Economic Nirvana

By: The Mogambo Guru | Thu, Apr 26, 2007
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"A quarter of workers...spend everything! If we have any economic downturn at all, even a mere blip in the economy, a quarter of Americans will not have enough money to sustain them through the first weekend!"

Total Fed Credit was finally up a little bit last week - but only $1.8 billion. And considering the staggering loads of existing debt that everyone is currently saddled with, this ain't diddly-squat. TFC still, as they say, "ain't going nowhere fast."

Now, there may be a lot of reasons why TFC is down below where it started the year, but not one of them is a good one. In fact, it is tantamount to saying, "An economy based on constantly-expanding money and credit was saved from the predictable and inevitable recession/depression at the end of the long boom, and everything was fine from then on, by cleverly creating less money and credit"! Hahaha! Too much!

And this is tantamount to saying, "The Mogambo's mounting outrage is partially controlled with powerful medications that are normally used to tranquilize angry, rabid rhinos; but now giving him less drugs will make him even calmer."

The reason that this is all so nuts is that along with all this new money comes new debt, about which Timothy V.V. pithily remarks, "credit and debit get created in a 'pair production' scenario," which, like "matter and anti-matter", are analogous to "wealth and anti-wealth." Exactly!

And now the "wealth" part is not increasing in excess of interest rates anymore, but the "anti-wealth" part is all still there, and getting more burdensome and annoying - much like the increasingly irritating telephone calls from my many creditors who want to know petty things like, "Where the hell is my payment this month, you Deadbeat Mogambo Trash (DMT)?" And I politely tell them, "I have no idea, moron. Maybe it is on my desk! But the money to honor the check ain't, because it looks like the money for your stupid payment took off with my job, which has disappeared overseas due to some big outsourcing. So why don't you go to China and ask THEM where your stupid money is, jerk?"

But somebody is still buying things; like the Fed, for instance, which bought up $1.4 billion in government debt last week! Hahaha! In fact, the Federal Reserve (which is, if you recall, just a private bank that, in an almost-deserted Congress on an infamous Christmas Eve in 1913, was given extraordinary powers to create debt and money), now admits to owning $782 billion in U.S. government securities! So, it looks like the Federal Reserve created more credit in the banking system, which they themselves borrowed to buy government debt for themselves! Hahaha! What a scam!

But this little Fed flimflam aside (which is hard to say five times quickly!), without new money coming into the system through the banks, the only way that the stock market, or the bond market, or the housing market, or any market, can go up, is for the new buyers to get the money by selling something else - or if some other country's central bank is supplying the new money. Either way, this is definitely not how to achieve "economic nirvana".

And even if the laughable lie that, "you can make enough money to retire by investing in the stock market over the long term" was actually, somehow, miraculously true, and if the Fed was somehow almost justified in creating all this money, debt and inflation, it would make no difference! now reports, "Nearly half of all workers saving for retirement have savings that fall short of the $25,000 mark." Yikes!

"Predictably, the youngest workers (ages 25-34) dominate this group - 68 percent of them have less than $25,000 earmarked for their later years." Ahhh! The kids! That makes it look a little better! But just as I was starting to breathe a little easier, I get hit with, "But so do half of workers age 35 to 44 and a third of workers age 45 to 55 and over"! Gaaah! Now I'm freaking out again!

Even worse, "Overall, 40 percent of respondents said they are not currently saving for retirement while 34 percent said they didn't have any retirement money saved whatsoever."

The absolute Worst Of All News (WOAN) is that, "A full 25 percent said they had no savings at all - retirement or otherwise." A quarter of workers have nothing! Anywhere! Zip! Zilch! Squat! They spend everything! If we have any economic downturn at all, even a mere blip in the economy, a quarter of Americans will not have enough money to sustain them through the first weekend!

And not only do they have nothing, but these are some of the same idiots who are up to their ears in personal debt, credit card debt and mortgage debt. And they're on the hook for their share of city, county, state, and national debt, too! They owe hundreds of thousands of dollars each!

And this, "hundreds of thousands of dollars" assumes that neither the citizens themselves, nor their city government, nor their county government, nor their state government, nor their federal government, will ever, ever go farther into debt by so much as another lousy dime. And it also assumes that interest rates will constantly stay at abnormally low levels, and that they will have a job that pays higher and higher wages forever, too. Hahaha!

Well, that ain't the way things work in real life. Perhaps America should take a look at a cartoon from - the one where a teacher is standing in front of his History 101 class and tells his students, "Bottom line: Pay attention in this class and you won't be as easily fooled as your parents."

