Congressional Super Committee Farce

Posted on November 18, 2011 by MN Gordon

Shortly after the opening bell on Wednesday, the price of oil topped $100 per barrel…a 26 percent increase in less than two months.  What gives?

The Associated Press tells us it was the Labor Department’s Wednesday report, that consumer prices fell to 3.5 percent from 3.9 percent in October, which pushed oil’s price back above triple digits for the first time since July.  Here at the Economic Prism we don’t quite comprehend the connection.

Maybe AP is inferring that, somehow, lower consumer prices will encourage higher consumer spending, which will boost the economy, result in higher oil demand, and, thus, higher prices.  But that is just conjecture on our part since the author failed to elaborate their supposition.

Perhaps what they meant to say is that $100 per barrel oil represents the potential for increased demand butting up against a more limited supply.  Still, that’s just half the story… Continue reading →

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European Money Printing: What Could Possibly Go Wrong?

Posted on November 15, 2011 by MN Gordon

Last Friday, while many were off for Veteran’s Day, we put in a day at the office, belaboring things portentous to our clients…and by extension ourselves.  Nonetheless, we paused a moment to consider the ‘all quiet on the western front’ Armistice and today’s world we live in.

From what we gather ‘the war to end all wars’ brought a new disorder to Europe.  By the time it was over, economies were ruined, governments were defeated, and national confidences were crushed.  On top of that, the Treaty of Versailles, and its repercussions, prompted Germany to blow up its currency.  It was the rational thing to do.

One of the provisions of the treaty required Germany to make reparation payments that were impossible for their economy to cover.  To lighten the burden the German government, the Weimar Republic, began printing paper banknotes.  The results were disastrous.

Between January 1922 and November 1923 the wholesale price index rocketed from 36.7 percent to 726,000,000,000.0 percent.  By late 1923 it took 200 billion marks to buy a loaf of bread.  In effect, Germany’s money died…along with its middleclass. Continue reading →

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Making the Impossible Possible

Posted on November 11, 2011 by MN Gordon

This week brought new evidence, not necessarily that the stock market efficiently allocates capital to its most productive use, but that it effectively separates fools from their money.  The fool gives…Wall Street takes away.  In other words, the house always wins.

“Patience and fortitude conquer all things,” said Ralph Waldo Emerson.  Clearly, he could not have imagined the current bear market, which commenced with the opening of the new millennium.  Nonetheless, Emerson’s ultimately right, patience and fortitude will prevail.  But what good is it if, by the time they do, your retirement account’s ravaged and the money you’ve saved to cover your kids college tuition runs out one semester into their sophomore year?

Bear markets bring clarity to the world. Without the current bear market, for instance, one of the wonderful dogmas of the 1980s and 90s bull market would not have been exposed to be a farce.  What we are talking about is the great Wall Street myth that you can retire a millionaire and enjoy an extended life of leisure by buying and holding an index mutual fund.

In the year 2000, everyone knew this was true.  In the year 2011, everyone knows this is a crock. Continue reading →

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The Next Crisis No One Is Talking About

Posted on November 8, 2011 by MN Gordon

Mark Twain once remarked, “Whiskey is for drinking; water is for fighting over.”  If the convergence of water scarcity factors currently shaping up comes to pass, this could be the century of water wars.

No doubt, a devastating water crisis is approaching.  While the world once possessed a massive supply of fresh water, human mismanagement of this precious resource has resulted in an abundance of scarcity issues.  Rivers, lakes, reservoirs, and below ground aquifers are drying up…and those that haven’t are so polluted proper water treatment would cost a fortune.

Without fresh, drinkable, water humans cannot live.  Moreover, just a temporary water supply disruption would wreak havoc on the economy.  If the water supply were cut off to your city what would happen?

It’s probable that within one week the whole place would verge on disaster.  The sewage problem alone would be horrific.  On top of that, if water resources were cutoff to the vast irrigation network that supplies agricultural fields and makes the desert bloom, food production would crash and chaos would follow.

Yet no one is talking about this looming crisis… Continue reading →

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