The End of Extend and Pretend

Posted on September 30, 2014 by MN Gordon

About 60-years ago twentieth century economist Hyman Minsky developed his Financial Instability Hypothesis.  His main premise was that economic stability breeds instability.  How’s that possible?

As Minsky observed, financial crisis follow periods of economic stability and prosperity.  Moreover, it’s these periods of prosperity that sow the seeds of the next calamity.  In short, the extended stability encourages borrowers and lender to progressively take on greater risk.  This results in ever greater increases in credit and debt, which inflates asset prices.

Eventually, excess optimism leads to instability…lending and debt move to unsustainable levels.  Debt levels move beyond what the economy can support.  Financial bubbles then burst.  Asset prices crash and the mistakes of the preceding boom are corrected.

Last week the DOW offered a stark reminder that stocks don’t always go up.  What’s more, in addition to not always going up…something else can happen.  Stocks can go down.

After a soft slide on Monday and Tuesday, followed by a robust rally on Wednesday, the bottom fell out on Thursday. Continue reading →

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The World Becomes Disorder

Posted on September 26, 2014 by MN Gordon

The World Becomes Disorder
By Donald G.M. Coxe, Chairman, Coxe Advisors LLC

Is the post-Cold War global boom over?

Since the fall of Bolshevism, the world has seen remarkably sustained growth in international cooperation, brought about by freer trade and new technologies.  Financial assets have generally performed well, increasing prosperity across most of the world. There were just two major interruptions—the tech crash in 2000, and the financial crash in 2008.

The world warmed up fast after the Cold War.  Prices of most commodities rose, despite major corrections:

–  Oil climbed from $15 per barrel to as high as $140.  It collapsed with the crash, but climbed back swiftly to near $100.

–  Corn climbed from $2 to as high as $8 before sliding to $3.60.

–  Copper climbed from 80 cents to $4.30 before sliding to $3.

–  Gold shot up from $350 to $1,900 before pulling back toward $1,200.

So what’s happening with commodity prices now?  Is this just another correction, or has the game really changed? Continue reading →

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No Quick Fix for Structural Reforms

Posted on September 23, 2014 by MN Gordon

Finance ministers and central bankers from the Group of 20 leading nations met in Cairns Australia over the weekend.  The clever fellows believe, with the right balance of fiscal and monetary policies, they can improve the global economy.  This, of course, means greater stimulus and fabricated demand.

‘“We are determined to lift growth, and countries are willing to use all our macroeconomic levers – monetary, fiscal and structural policies – to meet this challenge,’ said Australian Treasurer Joe Hockey, who hosted the event.”  The G20 leaders want to increase global growth by 2 percent.  So far they can’t quite seem to get there.

The way things are going, it looks like they’ll fall about 0.2 percent short of their goal.  But it’s not because they aren’t trying.  “Almost 1,000 measures had been proposed that would boost global growth by 1.8 percent by 2018, nearing the ambitious goal of 2 percentage points adopted back in February.”

Perhaps the goal will be achieved.  But here at the Economic Prism we believe this will be more by luck than by erudite policy. Continue reading →

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Worshiping Utterances

Posted on September 19, 2014 by MN Gordon

The world around us is a strange and wacky place.  Even so, it becomes ever stranger and wackier by the day.  Just when we think we’ve seen it all…something new appears and creeps us out.

For instance, have you seen Hillary Clinton’s face lately?  Holy Toledo!  What a fright that is.  We can’t quite tell what happened.  But whatever it is…its gawdawful.

Taking notice of the many absurdities out there is both the joy and misery of the objective observer.  One moment you’re doubled over with laughter.  The next you’re doubled over expelling your lunch with disgust.

Did you know the U.S government paid federal workers $400 million to do nothing?  No kidding, they really did.  In addition, the IRS provided $17.5 million in IRS tax relieve for brothels in Nevada.  There was also $1.23 million of federal money spent on apartments for deaf seniors…that can’t be used by deaf seniors.

These examples straddle the line between the hilarious and the repugnant. Continue reading →

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