The People's Business
Mogambo on Monday! This week our hero lowers a bucket into his Bottomless Well of Anger and comes up with some choice words for the government’s "puerile posse of putzes"…including a few haute reserves for the Fed Chairman.
Greenspan dragged his filthy fat fanny to Capitol Hill again a week back, plunked himself down in the seat, adjusted the microphone, and with that patented Greenspan monotone lectured to the House about how the Congress has to finish killing the American economy from the fiscal side, as he is doing everything he can to destroy us from the monetary side, but the damn economy just won’t die.
The crux of his message was, get this, that he was no longer content to destroy retirees and the small savers of the country by forcing interest rates down below the rate of inflation, year after year after year, thereby encouraging more idiotic debt accumulation by over-extended borrowers, who are borrowing the money and credit that he so generously creates for them. So he is actively destroying the dollar, and now he wants Congress to destroy the Social Security and Medicare program by curtailing those benefits, too! Richard Benson of Specialty Finance Group encapsulated the whole thing with his essay entitled "The Federal Reserve’s Policy: Punish Savers and Rob the Retired."
But that’s not all. The Fed chairman also wants to come up with some new way to statistically massage more inflation out of price increases, so that the government can screw retirees out of more money and benefits. This is the natural expansion of the work done by the horrible Boskin Commission, who are the nasty lackey bozos who came up with the methodology of doing that to the CPI, namely turning raw numbers into lies. The ludicrously low inflation figures that Greenspan and that whole lying crew constantly refer to, that are now the butt of jokes, are the result of that Boskin bunch of lying creeps doing the dirty work for the Fed and Congress.
Boskin and his puerile posse of putzes invented the concept of adjusting prices for "quality" and the equally infamous "substitution effect." In short, if ordinary food is up 100%, but hay is still cheap, then you, trying to feed your family on your pathetic budget, will substitute hay for Oreo cookies. This is the infamous "substitution effect." And if hay has less cow manure in it than usual, then the "real" price of hay is lower because the quality has gone up!
And therefore, and I hope you are still following this, because it is the essence of the Boskin system of lies, food is actually cheaper! They have completely eliminated inflation in food, although prices are up 100%! Now he wants to do the same to Social Security benefits! I was hoping that Ron Paul would leap over the dais, grab that little twerp Greenspan by the throat, screaming, "You filthy little bastard!" But he did not, even though that is what I would have done, and that is why Ron Paul is in Congress and I am not, I suppose.
And it’s not just the money!
I mean, the money is plenty, and by "plenty" I mean that if it was piled up in front of your house, it would literally blot out the sun and you would think it was nighttime and then you’d get undressed and ready for bed and people would laugh at you and say, "Hey! It’s only three o’clock in the afternoon, jerk!"
But think of the veritable army of faceless government employees who need empires of fawning underlings to administer the programs, and more empires to check up on the programs, and those that monitor the programs, and all their little sub-programs, and all the more government employees it takes to regulate all those people, and how they all need offices and desks and humongous salaries because they are now allowed to unionize, and like all unions have taken to gouging for more and more money and benefits as a full time job-on-the-job, and their defined-benefit retirement programs that are so richly generous that there is literally no equivalent in the private sector, and nothing that even comes close, to tell the truth.
And there is a large spillover into the private sector, as all that money from the programs and the salaries of the government employees gets spent and reverberates throughout the economy. And I will go farther than that and say, with a completely straight face so that you know that I am serious, that the combined local, state and federal governments ARE the damned U.S. economy. And Greenspan wants to rein in THAT ravenous beast? Hahahaha! The man IS a fool! Hahahaha!
If you don’t think that the government IS the economy, then listen to a guy named Steve Meyer, who wrote to the Wall Street Journal and told how his job paid $68,000. After paying state and federal taxes, including the Social Security/Medicare bite, he took home $32,878, which means, by simple arithmetic, that the governments took $35,324. Who’s in charge here?
