Posted on 01/23/2003 4:35:17 PM PST by arete
"...Now, if stupid stimulus programs worked without engendering offsetting downside problems down the road, and if all excesses of money and credit did not cause more problems tomorrow than they solved today, well, then okay. But I want to sincerely say, with all the respect and profound humility I can muster for such an idea, is this is the stupidest idea that any stupid person ever cooked up. And believe me, being a real stupid guy myself I have come up with some real stupid ideas in my life, but this eclipses even me at my worst, and is patently, provably stupid stupid stupid. And, with all due respect, any doofus who thinks it WILL work is also stupid stupid stupid, and the short list of these stupid people includes almost everybody in Congress (ex-Ron Paul), and literally everybody at the Federal Reserve, as far as I know. I mean, there MAY be one person working in the mailroom or something at the Fed who ISN'T stupid, but I dunno..."
The Mogambo Guru
- The banks continue to suck up government debt. In the last year, they have accumulated another $205 billion, a number that elicits a "wowser!" in various government issues, bringing their total to $1.033 trillion. The Treasury, the source of this hoard of debt, spent the last year issuing $455 billion more debt, and, to add a little kicker, $33 billion in actual, put-in-your-pocket fiat paper dollars. This is all in one stinking year.
- Paul O'Neill, former Treasury Secretary who was forced out of his job by the Bush team because he did not play well with others, is in the news again. This time, instead of choking on the lies and stupidities that he was required to say under the Bush administration, he is choking on trying NOT to say bad things about the economic picture or his former boss.
This is less of a story about economics than it is about hiring the right person for the job. If you are going to play in the political sandbox, meaning making a living by lying and behaving like a clueless rabid weasel, then don't hire somebody like Mr. O'Neill, who is obviously NOT going to be happy lying and acting like a clueless rabid weasel. It always turns into a waste of everybody's time.
And where is the NEW Treasury Secretary, you ask? Well, do you think that a person is naturally born with the ability to lie out of both sides of his mouth at once? No way, Jose! They have to be trained or surgically altered. So White House personnel, including Treasury Secretaries, have a choice to either learn to sublimate the natural desire not to act shamefully, probably by beating the daylights out of the candidate with sticks, or have to have large portions of their brains removed, leaving only enough cerebral cortex to enable them to smile vacuously and say, "Everything is fine!" Apparently, finding somebody willing to make that choice is harder than the Bush people thought.
- Argentina is gonna get some more IMF money to pay current creditors what is currently due, leaving them with the same level of cash (zero) and a bigger debt. They couldn't pay their old debts because they had no money, but the IMF is giving them even MORE money because they are sure that Argentina will somehow be able to pay a bigger debt sometime real soon, even though they will still have no money then.
Remember Wimpy of the Popeye cartoons? He had no job, and no money, and was always wanting somebody to front him a hamburger today, which he promised to gladly repay next Tuesday. So what is the modern Argentine equivalent? "Give me hamburger today, and I will gladly borrow some money from you next Tuesday to pay for it."
Now, while you and I would guffaw at such a ridiculous proposition, this is plenty good for the IMF, an odious bunch of intellectual pygmies who never saw a communist, socialist or fascist philosophy, or even one that is patently absurd as long as some communist, socialist or fascist was spouting it, that they did not just love. And, thanks to the chuckleheads at the Fed, they send our money to bankroll it all. Grrrr.
And how does that saying go? The one about how a fool and his money are soon parted? Well, the IMF is the fool, and all the money has departed. And we are the fools for putting up with this enclave of loathsome commie jackasses and abysmal failures, and, sure enough, the money is all gone.
To underscore the distinctive communist bent of the whole region, which conveniently explains the economic ruination of the whole region, Venezuelan President Chavez and his jack-booted government thugs literally invaded food producers / wholesalers / warehouses and stole the food therein. The reason was to give it away to the populace, who are hungry. They are hungry because calamity is always the predictable result of the disastrous long-term government collectivist policies. And not just their own blameworthy policies, but things bankrolled and abetted by the IMF, World Bank, and various investors and creditors worldwide. Especially the USA, I assume, the creditors of which will actually receive the IMF money.
