Day of Reckoning Imminent

Posted on February 26, 2016 by MN Gordon

It all seems so systematic, arranged, and orderly.  Sixty seconds make a minute, 60 minutes make an hour, 24 hours make a day, and one day equals one complete rotation of the planet earth.

Roughly every 30 days the moon orbits the earth – which is one month.  Then every 12 months the earth orbits the sun – which is one year.

So far so good…right?

But here’s where the nice and neat order of it all breaks down.  For if you try to measure one of earth’s orbits of the sun in days it’s not so divinely tidy.  For it takes 365 days plus an inconvenient 6 hours to fully complete the cycle.

Nonetheless, we don’t let these inconvenient 6 hours hamper our perfection.  We’re humans, after all.  We innovate, invent, and make the world in our image.  So when the numbers don’t jive, we do what must be done.  We fudge them.

We create an off balance account, we concoct a new theory, we contrive negative interest rate policy…and we invent leap year. Continue reading →

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Welcome to the New Dark Ages

Posted on February 19, 2016 by MN Gordon

The popular notion that the economy’s doing just fine is losing acceptance with each passing week.  Politicians, central bankers, brokers, and even the nightly news broadcasters can no longer pretend everything’s going according to script.  All at once, no one can remember their lines.

Surely even the most sarcastic playwright couldn’t have plotted the broad approval of Donald Trump and Bernie Sanders as presidential candidates.  But here we are, in the midst of the primaries, and ‘Feel the Bern’ bumper stickers blight the landscape like roadside graffiti art.

The professional economists said 3 percent GDP growth, 2 percent inflation, and 5 percent unemployment would usher in a new era of economic enlightenment.  Who knows where these criteria came from?  What is known is that the knob twisters can’t seem to dial it in per their specifications.

Nonetheless, the larger populace has come to the realization that the supposed bliss this would bring is not what has been advertised. Continue reading →

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Less than Zero

Posted on February 12, 2016 by MN Gordon

Just when we thought we’d seen it all the impossible happened.  Earlier this week the 10-year Japanese government bond slipped into negative.  Obviously, it took decades of heavy handed intervention into credit markets to pull off such a feat.

On Tuesday, when the Nikkei dropped over 5 percent, the yield on Japan’s 10-year government bond dropped to minus 0.005 percent.  This marked the first time in the history of government debt that the yield on a G7 country’s 10-year bond has been less than zero.  We are lucky to be alive to bear witness to the absurdity.

Just a few years ago these depressed credit prices would’ve been considered impossible.  Why would anyone with advanced knowledge of a negative outcome loan their money at a loss?  But sure enough, in the bright light of day, the impossible has become reality.

Make of it what you will.  The ultimate impact of a 10-year government bond with a negative yield is unknown…though something seems amiss.  Will this allow the government to issue, and also buy up, unlimited amounts of its own debt? Continue reading →

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China’s $6.6 Trillion Toxic Loan Problem

Posted on February 5, 2016 by MN Gordon

“As long as you’re green, you’re growing.  As soon as you’re ripe, you start to rot,” once remarked Ray Kroc, mastermind of the McDonald’s franchise empire.

At the moment, no truer words can be spoken for China’s ripe economy.  The Middle Kingdom’s 30-year economic boom is being overcome with the unpleasant odor that befalls rotting vegetables.  What’s more, there’s no way to reverse it.

The state of economic activity in China is stalling out.  All of the sudden, the mistakes that were hidden by a growing economy are surfacing en masse.  Excess capacity is turning up in all corners of the economy and no one knows what to do about it.

Each day, it seems, new rot comes to bear upon Beijing’s central planners.  Somehow the miracle workers have lost their hot hand.  A slowing economy, falling stock market, exodus of wealth, and weakening currency are not conforming to the graphs and statistics reported in the latest blueprint for the planned economy.

How could it be that the professional politicians, who’d sparkled with genius all these years, so grossly missed their targets? Continue reading →

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