MOGAMBO GURU: An Ounce Of Gold Measured In Tons Of $100 Bills

[Tace]

Richard Daughty

Richard Daughty, the angriest guy in economics -- World News Trust

Sept. 5, 2006 -- Having consumed enough tranquilizers, mood elevators and anti-depressants that I am barely conscious and involuntarily drooling into my own lap, I can, finally, dispassionately note that Total Fed Credit was up by $3.8 billion last week, and credit in the banks was up a little, too, especially real estate loans. Foreigners also stashed $8.5 billion at the Fed last week, as some of all that gigantic money (that we create and spend, keeping the trade deficit at $800 billion per year and the federal deficit at another $600 billion a year) is recycled back to us. You know: The same old stupid monetary inflation thing.

The bigger news is, of course, on the inflationary front itself, as the JOC-ECRI Industrial Price Index was up 4.7 percent for the month! Month! And 9.5 percent over the last year! That is why I am in full lockdown mode in the Famed Mogambo Bunker (FMB).

I weep in sorrow, probably from over-medication, for America and the dollar as I lock the door of the bunker. On top of that horrible inflation news, as bad as it is, the dollar was down, too, on its way to being down a lot. This is (as you can probably gather by the way I am gagging up blood) truly terrible, terrible news. Prices are going up as (and mostly because) the dollar is going down! And with The Mogambo giving you a splitting headache by screaming in your ear about how inflation has doomed us all, it is, truly, the worst of all worlds.

But perhaps there is a lighter side to economic Armageddon! I say this because John Stepek of MoneyWeek.com gave me the biggest laugh of the week when he wrote, "With the inflation threat much greater now, it will be far harder for the United States to justify cutting interest rates to see off recession, without foreign holders of U.S. dollars concluding that the country is just trying to inflate its way out of its debts." Hahaha! Does this mean that there is somebody, somewhere on the face of this planet, who does NOT know that the United States is trying to inflate out of its debts by destroying its own currency? Hahahaha! This is too rich! Hahaha! Who are these idiots? Hahahaha!

more

http://www.worldnewstrust.com/content/view/91/331/lang,en/

[Taxloss]

1. I love to read the Guru, he's a riot, but

he's been pushing this "the end is nigh! Buy gold, shotguns and canned food!" line for a while and the world economy has failed to collapse - so it's getting a bit samey.

[JNelson6563]

3. For what it's worth

he's been talking long term. Even in article linked to, down toward the very end, he talks about some of the "new money" coming into the system and mentions "pension protection" legislation pending. It would give the illusion of being good for workers but it benefits the markets the most and immediately.

He mentions a possible boost to economy to be short lived. I have to agree with his historical observation: Without fail, every economy that every operated on such a system as ours has collapsed.

Julie

[OrangeCountyDemocrat]

4. Hi Julie!!

From a fellow SMW viewer. :-)

[happyslug]

2. Duplicate, in with Daily Stock Market Watch, September 6, 2006

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x2496216

MOGAMBO GURU is listed on today's Stock Market Watch Post #37,like he is on whenever he is publicized, through the reference is to KITCO instead of World News Trust.

[OrangeCountyDemocrat]

5. Not Everyone Goes There

This reaches more of the general readers, who don't go to the LBN board or SMW.

[happyslug]

6. If you read his stuff you should read it in Context.

He is a hopeless gold bug, and I am not but to fully understand his position you need the context of people accepting his premise that the FED is screwing the economy AND that while Gold is a "Safe" investment, it is NOT solution to our economic problems.

The problem with Gold as a Currency is that you can NOT expand the amount of GOLD in the Economy when an expansion of the total amount of money in circulation is needed. This is the biggest problem with using GOLD as money. Now the biggest problem with Fiat money is there is a tendency for Governments NOT to pay their debts but instead inflate them away and that is easy to do if the only money being used is fiat money. Inflating a Country's debt away can not be done as easily if your currency is Gold do to the limits as to how much Gold exists world wide, but such inflation can be done and has occurred at least twice in American History.

Now some inflation is good, a lot is bad. The bad is easy to see and people often fear inflation without realizing it has a good side IF KEPT IN CHECK. Inflation being good is based on the economic fact that most people do NOT want to take a loss, and thus people will not sell things if what they will get for the item is less than what they paid for the item. People will hold onto such items, ignoring the cost of holding an item, and will hold onto those items till someone pays at least the price they themselves paid for the item. Inflation solves this problem by slowly making things less expensive but at the same time the "Price" stays the same. For example if someone purchased a house For $10,000 but after a few years it is only worth $9000, the owner of the house will not sell the house at the lost of $1000, but if inflation eats up that $1000 loss so that the seller can sell the house for $10,000 (even if the REAL value of the money in terms of purchasing power is only $9000 in the value of money at the time of the Purchase. This is a known problem with people and thus a slight inflation of the value of money helps keeps the economy moving. The problem is when Government takes this good policy of slight inflation and try to use it to inflate away the debts of the Government.

