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MN Gordon

MN Gordon

Making sense of the latest economic policy touted by the Federal Reserve or the U.S. Treasury is an exercise in befuddlement. No doubt about it, the economics trade is overcome with an abundance of nonsense these days. This is no coincidence. M.G. Gordon of Economic Prism looks to bring clarity to the muddy waters of economic policy.

Articles by MN Gordon

What Kind of Stock Market Purge Is This?

4 days ago

Actions and Reactions
Down markets, like up markets, are both dazzling and delightful. The shock and awe of near back-to-back 1,000 point Dow Jones Industrial Average (DJIA) free-falls is indeed spectacular. There are many reasons to revel in it.  Today we shall share a few. To begin, losing money in a multi-day stock market dump is no fun at all.  We’d rather get our teeth drilled by a dentist.  Still, a rapid selloff has many positive qualities.

Memorable moments from the annals of dentistry. – Click to enlarge
For example, the days following a market correction are full of restoration and redemption.  Like the prayer of Saint Francis of Assisi, Tuesday’s 567 point DJIA bounce brought hope where there was

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How to Buy Low When Everyone Else is Buying High

14 days ago

When to Sell?
The common thread running through the collective minds of present U.S. stock market investors goes something like this: A great crash is coming.  But first there will be an epic run-up climaxing with a massive parabolic blow off top.  Hence, to capitalize on the final blow off, investors must let their stock market holdings ride until the precise moment the market peaks – and not a moment more.  That’s when investors should sell their stocks and go to cash.
Certainly, this sounds like a great strategy.  But, practically speaking, how are you supposed to pull it off?  Specifically, how are you supposed to know the exact moment the stock market peaks?
Is the definitive sign of the top when your shoeshine

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The Donald Saves the Dollar

19 days ago

Something for Nothing
The world is full of bad ideas.  Just look around.  One can hardly blink without a multitude of bad ideas coming into view.  What’s more, the worse an idea is, the more popular it becomes. Take Mickey’s Fine Malt Liquor.  It’s nearly as destructive as prescription pain killers.  Yet people chug it down with reckless abandon.

Looking at the expression of this Mickey’s Malt Liquor tester one might initially get the impression that he is disappointed. – Click to enlarge
We assure you that is not the case – this is actually his happy face, he is probably just about to enter Nirvana. Countless taste tests prove it, see this comparison of the “entire bottom shelf” of malt liquors, or these

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Tax Reform and Trump’s Chinese Trade Deficit Conundrum

25 days ago

Trade Deficit with China Widens on Trump’s Watch 
Most things come easier said than done.  Take President Trump’s posture on trade with China. Trump doesn’t want a bigger trade deficit with China.  He wants a smaller trade deficit with China.  In fact, reducing the trade deficit with China is one of Trump’s promises to Make America Great Again.

Photo credit: Jonathan Ernst / Reuters – Click to enlarge
We are often willing to give Donald Trump the benefit of the doubt, despite the fact that his delivery needs a lot of work. Considering his enemies and most vociferous detractors, we reckon he must be doing something right; but we vehemently disagree with his views on trade, some of which are unfortunately becoming

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As the Controlled Inflation Scheme Rolls On

January 21, 2018

Controlled Inflation
American consumers are not only feeling good.  They are feeling great. They are borrowing money – and spending it – like tomorrow will never come.

After an extended period of indulging in excessive moderation (left), the US consumer makes his innermost wishes known (right). – Click to enlarge
On Monday the Federal Reserve released its latest report of consumer credit outstanding.  According to the Fed’s bean counters, U.S. consumers racked up $28 billion in new credit card debt and in new student, auto, and other non-mortgage loans in November. This amounted to an 8.8 percent increase in consumer borrowing.  It also ran total outstanding consumer debt up to $3.83 trillion.

US Non-mortgage

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Several Simple Suppositions and Suspicions for 2018

January 4, 2018

A New Year of Symbiotic Disharmony
The New Year is nearly here. The slate’s been wiped clean. New hopes, new dreams, and new fantasies, are all within reach. Today is the day to make a double-fisted grab for them. Without question, 2018 will be the year in which everything happens exactly as it should. Some things you will be able to control, others will be well beyond your control.
Certainly, your ability to stop your neighbor’s cat from relieving itself in your side yard is limited, barring extreme measures. What we mean is each day shall unfold before you – both good and bad – in symbiotic disharmony. You can count on it.
But what are the specifics and particulars for the year ahead? What about stocks, the

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Why Monetary Policy Will Cancel Out Fiscal Policy

January 2, 2018

Remarkable and Extraordinary Growth
Good cheer has arrived at precisely the perfect moment. You can really see it. Record stock prices, stout economic growth, and a GOP tax reform bill to boot. Has there ever been a more flawless week leading up to Christmas?

