Collective Destruction

Posted on July 31, 2012 by MN Gordon

Last Tuesday we remarked that Mario Draghi and the European Central Bank were receiving valuable on the job training.  Most notably, that money creation operations are much harder to stop than to start.

By Thursday, Draghi confirmed he’s an astute learner when he announced to an audience of business leaders in London that the ECB would do “whatever it takes to preserve the euro.”  What exactly that is…one can guess.  But Draghi will have the opportunity to explain it to everyone this Thursday when the ECB’s governing council meets.

Details aside, and in confirmation of the adage to ‘buy the rumor sell the news,’ world markets celebrated the announcement with a manic rally.  The DOW ran up 207 points on Thursday and another 190 points on Friday.  “Mario Draghi Just Put a Floor in Market, Pros Say,” declared a CNBC headline.

But what type of floor is it, really?

Certainly, it isn’t a marble floor keyed into granite bedrock. Continue reading →

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Bypassing Government Roadblocks to Your Personal Prosperity

Posted on July 27, 2012 by MN Gordon

Bypassing Government Roadblocks to Your Personal Prosperity
By David Galland, Casey Research

Recently I helped out with some delivery chores.  As I drove about, I discovered that one of the roads I would normally use was closed by roadblocks.  It was, I imagine, due to road repair work.  I had to reverse course and take a substantial detour.

I wondered why the road crew hadn’t put up a sign indicating the road was closed back at the main intersection, but I shrugged and muttered something like “Typical government operation.”

Driving back home, this idea of roadblocks took root in my mind.  The thing is, only governmental entities can set up roadblocks – at least, legally.

Obviously, there are times when such roadblocks are entirely appropriate… for example, when a bridge is found to be dangerous.

In that case, putting up a roadblock to let drivers know that the road is a no-go makes perfect sense. Continue reading →

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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 →

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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 →

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