In justifying the grubby, outright theft, the government said that, in an echo of the filthy Left here in the USA, "Collective rights preside over personal rights." This is wrong with a capital W, and written out it is Wrong. While I can certainly understand wanting to help starving people, government inflicting losses and ruination on businesses is not acceptable. If a mob can legally confiscate everything you have, then nobody can have any rights, since all your rights then depend on who has the bigger mob, you or them. And, given the average IQ level and degree of reasoned consideration of the kind of people attracted to mob mentality, the most expeditious way to increase the numerical power of your mob is to kill as many members of the other mob as needed to give yourself the majority, and the moral authority, to confiscate all the stuff back from still-living members of the other mob, and destroy them, again.
And, to make matters worse, tomorrow is now going to be worse, because there won't be as many warehouses to loot tomorrow. Did Chavez and the Mob actually think that the businesses that they just looted will rush to rebuild and re-stock their looted warehouses? Would you? Get real!
For one thing, where are they supposed to get the money? Their assets have been stolen. If they have insurance, then the insurance company will lose the money. If they go bankrupt, their creditors will lose the money. And investors could get real nervous, and sell their holdings of all food producers, since the risk of confiscation and loss is now dramatically increased. And, and, and, well let's just say that Chaos Theory has proved that every piece of money is connected to every other piece of money in the global economic cosmos, and perturbations in this theorized cosmos result in profound changes that are, after the system has iterated a few million times, impossible to predict. If it is impossible for Chaos Theory to predict what WILL happen, it is thus proved that what WON'T happen is linearity. There will be a change from what was predicted based on things proceeding in straight lines. Some dorky butterfly in South America flaps it's stupid little wings, and that tiny disturbance of the air thus causes it to rain in Chicago three days later. Who'd a-thunk it? Interesting, and intuitively obvious, after you ponder it awhile. So "duh," huh?
Well, if there is one talent that I am proud of, it my uncanny ability to at least vaguely comprehend something once it has been completely explained, over and over, with various examples and visual aids, especially when put in terms so simplistic that children randomly walking by the open door understand immediately. So putting this superficial grasp to work, I say, in a direct rip-off of a "Saturday Night Live" bit of humor, "But nooOOooo! This is not some stinking butterfly in some stinking jungle causing some stinking rain in some stinking Chicago! This is huge freaking volcanoes erupting and blowing things to smithereens! And here at home we have three years of stock market losses, huge climbing trade deficits, monstrous budget deficits, rising unemployment, a dollar falling precipitously! This is huge, flaming asteroids smashing into the country! You DARE speak to me about rain and butterfly wings gently altering the wisps of a breeze? Ha!"
If course, Chavez and his fellow communists will predictably blame all the misery that they caused on the running dog lackeys of the American imperialist war-mongering capitalist Enemy and Enslavers of the People, namely the businesses and stockholders and bond-holders who fled in fear, thus making everything worse by deserting the economic infrastructure.
Now, if Chavez and his thugs were to invade the homes of the overt communists infesting the IMF and steal THEIR stuff, like maybe that big-screen plasma TV over there in the corner, so that The People could enjoy television with crisp clarity and vibrant colors, that would be a sort of, oh, I dunno, poetry.
- The sustained economic recovery that you are looking for will not start until the deflation gets going. Here's how it works.
You go out and raise a billion dollars or so from clueless chumps to start a widget factory. You soon find that you can't make any money with that kind of debt, and you don't. You go bankrupt, and the widget factory gets sold at the bankruptcy auction to some guy for a million. This drop in price is the dreaded deflation that the Fed is apoplectic about. The new owner finds that he can make money with a debt burden of a million. And he does. The factory hums along, workers are re-employed, taxes are paid, and beautiful flowers bloom in every corner of the shire.
That is how Shumpeter's "creative destruction" makes progress and economic vitality appear Phoenix-like from the ashes of failure. Stupid investments are wiped out, and the stupid guys who put their money into those stupid investments are also wiped out. Capital is freed up, the stupid learn a valuable lesson to teach their children, we get educated children who will not make the over-investment mistakes that ruined their stupid parents, and life goes merrily along.
