The Daily Reckoning - Weep For America (Mogambo Guru)

verfasst von Firmian, 09.12.2003, 22:09

-->Weep For America

The Daily Reckoning

Paris, France

Monday, 8 December 2003


---------------------

*** Dollar hits a new low. Gold hits a new high.

*** Game of 'make believe'... let's make believe G.W. Bush
is a conservative and other sordid illusions...

*** Stocks off... employment disappoints... how can ordinary
people protect themselves? And more!

---------------------

The dollar hit a new low against the euro last week. Gold
hit a new 7-year high.

There will come a time when foreign central banks will stop
buying U.S. treasuries. Not long after, merchants, cab
drivers, and even moneychangers will be reluctant to take
dollars.

"Don't you have any euros?" they will ask.

They won't want to take dollars because they will know the
dollar is falling. By the time they get to trade the dollar
for more stable money... it will have lost value.

Besides, when a currency loses value, people tend to
despise it. Money represents the power of the nation that
issues it. Foreigners will love to see the dollar fall;
they will have their little revenge against what they see
as America's arrogance. They will feel superior.

The dollar is falling. But its progress towards
worthlessness is being temporarily held up by a delightful
game of 'make believe' with the Chinese.

Americans mortgage their houses and run up credit card
bills so they can buy Chinese-made goods and make believe
that they are wealthy... while the Chinese make believe that
they can grow an economy by selling things to people who
can't pay for them.

On both sides of the Pacific, the 'make believe' is aided
and abetted by politics. The Chinese government desperately
needs to create jobs for its millions of workers - so it
lends money to Americans knowing that the money may never
be repaid. The Bush Administration desperately needs to
maintain the illusion of prosperity through the next
election, so it, too, spends money it doesn't have... and
lures voters to do the same, with E-Z credit terms from the
Fed.

Not since WWII, reports the Boston Globe, has government
spent so much per capita. Upon the imposter Bush, federal
government spending is up 16% in the last 2 years. During
the liberal Clinton years, by contrast, spending rose at a
3.5% annual rate and the government ran a surplus. Well, it
wasn't really a surplus; they simply borrowed the money
from Social Security and put an I.O.U. in the vault. But
now, the I.O.U.s are all over the place. Currently, the
Feds are spending over $1 billion more per day than they
take in. Medicare. War. Programs for the needy. Programs
for the rich. Spending for everyone.

Tommy Franks is probably right. We must be approaching the
end of the American Republic. The voters play make believe
as well as anyone. They will believe anything and go along
with anything - as long as they're able to make the monthly
payments. Bush is a 'conservative.' Sure, why not? Borrow
and grow rich... yeah! Spend your way to prosperity? You
bet! Build democracies in the desert... uh huh. Free trade
and tariffs! Liberty via constant surveillance! Tax cuts
and higher government spending, forever!

In the meantime, here's Addison with more news:

-------------

Addison Wiggin, trying to gain a little perspective...

- Investors were in a bit of a funk on Friday. The jobless
rate fell below 6%... but not as far below as people had
hoped.

-"Mr. Economy is straying from the script that Wall Street
has written for him," wrote our man on the scene in
Manhattan, Mr. Eric Fry, over the weekend."And investors
are not thrilled with his ad-libbing. According to the
original script, job growth would boom in November and
Intel would announce a surprisingly large jump in quarterly
revenues.

"But Mr. Economy seems to have forgotten his lines; job
growth fizzled and Intel's sales fell short of
expectations. U.S. payrolls increased by only 57,000 in
November, well shy of the 150,000 or so that most Wall
Street economists had predicted."

- Despite last week's widely hailed report from the
Institute of Supply Managers, suggesting that factory
output was at 20-year highs, the manufacturing sector has
shed jobs for 40 months straight. Not a great report. Over
the past four months, 328,000 net jobs have been created.
At this stage in a 'recovery' cycle, Morgan Stanley's
Stephen Roach wrote late in the week, we're 7 million jobs
short.

- Never before have economists seen such a jobless
'recovery.' Even with the always-helpful seasonal
adjustments, there are now 2.26 million fewer jobs than in
January 2001, when the current administration grabbed power
by the seat of the pants. (Not that we believe the collapse
of the asset bubble should be pinned on the occupant of the
Oval Office, as it shouldn't, but the spin doctors may want
to check their premises when crowing about a recovery.)

