Credit Market Killing Machine

Posted on February 7, 2012 by MN Gordon

Yields on the 10-Year Treasury Note remain below 2 percent.  Interest rates this low are extraordinarily abnormal.  They indicate credit markets are feeble.  Moreover, despite the Feds efforts to suppress interest rates, these ultra-low yields may be hurting the economy rather than stimulating it.

How did we get here?  Let’s explore…

“Where does credit go when it dies?” asks Bong King Bill Gross in his latest Investment Outlook.

“It delevers, it slows and inhibits economic growth,” says Gross, “and it turns economic theory upside down, ultimately challenging the wisdom of policymakers.”

The critical insight that Gross offers in this article is that once economic policy has forced interest rates to become zero-bound, low interest rates no longer stimulate economic growth; rather, they discourage it.  In short, when credit markets do not offer a reward that’s worthy of the risk, lenders take their money elsewhere.

Obviously, this can have negative consequences on the economy… Continue reading →

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How to Spot a Stock Market Inflection Point

Posted on February 3, 2012 by MN Gordon

Saving for retirement these days is a tall order.  It certainly hasn’t been like the good old days during the 1980s and 90s when you could blindly dollar cost average into a no load index fund and watch it rise 15 percent each year.  Those days are long gone.

Nowadays, with yields on the 10-Year Treasury Note perpetually stuck below 2 percent and the S&P 500 down from where it was at the turn of the new millennium, growing a tiny grubstake into something you can live off of has proven to be near impossible.  Still, you must try.  Moreover, what’s your alternative?

Social Security’s bankrupt, pension funds are broke, and, according to the Bureau of Labor Statistics’ inflation calculator, the dollar’s lost 23 percent over the last decade.  This means you must work harder, save more, and invest better than ever before…all for less in return.  In fact, just keeping pace with inflation is difficult enough – let alone actually building wealth.

Nonetheless, here at the Economic Prism we are not discouraged.  We welcome a good challenge like we welcome the silence before dawn. Continue reading →

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Davos Hootenanny and Salvation Call

Posted on January 31, 2012 by MN Gordon

Despite the reformers endless efforts to encircle mankind, some persist beyond the broad extent of their casted net.  In the backwaters of the Republic, for instance, the distant rumble and flicker of Saturday night hootenannies still befall yonder the mighty oak groves.  In defiance of all things good and proper, the unconsecrated gather under the pale moonlight and jig step to zydeco washboard rhythms while downing tipples of corn syrup and fermented grain.

These knees-ups certify that, even in this era of big government, there remain places in the lower forty-eight where freedom reigns.  Across the planet, no doubt, there are pockets of liberty where individuals can use whatever light bulb they want without fear of the pokey.

These places are uniquely exceptional with their own distinct rhyme.  But, in common, they’re all places where the air smells sweet, the water flows clean, and the people can hold their chin up.

Similarly, the backwoods of the old world, rare as they may be, have not been entirely defamed. Continue reading →

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Will Iran Kill the Petrodollar?

Posted on January 27, 2012 by MN Gordon

Will Iran Kill the Petrodollar?
By Marin Katusa, Casey Research

The official line from the United States and the European Union is that Tehran must be punished for continuing its efforts to develop a nuclear weapon.  The punishment: sanctions on Iran’s oil exports, which are meant to isolate Iran and depress the value of its currency to such a point that the country crumbles.

But that line doesn’t make sense, and the sanctions will not achieve their goals. Iran is far from isolated and its friends – like India – will stand by the oil-producing nation until the US either backs down or acknowledges the real matter at hand.  That matter is the American dollar and its role as the global reserve currency.

The short version of the story is that a 1970s deal cemented the US dollar as the only currency to buy and sell crude oil, and from that monopoly on the all-important oil trade the US dollar slowly but surely became the reserve currency for global trades in most commodities and goods.  Massive demand for US dollars ensued, pushing the dollar’s value up, up, and away. Continue reading →

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