The Treasury continues on its merry way. I use the phrase "merry way" as a pathetic attempt at humor, but it was the visual slapstick kind, and to get the full flavor of the jest you have to imagine that when I say "merry way" I am making a face where my eyes are crossed, my tongue is hanging out, and I prance around like an demented idiot, all of which implies that things are bizarre.

But it is a poor opportunity for humor, and I apologize for taking the low road. Taking the more serious tack, I say that you had better sit down for this, because it is bad news. These guys have issued, in one freaking month, $140 billion in new debt. Now, if you are like me, you are always looking for opportunities to use a calculator, because you figure that if you do it often enough, then one day you will get the hang of it, and maybe this whole confusing mathematics thing of multiplying and dividing will start to make some sense, even though after all these years of complete befuddlement you have pretty much given up that idea, but continue on through sheer obstinacy. Well, I do, anyway.

So, in that spirit of self-improvement, we turn to our trusty calculator and punch in $140 billion in new debt per month, times twelve months, to calculate the result of an entire year's worth of this kind of debt issuance. Blinking our eyes in stunned disbelief, we spend the next several minutes frantically re-entering the data with one hand while grasping our chests with the other, trying to manually pump the heart until the paramedics can get here. But no. It's always the same result.

Now, before I tell you the actual number, close one eye. In this way, perhaps if you close one-half of your eyes you will prevent one-half of your brain from frying when you read the number. Okay, ready? One and two-thirds trillions of dollars in one year!

See? Now aren't you glad you closed one eye?

The Financial Breaching of the Whale

The NYSE Members have been big net sellers here lately, meaning in the last month. And the Specialists have become markedly more bearish as time goes by, and are accumulating large short positions.

Of course, I don't know why I bother telling you this, because you are so much smarter than a bunch of Members and Specialists, and therefore you couldn't care less what those corrupt weasels do.

But I am not nearly as smart as you, nor nearly as good looking, you handsome devil you, and so I have to take the easy way out and sniff around the footprints of the guys who MAKE the damn market.. I do this because I am operating under the assumption that when you get to make the rules, when you get to know all the big players by their first names, when you have spent your entire working life with the same people doing the same thing, when you get to the point where you know where a lot of the bodies are buried, that you get a kind of feel as to how things are going to unfold, if you catch my drift. And when people have that feel and pull, the greedy and the grubby will find a way to justify that others must be manipulated and cheated, so that they can make a profit.

And speaking of making a profit on it, the Members and Specialists tend to always make a profit in the long run, I've noticed.

Having said that, there is much to be said for the growing derivatives market, and for all I know, when the Members and Specialists buy or sell a stock it is hedged with a derivative, and that leveraged liability is offset with another derivative play, and maybe the asset fraction is separated from the income stream fraction and each tranche is sold off, and the income stream is collateralized and sold for the net present value of the income stream, which is invested in an income stream from a municipal bond fund, which offsets a tax liability which, which, which, I mean, who the hell knows? The potential schemes are only limited by the human imagination. Well, that and money. But the money comes from the Fed, and unbelievable amounts of money is yours for the asking, so all it takes is human imagination.

Part of the standard lore of the stock market, and any market as far as I know, is that at the end of a boom there is a huge blow-off rally. In other genre, it is the Titanic rising one last time before sinking forever beneath the cold, dark waves. In the book "Moby Dick," it is the mortally wounded white whale heaving itself out the water for one last time, Captain Ahab entangled in the ropes of the harpoons stuck in its mighty side, beckoning with his arm for us to follow him, and the whale, to our doom.

In the story of Titanic, the passengers in the lifeboats did not swim back over to the sinking vessel and climb back aboard. In the book "Moby Dick" the seamen did not swim over to the whale and voluntarily entangle themselves in the ropes.

I bring up this absolutely fascinating and priceless pearl of symbolism when I note the graph of the breadth of the NYSE, lo these many months. It seems to rise like an archetypical final market blow-off, up, up into the sky! Blocking out the sun! A final breaching of whale, a final heaving of a sinking ship. Yet, only in the stock market example are the people figuratively climbing back onto the Titanic, or swimming over to cling to the carcass of Moby Dick.

