A Lesson in Inflation -- Economic Commentary by the Mogambo Guru

“...So let me see, here. Some prices up, some prices down, and so the government has declared that there is, on net, no inflation. I guess the lesson is to eat your furniture, burn your clothes for heat, never seek medical attention, and live in your car. And when you do, there will be no inflation! See how easy this is when I explain it to you?...”

St. Petersburg, Florida - While the domestic breed of monetary rats have been strangely quiet this week, the foreign species of rat has been very busy, and bought up another $9 billion of US debt and stored it at the Federal Reserve. These intellectual paupers and economic hoodlums, with their funny foreign accents and their strange customs, always whispering secretly among themselves and looking furtively at us over their shoulders and then whispering some more, bought up and stashed at the Fed - in one year, mind you! - $214 billion of US debt! Two hundred and fourteen billion dollars! Almost a quarter of a trillion dollars! In one lousy year! Now I am going to say it again for emphasis, but this time I am going to trill the "r" for a dramatic effect; trrrrrrrrrrillion dollars. Now, and I am obviously just showing off here, I am going to trill ALL the "r's;" a quarrrrrrrrrrter of a trrrrrrrrillion dollarrrrrrrrrrs. In one yearrrrrrrrrrr!

Oh, damn. Now I have little specks of spittle all over my computer. But it is a small price to pay for such exquisite emphasis, especially one that results in the tip of my tongue feeling all tingly! Perhaps that little bit of extra emphasis, the extra dash of verbal oommph, will be, after enough iterations of the system to enable Chaos Theory to operate, sufficient to change the course of the future. Yeah! That's the ticket! Change the future! In fact, I'll bet that if I go out right now and get into my space-cruiser and actually warp into hyper-space to the future and take a look, I will find out that, well, perhaps I have said too much already. Never mind about the space cruiser thing. Forget I even mentioned it.

No, better yet, let me change that to say that we were casually talking about Captain James Kirk, captain of the Starship Enterprise, who will one day be on its fabled five-year mission which will be to, as you recall, explore strange new worlds, seek out new civilizations and some other stuff, I dunno, go where no man has gone before or something. So he has these space cruisers, only they called them Shuttle Craft, see, and you got a little confused, and, well, that's my story and I'm sticking to it as regards this space cruiser and visiting the future thing, and now that you mention it, I don't recall ever talking about them at all, so it must just be your imagination.

But continuing relentlessly with this Star Trek metaphor, Captain Kirk, or Jim as he is known to his friends, who are, parenthetically, some humorless and flattened-affect alien being named Spock, a far-Leftist has-been doctor named McCoy, and a drunken mechanic called Scotty, may have been constrained by the Prime Directive, which was some proscription against interfering in the natural development of the aforementioned newly discovered civilizations. But the Mogambo is under no such stricture! I rise to my feet, turn my handsome and chiseled jaw into the wind, and with my blue eyes sparkling and glinting in the sun, raise my fist in pure defiance and say, "I am the Mogambo! And the Mogambo is above the law! No Federation of Planets can command the Mogambo! I will change the course of the future as suits my whim, and I choose to interfere with the repellent development of this planet which they call Earth! And thus - thus! - will the Mighty Mogambo get this sickly world back to a sustainable path! And Mogambo does not use ray guns or photon torpedoes, but with emphatic trilling! Which doesn't involve me even getting up off my fat butt, much less having to do real work! Or, worse yet, having to donate money! That's why I am the Mogambo and you are not! Sing the praises of Mogambo! All hail Mogambo!" And then I will hand out some "Mogambo for President" bumper stickers.

But, looked at another way, which has nothing at all to do with Star Trek for a pleasant change of pace, in one year foreign central banks have bought a mountain of debt that is the equivalent of roughly $2,000 per person who has a job in this country! At a measly 5% interest rate, each person with a job in America owes another $100 per year, every year, just in interest, to foreigners! That's almost nine more dollars a month, each, forever!

And, increasingly, the debt was bought by those nasty foreign central banks by printing up their own currency to buy the dollars, effectively "printing money out of thin air," just like we are doing! And if there is one thing that all economists agree on, even American economists, who are the most stupid of all the kinds of economists in the world and in the universe as far as we can tell by using powerful telescopes and gigantic amounts of government funding, it is that printing excess money has always been bad news, and will always BE bad news, both now and in the future, including that time in our future where the people are so angry and tired of suffering the miseries of their tragic circumstances caused by printing up money that they actually dig up the graves of FDR and all the rest of the horrible Leftist commies, and sell the recovered remains as cat litter to 1) desperately try and make a few bucks and 2) show raw, undisguised hatred for the laughable Leftists, whose ridiculous philosophies caused the ruination of the United States and the resultant universal suffering.

