The Fastest Way to Escape a Debt Trap

Posted on April 24, 2015 by MN Gordon

Borrowing money and spending it can be fun.  Certainly more fun than saving and paying down debt.  Not only that, borrowing money’s much easier too.

Saving takes prudence, discipline, and hard work.  Running up the credit card takes none of these things.  But that doesn’t mean there aren’t consequences.

Just like an individual, when an entire economy racks up a bill it can’t pay back, future economic growth becomes stunted.  It becomes even more difficult to save and invest when more and more earnings must go to service debt.  Asian economies are discovering this phenomenon.  They are also discovering the relentless hold of a debt trap.  What went wrong?

In short, when the financial crisis and Great Recession hit in 2008 nearly all governments ran up their federal debt.  The U.S. government, for instance, ran fiscal deficits over $1 trillion dollars from 2009 thru 2012.  Since then, they’ve cut budget deficits back to about half of that. Continue reading →

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One Bear Market from Disaster

Posted on April 21, 2015 by MN Gordon

“Past performance is not indicative of future results,” goes the hackneyed investment disclaimer.  No doubt, this warning’s been repeated so often no investor gives pause to consider it.  Perhaps now, six years into a bull market, is a critical moment for honest contemplation.

The stock market has become as predictable as the sunrise.  That it will go up for a seventh straight year is universally expected. Bullish on its recent successes, the bull market marches on with gusto.

This, indeed, is the sort of gusto Napoleon Bonaparte’s army set out with on its march to Moscow in the Russian Campaign of 1812.  Like the Grande Armée, today’s investors believe they will never lose.  Such is the sort of pretenses that lead to disaster.

World markets cracked last Friday.  First it was the NIKKEI 225 out of Japan, giving up 232 points.  Then, later in the day, the German DAX dropped 310 points.  Lastly, closing out the day, the DOW fell 279 points.  What to make of it? Continue reading →

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China’s Spectacular Reckoning

Posted on April 17, 2015 by MN Gordon

China's Spectacular ReckoningChange is constant.  You can count on it.  Earlier this week, for instance, it was revealed that China’s economy is growing at just 7 percent annually.  The Middle Kingdom’s GDP hasn’t been this slow since 2009…during the midst of the global financial crisis.  What’s going on?

For perspective, 7 percent GDP growth in the United States or Europe would be outstanding.  In fact, the GDP for both economies are slipping and sliding around 1 percent.  But in China 7 percent GDP growth is a signal that the sky is falling.

‘“We are facing a complicated international situation and increased downward pressure on the domestic economy,’ the National Bureau of Statistics said on Wednesday.

“The government has been using targeted easing measures to give the economy a boost and ensure the growth target is reached so that it can achieve another target: the creation of at least 10 million new jobs this year.”

Yikes!  Continue reading →

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The Economic Motherboard is Now Fried

Posted on April 14, 2015 by MN Gordon

Economics is a boring and tedious trade to the casual observer.  All the monthly report outs on GDP, employment, manufacturing, inflation, among other indexes, are a dull waste of time.  What decisions could one possibly make to improve their lot in life from these reported data?

Should you buy more toothpaste because the CPI went up 0.2 percent last month?  Should you stay at your current job because GDP growth is slowing?  Obviously, this information is useless for making a reasoned decision.

Plus, in addition to the government’s nonsense economics reports, the blathers of the leading economic policy makers are near incoherent.  “Just because we removed the word ‘patient’ from the statement doesn’t mean we are going to be impatient,” said Fed Chair Janet Yellen last month when asked about the Fed’s strategy for raising the federal funds rate.  Certainly, this is the type of utterance that, upon hearing it, reduces an individual’s mind and sucks from their soul. Continue reading →

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