And when you constantly live hand-to-mouth like this, you are always acutely aware of the smallest change in prices. Perhaps that is why a new Bloomberg/Los Angeles Times poll found that "Six in 10 who were surveyed predicted a recession, similar to the 64 percent who anticipated the economy would contract in a December 2000 poll by the Los Angeles Times three months before the last decline." Brrr! Did you feel a cold wind on the back of your neck, like the sharp, cold steel of a guillotine blade rushing towards it? Me, too!

I read an essay by John Galt at the site, where he wrote, "we are well on our way to wasting the one trillion dollars we have borrowed from the world to lose a war we should be winning overwhelmingly".

As accurate as that is from a strategic military viewpoint, the basic mistake made by Mr. Galt is that the real purpose of the war in Iraq was not to win a war (heaven forbid!), but to spend trillions of dollars to goose the economy via the classic Keynesian approach of massive government spending - in this case, massive Pentagon spending - with massive budgets and budget deficits to pay for it all; and to snatch some oil wells to provide for the "energy security" of the United States, which we will get simply by giving the purloined oil wells to some friends and insiders of the Bush Administration so that they can all make a fortune!

And perhaps in a related vein, from the Harper's Index we learn, "Total value of U.S. government contracts in 2000 that were handed out without competitive bidding" was $91.0 billion. The total in 2006 was $170.9 billion.

From, we read, "The Conference Board's index of leading economic indicators increased 0.1 percent in March." If this is the economic forecast for six to nine months down the chronological road, then the road sure looks pretty rocky!

Next we learn that their coincident indicator "rose 0.1 percent in March after a 0.2 percent increase in February", which means that business conditions right now ain't so hot, either.

Lastly, we come to the lagging indicator, which is a measure of burdens and inflation, which also "rose 0.1 percent following a 0.2 percent increase."

And speaking of inflation (not to mention yelling about inflation and screaming bloody murder about inflation until my throat is raw and sore), we turn - for a change of pace - to Monty Guild, writing at He reports that inflation has hit the mining industry, too, as, "All mining stocks I follow are experiencing rapidly increasing costs. This is due to higher raw materials, energy, labor and other costs of production."

If your heart suddenly seized up, then congratulations! You are dead; but you went out with the satisfaction of achieving total consciousness concerning the terrifying phrase, "rapidly increasing costs." let's us hear something scary about inflation, when they say, "inflation is roughly at least 3% higher than what is being reported", which is due to the government implementing the foul and dishonest tricks of the Boskin Commission Report.

These slimy adjustments nowadays being made to inflation calculations have come to be called "hedonic adjustments" stemming from the word "hedonics". Now, I admit that the word "hedonics" does not come up very often in my personal everyday conversation with my hoodlum friends, which is usually limited to (in the B's) beer, burgers, bacon-burgers, bacon-and-mushroom cheeseburgers, big pizzas, bathrooms, babes with big bazooms, barking at buttheads who say and do stupid things, and back-talking to my wife who wants me to do something (like take out the trash), and where I wittily reply "Why don't you just shut up, instead?" Which (in case you were wondering) never makes her shut up, having quite the opposite effect, in fact. And loud, too!

So everyone is asking "Huh? Hedonics? What in the hell is that?" Thus indicating that a) we don't know, b) we want to know and c) we are rude. They graciously reply, "Literally it means relating to pleasure", which is a concept that certainly needs no explanation for The Mogambo, whose whole worthless life (according to his wife and children, all of whom are liars) has been one long, disgusting display of selfish, conceited, hedonistic self-indulgence, where not once did he ever think of anything, or anyone, except satisfying his own greedy, grubby gluttony.

Well, as flattering as that is, I hasten to add that they always leave out the part about "raving, gun-nut, gold-bug, patriot and a real peach of a guy", which they always "forget to do" on purpose because they hate me; and then I hate them back in revenge; and then they walk around wondering, "Why does he hate us so much? Whine, whine, whine!" obviously does not want to "go there", and immediately gets back to the point about hedonics, as "in an economic sense in U.S. statistics, it involves adding or subtracting values to important government statistics like CPI or GDP that cause them to be false or incorrect."

This must be a new Bill Clinton distinction along the lines of his famous, "It all depends on what the definition of 'is' is"! Hey! This is great stuff! It all comes down to how you define 'is', and how you distinguish between making something 'false' versus making something merely 'incorrect'! I'm going to use this concept the next time I am hauled into court!

Well, apparently nobody at is interested in my brilliant new legal defense strategy. Instead, they firstly demonstrate the actual use of hedonics in adjusting inflation statistics with the classic and ever surprising, "One general example is in the computer area. If you bought a $2000 computer 3 years ago, and then replaced it with another $2000 computer today that is twice as fast, it can be counted as roughly a $4000 computer in the GDP since it's twice as fast." What a scam, huh?

