Richard Daughty

My brain went into some kind of weird spasm when Zhou Xiaochaun, head of the People’s Bank of China, went on record as saying that he doesn’t trust the dollar to be the world’s reserve currency anymore, and wants, instead of gold, the International Monetary Fund to expand the supply of Special Drawing Rights (SDRs), which is just another stupid fiat currency, to use as the world’s reserve currency! Gaaahhhh!

I can tell by the way you are not screaming in fear and frantically clawing your way to the nearest exit in a generalized panic that you do not know what a Special Drawing Right is. So prepare to scream and claw when I tell you that – according to the Economist magazine, which I cite as a source since you never believe anything I say – an SDR is “a synthetic currency created by the IMF, whose value is determined as a weighted average of the dollar, euro, yen and pound”!

I deliberately put that exclamation point there at the end so that Junior Mogambo Rangers (JMRs) around the world and across this quadrant of the galaxy would not miss the salient fact that there is something Really, Really Weird (RRW) when these Chinese bastards are smart enough to reject an over-valued fiat dollar, but then being so stupid that they prefer, over gold, a basket of four fiat currencies, one of them being the damned dollar, along with their four corrupt governments, which collectively own the IMF by virtue of having funded the damned thing in the first place! Hahaha! Brilliant! Hahaha!

By this time I was laughing so hard that my stomach started hurting, which made me think that maybe I was hungry, and how maybe a taco would hit the spot right about now, which is Mexican food, as I suddenly suspected Chinese food for making them sound so ridiculous.

So my mind was whirling, whirling, whirling with many thoughts as Zhou went on to say, “Therefore, efforts should be made to push forward a SDR allocation. This will require political cooperation among member countries”, which (as I understand it) means that governments should stand ready with their armies to lend a hand to fellow governments around the world with the unpleasant task of killing rebellious civilians who will inevitably riot when they run out of food because they cannot afford to buy food because the damned American government is still deficit-spending, but now measured in the trillions of dollars per year, a demand met with excessive amounts of new money and credit created by the Federal Reserve, increasing the money supply, which in turn creates inflation in prices.

As usual, I get no feedback from the Chinese, perhaps thanking me for saving their economic butts by pointing out where they have been so stupid as regards this “gold money” thing by, you know, sending me a couple of tons of it, or even a fruit basket would be nice, ya know?

So, I figure that their ignoring me means that maybe they have discovered, with their famed espionage networks, that I am not the world-famous guy I say I am (“They call me Big King Mogambo (BKM) back home!”), but am just some sort of mental case or something, usually described by the newspaper as “local lunatic.”

So I figure that maybe someone of the stature of Bill Bonner here at The Daily Reckoning would have the desired impact, and so I tell them how Mr. Bonner writes that “one way or another…sooner or later, a new money system is bound to emerge. Most likely, it will have gold at its base. Why? Because in thousands of years of human experience, nothing better has ever been found.”

Well, normally, you would expect someone being told that nothing better than gold has been found that could be used as a store of value to suddenly slap themselves on the forehead (“Ow!”), and say “Hey! You’re right! Nothing has worked better as a long-term investment than gold, and so anything other than gold is a bad investment when the governments of the world are deficit-spending at record rates and the money supplies are expanding at such preposterous rates that the sheer volume of money sloshing around allows interest rates to be temporarily lower than the real rate of consumer price inflation, which is a condition that is so freakishly insane that just thinking about it should make synapses in your brain burn to a freaking cinder with an audible ‘ssss!’ when you comprehend the enormity of it!”

So, suddenly, you know something is wrong, and a chill overcomes you, when, even more mysteriously and spookily, the Chinese central banker says, “The scope of using the SDR should be broadened, so as to enable it to fully satisfy the member countries’ demand for a reserve currency”!!!

The three exclamation points indicates that I am on Full Mogambo Alert (FMA), as I now know that Chinese bankers are as duplicitous as all the others; he is proposing to create as much SDR money (which is just another fiat money composed of the fiat dollar, the fiat euro, the fiat yen and the fiat pound) as anyone in the world wants! Which is the problem that got us into the mess we are in, for crying out loud!

Even more bizarrely, he states some ridiculous benefit of, “Compared with separate management of reserves by individual countries, the centralized management of part of the global reserve by a trustworthy international institution with a reasonable return to encourage participation will be more effective in deterring speculation and stabilizing financial markets”, which means that no country will have any reserves at all, and some mysterious “trustworthy country” acceptable to China means that China will hold all of the reserves, and therefore be calling the shots of the new currency, and since nobody has any reserves, they will be under complete control of the IMF, which will be under the control of China! Gaaaahhhh!

Well, you know I must have hit a nerve, because they don’t answer me and thus quell my howling outrage and fear from even contemplating such a scary thing, and instead, they go on “The participating countries can also save some reserve for domestic development and economic growth”, which makes you go, “Huh? What in the hell are you talking about keeping ‘some’ for our own use? What else would I be using it for, you stupid putz?”

Then I realized that this kind of crap leads directly to a pertinent lesson on why you should be buying gold, silver and oil so as to save your Fine Financial Fanny (FFF), but there are so many reasons that I groan with dismay at even listing them all.

