The dense web of corruptions that bloom during long bull markets
Politics, finance, government, and our economic future into a neat belated New Year's resolution. Get your Reynolds wrap. Failure to hold leaders accountable, has resulted in an economic bubble that we'll be lucky to get out of. We need to pull the reigns on this runaway congress and give them some tough love.
Foreign central banks poured another whopping $8.4 billion into their custodial holdings at the Federal Reserve last week, taking us to a new, all-time, hard-to-believe record of $1.344 trillion, as they furiously try and keep this ridiculous and bankrupt economic system going.
In that regard, in the January 10 issue of Barron's was a line in Jim McTeague's "D.C. Current" column, in which he said, referring to the recent push for tax system overhaul, "Broad reforms that make good economic sense are not good politics. Too many powerful interests have too big a stake in the existing tax system to allow its dismantling." And ditto everything else because of the dense web of corruptions that bloom during long bull markets, as faaarrrr too many powerful interests gradually acquired faaaarrrrr too big a stake in every freaking thing, especially ones which were financed by unbelievable amounts of fiscal AND monetary excesses, and doubly especially one in which the borrowed money was leveraged to the point where people are only putting down 1% of the size of the bet (or less!). My God! It's insane!
But looking at the end of the boom, the savvy dudes at DailyReckoning.com write "Credit binges do not typically end in inflation. Debt loads are not usually lightened so easily. People need dollars to pay the interest on loans, and to pay back the principle. What usually happens at the end of a credit boom is that money becomes harder and harder to get. Debtors are stretched; they can no longer increase spending. Businesses have surplus capacity already; they cannot profitably add factories and workers. Capital spending slows down. Consumer spending slows too. Money becomes scarce."
And this is not just about us peasants and how we will be out here rummaging around in each other's garbage cans looking for useful or tasty items. But not only will we suffer a scarcity of profits, but there will be a scarcity of tax revenues flowing to a huge, ravenous, grasping, greedy government that has no instinct as finely honed as that of raw survival.
But while it may be true that credit binges don't typically end in inflation in asset prices, raise your hand if you think that the current situation is typical, and then The Mogambo will laugh-- hahahaha! --with that stupid laugh of his that indicates utter disdain for your intelligence, which causes you to get all huffy and storm out, slamming the door, and that is why nobody ever raises their hand unless they are new in the area and just moved here from someplace that has a lot of pollution that destroys people's brains. But when the dollar falls to some pathetic low value, I am telling you that the Chinese are going to be looking at those lovely bushels of corn, and those luscious soybeans, and wheat, and copper, and commodities of all kinds, and they will seem cheap to them because of the devalued dollar. And since demand usually picks up when prices go down, and they will import more of them into China. Then the Chinese producers are going to whine in that singy-songy Chinese way that sounds like "Sum hoy dim hong dow flied lice chow mein" that the Americans are selling at prices that are so low that humble Confucian man cannot compete against imperialist Yankee aggressors. And then the Chinese government will slap tariffs and duties on imports of American commodities to 1) mollify the whining Chinese producers, and 2) get boatloads of tariff and duty money to expand Chinese government spending, especially on those poor peasants who are getting crushed in the resultant inflation. And then we Americans will, predictably, retaliate by threatening them with tariffs of our own, and if that doesn't work, then with nuclear annihilation or something military. And then the Chinese will lower the tariffs a little, and we will make concessions, such as giving them nuclear missiles. The end result will be a rise in prices for Americans, and around these parts when prices go up we call it "inflation" because when we called it "Bob" nobody paid attention.
Brady Willett, of FallStreet.com wrote an interesting essay entitled "Make My Day, and I'll Pay You Back Tomorrow." He writes, "One industry that isn't in recession today, but could be an indicator for recessionary times tomorrow, is payday loan stores and/or pawn shops. The companies in this group provide high interest, short term loans, they cash checks for obscene fees, and offer pawn shop asset-backed loans to consumers in need. As the soaring stock prices suggest, business has never been better for these lenders."
