Free Markets, Free People

Daily Archives: November 5, 2010

Quantitative Easing II: Making No One Happy

The reactions to the Federal Reserve’s announcement that they would embark on a new, $600 billion round of quantitative easing is raising reactions from all around the world.

China:

Unbridled printing of dollars is the biggest risk to the global economy, an adviser to the Chinese central bank said in comments published on Thursday, a day after the Federal Reserve unveiled a new round of monetary easing.

Germany:

German Economy Minister Rainer Bruederle said on Thursday he was concerned at U.S. efforts to stimulate growth by injecting liquidity into its struggling economy.

“I view that not without concern,” Bruederle said, adding that a variety of measures were needed to solve the problem and it was not enough to pump in liquidity alone…

Bruederle also said there was some truth to the criticism that the United States was influencing the dollar’s exchange rate with monetary policy and voiced concern about increased protectionism in different forms around the world.

Brazil:

Brazilian officials from the president down have slammed the Federal Reserve’s decision to depress US interest rates by buying billions of dollars of government bonds, warning that it could lead to retaliatory measures.

“It’s no use throwing dollars out of a helicopter,” Guido Mantega, the finance minister, said on Thursday. “The only result is to devalue the dollar to achieve greater competitiveness on international markets.”

Brazil, especially, seems to be treating this as a currency devaluation war, and, according to the Financial Times, really doesn’t like that.

But the worries go far beyond trade and protectionism issues brought about by fears of devaluation.  It’s the domestic inflationary effects which have many–including me–worried:

Federal Reserve policies have put the US dollar the risk of crashing, which will hammer consumers through higher prices, strategist Axel Merk told CNBC…

“So we will have a cost-push inflation. We’re going to get inflation but not where Bernanke wants to have it. We’re not going to get wages to go up. We’ll get the price at the gas pump to go up instead.”

We’re right on a path towards high inflation and slow economic growth, otherwise known as “stagflation”.  Except that there’s a lot more monetary expansion this time than we experienced in the 1970s.  Maybe we’ll have to coin a new term, like “hyperstagflation”.

Oh, and in case you were wondering, it begins like this.

“So we will have a cost-push inflation. We’re going to get inflation but not where Bernanke wants to have it. We’re not going to get wages to go up. We’ll get the price at the gas pump to go up instead.”

Obama discovers what leadership isn’t

In an interview for "60 Minutes" President Obama discusses the shellacking Democrats suffered:

President Obama tells "60 Minutes" correspondent Steve Kroft that one of the reasons the electorate has become disenchanted with him was his failure to properly explain his policies and persuade people to agree with them.

[...]

"You know, I think that over the course of two years we were so busy and so focused on getting a bunch of stuff done that we stopped paying attention to the fact that leadership isn’t just legislation. That it’s a matter of persuading people. And giving them confidence and bringing them together. And setting a tone. And making an argument that people can understand. And I think that we haven’t always been successful at that," Obama replied.

So, he’s at least figured out what leadership isn’t.   But there isn’t indication that he’s figured out what it is.  And he certainly doesn’t understand that the problems he and Democrats have suffered isn’t a problem of communication, but policy.  This is a classic example of denial.

~McQ

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Looking into the October unemployment numbers

This is one of those cases where the headline numbers and claims of new jobs are so totally out of step with reality, that it’s hard to believe how badly the banner numbers reverse the actual employment situation.  In fact, I’d argue that this month highlights perfectly why the Bureau of Labor Statistics needs to thoroughly revise the way the Employment Situation is reported.

To understand why, let’s look at the “A” Tables of the Employment Situation report. Take a careful look at the “Employed” line in the table.  Last month, there were (in thousands) 139,391 persons employed.  This month, there were (in thousands) 139,061 employed. So, non-farm payrolls may have increased by 151,000 jobs, but there are 330,000 fewer employed Americans than there were last month.

The total civilian, non-institutional adult population, in thousands, was 238,530 this month.  With the historical long-term trend rate of labor force participation of 66.2%, that means the actual size of the labor force should be 157,907.  With only 139,061 persons actually employed, the real unemployment rate is actually 13.6%, up from 13.2% last month, and from 12.8% in May.

The current labor force participation rate of 64.5 is the lowest since November of 1984.

Essentially, the employment situation worsened last month, rather than getting better. The only reason it looks better is because so many people are just dropping out of the labor force. When they do so, they magically disappear from the official banner statistics.

What is actually happening is that job growth is not keeping up with population growth, so every month, real employment is declining. It’s nice to see that employers have added 151,000 payroll jobs, but that simply isn’t a rate that keeps pace with job force growth. To give you an idea of how this is working, since Oct 09, the civilian non-institutional adult population has increased by 1,980 thousand people, while at the same time, the number of employed has risen by 819 thousand.  That means that there is a deficit of 1,161 thousand jobs that has built up over the last year.

The banner statistics of payroll jobs and unemployment rate are increasingly out of step with the true employment situation.

Republicans beware

harles Krauthammer issues the same sort warning we’ve been issuing here for some time:

Nor should Republicans over interpret their Tuesday mandate. They received none. They were merely rewarded for acting as the people’s proxy in saying no to Obama’s overreaching liberalism. As one wag put it, this wasn’t an election so much as a restraining order.

The Republicans won by default. And their prize is nothing more than a two-year lease on the House. The building was available because the previous occupant had been evicted for arrogant misbehavior and, by rule, alas, the House cannot be left vacant.

Yes I know I harp on this a lot.  But it is the key for the GOP if they want to continue gaining seats in 2012.

~McQ

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