How the Fed Works to Spoil Your Retirement

Posted on March 4, 2014 by MN Gordon

Chicago Fed President Charles Evans wants inflation above 2 percent.  Somehow he thinks this will strengthen the economy and bring about full employment.  To Evans, more inflation will result in greater demand…and greater demand means more jobs.

Fed policy, according to Evans, should promote higher inflation.  Later this month, when new Fed Chair Janet Yellen leads her first Fed policy meeting, we’ll find out if she does too.  Based on her track record, she most likely does believe Fed policy should encourage inflation.  For example, in 1995, at a Federal Open Market Committee meeting, Yellen argued in favor of allowing inflation to exceed inflation targets for moral reasons…

“Ms. Yellen told the committee that ‘the moral’ of all this is ‘that the Fed should pursue multiple goals,’” recounts the Economic Policy Journal.  “She said that ‘when the goals conflict and it comes to calling for tough trade-offs, to me, a wise and humane policy is occasionally to let inflation rise even when inflation is running above target.’” Continue reading →

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The Mark Zuckerberg Indicator

Posted on February 28, 2014 by MN Gordon

Spotting absurdities is both enjoyable and entertaining.  Can you imagine a more agreeable vocation?  For what could be more flattering than pointing and laughing at a mob of your peers as they stomp and pant in unison like boobs on parade?

Markets, of course, offer ample opportunities for otherwise intelligent individuals to behave like utter blockheads.  Visions of easy riches and luxury accommodations are nearly more powerful than love.  They soften the brains and warm the hearts of the most unlikely suspects.

Soon even the most intolerant curmudgeon’s willing to beat the drum for a load of bull if he thinks it’ll make him rich.  Take bitcoin, for instance.  Several short months ago the crypto-currency was flying high…trading for over $1,000.

Early buyers were becoming overnight millionaires.  A new era had come into existence faster than a New York minute.  That’s when true believers and suckers alike went all in.  They wanted to get their share too.  The sky was the limit. Continue reading →

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Shattering the Fed’s Hall of Mirrors

Posted on February 25, 2014 by MN Gordon

“We will develop ambitious but realistic policies with the aim to lift our collective GDP by more than 2 percent above the trajectory implied by current policies over the coming 5 years,” declared the G20 statement.  The communiqué was released Saturday following a two-day meeting of Group 20 finance ministers and central bankers, representing about 85 percent of the global economy, in Sydney, Australia.

“We are putting a number to it for the first time — putting a real number to what we are trying to achieve,” said Australian Treasurer Joe Hockey.  “We want to add over $2 trillion more in economic activity and tens of millions of new jobs.”

What to make of the enthusiastic words?  Here we’ll defer to German Finance Minister, and all around killjoy, Wolfgang Schauble for a thoughtful assessment of the G20’s plans…

“What growth rates can be achieved is a result of a very complicated process,” noted Wolfgang Schaeuble.  “The results of this process cannot be guaranteed by politicians.”

In other words, prosperity cannot be legislated into existence. Continue reading →

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Total Abandonment of the Rules of Common Sense

Posted on February 21, 2014 by MN Gordon

U.S. consumers are doing what they do best.  After a six year hiatus, they’re back at it.  Consumers are eagerly borrowing money.  What’s more, they’re spending it!

According to the Federal Reserve Bank of New York, U.S. consumer debt rose during the fourth quarter of 2013 by the most in six years.  “Household debt increased 2.1 percent, or $241 billion, to $11.52 trillion,” reported Bloomberg, “the biggest gain since the third quarter of 2007.”  Evidently, consumers went in hock to buy homes, cars, and pay for education.

Economists applauded the news.  ‘“Signs that consumers are starting to releverage again and take on more debt is consistent with the idea that we’re turning a corner on the recovery,’ said Tim Duy, a professor at the University of Oregon in Eugene and a former U.S. Treasury economist.”  Naturally, this consumption is a big part of what propelled fourth quarter GDP to a 3.2 percent growth rate.

But is increasing household debt really something to get excited about?  Not from our unobstructed viewpoint…located far away from the clouded brains that comprise a college economics department. Continue reading →

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