More Monetary Policy Madness

Posted on October 6, 2015 by MN Gordon

Something extraordinarily uncommon is happening.  Something that hasn’t happened since 1988…back when the U.S. federal debt was just $2.6 trillion.

According to the Institute of International Finance, wealth is not flowing into emerging markets for the first time in 27 years.  It’s flowing out.  In fact, net outflows from emerging markets are projected at $540 billion for 2015.  What’s going on?

In short, investors are pulling money out of emerging-market funds at a faster rate than money is flowing in.  Investors see stormy weather in places like China, Russia, and Brazil and are looking for safer harbors.  But that’s not the half of it.

Technically speaking, emerging market economies are on the fritz.  The MSCI Emerging Market Index is at a six year low.  What’s more, the strengthening U.S. dollar, and conversely weaker emerging market currencies, makes the dollar based debts of emerging market economies more expensive.

Emerging market economies are already overloaded with debt. Continue reading →

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Black Swan Fledgling – The Debt Crisis Takes Flight

Posted on October 2, 2015 by MN Gordon

The debt based money system plods along according to plan.  The Fed offers unlimited credit.  Public and private entities borrow and spend it.

One of the more popular delusions of contemporary culture is disbelieving the money will ever have to be repaid.  There’s no logical thesis that we are aware of to support this misconception.  But it prevails across the general populace all the same.

Day by day, however, the bills come due.  They pile up like wrecked autos on the 405 freeway.  Over the last 30 years or so they’ve stacked up beyond what the economy can possibly support.

The breaking point was reached in 2008.  We are currently living through the interim period of suspended disbelief.  Many aren’t quite ready to accept their new fate.  This wasn’t what they’d bargained for.

Scientific management of the economy, as executed by the Federal Reserve System, was supposed to perpetually inflate away each generation’s debts. Continue reading →

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Oil Debt Bubble Facing Total Collapse

Posted on September 29, 2015 by MN Gordon

Oil prices appear to be holding at about $45 per barrel, for now.  Gasoline prices are finally coming down too.  Here in the land of fruits and nuts we filled up our gas tank over the weekend with the cheap stuff for just $3.19 per gallon.  What a deal.

The combination of over production, diminishing global growth, and the end of sanctions against Iran, could keep oil prices down for several years – or more.  For southern California commuters, and other consumers, lower oil prices act like an income boost.  The savings at the pump can be used to buy more goods.

Ordinarily, lower oil prices, and the potential for greater consumption, would serve to increase the Fed’s favorite metric…aggregate demand.  Conceivably lower oil prices could give GDP a bump.  So, too, they could allow consumers to pay down debt.

But this is hardly an ordinary, garden variety, cyclical oil price decline.  Unfortunately, it is the great big bust that followed the great big boom in U.S. oil and gas development and production. Continue reading →

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Brazilian Model for Wealth and Prosperity

Posted on September 25, 2015 by MN Gordon

Booms and busts fueled by cheap credit are incredibly disruptive. What’s more, they’re exacerbated by central bank efforts to smooth out the business cycle.  Rather than rounding the peaks and tapering the bottoms, monetary policy, as currently executed, has the unfavorable effect of magnifying them.  There’s an abundance of fresh examples.

One of the more accentuating illustrations of recent years is China’s mass concrete binge.  Pumping credit to stimulate construction in China has had the ill-effect of compelling the country to do something extraordinarily incredible.  In short, they’ve mixed up massive amounts of concrete and splattered it across the landscape.

Specifically, China’s economy used 6.6 gigatons of cement between 2011 and 2014.  What a gigaton is we don’t really know.  But we assume it is something unfathomable heavy.  To put this in perspective, the U.S. used 4.5 gigatons of cement over the last 100 years.

What in the world compelled an entire nation to behave like utter blockheads?  Unsurprisingly, misguided stimulus policies pushed everyone beyond the absurd. Continue reading →

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