National Debt Stupidity Jackpot

We, as a nation, could soon be paying $78 billion dollars a year in additional interest costs. And the children will be using dried up doggy-doo and rat bones for toys…

If you have just gotten here from Mars, then you may not be aware that inflation is the one thing I fear more than, umm, my wife finding out about you-know-what, and if you knew what was best for you, you would be very afraid of inflation too.

And it is with this in mind, and remember that I am talking about inflation and not you-know-what, that I blurt this out: there is not one indicator of inflation that is under 3%! And the latest whack to the head comes from the Gross Domestic Product Deflator, which just went to 3.2%. This time last year it was at 1.1%. So inflation has tripled in one year! Tripled!

If the government’s own lying Pollyanna press releases admit to a rate above 3%, then the true level must be waaaayyy higher.

Reflecting the inflation rate, oil has now powered up to over $44 a barrel on its way to heights that used to seem impossible. This is because the demand for oil is rising.

But the price of oil is also rising because the dollar is falling in purchasing power. This is the direct result of the Bush administration and Congress colluding to effectuate a mind-blowing spending spree of such colossal size and scope that the history books of the future will point to us and curse our names, because we are the brain- dead people who elected these raving bozos to office.

Climbing National Debt: A Profligate Bunch of Economic Illiterates

The Bush Administration and Congress epitomize the most profligate bunch of economic illiterates that ever disgraced themselves, by admitting that they do not listen to the advice of the Mogambo. Instead of heeding my wise counsel, they perversely decide to do the exact opposite, and they mindlessly continue to borrow and print money at insane levels!

To illustrate the point, what do crazy, economically illiterate people do with money? Answer: they do something crazy with it. If you will dim the lights, I will now present a little slide show…

This first slide is a graph of national debt. Notice how total national debt continues to climb at its eerie linear rate, namely $52 billion per month. Look at that number again. That’s right; look at it – look at the number $52 billion! A month! Make sure the number is burned into your brain, because years from now your grandchildren are going to be sitting in the dirt playing with rat bones and dried doggy-doo, the only kind of toys you can afford to give them, and they will be asking you, "How much money were you guys spending, anyway, that has caused us to suffer such misery?"

To put it in perspective, it’s $372 in extra debt, PER MONTH, for everybody who has a job in this whole country, INCLUDING government workers! And next month it is going to be ANOTHER $372! And then another and another and another! Month after month, year after year, the government is putting you farther and farther into debt. And this does not even include the debt that you voluntarily take on, so that you can have those matching Jet Skis.

In the last, short 25 months, we bozo Americans have accumulated, in spooky straight-line fashion, another $1.3 trillion in new federal debt. Even if all of this money was loaned out at a lousy 2%, then the interest expense alone, which is one of those federal budget line items, is rising by $26 billion a year! At 3%, it’s another $39 billion! At 4%, $52 billion! At 6%, which is closer to where short-term rates should be given the current inflation rate, we will be paying $78 billion a year in extra interest costs on the debt! That’s $557 for everybody who has a job in America!

Where does this money go? Who is going to end up with $26 billion a year?

Climbing National Debt: The Rich Get Richer

It’s obvious…to the guys who had money to start with, and who loaned it to the government! And who are these guys? Well, it ain’t the poor, who don’t have any money to lend, and it ain’t the Mogambo, who was trying to borrow money from the poor, and we all know how well that worked out. So, once again, the rich get richer and the poor get poorer.

And how did the poor get poorer? Well, the Bush people just put a nice big tariff on imported shrimp, and now the price of shrimp is going to go up. So the poor are going to pay for this by suffering a decline in their standard of living, which translates into their not being able to afford to eat shrimp anymore.

Everybody else will pay the old fashioned way – digging deeper into their wallets to pay higher prices for the more expensive shrimp cocktail. And then there will be the added costs of shrimp smuggling, and a huge government law enforcement bureaucracy to combat the scourge of shrimp smuggling, and the building of new prisons to house all these convicted shrimp smugglers, and the halfway houses needed to ease the smugglers back into useful employment once they have paid their debt to society.

But despite the shrimp smugglers, things are actually a lot better than they should be. We are talking about gigantic bets, involving humongous amounts of debt, the sheer size of which is literally beyond comprehension, that span international borders and time zones around the globe, all linked to a currency that is being inflated at frightening rates by a country that has a massive trade deficit and budget deficit, and is held together by artificially low interest rates that are rising in response to inflation in prices.

I’m surprised it holds together at all! And I am sure, very sure, that very soon it won’t.


