Final Collapse is Inexorable

Posted on September 27, 2019 by MN Gordon

This week central planners pursued their primary mission with steadfast conviction.  They planned.  They prodded.  They prearranged tomorrow to save us from ourselves.  Some also grubbed a little graft for their trouble.

Other central planners took to debasing the dollar to price fix the federal funds rate within a narrow band of tolerance.  What in the world do they think they’re doing?

We know from our own everyday experience that people make choices.  What’s more, these choices do not occur in isolation.  There are a myriad of influences and constraints factoring into the countless choices people make as they go about their day.

One person drives their car to work.  Another takes the train.  While a third walks.  These choices may be individual preferences.  But they’re also subject to other factors – like proximity to work or the train station, the price of gas, the cost of parking, and much, much more.

Perhaps central planners can account for some of these influences and constraints.  But not all of them.  Not even half of them. Continue reading →

Posted in Government Debt, MN Gordon | Tagged , , , , | 13 Comments

Fiat Money Cannibalization in America

Posted on September 20, 2019 by MN Gordon

The United States, with untroubled ease, continued its approach towards catastrophe this week.  The Federal Reserve cut the federal funds rate 25 basis points, thus furthering its program of mass money debasement.  Yet, on the surface, all still remained in the superlative.

Stocks smiled down on investors from their perch upon what Irving Fischer once called “a permanently high plateau.”  As of market close on Thursday, the Dow Jones Industrial Average held above 27,000, the S&P 500 above 3,000, and the NASDAQ above 8,000.  What’s more, 401k accounts, to the delight of working stiffs of all ages, origins, and orientations, are swollen beyond expectations.

Below the surface, however, the overnight funding market was subject to much weeping and gnashing of teeth.  Sometime between Monday night and Tuesday morning the overnight repurchase agreement (repo) rate hit 10 percent.  Short-term liquidity markets essentially broke.

After several technical glitches, the Fed executed its first repo operation in a decade – $53 billion – to keep the interbank funding market flowing. Continue reading →

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

Don’t Be Another Wall Street Chump

Posted on September 13, 2019 by MN Gordon

Securities and Exchange Commission Rule 156 requires financial institutions to advise investors to not be idiots.  Hence, the disclosure pages of nearly every financial instrument in the U.S. are embedded with the following admission or variant thereof:

“Past Performance Is Not Indicative of Future Results”

The instruction is futile.  Most investors are idiots, including many of the pros.  What’s more, suspiciously absent from all disclosures is “how” to not be an idiot.  Perhaps this is because such guidance would discourage many unwitting investors from getting mixed up with the stock market in the first place.

Without question, if you don’t know what you’re looking at, the past can be an abysmal predictor of future investment returns.  One year the S&P 500’s up 10 percent.  Another year it’s up 20 percent.  Then, to the surprise of practically every Wall Street analyst, the S&P 500 crashes 50 percent.

Still, practically everyone projects future returns based on past performance.  For example, your retirement advisor at Edward Jones will be quick to point out that the average annual return of the S&P 500 over the last 60 years is about 8 percent. Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , | 2 Comments

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