Michael Santoli, in Barron's, starts his
Streetwise column with "It's one of the sturdiest
cliches 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 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 for the Republican
presidential nomination, 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 debt 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 "cliche" 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 drunker makes me
more convivial. It does. For a while. A very short
while. And then, like in economics, there is hell
to pay. With vomit, usually.
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.
Republished with permission
from The Daily Reckoning.
Copyright 2007, The Daily Reckoning.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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