Posted on 12/05/2015 10:03:20 AM PST by Kaslin
A 211,000 jobs increase for November will finally push the Fed over the line and into a quarter-of-a-point rate hike later this month. The question is, how much and how fast will the central bank raise its target rates?
My advice to Janet Yellen is to move at the pace of an injured snail. But Yellen is determined to start "normalizing" policy. She's bet the rhetorical ranch on a December move. It's sort of like defending the Fed's manhood, or in this case, womanhood.
I don't think this is the kind of rules-based monetary policy that former Fed head Paul Volcker or Stanford economist John Taylor have been calling for. But Yellen doesn't like rules. The closest she gets is a 2 percent inflation target. But you know what? Over a normal lifetime, 2 percent inflation will quintuple the price level, doing enormous damage to consumers, savers, businesses and the economy.
Stock markets cheered the November rise in jobs, with the Dow jumping 370 points. I suspect two reasons for this. The economy is rising, although at a tepid pace. And the Fed is expected to move rates higher at a slow and gradual pace.
I sure hope the stock market reading is correct. Because if you look deeper, inflation-sensitive, forward-looking market prices are showing much more deflation than inflation.
Gold is down. The dollar is up. Commodity indexes are falling along with bond-market inflation expectations. And actual inflation is near zero.
If these were normal times, a price-rule approach to monetary policy would suggest easier, not tighter, actions. But after seven years of zero-interest-rate policy and an explosion in the Fed's balance sheet, these are not normal times.
Incidentally, there are glitches in the latest jobs report. The private workweek and aggregate hours worked fell. Manufacturing hours worked have been slumping for months. And the ISM manufacturing index has dropped below 50 (a contractionary signal).
Year-over-year wage growth has slowed. And while the unemployment rate remains at 5 percent, the broader U-6 labor-impairment rate increased a tick to 9.9 percent. That points to a lot of discouraged workers, far too many part-time workers, and a key reason why 65 percent of Americans think the country is moving in the wrong direction.
What's more, business-investment indicators are falling significantly. Business investment is the key source of decent-paying, middle-class-wage-earning jobs. Because business investment has slumped (it never really recovered), various measures of middle-class take-home pay remain below peak levels.
And the business-investment picture may worsen as the broadest measures of corporate profits, which have been flat for two years, are now dropping.
Profits are the mother's milk of stocks and the lifeblood of the economy. But productivity (output per hour) is stagnant, even as compensation has slightly increased. Therefore unit labor costs that businesses pay are growing faster than the prices businesses receive. So profit margins are turning negative.
Even this tepid, 2 percent, so-called recovery may be running out of steam.
The long-term slump in business investment is one of the key factors behind the slowdown in productivity, which is so important to growth, jobs, and wages. And Congress still has not moved to slash the prohibitively high corporate tax rate, which is holding back all manner of activity and forcing cash and firms to move offshore.
That, plus overregulation and a steady flow of anti-business rhetoric from the White House, is blocking the creation of new capital, which is so vital to productivity.
If you penalize businesses, forget about good jobs and rising incomes.
So Democrats are coming out against rate hikes because they fear Janet Yellen's Fed-womanhood argument will damage the economy and sabotage Hillary Clinton's presidential standing. Yellen believes more people working and earning causes inflation. But that's wrong. Excess money and a cheap dollar cause inflation. And Democrats think taxing success and printing money will lead to a better economy. Wrong again. Higher taxes stem investment and sink the economy, and when combined with easy money they generate higher inflation.
That's a bad 2016 scenario for Hillary.
But Republicans are missing the point. Rather than rooting for higher interest rates, the GOP Congress should slash the corporate tax rate from 40 to 15 percent, permit full tax expensing for new investment, make repatriation of $2.5 trillion parked overseas as easy as possible, and then seek a price rule based on a sound and stable dollar. All that will spark a new era of growth, and, yes, real interest rates will rise and the Fed can lift its target rates. That's a political winner.
