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No Jobs: The Result of Wizard of Oz Economics

Econophile's picture




 

If there is one thing we should have learned from recent data is that you can "juice" the economy by inserting more money into it because when the money works its way through the economy, certain economic data will become more positive.

This is not a difficult concept to grasp. For example, if in a hypothetical economy there is a $1 trillion money supply and then it is increased by, say, 10%, assuming that new money is spent in economic activities, GDP will ultimately rise more or less by 10% because GDP measures spending. More money equals more spending, thus higher GDP.

During this phase one might see manufacturing and consumption increase and even employment grow. This happened with QE1 and 2. However, one might ask, if money stimulus actually revives real economic growth, why did we need QE2? Of course this is the flaw in the above argument. It doesn't work.

These naive monetary theories don't work to create real growth, they just make the numbers go up ... temporarily. QE 1 or 2 did nothing to cure underlying economic problems or create lasting real growth. If QE had worked the economists at the Fed wouldn't be scratching their heads over the current negative economic data that has been pouring out recently. Today's unemployment report is a good example of this.

The BLS announced that only 80,000 new jobs were created in June, 2012, and the unemployment rate remained at 8.2%. Here is a good synopsis of the report from Econoday:

For a picture of the trend, this is also from Econoday:

As you can see, the first quarter job situation has been collapsing. There are still 12. 7 million Americans unemployed, 41.9% of the unemployed have been so for more than 27 weeks, and the broadest measure of unemployment (U-6) was 14.9% (+0.1%). For those of you wishing to see the so-called "U" data, please go here.

These results and the other data that we have been commenting on demonstrate the ineffectiveness of the Fed as a kind of super-technocratic presence behind the economic curtain who through their wisdom and benevolence have the ability to successfully guide the economy. With declining numbers, the Fed is being exposed as the Wizard of Oz that it is. They should just admit that nothing they or the Administration has done has worked and perhaps question their theories.

What can we expect as a result of this report? Going back to my article on last month's employment report, it is this:

1. The Administration is seriously concerned since an election is only 5 months away.

2. The Fed is seriously concerned since none of their monetary policies are working as planned. 

3. “Inflation” as the Fed defines it is looking more like the much feared “deflation.” The Fed will not let “deflation” happen.

4. The only thing the Fed really knows how to do is print money, and since the inflation hawks on the FOMC have nothing to complain about, it makes another round of quantitative easing likely. And soon.

Now that our trading partners around the world, especially in the Eurozone, are failing for the same reasons, there will be even more pressure on the Fed to "do something." While they are trying to avoid another round of QE, I think there will be serious pressure from the Doves in the Fed to print. This will result in temporary market euphoria as the new money finds its way into the financial markets, but the Fed will discover that this third round of printing will have a weaker effect on the economy just as the result QE2 was weaker than QE1's. That means it will quickly fade and economic growth will continue to stagnate

 

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Thu, 08/02/2012 - 05:54 | 2671330 AmeliaV
AmeliaV's picture

To my opinion, unemployment is one of the main problems of the American economy. The system has so many lacks, people take out loans and go to colledge because they think that higher education and diploma can save them from uneployment, but when they graduate and stay face-to-face with their student loan debt with no job it's really awful. The job credition should be one of main tasks for our government, decent jobs with decent wages should be available, we talk about debts, but how people can avoid taking out loans and applying to lenders of online cash advance if they have no jobs or their wages do not allow them to live normally and stay debt-free?

Sun, 07/08/2012 - 10:09 | 2596127 Blue Dog
Blue Dog's picture

It would be naive to think Obama and Bernanke are clueless. Their actions are deliberate. To delay as much as possible. And to create an economic collapse capable of leading to a one-world government.

Sun, 07/08/2012 - 09:35 | 2596080 michigan independant
michigan independant's picture

Thanks for the view eco. We are adding a few souls.

Sun, 07/08/2012 - 08:46 | 2596061 oldgasII
oldgasII's picture

I realize that main stream financial reporting is losing ratings and readers becasue they keep pusing bull puckey, "Buy into this rigged market!" but I wonder how many of them know they are pushing bull?