The Dog That Didn't Bark

Marshall Auerback, in a very interesting essay entitled "Argentina, Not Japan," an essay that I am sure will be referenced on many a website, says something that I have long said, but somehow when he says it I have a bigger sense of doom.

We both agree that China is the new Big Boy On The Block. And, he reminds us, these guys are Confucian.

So what are Confucians? I'm not sure, but I remember that this Confucius fella said a lot of funny and off-color one-liners when I was a kid. I know that much, anyway. And they always started off with "Confucius say..." and then it usually had him saying something that pertained either to sex, genitalia or excrement, for the most part. But I have a feeling that there is more to old Confucius than that, as I had never heard that the Chinese had adopted dirty jokes as a political organization.

And it turns out that there IS more to Confucius than that, as I gather from reading the Encyclopedia Brittanica in my usual superficial way. They are, for all practical purposes, the archetypical Jews. Namely, strong sense of reverence for family, strong sense of reverence for history, big-time believers in education and self-improvement, hard work, and generally prospering as such. In fact, the book even says, "Historical consciousness is a defining characteristic of Confucian thought."

So, we have a smart, educated Chinese with strong nationalist, traditionalist and familial fervor. They also have, in case you were wondering, a few thousands of years of pleasantly positive experience with gold. I will soon reveal to you why I make that interesting and cogent observation.

But one thing that I did notice, while I was reading, was literary equivalent of the Dog That Didn't Bark. By this puzzling turn of a phrase I mean that there was nothing that intimated that the Chinese have some special love for foreigners in general, or Americans in particular. Therefore, I assume they are as xenophobic and condescending to foreign cultures as everybody else. Maybe more so.

Now, in one of my reveries, usually after I have accidentally ingested various prescription medications in new and untested ratios, I imagine that if I was the emperor of China, and I wanted to bring the joys of The Chinese Way to the whole world, and wanted to end up ruling the world because us hip Chinese dudes are so naturally superior to everybody else, how would I do that?

One way would be to simply invade, kill everybody, and take over the joint. Big project. Big costs. Bad public image, too.

The better way would be to accumulate gold. Get as much of the world's supply as I can get my hands on, declare a gold standard for the yuan , and eventually, by virtue of the accumulation of all the gold in existence, and the gold standard, and thus a strong currency, and the power of a large, Confucian-unified country with vast potential to industrialize, a unbelievable potential to accumulate and service debt, we Chinese fellas would dwarf the rest of the world in size. And then we would end up ruling the world because it would be impossible for us NOT to end up ruling the world. As the punch line went, "I give you fried rice, you cheap Amelican plicks."

To date, I figure that they are just biding their time. But the time of biding may be about over. They are still maintaining the currency-exchange peg as a huge favor to us, to help us out. For which they will naturally expect some favors in return, especially as regards capital and technology to get the long-awaited Century of China up and running. They've been waiting for thousands of years, so, maybe, what is a few more years? Plus, if they are to get industrialized and modern, they are going to need some customers to sell stuff to. Thus, maybe they are hoping that we Americans will continue to soak up their industrial output, and maintaining the yuan-dollar peg is just what the doctor ordered.

Plus, it gives China a weak and falling currency, as the falling dollar drags it down, to the dismay of the other neighboring exporting Asian tigers, who are suffering due to their currency appreciating against the dollar.

So, would the inevitable floating of the yuan mean that the dollar will almost certainly sink more? Is the dollar being artificially held up by the yuan? And thus the hoard of dollar-denominated assets that the whole region is sitting on, in fact the whole freaking world is sitting on, will go down in value, when computed in yuan? And that means a loss? A big loss? A very big, huge loss? A gargantuan freaking loss for somebody?

And so this may explain some of the weird, and I am talking weird with a capital W, as in Weird Things, that have been going on in the stock, bond, futures and options markets. Not to mention, of course, the gold market.

