Everything’s Spooktacular

Posted on October 20, 2023 by MN Gordon

October wouldn’t be complete without a thrilling spooktacular surprise.  The October 7 sneak attack by Hamas on Israel and Israel’s subsequent official declaration of war certainly fits the bill.  But what else?

As we see it, the performance of the U.S. economy and financial markets over the next 6 months will be a function of consumer price inflation, interest rates, and oil prices.  A new war in the Middle East has the potential to dramatically influence these central economic components.

To be clear, the rampant money printing from 2020-2022 never really ended.  Yes, the Federal Reserve has hiked the federal funds rate 5.25 percent and has made incremental reductions to its balance sheet – drawing down from $8.9 trillion to $7.9 trillion.

But the federal government continues to borrow and spend like drunken sailors.  The U.S. 2023 fiscal year deficit came in at $1.7 trillion.  That amounts to over $4.6 billion of borrowing and spending per day. Continue reading →

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How the Dianne Feinstein Effect Wrecked the Future

Posted on October 13, 2023 by MN Gordon

“As interest costs go up in the United States, you get in this vicious circle, where higher interest rates cause higher funding costs, cause higher debt issuance, which cause further bond liquidation, which cause higher rates, which puts us in an untenable fiscal position.”

– Paul Tudor Jones, October 10, 2023

Feeling the Pinch

The difficulties that an overindebted economy will encounter from rising interest rates range far and wide.  Though they shouldn’t come as a surprise.

Quite frankly, it’s real simple.  As interest rates rise, borrowing money becomes more expensive.

Car payments are an obvious example of the effects of rising interest rates.  The average new car loan today has a monthly payment over $750, with an interest rate of 9.5 percent.  What’s more, the monthly payment for roughly 17 percent – or about 1 in 6 – of new vehicle loans is over $1,000.

Financing a house purchase has also become grossly expensive.  The average 30-year fixed rate mortgage is around 7.65 percent.  Several years ago, it was below 2.65 percent. Continue reading →

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Coming Down from Cloud Cuckoo Land

Posted on October 6, 2023 by MN Gordon

Schlitz beer was always revolting.  But at the right price – and having the right effect – “the beer that made Milwaukee famous” had a nice run.

In between the birth and death of capital there’s a wide-ranging succession.  The lifecycle of capital generally follows that it is imagined, produced, consumed, and destroyed.  How exactly this all takes place involves varying and infinite undulations.

One generation may produce wealth.  While the next generation burns through it.  Many aspects of a person’s capabilities, understanding, industry, and character can determine if they’re producers or consumers.  The most determinant facet, however, is how one approaches their unique circumstances.

The July 21, 2014, edition of Forbes Magazine documented the Stroh family’s methodical rise and swift disappearance from the beer brewing business.  The print edition of the article titled, How to Blow $9 Billion, began with the following remark:

“It took the Stroh family over a century to build the largest private beer fortune in America.  And it took just a few bad decisions to lose the entire thing.” Continue reading →

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Where Did Neel Kashkari’s Infinite Cash Go?

Posted on September 29, 2023 by MN Gordon

On April 10, 2020, at the apex of mass coronavirus hysteria, Minneapolis Fed President Neel Kashkari appeared on 60 Minutes.  With eyes bugging out of his head, he offered a critical insight.

That the Federal Reserve has “infinite cash” and will do whatever it needs to make sure there is enough cash in the banking system.

What Kashkari didn’t mention is that when infinite cash is supplied to the banking system the quality of that cash ultimately reverts to its intrinsic value – zero.  By 2022, the applications of infinite cash had pushed consumer prices to a 40 year high.

While cash is still worth more than zero, it’s worth far less than it was just three years ago.  According to the Bureau of Labor Statistics own inflation calculator, the dollar has lost about 20 percent of its purchasing power over this time.  In reality, and as American consumers have experienced, the dollar’s loss of purchasing power is far greater.

By the BLS calculator, workers who haven’t gotten a 20 percent raise since 2020, are worse off than they were just three years ago.  Certainly, a lot has happened over this time.  But we presume most workers are not making 20 percent more than they were in 2020. Continue reading →

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