The Clueless Dimwit Chronicles -- Economic Commentary by the Mogambo Guru

"...if the mortgage market has truly burst, then a lot of investors will suffer losses, so that is worse. And banks. And mortgage companies. And since everyone will be paying more and more for houses as the results of this bubble persist for awhile, everyone will have less disposable income with which to buy all the other things in life that make up GDP and final sales for businesses, so the retail industry will be worse off, too. In short, the damnable Fed and the damnable GSE's have perpetuated a housing bubble in which everyone and nation as a whole will be a net loser in the long run, although there were lots of winners in the short run. Nice going, jackasses..."

The Fed has been unusually reserved of late, considering that it has taken a back seat to the alarming activities of Treasury, which has been issuing, to use the numerically precise term, 'scads' of debt. This debt issuance is running towards $600 billion per, and by 'per' I mean not just an ordinary 'per year,' but an hysterically rabid "per freaking year, dude!" This number is technically far outside of the range of 'scads' for those of you who are not conversant with the subtle nuances of higher math, but it will have to do for the nonce, since nobody had ever coined a word to describe that much colossal issuance of debt, since historically it was always deemed to be impossible that any government would be so embarrassingly profligate and economically illiterate as to actually do something like that. But now, tired of taking a back seat to the Treasury which is having all the fun, the Fed jumped back into the fray, and last week Total Fed Credit jumped by, and I hope you are sitting down for this, because I was not and now I have a big bump on the back of my head where I hit it when I passed out from the shock of reading such a number, $14 billion. The dollar sign in the front indicates that those are, yes, dollars. And the 14 billion tells you how many dollars. So, yes, putting it all together and summing up, it truly is $14 billion United States dollars, and it is not some optical illusion.

Now I know that this doesn't seem like a lot, as those of you who have had the misfortune of requiring medical attention of any kind realize is only about a three-day stay in any hospital, but remember that this is the original high-powered money, which the starting place for that fractional-reserve multiplier, and so you need to multiply that $14 billion by almost a hundred to get the new multiplied total. When you do that, and I did, which explains why my eyes are comically rolling back in my head and trained attendants are applying the paddles from a cardiac resuscitation machine to my chest and shouting "Clear!" in my ear so loud that I am having trouble listening for the pizza delivery guy to ring the bell, it is $1.4 trillion. Trillion! In one freaking week! "Clear!" Zzzzttt!

If that wasn't bad enough, the surprising jump of $14 billion was so high (cue audience happily shouting in unison, "How high, Mogambo?") that it may set a new world record, at least for us Americans! I'm not sure about anybody else. But to repeat; maybe a new world record!

So what I decide I'll do, see, is just try and find out if this is indeed a new record, and maybe put to rest some of those ugly rumors that I am so lazy that I am actually in some catatonic state or other, but anyway taking the easiest path possible to find out if it is even true, and not a typo for crying out loud. But then I decided I didn't need to do that, and for two perfectly good reasons. Reason Number One, I am the Mogambo and I don't need no steenking facts, and Reason Number Two is that I can easily, and it is the 'easily' part that really swung the deal, look at the MONTHLY level of Fed credit, because I have it all graphed out. But not weekly data, unfortunately. So I was feeling kind of glum about this lack of proof, and then I remembered Reason Number One, and then I felt better.

So, anyway, while I am fumbling around in the rat's nest that I call my desk and files to try and locate these graphs, I come across a lot of interesting stuff, like a collection of letters from readers asking, "Are you some kind of lunatic mutant or something?" (answer: yes), and some random death threats from government agencies and agents themselves, although their vile threats are cleverly encoded into what appear to be ordinary advertisements for toothpaste and stuff. It is a code that only I understand, and the government knows that, and that's why you can't read these coded messages, but they're there, all right, and it proves they're out to get me! Trust me on that!

But you will be happy to know, or maybe not, depending on your perspective, that, after located said graphs, as far as I can tell from this cursory and wildly incompetent search of the data, that there has never been a freaking MONTH, let alone a freaking week, when Total Fed Credit jumped by $14 freaking billions of dollars. So now, are you happy to know that or not?

