New Unemployment Claims continue to hover just above 300,000 indicating continued job growth at the pace we have become accustomed to over the past five years.
Federal Reserve Chairman Janet Yellen recently stated that the central bank will likely maintain its near zero interest rate policy even if the economy starts to pick up as inflation remains stubbornly at about one percent. The Fed's goal is to maintain two percent inflation in order encourage the 'job creators' to actually do something with their money. They prefer instead to simply sit on it waiting for deflation to increase the value of their cash by a thousand percent. Some economists say that a 2% goal is still too low and that 3% or even 4% inflation would serve the purpose much better.
The problem the Fed has is that their normal method of controlling the economy is to run interest rates up to cool an overheated economy and rates down to turn the heat up. With interest effectively at zero the economy simply stagnates, you can't charge less than zero. The Fed buying up bonds (QE3) has taken away that option as a place to park the surplus trillions of the rich. If they put cash into a bank account, the bank actually charges large depositors for storing their money.
The dirty little secret that nobody talks about is that zero interest rates should allow small business to boom while big business sits on its hands. The reason this doesn't happen is that there is one activity that big business does put its money to work on, destroying small business. Everything from bogus patent lawsuits to simply selling competing products at a loss to drive under the entrepreneur. The carrot and stick approach long favored by a really big software company whose founder pretends that he's liberal is the common approach. They go to the small developer and say, 'Sell your idea to us or we'll reverse engineer it and give it away'. Suing them will take ten years and they can spend more on lawyers every day then you hoped to make in your lifetime.
Big business finds it useful make an example of anybody that attempts to sue them for any reason. It's not uncommon for corporations to spend double what the small plaintive was hopping to recover on lawyers just to keep from paying out to anybody. The SCOTUS has effectively made consumer class action suits impossible allowing companies to force you to give up that right when you check mark one of those 'terms of service' agreements. In fact you don't even need to agree to this other than by doing business with them and accepting a piece of paper with undecipherable fine print.
Working for Big Software is also problematic, there is currently an employee class action lawsuit underway that has exposed the widespread practice of not competing for talent. Work for one of the big companies and nobody else will ever hire you. Sort of like being indentured. The potential liability from these anti-competitive practices that go back decades could run into many billions as triple damages are the typical result. That is assuming the SCOTUS doesn't simply make suing them illegal.
From the constant swirl of rumors about China's imminent economic collapse, (it has been imminent for 30 years) China has a real estate bubble. China has more Middle Class than the US has people and there's no problem finding a job in The People's Republic. The thing all the Conservative pundits in the US don't grasp is that the Communist Party takes its job seriously, crashing the economy isn't an acceptable aspiration for Party officials or businessmen. Unlike here, behave in China like an American Conservative and you'll find yourself donating your organs for transplant.
The facts on China's real estate bubble aren't what you would expect from the US bank model, the down payment to buy a property typically runs 50% or more. China could have a 50% drop in property values and the banks still wouldn't be at risk, and mortgages are on average only 20% of a bank's outstanding loans. Then of course the government would simply buy up the surplus anyway, Communists don't believe in riding the 'Free Market' into oblivion as Conservatives would have us do here.
Twitter @BruceEnberg - where we don't believe Free Markets are actually free