-->A Short History of Fantastical Government Incompetence
The Daily Reckoning
Paris, France
Monday, 7 July 2003
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*** Job picture, worse than we thought...But not in
China...
*** If the foreigners only knew...
*** Housing P/E dangerously high...too bad Americans went
short...Mogambo on Monday!...and more...
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American markets were closed for the 4th of July on Friday.
So we have no news from Eric or from New York.
But the dizzy world of money in the late Dollar Standard
period still spun around...throwing off bits and pieces as
it went...
The Labor Department took another look at April and May,
and lo...it discovered that more jobs had been lost than
previously thought. About 100,000 more.
What happened to those jobs?
"It's hard to tell anything from the figures," explained a
British investor who visited us this past weekend."They
report that sales are going up and everyone thinks it is a
good sign. But so many of those sales now go overseas. So,
I guess it is a good sign for the Chinese economy..."
"Microsoft Corporation is starting to shift U.S.-based jobs
to India," begins a Reuters report.
In the manufacturing sector, the trend is already well
developed...like the Irish during the potato famine, U.S.
jobs gather up their belongings and hope for a better life
overseas, 179,000 of them last month alone.
Don't worry. The U.S. still has its #1 export - the dollar.
As long as foreigners take it, this monetary epoch
continues.
But Fed policymakers are caught in a contradiction or an
oxymoronic lie. They must assure lenders and bondholders
that the dollar will hold its value...while assuring
consumers and borrowers that it won't. In order to keep the
Dollar Standard system going - in which people are
encouraged to spend beyond their means - the Fed must avoid
deflation at all costs. Japan could survive deflation
nicely, but in America, it would turn a whole generation
into paupers.
Total credit market debt in the U.S. was less than 130% of
GDP in the '50s. By the early '70s, when the Dollar Standard
system began, it was still less than 150%. Now it is
300%...or more than $31 trillion. If that debt were magnified
just a little bit, by deflation, the nation would be ruined.
[Ed note: How would deflation affect your investments? See
Mark Nestman's piece:"Surviving Deflation"
http://www.dailyreckoning.com/body_headline.cfm?id=3294 ]
Of course, the Fed assures the world that it will not
happen:"We'll run the printing presses night and day...if
we have to...until they turn red hot...until the steel
melts." These are not words that Fed governor Ben Bernanke
has used yet. But it is what he has meant to say.
And there's the rub. The American nation of debtors relies
upon nations of savers to lend back the money it spends.
The Chinese factory owner must take his profits and buy
U.S. bonds, or the curtain comes down on the whole Dollar
Standard spectacle. Otherwise, American consumers cannot
afford to spend...and if they don't buy his widgets, who
will?
And yet, why would he want to buy U.S. bonds, when the
custodians of the currency in which they are issued are
putting turbo chargers on their printing presses and
talking as if they had gone mad?
"If foreigners understood our policy is what I think it
is," said Ned Davis to Barron's,"that is, making cash
trash, why would they keep their $3 trillion [net
investment in dollar assets] in this country? At the point
they realize this, this nice decline in the dollar all of a
sudden becomes tremendously bad."
"A dollar crisis is only a matter of time," adds Marc
Faber.
So far, the big decline in the dollar has come in
comparison to the euro. Asian currencies have fought the
trend, either by aggressively trading their own currencies
for dollars - in order to keep the dollar high and their
own currencies low or, as the Chinese have done, fixing
their own money to the U.S. standard.
All over the world, no one wants the relative trade
disadvantage of a strong currency. Even the Swiss have
announced their intention to knock down the Swiss franc, if
necessary."We're ready to step in and intervene if the
strong franc hurts our exports," said the president of the
Swiss National Bank recently.
As his contribution to worldwide inflation, people expected
Wim Duisenberg to lower short-term euro rates. But Thursday
came and went with no rate cut by the ECB, which probably
means that the dollar will continue to decline against the
euro in the short run. In the long run, all paper
currencies will go down against gold.
"I suppose that hard assets, including precious metals,
commodities, real estate, art, etc. will appreciate not
only against the dollar but also against all currencies,"
Marc Faber explained."In fact...commodity prices have
already increased - in some cases, sharply - from their
lows in the 1998-2002 period."
A list of 20 commodities shows average gains of 77% since
the historic lows recorded in the late '90s/early '00s
period.
*** Two charts in this week's Barron's caught our eye. One
shows how mortgage debt has grown since 1982. After a 20-
year boom, householders in the land of the free are
shackled to the heaviest ball and chain of mortgage debt in
history. In 1982, the average person with a house owned
nearly 70% of it. As of the first quarter of this year, he
owns only 55%.