And in this light, the words of Marshall Auerback seem especially chilling. He writes, "The Chinese will let the peg go on for as long as it suits their interests, which are oriented around mercantilism, stability, and working through the myriad of financial and social problems they face. When they make the break from the dollar tie, it is highly conceivable they will have stockpiled a huge amount of gold to back their unit (which may also explain why the Chinese government has been so reticent to provide full disclosure on its official sector purchases of gold over the past decade). Once they feel they have those in order, then they make a play toward becoming the Asian region's reserve currency and ultimately the world's preferred currency."

And why would they want to make a play towards "becoming the Asian region's reserve currency and ultimately the world's preferred currency"? Well, we spent a century bringing the joys of America and Americanism to every part of the globe, often delivered by handsome and rugged American guys wielding machine guns and nuclear weapons on their brawny shoulders.

The Russians spent a good deal of that same century taking the joys of communism and Sovietism to the globe, too. Before that we had the Spanish trying to bring the joys of Spanish imperialism to the world, and the French and the English, too, in their times. And let's not forget the Germans in WWII. And now all we have to do is turn on the TV and we see that religious fanatics intent on bringing the joys of Islam to the world via the expedient of blowing people up. But you think these the only guys who want to rule the world? Hahahaha! You crack me up! Hell, I personally have a desire to rule the world! And believe me that if I ever get to be Emperor of the World, the first thing I will do is to hire you to come to my sumptuous palace and tell me more jokes like that! You are one funny guy! Hahahaha!

Market Meddling

The Barron's Gold Mining Index hit a new 52-week high, a fact that is conspicuously absent from mainstream reporting.

The number of S&P 500 futures contracts exploded to a huge new record just before expiration. Being a big believer in conspiracy theories, especially ones that involve government meddling, I naturally look at "outside events" like this with a lot of interest.

This wholesale buying of futures, probably including the Fed, may seem unconventional to you and us doofus people who still laboring under the impression that America has free markets. But remember that the Fed is on record as saying that they will stoop to anything, no matter how stupid, no matter how corrupt, no matter how low, filthy or underhanded, no matter how legal or maybe illegal, no matter how many pornographic web-sites they have to subscribe to, but dang-nabbit this economy IS going to respond to monetary stimulation or everybody will die trying. And getting out our secret decoder rings, we decipher that when they say "to respond," it means to "go up in price." And by "everybody," they mean "you."

But I figure that the market is being rigged also for the foreign holders of US assets, who are probably getting verrrrrrryyyy nervous right about now. And who want to sell. But it is such an enormous pile that selling that gigantic load of US assets would have seismic repercussions of such size that they would probably destroy the world. Perhaps unleashing Godzilla who is, as I recall, slumbering under a mountain outside of Japan, and believe me when I tell you that releasing Godzilla, or any giant, destructive, rampaging primordial creature, is the last thing that the economy needs right now.

A solicitous reader named Hans Martin was depressed to read that I have been occasionally lost for words when describing the horrific stuff that the government does, as regards monetary and fiscal policy, and recommends "Euphuistic clap-trap," which he assures me is defined in the Webster New World College dictionary as "artificial, affected, high-flown style of speaking + showy, insincere, empty talk, expression etc. intended only to get applause or notice." I cannot verify this, of course, since the only copy of that Webster's locally is in the library, and the librarian there won't let me use the dictionary anymore, since she is sure that I and my hoodlum friends only use it to look up naughty words and then disrupt the whole place with giggling and poking each other and having a fun time. So we will accept Mr. Martin's report as factual.

Well, as grateful as I am, and with all due respect, I will soon again be writing about the egregious policy errors being made in monetary and fiscal policy, for the twin purposes of 1) holding those guys up to public ridicule, because that is what they deserve and that is the kind of lowlife gadfly bastard I am, and 2) having something to do with my day other than hiding in the closet and whimpering in terror from THINKING about the egregious errors being made in fiscal and monetary policy. And since he has the dictionary so damn handy, how about him supplying me with a word that means, "consciously doing something that you know is wrong, because it has been wrong every time any government has tried it for the entire course of human history, but now they are trying it again for some bizarre reason that is apparently not connected to reality as we know it, and expecting that now, after it has failed every single freaking time it has ever been tried, it will somehow work this one damn time and surprise the hell out of everybody, and shut me up once and for all, and the handsome prince marries the beautiful princess and they all ride off into the sunset on white horses and everybody lives happily ever after."