- Trouble is, the numbers are probably much worse than they
appear. The devil, as they say, is in the details. Of
course, the Bureau of Labor Statistics is trying to get an
accurate count on the number of people out of work. They
are the government, after all... they're here to help. But
in January of 2003, they began using"data [that] reflects
revised 'population controls' used in the household
survey."

- The results of the revised data are rather disturbing.
While under"Table A-12. Alternative measures of labor
underutilization," the"total unemployed, as a percent of
the civilian labor force (official unemployment rate)
dropped to 5.9%, the"Total unemployed, plus discouraged
workers, plus all other marginally attached workers, as a
percent of the civilian labor force plus all marginally
attached workers," stayed the same at 6.6%.

- Take another step and include the"Total unemployed, plus
all marginally attached workers, plus total employed part
time for economic reasons, as a percent of the civilian
labor force plus all marginally attached workers," and the
unemployment rate actually jumped last month from 9.5 to
9.7%.

- What are marginally attached workers? The Bureau of Labor
Statistics (BLS) explains:"Marginally attached workers are
persons who currently are neither working nor looking for
work but indicate that they want and are available for a
job and have looked for work sometime in the recent past."

-"Discouraged workers" actually comprise a subset of the
"marginally attached" - those unemployed persons who have
given a job-market related reason for not looking anymore.
For example:"I used to be a highly paid, well-respected
computer programmer; I'm not sure I can bring myself to
putting on the blue and yellow uniform for 8-hour shifts,
no matter how good the burgers are."

- Optimists like to explain away the unreasonably low
"official" unemployment rate by noting the rising number of
self-employed and new business start-ups. But under the
BLS's own vague descriptions of jobless types... it seems
the self-employed might rightly be called a"totally fed
up" subset of"I ain't going to wait around for the
government to tell me the economy's in full-blown recovery
before I get off my tuckus and find some way of putting
food on the table." The number of self-employed jumped
156,000 to 9.2 million last month, and was cited by Floyd
Norris at the NY Times as the primary reason the official
unemployment rate fell to 5.9 percent.

- The lumps must have been in tune with this last subset on
Friday as well. The Nasdaq fell for the third week in
three, losing 1.3% to 1,938. But the Dow Jones Industrial
Average added about 1% to 9,863. And the S&P 500 lost about
a percent to 1061.

-------------

Bill Bonner, back in Paris...

*** Where did the jobs go? We keep explaining: Americans
exported their own jobs overseas. Buying products from
India and China, they created employment booms in those
countries, not at home. This would not have been possible
in an era of honest money. American consumers would have
run out of spending power long ago. Currently, the trade
balance is $500 billion out of whack. Only the Dollar
Standard system - which gives almost infinite credit where
it is not due - could tolerate such a grotesque imbalance.

Economists, politicians, and the lumpen have two responses
to the problem - both of them idiotic. They either want to
put up some barrier to keep the exports out... or, they
imagine that the whole phenomenon of migrating jobs is no
problem at all."We have the most dynamic economy in the
world," they say, as if those words had some sort of magic
protection against economic disaster.

More on the jobs situation....as it occurs to us...

*** M-3 is falling. Uh oh... drops in M3 typical accompany
nasty setbacks in the stock market and the economy....

No one knows exactly why the money supply would be
contracting. Maybe it is a function of fewer private
inflows from abroad. Except for the central banks,
investors are shunning dollar assets.

*** How can ordinary people protect themselves from a
decline in the dollar? Well... they probably don't see why
they should. Ordinary people in America have no assets.
They have an overpriced house... not much more. And even
that they have mortgaged.

If they had financial assets, they should transfer them
into euros... or gold. But without financial assets, there
is little they can do.

However, since they tend to owe money rather than be owed
it, they will benefit from the falling dollar. In real
terms, their debt loads decline. That is true of the whole
nation. America is deeply in debt to foreigners. But the
debt is denominated in dollars. Every 10% decline in the
dollar is 10% less Americans have to pay.

Oh thank God for the reserve currency status of the dollar!
It ruins America by presenting a temptation too great to
resist. But it will save her, too - by allowing her to
stiff her creditors.

---------------------

The Daily Reckoning PRESENTS: The inevitable wages of
America's staggering macroeconomic sins: the death of the
Dollar Standard System.