"The number of payday loan stores nationwide has more than doubled since 2000 to more 22,000 (in 2003), and revenues have consistently grown by double digits since the 2000 recession. Are people taking payday loans with sometimes a 276% annual interest rate (EZCorp in Indiana) because their savings are in order? Obviously?business is booming at payday loan/pawn companies because the so called 'recovery' has left so many Americans behind."
And this is exactly what you would expect from an inflationary monetary policy! When you create so damn much credit and money, for so long a time, the rich get richer, and the poor get poorer. After awhile, the social unrest gets extreme, and the idiots in Congress and the Federal Reserve all decide that what this country needs, and I mean really, really needs, is more spending and more creation of money and credit, making it all worse and worse! And then they stand around, asking each other "What in the hell is The Mogambo so mad about?"
if you want something that ought to send you screaming down the street, in an article entitled "Optional Reading", Edgar J. Steele writes, "As of June 15, the value of stock options must be expensed by American business firms. With stock options, never is there a financial statement hit taken by the company. The hit always is borne by existing shareholders, whose stock values become diluted as the company merely issues new stock to employees exercising their options, a non-event for income-statement purposes."
So is there really a new economy, where stock options allow everybody to win and nobody loses? No. He goes on to say "A direct lift from existing shareholder wallets, in other words."
But now (cut to a video of an asteroid smashing into the earth where dinosaurs are hurled into the air and they all have these surprised looks on their faces) all that has changed. Starting June 15, "The accounting entry is: debit expense and credit liabilities, just like wages, which is what stock options are, after all." Wow! Talk about taking a hit to the income statement!
And not only that, which is plenty, but he goes on to say "P/E (Price/Earnings) ratios, already stratospheric by historical standards, will evaporate altogether for many firms (divide by zero or a negative and get infinity)." His advice? "Get out of stocks and bonds and do it now."
And it get worse from there! According to an article entitled "US Pension Pain 'To Get Worse' " by Dan Roberts in The Financial Times, "Actuaries at Towers Perrin estimate the average Fortune 100 company is now storing up more than $3bn in deferred pension costs that have yet to show up in published profit and loss figures." Three billion apiece! They go on to note "Towers Perrin, an independent consultant, calculates that the deferred cost for the 81 largest defined benefit pension schemes in the US grew approximately 5 per cent in 2004 to $252bn."
And of course, no day is complete without somebody showing me that inflation is roaring back to life and is consuming us all. In his spare time, he has figured out that "In 2002 dollars, the Dow actually has gone from 8,000 to 6,000. You actually lost 25% of your nest egg over the past two years!" So, as an example, if you had $100,000 in purchasing power two years ago, and now you have only $75,000 in purchasing power, thanks to the devaluation of the dollar by 25%, and you want to privatize Social Security by forcing people to put money into the stock market? Hahahaha!
And speaking of reforming Social Security, not that it is such a hot topic, everybody wants to run their mouths about it, including the horrid Leftist Paul Krugman, who recently penned "A Fake Solution to a Made-up Crisis."
First off, he admits that Social Security is "running a surplus, thanks to an increase in the payroll tax two decades ago." Well, duh! Let me write this down! If you increase taxes, a government program will get more money, and if they get enough money, then they will run a surplus. Wow!! It seems so obvious when it is pointed out to me like that! I slap my forehead ("ouch!") at the revelation! Why didn't I realize that all you need to do to get more money is, and I laugh at the utter simplicity of it all, to raise taxes!
Taking the Krugman Economic Miracle ("increase taxes, show a surplus!") he announces, "As a result, Social Security has a large and growing trust fund." Then he hits us with the laughable line "When benefit payments start to exceed payroll tax revenues, Social Security will be able to draw on that trust fund." Hahahaha! See, the way that he thinks it works is that this surplus goes into some trust fund, see, sort of like this big ol' box with a lock on it, and it is loaded with lovely cash or something, and then you just stick your hand in there and grab a fistful when you need some money.
