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MN Gordon

MN Gordon

MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He’s the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that brings clarity to the muddy waters of economic policy and targets investment opportunities for acquiring considerable wealth. The Economic Prism is written peering through a prism of free market principles, limited government, and individual liberty.

Articles by MN Gordon

Congress’s Radical Plan to End Illegal Money

1 day ago

What Constitution?
One of the many downfalls of being the United States Secretary of the Treasury is the requirement to place one’s autograph on the face of the Federal Reserve’s legal tender notes. There, on public display, is an overt record of a critical defect.  A signature endorsement of a Federal Reserve note by the Treasury Secretary represents their personal ratification of unconstitutional money.
 
 
 
There it is, plain as day. The former treasury secretary clearly put his signature on money with highly dubious legal credentials. Evidently he must have found it agreeable though. [PT]
 

If you recall, Article I, Section 8, of the U.S. Constitution empowers Congress – not the Federal Reserve – to coin money and regulate its value.  What’s more, Article I, Section 10, specifies

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Adventures in Quantitative Tightening

7 days ago

Flowing Toward the Great Depression
All remaining doubts concerning the place the U.S. economy and its tangled web of international credits and debts is headed were clarified this week. On Monday, Mark Yusko, CIO of Morgan Creek Capital Management, told CNBC that:
 
“…we’re flowing toward the path of 1928-29 when Hoover was president. Now Trump is president. Both were presidents with no experience who come in with a Congress that is all Republican, lots of big promises, lots of things that don’t happen and the fall is when people realize, ‘Wait, it hasn’t played out the way we thought.’ [By the fall], we’ll have a lot more evidence of declining growth. Growth has been slipping.”
 
A famous bad juju moment – the crash of 1929. Two of the annotations require a bit of elaboration. The

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Tales from the FOMC Underground

15 days ago

A Great Big Dud
Many of today’s economic troubles are due to a fantastic guess.  That the wealth effect of inflated asset prices would stimulate demand in the economy.
The premise, as we understand it, was that as stock portfolios bubbled up investors would feel better about their lot in life.  Some of them would feel so doggone good they’d go out and buy 72-inch flat screen televisions and brand-new electric cars with computerized dashboards on credit.
 
The Wilshire 5000 total market index vs. federal debt and real GDP (indexed, 1990=100) – mainly there is an ever wider gap between asset prices and the underlying economic output, and although federal debt has grown by leaps and bounds in the Bush-Obama era, it can’t hold a candle to asset price inflation either. If asset prices were an

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Work is for Idiots

22 days ago

Disproportionate Rewards
The International Monetary Fund reported an unpleasant outlook for the U.S. economy on Wednesday.  The IMF, as part of its annual review, believes the U.S. economic model isn’t working as well as it could to generate shared income growth.
 
Supping with the IMF (we recommend trying to avoid invitations to structurally adjusted suppers if possible. Their air of finality is reportedly unbearable). [PT]
 

On the same day, in an unrelated interview on PBS Newshour , billionaire investor Warren Buffett offered a similar outlook:
 
“The real problem, in my view, is — this has been — the prosperity has been unbelievable for the extremely rich people.
“If you go to 1982, when Forbes put on their first 400 list, those people had [a total of] $93 billion.  They now have

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Dudley in a Good Place

26 days ago

Crashing Unemployment
Dear Mr. Dudley, Your recent remarks in the wake of last week’s FOMC statement were notably unhelpful. In particular, your explanation that further rate hikes are needed to prevent crashing unemployment and rising inflation stunk of rotten eggs. Quite frankly, crashing unemployment is a construct that’s new to popular economic discourse, and a suspect one at that. Years ago, prior to the nirvana of globalization, the potential for wage inflation stemming from full employment was the main concern.
 

US unemployment rate vs. labor force participation rate. The employment situation may not be as all-around copacetic as the U3 unemployment rate seems to indicate… just a hunch.
 

