, really far. Then foreign buyers, whose currencies were really, really strong in comparison could pick up American companies for pennies on the dollar, or renmimbi on the yuan, or kopeks on the ruble or whatever. Then, in dollars, would the stocks of American companies be cheap?
And with the prices of American-made goods being rendered so relatively cheap by the devaluation, perhaps the growing Chinese and Russian markets could use a little boost of raised standard of living afforded by importing cheap American products to meet the growing demand for stuff. And, as a added benefit, finally get rid of some of that enormous hoard of dollars that are piling up overseas. Then, again, would the stocks of American companies be cheap?
Then, if the economic suffering caused by a huge devaluation has so cowed employees, could they be forced to accept falling nominal and real wages? Then, again and again, would the stocks of American companies be cheap?
I dunno. Could be.
- Regardless of the direction of stock prices, my short attention span is riveted on the rising first-time claims for unemployment and the fall in payrolls. Less people are working at the same time that things are costing more. And Alan Greenspan is going to have another term as Fed chairman. We seem incapable of learning.
- There is a rumor that the Securities and Exchange Commission may recommend the ten Wall Street firms in a $1.4 billion conflict-of-interest settlement be barred from deducting the cost from taxes or seeking insurance reimbursement.
This is too rich. These ten firms, and many more like them, pumped stocks in public while privately selling and denigrating them. And they made tens of billions in profits as they handed everybody else hundreds of billions of dollars in losses. And now they are hit with a slap on the wrist, none of which will go to the investors who lost the money! Instead, most of the fine will go, "...to fund independent research and educate investors."
Next time there is a scam like this going on, call me up, because I would LOVE some of that action! I make a bundle by hoodwinking gullible suckers, I pay a small fine, and I use the fine to hire my nephews and nieces and all my hoodlum friends to do "independent research," and to educate people to the fact that I am a liar and cannot be trusted! This is too, too sweet!
- Harry Newton, of the former Technology Newsletter, says that now is the time to get into some stocks. He says there are trillions of dollars sitting on the sidelines waiting to get in, and this will be the fuel for at least a stock market rally, if not a new bull market.
I dunno. I say that there is no money on any sidelines. It is all somewhere. And if it now starts to go into the stock market, then it has to come out of wherever it is now, and whatever THAT market is will suffer decreased demand.
But that cute little philosophy has absolutely nothing to do with the stock market in the short run. The corrupt Congress, the corrupt governments of everybody else, and the corrupt central bank ruling regime of the globe, all working in a slimy coordinated fashion can do wonderful, amazing things in the short run.
- Roger Reynolds writes a pithy little newsletter, and he says that during the spring he does tax returns. In my mind I assume he is talking about the tax returns for him and all his tony hotshot friends, all zipping to brunch in their Ferrari sports cars, buying and selling on their cell phones while smooching with dynamite blondes who are lusting unquenchably from the proximity to all that money and power. Nonetheless, he apparently kept enough of his wits about him that he noticed some interesting stuff.
He says that the number of people who were eligible to put money into an IRA who even HAD an extra three grand to put in one went down big time. He also reports widespread voluntary under-funding of 401(k) plans, I assume to put more money in-pocket today.
He also estimates that "The unemployment rate is well over 10 percent and the underemployment rate is about as high. I was amazed by the number of college grads who had lost their jobs and or were working part time."
The biggest horror, to me, was that self-employed were not paying enough quarterly estimated taxes, and were ending up with these huge tax bills on April 15. And they do not, predictably, have the money with which to pay said taxes. "Most do not have the cash to pay those bills, and are still paying on their tax bills from prior years." Uh-oh. Let me get this straight; you can't pay this year's taxes, and you are still paying last year's taxes, because you did this same thing then, too?
As an aside, this is a very stupid thing, and it gives me great pause when considering the future of America. One quickly learns the hard way that cheating the IRS, appearing to cheat the IRS, making mistakes with IRS forms, or creating any picayune problems with the IRS whatsoever is a profoundly stupid, and usually expensive, thing to do. It is also stupid not to keep, and file, proof of innocence and complete compliance, as far as one can even do such a thing. They have powers and abilities that supercede the Constitution, for crying out loud! The correct way you change the amount of taxes you pay is through electing the correct people to public office, and they will change everything all nice and legit.
