The Only Thing You Can Do Is Own Gold

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For those of you who think I am just another stupid, paranoid, lunatic, gold-bug, gun-nut, whack-o, pretty-boy pervert who over-reacts to everything, and that I would willingly gun down my own grandmother if she made any suspicious moves towards my stash of gold and silver, I say “Touché!” But even you have to agree that, even at my most outlandish, I am behaving appropriately to the roaring inflation all around us.

And not only us, but also for the Brits, as, according to Telegraph.co.uk, “The cost of living for many British households is up to four times the Government’s published rate of inflation.” Four! Real, wallet-emptying inflation is up to 400% higher than the lying British government is admitting, which is bad enough, as even “official” inflation is running at a hefty 2.4%!

They rudely ignore my handy statistical-oriented editorial blurb (the little limey snots!), but go on to say that “millions of families are experiencing inflation far beyond the official rate of 2.4%, new research suggests.” In fact, they say that it “shatters the illusion that the Consumer Price Index – used by the Bank of England to set interest rates – represents the true cost of living as experienced by many households.”

As you would expect, those on fixed incomes get the biggest whack to the wallet, with annual “inflation rates of almost 9%” for pensioners.

“Hard-up families,” they go on to report, “getting by on £20,000 a year, saw their costs increase by 4.6 percent – almost twice the national average and well above the annual rate of wage increases, 3.9 percent.”

The article wimps out by not mentioning that these are the same stupid people who happily voted, year after year, decade after decade, for the economically illiterate elected officials who allowed their central bank to cause this to happen to them. And I’ll bet very few of them tuned into the Daily Mogambo U.K. Radio Show (DMUKRS) this week, which is too bad, as it was a big part, the major part, of my Mindless Mogambo Rant (MMR) editorial comment, in which I heaped loathing disrespect on the British variant of Earthling moron, and laughed cruelly at their pathetic whining about their miserable, yet so richly, richly deserved, plight.

More importantly, of the “news-you-can-use” kind, you should immediately move back home with your parents while you are still young enough, and strong enough, to beat the hell out of anyone, like your parents, who stand in your way, as “the increasingly large number of young Britons living at home with their parents – and not paying mortgages or bills – experienced deflation of 2.1 percent, since many of the items they spend their money on, such as clothes and electrical goods, are falling in price.”

Deflation! These irritating little brats are experiencing a rising standard of living, while ours is declining! So, move back home today, and get some of that standard of living gravy for yourself!

The International Herald Tribune reported that America going down the tubes won’t cause a global recession “thanks to a European resurgence and the boom in Asia.” Hahaha! This is fabulous!

For one thing, it proves that the Chinese government is just as stupid as our American one and their fiat currency will be just as worthless because of it, which I cleverly deduce from the article by Shailendra Kakani, of Commodity Research, titled “Plunge in U.S. Economy Doesn’t Mean Commodity Bear”. In it, we find that China is officially encouraging people to spend money as a direct attempt to increase aggregate demand, which will increase aggregate supply, which will provide the jobs to buy the output. All very, very classic-economics and all that.

But it gets worse, as the Chinese are also starting up with that whole neo-Keynesian deficit-spending crap, too, but now combined with their own brand of stinking commie redistributionist crap that always ruins everything, as “Simultaneously,” the article continues “the government is doing everything to bolster the income of its citizens. Recently the government raised minimum worker compensation and increased welfare spending to get households to spend more and make the economy less dependent on investment and exports.” Hahaha!

The stupid Chinese are deliberately choosing less dependence on investment, but more dependence on government handouts and people depending on the government? Hahaha! Does that sound like any other stupid government you know first-hand? Hahaha! So is communist China acting like America, or is America acting like communist China? Hahaha! This is too rich! The dollar is doomed, and the yuan that is killing it is also going to be doomed one day, too!

And then, after hearing this, you laugh at me in scorn for suggesting that you buy gold and silver? Hahaha! That shows that you don’t know anything about economics or history, my misguided young one!

This brings up my criticism of the standard contrarian advice these days, which is “Own foreign currencies, precious metals and foreign stocks”, with which I don’t completely agree. For one thing, foreign currencies are being “managed” by their own governments, too, just like the disaster with the mismanagement of the dollar. So those currencies will be going down in purchasing power, too. So, the question is, “Is a relative haven a real haven?” I say not only “No”, but “Hell, no!”

The only thing you can do is own gold, which is the only thing that will consistently hold its value. That is the Iron-Clad Lesson of History. And you don’t have to actually read all of history, as all you have to do is listen to The Mogambo run his loud mouth about it, as I famously drone on endlessly, endlessly, endlessly about it, and will actually pursue you down the street to hammer it, hammer it, hammer it into your thick little head, louder and louder, and I never seem to shut up about it, according to whole baskets full of affidavits from family members and neighbors filed with the court, where, in case after case, the judges hand out Restraining Orders like candy or something.