WEEP FOR AMERICA
By the Mogambo Guru

GDP went up by 8%? Big deal! I laugh at anyone who thinks
this is good news. It is not. Eight percent of a ten-
trillion dollar GDP is $800 billion dollars. More than that
has been borrowed and spent in the last year by the federal
government alone. And when you add in all the other debt
that has been assumed in the last year, a lousy $800
billion in GDP is nothing!

And Richard Benson of Specialty Finance Group is one of
those guys who is, apparently, not being driven insane by
the staggering macroeconomic sins that have been committed
over the last, oh, let's say, sixty years or so. Instead of
gobbling down handfuls of tranquilizers and laboring under
the strain of constantly lugging around caches of weapons
and ammo from room to room, ceaselessly checking and re-
checking perimeter defenses, and all the while muttering to
himself about vast conspiracies, he is able to calmly
rattle off a litany of relevant statistics known around
these parts as Numbers That Destroyed The Tranquility Of
The Mogambo, And Turned Him Into Some Kind Of Trigger-Happy
Paranoid Whacko.

For instance, the current market price of stocks is $10
trillion, down from the peak of $17 trillion, indicating
that you need a 70% gain just to break even. Man, it makes
you wonder how in the hell"buy and hold" ever got to be
popular!

Benson also writes that"Credit market borrowings are
approaching a pay-off balance of $34 trillion. With the
U.S. Treasury running $500 billion deficits a year and the
single family mortgage market still growing at a rate of
over $600 billion a year."

My eyes are glazing over, and if you look closely you can
detect a small trickle of spittle at the corner of my
mouth, which seems to be ominously tinged with blood.

Benson goes on:"In our economy, the vast majority of
financial assets are nothing more than the ownership of
someone else's liabilities. The current total market price
of financial assets (liabilities) is certainly over $47
trillion, or four times GDP. The cash flows from our $11.8
trillion economy will not support payments on this level of
liabilities."

Since interest rates are surely about as low as they can
go, opines Benson, then the price of bonds is also surely
about as high as, and maybe this is just me reading things
into his words that he never meant to say, they will ever
be again for as long as you are alive, or your children,
which means that if you are buying bonds, then for the rest
of your life you will never again see prices this high, and
you will forever curse yourself for having bought them, and
your children will soon find out that you squandered their
inheritance, and THEY will also live their whole lives in
squalor and never see debt prices this high again, and so
they will spend the rest of their miserable lives also
cursing you, because maybe they could have been spoiled
little rich brats who inherited a fortune from you, but
nooOOOOoooo, they get a fistful of worthless bonds, which
you seemed to have bought at the exact high.

The Fed is holding down interest rates on short maturities
to less than 1%, making it painful to hold cash. Therefore,
the impetus to get cash"working" has led to a liquidity-
driven rush in stock prices, so that P/E levels are, to use
Benson's phrase, up to"1929 levels." And as for what the
phrase"1929 levels" means, he explains:"This has
propelled stock prices to inflate to extraordinary levels
given all logical means of measuring value."

Benson and I agree that all of this means the dollar will
lose another 30% in value, which I also say would seem to
indicate that gold must also go up by 30% in terms of
dollars. The only way that this would NOT happen is if
foreigners, whose currencies are appreciating against ours,
decide that the price of gold is too high, and everybody
decides to sell their gold holdings, driving the price down
in their local currencies. Only thus, and I love it when I
use the word"thus" for some reason, would gold not go up
in price, in dollars, by at least 30%.

Getting beyond that, I think that a 30% devaluation in the
purchasing power of the dollar is entirely achievable, if
that is the term that one uses to describe such a
catastrophe, and I have a hard time conceiving that all
foreigners would suddenly decide against owning gold and
instead elect to invest in dollars, especially when
considering the economic ramifications of what is happening
today.

Fortunately, I know that you will proudly stand with me,
linking our arms in solidarity, and together we can loudly
express our hope that we can continue to count on OPEC and
all the other petroleum exporters, who are willing to not
raise their price of oil when the price and value of a
dollar falls. Then we fall to our knees and say"Thank you!
Thank you! Thank you!" Because man, oh man! A thirty
percent increase in the price of crude oil, which would
only exactly offset the fall in the purchasing power of the
dollar, puts it at $40 per barrel! So what does that do to
the price of, you know, a gallon of gas at the pump, huh?