In MY dictionary, the one that in which I insert new words that I make up in the margins, this is my definition of "Democrat Party, The," but actually that is more of a phrase, and not a word. And even that definition is getting to be so "old school" now that the Republicans are now acting the same way, only worse, to my everlasting sorrow and shame. So maybe the word that fits that definition should be "Politicians and Federal Reserve Chairmen," which is STILL a damn phrase, and so obviously I need Mr. Martin's help more than ever in finding that perfect word.

Nonetheless, this buddy of mine named Kevin, aka Dr, O, well, he will be my buddy again if I ever pay him the money I owe him, and there is a slim chance of that ever happening since if I had any money I would certainly use it to buy a refill on some of my prescriptions so that I could connect with reality long enough to at least open the mail to see if I won the Publisher's Clearing House Sweepstakes, and that would be sweet indeed, and maybe pay a few bills, maybe a few of those that are marked "last notice" and especially those that say "We're coming over there to your house to shake some money out of you, deadbeat," has taken my bad advice and obtained a copy of the book entitled "Fiat Money Inflation in France," and now hates my guts for it, because now he is scared of the future of America, too. Furthermore, his marriage is probably starting to founder on the rocks because of that book, as he did not take the precaution, as I did, of marrying a woman who doesn't give a rat's ass one way or the other whether he lived or died, or whether he was panicked and borderline suicidal about monetary policy or not, and whose only demand is that if he DID die, then just go ahead and do it and get it over with, because she is getting a little more-than-tired of hearing his whining about economics-this and economics-that, so just go do it outside, for Pete's sake, so it won't make a mess in here because she doesn't want to clean up any more damn messes.

But he is right to be scared, because this is the book that actually contains the blueprint for the disaster waiting for us.

Because, as Henry Hazlitt himself so eloquently put it in his 1959 introduction to this book of extraordinary horror, "The broad pattern of all inflations, historic and modern, is the same. It is the persistence of delusions. The arguments of the inflationists, then and now, are essentially the same. The inflation in revolutionary France was begun to pay off a debt, and finance a budgetary deficit. Inflation was to be the short road to prosperity."

To which I will add, circa today, in my own little foreword, "And the inflation in twenty-first century America was begun to pay off a huge piles of debts, too, debts so big that those wimpy French bastards would have choked on their baguettes and hopped around comically saying "Sacre Bleu and oui oui oui, I am - how do you American swine say? - choking! Oui oui oui!" if they had faced debts even HALF as big as we have right freaking now, even a QUARTER as big, so don't get me started on how the freaking French had it so bad, boo hoo hoo. And now we are doing the same damn thing, to finance a huge, grotesque budgetary deficit, AND at the same freaking time, and you will note by the way my eyes pop out of their sockets and the spittle that flies off my quivering lips as I say this, that this is something very bad, as they are proposing a new, massively expensive prescription drug benefit on top of a massive, record-exploding budget deficit! And tax rebates! And lower taxes! And waging continual, low-key international wars! And paying more money to the states! And the installation of a bigger Police State both domestically and internationally, so that government can keep its hobnailed boot on our nasty proletariat necks in case we start getting uppity and maybe out of line, and if you want to see how well THAT works out then go and read George Orwell's book '1984' again."

To which I add, with a certain smug satisfaction, that in eighteenth-century France it was us proletariat necks that eventually applied the guillotine to the wearers of the hobnailed boots. So when it comes time to choose sides, and it will, you might want to remember that fascinating little historical tidbit.

A nice reader wrote in to the Daily Reckoning website, and asked if there was anything anyone could do to save our economic butts, or are we necessarily doomed? Well, I used to think so. And then I got an e-mail that opened my eyes.

A guy name Bow Slightly wrote, "Have you heard about the Mormon crickets that are overrunning the west? There are 110 million acres with something like 20,000 crickets per acre. I figure that at roughly c, of course) we could make about $44 trillion on the idea. Not only would this solve Medicare, Social Security and the hungry-critter problem, but it would also give us something to ship back to China in all those containers that just pile up on the western docks."

