We arrived on Tuesday night...dragging a horse van behind us. It was 10:30 at night.

“Hi, I’m Jean,” said a pleasant woman with a Midwest accent, bright red cheeks and yellow hair.

“I’m going to cook for you this summer.”

You don’t need much to be happy. But a good cook is indispensable.

Elizabeth had placed an ad on the Internet – on Craig’s List. With so many people coming and going, we need household help in the summer. Jean, from Oregon, by way of Iowa, responded. She was already in the kitchen when we arrived and had prepared a dinner for us.

“Everything is from the garden or the farm,” she announced. “The salad, the green beans, the peas, the onions, the eggs...well, not the noodles.

“It’s so nice to have a garden to work with. And Damien (the gardener) is so nice. But I think he overdoes it...”

On the floor were huge buckets overflowing with green beans, peas, onions and other vegetables we couldn’t recognize.

“I’m going to can it...or freeze it. But there’s no more room in the freezer. He overdoes it, but it’s so nice to have fresh food directly from your own garden.”

And here’s a report from USA Today: “Americans are planting gardens to cope with high food prices.”

Yes, dear reader, it doesn’t take much to be happy...or to beat rising food prices. Just begin with a good gardener ...and hire a good cook.

Bill Bonner
The Daily Reckoning Australia

• What a Summer
• Experiencing Hard Work
• Henry Leaves for College
• Unexpected Visitor at the Chateau in Ouzilly
• Soaring Food Prices Force the Poor to Literally Eat Mud

And if you thought things couldn’t get any worse, the Financial Times reported on Monday that U.S. mortgage rates soared last week amid a sharp rise in Treasury market yields. Make no mistake, inflation’s back. A Volker-like response may seem alarmist, even far-fetched, to many. However, investors are bracing for the Federal Reserve to raise rates going forward.

At least those rate increases could help U.S. Treasury Secretary Paulson fulfill his recent promise to “defend the dollar.” Secretary Paulson is on the final day of a four-day trip to Saudi Arabia, Qatar and the United Arab Emirates to negotiate currency and economic issues (i.e., a supply increase) from members of the OPEC cartel.

Shall we say America’s relationship with OPEC is a bit strained? Perhaps we’ve stayed a bit too long and expected a bit too much. The greenback keeps sliding down a cliff. Oil-producing states holding their dollar currency pegs are importing more and more inflation. At some point, both parties must reconcile that M3 – the fullest measure of U.S. money supply – can’t outpace a nation’s GDP forever.

Regardless, the Fed seemed content to exchange $16 billion worth of Treasury notes for mortgage- and asset-backed securities last Thursday. In its 10th Term Securities Lending Facility (TSLF), the Fed gave desperate investment houses another chance to dump their worthless derivatives for good ol’ American IOUs. To date, brokerage firms have dumped $175 billion on the Fed’s balance sheet.

Even holders of the mighty euro are feeling the pinch. We read in The Economist last week that customs seizures of counterfeit goods rose by 17% in the EU last year. Cigarettes and clothing accounted for more than half the sham gear seized.

It seems like desperate times call for desperate measures. And the masses, desperate for answers, call on politicians for help.

And any political production worth its salt has three main characters: the hero, the martyr and the villain. Heroes (politicians) need a martyr (America’s middle class) and a villain (oil companies) – and, if they’re lucky, a super villain (foreign oil companies).

Our colleague Eric Fry sums it up best: “When share prices soar, we call it a ‘bull market.’ When home values soar, we call it ‘healthy price appreciation.’ But when oil prices soar, we call it ‘speculation’ and ‘manipulation’...and then we gaze around for someone to blame.”

The members of Congress recently convened a special hearing to berate, rebuke and ridicule executives from five major oil companies. Each congressional inquisitor took a turn excoriating the oil companies for daring to earn a profit, especially when so many Americans have so little money. It just isn’t fair.

A few months earlier, you may recall, Congress invited the heads of America’s leading financial institutions to a little tête-à-tête. During that encounter, the congressional inquisitors took turns admonishing the finance CEOs for feathering their nests a bit too lavishly. But none of the execs in attendance drew much criticism for frittering away billions of dollars of shareholder wealth.

Therefore, the essential message from the nation’s top lawmakers is clear: Losing billions of dollars of shareholder wealth is a bad thing, but not nearly as bad as adding billions of dollars to shareholder wealth. In fact, earning billions for shareholders is such a bad thing that it must be legislated away or taxed into extinction.

Where were the nation’s top legislator-inquisitors when the NASDAQ bull market of 1999 and 2000 was powering higher? Where was the outrage over the “speculation” that produced obscene “windfall profits” for the Wall Street firms?”