Now that the official unemployment rate’s just 4.3 percent, and wages are still down in

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Monetary Madness and Rabbit Consumption

June 17, 2017

Down the Rabbit Hole
“The hurrier I go, the behinder I get,” is oft attributed to the White Rabbit from Lewis Carroll’s, Alice in Wonderland.  Where this axiom appears within the text of the story is a mystery.  But we suspect the White Rabbit must utter it about the time Alice follows him down the rabbit hole.
 
Pick a rabbit to follow…
 

No doubt, today’s wage earner knows what it means to work harder, faster, and better, while slip sliding behind.  However, for many wage earners the reasons why may be somewhat mysterious.  At first glance, they may look around and quickly scapegoat foreigners   for their economic woes.
Yet like Wonderland, things are often not as they first appear.  When it comes to today’s financial markets, there is hardly a connection to the real economy at all.

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The Three Headed Debt Monster That’s Going to Ravage the Economy

June 9, 2017

Mass Infusions of New Credit
 
“The bank is something more than men, I tell you.  It’s the monster.  Men made it, but they can’t control it.” – John Steinbeck, The Grapes of Wrath
 
Something strange and somewhat senseless happened this week. On Tuesday, the price of gold jumped over $13 per ounce.  This, in itself, is nothing too remarkable.  However, at precisely the same time gold was jumping, the yield on the 10-Year Treasury note was slip sliding down to 2.15 percent.
 
It looks hungry… once it is finished with this little Godzilla snack, it will probably come for the rest of us.
Illustration by Larry T Quach
 

In short, investors were simultaneously anticipating inflation and deflation.  Naturally, this is a gross oversimplification.  But it does make the point that something

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Recession Watch Fall 2017

June 5, 2017

One Ear to the Ground, One Eye to the Future
Treasury yields are attempting to say something.  But what it is exactly is open to interpretation.  What’s more, only the most curious care to ponder it. Like Southern California’s obligatory June Gloom, what Treasury yields may appear to be foreshadowing can be somewhat misleading.
 
Behold, the risk-free tide…
 

Are investors anticipating deflation or inflation?  Are yields adjusting to some other market or external phenomenon, perhaps central bank intervention?
So far this year, and in the face of the much-ballyhooed prospect of Trumpflation, the yield on the 10-Year note has gone down.  Not up.  On January 1st, the 10-Year note yielded 2.44 percent.  As of market close Thursday, the yield was 2.22 percent.
At first glance, it appears

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The Attack on Workers, Phase II

May 26, 2017

Labors with No Fruits
It’s been a long row to hoe for most workers during the first 17 years of the new millennium.  The soil’s been hard and rocky.  The rewards for one’s toils have been bleak.
 
Ma and Pa farm worker lean against one of their recent productions to mug for the  daguerreotypist. Their happiness at a job well done is marred by misgivings about their remuneration in real terms.
Photo credit: Maple Valley Historical Society
 

For many, laboriously dragging a push plow’s dull blade across the land has hardly scratched enough of a rut in the ground to plant a pitiful row of string beans.  What’s more, any bean sprouts that broke through the stony earth were quickly strangled out by seasonal weeds.  Those ‘green shoots’ that persisted bore pods that dried out on the vine

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Warnings from Mount Vesuvius

May 19, 2017

When Mount Vesuvius Blew
 
“Injustice, swift, erect, and unconfin’d,
Sweeps the wide earth, and tramples o’er mankind”
– Homer, The Iliad

 
Everything was just the way it was supposed to be in Pompeii on August 24, 79 A.D.  The gods had bestowed wealth and abundance upon the inhabitants of this Roman trading town.  Things were near perfect.
 
Frescoes in the so-called “Villa of the Mysteries” in Pompeii, presumed to depict scenes from a Bacchus cult (Bacchus is the Roman version of the Greek god Dionysus, essentially a party god, responsible for alcoholic supplies, fertility and the arts). He was thought to bring divine joy and ecstasy, but also blind rage (reflective of the dual nature of what happens when people get high on wine). Bacchus and his followers could not be fettered. The

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How to Stick It to Your Banker, the Federal Reserve, and the Whole Doggone Fiat Money System

May 13, 2017

Bernanke Redux
Somehow, former Federal Reserve Chairman Ben Bernanke found time from his busy hedge fund advisory duties last week to tell his ex-employer how to do its job.  Namely, he recommended to his former cohorts at the Fed how much they should reduce the Fed’s balance sheet by.  In other words, he told them how to go about cleaning up his mess.
 
