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.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
