by MN Gordon
Global economies are struggling. Europe’s economy is stalling out. The Japanese economy’s shrinking at an annualized rate of 7.1 percent. But we won’t dwell on Europe or Japan at the moment. For today we set our sights on a Chinese bull’s eye; namely, China’s miracle engine of growth that appears to finally be slowing down.
Naturally, when an economy slows many problems that had been covered up by new growth are exposed. For example, after years and years of stimulating the Chinese economy with borrowed money, the mistakes and distortions have literally piled up as far as the eye can see. There’s a gross overcapacity of property.
“According to Chinese data, cities have built enough for 97 million new city residents, but over the past 5 years, only 35 million people have moved into these cities, a gap of 62 million people. These are the potential ghost cities.”
Typically a ghost city appears following a long period of (Read More....)
. . . → Read More: Why China Will Suffer a Hard Landing
by MN Gordon
Quantitative easing is set to expire this month. That’s the plan at least. The $10 billion monthly tapers will finally bring the Fed’s QE3 bond buying program down from $85 billion per month to zero.
That’s not to say the Fed will no longer be operating with extreme monetary policies of market intervention. Remember, the federal funds rate is still at practically zero. This is something that had never happened until the fall of 2008.
Now, six year later, the federal funds rate is still pressed firmly down to the ground. According to Federal Reserve utterances, they won’t begin raising the federal funds rate for another six months. Of course, that could always change depending on what way the wind blows.
The Fed has shown that they are (Read More....)
. . . → Read More: One Hundred Years of Failure and Counting
Guest Post From Peter Wood
In my article of August 2013 titled Dancing OnThe Volcano - A Summary of Current Economic Practices of Western Democracies I wrote that the then chairman of the Federal Reserve Ben Bernanke would be unable to extricate the bank from a QE program without collapsing the stock markets:
“Bernanke’s dilemma is, if he stops, or even reduces his purchases of government debt, interest rates (yield) paid on treasuries will rise making debt servicing unsustainable and borrowing prohibitively expensive. The stock market, which is fueled by cheap money, would see an exodus of investors and, in a worst case scenario, could collapse.”
As we’ve just seen in the week ending October 19th, as the American Federal Reserve was due to end its QE program this month there was almost panic selling of Dow Jones, S&P,and Nasdaq markets, which only stopped when the present chairwoman of the US Federal Reserve, Janet Yellin, let it be known that the program would probably be (Read More....)
. . . → Read More: The Propaganda Lie Behind The Claim That Modern Economies Need Inflation In Order To Be Healthy
by MN Gordon
Most economists don’t do any favors for the esteem of their trade. They take ideas a third grader would know are idiotic and champion them with bluster and bravado. Hardly a day goes by where some economist doesn’t prove he’s a moron.
Take cash for clunkers. Everyone, with the exception of brain dead economists, knows that giving people money to scrap perfectly good vehicles is a value subtracting enterprise. Yet economists cheer on the outward demand for new cars it stimulates…and the boost to GDP.
But if this were really the road to riches, why not give everyone cash to buy a new car? Automaker factories would be buzzing. So, too, why not give everyone money to buy a house? Homebuilder payrolls would swell. This would work perfectly well…if we were living in fantasy land.
Another popular delusion of modern day economic thought is that wealth is created by borrowing money and spending it…as opposed to saving money and investing it. Simple logic proves this thinking is false. Yet (Read More....)
. . . → Read More: Consumers Don’t Stand a Chance
by MN Gordon
The stock market laid another egg yesterday. We won’t dwell on it much. Only enough to make the observation that change is in the air. You can see it. Feel it. And even smell it. Nonetheless, being prepared for it – both for profits and protection – is the real challenge. Here’s what we mean…
The United States dollar has strengthened against other currencies over recent months. The dollar index – a measure of the U.S. dollar relative to a basket of foreign currencies – was around 80 for the first half of the year. But since July it has run up significantly.
Currently, the dollar index is around 86. That means the dollar has increased in value by 7.5 percent on the foreign exchange market over the last three months. What are the consequences of a stronger dollar?
Naturally, there are both advantages and disadvantages to a stronger dollar…depending on how you look at it. A more valuable dollar is a good thing for the typical saver and consumer alike. In general, it means imported goods become cheaper. Dollars (Read More....)
. . . → Read More: The Solution to Deflation
by MN Gordon
The stock market was clobbered on Tuesday. The DOW sold off 272 points. What did it mean? Was it an indicator the market is finally rolling over, as we’ve anticipated for some time? Or was it just another head fake on the way to new highs?
On Wednesday we thought we had our answer. The DOW ran back up 274 points…recovering all of the prior day’s losses, plus two points. It was the market’s best day of the year. Wall Street was euphoric.
Even gold stocks rose. Junior mining stocks, as measured by the Junior Gold Miners ETF (GDXJ), jumped up 9.61 percent. Fixed income investors also joined in on the fun. Yields on the 10 year treasury note fell to just 2.32 percent, nearly to their 52 week low of 2.30 percent.
What was the cause for the elation? Is GDP soaring? Are incomes finally rising? Is Putin packing up Russian troops and vacating Ukraine? Was a vaccine for Ebola discovered?
Nope. It was nothing of the (Read More....)
. . . → Read More: Buyer’s Remorse
by MN Gordon
About 60-years ago twentieth century economist Hyman Minsky developed his Financial Instability Hypothesis. His main premise was that economic stability breeds instability. How’s that possible?
As Minsky observed, financial crisis follow periods of economic stability and prosperity. Moreover, it’s these periods of prosperity that sow the seeds of the next calamity. In short, the extended stability encourages borrowers and lender to progressively take on greater risk. This results in ever greater increases in credit and debt, which inflates asset prices.
Eventually, excess optimism leads to instability…lending and debt move to unsustainable levels. Debt levels move beyond what the economy can support. Financial bubbles then burst. Asset prices crash and the mistakes of the preceding boom are corrected.
Last week the DOW offered a stark reminder that stocks don’t always go up. What’s more, in addition to not always going up…something else can happen. Stocks can go down.
After a soft slide on Monday and Tuesday, (Read More....)
. . . → Read More: The End of Extend and Pretend
by MN Gordon
Just two weeks ago President Obama said it would be unlikely if we had a case of Ebola virus in this country. On Tuesday the Center for Disease Control and Prevention confirmed the first known U.S. Ebola virus case. No doubt, it didn’t take long for the unlikely to happen.
From what we gather the infected adult traveled from West Africa to Texas on September 19. Several days later, on September 24, he started developing symptoms. After first being turned away from the hospital and sent home on September 26, he was finally admitted for treatment on September 28.
During this time he came in contact with a number of others…including five schoolchildren. (Read More....)
. . . → Read More: Pouring Buckets of Ice Water on the Fed’s Delusion