The Great Variety of Poor Rich People:Magambo Guru

By: Richard Daughty, The Mogambo Guru - The Daily Reckoning

-- Posted Thursday, 14 August 2008 | Source: GoldSeek.com

If you'd like a sample of the kind of "hedonic" qualifying idiocy running rampant in economics these days, The Economist magazine reviewed a paper by Christian Broda and John Romalis at the University of Chicago. These two guys say that the inequality between the rich and the poor is not as bad as it looks. This was such a surprising development that I and all my pals rooting around in the dumpsters behind the grocery store stopped to listen! We are not poor!

First off, we bums found out that we are not as bad off as we think we are because "around two-thirds of the increase in the standard inequality gauge is offset by the poor's lower inflation rate", which we get by consuming mostly non-durable imported items like food, clothing, and footwear that were falling in price!

The rich, who consume more services, comparatively suffer because they mostly consume domestic services, which are NOT imported, and so have prices that are going up with the inflation in the money supply!

I suddenly felt so bad for the rich that Lefty and I made a promise that the next time we come across an apple that isn't too mushy, we will give it to a rich guy as our way of helping them out!

And if that was not enough, these university egghead guys actually go on to say that the poor are actually thriving, as "the range of goods consumed by poor households increased by far more than for rich households. The benefit of this extra variety is not captured in income or inflation, but it can be quantified."

At this promise of quantification of the benefits of diversity of available imported goods as impacts inflation, I said, "Shut up you guys! This is going to be good!" As I stretched out on a pile of rotting cabbage in preparation for this exciting bit of news, I was actually all tingly at the thought of seeing how the inequality between the rich and the poor can be shown to be offset by sheer variety of goods in the marketplace!

It wasn't long in coming, and sure enough, before I could even get comfortable, the very next sentence was "If that gain is expressed as an addition to real income, the remaining increase in inequality vanishes."

Hahahaha! This is too much! The poor are as rich as the rich!

And lest you think that I am exaggerating the effects of inflation because that is just the kind of Hysterical Reactionary Loudmouth (HRL) I really am, this is one time I am not, as inflation in imported prices is still inflation in imported prices, and for those who are encouraged by the recent reports of seemingly positive GDP growth of 1.9%, Randall Forsyth in his Current Yield column in Barron's reminds us that GDP accounting means that "Soaring prices of imports, including petroleum, lowers the GDP deflator" because "imports count as a negative." Hahaha!
Inflation went down because imports went up in price!

In effect, he says, the government is applying "truly Orwellian logic: higher import prices mean lower inflation and therefore higher growth"! Hahaha!

This is so bizarre that even he can barely control his laughter, and says, "You can't make this stuff up."

Perhaps this is why I am so miserable these days, sitting here in the Mogambo Powerful Bunker Of Doom (MPBOD), uselessly looking at my desk covered in charts, reams of erstwhile useful analysis and miscellaneous "past due" notices from various creditors, knowing that it is all crap.

Even Chris Powell, of the Gold Anti-Trust Action Committee, agrees with me and says, in a pithy phrase that should congeal your blood at the tragic implications,

"There are no markets anymore only interventions."

Ed Steer of Casey Research tells me that we are not alone, and presents a commentary by Peter Degraaf and posted at Bill Murphy's lemetropolecafe.com, who "doesn't mind admitting that (technical analysis) is pretty useless in the face of this kind of intervention."

What kind of intervention? How about foreign central banks suddenly plowing a staggering $28 billion into buying U.S. debt last week, and stuffing the enormous haul of government and agency debt into their accounts at the Fed itself, taking their total ownership of government and agency debt to $2.4 trillion! At a lousy 5% interest, this is $120 billion in cash that we are shipping out of the country per year to these guys, just in interest payments!

And why are these foreigners doing this? James Turk at goldmoney.com explains "When central banks intervene in the currency markets, they exchange their currency for dollars. Central banks then use the dollars they acquire to buy US government debt instruments so that they can earn interest on their money. The debt instruments central banks acquire are held in custody for them at the Federal Reserve, which reports this amount weekly."

This would, then, explain why the dollar shot up last week, out of nowhere, for no reason that I can think of other than that all the alternative currencies suck even worse! Hahaha! What a world!

Aside from the stock and bond markets, Mr. Degraaf says that even "Gold closed just above the $850 support line during a washout caused by the performance of a US dollar that defies belief. Without any improvement in fundamentals, the dollar rose 132 points today. The largest gain in
years! Despite a banking crisis, low interest rates, huge deficits, money supply running in double digits, housing sector in shambles, the US dollar has now risen 8 out of the last 9 days. Someone please convince me that this is not rigged. Meanwhile at $855.00 the gold price is back at $323.00 expressed in 1980 dollars!"

And it is not just gold acting weird and grossly under-priced, but silver, too, as Mr. Steer notes that

"Ted Butler also mentioned yesterday that silverby any measurementis the most oversold it's ever been in its history."

In history!

My mind screams, "It's the time to buy!" And I would, too, but I went to the kids' piggy banks this morning and there is nothing in them except useless scraps of paper that say "IOU $5. Love, Dad."