And this is the correct thing to do, as only the Leftists are so mentally ill, and I am talking literally divorced-from-reality-as-it-really-exists whacko and need to be on some kind of medication, but are probably already taking so much medications that their symptoms could be caused by the sheer tonnage of Ritalin and Prozac and every psychoactive chemical that can be bought either at a pharmacy or from a guy named Carl that they are pumping into themselves, and their children, and their children's teachers, and their bosses, and their elected representatives, to still believe that communism and socialism and fascism and all the rest of the government-taking-control idiocy can possibly work, which the entire corpus of history proves over and over and over does not work, has never worked, and never will work, and always results in failure and suffering that is best described as Biblical, in both scope and scale.

Instead, and this is the part that I find so hard to actually believe, and that is why my whining little voice rises hysterically like this so that I start sounding more and more like a Munchkin, and I start getting angrier and angrier, and then I really start getting worked up and start using profanity, and get louder and louder, and then you make the big mistake of coming over here and ask me to clean up my language and maybe keep it down, and then I remind you what happened to the last person who asked me to "chill," and if I never hear that silly expression again it will be too soon, just who in the hell ARE these morons who actually believe that high levels of government programs, and the creation of excess money and credit and taxation to support these programs, are NOT guaranteed to destroy us, just like it has destroyed every other pathetic, society of idiots that dared to adopt this terrible, cancerous, low-IQ philosophy?

Now, maybe it is just me, the Magnificent Mogambo, who is so enlightened and attuned to stark reality and the workings of the cosmos, but whenever I see that the same horrible result has resulted 100% of the time it has EVER been tried, then that, in itself, IS a guarantee! Isn't it? When I bonk you on the noggin with a hammer, and you always say "ouch!" isn't it a seeming guarantee that when I propose to hit you over the head with a hammer, that I can pretty much take it to the bank that you will say "ouch"?

Now we get news that even Germany, which is where this whole idea of government bestowing permanent benefits on classes of people got started, is scaling back! These Germans are finally admitting that it is bankrupting them. Germans! The guys who have been at this government-program game for longer than anybody else, and who are thus best able to recognize the persistent failure of the system, are taking their first steps towards reversing it.

And France is trying to do the same thing, but with the usual limited success. A host of ex-Soviet countries are getting rid of it. Russia is already kaput from it. South America is a basket case because of it. China is trying to throw off those shackles, too. The IMF has given Britain a stern warning, and one can only cringe at how embarrassing THAT is!

But here in America, we Yankee Yahoos, we are not impressed with the experience of the whole rest of the world as regards governments ruining an economy, and we are still expanding it! And we have a whole cadre of loathsome Democrat fellow travelers running for President right this very minute, whose every platform is nothing but more expensive program-expanding, made necessary because all their previous government programs are suffocating us!

And then we turn around and think that the rest of the world was supposed to give us this big respect for doing this? How CAN you respect someone so deliberately stupid? Hell, I'm an American myself, and I have no respect for us at all! I mean, how stupid can we be and not have mental health professionals come banging down the door and drag us away kicking and screaming and lock me up for my own good and me dragging my feet the whole way into the ambulance and screaming that I was framed and I promise to take my medications if they will just give me one more chance? Jeesh!

And now we want to secure these miserable lessons in democracy to the rest of the world? So I can almost see the point of the Muslims, who desperately want to prevent us from polluting the minds of them and their children, and I gotta say that, as regards the direction that the Democrats want to take us, and the direction that we have already taken, this is certainly a point in their favor.

And now, and I hang my head in shame as I say this, the damnable Republicans are at it, too? And worse than the Democrats ever dared? Arrrggghhhh! Now you know why the stairs to my concrete- and steel-reinforced bunker are worn down from me constantly running in there, screaming my head off in a panic like a banshee whose genitals are caught in a bear trap, slamming the door and feverishly locking myself in with Maximum Level Four security devices, and then sitting in the dark and whimpering in fear, holding my flannel security blanket against my cheek with one hand and a grenade launcher with the other.

But getting back to the foreign holdings of US debt held at the Fed, how embarrassing to be an American, now reduced to being a bunch of dirtbag beggars, losers who have to rely on foreigners to loan us money to buy shiny SUV's and luxury goods, who are in that predicament because we already spent all of our own money and all the money we could borrow decades of raw, unwholesome, gluttonous consumption, and wiping the grease from our chins with our grimy sleeves, still crave more, more, more! How embarrassing that horrible people, like Democrats, would be elected, and are elected by ostensibly educated and literate people. And now Republicans, too, who have become so repulsive as to make the Democrats seem benign by comparison.

And how perfectly predictable that other societies would be aghast that we are trying to jam such a foul, low-IQ, self-defeating and suicidal lifestyle down their throats. And how predictable that we would react to their objections by invading them and killing them.

- A humorous juxtaposition on the front of last Wednesday's Wall Street Journal was the item "The U.S. farm economy is booming amid a robust price rally in grain, livestock and other agricultural commodities" which was placed right above "Core consumer prices fell last month for the first time since 1982, bringing the underlying inflation rate to a 40-year low."

