Aging Dollar vs. Young Amero

The Daily Reckoning PRESENTS: The Amero is supposedly a proposed new common currency for (at least) Canada, the United States and Mexico that will replace our individual moneys, including the dollar, and morph us all seamlessly into one big, happy, multi-lingual, multi-cultural family with vast income and wealth disparities, which is funny enough in itself that rational people would even contemplate such preposterous stupidity…

AGING DOLLAR VS.YOUNG AMERO

If you are one of those people who bizarrely think that The Stupid Mogambo (TSM) has enough smarts or education to have an opinion about anything, I laugh at you in scorn, and I laugh at you again when you ask for my Idiotic Mogambo Opinion (IMO) about the euro, now that you are getting scared of the dollar, as you should be. Being kind and charitable, as in “just before Christmas I’m as good as I can be”, let me politely tell you, for the record, “Don’t Make Me Laugh, Jerkface! (DMMLJ)”.

You may not know it, but this bizarre economic scheme of having one monetary policy and multiple fiscal policies is as popular around the Mogambo household as it is in Europe. The wife and kids have banded together into the Mogambo Union (MU), and their official position is that, since there are five of us, then all the money ought to be divided up equally, and everybody get a fifth of the money. My wife is siding with the kids in this idiocy because, I guess, she has formed some kind of “bond” with them over the last 15 years or something. Or she’s just being hateful. Who knows? Who the hell cares?

But anyway, they are serious about this single monetary policy thing. And if you can contain your laughter for another second, you will realize that this is the exact same situation with the euro, and they are serious, too.

The only difference, what I call the “Crucial Mogambo Difference (CMD)”, between the two systems is that in dealing with the Mogambo Union (MU), I control rogue members by bursting into their rooms and screaming like a banshee with a baseball bat, in order to knock some sense into their thick heads (which, fortunately so far, always miraculously occurs about halfway through my initial windup backswing), while in the European Union (EU), they don’t. A crucial difference to be sure – although the stupidity is exactly the same.

Susan asks, “With the collapse of the dollar on the horizon and the ‘Amero’ lining up to take its place, how will this new currency affect our gold and silver?”

For one thing, the Amero is supposedly a proposed new common currency for (at least) Canada, the United States and Mexico that will replace our individual moneys, including the dollar, and morph us all seamlessly into one big, happy, multi-lingual, multi-cultural family with vast income and wealth disparities, which is funny enough in itself that rational people would even contemplate such preposterous stupidity.

But the economic mess that is engulfing us, precipitated by the dollar getting destroyed by the actions and inactions of the Federal Reserve and Congress for so many years, has to be resolved somehow! Why not the Amero? And if not the Amero, my Darling Mogambo Cherub (DMC), then what?

And with a worthless dollar, soaring inflation and a grumpy electorate, what better solution than to (like most other countries in history have done in times of their own well-deserved economic crises caused exactly like ours) expropriate the resources and assets of some other countries, such as Canada and Mexico? Hahaha! America at its finest hour! We have evolved to the point where we Americans can now, literally, conquer other countries, and acquire their assets and resources to bail us out of the economic mess we created (which is the impetus for all wars), all without firing a shot! Or even threatening to! A miracle of modern politics and corruption!

As to whether or not it is true, there surely are people who desperately want it to be true because they are all lining themselves up to make a big profit from it somehow.

And for how it affects gold, it will have, at worst, no effect, as that is the beauty of gold; it is impervious to currencies and their depredations, and its buying-power value over the last 4,000 years is almost a constant, which is the whole point of how gold “preserves wealth”!

In the best-case scenario, gold (and silver, and all commodities) will soar like they always have in the inevitable bust at the end of long booms, which are always financed by the massively excessive creation of money and credit, via the historically timeless and brainless expedient of a fiat currency, a reckless banking system and a complicit, intellectually-corrupt government.

And with the absolute, 100% certainty of a bust happening again, just like it always has, without exception, in thousands of countries, to thousands of currencies, for several thousand years, gold will rise triumphant, just as gold has always risen triumphant! And that one fact, alone, explains why I am always strongly suggesting, in a very loud and irritating voice, for you to get silver and gold right (pause) freaking (pause) now, if not sooner.

And it is because of the disdain of the ridiculous dollar, which is actually spreading, as we gather from an email from Christian S., who was kind enough to send an English translation of a posting from Argentinienaktuell.com, which is that, starting mid-2007, “Argentina and Brazil do not plan to use the U.S. dollar” for commercial exchange between themselves. They will use their own currencies, the Argentine peso and Brazilian real, and the article hinted that abolishment of the dollar to effect commercial exchanges between Argentina and Brazil could be next.