One other guy who is probably in agreement with me, although I am pretty sure he is not, like me, confined in a straightjacket and screaming out obscenity-laden threats against the government and trying to jam a full clip of armor-piercing ammo into an assault rifle with his teeth, is Carroll Cox, editor of the Pioneer newspaper in Snowflake, Arizona, who writes: "In my county of Apache, Arizona, 2/3 of employed people with full-time jobs work for some level of government and education. In the neighboring county of Navajo, close to half of people are employed by government." So, this demonstrates that my original argument was correct: the government IS the economy.
And not only that, but Cox also bolsters my original complaint, that allowing government employees to unionize was a big, big, BIGGGG mistake, as there is no countervailing force against their rapacious greed, as he demonstrates when he writes, "We determined that the average government job (in these two counties) pays $7,000-$10,000 more annually than the average private sector job, not counting benefits." When you DO count benefits, which I do, since I have to pay for them out of my taxes, then government employees are ludicrously overpaid.
"Once created and funded, how many government programs have gone away?" asks Strategic Investment’s Dan Denning. Then he answers rightly: "Very few. These programs develop a constituency of bureaucrats whose paychecks depend on them, and/or taxpayers on the receiving end of the wealth distribution."
So cutting down the size of government, no matter how right it is, ain’t a-gonna happen. The morons in Congress, as all morons in all governments, see it as their sacred duty to spend as much as they can in exchange for the votes of the electorate, who are, in effect, grubby little prostitutes who trade their mindless vote for money and benefits. And government employees vote, too, and since there are so dang many of them, their voting block is a powerful constituency. So allowing government workers to unionize is a one-way ticket to economic hell.
In fact, it was the loathsome Clinton administration that actually said, in so many words, that passing more and more laws and spending more and more money was, and I quote, "the people’s business," which is a phrase that will reverberate in infamy, although for the nonce it is only reverberating around in my head, going "Bonk! Bonk! Bonk!" as it careens off one synapse and then another, until it finally smashes into that nerve center known as the Bottomless Well of Anger of the Mogambo.
But I will agree, and it really galls me to agree with Greenspan about anything, that reining in the out-of-control Social Security and Medicare monsters is necessary. But it is already too late to do that without enormous pain, I am sorry to say. It is too, too large, and too, too intertwined in the very fabric of the economy. Any attempt to enact changes, much less sweeping changes, will necessarily collapse the whole economy. That is why it is so necessary, so vitally crucial, that you NOT get into that filthy, bankrupting business in the first place.
And this is the same doofus Greenspan who just the day before made the extraordinary speech that Fannie Mae and Freddie Mac ought to be reined in, lest their monstrous book of mortgages, estimated at about three-fourths of all mortgages in the country, have some unexpected reversal, and thus caused systemic economic damage! Where in the hell has HE been the last decade or so, while that gigantic book of mortgages was being assembled?
This Sir Greenspan-the-Clueless is, as I understand it, completely unaware that his unprecedented creation of colossal amounts of money and credit worked their way through the economy, and ended up in mortgages and the other bubbles, including the bubble of massive and suffocating, pervasive government spending! Can he be so stupid? Can one ignorant old man be so preposterously inept?
The answer is, I am sorry to report, yes, as evidenced by his actually going before the House and telling them that THEY need to cut spending! And where did all the money come from that they are spending? From him! He creates oceans of money and credit, which goes out into the economy, driving up prices, and then a bunch of it ends up in the hands of Congress, who spend it, permanently increasing the size and expense of government, and then he has the gall to tell them that they should cut spending!
So the next time you are in Washington DC, please stop by the Federal Reserve and disregard the knot of security guards who are wrestling the Mogambo to the ground for daring to even show his face around there, after being warned what would happen the next time he did that. When all of them are busy teaching me a lesson that they hope I will not forget anytime soon, it will be easy for you to sneak into the Federal Reserve building, and you can inform Alan right to his face that he can make the government cut back on spending anytime he wants to!
