Alan Greenspan’s Pickled Economy

Posted on March 4, 2016 by MN Gordon

Former Federal Reserve Chairman Alan Greenspan resurfaced this week.  We couldn’t recall the last time we’d heard from him.  But, alas, the old fellow’s in desolate despair.

On Tuesday, for instance, he told Bloomberg he hasn’t been optimistic for “quite a while.”  Obviously, this is in contrast to the perennial Goldilocks attitude he had during the 1990s.  So what is it that has the Maestro playing a low dirge?

China, the dollar, Dodd-Frank, and associated unknowns are all part of his negative outlook.  But the long winter of his discontent is something else.  Greenspan said he “won’t be [optimistic] until we can resolve entitlement programs.”

“Nobody wants to touch [entitlements].  But it is gradually crowding out capital investment and that is crowding out productivity and that is crowding out the standards of living,” said Greenspan.

Indeed, funding entitlement programs is becoming more burdensome by the year.  As a greater percentage of the economy’s GDP goes toward entitlement programs, a lesser percentage goes towards capital investment.  The effect of this negative feedback loop, as Greenspan infers, is quite simple. Continue reading →

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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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