Der neueste Mogambu Guru - S. Schimpftiraden s. immer wieder herzerfrischend:-)

verfasst von kingsolomon, 26.02.2003, 17:30

-->When Demand Drops...
"...So there is no new real demand. There is more demand, but it, like the idiot fiat dollar bills that we call money, is as phony as, hmmm, is there a way to diss Bill Clinton here? Phony as everything about Bill Clinton. Therefore, as soon as the stimulus stops, the demand drops back to some natural lower natural level, since there was no extra real demand in the first place. Stimulus stops, then demand drops. Hey! That rhymes! And sorta catchy too! Continuing in that poetic mode, when demand drops, production stops. When production stops, employment flops. When employment flops, consumption plops. Flops mops plops tops plops plops plops. I can't stop myself! Plop plop plop!..."


The Mogambo Guru
 -          The Fed is baaAAaack! Last week was a glorious explosion of $10.4 billion in brand new credit. They bought up over a billion dollar's worth of government debt, too. Whereas the newspapers and the other talking heads are waxing apoplectic over Bush's proposed $307 billion federal spending deficit, here is the damned Fed creating almost TWICE as much and nobody makes a peep! Amazing!
The Treasury, with John Snow as the new Secretary, is anxious to show that he is as arrogant as the rest of the Bush administration, and is now a cool $22.7 billion over the limit, all of which was done in one stinking week. The Treasury has been adding debt to our bill at the rate of about $60 billion PER MONTH for the last year. This is PER MONTH, which you should note is somehow significant judging by my incessant use of all-capital letters bringing your attention to it. Sixty billion bucks per month times twelve months is a big pile of new debt every year. And who must pay this debt? The 110 million workers who are not, theoretically, directly employed by government. That comes to just about $6,500 more debt added to each of our private-sector burdens.
To add insult to injury, the Treasury also released $4.4 billion in actual cash in the week.
Speaking of cash, let me head off your angry e-mails in which you inform me, politely or not, but always with that snotty undertone of how I am a certified idiot, that withdrawals of cash are the result of people walking into a bank and asking for it. I have no problem with that. But with the government of the USA, like all governments everywhere, being the lying creeps that they are, and how they are always filling up their busy days with one slimy and underhanded scheme after another, necessitated by putting out the fires that have resulted from yesterdays' slimy and underhanded schemes, that I have no confidence at all, in numerical terms exactly zero point zero confidence, that the people taking that cash are all just doofus private citizens like me and you doing something legitimate, or not, with the money. All I will say with absolute confidence is that money left the banks in somebody's pocket, and it will soon be in somebody else's pocket. Hopefully mine, but the chances of that are almost zero, too.
Foreigners bought another $4.7 billion of US debt in the last week, too. That amount is almost the same as the $4.4 billion in new cash, so it is entirely possible that John Snow himself loaded that freshly-printed money into the trunk of his car, dropped it off at the embassies, and had them buy US debt with it.
Hell, it is just as possible as us paying Turkey fifteen billion dollars for the honor of protecting them from the Iraqi's! Don't you ever read a newspaper?
-          In response to the tsunami of money being created, mortgage rates dropped to their lowest level in the last couple of hundred years or so. The idea is that if mortgage rates continue to drop, then houses will continue to rise in price, and home-owners would then go in and re-finance their mortgages and thus afford to buy more stuff. And then when the economy needs another boost, they will just lower interest rates again, and the homeowners will trudge dutifully down to the bank and re-finance, so as to get another wallet-full of money to buy stuff.
Sorta makes you want to go out and buy a billion-dollar house, doesn't it? I mean, if I buy a billion-dollar house and it rises in value to two billion dollars in, oh, say, a month or so, then I can go and refinance the house and extract a billion dollar's worth of equity. And an extra billion dollars of spending money would go a long way towards getting me through the weekend in style.
And then next week, when that house rises another billion dollars in value, then I can just go back to the bank, refinance again, and get another billion! I love this stuff! How come nobody ever thought of this before?