The Mogambo Guru
for The Daily Reckoning
August 9, 2004

*** The Mogambo Sez: The surprising fact is that gold is not gaining in price around the world as inflation heats up around the world. This is such a good deal that I am surprised that so few are taking advantage of it, and that is why gold is not rising faster.

But for Americans, not buying gold shows a lack of education. Instead, Americans buying stocks and bonds instead – in an environment of massive deficits, a falling dollar and rising interest rates – shows a suicidal stupidity.

Editor’s Note: Richard Daughty is general partner and C.O.O. for Smith Consultant Group, serving the financial and medical communities, and the editor of the Mogambo Guru economic newsletter, an avocational exercise the better 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. If you’re inclined to read more, you’ll find the whole Mogambo here:

"The Idiot’s Delight Generation"

We are trying not to keep up with the financial news. For the first few weeks of our trip it was easy; there was no financial news.

But now the news is intruding on our vacation. Last week, the Dow retreated down to 9,815. It was an orderly retreat. As in all previous declines of the last 4 years, there was no panic.

Investors are far too calm and collected. They have made nothing from stocks in the last 6 years. Yet, they continue to believe that stocks – and real estate – will make them rich. Without working. And since they think neither stocks nor real estate will ever go down – in the long-run – they see no risk. Buying a house or a stock is thought to be a safe investment…sooner or later it is bound to go up, they reason.

We are traveling around the U.S. trying to gauge the temper of the place. What we find is a decent people caught up in an indecent conceit – an unshakeable belief in American Exceptionalism. Things that would be wrong – or imbecilic – in any other race are regarded as perfectly normal when applied to Americans. A pre-emptive attack, for example. Were any other people to try it, it would be unforgivable. But in America, it is public policy. If foreigners tried to get rich by buying each others’ houses, it would be regarded as a silly fantasy. But Americans see no reason why they can’t do it. Nor do they find anything unbecoming about living beyond their means, year after year, and counting on savers in poor countries to make up the difference. Yet, they’d think it was preposterous for anyone else to try it.

Last week, the Dow dropped, gold rose, and the dollar fell. Employment numbers came in weaker than expected…and retailers seem to be in trouble. Sooner or later, the consumer has to run out of money. A reasonable people wouldn’t wait to the last minute. They’d panic out of expensive financial assets and pay down debt now. But investors believe that bad things only happen to other people. They think America is an exception and that Americans will be spared the misery that befalls other peoples.

"Things are getting better all the time, and if they’re not, we’ll fix it," wrote Michael A. Ledeen, a leading proponent of American Exceptionalism. Somehow, investors expect someone to ‘fix it’ so that stocks never go down and debt never needs to be repaid.

Dream on.

More news, from Eric in New York…


Eric Fry in Manhattan:

– A crazed wasp stung your New York editor yesterday. It hurt…but the lumpeninvestoriat suffered far greater pain last week from the sting of soaring oil prices and the hornet’s nest of plummeting stock prices.

– As crude oil jumped to one record high after another, the stock market ratcheted lower and lower. Ouch!

– By week’s end, 324 points had vanished from the Dow, dropping the blue chip index below 10,000 to 9,815. The Standard & Poor’s 500 slumped 3.4% to 1,063. The Nasdaq tumbled nearly 6% to 1776, more than doubling its losses for the year to date. Investors tried to salve the pain of disappearing Dow points by applying generous amounts of gold – like a kind of financial Benedryl – to their wounded portfolios.

– The sting of capital loss, like that of a crazed wasp, is usually avoidable…assuming one does not get too close to either stocks or hymenoptera. But investors who insist on frolicking amidst richly priced stocks are certain to get stung from time to time.

– Unfortunately, the bottom of the July-August sell-off does not yet appear to be at hand. Stocks are still too richly priced and investors are still too complacent. "The signals that usually indicate a washed-out market shows them mixed at the moment," observes Barron’s Michael Santoli, "even if they’re heading in the right direction."

– Investors are certainly less optimistic than they were a few months ago, but they do not yet exhibit the sort of near-suicidal depression that often precedes a significant rally. To the contrary, the VIX and VXN options volatility indexes are both registering relatively high levels of investor complacency amidst the market’s recent decline. Absent are the signs of sheer terror that would indicate an imminent rally.

– Even so, fear is slowly coming back into fashion. As stocks fell last week, investors flocked into the gold market, driving the price of the precious metal up $8.90 to $399.80 an ounce. And why not? As Tom Dyson observed in our weekend edition, "oil’s straight-up rally should take a breather at some point…but that point never seems to arrive." It certainly didn’t arrive last week.

