Violating the Promptings of the Economy

Posted on June 29, 2012 by MN Gordon

I left my heart in San Francisco
High on a hill it calls to me
To be where little cable cars climb halfway to the stars
The morning fog may chill the air, I don’t care

My love waits there in San Francisco
Above the blue and windy sea
When I come home to you, San Francisco
Your golden sun will shine for me

— Frank Sinatra

—

Today we’re in San Francisco working, observing, writing and taking pause with our wife and son to ride cable cars up and down Powell Street, traverse through the city’s varying districts – like Chinatown, North Beach, SoMa and Fisherman’s Warf – and eat fresh crab and pasta.  What follows are some ruminations on the City’s beginnings, gold, Jack London, and much, much, more…

The First Day of the California Gold Rush

On January 24, 1848, James W. Marshall stepped out from Sutter’s Mill and peered down the American River, in Coloma, California.  In the distance he saw a glimmer along the river bank twinkling back at him.  What could it be? Continue reading →

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How Does Gold Fare During Hyperinflationary Periods?

Posted on June 26, 2012 by MN Gordon

How Does Gold Fare During Hyperinflationary Periods?
By Jeff Clark, Casey Research

Inflation is a natural consequence of loose government monetary policy.  If those policies get too loose, hyperinflation can occur.  As gold investors, we’d like to know if the precious metals would keep pace in this extreme scenario.

Hyperinflation is an extremely rapid period of inflation, but when does inflation (which can be manageable) cross the line and become out-of-control hyperinflation?  Philip Cagan, one of the very first researchers of this phenomenon, defines hyperinflation as “an inflation rate of 50 percent or more in a single month,” something largely inconceivable to the average investor.

While there can be multiple reasons for inflation, hyperinflation historically has one root cause: excessive money supply.  Debts and deficits reach unsustainable levels, and politicians resort to diluting the currency to cover their expenses.  A tipping point is reached, and investors lose confidence in the currency.

“Confidence” is the key word here.  Fiat money holds its purchasing power largely on the belief that it is stable and will preserve that power over time. Continue reading →

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Money Games

Posted on June 22, 2012 by MN Gordon

After much anticipation and hoopla, Fed Chairman Bernanke made his post FOMC meeting utterances on Wednesday.  In short: No QE3, for now.  More Operation Twist.

Markets didn’t know what to make of it.  Initially they rose on the announcement.  The Dow jumped over 100 points.  After that, however, it slid down 100 points before climbing back up…ending the day about 13 points off where it started.

Then, yesterday, at opening bell, the DOW barfed all over itself…and never recovered.  By the time the closing bell rang, the DOW had dumped 250 points.

Jim Cramer said it was the fault of commodities.  “Today was a day when lots of investors freaked out that there might not be enough end demand for everything that’s fashioned from commodities, not just the commodities themselves,” said Cramer.

Perhaps Cramer is right…and maybe he is wrong.  Here at the Economic Prism we don’t pretend to know what moves the stock market.  But we think the disappointment of no QE3 may have soured the moods of traders.

Operation twist, no doubt, involves significant market intervention.  While it doesn’t actually expand the money supply, like quantitative easing, it twists and contorts credit markets like a blacksmith twists and forges a wrought iron gate. Continue reading →

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Give Democratic Socialism a Chance

Posted on June 19, 2012 by MN Gordon

“It is not good to have a rule of many.” – Homer

A New Greek Tragedy

A country with a burgeoning economy offers an intoxicating sensation.  It warms the hearts and softens the minds of men to notions that would otherwise be impossible.  Suddenly their best and brightest shine brighter than everywhere else, their military might’s the mightiest, and their system of government is the most high.

For a time this appears to be true.  The evidence, for a while, shows no indication to the contrary.  But, then, when everyone least expects it, the seemingly impossible happens.  The money, the military, and the people’s dignity crash in rapid succession.

Athens, for example, lost its edge over 2,400 years ago.  When the Peloponnesian War ended in 404 BC, after 27 long years, Athens had been reduced from the strongest city-state in Greece to a state of complete devastation.  So, too, the Peloponnesian War closed the door on the golden age of Greece.  Athens’ pre-war prosperity and preeminence were gone forever.

To this day the shattered psyche of Athens’ population has never fully been pieced back together. Continue reading →

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