All this is inflationary, which is The Thing That Is To Be
Feared, according to that loudmouth Mogambo, which is me.
As Mr. Benson says,"Beef prices are at a 24-year high and
insurance, education, health care, property taxes, and many
other day to day expenses make the CPI a joke."

Furthermore, he exposes the fraud of"owner-equivalent
rent," which is keeping the official inflation statistics
artificially down."The CPI assumes every one rents, even
though 65% of households actually own their homes. Rising
home prices are not in the CPI but the declining cost of
renting a home is. (Rents are weak and many people are
opting to buy, rather than rent.) Housing is 22% of the
CPI." So, more than a fifth of the CPI does not reflect a
dime's worth of the gigantic double-digit explosion in
housing prices. Fabulous.

He goes on to say,"The Federal Reserve wants inflation
because only the rising prices of goods will help companies
service their massive debt loads, and only rapidly rising
wages and salaries will allow individuals to service their
record debt loads as interest rates rise and inflation
kicks in."

Abruptly, and this is the jarring part that made the ice
cubes tinkle in my glass as my hand involuntarily shook at
the startling revelation, and I think I spilled some in
this keyboard here, judging by the sizzling and popping and
that little shower of sparks, Mr. Benson zeroes in on the
necessity of"rapidly rising wages and salaries." Rising
prices is one thing, and that is bad enough, and I say this
as a guy who is finding that he is paying higher and higher
prices for damn near everything. But to have rising prices,
at the same time as wages and salaries are NOT rising, is
quite another, wouldn't you say? Well, whether or not you
say, I say.

But the massive debt load, the service for which we need
rising salaries, which we don't have, and won't have
anytime soon, wouldn't even be possible if there wasn't
someone silly enough to lend to us in the first place.
Enter Asia. The Economist magazine writes,"Some, such as
Peter Garber of Deutsche Bank, see Asia's official
purchases of dollars as part of a grand bargain: Asia
ploughs its savings into America, and America, in return,
remains open to the products of Asia's export industries.
But protectionist pressures rising in Congress raise
worries that America may fail to keep its side of the
bargain."

(Mogambo side note: America keep its side of a bargain?
Hahahaha! For example, ask any Indian who has ever signed a
treaty with the USA, and he will tell you we palefaces
speak with forked tongue, and our treaties are a"Heap big
pile of buffalo chips.")

But the real culprits aren't Asians in particular. It is
the Foreign Central Banks - particularly Asian Foreign
Central Banks - that are footing the bill."The private
foreign sector," writes Benson again,"realizes the only
reason the dollar hasn't crashed is because the Foreign
Central Banks are allowing speculators to take massive
dollar short positions, while the dollar is 'eased down' in
value."

Now, speaking for myself, if the foreign sector realizes
this, then who is the big dummy who is taking the other
side of the short position that is being taken by these
speculators? Who is so dumb is to take the wrong side of a
big bet that everybody sees coming?

Well, we are going to find out who, and pretty soon, too.
As the dollar comes tumbling down.


Regards,

The Mogambo Guru,
For the Daily Reckoning

--- Mogambo Sez: Nobody has ever argued that the government
deficit-spending and all the rest of the heroic, last-
ditch, pull-out-all-the-stops monetary excesses would not
make statistics of economic activity blip upward. The
argument is whether or not it will eventually destroy the
economy. I say it does. The rise in the price of gold says
it does. The decline in the dollar says it does. All of
recorded economic history says it does.

The Fed and the talking heads of America say it won't.

And it embarrasses me, the Mogambo, to have to be the one
who has to say it, because I am a guy who is so stupid
(audience shouts out"How stupid, Mogambo!") that
restaurants refuse to serve me because my profound
stupidity actually makes the food taste funny.

And now you know why I, too, weep for America, and why the
food I eat always tastes, you know, funny.

Thread gesperrt

 

gesamter Thread:

• The Daily Reckoning - Weep For America (Mogambo Guru) - Firmian, 09.12.2003, 22:09
  • Re: The Daily Reckoning - Da fehlt doch was!:) (owT) - JoBar, 09.12.2003, 22:13
  • Dt. Fassung stark gekürzt und um einen älteren Text ergänzt - Firmian, 09.12.2003, 22:17
    • Re: Dt. Fassung - aaahh da ist es ja schon teilweise:) Thanks (owT) - JoBar, 09.12.2003, 22:27