-- Posted Sunday, 9 December 2007 | Digg This Article
| Source: GoldSeek.com
From Reuters we learn that Lewis Alexander, Citigroup's chief economist, predicted that "The Federal Reserve will cut interest rates by 100 basis points before June to help the housing market."
You will be happy to hear that Mr. Alexander is not another ignorant, lowlife loser who is barricaded in the hall closet typing out stupid Mogambo Guru newsletters and vicious hate mail to Congress and the Federal Reserve, but is a bigshot who also once worked at the Fed, so he knows the kind of people he is dealing with.
He said that he "expected the Fed to cut its Fed funds rate by 25 basis points when it meets later this month and by 50 basis points in the first quarter of 2008. The final 25 basis-point cut would probably take place in the second quarter."
Well, that's interesting and all, but then one has to wonder about whether Mr. Alexander has any idea what in the hell he is talking about when he went on to say that "the Fed would not be too concerned that the drop in the dollar would be inflationary. Studies carried out over the years had shown that the dollar's value had little impact on consumer prices in the United States." Hahaha! What idiocy!
I instantly see that he is not happy with my rude laughter and snide slander. So he fixes me with a glare and says, "The vulnerability of inflation to a weaker dollar is not a major risk", which, of course, prompted another gale of scornful laughter! Hahaha! Too much!
As regards the upcoming Fed meeting to alter the aforesaid interest rates, James Turk of the Free Market Gold & Money Report opines, "Pleas to the Federal Reserve by US investors to lower interest rates are no different than those made to the Reichsbank to create more currency to make up what was being lost be inflation. The dollar is headed the same way as the doomed Reichsmark, and Fed chairman Bernanke is taking actions that are basically little different from those taken by the head of the Reichsbank. The clear conclusion is that the dollar is headed the same way as the Reichsmark. Falling demand is eroding the purchasing power of the currency, and the central bank responds to it by creating more currency units - 'printing paper' in the case of Reichsbank and 'adding liquidity' in the case of the Fed. They are in fact", and here I pause the tape to add a little dramatic flair, "exactly the same thing."
Harken to me as I tell you this money inflation means inflation in prices, regardless of what Mr. Alexander says. Seeing as it is almost lunchtime, I call on Bill Bonner at The Daily Reckoning to take over for me so that I can duck out of here early and grab a couple of burritos. Graciously, he says "Money, as we all know, practically grows on trees. But food does not. And putting more Asians to work does not automatically increase the supply of farmland…or what grows on top of it…or what lies underneath of it. So, what we've been seeing is just what you'd expect."
Seeing that I am not going to rudely interrupt him, he goes on, "While increased industrial output has managed to hold prices down for manufactured goods, the rising supply of money has forced up prices for things that don't come out of factories. Gold, contemporary art, land, and cooking oil come to mind." Exactly!
Seeing that things were well in hand, I was on my way out the door when I suddenly felt that I had to respond to the remark that "increased industrial output has managed to hold prices down for manufactured goods", because I had just heard from JMR Robert M., who sends news that his in-laws in Peru import bearings, and in the last quarter the prices they paid for Chinese bearing "were up from 20% - 47% (depending on the piece), overall the prices averaged some 30% higher!"
"So," he says, "we can now see 1.) How the decline of the dollar has affected prices of overseas products (explains perhaps 40% of the price inflation of Chinese bearings to us), 2.) Raw material prices to China are way up, and 3.) China IS 'exporting' inflation."
And so the rise in prices is just the evidence of how much buying power that the dollar has lost. But before I could clamber up to the microphone to launch into one of my infamous harangues about it, Larry Edelson of MoneyandMarkets.com preempts me by saying, "The buck has lost nearly 37% of its purchasing power in just five years, and the dollar's bear market could go on for a lot longer."
Since this "dollar weakness" thing is nothing new, I was starting to doze off and enter Mogambo Dream World (MDW) where tacos grow on trees and beautiful ladies vie for my attention by parading around in various stages of undress, when in fact they didn't have much on to start with, when I was jolted back to reality by him saying, "This means, on an international level, that the value of U.S. gross domestic product has been cut in value by more than a third!" Yikes! An interesting way to look at it: Real (inflation-adjusted) GDP is down by a third!
Apparently, Mr. Edelson is not interested in my comically holding my head to keep it from exploding at this fresh terror, and says that this is a long-standing problem, as "it means that the Dow Jones Industrial Average - even at its recent high of 14,000 - buys you 21% less than it did when it hit 11,722 in January 2000!"
So the buying power of "investors" has actually gone down for the last seven years? Hahaha! The Cold, Cruel Laughter Of The Mogambo (CCLOTM) is mocking and scornful at the stupidity of people still buying into that stupid "buy and hold", "investing for the long term" crap! Hahaha!
I mean, thanks to the idiocy of the Federal Reserve destroying the purchasing power of the dollar by creating so damned much excess money and credit, in the last seven years these "investor" losers essentially invested ten pizzas, only to have it be worth only eight pizzas now! Hahaha! What gullible morons!
But this, as horrific as it is, is just against the dollar! He says that the calculations show that "when measured against tangible assets like gold and oil," which tend to go up when inflation in prices is raging, "the Dow purchases even less - almost 70% less than it did seven years ago." Invest ten pizzas to get three pizzas now! Hahaha! Morons!
And speaking of oil, there is not going to be much good news there, either, as the Financial Times reports that "Exploration companies need oil prices of $70 a barrel to match the returns they made at $30 a barrel only two years ago because of the sharp increase in costs and higher government licence (sic) fees."
And with today's rampant, irresponsible inflation in the money supply, it is child's play to see that two years from now the Financial Times will almost certainly report "Exploration companies need oil prices of $140 a barrel to match the returns they made at $30 a barrel four years ago", with the subhead "And The Mogambo Is Still Angry As Hell!"
And why aren't people rioting in the streets and demanding that The Mogambo be given full discretionary powers under the Patriot Act to kick some Federal Reserve butt? It's because nobody sees it! "Remember," Mr. Edelson says, "just because you don't see these losses on your brokerage statements, or in your IRA or 401(k) - it doesn't mean they aren't there. They are! Your money has lost massive amounts of purchasing power."
But there is a weird madness to it all, as he says, "The thinking goes like this: A sharply lower dollar boosts inflation…that raises asset prices…and thereby reduces the size of debts relative to assets." Hahaha! I don't know where to start! It's Bizarro World!
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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. Click here to visit the Mogambo archive page.
-- Posted Sunday, 9 December 2007 | Digg This Article | Source: GoldSeek.com
