The Revolt Against Absurdity

Posted on September 13, 2011 by MN Gordon

Credit default swaps insuring Greek debt rose in price yesterday to cover a 98 percent chance there will be a Greek default in the next five years.  But perhaps it will happen sooner.  Greece is playing games with its austerity targets and Germany’s had enough of their antics…

“‘Greece is ‘on a knife’s edge,’ German Finance Minister Wolfgang Schaeuble told lawmakers at a closed-door meeting in Berlin on September 7 […],” reported Bloomberg. “If the government can’t meet the aid terms, ‘it’s up to Greece to figure out how to get financing without the euro zone’s help,’ he later said in a speech to parliament.”

Without Germany’s backing of another Greek bailout, a Greek default is imminent.  Should this happen things could get real ugly real quick for Europe’s biggest banks who extended credit to the Greek government.

One indicator Germany will be opting not to bail out Greece – again – is the anecdote they are making contingency plans to protect German banks should Greece fall short of meeting its austerity targets.  There’s also a nasty rumor floating around that Moody’s Investors Service may downgrade the credit rating of France’s largest banks – like BNP Paribas and Societe Generale – this week because of their Greek debt holdings. Continue reading →

Posted in Government Debt, MN Gordon | Tagged , , , , | Leave a comment

Why U.S. Treasuries are No Longer the Safest Investment in the World

Posted on September 9, 2011 by MN Gordon

The world’s a humbling place.  It’ll change right before your very eyes and you don’t even know it…until it’s too late.  Where markets are concerned this can be an expensive and chastening lesson.

Not long ago it was common knowledge that ‘house prices always go up.’  This key insight spread across the land like wildfire.  Everyone just knew it was true.  But, in a great way, it was true until just the moment it wasn’t.  That’s when the impossible happened – house prices went down.

Before that everyone knew that all you had to do to retire a millionaire was ‘buy and hold’ an S&P500 index fund.  It was mindless and fantastic.  Any idiot with a 401K could do it. Then again, that was before the stock market whipsawed true believers for over a decade running.

These days everyone who’s anyone knows that ‘U.S. Treasuries are the safest investment in the world.’  In fact, on Tuesday, as if to prove the point, something happened that has never happened before – Ten-Year Treasury yields fell to 1.91 percent.  In other words, people are so confident in the U.S. government they’re willing to loan them their hard earned money for 10 years, for practically free.

Here at the Economic Prism we watched in shock and disbelief Continue reading →

Posted in Government Debt, MN Gordon | Tagged , , , , , | 1 Comment

More Public Spending Only Hastens the Demise

Posted on September 6, 2011 by MN Gordon

Kicking off Labor Day weekend last Friday was a report by the Labor Department that, on balance, the U.S. economy failed to create a single job in August.  On the bright side, this also means not a single job was lost in August either.  Unfortunately, a zero reading is actually a negative reading…125,000 jobs a month are generally needed just to keep up with population growth.

Somehow the unemployment rate stayed at 9.1 percent.  However, it is really much higher. There are 14 million people that are officially unemployed.  But there are also 11.4 million others that are unofficially unemployed.

The unofficially unemployed, who include part time workers who want full time work and people without a job who had not searched for a job in the last 4 weeks, are not counted as unemployed by the Labor Department.  Throw them into the mix and the unemployment rate jumps from 9.1 percent to over 16 percent.

President Obama paused during the holiday yesterday to tell the people of Detroit, “We’ve got a lot more work to do to recover fully from this recession.”

It is clear to everyone that more jobs are needed to improve the economy.  But from where do jobs come? Continue reading →

Posted in MN Gordon, Politics | Tagged , , , | Leave a comment

Controlling Economic Diarrhea with Adhesive Tape

Posted on September 2, 2011 by MN Gordon

Some people never learn.  Give a klutz a hammer and he’ll smash his thumb every time. Give a boozehound a bottle of Strawberry Boone’s Farm and he’ll guzzle it down en route to get another and another…until it practically kills him.  Likewise, give a Princeton professor chairmanship of the Federal Reserve and he’ll print up money until the currency explodes.

Creating free money’s a good gig, if you can get it.  Particularly, when times are good. That’s when a Federal Reserve Chairman appears a maestro.  But when the economy takes a dive – or two – the truth comes to light… A central banker is nothing but a quack.

Economic growth for the first six months of 2011 is at 0.7 percent.  Factor in inflation, and the economy’s going not forwards; but backwards.  Most folks are getting squeezed.

Earlier this week we learned that the Consumer Confidence Index for August dropped 14.7 points – or nearly 25 percent – to 44.5.  The last time consumers were this unconfident was April 2009…when the economy was officially in recession.

Over the past week stocks have generally moved in the direction that makes people feel smart.  What we mean is, with the exception of yesterday’s 120 point selloff, they’ve gone up.  After briefly falling below 11,000 last Friday morning, even with yesterday’s harrowing drop, the DOW is up 571 points Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , | Leave a comment