Now that he has established the "facts" to suit himself, it isn't until a later paragraph that he reveals, with a slap at the people who want to privatize Social Security, "Privatizers say the trust fund doesn't count because it's invested in U.S. government bonds, which are 'meaningless IOUs." Wrong, bonehead! It isn't just privatizers who recognize that the trust fund has no money! It's everybody! Those IOUs are gigantic, unfathomably huge, overwhelming amounts of money owed to lots of people, who are all counting on getting that money back, and so it is therefore FAAARRRR from being "meaningless." Being IOUs, yes, but meaningless, no. Huge, yes, so therefore meaningless, no.
He never admits that the surplus in the Social Security system has been spent by Congress, and there is nothing in that stupid lockbox except those IOUs, although he does try and put a pretty face on it when he says that those IOU's "have the same status as U.S bonds owned by Japanese pension funds and the government of China" and that the taxpayer is required to pay off those IOUs, just the same as "The bonds in the Social Security trust fund are obligations of the federal government's general fund." In case you were wondering what a "general fund" is, it is (and I am pointing right at you) you. Much like soldiers are called G.I.s, which is short for "Government Issue", you are "G.G.F." because you are expendable "government general fund" trash, and they are going to get money out of you. But, if it makes you feel any better, at least you are higher on the hierarchy above Mogambo Trash (MT), so at least you have THAT going for you.
Later on in the article he admits that the problems of Social Security pale to insignificance beside the other two financial horrors, namely the current monstrous fiscal deficit and the Medicaid/Medicare nightmare, which rhymes, making it easy to remember in case this shows up on a pop quiz in class today. He doesn't mention, strangely enough, the $650 billion trade deficit, which is also a financial horror.
And, of course, we have Laura Tyson, the economist who was one of Clinton's insiders when he was running the country into the ground, and who is now the dean of the London Business School, running her little mouth in the Economic Viewpoint column in the January 17 issue of Business Week, entitled "Social Security Crisis? What Crisis?" While first noting how many old people depend totally on Social Security (20%) and how many get a "majority" of their income from Social Security (67%), she notes that Social Security would be on sound footing with a decrease in benefit payment amounts and an increase in taxes. Hahahaha! This is the brilliant thinking that got her where she is today? Cut benefits and increase taxes? This is the best she can do? This is the fabled Leftist compassion? Hahahahaha! Such is the idiocy of the Left, who first create a huge government program, impose taxes to pay for it, continually raise taxes to expand the program and increase benefits. Then finally, after it has grown to be a huge, suffocating part of the economy where may people are dependent on it, and it predictably falls apart, that's when you decrease benefits and raises taxes! And then they wonder why I have so little respect for them that I write them hate mail (For example, "Dear Leftist jerk; Kiss my butt.. Signed, Angry Stranger Who Is Not The Mogambo (ASWINTM)").
Then she says that the present value shortfall in the Social Security revenues over the next 75 years is $3.5 trillion. Hahahaha! Adjusting for inflation, that piddly $3.5 trillion over the next 75 years will balloon to hundreds of trillions of dollars, if not quadrillions of dollars, or whatever in the hell is beyond a trillion. Remember; the current dollar has lost 96% of its value in the last 92 years, thanks to the Federal Reserve. Now that they have really gotten the hang of it here lately, I am sure that they will devalue the dollar at an increasing rate from here on out. I will save you the trouble of laboriously computing the deficit over the next 75 years as the dollar loses ANOTHER 98%, or 99%, or 99.999% of its value. It is a lot, and future historians will look at Tyson's $3.5 trillion dollar estimate and laugh at her and anybody who listened to her.
I recently met Ted Butler, one of the main point men in the fight against the obvious manipulation of the silver market, and he is a real nice guy and big enough to break me in half if he wanted, and I hope he doesn't. In his latest commentary at Investment Rarities newsletter, "Friedman's Theory holds that, on a relative and absolute basis, there is less silver remaining underground than any other important metal" according to the United States Geological Survey."
