Economics
J.P. Morgan and the Beginning of the Central Bank
Those Steely-Eyes of J.P. Morgan: Could They Help Us Today?
“The Panic of 1907″ vs. the “Debt Crisis” of 2011
If “legendary Wall Street figure” ever described anyone, it was turn-of-the-last-century financier J.P. Morgan. You can throw in “bigger than life” to boot.
Morgan was used to getting his way. His steely eyes cast a “ferocious glare.” His bulbous nose added to his imposing presence.
Beyond appearance and persona, Morgan was a one-man central bank. Historians credit him with bringing calm — and loads of liquidity — to the “Panic of 1907.”
While he “stared down” that financial crisis, even J.P. Morgan would be no match for today’s national debt. In 1907, the Wall Street legend gathered New York City’s biggest bankers into his office and demanded that they had 10 minutes to collectively pledge $25 million to keep the NYSE open. Morgan got his way. Read the rest of this entry »
FED Insiders Doubt Quantitative Easing Works
Behind Closed Doors at the Fed:
Ten Years of Research into America’s Central Bank
During the past few years, The Federal Reserve has engaged in a “deliberate inflating policy.”
This policy earned disfavor, both at home and abroad.
Robert Prechter said this in the July Elliott Wave Theorist:
“Foreign powers have been irate over the Fed’s deliberate inflating policy. At its outset, QE2 generated ‘a chorus of criticism’ from China, Russia, Japan, Brazil and Germany. It prompted one of China’s three credit rating services to lower its rating on U.S. debt from AA to A+, on the basis that QE2 is a scheme to defraud the Treasury’s creditors.
(Inflation is a scheme to rob everyone.) Whether or not that rating decision was politically motivated, it represents foreign resistance to the Fed’s machinations.”
[Note: The credit rating service in China is not alone in downgrading U.S. debt. History was made August 5 when Standard & Poor's downgraded the United States' credit rating from AAA to AA+.]
External resistance to the Fed’s policies is one thing. But the machinations of America’s central bank are also encountering resistance from within the Fed itself, albeit “behind closed doors.” Let’s return to the July Theorist: Read the rest of this entry »
Should Stock Investors “Fret Over Economy”? No — See Chart to Understand Why
The idea that the economy leads the stock market is false
As the DJIA fell 2% to close below 12,000 on August 2, one theme rang across major financial websites. This CNN headline summarizes it:
Stocks sink as investors fret over the economy (Aug. 2)
The belief that the economy drives the stock market is common knowledge; it’s Investing 101; the idea gets pounded into investors’ heads, over and over again, by various pundits, daily.
But please allow us to suggest this: Belief that the GDP and other economic measures drive stock market trends is completely and utterly false.
The strength or weakness of the economy does not lead the stock market higher or lower. The economy follows the stock market. Read the rest of this entry »
Gold: What Is The Economy Usually Doing When It Goes Up?
Research proves wrong the idea that gold reliably rises during recessions, says EWI President Robert Prechter.
…If gold isn’t going up when the economy is contracting, when is it going up? Table 4 (see chart on p. 24 of this free Club EWI report — Ed.) answers the question: All the huge gains in gold have come while the economy was expanding. This is true of the three most dramatic gold gains of the past century:
(1) Congress changed the official price of gold from $20.67 to $35 per ounce in 1934, during an economic expansion. The gain against the dollar was 69 percent.
(2) The entire bull market from 1970 to 1980 occurred during an economic expansion… [Of] the $815 per ounce that gold rose from 1970 to 1980, $725 worth of it came while the economy was expanding.
(3) The entire bull market from 2001 to the present occurred during an economic expansion… [Of] the $748 per ounce that gold has risen since February 2001, $726 worth of it has come while the economy was expanding.
Even lesser rises in gold, such as the two big rallies during the 1980s, came during economic expansions. So the biggest gains in gold, by far, have occurred while the economy was in expansion, not contraction. Read the rest of this entry »