Tuesday, June 15, 2021

Not Even A Fig Leaf For The Fed

 To justify the continued torrent of fresh cash monthly via QE, the Fed and its happy Wall Street chorus of “economists” keep harping on the lower than expected number of monthly payroll additions. That’s disingenuous, to say the least.

Why? Because the number of job openings, ie jobs that go wanting because employers cannot find people willing to fill them, is now at at an all time record high, and equal to the total number of unemployed Americans (chart below).

The only time this has happened before in 20 years (when job openings data started being compiled) was in 2018-19, when the economy was, of course, very robust and the Fed had started to raise interest rates. Fed funds were raised from 0.4% to 2.4% (now at 0.05%) and the 10-year treasury was at 3.2% (now at 1.50%).

Does the Fed have no shame hiding behind the payroll numbers fig leaf? Well, no, because there isn’t even that, as we see above: every single unemployed American can have a job, immediately.

I don’t  believe the Fed is clueless or incompetent - obviously not. I’m even willing to accept (hope) that it’s not in the  politicians’ back pockets, doing their bidding to carry favor.

Which, then, begs this question: does the Fed know something that we don’t, maybe about the coronavirus? Because I fail to see anything in today’s red hot economy to justify its current inflation-objector stance. 


  1. hypothesis:

    at the heart of it is the desire of Americans to have toys without work. btw, I do not equate jobs to work ... work needs to have positive output, i.e. real benefit to others that is greater than the person's pay. Given the extravagantly overpaid Americans, I would argue most are doing negative work...

    Long form: The U.S. cannot balance its budget without unacceptable political cost (because the Americans want toys); if the fed stopped printing, interest rates would rise and it would be harder for the U.S. to fund its budget deficit, eventually forcing the fed to print again.

    the current fed is pretending to control a process that is already out of control; i.e. the fed pretends it prints to create inflation, when the fed actually has no choice but to print.

    how you feel about this scenario?

    1. Balancing the budget is a pipe dream, and it's not even practical or necessary.

      BUT.. properly servicing the debt is the most important aspect of ANY government, otherwise the country goes bankrupt - unthinkable for the US right now.

      Today, US federal debt is $28.2 trillion, its average interest rate is 1.65% and for fiscal 2020 interest payments totaled $522 billion, or 15.3% of the government's total revenue. In other words, it's ok AS LONG AS INTEREST RATES REMAIN ULTRA LOW.

      Say that interest rates were to go back to where they were before the pandemic, on January 2019 at 2.57%. Assume all other things equal, ie debt and revenue static, the interest alone would jump to $724 billion, or 21.1% of government revenue. That's definitely not good, especially since the country is already highly indebted and is running a budget deficit.

      And if rates would go to mo "normal" levels, say 4.5% (that's what the govt. paid on average in Jan. 2005) interest would soar to $1.27 trillion, or 37% of revenue.
      That's, essentially, bankruptcy levels - the govt. could not function.

      That's the long answer to your question AKOC :) yup.. the US government cannot afford higher interest rates, unless it raises revenue drastically.

    2. To summarize Hell, the US is on the edge but not quite over it yet...

      I have some doubts that the US can actually increase taxes...

      and the US govt expenditures are likely to go up rather than down... social security, bidden benefits, increased defense cost, climate change...

      but the US still has the world's largest gold reserve...

      I would say the moment the shit hits the fan is when the US sells its gold to defend the dollar... that will be the moment when all hope of recovery ends...

      fun times ahead ........ whooooooooot!!!!!!!!

    3. US gold holdings are a drop in the bucket, valued today is around $375 billion. No relief there.. even at today's ultra low interest rates that's 7-8 months worth of interest on the debt.

      Let me put it another way... if the country was not the US but, say, Argentina, it would already be applying for IMF relief, which comes with draconian fiscal and monetary measures. What a laugh.. the US is basically the IMF's boss. It's a case of the preacher ignoring his own sermon.

    4. well, if everything goes to the pot, you guys could go back onto the gold standard... with the gold dollar exchange rate at something else...... after that... if the problems persist.... then the game ends....

    5. but yes, you are right, after your explanation, I understood that there is no way to use gold to defend the dollar... not at current exchange rates anyway....