-          The economic calamity, the words"complete and utter collapse" come to mind, that has long been predicted by Austrian economics is almost here. In fact, looking out the window I notice that it IS here. I quickly duck back down below the window to avoid being seen. I panic. Well, I am obviously using the word"here" to imply that that the noisome relatives from the loud side of the family have pulled up in their car in the driveway and are repeatedly honking the horn to announce their arrival. The part where those relatives are hogging the bathrooms, constantly underfoot, gorging on your groceries and wanting to be chauffeured around town, whining in unison"Are we there yet? Are we there yet? Are we there yet?" is still just the stuff of recurrent nightmares, meaning today, tomorrow and, seemingly, the rest of your life. That gives, I think, the appropriate flavor to the word"here."
I dryly note, in that pedantic, nasal drone with a slight affected European accent - Hungarian? German? - that Austrian economics was merely, and if you pronounce the word"merely" with an oily and sarcastic sneer you will provide invaluable non-verbal communication, the true distillation of the whole history of economics, which in itself is just the glorious win-win product of people acting in their own best interests. The Grand Unified Theory of Economics was coalesced neatly into one tight package and - plop! - deposited in the lap of the world. Unfortunately, it was all coming together at the time of the World Wars and the Federal Reserve of 1913 and the Roaring Twenties and all that newsreel-stuff that ended in the, and this is the nut of the matter, the Great Depression.
And since everybody in his right mind wants to end the suffering of the Great Depression, they immediately reject the inconvenient fact that it was caused by government, the banks, the Federal Reserve and the citizens all acting like bozos, happily whizzing and whirring around, having a wonderful time and shouting"Wheeeee"! And thus everyone involved was merely getting their just desserts, proving that the universe must, in the end, balance out in some divine yin-yang, scale-balancing, karma-leveling adjustment. But nooOOooo! We, meaning the elected weenies in charge, leap into the waiting arms of Keynes, a guy who proposed that the government could Do Something Wonderful and thus have something to crow about when they run for re-election. And that thing was to stimulate demand by having the budget go into deficit, and thus have the government spend, spend, spend! Now you know why everyone was shouting"Wheeeee!"
Note that, although the term is"stimulate demand", it actually does nothing of the sort. It IS demand, certainly. It is also AUGMENTED demand, it is ARTIFICIAL demand, it is NEW demand and it is certainly BIGGER demand, but it has not actually stimulated REAL demand, which is millions of people willingly buying and selling at a higher volume. Or frequency, maybe. Probably both. But the essential point, and trust me when I say that one day real soon I will be getting to the point of this long and relentlessly witless harangue, they both ended up at the same point; more buying and selling. The big difference is, here is the long-awaited point, that when you buy something YOU want, then THAT is real demand. Real, honest-to-goodness, textbook, bona fide, backbone of economics, essential component of the supply-demand curve upon which the whole structure of economics actually rests for crying out loud, demand. And because if you want it so badly that you are willing to pay good money for it, then there is a pretty good chance that someone else would want it, too, and that's the kind of information that tickles the ears of us entrepreneurs and money-grubbing capitalists and plain old business owners. And the supply of that demand, what with us entrepreneurs and capitalists and manufacturers and retailers and tax revenues cascading around the economy, creates further demand, as Say's Law says it must. And the competition causes prices to fall, and the money"saved" in buying a basket of goods is then used to buy MORE stuff than you could buy before! Employing more people, creating more demand, causing more supply, causing prices to fall blah blah blah. This is the Holy Grail of Economics; non-inflationary growth and rising standards of living for more and more people.
But, when the government spends money, and creates that glorious instant demand, the money is all spent on stuff that nobody in their right mind would spend money on. If they would spend money on that stuff, then trust me when I say that I am sure that it is already supplied in the marketplace, and with a supply that exactly meets demand at the price level. Which will soon be dropping, theoretically.
So there is no new real demand. There is more demand, but it, like the idiot fiat dollar bills that we call money, is as phony as, hmmm, is there a way to diss Bill Clinton here? Phony as everything about Bill Clinton.
Therefore, as soon as the stimulus stops, the demand drops back to some natural lower natural level, since there was no extra real demand in the first place. Stimulus stops, then demand drops. Hey! That rhymes! And sorta catchy too! Continuing in that poetic mode, when demand drops, production stops. When production stops, employment flops. When employment flops, consumption plops. Flops mops plops tops plops plops plops. I can't stop myself! Plop plop plop!