So Ted (and notice that I am calling him Ted instead of Mr. Butler because I noticed that there were a lot of witnesses around, and so I actually called him "Ted" to his face and he did not get, as is usually the case, real testy, although I think I saw his fist clench in rage, so I am probably pressing my luck a little bit here) went and looked the USGS data himself, and sure enough, it seems to confirm ("and validates" says Ted) Friedman's Theory.
So even if you wanted, say, a few tons of silver as part of your retirement portfolio, there just doesn't happen to be much silver left on the planet! And there is no way to get anymore, either! We've used it all up! Hahahaha!
Now this is where the highly-sensitive nose of The Mogambo (HSNOTM) detects-- sniff sniff sniff snort sniff sniff! --an imbalance in the supply/demand dynamic, which is a pretentious little phrase that I threw in there to make myself look like a big man who seems to know what he is talking about and maybe impress some girls, although it is obvious that I don't.
But before I could press my advantage, he steals my thunder and says, "I don't doubt for a moment that there will be increased mine production in response to a significant spike in silver prices. But the irony is, if the reserve and resource data are correct, higher production only reduces the number of years minable silver will be available. Therefore, higher silver mine production would, ironically, be bullish", as increased mining would merely exacerbate the shortage!"
For those who fret that the government might confiscate their holdings of precious metals, Chris Powell of GATA got a response to a question to the Treasury department from Roberta K. McInerney, who bills herself as Assistant General Counsel, (Banking and Finance), Department of the Treasury. She writes "I am writing in response to your e-mail of November 29, 2004, which forwarded a question from a constituent of Congressman Larson's as to whether the Treasury Department could force the redemption of U.S. gold bullion coins at face value, or the surrender of foreign bullion coins.
"In Public Law 97-258 (Sept. 13, 1982), Congress eliminated a statute (12 USC 248 n) which had allowed the secretary of the Treasury to require individuals and others to deliver to the Treasury gold coins, bullion, and certificates. As a result, this statutory authority no longer exists."
Reader Jim S. notes that Mark Twain wrote "All Congresses and Parliaments have a kindly feeling for idiots, and a compassion for them, on account of personal experience and heredity." Hahahaha!
One of the current ideas is that we must return to being a nation of savers. Maybe yes, maybe no. If you are saving money in your bank account and earning little to no interest on your money, like now, while inflation is raging, like it is now, and which will be soon even MORE raging, then you will look at it and exclaim "The word 'raging' doesn't do it justice! We're being eaten alive here!" and you would be, of course, right. So saving money will be losing money, as the purchasing power of those piddly little savings of yours go down and down. So saving money in an environment like that is stupid. But people are not stupid. The Mogambo is stupid, but most people are not. But then again, The Mogambo also hates and fears his government, and all governments, and most people do not. On the other hand The Mogambo also thinks that aliens from outer space are living under his house, but most people do not, and one day they will rue their folly about that, too. But people are not saving money now, and are instead taking insane risks with their money in a desperate gamble to at least keep up, and maybe even come out ahead, of the ruination of their money! And they are likewise poking at The Mogambo with sharp sticks, trying to make me go away, but they are not poking under their houses with sharp sticks, either.
The Market Nugget.com newsletter notes that, "With the VIX remaining close to 8-year lows, writing options offers very little premium; however, buying puts as insurance against a decline in the market can be done at reasonable cost." I don't talk much about my days as an options trader, although I still have nightmares about it, but let me tell those of you who are considering writing options, let me warn you that the market-makers in options are guaranteed to make profits, as that is part of the deal. And so they can pick, at their total discretion, a bunch of other option writers to close out at a loss, so that they can make that guaranteed profit. It is all perfectly legal, and there ain't nothing you can do about it. And it WILL happen to you on a regular basis, so feed THAT little tidbit into your calculations.
We are also thankful to the Market Nugget for this entertaining and enlightening analysis of the minutes of the latest FOMC meeting. They write "Completely ignored are other portions of the minutes, which paid homage to the importance of rising asset prices. Specifically, the minutes stated: 'In their discussion of important sectors of the economy, participants noted that increasing equity and home prices had boosted household net worth, leaving consumers well positioned to maintain a brisk pace of spending.' " In other words, Americans are like ignorant little children, ready to go farther and farther into debt to get a bigger TV.