The first one comes from actual prices. The second, the "underlying," one comes from the fertile imagination of government wonks, who are under orders, either explicit or implied, to lie their heads off and to put as rosy a spin as they can, on everything they can, to make sure that Dubya is re-elected next November, and that is why they call it "underlying inflation."

Now if you first look at one of these items and then the other, and then keep going back and forth between the two, you will get very dizzy, and in your mental confusion you will note that it will be a perfect item for you to take to school for Show and Tell, as it is a very good indicator of the level of insanity that is inherent in government and government statistics.

Bill Bonner of the Daily Reckoning is likewise confused, and he writes "It is a confusing picture. Things that can be manufactured and shipped - such as cars, clothes, furniture - are falling in price. Things that are produced locally - often with much government interference - such as health care, education, and housing are rising. Commodities are also going up - presumably because the dollar is falling...and because China is buying so much of the stuff. Oil is almost $34 a barrel. Cattle have risen 36% in the last 12 months. Scrap steel is up 42%."

So let me see, here. Some prices up, some prices down, and so the government has declared that there is, on net, no inflation. I guess the lesson is to eat your furniture, burn your clothes for heat, never seek medical attention, and live in your car. And when you do, there will be no inflation! See how easy this is when I explain it to you?

Mr. Bonner continues, "Could these trends continue - falling prices for manufactured, globalized goods...rising prices for commodities? Yes." And although Mr. Bonner is too nice of a guy to bring the subject up, I am not nearly so nice, and I will boldly ask the impertinent question "Can these trends permanently continue so that there is never any net inflation?" The answer is, in a word, no.

- Charles Price, wrote a nifty little article entitled "1987 Bond/Equity comparison with 2003," replete with very many graphs, on the Prudent Bear site. In trying to compare the two periods, he runs into a little problem, and writes, "Finding a simple and logical starting point for an investment comparison between 1987 and the present is far from easy - so much has changed so significantly and yet still seems disconcertingly familiar." Sort of like me when I take a look at a photograph of me in 1987 and then look in the mirror, except Mr. Price doesn't end his little comparison with hysterical screaming and blaming Bill Clinton like someone I know, namely me.

"For one, the US economy now more closely resembles a gigantic out-of-control hedge fund using unprecedented leverage and financial engineering, compared to the still recognizable and relatively straightforward economy of the late 1980's."

How far has this, using his terminology, "unprecedented leverage and financial engineering" taken us? Well, he figures that "S&P 500 earnings need to rise 22% to bring the valuation back into line with current 10-year bond prices." And this is using today's absurdly low yields and absurdly high bond prices, all thanks to despicable central banks providing the money to generate this kind of inflation in stock and bond prices!

And, although he does not mention it, probably because he is such a classy guy, I will note, because I am NOT such a classy guy by a long shot, that the same "unprecedented leverage and financial engineering" has driven bond prices to insane levels, as only a certified idiot (or a corrupt government, which is apparently the only kind that exist anymore) would be buying long-term debt at yields so astronomically, bizarrely, unnaturally and insanely low.

- Oil is trying to go through the $34 per barrel mark, or, more precisely, I assume that government people are trying to keep the price of oil from going through the $34 per barrel mark, although it almost certainly will happen. They do this by reminding oil producers that we can crush them like a bug anytime we want, as Iraq has found to its dismay, and that their own dysfunctional economic paradigms will one day need bailing out, and that we control where the IMF money goes. So if they know what is good for them, then they better play ball as regards the price of oil.

So as the value of the dollar keep going down and down, the price of oil does not go up and up, which is what you would expect. So OPEC looks like a bunch of retards, and Dubya looks great.

- Dan Neel, writing a nice piece entitled "Fancy Greens and Pusherman Blues" at the NY Press, looks at the new twenty-dollar bill. When I see one, it is usually in the hand of a stranger, and I always think to myself "Man! I wish I had a bunch of those! Or even one!" But Mr. Neel is more advanced in his thinking than that. "The U.S. is making an incalculable profit on the roll-out of the snazzy new twenties." He figures that the profit comes from the underground economy, who are being roiled by this new regime of currency issuance. "Wholesale drug resellers as close as two tiers above street-level distribution have begun asking buyers to separate older twenties from new ones to more quickly direct the old currency at laundering operations and retail purchases. The result is an accelerated rate of tax revenue for the U.S. government."

Now, I freely admit that my experience with the drug trade is very limited, although I wish I had a big ol' drug problem so that I could qualify for some of those luscious federal program benefits, with free food and housing and medical care and case workers to handle all my problems for me, and keep people from hassling me because I would be certified as a Person With A Disability And Therefore Possess Powers Beyond Those Of Mortal Men. But the few drug dealers I have run into always wanted cash, and I patiently tell them that I thought the first ones are supposed to be free, and that is how they get me hooked, and it is only AFTER I become an addict that they start charging me and they make all their money on the back end of the service period, but this is just the beginning of the service period, and therefore the drugs are free to me. But that is, alas, only in the movies, and in real life there is only that awkward moment when they are just staring at me in stunned disbelief, and then they tell me to get the hell away from them before they whomp me upside my freaking head, and I do.