*** The other chart shows what the authors call 'Housing's
P/E,' which is described as multiplying"existing home
sales by average home prices" and then dividing by personal
disposable income. Thus measured, housing's P/E went from a
low of about 6 in '82 to a high of nearly 16 today.
Too bad the owners didn't hold onto to more of their own
homes. By mortgaging more and more of their homes, they
were effectively going short when house prices were rising.
And they are poorer for it.
Bill Bonner,
The Daily Reckoning
*** The Mogambo Guru lives!...more below...
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The Daily Reckoning PRESENTS: The Mogambo Guru takes on the
US government with disgust, and snotty undertones.
A SHORT HISTORY OF FANTASTICAL GOVERNMENT INCOMPETENCE
by The Mogambo Guru
I know you, ever wise and clever and well-educated person
that you are, have heard the age-old adage that Karl Marx
and that British guy Philip Guedalla were so fond of
saying:"history repeats itself." Personally, I like how
Mark Twain put it better, which is not to say that it
"repeats" itself, but that it does, in fact,"rhyme."
Well, I don't know if you'd call it repeating or rhyming or
ranting or raving or something else no one has thought of
yet, but whatever it is, there's been some serious"r"
usage in the history of fantastical government
incompetence, as we shall see.
William L Anderson, adjunct scholar of the Mises Institute
who also teaches economics at Frostburg State University,
writes on the Mises site:"For many years, economics has
been plagued with the 'lump of jobs' fallacy in which it is
believed there are only a limited amount of things to do
and once they are done, people have no means of employment.
The truth is the polar opposite; there literally are an
infinite number of things that must be done. As Alchian and
Allen have noted in their 1983 book Exchange and
Production, the elimination of some tasks due to improved
methods of productivity frees up scarce labor to do other
things. That, they point out, is how an economy grows, a
simple truth that seems to have escaped most of the
economics profession."
And I add, with that snotty undertone of disgust that has
made"Mogambo Guru" synonymous with"disgust with snotty
undertones," not only have they missed THAT completely, my
dear professor, but they have also ignored that,
increasingly and increasingly, these"infinite number of
things that must be done" have now all become government
jobs, or jobs related to dealing with other guys who are
doing THEIR government jobs, or supplying a good or service
that is now paid for by the government, as a result of the
government just doing its job, which it has perversely
described as"providing more goods and services to the
American people."
This reminds me of the time, years and years ago, when I
was consulting to a certain city on budget matters, and I
got into a private tangle with the local City Manager over
his use of the phrase, in written documents, as some kind
of superficial credo of all the underlings in city service,
that he was committed to the City providing to the citizens
the bounty of, and I quote,"Continually providing higher
levels of service." When I gently reminded him that this
endorses higher costs, and thus higher taxes and more
onerous deadweight loss on the community, and thus he was
actually working at odds to the interests of people who pay
the taxes, he was, umm, let me choose the perfect word
here, dumbfounded.
Well, to be honest, perhaps some of his
dumbfoundednessosity can be explained by the fact that it
was the also first time I had tried theatrical techniques
to make a presentation. In this landmark approach, which,
of course, I hope you will remember that I personally
invented, I sat in a chair opposite him and silently
fashioned a hangman's noose out of a length of rope.
Finishing tying the Hangman's Knot, I stood up, and hung a
sign that read"Taxpayer" around my neck. Without a word -
and I could see out of the corner of my eye that the City
Manager was spellbound by my inspired performance so far -
I climbed onto the chair, put the noose around my neck, and
jerked it tight. Standing on one foot, I kicked the other
spasmodically in simulated death throes, let my tongue loll
out of my mouth and my eyes roll back in my head. Oh, it
was a thrilling moment!
I milked the scene for as long as I could, and for almost a
full minute I stood there, the noose around my neck, my leg
convulsions finally subsiding to eerie stillness. You could
have heard the proverbial pin drop. Way off in the
distance, you could hear a wolf howling.
The finale was supposed to be where I do this fabulous
ghost thing, where the economically murdered taxpayers
curse the city manager and every municipal employee from
beyond the grave. But no sooner had I put on the ghost
costume, turned out the lights, and, sticking a flashlight
under my chin to look really spooky, the city manager, for
some reason I cannot fathom, lost it, and I was rudely
escorted out of his office by a surprisingly strong
secretary, who has to be seventy if she's a day, but real
wiry, if you know what I mean, and I think she works out,
too. And I had to endure his tirade about how it's his
office, and his city, and he takes directions from the City
Council, and if I have anything further to say, then I
should say it to them, and how he forbids me to ever set
foot in his office again, blah blah blah. I mostly forget
the details of what he said, but I do remember thinking at
the time that I had never heard the"F" word used so many
times in so short a span of time, so that was kind of cool.
