No Other Permissible Execuses

No Other Permissible Excuses

by Richard Daughty, The Mogambo Guru

Wednesday, 31 May 2006 - I was rudely and abruptly awakened by alarm bells ringing. I reflexively shot off an entire clip of expensive ammunition into the darkness before I realized it was not the Mogambo Homicidal Wife Detector (MHWD) that was ringing, but the Mogambo Economic Seismograph (MES).   As I switch on the light, my wife peeks out from under the bed, and is yelling "What in the hell was THAT all about, you crazy stupid bastard?" I calmly reply, trying to be soothing, "Shut your fat yap. It looks like Total Fed Credit fell $1.8 billion last week, and at the same time as foreign banks' holdings of US debt at the Fed decreased by $7.8 billion, too."

I GULP AT THE NEWS. MY WIFE SEES ME GULP, AND QUICKLY SLIDES BACK UNDER THE BED.

An economy based on debt-created fiat currency, like ours, must have a continuously-rising level of debt just to pay the interest on the existing debt, if nothing else. And we need even more rising levels of debt to achieve "growth." And now we don't seem to have it anymore. Again I gulp in fear.

But this is all just statistics proving the onset of the inevitable.   The announcement last month by the G-7, of which the USA is a member, was that they all agreed that the US dollar has to be massively devalued to address our gaping, terrifying trade and budget imbalances. The current range of estimates of the total proposed devaluation of the purchasing power of the dollar is between 30% to 50%!

For one thing, at the most optimistic, least-damaging 30% total devaluation of the dollar, and further assuming that absolutely nothing else changes except the buying power of the dollar, this means that we'll be buying crude oil for $95 per barrel.

And if you think that "nothing will change" when oil is at $95 (and up!) per barrel and the dollar is 30% weaker, then I am sorry to tell you that you are very, very wrong. And if you further think that not being heavily-armed and heavily into gold and silver bullion is a good idea at this particular point of the boom-bust cycle, then I am also sorry to tell you that you are wrong about that, too.

And while we are talking about the dollar and things that are wrong, we bid farewell to John Snow, who is resigning as Secretary of the Treasury. I don't know whether John Snow was as stupid as he sounded, or whether he was somehow forced to say those asinine things, such as constantly invoking the Laffer Curve argument that low tax rates can mean higher tax collections, or how even THAT ridiculous, special-case over-simplification morphed into the absurd idea that lower taxes automatically produce higher tax revenues! Hahaha! But the United States was not well served by such silliness, except to convince the rest of the world that we are a nation of greedy, raving imbeciles.

But government has always meant greedy, raving imbeciles, as I gather from Sean Corrigan, at Diapason Commodities Management, who writes "As the great Ludwig von Mises is apocryphally said to have quipped, only the institution of government could take an honest piece of paper and make it worth less through the simple act of printing something on it."

IF YOU REALLY WANT TO SEE INFLATION EATING YOUR GUTS OUT

And the result is inflation, and if you really want to see inflation eating your guts out, then take a look at Bea.gov, where you can find month-over-month percentage increases in "Personal income", measured in current dollars. For the first four months of this year, from January through April, the figures were 0.7, 0.4, 0.5, 0.5. Sounds like nice little boosts to income!

As a subset, however, the "Disposable personal income" for the first four months of this year were a little lower, and came in at 0.3, 0.3, 0.4 and 0.4. Still up, but not quite as nice.

However, (and here is the inflation monster you were warned about) in chained (2000) dollars, increases in DPI are a LOT lower yet! Check this out: The first four months of this year, DPI registered MOM increases of -0.2 , 0.2 , 0.0, -0.1! Half the months showed actual losses in income, thanks to inflation! Losses!

The same thing is evident in the Personal Consumption Expenditures for the same first four months of this year. Measured in current dollars, consumption rose spectacularly in January through April, up by, respectively, 0.8, 0.3, 0.5, and 0.6 percentages over the prior month. It is from these same robust figures that increases that show up in the calculation of GDP.

WAKE UP AND FACE ECONOMIC DEATH BY INFLATION, YOU STUPID, SLEEPY MORONS!

