The
election of 2016 was supposed to be the most disruptive break with the status
quo in modern history, if ever. On the single most important decision of his
tenure, however, the Donald has lined-up check-by-jowl with Barry and
Dubya, too.
That
is to say, Trump's new Fed chairman, Jerome Powell, amounts to Janet
Yellen in trousers and tie. In fact, you can make it a three-part
composite by adding Bernanke with a full head of hair and Greenspan
sans the mumble.
The
overarching point here is that the great problems plaguing American
society---scarcity of good jobs, punk GDP growth, faltering productivity,
raging wealth mal-distribution, massive indebtedness, egregious speculative
bubbles, fiscally incontinent government----are overwhelmingly caused by our
rogue central bank. They are the fetid fruits of massive and sustained
financial repression and falsification of the most import prices in all of
capitalism-----the prices of money, debt, equities and other financial assets.
Moreover,
the worst of it is that the Fed is overwhelmingly the province of an unelected
politburo that rules by the lights of its own Keynesian groupthink and by
the hypnotic power of its Big Lie. So powerful is the latter that
American democracy has meekly seconded vast, open-ended power to
dominate the financial markets, and therefore the warp and woof of
the nation's $19 trillioneconomy, to a tiny priesthood
possessing neither of the usual instruments of rule.
That
is to say, never before in history has a people so completely and
abjectly surrendered to an occupying power---even though its ostensibly
democratic government already possessed all the votes and all the
guns.
So it
is no exaggeration to say, therefore, that the Fed is an
alien state unto itself. That was powerfully symbolized most
recently by the appointment of John Williams, a lifetime apparatchik at the San
Francisco Fed, to the job of head satrap at the central
bank's Liberty Street outpost in the heart of Wall Street.
In
the scheme of things, the President of the New York Fed is #2 in the whole
central banking apparatus, and as such is immensely more powerful than any
Senate Committee Chairman or House Speaker. But Williams' appointment
was not reviewed or passed upon by a single elected official accountable to any
voter anywhere in the US of A.
Yet
here is an academic scribbler so out of touch with reality that he advocates
raising the Fed's inflation target to 3% because it's purportedly good for
American workers; and who for nearly 100 months
also voted to keep interest rates pinned to the zero bound even
though it was crushing savers and retirees.
Worse
still, Williams advanced these oppressions of the people because he claims
to have espied an invisible thing called "the neutral rate" of
interest that no saver or borrower in America has ever seen and that no
free market would ever produce. That's because the only true interest rate
is the market rate at any given moment, not the artifacts pegged
by the FOMC and the imaginary "target rate" from which they are
derived.
If
Dr. Williams ever had to defend slashing the purchasing power of
worker paychecks, transferring wealth from retirees to the banks and
worshipping a tiny interest rate number that no one can see, do we think he
could get elected dog catcher, even in San Francisco?
No,
we do not!
To
be sure, unlike the case of the 12 regional Fed presidents, 7 of the 12 members
of the ruling FOMC are appointed by the President and confirmed by the Senate.
But the fact is, the Big Lie is so deeply rooted in the political system---including
the GOP which is supposed to be the party of free markets and sound
money----that these appointments are drawn from a narrow circle of
Keynesian economists, bankers and government careerists, making the democratic
review process entirely pro forma.
For
crying out loud. The Donald came to Washington threatening to drain the swamp
and ended up appointing to the one job that could have made a difference a
crony capitalist Keynesian who was literally born and bred in the
Washington DC Swamp and never left it during his entire adult life.
Needless
to say, the Big Lie in question is four-fold.
The central bank and its retainers and Wall Street beneficiaries claim that:
- the free market has a death
wish and tends toward cyclical instability, recession and even depression
without the guiding hand of the state and its central banking branch;
- when capitalism is
plodding forward on its own energy during periods of business
expansion, it's the result of the Fed's beneficent ministrations;
- when
the Fed's serial financial bubbles
finally implode, the blame lies with the very speculators
it enabled and financed with cheap carry trades, falling cap rates and
price-keeping operations ("puts"); and
- notwithstanding the
occasional externally caused financial bust, the mainstreet economy
is always getting stronger and more prosperous because the FOMC is deftly
guiding it to just the right balance of "full-employment"
(vaguely defined as +/- 4% on the U-3 unemployment rate) and
"full-inflation" (precisely defined as 2.00% on the PCE
deflator---after excluding food, energy and other subjectively identified
price aberrations).