– Nymex WTI touched a fresh life-time high of $44.70 on Friday, before closing the day almost $1.50 up for the week at $44.23. And while gold rallied sharply, the dollar plummeted against all major world currencies. The euro gained more than two cents against the greenback from last Monday to $1.226.

– The dollar’s weakness – let alone oil’s strength – is probably not a bullish sign for stocks.


Back to Bill Bonner at the Grand Canyon…

*** "The interesting thing about the Grand Canyon, is that it cuts through a huge section of sedimentary rock that has been otherwise relatively undisturbed for millions of years."

Elizabeth had gotten us up at the crack of dawn so she could begin improving us before it got too hot. We were descending the trail at Bright Angel with a group of surly teenagers – our own.

"Why did you have to get us up so early," asked Jules. "And why do we have to hike all the way down this trail? We already saw a big canyon. And we already hiked up and down. We’ve already seen these rocks. We don’t need to see any more."

Jules had made what seemed like a reasonable argument to the rest of the family. At least to those under the age of 40. The previous day, we had driven to the Canyon de Chelly and walked down the trail to the bottom to see some Anasazi ruins built into the rock wall. We had picnicked on a log in the cottonwoods along the dry river bed, and then marched back up to the rim. The whole promenade had taken only a couple of hours – agreeable hours. We had learned our lesson at the Chaco Canyon; we took plenty of water.

The Canyon de Chelly is a beautiful and enchanting spot. It is an oasis, hidden in the wilderness. You can imagine how it might have been for the ancient Pueblo and Navajo tribes who lived there. With a little imagination, you can see it as a kind of Shangri-La of the high prairie, where a few hundred people might have lived a secluded, peaceful and graceful life for many generations.

Maybe that is what happened and maybe it isn’t. The old Pueblo people farmed the land and built impressive stone cities in the canyon. But by the time Lt. Simpson came along with the cavalry and sketched the place in 1846, they were long gone. Something had gone wrong. Something always does.

While the Canyon de Chelly is beautiful and romantic, the Grand Canyon is majestic and spectacular. Both are giant drainage ditches, but they have more differences than similarities.

"At the Conyon de Chelly we saw huge sandstone formations," Elizabeth continued. "All of this area – in fact, most of the west of the U.S. – was alternately under the water…or was a dry desert. During the dry times, sand dunes piled up and then were pressed down by millions of years of additional sediment…and by water. That is how sandstone is formed. The area was flooded several times…it was all flat for a very long time…and covered with water. Then, it rose up out of the water. There were volcanic eruptions as well as upswelling formations that were not volcanic. In the Canyon de Chelly, what we were mostly looking at were huge blocks of sandstone. Here in the Grand Canyon, we see many different layers of sediment laid down over millions and millions of years. And see how straight it is? That’s because this area was undisturbed by the kind of upheavals you see in the mountains. You can read the record of the place pretty clearly. You see the layers that have marine fossils in them – from the times when the area was under water…and other times when it was dry. Look over there…you can clearly see the different strata."

Elizabeth had picked up a book, "The Roadside Geologist," and had become an amateur expert in a few hours.

"Look, Mom, we’ve seen enough rocks already. We don’t want to hike up and down this trail all day long just to see more of them. Besides, it said in the lodge that it was dangerous to try to go too far."

Jules’ first argument fell upon deaf ears. His mother thought getting up at dawn to look at rocks would improve him; there was no stopping her. But his last argument – that it was dangerous – improved her hearing.

Walking down was easy. Like war, debt and love affairs, getting into a canyon is fun. It is getting out that is painful.

People of all shapes and sizes made their way along the trail. Some strode lightly. Others were already sweating at 8AM and didn’t look like they would ever make it out alive.

Occasionally a train of mules would come along, carrying passengers on their backs. We got out of the way and felt sorry for the poor beasts. One had a red-haired woman on his back who looked like twice the burden of the others. The mule foamed at the mouth a bit. We thought he might go mad at any minute and jump off the cliff.

After about two miles down, the children had had enough. The sun was rising in the sky. It was getting hot. A moment of decision had come; either we continue for another couple of hours, spend the heat of mid-day in the shade somewhere and face a very long, hard hike back up. Or, we turn back now.

We could have gone on. But hiking out of the canyon is like climbing stairs for hours without stopping. Temperatures reach 115 degrees in the summer. Every year, people die from heat, exertion and falls. We decided to turn back…hike back to the rim…and then walk along the rim to Hopi Point to watch the sunset.

"Well Jules, have you ever seen anything like that," we asked the 16-year-old after the sky had turned red and the canyon had turned purple.

"No," said the boy. "But can we go to dinner now…?"

The Daily Reckoning