Anyway, since Mr. Reynolds is supremely convinced, as I am, that the Federal Reserve will eventually cause a market crash, cause another Great Depression and major wars, I am curious about time-lines.
And accommodating as he is, probably on the order of noblesse oblige, he tells us. The market will rally to convincingly break the 200-day average, the suckers and that theorized sideline cash are drawn in, and when that pool of money is depleted- blammo! - that's the moment the market will sell off to, I assume, new lows.
Well, the way I look at it, we are ALREADY over the 200-day average! Hell, the SP500 is back over the average of the 365-day whole last year!
- James Grant, he of the eponymous Grant's Interest Rate Observer, says, "Because modern central banks date from the 17th century, virtually every monetary policy has been tried before, many more than once." This is in keeping with what I have been saying, lo these many, many years; that for the last few thousand years there is nothing new under the economic sun. There has always been some kind of government. There have always been taxes and government spending. There has always been something that functioned as money and wealth. There has been borrowing and repaying, blah blah blah. So, with that same few raw ingredients, you would naturally expect that, "virtually every monetary policy has been tried before, many more than once." It is impossible to do otherwise with only a few toys to play with!
Then he goes on to make my other point; that all of this government action always leads to inflation, when he says, "Inflation has been given an especially thorough test run."
And although Mr. Grant is far too refined and polite to say so in mixed company, let me sink to the morbid and ugly side of things and say that the results of those tests all fall along a continuum of sorts. The calibrations of the scale along this continuum of inflation range from "Not bad" at the minimum, up to a red-line of "Imminent self-immolation" and finally, at the extreme end of the continuum we have, "If you can read this, you are already dead."
The scene shifts to the darkened conning tower of the war-time submarine, and I, your sturdy and ruggedly-handsome Captain, hear a crewman say, "Ruggedly-handsome and much-beloved Captain, we have passed red-line on the Inflation-O-Meter!" The camera zooms in to capture the look of mortal panic on my face, which is so powerful that I deserve a whole freaking armload of Oscars for my brilliant and sensitive performance that obviously recalls a young Brando, and I quickly turn and stare at the Inflation-O-Meter on the wall. As the camera zooms in on it, a crack suddenly appears in the glass cover. Off-camera, voices rise in panic, and the screams of the doomed and dying echo through the sub. As the camera reaches extreme close-up, you are riveted to your seat in horror. The needle is quivering, as if alive, pegged to the extreme end of the scale.
Well, not exactly Edgar Allen Poe, but when it starts happening to you in real life you will wish it WAS. Inflation HAS to rear its ugly head and start devouring things soon. A nd I state this with the same certitude as when I say that when I throw a rock into the air, I know it has to fall to the ground, because it always has, 100% of the time I ever threw a rock into the air. Now I say that inflation will rise up like Godzilla from the lagoon, because every time a central bank/government has thrown monetary and fiscal rocks into the air, they have always fallen to the ground with a thud. "But, wait!" you excitedly exclaim. "A minute ago you had rocks falling, and now Godzilla pops up out of nowhere? What does Godzilla have to do with inflation or submarines or anything?" Hmmm. I feel trapped! With the heightened instincts of a cornered rat, I explain, "Let's say that the rocks of monetary and fiscal excesses will break open and release little baby inflation-Godzillas, which have insatiable, voracious appetites, plus the manners and sensitivities of rabid weasels. Sort of like Democrats."
Oh, I can see you out there gleefully plotting to expose me as the pompous fraud that I am. I quickly add, "Well, you believed that ever-escalating Social Security tax and benefit packages was a sound idea! You believed that 3% inflation was tame! You believe that monetary inflation by the Fed will not end with inflation! You believe that a government so large, so intrusive, and so expensive that it spends almost a quarter of GDP will be not only beneficial, but will outweigh the enormous costs! But now, after all that, you pick right now, this exact moment, to say that you can't believe one more tiny, stupid thing? You are drawing an arbitrary line, and refusing to accept that monetary and fiscal rocks falling to the ground will turn into baby inflation-Godzillas?"