The interesting thing about this is that just the other day I was commenting that we needed a burst of genius, and lo and behold, Mr. Slightly has come through for us. And now that he has enlightened us, all there is left for us to do is slap ourselves on the forehead and say "Of course! It's so obvious now! Thank you, Mr. Slightly!"

This is SO much better than the government's idea to fill those containers with dollar bills and American jobs! This way, we can keep the money AND the jobs, right here in America! And make new careers possible, namely cricket rounder-upper, or cricket cowboy! Yaaa-hooo! Ride 'em, cowboy!

Of course, if this DOESN'T work, then yes, we are doomed.

Laughably Low, Historically Aberrant & Artificially Collapsed Interest Rates

Treasurers big and small, short and tall, and anybody that has the authority to issue debt, or even just the vague desire to issue debt, or those who have it suggested to them to issue debt, or those who didn't even know they were authorizing the issuance of debt, both public and private, anywhere in the world, is, you guessed it, issuing debt. And the Fed is, I assume, in on the plan.

I'm not sure that there is anyone alive today that doubts the axiom that price inflation is the inexorable lagged result of previous monetary inflation. So, when the Fed is producing money like this, you can be pretty certain that price inflation is incubating and that one day it will appear in a form so murderous that it will gnaw your legs off. So if you now know that interest rates will be higher in the future, here's what we do today: issue debt, and lots and lots of it, at these laughably low, historically aberrant, artificially collapsed interest rates.

By doing that, when interest rates DO rise in response to the rise in price inflation, then we will be in the envious position of having money that we borrowed, owing the money at rates that cost us almost nothing, while at the same time investing in the rising short-term rates, and getting a current yield that is big enough to pay the vig AND enough to give ourselves some nice pay and bonuses and stuff! And, if interest rates keep rising because price inflation keeps rising, then we end up making more and more money the whole time!

Man! This is so cool! Of course, this is the dream of investors since the invention of investing in financial assets. The problem is, that to make it work, there has to be someone stupid enough to take the stinky end of the stick. And that is the rub. That is always the rub. Namely, people are usually reluctant to grasp the end of a stick that is stinky.

The problem is that, historically, the number of really stupid people with money to burn, who are willing to lock up their money long-term, at rates so low that they appear only a couple of times per century, is tiny. Miniscule. Microscopic. Virtually non-existent.

In fact, this valuable insight is the gist of my latest ridiculous attempt to win that elusive and totally undeserved Nobel Prize and all that glorious money. So, sit down, get comfy, and allow me to introduce my new theory that, like physics, economics has particles.

Starting off with the most pompous and pretentious tone of voice I can affect, I postulate that while nuclear physics has the neutron and boson and quarks and such, economics has, among other things, the Poor Moron and the Rich Moron particles. The Rich Moron is an unstable particle, and is almost always produced by money being randomly shot into the nucleus of a Poor Moron, which is the predominant particle in the economics universe, and which has given rise to the folksy phrase "There is nothing more common than a Poor Moron, which is the predominant particle in the economics universe."

In practice, when money is shot into the nucleus of the Poor Moron by a dead Rich Relative particle, a Lottery Quirk particle, or the G-man Transfer Force, it becomes a Rich Moron.

The Rich Moron is a very short-lived particle, because it is always attacked by the predator particle, the Smart Conmanquark. Therefore, the Rich Moron particle has actually only been theorized, because it rapidly decays into two particles, another Poor Moron and a Rich Conmanquark.

The other two particles in this exciting new Mogambo Economic Universe are the Rich Smart and the Poor Smart particles. The Poor Smart particle does not have the required money mass to sustain a chain reaction, and even if it did, is would merely become a Rich Smart particle, which, as we have seen, is not likely to be reactive. In fact, there is no particle accelerator powerful enough to separate the Rich Smart particle into its pieces, except through the Tax Black Hole, which merely replaces one set of problems with another.

The Poor Moron and the Poor Smart particles usually don't have any money. There are no Rich Moron particles, and the Rich Smart particles are involved in reactions that certainly DON'T involve them tying up their money at ridiculously low rates for long periods of time, because they know that rising prices and rising interest rates are inevitable. And remember, that to make this whole thing work you need people who have plenty of stupid, AND plenty of money.