We’re not so sure. But we continue to see that many in the West want to go through life pretending they’re still the greatest story never told.

It comes as no surprise. From Dutch tulips to dotcoms, people fool themselves into believing it’s “different” this time.

It’s never different this time.

Christopher Hancock
for The Daily Reckoning Australia

• China’s Economy is Now Freer and More Competitive than the United States
• Fannie and Freddie in a Free Market Economy
• American Family’s Share of Government Debt Now Over Half a Million Dollars
• Gold Bought by Some of America’s Most Successful Investors
• Zombies at the Fed and the Treasury Department Try to Gnaw on Survivors’ Savings

I did not know that John Williams had cleverly coined the phrase "Pollyanna Creep" to describe how the White House, the Congress and the repugnant Federal Reserve, starting with John Kennedy circa 1960 and continuing unabated, and worsening, all the way through to Bill Clinton where Mr. Phillips' chronology ends, continuously came up with one stinking lie after another to disguise the horrendous inflation in prices, and rise in unemployment, that resulted from the egregious fiscal and monetary performances.

The article goes into such frauds as "imputed income" (such as the "value" you receive from living in your own home, or the "value" of your free checking account), the total of which Mr. Williams calculates was 15% of total GDP (!) in 2007! Wow! "Imputed income" was 15% of GDP? Hahahaha! We're freaking doomed!

Such laughable duplicity continues into the description of the phantom jobs conjured up by the "Birth/Death Model" (which assumes that new businesses are being formed, and employees being hired, which are too new for anything to show up in the data), and the six separate calculations of unemployment, of which one of the most inclusive shows unemployment at a terrifying 9%! Nine! One out of eleven people in the work force in unemployed! Yikes!

Then, finally, we get to how to magically reduce inflation with "product substitution" in the consumer's shopping basket ("if flank steak gets too expensive, people are assumed to shift to hamburger, but nobody is assumed to move up to filet mignon"), continuing with the lunacy of the inflation-reducing scam of "geometric weighting" of the items still in the shopping basket ("goods and services in which costs are rising most rapidly get a lower weighting for a presumed reduction in consumption"), and concluding with the infamous "hedonic adjustment", (which even the author says is "an unusual computation by which additional quality is attributed to a product or service").

It is this last fraud that has been used to such success by Mogambo Inter-Planetary Industries (MIPI), by which we commit an as-yet legalized extortion by utilizing the word "improved". The basic premise was outlined in the MIPI business plan, which is cleverly explained in our corporate motto, namely "Crappy products made out of cheap materials with shoddy workmanship, and passing the savings on to you!"

But before we ship anything a stupid customer ordered, we send a letter saying that the order cannot be fulfilled per contractual price since the product they ordered was "improved" before their stupid check cleared, and therefore the new price should be higher because of the hedonic adjustment for the increase in quality, and if they had some "problems" with that, then you could take it up with Alan Greenspan and the Federal Reserve, ya freaking moron, which is who first came up with this silly crap, and if they still wanted their "Mogambo Ultra Blow-Up Doll" with the optional appendages and pendulous breasts, then they should send another $15.95 in cash, which is their cost for the extra quality inherent in saying "improved" without having to prove anything! Hahaha!

The business plan assumes that sometimes there will be people who will actually send the extra $15.95, whereupon we send them another letter demanding another $15.95. Hahaha! Suckers!

But, as per the business plan, we are sure that they will all eventually give up and demand their stupid money back, like THAT is going to happen (see Section Two of the MIPI Business Plan: "Skipping Town: The Fun Part", which I cheerfully title "Starting over again, but with a lot of money this time!").

The point is not that P.T. Barnum was right when he said, "There's a sucker born every minute", or that my first girlfriend's father was right when he said, "You'll never amount to anything other than a Worthless Piece Of Mogambo Crap (WPOMC)!", but about how we got to be such suckers to let the Federal Reserve and the Congress (except Ron Paul) do this "lying about inflation" crap to us, and how people being ignorant stupid suckers is so very vital to the success of Mogambo Enterprises, Inc.

Where these people came from has always befuddled me, but which has now been explained by Junior Mogambo Ranger (JMR) Rob H., who writes:

"Dear Mogambo, I have long believed that people, in general, over time, were getting stupider and now have a ‘grand unified stupidity theory' equation that I think can serve as the axiomatic equation for future theorist to expand upon. If true, this equation is very disturbing, especially if you add a time element into it and the associated exponent." He notes, "This may explain why we are where we are in the world."

My finger poised over the "Delete" button as my eyes drifted down over the few equations he provided, and through the rising glaze of incomprehension of math or anything that even LOOKS like math, I still knew enough that I could probably use this to get one of those elusive Nobel Prizes in economics (and that luscious cash prize of millions of dollars!).

