The Consequences of Lard

Posted on April 17, 2012 by MN Gordon

The Labor Department reported last Friday that consumer prices increased 0.3 percent in March.  More importantly, however, when adjusting for the increase in prices, worker earnings fell 0.4 percent during the month.  What this means is that wage earners are losing ground at an annualized rate of 4.8 percent.

These days most workers are just grateful for having a job.  They look around and see plenty of intelligent and able people who’ve received the dreaded pink slip.  Still, when rising at the crack of dawn Monday morning to embark on another week of drudgery, some may find it discouraging to know their efforts are moving them backwards at an annual rate of nearly 5 percent.

The combination of rising prices and a soft labor market are a reflection of the economy’s anemic recovery in the face of mass money creation.  Last we checked the unemployment rate had dropped to 8.2 percent.  On the surface things appear to be improving…the unemployment rate’s going down, not up.  But, unfortunately, a small scratch below the surface reveals a less sanguine picture. Continue reading →

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How to Build Wealth and Stick it to the Government

Posted on April 13, 2012 by MN Gordon

Doing the Roth Arithmetic
By Terry Coxon, Casey Research

It’s clear to me, even though it may not be clear to you, that unless there is something very unusual about your situation, if you have a traditional IRA, you should pay the tax now and convert it to a Roth IRA.  Not just maybe, but definitely.  Not just for a small advantage but for a big one.  If you don’t convert today, you’ll ultimately surrender much more to the tax collector.  You’ll be throwing money away.  And you’ll keep throwing it away.  It’s a result neither of us wants.

Your IRA is an object in motion, with money going in and out of it and investments turning over inside of it.  It lives not just on your brokerage statement but across the years of your calendar as well.  That’s why the Roth conversion question can seem so tangled. Because of the time dimension, deciding whether to convert isn’t as simple as deciding whether to replace one stock with another.  But there is, as I’ll try to show, a way to look at the question that cuts through the complexity. Continue reading →

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Spain to ECB: Inflate or Die

Posted on April 10, 2012 by MN Gordon

The Bane of Europe

“Thou hast seen nothing yet.” – Miguel de Cervantes, Don Quixote

In the late 15th century, the gods look down from the heavens above and smiled upon Spain.  With the capture of the Emirate of Granada in 1492, Spain completed the Reconquista of the Iberian Peninsula…ending the last remnant of a 781-year presence of Islamic rule.  That same year, in a voyage funded by Queen Isabella, Christopher Columbus discovered the new world.

Soon after, Spain emerged as the first world power.

For the next 200-years Spanish treasure fleets transported vast riches of gold, silver, spices, tobacco, and agricultural goods, from the Spanish Empire in the Americas to the homeland.  Spanish rulers just knew their good fortune was limitless and without end.  But alas, the bounty was not without consequences.

Overtime the flow of wealth to Spain became an expected entitlement.  The influx of riches proved not to be a blessing, but a curse.  Like spoiled heirs of a family fortune, or an unprepared lottery winner, Spain squandered its wealth through a succession of misadventures. Continue reading →

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Monetary Policy, Explained

Posted on April 6, 2012 by MN Gordon

Minutes from the March 13 Federal Open Market Committee meeting were released Tuesday afternoon.  Upon perusing the record of proceedings, Wall Street was shocked to discover there was no discussion of monetary easing options.  Traders promptly sold.  Then, on Wednesday, they sold again.

“The major support for the economy and for the financial markets over the past two years has been stimulus, and without it, it’s still a question whether these economies can make it on their own,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville.  Based on the market’s sell off, clearly, investors don’t believe the economy can stand on its own two feet.

Nonetheless, with $4 dollar per gallon gas already here, well in advance of the summer driving season, additional monetary inflation is not politically expedient at the moment.  In several months’ time that will likely change.  But first the twisted mix of money and politics will have to get from here to there.

What’s become vastly apparent since the 2008 credit crisis and economic contraction is how enormously dependent both the economy and financial markets are on Fed money creation.  Following each monetary experiment, like QE and QE2, when the Fed concludes its bond buying operation the stock market nosedives and economic growth reverses. Continue reading →

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