In contrast, in testament to roaring price inflation, in chained (2000) dollars, PCEs increased, MOM, only 0.3, 0.2, 0.1, and 0.1! Hahaha! What a ripoff!

This shows, clear as any bell, even as clear as that bell that The Mogambo rings every morning at dawn while yelling "Wake up! Wake up and face economic death by inflation, you stupid, sleepy morons!" that the consumer is not buying more, but is merely paying more. Which is how monetary inflation shows up in price inflation. And here it is!

On an even worse note, the same government report noted that "Personal saving -- DPI less personal outlays -- was a negative $146.8 billion in April, compared with a negative $128.2 billion in March. Personal saving as a percentage of disposable personal income was a negative 1.6 percent in April, compared with a negative 1.4 percent in March."   As if we have to be told, they add, helpfully, "Negative personal saving reflects personal outlays that exceed disposable personal income." In short, not only are we Americans spending every dime we have on higher-priced goods and services (due to inflation), but we are increasingly going farther into debt to do it! Yow!

But this horrible news is apparently lost on stock speculators, as the AP reports that people think that the Federal Reserve would soon stop raising interest rates, as "A sharp drop in April orders for big-ticket manufactured items drove hopes that the Fed has lifted rates enough to slow a robust economy."

So will the Fed stop raising interest rates? According to the Mogambo Interest Rate Computer (MIRC) and James Turk in that famous Barron's interview this week, "It took Paul Volcker bringing real interest rates up to 6%, 7%, 8% in a short period of time before the market was convinced he was going to save the dollar."

Inflation, measured the old tried-and-true way that Volcker knew, is running at about 9%. So, add 8% to that to get the "real" interest rate, and that means that for Ben Bernanke to convince the world that the dollar can be saved right now, he should have already pushed the Fed Funds rate to 17%.

AND SINCE THE REALLY, REALLY, REALLY BAD NEWS (RRRBN) IS THAT INFLATION IN PRICES HAS ONLY GOTTEN STARTED, YOU CAN LOOK FORWARD TO A FED FUNDS RATE OF 25% AND LONG-BONDS YIELDING 30%.

--       But the Fed is not going down without a fight, and the Fed processed $20 billion of repos last Thursday alone, which is not a new record, but it is right up there.

--       Congress is crafting an "immigration bill" that is the poster child for everything that is wrong with America. On the one hand, the Democrats are parading their bigotry and filthy racism by fawning over trespassing, border-jumping illegal Mexicans as merely darling wayward little brown children, who just need grown-up white people to take care of them.

Democrats forget completely that these Mexicans are fully-grown adults from a democratic republic, and these are the same people who have, decade after decade, deliberately elected a corrupt, economy-destroying government. It has now finally gotten so bad there that millions of them desperately want to escape the dysfunctional economic, political and social system they deliberately created. Talk about Americans underwriting moral hazard!

The despicable Republicans, on the other hand, also want an immigration bill, only one that will supply them with lots of cheap, disposable strong-back labor ("It's not slavery! Same wages and benefits, but they can leave anytime they like!").   Republicans further want employers to be allowed to pass the enormous costs of health care and the other crippling transfer costs (contained in the hundreds of welfare-type programs made available to these exploited working-poor) to the general public. Their argument is that this is desirable since a low cost of agricultural and manual labor keeps inflation low! Hahaha! Wrong, morons! Jeez! How morally and intellectually bankrupt can you be?

This is the same ridiculous argument that I get from my own kids. They say that they can easily live on a part-time, minimum wage, no-benefits, slave-labor job! No problem, as long as they can live free at my house forever, eat my groceries, stay on my health insurance plan, and maybe get a few bucks from me every once in a while. Hahaha!

What in the hell does this have to do with economics? Just this: Whatever happens, it will be expensive.

Very expensive.

And for a long time, too.

READ THE REST PLEASE: I'VE KNOWN THE GUY FOR QUITE SOME TIME, AND HE WRITES VERY WELL, HAS A LOT OF HUMOR, AND - CONTRARY TO MANY GURUS - MAKES SENSE. THE GREAT MOGAMBO KNOWS WHAT HE'S WRITING ABOUT.

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