-- Posted Monday, 1 May 2006 | Digg This Article

London, England

Monday, May 01, 2006

---------------------

*** The wicked world of money...the President's Budget that shows not
what is, but what he wishes were...

*** Nature has found the United States too big for her britches...a
banana republic - sans the bananas...

*** The unhappiest people in the world...no assets - but no debt,
either...and more!

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The world of money - oh, what a wicked world it is!

We will return to our report from our Easter vacation below, but first let
us check in on the Financial Times from whence comes a report on the sorry
state of U.S. federal finances. The "President's Budget" shows a deficit
of $319 billion for this fiscal year. But the president's financial
intelligence is subject to the same persuasion as his strategic
intelligence; his budget shows not what is, but what he wished were.

The U.S. Treasury Department also produces its own budget, called the
"Financial Report of the US." It shows a budget deficit of twice as much:
$760 billion. The difference between the two is that the U.S. Treasury
Department prepares the budget more or less as every company must - on an
accrual basis. It takes into account not only cash outlays, but contracts
and commitments. The President's Budget is merely a statement of cash in,
cash out. Were GM and Ford to account for their businesses that way,
they'd be gushing profits, too!

The U.S. Treasury Department also comes up with a number for how much
Americans actually owe, thanks to federal deficits. Are you sitting down?
It's a chunky number: $750,000 per household. That's what you get when you
take the total commitments of the feds - $49 trillion -and divide them by
the number of families.

The Financial Times goes on to note that it took 204 years for the U.S.
government to accumulate its first $1 trillion in debt. Now, it adds that
much every 18 months. George W. Bush has added more debt than any
president who ever lived. In fact, he's added more debt than all the
presidents who ever lived...combined.

But as we keep saying, nature abhors a vacuum and it loathes a monopoly.
When the Soviet Union collapsed, the United States stepped into a vacuum.
It became the world's only superpower, with practically a monopoly on the
use of state-sponsored violence. Nature must have found the United States
too big for her britches, and decided to find a way to take her down a
peg. She came up with George W. Bush.

How long can the world fail to notice? The United States has been running
up debt as if it were a banana republic - only without the bananas, even
though for the last 18 months or so, the dollar has actually gone up. But,
how long could that trend last? Not long, was our guess. Looking at a
chart today, it looks as though it came to an end in December. Since then,
the dollar has trended down.

And last week, Ben Bernanke came out with a warning: maybe the Fed
wouldn't keep raising rates after all. The currency markets shuttered. The
dollar dropped, but what were speculators going to do? They looked around
and found the anti-dollar. The one thing that has been rising relentlessly
ever year of the Bush administration: gold. The yellow metal surged; June
contracts rose above $638.

What can we say? There's a bull market in gold, and a bear market in
paper. So far, only the dollar has been noticeably affected, but it is
just a matter of time before other paper is, too - bonds, stocks,
mortgages, and derivatives.

Watch this space.

[Ed. Note: The 2,347-page, 11-pound monstrosity that is the proposed U.S.
budget for 2007 shows that our government intends to spend $2.77 trillion
next fiscal year. Add that big of a total expense to our already dizzying
National Debt. More than $439 billion of that total is earmarked for
helping our military wage this ongoing Terror War.

How much longer can America go on spending money that we don't have?
According to this report, not too much longer:

How to Lose an Empire in 3,000 Years or Less
http://www.isecureonline.com/Reports/DRI/EDRIG413

Now, more news from our currency counselor...

--------------

Chris Gaffney, reporting from the EverBank world currency trading desk in
St. Louis:

"The United States released a report that showed the U.S. economy grew at
an annual pace of 4.8 percent in the first quarter, the fastest in more
than two years."

For the rest of this story, and for more insights into the currency
markets, see today's issue of

The Daily Pfennig
http://dailyreckoning.com/Writers/Butler/Articles/050106.html

--------------

Bill Bonner with more on what happened in Argentina...but first, a couple
notes from Addison in Baltimore...

