Every clause has a gold
lining By The Mogambo Guru
To show you how having a strong currency
is so nice from an inflationary viewpoint, let's
take a little walk over to The Economist magazine,
maybe stopping by the candy vending machine on the
way, and maybe depositing coins of a depreciating
currency in exchange for something comforting in
the chocolate family, perhaps with nuts, and maybe
some nougat or something equally as tasty, because
trust me when I say that you will want a little
sweetness because soon things will be very ugly.
Firstly, we note that the Economist
Commodity Price Index shows an, "all items"
year-over-year inflation of 30.7% in the Dollar
Index!
The euro, which has been stronger
than the dollar, shows an "all Items"
year-over-year inflation of "only" 15.6%!
Hahahaha! "Only" 15.6% inflation in prices! It's
like your stupid children getting
arrested,
and they brag all the way home about how they
haven't ever been charged with a felony, only
misdemeanors, while their friends have all done
hard time! Like that makes it okay or something!
And so I recognize that feeling of stunned
incomprehension as I drive them back home, and
watch in disbelief as they nudge each other with
their elbows, exchange sly looks and try not to
laugh, like I'm so stupid that I don't catch on.
It's the same thing with this 15.6% inflation in
euroland; stunned incomprehension.
Inflation means that you are going to see
things the likes of which Moises Naim, of Foreign
Policy magazine, writes about in the LA Times,
such as, "Last month, 10,000 people took to the
streets in Jakarta to protest skyrocketing soybean
prices. In 2007, pasta prices sparked street
protests in Milan. Mexicans marched against the
price of tortillas, Senegalese protested the price
of rice, and Indians took up banner against the
price of onions."
Inflation in the prices
of food is bad news, as mobs of hungry, angry
people rampaging through the streets generally
wind up causing a lot of trouble, and as a result,
"Argentina, China, Egypt, Venezuela and Russia are
among the nations that have imposed controls on
food prices in an attempt to contain a public
backlash" against the horrible inflation in prices
that is following the horrible inflation in the
money supplies! Hahaha! Like that has ever worked!
Hahaha! What chumps!
And how do you
protect yourself against inflation? History, of
course, says "gold"! And for those of you who have
suddenly had your eyes opened as you were
horrified to learn what is happening to our money
and our economy through the deliberate policies of
Alan Greenspan's Federal Reserve for 17 long, long
years, and now under the Federal Reserve of Ben
Bernanke doing the same thing, and now you find
yourself longing, longing, longing for a way
whereby you could be sure that you are paid in
non-inflating money, where, "a dollar was a dollar
and a dime was a dime" ...
... If that
describes you, then the essay, "Brief History of
the Gold Clause in Contracts" by Mark K Funke,
Esq, writing in Northwest Territorial Mint's
newsletter, is just what you need!
Mr
Funke writes, "It is a fiction for us to believe
that the dollar (or any other currency) has a
fixed value over an extended period of time. For
centuries, humans pondered how to protect
themselves against a wasting currency. Lawyers
writing long-term contracts have faced this
question for a long time. In the 1700s, 1800s and
early 1900s, long-term contracts commonly included
a 'gold clause'. A gold clause generally allows
one party to demand payment in gold based upon a
pre-established fineness and quantity."
This perfect arrangement, willingly agreed
to by both parties and working perfectly for all
those centuries was, of course, doomed by
government/Fed mismanagement of the general
economy, and in the resultant panic, "In June 1933
all gold clauses were declared against public
policy by a joint resolution of US Congress."
The interesting news is that, "In 1977, US
Congress passed a statute again permitting
contracts to be valued or paid in gold, provided
the contract was entered into after October 27,
1977 (See 31 USC 5188(d)(2))."
The
glorious upshot is, "So yes, these days you can
have your attorney draft a lease or other payment
obligation which includes a gold clause -
although", he adds with a clever hint of contempt
for the integrity of government, "there is no
protection against Congress changing its mind,
just as it did in 1933."
But in the
meantime, gold clauses are now perfectly legal,
and they will surely become even more popular as
the inflationary horror unfolds, even in China, as
we learn from Junior Mogambo Ranger (JMR) Bill C,
who sent an article from Chinaview.cn that, "The
Bank of China has forecasted a 7.5% or even higher
rise in the January Consumer Price Index (CPI)."
And the Financial Times reports that there
is a new agreement on steel among the few
participants, and everyone has agreed to a 65%
price hike for iron ore! Yikes! 65% at a whack!
And this is actually the good news, as iron ore
spot prices have, "roughly trebled" over the last
year!
It's a wonder that it's that high,
but it will go higher, as the "prices of coking
coal are expected to double", too, and the money
supply is going up at double-digit rates
everywhere! We're freaking doomed!
It's a
wonder that gold isn't higher. It will be higher.
And much higher, as the currencies all get weaker
and as all the currencies expand their money
supplies, and the people who are not hedged with a
gold clause will pay a big, big price as inflation
that falls short of predictions will destroy the
profit that both sides thought that they were
going to make, which will make gold clauses more
popular, which will make gold more popular, too,
which means that gold will go up in price that
much more as all around it, which is the good news
for those holding gold.
Meanwhile,
everything else is turning into crap. Ugh.
The Mogambo Sez: As so confidently
predicted because I am too stupid to realize my
folly in predicting anything, silver has led the
way up, followed by gold, and followed by oil.
And I don't expect anything to change
except the increasing wealth of those who are
faithfully following the Mogambo Investment Plan
(MIP), which is to buy lots and lots these three
things, which you do by putting your children on a
subsistence diet and a minimal standard of living
so that they can be convincing as they beg for
money from people at the mall, and then you take
their money and wisely use this money and the
savings to buy silver, gold and oil in prodigious
amounts.
I know, I know; it sounds so
simple, how come nobody ever thought of it before
now? Hahaha!
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.
Republished with permission from
The Daily
Reckoning .
Copyright 2008, The Daily
Reckoning.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
