Illustrating How the Dollar Gets Whacked

Fiat currency has always been doomed from the start. But here comes the Mighty Mogambo with a few more ways that the U.S. dollar is getting beaten down.

I am one of those economist-type guys who laughs at anyone who says, "It’s different this time" because things are never different this time any more than they were different last time. This is because the entire history of economic mankind shows that that there is never anything really new under the sun, as there have always been just the basics, namely something that functions as a supply of money, a government that taxes and spends, personal savings/assets, and debts from borrowing, usually (I assume) utilizing some form of crude interest-rate scheme, like "paying back 5 for 4 or I smite thee!"

And so I say, with Infuriating Mogambo Self-Assuredness (IMSA), that there is nothing new this time, either, and if you disagree with me then I have the obligation to tell you how much of an idiot you are so that maybe you will stop being an idiot, at which point there would automatically be an improvement your standard of living, an elevation in the general standard of discourse, and therefore raise the general standard of living for everyone.

But does anyone ever say, "Thank you, Mogambo, for informing me that I am a total jerk!" or "Here, Mogambo! Take the last donut!"? No! They never do! See the kind of crap I have to put up with every day of my damned life?

Unfortunately, most there is nothing new this time, either, including corruption and greed in our government, as reported, with a bit of barely-disguised sarcasm that I detected after actually looking for it, that "A crumbling economy, more than 2 million constituents who have lost their jobs this year, and congressional demands of CEOs to work for free did not convince lawmakers to freeze their own pay.

"Instead, they will get a $4,700 pay increase, amounting to an additional $2.5 million that taxpayers will spend on congressional salaries."

Naturally, I am Very, Very Upset (VVU) about this, and perhaps obliquely referring to me as a snarling, rabid dog who wants to tear whole multitudes of elected officials and government workers to pieces with my sharp fangs, snapping jaws and slashing claws, they note that "watchdog groups are not happy about it".

Nobody but me notices that "snapping jaws" rhymes with "slashing claws", and that they both rhyme with "Santa Claus", but of course I am upset that it is now too late to work into a holiday poem that, now that I look at it, promises to be bloody and horrific, perhaps applauded by critics as "A classic! A delightfully terrifying departure from the usual holiday treacle! – Baltimore Sun."

My new literary dreams aside, they report that "However, at 2.8 percent, the automatic raise that lawmakers receive is only half as large as the 2009 cost of living adjustment of Social Security recipients." Yow! There are a hell of a lot more Social Security recipients than there are Congressional morons, millions and millions more, and it adds up although they each get about a tenth as much! If that!

Apparently, everybody already knew this, but instead of delighting in saying, "Hey! Mogambo! Have you ever had an original thought about anything in your whole stupid life?" (Answer: No, but I haven’t given up hope!) Like everyone else, they seem to show how the dollar has been debased.

There are many ways to illustrate how the dollar has been whacked, of course, like, for instance, with numbers. In the last 7 years, the dollar has fallen 33% according to the dollar index, which has fallen from 120 to 80, which is actually up as the dollar has exploded back 15%, rising from 72 to 83, in the year.

But, of course, this is only a measure of the dollar against other currencies, each one of which is as much of a dirtbag fiat currency as the dollar and all the others.

Another way would be to look at the Consumer Price Index, which is a measure of how much stuff costs, and when you do that, even with all the government finagling and adjusting and lying and outright fraud, you find that the CPI has risen, also in the last 7 years or so, from about 175 to 212, which is a 21% increase, which comes out to an inflation of 2.76% per year compounded! Horrific! Unacceptable!

Another way would be, perhaps, to look at the salaries of the morons we have had in Congress all along, which is made easy when they note that "In the beginning days of 1789, Congress was paid only $6 a day, which would be about $75 daily by modern standards. Currently the average lawmaker makes $169,300 a year."

And now these self-absorbed Congressional lowlife morons who epitomize total failure and traitorous treachery in disregarding the Constitutional requirement that money be "only of silver and gold", are in control of a $3 trillion budget, plus a couple of trillion dollars more in off-budget deficit-spending, all in a $13 trillion economy! Hahaha!

Any way you look at it, all roads lead to gold! Hahaha! This investing stuff is easy!

Until next time,

The Mogambo Guru
for The Daily Reckoning
December 29, 2008

Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter – an avocational exercise 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.

December 29, 2008

Now, the days dwindle down to a precious few. And if some miracle doesn’t happen this will go down as the worst year in Wall Street history.