I must assume that the reason for the explosion in credit is to produce, out of thin air, the money with which to buy all of that new debt that the Treasury and corporations and GSE's are issuing. I mean, somebody has to buy it, don't they? And don't look at me, for as much as I love America, I just don't happen to have a spare $600 billion sitting around. And even if I did, I am not sure that I would have ANOTHER $600 billion next year, or the year after that, or the year after that, because even the official projections forecast deficits in that range for the next, oh, few thousand years or so.

And don't be fooled by that line of crap that the budget deficit is some piddly $400 billion or so. Just remember, nobody can remember the last time the government told the truth about anything, so why in the hell would you believe them about the level of deficits, when they admit that there are things that are 'on-budget' and things that are conveniently 'off-budget,' as if such a stupid thing could even exist in reality?

But I know that you won't take my word for it, even though I am trying desperately to say it with the most sincere look on my face that I can muster, so I have quoted Jeffrey Tucker, whom I assume is at Mises.org because that is who printed his essay, and who says, "Once you cut out all the fancy counting methods, and think of the budget deficit as the annual change in the government's debt (the old fashioned definition), we can see that the $500 billion mark has been reached and passed in the first 10 months of FY 2003." So there you have it; the only true way to assess the deficit is the way Jeff and I do it; look at the total level of indebtedness. And it is running at, conservatively, $600 billion.

Considering other government monetary atrocities committed during the week, it is surprising that my brain did not burst into flames. The tables in this week's Barron's were full of them. The banks are suddenly sitting on huge, eye-popping increases in free reserves. The foreign holdings at the Fed increased another $6.4 billion. And the Gross Public Debt ballooned by $29.4 billion! This may be part and parcel of trying to soak up the $44 billion in government debt that the banks dumped.

- Gene Epstein, who writes the Economic Beat column for Barron's, had an interesting column this week, which he titled "The Gangsters," with the subtitle "Watch out for Fiscal Man and Monetary Man." Now, I have had my differences with Gene in the past, probably due to my total non-comprehension of what he was saying due to my own obvious and crippling intellectual limitations, but this week is definitely not one of those times. In fact, he sounds so Austrian that I involuntarily stood to my feet and shouted "Bravo, Gene Epstein! Bravo!"

He refers to the Fed and the Congress as gangsters, using the Mario Puzo book "The Godfather" as the parallel. Beautiful! Absolutely beautiful! It is a metaphor so deliciously appropriate, working on so many levels, that I slap myself on the forehead as punishment for being so witless that I did not think of it myself, since it seems so obvious now that he has pointed it out. But he does not stop there! He goes on, and instead of merely groveling at his feet in adoring supplication, I will again quote him directly. "The Monetary Man and his fiscal brother pursue the same racket. They fix what they themselves have already helped ruin, except in this case, what they ruin is the economy - and that creates the business of fixing things up." This so perfectly encapsulates the monetary and fiscal gangster racket, continuing with his marvelous metaphor, that I marvel at the fit.

"Now, there are times when its fiscal compatriot demands that money be printed to finance its own operations. The federal government then spends the money it got from the central bank's bottomless pit, thereby becoming the conduit through which the money pours into the private economy. This sort of thing began in the mid-'Sixties and persisted through the 'Seventies, a time when fiscal policy essentially drove monetary policy, with disastrous results."

One of the disastrous results he refers to is, I assume, the massive rise in inflation caused by all that money being poured into the economy.

And now, the indescribably wonderful part, that made my heart soar like an eagle, is when he sums up with, "I'm saying that the Fed should be abolished. Fiscal policy is a more complicated animal, but it too must go."

So let me state right here, for the record, that although I am quite dizzy and rattled from all the forehead slapping that I have administered to myself, I am still enough in control of my limited faculties to announce, and if you have a trumpet fanfare handy please insert it now, that if I have ever, EVER, said anything that even remotely suggested that Gene Epstein was not a clued-in dude and a real hero that all true Americans should greet with huzzah's, and for whom all paths should be strewn with rose petals in fawning admiration, I was wrong. Anybody who thinks that the Fed and fiscal shenanigans of Congress should both be abolished, and who says so in so many words, should be canonized. And now, you will have to excuse me while I run to the florist to pick up a bushel basket of rose petals in case he walks by. I only regret that it is to late to name my children "Gene" in his honor.

