More Credit, More Debt: Lessons from the Last Great Unraveling

Posted on September 4, 2012 by MN Gordon

“The lord giveth increase, but man devised credit.”  — Garet Garrett

Solving the Debt Problem with Credit

Something quite remarkable happened in the years following the war to end all wars.  European economies were ruined and European governments were buried in debt owed to the United States Treasury.  On top of that, Germany’s economy was being strangled by reparation payments to France as part of the Versailles peace treaty.

One option for Europe was to default and repudiate the debt.  While such an option would have been incredibly disruptive, it would have given Europe the opportunity to clear the financial baggage of the war, and slowly rebuild a sound economy.  Instead, Europe’s solution to its mammoth debt burden was to attack it with credit.

The United States’ government, which was owed a bundle, resisted financing European reconstruction.  However, private American creditors and speculators were eager to put their excess capital to work.  In fact, Wall Street was so enthusiastic to invest in Europe they too fell under the delusion that Europe’s debt problem could be solved with American credit. Continue reading →

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The Clever Fellows of Jackson Hole

Posted on August 31, 2012 by MN Gordon

The cony-catchers assembling in Jackson Hole, Wyoming, believe the darnedest things.  They think they can decide the price of the economy’s most important component – its money – better than the market can.  Moreover, by low-balling the price of money they think they can get consumers to spend money they don’t have to buy goods and services they don’t need.

This may sound absurd, we know, but it really is the principal objective of monetary policy these days.  Still, this isn’t the half of it…

For when commercial bankers choose not to transmit all the cheap credit into the economy via personal and business loans, central banker plans to goose the economy break down.  That’s when fiscal policy is called upon to pick up the slack.  To this end, government economists believe they can stimulate the economy by spending gobs of money the government doesn’t have – a minor detail, of course – on programs the world doesn’t need.

So to get the money that it doesn’t have to stimulate the economy with spending programs, the government borrows it from the central bank. Continue reading →

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The Great Middle Class Debasement

Posted on August 28, 2012 by MN Gordon

More is revealed each and every day.  Whether you like it or not, the glut of information expands like the glut of Federal Reserve notes in foreign account balances.  Last week was no exception…many significant discoveries were made…

Samsung, for example, was found guilty of violating Apple’s patents in its mobile products.  So, too, Mitt Romney said he would replace Federal Reserve Chairman Ben Bernanke if elected President.  On top of that, photo documentation of Good Time Harry’s flagrante delictos in sin city was posted on the world wide web for everyone to ogle at.  But that’s not all…

The September issue of National Geographic said that “Rome’s border walls were the beginning of its end.”  What’s more, researchers at Columbia University reported they now believe the Mayan Empire collapsed because of corn crop induced droughts.  Can you believe it?

Here at the Economic Prism we’re not sure what any of these data points have to do with each other.  But we have an inkling that, somehow, someway, they’re related.  Connecting the dots takes creativity and imagination.  Correlations are nonlinear…and they’re dynamic too. Continue reading →

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The Only Way to Win with Gold Stocks

Posted on August 24, 2012 by MN Gordon

The Only Way to Win with Gold Stocks
By David Galland, Casey Research

Buddha Investing

While I have read certain works on the life and ponderings of Buddha, I claim no deep knowledge of his philosophy.

Note that I didn’t use the word “religion,” because Buddha himself claimed no supernatural powers and even begged his followers not to deify him after his death.

Hardly had he drawn his last breath some 2,500 years ago, however, when the deification began – though most Buddhists won’t claim it as such.

Even so, there are Buddhist practices that I think are useful in this hectic world of ours – practices that don’t involve dressing in robes and refusing to swat flies.

For example, I rather like to meditate from time to time.

Nothing too involved, just ten or fifteen minutes of quiet, deep breathing as part of calming the mind and all that.

I also find a lot of wisdom in the training of the Zen archers, who seek to clear their minds of all internal dialogue not related to the simple process of releasing the arrow at the target. Continue reading →

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