Now, enter the Fed.

Paul Krugman says, "Meanwhile, the average stock is selling at 31 times earnings, twice the historical norm. And if you take into account pension liabilities and the cost of stock options, that number goes above 40."

And why in God's name would I NOT want to take into account pension liabilities and the cost of stock options?

Christopher Byron, has said something that I, too, think. "King Bloviator has created the greatest decade of volatility and uncertainty the stock market has known since the boom era of the 1920s developed into the Depression of the 1930s. For that he now wears the crown as America's Worst Federal Reserve Chairman Ever - worse even than Arthur Burns."

King Bloviator. Man, that is such a neat phrase, since the word "bloviate" is not one I usually hear by hanging out with my hoodlum friends, sneaking off to the far end of the playground, sneaking cigarettes and making crude jokes about the girls, especially that Mary Sue, who thinks she's so hot. But the important thing to note is that I was among the first to declare that Alan Greenspan is the worst Fed chairman ever, having done so in the mid-90's, and now Mr. Byron thinks so, too. That's two of us. And I am sure I can count on your vote, too. So that's at least three of us who think that Alan Greenspan is the worst Fed chairman in the history of the Fed.

Wise and Timeless Advice

Scanning the vast intellectual wasteland with my binoculars, looking for intelligent life, I spotted a superb specimen called Bob Hoye, and who is one of those Bright, Educated and Literate animals that make you shake your head in gleeful surprise. So it is particularly delightful to me to be able to record in my Audubon book that today, at 8:45 a.m., I spotted one of that rate species of human, providing more evidence that the Plumed Bright Educated and Literate male, always feared as nearing extinction, has not disappeared entirely. And this particular specimen of that rara avis wrote a very interesting little article entitled, "Inflation, Disinflation and Deflation."

First off, he says, "Inflation is an extraordinary expansion of credit associated with soaring prices. This can be against tangible or financial assets and the way history works is that a bubble in real assets has preceded every bubble in financials by nine years but never both at the same time." Now, this is very interesting to me, since I had never heard this before, and it always takes awhile for things to sink in. Nine years. Hmm. And never at the same time. Hmm, again. Oh, I'm sure that for YOU and your stratospheric IQ this stuff is easy, and actually intuitive, and you are spending the time waiting for me to catch up with your effortless mental gymnastics by inventing wonderful new ways to allow someone as stupid as me to get along in the real world, watching impatiently as I slowly turn over each word in my mind, vainly attempting to vaguely comprehend the situation.

I really like his next definition, "Disinflation is a more recent term and it has been reasonably used to describe the lack of soaring prices for tangibles that is the feature of every financial mania." Cute, and so subtle in the humor department that I was only aware of it by the way it slightly rustled my hair as it flew over my head. Well, the truth is that it was actually so far over my head that I was aware of it only by the contrails. But he is right, in that disinflation is a new word. Nowhere else in history has anyone ever worried about it. They simply referred to it as "the long-sought-after respite of stable-to-gently-falling prices" that is the worthy goal of a government of educated and intelligent people. That being the case, you can see why the current crop of Congressional weenies and Fed doffuses are fighting it so hard.

Now, this is all well and good, and we can readily see that is going to be on the final exam and all, but I raise my hand and ask "Professor Hoye, sir, I was wondering, in fact we are ALL wondering, how do we proletariat boobs out here make a few bucks out on this revelatory insight?" I think he answers our query by saying, "Minor deflation has followed the great booms in tangible assets and severe deflations have been the consequence of New Financial Eras and their culminating bubbles."

The practical application of the answer is simplicity itself; sell short, because a major deflation has followed all other great financial booms. Sell high, then buy low. For those of us who are queasy about going short against a Fed and Congress who are pouring raw gasoline on the smoldering ashes of the real economy, ex-stocks, ex-bonds, ex-house prices, is there some other way?