Praise the Lord! The Hero is back to tell us what to do! Why, oh why have you ever left, oh greatest central planner of all time. We are not worthy.
 

We couldn’t recall the last time we’d seen or heard from Bernanke.  But soon it all came back to us.  There he was, in the flesh, babbling on Bloomberg and Squawk Box, pushing the new paperback version of his mis-titled memoir “The Courage to Act.”  Incidentally, the last time we’d heard

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The Coming Debt Reckoning

May 6, 2017

Licking the Log
American workers, as a whole, are facing a disagreeable disorder.  Their debt burdens are increasing.  Their incomes are stagnating.
 
There are many reasons why.  In truth, it would take several large volumes to chronicle all of them.  But when you get down to the ‘lick log’ of it all, the disorder stems from decades of technocratic intervention that have stripped away any semblance of a free functioning, self-correcting economy.
 
Happy workers from the distant past…
 

The financial system circa 2017, and the economy that supports it, has been stretched to the breaking point.  Shortsighted fiscal and monetary policies have propagated it.  The result is a failing financial order that has become near intolerable for all but the gravy supping political class and their cronies.
Take consumer spending.  This is the primary driver of the U.S. economy.  Yet it requires vast amounts of credit.  In fact, American consumers presently hold $1 trillion in revolving credit.  At the same time, they have nowhere near the income needed to finance these debts, let alone pay them off.
Remember, the flip-side of credit is debt.  Obviously, the divergence of increasing debt and stagnating incomes is a condition that cannot go on forever.  But it can go on much longer than any sensible person would consider possible.

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Ludwig von Mises’ Century of Validation

April 28, 2017

Seeing the Light
It has been said that “the definition of insanity is doing the same thing over and over again and expecting different results.”  No one quite knows who first uttered this remark; it has been attributed to Albert Einstein, Mark Twain, Benjamin Franklin, and has even been said to be an Ancient Chinese Proverb.  What is known is that this cliché has been repeated over and over again so often that its mere mention substantiates its own definition.
 
Several of the ladies and gentlemen above wanted to let us know that they’re merely eccentric,  and if they want to do things all over again and again and again, we should let them…
 

Nonetheless, we repeat it again because it’s particularly fitting to today’s deliberations.  Here we begin with a look back to the past in search of edification.  For the miscalculations of the past continue to dictate the insanity of the present.
Many years ago, a bright minded and well intentioned Italian pursued a devious undertaking.  His efforts aimed to conceive a pure theory of a socialist economy.  His objective was to take the sordid teachings of Marx and pencil out the mechanics of how a centrally planned economy could bring a life of security and abundance for all.  What follows is an approximation of how the dirty deed went down.
In 1908, Italian economist Enrico Barone suffered an abstraction.

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Simple Math of Bank Horse-Puckey

April 21, 2017

The Raw Deal
We stepped out on our front stoop Wednesday morning and paused to take it all in.  The sky was at its darkest hour just before dawn.  The air was crisp.  There was a soft coastal fog.  The faint light of several stars that likely burned out millennia ago danced just above the glow of the street lights.
 
And this is what they saw watching the sky from Mt. Wilson that night…
 

After a brief moment, we locked the door behind us and got into our car.  Springtime southern California mornings are exquisitely pleasant.  The early morning drive to downtown Los Angeles, on the other hand, is exquisitely painful.
Nonetheless, we make the best of it like we make the best of a trip to the dentist – or a visit with our accountant.  If anything, it affords us the opportunity to do something most people rarely do.  In particular, it gives us time to think.  Before we knew it we’d reached our destination.  But not before uncovering half dozen unrectified incongruities.  The sorts of things that are futile to piece together.
One thing that stuck in our craw like a broken chicken bone is the raw deal main street depositors and lenders get from credit unions and commercial banks.  In short, the credit system is tilted against them.  The rules of the game favor the bankers.
 
