Friday, January 9, 2015

First they mock you, then they obstruct you, then they take credit for your economy.

It's good news for Mitch McConnell, the economy gained 252,000 jobs in December validating his contention that the Republican takeover of Congress has been much anticipated by business. In fact business has been anticipating this shift away from Obama's failed policies for 57 straight months of job growth. This is a new record every month, and consistent with the pattern the previous two months were revised upward by 50,000 new jobs combined.

This indicates the growth of the economy is more robust than the traditional models of employer surveys account for, and is further borne out by a drop in jobless rate to 5.6%, a drop of two tenths in one month. The unemployment rate is determined by a direct survey of households by the Census Bureau on behalf of the Dept of Labor. This process is slammed by the right as a farce because the Job Participation rate continues to climb. It has been ever since Baby Boomers began to retire 15 years ago, but nobody noticed this until Obama took office. This problem is also exacerbated by high unemployment among the Millennial Generation which is an even larger demographic than the record setting Baby Boom. The average age of minimum wage workers is 35, closing out first time job opportunities for teenagers.

Of course you can't give Obama a lot of credit for the economy other than keeping Republicans away from the gears that they are constantly itching to throw a monkey wrench into. You can give some credit to the Federal Reserve for maintaining low interest rates despite calls from the right to raise rates to ward off the imminent hyperinflation that we're going to see any day now. The so-called printing of USD that Obama gets blamed for is also done by the Federal Reserve, and it too is guaranteed to produce Hyperinflation any day now. This QE program pushed lending for new growth by making bonds unavailable for 'safe' investment as over $3t of them now rest in the Federal Reserves vaults.

One small blur on the otherwise clear x-ray was that average wages fell by five cents per hour in December. One month doesn't make a trend, so it's not time to panic just yet even though we haven't seen this in a very long time. It's no secret that Conservatives have been actively driving down wages for decades, but now we're actually seeing it out pace inflation. The part that makes this really scary is that if declining wages really become a month after month occurrence is that it signals deflation setting in. The whole purpose of the Fed's actions has been to program 2% inflation into the economy and thus prevent deflation and stimulate investment instead of cash hoarding. Commodity prices have fallen sharply and that's great for consumers, but not if wages start to fall too.

With the minimum wage only a third of what it should be and almost no union influence there's not really anything keeping wages up. In fact economists were surprised that wages didn't drop before when unemployment was at 10%. It's a phenomenon that economists call "sticky" where prices or wages don't fall as the model predicts. It seems most humans are not ruthless sociopaths and won't behave that way until they feel they have no choice.

The danger of deflation is that consumers and businesses can't pay their debts if wages and prices fall too much and you get into a economic death spiral where everyone starts cutting back. Even those who don't need to cut back start stuffing cash under their mattresses. The famous FDR quote, "...all we have to fear is fear itself..." wasn't about the War as people tend to assume, but about the economic panic happening as his first inauguration was taking place. The picture of the ship gliding along smoothly may only be an illusion. With rats infesting Capitol Hill you know nothing productive will be done there, and it should go without saying that you can't trust Wall Street not to do something destructive. The malaise setting in over in Europe or Russia or China or (fill in the blank) could trigger events, or maybe not. Don't forget to rotate the canned goods just the same.

Twitter @BruceEnberg - where we're always glad to share recipes made with canned beans and fresh game.