Here’s what really happened: the government’s minions confiscated everything Santa had on him when he crossed the border and then added it to GDP. – Click to enlarge
You know how it is… if something feels too good to be true…
We can’t think of one off hand. And if we could, we wouldn’t let it detract from the present merriment. Like bellowing out the verses of Joy to the World at a Christmas Eve candlelight service, it sure feels magnificent – don’t it?
The

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The Rug Yank Phase of Fed Policy

December 17, 2017

Bogus Jobs Pay Big Bucks
The political differences of today’s two leading parties are not over ultimate questions of principle.  Rather, they are over opposing answers to the question of how a goal can be achieved with the least sacrifice.  For lawmakers, the goal is to promise the populace something for nothing, while pretending to make good on it.

The short and sweet definition of democratic elections by eminent American wordsmith and political philosopher H.L. Mencken – Click to enlarge
Take the latest tax bill, for instance.  The GOP wants to tax less and spend more.  The Democrat party wants to tax more and spend even more.  We don’t recall seeing any proposals to tax less, spend less, and shrink the size of

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The Complete Idiot’s Guide to Being an Idiot

December 5, 2017

Style Over Substance
There are many things that could be said about the GOP tax bill.  But one thing is certain.  It has been a great show.
Obviously, the time for real solutions to the debt problem that’s ailing the United States came and went many decades ago.  Instead of addressing the Country’s mounting insolvency, lawmakers chose expediency without exception.  They kicked the can from yesterday to today.
Presently, there are no good options left to fix the mathematics bearing down on us all.  Hence, in the degenerate stage of an overburdened nation-state, style over substance is what counts.  Without question, Congress and President Trump played their parts to push the bill with much bravura.
On Tuesday, for

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Lessons from Squanto

November 26, 2017

Standing In Your Way
Governments across the planet will go to any length to meddle in the lives and private affairs of their citizens.  This is what our experiences and observations have shown.  What gives?
For one, politicians have an aversion to freedom and liberty.  They want to control your behavior, choices, and decisions.  What’s more, they want to use your money to do so.

As this by now famous cartoon implies, the State is essentially a gang of criminals waving a flag. – Click to enlarge
We realize that most people have a far more romantic and naïve view of the nature of the State. Some have even swallowed the propaganda slogan asserting that ”we” are the State (hint: no, “we” are not). The misguided

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How Uncle Sam Inflates Away Your Life

November 23, 2017

Economic Nirvana
“Inflation is always and everywhere a monetary phenomenon,” economist and Nobel Prize recipient Milton Friedman once remarked.  He likely meant that inflation is the more rapid increase in the supply of money relative to the output of goods and services which money is traded for.

Photo via mises.ca – Click to enlarge
Famous Monetarist School representative Milton Friedman thought the US should adopt a constitutional amendment limiting monetary inflation to 3% – 5% per year, putting inflation so to speak on autopilot.But why should there be any central bank-directed inflation at all? To his credit, in 1968 Friedman wrote the following in the American Economic Review: “[M]onetary action takes a

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The Downright Sinister Rearrangement of Riches

November 11, 2017

Simple Classifications
Let’s begin with facts.  Cold hard unadorned facts. Water boils at 212 degrees Fahrenheit at standard atmospheric pressure.  Squaring the circle using a compass and straightedge is impossible.  The sun is a star.

The sun is not just a star, it is a benevolent star. Look, it is smiling… sort of. – Click to enlarge
Facts, of course, must not be confused with opinions, which are based upon observations.  Barack Obama throws like a girl.  The Federal Register is for idiots.  Two slices of chocolate cake are one too many.  Are these opinions right or wrong?
The answer depends on who you ask.  What’s certain about opinions, however, is that like bellybuttons, everybody has one.  Moreover, unlike

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How to Survive the Winter

November 7, 2017

A Flawless Flock of Scoundrels
One of the fringe benefits of living in a country that’s in dire need of a political, financial, and cultural reset, is the twisted amusement that comes with bearing witness to its unraveling.  Day by day we’re greeted with escalating madness.  Indeed, the great fiasco must be taken lightly, so as not to be demoralized by its enormity.