So, for the official record, my completely original work that I came up with all by myself, and I declare under oath that I never even heard of anyone named Rob, especially one named Rob H., and that I have, personally, alone, proved that "one half-wit multiplied with another half-wit = a quarter-wit", which is expressed algebraically as 0.5 X 0.5 = 0.25 wit (a "quarter wit"), which soon becomes 0.25 X 0.25 = 0.0625 wit (a "one-bit wit").

But the irrepressible JMR Rob looked at this halfwit breeding thing and came up with the brilliant Zen koan "Therefore: Etc." Hahaha! Perfect! Hahahaha! So we can share credit! Hahaha!

Until next week,

The Mogambo Guru
for The Daily Reckoning Australia

• Bad News if You Are Afraid of Inflation in Consumer Prices
• U.S. Government Hiding True Unemployment Rate in Statistics
• If You Take Out Inflation from the Rise in Prices, Then Prices Did Not Rise? Hahaha
• Don’t Pay Your Debt: A Page from the Fed’s Playbook
• Worthless Money, Worthless Economy

So, what has happened in the world of money since we were gone?

Not too much, apparently.

U.S. stocks are still down about 7% for the year. The NASDAQ has lost 12%.

The dollar is still near its all-time low against the euro, at $1.57. And the yen, too, is near an all-time high. And gold?

Maybe we were right. Maybe we just had our last chance ever to buy gold for less than $900 an ounce. And maybe what we have now is our last chance to buy it for less than $1,000. The price today is $931.

We are bullistic on gold because we are realistic about human nature. Give someone an opportunity to print money and you can be sure that sooner or later, come what may, he'll take it.

The feds no longer tell us how much money they're 'printing,' but experts say M3, the broadest measure of new money creation, is higher than 15% per year. Let's see, money increases at 15% per year... and how fast is the supply of goods and services increasing?

Uh-oh... the IMF says the United States is headed for recession. Some economists think the country is already in recession. What that means is that the supply of goods and services is barely increasing at all. Which means, the extra money has to bid for the EXISTING goods and services.

No need to beat around the bush about it. What this means is that monetary inflation is driving up prices.

The price of oil is $112. Wheat, corn, soybeans, rice - all the grains are near record highs too. Many countries are banning exports. Many are controlling prices. (See below... ) Mexico, for example, has price controls on tortillas.

Of course, the real cause of rising food prices is a falling value of paper money. But only the European Central Bank seems to take its mission to protect the euro seriously - it's holding rates steady. While the ECB tries to hold the line against inflation, the rest of the world's central bankers are giving inflation all the slack they can. The Bank of England, following the U.S. lead, cut its key rate yesterday by a quarter-percentage point

Let's go back to our war analogy. It's a battle between the forces of inflation and the forces of deflation, we keep saying - one side unstoppable... the other immoveable.

But what kind of war is this? Glad you asked because we were thinking about that very question as we sat in front of the fire up in the mountains yesterday.

The Franco-Prussian war of 1870 was a great war. The French declared war on the Germans, for some reason that no one seems to recall. The Huns attacked, rolled up the French army... and laid siege to Paris. In the city, residents soon had to eat rats and cats to stay alive. Parisians exchanged recipes and made the most of it.

The whole thing was over fairly quickly. The Frogs capitulated, agreed to pay reparations, and the Germans withdrew (keeping the Teuton-speaking area of Alsace.)

It was a nice war because it had a clear winner... and because it was over like a good street brawl, before the cops came. And the Germans were very civilized about it. They didn't set up bases in France. They didn't stretch out the war for years... or make the French learn to speak German. They won it fair and square, and then went back to their strudel and frauleins. Which made Europeans think that war was not such a bad thing.

Then, came WWI. Oh la la... this was a war of a different sort. It went on for four years. At enormous cost to everyone... millions of dead... trillions in financial losses...

... and who won? Nobody.

We bring it up because this financial battle looks to us like that kind of war. A war of liquidation... in which people lose money they thought they had - either to inflation or to deflation.

Yesterday, Lehman Bros. (NYSE:LEH) liquidated three of its funds. And, as mentioned above, a big part of the stock market has been liquidated. And housing gains are being liquidated at about 10% per year...

... and remember, inflation liquidates almost everything... including the value of American labor. As consumer prices go up and the dollar goes down, the relative price of American labor falls. The working man is liquidated.

But if this is a WWI kind of war... everyone gets liquidated - investors, lenders, borrowers, consumers, businessmen, householders, working people... everyone. People who worry about money will have less to worry about, in other words.