But as dismal as that sounds, and you really gotta be depressed when something that goes plop plop plop is dismal, and believe me when I tell you that the word"dismal" will not convey the half of it, the good news is that we are in a front-row seat to witness one of the truly apocalyptic episodes of human history as it unfolds. We all know how it will turn out at the end; the heroes marry the beautiful maidens, they all ride off on white horses amid the decimation and destruction on a grand scale, and out of the ashes the gold standard will be re-introduced and people and government will start acting like they had common sense, and a new golden age will be born. Which will last for, oh, about three generations beyond that, when the idiot electorate, who can always be counted on to prove that democracy does not always work and that is why the USA is, thankfully, a republic, again start electing another bunch of Big Government weenie politicians and start ruining everything. But it is the interim, that glorious interregnum between now and that happy day, the day-by-day shake-up, the newspaper headlines blaring out news of calamities of one sort or another, one after another, one way or another, apocalyptic revelations raining like lava from a thousand exploding volcanoes, that will be the real show. So that ought to be worth something right there! How exciting!
-          Consumer installment debt has started dropping. I know that you have heard that consumer spending is 70% of the economy. It is one of those things that we have heard so much, for so long, by so many people, that we figure that it must be true. And it almost is.
Actually, consumer spending is 100% of the economy, as only customers buy things. Just because the government buys a computer does not mean that the government is not a customer of the guy selling computers. Ands just because a plant buys a machine that makes the computers to sell to the government does not mean that the plant is not a customer of the guy selling machines that make computers. And just because a manufacturer buys gears and cams to make the machines that make the computers doesn't mean that the manufacturer isn't a customer of the guy who makes the gears and cams. And just because a foundry buys the ores to produce the metal that can be fabricated into the cams and gears that make the machines that make the computers doesn't mean that the foundry is not a customer of the suppliers of the ores. And just because, well, I'm going to end this stupid train of thought right here, since my attention span is so short that I am already wondering what in the hell I am even talking about and have started to think, instead, about cookies and how much I would like some right now. Ones with chocolate and nuts in them. Maybe some icing. So I will assign your homework as taking this stupid idea and continuing it back, step by step, to some guy in Tibet milking a yak.
I am aware, dimly, that when they say consumer spending is 70% of the economy they really mean private people, like you and me, buying stuff to consume. As in eat. As in cookies, which reminds me that oatmeal cookies are nice with coffee and I could use a break right about now.
-          The PPI for January came out, and sure enough there was the price inflation that excessive money creation always engenders. Producer Prices increased at the fastest pace since 1990. Wholesale prices jumped 1.6% The core PPI (ex food and energy), jumped 0.9%. Finished Goods were up 1.6%. Intermediate Materials up 1.3% and Crude Materials up an eye-opening 6.9%.
Let's concentrate on Finished Goods, which, checking the figures again was 1.6% for the month. Like Jethro Bodine of the Beverly Hillbillies, I now cipher for your edification. Let's see, I multiply 1.6% times twelve months, and the number that pops up is 19.2% a year. Now, let's multiply the 6.9% for Crude Materials by twelve months and we get, something must be wrong with my glasses, let me just wipe them off....Okay, it says Auuuggghhhh! Code blue! Code blue!
Now, before you rush to your computer and dash me off a note, relax. I am already aware that Greenspan and every yahoo that collects a government check considers 20% price inflation as tame, because they consider all price inflation to be tame, all the time. And I am acutely aware that higher producer prices do not mean that consumer prices will ever necessarily rise, as the New Era economic models are predicated on the brilliant idea that businesses can happily absorb monumental losses into perpetuity, and in fact the evidence will show that businesses will actually prosper by recording continual losses because investors love to buy the stocks of companies that lose money, and bankers love to loan new money to those companies that cannot hope to pay back previous loans. And even if they do, all you gotta do is look at a newspaper to note that a lot of debt is being bought at rates that are, in relation to rising price inflation and monetary inflation, insane. To paraphrase a schtick,"Rates so low they're insaaaaaannnnne!" I think I got a paper cut while desperately looking through my Economics 101 texts, trying to find the part where,"In response to higher inflation, bond buyers will bid UP the price of bonds, further decreasing their real, inflation-adjusted, yield." I can just see the graph in my head: along the bottom axis is"inflation rate, %" and the vertical axis is labeled"yield to bond holders, %" And the line clearly shows that as inflation soars to infinity, investors will demand a yield closer and closer to zero.
