Stupid and Horrible

Mogambo on Monday! Why imposing tariffs on foreign goods in order to "level the playing field" is, to quote the Guru, a very "stupid idea."

Lou Dobbs, talking head commentator who was brought back out of retirement because he has that warm and avuncular way about him, has decided that we need tariffs on imports. Why? Many people, it seems, would like to "buy American," but can’t find things made in America. This is, according to this Dobbs guy who ought to put his tail between his legs and slink back into retirement, horrible.

And why can’t people find things "made in America" to buy? Because of price. Things made in America are too darned expensive, what with the crushing regulatory burdens of government and bankrupting levels of liability insurance occasioned by an out-of-control legal system where people are actually suing, and winning, because they are not happy with the downside of acting like irresponsible brain-dead morons. And probably many other things too, but they all come down to, and you might want to write this down, the money. Everything nowadays is about the money. It’s always about the money.

So therefore foreign companies can undercut American producers with one hand behind their backs. And the result of the fight in the arena of business warfare is that the American companies are beaten to death, and that is why nothing is made in America anymore.

Import Tariffs: A Higher Level Playing Field

So what to do? Well, for the Leftist Losers and their fellow-traveler commie buddies, the solution is tariffs. The idea is simplicity itself: If you can make foreign imports expensive, then American businesses can compete on a "level playing field." And you know what? It will work! It will work great! Suddenly, you will see lots and lots of American companies, employing American workers, making extremely expensive things to sell, the same things that used to be sold by foreigners at much cheaper prices!

I can see a wave of hands as each and every one of you has your hand up in the air, all competing for my attention, hoping so urgently that I will call on you to explain what is so horribly, horribly wrong with this stupid idea that I even turn around and write on the blackboard, "What is wrong with this stupid idea?"

The correct answer is: "Because it leads, as it is designed to lead, to higher prices. And no theory of economics has ever postulated that economic vitality can be achieved by having prices go higher. Bad things happen when prices go higher! It is called inflation!"

Well, up until a couple of years ago, this was correct. It was only until the arrival of Ben Bernanke, an insane, horrible little man from a horribly hot place, that anyone dared to advance a theory that inflation was good, and that we ought to actually try and reach some target of inflation! By printing money! Trying to create price inflation through the time-honored tradition of printing money! This is insane!

But we were talking about inflation. I walk over to the video equipment and rewind back to where I abruptly changed the subject, and then I relive that whole moment, and I am instantly galvanized. "Yes!" I scream. "Wake up people! You will not like inflation! Nobody likes inflation! It means that your standard of living is going to take a nosedive unless your income also rises as fast as prices, and I laugh like a demented hyena – owwwwww, ow ow owwwwwwww wow wow wow wow! – at the idea, as the aggregate ‘you’ in America is NOT going to have wages rise as fast as prices, and forgive me for my brutal honesty here, but I can state with some conviction that the majority of you are already so overpaid that the idea of paying you more is absolutely ludicrous. So if that sounds like you, then don’t be making plans for a higher income to offset the higher prices."

Especially now that so many people rely on government checks every month. They are soon going to be screeching, and their lobbyists are going to be screeching, and their relatives are going to be screeching, and editorials in the newspaper are going to be screeching, and all the Leftists are going to be screeching, and all the people who are going to be hit up for money by these people are going to be screeching, about how they are, pause for dramatic effect, suffering. Suffering! And you know what? They WILL be suffering! And why are they suffering? Because, and watch my lips, people, because their incomes will NOT be increasing as fast as prices, and they will suffer a falling standard of living!

And they do not want a falling standard of living! Nobody wants a falling standard of living! And why are they suffering a falling standard of living? Because prices went up, and they can only afford to buy less stuff, because their incomes didn’t go up as fast and they simply RUN OUT OF MONEY!

So, tariffs make things cost more. I call this the TMTCM Principle. And here is Lou Dobbs, looking you right in the eye and telling you that your retired parents, and the sick, and the infirm, and everybody else in America who depends on a government check, and most everybody else, too, is going to suffer a fall in their standard of living. And every month all of us will still spend all of our money, but we will be able to buy less and less stuff. And this horrid little twerp is all for it, and recommends that exact course of action.

Import Tariffs: To Hell with Lou Dobbs

To hell with Lou Dobbs.

But Lou can count on the support of Charles Schumer, Leftist Loser Democrat in Congress, who is from New York, and is reported to be pushing for a 27.5% tariff on Chinese imports. I shake my head in weary resignation. I have made my feelings plain about the execrable Charles Schumer many times in the past, and about the New York ninnies who elected this laughable clown to Congress, so I will not expand on that theme. But it is not surprising to hear that this Schumer character is proposing such a stupid and horrible idea.

And now we have reached the end game of the stupid and the horrible, and you will notice how the phrase "stupid and horrible" keeps popping up, so you know it must be true. Here we have Congress and the Federal Reserve and the media and White House all trying to force prices higher while holding incomes low, which is the exact OPPOSITE of what government should want for the people! The exact, one hundred and eighty-degree opposite!

Stupid and horrible.