- Got a gracious call from reader Melissa Craig, who later swore that she would sue me and then kill me if I ever printed her name in my stupid newsletter because she actually feels soiled and unclean from just talking to me on the phone, and is revolted to think that anybody would ever associate her, even tangentially, with me or my stupid newsletter, but anyway who had a little money to invest, and reads the Mogambo (total readers to date: 3), and so what would I recommend? Well, naturally, I immediately tell her about the Fabulous Mogambo Investment Plan, where she takes all the money in cash, boxes it up and sends it to me. The rest of the plan is simplicity itself: it's a Very Secret Double Secret Top Secret Plan(VSDSTSP). It's a trust thing, as there are no contracts, no papers, no statements, no receipts, no nothing. Sort of a "don't call me, I'll call you from a pay phone late at night" kind of thing.

Well, as usual, as with every other person to whom I have ever offered this terrific investment and money management vehicle, she wasn't very keen on the idea.

My back-up suggestion was that she buy physical gold, shares of gold mining companies, invest in a number of mutual funds that have a gold-oriented portfolio, and oil stocks and commodities stocks. And, to show you that I do not play favorites, I give you this same free advice that I gave to her, and worth every penny.

But she did, and this is the part where I am bragging and walking around with my head up high like I am really hot stuff, compare favorably me with Kurt Richebacher! Wow! What an honor, huh? Okay, okay, it seems as ludicrous to me as it does to you, but this is America, dammit, and she is allowed to say these things, and I have Constitutional Right to believe her if I want to. And I do. I really, really do.

Of course, I am sure that I am going to hear from Mr. Richebacher's lawyers about this in the next day or two, them and their snotty little voices putting into legalese about how he now considers his whole life to be a complete failure at being compared to me in any way, and now he is going to ruin me financially and personally for the grievous insult blah blah blah, and me crying pathetically and explaining through my tears how it wasn't me, it was that Craig woman, and why don't they go after her instead of me, and then I'll start getting tough and tell them, hey! Don't start getting huffy with me, you little bastard shysters, because you are up against a guy who once fought a career librarian to a standstill over an overdue-book fine, so if you want a fight you'll remember for a long time, buster, you've come to the right place!

Well, I'm walking around with my head in the clouds and bumping my shins on things, savoring the moment where I, the Mogambo, was compared favorably to somebody great, and the next thing I know, I am getting a call from some guy named Jack Fahey from Yellowbook and he wants to talk to me about my listing in the yellow pages. After I quickly quiz him to determine whether or not he is a CIA agent trying to get me to reveal my whereabouts, or, worse, a bill collector wanting me to pay some money to somebody that I owe, he pleasantly says that, no, he is just a guy who wants to talk to me about my yellow pages listing. He notes that Smith Consultant Group is currently appearing under "Financial Advisory Services," and in the course of the conversation it quickly becomes obvious to him that I haven't the foggiest knowledge about even the rudimentary basics of money management and don't even have the competence necessary to reliably make change for a dollar, and it suddenly occurs to me that he is right; I really don't do that financial advising thing at all anymore. And with a shock I realize it is all a big lie, just like the rest of my pitiful worthless life! It's all one big fat lie after another, boo hoo hoo, but let's not get into that right now.

No, the point is that what I really do is write a stupid economics commentary, and don't do any of that financial planning and advisory stuff at all anymore. Not that I'm opposed to making the money, you understand, but what a hassle, you know what I mean? Always having to explain to widows and orphans how I lost all their money, and those irritating government officials and lawyers always poking around delivering subpoenas, the inevitable flight to avoid prosecution, the all-points-bulletins, my picture on American's Most Wanted, and the photo they choose to show is never a flattering likeness of me at all, and finally they track me down in some filthy back-alley bar and hauling me off in handcuffs in front of my new friends, kicking and screaming and crying about how it wasn't my fault and I'll try and do better next time, begging for them to please please please give me another chance. Like I said, what a hassle. So who needs it?

