Independent Ideas on the Economy, Financial Markets, and Investing

Japan Will Take the World’s Breath Away, Part II

Posted on March 30, 2012 by MN Gordon

The National Bureau of Economic Research marks June 2009 as the end of the Great Recession. That means the United States economy has been in recovery for nearly three years. Semantically this is accurate…all the stimulus and monetary easing has successfully pushed GDP into positive over this time. But just what type of recovery is this?

According to the latest CNBC All-American Survey, 36 percent of the American public believes the economy will improve over the next year. Apparently, this is a 9 percent increase over the survey results from November 2011. Yet, despite the marked improvement, what this means is, 64 percent of Americans still believe the economy will not improve over the next year.

Clearly, the populace has become aware that something has gone seriously wrong with the economy. Across the republic, people are coming to grips with the fact that it’s not possible for an economy to borrow and spend its way to prosperity indefinitely. Eventually the debts must be reckoned…either by default or inflation.

Earlier this week we scribbled some thoughts on the current pickle Japan finds itself in; namely, a debt to GDP level of 200 percent, its first annual trade deficit in over 30-years, and the likely propensity to cover the budget gap through debt monetization. Continue reading →

Posted in Inflation, MN Gordon | Tagged collapse, currency, debt, default, dollar, peso, silver | 1 Comment

Japan Will Take the World’s Breath Away

Posted on March 27, 2012 by MN Gordon

Last Sunday, in Long Beach, California, the impossible happened…it rained for the second consecutive weekend. Just ask anyone who lives here. That never happens.

We’re not complaining. Without the wet weather we would have never discovered the hole in the bottom of our shoe. Nevertheless, we bring this up to make the point that the seemingly impossible happens all the time.

Last August, for instance, something absolutely ridiculous occurred…during the summer twilight the world was preparing for mass inflation and mass deflation in tandem. This manifested for everyone to see when, in broad daylight, $1,820 per ounce gold and 1.98 percent 10 Year Treasury yields came into existence simultaneously. If we hadn’t witnessed this extreme and illogical price disparity with our own two eyes we’d say it was impossible. Yet it happened all the same.

By all accounts, what the world learned last summer was what happens when the Fed borrows vast quantities of money into existence and uses it to buy government debt. For a time, gold prices go up and bond yields go down. But what happens after such devious money games are played is what has yet to be discovered. Continue reading →

Posted in Government Debt, MN Gordon | Tagged bank of japan, currency, debt, default, john maynard keynes, yen | 4 Comments

Iran Says “Gold Is Money”

Posted on March 23, 2012 by MN Gordon

Iran Says “Gold Is Money”
By Louis James, Casey Research

Economic crises signal that the current system isn’t working as expected and needs improvement. When it comes to monetary systems, questioning their fundamentals can lead to doubts about whether the preferred medium of exchange will continue to be preferred for long. The large-scale whirlwind of economic trouble around the globe has pushed some to rethink the role of gold in the economy – and to actually move toward bringing it back.

A month ago, a rumor that India is going to pay in gold for oil imported from sanction-struck Iran sent shockwaves through the markets. It was no small deal, both in principle and volume: India is one of Iran’s largest oil buyers, responsible for about 22 percent of total exports and worth about US$12 billion per year. China is next with 13 percent, and Japan is third with about ten. All of them are having a hard time dealing with Iranian oil imports, as the country is under sanctions caused by Western fears regarding its nuclear program. Continue reading →

Posted in Inflation, Louis James | Tagged currency, gold, government meddling, oil prices, war | Leave a comment

Titanic Myths and the End of Consumer Capitalism

Posted on March 20, 2012 by MN Gordon

Next month marks the 100-year anniversary of the Titanic’s star-crossed demise into the frigid waters of the North Atlantic Ocean. To commemorate the occasion, the April edition of National Geographic features a cover story on the grand ocean liner and its untimely end.

Here at the Economic Prism we’re always on the lookout for allegories that can help explain the world we live in…particularly, the post-2008 dollar standard era of U.S. consumer capitalism. Clearly, the sinking of the Titanic is a rich source of metaphors. Consider the following offered by National Geographic…

“Something else, beyond human lives, went down with the Titanic: An illusion of orderliness, a faith in technological progress, a yearning for the future that, as Europe drifted toward full-scale war, was soon replaced by fears and dreads all too familiar to our modern world.

‘“The Titanic disaster was the bursting of a bubble,”’ said Titanic film writer, director, and producer, James Cameron. ‘“There was such a sense of bounty in the first decade of the 20th century. Continue reading →