Sun, 07/08/2012 - 03:38 | 2595967 silverdragon
silverdragon's picture

There are already hundreds of thousands of Americans in Asia working in every type of job. The taxes are quite low. There are a vast array of insurance options. It is easy to get ahead by working hard.

Sun, 07/08/2012 - 03:16 | 2595955 ebworthen
ebworthen's picture

25,000 of the 80,000 were part time jobs.

In a nation of over 250 million and a conservative 100 million adults 50,000 jobs a month is  pissing in the ocean.

What did they think was going to happen when they allowed banks to gamble trillions with mortgages and derivatives and play at shadow banking while offshoring productive career employment?

Sun, 07/08/2012 - 05:36 | 2595992 Moe Howard
Moe Howard's picture

85,000 Americans went on disability last month, so really it is a wash / prints negative.

Everybody's back hurts when the unemployment runs out.

Close to 800,000 less women in the workforce than when Obamao took office. Think they will be voting hope and change?

Sun, 07/08/2012 - 02:58 | 2595950 silverdragon
silverdragon's picture

Americans are just gunna have to travel for jobs overseas like a lot of the rest of the world does.

 

Sat, 07/07/2012 - 22:27 | 2595793 A Cruel Accountant
A Cruel Accountant's picture

No matter what the gov't does, gets smaller or get larger, the high paying office jobs are gone or fast disappearing. You are on your own. No one can help you. Except yourself.

Sat, 07/07/2012 - 22:24 | 2595789 A Cruel Accountant
A Cruel Accountant's picture

Where I live jobs are everywhere, but no one will take them because they are factory jobs. Everyone wants to work in an office and make a $100k. Sorry folks those jobs are gone.

People are too proud to do real work.

 

Sun, 07/08/2012 - 05:39 | 2595994 Moe Howard
Moe Howard's picture

Where are you? Around here, we have factory jobs, GE Ford UPS [hub] Zappos Toyota and smaller- every opening has mutipules of applicants.

Sure everyone wants a $100k indoor work job - you need to be a teacher to get that here.

Sun, 07/08/2012 - 03:19 | 2595958 ebworthen
ebworthen's picture

Where?

How much does it pay?

Do they provide training?

Will I lose my fingers or be asked to work 60 hours a week and get paid for 40?

Will I have to wait three months for health insurance?

And, will 40% of my income go to taxes and fees to bail out banks, bankers, foreign countries, and provide cushy benefits for politicians and judges who are in bed with corporations and banks?

Hmm...have you heard of "moral hazard"?

Sat, 07/07/2012 - 21:16 | 2595694 Zero Govt
Zero Govt's picture

Bummas stimulus plan was for shovel ready Govt projects but forgive me, isn't the US Govt laying off staff now the major contributor to rising unemployment?

creating fake jobs is just that, a fake economy (which cannot last). Then you have to pay the bill (debt) with real productive wealth from the private sector who naturally resent the burden of higher taxes leading to contraction of the economy down the road ..the exact opposite effect of stimulis 

Govt is a retard at economics, like everything it meddles in, it should stay the hell away from correcting the economy

Sun, 07/08/2012 - 10:11 | 2596129 Republicae
Republicae's picture

If the government did what it is suppose to do, and that is very little, then perhaps we would not be in such a mess. The Framers of the Constitution knew that once politicians get power they tend to simply legislate collective stupidity and enforce that stupidity to the point that the people must pay the price for all their lunacies. Yet, we continue to elect these idiots, from both political parties, and somehow hope that things will be different. 

The only real solution I see at this point is DISUNION, allow for the break-up of this dysfunctional nation-state into a loose-knit confederation of Free, Sovereign and Independent States. Rid ourselves of this highly centralized federal regime and bring back a far more workable form of localized government. Of course, that is what most of the people in this country thought they would have when they ratified the Constitution: a Federation of States that deputized a federal government for very specific and narrow functions, not a centralized, all powerful leviathan that constantly grabbed power, usurped authority and essentially ruined the country through collective lunacy. 

Sat, 07/07/2012 - 22:15 | 2595778 otto skorzeny
otto skorzeny's picture

I get so goddamned sick and tired of canucks trumpeting their economy. NO $100 BARREL OF OIL=BACK TO BEGGING AMERICANS TO COME UP FISHING,EH HOSER??? so all Canucks should be kissing Ben Shalom's hairy bean bag. your time is coming you knobs.

