Job growth in the United States has been dead for four years. You must understand this or nothing that follows will make any sense...oh hell, nothing will make sense anyway.
Yesterday, the Chairman of the Federal Reserve decided to cast his lot with the "Maintain Employment" of his dual mandate to the exclusion of all else and set out a marker as to what unemployment number he will find to be acceptable in 2015...he didn't make clear whether it was to be January, 2015 or December. The number was 6.5% and we are going to get there by printing money by God until the printing presses break! $85 billion a month beginning right now in QE 4...or 5...or...whatever.
What Mr. Bernanke does not realize is the he is about to be visited by three spirits...yep, you guessed it: the Spirits of Economies Past, Economies Present and Economies Yet to Come. Briefly stated (you have to read the book), he will realize that he has been flooding the country--and the world--with dollars for four years now which is a tale of another catastrophe, having believed as he truly believes now that his actions have saved all involved, he hasn't done a damn thing. Well, that's not quite accurate: he has earned the enmity of every other central banker in the world for damn near wrecking their monetary plans and fostering inflation as "Bernanke Dollars," unable to be used at home because of a dreadful fiscal enviornment and uninvestable at anything much above 0%, slosh around the world looking for a home. As for economic and job growth? Well, it's looking like the fourth quarter is about to come in at less than 1% which is a bit of a problem as Ben's own boys tell us that unless we get a job growth rate of 200,000 a month we cannot reduce unemployment and we can only get that if the economy grows at more than 2%. Hummm.
Now if this is true, the Spirit of Economies Present is going to have what I would call an eye-opening chat with Ben. I called a couple of my smart Economist friends (couldn't reach my Really Smart Friend, Larry) and my neighbor who has a Chair at the U and they started babbling on about something called Okun's Law (never heard of it), and when they got finished I was beginning to wonder if Ben had not heard of it as well. Anyway, what I got out of it is that for the unemployment rate to fall by 1%, the economy would have to grow at 3% and nobody I know is projecting anything like that. So it looks as though what Ben may be doing is adding a substantial number to the national debt without getting much in return...I think.
What I do know, however, is a bit about yields and if we are to have an inflation rate of 2.2% and a growth rate of anywhere near 3% for all this to work it's going to be damn hard to maintain yields at present levels which is what the QEs were all about. In fact, I would say it's going to be impossible which raises the question of what does the Fed do when this specter appears above the horizon? With a balance sheet then approaching $5 Trillion, the institution is being set up for a Hobson's choice if unemployment is not at 6.5%. But the the Spirit might also mention to him that since 2008 the improvement in the jobs number has been a result almost entirely of people exiting the work force rather than job creation, so hey, why worry? Just keep on doing what you've been doing. When we get to the point when the only people who have a job will be those at the Fed, we'll have won.
And the Spirit of Economies Yet to Come? Alas, I am a mere observer not a Spirit who can for tell the future. But throughout Mr. Bernanke's tenure, he has been singularly unconcerned and uninterested in external events and has been fortunate in not having to deal with any after the debacle of 2007-08. Mr. Bernanke and his supporters are working in a "clean room"--a perfect university laboratory environment--unconcerned with exogenous events or even the consideration of the chance of the same. They are brilliant undergraduates not yet exposed to the reality outside their lab walls. But the Spirit will probable tell them that one day they will meet that mythical beast called the Black Swan. They will not believe it.
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