Hahahahaha! This is the level of thinking of the morons at the Fed! Hahahaha! Get a load of this economic theory: Because you had the wherewithal to borrow money to drive asset prices up, then the resultant higher equity in those assets thus give you the wherewithal to borrow MORE money, to go farther into debt! Gaahhhhh! My eyes are bugging out! This is advice from competent economists? This is how wealth is created? Does this sound like good advice to YOU?
Also commenting on the same FOMC minutes, Peter Schiff of Euro Pacific Capital writes "Among the concerns expressed by members were interest rates being too low to contain inflation, price pressures threatening growth, excessive speculation resulting from low interest rates, growing federal budget deficits, the expanding current account deficit, and declining foreign demand for dollars. Let me be the first to welcome the Fed members to a little place I like to call 'reality.' "
Eric Fry at Daily Reckoning notes that Arch Crawford, who is the editor of Crawford Perspectives, indicates that the U.S. stock market will crash before March 23. "It could be any time between now and then."
So what is it that has gotten Mr. Crawford so alarmed? "At this very moment," he says, "Mars is in opposition to Uranus, which is bad news for the stock market...Every serious crash since World War I has occurred within the same 40% of the Mars/Uranus synodic longitudinal cycle."
Planets? Stars? Laugh if you want to, but Mr. Crawford has a record of accurate predictions that most of us would kill for. For a little background on Mr. Crawford, Mr. Fry writes "For nearly three decades, Crawford has been consulting astronomic phenomena - as well as an array of earth-based technical indicators - to determine buy and sell signals for his subscribers."
But there is more to Mr. Crawford that looking at planets and stars. I am not sure if he used a powerful telescope or not, but he also notes that he has seen that the cash level in the Rydex money-market fund relative to other Rydex mutual funds is quite low. He explains: "If this number is relatively low, traders are more fully committed [i.e. bullish], and if this number is relatively high, they are more or less confused or fearful. Right now, they have the lowest cash levels since March 15, 2002, which means they are more committed than normal. As a contrary indicator, it is now bearish, along with all the others."
Chris Mullen and Peter Spina at GoldSeek.com note that the BLS report of employment added 78,000 jobs, about half of the gain, in the category of assumed jobs, also humorously known as "ghost jobs." Gene Epstein, in his Economic Beat column in Barrons, is talking about it too, and waxes optimistic about how inflation-adjusted factory output and wage growth are just fine, thanks. He does, actually, tell you that he uses the statistic (the Personal Consumption Expenditure Deflator) that just happens to be at the low end of inflation estimate. So, when you adjust for inflation by just a teensy bit, then-- wow! --statistics can be made to pop!
However, if you use, like I do, the upper end of the inflation estimates (and I recommend that you use that one, too, because the effects of inflation are so horrendous that perhaps Barry Goldwater was right when he famously said "Extremism in the defense of liberty is no vice. Moderation in the pursuit of justice is no virtue" (thanks for Bob Wood for supplying the quote!) because you do not know the meaning of the word "liberty" until you lose it, and you do not know the meaning of inflation until you get it, and trust me when I say you will not like either one) then the numbers are a lot less uplifting, and in fact are quite gloomy.
But Mr. Epstein is not as sanguine as it appears about payroll employment when he ends the column with the advice to beware that, "In January, be prepared for a plunge of more than 2 million" jobs, and he includes a little graph to show that this huge plunge in jobs is an annual event for the BLS, as they correct their previous errors.