- Jerry Heaster, a stalwart columnist writing in the Kansas City Star, penned an article entitled "Gag reflex: When U.S. cooks books" He takes a look at what he calls "farcical accounting gimmickry." In toto, he concludes that, "What Uncle Sam is doing makes his corporate counterparts look like pikers. In Washington the machinations run to the hundreds of billions." Now, in my neighborhood we are very respectful of any figure that runs into hundreds of billions of dollars.
"But then, what else is new? This the same bunch of scammers who claimed more than $550 billion in budget surpluses from 1998 to 2001 even as the national debt was rising $400 billion. Then, after the budget slid back into the red, there was no surplus to ameliorate the shortfalls." Yeah! Go get 'em, Jerry!
Well, guess what? Looking at the growth in the national debt since Bush took over makes the period 1998-2001 look good! Bush and Congress have gone bananas with debt. But, then again, they have gone bananas with spending, and the money has to come from somewhere.
- Stephen Roach at Morgan Stanley writes "Sadly, today's saving-short American economy simply can't afford to indulge in the luxury of tax reform. While a counter-cyclical fiscal stimulus may be in order in a soft economic climate, multi-year deficit spending is not. "
"History is clear on what to expect next. A classic current-account adjustment appears inevitable. America is on an unstable and perilous path that simply cannot be sustained. A weaker dollar and higher yields on Treasury securities are likely." Ugh.
Mogambo Sez: The surprising weirdness in the options market would seem to be an omen about something ugly. Very ugly.
The Mogambo Guru Lives!
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.
Mogambo Sez: The surprising weirdness in the options market would seem to be an omen about something ugly. Very ugly.
Couple of large hedge funds finding themselves on the wrong side at the wrong time perhaps. Like being long the dollar and now forced into liquidation?
Richard W.
Comments and opinions welcome.
Richard W.
Yes, but enough about the Clinton years...
Yea, but this time, we are going to do it mo'better!
Priceless.
Richard W.
I read with amusement that Agora, Inc, the publisher of Mogambo Guru, my rag of an economics commentary newsletter, is being sued for fraud, and that I am tarred with that same brush.
If one cares to completely waste some time and read the execrable rubbish that I write, one will no doubt notice that not once in, oh, let's see, the whole twelve years of writing the thing, have I ever recommended a single stock, company, bond, trust or specific investment of any kind whatsoever, other than the broad generic "get yourself some gold, and lots of it" with occasional forays into recommending oil and energy as it mood moves me. Additionaly, I have never received so much as a dime of income from Agora, or anybody associated with Agora, although if they did send me an envelope full of money for some strange reason, probably mental illness or some horrible mistake in their business office, I would keep it, pretend that I have moved, left no forwarding address and me no speakee Engleesh. Furthermore, I have had no dealings whatsoever with the Daily Reckoning/Agora publishers other than to express my appreciation that they would stoop to publishing my ridiculous newsletter and pleading with them to stop rudely hanging up the phone in my face whenever I call them.
I wish I could generate more heat, something on the order of righteous indignation or something, but it is actually so amusing that I am sort of enjoying the attention.
But, in order to cross the t's and dot the i's, let me state, for the record, that I have never committed any fraud, attempted to commit any fraud, or broken any laws of any kind, or even attempted to break any laws, other than to, and I blush when I say this, push the envelope of some posted speed limits on occasion, and if pressed on this particular point by anyone involved with enforcing the speed limit and traffic safety laws, I will plead the Fifth.
If you have any questions concerning this matter, please fo not hesitate to contact me, although I will advise you that I have already communicated to you far more than I actually know, which is nothing, because I am an idiot who is seemingly morbidly preoccupied with sneaking around behind my wife so she won't catch me smoking cigarettes and eating delicious snack foods that contain fats and cholesterol, usually something involving chocolate.
- Richard Daughty
the real Mogambo Guru
I am willing to take Mr. Daughty at his word and will continue posting his weekly articles for those interested. I will also post Mr. Bonner's response as soon as it is received.
Richard W.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.