Calling Mitch McConnell’s Debt Ceiling Bluff

Posted on August 25, 2017 by MN Gordon

Senate Majority Leader Mitch McConnell woke up on the wrong side of the bed on Monday.  Who could blame him?  His summer vacation’s been ruined.  President Trump’s been riding him all month like a pack mule.

What’s more, on Monday McConnell had to rise early and put on his suit and tie like an ordinary working stiff.  While his Congressional cohorts were busy vacationing on their summer recess, McConnell had important business to tend to that couldn’t wait until Congress’ return on September 5.  Namely, he had to make a public display of unity in his home state of Kentucky with Treasury Secretary Steven Mnuchin.

Following a social media lambasting of a deplorable taxpayer by Mnuchin’s new bride, and Mnuchin’s visit to Fort Knox to confirm the “gold is safe,” it was finally time to get down to business.  Together, McConnell and Mnuchin held hands and insisted the U.S. government will raise the debt ceiling and avoid defaulting on its debt.  McConnell even made the following declaration: Continue reading →

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Why There Will Be No 11th Hour Debt Ceiling Deal

Posted on August 18, 2017 by MN Gordon

A new milestone on the American populaces’ collective pursuit of insolvency was reached this week.  According to a report published on Tuesday by the Federal Reserve Bank of New York, total U.S. household debt jumped to a new record high of $12.84 trillion during the second quarter.  This included an increase of $552 billion from a year ago.

Moreover, this marked the second consecutive record high on a quarterly reported basis for U.S. household debt.  Indeed, this is a momentous achievement.  From our vantage point, it is significant for several reasons.

One, it shows U.S. household debt has returned to its upward trend which had previously gone uninterrupted from the close of World War II until the onset of the Financial Crisis in late 2008.  Second, it demonstrates that, like the S&P 500, new all-time highs are being attained with the seeming precision of a quartz clock.  Is this just a coincidence?

More than likely, it’s no coincidence at all.  More than likely, the mass quantities of central bank liquidity that have been injected into the financial system over the last decade have provided the plentiful gushers of cheap credit that have pushed up both stock prices and household debt levels. Continue reading →

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How to Prepare for Another Market Face Pounding

Posted on August 11, 2017 by MN Gordon

“Markets make opinions,” goes the old Wall Street adage.  Indeed, this sounds like a nifty thing to say.  But what does it really mean?

Perhaps this means that after a long period of rising stocks prices otherwise intelligent people conceive of clever explanations for why the good times will carry on.  Moreover, if the market goes up for long enough, the opinions become so engrained they seek to explain why stock prices will go up forever.

After nine years of near uninterrupted stock market gains, new opinions are being offered to explain why the stock market will be bathed in sunshine indefinitely.  For example, the late-1990s term Goldilocks is again being used to describe why the slow growth, low unemployment, economy is good for stocks.  Apparently, if an economy is not-too-cold, but not-too-hot, stocks can go up lots and lots.

What’s more, these days everything is so perfect that Goldilocks is no longer a good enough descriptor.  This was the conclusion that JPMorgan’s Jan Loeys recently reached, no doubt after peering at a 5-year S&P 500 index chart:

“We nicknamed this world ‘Better than Goldilocks’ two weeks ago. Continue reading →

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Yanking the Bank of Japan’s Chain

Posted on August 4, 2017 by MN Gordon

Based on the simple reflection that arithmetic is more than just an abstraction, we offer a modest observation.  The social safety nets of industrialized economies, including the United States, have frayed at the edges.  Soon the safety net’s fabric will snap.

This recognition is not an opinion.  Rather, it’s a matter of basic arithmetic.  The economy cannot sustain the government obligations that have been piled up upon it over the last 70 years.

In other words, the post-World War II boom is nearly over and the bills are coming due.  What’s more, greater and greater amounts of future growth are already claimed by existing debt obligations.  This, in turn, inhibits that growth from making its way into the larger economy, thus limiting future economic growth.

Perhaps this is why mature economies are finding it near impossible to attain 3 percent GDP growth.  In fact, the last time U.S. GDP grew by 3 percent or more for a calendar year was 2005, about 12 years ago.  Unfortunately, it doesn’t look like U.S. GDP growth will ramp up any time soon. Continue reading →

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