Extreme Maltreatment
Perhaps the rules of the game have always favored the bankers.

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Hell To Pay

April 17, 2017

Behind the Curve
Economic nonsense comes a dime a dozen.  For example, Federal Reserve Chair Janet Yellen “think(s) we have a healthy economy now.”  She even told the University of Michigan’s Ford School of Public Policy so earlier this week.  Does she know what she’s talking about?
 
Somehow, this cartoon never gets old…
 

If you go by a partial subset of the ‘official’ government statistics, perhaps, it appears she does.  The unemployment rate is at 4.5 percent, which is considered full employment.  What’s more, inflation is ‘reasonably close’ to the Fed’s 2-percent inflation target.  But what does this mean, really?
According to Fed Chair Yellen, it means that now’s the time to tighten up the nation’s monetary policy.
 
Behold this display of awesomeness, citizen. Doesn’t it prove that central planning “works” after all? Unfortunately the ointment is never entirely fly-free, especially when one is pondering statistical aggregates – click to enlarge.
 
By now you’ve likely seen this upcoming – choice – quote from Yellen.  Nonetheless, we can’t resist repeating its remarkable idiocy.  For Yellen, who was in the greater Detroit metropolitan area, was kind enough to humor us all with a nifty automotive analogy to explain how to go about normalizing monetary policy.

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Credit Contraction Episodes

April 8, 2017

Approaching a Tipping Point
Taking the path of least resistance doesn’t always lead to places worth going.  In fact, it often leads to places that are better to avoid.  Repeatedly skipping work to sleep in and living off credit cards will eventually lead to the poorhouse.
 
Sometimes the path of least resistance turns out to be problematic
 

The same holds true for monetary policy.  In particular, cheap credit policies that favor short-term expediency have the effect of layering society up with an abundance of long-term mistakes.  Artificially suppressed interest rates via central bank asset purchase schemes are not without consequences.
What’s more, once set in motion these consequences don’t stop until they’ve fully run their course.  The booms of plentiful credit must always be followed by the busts of unserviceable debt.  As more and more debt drifts into arrears the debt structure breaks down.  Yet when the actual tipping point is crossed is often unclear until after the fact.
Quantitative easing “officially” ended over two years ago.  The interim period has been relatively sanguine; asset prices have continued to inflate.  But lurking around the corner is the inevitable downside of quantitative easing.
As we’ve seen, the downside’s onset has taken years to manifest.  Nonetheless, credit markets are now signaling a breakdown.

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Failure to Launch

March 31, 2017

Identified Flying Objects
The future is here and it’s not all it was cracked up to be.  For example, one of the great disappointments of the 21st century, thus far, is the lack of flying cars.  Wasn’t this supposed to be the signature achievement of Tomorrowland?
 
The Terrafugia flying car – this one was actually said to be in development a little while ago with the maiden flight of the prototype scheduled for 2018. Is the Age of the Jetsons finally beginning? One thing is clear: once this car becomes widely available, we can finally go about abolishing the State. The question “Who will build the roads?” will once and for all be laid to rest!
Image credit: Terrafugia
 

The frustration was aptly expressed by PayPal co-founder and early Facebook investor Peter Thiel when he said, “We wanted flying cars, instead we got 140 characters.”  Of course, the 140 character reference is in regard to Twitter and its 140 character limit per tweet.
Indeed, Twitter is a second-rate alternative to flying cars.  What’s more, it has the ill-effect of reducing people’s brains to mashed potatoes.  In place of well-reasoned and thoughtful discourse, Twitter promotes inane statements from Congressional representatives and even the President.
But all is not lost.  For the flying car will soon be a reality.