But, nowadays the stupid guys who put their money into the stupid investment are donors to political campaigns, and so they bring pressure on smarmy, stupid elected officials to decide that the best thing to do to help these stupid guys is to get the government and the Fed to do something even MORE stupid. Ergo, stupid stimulus programs and more stupid excesses of more credit and fiat money.
Now, if stupid stimulus programs worked without engendering offsetting downside problems down the road, and if all excesses of money and credit did not cause more problems tomorrow than they solved today, well, then okay. But I want to sincerely say, with all the respect and profound humility I can muster for such an idea, is this is the stupidest idea that any stupid person ever cooked up. And believe me, being a real stupid guy myself I have come up with some real stupid ideas in my life, but this eclipses even me at my worst, and is patently, provably stupid stupid stupid. And, with all due respect, any doofus who thinks it WILL work is also stupid stupid stupid, and the short list of these stupid people includes almost everybody in Congress (ex-Ron Paul), and literally everybody at the Federal Reserve, as far as I know. I mean, there MAY be one person working in the mailroom or something at the Fed who ISN'T stupid, but I dunno.
The bottom line is, in case you ain't figured it out for yourself, that if you think that today's problems are bad, just you wait until tomorrow when these stimulus programs, I meant to say "stupid stimulus programs," or even appropriately "stupid stupid stupid stimulus programs," start working their malignant magic. You will look back and wistfully long for the relatively innocuous problems of today, as tomorrow things are doomed to be catastrophically bad, because what our stupid leaders, and I use that term with every ounce of pejorative contempt that I can muster, are doing is catastrophically bad. Well, only if you believe that the entire economic history of the world has any relevance whatsoever. Which I do. And so will you. Tomorrow.
And I am sorry for the overuse of the word "stupid." But there is no other word that I could come up off the top of my head with that expresses the true nature of it all. To do so, I would have to get up off of my lazy butt and walk all the way over there to the bookshelf and get the thesaurus and sing that little song "A B C D E F Geeee..." until I get to the S section of the song and then have to figure out where S is in the damn book and blah blah blah. What a hassle. But getting back to the point, which is to explain why I chose the to flog the word "stupid," is that a stimulus program now is beyond ill-considered. It is beyond mal-informed. It is beyond ignorant. It is merely, and there is that word again, stupid.
I am hoping that you will award me with extra credit for not using incendiary obscenities or gutter-level profanities as adjectives, as is my wont, but uncharacteristically restrained myself to using only the word "stupid." And I purposely did not use the word "moronic" when referring to Congress or the Fed, as I was trying to show a little respect for morons.
- The Economist magazine is still showing the US budget deficit as a mere 3.1%, high enough to get a stern talk from the ECB, if we were in the EU. Fortunately, we are not, as the ECB would mess in their pants if they knew that the budget deficit of the US is going to hit at least twice that much, and probably closer to 20%. And while I have never seen a German central banker mess in his pants after consuming the fabled German diet of wursts, potatoes and beer, my imagination is vibrant enough, and my experience with cleaning up after babies and dogs extensive enough, that I recoil in horror from the very thought.
As it is, even the reported budget deficit of 3.1%, compared to $2.2 trillion in government spending, is a measly $68 billion, and I am not sure that there is even one person in the whole solar system that truly believes that the deficit is NOT going to hit $200 billion this year. Hell, even the government itself is now forecasting a $300 billion deficit! So what is $300 billion as a percentage of $2.2 trillion? 14%.
Fourteen percent! Hell, not even the foolish, suicidal, jackass Japanese have gone that far, showing relative rectitude of an 8% deficit. And they are the poster boys for The Society To Prevent Government Spending Excesses That Will Destroy Everything We Hold Near and Dear! This is pure, unadulterated economic insanity!