Symphony grotesque in Washington [PT] – Click to enlarge
Of particular note is the present cast of characters.  Could Bill Shakespeare himself have come up with a more flawless flock of scoundrels to take the plotless narrative from comedy to tragedy?
There’s President Trump, Hillary Clinton, Paul Ryan, Mitch McConnell, Maxine Waters, Chuck Schumer,

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The Donald Can’t Stop It

October 15, 2017

Divine Powers
The Dow’s march onward and upward toward 30,000 continues without a pause.  New all-time highs are notched practically every day.  Despite Thursday’s 31-point pullback, the Dow is up over 15.5 percent year-to-date.  What a remarkable time to be alive.
President Donald Trump is pumped!  As Commander in Chief, he believes he possesses divine powers.  He can will the stock market higher – and he knows it.  For example, early Wednesday morning he blasted out the following Tweet:

“Stock Market has increased by 5.2 Trillion dollars since the election on November 8th, a 25% increase.” 

Four minutes later, he sent out another Tweet:

“…if Congress gives us the massive tax cuts (and reform) I am asking

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Federal Reserve President Kashkari’s Masterful Distractions

October 9, 2017

The True Believer
How is it that seemingly intelligent people, of apparent sound mind and rational thought, can stray so far off the beam?  How come there are certain professions that reward their practitioners for their failures? The central banking and monetary policy vocation rings the bell on both accounts.  Today we offer a brief case study in this regard.

Photo credit: Linda Davidson / The Washington Post – Click to enlarge
Minneapolis Fed president Neel Kashkari attacking a block of wood with great zeal.
Minneapolis Federal Reserve President Neel Kashkari is a man with strong convictions.  He is what the late Eric Hoffer would have classified as “the true believer.”  According to Hoffer:

“It is the true

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Fed Quack Treatments are Causing the Stagnation

October 3, 2017

Bleeding the Patient to Health
There’s something alluring about cure-alls and quick fixes. Who doesn’t want a magic panacea to make every illness or discomfort disappear? Such a yearning once compelled the best and the brightest minds to believe the impossible for over two thousand years.

Instantaneous relief! No matter what your affliction is, snake oil cures them all. – Click to enlarge
For example, from antiquity until the late-19th century, bloodletting was used to treat nearly every disease. Reputable medical references recommended bloodletting as a cure for acne, asthma, cancer, epilepsy, gout, indigestion, insanity, leprosy, pneumonia, scurvy, tuberculosis, and everything in between. Bloodletting was even

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US Debt: To Hell In A Bucket

September 20, 2017

No-one Cares…
“No one really cares about the U.S. federal debt,” remarked a colleague and Economic Prism reader earlier in the week. “You keep writing about it as if anyone gives a lick.”
We could tell he was just warming up. So, we settled back into our chair and made ourselves comfortable.
“The voters certainly don’t care about the federal debt,” he continued. “They keep electing the same spendthrifts to office. And the politicians know the voters don’t care. They also know that making more and more promises is the formula for getting reelected.
“Deep down, the aging masses know they need massive amounts of government debt to pay their social security, medicare, and disability checks.  On top of that, many of the

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The Government Debt Paradox: Pick Your Poison

September 12, 2017

Lasting Debt
“Rule one: Never allow a crisis to go to waste,” said President Obama’s Chief of Staff Rahm Emanuel in November of 2008. “They are opportunities to do big things.”
At the time of his remark, Emanuel was eager to exploit the 2008 financial crisis to raid the public treasury. With the passage of the American Recovery and Reinvestment Act in February 2009, Emanuel’s wish was granted. The Obama administration had the opportunity to do big things.
Politically, the passage of the Recovery Act was a huge success. Washington was able to dole out funds to their preferred projects like never before. What could be better for a Congressman than to direct massive amounts of funds to infrastructure, healthcare,

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How to Make the Financial System Radically Safer

September 7, 2017

Preventing the Last Crisis
Clear thinking and discerning rigor when it comes to the twisted state of present economic policy matters brings with it many physical ailments. A permanent state of disbelief, for instance, manifests in dry eyes and droopy shoulders. So, too, a curious skepticism produces etched forehead lines and nighttime bruxism.