But, apparently, people are surprised that the debasement of the dollar has impacted coins, in that the metal in our pennies and nickels is worth more than the face value of the coins. So the government, instead of “doing the right thing” to permanently eliminate inflation by stopping its own cancerous growth and by preventing the Federal Reserve from constantly creating more money and credit, has instead simply made it illegal to melt or export quantities of coins!

It was from the New York Times that I got the news, in their article “Rising Metal Prices Prompt Ban on Melting and Export of Coins”, that “The United States Mint, concerned that rising metal prices could lead to widespread recycling of pennies and nickels, has banned melting or exporting them. According to calculations by the Mint, the metal value of pennies, which are made of copper-coated zinc, is now more than one cent. The metal value of 5-cent coins, made from a copper-nickel blend, is up to 7 cents. Adding in the costs of manufacturing means the Mint now spends 1.73 cents for every penny and 8.74 cents for every nickel it makes.”

Hahaha! The penalty? Up to a $10,000 fine, and imprisonment of up to five years, or both!

Paul R. sardonically notes, “Notice that I am only allowed to carry $5 worth of coins out of the country, because they have real value. But I’m allowed to take $10,000 of their worthless dollars with me, because they have no real value.” Hahaha! Exactly, Paul!

USAToday adds the news that the government has changed the composition of coins lots of times (“The penny,” they report, “which was pure copper when it was introduced in 1793, was last changed in 1982”) and always in response, of course, to rising metal prices, which is more solid evidence of inflation and, thus, more proof of complete government incompetence, and if we had any brains at all we would rise up in vicious outrage and descend upon Washington as an ugly, drunken, mindless mob, unleashing our righteous vengeance on Congress (except Rep. Ron Paul) and the Federal Reserve, and then maybe other central banks around the world would see the carnage on TV and, glued in rapt fascination to the lurid screens, they would say amongst themselves “Oh, my God! We had better stop doing that same monetary crap right now! Hey! Is that a bag of flaming dog poop he’s throwing? Ewww!”

Well, to be honest, USAToday did not actually say that, but they might as well have (and in my opinion should have). But they did say that copper averaged about 75 cents a pound in 1982. And how is copper faring since then? From ABCNews.go.com we learn “Copper prices are up more than 180 percent since mid-2003, selling for just more than $3 a pound.” Almost tripled in three years? And yet there is no inflation? Hahahaha! This is insane!

Until next week,

The Mogambo Guru
for The Daily Reckoning
December 26, 2006

Mogambo sez: Gold and silver are doing well, as expected when the dollar falls, but oil going down like this is such a rich, juicy plum that I gotta- I just gotta, I tells ya! -emphasize it as the Mogambo Investment-Sector Pick O’ The Week (MI-SPOTW).

Editor’s Note: 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.

It may be bleak midwinter here in rural France, but the property market in the United States is still a bit feverish.

Remember that building that sold for $1.8 billion in New York recently? It was the most expensive single building ever sold in the city.

Well, we looked it up…

Its number is 666 5th Avenue. Already, we sense there is the Devil’s hand in this thing. ‘666’ is the ‘mark of the beast’ in the Old Testament. It prefigures the coming of the Antichrist, if we remember right. But what it marks in the property market is probably the very peak of the biggest property bubble in American history…and perhaps the peak of the whole worldwide property bubble. Which is to say, it might herald the coming of something big and bad.

You will know you have found the building when you walk along and come up to a Brooks Brothers store, on the ground floor. We used to do all our shopping there; it was known for a kind of waspy, out-of-fashion, high school history teacher look that we favored for years. (We have since moved on to an even more out-of-fashion style…we get most of our clothes from the local farm co-op.)

666 was purchased by the Kushner family. It appears that Mr. Charles Kushner, convicted of various financial crimes arising from his activities as a political fundraiser, decided to splash out when his time in the pokey was over. Now, he has got himself a trophy building…and has got everyone talking about him. Not only has he bought the most expensive building in the Big Apple; he’s also shelled out three times as much for

it as it sold for six years ago.

Either the man is a genius… or a fool. We will have to wait to find out for sure, but in the meantime we will do a little math. By our calculation, he paid $1,200 per square foot for the place. Let’s see. In London, where we have an office, we pay about $50 per square foot per year. That is supposed to be a decent price…but about what you should expect to pay for prime office space in prime location in one of the world’s prime cities.

But if you paid $1,200 to buy a square foot…how much would you have to rent it out for in order to make a profit? Well, if you apply the old rule – you need to get 10% on your money just to cover your cost. That would imply a rental rate of $120 per foot squared. Then, in order to get a 5% return…the rent would have to be $180 per square foot. We don’t know… can you get that sort of rent in New York?

Let’s see…1,000 square feet for $180,000 per year…? Imagine a one-bedroom apartment renting for $15,000 per month.

No, dear reader…it is not very likely. Not even in Manhattan. Not even in a bubble.