But getting back to Mr. Neel, he explains that "Such transactions are also the key to a little-recognized form of seignorage. Call it paranoid seignorage: a spike in tax revenue from resurfacing notes when the government refreshes its currency. Think of it as yet another way the government makes money from making money."

In case you are new to the concept of seignorage, he explains "Seignorage is the difference between the value of money and the cost of its production. In the case of notes, the Fed buys at four cents apiece and sells them to banks at face value." Well, in actuality, the banks sells some T-bonds to the Fed for the money, or the Treasury deposits the money in the banks to use to pay government employees, and therefore the banks don't spend a dime or even have to do anything other than record the transaction in the books.

But looked at another way, it is also a shining example of glorious government productivity, as two things are accomplished at once, namely, 1) some debt is extinguished and 2) the money supply is enlarged, committing both a fraud (the artificial extinguishment of debt) AND a horror (the precondition for resultant price inflation, as this extra money works its way into prices).

But I regret that he really falls short of the mark when he quotes "post-Keynesian economic theorist William Hummel," who has the temerity to write, "For a few cents worth of paper, the [U.S.] notes buy foreign goods and other assets at their face value, and as long as those notes remain overseas, those assets are effectively cost free."

Well post-Keynesian economic theorist or not, if this Hummel fella thinks for one lousy minute that there is no effect on economies because of a large influx of US dollars, or an outflux of US dollars, or large influx of any currency, or a large outflux of any currency, or a medium sized influx or outflux, or even a small influx or outflux of money, influx outflux influx outflux in any country anywhere on the planet, and if he further believes that US nationals burrowing themselves under a mountain of debt so as to finance raw, naked consumption are included in his definition of "cost-free," then I can only surmise that the term "post-Keynesian" means "complete idiot," because I am here to tell you that any movement of even the most insignificant amounts of money has far-reaching repercussions, because it must, and of all the words in the world that I would pick to describe the effects of money piling up anywhere, the very last descriptor on the list, down there at the very, very bottom of the list, is "cost-free." And if you don't believe me, then watch carefully what happens the next time my wife asks me for ten bucks, and you will note the HUGE effect that it has on me, starting out with the usual "What? Ten dollars? Do you think I'm made out of money or something?"

- Eric Fry at the Daily Reckoning web site has a remarkable gift for summing things up with the perfect and memorable turn of a phrase. To illustrate that I could possibly mean, he writes "America is a land of economic marvels: No one saves money, but everyone spends it. Consumers buy things with money they don't have...but never seem to run out. Home prices skyrocket...even though the majority of Americans can't afford one. Bull markets flourish on Wall Street, even though the average stock sells for 35 times earnings. Commodity prices soar, yet the inflation rate barely budges. And most incredibly of all, the dollar's value collapses, but foreigners still buy billions of dollars worth of Treasury bonds every month. Will America's delicious economic fantasy ever end?"

The answer is no, probably not. Not as long as we can continue to revel in the fantasy, and as evidence of the longevity of fantasies I will point out that I have had a crush on Elizabeth Montgomery since I was a teenager, which was a long, long time ago, and even today I cannot pass an opportunity to watch an episode of "Bewitched," even though she is dead, and if that ain't proof that an American cannot stop wallowing in delicious fantasies, then nothing is.

- I got a big charge out of the latest inflation readings, which shows that in the whole fair land there are no prices that are rising, and that everything is just peachy. Which I am going to turn over to my lawyers to use as proof that they are all out to get me, because I am the only guy in the whole freaking country who has to pay higher prices for things. The only guy! Me!

And not little things either! Oh, no! I just got my new health insurance invoice, and it is only up the customary 5% this quarter. But 5% is a lot higher than zero percent, which is apparently what the inflation report says should be happening. And I got my new ad valorem property tax bill, and it is up the customary 5%, too. And when you add the total dollars that these represent, then compare that to the amount of money I actually bring in every year, you will soon realize that total inflation of prices is soaring.

And the worst part is that every dime of these increased prices means that I will have that much less money to buy anything else. And then I have to listen to local vendors whining about how their sales are down, and how they don't make as much money as they used to, and how all those new shrink-wrapped issues of "Hot and Horny" beckon to me from the magazine rack, pleading "Buy me! Buy me!" But I can't. That is the horror of inflation.

- Scott Trask, writing on the Mises.com website, wrote a nifty little article entitled, "The Fed's Predecessors in American History," in which he reminds us that the USA had a couple of previous encounters with a central bank, and they, too, turned out to be horrors.

