Incomprehensible Amounts of Money

The Mogambo lets us in on a dirty little secret: In order for the economy to grow, the government must grow…and that takes money. Lots of money. More money than anyone could ever imagine without their brain exploding, but the Mogambo will try to explain it to us nonetheless…

A letter from a Norwegian reader to Bill Bonner of The Daily Reckoning: "The problem is that the politicians here, just as in the U.S., don’t have a clue. They are spending the oil and gas revenues on better schools, better homes for seniors, more expensive roads, higher minimum wages, etc. and all of this is driving up prices. Now we are facing a rate (tax) hike, I’d guess."

Well, if not now, then soon enough, as the continued expansion of a socialist state always involves everything getting more and more expensive, bigger and bigger, and the money to pay for all of that has to come from somewhere. And when you couple that with how everyone is trying to live at the expense of everyone else, you get a system that will continually get more and more weird and expensive.

But there is no stopping the socialist state. Walter Williams writes, "How many times have we heard advertisements from law firms that specialize in elder law urging, ‘If you anticipate that you may have to enter a nursing home down the road, an elder care attorney may be able to help you create a plan that will both protect much of your assets and make you eligible for government benefits’? Boiled down to basics, the lawyers are suggesting that they can arrange for you to live off others should you ever require long-term care instead of having to spend the assets you’ve accumulated during your lifetime."

Money and the Socialist State: Not a Hypothesis, Reality

As another example, now that the Leftist morons in Congress have passed so many laws mandating that hospitals provide first-class service to anyone who shows up, you can see why people are not paying their health insurance premiums; they are going to get all the health care they need whether or not they can pay. Which means that somebody ELSE has to pay, and that is, apparently, me, as my health insurance carrier just informed me that my premiums are going up another 15% as of June because, as I quote from their letter, "Pharmaceuticals, hospital and physician expenses are simply out of our control and continue to rise." Health insurance is now my biggest monthly cost.

And the socialist state is not something that is just some hypothetical construct. James Cook of Investment Rarities writes, "Our state legislature here in Minnesota has given us a look into the future. Liberals introduced a proposal to increase the state tax to 11% on incomes over $166,000.That would be the highest state income tax in the country."

But you can be sure that he is correct in his assessment of the future, as the layers and layers of government, city, state and federal, are now so large that they ARE the economy, and whole giant swaths of the population depend on the government. And there are more and more of them every freaking day that want to get on that gravy train. Ergo, for the economy to grow, the government must grow.

The point is that for an economy to grow, the government must grow, and that takes money. Lots of money. More money than the human mind can comprehend.

And even then, after getting more money, we will still be in the original paradigm; for the economy to grow, the government must grow, and that takes money. MUCH more money than the human mind can comprehend.

And even then, after getting more money, we will still be in the original paradigm; for the economy to grow, the government must grow, and that takes money. Much, MUCH more money than the human mind can comprehend.

And even then, after getting more money, we will still be in the original paradigm; for the economy to grow some more, the government must grow some more, and that takes money. Much, much, MUCH more money, a whole LOT more much more money, more and more money until the words have lost all meaning, and then it is just money money lot lot money lot money money, all the time more money, more and more and more money than the human mind can comprehend, until I breathless talking about it and scared out of my mind thinking about it.

Money and the Socialist State: Up and Up and Up . . .

The Mogambo looks up from his reverie, and the grasshoppers stir themselves at the sight. Raising himself up on one elbow and spilling a can of beer off his lap, The Mogambo speaks, and the assembled crowd marveled at his words. And they were thus: "And you ought to be thankful that you can’t comprehend that much money, because if you DO comprehend it, then your brain would explode. Your consciousness would be blown to atoms because you have come face to face with (pause for dramatic effect) infinity. And as you would gaze upon the face of infinity, it would look like The Mogambo, only with nicer clothes and a snazzy new car. Yea, verily I say unto you to heed the words of the earthly Mogambo, he who was always screaming about this kind of Big Government crap, and how a fiat currency and a fractional banking system will always kill you and your stupid economy freaking dead."

With that, The Mogambo sank back into his chair, exhausted by the effort. And then the room suddenly went dark. Onto the wall was flashed a chart of how exponential growth gets bigger and bigger and bigger. It starts of innocently enough, gently rising. Then it starts getting steeper. And then steeper. You glance up at the title of the graph. It reads "Exponential Growth." You realize that this is characteristic of damn near everything in America. Debt is growing faster and faster, and so the curve gets steeper and steeper. Your heart is beating faster. Off to the right, the curve gets steeper and steeper and steeper, and then, suddenly, the line starts going almost straight up! You are sweating like a pig and your heart is pounding pounding pounding from the panic!