More news:

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Economist John Williams is out with his 2006 estimate of the true federal budget deficit. To read all about it, see The Daily Reckoning’s blog.

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And more chatter…

*** “The ground is frozen solid. I can’t tell where they are…”

The speaker was a man who just came into our office an hour or so ago. A man of about 70 years old…with thin, white hair…and a large frame, dressed in hunting clothes.

Mr. Tourraine is the master of the local hunt. He has just stopped by to give us a report.

“I think there are plenty of wild boar around. But I can’t tell where they are. Just wait, though…we’ll get the dogs out…they’ll find them.”

Mr. Tourraine has a brother in Vermont.

“Oh, I heard from him a few years ago. He had snow up to the windows… We don’t get snow like that around here. Just a dusting from time to time.

“I’d like to go visit my brother, but it’s too expensive. You know, I live on [the French equivalent of Social Security]. I get only 936 euros per month (about $1,300). My wife gets a little less. We can live very well. We have few expenses. There is plenty of food in the garden…or what I hunt. It’s a good life. But there is nothing left over for traveling. At

least not for traveling to America…

“Young man [he was talking to us], I have seen everything in my life. I started out in gilded circumstances. My family was very rich. My grandmother had seven full time gardeners tending her roses. You see, I’m descended from a big banking family. They were Protestants…bankers to Napoleon, in fact.

“I grew up in a huge house…with servants all over the place. Many people in our family never worked a day in their lives. Of course, others had to tend the family business. My father, for example, was very active in business…he worked with the Phillips Company. In fact, when the war began he gathered up a whole crate of documents – because he was working on an advanced radar system – and rushed to New York, because he didn’t want them to fall into the Germans’ hands.

“That left my mother and us children…and we didn’t know quite what to do. My father had planned to come right back, but the Nazis were in control of Paris by that time, and he couldn’t get back without running the risk of getting arrested. So he had to stay in North America.

“My mother loaded us in a car…with some servants…and we rushed to the South of France to try to get away from the Germans. We went to where my father had a farm…but it was a farmhouse without any electricity or any furniture, where we had to sleep on the floor. We milked cows…we had a fire in the fireplace. Boy, that was a big change from what we were used to.

“But then, we got in touch with an aunt who had a big place near here. She invited us to come to live with her, and there we were able to pass most of the war in relative comfort.

“I was in a boarding school in the center of the country when the war ended. After the landings in Normandy, the Germans were rushing back toward the East…and they weren’t in a good mood. One day when I was waiting for a train, the Germans showed up. They had a rule that if one German soldier were killed, ten French would be shot. The resistance seems to have killed three of them nearby, so they showed up at the railway station.

“I went to a farm school and when I left school every day to go home, they used to give me a big slice of sausage and a piece of bread to take with me. Nobody had much food in those days, because unless you lived on a farm, it was hard to get anything to eat. With everyone on the move, the station was packed. There were hungry faces all around. So many that I was even afraid to open up my parcel of sausage and bread. I was just a young kid, and I figured some one might take it away from me, so I ended up wandering down the tracks to a bench where I thought I would be alone before I opened up the package and began to eat.

“It was then that the Germans arrived. All of a sudden, people started screaming. Women were crying. Children were shrieking. And the Nazis were barking orders…you know they always yelled those awful commands. They had their machine guns and bayonets out. And they were throwing away people’s suitcases…clothes were spilling out on the ground.

“Those were the days when the Nazis were aided by the French police. They would go into a town near where a German had been killed, and take the mayor hostage. If three Germans had been killed, they’d demand that the mayor give a list of thirty local men who would be shot.

“Well, one of the French gendarmes spotted me behind a boxcar. I tried to hide, but he came up to me and said:

“‘Are you Mr. Tourraine?’

“I gulped and said, ‘Yes.’

“He reached toward me and said, ‘Here, you’ve dropped your wallet. Now, be very quiet and stay where you are.’

“Those were the days…but finally, my father got back from America and we tried to put our lives back together. But our house had been used by the Germans as their headquarters for their European Air Force. And when they retreated back across the Rhine, they didn’t want to leave any papers behind. So they just blew up the house. We went back in 1945 and all that was left was the chimneys. Later, the Germans were supposed to pay us for it…and we did get some money…but it wasn’t much.

“My father had been away for so long, he was never able to get back into business. He was deaf by then and couldn’t really understand anyone. I don’t know if that was it or whether it was just because our property had been destroyed, but our fortune was completely lost. It was then he came down to this area and began raising sheep. That worked for a while, but then the English started exporting lamb and wool into France and prices fell. When he died, he left almost nothing.

“But you have to make the most of what you have to work with. I married a local girl. We never had much money. But we always have lived reasonably well. We still enjoy life. You don’t need much money for that.”