Don't Do Us Any More Favors

Apparently I am not the only guy who is upset by the privatization of Social Security thing, and for proof of that, I proudly present Llewellyn Rockwell, Jr., president of Ludwig von Mises Institute, who, in his essay Save or Else, said “The movement to privatize Social Security (fully or partially) may be the most ideologically duplicitous and fiscally irresponsible I’ve seen in my lifetime.

“The money will continue to flow to older Americans, but not come from present revenue. It will come from new funds. And where are these funds going to come from? Among those who favor privatization, there are two camps: the left wing suggests more taxes and the right wing suggests more debt.

“The proponents say it is worth running up this level of debt because it will save money later. But you know what? In the entire history of government finance and government programs, I doubt that there is a single one that didn’t claim to save money in the long run. We have to ‘invest’ now in education in order to save money later on x, y, and z. We must nationalize the health care system now so that we can save money later that will otherwise be spent on ballooning costs. We must go to war now to prevent a worse war later.

Privatizing Social Security: Doing You No Favors

“This is the staple rhetoric of all government programs from time immemorial. When a robber comes to your door and says he wants your television and stereo now so that he won’t have to take your car and kid next week, you might comply, but you shouldn’t believe he is doing you a favor.” Hahaha! Bravo! Well said!

He adds, “It is a disastrous decision to create an additional forced savings program that is wholly unnecessary, and will bring about vast distortions in the stock market.” To that I add; distortions, yes. But also higher stock prices for a while longer, and that will forestall the imminent collapse of the stock market. THAT is the whole freaking point of it. That this is just another transparent and slimy little scam perpetuated by government and their little playmates in the financial industry, necessitated by hitching the economy of the United States to inflation in assets, goes without saying.

Jay Taylor of newsletter has written on this very topic in an essay, Catch-up With Gold in 2005. He writes, “Since the empire makes all the rules, it can do, and is obviously doing, everything within its power to keep the status quo alive and well. That’s why, as Richard Russell argues, the Fed will fight deflation tooth and nail because if/when deflation gets the upper hand, the empire will suffer a serious, if not fatal, decline, given our enormous indebtedness.”

I will go even farther than that. I will say that this coordinated action could possibly explain why it is that almost everybody involved in the oversight of the last Presidential election was so gung-ho on having balloting machines that had no paper trail, so that the results could not be verified. Only a real first-class bozo could possibly believe that the election could not be “fixed,” and only a nation as full of morons as the United States would roll over for such a thing without even a whimper. And if the American people are so incredibly naïve and stupid as to allow such a transparent fraud in something as simple as an election, then pulling the wool over their eyes as far as economics is concerned is going to be a breeze!

But there is a lot of money floating around already, and it takes a lot of profits to pay all the interest on all that debt. reports, “Total U.S. debt increased at a 7.4 percent annual rate to $23.6 trillion, as federal debt slowed to a 4.9 percent growth rate. Debt owed by U.S. businesses increased at a 5.1 percent rate, the fastest in five quarters.Household mortgage debt increased at an 11.8 percent annual rate to $7.3 trillion, which was offset by higher asset values.”

Privatizing Social Security: No debt, No House, No Nothing

Well, I’ve got Big Mogambo News (BMN) for CBSMarketWatch, because higher debt is not offset by anything, including higher asset values, because the only way you can offset them is to sell the damn house or the other assets, and then you got nothing all the way around. No debt, no house, no nothing.

They don’t listen to me, since they figure that they are a bunch of big-time CBS hotshots and I am just the crazy guy on the curb offering to clean their windshield for a quarter. So they continue like I wasn’t even here, “Household real estate was worth $16.6 trillion, up more than 20 percent at an annual rate.” The only two things THAT could mean are: 1) people are paying higher prices to buy a house, which is not a good thing for them, and 2) that everybody is paying bigger property tax bills on the higher assessments, and paying higher taxes is never a good thing, either. And if you think either of those things is good for an economy, then you got rocks in your head (RIYH), as they say.

Like a dentist’s drill, their words are starting to bore painfully into my head. “Fed officials have said consumer debt levels are not problematic because household net worth, especially in housing, has also increased.” This is the kind of laughable idiocy that habitually spews from the Federal Reserve, banks, stock and bond touts, and government.


The Mogambo Guru
Paris, France
December 20, 2004


There are some pleasures best enjoyed by abstinence, we keep saying; some fights aren’t even worth getting into, let alone winning.

People have made a lot of money in stocks and houses. In the former, gains have been modest. In the latter, they have been extravagant. But at this point, both represent the kind of pleasures a wise man might want to resist. Neither stocks nor houses pay much in the way of dividends. In both cases, owners are merely betting that another owner will come along with even more money in his pocket to pay for them. There’s the fatal flaw, we think, because real hourly earnings in America are not going up; they’re going down! Which means that all the fulsome money we see sloshing through Americans’ hands comes not from the sweat of their brows, but from the beads of liquidity that drip from every pore of every financial transaction in the country. The Fed turned on the fire-hoses three years ago. The economy has been saturated with cash and credit. The big question we all ask is: How long before it dries up?

As long as the bar’s open, a man might as well enjoy it, say the TV pundits. But it is a party that continues on borrowed money and borrowed time. That is not to say you might not enjoy it, for a while. Still, the few moments of enjoyment are likely to be more than offset by a long period of regret.

