by MN Gordon
Government planners float the economy up on a sea of credit. Financial markets rest on an eroding base of wet sandy debt. With all the funny money sloshing around…no solid footings remain.
Here at the Economic Prism we long for a concrete foundation we can stub our toe on. The resulting pain would be comforting. For it would provide confirmation that consequences still exist. Thus we’ll begin today’s supposition with some perspective…
“Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump,” noted 20th century economist Ludwig von Mises.
But what happens if a credit expansion is followed with an additional expansion of credit? Does the debt ever have to be repaid? With enough credit based money, can’t the economic depression be postponed ad infinitum?
“If the credit expansion is not stopped in time,” said Mises, “the boom turns into the crack-up boom; the (Read More....)
. . . → Read More: Central Bankers Unite
by MN Gordon
Something befuddling’s going on. It is quite the brain twister. As night follows day and day follows night, should not price inflation follow the massive $4 trillion Fed balance sheet expansion that’s happened over the last 6-years?
Simply connecting the dots quickly leads one to a ‘yes’ conclusion. More money chasing a static number of goods and services should result in price inflation. For prices must rise to balance out all the new money.
This, of course, makes good practical sense. In fact, it might even lead someone to sell dollars and buy gold. Certainly they’d have a bullet proof rationale guiding their decision.
Yet the world isn’t always a practical place. Often time things happen that don’t make sense. Sometimes the exact opposite of what should logically occur ends up happening.
Gold’s price peaked around $1,900 an ounce in 2011. Gold’s currently at about $1,180. That’s over 37 percent off its high. What is going on?
The U.S. (Read More....)
. . . → Read More: Hold On To Your Gold
by MN Gordon
Late last week something remarkable happened. The Fed announced it would close out its quantitative easing program…and stocks went up. This occurrence is what a psychologist would call cognitive dissonance.
We’ll have more to say on this in a moment, but first a review of some of last week’s other key happenings. First off, the dollar rallied and commodities were obliterated. Given the inverse relationship between commodities and the dollar this price action makes sense.
This relationship was clearly at work on oil and gold prices. Oil dropped below $80 per barrel and gold fell to $1,172 per ounce. Obviously, the Fed putting a stop to its mad money creation scheme should be positive for the dollar.
With fewer digital monetary units being credited to the financial system each existing dollar should retain its value or become more valuable. Accordingly, items priced in dollars, such as oil and gold, should become cheaper. However, this is only part of the story…and last week’s feat (Read More....)
. . . → Read More: Why You Should Prepare Now for the Fed’s Next Money Pumping Scheme
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 (Read More....)
. . . → Read More: The Propaganda Lie Behind The Claim That Modern Economies Need Inflation In Order To Be Healthy
by MN Gordon Economic Prism
Last week the Bureau of Economic Analysis made a revision. You may have heard about it. According to the government statisticians, first quarter GDP didn’t decline at an annual rate of 0.1 percent as previously estimated.
Actually, when they re-counted the beans, first quarter GDP declined much, much more. In fact, based on the new estimate, first quarter GDP declined at an annual rate of 1 percent. What does this mean?
In short, it means the economy isn’t expanding…it’s contracting. And because the economy’s supported by massive amounts of debt it doesn’t take much of a contraction for the debt foundations along the margins to begin to crumble. Student loan and auto loan (Read More....)
. . . → Read More: Economic Blasphemy
by MN Gordon Economic Prism
A Fed insider shattered the glass and pulled the fire alarm this week.
“A strengthening U.S. economy may force the central bank to hike rates ‘sooner rather than later’ to stay ahead of inflation,” Philadelphia Federal Reserve President Charles Plosser said on Tuesday.
Meanwhile, top Fed head Janet Yellen offered the New York University graduating class some commencement words at Yankee Stadium. According to Yellen, success is determined more by (Read More....)
. . . → Read More: Scientific Management of the Economy is Absurd