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March to Default

March 24, 2017

Style Over Substance
“May you live in interesting times,” says the ancient Chinese curse.  No doubt about it, we live in interesting times.  Hardly a day goes by that we’re not aghast and astounded by a series of grotesque caricatures of the world as at devolves towards vulgarity. Just this week, for instance, U.S. Representative Maxine Waters tweeted, “Get ready for impeachment.”
 

Well, Maxine Waters is obviously right – impeaching the president is an urgent task of the utmost importance. As everybody knows, he is best friends with Vladimir Putin, the shirtless barbarian who rules the Evil Russian Empire (they were seen drinking kompromat together in Moscow, a vile Russian liquor that reportedly tastes a bit like urine. Senator McCain has the details on that story). And as Maxine Waters has just disclosed, Putin’s armies are recently advancing into Korea! We cannot let this stand, or he’ll invade Kekistan next (note that he already controls Limpopo and Gabon). Who knows where it will end?
 

We assume this was directed at President Trump.  But what Waters meant by this was sufficiently vague.  There was no guidance as to how President Trump should be getting ready.
Should he pack his bags?  Should he double knot his shoelaces?  Should he say a prayer? Naturally, the specifics don’t matter in the darnedest.

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The Long Run Economics of Debt Based Stimulus

March 18, 2017

Onward vs. Upward
Something both unwanted and unexpected has tormented western economies in the 21st century.  Gross domestic product (GDP) has moderated onward while government debt has spiked upward.  Orthodox economists continue to be flummoxed by what has transpired.
 
What happened to the miracle? The Keynesian wet dream of an unfettered fiat debt money system has been realized, and debt has been duly expanded at every opportunity.  Although the fat lady has so far only cleared her throat (if quite audibly, in 2008) and hasn’t really sung yet, it is already clear that calling this system careening toward a catastrophic failure.
 

Here is the United States, since the turn of the new millennium (starting January 1, 2001) real GDP has increased from roughly $10.5 trillion to $18.6 trillion, or 77 percent.  Over this same time government debt has spiked nearly 250 percent from about $5.7 trillion to $19.9 trillion.  Obviously, some sort of reckoning’s in order to bring the books back into balance.
Throughout this extended episode of economic and financial discontinuity, the government’s solution to jump-starting the economy has been to borrow money and spend it.  Thus far, these efforts have succeeded in digging a massive hole that the economy will somehow have to climb out of.  We’re doubtful such a feat will ever be attained.

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Off the Beaten Path in Mesoamerica

March 10, 2017

Greeted by Rooster
There’s an endearing quality to a steadfast rooster call at the crack of dawn when overheard from a warm country farmhouse.  There’s a reassuring charm that comes with the committed gallinaceous greeting of daybreak that’s particularly suited to a rural ambiance.  The allure of a morning cock-a-doodle-doo somehow falls flat in all other settings.
 
Good morning everyone! Before meteorological forecasts were available on TV and smart phones, people had to rely on the wisdom of rugged outdoorsmen to get their weather-related updates. In this context we would like to let you in on this valuable old piece of Mexican country lore: “When from the compose pile you hear the rooster declaim, the weather will change – or it will stay the same”. OK, we actually made that up, but you cannot deny its elevated wisdom coefficient [PT].
Illustration via wakeup-world.com
 

Early this morning we suffered a rude awakening from brash, dedicated rooster crowing.  The calls, however, weren’t emanating from a barnyard hen house.  Rather, they came from rooftop chicken coops sitting atop the staggered flats of a highly urbanized Mexico City borough.
To be exact, we are presently at Calle Norte 86, in Colonia La Malinche, of the Gustavo A. Madero borough, of the Distrito Federal (Mexico City).  What it is we’re doing here is less exact.

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A Mess 30 Years in the Making

March 4, 2017

Promises of Slop
 
“We have assembled a best-in-class team of policy advisors to drive President Trump’s bold plan for job creation and economic growth.”
– Gary Cohn, Chief Economic Advisor to President Trump

 
The art and science of spending other people’s money is not an occupation suited to just anyone.  Rather, it’s a skill reserved for the professional world-improver.  To be successful, one must act with a zealous devotion to uplifting the down and out, no matter the cost.
 