John Mauldin, who writes the highly informative FrontLineThoughts.com newsletter, writes, "When the next recession comes in 2006 or 2007, the stock market will drop. Average drops during a recession are 43%. The Baby Boomer generation will realize that the stock market is not going to bail out their retirement hopes. They will stop spending and start saving with a vengeance. Problem solved, only it creates more problems. The world will not like it when the American consumer retrenches." No truer words were ever spoken! If Americans don't buy, then China stops selling, and then China must stop exporting, and then China doesn't make any money, and then China has no dollars to buy US debt, which happens to come at the same time when America's government is desperate for money, and is trying to issue tons and tons more debt. But nobody is buying! So the Fed buys it! And the new money that the Fed creates out of thin air to buy the debt seeps into the world's economy, and all that money is chasing the same amount of goods, which is actually falling, and that REALLY causes inflation, and the inflation causes the Mogambo to run into his spiffy concrete bunker to lock the door and hide in the corner, whimpering like the little wuss I am.
He adds that crystal balls are unusually fuzzy for everybody, because "With Fed manipulation and foreign central bank buying, we are in new territory. The old rules may no longer apply, or be applied differently. Pay attention, gentle reader."
Perhaps one of the reasons for that may be found in an essay by P. Zihlmann, on GoldSeek.com, entitled "Time to Divest Your Dollars". Mr. Zihlmann notes that one of the reasons that The Mogambo is so pessimistic is that "At the bottom of the previous two dollar bear markets, US debt represented a value of 1% of US GDP in 1987 and 5% of US GDP in 1995. In 2004, at the end of the third quarter, US debt measured $4.4 TRILLION, or 42% of GDP!"
I was recently invited by Tony Wile and Bernard NotHaus to a meeting at FreeMarketNews.com on the planning for a silver conference. Being The Mogambo, naturally I have many, many good ideas, but the best one was that I would portray Zelda, the pretty little hatcheck girl who dreams of starring in a Broadway musical, singing and dancing her way into the hearts of America, wearing silver high-heel shoes on her feet and a big, beaming smile on her face.
You could have heard a pin drop, and the meeting went downhill rather quickly after that for some reason. But because I promised to sit down and shut the hell up, I was allowed to stay long enough to listen to people who DO know what they are talking about. One of them was David Morgan of Silver-Investor.com, and while I am not above stealing all of his stuff, to tell you the truth there was too much of it to remember. But the lesson beneath it all is brevity itself; buy silver, and lots of it.
I have been ill the last two days, and am sluggish and out of sorts. Naturally, I am whiny and demanding and wondering why everyone is not running around waiting on me hand and foot, perhaps applying soothing compresses to my fevered brow, or how about peeling me a grape? Maybe a peeled grape tastes good to a man as uncomfortably close to death as I! Maybe we would discover a miracle cure, which I shall call The Mogambo Miracle Grape Cure (MMGC)! But could I get anybody to peel me a lousy grape? No! (In the script, it says "Mogambo: with sneering, sniveling voice, 'And now we'll never know, will we?' ").
But I was so lethargic that out of the corner of my half-closed eyes I saw my letter carrier, a snappily-dressed official representative of the United States Postal Service making her appointed rounds, trying to put a bill in my mailbox. Of course I'm yelling like I'm being killed as I struggle heroically to my feet and start running to the door, but I am so slow that by the time I got there she was already running halfway down the street, and I could see her, way down there at the end of the street, laughing at me and zig-zagging amongst the trees and cars, and we both knew I couldn't get off a shot at her from this distance. And then she turned the corner so that I could no longer see her, but I could still hear her laughing, laughing, laughing at my pain. So now there's another damn bill to pay, and so you can imagine the kind of mood I am in.
So it doesn't take much imagination on your part to figure out my reaction to an AP wire service piece entitled, "Airline Workers Face Bad Economic Outlook." There was supposed to be as sub-head, which was supposed to read, "Mogambo says, 'Big Freaking Boo Hoo Hoo' " but somehow it got "lost" in editing or something, like I'm going to believe that.
