The Recession of 2013?

Posted on January 15, 2013 by MN Gordon

Getting back to the straight and narrow can take a lot of time and effort.  Especially after straying far off the beam without much care or sense.  That seems to be what happened to the whole economy during the bubble years last decade.

For some reason, probably the combination of cheap credit and visions of easy riches, people went mad together.  They borrowed and spent money until the whole financial system blew apart in a great big mess.  Since then, picking up the pieces has been a rough task.

But even after the travails of the last five years it could take another five years before all the wrongs have been righted.  That’s what Financial Analyst, Gary Shilling thinks.  According to Shilling, the economy will slump for another five years.

That’s about how much more time Shilling believes it’ll take for households and institutions to pay down their debts.  Moreover, this time is needed for assets to be rebuilt through a rising savings rate.

Shilling, and other economists, refer to this process of paying down debts and raising capital as deleveraging. Continue reading →

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Is American Justice Dead?

Posted on January 11, 2013 by MN Gordon

Is American Justice Dead?
By David Galland, Managing Director

Every nation-state has a body of laws woven into the fabric of society.  As Peruvian economist Hernando de Soto has commented on extensively, the stronger the rule of law, the stronger the economy.

And by “stronger” laws, I mean laws that are impervious to tampering for personal or political gains.  The connection between a sound judiciary and economic health is readily comprehensible, except maybe to a politician… businesses and individuals are far more likely to invest capital in a country with understandable laws that are impartially and universally enforced than if the opposite condition exists.

That’s because the lack of a consistent body of law breeds uncertainty and adds a huge element of risk for entrepreneurs.  That is the case here in Argentina, where hardly a week goes by without La Presidenta and her meddlesome comrades cooking up some new hurdle for businesses to overcome.

Which brings me back to the matter at hand – American justice on a slippery slope. Continue reading →

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How to Erase the Federal Debt and Other Bad Ideas

Posted on January 8, 2013 by MN Gordon

The world is rife with bad ideas.  Just open your eyes and look around.  Hardly a blink can be made without some bad idea coming into view.  What’s more, the worse the idea…the more popular it becomes.  Here’s a partial list of what we mean…

Rap music, corn ethanol, the United Nations, pop psychology, Obamacare, no doc neg am loans, efficient market hypothesis, super mega big gulps, paper money, social welfare, skinny jeans, central banking, the Hindenburg, collateralized debt obligations, negative real interest rates, red bull energy drink, legal tender laws, democratic collectivism, fractional reserve banking, the helicopter ejection seat, Al Gore, malt liquor, the office cubicle, and much more.

Obviously, we could go on and on.  The list is practically without end.  But you get the point.  Bad ideas are everywhere and they are amazingly popular.

Nonetheless, today, we take aim at one really, really bad idea.  An idea that’s so bad, it’s extremely and extraordinarily popular.  It’s been going on for a long time.  But it really kicked off in earnest about 100-years ago… Continue reading →

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“We Know Better!”

Posted on January 4, 2013 by MN Gordon

"We Know Better!"Monetary intervention into credit markets is much easier to start than to stop.  In fact, once started, monetary intervention is nearly impossible to stop.  Just ask Fed Chairman, Ben Bernanke.

He’s promised to expand the Fed’s balance sheet by over $1 trillion per year until more people have jobs.  Considering the money multiplier effect and the “magic” of fractional reserve banking, at some point, each $1 trillion added to the Fed’s balance sheet could translate into $5 trillion – or more – of money flowing into the economy.

Unless you like paying $10 for a cup of coffee, let’s hope this money never gains real traction in the economy.  Given this destructive outcome, why is it that Bernanke’s creating so much prospective money?

Here, in Socratic Method, we’ll answer with a question: What would happen if Bernanke didn’t inflate the money supply?

You see, once the financial system’s become dependent on cheap credit, it cannot be taken away without an economic breakdown occurring.  Moreover, ever increasing and more frequent issuances are needed just to sustain the appearance of economic stability. Continue reading →

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