How the Fed Chokes the Economy

Posted on December 20, 2024 by MN Gordon

Clouds hovered in the skies over the Eccles Building in Washington, D.C. this week as the Federal Open Market Committee (FOMC) held its final meeting of the year.

Inside the climate-controlled building an unelected body of statist central planners supped mugs of coffee brewed with beans imported from the southern hemisphere. They also applied consensus and conjecture to fix the price of credit.

The big idea is that the Federal Reserve can moderate the business cycle by dictating the supply of money and credit. The Fed’s track record over roughly 110 years tells a contrary story of persistent inflation and the advancement of bubble finance.

What is especially important to understand about the Fed is that, through its twelve regional Federal Reserve Banks, it serves the interests of privately-owned commercial banks. All efforts to enhance the economy are secondary.

Understanding this generally unspoken objective of the Fed is crucial to making sense of what the Fed says and what it does. In particular, the Fed’s words and actions don’t always line up. Continue reading →

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13 Reckonings for America

Posted on December 13, 2024 by MN Gordon

One of the noteworthy features of the political climate in the USA is the lack of agreement on what the facts are – and how the economy should be allowed to function. Should it be a hands-off laissez-faire economy? Should there be more regulatory intervention?

Many politicians speak of free markets when they think it will help them get votes. But the body of work over the last 100 years is that big government is always the chosen solution.

President-elect Trumps, for his part, promotes policies that will do both. He wants to slash regulations and cut spending. But he also wants to preserve Social Security, boost defense spending, and place significant trade tariffs on foreign imports.

The simple fact is you cannot have your cake, and both eat it too. Once you have it, it is already gone. There is nothing left to eat.

This reality is why the DOGE bros – Elon Musk and Vivek Ramaswamy – will have trouble slashing $2 trillion from the budget. Without some give from transfer payment programs and defense spending, it will be impossible to pull off. Continue reading →

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Are You Unknowingly on a Suicide Mission?

Posted on December 6, 2024 by MN Gordon

“We’re a creature of Congress, we’re not in the Constitution.” – Fed Chair Jerome Powell, December 4, 2024

Chasing the Wild Goose

The transfer of wealth from workers and savers to the government and the big banks rolled on this week with Swiss-like precision. The process is both mechanical and subtle. Here in the USA the automated elegance of this ongoing operation receives little attention.

NFL football. Holiday BOGO offers. Trump’s cabinet picks. Hunter Biden’s pardon by the big guy. You name it. Bread and circuses like these – and many others – offer the American populace countless opportunities for chasing the wild goose.

All the while, and with little fanfare, debts are piling up like deadwood in Angeles National Forest. These debts, both public and private, stand little chance of ever being honestly repaid. The obligations extend well above what the economy can support.

The national debt is now over $36.1 trillion. But that is only a small piece of the picture. Unfunded liabilities – like Social Security, Medicare, federal debt held by the public, and federal employee and veteran benefits – amount to over $221.4 trillion. If you’re a U.S. citizen, your share of this pile is over $645,322. Continue reading →

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The Zealous Pursuit of Retail Therapy

Posted on November 29, 2024 by MN Gordon

Something remarkable happened following the election of Donald Trump as the 47th President of the USA. The Dow Jones Industrial Average (DJIA) topped the 44,000-point barrier for the first time ever. Then, several weeks later, it briefly eclipsed 45,000.

The stock market is in full melt up. The Trump bump is powering share prices higher. Investors and speculators expect a bright future. And their intentions are to exploit it for personal profit.

The general logic is that Trump is pro-growth and pro-business. That his policies will unshackle the economy from the restraints of burdensome and onerous regulations. That he will stick it to foreign competitors and Make America Great Again. That corporate earnings will soar. And thus, stocks will become even more valuable.

The logic, unfortunately, is braindead. Stocks are already priced for perfection. Any positive effect Trump’s policies may have on the economy will take several quarters or more to show up on bottom lines. Yet share prices are increasing as if such an earnings boost will be immediate. Continue reading →

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