Author Archives: MN Gordon

     

 

 

Past the Point of No Return

Adventures in depravity are nearly always confronted with the unpleasant reality that stopping the degeneracy is much more difficult than starting it.  This realization, and the unsettling feeling that comes with it, usually surfaces just after passing the point of no return.  That’s when the cucumber has pickled over and the prospect of turning back is no longer an option.

 

Depravity and bedlam through the ages. The blue barge of perdition in the lower middle ferries the depraved and degenerate to their final destination, a small slice of which can be glimpsed above… [PT]

 

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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 federal debtberg, which no-one cares about (yet). We have added the most recent bar manually, as the charts published by the Fed will only be updated at the end of the quarter. The devastation wrought by the recent hurricanes in Texas and Florida gave Congress a convenient excuse to postpone the debt ceiling debate by until at least December and to wave through a more than $300 billion jump in total federal debt without much ado. It is worth noting that while the growth of the debtberg has accelerated over time, growth in US economic output has concurrently slowed down rather dramatically. The main obstacle to maintaining this state of affairs is that it will sooner or later become mathematically impossible. Perhaps the fact that people don’t care reflects a decline in mathematical literacy? Per experience, throwing more money at public education won’t help – and soon it may no longer even be possible anyway. [PT] – click to enlarge.

 

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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.”

 

Rahm Emanuel looks happy. He should be – he is the mayor of Chicago, which is best described as crisis incarnate. Or maybe the proper term is perma-crisis? Anyway, it undoubtedly looks like a giant opportunity from his perspective, a gift that keeps on giving, so to speak. [PT]

Photo credit: Ashlee Rezin / Sun-Times

 

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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. To make this happy outcome easier to achieve, stagnation in real wages was successfully introduced a number of moons ago; forced to work to exhaustion just to keep their heads above water, citizens tend to be more docile in their shrinking free time. [PT]

 

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Sotto Voce Declarations

Senate Majority Leader Mitch McConnell woke up on the wrong side of the bed on Monday.  Who could blame him?  His summer vacation’s been ruined.  President Trump’s been riding him all month like a pack mule.

 

 

The spoiler of Mitch’s summer vacation. People should generally avoid finding themselves on the receiving end of the master Tweeter’s fire and fury mode if they suffer from conditions such as geographic distance insufficiency or complete lack of nuclear deterrent syndrome. [PT]

 

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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.

 

US 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, but will be perceived as just as, if not more devastating). [PT] – click to enlarge.

 

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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]

 

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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]

 

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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.

 

Iron workers (the non-distraught variety) atop the 10 ton spire of the Wilshire Grand Center in Lost Angeles. This image is vaguely disconcerting… we can’t help thinking that an unexpected gust of wind  could have proven quite disruptive to this show of nonchalant equanimity. [PT]

Photo credit: Gary Leonard

 

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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]

 

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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 so-called “Babson break” was a large down day on September 5 1929, two days after the market had peaked. Roger Babson was an entrepreneur (he inter alia invented the parking meter), an economic theorist and a famous skeptic who had already voiced doubts about the stock market bubble of the 1920s on numerous occasions before that day. This was the first time the market didn’t shrug his warnings off, and although it recovered most of the loss on the next trading day, it was the beginning of the end. “Fisher” refers to economist Irving Fisher, who famously announced “stocks have reached a permanent plateau” two weeks before the top. Fisher was a very wealthy man at the time, but lost the bulk of his fortune in the ensuing bear market. Although he couldn’t forecast his way out of a paper bag, his work has become the foundation of much of what is considered “orthodox” economic theory these days. His contemporaries Hayek and Mises, who like Babson warned of the coming crash, are shunned by the prevailing central planning paradigm. Hayek did so in the spring of 1929, when he said that there was no chance of a recovery in Europe unless interest rates decreased, which would require the collapse of the boom in the US; he added that this was very likely going to happen later that year. Mises was offered a well-remunerated post at Creditanstalt in the summer of 1929 and declined the offer. When asked why, he replied that he thought a great crash was coming soon and he didn’t want his name to be associated with it. Of course, Mises himself would probably point out that “prediction” is not a task of economic science. We just wanted to note in passing that these great economic theorists were also quite adept at sussing out what nearly everybody else missed at the time. Causal-realist economic theory does provide some advantages. [PT] – click to enlarge.

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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 indication of how an economy is doing, we would have arrived in Utopia by now. Unfortunately that is not the case, as asset prices primarily reflect monetary inflation. Just consider the extreme example of Venezuela’s IBC General Index, which went from 40,000 to 120,000 points, while the economy contracted by 21% in real terms (officially, that is. If one were to apply private sector estimates of inflation, it would look a lot worse). It is certainly true that economic aggregates are benefiting from bubble conditions to some extent, but that is essentially phantom prosperity. If you burn all your furniture, your home will be warm – that this might be problematic only becomes glaringly obvious once all the furniture is gone, because then it will not only be cold, but there will be nothing left to sit on either. When the red line on this chart reverts to the mean (or the “other extreme”), there will be a lot of gnashing of teeth, as many of the mistakes made during the bubble era will be unmasked. [PT] – click to enlarge.

 

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