*** You may recall, dear reader, back in November we sent 537 copies of
our book to Washington, along with this letter:

Open Letter to Congress
http://www.dailyreckoning.com/CongressionalLetter.html

Calling the letters we got back in return "replies" would be gratuitous;
you'd find more sincerity in a Department of Motor Vehicles license
application.

But that was the point of the exercise. We published a handful here in The
Daily Reckoning. We wanted to show that even if members of Congress are
privately concerned about profligacy in the capital city, the political
climate not only condones such largesse...it cries out for it.

Now we're trying something new. We bought billboard space on the back of a
bus that circles the Capitol Building. And 10 back-lit kiosk space in
metro stations in the vicinity.

At this point, we may just be amusing ourselves. But we're told they go
live today. Stay tuned...

*** You may also find us high in the air, too. In an attempt to reach
businessmen flying from New York to Los Angeles we did an interview with
SkyRadio. For the next month you can listen in on the Forbes In-Flight
Radio on American Airlines. In May and June you can find us on the
Newsweek channel on USAir.

Then...we go international. In May and June we'll also be featured on
Northwestern flights to Asian ports of call.

Listen in, if you can...we guarantee a fitful rest on your flight.

*** In the interest of full disclosure, we are making two big financial
bets. One is on gold and the other is on Argentina. In the weeks ahead,
your editor will try to explain why. For now, more about the trip:

The unhappiest people in the world...

It was already starting to get dark when we made it back to our camp. We
had been riding for most of the day and were ready for a little rest. Not
only that, Jorge and Francisco had promised to prepare a nice meal and we
were beginning to know what that meant. They'd cook pieces of beef over a
campfire and serve them with Maria's bread, and wine from nearby Colome.

We were barely off our horses before the small fire was started, next to
an irrigation canal. The mountains behind us were already purple and
mauve, but Elizabeth decided to explore a little on foot, along the
riverbank, in the last of the daylight. We followed along like an old
hound.

The camp had been pitched in a green oasis, where the farmers grew alfalfa
and brought the cattle down from the high range when the grass gave out.

"These are reserved pastures," Jorge told us, which explained the tree
branches and dried-out thorn bushes piled up in a long thread to fence out
the cattle.

Once inside the fence, we discovered an abandoned orchard, where the grass
had been closely cropped as if by sheep. Most of the trees looked like
plums, but there was no fruit on them so we couldn't be sure. There were
also a few walnuts.

"I love walnuts," Elizabeth declared. She tried one and pronounced it much
better than the walnuts in Europe. We bent down to help her collect more
until our pockets were bulging. Then, we set off again, continuing along
the riverbank until we ran across the ruins of a stone house.

Only two walls were still standing, but we could make out the piles of
stone where the rest of it had collapsed. It stood between the orchard and
a large field of alfalfa, looking out over the river and the mountains on
the other side. We saw that the horses we had been riding had been hobbled
and turned loose in the pasture where they were greedily tearing up the
green grass after a day of hard work.

"What a beautiful spot," we thought. At the edge of the river, the gauchos
had piled up hay into the shape and size of a Mongolian's yurt and had
surrounded it with more branches and thorns as an extra protection against
intruding cattle. The only noise we could hear was made by the rushing
water - it sounded a bit like a broken pipe.

We looked around. North, south, east and west - there was no view that was
not extraordinarily pretty. And yet, the only people who lived here were a
couple of aging locals, Felipe and Carmella, both in their '70s and both
notably cheerful.

"Are you the new patron?" Felipe had asked us earlier in the day, smiling
broadly and taking off his hat to reveal a thick head of dark hair, grey
only at the edges. When we assented, Felipe not only took our hand, but he
put his arm around us.

"Welcome, patron," he said.

Felipe's wife is a very thin and spry woman, with a smile missing two
front teeth, but she smiles almost perpetually, in a way that reminds us,
vaguely, of Lauren Bacall. She must have been cute 30 or 40 years ago, we
thought. Now she has a friendly, helpful demeanor. Henry had forgotten his
hat when he left the ranch house. Noticing this, Carmella had asked if he
would like to borrow one, then turned and sprinted back to the farmhouse
to return with a black hat, similar to the one worn by the Cisco Kid, for
him.