To even imagine that such gigantic infusions of money, which will have to be created out of thin air by the Fed, will NOT have a monstrous deleterious effect is to venture into a rare combination of unprecedented stupidity and madness, a malady for which there is no Twelve Step Program, because it was always considered impossible for one person to be so outrageously incompetent outside of an institutional setting. The question is NOT whether such outsized deficits are bad news. They are, in spades. The only question is whether or not the bad news will deliver unto the United States a) complete and utter devastation, or b) merely unparalleled hardship and misery of such magnitude that songs on the Hit Parade will be sung with the theme of wistful longing for the wonderful, idyllic Great Depression of the 30's.
Yet, and this is the part that causes my eyes to literally bug from my head in disbelief, all you have to do it turn on the TV or read a newspaper to see one preposterous, under-educated fool after another deny it, actually elbowing the other drooling fools out of the way so that they can grab the spotlight for an opportunity to prove their utter incompetence to even have an opinion about anything. This "deficits don't matter" thing is something so stupid, so inane, so, so, so, I am at a loss for words!
And let's not forget that the projections assume that tax revenues are not falling. To which I raise an eyebrow, as if to inquire, "huh?" If states, which rely on sales taxes, are in the worst shape they have been in, then how can Federal tax revenues NOT be falling? And if spending is rising parabolically, combined with revenues that are falling, then how can the budget deficit NOT explode from here?
The answer is contained, according to modern Congressional bookkeeping, in the Ways of Wisdom from Washington: just do not include the bad news in the budget! It's all off-budget! If you don't count it, it doesn't exist! See how easy life can be? Man, I tell you, I don't know how we even got along from day to day before Congress showed us how things are really done in the real world!
- Grabbing the TV remote and flipping around the dial, we nonetheless land on a channel where another fool was explaining to us low-life bozos out here that inflation is low, and how that opens up all kinds of opportunities for the government and the Fed to fix everything. At the time, I was nonchalantly sipping a cup of coffee, and my reflexive snort of utter contempt, which I parenthetically note came out sounding like a "honk," at that remark blew some of the coffee out of the cup and onto my lap, and so now I am really steamed. Well, I hope it was coffee, but the report that I filed describing the incident merely notes that an unidentified flying drop (UFD) of something came out of somewhere and landed, plop, in my lap. Right on cue, an officer from the Air Force showed up and explained that it was not a UFD, but a weather balloon.
Well, anyway, now typing away with clenched fists and gritted teeth, which is a lot harder than one would suppose, I note that some things do show low inflation, to be sure. Others, like houses, are roaring with inflation. Ditto stocks, which are sporting a P/E of over thirty again. And please note how blasé I am these days, in that I did not include an exclamation point at the mention of a P/E of over thirty, even though if anything deserves one, that does. But to continue, ditto bonds, especially bonds, which are yielding, to use the precise, official, scientific term, exactly diddly-squat, which means that their prices are through the roof.
But what about the sheer cost of living? When you factor in higher taxes that the local governments and states are levying, when you factor in higher, double-digit health and other insurances, when you factor in higher gas prices, when you factor in higher prices in damn near everything, and when you factor in the snail's-pace at which your income is going up, how can it add up to the "official" inflation of only 2.5%?
This is madness! Uh-oh! There's an exclamation point! Run for it! With voice rising both in pitch and decibel level, I loudly complain that already the minimum-wage worker in America has been completely priced out of a place to live, for crying out loud! Last year it was officially declared that there was now no place in the United States where a minimum-wage worker could rent a place to live. Not even in the worst crime-ridden, rat-infested, God-forsaken stinking hell-hole in the nation could the minimum-wage worker afford to rent an apartment. And you are telling me that persistent, low-level inflation is benign? I bellow in outrage at the very thought, which actually comes out sounding like the mooing of a deranged cow, so it is not something I do very often, and never in front of strangers.
Continuing with this relentless tirade, forty million Americans cannot afford health insurance because it costs too much, which is about fourteen percent of the whole population! One out of seven people! And you are telling me that persistent, high levels of inflation are benign? Oh, that's right: you aren't telling me that high inflation is benign. Sorry. But you get the point. Inflation, any inflation, is bad news.
High inflation is bad news today. Low, persistent inflation is bad news tomorrow. But note, and this will probably appear on your SAT test as a "compare and contrast" question, that both statements contain the phrase "bad news."