The reason I bring this up is that they brought up another part of hedonic adjustments that the butthead Boskin Commission did not address, namely that, "Another issue with hedonically adjusting for better or faster products is that the reverse is not done. In other words, if the quality of something drops over the years, no adjustment is made for it. One example would be solid wood furniture versus using a thin veneer."

Or how about using "high fructose corn syrup and artificial sweeteners" instead of sugar in my drink, and "agglutinated vertebrate protein globules" to fill my soggy taco! It's worse, and it costs me more! How come that does not affect the Consumer Price Index?

I leap to my feet, and cheer! "Hooray!" Unfortunately, my enthusiasm is quickly muted when I accidentally knock the plate of nachos out of my lap when I stand up, and some of the hot cheese lands on my socks, which (in case you are interested) must have a very low R-factor because they provide surprisingly little insulation against searing globs of molten, melted cheese, which immediately burns the hell out of my ankle.

But, being professionals, they ignore the man screaming loud obscenities in agonizing pain and throwing bottled water on his own ankle, and they get back to the point by saying, "Longer term CPI accuracy is also far from accurate. From mid 1955 to mid 2005, CPI has risen slightly over 7 times", which seems oddly incongruous with the facts that, "During that same period, houses have gone up over 18 times and even Disneyland admission has risen over 15 times."

A reference to John William's is all it takes to know how the Consumer Price Index looks these days when actually computed the way it used to be computed in the old, pre-Boskin Commission days: Inflation is just about 10% on the nose!! Yikes! 10% inflation! This is horrendous!

The economy is making all kinds of new records - but all are of the "worst ever" variety. And to add to that litany of bad news comes GEAB 14A, which cites work conducted by Thomas Piketty and Emmanuel Saez which, "shows that the revenue disparity ratio is now comparable to what it was on the eve of the Great Depression at the end of the 20s. According to this work, the revenue ratio between the richest 0.01%...and the poorest 90% lingered around 170/180 all along the years 1950 to 1980, and leapt to 880 in 2005, i.e. about the same level (891) as in 1928." Spooky!

LEAP/E2020 implies a summary that says, "The U.S. society is being split into two groups, one poor and the other very rich, with the middle class about to fall in the poor group."

And if you don't think so, then you are soon going to learn something very educational about how economic booms, created by the excessive creation of money and credit, enter into the bust phase. And beyond.

The highly erudite and literate Bill Bonner at writes that all of this is nothing new. While I think Woodrow Wilson made his big mistakes in 1913 when he signed both the Federal Reserve and the Income Tax into law, Mr. Bonner thinks he really "slammed the United States into reverse in 1917. It has been backing up ever since, in the sense that Americans rely more on force and fraud to get what they want."

For example, he says, "The U.S. government takes far more of its citizens' money than it did in 1917...and provides detailed instructions to Americans on such a wide variety of matters that one can scarcely toss a chicken out the window or blow up an outhouse without asking permission of the authorities." Hahaha! I heard that!

Ted Butler, who is the guy who thankfully keeps bringing this up, writes at Jim Cook's Investment, "As of the most recent Commitment of Traders Report, the 4 or less largest traders in COMEX silver futures are net short the equivalent of more than 230 million ounces of silver. This is 90% of the total commercial net short position. And I am convinced that one or two traders hold the bulk of this position."

And the problem of this concentrated short position, of which he has been complaining for a long time, is now 60 million ounces bigger than last summer! About 30% more short silver positions! Wow!

He explains the significance of this by saying, "It is not natural or normal for silver, alone among all commodities, to have such an extraordinary condition that separates silver from every other commodity."

Now don't, like me, immediately fly off the handle and start advocating that we gather into an unruly mob, grab some barbequed ribs and some cold brews, head off to the COMEX, start a ruckus to demonstrate our outrage at the contemptible corruption it seems to imply, and maybe get on the TV news, where some Hollywood producer would see us, and "discover" us, and we would be movie stars!

Instead, we harken to the soothing words of Mr. Butler who says, "But that is not a complaint. It is precisely this extraordinary condition that separates silver from every other commodity, in an investment sense. Silver has more things going for it than you could imagine."

My uncanny ability to remember every injustice ever done to me, no matter how tiny, either real or imagined, suddenly correlates this to the admonition, "Use the opponent's weaknesses against him", which I learned (the hard way) has something to do with judo, which has something to do with women's judo, which in turn has something to do with women in dimly lit, smoky bars saying to me, "Hey, hotrod! You want to see some judo?" and then kicking me in the groin, hard, always perfectly placed to do the most damage, almost like they had done this before. Damned judo!

