Will Larry Summers Save the World Again?

Modern macroeconomics is a boring and dreary trade.  The monthly report outs on GDP, unemployment, inflation, and other data aggregates, are a dull waste of time.  What decisions could you possibly make to improve your lot in life from these data reports?

Should you buy more toothpaste because the CPI is rising at a 5 percent annual rate?  Should you risk a career change when the unemployment rate is over 10 percent?  Should you buy an S&P 500 index fund because GDP growth is booming?

Economic reports are mostly useless for making intelligent decisions.  Yet these reports provide government central planners a steadfast reason to exist.  That is, to intervene in the economy to improve the data.

The goal for the planners is to get the reports to show numbers to their liking.  This generally includes moderate growth, low inflation, and low unemployment.  Years ago Alan Greenspan called this delightful combination a Goldilocks economy.

Reality, however, is often far different than what the official numbers say.  What’s more, government bean counters work over time to fabricate the data to support the official story. Continue reading

Posted in MN Gordon, Politics | Tagged , , , , , | 2 Comments

Why Consumer Price Inflation Is Here To Stay

Jerome Powell might be done as a useful Federal Reserve Chairman.  Not that Fed Chairs provide a use that’s of any real value.  They mainly excel at destroying the wealth of wage earners and savers for the benefit of member banks.

But as Powell loses a grip on price inflation the business of supplying credit at a fixed rate of return becomes less fruitful.  Consumer price inflation, as measured by the consumer price index (CPI), is rising at an annual rate of 4.2 percent.  That’s well above interest rate of a 30 year fixed mortgage, which is currently 3.1 percent.

It doesn’t take much imagination to foresee a CPI over 6 percent.  At that rate of price inflation, what good to the bank is a home loan that’s only paying 3 percent?  This, among other reasons, is why Jay Powell is toast.

Powell, no doubt, has been going along to get along since long before he took over the reins of the Federal Reserve.  He’s always done what everyone asked.  He’s rapidly expanded the Fed’s balance sheet to fund massive government deficits and backstop the mortgage market. Continue reading

Posted in Inflation, MN Gordon | Tagged , , , , | 24 Comments

Welcome to Walley World!

One of the fringe benefits of Washington’s stimulus program has been inflated stock portfolios.  This has delivered a great boon for certain state governments.  In Connecticut, for example, a state that taxes capital gains as regular income, this year’s budget surplus is projected to be $470 million.

That’s quite an achievement.  Especially when you consider the state’s rainy-day fund will hit an all-time high of $4.5 billion.  Federal coronavirus stimulus is also bringing $6 billion into the state.

Yet for the greedy fellows in the Connecticut state legislature the budget surplus is not nearly enough.  They want to soak the rich for the noble purpose of helping people.  Lawmakers are proposing a “surcharge” on high earners; single filers making more than $500,000 will be subject to a combined capital gains rate of 8.99 percent.

But that’s not all.  The state legislature also wants to create something it calls a “consumption tax.”  People earning more than $500,000 would pay 0.7 percent of their adjusted gross income.  That rate would rise to 1.4 percent for those earning $2 million, then 1.5 percent over $13 million. Continue reading

Posted in Economy, MN Gordon | Tagged , , , , , | 25 Comments

Financial Repression 101

Bad ideas are flourishing like Washington lobbyists.  Just look around.  It’s near impossible to blink without countless crackpot ideas coming into view.  What’s more, the worse an idea is, the more popular it becomes.

Take Mickey’s Fine Malt Liquor.  It’s almost as destructive as doctor prescribed pain killers.  Yet people chug down Big Mouths as if their lives depend on it.

Or consider central banking.  Has any other single idea extracted more wealth from the lowly wage earner?  The Federal Reserve’s backdoor taxation program has snookered honest hard-working Americans for over 100 years.

Why is it that bad ideas are so warmly received?  Perhaps, it’s because they generally promise something for nothing.  That one can live off the forced philanthropy of their neighbors.  That one can get more out of their retirement fund than they put in.

Promises of fruits without labors are fantastical.  They’re also the reliable way for politicians to get reelected.  How can it possibly be a good idea to spend more and tax less, and fill the gap with more and more debt? Continue reading

Posted in Government Debt, MN Gordon | Tagged , , , , | 17 Comments