Rational Despair

Posted on January 10, 2025 by MN Gordon

The first full week of 2025 is coming to an end. And the final days of President Biden’s time in office cannot come soon enough. After four years of mega deficits and mega meddling, the economy and stock market have been crudely distorted. They’re both bloated to the max.

President-elect Trump wants to keep both the stock market and economic levitation going. Asset prices and low unemployment provide a superficial appearance of good health. Trump’s a reality TV guy. He wants things to look good. He wants to have rising stock indexes and low unemployment to point to as validation of his policies.

At the same time, Trump says he wants to rein in deficit spending. He wants to cut waste and inefficiency. These are both really good objectives. But they are at odds with the goal of continued levitation of the stock market and economy.

Does Trump understand that the source of the levitation is the deficit spending? What will happen if the $2 trillion in deficit spending is taken away? Will the economy topple over? Will stocks go south? Continue reading →

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Let’s Get Real About DOGE

Posted on January 3, 2025 by MN Gordon

With the New Year comes new hope and optimism. The slate’s wiped clean. A new leaf is turned over. Time to start anew.

If only it were so simple. If only, with the turn of the calendar, the mistakes from the past would magically disappear – forever. Wouldn’t it be nice?

But like unpaid bills, the mistakes remain. And they must be reckoned with.

In the sphere of money and politics, central planners in Congress, at the U.S. Treasury, and the Federal Reserve have left massive amounts of mistakes. Several generations of deficit spending and currency debasement have piled up like rotting refuse during a trash workers’ strike.

These mistakes aren’t going away.

While many Americans were fully ensconced in holiday delight, Treasury Secretary Janet Yellen penned a letter. You may have missed it. Most people did.

The December 27 letter to House Speaker Mike Johnson provided a friendly notice of the consequences of past mistakes. Namely, that the Treasury expects the statutory debt limit to be hit sometime between January 14 and January 23. Continue reading →

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Expect the Unexpected in 2025

Posted on December 27, 2024 by MN Gordon

Sometimes things don’t always go according to plan. An unexpected car repair can blow the monthly budget. A lingering illness can delay completing a big project.

When it comes to the schemes of central planners this is especially true. A five-year plan may list certain goals and objectives. It may even outline a roadmap for achieving them. But reality has a way of taking things off their intended course.

The Federal Reserve commenced its rate cutting cycle on September 18, when the yield on the 10-Year Treasury note was about 3.70 percent. Since then, and in the face of a full 1.00 percent in Fed rate cuts, the 10-Year Treasury note yield is now at 4.60 percent. The Treasury market, as represented by the 10-Year note, is diverging from Fed rate cuts.

One possible reason is that the Fed made a mistake when it declared ‘mission accomplished’ in its fight with consumer price inflation. The Fed thought the moderating rate of consumer price inflation would continue. That it had set the trajectory of prices, and before long they would fall in line with its arbitrary 2 percent target. Continue reading →

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How the Fed Chokes the Economy

Posted on December 20, 2024 by MN Gordon

Clouds hovered in the skies over the Eccles Building in Washington, D.C. this week as the Federal Open Market Committee (FOMC) held its final meeting of the year.

Inside the climate-controlled building an unelected body of statist central planners supped mugs of coffee brewed with beans imported from the southern hemisphere. They also applied consensus and conjecture to fix the price of credit.

The big idea is that the Federal Reserve can moderate the business cycle by dictating the supply of money and credit. The Fed’s track record over roughly 110 years tells a contrary story of persistent inflation and the advancement of bubble finance.

What is especially important to understand about the Fed is that, through its twelve regional Federal Reserve Banks, it serves the interests of privately-owned commercial banks. All efforts to enhance the economy are secondary.

Understanding this generally unspoken objective of the Fed is crucial to making sense of what the Fed says and what it does. In particular, the Fed’s words and actions don’t always line up. Continue reading →

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