A Valuable Lesson on Money Creation

Posted on July 24, 2012 by MN Gordon

“No, absolutely not,” answered European Central Bank (ECB) President, Mario Draghi on Saturday over croissants in Paris.  He was responding to a question from the French newspaper Le Monde, asking if the euro were in danger.

There are numerous axioms out there for anyone with the desire to incrementally understand how the world works.  There are also several fundamental facts of life that one must know to grow and prosper…

‘A fool and his money are soon parted.’  This simple knowledge, for instance, will give one an unfair advantage over nearly 90 percent of their peers.  Similarly, ‘never stiff the IRS’ will save them plenty of time, agonizing pain and penalties…and, maybe, even a trip to the hoosegow.

In the case of Draghi’s recent comments, the critical insight is found in the familiar saw…

‘How can you tell when a politician is lying?’

‘His lips are moving.’ Continue reading →

Posted in Government Debt, MN Gordon | Tagged , , , | 2 Comments

Get Ready for a Massive Stock Market Selloff

Posted on July 20, 2012 by MN Gordon

On Tuesday, Federal Reserve Chairman Ben Bernanke’s made his semiannual monetary policy testimony before the Senate Banking Committee.  Washington and Wall Street wanted QE3.  Bernanke demurred.

Following the testimony, Senator Chuck Schumer told Federal Reserve Chairman Ben Bernanke to “get to work.”  Schumer, like most Senators, is under the illusion that Bernanke can actually do something to improve the economy.  Those days are gone.

“The question in my mind is, is he [Bernanke] not stepping up with another program in any quick fashion because they’re [The Fed] starting to wonder if it’s going to have any impact?  Alternatively, are they not stepping up because when they look at the data they think, ‘It’s not that bad,’?” said Jim Paulsen, chief market strategist at Wells Capital Management in Minneapolis, following Bernanke’s testimony.  “Maybe it’s some of both. But does anyone need any more excess bank reserves?”

Obviously, Paulson’s last question was intended to make the point that there’s already too much credit available to banks.  The problem is, there’s nowhere for the banks to put the credit to use. Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , , , | 1 Comment

Why Chimpanzees Throw Poop at Zoo Gawkers

Posted on July 17, 2012 by MN Gordon

Can you believe it?  The 2012 fiscal year budget deficit is on track to eclipse $1 trillion a year for the fourth year in a row…

According to the Treasury Department, “through the first nine months of the budget year, the federal deficit totaled $904.2 billion.”  By the end of the fiscal year, which ends September 30, the Congressional Budget Office projects the deficit will total about $1.17 trillion.  This is madness.

Please recall, before 2009, the federal government never ran a deficit above $500 billion.  Most years it was far less.  In fact, just 12 years ago the government managed to pull in a surplus…though they didn’t use their excess proceeds to pay down the national debt.

But since 2009, $1 trillion deficits have been recurrent.  Apparently, that’s what it takes to sustain the nation; to keep the government running and to dole out all the goodies promised to the populace.  Any reduction in spending and increase in taxes, we’re told, will wreck the economy… Continue reading →

Posted in Inflation, MN Gordon | Tagged , , , , | 3 Comments

The Wrath of Ray Kroc

Posted on July 13, 2012 by MN Gordon

If you’re concerned the economy may be slipping back into a recession…guess what?  We’re already in one.

At least that’s what Lakshman Achuthan, Co-Founder & Chief Operations Officer of Economic Cycle Research Institute (ECRI), told Bloomberg TV on Tuesday.

“What we said back in December was that the most likely start date for the recession would be in Q1 and if not then, by the middle of 2012.  I’m here to reaffirm that,” said Achuthan.  “I think we’re in a recession.  I think we’re in a recession already.  As I said back there, it is very rare that you know you’re going into recession when you’re going into recession.”

ECRI, if you didn’t know, is the leading authority on business cycles.  According to The Economist Magazine in 2005, “ECRI is perhaps the only organization to give advance warning of each of the past three recessions; just as impressive, it has never issued a false alarm.”  Through the years leading up to the Great Recession and to the present, ECRI claims to have furthered this track record of prescient forecasts. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , | 2 Comments