I mean, this is exactly the situation with bonds right now! So it HAS to be true, since I can reach out and literally touch it, so where is that dang-blang graph?
And, anyway, even if consumer prices do rise, then it will only be for those luxury non-essentials like food and energy, and since nobody needs those things anymore, therefore there is no inflation will not be tame, non-existent, nothing to ever worry about.
That is why when the idea of stagflation arises, there is always a chorus of hotshots all proclaiming that stagflation is NOT here, which never fails to soothe my ragged nerves and basic gloomy nature. Hmmm. Let's see. Do we have inflation? Check. Do we have stagnation in the economy? Check. Damn! Now I'm all gloomy again.
-          The trade deficit came in at a new record of $44.2 billion in December, widened beyond the yearly record that we set in 2002. Paul van Eeden, a guy who seems to know a lot about this economics stuff and is co-editor of the International Speculator, writes,"The problem with an expanding negative balance of payments is that never before in the history of the world has there been a large balance of payments deficit that was not followed by a recession to correct the imbalance. The magnitude of the ensuing recession is also in direct proportion to the size of the deficit. The problem is that the balance of payment deficit in the United States today is exceptionally large by any measure. On a nominal basis, it is the largest the world has ever seen."
Not content to sugar-coat the news, he blithely continues on, ignoring our obvious distress and evidenced by our gasping for breath,"The magnitude of our balance of payments deficit suggests that we are going to have a long and severe correction ahead of us. The influx of capital into the U.S., which lowered our borrowing costs and led to exorbitant capital expenditures, suggests that we are not merely looking at a recession, but a full-blown depression." Man, talk about a guy who got up on the wrong side of the bed, eh? But still not content to let us merely writhe around on the floor clutching our chests and screaming for a doctor, he goes on to say,"The U.S. economy is stumbling over a cliff, and it's going to take the dollar with it. The result will be slower, or negative, economic growth, collapsing stock and real estate markets, and spectacular bankruptcies." Well, bummer, huh?
So how does one make a few bucks with this priceless information? Mr Eeden supplies the answer: gold."The question should not be whether to own gold or not, but how to invest in gold and related assets." My personal suggestion as to how to invest is to sell everything else and buy it. Especially gold bullion. The powers-that-be can play all kinds of games with promises and warehouse receipts and assurances of it being in their vaults, yadda yadda yadda, but if all the gold actually disappeared into private hands, then you would see what the real world price of gold would be.
-          Consumer price inflation was up, but you would never know it by the bond market. Bill Bonner, your dashing and debonair editor here at the Daily Reckoning, writes,"Bonds are still near their recent highs. Commodity prices may signal inflation...but bond investors aren't worried about it. They're too busy trying to protect their capital from a bear market in stocks. The risk of inflation - whatever it is - seems slight compared to the risk of losing another 20% in equities this year."
That would certainly explain it.
But expressing the opinion of the Daily Reckoning staff, I assume, he reiterates what I have been saying for a long, long time,"So we hope the price of gold goes down again today, so we can get more something for less nothing than we got yesterday."
Buying on dips. What an idea! How come nobody every told me about buying on dips?
Addison Wiggin, showing off his talent for combining a marked literary bent and talent for satirical humor, pens the following immortal phrase, and please make careful note of the cleverly subtle reference to intestines and what it implies from the preceding clause,"Yesterday we pointed out the growing relationship between the record trade deficit and the 'mortgage bubble'...today, we notice another polyp growing on large intestine of the U.S. economy: wholesale price inflation and its effect on stock prices." Hahahaha! Man, this guy cracks me up!
-          There is a move afoot to boycott all things French, since the French don't want to play war. The reason given is that the French are cowards since they surrendered a lot in previous wars. Actually, the French surrendering so readily showed a lot of sense. In WWI and WWII, for instance, they had been given very bad advice on military issues, and the price of following that advice with continued resistance was inevitable annihilation.
And their failure in Vietnam was merely mirrored in our own failure there. And they have a long border, on a large continuous land mass, that literally makes it possible for any dirtbag from any nation between France and China to just walk there and kill somebody French.
