Put on your party hats and grab a whistle; it’s time to celebrate a significant milestone. Tomorrow marks two years since the stock market began its remarkable recovery following the financial crisis of 2008.
This recovery has been nothing short of extraordinary. The S&P 500 has surged nearly 95 percent since it reached a low of 676 on March 9, 2009. At that time, the index was down 57 percent from its all-time high of 1,565, achieved in October 2007. Since then, this surge represents the most rapid increase since 1955.
Investors who took the plunge on March 9, 2009, when market sentiment was at its lowest, have managed to double their investments. Unsurprisingly, few were buying into the market then. Instead, after witnessing the dramatic decline of their 401(k)s, many were selling stocks out of fear. Only those who were bold, perceptive, and resilient were purchasing shares at that critical juncture.
Timing—both when to buy and when to sell—plays a pivotal role in trading success. The ideal strategy is to buy low and sell high. Yet, most people tend to do the opposite: they buy high and sell low.
Now, having seen prices double, new investors are rushing back into the market, potentially at the least opportune time. Let’s delve deeper into this situation… Continue reading
The individual at the helm of monetary policy is quite the strategist. Recently, during his appearance before the Senate Banking Committee, Federal Reserve Chairman Ben Bernanke showcased a blend of cleverness and precision. His eloquently crafted statements conveyed an impression of honesty while only delivering a fraction of the truth.
When questioned about the potential impact of rising gasoline prices on inflation throughout the economy, he replied…
“The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation.”
Bernanke cleverly links inflation to the U.S. consumer price index (CPI). If you’re not aware, the core CPI, the commonly referenced figure, omits food and energy prices. In this respect, Bernanke has a point: rising fuel costs may not directly translate to an increase in U.S. consumer price inflation.
However, for those of us relying on food and gas, the CPI fails to accurately represent the real changes in living expenses that many are now confronting. Additionally, hedonic price adjustments tend to obscure the cost of living, making it appear more favorable than what individuals actually experience. Continue reading
Reflections on Inflation
“Inflation is always and everywhere a monetary phenomenon,” asserted Milton Friedman. In essence, he implied that inflation arises from an increase in the money supply relative to the availability and demand for goods and services. Rising prices are merely a consequence of an inflated monetary base.
Inflation—driven by expanding the money supply—can largely be attributed to government actions. It allows the government to cover expenses that would typically require direct taxation. Make no mistake: inflation acts as a form of taxation.
Through inflation, the government stealthily diminishes the value of citizens’ savings. When it comes to the United States, given the global nature of the dollar, when the U.S. Treasury and Federal Reserve collaborate to inflate the money supply, they implicitly tax dollar holders worldwide.
There are two primary means for the government to increase the money supply: borrowing from lenders or borrowing from the Federal Reserve. The first approach is straightforward, albeit not always preferred. The second is more deceptive, involving the creation of money from thin air. Continue reading
Welcome to our new website! We’ve been diligently working to set everything up for our official launch, which is tentatively scheduled for March 1st. In the meantime, let us outline what you can expect from us…
The landscape of the global economy has shifted dramatically over the last decade. Even the least observant must sense that something has gone drastically wrong. It’s evident that many thoughtful individuals are troubled by the rapid unraveling of the economy in late 2008 and the lengths the government has gone to restore it.
Sometimes, inaction is more prudent than action, especially when it comes to the economy. Often, government interventions create more harm than benefit.
At Economic Prism, we aim to clarify the murky waters of economic policy through the lens of free market principles, limited government, and individual freedom. We also remain vigilant for opportunities to build wealth. Continue reading
Through this exploration, we can gain a clearer understanding of the dynamics shaping our economy and the implications of government policies on our financial health. The journey of navigating economic shifts is continuous, requiring both awareness and discernment.