He quotes Condy Raguet, who is the publisher of "The Free Trade Advocate and Journal of Political Economy." He began by arguing that a free and unfettered exchange market was "the best regulator of [national] currencies and the tendency of metallic money to flow abroad during periods of inflation was the only effective check upon excessive bank issues. As a result, anything that disturbed the 'natural' or 'market rate' of exchange was pernicious."

In an episode of the horrors of central banking, he notes in particular the escapades of the president of the Bank of the United States, Nicholas Biddle. "In July 1832, when President Andrew Jackson vetoed the bill to extend the charter for the Bank of the United States another 20 years, Biddle sought to contract the economy to deny him reelection in the fall. When that failed and Jackson was reelected, Biddle continued to constrict credit for another two years in order to destroy Jackson's popularity and coerce a re-charter."

Thus we see the corruption of power, especially power that is entrusted to a central bank, and things have not gotten much better since, although the Fed has enlarged its mission from merely hurting the President to that of literally destroying the currency and the economy and all the people who depend on either.

- The Big Dig in Boston, the long and expensive project to dig a gigantic tunnel so that people can get around easier, is finally over. In true Massachusetts fashion, and I say this as a state that I figure is so bereft of intelligence that they blithely re-elect a drunken, arch-communist coward and all-around whacko named Ted Kennedy time after time after time, a man whose entire career has been dedicated to trying to prove the filthy proposition that increasing government control of every aspect of your life and confiscating more and more of your wealth so that the government can redistribute it is not the bankrupting horror which the Founding Fathers feared more than anything, the tunnel cost $14.6 billion dollars, more than three times original estimates, and they were successful in forcing rest of the nation to pay more than 60% of the cost. Perfect. Exactly what I would expect from Massachusetts, which I have already castigated as mental defectives.

The bigger bad news is that the gigantic mal-adaptations, where whole sections of the economy were involved in this project and made their livings from the waste, corruption and all-around stupidity, are now idled with little to do. This is just another egregious example of how government distorts and destroys economies. And, of course, there will be some damnable government plan to correct this, I suppose, because one idiocy always deserves and engenders another one, and another one, and another one, ad infinitum.

So the next time somebody from Massachusetts wants to tell you his or her opinion about anything, you have this to remind them that they are obviously not qualified to have an opinion about anything.

Of course, they might be so tacky as to point out that I am from Florida, where our egregious governor, Jeb Bush, just jammed a quarter of a billion dollars of public money into bribing the Scripps research lab, and their mere handful of jobs, to relocate here.

- Gary North writes the always-informative newsletter Reality Check, and in a recent essay entitled "Addicts and Pushers," he compares the US to drug addicts, but addicted to debt. Well, not debt exactly, but the things that we buy with the debt, and he does a really nice job comparing addiction to debt with addiction to drugs.

Beyond that, Mr. North proves that the horrendous error of debt, especially deep debt, and doubly especially the deep, deep doo-doo of deep, deep debt, was known thousands of years ago, when he writes, " Approximately 3,500 years ago, Moses wrote these words of warning to the Israelites: The stranger that is within thee...shall lend to thee, and thou shalt not lend to him: he shall be the head, and thou shalt be the tail. Moreover all these curses shall come upon thee, and shall pursue thee, and overtake thee, till thou be destroyed." This lending and borrowing thing was, so he says, one of the Biblical no-no's as outlined in Deuteronomy 28, although I have no idea, as my personal teenage big no-no was the Ten Commandment about not coveting my neighbors slave, nor his ass, nor anything belonging to my neighbor, and I sure was coveting my neighbors daughter, whose name was Nancy, and I spent many a wistful hour sinning my little brains out with all that coveting, and I sure as hell wasn't go to go poking around in Deuteronomy for MORE things to be guilty of, and I ain't gonna do it now, either.

Anyway, Mr. North says that Deuteronomy 28 "lists blessings for obedience and curses for disobedience, but the section on the curses is four times longer than the section on blessings." And although Mr. North didn't mention it, I think that curses always outweigh blessings in most everything, and I say this as a guy to whom sugary treats are a real blessing and there is an apparently endless list of curses associated with that one lousy blessing, including total strangers taunting me with "Fat, fat, the water rat!" when all I wanted to do was waddle into the store for a donut. With frosting. And maybe some sprinkles.

He relates this to Proverbs 22:7, "The rich ruleth over the poor, and the borrower is servant to the lender." But when the borrower "becomes the lender's main client, the borrower is no longer servant to the lender. It's the other way around. 'Cut off the funds, and I'll declare bankruptcy,' threatens the borrower. 'Then where will you be?' "

So you see the games that are played. And you know who the loser will be. And we have known it, as Mr. North reports, "for 3,500 years." And now, also thanks to Mr. North, we know that the curses we shall endure are more numerous than the blessings the debt gave us.