Anyway, the article goes on to say, "The airline industry's relentless drive to slash costs, amid a backdrop of high fuel prices and low fares, is leaving employees with a bleak financial outlook." I am obviously at death's door here, and to show you how far gone I am, I don't even have the strength to look for the VCR remote, even though the porn film I am watching has finished, and all I see on the TV screen is snowy static, and the speakers are making this fuzzy noise like "ssccchhhhhhhhhh." But even in my misery, I heroically rise to the occasion and say "Hey, memo to airline industry! Get real! That is the predictable result of inflation, you morons! And you are not the only ones, you whining little snots! Everybody suffers, dudes! At least YOU have the advantage of being able to have prices to raise, and thus save yourself. But what about us, the peasants out here on the labor side of life? And for that matter, what about the people who cannot even work? They have no freaking way of increasing their incomes as even a partial defense against higher prices because they cannot sell their labor."
Where are the newspapers decrying "Mogambo Employees Face Bad Economic Outlook" thanks to MY relentless drive to cut costs against a backdrop of high fuel prices, sinking sales, falling revenue, and my habit of paying them with checks that bounce (which saves me a ton of money each week! So that's another little trick they DON'T teach you in that snooty MBA program!)?
An excerpt from the MoGu was in the Jan 10 issue of Barron's this week, and so I bow deeply as my stupid pseudo-Oriental way of saying "thank you" to Anita Peltonen, who is the editor of the Market Watch column, for spreading the gospel of The Mogambo (GOTM), and I gotta tell ya that this Peltonen person has seen into the soul of the Mogambo (SOTM) when she quoted me as calling the Federal Reserve "incompetent and corrupt," and how we are doomed as a result, and how it all could have been so easily prevented if our money was still silver and gold, as freaking required by the Constitution (which I say while gritting my teeth in raging Mogambo anger (RMA)) and then we would not be in this unfolding cataclysmic collapse of the economic system, and then there would be no Mogambo, and then maybe I would have gotten a REAL job, and maybe been somebody my family could be proud of, instead of being just another lunatic relative calling himself "The Mogambo" and walking around in broad daylight dressed up in these ridiculous tights and cape, and wearing this stupid propeller beanie on my head, all the time screaming obscenities at the Federal Reserve, and the Congress, and the Supreme Court, and how we are ALL FREAKING DOOMED DOOMED DOOMED!
Stephen Roach of Morgan Stanley has noted that "Annual inflation in U.S. home prices is now running at a 25-year high of 8.8 percent, with 15 states experiencing double-digit increases in residential property values between mid-2003 and mid-2004." And although he is too polite to say so, so are property taxes. And for those hapless people who listened to Alan Greenspan when he encouraged them to buy overpriced houses with adjustable mortgages at the lowest interest rates he could manufacture with his profound monetary excesses, the rise in rates is giving those people an education that they will never forget, if they are capable of learning lessons, and I have my doubts about that.
Bob Snyder, our man in the hospital industry, tells me that he is sure that the healthcare crisis as getting bigger, and there is no end in sight. Government continues to mandate that the hospitals provide services to everybody who shows up, but fewer and fewer of the ones who show up in the emergency room have any health insurance. His hospital is seeing a lot more of these poor people, and while there is some token payment from Medicare, Medicaid, and other pots of money to assist the poor and uninsured, those reimbursements are either frozen or actually declining. This means, of course, that the cost will be added to the bills of those who DO have health insurance, resulting in higher prices, which means health insurance premiums will continue to go up. Or it means that the governments will authorize higher payments to the hospitals to pay for the healthcare of the indigent, and that means higher taxes.
In the same vein, James Cook of Investment Rarities recounts that his company is facing another year of huge increases in health insurance, and notes that the poor and their families are using emergency rooms as their sole source of healthcare. Here in Florida, the state government is also cutting payments to providers of residential care for the profoundly retarded, including huge cuts in nursing, so that means that suddenly, after all these decades when nursing WAS considered necessary, now the government stance is that nurses are no longer necessary, because if anything goes wrong, then they can always just go to the emergency room! Hahahaha! Brilliant! Government at its best!
Now let's pause here, because I want to emphasize in my irritating Mogambo way (IMW), which usually involves me jumping on top of something and screaming in this weird, un-human way (some people call it "other-worldly" which always makes me laugh when I think "You don't know how right you are, puny Earthling!"), that we tax-paying people, who also pay for health insurance, which means you and me, amigos and amigettes, are going to pay, and pay, and pay, and pay for all of this through either higher taxes or higher health insurance premiums. Or both. Probably both. Yes, now that I think about it, the more I am sure that it is both. So write "both" on your answer sheet.