And now the unbelievably monstrous stimulus programs proposed by the world-class knotheads in Washington DC, happily playing grown-up and acting all serious and concerned and promising to Do Something Wonderful for America, will make everything worse.
How? The stimulus money increases consumption, increasing borrowing by capitalists who aim to get some of that spending money into their pockets, and they bid up the price of raw materials, land and labor with all that new activity, and (assuming that the hoped-for boom happens) will make money on the inflation they cause. They simply charge enough for the output to cover the rising costs, and they will make money.
The middle class, which supports and feeds off the producers by mainly retailing goods and services, will get squeezed by the higher prices from the producers, and will raise retail prices to match. The middle class will merely break even.
Then the poor, which have no prices to raise, find that they are paying higher prices as compared to stagnant or falling real income. Admittedly, they may be making higher wages, as labor costs get caught up in the general inflation, but they will lag. This is especially true now that our immigration policy is to actually import low-cost labor. The poor will thus consume fewer goods and services, although they still use up 100% of income, and will thus suffer a falling standard of living. In short, their poverty will increase. Thus, the poor pay the full cost of inflation. They always do.
So the next time that you see a poor person, tell them to enjoy what they have now. Because the stimulus programs coming our way are guaranteed to make their lives into a living hell. For instance, they may now live in the cozy cardboard shipping carton that somebody's new refrigerator came in. Tomorrow there may not be any refrigerators bought, and therefore no cartons to live in. Enjoy it while you can, dudes!
And that guarantee comes not from me and my loud mouth, but from 6,000 continuous years of economic history.
Unfortunately, it doesn't stop there. It will just keep getting worse and worse, as each new revelation about the worsening causes another furor in government, who will pledge to Do Something Wonderful for America about it, and then they borrow and spend, and the Fed/government will create more money to pay for the spending, and the whole thing just keeps going around and around and around in a self-perpetuating spiral, until one day...
This is the ugly part. Think of, oh, France at the end of the eighteenth century. Or, maybe Venezuela today.
And if there is one lesson to be learned from the last 6,000 continuous years of economic history, it is this: the end result of excessive government spending and money-creation (think "stimulus program") is merely clearing a path to total economic and social collapse. The time-worn phrase that you are probably most familiar with is, "The road to hell is paved with good intentions."
- So how far will the dollar fall? Looking at graphs and statistics and data and numerical whatnots, and running the whole thing through ganged-together supercomputers operating at peak speed and maximum efficiency, I finally pick a number randomly out of the air and say, oh, about 50%. Maybe 40%. Maybe 60%. Maybe 30%.
Who the hell knows? While there is not much difference between the dollar falling 50% and the dollar falling 49%, it is the direction that is important. And that direction is, let me check the computer printout again, down.
Is this good news or bad news? Bad news. Perhaps it would be good news if we were a nation of exporters, as it would cause our real export prices to fall, and we could grab some market share. But, as you might have surmised from the subtle clue contained in our trade deficit of $465 billion per year, we are a nation of grubby importers. That's what we Americans do. We import and consume. Buy and binge. Get and gobble. And then tomorrow, bright and early, we will go out and arrange some financing so that we can, again, import and consume, buy and binge, get and gobble. And we have to pay for all this consumption with dollars. Which are already devalued by 95% since the Federal Reserve started their program to ruin them, and are devaluing more and more even as we speak, meaning that each of them will buy less and less. So imports will cost more, as evidenced by the higher prices.
And higher prices are considered inflationary. And is inflation is bad. Well, to be fair, only us grizzled old-timers, namely everybody who ever lived up until Greenspan and Bernanke took over at the Fed, think that inflation is bad. These two hotshots, attuned as they are to the music of the spheres or something and thus discern the True Nature of Things, have unequivocally declared that I, and everybody who ever lived, is wrong, and that that inflation is actually good, and that is why they are so earnestly trying to get some inflation cooking.
