The Trifecta of Depravity

Posted on June 17, 2014 by MN Gordon

You don’t have to look very far these days to see economic disparity, divergence, and contrary counterparts.  The rich have never had it so good.  A rising stock market, rising home values, and record corporate profits have the top 10 percent of earners taking home more than half the nation’s total income.

Meanwhile, the middle class has been completely shredded.  Well-paying white collar jobs have been downsized.  Good manufacturing jobs have been offshored.

In return, former middle class professionals must compete for low-paying service jobs.  Is it any wonder why the labor force participation rate is at a 36-year low?  What’s more, the labor force has been steadily falling since the turn of the new millennium.

Quite frankly, it’s demoralizing for someone to go work for a third of the pay they made not long ago…especially when the Fed’s zero interest rate policy has stolen the rewards of hard work, saving money, and paying your own way.  Many would rather drop out of the labor force than do mind numbing work in return for peanuts. Continue reading →

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Cause and Effect of a Broken Market

Posted on June 13, 2014 by MN Gordon

According to the professionals, the economy’s improving.  Can you believe it?  Despite the fact that first quarter GDP declined at an annual rate of 1 percent, economists are coming up with the darnedest reason why things are getting better.

“Late Friday afternoon, the Federal Reserve released data on consumer credit for April,” reported MarketWatch one week ago.  “Student and auto loans have been powering that growth for some time, and that continued last month: Nonrevolving credit rose at a seasonally adjusted annual rate of 9.5 percent, the fastest growth since February 2013.

“But the real news was in credit-card growth, which leaped 12.3 percent.  That’s not just the fastest one-month growth since February 2001 — credit-card growth hasn’t even exceeded 7.5 percent since the recession.”

Somehow, the statistic showing consumers are increasing the rate at which they’re spending money they haven’t earned is pointed to as a sign that the economy’s getting better.  This sounds crazy we know…but it’s happening all the same… Continue reading →

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How to Profit from Obama’s War on Coal

Posted on June 10, 2014 by MN Gordon

Republican leaders are up in arms.  House Speaker John Boehner calls it “nuts”.  Senate Minority Leader Mitch McConnell said it’s a “lose-lose proposition”.

No, we’re not referring to President Obama’s gum chewing faux pas at the D-Day anniversary in Normandy France.  We’re referring to something much, much more absurd.  That’s right.  We’re talking about Obama’s latest attempt to control the world…with your money.

If you didn’t hear, last week Environmental Protection Agency Administrator, and Obama appointee, Gina McCarthy signed a new Clean Air Act Proposal to reduce greenhouse gas emissions by a third of 2005 levels by 2030.  “These new standards are going to help us leave our children a safer and more stable world,” explained President Obama.

Here we’ll pause to offer a modest proposal.  To counteract the deleterious effects of greenhouse gases we suggest putting millions of ice cubes in the ocean and having everyone open their windows and blast the air condition to cool the atmosphere.  Sounds ridiculous, right? Continue reading →

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Monetary Activism

Posted on June 6, 2014 by MN Gordon

Sometime in the 1950s twentieth century economist Hyman Minsky developed his Financial Instability Hypothesis.  At the cornerstone, is the notion that economic stability breeds instability.  How’s that possible?

As Minsky observed, financial crisis follow periods of economic prosperity.  These periods of prosperity encourage borrowers and lender to be progressively reckless.  Increased credit and debt lead to inflated asset prices.

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

The housing boom and bust last decade followed Minsky’s script to the letter.  A preponderance of cheap Fed credit was emanated into the financial system to soften the dot com crash.  For whatever reason, the cheap credit made its way into the housing market.

Early speculators made big returns.  Banks followed up the returns with riskier and riskier loans…because, if you recall, ‘house prices only go up.’ Continue reading →

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