If you'd like a sample of the kind of "hedonic" qualifying idiocy running
rampant in economics these days, The Economist magazine reviewed a paper by
Christian Broda and John Romalis at the University of Chicago. [1] These two
guys say that the inequality between the rich and the poor is not as bad as it
looks. This was such a surprising development that I and all my pals rooting
around in the dumpsters behind the grocery store stopped to listen! We are not
poor!
First off, we bums found out that we are not as bad off as we think we are
because "around two-thirds of the increase in the standard inequality gauge is
offset by the poor's lower inflation rate", which we get by consuming mostly
non-durable imported items like
food, clothing, and footwear that were falling in price!
The rich, who consume more services, comparatively suffer because they mostly
consume domestic services, which are NOT imported, and so have prices that are
going up with the inflation in the money supply!
I suddenly felt so bad for the rich that Lefty and I made a promise that the
next time we come across an apple that isn't too mushy, we will give it to a
rich guy as our way of helping them out.
If that was not enough, these university egghead guys actually go on to say
that the poor are actually thriving, as "the range of goods consumed by poor
households increased by far more than for rich households. The benefit of this
extra variety is not captured in income or inflation, but it can be
quantified."
At this promise of quantification of the benefits of diversity of available
imported goods as impacts inflation, I said, "Shut up you guys! This is going
to be good!" As I stretched out on a pile of rotting cabbage in preparation for
this exciting bit of news, I was actually all tingly at the thought of seeing
how the inequality between the rich and the poor can be shown to be offset by
sheer variety of goods in the marketplace!
It wasn't long in coming, and sure enough, before I could even get comfortable,
the very next sentence was, "If that gain is expressed as an addition to real
income, the remaining increase in inequality vanishes." Hahahaha! This is too
much! The poor are as rich as the rich!
And lest you think that I am exaggerating the effects of inflation because that
is just the kind of Hysterical Reactionary Loudmouth (HRL) I really am, this is
one time I am not, as inflation in imported prices is still inflation in
imported prices, and for those who are encouraged by the recent reports of
seemingly positive GDP growth of 1.9%, Randall Forsyth in his Current Yield
column in Barron's reminds us that GDP accounting means that "Soaring prices of
imports, including petroleum, lowers the GDP deflator" because "imports count
as a negative." Hahaha! Inflation went down because imports went up in price!
In effect, he says, the government is applying "truly Orwellian logic: higher
import prices mean lower inflation and therefore higher growth"! Hahaha!
This is so bizarre that even he can barely control his laughter, and says, "You
can't make this stuff up."
Perhaps this is why I am so miserable these days, sitting here in the Mogambo
Powerful Bunker Of Doom (MPBOD), uselessly looking at my desk covered in
charts, reams of erstwhile useful analysis and miscellaneous "past due" notices
from various creditors, knowing that it is all crap.
Even Chris Powell, of the Gold Anti-Trust Action Committee, agrees with me and
says, in a pithy phrase that should congeal your blood at the tragic
implications, "There are no markets anymore ... only interventions."
Ed Steer of Casey Research tells me that we are not alone, and presents a
commentary by Peter Degraaf and posted at Bill Murphy's lemetropolecafe.com,
who "doesn't mind admitting that (technical analysis) is pretty useless in the
face of this kind of intervention."
What kind of intervention? How about foreign central banks suddenly plowing a
staggering US$28 billion into buying US debt last week, and stuffing the
enormous haul of government and agency debt into their accounts at the Fed
itself, taking their total ownership of government and agency debt to $2.4
trillion! At a lousy 5% interest, this is $120 billion in cash that we are
shipping out of the country per year to these guys, just in interest payments!
And why are these foreigners doing this? James Turk at goldmoney.com explains,
"When central banks intervene in the currency markets, they exchange their
currency for dollars. Central banks then use the dollars they acquire to buy US
government debt instruments so that they can earn interest on their money. The
debt instruments central banks acquire are held in custody for them at the
Federal Reserve, which reports this amount weekly."
This would, then, explain why the dollar shot up last week, out of nowhere, for
no reason that I can think of other than that all the alternative currencies
suck even worse! Hahaha! What a world!
Aside from the stock and bond markets, Mr Degraaf says that even "Gold closed
just above the $850 support line during a washout caused by the performance of
a US dollar that defies belief. Without any improvement in fundamentals, the
dollar rose 132 points today. The largest gain in years! Despite a banking
crisis, low interest rates, huge deficits, money supply running in double
digits, housing sector in shambles, the US dollar has now risen eight out of
the last nine days. Someone please convince me that this is not rigged.
Meanwhile at $855 the gold price is back at $323 expressed in 1980 dollars!"
And it is not just gold acting weird and grossly under-priced, but silver, too,
as Mr Steer notes that "Ted Butler also mentioned yesterday that silver ... by
any measurement ... is the most oversold it's ever been in its history." In
history!
My mind screams, "It's the time to buy!" And I would, too, but I went to the
kids' piggy banks this morning and there is nothing in them except useless
scraps of paper that say "IOU $5. Love, Dad."
They are not going to be happy when I explain to them that we are both victims,
as I have no money either, just like them, and similarly because the Social
Security Trust Fund is holding my "money" in the form of IOUs, whereas at least
I said "love" at the end, which is a hell of a lot more than the spendthrift,
bankrupting government ever did for me! The bastards!
Note
1. Hedonic - A model identifying price factors according to the premise that
price is determined both by internal characteristics of the good and external
factors affecting it - eg the neighborhood affecting the price of a house.
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.)
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