And the notion that boycotting things French because, for decades, they had been cozy with genocidal Iraqi dictator Saddam Hussein, well! The United States has actively supported various loathsome genocidal dictators throughout most of our post-WWII history, and before that, too! What hypocrites we are!
But let's be careful about blaming somebody for taking bad advice. We have been taking the bad advice to buy stocks lo these last six years, and it has cost us. We have been taking the bad advice of not getting rid of the damnable Federal Reserve, and it has cost us plenty. We have been taking the bad advice that the role of government is to be a big nanny, and always-bigger, and it has cost us. We have been taking the bad advice that trade deficits do not matter, and it is costing us plenty. In fact, the whole economic system of the USA, and by extension the globe, has been taking very, very bad advice for decades and decades.
-          Let's consider the tax thing, and the pension thing, and the trade deficit thing, and the budget deficit thing, and the debt thing, and the mortgage thing, and all the other things that prey on the minds of those pondering things economic. And all at once! Since all money is connected to all other money, it must be nonsensical to consider just one part.
On the other hand, let's not. The sheer size and complexity makes it impossible to even think about. And when I attempt to even try such a thing it becomes so depressing that I end up eating something that is bad for me in a pathetic attempt to derive some momentary refuge from the gloom and despair. And, since we are on the subject, you may want to make note of the Voice of Experience that there is something about getting a cup of good coffee and a fancy iced donut that has a miraculously dissipating effect on the aforementioned gloom and despair.
But this brings up a casual conversation that I had with a guy, in a waiting room, who asked me what I do, and I told him that I only have hobbies these days, and the one that I like best is the one that does not involve me getting up off my fat lazy butt and doing anything or going anywhere, namely writing."Anything I might have read?" he asked. I told him that I write on the subject of macroeconomics, conveniently leaving off the reality of where I, in a manic flurry of furious scribbling and muttering to myself with an hysterical and lunatic incomprehensibility that defies analysis or even mediation by powerful psychoactive medications, make an idiot of myself every day. He says that he took a college course in economics way back when, and that the professor had told him that one should not take economics until one has had calculus.
I instantly left off trying to bounce a paper clip off the wall and into the trash can, and found myself kind of frozen in time and space, with the phrase"One should not take economics until one had had calculus" bouncing around, with a faint echo now that I think about it, in my brain. That idiotic remark so perfectly encapsulates the problems with the whole study of economics, and how university degree-granting programs in general so perfectly encapsulate the problems with most everything else.
First, you do not need, nor will you ever in a trillion years ever need, calculus to understand economics. You hardly need adding and subtracting, to be perfectly honest. The whole idea of actually being able to apply calculus to economics is actually pretty ridiculous, and relies on the fact that hardly anybody has taken calculus, so it sounds so sophisticated and deep. If you had taken calculus, then you know that the only two things that calculus does is to 1) find the length of a curved line, and 2) find the area contained under a curved line. Big deal. While calculus is very useful for many things, mostly for those things that have length or area, it is not truly applicable to everything. And it sure as hell is not a pre-requisite to learning about economics.
So how does one use the exact length of a curved line, or the area under a curved line, to deduce scientific principles about human beings who are buying and selling stuff? Do you think that you can utilize numbers, using the awe-inspiring precision of getting results accurate down to one ten-thousandth of a percent, or one ten-thousandth of a literal penny even, to make precise conclusions as to what will happen as regards people and money? In the future?
You do? Then you belong in government!
If you don't, then you agree, as you should, with me. For one thing, we have refreshments and they don't. And for another, I obviously don't believe such things, since merely the mention of the idea makes me laugh out loud, and not the good kind of laugh where it looks like I'm having a good time and everybody joins in the jolly fun and then the dog runs through the room and trips the butler who spills some drinks and then everybody laughs some more, but the bad kind of laugh where I am ridiculing and insulting, heaping scorn for suggesting the mere possibility of it being even remotely possible, calling down lightning bolts and divine retribution on the heretics in our midst and making a very loud, noisy, unpleasant scene until the manager finally comes over and he and some burly waiters, who smelled faintly of garlic for some reason, and some busboys escort me out, and who were not at all very polite about it, I might add as an aside.
