The Great Donkification

“Right here, boys!  Right here!  Get your cake, pie, dill pickles, and ice cream!  Eat all you can!  Be a glutton!  Stuff yourselves!  It’s all free, boys!  It’s all free!  Hurry, hurry, hurry, hurry!”
– Pleasure Island voiceover, Walt Disney’s Pinocchio (1940)

Welcome To Pleasure Island!

Did you get your stimmy check, yet?  If so, what are you going to do with it?

Are you going to park it in your savings account, pay down debt, and pay off a few bills?  Are you going to buy Chinese ‘stonks’, cryptocurrencies, and digital NFT art?

What about a new iPhone, fancy dinners, or a plane ticket to Cabo?  How about a new living room rug, a wood pellet grill, or a 75-inch flat screen TV with a sound bar?

The collective answer to these questions is the difference between deflation, asset price inflation, and consumer price inflation.

Billionaire folk hero Warren Buffett says you should use your stimmy check to “pay off credit card debt.”  His rationale is sound enough: Continue reading

Posted in Government Debt, MN Gordon | Tagged , , , , , | 5 Comments

Fifty Basis Points To Disaster

Fiscal stimulus, including the latest $1.9 trillion American Rescue Plan Act, is a terrible joke.  And the means for financing it is a terrible fraud.  A massive deficit, piled upon a mammoth debt, made possible by dollar debasement.

Extreme credit market intervention by the Federal Reserve is a prerequisite.  So, too, is the utter denial of price inflation by the Bureau of Labor Statistics.  This week’s consumer price index (CPI) propaganda reported the all items index increased 0.4 percent in February and 1.7 percent over the last 12 months.

The combination of extreme credit market intervention and bogus inflation reporting is making a mockery of credit markets.  Where to begin?

When you purchase a Treasury note you are lending money to the government for a specified period of time (i.e. 30 days to 30 years) at a fixed rate of interest or yield.  The risk of default on Treasuries has generally been considered nonexistent.

The federal government, with assistance from the Federal Reserve, can always print money to pay its debts.  But this isn’t without risks. Continue reading

Posted in Economy, MN Gordon | Tagged , , , , | 52 Comments

Betting The Farm On Moonshots

Ashley Revell of London had a mad itch he needed to scratch.

The year was 2004.  The initial tickle came from a casual drinking conversation with a friend.  Revell couldn’t let it go.

The idea, in short, required Revell to liquidate all his possessions, travel to Las Vegas, and ‘bet it all’ on one spin of the roulette wheel.  The idea was sheer lunacy.  Yet Revell was just crazy enough to go through with it.

Revell sold off all his possessions over a six month period and traveled to the Plaza Hotel and Casino in Las Vegas.  Then, one Sunday morning in April 2004, with his mom and dad standing behind him, along with a film crew, Revell placed $135,300 on red.

What happened next?  Here’s Revell’s account:

“That spin was the most amazing moment of my life.  It is a cliché but time did stand still.  It was just complete calm because I had done all the hard work.

“Everything had all been sold.  I had no possessions.  I had decided whether to go red or black.  There were no more decisions to make – it was a complete feeling of freedom.

“The ball sort of bobbled around and then landed in what I thought was red but it disappeared slightly from view.  I looked around and, as the wheel spun back into view, there it was resting in number seven.  Red. Continue reading

Posted in MN Gordon, Stock Market | Tagged , , , , | 23 Comments

Jerome von Havenstein: Inflation Or Bust

This week brought forth new evidence that – to be perfectly frank – we’re all screwed.

On Thursday, the yield on the 10 year Treasury note topped 1.55 percent.  Subsequently, the Dow Jones Industrial Average, after hitting an all-time high on Wednesday, dropped 559 points.  Wall Street must not be listening to Federal Reserve Chairman Jerome Powell.

Earlier in the week, Powell, in testimony to the Senate Banking Committee, confirmed that the central bank would keep the federal funds rate near zero until maximum employment is achieved.  In addition, the Fed, in its recently released semiannual Monetary Policy Report, confirmed it would continue to create credit from thin air to buy $80 billion per month of Treasuries and $40 billion per month of mortgage backed securities (MBS).

What’s more, the Report specified the Fed’s purchases of Treasuries and MBS “…will continue at least at this pace until substantial further progress has been made toward its maximum employment and price stability goals.”  The operative words being, “at least.” Continue reading

Posted in Economy, MN Gordon | Tagged , , , , | 25 Comments