All he has to do is stop creating the money and the credit necessary to fund the Congressional spending! That’s it! That’s all he has to do! Then, when the massive spending bills passed by these boneheads cause massive increased demand for borrowing, which must now come from real savings, versus a static supply of loanable savings, this will cause interest rates to spike through the roof!
In one stroke he can cancel government spending, and dissuade them from trying that crap in the future, too! All it takes is a guy who is not so gutless, so inept, so ignorant, to just get up and do it. And then, maybe, the next time he parks his fat worthless patootie in front of the microphone to testify before Congress, I will not be throwing Cheeze Doodles at him and screaming obscenities at the TV screen…and that will make my wife happy, too.
The Mogambo Guru,
for The Daily Reckoning
March 8, 2004
Mogambo Sez: Oil is bumping up against $37 a barrel, which seems like a lot. But it is not, in the grand scheme of things, and in a very short time you will long for the halcyon days when oil was "only" $37 a barrel.
And you will spend your future sighing with weary resignation as you huddle in your cold hovel and consider the unbelievable and unbearable price of all commodities, which will get so expensive that your raggedy children will laugh at you in disbelief for reminiscing about the "old days" when bread was less than $10 a loaf.
This is the sorry fate of any nation of morons, like us, that pursues a policy of inflation.
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.
"It’s completely natural," we explained to the reporter from "20 Minutes" on Friday, "people try to improve their living standards in the easiest way possible. But it’s unnatural when they can print the world’s money whenever they need some spending cash. Then, it is too easy. People begin to think you can get rich by not saving…or by borrowing and never paying back. It is dangerous; you almost can’t resist slitting your own throat."
We had been asked to condense the theme of our book (recently a best-seller in France) into a sentence or two, for a broad audience. "20 Minutes" is a newspaper read by thousands of people on the metro in Paris every morning.
"Americans were on top of the world after WWII," we continued. "Gradually, they lost the habits that had made them rich…they became less thrifty and more immodest. Over 5 decades, my countrymen switched from making things to buying things, from saving money to spending it, and from lending money to the rest of the world to borrowing from it. The economy gradually changed from production to consumption, from manufacturing to retailing, from GM to Wal-Mart. And Wall Street mutated, too…from investing in industries, to investing in speculative finance."
"But the latest GDP numbers show the U.S. economy doing very well," protested the reporter.
"Ah…but there are different kinds of economies," we replied. "There’s the kind of economy that makes people wealthy – in which people make things and sell them at a profit. And there’s the economy that helps rich people get rid of their money…a consumption-led economy, with few factories, but plenty of credit and shopping malls.
"Unfortunately, most economists can’t tell the difference. And the GDP numbers make no distinction between a productive, wealth-creating economy and a declining, wealth-consuming one. GDP only measures activity. It is a bit like taking the temperature of a shooting victim; you mightn’t spot the problem until the body cools."
"Every day, the lifeblood of the U.S. economy dribbles overseas," we went on. "Profits, jobs, revenues…all flow towards lower-cost production centers. Today’s [Friday’s] job report out of the federal government, for example, shows about 100,000 fewer jobs than economists expected. Where are the jobs that should have been created by this stage of the ‘recovery?’ No one knows. All they can think of is the novel idea that productivity and innovation [see more below] have now made labor unnecessary – just as they said the New Era made savings unnecessary. But is all fraud and chutzpah…"
The Feds try to rescue the situation; they attach jumper cables of credit…stand back…and give the body a jolt. The poor schmuck jumps from the table, refinances his houses, and falls again in a heap. But the juice ends up stimulating economies in China, Malaysia and India! That’s where they make the things Americans want to buy.
Thank God for Zembei Mizoguchi. The VP of the Japanese Ministry of Finance keeps the patient on life-support. He spent $250 billion of Japanese taxpayers’ money last year…buying U.S. debt. This year, he may spend $270 billion.
As long as the money pumps back into the U.S. economy,
Americans’ home prices rise…and they borrow and spend happily. No one, neither Republican nor Democrat, high nor low, drunk nor sober, seems to notice that the patient is bleeding to death.