Donald Trump’s chief economic advisor Gary Cohn – as some observers have noted, he represents one of the factions in the wider circle of economic advisors (there are many advisors who are not members of an official body such as the Council of Economic Advisors, but reportedly have the president’s ear). This is considered problematic, or rather confusing, on the grounds that in some cases the views of these advisors appear to be diametrically opposed. The question is whose views will eventually prevail.
Photo credit: Kena Betancur / AFP / APA
 

Lawyers, bankers, economists, and government philosophers with fancy resumes, who attended fancy schools.  These are the devoted fellows who comprise President Trump’s team of economic policy advisors.  Moreover, these are the chosen associates who are charged with bringing Trump’s economic vision to fruition.  Are they up to the task?
Only time will tell.

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The Dow Speaks: “In Trump We Trust”

February 24, 2017

The Worst Job in the World
The rewards of being the President, these days, are few and far between.  Just ask President Trump.  The work hours are terrible, the pay is far less than that of a corporate CEO, and you’re endlessly surrounded by shabby politicians.  What’s more, the  hand towels  aboard Air Force One have the shoddy over washed roughness of those at a turnpike Motel 6.  But that’s not the worst of it.
 
While we’re at it, let us introduce you to the runner-up, i.e., the second-worst job in the world. We are not sure what job title this poor man actually has (elephant rectum administrator? Pachyderm intestinal inspection officer?), but we sure hope he’s at least getting paid well.
Photo via Top Media Trends
 

Any and all efforts to remake foreign policy to address the threats of the 21st century – not the 20th century – are undermined by the intelligence community with vehement efficiency.  Before you can say Jack Robinson, the leaky conduit to the mainstream media boils up the latest brouhaha to simmering pot.
For example, last week Trump had to fire his national security adviser for engaging in statesmanship with the Russians.  Then, after that, John McCain – a Class A ignoramus – went and kvetched about Trump’s efforts from Europe.  Good grief!
 
Trump critic John McCain, a.k.a.

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The Art and Pseudoscience of Monetary Policy

February 17, 2017

Definitely Maybe
Everyone’s got a plan for sale these days.  In fact, there are so many plans out there we cannot keep up with them all.  Eat celery sticks and lose weight.  Think and grow rich.  Stocks for the long run.  Naturally, plans like these run a dime a dozen.
 
All social engineers who get to impose their harebrained schemes on the rest of the world through the coercive powers of the State, as well as all armchair planners regaling us with their allegedly “better plans”, should have this highly perceptive quote by Robert Burns tattooed on their foreheads. In case you’re wondering, “gang aft a-gley” is slightly old English for “usually turn out to be total crap”. The second part that points out that as a rule, we get nothing but grief and pain instead of promised joy, is applicable to interventionism in general; the so-called “unintended consequences” of interventions almost always turn out to be their main feature and defining characteristic.
 

Good plans, however, are scarcer than hen’s teeth.  You can’t possibly see them no matter how closely you look.  They simply don’t exist. This was the case on Capitol Hill this week, where money and politics collided at the biannual monetary policy gala.
Despite all the hubbub, no good plans were offered.  What’s more, on first glance, no bad plans were offered too.

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When Trumponomics Meets Abenomics

February 11, 2017

Thirty Year Retread
What will President Trump and Japanese Prime Minister Shinzo Abe talk about when they meet later today? Will they gab about what fishing holes the big belly bass are biting at? Will they share insider secrets on what watering holes are serving up the stiffest drinks? [ed. note: when we edited this article for Acting Man, the meeting was already underway]
 

Japan’s prime minister Shinzo Abe, a dyed-in-the-wool Keynesian and militarist, meets America’s new CiC in the somewhat ostentatiously appointed Trump Tower. They look happy.
Photo credit: Reuters
 

Indeed, these topics are unlikely. Rather, what they’ll be discussing is cooperative trade, growth, and employment policies between their respective national economies. They’ll also talk about currency debasement opportunities.
Soon enough, perhaps by the time you read this, you’ll be able to peruse the headlines and garner soundbites of their discussions. Maybe a new partnership will be announced. Anything’s possible.
Regardless, what follows is a brief review – a thirty year retread – that’s intended to put the meeting within its proper context. This is the back story you won’t hear anywhere else…
To begin, it was precisely the wrong thing to do at precisely the wrong time. But that didn’t stop the best and the brightest from attempting to improve upon the natural order of things.