Anyway, he says that what I probably want is to be listed under "Economic Research and Analysis" and so I say, naturally, "There IS such a listing as 'Economic Research and Analysis'?" And he says "Yes!" And then I say "Are you kidding?" And then he says "No." And then I say "Are you sure?" And then he says "About what?" And then I tell him "A listing for Economic Research and Analysis." And then he says, "Is there one?" And then I tell him "Yes." And then he says "What about it? Is that what you do?" and then I tell him "Yes. " And then he says "Are you sure?" And I say "Yes."

And, now the story gets real exciting. And for two, two, two mints in one! Oops. Sorry. No, what I meant to say was that it is exciting for two, two, two wonderful reasons! One, it seems that I will be the only guy in the whole damn local phone book that will be listed under that title! The only one! I've got my own little monopoly going here! A big fish in a little pond, but it's mine! All mine! And if you could hear me now, you would note that I am laughing demonically - hahahaha! - as I contemplate awesome monopoly power! And if you are ever asked to talk about this to historians and media reporters some day, you might want to say how you noted that my handsome face darkened in the gathering gloom, and my twinkling blue eyes seemed to suddenly shine with an evil gleam as I began making plans for World Domination! And that my demonic laugh, which I will repeat for you now so you can fix it in your mind - hahahahaha! - echoed cold and hollow in the depths of your very soul.

And the other terrific reason is that this monopoly power costs me absolutely nothing! It's free! Monopoly power granted by fiat!

Now, really warming up to the possibilities of this monopoly thing, I asked him if there was a listing for "Omnipotent and Evil Ruler, Using Asinine And Discredited Economic Theories To Destroy Whole Civilizations," and he says, "Yes." And so I say, "There is?" and he says "Yes." And I say, "Are you sure?" And then he says "Yes." And then I say, "Is there already someone listed under that heading?" And he says "Yes. Some guy named 'Fed Chairman Greenspan.'" So somebody else already has that monopoly all sewed up And so I said, "Damn."

But all of this talk about monopolies seamlessly segues into a question asked by Roger Van Voohees, who writes and wonders why I, the Mogambo, won't wax indignant about the medical crisis, especially considering that I will indignantly run my loud mouth at the drop of a hat about any subject you can name. Well, what can I say that has not been said by everyone who has ever had the misfortune to need any medical services? The facts are obvious. Nowadays, you spend $8,000 a year on health insurance premiums, which you will pay even if your health is perfect. Then, if you have less than perfect health, then you will spend another multi-thousands of dollars in deductibles, co-payments and miscellaneous required-but-not-covered charges. And then, on top of that, the medical industry gets to charge you whatever rates they want, by anyone remotely connected to your case or has the good fortune to just walk by your room, which has results in, as a personal experience thing, me having to pay $500 for one lousy aspirin! A lousy aspirin, the kind where you can buy a whole bottle of the damn things for a few bucks at any store in town! Five hundred bucks! For one tablet! One!

In short, the medical industry is just another huge racket, just like every industry that has the protection of politicians, which is bought and paid for by the AMA and all the 'health industry' people, who make it a point to contribute millions and millions of dollars, every dime of which has been already gouged out of sick people, to the election campaigns of politicians, for the express purpose of buying political protection for the medical services racket, so that everyone can continue to gouge MORE money out of sick people with impunity. And the only way to change it is to change politicians, and that doesn't seem to be The American Way these days. Except in California, which may again, hopefully, lead the nation to a glorious future.

- Climbing down from a trip in my new time machine, a Time Zipper 6000 XR Roadster, I bring you the news that in the future, economics books will actually quote the wags over at the Daily Reckoning! Apparently the textbook writers of the future value things like perspicacity, perfect forecasting of economic events, brevity and bonus points for affective impact, whatever in the hell that is. The paragraphs that were made immortal by the future writers of textbooks is, "And yet, the biggest story never told will come to light some day. The Dollar Standard system seemed like a great thing a few years ago! Under Bretton Woods, when a nation ran a trade deficit, it was expected to settle the difference in gold. This meant that nations had to sell about as much as they bought, or they would soon be out of gold and unable to buy more. No wonder central bankers looked the other way when Nixon put a gun to Bretton Woods' head. The new Dollar Standard removed the limits; suddenly, Americans could spend far more than they could afford...for years and years...and central banks could settle their accounts with dollars which were infinitely abundant, rather than gold, of which there never seemed to be quite enough. The dollars piled up in foreign central banks. Instead of redeeming them for gold...they were used to bid up prices of stocks and bonds all over the world. What could be nicer? If only it would last forever!

