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     Jan 15, 2008
Gold in the time of economic cholera
By The Mogambo Guru

Ambrose Evans-Pritchard at The Telegraph newspaper has written under the headline, "Flight to Gold as Investors Lose Faith in Money". First, though, a little history; he says, "The last time gold touched $850 an ounce, the world was visibly spiraling out of control." Beyond a spike in the usual amounts of warfare and military tensions, "Inflation had reached 14% in the United States."

Furthermore, he estimates that "it is fair to say that gold established a 'safe-haven' level of $600 - or $1,500 in today's money - that roughly lasted through the final phase of the Carter



malaise, the oil shock, and the collapse of confidence in the monetary order".

There are those of us who wonder aloud, and say, "Is the last 25 years truly indicative of gold's seeming long-term $1,500 per ounce value? Perhaps not! Let The Mogambo speak about this and other matters!"

Visibly recoiling in horror at the mere thought of allowing me to start yammering because I never seem to shut up, Mr Evans-Pritchard answers the "what's the long term value of gold?" question by explaining that, "In the Middle Ages gold fetched nearly $3,000 an ounce in real terms." That's better!

Naturally, "The price fell to nearer $550 when Spain flooded the world with Aztec and Inca riches, and there it hovered for three centuries."

Naturally, I am mesmerized by the sudden temporal jump from the Carter administration to the Middle Ages, but instead of having to explain it to me over and over and over again before finally giving up in total frustration at my stupidity and my seeming inability to learn anything, he says that it is all academic, anyway, in that, "the modern era has been an aberration. Supply is exhausted. Perhaps we should now regard the Middle Ages as the proper benchmark price."

Naturally, I had forgotten what the Middles Ages price was, so I had to go back and look without him noticing. It was $3,000 per ounce. Now I remember! I smile to myself, "Whee!"

Sadly, the current price is of no real interest to those of us who are known as Greedy Investing Pigs (GIP), unlike the price in the future when we sell. So, what is the future all-time-high price going to be? I never could pin him down, but he did admit that, "One thing is certain: Gold will outperform paper as long as governments keep increasing the global money supply 15% a year."

And truer words were never spoken! Stupid governments are allowing their central banks to flood the world with money right now, and global money supplies are exploding! The result is "Does anybody now take the dollar, the euro, or the pound seriously? People are turning to gold because it is the only hard store of value."

Naturally, I know that they are talking about inflation in prices, but they are too stinking gutless to stand up and say something like, "The Mogambo was right! Inflation in consumer prices is the thing to be most feared! Inflation in prices follows inflation in the money supply, which is raging around the freaking world, meaning that roaring inflation in prices is going to rage, too, and destroy us all, thanks to the stupid Federal Reserve creating all that excess money and credit, and thanks to the stupid Congress (except Ron Paul, who is hopefully the next president of the United States) spending more money than they extract in taxes, and this 'spending deficit' is the damned reason that the damnable Federal Reserve is creating all that excess money and credit in the first damned place! We should all worship The Mogambo - all hail the Mighty Mogambo! - for laying bare this despicable scam, and thank him by sending him interesting reading material and money! Cash only! No checks! And I, Ambrose Evans-Pritchard, am going to get the ball rolling by sending him $1,000 and this copy of the latest issue of 'Beautiful Outlaw Biker Chick Lust', which is a very fine magazine that I recommend highly!"

Apparently, Mr Evans-Pritchard has seen this particular scam of mine before, and instead of falling into my trap, is moved to say, "All choices are now bad. Infecting everything is the looming end to US dollar hegemony. Mid-East and Asian states are importing America's bailout policies through their currency pegs (or dirty floats), stoking an inflationary fire. Prices are now rising 14% in Qatar, 10% in the UAE, 13% in Vietnam, and 6.9% in China. The pegs are near snapping point. Bretton Woods II is dying."

I say inflation is raging everywhere! Junior Mogambo Ranger (JMR) Lisa P is apparently embarrassed for me, since I do no original research or apparently actual work of any kind, and I usually get most of my facts wrong and I end up looking like an idiot when I say things like this. So she does the work for me, and then gives me the answers! Fabulous!

Anyway, she writes, "After spending about three days collecting and normalizing data, I have calculated our household rate of inflation comparing all of 2006 expenditures with all of 2007. The real rate of inflation: 6.9%."

So I write down in my notes, "The consumer inflation rate is 6.9%," which, she says, is "Not hyperinflationary, but for a supposed first-world country, very, very high and very, very scary." Then I make another note to myself to deduct points from her final grade because she failed to include the important fact that very, very high (VVH) plus very, very scary (VVS) equals very, very doomed (VVD), which is the very cornerstone of Mogambo Economic Theory (MET).

To try and make up for it with some "extra credit" work, she volunteers that "last year's inflation figure came in at 7.06%." This calculates out to price increases of 15% in two years! Yow!

"Oh," she then says, "and here's the real kicker. If you just look at food prices on a real basket of groceries," which she defines as "foods on sale at Kroger and the local Mexican market", she has calculated that "they have gone up 50.1%!! That's not a typo. 50.1%!!"

As a pedagogical aside, the use of the rare "double exclamation point", indicating extreme importance and used to appropriately punctuate the horror of 50.1% annual inflation in food, is considered (in some circles) to be redundant.

Consulting the ultimate authoritative source on such matters, The Big Mogambo Book Of Literary Style (TBMBOLS), we learn that the use of the "double exclamation point" punctuation after something as horrific as "50.1% price inflation in food" is actually an understatement!

Therefore, as today's Mogambo Lesson In Punctuation (MLIP), the sentence should have been properly written as saying that food prices "have gone up…. 50.1%!!!", which is, obviously, three exclamation points, as perfectly befits the ugly, malignant, horrible reality of the whole freaking situation!

She then explains that there is actually a silver lining in that dark cloud, as for "the past year I've been eating less and buying cheaper foods. I've lost 10 pounds. Okay, so I could stand to lose another 10. But what happens then?"

Instantly, I knew what "happens then"; you say, "Hey, I lost 10 pounds! I look great, and I feel great, too! And I am in better health! And I think that you could stand to lose 10 pounds, too, you Fat Mogambo Pig (FMP)! So, from now on, we are eating salads and crap like that for dinner, instead of huge, delicious portions of various kinds of animals, fried foods and gravies that you like so much!"

To my great surprise, she did not say that, and in fact was not making a comment about what a disgusting fat pig I am at all! Instead, she was making the point that "We need the fat to fill out our wrinkles!"

And as much as I enjoy the idea of getting fatter to fill out my wrinkles, the pleasure is short lived when she reminded me that this was about the price of food, which is up 50.1% in the last year, and about overall inflation for everything else, which is up 6.9%. "So," she concludes, "there's the sad story verified for myself. Enjoy. Ha."

So I dutifully say "Ha!", but my heart really isn't in it. My guts are in a knot and I am puking up blood, though, so I'm not completely untouched by the report.

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 2008, The Daily Reckoning.


THE COMPLETE MOGAMBO GURU


1. Captain Ahab and the Islamic whale

2. Oil at $100 vs the 'war on terror'

3. The three Rs: Rivalry, Russia and 'Ran

4. Putin for president ... of the United States

5. Bush's last throw against Iran

6. Pakistan wrestles with a 'soldier of peace'

7. More racist than thou

8. A game of chicken in the Persian Gulf

9. Myanmar deal is right neighborly of India

(24 hours to 11:59 pm ET, Jan 10, 2008)

 
 


 

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