|Portrait of the author, |
chewing over what it all means.
But is it?
Stepping on the heels of the Bureau of Labor Statistics release of the employment figures, Tyler Durden at Zero Hedge pointed out that, based on the 25 year average of employment participation of 66.1%, U-3 unemployment ought to be at 11.6%—quite a bit higher than the current 8.9% headline number.
This points to something that a lot of commentators of the BLS’s numbers have been saying for a while: The number of individuals in the labor market as defined by the BLS has been steadily dropping. But it hasn’t been because of some sudden demographic shock—it’s been because more people have been unemployed for more than two years.
So-called “Ninety-Niners”—people who have been unemployed for more than 99 weeks, and have therefore run out of unemployment insurance—are dropping out of the BLS accounting for unemployment.
Calculated Risk had a very clever chart back in December:
Calculated Risk pointed to the peak of job losses—the first quarter of 2009—and how those individuals would be running out of unemployment benefits right about, well, now. The money-quote from CR:
This graph shows the change in payroll jobs each month. The peak job losses were in early 2009—and 99 weeks is just under two years—so many of those people will be exhausting their benefits over the next few months.So it’s not that there’s been an anæmic growth in jobs—it’s just that more people are being statistically kicked out of the labor force altogether. ZH’s point about U-3 unemployment being 11.6% is likely more accurate than not.
But even if we ignore the naysayers in the blogosphere, such as ZH, CR and Yours Truly, the labor “improvement” isn’t much of a step up: U-3 unemployment at 8.9% from 9.0% the month before, the broader U-6 unemployment index at 15.9% from 16.1 the month before. Down from the November 2010 peak of U-3 unemployment of 9.8%, U-6 unemployment of 17.0%.
Whoop-dee-do. Should I break out the party favors now? Or wait ‘til U-3 unemployment is down to all of 8.8%?
On the other hand, the Federal Reserve is hell-bent on keeping up QE-2—the full $600 billion over eight months of that deficit monetization program. In the above-referenced Bloomberg reporting, the Fed drones were unconcerned that the end of the policy would be abrupt; and they’re right not to worry, the bond markets are fully priced in, insofar as the end of QE-2 is concerned.
But the Fed drones in the report seem to be exceedingly worried about the effect on interest rates that the end of QE-2 will bring about. Per Bloomberg:
Fed staff members, such as Brian Sack, the New York Fed official in charge of carrying out the bond buying, have argued the total amount, or stock, of securities the Fed has announced it will make has more impact on longer-term interest rates than the timing of those purchases. That’s a view now held by several members on the Federal Open Market Committee, including the chairman.
“We learned in the first quarter of last year, when we ended our previous program, that the markets had anticipated that adequately, and we didn’t see any major impact on interest rates,” Fed Chairman Ben S. Bernanke told the Senate Banking Committee during his March 1 semiannual monetary-policy testimony. “It’s really the total amount of holdings, rather than the flow of new purchases, that affects the level of interest rates.”Between the lines, the Fed thinks the “recovery” is anæmic at best, illusory at worst—a central bank confident in an economic recovery wouldn’t be so concerned about how the withdrawal of its monetization program would affect interest rates. The end of QE-2—still more than three months away—would be handled with more equanimity by a confident central bank.
So! What does this mean?
It means the Fed is as nervous as a virgin on her wedding day—because it realizes that QE-2 has been a failure.
The Fed is saying that QE-2 will end in June—definitely-definitely-definitely end in June, as Dustin Hoffman’s Rain Man would have said. And the Fed has already put out the expectation that it won’t raise interest rates until the first quarter of 2012, which is when the Fed expects the economy to have fully turned around, and be in full-fledged “recovery”.
Only problem is, as I see it, that the Fed has no confidence in this scenario: Bernanke and the Munchkins at the Federal Reserve don’t really believe in their prediction that the economy will be in turnaround by 2012.
If they did, there’d be no need for hand-wringing over the end of QE-2 in June 2011. There’d be no emphasis on their concern about rates, once QE-2 ends, and even less worries about the abruptness of the withdrawal of the Treasury bond purchases. If the economy were sailing along—as was predicted would happen with the unleashing of QE-2—the policy of money-printing would be quietly turned off, as everyone focussed on the once-again expanding U.S. economy.
That’s not happening—the anæmic employment figures bear this out.
Which means QE-2 was a bust.
Remember: The whole reason from the Federal Reserve’s Quantitative Easing 2 policy was so as to kickstart the U.S. economy with easy money. The Bernank’s argument was, zero interest rates weren’t enough—hence QE-2.
But the unemployment figure tells the story of the failure of QE-2. Even if we accept the Bureau of Labor Statistics’ numbers without complaint, unemployment has gone down all of 1%—at the cost of $600 billion in Fed money-printing. If we accept that John Williams at ShadowStats or Tyler Durden at Zero Hedge are correct in pointing out that real U-3 unemployment as measured historically is closer to 12% than to 8%, then QE-2 has been a complete bust: A pooch-screw of epic proportions.
Apart from not helping U.S. unemployment, this QE-2 money-printing has had the effect of spreading inflation throughout the world—with the accompanying political destabilization that that inevitably entails. The Egyptian protestors ought to send a bouquet of roses to The Bernank, for what he did. So should the Tunisian, Yemeni and Libyan protestors.
No one is sorry to see Mubarak, Ben Ali or Gaddafi go. But what happens when this inflation-fueled political instability touches Saudi Arabia? Russia? Will we be so thrilled, when the protests there cause $200 a barrel oil here? What happens when inflation causes riots in Indonesia? China? Will we be so thrilled, when those markets tank, hurting U.S. exports and driving up the costs of U.S. imports?
Obviously, the Fed did not foresee how QE-2 and the exporting of inflation would affect the rest of the world—no one could have predicted that.
However, the Fed did predict that QE-2 would put more money in the Federal government’s till, with which it could “stimulate” the U.S. economy into growth. It did predict that ZIRP and QE-2 would lead to a wave of business borrowing, and an expansion of the U.S. economy.
But that is not happening. The unemployment numbers are giving lie to the notion that QE-2 could kickstart anything—except inflation.
And that inflation is about to hit the United States.
A couple of days ago, I wrote that the next week-and-a-half would be the do-or-die window for the dollar: The charts seemed to tell the tale of a break down, if the dollar index fell decisely below 77 over the next eight trading days.
As I write this on Friday morning, the dollar index is at 76.350. Gold is at $1,430, silver at a 30-year high of $35.30, copper up, agro up, oil up. The euro, the pound sterling, even the loonie—all up.
Ben Bernanke paid $600 billion for a 1% drop in unemployment in the United States, and a big inflation spike in the rest of the world. Sounds to me like a horrible bargain—a bargaing whose full inflationary price we have yet to discover, but which I think we soon will.
If you’re interested, you can find my recorded presentation “Hyperinflation In America” here. I discuss in detail what I would do, if and when the dollar crashes.