And now that I am thinking about it, I am starting to go a little bit bananas here, and these little monitors I have to wear are all beeping "beep beep beep!" Sure enough, the next thing I know I am in the holding cell down at police headquarters, and all the other detainees are giving The Mogambo a wide, wide berth, because they know, in that instinctive, primitive, feral way that low-IQ criminals have, that The Mogambo is one bad and dangerous dude, and who will make these piercingly loud monkey noises and fling feces on them if they get too close. So I look up at the TV and I saw the news broadcast, and they had this amazing tape of me leaning out of the window and yelling, "Are you some kind of mental defective? Is that what you are? Huh? Is that what you are, you idiots? Are you so insane, or so stupid, or so blindingly ignorant that you think that the huge reduction in our living standards by this roaring inflation, not just in healthcare-related costs, oh nooooOOOOOoooooo, but in almost every freaking thing you can name, is NOT going to cause a lot of unrest? And that unrest is NOT going to turn into anger? And anger is NOT going to turn into rage? And that rage will not turn into Rage Of The Mogambo (ROTM)? Is that what you think, you dumb freaking morons?" Everyone in the holding cell watched in rapt fascination as I am struggling to rip my shirt off and bare my manly Mogambo chest (MMC) in preparation to leaping down into the crowd and committing mayhem amongst the idiots and maybe instill a little intelligence in their thick little heads courtesy of the rampaging fists of the Mogambo (RFOTM), and although they removed the audio track, you could tell by reading my lips that I was both loud AND obscene (LAO), which is my way of multi-tasking and achieving higher productivity. But all of sudden, a phalanx of policemen rushed up and were very rude to me, like it is MY fault that 1) people are so stupid that they don't even realize that socialist-lite government is still socialist government, and that it will end badly because it has to, or 2) nobody ever explained to them at the police academy that you do NOT search for concealed weapons in a suspect's groin area by repeatedly kicking me in that particular area, and that includes getting a running start and taking turns, and 3) this is the predictable outcome for a democracy or a republic when the voters learn they can vote to give themselves the money of other people, or when voters learn to elect people who will, in turn, give them the property of other people. And free healthcare is just one of the things they want, and sure enough, free healthcare is what they got.
The lesson is that there is no stopping socialized medicine, as we are obviously getting it crammed down our throats one way or the other.
Stephen Roach of Morgan Stanley figures that interest rates have a long, long way to rise from here. He writes, "Given its publicly avowed concerns about the confluence of inflation and speculative risks, the Fed now has no choice other than to push the real federal funds rate into the restrictive zone. In my view, that means at least 100 bps beyond neutrality -- consistent with a nominal federal funds rate somewhere in the 4% to 5% zone."
"Inflation Destroys the Fabric of Society" is an essay by George Crispin on the LewRockwell.com. site. He writes "18 years ago the Consumer Price Index was 109.6. Today it has reached 191. What you could buy for a dollar 18 years ago would take $1.74 today." This comes out to 3.1% inflation, which is lower than the current rate of inflation as reported as 3.5%. He goes on to reveal the horror of it; "As the new money works its way through the economy, prices rise. The first receivers of the new money gain at the expense of the later receivers. Inflation, then, confers no general, social benefit; instead it redistributes the wealth in favor of first comers. Those stuck with the loss include fixed income groups, ministers, teachers, people on salaries, those on fixed money contracts made before the price rise, life insurance beneficiaries, retirees, landlords with long term leases, bond holders and other creditors, and those holding cash." In short, all of us who are not first in line to get, and use, the money take the loss. And when you look out of the window, you realize with a start that this Crispin dude knows exactly what he is talking about. Ugh.
*** The Mogambo Sez: A Creedence Clearwater Revival song keeps going through my head, and it goes, "I see a bad moon a-rising."
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