- Walter E. Williams, writing on the website Townhall.com, has been writing a nice little series of articles about what a piece of crap, excuse my French, that the government has turned this country into, and noted that his articles have inspired "...fellow Americans expressing disgust and fear over what our nation is becoming."

That's an idea already being explored by Free State Project. Their plan, as stated on their website (freestateproject.org) is: "20,000 or more liberty-oriented people will move to New Hampshire, where they may work within the political system to reduce the size and scope of government. The success of the Free State Project would likely entail reductions in burdensome taxation and regulation, reforms in state and local law, an end to federal mandates and a restoration of constitutional federalism."

Why New Hampshire? Well, the author thinks that maybe it has something to do with the fact that in 1788, New Hampshire was instrumental in voicing fear of "undue Administration of the Federal Government." To guard against this "undue Administration of the federal Government," Mr. Williams notes that "The Ninth and Tenth Amendments, which mean virtually nothing now, were added to our Constitution in response to these fears."

Like the federal government is going to allow a bunch of citizens to dictate to it what powers it has? Hahahaha! Anticipating this, Mr. Williams writes, "While members of Free State Project have not proposed it, I would imagine that if New Hampshire's elected representatives couldn't successfully negotiate with the U.S. Congress to obey the Constitution, the only other alternative would be that of making a unilateral declaration of independence and go our own way just as our Founders did in 1776."

Now I really am laughing! The federal government is going to allow a state to secede from the Union because it doesn't like the way the federal government is doing things! Hahahaha! I am incontrollably doubled up with laughter, and out of the corner of my eye I notice that one of the CIA snipers has to quickly adjust his aim at my sudden movement, and this makes me laugh some more, because I am already half-blinded by the incessant laser-targeting sights of these government goons zeroing in on my forehead day after day, and all I ever did was to one time suggest the opinion that I'd like to secede from the damn Union because I AM sick and tired or the way the damn federal government is running things. This, of course, reminds me of the South trying to secede from the Union in 1865 to get away from the North, which included New York City, which the Southerners probably could plainly see, even then, was so corrupt that they would eventually elect such terrible people as Charles Schumer and Hillary Clinton, and so I can see why they would risk everything to get out from under the corruption of the North in general and New York in particular. But the rest of the sorry story is how that horrible little creep Abraham Lincoln ran roughshod over the whole Constitution, and declared war on the citizens of the South, for proposing this exact same thing. A more recent example is Saddam "Call me Abe" Hussein keeping those Kurds from seceding by emulating Lincoln, namely killing them all, because he believed so fervently in "preserving the Union."

And he notes, as I have noted both when I am wide awake and in my dreams so that I wake up screaming in fear almost every night, that depending on the Supreme Court to prevent the federal government from trashing you, your liberties and everything to hold near and dear is a huuuuuuuuge mistake. Here's what he quotes Thomas Jefferson as saying about allowing the Court to hold a monopoly on the interpretation of the Constitution: "... the opinion which gives to the judges the right to decide what laws are constitutional and what are not, not only for themselves in their own sphere of action but for the Legislature and Executive also in their spheres, would make the Judiciary a despotic branch." QED, brother. QED.

- Robert Blumen, writing at the incomparable Mises.com website, has penned "The Dollar Crisis." He writes "Under the current system, the United States year after year imports goods from the rest of the world for consumption and pays for them with dollars. The dollars are then used by foreign central banks to purchase debt instruments from either the Fed or the private sector, in addition to U.S. stocks and real estate. Where these are treasury securities, they are created out of nothing, requiring no savings by any American consumer. Under this arrangement, Americans are now freed from the ponderous burden of saving and the onerous requirement of first producing in order to later consume. Their consumption is offset by a growing indebtedness of the private sector and the Fed to foreigners. This state of affairs is unsustainable, and will come to an end with a deep fall in the exchange value of the dollar relative to other currencies." As we are now seeing, if you pay any attention at all to the fate of the dollar, every day.

He draws extensively from a new book by Richard Duncan, "The Dollar Crisis: Causes, Consequences, Cure."

Mr. Duncan writes, "How much longer will the rest of the world be willing to accept debt instruments from the United States in exchange for real goods and services? It is only a matter of time before the United States will no longer be considered creditworthy. It is only a matter of time before the United States will not be creditworthy." If it was me writing that, I would have capitalized that last sentence to read " It is only a matter of time before the United States will not BE creditworthy."

The dollar must collapse, forecasts Mr. Duncan, because it will become impossible for the U.S. to continue to sell one-half trillion dollars worth of debt securities each year (the amount required to offset the trade deficit) for very much longer, because foreigners, who are obviously a real stupid bunch of people, are not so stupid that they will never get smart enough to stop doing it.

Now this is the place where I take exception to that, as the great advantage of a fiat currency is that we don't have to sell nuthin' to nobody, much less a bunch of debt. We can print up all the money we want, anytime we want. We can have so much money floating around that we can retire the entire national debt in one stroke if we want. However, the resultant monetary inflation will, of course, filter through to inflation in prices, and then all the poor people start starving to death and getting uppity, and commerce falls to zero as everyone is afraid to go to the mall and have to wade through mobs of angry, homicidal people.