Or you could read Addison Wiggin’s book, Demise of the Dollar, to verify it for yourself, as there is a whole chapter titled “Short Unhappy Episodes In Monetary History”. The quote to start the chapter, which makes the point I am trying so unsuccessfully to make, is from Norman Cousins, who said, “History is a vast early warning system.”

And, brother, is it ever! The chapter goes from the Romans debasing their money 2,000 years ago, to the Chinese, 1,000 years ago, first experimenting with paper money (which was soon abandoned because of the inflation it caused), to Rome, Spain, France, Germany, 18th Century United States, the Great Depression, and not even mentioning all the episodes of economic crisis in the last thirty years. And gold sailed successfully through every single one. Every one. Every.

And as for foreign stocks, I say forget foreign stocks, and foreign economies, and foreign people who all speak English with funny accents while rudely laughing at us Americans because we are so fat and stupid; if America is not going to be sucking up vast, sweeping flotillas of cargo ships full of their exports anymore because the economy is going down and prices are going up because the dollar is going down, then they are all going down the tubes, too, as we consume damn near a third of the entire globe’s exports as it is! An $850 billion a year current account deficit proves it!

And as the dollar falls, because of the monetary and fiscal stupidity and the crushing debts which have destroyed us, imports will become more expensive for us, meaning that we American consumers will buy less when we can (“No more big-screen TVs!”), and buy less other stuff (things for children, like clothes, shoes and birthday presents) when we can’t, because we must use our dwindling buying power to buy the necessities (gasoline and tacos).

Until next week,

The Mogambo Guru
for The Daily Reckoning Australia

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.

Mogambo Guru
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.
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Comments

  1. If he is not already familiar with it, the Mogambo might enjoy perusing Carlo Cipolla’s “The Basic Laws of Human Stupidity” which ends thus:

    “In a country which is moving downhill, the fraction of stupid people is still equal to s; however in the remaining population one notices among those in power an alarming proliferation of the bandits with overtones of stupidity (sub-area B2 of quadrant B in figure 3) and among those not in power an equally alarming growth in the number of helpless individuals (are H in basic graph, fig. 1). Such change in the composition of the non-stupid population inevitably strengthens the destructive power of the s fraction and makes decline a certainty. And the country goes to Hell.”

    As a US resident, it is highly annoying watching this country make all the mistakes the Roman empire made in 200 years compressed into 20 years.

    Reply
  2. Bush senior is in China now devaluing our dollar. I am a little nervous about hyperinflation. What is your feeling on gold and silver for 2007? High to over $800.00 an ounce or not?

    Reply
  3. While waiting for the Mogamabo to answer, here’s one opinion.

    I don’t have enough knowledge of the gold and silver markets to make a specific price prediction.

    However, I think it is very probable that $1 worth of silver or gold bought now will hold or more likely increase in purchasing power compared to $1 held in paper in 2007.

    Bernanke believes he can prevent a credit implosion by printing money – either monetizing US debt paper or debt paper of quasi-governmental entities such as FNMA. I do not believe this will be effective in the long-term for various reasons too long to mention here. But, in this scenario, gold and silver, as well as other commodities, would increase in price because the measuring unit, the dollar, is shrinking. But a lot of other stuff would also increase in price, so the question really becomes, will the “price” of gold and silver increase at a higher rate than other goods and services? I think so, because I suspect a lot of folks will be looking to hold on to purchasing power and will be buying gold and silver, resulting in demand driven price increases larger than the general increase in price levels. If Bernanke prints enough dollars, we might even go through a “crack-up” boom, as Von Mises explained – where everyone wants to buy something tangible before the purchasing power of the dollar decreases even more.

    In another scenario, a credit implosion occurs, money (as debt) is destroyed by rolling debt defaults. In this case, cash becomes more valuable, so the price of gold and silver would decrease, in nominal terms. But – I suspect the “prices” of gold and silver would decrease at a slower rate than general price levels, so while nominally they appear to have gone down in “price” they have increased their purchasing power, which would not be the case if wealth was held in paper dollars.

    In concrete terms, my wild guess is that Bernanke will go for the first scenario, to try to keep a house worth $400,000 from decreasing in price in nominal terms. But when one looks at how much $400,000 will buy in real terms in a year, folks will discover that it is a lot less. $400,000 house, $6/gallon gasoline, $14/lb chicken, $25/ounce silver and $1300/ounce gold for example. But in previous dollar units, it’s really a $200,000 house, $3/gallon gasoline, $7/lb chicken, $12.50/ounce silver and $650/ounce gold!

    Apologies for the long response…

    Reply

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