The Powers of Nature

Posted on April 12, 2011 by MN Gordon

We greeted the news Friday night with the lethargic disappointment that comes with a second helping of cheese cake.  We’d longed for a government shutdown…and to see the army of beltway administrators without a purpose in life come Monday.  Instead we got what President Obama called “the biggest annual spending cut in history.”

We’re not sure what he means by “biggest.”  A quick back of the napkin calculation tells us the $38 billion spending cut amounts to about 1 percent of the estimated $3.8 trillion in total 2011 fiscal year spending.  In other words, it’s a sham.

Former U.S. Comptroller General David Walker recently remarked that the House budget debate over such paltry cuts was “like arguing about the bar tab on the Titanic.”  No doubt, the ship of state has struck an iceberg and is rapidly taking on seawater.  In fact, the entire hull should crack and buckle sometime before May 16th.

That’s when, according to Treasury Secretary Timothy Geithner, the federal government runs out of money for good unless the Congressional debt ceiling is raised.  In a January 6, 2011 letter to Congress, Geithner wrote… Continue reading →

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Use the Dollar or Else

Posted on April 8, 2011 by MN Gordon

It really is a wild and wacky world out there, ain’t it?  Dirt bags like Charlie Sheen and Barney Frank make public spectacles of themselves on a regular basis and everyone loves them for it.  The more crude and shocking they are the more their bull market soars.

Hollywood burnouts, political buffoons…people can’t seem to get enough of them.  Still, that’s nothing.  Their behaving like jackasses in public is almost quaint in comparison to other public affronts we’re all subjected to.  What we mean is when you take your sights off the comics and the clowns, and reposition the crosshairs on money, a whole new world of absurdities comes to focus.

For example, the bright and enlightened minds at the Federal Reserve believe they can make the world a more prosperous place by creating gobs of money from thin air.  They’re hell bent on proving they’re right even if it ruins the entire planet.  Right now, as we speak, they have bet three generations of wealth on the idea that a sound economy can be restored by borrowing massive amounts of dollars into existence.

What’s more, here within the confines of the United States, the Fed has a unique monopoly.  They’re the exclusive stewards of the nation’s currency…sole issuers of its legal tender.  Continue reading →

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Washington’s Budget Cut Farce

Posted on April 5, 2011 by MN Gordon

Market analyst David Rosenberg of Gluskin-Sheff sees another recession storm appearing on the horizon.  The dark clouds forming are rising food and energy costs.  He doesn’t believe consumers will be able to weather their fury.

Using a little historical analysis Rosenberg finds an interesting metric…the ratio of crude oil to core CPI.  This ratio recently crossed the 40x threshold for just the third time in history.  The other two times this has happened – November 1979 and October 2007 – severe recessions began just two months later.  Even breaches of the 20x level preceded the recessions of 1973-75, 1990-91, and 2001.

Here at the Economic Prism we consider the potential for another recession to commence several months from now to be highly likely.  For in addition to a high oil to core CPI ratio, another historic milestone will soon be passed.  What is it we’re talking about?

Only the conclusion of QE2, which is set to expire at the end of June.

“When you stop QE2 a major source of stimulus disappears,” says Robert Arnott, chairman of Research Affiliates.  “The end of QE2 – if it’s not renewed with QE3 – may trigger a recession and a pull back in risk markets.” Continue reading →

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Bad Inflation

Posted on April 1, 2011 by MN Gordon

Take caution.  It’s April Fools’ Day after all.  What better day is there to keep your guard up and your wits about you?

Remember, there’s a fool on every corner and a sucker born every minute.  Avoid being one of them when at all possible; for it is both demoralizing and expensive.

Sometimes this is easier said than done – particularly when your money’s at stake.  You may have your cash safely tucked away in the bank but that doesn’t means it’s out of reach from the long arm of government mischief.

Here we’ll turn to John Maynard Keynes, a particularly devious fellow, for edification.  From his 1919 work titled, “The Economic Consequences of the Peace”…

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.  The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” Continue reading →

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