One CAN say that, with or without the heaping of ridicule and/or scorn, but at least with an arrogant and smug authority that comes from 100 percent certitude, that “The Mogambo is 100 percent certain that the consumer is 100 Freaking Percent (100FP) of the economy!”

I make this Bold Mogambo Assertion (BMA) for two reasons. First, I hope that by debunking this silly “the consumer is 70 percent of the economy” crapola, I will win a Nobel Prize or some other award that has a cash-award component of the prize winnings, perhaps one that has a LARGE cash-award component.

My argument is that the ultimate consumer pays the price for everything by buying and consuming, for instance, a frozen pizza or delicious candy bars, and maybe something nice to drink, knowing that a slice of the purchase price is used to pay back creditors and producers for the use of capital, labor and land invested in producing these – and more! – delicious ‘ready-to-eat’ snacks and treats of high caloric content, of which the sugary, chocolaty and salty varieties I find particularly good. Yum!

And speaking of spending, I was surprised to see that the current-account balance of the USA has collapsed to $673.3 billion in the last 12 months, down from its high of over $800 billion, and the trade balance has fallen to $730.4 billion in the last year, which is down about 20 percent from its high of a couple of years ago, too.

And while the 12.8 percent fall in industrial production in the last year seems like bad news for us Americans, it is worse by whole orders of magnitude other places. Japan has industrial production down 34.2 percent over the last 12 months, and in the euro area it is down by 20.2 percent.

Just when I thought I would go berserk at such horrific economic news, I see John Stepek at Money Morning newsletter had a subhead that caught my eye, which was “Three sound reasons to own gold.”

I admit that I did not read the article, but as far as I know, there are only two good reasons to own gold; to preserve wealth when prices are stable, and to make a lot of fiat wealth when your government acts so stupid as to create, or allow to be created, excess money and credit that eventually destroys the currency, especially when undertaken so as to enlarge the size of government, like now, which makes the problem of inflation worse because those more government weenies have a bigger incentive to save their own phony-baloney jobs, but can only make things worse.

Like, I said, I did not read the article because I am lazy, but the advice to buy gold is the lesson of the last 4,500 years of governments acting irresponsibly when given control of a fiat currency with which they could create as much money as they wished; inflation in prices inevitably caused chaos, misery, starvation and revolution.

I tried to explain to the employees that inflation in prices was essentially just a mismatch between gains in income, if any, versus gains in prices that must be paid with that income, which I hoped would prove to be a valuable insight when I then told them how I was slashing their salaries by a lousy 5 percent, and if they did not like it, then they could all go to hell because we are on our way to bankruptcy anyway.

I was going to suggest that the lesson, which they would immediately grasp if they were not so stupid, is to immediately buy as much gold, silver and oil as they could, but they were not in the mood to hear good advice gleaned from history, and instead wanted to whine about their puny pay cuts.

If they were not so stupid, they would see that buying gold now would easily make up for their meager income reductions, and if they had been buying gold, silver and oil all along, they would be miles ahead!

Whee! This investing stuff is easy!

Until next time,

The Mogambo Guru

Source: The Only Two Reasons to Own Gold

Junior Mogambo Ranger (JMR) Brad W. sent, from the Ludwig von Mises Institute, the essay “Our Financial House of Cards and How to Start Replacing It With Solid Gold”, to which I say, “Hahaha! Good luck, dude!”, because to think that banks would give up their powers to create money with which to enrich themselves, or that Congress would make banks stop creating more money with which Congress can spend on itself and its nasty little friends, makes me laugh and laugh and laugh, until my stomach hurts and I am tired of laughing, and I realize, “Hey! This isn’t funny!”

Then we read the most astonishing sentence, “Currently, untold billions more of banks’ capital now hinge on the survival of bond insurers striving to insure more than two trillion dollars of outstanding bonds on the basis of capital of their own of roughly ten billion dollars.”

In other words, every dollar of insurance on bonds issued by some deadbeat governments and corporations is leveraged 200 times! Man! Talk about leverage!

Now, I am not the biggest math whiz in town, especially word problems, and it was years later that I finally understood the apparently indecipherable equation that someone had written in my high school year book:

“2 ugly 2 be 4 given for being such a creepy little pest and ruining everything for everybody and it’s no wonder nobody likes you.” Well, 2 plus 2 two equals 4 I understand… But ugly be given? What in the hell was THAT supposed to mean?

Well, I recognized my mother’s handwriting immediately, of course, but the math thing is still a bit of an embarrassment. But even a dolt like me can see that if that aforementioned $2 trillion in bonds declines in value by one-half of one percent (0.5%) for one reason or another, all of their $10 billion in capital is gone! Wiped out!

And this is only a couple of lousy trillions of dollar’s worth of bonds! The total value of the existing global gargantuan globular glut of derivatives is estimated to be more than $700 trillion! Compare this stupefying fact to the associated fact that global GDP is only about a lousy $50 trillion!

Hell, the population of the whole freaking planet is about 6 billion people, all neatly divided into categories of either “with me” or “them”, so the derivatives market alone represents $116,666.66 per each person on the whole freaking planet! Hahahaha! This is incomprehensible!

Naturally, I am drawn to the “666″ motif, which has some very appalling Biblical connotations, which makes everything even SCARIER, as if the very idea of that much money being bet on derivatives wasn’t enough to fry your brain neurons at twenty feet.

But there are plenty of things that can fry your brain these days, like CaseyResearch.com reporting that “Occupying center stage yesterday was Bad Ben Bernanke, who for the first time uttered the dreaded ‘R’ word in front of Congress, saying that the possibility of recession cannot be ruled out.”

In fact, Mr. Bernanke is quoted as having said, “It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly.”

I thought Mr. Casey was going to mention the huge increases in prices, but instead reported something that seems so incongruous with rising prices, namely, “Among the day’s data were numbers from the Commerce Department on demand for U.S.-made factory goods, which dropped for the second month in a row in February, as factory shipments hit their lowest level since September 2006. Overall factory orders fell by 1.3%, after dropping by 2.3% in January. That exceeded economists’ expectations for a decline of only 0.7%.”

Lower production, higher prices. It can only mean something bad.

The Mogambo Guru
for The Daily Reckoning Australia

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