"But," I can hear you saying, even though it is hard to hear clearly when your mouth is full of potato chips like that, "how about the fact that a falling dollar would cause the real price of our exports to decline, as you just finished saying? Shouldn't that be good news, as higher world demand for our cheaper products results in more production for export?" Well, being a real forgetful guy, and one who typically speaks without thinking and who typically writes without having even a clue and who does so just because he just loves the sound of his own fingers going tap tap tap on the keyboard, I don't remember saying anything about that, but in re-reading the paragraph I see that I did say that. So, to address your question, it should be a benefit. In the short run. But that increased demand for American exports means that if the exporters also sell domestically, and they do, then they will have room to raise prices for us domestic consumers, too, playing one customer against the other ("If you don't buy, somebody else will!"), forcing each to bid higher and higher. And higher prices, for everybody except the guy charging higher prices, is bad news for everybody else. You and me, for instance.
And all those foreign producers from whom we are taking market share are going to flex their muscles and try and get some protective tariffs levied on American exports, and then that will produce a reaction in the US and then...
- Remember the idea that profits are made at the margin? What does that mean? If you make a hundred dollars in sales, and your expenses are ninety-nine dollars, then you have a profit of a dollar. But let sales fall by just one dollar, one lousy percent of sales, and suddenly you are breaking even. If sales fall by two dollars, a measly two percent of sales, then suddenly you are looking at devastation and bankruptcy! That one or two stinking dollars of lost sales, which is also a stinking one or two percent of sales, had a huge magnifier effect on the balance sheet. That's how everything operates at the margin.
In keeping with that thought, let's look at the awe-inspiring mountains of debt already extant in the world and compare that to revenues. On, second thought, let's not. It is too depressing. And scary.
And, besides, I am sure that you are far, far too busy planning for the big round of celebrations of Mozart's birthday on the 27th, what with the hassle of getting the house all strung with Mozart lights and decorating the Mozart tree set up in the living room and hanging the Mozart stockings by the fireplace and wrapping all those Mozart presents and just generally looking forward to the Big Day.
- The trade deficit came out, and sure enough, we bought more stuff from foreigners and sold less stuff to those same foreigners. The level is now up to $40 billion a month, a new record. Or, more realistically, "another new record" as we like to set new ones months after month after month.
So these foreigners are rolling in bigger piles of dollars, and are probably wondering what to do with them. If they comprehended the rate at which the purchasing power of each of those dollars is eroding, I imagine that it would add alacrity to their decision-making.
Buying US assets would seem to be, speaking only for myself and the rest of us clueless dimwits out here, a bad idea. Stocks are almost sure to go down, handing them a double whammy, namely capital losses on the falling stocks and currency exchange losses on top of that. Buying bonds would seem to be a bad idea, since the Fed is promising to destroy the currency with a program of massive issuance of more paper dollars, and the inflation that such a program would engender would decimate the value of bonds, too.
So what does the foreigner do with those dollars? Get rid of them buy buying something else, preferably their own national currencies? Oops, this would more quickly devalue the remaining dollars and dollar-denominated assets that they haven't gotten rid of yet. Man, this stuff is so depressing, eh? How long will it be before they take a look at gold with more than their usual cursory glance?
- The CPI came out, and amazing disconnects were everywhere. The WSJ, for instance, wrote "But prices for manufactured goods, excluding the volatile food and energy sectors, were down 1.5% in December from a year earlier." This was apparently not a typographical error, as the writer went on to say, "The 2002 drop was lead by lower price tags on everything from cars to computers to clothing for toddlers."
Well, looking at the table that accompanied that blurb, I have to conclude that the WSJ has moved it's headquarters to the Twilight Zone. Every single price, except apparel, was UP, year over year! Every single one! Even the "all items" summation was up 2.4% y/y! "Less food and energy," it was up 1.9% y/y. Food and beverage was up 1.5% y/y. Housing up 2.4% y/y. Medical care up 5% y/y. Transportation up 3.8% y/y. Recreation up 1.1% y/y. The "other" category was even up 3.3% y/y. Everything but one is up, up, up! So what in the hell would prompt an assumedly reasonable, literate man to conclude that prices went down?