Worse than ’29? Yes…a lot worse.

1929 had been a big winner for investors before the crash began in the last quarter. When the champagne was finally poured on New Year’s Eve, investors were less than 10% below where they began the year.

This year has been all bad. Investors are looking at a loss over 40%. The typical investor in the stock market has probably lost half his money.

The news continues to confirm that a major correction is underway.

Comes word this morning that Kuwait has cancelled a $9 billion joint venture with Dow Chemical…and that steel production is dropping fast.

Student loans are becoming a "crushing burden," says the LA Times. When things were moving in the right direction, paying off a student loan seemed like a cinch. But when the only job you can get pays only $20,000 a year…it’s hard to start out life with $50,000 in student loans. At 7% interest, that’s $3,500 a year…plus, if the poor young fellow wants to be debt free in 10 years, he’s got to pay another $5,000 of the principle each year. That will cost him about $700 a month. Let’s hope he doesn’t have to eat…pay the rent…or buy a car.

After a great bubble of consumer debt comes the crushing burden of having to pay it back.

Even churches are getting their steeples knocked off. Poor St. Andrews. The Anglican church of Easton, Maryland, had only 35 members. If you haven’t followed the schism news, we will bring you up-to-date. The Episcopalians have become very hip and trendy; at least, they think they have. They perform gay marriage ceremonies…Christ, they say, is "a way," not "the way."

Naturally, many Episcopalians are looking for another way. Some have found the Anglican Church – essentially the same religion, but presided over by different authorities. Thus did a little group of Anglicans in Easton, Maryland, come to need a place to assemble for worship. And thus did they take on $900,000 of loans to buy an unused old church. But unless some among them had deep pockets, the pilgrims were doomed from the beginning. Each of the members had to pay about $2,000 a year just to pay the mortgage. And when the mortgage payments weren’t met, the lenders repossessed the church, leaving the parishioners out in the cold.

*** "Turn the lights out when you leave the room…there’s a worldwide financial meltdown…" we reminded the children yesterday.

"Dad," Jules took the bait, "you keep talking about this worldwide financial meltdown. But I was just in the U.S. last week. I didn’t notice anything different. There weren’t any soup lines. People didn’t seem to be suffering. And even if there were a worldwide financial meltdown, I don’t see how will it make any difference in my life."

"Jules, so far, we’ve only seen the very first part of this meltdown. It has only affected investors. And even investors don’t believe it is serious problem. They expect next year to be better.

"What we’ve seen so far is just 1929 – but worse. The real damage…the real pain…is still ahead…those grim years of the ’30s. In 1931, stocks fell another 50%. Then in 1937, they went down about 35%. And unemployment reached 25% – one out of every 4 people couldn’t get a job.

"And back then, people had much more of a margin of safety. Much of the population was still living on farms. They might not have had any money, but they still had their own produce they could eat. They were used to gardening…canning food for the winter and making do without a lot of money. And many of them still heated with wood.

"Now, the typical household needs a job in order to eat. No, they need two jobs. They don’t have gardens. They don’t know how to can food…or how to dress a pig. They have bills to pay – not just food, but mortgages, insurance, student loans, health care, gasoline, car payments. Today, usually, both husband and wife work…and they’ve increased their expenses to the point where if they lose either job they’re soon going to run out of money.

"One thing that is almost sure to happen – the workforce is bound to shrink. People are going to leave the world of employment in order to stay at home, take care of children, cook their own meals, and so forth. They may even put in wood stoves and plant a garden.

"In the ’30s, people still had private safety nets. They had stockpiles of money…food…fuel. They could last at least for a while without jobs. Now, we have public safety nets. People can’t last long without jobs, but we have unemployment insurance…food stamps…and so forth. These public systems cost a lot of money. It will be interesting to see what happens to them when they are put under the strain of a major meltdown. The government will probably end up just sending people checks. It’s the fastest and cheapest way to get money into circulation.

"As for what difference it will make to you…well, when you get out of school in May you’ll probably find it a lot harder to get a job than you would have a year ago…and if you wanted a job on Wall Street, you’d probably be out of luck all together. And if you’re able to get a job, it probably won’t pay as much as you had hoped…and you won’t be able to spend as much money. Or, maybe you won’t get a job at all…and you’ll have to come and live at home with us. That would be nice for your mother and me, but you may not like it so much."

Until tomorrow,

Bill Bonner
The Daily Reckoning