Fiat Money Cannibalization in America

The United States, with untroubled ease, continued its approach towards catastrophe this week.  The Federal Reserve cut the federal funds rate 25 basis points, thus furthering its program of mass money debasement.  Yet, on the surface, all still remained in the superlative.

Stocks smiled down on investors from their perch upon what Irving Fischer once called “a permanently high plateau.”  As of market close on Thursday, the Dow Jones Industrial Average held above 27,000, the S&P 500 above 3,000, and the NASDAQ above 8,000.  What’s more, 401k accounts, to the delight of working stiffs of all ages, origins, and orientations, are swollen beyond expectations.

Below the surface, however, the overnight funding market was subject to much weeping and gnashing of teeth.  Sometime between Monday night and Tuesday morning the overnight repurchase agreement (repo) rate hit 10 percent.  Short-term liquidity markets essentially broke.

After several technical glitches, the Fed executed its first repo operation in a decade – $53 billion – to keep the interbank funding market flowing. Continue reading

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Don’t Be Another Wall Street Chump

Securities and Exchange Commission Rule 156 requires financial institutions to advise investors to not be idiots.  Hence, the disclosure pages of nearly every financial instrument in the U.S. are embedded with the following admission or variant thereof:

“Past Performance Is Not Indicative of Future Results”

The instruction is futile.  Most investors are idiots, including many of the pros.  What’s more, suspiciously absent from all disclosures is “how” to not be an idiot.  Perhaps this is because such guidance would discourage many unwitting investors from getting mixed up with the stock market in the first place.

Without question, if you don’t know what you’re looking at, the past can be an abysmal predictor of future investment returns.  One year the S&P 500’s up 10 percent.  Another year it’s up 20 percent.  Then, to the surprise of practically every Wall Street analyst, the S&P 500 crashes 50 percent.

Still, practically everyone projects future returns based on past performance.  For example, your retirement advisor at Edward Jones will be quick to point out that the average annual return of the S&P 500 over the last 60 years is about 8 percent. Continue reading

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Suffering the Profanity of Plentiful Cheap Money

What if the savings in your bank account lost 55 percent of its value over the last 12 months?  Would you be somewhat peeved?  Would you transfer some of your savings to another currency?

That was the favored approach in Argentina – where the official inflation rate’s 55 percent.  But no more.  On September 2, President Mauricio Macri resorted to capital controls to preserve the central bank’s foreign exchange reserves and prop up the peso.  What gives?

Just fifteen months ago Macri secured the biggest bailout in the International Monetary Fund’s history.  Now Argentina’s delaying payment to its creditors and is rapidly approaching what will be its third sovereign default this century.  On top of that, Macri’s Peronist rival Alberto Fernández will likely take his job come election day in October.

Alas, for Macri and his countrymen, a painful lesson is being exacted.  You can’t solve a debt problem with more debt.  Eventually the currency buckles and you’re left with two poisons to pick from: inflation or default.  With Macri’s latest capital controls scheme he’s choosing to take swigs of both. Continue reading

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The Hollow Promise of a Statist Economy

Not a day goes by that doesn’t supply a new specimen of inane disclarity.  Muddy ideas are dredged up from tainted minds like lumps of odorous pond muck.  We do our part to clean up the mess, whether we want to or not.

These days, individuals, who like John Locke “love truth for truth’s sake,” are far and away in the minority.  Out of the bowels of America’s higher learning institutions comes a young populace with soiled brains.  What’s more, you’ll likely end up on the hook for their idiocy.

Take one Andy Vila, for instance.  The 21 year old immigrated from Cuba to Miami with his parents in 2004, receiving asylum and ultimately citizenship.  Nonetheless, the socialism he escaped from as a kid has become a rallying cry for his political activism.

The fantasy that big government can redirect goods, capital, and services, as Marx remarked, “from each according to his ability, to each according to his needs,” has garnered burgeoning support from America’s up and comers. Continue reading

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