Seven hours later, here we were, looking up from the riverbank, across the
field of alfalfa, and the only human habitation we could see was hers. It
is the only one in that little oasis, and we saw only a small piece of it
through the trees - an eroded adobe wall topped with a mud roof.

The sun is so hot and the weather so dry in this part of the world that
you can build a roof out of wet clay. You just lay some beams or even
cactus boards across the walls. Then, you cover the roof with bamboo or
other smallish sticks, put some straw or pampas grass on top, and finally,
cover the whole thing with mud.

The sun will bake the mud into a hard tile. You just have to face it up
with new mud every year or so. Not a whole lot of money needs to be
involved in the process, we imagine.

"Really, all this emphasis on showing off by spending money, " Maria
began. "I mean, what we see in London...people who drive down the street
in those big Hummers. In central London! Can you imagine anything so
ridiculous? They just do it to show how rich they are. But what's the
point? It seems to me that these people live better, in many ways, than we
do."

Any wonder, dear reader, that we are becoming more and more suspicious of
the green stuff? Everywhere we look we see it attached to frauds,
mountebanks, swindles, and humbugs. We might as well be in a joint session
of Congress.

Dollars themselves are no less of a scam, pretending to be more valuable
than they actually are. But that doesn't stop people from wanting them.
They schlep and tote, sweat and strain - eight, 10, 12 hours a day - just
to get more of them. And then what happens? The dollars go back whence
they came. They are spent, lost, squandered - one way or another. Sooner
or later, every dollar that ever existed must go back into the ether. What
is there to show for them? Gadgets, health care, education - how much of
it is really worthwhile? Our guess: not much.

Felipe and Marcella are penniless. They live in a house with no running
water, no electricity, and no telephone. It cost them nothing to build.
They have no utility bills. They have no automobile. They have no way to
buy things.

Yet, as near as we can tell, they are both happy and healthy, and enjoying
life in one of the most attractive places on Earth.

By comparison, your editor is a rich man. He works for his money - if you
can call writing The Daily Reckoning work - but what does he get for it?
Only more choices: He can go where he wants and do what he pleases. If he
wants a new pair of shoes, he can buy them.

But what does he choose to do with his money? He takes an expensive
vacation in South America. Why does he do that? Because, it makes him
happy. What does he do on his vacation? He goes to places were people have
no money. If he likes these places so much, why doesn't he just stay
there? Because, he could not make any money there. And if he could not
earn money, he would be unable to afford to take a vacation. Think how
unhappy he would be if he couldn't take a vacation!

Besides, his status depends on money. No, your editor is not fool enough
to want to give up his privileged life of 12-hour workdays. His cup
runneth over with frequent flyer miles. He gets invited to the Jockey Club
in Buenos Aires. And, Felipe calls him 'patron.'

But Felipe and Marcella live in a kind of paradise. They have fruit from
their trees, meat and milk from their animals, and vegetables from their
garden. They have sun 335 days a year. They have no trouble with
neighbors.

Felipe and Marcella have no taxes to pay, no parking places to look for,
no club memberships, no fancy cars, no McMansions, no mortgages and no
credit cards.

Statistically, Felipe and Marcella are about as rich as the average
American couple. They have no assets, it is true, but they have no debts
either. They entered the world with nothing. They will take nothing out
with them, nor leave behind them any bills for their children and
grandchildren to reckon with.

"Patron," said Felipe as we were mounting our horses for the ride back to
the house, "we hope you will come back soon."

We'd like to, but we can only come when we can take a vacation. So, we
probably won't be back until next year, we explained.

Felipe looked puzzled. Maybe it was our bad Spanish. Or, maybe it was the
idea of 'vacation.' You could not tell it from looking at them, but Felipe
and Marcella must be among the unhappiest people in the world; they never
get a vacation. It might be that they don't even know what a vacation is.

[Ed. Note: The 2,347-page, 11-pound monstrosity that is the proposed U.S.
budget for 2007 shows that our government intends to spend $2.77 trillion
next fiscal year. Add that big of a total expense to our already dizzying
National Debt. More than $439 billion of that total is earmarked for
helping our military wage this ongoing Terror War.