Bill Bonner
The Daily Reckoning Australia

• Dollar is Merely Retreating in Good Order
• What’s Driving The Mogambo Crazy This Week: Price Inflation, Food Prices, Etc
• Terms of Trade Driving Runaway Australian Inflation
• U.S. Dollar Rallies as Economic Foundation Crumbles
• Inflation is an Artifice Caused by Government

As near as we can tell, nature favored Argentina as she did few other places. She caused the Andes to rise up, and then over millions of years, let their hillsides wash downriver to be deposited in a vast, flat, well-watered, plain, with topsoil so thick farmers can abuse it for generations.

On the edge of this fertile farmland, and in the middle of one of the biggest booms in farm prices in history, the politicians in Buenos Aires have achieved what might have seemed nearly impossible; they have created a crisis in the agricultural sector.

"Day 20. The strike continues: farmers reject government's 9 new initiatives" says the headline on La Nacion.

But farm problems are not limited to the pampas. Thanks to globalization, they're sprouting everywhere. "Fears grow over rice crisis," is the front-page story at the Financial Times. "Silent famine sweeps the globe," reports WorldNet Daily. Thirty-three nations face "unrest" because of food shortages, says the IMF.

All over the world, food fights are breaking out. Not because there is too much food or too little, but because it has gone way up in price. Of course, you could put that another way: the paper money in which food is priced is going down faster than usual. There's no less food than there was five years ago. But there is a lot more paper money. Modern central banking was invented so that we should have paper money - and have it in abundance. Now, we have so much that it is causing food prices to soar. But food is hardly in a class by itself. When one bubble pops, the authorities immediately begin pumping up another one. After the dot.com bubble deflated in 2000-2001, for example, up came even bigger bubbles in residential housing and the financial industry. Now, both housing and finance are losing air. But the central banks are still pumping hard. Where's the air going? Apparently into commodities. In other words, worldwide inflation of food prices is a monetary phenomenon, as Milton Friedman might put it, not an agricultural phenomenon.

To show you the scope of the phenomenon, we pull out a copy of The New York Times from October 19th, 1896. There, it is recorded in black and white that the average wheat price was about $1 a bushel - in gold - during the previous 20 years. An ounce of gold would buy you 20 bushels of wheat. Today, you can buy a bushel of wheat for about $12 which means, an ounce of gold will buy about 75 bushels of wheat. In terms of real money - gold - the price of wheat has gone down for more than 100 years. However fast farmers have added to the world's wheat output, in other words, central banks have outdone them, planting far more acreage in paper money.

And now that governments have caused a crisis, they are hard at work making it worse. In Argentina, the farmers are few; city dwellers are many. Argentina's peronistas can do the math. They make out the farmers - historically patrician landowners with large holdings - to be greedy and insensitive. The politicians imposed a 49% windfall tax on foreign sales. The measure should lower prices for Argentine consumers and raise money for the government, they reasoned. It seemed like a no-brainer. That is, until the gauchos blocked the roads into Buenos Aires and threatened to starve the city.

In America, the math is different... but the result is equally imbecilic. There aren't many farmers out on the prairie, but in Washington, there are more farm-state U.S. Senators than pigs. They push and shove up to the taxpayers' trough to get huge subsidies for their hometown campaign donors - lately, in the form of bio-fuels. Corn-fed ethanol may make no sense in environmental terms or energy terms, but it lubricates the big wheels of national politics. In the event, it takes a third of the U.S. corn crop out of the food chain and puts it to use in the drive train - further driving up grain prices.

With bread prices on the rise, politicians feel compelled to intervene. And every intervention falls upon the crops like a cloud of locusts.

Last Friday's 10% spike in rice prices came as governments moved to corner the market. Three billion people, many of them with very marginal incomes, eat rice every day. The price of rice rose 50% in the last two weeks, causing Thai farmers to sleep in their fields to protect their harvests... while the Philippines posts armed guards at its graneries. Vietnam, India, Kazahkstan and China have all restricted foreign sales. The exporters are coming under pressure to export less - in order to lower prices at home. The importers, meanwhile, have no choice but to try to get as much of it as possible, as soon as possible, in order to head off shortages. Result: a run on rice.

India's trade minister warned hoarders: "We will not hesitate to take strong measures... "

Of course, hoarding is exactly what a smart family should do. Most likely, there will be runs on other commodities too... and then a run on gold itself. People will want something real... something sure... something with which they can buy rice, without having to worry about it doubling in price two weeks later. That something, traditionally, is gold.

Hoard it now, while you still can.

Bill Bonner
The Daily Reckoning Australia

• Soaring Food Prices Force the Poor to Literally Eat Mud
• Cattle Prices Have Risen Only 1% This Year
• Farmers Feel Consumers Blame Them for High Food Costs
• Australian Dairy Prices Up Due to Grain Prices
• Wheat Prices Look Set for a Move Up