Mass Delusions of Cupcakes and Credit

Posted on May 1, 2012 by MN Gordon

According to the Commerce Department, the U.S. economy grew at an annual rate of 2.2 percent during the first quarter of the year.  Like the economy, something doesn’t feel quite right about this number.  But what is it, really, that should be a surprise?

The clever fellows at PIMCO have been telling everyone of a new normal – low growth, low returns – world since 2009.  Isn’t 2.2 percent GDP consistent with their thesis?

Maybe so.  But that’s if you consider 2.2 percent GDP to be real growth.  Here at the Economic Prism we have reservations.  What we mean is we’re more interested in what this number doesn’t represent than what it does.

In particular, 2.2 percent GDP doesn’t represent growth.  It represents lack of growth.  In fact, a headline GDP of 2.2 percent means the economy is not increasing at all.

More exactly, by our back of the napkin estimation, the economy’s contracting at an annual rate somewhere between negative 0.5 percent and negative 8.1 percent.  The wide differential in our estimate represents the fudge factor in CPI reporting.  Here’s what we mean… Continue reading →

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So Long, US Dollar

Posted on April 27, 2012 by MN Gordon

So Long, US Dollar
By Marin Katusa, Casey Research

There’s a major shift under way, one the US mainstream media has left largely untouched even though it will send the United States into an economic maelstrom and dramatically reduce the country’s importance in the world: the demise of the US dollar as the world’s reserve currency.

For decades the US dollar has been absolutely dominant in international trade, especially in the oil markets.  This role has created immense demand for US dollars, and that international demand constitutes a huge part of the dollar’s valuation.  Not only did the global-currency role add massive value to the dollar, it also created an almost endless pool of demand for US Treasuries as countries around the world sought to maintain stores of petrodollars.  The availability of all this credit, denominated in a dollar supported by nothing less than the entirety of global trade, enabled the American federal government to borrow without limit and spend with abandon. Continue reading →

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Destroying the Retirement Dreams of a Generation

Posted on April 24, 2012 by MN Gordon

Stocks had a rough go of it yesterday.  After recouping some of the day’s early losses the DOW ended the day with a 102 point loss.  One headline said it was Europe’s fault.  Another said it was Wal-Mart bribery in Mexico.

Here at the Economic Prism we don’t know what the reason was…we just hope no one lost an ear over it.  That does happen from time to time, you know.

Take Jerry Lee Ries of Los Angeles.  On the night of April 11, Ries and another man met near Parking Structure 10 in Santa Monica to conduct a business transaction.  Ries was, no doubt, clarifying the finer points of his program of debt collection when he pulled out a knife and sliced the man’s ear off.

The victim apparently owed Reis $400, but was only able to produce $360.  Then, wouldn’t you know it, Ries didn’t even keep the ear he took as collateral for the $40…he tossed it in a street corner trash can.

Unfortunately, the victim’s ear could not be reattached.  What’s more, Ries had to post $100,000 bail to get out of the pokey after being arrested and charged with mayhem and assault with a deadly weapon. Continue reading →

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A Wrong Against the Human Race

Posted on April 20, 2012 by MN Gordon

Last month brought forth new evidence that not only are things getting better, they’re getting worse too.  For instance, borrowing by Spanish banks from the ECB hit a new record in March at 227 billion euros.  The banks, in turn, loaned the money to the Spanish government through bond purchases.

Don’t ask where the ECB got the money to loan out.  For a magician’s tricks are a magnificent disappointment when you know their secrets.  Nonetheless, the cash infusion will make things better in the short term.  The banks can remain solvent and the government afloat…for now.  But, over time, this will only make things worse as the banks and the government link their fates and go further into debt.

In the United States things are equally absurd.  After Secret Service agents were caught in flagrante delicto short paying Columbian working girls, President Obama took a moment Tuesday to lambast speculators for bidding up the price of oil and pushing gas prices up at the pump.  It’s an election year, after all.  Blaming oil traders for high gas prices is a great way to procure some votes. Continue reading →

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