On the graph, the amount of debt DOES go straight up and completely off the page, always growing faster and faster and faster, and then a short time after that it starts approaching infinity! You scream in fear! And then you remember that nobody was screaming in the movie "2001: A Space Odyssey," and so you feel like a big crybaby, and then you remember that ARE a big crybaby anyway, but you don’t care who knows it anymore, and so you keep screaming your head off until your throat is sore and bloody from screaming because you are facing the ultimate horror.

Of course, things cannot grow to infinity, and things will fall apart eventually. And, if George Ure and his web-bot program is correct, it will be very, very soon indeed.

Regards,

The Mogambo Guru
for The Daily Reckoning

May 30, 2005

The Mogambo Sez: Keep buying gold and silver and oil, as these obvious manipulations to keep the price down cannot last, or even produce positive lasting results, and these current low prices are a gift from a despicable, lying and corrupt government to you. Beyond that, prices have to rise, according to Jim Jubak, whose column, Jubak’s Journal, is published on of MoneyCentral.msn.com. He writes about the secular history of inflation. "If the history of prices is an accurate guide, we’re now about 100 years into a wave that hasn’t yet peaked."

And I will amend that to say that the history of prices is a VERY accurate guide, and that is why I know that inflation, the rip-roaring kind that makes you throw your wallet at the checkout clerk at the supermarket and scream, "Here! Take it all, you thieving bastards!" is coming. Whether or not precious metals will prosper, I don’t know. They always have. So I figure that they will this time, too, for the upty-umph jillionth time in a row in the history of corrupt governments, fiat money and economic death by inflation.

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.

We thought the French were just being coy. Every poll showed the "no" voters outnumbered the "yes" voters. But the frogs love to complain. We thought that once they got down to actually voting they would not want to confront the consequences of rejecting the constitution.

We were wrong. They said they were going to say "non" to the new constitution and they meant it.

Now, the European Union has to figure out what to do next.

Were we wrong about the euro, too? The dollar fell against the euro for three years – 2002, 2003 and 2004 – falling from about 88 cents to $1.36 per euro. Since then, it has gone up. But only to $1.25. It was $1.25 on Friday. This morning, after getting hit in early Asian trading, it was still at $1.25. Analysts warned that it might fall to $1.24.

The "no" vote was probably already discounted in the price of the euro. Our guess is that the European currency will soon resume its rise against the dollar. But it is just a guess. The U.S. money supply is falling. Commodity prices are down. Even gold is below $420. Interest rates are low…yields are falling. This is not the kind of world in which the dollar would go into freefall. It’s the kind of world in which the dollar would fall against more serious forms of money – gold, Swiss francs, the euro – but not disastrously. Why? Because so many debtors owe so many dollars to so many creditors. And because the Anglo-Saxon economies seem to be softly sinking into deflation, not entering a period of inflation.

Not that we know that for a fact. It just seems to be the drift of things.

But we have little faith in financial forecasts – especially our own. So, we buy gold. We buy gold because we see a dangerously unbalanced world economy with no painless way to set it straight. Americans cannot continue to run up debts forever. Their houses are not going to increase in price at three times the rate of GDP growth for much longer. The Chinese cannot continue to build factories in order to make products for people who can’t afford to pay for them. And the Japanese are not going to lend money forever to a country that cannot pay it back. But the most alarming feature of the world financial market circa 2005 is that so few people find it alarming. Every hedge fund manager and homeowner is leveraged to the eyeballs. Every analyst and strategist is confident. Every central banker is complacent.

"Europe is old news…it is hidebound…it is irrelevant in the modern world," say the Americans. Of course, that is the very thing we like about it. Europe is on the sidelines; its money is relatively safe.

More news, if there is any:

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Have you ever wondered what other Daily Reckoning readers are thinking? You can find out – become on of the 734 users on our discussion board, and put in your two-cents.

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Bill Bonner, back in Paris…

*** Here at The Daily Reckoning, we have no opinion on the constitution. But judging from the opinions other people have, we’re better off without them.

"A community needs a strong central government, otherwise, we’re a little irrelevant in the modern world…"

"Every country needs a constitution."

"We must go forward with this thing; otherwise, we’ll be forced backwards."

"People who are opposed to it are opposed for all the wrong reasons."

"People who are pushing the constitution just want to take away our social benefits."

Almost everyone has an opinion, and almost every opinion is idiotic.