We are indebted to our president for a marvelous turn of phrase that tells us why. George W. Bush is rarely described as having a “silver tongue.” Nor is it often that people quote the president’s aphorisms or his perceptive insights. Instead, entire books have been written, preserving forever the language of a man who can barely pronounce a compound sentence without getting tangled up in a dependent clause. But here, at least this once, America’s commander in chief has found the ‘mot juste’ – an expression so precisely correct, so poetically economical…and so cleverly ironic, it must have been accidental. Poetry can be achieved by even randomly stringing together words. All of a sudden, in the juxtaposition of one against another, we see something new and unexpected. Poetry can have a kind of serendipitous logic…and unintended intelligence. Prose, on the other hand, takes organized thought. The president, it turns out, is a poet.

It was a “catastrophic success” said George W. Bush of what he hath wrought in Iraq. He might have said the same of Greenspan’s massive dose of cash and credit; it successfully held off a serious correction, but only by luring consumers even further into debt and setting up a catastrophic correction in the future. The expression might come in handy in the courts too. In divorce court, a woman might use it to describe an affair with the local butcher. Or, in the bankruptcy courts… as speculators describe their 2004 stock and real estate investments to the receivers.

More news, from our currency counselor:


Chris Gaffney, reporting from the Everbank trading desk in St. Louis…

“The CFTC announced that hedge funds and other large speculators ended a month of scaling back wagers on the US currency’s decline last week. With the hedge funds cashing in and taking their profits from another dollar decline, the currencies ‘filled the gaps’ left by their strong moves over the last three months.”

To get the whole story, check out today’s issue of The Daily Pfennig.


Bill Bonner, back, yes, in Paris…

*** The Russell 2000 small-cap index continues to impress. While the Dow is up (surprisingly) 2.4% in 2004. And Nasdaq, even more astonishing, is up 6.7% thus far in the calendar year. The Russell, bastion of many a penny stock hopeful, is up 15% for the year – poised to beat out even silver and oil as the best spot for your money this past year.

Small cap analyst, Carl Waynberg: “The most surprising thing about small caps’ outperformance is that anyone is surprised at it. Notwithstanding Dr. Jeremy Siegel’s attempt of a few years back to dismiss the idea of a ‘small cap premium’ – an attempt that fell flat – that premium exists for every time period, and I see no reason for that to change.”

“More proof that most people are wrong most of the time,” Waynberg asserts, “The only way to do better… is to do different.”

“Two core beliefs have determined my investing style: One, the majority is more often wrong than right; and two, that there are no new ideas. Better to build a better mousetrap from proven parts than to try to reinvent from scratch.”

(Addison tells me he’s cooking up something big with Carl Waynberg. At this point, the details are scant. But he assures me we’ll learn soon… even as early as this Friday, Christmas Eve. Watch this space.)

*** Small-cap sleuth, James Boric, maintains that small caps always lead the way out of bear markets. Given the Russell’s returns this year, the question beg’s – what’s in store for 2005?

Can gold regain its forward momentum…what about commodities in general? Will Chinese demand for resources go into overdrive… or is the Pao Mo bubble ready for a bust of its own…

Will a melt-down at Fannie Mae squeeze Easy Al’s final bubble out of existence? Stay tuned, Fleet Street’s Chris Mayer takes a stab at some financial prognostications, here:

Seven Stunning Predictions For 2005

*** Shhhh…

Don’t tell anyone, dear reader; we got Jules an iPod for Christmas.

“Are you kidding?” said Elizabeth, after we told her that it cost under $300…at discount. “I looked around here in Paris. They’re hard to find. And the only one I found cost 700 euros – or about $800.”

Hmmm…the plot thickens. The dollar is sinking. Yet, on a purchasing-power basis, it already seems too low.

“Europeans find U.S. a shopping Mecca,” says a headline in the International Herald Tribune. Name brand merchandise has become so cheap that many Europeans are coming to America to do their Christmas shopping. Even after the cost of travel, they say they come out ahead.

The dollar dropped to $1.94 against the pound last week. The English are piling into low-cost airlines to come to New York where they buy low-cost goods. “In London, I’d never buy British luxury goods,” said a visitor. But in New York, the same items sell for 30% to 50% off.

*** What a strange situation. Foreigners now make a profit selling goods to Americans who cannot afford to buy them. This tips the scales of the current account so far out of whack that the dollar falls, which makes things in America so cheap that the foreigners come over to buy back their own products!

The dollar is in trouble. But if it continues to go down against the euro, the pound and yen…the world financial picture becomes even more peculiar.

*** “Is it true,” we decided to pose the question directly to a Muslim friend at our annual office party, “that the Koran encourages violence against Christians?”

A number of books have been written on the subject. Experts claim Islam is a natural and ineluctable enemy of Western Judeo-Christian culture…because of the teachings of the Koran itself. But is it true?

“Of course not,” said our friend. “You could find plenty of passages in the Bible that seem to incite violence against non-Christians or non-Jews too. And there are always a few extremists who try to stir up trouble. But, historically, Muslims are more tolerant than Christians…and there is nothing in the Koran that would make you think anything different.”

The Daily Reckoning