"But such is the world we live in that nothing lasts forever...and certainly not an international monetary system based on fraud and robbery. America is supposed to buy nearly all the world's excess production with I.O.U.s it never expects to pay off! Someday, those I.O.U.s will become worthless, and the whole system will blow up.

"In the meantime, we harp and watch the dollar. When it goes, it all goes: stocks, bonds, real estate...and as many as 20 million bankrupt Americans."

Actually, in the future, their computers can actually tally the exact number of American people decimated, and it was a lot higher than 20 million, but I don't want to spoil the surprise.

- Australian Stock Exchange chief Maurice Newman has painted a pessimistic view of the US economy, warning business to be prepared for another global retreat. Mr. Newman told a group in Brisbane that the US, European and Japanese markets were all "...fragile with increasing debt levels and decreased savings."

"I hope people will reflect and not simply accept without question what is constantly being fed up to us as being that 'she'll be right'. We are, in my view, in uncharted waters," I assume he said that with that typical charming Australian accent, although he did not actually say anything about him, his Shiela and his mates putting some shrimp on the barby, which I always thought Australians were required to work into any conversation. But as long as he is talking about putting some shrimp on the barby or things economic, I'm all ears.

But when he talks about the waters being uncharted, that is the precise place where I part company with Mr. Newman, as I say that these waters have been sailed and charted for as long as there have been economies and governments. And the path always taken, by relying on these damn charts, has always ended up with the vessel foundering on the storm-tossed shoals, the ship wrecked, the cargo lost, and a few wounded survivors struggling up onto the beach of a deserted island, where they all starved to death or were eaten by cannibals.

And, knowing that, I am not "accepting without question what is constantly being fed" to me, but apparently many others are, as a look at the charts of stock and bond prices will readily attest.

And speaking of being fed a line of crapola, the Bloomberg website had a item that read, "The Securities and Exchange Commission is stepping up its effort to punish corporate fraud by pursuing charges against board members who ignore misconduct. By focusing on directors, the SEC is expanding its scrutiny of corporate watchdogs with a duty to oversee management. Since the collapse of Enron Corp., the commission has sued accounting firms, auditors and investment banks for colluding with management. Cutler said he's not aware of any other case in which the agency brought charges against an outside board member who wasn't directly involved in fraud.

"The Chancellor action 'may well be a landmark case, where the person didn't profit, didn't buy and sell, but just fiddled while Rome burned,' said Stanley Sporkin, a former SEC enforcement director and retired federal judge."

So, the question naturally becomes, "When will the SEC start going after the clueless cheerleaders and hustlers who are exhorting you to buy stocks that are already at the high end of valuation in a secular bear market?"

In a related vein, a paper written by the Levy Institute and published by the Fed itself, we find the following fascinating sentence. "In this paper we assess the degree to which investors may have been fooled by current pension accounting rules and practices." And exactly where did these accounting rules and practices come from? And is the SEC going to go after these guys, too, when the whole economic enchilada falls apart, as it must?

- Financial sector debt when Greenspan got installed was less than $2 trillion. Now it is over $10 trillion. That was a short sixteen years ago. So what is the annual compounded growth rate of 500% over sixteen years? 10.6%.

- There are some people who are starting to discern that the bubble in housing may be petering out. Good. Already in this country a third of the people contribute more than half their incomes to housing, and the run-up in prices is going to make that lugubrious statistic worse. And now there are more people who have been priced out of housing altogether, which makes homelessness worse. Plus the people who used the appreciation in the market value of their homes to borrow will realize that all they did was to go farther into debt, so they will be worse off, too. And the governments that received ramped-up revenues got bigger and more expensive, so that cancerous drain on the national weal is now worse.

And if the mortgage market has truly burst, then a lot of investors will suffer losses, so that is worse. And banks. And mortgage companies.

And since everyone will be paying more and more for houses as the results of this bubble persist for awhile, everyone will have less disposable income with which to buy all the other things in life that make up GDP and final sales for businesses, so the retail industry will be worse off, too.