At this point I must pause, as my eyeballs are flipping around in their sockets, refusing to believe what they are seeing in the context of the WSJ reporter's assertion that "prices went down."
OK, now that the vision thing has settled down to a mere tremor, let's take a look at the other table presented by the WSJ of consumer-price indexes for different regions of the country. They range from a low of up1.4% to a high of up 3.6%. But note, and this is the important point, they were all up, too. Up! All the prices were UP! And look at my eyes start jiggling again! A betting man would wager money that they would soon jump from their sockets!
- The war against Iraq is gathering steam. The war to depose Saddam may have some laudable objectives, but the timing is so suspicious that I view it as merely a predictable pretext to our government declaring a national emergency, and the imposition of emergency government powers, which means wholesale suspension of the Constitution and instituting martial law. Our economic problems are too big to fix, and that mean it must be time for Bold Action! And since it all comes down to the money, the purpose of the Bold Action will be the wholesale confiscation of money, though it will be called a War Tax, or Emergency Surtax, or Homeland Defense Tax, or America-First Tax, or Patriot Tax or something catchy.
Although I castigated Chavez and his stinking government thieves, I imagine that he will be soon be seen as quite the piker, compared to the wholesale theft and re-distribution corner that the US government is painting itself into. Theodore Butler, in his commentary, hinted at the same thing, and so I will quote him instead of actually trying, and failing, to think of anything clever to say, "In a country where savings are negligible, spoiled and pampered people are commonplace, where millions of people enjoy subsidies and half the people can't scrape a thousand bucks together, you have the formula for national bankruptcy, seething unrest, bitter fault finding and confiscatory government."
And you don't have to take my word on it. Your own government is saying it. I now quote and comment about a section of the form that the Social Security Administration sends out every year to every worker called "Your Social Security Statement," also known in bureaucrat-ese as Form SSA-7005-SM-SI(10-2002), which is an update on the money you have put into your SS account. There is a paragraph entitled, "About Social Security's future..." First off, the SSA people note that "Changes will be needed to meet the demands of our times." Since there are "demands," which in the popular parlance means "somebody wants some free money," then you know that the changes referred to mean "higher taxes."
In the world of accounting, the SSA dryly notes that "Social Security now takes in more in taxes than it pays out in benefits. The excess funds are credited to Social Security trust funds, which are expected to grow to over $4 trillion before we need to use them to pay benefits." When? In 2017, a mere fourteen years from now, they are forecasting that they will be paying more in benefits that they are collecting in taxes.
I point out, for your amusement in case you just got here from another planet and haven't heard about this preposterous scam before, that the SSA does not mention that these "credits" to the trust funds are just flimsy IOU's, little slips of paper on which the federal government has written "I owe you $4 trillion." There is literally no money, not one thin dime, invested or deposited anywhere. The government has taken the actual money and spent it on whatever wonderful load of mal-investment garbage the Congress is now spending it on. So of what value is $4 trillion in IOU's from the federal government actually worth when the SSA attempts to tap into the accumulated "credits" to "pay benefits?" Hahahaha!
That is bad enough. But long before that rueful day, the rest of the loathsome federal government will have suffered a constantly growing reduction in spending money. Today they are getting lots of free money, and writing lots of IOU's. Tomorrow, and every tomorrow until 2017, there will be less and less free money to take, and thus less and less IOU's to be written. In short, the Feds are going to suffer bigger and bigger revenue shortfalls, every year, until 2017 when the excess revenue disappears completely. On that day, absolutely not one lousy cent of Social Security taxes will flow to the loathsome Leftist commies in Congress to spend because they "feel somebody's pain."
And what will they do then? Spend less? Hahahaha!
Thus, we hark back to that timeless phrase from the Social Security Administration, namely, "Changes will be needed to meet the demands of the times."
- The Barron's roundtable article that I referred to in the last, very exciting issue of Mogambo Guru, was continued in this week's issue. Zulauf heartily recommends that one should load up on gold, as in actually taking physical delivery of the stuff. He also thinks that gold will rise ten-fold in the next decade, to $3,500 per ounce. And with returns like that, why assume the risk of the companies mismanaging themselves into bankruptcy, and thus their shares to worthlessness? Take the safe way, seems to be the message.
