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Disasters Can Happen

Constructive Simplicity for China’s Communist Party Plenum

Chinaby MN Gordon

Economic Prism

The People’s Bank of China cut benchmark interest rates by 0.25 percent on Friday.  This was the sixth time they’ve lowered interest rates within a year.  Bank reserve requirements were also reduced by 0.5 percent.

Economic growth has gradually declined in China over the last several years.  The official rate of GDP is at 6.9 percent, though that number should be taken with a grain of salt.  Nonetheless, a 6.9 percent GDP isn’t quite up to Beijing’s edict.  Something must be done.

Stimulating demand with cheap credit is the expedient policy for central bankers.  This move may even propel government statistics in the direction they want.  But, given that China’s economy has already been stimulated to death, what is it that the People’s Bank of China is trying to achieve?

Beijing’s policies of mass credit creation have enticed the Middle Kingdom’s corporations to borrow gobs of money.  Naturally, how this borrowed money was spent hasn’t always penciled (Read More....)

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All Bets Are Off

Make Moneyby MN Gordon

Economic Prism

Stock markets across the planet gazed out across the economic landscape yesterday and vomited all over themselves. After that, they convulsed and dry heaved again and again. For the global economic disfiguration has grown so grotesque, so awesomely awful, that the collective stomach of world markets has wrenched into knots.

Japan and China started the great purge. In the land of the rising sun, the Nikkei 225 expelled 895 points. The Middle Kingdom followed this up with a remarkable feat…the Shanghai Composite Index projectile spewed 8.49 percent.

Unfortunately, the sickness spread to Europe and the United States. The German Dax gave up 4.7 percent and, in London, the FTSE gutted out 4.7 percent. The Dow followed this up with an initial 1,089 point (Read More....)

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The Barbarous Relic takes a Beating

Stock Market Crashby MN Gordon

Economic Prism

Fantasies, failings, fraud, and folderol. These are the elusive straws we grasp for when contemplating the marvels of modern day money. There’s little hope we’ll ever come up with a solid handful we can pull ourselves up by.

Still, we continue to mull things over like a freshman math major mulling over Fermat’s Last Theorem. With a little luck we may eventually have a breakthrough. Where to begin?

President Nixon’s dirty deed in 1971 is as good an entry point into the review as any. Recall that seizing the unique opportunity of the breakdown of Bretton Woods, Tricky Dick severed the last vestiges of gold backed money and stiffed the world unconditionally.

No longer could foreign governments redeem the dollars they acquired through trade for gold. The world’s currencies became wholly the fiat – paper money – of governments. Since then currencies have floated like anchorless buoys, rising and falling on a sea of surging (Read More....)

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China’s Exercise in Futility

Chinaby MN Gordon

Economic Prism

At the moment, it appears the Chinese government has forestalled a full stock market meltdown. To do so, the People’s Bank of China made direct purchases of stocks trading on the Shanghai Stock Exchange. What type of chimera is this?

Obviously, this was a desperate measure that only pushes instabilities further out on their precarious perch. For all is not well in China. Like the stock market, the financial and economic fundamentals of the country are also out of whack.

Beijing’s policies of mass credit creation have enticed the Middle Kingdom’s corporations to borrow gobs of money. Corporate debt in China has run up to $16.1 trillion. This is the largest corporate debt pile in the world…and it appears (Read More....)

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Forecasts of Gloom

Crisisby MN Gordon

Economic Prism

Just like the clockwork of a rooster’s call at dawn. On the first day of June each year, coastal Southern California becomes encapsulated by dense gloom. You can guarantee it.

Out of state visitors mistake the gloom for smog. But it’s something very different. For the legendary Los Angeles smog disappeared in the early 1990s when the state enacted mandatory vehicle smog testing.

What a hassle and annoying expense. But at least the San Gabriel Mountains are now visible from Long Beach most days of the year. Plus school kids rarely now have recess called off for elevated ozone levels…unlike the good old days.

June gloom is a natural occurrence quite different than smog. Warming temperatures in the inland region draw the dense grey marine layer several miles in each (Read More....)

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An Absolute Disaster?

Price Fixingby MN Gordon Economic Prism

Last Thursday the DOW surpassed 17,000 for the first time ever. What a marvelous achievement. The combined forces of mass money creation and speculative fervor have bid up the market to levels a person of sound mind and honest intentions never thought possible.

According to the Bank for International Settlement, in its recently released Annual Report, “financial markets are euphoric.” The BIS also recommends that central banks begin raising interest rates while economies are growing so they can be prepared for the next recession. Jim Edwards at the (Read More....)

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Janet Yellen’s Unwise and Inhumane Policies

Janet Yellenby MN Gordon Economic Prism

Federal Reserve Chair Janet Yellen says the 0.4 percent May CPI increase is noise. Perhaps she is right and it is noise. But just what type of noise is it?

Is it the type of noise to ignore…like a street vagrant’s mutterings of gibberish? Or is it the type of noise, like a fire alarm, telling us to get out because our home is about to go up in smoke? The difference is stark.

Though Yellen didn’t elaborate, we assume she means the CPI noise is something to ignore. That price inflation isn’t a real concern. Here at the Economic Prism we think otherwise.

Regardless of whether it shows up in the CPI, the price of just about everything that’s needed to live is going up. In fact, according to (Read More....)

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