How much longer can America go on spending money that we don't have?
According to this report, not too much longer:

How to Lose an Empire in 3,000 Years or Less
http://www1.youreletters.com/t/359014/4459110/787310/0/

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In the next 22 minutes, 100 Americans will die under the care of sincere
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the real story here, right now...

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---------------------

The Daily Reckoning PRESENTS: Good news - everyone's favorite masked
economist has found a way to make a "whole gigantic humongous ton of
money with gold." Read on...

PURE ECONOMIC SALVATION
by The Mogambo Guru

Several readers have challenged me to explain how the gold lease rates
can manipulate the price of gold up and down. I smile, as nothing could
be easier, my precious Mogambo grasshoppers! And, there is nothing I like
better than something that is "easy," unless it is something that is
tasty. And so, pizza delivery gets very, very high marks for being both
easy and tasty.

So, I smile beatifically and rub my fat little tummy in satisfaction,
which is, even as we speak, growling for more pizza or fewer donuts.

Nevertheless, I say, "Hear me now, my quizzical ones! First, tell me all
the ways - all the sleazy, slimy, slippery ways that you can manipulate
markets when you control everything and have the Federal Reserve, a
supplier of seemingly endless amounts of gold at very cheap rates, as a
willing co-conspirator. There must be a zillion ways right there!
Hahaha!"

My laughter ringing hollowly in their ears, I ruthlessly went on, "And on
top of that, tell me more ways to make a profit by insiders manipulating
the gold market if they are also free to use any combination of leased
gold bullion, market-provided gold bullion, custodial gold, certificate
gold, gold mining shares, mutual fund's gold shares, warrants, futures,
options, private contracts, promissory notes, poker chips and side bets!
Hahaha! That ought to be good for a few gazillion ways to profit right
there!

"And then, tell me all the more ways you can profit from manipulating the
gold market if you can also take a short position in any or all of those
things, too! Hahaha! And then, as if that is not enough, tell me all the
additional ways to make a profit manipulating a market when the money to
finance all of this insanity is provided by Japan and their
zero-interest-rate policy!"

I dramatically pause to let my words sink in - ruined by an inadvertent
big, burping belch ("Burrrrrp!). Hurriedly, I exclaim a little too
loudly, "Tell me these things, my Young Mogambo Larvae (YML), and I will
tell you exactly how it is done!"

I look over the crowd assembled at my feet and glare purposefully at the
ones nearest my feet who are harshing my buzz by loudly complaining about
the smell. Then, I smile and say, "All you really need to know, my Greedy
Little Ones (GLOs), to make a whole gigantic humongous ton of money with
gold, is to buy it when you see that the price is held down by these
manipulations! Huge multiples of the total existing global supply of gold
is now mere paper, traded as if it were gold, which it ain't, and
probably never was. By now, the only thing that flimsy promissory note has
in connection to gold is some words on paper or a computer disk somewhere.
It will end badly for them. And, it won't be long in coming."

Amid cries of "Prove it, mighty Mogambo," and "Show us the proof, idiot
Mogambo," I grab the microphone and speak in my most Profound Mogambo
Voice (PMV): "To prove it, my Precious Mogambo Grasshoppers (PMG), you
would have to prove that all the millions of Wall Street hotshots, Nynex
hotshots, Comex hotshots, bullion-bank hotshots, foreign-central-bank
hotshots, trader hotshots - and all their secretaries and underlings and
friends and insiders - are all just Too Darn Stupid (TDS) to come up with
some way to make money out of a sure thing!"

Then, I chortle, "And, it can work until the scam gets overwhelmed by
sheer physical demand by millions of people, perhaps billions of people,
who are all coming to their economic senses and are scrambling to buy
silver and gold against the coming economic hard times, driving prices
relentlessly up and up and up, as gold will be, just like it always has
been, Pure Economic Salvation (PES) for people, as protection from the
unstoppable depreciation in the purchasing power of the money caused by a
huge government, which is massively deficit-spending a massively
inflating stock of fiat currency based on debt, multiplied by an insanely
low fractional-reserve ratio in the banks! Just like it has in all of
history, and just like now! Hahaha! Now you know why I laugh!"