But Mr. Duncan anticipates that very objection when he says, "The more familiar effect of inflation, consumer price inflation, is the bidding up of the money prices of consumption goods as the money supply expands. However, inflation does not always take this route: asset price inflation occurs when credit money creation flows into financial assets." Namely, stocks and bonds and houses. Which is what we are seeing nowadays, as if that is okay somehow. It is not, in case you were wondering.

This brings up an interesting point, where the Mises.com website linked to an article by Larry Kudlow, entitled "Bush's Inflation-Free Boom" which he wrote as part of his duties as the new Economics Editor for National Review Online. The Mises site lampooned his effort with the title, "National Review Repeals Laws of Economics."

In it, Kudlow has looked at the cooked numbers for inflation, disregarding the wealth of information about how they are doing this because they are such a bunch of lying, corrupt, mentally ill rats, and then ludicrously says "So inflation remains nonexistent." Apparently, Mr. Kudlow has a new definition of inflation, as prices of houses, cars, stocks, cable-television bills, bonds, insurance, taxes, fees, and a long, long list of other things that Americans buy are zooming, but they are not, according to this Kudlow fella, inflationary. Even though they are soaring in price right in front of his eyes, Mr. Kudlow opines that they are not inflationary. And he is, and I find this hard to believe, the Economics Editor of the National Review.

So that brings up the interesting question, "How low has National Review sunk?" If they had given him the title of Clueless Bullish Stock Tout, okay. But Economics Editor? Not in a million years!

But back to the Blumen essay, he goes on to say, "Bubbles are followed by busts, which usually result in banking crises, and then fiscal crises generated by the ensuing costly bailout of the banking system by the government." Not to mention, of course, the inevitable bailout of every dirtbag country and THEIR banking systems that have fallen victim to the IMF's ministrations, which is the exact same thing on an international scale. And not to mention the bailout, in this case "debt-forgiveness" of Iraq and Afghanistan, since we decided to invade them and destroy their economies, which means that we taxpayers eat another huge cost.

- I saw an advertisement, apparently for a numismatic/bullion company, which said, "Each Silver Eagle coin minted by the government reduces the debt, gives jobs to Americans, and best of all gives your bottom line a boost. The product is money/silver coin."

Well, pretty much the same thing can be said for enema bags, if the government used American labor to make enema bags, except for the part where it "gives your bottom line a boost." And then again, after I think about it, depending on how you define "bottom line" and how you define "boost," perhaps it does. But one does not tout the benefits of enema bags as economic salvation.

The point is that no actual debt reduction occurs when you buy a Silver Eagle coin, unless the money is then used to buy back, and thus extinguish, debt that has already been issued. But they do not do this. In reality, the government spends the money you use to buy the coin, so you are encouraging more government spending. Debt is unchanged, at best, and total spending merely goes up.

And it may give jobs to Americans, but it also gives jobs to plenty of foreigners too, as no economic transaction can take place without it affecting the whole world in some tiny, or not so tiny, way, as all things are tied to all things.

The one real benefit is that it gives you a chance to buy something with depreciating, as in soon-to-be-worthless, dollars, so that you can get rid of the damn things, in exchange for something that will retain its value. A humorous metaphor would be to think of dollars as firecrackers with lit fuses. You want to hold onto them, or would you like to trade them for something valuable? I know which one I prefer, and I bet you do, too.

- Reuters reports that the future of Brazil is getting bleak, because in the present they are getting ready to have a government-debt-created boom, as it is reported that their new working-class president, which is apparently a new euphemism for "raging idiot," is preparing, and I hope you are sitting down for this and are fully dosed with your current heart medication, a "New Deal" for Brazil. He says his main priority is to improve the lives of Brazil's millions of poor (crowd murmurs "Oooooohhhhhhh!"), in this case by destroying everything and everyone in the country through the simple expedient used by the other commie idiot that foisted a New Deal on an unsuspecting population, FDR. As explained by Walder de Goes, who is apparently a political analyst in Brasilia, "What (Lula's) Workers' Party will introduce that is new in 2004 is more government, more government, more government."

This proves that Brazilians are utter morons and are completely undeserving of any respect whatsoever, as they are just now digging themselves out of the bankrupting mess caused by previous presidents running huge government programs, and their complicity with their neighbors' running huge government programs, and now they turn right around and do the same damn thing again! Impossible to believe! But true! And if you are willing to take a suggestion as to how you should play this scene to really get the point across, try putting a pause between each word, as in "...and now they turn right around and do the same (pause) damn (pause) thing (pause) again!"