It
is to the latter risible narrative that we turn today in rebuke of Jerome
Powell's positively deceitful speech on "The Outlook for the US Economy" recently
delivered to the Economic Club of Chicago.
According
to the new Janet:
At the Federal Reserve, we seek to foster a strong economy for
the benefit of individuals, families, and businesses throughout our
country....After what at times has been a slow recovery from the financial
crisis and the Great Recession, growth has picked up.
Unemployment has fallen from 10 percent at its peak in October 2009 to 4.1
percent, the lowest level in nearly two decades. Seventeen
million jobs have been created in this expansion, and the monthly
pace of job growth remains more than sufficient to employ new entrants
to the labor force. The labor market has been strong, and my
colleagues and I on the Federal Open Market Committee (FOMC) expect it to
remain strong. Inflation has continued to run below the FOMC's
2 percent objective but we expect it to move up in coming months and to
stabilize around 2 percent over the medium term.
Beyond the labor market, there are other signs of economic
strength. Steady income gains, rising household wealth, and
elevated consumer confidence continue to support consumer spending, which
accounts for about two thirds of economic output. Business investment
improved markedly last year following two subpar years, and both
business surveys and profit expectations point to further gains ahead. Fiscal
stimulus and continued accommodative financial conditions are
supporting both household spending and business investment, while strong global
growth has boosted U.S. exports.
Essentially,
there is not a shred of truth in the entire passage unless you want to play 6th
grade games with short-term deltas in the vaunted "incoming
data".
But
apply any concept of context and notion of reasonable time duration to
any of the bolded assertions and you see that Powell is either a fool or so
doped-up by the Keynesian Cool Aid that he speaks jabberwocky without even
knowing it.
We'd
like to think it's the latter, but anyone who starts with an assessment of the
US economy by citing the 17 million jobs number
is actually giving Donald Trump's daily twitter spinning a run for the
money. After all, 7 million of that number
consists of born again jobs that were wiped
out during the deepest recession of modern times, and have only been
slowly recovered during the 9 years since.
And
if you want to count from the bottom (February 2010), you will find that
among the full-pay, full-time jobs in the goods-producing sector, the loss between
the pre-crisis peak of 22.02 million jobs and
the February 2010 bottom was 4.4 million jobs or 20% of
the total.
But
here's the thing. As of last Friday's report for March 2018, only 2.9
million or 65% of the goods-producing
jobs shed during the recession have actually been recovered. The productive
core of the US economy, therefore, is still 1.5 million jobs short,
meaning that many of the "born again" jobs Powell was crowing
about have actually been reincarnated as burger-flippers at
McDonald's and bed-pan changers in the nursing homes.
Self-evidently,
what our chief monetary central planner should have noted is that even on
an aggregate basis----quality mix deterioration aside---the jobs market is not
"strong"; it's failing badly.
Thus,
between the November 2007 cyclical peak and March 2018, the US economy
generated only 9.9 million jobs. That amounts to only 80,000 per
month and annualized growth rate of just 0.67%. By
contrast, the adult civilian population grew by 24 million during
the period or by 194,000 per month.
How
this squares with Powell's claim that "job growth remains more
than sufficient to employ new entrants to the labor force" beats
us, but that's not even the most important point.
To
wit, an economy lugging $68 trillion of debt, facing
a baby boom retirement tsunami and heading fast towards fiscal
bankruptcy needs a much stronger growth of labor input than 0.67% per
year---when even that anemic growth rate was largely comprised of
part-time, low productivity headcounts.
By
comparison, from the June 1990 peak through the November 2007 pre-crisis peak
(two full business cycles), the US economy generated 136,000 jobs
per month (28.4 million total) representing an annual growth rate
of 1.33%. That was double the post-crisis
growth rate that Jerome was gumming about at the Chicago Economics Club.
And
if you scroll back one more cycle to the June 1981-June 1990 Reagan/Bush
expansion, job growth averaged 170,000 per
month. Moreover, given the smaller size of the labor force back in the 1980s
that computed to a 2.05% per year growth rate.
So
rather than a "strong" labor market, what we really have is one that
is failing miserably. As Jeffrey Snider so cogently pointed out after the March
jobs report, there are actually 16.6 million "missing"
workers. Indeed, after 24 million of population
growth since November 2007, the US has generated only 5
million full-time jobs.
Read more at: http://davidstockmanscontracorner.com/jerome-is-the-new-janet-tie-trousers-and-same-old-keynesian-jabberwocky/