History Is Coming

Posted on May 6, 2011 by MN Gordon

Mother Teresa once said, “If you can’t feed a hundred people, then just feed one.”  The way things are going, soon many people won’t only not be able to feed one person…they won’t be able to feed themselves.

According to the World Bank, 44 million people have been pushed into extreme poverty since June as food shortages lifted the UN food-price gauge.  In other words, food shortages and rising food costs are resulting in rapid increases in world poverty.  Unfortunately, this is a trend that may only have just begun.

Jeremy Grantham has a successful track record for identifying large market inflection points.  He warned of the 2008 financial crisis and technology stock market bubble well in advance of their meltdowns.  In his latest Quarterly Letter, Grantham offers several ominous warnings courtesy of the market…

“Mrs. Market is helping,” says Grantham, “and right now she is sending us the Mother of all price signals.  The prices of all important commodities except oil declined for 100 years until 2002, by an average of 70 percent.  From 2002 until now, this entire decline was erased by a bigger price surge than occurred during World War II. Continue reading →

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Cash and Credit Created from Thin Air is Not Real Wealth

Posted on May 3, 2011 by MN Gordon

Something mysterious is happening.  The U.S. economy is deflating at the very moment the Federal Reserve is huffing and puffing more than ever to pump it up.  How could this be possible?

Like jumbo shrimp or an ashtray with a no smoking symbol, it’s a paradox.

If the Fed is pumping up the economy, how can it be deflating?  How can the economy be deflating, if the Fed is pumping it up?

Yet that is exactly what’s happening…

“In its first estimate for the first three months of the year, the Commerce Department on Thursday said gross domestic product rose at a 1.8 percent annual rate between January and March,” reported MarketWatch.  But when you remove inventories from first quarter GDP, and look at what was actually sold to retail consumers, the economic picture is much worse.  Final sales rose just 0.8 percent.

All the while, the Federal Reserve is pumping $2.5 billion of freshly printed paper money into the economy each and every day.  With money infusions like this you’d think the economy could eke out a return better than 0.8 percent.  However, all the Fed has to show for their mischief is a slew of market distortions… Continue reading →

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Shooting Monetary Blanks

Posted on April 29, 2011 by MN Gordon

Severe storms in the Midwest and South are flooding out levees and riverbanks at a rate not seen in 74 years.  From what we gather, if levels rise much higher at the confluence of the Ohio and Mississippi rivers the Feds will blow up a levee to disperse the flood waters onto open farmland before it washes out downstream towns.

Similarly, in the world of money the Feds have released a flood of money also not seen in 74 years.  At the confluence of unemployment and inflation, if money flows rise much higher, the Feds will blow up the dollar bringing the world as we’ve always known it to an end.

On Wednesday Federal Reserve Chairman Ben Bernanke stepped up to the microphone and confirmed that he’s certifiably and demonstrably insane.  What we mean is Bernanke confirmed he’ll continue with the madman policies he’s been pursuing…

“Federal Reserve Chairman Ben Bernanke signaled on Wednesday that the U.S. central bank is in no rush to scale back its support for the economy with the labor market still in a ‘very, very deep hole,’ reported Reuters.

“The central bank’s policy-setting committee said after a two-day meeting it will complete the purchase of $600 billion in bonds in June to support the economy’s recovery, and said it would keep its balance sheet, currently at $2.67 trillion, steady for a time to ensure its support does not fade. Continue reading →

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The Origins of Central Banking

Posted on April 26, 2011 by MN Gordon

Ben Bernanke must think he’s an amateur entertainer.  Tomorrow, after 98 years of silence, the Fed Chairman will give the central bank’s first-ever press conference.

Here at the Economic Prism we’ll be watching with wide eyes and anticipation…hoping for the sort of gut busting comedy that comes from a night at the Laugh Factory.  From our perspective we are more interested in the questions Bernanke gets than the answers he gives.

No doubt, most of the questions will be predictable drivel about the federal funds rate, inflation expectations, and the end of quantitative easing.  Still, we hope someone, somewhere, someway, will ask a question that is completely and utterly unexpected, unpredictable, and uncouth.  Something like, “What are your thoughts on John Law?”

Of the many professions out there, earning one’s living as a central banker of a paper money standard is one of the more devious ventures one can pursue.  In this modern world, where smartphones keep getting smarter and waist lines keep getting wider, the business of central banking is as ridiculous as the day it was invented.

For all the conceit out there about inflation targeting, liquidity traps, and scientific management of the economy, when it comes down to it, central banking is still the work of carnival magicians. Continue reading →

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