*** "I read something in the newspaper the other day," began a woman at a dinner party on Sunday night. "It was very interesting. Apparently, there are two parts to the brain. They’ve done a lot of studies on this. The one part is language-based…or maybe I should say it is where we do our symbolic logic. It’s the part we’re using now to say what we want to say. The other part of the brain shapes its own ideas and opinions, but without using language or symbolic logic. I don’t know exactly why I brought it up, except that this constitution issue is so confusing, I think I’ll use the old part of my brain to make a decision. It makes no sense to the new part."

The constitution is more than 400 pages long. Probably not one citizen in 500 actually read the thing. And the one who did is a fool for wasting his time. All he discovered, according to press reports, is that the thing is a monster of good intentions and bad draftsmanship. But what difference does it make? No one knows what comes in tomorrow’s news. And no one knows whether a constitution for Europe would be a good thing or a bad one. Most likely, the constitution will make no difference. Even in America, the constitution is largely beside the point.

The U.S. Constitution specifically and intentionally limits the power of the federal government – leaving all power not expressly given to the feds to the people and the states. Yet, what is it that the U.S. federal government cannot do? The U.S. Constitution specifically says that only Congress has the power to declare war. Yet, Congress hasn’t done so since 1942; U.S. soldiers have fought in dozens of wars since then. The Constitution says a dollar is a unit of gold and silver. Yet, since 1971, no dollar could be traded for gold at a fixed rate.

Throughout the 19th century…and up until the 1930s in the 20th…the Supreme Court was adamant about what the constitution said. It said the federal government couldn’t do things not expressly allowed by the Constitution. Other things were reserved, to the people, it said. Then, after the Roosevelt era, the Supreme Court came to believe that the Constitution said just the opposite thing: that the federal government could do anything that was not expressly forbidden to it.

How could the Constitution say one thing one time and another the next? Were the Supreme Court justices dumber in the 19th century than they were in the 20th?

What happened was that the country had changed. The Constitution was written for a modest republic. When the nation became an immodest empire, the Constitution became irrelevant. It can still be cited in court cases, but if the passage seems to interfere with the imperial program, the language will be re-interpreted. Supreme Court justices will come to think that the passage means something entirely different – even though their predecessors found it entirely acceptable for many, many decades.

Do you see what we see, dear reader? The fascinating part is that people – even the smartest people in the country – will think whatever the times require of them. The spirit of the times…the zeitgeist…the way people feel about themselves and their role in the world…these are the things that really make a difference. When America was a republic, they had republican thoughts. But when the United States became an empire, they put aside their republican thoughts and came to think like imperialists. They did not realize it. They would not admit it. They would never believe that their own conscious thoughts were formed by some process that they neither understood nor controlled. But that is what happens.

The subject came up over coffee on Sunday morning. Somehow, we were discussing women’s rights.

"Why did women care if they could vote or not?" we asked.

"They wanted to be full citizens, of course. They wanted to be treated fairly. They wanted to have a say in their government," came Elizabeth’s reply.

"But were not all those things entirely obvious," we continued. "And since they were obvious, how come they were not important to women before the end of the 18th century?"

"The ideas had just not evolved to that point…"

"Yes, why had they not evolved? This is a very simple matter. Either women are equal to men in politics or they are not. Sometimes, people – including women – judge the thing one way. We do not recall any popular uprising at the time of the American Revolution or Constitutional Congress. Then, as now, women were half the population. They could have made a big stink about it. But back then, the founders – people who were at least as smart as the present generation of political leaders – barely even considered the matter. They didn’t even want to give the vote to other men. They thought about it and decided to reserve the vote for white property owners.

"And yet, if it were a matter of fairness, justice, reason or logic they could have come to the very same conclusion that most people come to today. They were no strangers to the concepts. Still, they thought the fairest, most just and more reasonable thing to do was to not include women among the voting group. Today, very few people in America think women should not be allowed to vote. But back then, the best people seemed to think so."

"I see what you mean. These things are not matters of logic at all. The founders were just as capable of logic. But the times were different. They weren’t reacting reasonably, but emotionally, or sentimentally."

"Yes, people come to have whatever opinion the times require. But the opinions don’t come from thinking. The thinking comes merely to support the opinions. All this blabber of reasons and logic about whether you should vote for or against…or, in America, the great debate about whether the U.S. should have invaded Iraq…or whether taxes should be raised or lowered…all the ‘reasons’ are nonsense. They are merely expressions of sentiment, and excuses for it."

"Hmmmm…."