Sat, 07/07/2012 - 22:28 | 2595798 dogbreath
dogbreath's picture

lmao.     i was offering that article as a public service to my ZH brothers should they or their associates be in need of a job.   so whats gonna happen when our time comes.  

Sat, 07/07/2012 - 22:31 | 2595803 dogbreath
dogbreath's picture

10,000 jobs last month.   like holy shit, the population of alberta is 3million.  

Sat, 07/07/2012 - 19:28 | 2595538 DeadFred
DeadFred's picture

I question the assumption that the Fed actually believes in what it's doing. They see that what they're doing isn't working and as with Tyler's frequent posts they see the numbers just don't/can't add up. They're doing what they do because it is all they can do. I'm guessing they don't expect it to work any more than your average ZHer, possibly less because they have access to data that isn't available to us. I think they are about to start their last "Sure-hope-this-works" fingers-crossed attempt before the gears grind to a halt. Some global central bank coordinated effort that will pump up things for maybe two to eight weeks. Maybe rehypothicating beach towels, no they tried that. The edge of the cliff is here and they know it better than us.

Sun, 07/08/2012 - 10:15 | 2596136 Republicae
Republicae's picture

I tend to agree. I received a call from an old friend in Brussels the other night, the call was in the form of a warning, that the government's had shot their wad and there was nothing left in their bag of tricks to delay the eventualities of collapse. He stated that all the EU and the US were doing now was trying to postpone economic disaster, but they are fully aware they can no longer avoid it from happening. 

Essentially, he told me and my wife to hoard more food, more ammo, more trade goods and hunker down....it's on it's way!

Sat, 07/07/2012 - 19:57 | 2595578 barliman
barliman's picture

 

I left the WHY out of my post because ...

... it just doesn't matter.

barliman

Sat, 07/07/2012 - 19:53 | 2595571 lotsoffun
lotsoffun's picture

of course they do.  but is corzine in jail?  is jamie still polishing his dimonds?  is lloyd still fine writing blank checks?  do angelo mozila and stanley o'neal weak up every morning and laugh at all of us?  they are serving there masters well, that timmie, binnie, bennie bunch of bananas.  poor bobbie diamond, he had go to and bounce varley, a true brit, beat them at there own game.  well - time to pay, in terms of inconvience.  its' all fun and games, and we pay for it.  there will be more money printing to protect the big bonus guys, until they decide to go short and sweep everybody's savings, 401k off the table.  i still suspect obama gets re-elected first.  he's done so well for himself, they've always protected him, and now he's going to be the bag holder.  for a longtime in terms of western history.

 

Sat, 07/07/2012 - 18:40 | 2595474 barliman
barliman's picture

 

The FED is not blind to the problem they have created.

They are, however, trapped in a box canyon and cornered by the fires they set alight around the globe.

Media are reporting "the possibility of things getting bad enough to ignite new hope for QE3 which will lift the markets."

How incompetent do you have to be as an organization to put something that summarizes the complete failure of the markets into an article and not be aware you have made that statement?

The Fed knows they have broken the markets. The Fed knows there is only ONE way to "fix" the markets.

  • The Fed would have to let the markets fail - utterly collapse and burn themselves out.
  • They would have to wait for the natural market forces (capital) picking through the debris (which actually starts before the markets have completely collapsed) to choose which businesses have merit and survive.
  • They would have to wait until significant rewards have been realized from the capital risk in the natural cycle - and then only act to smooth out credit lumpiness over a several year period.

The Fed knows they interrupted this cycle in March of 2009. They should have stayed completely out of the markets and waited for the true bottom in the summer of 2009.  By that time, the TBTF would have failed. Social forces reacting to the failure of the TBTF would have banished them from exisiting for another 60 - 70 years. The world economy would have been hammered. The losses would have been over $ 40 trillion USD.

Basically, EXACTLY what they have "spent" trying to prevent the losses ... which have not been prevented ... just delayed and compounded.

