On Driving the Economy into a Brick Wall

Posted on August 16, 2011 by MN Gordon

Last Friday the University of Michigan reported a consumer sentiment measurement of 54.9 for August…down from 63.7 in July.  It has been quite a while since consumers have been so in the dumps.  In fact, consumer disposition has not been this down and out since May 1980, back when Jimmy Carter was making a mess of things in the White House.

No doubt, consumers have a lot of to be worried about.  For example, there’s high unemployment, stagnant to declining real wages, and, of course, those jokers in Washington who can’t seem to do anything right.  But what does this latest consumer sentiment reading really mean?

Axiomatically, negative consumer sentiment will lead to reduced consumer spending.  In an economy where consumer spending accounts for 70 percent of GDP a reduction in consumer spending will lead to little or no growth – or, perhaps, even contraction.  From our vantage point it appears the economy is rolling over.

Sure we could be wrong.  These things take time to fully express themselves.  But in hindsight it will be crystal clear…

Ten years from now, for instance, it will be absolutely evident that the economy’s contortions and flailings in the summer of 2011 are an extension of the Great Recession. Moreover, it will be totally clear that the Great Recession never ended Continue reading →

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When Buying Gold Becomes a Life-or-Death Question

Posted on August 12, 2011 by MN Gordon

Something absurd is going on…and we’re not talking about the stock market.  While the wild swings in the DOW are fantastic entertainment, they’re not serious.  Not for us, at least.  We panicked and sold stocks long ago.

Still, we watch the fervent run-ups and the harrowing drop-offs with keen interest and excitement.  We can’t stand to look away.  Over this past week, the stock market must be, without a doubt, the best reality TV program on air.

But, again, the stock market is merely entertainment.  The real momentous activity taking place is the absurdity of gold and U.S. Treasury prices.  On Wednesday, for example, when the DOW fell 508 points, gold briefly eclipsed $1,800 per ounce and 10 Year Treasury yields briefly fell to 2.09 percent.

Gold, by proxy, is a short on government debt.  Gold at $1,800 per ounce is a ‘no vote’ of faith in debt based paper money.

When Treasury yields go down, Treasury prices go up.  Rising Treasury prices mean lenders are confident they will get their money back.  A 10 Year Treasury yield of just 2.09 percent, contrary to $1,800 per ounce gold, is an extreme ‘yes vote’ of faith in debt based paper money Continue reading →

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When the Whole Paper Edifice Collapses

Posted on August 9, 2011 by MN Gordon

There was massive carnage on Wall Street yesterday – again.  No doubt, it makes for some exciting headlines.  But here at the Economic Prism we won’t take your time to ponder the stock market’s precipitous decline.  For, today, we’re more interested in the story behind the story.  What we mean is, today we’re more interested in not the stock market; but, rather, the credit market…and what inferences it offers.

For example, society’s willingness to damage itself is increasing by the day.  We don’t have hard facts or quantifiable evidence to back this assertion.  But that doesn’t make it any less so.  Our wide eyed observations and pragmatic experience supports the swelling notion that the logic of collective action has gone insane…civilization could cut its nose off to spite its face at any moment.

Late Friday, Standard & Poor’s downgraded U.S. government debt from AAA to AA+.  In doing so, Standard & Poor’s was merely recognizing what everyone who has actually thought about it already knew to be true…the credit worthiness of the U.S. government has become suspect.  Quite frankly, without massive spending cuts and massive tax increases – or massive amounts of money printing and massive inflation – the government will never be able to repay the massive amounts of money it has borrowed. Continue reading →

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When the Voters Get Whacked Again

Posted on August 5, 2011 by MN Gordon

Yesterday, at opening bell, stocks paused for a moment and then barfed all over themselves.  After that, they did it again…and again.  When it was over the DOW had plunged 512 points and Wall Street had fully freaked out.

Is this a sign of things to come or a fantastic opportunity to buy the dip?  We’ll soon find out…

But we won’t dwell on it today.  For we have bigger concerns on our mind than the stock market…like a fading economy.  And the government’s proclivity to do something remarkably stupid to try and fix it.

Public faith in the government’s ability to control the economy is declining.  And if it’s not, it should be…at least that’s what we think.  The government, of course, will keep trying to prop things up until the tallest mast of the ship of state finally submerges underwater.

Nonetheless, we won’t know if the collective masses want more bailouts or not until the next economic decline.  The government, no doubt, will be quick to act with stimulus and recovery acts and promises to save us from ourselves.  The way things are going, we may soon get to see the unveiling of the next economic fix… Continue reading →

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