Traumatized by inflationary
gunfire By The Mogambo Guru
As usual, it is inflation in prices that
makes me crazy, and it's tequila that lets me do
something fun with my natural insanity to take my
mind off the horror of it, as it is inflation in
prices that is the precursor to social upheaval
and economic collapse, which is why I figure that
the Second Amendment was invented in the first
place, and if you don't think so, then just manage
to stay alive for the next couple of years to
learn a real expensive lesson that you will never
forget.
In the meantime, my dire
prognostications continue apace, as the
CRB
(Commodity Research Bureau) index increased 1.4%
for the week, which is a lot, and which is about a
15% increase year-to-date. The Goldman Sachs
Commodities Index (GSCI) went up by a
heart-stopping 3% last week, which means that this
index is up a terrifying 42% y-t-d!
And
speaking of inflation, the new Producer Price
Index (PPI) came out, and it looks like the price
of finished goods on a non-adjusted basis was up
6.1% year-over-year. Food increased 7.1%, and
energy was up 16.1%. Yikes!
For All-Items
Intermediate Goods, prices were up 5.6%. Yikes
yikes!!
For All-Items Finished Goods,
prices were a blistering 25.7%. Yikes yikes
yikes!!!
And even more ominous, The
Economist magazine reports that "The Baltic Dry
Index, which tracks the costs of shipping 'dry'
goods such as iron ore, coal and grain around the
world, dipped this week after hitting an all-time
high on November 13th. But it is still up 154%
from a year earlier." In fact, "The cost of
shipping iron ore from Brazil to China is now more
than the cost of digging up the ore itself."
The reason is the same old one, "As with
so much to do with commodities, the extraordinary
rise in freight rates is partly because of China's
appetite for raw materials."
And this
means that the transportation pipeline is already
too small to accommodate such a large movement of
goods, as "A dearth of new ships, and flotillas
waiting to berth in overcrowded ports (especially
in Australia), are also driving rates higher,"
meaning that even if enough stuff could be grown
or mined, very little of this surplus could be
delivered, as the transportation system is maxed
out already! Hahaha!
And that is why OPEC
saying that they are going to pump more oil is a
load of hooey. In fact, The Daily Reckoning's
Desidooru Saloon reports an online.wsj.com article
that read, "Sadad I al-Husseini, an oil consultant
and former executive at Aramco, Saudi Arabia's
national oil company, gave a particularly chilling
assessment of the world's oil outlook. The major
oil-producing nations, he said, are inflating
their oil reserves by as much as 300 billion
barrels. These amount to hypothetical reserves
that are 'not delineated, not accessible and not
available for production'."
Worse news,
for those expecting an open oil spigot to save our
nasty economic butts, is that, "A lot of
production in the Middle East is from mature
reservoirs, and the giant fields of the Persian
Gulf region are 41% depleted."
But we were
not talking about how oil exporters are liars and
cheats, but about inflation, and that inflation in
prices is everywhere, and everywhere the official
response is the same; "Paper that sucker over!",
even in oil-exporting nations.
For
example, according to the Financial Times,
inflation in consumer prices in the United Arab
Emirates is "rampant" at "around 10%", which has
prompted the federation of seven emirates to think
about "revaluing or de-linking the dirham from its
long-standing US dollar peg in a bid to tame" the
inflation.
There are many ways for a
government to paper over this mess. In this case,
the UAE plans to, I kid you not, "raise federal
government salaries by 70%"! Hahaha! Too rich!
The article even says that there are many
of us out here in the real world of economics who
are scared out of our freaking minds about such
irresponsible government behavior, and indeed
there are other "economists" who said that this
"could fuel inflation in the Gulf state", although
there is no word on how many of these other
"economists" are also scared enough to carry so
much heavy firepower, so much so, in fact, that
they are so burdened that they need a motorized
wheelchair just to get around the office, and so
much body armor and bullet-proof plating that you
need an intern just to help you remove enough of
that heavy stuff to take a crap, which you have to
do a lot during the day because there is just so
much economic bad news scaring the crap out of me,
so you can see my problem.
And without the
least bit of irony, the very next sentence was,
unbelievably, that "A cabinet meeting yesterday
raised the 2008 budget by 47%." Yow!
Elsewhere around the region, in Saudi
Arabia, according to the Financial Times,
"Inflation, which crept up to 4.9% in September
after averaging 2.2% last year, is raising anxiety
among the authorities." What I think is really
worrying authorities is that "Food prices have
increased 18.8%", which makes you wonder how in
the hell the overall inflation stayed at 4.9%.
King Abdullah, proving that being a king
doesn't take a lot of smarts about money,
especially if you have a lot of oil to pump that
is making you lots and lots of money without
lifting a finger, is apparently unaware of the
basics of economics, which says that all this
excessive flood of money inflating the money
supply will cause inflation in prices, which is
exactly what is happening. Being a king, and thus
at a loss, he "felt compelled to summon officials
last month [to] explain the phenomenon".
I
don't know what they did or said, but I assume
that they did some uniquely Arab thing, like
looking into the eyes of some camels and eating
figs or something, I dunno, since the idea of
actual economics doesn't seem to appeal to them.
Well, to be fair, the fact is that the
supply of oil can't apparently be increased, and
in fact it is going down as part of the Peak Oil
phenomenon, and with demand rising, oil exporters
are going to be making scads of money, tons of
money, mountains of money for their oil, no matter
how little they pump.
And speaking of oil,
in Martin Wolf's column in the Financial Times, he
quotes the International Energy Agency as
reporting the astonishing factoid that "The
increase in China's energy demand between 2002 and
2005 was equivalent to Japan's current annual
energy use." Yow! This is just the increase!
Suddenly, I feel compelled to remind you
to buy gold and silver, as much as you can, and
take physical possession of them, and put them
somewhere safe and sound, someplace where you can
get a good shot at anyone who even goes near to
that locked closet, and when you demonstrate your
resolve with a couple of warning shots to one of
the kids who "accidentally" wandered over to the
closet while chasing a stupid rubber ball that had
rolled in there, leave the bullet holes in the
wall as a reminder to the others. Trust me; it's
worked like a charm around here!
But we
were not talking about me or my Mogambo Closet Of
Bullion (MCOB), or even how some snotty "mental
health professionals" think that the stupid kids
are now "scarred for life" because of a little
gunfire, some random screaming and vague death
threats for trespassing in the Mogambo Forbidden
Zone (MFZ). Instead, we were talking about
inflation and oil, and combining both of them
brings us to the further news that in other "Gulf
countries", inflation is running at double-digit
rates! Ten percent and more! Much more! My God!
This is horrific news!
But explaining to
stupid social workers the relative degree of the
two situations, namely a traumatized bunch of
stupid kids or a traumatized stupid economy, is a
waste of time, as they just don't "get it".
I'll bet you do, though. And if you don't,
you soon will.
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.
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Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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