The Malady of the Federal Reserve

Posted on December 11, 2012 by MN Gordon

Ben Bernanke and his pals at the Federal Reserve are meeting today to come up with their next plan for manipulating credit markets.  Tomorrow they’ll let us know their grand designs for monkeying with the money supply and interest rates.  Of course, you can count on more money at cheaper prices…it’s what they always do.

If only more money equaled more wealth.  Then we’d all be rich.  After all, the Federal Reserve’s added $2 trillion dollars to its balance sheet and pushed the federal funds rate to practically zero since mid-2008.

Unfortunately, more money does not automatically equal more wealth.  Sometimes more money equals less wealth.  In fact, the typical American family’s net worth fell 39 percent between 2007 and 2010.  What gives?

The fact of the matter is more money, by way of cheaper credit, does not equal more wealth.  It equals more debt.  More debt, especially when used for consumption, equals the exact opposite of more wealth; it equals less wealth. Continue reading →

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Are You Ready?

Posted on December 7, 2012 by MN Gordon

There are fantastic abnormalities taking place in front of our very eyes.  The 10-Year Treasury Note is yielding just 1.58 percent and gold, despite a recent pullback, stubbornly sits above $1,700 per ounce.  In other words, people are simultaneously expecting deflation and inflation.

Then there’s the stock market.  One “analyst” says it’s poised for a fall.  Another says it’s consolidating for its next great run up.  Both are right – and wrong – as far as we can tell.

The S&P 500, if you hadn’t noticed, is below where it was at the turn of the millennium.  Back then everyone knew that, over the long run, stocks always go up.  But these days the long run is understood to be much longer than it was back then.  But how long is the long run?

Over in Japan, for instance, they’re exploring just how long the long run really is.  On January 29, 1989, almost 23-years ago, the NIKKEI 225 closed at 38,916.  Yesterday it closed at 9,545…down over 75-percent after all this time. Continue reading →

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Economic Reduction

Posted on December 4, 2012 by MN Gordon

One of the more aggravating things about the forthcoming tax hikes is the proposed increase to dividend income.  Since 2003 the top tax rate for dividends has been 15 percent.  Under President Obama’s proposed plan dividends will be taxed as ordinary income.  Top income earners will pay 39.6 percent tax on stock dividends.

Unfortunately, this is coming at a time when dividends have never been more essential to capital management and preservation.  The Federal Reserve’s zero interest rate and quantitative easing policies have pushed the yield on the 10-Year Treasury Note down to 1.61 percent…that’s less than the rate of inflation reported by the Bureau of Labor Statistics.  This makes government debt, as an investment option, a guaranteed wealth dissipater.

Thus, over the last several years, high dividend yielding stocks have become indispensable to those saving and investing for retirement.  Regrettably, President Obama wants to strangle this reliable means of investment income…and for what? Continue reading →

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Facing the Facts of Financial Doom

Posted on November 30, 2012 by MN Gordon

Our politicians’ appetite to spend money they don’t have will never be satisfied.  There’s always a boondoggle or meritless program in need of pork.  Likewise, there’s always a politician or representative in need of votes.

Spending other people’s money brings a senator flattery from their constituents.  The voters reward congressmen that deliver federal funds with another term in office.  For the voter believes that, through the ballot box, they can get something for nothing.

Take this whole fiscal cliff debate.  From what we can tell the debate is limited to how much taxes will increase and who will pay them.  We’ve yet to hear much in the way of real spending cuts…the type that would take federal spending from 25 percent of GDP, where it is today, back to 18 percent of GDP, where it was in the 1990s.

But even that seems too high.  Why not cut government down to just 5 percent of GDP?  No doubt, there’d be a lot less paperwork to contend with.

The point is government spending is the real problem.  That’s why raising taxes is not the solution. Continue reading →

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