In short, the damnable Fed and the damnable GSE's have perpetuated a housing bubble in which everyone and nation as a whole will be a net loser in the long run, although there were lots of winners in the short run. Nice going, jackasses.

- One thing that I am sure of is that gold will be a very, very good investment from here on out. Since I am always looking for something to talk about so that I can hear my own mesmerizing, mellifluous voice, I obviously recommend that you buy gold and shares of gold mining companies, and mutual funds that specialize in gold mining companies.

In talking about this to someone who made the big mistake of asking me about my investment suggestions, a question came up that never came up before. "You mean like taking delivery of actual gold bullion, and then, in later years when I needed some spending money, sell the gold for dollars?" My answer is, yes! Of course! I had never actually talked about what in the hell you do with gold, partly because I figured that it was obvious. But that is exactly what you do with the stuff! You keep it someplace safe, and then, down the road when you could use a little spending money, you take some out of the bank safety deposit box and sell it for dollars. Assuming, of course, that the vendor you are a-fixing to do business with is still doing business in US dollars, and that there are still such things as US dollars, and that he is not interested in trading his hard goods for actual gold. But who knows?

And it is important that you buy physical gold for other reasons, too. One of them is that the shares of gold mining companies will not go up if nobody is buying gold! Just as the shares of companies that make widgets will not go up if nobody buys widgets, then companies that make gold will not go up if nobody buys gold. So if you are buying physical gold and shares of gold-mining companies, then you are, just like the big boys do down on Wall Street, rigging the game to make yourself some money!

But that may not be necessary, as there are many new businesses being set up around the globe for the express purpose of stockpiling physical gold, and then selling shares in the accumulated pile of that yellow wealth.

- The whack to the head that homeowners are going to get is starting to filter into the national consciousness. Around these parts we get a TRIM notice, which is a heads-up about how much our property taxes are going to rise if the local taxing authorities enact their bloated proposed budgets. Sure enough, the excess money and credit that the Fed has been pounding into the economy for the last umpteen years is, as it always does, showing up as inflation in prices. In this case, the price of houses, which doesn't bother me since I already have one, even though the neighbors refer to my house as 'eyesore' and 'decrepit hovel,' and am not looking to buy another one. But the price of the taxes on the increased valuation of houses DOES bother me since I, as I noted previously, already have one. And now it is costing me more each year, since the assessed valuation went up, thanks to all the mindless buying and selling of real estate over the last few years that has resulted in the bubble in the price of houses, which has been in all the papers, so I assume you heard about it. Thanks a lot, Fannie Mae, Freddy Mac and the Fed.

So now, my disposable income is reduced, thanks to these damn higher ad valorem taxes. Now I can't afford to Biggie-size the fries with my burger. To get my after-taxes income back up to the point where I was last year, so that I CAN afford to Biggie-size, I am going to have to raise my prices, which means that some OTHER poor jerk is going to have HIS income reduced when he pays my higher fees. Then HE is going to have to listen to his wife and kids whining about how THEY want to Biggie-size their orders of fries, and so he will have to raise HIS prices so that he can also get back to his previous level of income when he COULD afford to Biggie-size their damn fries, which means that some other guy is going to have HIS income reduced when he pays those higher prices. And since I am buying the output of that guy, now HE is whacking my income some damn more, just like those damn real estate taxes did! And so I raise my prices some more in retaliation! And then he raises his prices some more, too, the greedy little bastard, and so I raise my prices some more! So I will take a few precious moments away from angrily marking up all the price tags in the store to direct your attention to the fact that this is a spiral, going round and round. It's one way that excess money and credit always shows up in prices, and how increases in prices is always bad news for citizens. Which is why governments are supposed to refrain from doing this excess credit and money creation crap in the first place.

And who loses? Obviously the guy who hasn't any fees and prices to raise! Old people, and poor people, and unemployed people for instance, all of whom have their incomes relatively fixed in the short run.

- David Wessel, writing in the "Capital" column of the WSJ last Wednesday, quotes Nobel laureate Robert Solow, who disparages those who say that the productivity revolution makes jobs disappear. Mr. Solow says, "The notion that jobs are lost permanently is a mistake. Particular jobs disappear. But the need for labor is always there as long as we're not saturated with goods and services." As far as this goes, he is exactly right. There is always somebody who wants you to do something, and will pay you money to do it. Just ask any woman who resorts to prostitution to make ends meet when she loses her job. So, according to Mr. Solow, everything will always be fine and dandy.