Over to Eric for more news…
Eric Fry in the heart of the beast, NYC…
– "Guilty as charged!"…Friday morning, the Labor Department’s unemployment report indicted the "Greenspan recovery" on 21,000 counts of feeble job growth. The most serious charges were as follows:
a) Pathetic payroll growth of 21,000, which fell woefully short of Wall Street’s expectation that 130,000 new jobs would show up in February.
b) The net new jobs number was a mere 279,000 jobs LESS than the White House’s projection that payrolls would grow by 300,000 per month for 2004.
c) January’s payroll gain was revised down to 97,000 from 112,000…76,000 of which were a seasonally adjusted mirage.
d) The average duration of unemployment rose to 20.3 weeks, the highest in 20 years.
e) The manufacturing sector lost jobs for the 43rd straight month.
So you see, acquittal was simply not an option.
– The Greenspan recovery has been producing many statistically pleasing data points, like booming GDP growth, rising consumer sentiment and strengthening surveys from the Institute for Supply Management. Unfortunately, the most important data point, job growth, continues to disappoint.
– Payrolls have risen for six months in a row, but job growth has been tepid, averaging only 61,000 a month, and February’s numbers were downright awful. "This is another terribly dreary number," said Bill Cheney, chief economist for John Hancock Financial. "Yuck," said Joshua Shapiro, chief economist for MFR.
– The financial markets rendered their verdicts immediately: The dollar plummeted 1.5% to $1.237 per euro, while gold soared $8.20 to $401.25 an ounce and bonds yields tumbled to their lowest levels since July. Like a hungry vulture, the bond market feasted on the carrion of the nation’s labor market, until the yield on the 10-year Treasury bond fell to 3.85%.
– The jobs report was even weaker than the Daily Reckoning’s Paris office had predicted earlier in the week, implying that the economy is weaker than most folks had believed. As Addison pointed out midweek, the jobs that should be showing up inside the 50 states are, instead, cropping up in distant lands like China and India.
– "Aren’t jobs showing up in India, at lower wage rates?" he asked. "Won’t any new jobs in the U.S. have to be competitive with those wages? Effectively mutating the ‘jobless recovery’ into the ‘wageless recovery’?" We suspect that we have not yet seen our last "surprisingly weak" employment reports.
– Meanwhile, as investors rendered their collective verdict about the Greenspan recovery, a different sort of courtroom drama was unfolding: Martha Stewart was convicted Friday of obstructing justice and lying to the government about her well-timed sale of Imclone stock. The shocking verdict could mean that the homemaking maven will soon be scattering doilies around a prison cell. Predictably, Stewart issued a statement maintaining her innocence and promising an appeal.
– But holders of Martha Stewart Living (MSO) shares are not waiting around for the next trial. After Martha’s conviction became public, MSO stock tumbled like a share of Imclone, ending Friday’s session down 22% at $10.86. Ahead of the verdict, hopeful speculators and die-hard Martha fans had bid the stock up 16% to $16.27. Obviously, Ms. Stewart’s convictions put her media empire in jeopardy. For one thing, the nationwide market for 400-count percale prison dungarees simply isn’t nearly large enough to power a lucrative "Martha Stewart" brand extension.
– Meanwhile, the rest of the stock market was relatively quiet. The Dow gained 7 points to 10,595 and the Nasdaq Composite slipped 7 points to 2,047. For the week, the Dow eked out a 12-point gain, while the Nasdaq added 0.8% to break its six-week losing streak.
– But the weight of evidence continues to point to lower stock prices, lower dollar values…and a higher gold price.
Bill Bonner, back in Paris…
*** When we are in need of a laugh we turn to the editorial pages. We count especially on NYTimes columnist Thomas Friedman. The man is all at once the Three Stooges of intellectualism…picking up ideas as if they were 2 x 4s…clumsily whacking everyone and everything, poking himself in the eyes, bopping himself on the head…nyuk, nyuk, nyuk…
After doing heavy slapstick in Iraq for several weeks – describing America’s fighting men as if they were the Peace Corps, "nurturing" a model democracy for the desert tribes, he’s slacked off his cheerleading for nation-building and made his way to India. There, he discovered outsourcing and found that he likes it. He’s not worried about the loss of jobs because our secret, says he, has nothing to do with savings, capital machinery, nor even making things…instead it is that "America allows you to explore your own mind." The quotation is not from Friedman himself, but from an Indian information worker who was trained in Oklahoma and Virginia, but now works in Bangalore.
