-->The People's Business
The Daily Reckoning
Paris, France
Monday, 8 March 2004
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*** Economic cycles made easy: you produce things to earn
money... then, you spend money to get rid of it.
*** Jobs, jobs, jobs... where are the jobs? In China, of
course!
*** Gold over $400... exploring our own minds, and other
fantasies...
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"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.
*** 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.
---------------------
The Daily Reckoning PRESENTS: 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.
THE PEOPLE'S BUSINESS
By The Mogambo Guru
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.
Regards,
The Mogambo Guru,
for The Daily Reckoning
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.
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