Bringing About Our Own Special Misery

Posted on October 28, 2011 by MN Gordon

Consumer confidence laid a rotten egg in October.  The Conference Board’s index of consumer sentiment was reported Wednesday at 39.8…its lowest reading since March of 2009.  To put this in perspective, during a robust economy, consumer confidence readings are at 90 and above.

Consumer spending accounts for about 70 percent of the U.S. economy.  Hence, consumer confidence is a key indicator.  If consumers do not feel good about the direction of the economy and their income they are less likely to spend money.

Obviously, consumers don’t have much to be excited about.  Stocks have gone sideways for the last 12 years, houses are underwater, and median middle class pay has dropped 7 percent over the last decade.  According to the Conference Board, about twice as many people now expect a pay cut over the next six months as expect a raise.  Others, including recent college graduates, can’t even find a job.

For example, as reported by the Bureau of Labor Statistics, the unemployment rate for college graduates under the age of 25 is nearly 14 percent.  Considering, too, that the Class of 2009 began their career years with an average of $24,000 in student debt, there’s a good chance many of those loans will go bad Continue reading →

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The Euro is Done

Posted on October 25, 2011 by MN Gordon

The November issue of National Geographic tells of the recent discovery of the Staffordshire Hoard – a treasure of gold, silver, and garnet military objects from the early Anglo-Saxon era that had been buried in the English countryside for 1300 years.

According to the article, after Roman colonizers withdrew from Britannia around A.D. 410, Britons solicited Germanic troops from the continent to defend them against Scotti and Pict tribes invading from the west and north.  Naturally, people rarely get what they expect.

Before long the Germanic warriors were piling into Briton in hoards.  Soon the Scotti and Pict tribes were no longer the menace…the influx of people from modern Germany quickly outnumbered the natives on the island.  Then, after crowding into the island, they turned on their local allies and created their own kingdoms.

The sixth century British monk, Gildas, described the island wide bloodshed that followed in his treatise, On the Ruin of Britain.  “For the fire of vengeance…spread from sea to sea…and did not cease, until, destroying the neighboring towns and lands, it reached the other side of the island.”  The surviving Britons fled or were enslaved Continue reading →

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The Wrath of Inflation

Posted on October 21, 2011 by MN Gordon

The U.S. Bureau of Labor Statistics reported on Wednesday that inflation, as measured by the Consumer Price Index, increased 0.3 percent in September.  Increases in energy and food prices were the main contributors to the rise.  On an annualized basis, price increases in September were 3.6 percent, which is about in line with the 3.9 percent CPI increase over the last 12 months.

With an annual inflation rate of 3.9 percent you’d think the economy was running white hot.  But, alas, it is not.  The latest GDP report said the economy was expanding at an annual rate of 1.3 percent.  Accounting for inflation, the economy is growing at an annual rate of minus 2.6 percent.  In other words, the economy is shrinking.

No doubt, anyone who works for a pay check knows this is true.  Even those fortunate enough to get a small pay raise have watched, helplessly, as inflation has gobbled it up. Everyone else has lost ground…some have even lost their job.  Moreover, those on fixed incomes have experienced the double whammy of low treasury yields and rising prices.

On Wednesday the government announced that Social Security payments will increase 3.6 percent next year.  Yet, even with the increase, they will still payout 0.3 percent less in inflation adjusted terms than they did last year Continue reading →

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Life After the Day of Reckoning

Posted on October 18, 2011 by MN Gordon

The 2011 fiscal year ended on September 30th and the beans of U.S. Government revenue and spending have been counted up.  Total revenue for the year was $2.3 trillion.  Total spending for the year was $3.6 trillion.  The difference – a $1.3 trillion deficit – was made up with debt, pushing the national debt to $14.8 trillion…over 100 percent of GDP.

Just five years ago mention of a $1 trillion dollar annual budget deficit would have been shocking and unimaginable.  Back then, during the blissful days before the 2008 financial meltdown and economic fallout, a budget deficit of $500 billion was considered outrageous.  But in this brave new world, the federal government has spent $1 trillion more than it has taxed the last three years in a row.

Of course, there are consequences for actions.  Paying the interest on the debt is now the fastest growing budget category.  In 2011, net interest payments rose 15.7 percent to $227 billion.

No doubt, the U.S. Government is bleeding money.  Every month is takes over $108 billion of new debt just to keep the lights on.  So far the U.S. Government has gotten by on the generosity of its creditors and their willingness to buy treasuries at historically low rates Continue reading →

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