What do Americans find when they explore their own minds? They find things such as Post-It Notes…and Starbucks…and Wal-Mart…and outsourcing! Americans invented outsourcing, so it must be a good idea, of course.
Friedman uses the following example, still quoting his Indian source, to show how innovative America is…and how outsourcing is no threat to our innovating genius:
"I just read about a guy in America who lost his job to India and he made a T-shirt that said, ‘I lost my job to India and all I got was this (lousy) T-shirt.’ And he made all kinds of money."
Ha, ha, ha…what a clever innovation! Found, no doubt, in some dusty attic of his own mind. What will he find in there next?
*** But what’s this? Foreigners can peek into their minds too…Here’s a little item from Tobin Smith:
"In the Beginning (two years ago) there was Wi-Fi, and it
was Good. Wi-Fi provides ‘hot spots’ where anyone can piggyback onto an already established broadband connection and hop on the Net wirelessly.
"But coverage doesn’t extend far beyond the doors of your local Starbucks or hotel. And while Wi-Fi is cheap, it’s also low-powered.
"Now comes WiMax, and it is Better. It is also already a total WAY OF LIFE in Seoul, San Paulo, Antwerp, Shanghai and Hydrobad.
"It’s the U.S., for once, that’s playing catch-up here."
Looks like others can innovate, too.
[Ed note. One of the more successful companies presenting their wares at the quatro-annual Supper Club meetings is a company on the leading edge of Wi-Fi hotel room connections in the U.S. and Canada. The company is not yet public. If you are interested in the deals currently under consideration by the group, please contact John Wilkinson at: at 410-454-0416 or 800-251-1537, or e-mail him at email@example.com… You can tell him we sent you.]
*** Taking an opposite but equally moronic point of view from Friedman, the Senate voted to try to put a stop to outsourcing – at least where it involved public money. The legislation rose up after Gregory Mankiw, Chairman of the Council of Economic Advisors, said publicly that losing jobs was not a problem. Press reports tell us that Mankiw later "apologized" for his remark. It was not clear to whom he was apologizing…or for what.
*** We recall that in the final years of the Japanese miracle, any news at all was taken as a reason for stock prices to go up – even an earthquake in downtown Tokyo.
Now comes our friend Gregor with this observation from CNBC:
"Reasons for the market to rebound from the sorry job report, were:
1) Lower interest rates
2) Short covering
Then came this real gem:
3) The weaker dollar!"
The dollar fell on the news. Bonds rose. Stocks fell…then rose…and ended up about where they started.
*** Gold rose above our target buying price of $400 on Friday. Did you buy, dear reader? Friend Trey Reik offers this perspective:
"Gold fell from an intraday high of $416.80 on February 18 to an intraday low of $387.95 on March 3. While people buy gold and gold shares for many reasons, there has clearly been a large contingent of ‘investors’ who have played the ‘dollar carry trade,’ shorting U.S. dollars and buying Euros, commodities of all sorts and gold and gold shares. To these folks, there is little difference between gold and the Euro, they are simply anti-dollar bets.
"We believe strongly that when the knee-jerk ‘euro-down-sell-gold’ dust settles, inquiring minds will conclude Euro debasement is bullish for gold, not bearish! Indeed, we believe events of the week of February 23 represent the starting gun of gold’s appreciation versus all fiat paper, as opposed to versus the dollar exclusively. This marks the beginning of the real bull market for gold."
*** Finally, we noticed an error in our essay from Friday. Jean de Mayol was decorated for his actions in WWI. For his WWII service, he was prosecuted.