As reported by Reuters, "That entails mass public spending in areas like housing, sanitation, big public works, above all construction which uses lots of cheap labor and distributes money immediately" and other such things as paving a road through the Amazon, hydroelectric dams and installing gas pipelines. The one I like the best, of course, is "A massive project to change the course of a northeastern river is even under consideration" where we see that moron government jackasses plan to gouge out whole swaths of the topography of the planet to suit their wishes, with the tacit understanding that if the planet knows what is best for it, then it had better cooperate.

Note carefully that none of these things produce anything to sell to anybody, and so will rely on us gringos to loan them money again, so that they can squander it again, so that the whole economy of Brazil can be destroyed again, so that they IMF can come in and bail them out again, so that Americans will be asked to bite the bullet and extend Brazil some debt forgiveness again, and things can get back to normal again, which I now define as South Americans in general and Brazilians in particular acting like the embarrassingly ignorant commie jackasses that they obviously are, again, and electing another stupid communist as president again, who will propose more huge government programs again, that will end up destroying everything it touches. Again.

Reuters goes on to helpfully explain, "The New Deal refers to U.S. President Franklin Roosevelt's spending on public works in the 1930s to take the United States out of the Great Depression," which proves that Reuters may be very good at reporting things, but as economics analysts they really bite the big one, because FDR did NOT "take the United States out of the Great Depression." He merely made it worse and longer lasting, year after year, and finally the growing anger of the weary, destitute population forced that foul commie bastard FDR to manipulate things to get us into WWII so that people would start hating the Germans instead of him and his worthless collectivist rot.

The report goes on to note that Lula loves that old "chicken in every pot" campaign rhetoric and "He has also promised three meals per day for all of the Brazil's 45 million poor by the end of his four-year term."

So the new Brazilian president is promising huge and expensive government programs, with money it ain't got, to provide roads, houses, electricity, and even food to the teeming masses. The only part that he is not proudly proclaiming is that he is also promising them yet another death of their economy and utter devastation for everyone of them, because that is, as far as the lessons of history are involved, the only possible end result of yet another socialist, communist and fascist fiasco. How special. Ugh.

---Mogambo Sez: It is almost over. You spent the whole year being good. Let's hope it pays off better than it has in years past.

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.

to still believe that communism and socialism and fascism and all the rest of the government-taking-control idiocy can possibly work, which the entire corpus of history proves over and over and over does not work, has never worked, and never will work, and always results in failure and suffering that is best described as Biblical, in both scope and scale. . . . who in the hell ARE these morons who actually believe that high levels of government programs, and the creation of excess money and credit and taxation to support these programs, are NOT guaranteed to destroy us, just like it has destroyed every other pathetic, society of idiots that dared to adopt this terrible, cancerous, low-IQ philosophy?<

How embarrassing that horrible people, like Democrats, would be elected, and are elected by ostensibly educated and literate people. And now Republicans, too, who have become so repulsive as to make the Democrats seem benign by comparison.

Approximately 3,500 years ago, Moses wrote these words of warning to the Israelites: The stranger that is within thee...shall lend to thee, and thou shalt not lend to him: he shall be the head, and thou shalt be the tail. Moreover all these curses shall come upon thee, and shall pursue thee, and overtake thee, till thou be destroyed." This lending and borrowing thing was, so he says, one of the Biblical no-no's

Proverbs 22:7, "The rich ruleth over the poor, and the borrower is servant to the lender."

Apparently, Mr. Kudlow has a new definition of inflation, as prices of houses, cars, stocks, cable-television bills, bonds, insurance, taxes, fees, and a long, long list of other things that Americans buy are zooming, but they are not, according to this Kudlow fella, inflationary. Even though they are soaring in price right in front of his eyes, Mr. Kudlow opines that they are not inflationary. And he is, and I find this hard to believe, the Economics Editor of the National Review. . . . So that brings up the interesting question, "How low has National Review sunk?" If they had given him the title of Clueless Bullish Stock Tout, okay. But Economics Editor? Not in a million years!

FDR did NOT "take the United States out of the Great Depression." He merely made it worse and longer lasting, year after year, and finally the growing anger of the weary, destitute population forced that foul commie bastard FDR to manipulate things to get us into WWII so that people would start hating the Germans instead of him and his worthless collectivist rot.

The Fed's Predecessors in American History

The Dollar Crisis

Is Terrorism Good for the Economy?

Today's Roger Arnold Show

The National Debt Clock

Richard W.

in one year foreign central banks have bought a mountain of debt that is the equivalent of roughly $2,000 per person who has a job in this country! At a measly 5% interest rate, each person with a job in America owes another $100 per year, every year, just in interest, to foreigners! That's almost nine more dollars a month, each, forever!

The last I checked, 18% of federal revenue was devoted strictly to making interest payments on the National Debt.
With Dubya's totally irresponsible neglect of the Trade and Budget Deficits, it won't be long before our Government is bankrupt and we'll be taxed simply to support these debt obligations to foreign nations, and have absolutely nothing left over to run our own government.

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