Once again, Mr. Hoye demonstrates his awesome mental powers, and seems to anticipate THAT question, too. He writes, "Will the New Financial Era that ended in 2000 be followed by a traditional example of severe deflation with weak prices for financial and tangible assets forcing a credit contraction? Will gold provide the liquidity needed in such a crisis as well as the typical outstanding performance seen in other post-bubble periods? History suggests yes and probability can provide some guidance. While there is no guarantee that it will happen yet again, there is no guarantee that it won't."

And this brings up one of the pearls of wisdom that I characterize as Wise and Timeless Advice; "The race is not always won by the swiftest, nor the battle to the strongest, but that is the way to bet."

And did you note the reference to gold?

The disclaimer by David Tice and Associates, the people responsible for the Prudent Bear website where this was posted, at the bottom of this fabulous essay wrote, "Opinions expressed are not necessarily those of David W. Tice & Associates, LLC." But since we just went over how to bet, let me hasten over to the betting tables and lay down some long green on the wager that what Mr. Hoye says IS the exact same opinion, and I'm talking the exact same down to the smallest semicolon opinion, probably the exact same opinion as far as even the formatting options are concerned, for crying out loud, as Mr. Tice and his Associates. Because if they aren't, then they should be. Because Mr. Hoye's opinions are pretty much exactly like mine, but without the frantic paranoia and hysterical outrage, and I demand that all people agree with me. And now, with Mr. Hoye, too. And we figure that if anybody doesn't agree with us, then there is something wrong with them. And if there is one thing that I am pretty sure of, it is that there is nothing wrong with David Tice, nor his Associates.

Just Say No to Rate Cuts

Martin Weiss, he of the Safe Money Report, writes, "No matter what Greenspan does with interest rates this week, the move will backfire." The nub of his argument is that a cut of a quarter of a percent cut will be disappointing, a half-point cut will indicate panic, and no cut at all will cause the markets to go down since a quarter-point has already been factored into prices.

He sums up with "No matter what the Fed Chairman does, it's likely to lead to fast-moving markets, ending in a sharp decline."

Philip Spicer, handsome and brave chairman of the Central Fund of Canada, one of the few gold and silver bullion depositories, opines that "Credit availability has now reached greater excess than in the 1920s." Man, I heard that! The clear-thinking Mr. Spicer must be of the same opinion as Brian S. Wesbury, who is the chief economist at Griffin, Kubik, Stephens and Thompson, who wrote an op-ed piece in the WSJ entitled "Just Say No to Rate Cuts."

Mr. Wesbury starts off with "The Federal Reserve us poised to cut interest rates even further this week. But, instead of asking by how much, the markets should be asking, why?" He then goes on to show that there is ample liquidity everywhere, and there is no shortage of money, and indeed the whole country seems to be sloshing around up to its collective ankles in rain and money. The rain will eventually stop, but there doesn't seem to be any theorized end to the flood of money that is coming out of the central banks.

Mr. Wesbury also brings up the unpleasant fact that, "Don't forget; there are two sides to the interest rates coin." By this exquisite phrase he reminds us that there are a hell of a lot of fixed-income people, and many, many people who depend on the interest on their puny savings accounts, certificates of deposit and money market funds. Over the last two years, this bedeviled cohort has seen their interest income slashed by 80%. Show me another group of people who have had their incomes slashed by 80% and who kept on spending.

The casualties of Greenspan's War on Interest Rates are these people. And not only are these people getting slaughtered, they will have to endure even more slaughter in the future. Because I have no doubt that Greenspan has no interest whatsoever in inflation, the dollar, the economy, America, or the world, and he will do anything that his little par-brain can dream up to keep interest rates at confiscatory levels, so that you and I will be forced to spend our money on something, anything, rather than watch its purchasing power wither away to insignificance. Which it will, as we still have to endure the roaring price inflation that is now our destiny.

Speaking of which, more and more people are waking up to the fact that price inflation is actually nearer 5% than at the much lower advertised rate that we get from the government statistical weenies. And it will get worse, much worse, from here. Ugh.

--- Mogambo Sez: You don't need a crystal ball to realize that something bad will be here very soon.

The Mogambo Guru Lives!

Richard Daughty,
for The Daily Reckoning
www.dailyreckoning.com

28 June 2003

Richard Daughty is general partner and C.O.O. for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise the better to heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning, and other fine publications.