Things immediately went downhill from there, and I usually
stop telling this story before we get to this last part,
and now that I read it, I realize the wisdom of why I do
that. But it is too late now, so forget about it, because
the point is not how to conduct an effective presentation,
but that the escalation of the government doing jobs that
they think need to be done is going to ruin us.
But that's not all, noooOOOooo siree indeed, not only is
the government permanently bent on doing more and more jobs
it thinks it needs to, which it doesn't, but it's also
always spending more and more time and money trying to keep
those poor people who still have non-government jobs from
doing them, or at least from doing them well and turning a
profit. Not to mention keeping the shady capitalists in
line by turning America into a vast, expensive bureaucracy
of micro-regulators, so that yet more people can work for
the government. Which came back to the same idea, but in a
different way.
Anyway, economist Paul Craig Roberts points out that"the
relatively well-educated but low-earning laborers of many
Asian countries gain an advantage to workers in this
country because of our legal situation." Well, duh, huh?
But he was setting us up for the gem of Infinite Wisdom
that he drops on us next. He writes:"The advantage (of
foreign workers) increases with the absence of tort lawyer
extortions and harassing and fining IRS, EPA, OSHA, EEOC
and other regulatory bureaucracies, whose budgets demand a
never-ending supply of wrongdoers to be penalized."
The Big Truth That Is Revealed Here is the phrase
"...regulatory bureaucracies, whose budgets demand a never-
ending supply of wrongdoers to be penalized." It makes me
slap myself on the forehead and say,"Ain't that the truth,
bro!" Didn't we just get through with another example of
the government finding things to do with its considerable
time? It seems to be one of the natural imperatives, like
seeking food and water, of government to grow bigger and
stronger.
Roberts sums it up by actually quoting me, the Mogambo,
when he says,"We cannot have big, intrusive government and
a healthy economy at the same time." Well, although he
quoted me almost verbatim, he did NOT give me credit for
originally saying this little gem of profundity. And I have
been saying it for a long time, too, so don't give me any
of that crap about how he didn't have the time to look it
up. And, to add insult to injury, he also completely
mangles my original quote!
To show you the depth of the man's vile plagiarism and
barbaric hacking to death of my memorable and timeless
witticisms, here is what I probably originally said, and I
remember it exactly:"You dim-witted American voters who
elect these Democrat and Republican weenies promising you
cradle-to-grave safety nets and outright support of
everybody, think, in your defective little pea-sized
brains, that you can, but you cannot, have a big,
intrusive, suffocating, expensive, re-distributionist,
megalithic, cruel, suppressing, fascist, bankrupting,
corrupt and repressive in the totalitarian sense
government, and have a healthy economy at the same freaking
time, you incredibly stupid morons!
"And just who in the freaking hell do you think you are
that you are so smart that you can pull of a stupid stunt
like that, when in fact nobody, no ruler, no gods, no king,
no government, no alien masters from outer space with mind-
controlling beams and these giant robots, no nothing, has
ever, in the whole freaking history of the world, ever, and
I mean EVER, pulled off a crazy re-distribution Ponzi-
scheme stunt like that, not even back when there were
omnipotent emperors with god-like powers running the joint
who could have you fed, kicking and screaming and raising a
hell of a fuss, to ravenous lions so that they could watch
jungle beasts eat you alive! And just for something amusing
to do to relieve the boredom of a slow day! But now, you
think that somehow this stinking gaggle of honking
Congresspersons and clueless American Federal Reserve
eggheads can collectively come up with a scheme that will
finally pull that silly crap off?
"Hahahahaha!
"And to make matters worse, and to make yourselves look
even more stupid, you think that even if they can't do it,
that they will be able to come up with something marvelous,
some Economic Magic, to keep you from having to pay the
price for even trying? Hahahaha! Stop it! My sides are
hurting from laughter! Hahahah! Stop it! Hahaha! You're
killing me here!"
Okay, his version is shorter, but it lacks the fire that
the sheer importance of the subject calls for. But you can
certainly see how he ripped me off, can't you?
Times are really getting pretty freaking weird out there.
But if you don't believe me, then catch the Jerry Springer
Show sometime. It seems to be the chronicle of the lowest-
common-denominator-meets-Gladiators, in this case women
waging combat by baring their breasts and repeatedly
attempting assault and battery upon each other and various
people who are in some relationship to each other. But it
is seldom the cute ones, but their fat sisty uglers, as the
comic once said, I forget who, so I quickly lose interest.