Until we get the right growth model, one that leads to prosperity and price stability, the economic outlook won't get any better. And the election is still up for grabs.
I am not sure if democrats want to win. They would rather spend the next four years blaming a republican for the $Trillions$ Obama spent.
The economy is going to plunge. You cannot spend like Obama did and it not plunge. They would much rather have a republican in office.
Democrats don't care about the economy. The only thing they care about is power.
If I have to give up steak, a new truck and vacations for 4 years to be rid of Hillary ..... i’m ok with that.
Anyone with an investors’ point of view on Janet Yellen?
How is she performing in her position in your opinion? The media doesn’t spend time gossiping about her personal life, so, I’m guessing she projects a ‘strictly business’ type of persona.
no doubt in my mind that Greenspan’s multiple rate raisings ( especially the discount rate ) in early\mid 2000 caused the recession in 2000.
Not if she doesn’t want to be found dead in Fort Marcy Park!
‘Not is she doesn’t want?’
Yes, I have a college degree, LOL! Yikes! More coffee, Please!
Don’t B.S. me, that’s a picture of Roseann Barr.
How many of those 211,000 jobs increase for November were due to:
1. UPS/Fedex hiring temp workers for the holidays.
2. Amazon.com hiring temps in their ware houses for the holidays.
3. USPS service hiring part time and retired postal workers to deliver Amazon orders. After 5 pm on Mon-Fri, Sat afternoon and all day Sunday, we have part time former postal workers delivering Amazon orders in our little cul de sac delivering Amazon Prime orders, driving Postal service trucks loaded with Amazon orders.
A couple of weeks after New Years, only the USPS people delivering Amazon Prime orders will be around, and they are part time.
The entire idea is to do what Clinton did and set the economy up for a major collapse timed for the election. If the Dims win call it off if they loose blame the following administration.
Sounds like a good investment. In my lifetime, we gave , up more options during LBJ, Carter, Clinton and the USA Isis leader, Obozo.
LOL! Me too. May take up rabbit hunting, instead.
The “winner” gets the utter disaster that is the result of the US no longer controlling it’s currency. The “numbers” in support of the Fed assumedly raising rates... are (and are known to be by the Fed) completely false. The rise in jobs-— holiday temp hiring. The percentage employed disallowing the 94 Million not even in work force, worst since 1971. They know this.
So.. the hedge players are building to increase their hedge, when on Dec. 16 the Fed announces another delay. AND, the hedge players also play the flipside, utter crash after they raise 1 pt. and the house of cards, all over collapses... including the Euro. And... here comes the Yuan.
Thanks, John.
BTW— inflation is NOT at near zero. And never was.
Simple store pricing of essentials would tell you that. Butter, cheese, meat.... count that inflation marker Kudlow you idiot mime for the meme. The “other” economy of the world corporatists.
” Because if you look deeper, inflation-sensitive, forward-looking market prices are showing much more deflation than inflation.”
Larry is getting this one right. We are heading into a deflationary depression and Yellen raising the rates is not going to be helpful. Watch how quickly the Fed will take that .25% rate hike back.
Been wearing out my lifetime hunting and fishing license here in Texas , gun, archery, muzzleloader hunts, wild hogs etc and a coastal 48hr boat trip into the gulf gave up about 400 pounds of tuna for the freezers as well. 4 season garden and a little experiment in the storm shelter this winter to see what thrives and survives the cold. Wearing the bearings off my boat trailer between NM, TX and OK . Also bartering for eggs, beef, fowl and hunting rights by driving grain trucks during harvest. Eating good.... :o)
Now just have to finish a old cummins engine swap so I can run biodiesel / veggie oil with the mechanical injectors..... my newer cummins don’t like the biodiesel at all.
Then theres this home-brew idea that keeps me planning for a good pilsner !!
Stay Safe !!
Yep..... GCA...... Zero Based Budgeting and EPA, AWB Brady BS, and a domestic enemy in the white house .... crazy polidiots .....
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