The Mogambo Guru
for the Daily Reckoning
February 2, 2004

— Mogambo Sez: To show you that there are poets amongst us, as we slop around in the fetid swamp of economics and are always disgusted at how it makes our feet stink, a friend sent me a little present last week, and the poetry was how she wrapped it. Her cryptic note was "The wrapping paper is real U.S currency – just practicing!" Fabulous! How clever!

Anybody who recognizes that the currency is being debased to the point where it is worthless enough to wrap presents with, and then actually does exactly that as a symbolic gesture, ought to be honored for her charming wit. To show you that I am just the kind of guy to do that, I bow deeply from the waist and chant "We’re not worthy! We’re not worthy!"

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 at:

The Writing On The Wall

We are surrounded by fraud. Immersed in it. Saturated by it. Swamped…drenched…it drips off our noses and our ears. We drown in it.

We enjoyed a phony boom, suffered through a mountebank of a bust…and are now in the midst of a real imposter of a recovery – there are still no jobs.

If payrolls had expanded the way they usually do following a recession, there would be 7.7 million more jobs on offer than there are today, says Stephen Roach. And the Washington Post tells us that a "record number of people are about to run out of unemployment benefits."

There are jobs available, adds the Detroit Free Press, but they are not the same quality jobs as those that were lost. While well-paying, skilled manufacturing jobs are disappearing, they are being replaced by ‘service sector’ employment – usually at lower rates. Addison provides some detail below…

Of course, there is nothing wrong with work in the service sector. But the best of the service jobs – in software development, for example – seem to be going to India. Continuing our research into the subcontinent, we picked up a copy of BusinessWeek magazine. GE Capital Services now has 16,000 workers in India, we discovered. IBM Global Services has 10,000. For Oracle, the count is 6,000.

"As hiring explodes in India," says BW, "the jobless rate among U.S. software engineers has more than doubled to 4.6% in 3 years."

China takes the manufacturing jobs. Now, India takes the best of the ‘service’ jobs. And just as China is depressing wages and prices in the manufacturing sector worldwide, so does India threaten high-tech salaries…as well as prices…in service industries. Per-capita income in India is less than $1.50 per day. Some five hundred million Indians live on less than $1 per day. There is plenty of room for businesses all over the world to cut costs by outsourcing to India.

How much outsourcing will affect the average American is unknown. Two hundred years ago, we note mischievously, the average American or European had a standard of living not very much superior to that of the average man in India or China. Would it be so unlike Nature to level out the playing field…before tilting it in the other direction?

Over to Addison with more news and insight:


Addison Wiggin in Paris…

– "The stock market entered January like the proverbial lion," our literary New York editor opined over the weekend, "and exited it like a lamb…a slightly crippled lamb." The Dow began to limp late in the month and despite ending all but even, fell 80 points the final week. The Nasdaq fell equally lame in the final week – losing 2.7% through Friday – but closed out the first month of the year with a respectable 3.1% gain.

– A strong opening month, market history buffs will note, often portends a strong market throughout for the year. Given these rather mixed numbers at the close of business January 30th, we Daily Reckoneers are, well, rather tepid about our expectations for the rest of the year.

– We kid…we’re actually rather dour. Particularly since the lingering doubts we had about the stock market at the end of last month greet us bright in early this month, too. Friday, we looked at the eerie parallels between a rising speculative market in 2003 and those of the bubble year 1999 – just four short years ago. "How soon people forget," we misquote Bambi Francisco from, who delved into the details on your behalf.

– Today, we remind you that the economy still lies prostrate in the balance…waiting breathlessly to learn which way the scales of economic uncertainty will tip. On the one hand, we’ve got a rising stock market, the concomitant "wealth effect," and a 4th-quarter GDP figure now in at a "disappointing" and "less-than-expected" – but still totally unbelievable – 4 percent. Quants, analysts, pundits, columnists, talking heads and other financial media ne’er-do-wells all seem to agree that the U.S. economy grew 3.1% for the year.

– The balance begins to sway a little toward the beautiful ‘r’ word…the word economists and politicians alike love to roll off their collective tongue: "recovery."

– On the other hand, we’ve got a slew of jobs that have still failed to materialize and 70% of the U.S. economy dependant on U.S. consumers going into debt in order to keep up with appearances. Nearly two and half million people have lost their jobs since 2001. And 375,000 of those collecting unemployment in January ran through all of their allotted federal subsidy – a fate now facing roughly 2 million more by June. The number of workers claiming "part-time employment for economic reasons" has been hovering dangerously close to 5 million for the last 4 months.

– And despite the widely held belief that new jobs are on the way, according to a report by the Bureau of Labor Statistics released last week, the average salary a U.S. worker can expect to pull down has dropped from $44,570 to $35,410 since 2001. Salaries down nearly 10k a year…in less than three…if that isn’t ‘deflation,’ we’re not sure we’ll recognize it when it comes. Our friend Greg Weldon adds this ominous statistic: "disposable income" collapsed in the 4th quarter from the tax-cut-boosted $160 billion reported in Q3 to a less-than-paltry $1.7 billion. That’s a 99% drop, nay collapse, in the amount of cash sloshing around in John Q.’s wallet.

