When Hell Froze Over

Posted on August 19, 2011 by MN Gordon

“By the pricking of my thumbs, something wicked this way comes.” – William Shakespeare, Macbeth

On Tuesday, presidential candidate Rick Perry said further money printing between now and the election by Federal Reserve Chairman Ben Bernanke “…is almost treasonous.”

Immediately, politicos and pundits had their panties in a wad.  Karl Rove, White House press secretary Jay Carney, and Democratic National Committee spokesman Brad Woodhouse, among others, were compelled to denounce Perry for his “very unfortunate comment.”

Obviously, words can be dangerous things.  And they should be chosen carefully.  But come on…this is an election season after all.  What good would it be without a little hyperbole and good old fashioned populism?

When you get right down to it, Perry’s comment wasn’t too far off the mark.  Bernanke’s track record proves this.  Most notably the Fed’s Term Asset-Backed Securities Loan Facility (TALF), which, according to Matt Taibbi of Rolling Stone, “sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses.”

Was all this really in the best interest of the American people? Continue reading →

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

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 →

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

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 →

Posted in Inflation, Jeff Clark | Tagged , , , , , | 1 Comment

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 →

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