Where Mr. Solow's ridiculous argument really falls off the tracks is when you include realized wages in the mix. So even though you lost your $30/hour job making widgets, because now that widgets made in China are so cheap that there is an increased demand for them, you can still get a job selling these cheap widgets at the Wal Mart!

And in the Great Depression, there was an up-tick in the number of itinerant farm laborers, as unemployed guys took farm implements and traveled the country looking for farm work, often getting paid in food. So while there was no high-paying work in the factories, there were lots of gardening jobs that still needed to be done, since nobody could afford to buy food anymore and people were forced to grow their own. And there were guys who sold apples and pencils from street corners, and so there were jobs to be had in the burgeoning apple and pencil vending business. And there was an upswing in the number of full-time beggars, and so there were jobs created in the begging industry. And employment in the criminal class experienced a surge, and it should certainly make Mr. Solow's heart jump with joy when he thinks about all those new soup-kitchen worker positions.

- The July money supply numbers, with the percent changes at an annual rate are, in order, M1: +4.86%, MZM: +19.02%, M2: +9.50, M3: +21.80%. And where, oh where, do you think that all of this money will end up? That's right! In prices!

The latest read on the leading economic indicators, otherwise known as LEI, is solidly bullish, mostly thanks to the unholy additions to money supply. And this is supposed to be such good news. Bizarre.

- The governor's race in California is producing the predictable Leftist hand- wringing, and they are taking Ahnold to task for not mentioning WHICH spending cuts he will entertain. The reason he does not is simplicity itself: If he does name names, he will immediately lose all the votes of the employees of whatever worthless government agency he names, and those of their spouses, and their relatives, and their friends, and their neighbors, and their creditors, all of them ready, willing and able to cast their votes against him so that the targeted employees hopefully won't be fired and have to go out and get real jobs. Which can not possibly pay as much as they as getting now, as they are all grossly overpaid as it is, considering the unbelievable level of ineptitude, lack of any marketable skills and woeful intellectual incapacity that generally characterizes most government jobs, so you can imagine how important it will be for them to militate against The Ahnold and his plans, if he dared to enunciate them in detail.

- Pulling on a fresh pair of Depends, donning a crash helmet and strapping on our seatbelts, we are at last prepared to cruise on over to the Prudent Bear website and take a look at Doug Noland's latest essay. He notes, " Japanese government bond (JGB) yields jumped 25 basis points this week to 1.35%, with 2-week gains of 48 basis points. Yields have now tripled since June 11th." So all that massive government issuance of government debt by the Japanese government, in their own version of the preposterous paradigm of economic-health-via-massive-deficit-spending, has handed monstrous losses to those stupid enough to buy both the idea and the attending debt. Nice move. Reminds me of what I see right here in the USA, which proves that while notions of what are beautiful and popular may differ around the globe, financial stupidity is, apparently, a universal constant.

He also reports that "Federal Reserve Governor Mark Olson said he has no specific timetable in mind for when the Fed should begin to move away from its very low interest rate stance but said he would like to see some evidence of increased business pricing power and employment growth before the Fed does so." He goes on to actually quote the guy when he said "...We have not seen evidence of pricing power in the market yet."

Now, put down your hand that you are waving in the air hoping to get my attention, because I know what you are going to say. And in fact, so does Mr. Noland, who immediately goes on to write, "The CRB index traded above 240 for the first time since May, with y-o-y gains of almost 12%. Gasoline (NY futures) prices surged almost 10% yesterday, 'the largest gain in more than 12 years' (according to Bloomberg). Soybeans are up 15% this month. Pork bellies futures were up the trading limit today on a report of depleting inventories, with prices up 40% y-o-y." And I notice that the JOC-ECRI Industrial Price Index is up 16% in the last year, and that the DJ-AIG Index of commodity prices is up 20% y/y, too, so we are both waaayyyy ahead of you, my little grasshopper, as concerns this "lack of pricing power" thing.

