Sowing the Seeds of Mass Inflation

Posted on March 9, 2012 by MN Gordon

Around the time Elvis Presley choked on his last pill the impossible happened; inflation and unemployment increased simultaneously.  Economists were confounded.

According to the Philips curve there was supposed to be an inverse relationship between inflation and unemployment.  When the unemployment rate increases, the inflation rate decreases.  Conversely, when the unemployment rate decreases, the inflation rate increases.

How could it be that both were going up at once?  Of course, it took years of government intervention into the economy to pull off such a feat.  Let’s explore…

When unemployment began rising in the 1970s the U.S. Treasury did what Keynes had taught…they ran deficits and spent money to create jobs.  But, to their surprise, they did not get jobs.  Instead, something unexpected happened.  They got inflation.

When they tried it again, amazingly, they still did not get jobs.  To their chagrin, they got more inflation.  By the time Jimmy Carter left the White House, the misery index, which is the sum of the unemployment rate and the inflation rate, was rocketing toward 20 percent. Continue reading →

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Is Gold Backwardation Now Permanent?

Posted on March 6, 2012 by MN Gordon

Is Gold Backwardation Now Permanent?
By Keith Weiner, Casey Research

Worldwide, an incredible tower of debt has been under construction since President Nixon’s 1971 default on the gold obligations of the US government.  His decree severed the redeemability of the dollar for gold and thus eliminated the extinguisher of debt.  Debt has been growing exponentially everywhere since then.  Debt is backed with debt, based on debt, dependent on debt and leveraged with yet more debt.  For example, today it is possible to buy a bond (i.e., lend money) on margin (i.e., with borrowed money).

The time is now fast approaching when all debt will be defaulted on.  In our perverse monetary system, one party’s debt is another’s “money.”  A debtor’s default will impact the creditor (who is usually also a debtor to yet other creditors), causing him to default, and so on.  When this begins in earnest, it will wipe out the banking system and thus everyone’s “money.”  The paper currencies will not survive this.  We are seeing the early edges of it now in the euro, and it’s anyone’s guess when it will happen in Japan, though it seems long overdue already.  Last of all, it will come to the USA. Continue reading →

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Everything that’s Wrong with Everything

Posted on March 2, 2012 by MN Gordon

Is the economy improving or stagnating?  Are businesses hiring or firing?  Is the stock market a buy or a sell?  Will monetary inflation prevail over debt deflation?

Quite honestly, we don’t know the answers to these questions.  Nonetheless, we have some ideas on what we think the answers should be.  More important than what we think, however, is what’s going on…and how it’s making thoughtful ruminations on markets and political economies such a muddled mess…

“We have Monetary Anarchy running riot, where the elastic band between the real economy and the current liquidity-fuelled markets is stretched further and further beyond credulity,” noted Bob Janjuah, head of tactical asset allocation at Nomura, earlier this week.

No doubt, things are going haywire.  Just look around.  Bubbles are inflating nearly everywhere.  Stocks, oil, food, copper…you name it, all are going up.  In fact, two days ago we paid $4.27 per gallon for gas.  Yet, at the same time, the actual economy’s hardly improving. Continue reading →

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Reckoning Time and Money

Posted on February 28, 2012 by MN Gordon

It all seems so systematic, arranged, and orderly.  Sixty seconds make a minute, 60 minutes make an hour, 24 hours make a day, and one day equals one complete rotation of the planet earth.

About every 30 days the moon orbits the earth – which is one month.  And every 12 months the earth orbits the sun – which is one year.

So far so good…right?

But here’s where the nice and neat order of it all breaks down.  Because if you try to measure one of earth’s orbits of the sun in days, it’s not so divinely tidy.  For it takes 365 days plus an inconvenient 6 hours.

Nonetheless, we don’t let these inconvenient 6 hours hamper our perfection.  We’re humans.  We innovate, invent, and make the world in our image.  And when the numbers don’t jive, we do what must be done – we fudge them.

We create an off balance account, we concoct a new theory, we contrive a negative amortization loan, we trade our autonomy to the dominion of central bankers…and we invent leap year. Continue reading →

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