So what does ten-fold mean on a simple, compounding kind of way? 26% per year, every year. Nice investment there, dude!
So let's have a little, greedy and lusting-after-money fun. If gold mining shares go up two or three times the rate of the physical gold, then this means that gold shares could go up by thirty times in ten years, stepping into the trap of linear thinking after dis-respecting that very thing, I know so don't bother pointing it out. So what does THAT work out to, as a yearly percentage gain? 41% per year, every year. Even better, dude!
- Roger Reynolds reports that the Chinese bought one million ounces of gold in December, the first month that they have been allowed to buy gold since 1949. In a related vein, Theodore Butler writes that 2002 was remarkable, in that it was the year that the US government finally sold it's last ounce of silver. It is Mr. Cooks contention that the US government has been subsidizing silver to as to keep it's price low for sixty years, as a benefit to industrial silver users. Now all that selling into the market, which was a blatant market-rigging activity, will have to stop. Ugh.
--- Mogambo Says: If there was ever a glimmer of doubt in my mind, one tiny little insignificant spark of uncertainty in an empty universe of inky, black gloom, that gold will soar and that the dollar will fall precipitously, that flickering little speck of doubt is now gone, gone, gone.
The only imponderable I have left is whether the dollar will fall to complete worthlessness, or will it have some residual, insignificant "collector" value?
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.
It is only a matter of time.
Richard W.
Comments and opinions welcome.
Richard W.
How much you want to bet your dollar is worth a whole lot less this time next year?
Richard W.
We're not going to have any shortage of cranky people. I have a feeling that before this year is over, that point of recognition thing is going to be taking hold and the serfs aren't going to be too happy.
Richard W.
So do I. But, I think those pictures were taken in the Nevada desert. The two things aren't mutually exclusive.
These articles are fantastic, and when I can't sleep for an hour or two, it's a good way to spend the time.
The author mentions chaos theory. When there is too much input, chaos develops, and no one really knows what is going to emerge. That's one of the dangers of the current problem. So many changes and events are being inputted before what is already in place runs its course, that it's impossible to evaluate cause and effect. It's impossible to see how changes will interact.
What the economy and society are losing are any sense of stability. The people in charge are behaving like they don't have any clue about the totality of history or economics. They try to manage something like increasing the desire to own stocks or have a steady stream of cheap labor without anticipating future consequences.
As far as the inflation thing goes, been there, done that in the '70s. Basic living expenses took up all income. The way to prepare is to not need anything that can be purchased when that occurs...clothes, furniture, technology, cars, home repairs, get all of that done now. And, if those CD rates ever get decent again (at 6% savings double in 5 years...Rule of 72) replenish savings.
Whatever happens, we're in for quite a ride here, nationally and globally.
Richard W.
That's interesting, seems to have some intuition to it. Yet "chaos", properly, is when small changes in input result in wildly variable and near-completely unpredictable results. ("near-completely": There can be orbits around attractors, and such, still all wacky in results.)
That's the butterfly effect. Each change (however small) has the potential to cause wildly variable unintended results. When you have a lot of inputs, with unknown consequences interacting with each other, things can get asymptotical...(spin out of control).
The other factor is wild cards. These would be out of the ordinary things that aren't supposed to happen. This winter's cold, for instance, could have impacts we don't understand. Another factor is that a really large segment of the population is entering retirement. When these things occur, it gets harder for the model to absorb more change. A strong earthquake, or blizzard, or terrorist act, or who knows what would at this time impact an economy and social structure that have had a lot of hits the past few years.
Sounds as if you are talking about the credit markets. "It must have been that last cashout refi that put us over the edge."
Richard W.
I just hope it isn't a black-hole type thing.
The point at which catastrophies occur, of at which chaos starts, or the chaos dynamic changes - those are singularities. It may be that markets, at certain singularitys are like black holes -- for in black holes, we don't yet know if the laws of physics are the same. However, economic systems don't seem to have something like gravity, as best I understand. Life is life. It doesn't suffer the complete colapse we see in black holes.
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