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Don’t Blame Trump When the World Ends

February 4, 2017

Alien Economics
There was, indeed, a time when clear thinking and lucid communication via the written word were held in high regard. As far as we can tell, this wonderful epoch concluded in 1936. Everything since has been tortured with varying degrees of gobbledygook.
 
One should probably not be overly surprised that the abominable statist rag Time Magazine is fulsomely praising Keynes’ nigh unreadable tome. We too suspect that this book has actually lowered the planet-wide IQ – in fact, similar to Marx’ Das Kapital, it has done permanent damage. We have to admit that we have read it ourselves (and what a slog it was!) – contrary to Keynes himself, who once published a scathing critique of Mises’ Theory of Money and Credit without reading even one word of it, we prefer to actually read what those we criticize have published. In the first German edition of the book, Keynes freely admitted that his policy recommendations were probably more useful for a totalitarian State than a free society (i.e., it would be easier to implement them, because of their coercive nature). The biggest problem is though that most of the book is a rehash of hoary inflationist ideas that were already long refuted by the time of its publication. The handful of original ideas Keynes contributed didn’t constitute good economic theory either.

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Adventures in Currency Debasement

January 30, 2017

Rekindling the Dollar Debasement Strategy
The U.S. dollar, as measured by the dollar index, has generally gone up since mid-2014. The dollar index goes up when the U.S. dollar gains strength (value) against a basket of currencies, including the euro, yen, pound, and several others. Conversely, the dollar index goes down when the U.S. dollar loses value.
 
The US dollar has been quite strong since retesting its previous lows in 2011 (note that it has been even stronger against many currencies not included in DXY). Politicians and central bankers never seem to be content with a strong currency. This is quite bizarre, as a strong currency greatly benefits consumers, i.e., everyone. Politicians seem to believe it is better to create currency-related benefits for what is really only a small sector of the economy – which proves how deeply ingrained mercantilist fallacies are. Ironically, even these beneficiaries only ever see a temporary bump in their income and as a rule tend to suffer great harm in the long term. Just ponder US car companies in this context. Over many decades, no other sector has been whining more persistently about the allegedly unfair weakening of the yen by Japan’s government. The reality is this: in 1965, the yen stood at nearly 360 to the dollar.

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The Right Stuff

January 20, 2017
The Right Stuff

Pledges for Trump
 
“You boys know what makes this bird go up?  Funding makes this bird go up.  That’s right.  No bucks, no Buck Rogers.”
– Gordon Cooper and Gus Grissom, The Right Stuff (film)

 
Things are looking up for the United States economy in 2017.  You can just feel it.  Something great is about to happen.
 
Sam Sheppard in “The Right Stuff” –  a 1983 docudrama about the Mercury 7 program and “the seats-of-the-pants approach of the people involved in the space program” (according to IMDB).
Photo credit: Ladd Company
 

Earlier this week, for example, after meeting with the incoming President, Bayer and Monsanto announced they will spend at least half of their agriculture research and development budget – approximately $8 billion – in the U.S. over the next six years.  It’s estimated the combined efforts of these two companies will add 3,000 new U.S. high-tech jobs.
Wal-Mart and General Motors also made job and investment pledges for Trump.  Wal-Mart said they’ll add 10,000 jobs this year.  General Motors announced $1 billion in investment, which would generate 1,500 U.S. jobs. Following these pledges, Trump tweeted:
 
“Thank you to General Motors and Walmart for starting the big jobs push back into the U.S.!”
 