Apparently the dimwitted and clueless Mr. Olson, who I know is a clueless dimwit because he is a Fed governor and I do not ever remember ever hearing anyone even remotely connected with the Fed saying anything intelligent in the last, oh, couple of decades or so, that could disabuse me of that disrespectful notion, and I will make the gratuitous snotty aside that being a clueless dimwit is apparently one of the prerequisite characteristics for getting the job, doesn't see price increases in commodities as being price increases or evidence of pricing power. Huh? How could you NOT? Because I, the Mogambo, sure as hell do! And you do! And in fact, all sentient beings on the whole damn planet see prices going up as de facto evidence of price increases, for crying out loud!

To show you that the hucksters touting a surging and glorious state of the economy, Mr. Noland, and notice that I call him Mr. Noland out of profound respect, also notes that "The federal government ran a $54 billion deficit during July, compared to the year ago $29 billion deficit. For the month, revenues were down 8.1% and spending was up 8.7%, with Defense spending surging 17.4%. After 10 months, the fiscal year-to-date deficit has climbed to $324 billion. This compares to the year earlier $178 billion. Year-to-date revenues were down 3.9%, while spending was up 7.1%. Year-to-date Individual Tax Receipts declined 6.4%, and Corporate Income Tax Receipts were down 14.8%."

Now, I figure that that many facts and figures cascading down on you at once will cause your eyes to glaze over and your brain to go into shock, like it does me, and that there will be certain unpleasant autonomic bodily reactions, which explains why I am wearing this disposable brief and have had seat belts installed on my chair, but the executive summary is that nobody is making any money, so nobody is paying any taxes, the government is spending like the proverbial drunken sailor, and is plunging us drastically deeper into that quagmire known as "Irredeemable and unpayable massive debt loads that will destroy the USA." All courtesy of, you guessed it, the Federal Reserve System, who are all, in my humble opinion, in case you skimmed over the preceding paragraphs where this subject was broached, a bunch of clueless dimwits. Ugh.

Mogambo Sez: Internal statistical things that I look at are all whirling around. Things are blowing up without making a sound, but that doesn't mean you are safe from shrapnel. Take the family and your gold to the storm cellar and put on a brave face for the sake of the children.

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.

The infinite and exponential growth of debt forever -- wow -- and the government and the FED want us all to believe that it can be done and that we can have it all and never ever pay for it. Now that truly is the promised land.

Richard W.

This number is technically far outside of the range of 'scads' for those of you who are not conversant with the subtle nuances of higher math, but it will have to do for the nonce, since nobody had ever coined a word to describe that much colossal issuance of debt,

I believe the Googolplex = 10^10¹⁰⁰ is synonomous with 'scads' - previously only useful for counting stars and atoms until about 1996 when it became useful for approximating the national debt as well.

Classic point.

Manufacturing may lack pricing power, but commodities clearly have it.

"" Manufacturing may lack pricing power, but commodities clearly have it.""

Commodity prices are now a classic case of the tail wagging the dog. A few people / institutions looking at charts buy and sell futures with extreme leverage and in a maner that is based on the inherently false premises that the US dollar was something stable and real. Mix in a "market" which will never be settled through actual delivery. Is the result really a market?

I have been reading a lot of conspiracy theories lately surrounding gold and silver; ditto with the stock market. These theories may have merit, but the simplist explanation for the fundamentally absurd price action in a lot of action of the stock and cash commoditiy markets relates to the ability of purely technically oriented traders committing relatively small sums of "money" via the highly leveraged "regulated" commidity markets to wag "spot" [aka the "dog".]

Expressed another way --- without chartists and funny money the new age for the markets would have reverted long ago to a more normal pattern.

One more comment: Actual deflation if it comes will not flow from a lack of "pricing power" [whatever that is!!!]. It will result from debt defaults and an absolute contraction in the money supply through the vicious cycle that is the flip side of any fractional reserve banking scheme. The "lack of pricing power" which has been observed IMO results from the fact that the world economy is over the short term a bunch of local economies which only occasionally and in a limitted manner overlap. The result is a short term distortion.

I hope this comment made at least some sense --- in the spirit of the Mogombu Guru I got into a bit of a free form rant. :<)

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