Now, it is MY turn to use somebody's weaknesses against them! But instead of waiting for the silver shorts to say, "Hey, babe! How's about you and me go back to my place? Maybe get drunk, oil up and, you know, wrestle a little bit?", all I have to do is buy silver at these artificially cheap prices, wait until their little scam falls apart, and then when silver shoots to the moon, these trapped shorts will make me rich, rich, rich - which must be even better than delivering a groin kick to creepy guys like me! Whee! This investing stuff is easy!

But other people are already way ahead of me, as I gather from that some big money is moving into the silver ETF, and, "Not far short of 100 tonnes was bought last week by Investors, or an Investor who bought with determination."

They see, "a definite pattern of buying in blocks of around 31 tonnes at a time. Last week it was three blocks, after two the week before and one before that."

And Dan Norcini says that as of April 18, 2007, the Streetracks Gold ETF had "reached another milestone, breaking through the 500 ton level. Whether they actually have the metal in their vaults is another story but the amount of investment money that has flowed into this ETF since its inception is astounding. It certainly shows the demand for gold is increasing" since it started up in 2004.

At the same time, from Reuters we learn that "ETF Securities said on Thursday it will launch physically backed exchange traded funds based on platinum, palladium, gold and silver on the London Stock Exchange" and that it will begin trading on April 24. These may be part of what mentioned as, "5 new physically backed exchange traded commodities (ETCs) are to be listed on the London Stock Exchange (LSE)", but I don't know for sure, and I didn't look it up because I am lazy and I don't care, but you can look it up yourself if you are (respectively) not, and do.

Then there is the news that Zurich Cantonal Bank is opening Exchange Traded Funds for silver, platinum and palladium, and the ZKB gold ETF that opened in the spring of 2006 has, "led to its holding 25 tonnes of gold to date."

What does this mean to you and me, a couple of greedy, lowlife investors looking to make a killing in the metals markets, when we capitalize on the unraveling of the manipulated markets? I have no idea, but I sense that there is something important in all of that, and I look at them with a shrug of my shoulders and a pleading look in my eye for (at least) a hint.

They understand my dilemma instantly, and explain, "If our understanding is correct, these Exchange Traded Funds will be acquiring the physical metal to back their shares as they have in the gold ETF so far."

At this, my anger starts rising, as this is still all Greek to me. If this is the best "explaining" that they can do, then they can all go to hell, just like that snotty little "Service Representative" at the bank who thinks I am some kind of stupid accountant or delivery boy or something, and it is my stupid job to deposit some stupid money into the stupid bank before I start writing checks, like I have nothing better to do with my damned time.

The blank look of smoky anger in my eyes must have revealed that I was angry about still being lost in the dark, but they are not through toying with me yet! They say, "This means that these shares will impact the metal prices directly and present a real market force regarding the silver price", probably meaning (after I think about it for awhile) "up."

They also offer some very interesting news that "OPEC has noticeably softened its tone regarding how much additional oil the cartel may be willing to supply to the market. The President of OPEC, Mohammed al-Hamli, said that although he believes the market to be well supplied with oil, the cartel is ready to supply more, if needed. Oil prices, it may be important to note, are well above the cartel's stated aim of U.S. $60 per barrel."

Obviously, if OPEC is trying to hold the price of oil at $60 per barrel in spite of a falling dollar, this means that OPEC is a gang of idiots, as they will be losing more and more purchasing power as each of those $60 per barrel declines in value, which shows either that these guys are not very smart, or that there is more to this story than meets the eye. Or both!

Perhaps it will be instructive to these OPEC weenies that an interesting way to look at depreciating currencies is through the inflation in Zimbabwe, now running at about 2,000% a year, and is provided by Chuck Shepherd in his News of the Weird column. He writes that in Zimbabwe, the buying power of the Zimbabwean dollar has fallen so much that the number of dollars "that bought a brick house with [a] pool and [a] tennis court in 1990 would today buy a single brick."

While not as bad (although still bad) is that the official inflation in the United Kingdom unexpectedly accelerated to 3.1% in March, and price inflation in Egypt rose to 12.8%. No sooner had I said this than, in response, David C. writes I am a big doo-doo head if I think inflation is 3.1%, as horrible as that is, because in merry old England, "the Consumer Price Index (CPI) is indeed up 3.1% in March. But, if you follow the Retail Price Index (RPI) which includes housing, REAL INFLATION in the U.K. was up 4.8% in March." Yikes and blimey! I see what you mean! Ugh.

**** Mogambo sez: It's all getting to be almost too much to bear, but made much more bearable by the utter simplicity of the appropriate course of action one must take at this point. Namely, there are only three things to do; buy gold, buy silver, and buy shares of companies involved with oil.

Ahhh! I feel better already! Try it! You will, too!

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The Mogambo Guru

Author: The Mogambo Guru

Richard Daughty, the angriest guy in economics
The Mogambo Guru

The Mogambo Guru

Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning, and other fine publications.

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