Independent Ideas on the Economy, Financial Markets, and Investing

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 →

Posted in Economy, MN Gordon | Tagged bill bonner, schlitz beer, stroh brewery company, treasuries, wealth destruction | 4 Comments

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 →

Posted in MN Gordon, Politics | Tagged $700 billion, boom and bust, infinite cash, neel kashkari, tarp | 3 Comments

Flying on a Wing and a Prayer

Posted on September 22, 2023 by MN Gordon

The main essence, as we understand it, is that over the last 18 months the Federal Reserve has reduced its balance sheet by nearly $1 trillion. With less Fed credit available, market interest rates must go higher. As interest rates go up, asset prices (stocks, bonds, and real estate) will eventually go down.

It is important to understand this. Because if you don’t, you may end up doing something you’ll regret. The consequences of which you’ll have to live with.

Here at the Economic Prism, as an implicit policy, we do not regret the past. For regrets can lead to bitterness in old age. And living with bitterness is no way to spend one’s final years.

So, while we do not regret the past. We also do not wish to shut the door on it. The past provides a deep source of instruction for what has worked and what hasn’t. This resource should not be ignored or dismissed.

At the same time, there are no guarantees that what worked in the past will work in the future. The world is ever-changing. What worked in one instance may not work in another. Continue reading →

Posted in MN Gordon, Stock Market | Tagged buffett indicator, cape ratio, eiffel tower death jump, franz reichelt, investing, speculating | Leave a comment

ARMed and Dangerous at the U.S. Treasury

Posted on September 15, 2023 by MN Gordon

The U.S. government’s 2023 fiscal year ends at the end of the month. Does this excite you?

It should. Assuming you care about the reliability of your dollar-based savings, investments, and what Uncle Sam does with the taxes you pay.

The Treasury won’t release the full fiscal year statement until mid-October. Though, it appears the 2023 fiscal year deficit will be just under $2 trillion – nearly double last year.

Why is there such a gaping deficit at a time when there’s low unemployment and economic growth? Is countercyclical stimulus spending now the standard operating procedure of the U.S. government? What would happen if all this deficit spending was eliminated?

This week the Treasury released the spending tally through the first 11 months of the fiscal year. Over this period, the federal government has taken in $3.97 trillion in receipts. However, it has spent $5.49 trillion. The cumulative deficit through 11 months is over $1.5 trillion.

Of the 11 months reported so far, there were deficits for every month except April and August. In April, following the collection of individual income tax returns, the federal government eked out a surplus of $176 billion. Continue reading →