Banana Republic Money Debasement In America

Posted on December 13, 2019 by MN Gordon

There are many falsehoods being perpetuated these days when it comes to money, financial markets, and the economy.  But when you cut the chaff, three related facts remain: Uncle Sam needs your money.  He needs a lot of your money.  And he needs it bad!

According to the Congressional Budget Office, the federal budget deficit for the first two months of fiscal year 2020 is $342 billion.  This amounts to $36 billion more than the deficit recorded during the same period last year.  At this rate, Washington’s going to add over $1 trillion to the national debt in FY 2020.

Still, the figures from the CBO aren’t all bad.  Revenues in October and November of 2019 were 3 percent higher than they were in October and November of 2018.  Regrettably, outlays for these two months were 6 percent higher in 2019 than they were in 2018.

Jacks and Jennets both know from experience that taking three steps forward and six steps back is an inefficient way to lose ground.  They also know that the longer this goes on the more ground you lose.  So, too, they know that the more ground you lose the harder it is to make up. Continue reading →

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Every Bubble Eventually Finds its Pin

Posted on December 6, 2019 by MN Gordon

The transfer of wealth from workers and savers to governments and big banks continued this week with Swiss-like precision.  The process is both mechanical and subtle.  Here in the USA the automated elegance of this ongoing operation receives little attention.

NFL football.  EBT card acceptance at Del Taco.  Adam Schiff’s impeachment extravaganza.  You name it.  Bread and circuses like these – and many others – offer the American populace countless opportunities for chasing the wild goose.

All the while, and with little fanfare, debts pile up like deadwood in Sequoia National Forest.  These debts, both public and private, stand little chance of ever being honestly repaid.  According to the IMF, global debt –  both public and private – has reached an all-time high of $188 trillion.  That comes to about 230 percent of world output.

Certainly, some of the private debt will be defaulted on during the next credit crisis and depression.  But when it comes to the public debt, governments do everything they can to prevent an outright default.  Central banks crank up the printing press and attempt to inflate it away. Continue reading →

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The Fed’s Answer to the Ghastly Monster of its Creation

Posted on November 29, 2019 by MN Gordon

The launch angle of the U.S. stock market over the past decade has been steep and relentless.  The S&P 500, after bottoming out at 666 on March 6, 2009, has rocketed up over 370 percent.  New highs continue to be reached practically every day.

Over this stretch, many investors have been conditioned to believe the stock market only goes up.  That blindly pumping money into an S&P 500 ETF is the key to investment riches.  In good time, this conditioning will be recalibrated with a rude awakening.  You can count on it.

In the interim, the bull market may continue a bit longer…or it may not.  But, to be clear, after a 370 percent run-up, buying the S&P 500 represents a speculation on price.  A gamble that the launch angle furthers its steep trajectory.  Here’s why…

Over the past decade, the U.S. economy, as measured by nominal gross domestic product (GDP), has increased about 50 percent.  This plots a GDP launch angle that is underwhelming when compared to the S&P 500.  Corporate earnings have fallen far short of share prices. Continue reading →

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Japan’s Yield Curve Control Regime is Coming to America

Posted on November 22, 2019 by MN Gordon

Earlier this month, Bank of Japan (BOJ) Governor Haruhiko Kuroda commented that Japan’s central planners are considering a 50-year government bond issue as a long-term means of putting a floor under super-long interest rates.  How this floor would be placed is extremely suspect; we’ll have more on this in a moment.  But first, the dual benefits – according to Japan’s central planners…

One, the 50-year government bond would allow the government to lock in cheap long-term funding.  Two, it would give yield-starved investors higher returns.  Cheap funding.  Higher yield.  What’s not to like?

Kuroda, if you didn’t know, is a certifiable madman.  Following a cheap credit induced bubble and subsequent bust of Japan’s property and stock market in the late-1980s, Kuroda and his cohorts at the BOJ have tried anything and everything to re-inflate asset prices.  After nearly three decades they’re still at it.

There’s not a deranged monetary policy idea the BOJ hasn’t pioneered in the name of saving the nation from itself. Continue reading →

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