Then, dismissively, I point to the door and exclaim, "Go thee now! Go!
Hie thee to thy places of gold and silver exchange, and buy, buy, buy!"

Soon, the place is deserted, and everybody has gone home, mostly
muttering how they feel stupid even listening to an idiot like me. They
whisper hateful things back and forth, like, "Did you get a whiff of those feet?
Pee-yew!" Everybody laughs.

Whether or not you believe a raving lunatic like The Mogambo (and you
would be an idiot if you did), the gold lease rates had again fallen
(over the last 10 days) to a singularity (a strange situation where
leasing gold short-term costs the same as leasing long-term!) in the last two
days.

Sure enough, right on schedule, the price of gold soon had a huge
downdraft! You want more proof than flimsy, sheer coincidence? I shake my
head in wonder, as you are not nearly as paranoid as you need to be, nor
nearly as paranoid and angry as you are soon going to be.

By the way, if you check your Mogambo Handy Handbook (MHH), you will
notice that I advocate that you take physical possession of gold and
silver bullion. One reason is that once you have it paid for and in hand,
your annual costs go to zero, whereas brokerage accounts and mutual funds
are always hitting you with fees and commissions, expenses, taxes and
levies until one day you cry out: "They're stealing me blind!"

If you want another reason for taking possession of actual gold, then you
might be interested to learn how a mutual fund could lose value even as
gold and shares rise. If so, then check this out from a prospectus sent
to me by a mutual fund I own: Under the section of risks in owning shares
of the mutual fund, the last one is "Securities Lending Risk. Any loss in
the market price of securities loaned by the fund that occurs during the
term of the loan will be borne by the fund and would adversely affect the
fund's performance."

And who are these guys borrowing my stocks and are causing me to suffer a
loss in my mutual fund? The answer is: Guys who went short gold! Hahaha!
In other words, guys who aren't very smart! I mean, and pardon me for
laughing, but who is stupid enough to be short gold in a roaring bull
market in gold?

Switching on the Mogambo Risk Analyzer (MRA), I quickly discover that,
unfortunately, the chances of getting the money back, thanks to the
mutual fund loaning it to dimwit dirtbags, are, officially, Pretty Darn
Slim PDS). And this coincides exactly with how people who loaned money to a
dimwit dirtbag named The Mogambo, never got it back, either. So, you see
how this all fits a little too neatly together to suit me!
 
If those are not enough reasons to own bullion gold, from some of the
gold mining stocks I own, I, as a shareholder, am getting always asked to
vote for all kinds of weird proposals buried deep in the prospectus, like
allowing them to issue a lot of free options so that the company can give
them to "select" people. This lets them, at some time in the future, opt
to buy shares of the company, but at today's price! Hahaha! Oddly enough,
I think that this shameless scam signifies that they think gold is going
to rise in price, if they are greedy enough to try and it off now! How
bullish!

Of course, there are the gigantic salaries of the officers and boards and
whatnot, and the constant share dilution from them giving themselves
baskets of shares. I am sure they are all just a bunch of thieving, lying
scumbags like you find in every publicly owned company.

Until next we meet,

The Mogambo Guru
for The Daily Reckoning

Mogambo sez: As price equilibrates supply and demand, the constantly
rising price of gold all these past few years means that demand is higher
than supply. That's all you need to know to buy anything, but especially
gold at an economic time like this.

And, Doubly Mogambo Especially So (DMES), maybe even Triply Mogambo
Especially So (TMES) about silver, which will rise in price, like gold,
not only because of the looming decline in the dollar, but also by the
most glaring and startling fundamental imbalances in all of history!

Read all about the gold/silver ratio here:

Better Than Gold!
http://www1.youreletters.com/t/359014/4459110/786208/0/

Editor's Note: 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.

The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and
other fine publications. If you're inclined to read more, you'll find the
whole Mogambo here:

The Purchasing Power of Pizza
http://dailyreckoning.com/Writers/Mogambo/DREssays/MG042506.html
-- Posted Monday, 1 May 2006 | Digg This Article

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