The Fed’s Next Price Fixing Scheme and You

Posted on March 13, 2012 by MN Gordon

Free markets these days are always and everywhere under assault.  Europe, China, Japan, and the United States, among others, are delving into extreme economic intervention.  For whatever reason, uplifters around the globe have taken it upon themselves to meddle in people’s lives on a grand scale.

Last week, for instance, it was revealed that greater price-fixing operations are being considered.  Regrettably, these plans would be more intrusive than commanding the price of Peruvian bananas or rents on New York City apartments.

Unfortunately, the latest scheme being considered would do much, much more.  In a roundabout way it would affect the price of all goods and services.  For it would fix the price of the economies most important commodity…its money.  Here are the particulars…

According to the Wall Street Journal, the Federal Reserve is mulling over a new bond buying program.  Like past quantitative easing operations, the Fed would print money to buy long-term mortgage bonds and Treasuries.  However, this next experiment would be a bit different… Continue reading →

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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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