And so, perhaps, the REAL lesson is in fact that there is a list – a long list – of Very Good Reasons (VGR) to buy gold, silver and oil, which makes investing so easy that you say, “Whee!” Here are just a few of them…

Richard Daughty

Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning , and other fine publications. For podcasts featuring the Mogambo, click here.

  • Matt Smyth

    I soak up commentary from Austrian economists all day long and it all makes sense to me. The problem is that Keynsian socialists rule the world right now and it is not going to change soon. Warren Buffet voted for Obama for FFS! That does not bode well for gold or smart conservative investors in general. It would not surprise me if Bernake thought he was doing the world a moral favor by naked short selling the gold market.

    I want to allocate my new cash 100% in gold for logical reasons but I cant because there is no logic or transparency in the market.

  • charlie

    If China is serious about replacing the USD, why don’t they lead the way and start selling USD debt and replacing it with something else?

    Because they want the USD to be the worlds reserve currency.

    if that’s true, why are they pushing to replace it?

    Because they’re trying to scare the US gov’t into thinking if it prints too many dollars, the USD will be replaced as the world’s reserve currency.

    In short, what China wants is for the USD to remain as the world’s reserve currency and have the US not print dollars.

    Their worst nightmare would be to have foreign central banks sell their USD holdings and replace them with holdings in another currency.

    Actions speak louder than words. ignore what China says. Until China abandons their USD peg, anything they say anti dollar is a bunch of BS.

  • StingingNettle

    Is that why China now has a currency swap with Argentina? Because they are all talk?

  • Don

    The new currency should be uranium 235 in my opinion. Hehe.

  • Michael C.

    Dumping dollars for commodities like gold, silver, and oil are great but what about us little people? I have a little gold and a lot of silver but most of my commodity base is survivalistic. You know, beans, rice, flour, wheat, dried and canned milk, velvetta, diet Coke and diet Mountain Dew, fuel, and guns and ammo to protect it all including my pasty white butt (PWB). Why not also focus upon those things that will get you thru a deep depression with fresh minty breath, razor smooth face, and number one in the smell good department..

    Why not divert a small portion of your bird cage liner (BCL), also known as dollars, into purchasing things you need now and will need in the future if you want to continue participating in this thing called life? It’s simple, easy, and makes perfectly good sense. Something that Mogambo Guru should look into when he’s not been sucking down bathtub gin and howling at the moon all night…

  • scott c

    With trillions able to be created at the push of some buttons, the gold and silver markets will remain under control (which logically must be a top priority of the PPT or whoever looks after things) until serious physical supply issues arise.

    The Mogambo Guru’s premise is that reality must prevail, which of course it will at some stage, but in the interim, it aint lookin good at all.

    Expect public confidence to wane dramatically when enterprises, desperate to reduce their costs, cut back on quality of goods & services produced. Things will start literally falling apart. Coupled with rising inflation, this will result in a lot of trouble…

  • MattS

    Not widely reported, but Obama told the group of four top bankers a week ago, that “his administration was the only thing standing between them and pitchforks.”

    The WH would not allow a group photo with him in it, so all you saw in the MSM was a picture of them smiling as they walked down the White House driveway.
    (I think all this was only reported by POLITICO ).

    We live in interesting times!

    (Who was it that said he was out of stocks and bonds, and even precious metals, concentrating now on canned goods)?

  • anonymous

    Michael C: If you were to follow this article more closely, you would know that the Mogambo has in fact traded a portion of his useless fiat dollars (UFD) for such staples as you mention (along with plenty of cheap gin and whisky), and smartly stashed it all in his Mogambo Bunker Of Doom (MBOD), where he often takes refuge from the endless naggings of his ungrateful family.

  • RJ

    I’ve got a great idea. The US can sell Iraq to the Chinese. They’ve got lots of soldiers. And for two trillion, we’ll throw in Afghanistan as well. See, Cheney is a genius.

  • Henry Crinkle

    How about a nice “Mark O’ Da Beast’ currency where money is simply digitized bits and bytes and you have this chip implanted into your hand or head that keeps track of all of your interactions down to the gumball-machine-level sale and communicates with the ‘grid’ to debit / credit your account?

    The beauty of it is that any alternative currency, including barter, could be made illegal under penalty of death!

    This way they can ‘inflate’ the currency all they like, you’ll still use it if you’re interested in respirating.

    No gold – no nothing…

  • Henry Beamis

    What’s all this talk of staples???

    What am I going to do with $50,000 worth of staples????

    I go through one maybe two boxes per year MAX!!!

  • charlie

    Is that why China now has a currency swap with Argentina? Because they are all talk?

    China pegs their currency to the USD, so effectively they are one and the same. Loaning money to Argentina in RMB and expecting to be paid back in RMB is no different than loaning money in USD and expecting to be paid back in USD.

    This is another example of China trying to give the appearance of doing something ominous against the USD but on close examination, it means nothing.

    As long as China is pegged to the good old USD, they are strongly supporting it.

  • sell gold in tampa fl

    I like to ask a question,
    If China is serious about replacing the USD, why don’t they lead the way and start selling USD debt and replacing it with something else?

  • selling gold

    Thank you for this blog. That’s all I can say. You most definitely have made this blog into something that’s eye opening and important.

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