They are not going to be happy when I explain to them that we are both victims, as I have no money either, just like them, and similarly because the Social Security Trust Fund is holding my "money" in the form of IOUs, whereas at least I said "love" at the end, which is a hell of a
lot more than the spendthrift, bankrupting government ever did for me! The bastards!

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Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications.

Visit The Daily Reckoning's website.

Economic Hell to Pay
by The Mogambo Guru

"Like me getting drunk and surly, and then thinking that getting me drunker makes me more convivial. It does. For awhile. A very short while. And then, like in economics, there is hell to pay. With vomit, usually."

Michael Santoli, in Barron's, starts his Streetwise column with "It's one of the sturdiest clichés on Wall Street: No one can reliably forecast a recession."

Naturally, I disagree and ask, "Why not? Predicting inflation in prices is as easy as watching inflation in the money supply, which is as easy as predicting the price of gold going up in response, so why isn't predicting a recession (a bust) after watching the boom fizzle out just as easy?"

In fact, musician Steve Dore, troubadour of real money and now of Ron Paul's candidacy, sang the immortal line about recessions and busts that follow monetary booms, which is that,

"It's not a matter of if, but when."

As a musician, he turns this into a cute little ditty by finishing off the phrase with "History repeats again", to create a couplet, which is not only profound and educational, but it rhymes, too, so you know it must be true, which, actually, it is, unfortunately.

And speaking of money and music, in case this MoGu newsletter thing doesn't work out for me, perhaps I can get into this music racket and make a lot of money, too, although I would have cleverly rhymed the original first line,

"It's not a matter of if, but when," with something with a little more theatrical impact, such as "And if you don't think so, then you are really, really stupid, because the lesson of the whole last 4,000 freaking years of human history is that 'It's not a matter of if, but when', over and over and over, and that same history proves that if you think that having the government try to postpone an inevitable economic cataclysm through incurring more backbreaking dett, and jumping through hoops of monetary and fiscal fire, thus devaluing the currency and causing price inflation, makes it any better, then you are even more stupid than I thought, and when I conquer and take over this stupid planet you call Earth and impose the Tyrannical Will Of The Mogambo (TWOTM) upon you, I will take special notice of low-IQ people like you and prevent you from breeding by neutering the whole stinking glob of you with some kind of Mogambo Neutering Ray (MNR), which is painful as hell if nothing else, and so the next time you think something stupid like that, perhaps you will stop and think again."

Please notice how my wonderful lyrics end up rhyming "when" with "again", too, proving that Mr. Dore, for all his talents, doesn't have a monopoly on lyrics, and (if I say so myself) he really takes a backseat to The Mogambo when it comes to tuneless viciousness, paranoid delusions and relentless psychotic megalomania.

While waiting for a Nashville music producer to call with a big recording contract, I have the time to note that the answer to Mr. Santoli's "cliché" is that it would be perfectly easy to predict a recession based on fundamentals, except that the government is going to "do something", because it always "does something", and the government is ready, willing and able to "do something" because it already employs one out of every seven workers in the country, it already spends half of all spending in the country, and the federal government is principally supported by the taxes paid by the financial services industry as it absorbs all these humongous globs of money, spent by the government, and obligingly created out of thin air by the Federal Reserve just for the purpose.

And while it is difficult to forecast the directions taken by the government, it is easy to forecast that gold, silver and oil (and indeed commodities of all kinds) will rise in price, because that is also the lesson of those selfsame 4,000 years of human economic history; governments have lots of power and money, and that is why the government attracts conmen and crooks, and these self-serving weenies can always be counted upon to bankrupt the country with debt and/or fiat currency.

Amazingly, I think I got through to Mr. Santoli! I note with satisfaction that he later said

"In fact, it's arguable that the consumer discretionary sector, down 12% this year, and financials, off 17%, are pretty close to pricing in a consumer-and-credit recession."

Exactly! You bet it is!

But he then posited that "Recessions are caused by a highly complex array of interacting forces", which is true, I guess, but it all comes down to spending or not spending, as I can prove with Say's Law.

And in line with this, George Ure at UrbanSurvival.com thinks that economist Jas Jain has the right idea, which is that

"the most important number to watch is the consumer debt figure, because the growth of the economy depends on people continuing to take on ever-larger amounts of debt to keep the global game intact."

In fact, Mr. Ure says that, "Jas is prone to signing his emails 'It's the Debt, Stupid!' And with damn good reason. Remember that money can be printed easily enough, but it always depends on someone borrowing it into existence in a fractional reserve bankstering system to make it 'hit the street'."

Now, Mr. Jain knows this, and Mr. Ure knows this, and you and I know this, but believe me when I say that this idea is completely foreign to the Federal Reserve, whose entire stupid mathematical model of the economy crucially depends on the axiom that "If you build it, they will come", as they steadfastly believe that there always exists a level of interest rates that will lead to more borrowing, and more economic growth and more wonderful economic splendor.

Like me getting drunk and surly, and then thinking that getting me drunker makes me more convivial. It does. For awhile. A very short while. And then, like in economics there is hell to pay. With vomit, usually.

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Richard Daughty, the angriest guy in economics

The Mogambo Guru