The terrible scourge of bruxism and its potentially terrifying consequences. Curious skepticism can lead to the darnedest things, which is why Big Brother strongly recommends that citizens remain in a medication and cable TV-induced apathetic stupor. – Click to enlarge
To make this happy outcome easier to achieve, stagnation in real wages was successfully introduced a

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Why There Will Be No 11th Hour Debt Ceiling Deal

August 22, 2017

Milestones in the Pursuit of Insolvency
A new milestone on the American populaces’ collective pursuit of insolvency was reached this week. According to a report published on Tuesday by the Federal Reserve Bank of New York, total U.S. household debt jumped to a new record high of $12.84 trillion during the second quarter. This included an increase of $552 billion from a year ago.

United States Consumer DebtUS consumer debt is making new all time highs – while this post GFC surge is actually relatively tame, corporate and government debt have in the meantime exploded into the blue yonder. Nevertheless, this means consumers are also highly vulnerable to the coming crisis (which will look different from the last one,

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Yanking the Bank of Japan’s Chain

August 13, 2017

Mathematical Certainties
Based on the simple reflection that arithmetic is more than just an abstraction, we offer a modest observation. The social safety nets of industrialized economies, including the United States, have frayed at the edges. Soon the safety net’s fabric will snap. This recognition is not an opinion. Rather, it’s a matter of basic arithmetic. The economy cannot sustain the government obligations that have been piled up upon it over the last 70 years.
Growing wrinkle coefficient… as the global population increasingly ages, the “pay-as-you-go” social security and pension Ponzi schemes of developed welfare states are inexorably careening toward insolvency. [PT]
In other words, the post-World War II

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Prepare for Another Market Face Pounding

August 12, 2017

“Better than Goldilocks”
“Markets make opinions,” goes the old Wall Street adage.  Indeed, this sounds like a nifty thing to say.  But what does it really mean?
The bears discover Mrs. Locks in their bed and it seems they are less than happy. [PT]
Perhaps this means that after a long period of rising stocks prices otherwise intelligent people conceive of clever explanations for why the good times will carry on.  Moreover, if the market goes up for long enough, the opinions become so engrained they seek to explain why stock prices will go up forever.
After nine years of near uninterrupted stock market gains, new opinions are being offered to explain why the stock market will be bathed in sunshine indefinitely.  For

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Views From the Top of the Skyscraper Index

August 3, 2017

Views From the Top of the Skyscraper Index
On a warm Friday Los Angeles morning in spring of 2016, we found ourselves standing at the busy corner of Wilshire Boulevard and South Figueroa Street.  We were walking back to our office following a client wire brushing for events beyond our control.  But we had other thoughts on our mind.
Standing amid a mob of pedestrians, we gazed up at the skeleton frame of what would become the Wilshire Grand Center.  For the first time in several years the buzz and hum of diligent building activity was replaced by an eery silence.  In fact, construction work was shut down for the day.
Sadly, less than 24 hours earlier a distraught electrician had taken a swan dive off the 53rd

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Congress’s Radical Plan to End Illegal Money

July 23, 2017

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.
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 that money be coined of gold and silver and cannot consist of bills of credit – such as paper legal tender notes.
As far as

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Adventures in Quantitative Tightening

July 18, 2017

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.”

Dow Jones Industrial Average,

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

June 11, 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

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Recession Watch Fall 2017

June 10, 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… – Click to enlarge
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.

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The Attack on Workers, Phase II

May 31, 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.
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 before maturity.
This has been the common experience of the typical 21st century American worker, thus far. Countless, stories of labors with no fruits have been shared at bowling

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

May 18, 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. – Click to enlarge
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 much out of the guy was when the hard copy was released in late 2015.
With respect to the Fed’s balance sheet, Bernanke remarked that the Fed should cut it from $4.5 trillion to “something in the vicinity of $2.3 to $2.8 trillion.”  What exactly this would achieve Bernanke didn’t say.  As far as we can tell, a balance sheet of $2.8 trillion would still be about 300 percent higher than it was prior to the 2008 financial crisis.
Bernanke, by all measures, is an absolute lunatic.

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Simple Math of Bank Horse-Puckey

April 23, 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.
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.

And this is what they saw watching the sky from Mt.

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