Weak dollar induces a dream
world By The Mogambo Guru
From Reuters we learn that Lewis
Alexander, Citigroup's chief economist, predicted
that "The Federal Reserve will cut interest rates
by 100 basis points before June to help the
housing market."
You will be happy to hear
that Mr Alexander is not another ignorant, lowlife
loser who is barricaded in the hall closet typing
out stupid Mogambo Guru newsletters and vicious
hate mail to Congress and the Federal Reserve, but
is a bigshot who also once worked at the Fed, so
he knows the kind of people he is
dealing with.
He said
that he "expected the Fed to cut its Fed funds
rate by 25 basis points when it meets later this
month and by 50 basis points in the first quarter
of 2008. The final 25 basis-point cut would
probably take place in the second quarter."
Well, that's interesting and all, but then
one has to wonder about whether Mr Alexander has
any idea what in the hell he is talking about when
he went on to say that "the Fed would not be too
concerned that the drop in the dollar would be
inflationary. Studies carried out over the years
had shown that the dollar's value had little
impact on consumer prices in the United States."
Hahaha! What idiocy!
I instantly see that
he is not happy with my rude laughter and snide
slander. So he fixes me with a glare and says,
"The vulnerability of inflation to a weaker dollar
is not a major risk;" which, of course, prompted
another gale of scornful laughter! Hahaha! Too
much!
As regards the upcoming Fed meeting
to alter the aforesaid interest rates, James Turk
of the Free Market Gold & Money Report opines,
"Pleas to the Federal Reserve by US investors to
lower interest rates are no different than those
made to the Reichsbank to create more currency to
make up what was being lost to inflation. The
dollar is headed the same way as the doomed
Reichsmark, and Fed chairman Ben Bernanke is
taking actions that are basically little different
from those taken by the head of the Reichsbank.
The clear conclusion is that the dollar is headed
the same way as the Reichsmark. Falling demand is
eroding the purchasing power of the currency, and
the central bank responds to it by creating more
currency units - 'printing paper' in the case of
Reichsbank and 'adding liquidity' in the case of
the Fed. They are in fact [ and here I pause the
tape to add a little dramatic flair] exactly the
same thing."
Harken to me as I tell you
this money inflation means inflation in prices,
regardless of what Mr Alexander says. Seeing as it
is almost lunchtime, I call on Bill Bonner at The
Daily Reckoning to take over for me so that I can
duck out of here early and grab a couple of
burritos. Graciously, he says "Money, as we all
know, practically grows on trees. But food does
not. And putting more Asians to work does not
automatically increase the supply of farmland … or
what grows on top of it … or what lies underneath
of it. So, what we've been seeing is just what
you'd expect."
Seeing that I am not going
to rudely interrupt him, he goes on, "While
increased industrial output has managed to hold
prices down for manufactured goods, the rising
supply of money has forced up prices for things
that don't come out of factories. Gold,
contemporary art, land, and cooking oil come to
mind." Exactly!
Seeing that things were
well in hand, I was on my way out the door when I
suddenly felt that I had to respond to the remark
that "increased industrial output has managed to
hold prices down for manufactured goods", because
I had just heard from Junior Mogambo Ranger (JMR)
Robert M, who sends news that his in-laws in Peru
import bearings, and in the last quarter the
prices they paid for Chinese bearings "were up
from 20%-47% (depending on the piece), overall the
prices averaged some 30% higher!"
"So," he
says, "we can now see 1) How the decline of the
dollar has affected prices of overseas products
(explains perhaps 40% of the price inflation of
Chinese bearings to us), 2) Raw material prices to
China are way up, and 3) China IS 'exporting'
inflation'."
And so the rise in prices is
just the evidence of how much buying power the
dollar has lost. But before I could clamber up to
the microphone to launch into one of my infamous
harangues about it, Larry Edelson of
MoneyandMarkets.com preempts me by saying, "The
buck has lost nearly 37% of its purchasing power
in just five years, and the dollar's bear market
could go on for a lot longer."
Since this
"dollar weakness" thing is nothing new, I was
starting to doze off and enter Mogambo Dream World
(MDW) where tacos grow on trees and beautiful
ladies vie for my attention by parading around in
various stages of undress, when in fact they
didn't have much on to start with, when I was
jolted back to reality by him saying, "This means,
on an international level, that the value of US
gross domestic product has been cut in value by
more than a third!" Yikes! An interesting way to
look at it: real (inflation-adjusted) GDP is down
by a third!
Apparently, Mr Edelson is not
interested in my comically holding my head to keep
it from exploding at this fresh terror, and says
that this is a long-standing problem, as "it means
that the Dow Jones Industrial Average - even at
its recent high of 14,000 - buys you 21% less than
it did when it hit 11,722 in January 2000!"
So the buying power of "investors" has
actually gone down for the last seven years?
Hahaha! The Cold, Cruel Laughter Of The Mogambo
(CCLOTM) is mocking and scornful at the stupidity
of people still buying into that stupid "buy and
hold", "investing for the long term" crap! Hahaha!
I mean, thanks to the idiocy of the
Federal Reserve destroying the purchasing power of
the dollar by creating so damned much excess money
and credit, in the last seven years these
"investor" losers essentially invested 10 pizzas,
only to have it be worth only eight pizzas now!
Hahaha! What gullible morons!
But this, as
horrific as it is, is just against the dollar! He
says that the calculations show that "when
measured against tangible assets like gold and
oil," which tend to go up when inflation in prices
is raging, "the Dow purchases even less - almost
70% less than it did seven years ago." Invest 10
pizzas to get three pizzas now! Hahaha! Morons!
And speaking of oil, there is not going to
be much good news there, either, as the Financial
Times reports that "Exploration companies need oil
prices of $70 a barrel to match the returns they
made at $30 a barrel only two years ago because of
the sharp increase in costs and higher government
license fees."
And with today's rampant,
irresponsible inflation in the money supply, it is
child's play to see that two years from now the
Financial Times will almost certainly report
"Exploration companies need oil prices of $140 a
barrel to match the returns they made at $30 a
barrel four years ago", with the subhead "And The
Mogambo Is Still Angry As Hell!"
And why
aren't people rioting in the streets and demanding
that The Mogambo be given full discretionary
powers under the Patriot Act to kick some Federal
Reserve butt? It's because nobody sees it!
"Remember," Mr Edelson says, "just because you
don't see these losses on your brokerage
statements, or in your IRA or 401(k) - it doesn't
mean they aren't there. They are! Your money has
lost massive amounts of purchasing power."
But there is a weird madness to it all, as
he says, "The thinking goes like this: A sharply
lower dollar boosts inflation … that raises asset
prices … and thereby reduces the size of debts
relative to assets." Hahaha! I don't know where to
start! It's Bizarro World!
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,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