– The balance sways at first, then snaps back toward "recession"…the dreaded ‘r’ word only we editors of the grizzly realist persuasion think is, if not sweet sounding, at least appropriate.

– Still, lacking any clear momentum on either side of the fulcrum, we wait. And wonder. What could tip the scales decidedly in either direction? Well, if we learned anything from last week’s word play in the FOMC press release, is not this market and economy more than a little jittery about the prospect of rising interest rates?

– "The last time interest rates were this low in the United States," writes Pirate Investor’s Porter Stansberry, "was the late 1950s. Back then the dollar’s value was still tied to gold. Money had a firm value. And people weren’t afraid to save it. In all, U.S. – consumer, corporate and government – savings totaled 12% of GDP. So, when someone wanted to borrow money, there was plenty of money available."

– "How much capital is available inside the United States economy?" the curious reader might want to ask.

– "Well," Stansberry replies, "in last year’s third quarter, U.S. corporations borrowed $49 billion. They didn’t save anything. The U.S. government – you know it didn’t save a penny. According to its own accountants, it is currently $43 trillion in the hole. Looking only at the government’s bills that were due in 2003, we should see a $300 billion deficit – the largest ever. The consumer is borrowing too – more than $700 billion in 2003. We’re all borrowing! All of us. Nobody is saving."

– "Back in 1959," Porter notes, "total borrowing came to about $56.8 billion inside an economy that produced $507 billion in GDP (debts were 11% of GDP). Our borrowing could easily by financed by our saving (12% of GDP), with some left over to lend to others. Not anymore. In 2003 alone, our borrowing came to $1.3 trillion. And we did not furnish this cash from our own coffers – in fact we didn’t save at all. Instead we borrowed from foreigners. And they’re not very reliable. Foreigners are sensitive to the falling value of our currency."

– What does all this debt – backed up by little savings – mean? The cozy answer is: rising interest rates, eventually. How soon is anyone’s guess. Porter suspects late March. (You can read Porter’s speculative musings on rising rates at the Daily Reckoning website:

Springtime – The Turning Point For Interest Rates

– Mortgage rates have already risen off multi-year lows. Will the Fed move to raise the overnight funds rate, too…in an election year? Given how quickly the dollar resumed weakening following the Fed’s press release, they may not have a choice…


Bill Bonner, back in London…

*** "Residential Investment" is said to account for nearly a third of GDP growth in the last quarter. Thus does the whole bogus recovery depend on artificially low interest rates, made possible thanks to the kindness of Chinese strangers (who buy U.S. bonds).

*** Last year, Japan spent $187 billion trying to keep the dollar up. In January, the total soared to $67 billion. We don’t know how long Japanese central bankers can remain delusional…but when the money or the delusions run out, dear reader, you don’t want to be holding dollars.

*** Gold rose on Friday. It now trades at slightly over $400. Close enough – buy!

*** As we noted on Friday, the cures offered by world improvers are usually phony…but so are the ailments they were meant to treat. For one generation, the world is running out of energy…for another, it seems to have too much. The world is overcrowded, say the chattering classes of the 1960s; now, there are not enough young people to support Social Security, they say when they get older! In one era, there are too many Jews…too many Hottentots…too many Papists or Holy Rollers; in the next, the problem is racism, sexism, or religious bias.

In almost every case, the ‘problem’ often goes away as soon as the next generation…to be replaced with the opposite problem…or one even more moronic or lethal.

Materialism is ruining the planet…Oh no! Or do we need to increase production in order to support poor people? The earth is over-heating…or is it cooling off? We don’t know, but let’s do something about it immediately.

Like a panicky crowd on the deck of a ferry, the whole human race threatens to capsize and sink…not because of any natural problems, but merely because it tends to go overboard with its worries du jour. *** This happy thought came to us while reading this week’s issue of the Economist. We turned first to the obituaries, naturally, for that is the only honest information in today’s media. When a man is dead, there is no mistaking it. Or lying about it. Or doing anything about it. You can lower rates, pass laws, and kick him all you want. The poor man still won’t move.

There on page 73 of the Economist is the death notice for Ernest Hendon, a man who died two weeks ago at the age of 96. Mr. Hendon was the subject of a study of syphilis. Beginning in 1932, a group of researchers decided to keep an eye on him, waiting for him to die so they could cut him up and see how the disease did him in. Instead, the subject had the rare pleasure of watching the watchers drop dead.

Pretending to treat his ailment, the health officials did nothing…but watch. Decades later, the courts pretended to correct the injustice by making lawyers rich. Hendon got a check for $37,500 and free health care for life as compensation for the wrong that apparently hadn’t been done him.

The charge leveled at the Tuskegee Syphilis Study and the public health services was pretense too: racism. Tuskegee is a Black institution, started by George Washington Carver more than a century ago. Many of the nurses who carried out the study were black.

They were not racists; they were opportunists…like the rest of us…taking advantage of an opportunity to make a little money, get their names in the paper, and maybe even learn something.

The Daily Reckoning