The sorry fact is that economics is like most everything else; world-wide there is only a need for a dozen or so people with college degrees. Ditto the majority of everything taught by universities. But universities are in the money-making and pupil-processing and degree-conferring business, and so they get the government to require that everyone have a degree to be able to make a living at anything. And thus, while Eisenhower warned against the military-industrial complex, we need Bush to warn against the university-government complex.
But at least the villains in Eisenhower's day made profits. They employed factory workers and whole infrastructures of suppliers and vendors and subcontractors and retailers. Today, at best, the modern crop merely peddles idiotic advice on a non-profit basis. In the majority of cases, they get actual government checks, the worst of all worlds.
-          Well, I had made plans to go out and personally re-vitalize the economy by spending money, but my health insurance provider just announced another 12% increase in premiums, effective as soon as they can arrange to get a new invoice into my mailbox.
So, sorry, dudes. I can't help you out this time around. However, you will be happy to know that the insurance company and those associated with health care, in any capacity, will soon be rolling in more money. Go ask them to loan you a few bucks. The few that I can scrape up after paying my higher health insurance premiums is going to be needed for the higher price of gasoline, and food, and damn near everything else.
But I know that you are so brilliant that you have cleverly arranged your affairs so that you don't have to pay higher premiums, and your gasoline did not go up in price, and your food is cheaper, and you will thus be able to buy like the frenzied shop-o-holics we need so desperately right now. Thanks for doing your part.
-          Martin Weiss, in his latest newsletter, was quoting the Bureau of Labor Statistics, and Martin replies,"The politicians keep telling you that the economy is getting better, but the government's own agencies keep reporting facts that show it's getting worse! Don't these people have ANY shame?"
The answer to that plaintive and plainly rhetorical question, which I am going to answer anyway because I am a loudmouth know-it-all, is, in a word,"no." And the reason is that anybody who ever dared tell the public any bad news, no matter how truthful, ended up getting their lives ruined as a result. The government workers know this, because most of them have college degrees and they read things. Which reminds me of a Yogi Berra-ism,"It's amazing what you can learn just by reading." Anyway, a government minion will be perpetually blamed for"Instilling in the people a self-fulfilling prophecy of doom," or castigated with the ever-popular"Talking the economy down" if they dare to stand up and say"I am Spartacus!" Oops, sorry. I mean, they dare to stand up and say"Oops." When you look up"oops" in the Official Government Dictionary, you find that it comes from the Latin"oopus" which means,"We acted like idiots, and you acted like idiots for electing us in the first place. So it is the fault of the voters! Nyah nyah nyah!"
-          I keep reading about how Americans are saving more, at some higher rate of 4% or so. But I look and I cannot find the money. It is not showing up in the banks, which is where most savings end up. If it is being put into the stock market, then that is not saving. That is investing. And, if Americans were doing that, then their money has disappeared with the fall in share prices. Ergo, they haven't saved anything, even using this ridiculously expanded definition of"saving."
So I guess that it came from some derived statistics, such as the idea that income less expenditures must equal savings. Wrong-o!
If I took a re-fi on my house and was spending the money on cheap liquor and expensive women, or better yet expensive liquor and cheap women, then my expenditures would be up. Then, when I ran through all of that re-fi money, my expenditures would fall.
If my income did not change, then the statistics would then show that I was suddenly"saving" money. But the sad reality is that I am not saving a dime, nor was I ever saving anything. Ugh.
--- Mogambo Sez: The Pension Benefit Guaranty Corporation has gone belly-up. This is the cadre of government morons who thought that collecting a paltry $19 a year per employee would provide the wherewithal to bail out trillions of dollars in promised retirement benefits in the event that the businesses funding those pensions went bust.
And then I note that there is not much difference between the PBGC and all the other SIPC and FDIC things, and a whole long list of other acronyms that guarantee something. And which suddenly have about as much credibility as the PBGC.
And that brings me back to, predictably, gold bullion. You want an acronym? I'll give you one. GBIYHIOTF."Gold Bullion In Your Hand Is Your Only True Friend."


The Mogambo Guru Lives!
Richard Daughty is general partner and C.O.O. for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher 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.
<ul> ~ When demand drops</ul>

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• Der neueste Mogambu Guru - S. Schimpftiraden s. immer wieder herzerfrischend:-) - kingsolomon, 26.02.2003, 17:30