In a separate tweet, Trump added:
 
“With all of the jobs I am bringing back into the U.S.

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Trump’s Plan to Close the Trade Deficit with China

January 14, 2017
Trump’s Plan to Close the Trade Deficit with China

Rags to Riches

Jack Ma is an amiable fellow.  Back in 1994, while visiting the United States he decided to give that newfangled internet thing a whirl.  At a moment of peak inspiration, he executed his first search engine request by typing in the word beer.
 
Jack Ma, founder and CEO of Alibaba, China’s largest e-commerce firm. Once he was a school teacher, but it turned out that he had enormous entrepreneurial talent and that the world of wheelers, dealers, movers and shakers was more his speed. Today he is one of the world’s small number of genuine self-made multi-billionaires.
Photo credit: DFIC
 

The search results had such a profound impact on Ma that he returned home to China and immediately started his first internet business.  After several tries he hit it big with Alibaba.  So much so that he’s accumulated a net worth of $27.1 billion USD – over 7.3 times more than President-elect Trump.  Not a bad rags to riches story for a poor Chinese school teacher.
Indeed, Ma takes a shrewd, yet casual, approach to business.  Back in 2014, he got a little sozzled up and bought China’s most popular soccer team from fellow Chinese billionaire Hui Ka Yan.  All in all, the soccer team purchase only cost Ma $192 million. As Yan recounted  of how the deal with Ma went down:
 
“By accident I got him drunk.

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The Great El Monte Public Pension Swindle

January 7, 2017
The Great El Monte Public Pension Swindle

Nowhere City California
There are places in Southern California where, although the sun always shines, they haven’t seen a ray of light for over 50-years.  There’s a no man’s land of urban blight along Interstate 10, from East Los Angeles through the San Gabriel Valley, where cities you’ve never heard of and would never go to, are jumbled together like shipping containers on Terminal Island.  El Monte, California, is one of those places.
 
Advice dispensed on Interstate 10. We agree with it. Better don’t.
Photo credit: Rob Hann
 

How El Monte came to be is a story shared with many of its adjoining San Gabriel Valley cities.  Boom, bust, and rapid transformation from an agricultural area to working class artery of a burgeoning megalopolis, vomited out a multitude of enduring mistakes.  Many of them will never be rectified.
When El Monte was incorporated as a municipality in 1912, the prospects for the place must have seemed limitless.  Here was open and fertile land, ideally situated in a low valley between the San Gabriel and Rio Hondo Rivers.  Equally important, it was ideally situated just several miles from the budding City of Los Angeles.
Residents of early El Monte claimed anything could be grown there.  With a little hard work and persistence, money would flow to the rural municipality in exchange for feeding Los Angeles’ growing appetite.

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Global Recession and Other Visions for 2017

December 31, 2016
Global Recession and Other Visions for 2017

Conjuring Up Visions
Today’s a day for considering new hopes, new dreams, and new hallucinations.  The New Year is here, after all.  Now is the time to turn over a new leaf and start afresh. Naturally, 2017 will be the year you get exactly what’s coming to you. Both good and bad.  But what else will happen?
 
Image of a recently discarded vision…
Image by Michael Del Mundo
 

Here we begin by closing our eyes and slowing our breath.  We let our mind role back into the gray matter of our brain.  We wait patiently for new neurological connections to open up.  Then, ever so subtly, visions of the year ahead come into focus.
Will stocks go up or down?  What about gold and Treasury bonds?  Will the economy expand or contract?  Are we fated for World War III?  Who will win the Super Bowl? These are the questions – and more – we intend to answer.
Obviously, conjuring up visions is more art than science.  But so is Fed monetary policy. Nonetheless, before we get to it we must first lean upon ancient Chinese Philosopher Lao Tzu for a full disclaimer:
 
“Those who have knowledge, don’t predict.  Those who predict, don’t have knowledge.”
 
Hence, what follows comes from a place of zero knowledge.  We know nothing.  Still we sharpen our pencils and face our limitations.

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