Now while it is easy to see when fiat money can be inflated away, but people must understand GOLD can also be subject to inflation (Mostly when new Gold mines open). The biggest example of this is the Expansion of the US in the 1850, do to the huge influx of California Gold into the Economy. You had a steady period of inflation is terms of the value of everything except Gold. The 1850s was a decade of rapid rate of expansion that in many ways would not be reached again till the 1960s (The expansion of the 1920s was mostly financial as opposed to real). Now the 1850s ended in Civil War, and the second use of paper money in US History (along with expansion of Silver Production as the Gold Mines of California peaked and declined through gold is coming out of California to this day). The paper money was needed to keep the expansion alive during the Civil War and continued to be used till the 1870s when the debt from the Civil war was paid off but only in inflated dollars and the Financial elite wanted a return to the Gold Standard to preserve their investments.

The next period of Gold inflation took place AFTER the formation of the the Free Silver Movement in the late 1880s. While Inflation ate up a lot of paper money after the Civil War, the ease of using Paper instead of Gold was clear to anyone who hauled gold or silver coins around. During the Civil war, paper money was issued not only in terms of Dollars but even down to three cent paper money. The Nickel was introduced in late 1860s to replace some of the paper money being used at that time (i.e. 3 cent and 5 cent notes). Silver coins did not re-appear in the US market till the 1870s (Which is the worse decade in American Economic history with the possible exception of the Great Depression of the 1930s). Gold coins were also reintroduced at this time but most people were willing to accept paper money called "Gold Certificates" for the Gold held by the Treasury (Each Certificate represented one Gold Dollar in the Treasury's vault). The paper money of less than one Dollar was withdrawn at that time (1870s) but how much Silver coins that were produced was restricted by how much Gold coins the US Produced.

Come the 1880s the economic situation in the rural areas were under strain. Something was needed to give the economy a push (and since most Americans lived in rural areas till the 1920 Census, this problem affected most Americans). People remembered the inflation of the 1850s and 1860s and realized such inflation was needed. A slow inflation based on coinage which by its very nature would NOT get out of hand for the Free Silver people wants to mint Silver Coins NOT print fiat paper money. Silver in the Silver coins of the time period was often only about 60 cents on the Dollar (i.e. a Silver Dollar only had about 60 cents of Silver in it). Thus at best you could only inflate the economy no more than 40 cents. On the other hand the Gold bugs of the time period wanted to keep the number of Silver Coins to Gold Coins to a set limit so no inflation could incur. This dispute became the "Free Silver" Movement.

Democrats joined the movement in 1896. This was a big issue in the election of 1896, but by the Election of 1900 free Coinage of Silver was no longer an issue. Why? Gold Mines had opened up in the late 1890s in South Africa and Australia sending more Gold into the Market causing the Inflation the Free Silver Movement wanted to do with Silver. Thus the Issue was dead, the Gold Bugs had actually lost, for the real issue was for some inflation which the new Gold Mines provided.

My point is to show even GOLD based currency can have inflation, sometime severe (such as when the Gold of California entered the market in the 1850s producing a very large expansion of the gold in the National Economy and with it inflation of every item except Gold) sometime mild (as in the period 1896-1900 and afterward).

The big problem with Gold is you are restricted to how much you can inflate. This can be a good thing for it restricts Government from inflating their debts away, but it is a bad thing for a little inflation can get the economy going when the economy needs a little push.

Thus while I believe the Federal Reserve (The "FED" as it is often called) has expanded the money supply to much and really need to restrict the money supply to keep inflation in check, Gold Currency is NOT the solution, financial discipline is. Gold is NOT financial Discipline but a Straight Jacket that restrict the economy when the economy needs to expand, thus we have to use Fiat Currency for we can inflate such currency to almost nothing, PROVIDED THIS IS DONE OVER DECADES NOT MONTHS. With Gold you can NOT inflate (except if new mines are opened) and thus causes worse problems then inflation (Economic Collapse and unemployment). Thus my position when it comes to the Gold Bugs, you have to take what they say in context of the overall economy and that is best done in the Daily Shock Market watch than anywhere else on this forum.