What has this got to do with economics? Everything. Compare
BET, MTV, and the Jerry Springer Show with how many times
can I get Mozart on TV per freaking year. Then recall that
economics is human action, and thus the popularity of these
shows, reflected in their sheer tonnage of hours per day,
is people taking action to see these shows, to the
voluntary and total neglect of Mozart, the greatest
composer, by far, in the history of music.
Imagine!
Now, go back in history and find me one society that
benefited from that kind of purposeful action. The one that
came to my mind, of course, was Sodom and Gomorrah, old-
Testament party towns, and that didn't work out too well
for them in the end, as I recall.
But you, ever the quizzical one concerning economics, ask,
"But if they were spending all their time partying-down
with the homeys, how did they finance that deliciously
hedonistic lifestyle?" Now, this is a question that has
puzzled many a Biblical scholar, I am sure, and I
personally spent a lot of time pondering how to finance my
OWN hedonistic, party lifestyle.
And it turns out the answer is simplicity itself, bringing
us to yet another thing governments have always done,
continue to do, and will probably keep on doing for the
foreseeable future, unless something really cataclysmic
happens, to ruin its citizens. This is the part of the
Bible that nobody talks about, so I hear, because it is in
small print way in the back somewhere, which nobody reads
because it is the part that concerns monetary and fiscal
policy, and is therefore so very uninteresting that not
even cloistered celibate PRIESTS who are completely bored
out of their skulls for want of novelty will read it.
I never heard of it either, and that is because this is the
part that is NOT about sex and parties and orgies and
getting drunk and having a wonderful time, but it IS the
part about how to PAY for all the sex and parties and
orgies and getting drunk and having a wonderful time. And,
so we come to find out, they did it all on credit. And I am
happy to report that what was normal 2,000 years ago is
relevant today, as neither I nor anybody I ever even knew
really worried about how to PAY for having a wonderful time
WHILE they were having the wonderful time. A few passing
thoughts, maybe. Perhaps some waving of the hand in polite
dismissal. But never worry. And always on credit.
So, year after year the governments of Sodom and Gomorrah
financed themselves through deficit-spending, and running
up big credit-parchment debt loads was a big industry,
wherein you could buy on credit! Year after year! More and
more!
And then houses, and stocks and bonds and government-
sponsored enterprises! And the government printed up more
and more! Debt was accumulated at levels that set new
records every day! More lending! More borrowing! More
spending! More debt! More printing up money! Around and
around and around! And then one day, it was ka-boom! That's
the part that is supposed to be The Big Lesson, one of
those instructive parables that the Bible is so famous for.
But the only lesson that we seemed to have learned is that
in the golden days leading UP to that dreadful day of
reckoning, it was party hearty! Or par-tay har-tay, if you
will. For a long, memorable time, S & G sure were popular
places, and real estate values soared! I hear that college
students on Spring Break, flooding into Sodom, made city
revenues soar by 100%! And so there is Biblical precedent
for the Austrian economics idea that accumulating debt in
excess of ability to pay is a bad thing.
But if we've got to the point where no one pays any
attention to history anymore, even when it's in the Bible,
then by golly, we are in a pickle. Because there's no way
any government is ever going to stop repeating itself into
financial insolvency, eventually.
Regards,
The Mogambo Guru,
for the Daily Reckoning
P.S. Well, I am sure that you are highly impressed with
that little stupid diatribe, and I think you will agree
with me that I am well-advised to change my tack here on my
painful and fruitless quest for that elusive Nobel Prize in
Economics, which those snotty Nobel Institute people will
not even consider awarding me just because I am laughably
incompetent and utterly undeserving. So, I have now decided
to go for the Nobel Prize in Literature, instead! Assuming
that there is such a thing, of course, and the million
dollars, too. Let's not forget the cash prize. Or maybe a
Pulitzer Prize! Or something that has a cold cash
component, which is a nice alliteration there, if I do say
so myself, which I just did, further cementing my claim on
some kind of literary award.
Anyway, my ground-breaking and completely new approach to
literature, which I now pronounce"lit-rah-CHA" in
preparation for my new career as lecture circuit monkey, or
whatever they call themselves, is combining, for the first
time in the annals of Printed Language, what appears to be
blasphemy of some kind with opinionated discourse about
things economic, which is probably a record of some kind in
sheer arrogance. And dammit, if you set a new record in
something, then SOMEBODY ought to pay you some money! But
I'll probably end up getting screwed out of that money,
too, just like I always do, because, as I prove over and
over, week after week, everybody is out to get me. All the
time. In everything. The bastards.
--- Mogambo Sez: Somebody is going to have to take the
whack to the head, and somebody is going to do the
whacking. The only questions are who, when and how, and
that is what consumes the attention of the world now.
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