Suffering the Profanity of Plentiful Cheap Money

Posted on September 6, 2019 by MN Gordon

What if the savings in your bank account lost 55 percent of its value over the last 12 months?  Would you be somewhat peeved?  Would you transfer some of your savings to another currency?

That was the favored approach in Argentina – where the official inflation rate’s 55 percent.  But no more.  On September 2, President Mauricio Macri resorted to capital controls to preserve the central bank’s foreign exchange reserves and prop up the peso.  What gives?

Just fifteen months ago Macri secured the biggest bailout in the International Monetary Fund’s history.  Now Argentina’s delaying payment to its creditors and is rapidly approaching what will be its third sovereign default this century.  On top of that, Macri’s Peronist rival Alberto Fernández will likely take his job come election day in October.

Alas, for Macri and his countrymen, a painful lesson is being exacted.  You can’t solve a debt problem with more debt.  Eventually the currency buckles and you’re left with two poisons to pick from: inflation or default.  With Macri’s latest capital controls scheme he’s choosing to take swigs of both. Continue reading →

Posted in Inflation, MN Gordon | Tagged , , , , , | 21 Comments

The Hollow Promise of a Statist Economy

Posted on August 30, 2019 by MN Gordon

Not a day goes by that doesn’t supply a new specimen of inane disclarity.  Muddy ideas are dredged up from tainted minds like lumps of odorous pond muck.  We do our part to clean up the mess, whether we want to or not.

These days, individuals, who like John Locke “love truth for truth’s sake,” are far and away in the minority.  Out of the bowels of America’s higher learning institutions comes a young populace with soiled brains.  What’s more, you’ll likely end up on the hook for their idiocy.

Take one Andy Vila, for instance.  The 21 year old immigrated from Cuba to Miami with his parents in 2004, receiving asylum and ultimately citizenship.  Nonetheless, the socialism he escaped from as a kid has become a rallying cry for his political activism.

The fantasy that big government can redirect goods, capital, and services, as Marx remarked, “from each according to his ability, to each according to his needs,” has garnered burgeoning support from America’s up and comers. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , | 3 Comments

Dead Meat in Jackson Hole

Posted on August 23, 2019 by MN Gordon

If there are any virtues of debt instruments with negative yields we’ve yet to realize them.  Certainly, we understand that as bond yields fall, bond prices rise, and bond investors are rewarded with capital appreciation.  But when capital’s appreciating as a consequence of negative yields, we suspect there’s something fundamentally wrong with the capital itself.

Capital markets, as we’ve always understood them, are centered around lenders buying debt – such as a bond – at a yield that compensates for the risk of default over a contracted duration.  The acceptance of negative yield is an abstraction that violates the form and function that capital markets are built on.  In fact, negative interest rates undermine the foundational business model of banking in general.

How can banks loan money if they’re not compensated for the risk that some loans will go bad?  And if banks can only loan money at a loss, why loan money at all?  If there’s no profit motive, what’s the point? Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , | 2 Comments

Writing on the Wall

Posted on August 16, 2019 by MN Gordon

One of the more disagreeable discrepancies of American life in the 21st century is the world according to Washington’s economic bureaus and the world as it actually is.  In short, things don’t add up.  What’s more, the propaganda’s so far off the mark it’s downright insulting.

The Bureau of Labor Statistics (BLS) reports an unemployment rate of just 3.7 percent.  The BLS also reports price inflation, as measured by the consumer price index (CPI), of 1.8 percent.  Yet big city streets are lined with tents and panhandlers grumble “that’s all” when you spare them a dollar.

In addition, good people, of sound mind and honest intentions, are racking up debt like never before.  Mortgage debt recently topped $9.4 trillion.  If you didn’t know, this eclipses the 2008 high of $9.3 trillion that was notched at the precise moment the credit market melted down.

Total American household debt, which includes mortgages and student loans, is about $14 trillion – roughly $1 trillion higher than in 2008.  Credit card debt, which is over $1 trillion, is also above the 2008 peak. Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , | 4 Comments