Despite all of the above ... which is nothing more than "I've worked in, studied and invested in the markets" level of knowledge (i.e. Rick Santelli and several thousand people like him) ...

The Fed will hold its fire; waiting for the inevtiable EU/euro collapse that will occur when the herd mentality realizes:

"Where will money for the EU nations and banks come from AFTER they get to pick Germany's wealth clean down to the bone?"

And then - despite the fact it will ONLY compound the problem further ... the Fed will announce what I call QEEND - their last salvo - $ 10 trillion USD of Krugman orgasmic bliss ...

... that will have a half-life measured in days.

............................................................................. after that?

We all get to see what happens to markets trying to recover in the complete absence of global economic markets.

We have not been down THAT road in a very long time.

barliman

Sat, 07/07/2012 - 22:21 | 2595784 andrewp111
andrewp111's picture

The last QE will be Obama's Reelection Refinance Plan, in which Bernanke will monetize and /or refinance every mortgage in the USA at 0% interest. They could even do Eminent Domain seizures of the underwater mortgages. Some TBTFs will be pushed over the edge, but hey, a $10 trillion bailout of this magnitude will guarantee Obama's reelection, because the Moderates and Independents will have to reelect  him to get the money. Swing voters always vote their own short term financial interests.

Sun, 07/08/2012 - 10:27 | 2596153 northerngirl
northerngirl's picture

Don't forget Student Loans...

Sat, 07/07/2012 - 17:33 | 2595396 f16hoser
f16hoser's picture

But, but Obummer said he saved the economy. Did he lie again?

Sat, 07/07/2012 - 17:57 | 2595420 Red Raspberry
Red Raspberry's picture

He just kept the IV pumps going.

Sat, 07/07/2012 - 17:11 | 2595363 rsnoble
rsnoble's picture

Well since QE1,2 and endless twist hasn't created jobs...........now they state because of no jobs we need QE3. LOL.  We're not talking about jobs here, we're talking complete collapse.

Sat, 07/07/2012 - 17:10 | 2595360 GOSPLAN HERO
Sat, 07/07/2012 - 16:55 | 2595331 LMAOLORI
LMAOLORI's picture

Let's Not Forget About The 86 million invisible unemployed

http://money.cnn.com/2012/05/03/news/economy/unemployment-rate/index.htm

Sat, 07/07/2012 - 22:11 | 2595772 monad
monad's picture

They are only unemployed if they are stupid and dependent on others for directions on what to do with their robot lives. If they aren't stupid, what they are is untaxed. And Ghenny can't have that, can it? RUN THX1138! RUN!!

Sat, 07/07/2012 - 19:02 | 2595477 ghenny
ghenny's picture

YOu guys spend all your time blaming the FED, the European Central Bankers and all the Governments.  The reality is they are bit players in a global economic drama that is much larger than they are.  This drama has good bits and bad bits like most things in life.  The good bits are the dramatic improvement in living standards that are ocurring in the poor countries of the world as a result of globalization, technology, communications and outsourcing.  The bad bits are the inevitable short to medium term relative decline in the standard of living of the middle class in the OECD countries that goes with this. Why is the latter happening? The reason is because when all middle classes have equivalent access to technology, education, markets and export platforms in a world of quasi free trade, you cannot continue to pay one group - the OECD countries middle class - five times more than the other group - the middle class of all the rest.  For quite awhile their incomes converge somewhere between $ 5,000 per head on average and $ 25,000 per head on average.  This means that the OECD middle class ultimately sees its real income decline down towards say $ 15,000 and the rest move up in the direction of $ 15,000 before all start to grow again - although climate change - and policy responses to such anticipated change - may prevent this.  The global top 1 % of course get very rich while this is going on because they are making fortunes on the arbitrage between these differences.  End of story.  All the rest of it is noise.  What is going on is a desperate attempt by OECD governments to mask this reality and they can't. This is partly because they are bought and paid for by the global 1 %.  It is also because this is a natural consequence of globalizing capitalism and its crony capitalist side kick.  QED

Sat, 07/07/2012 - 22:30 | 2595801 tulip_permabull
tulip_permabull's picture

Paragraphing pls.

Sat, 07/07/2012 - 20:31 | 2595631 nmewn
nmewn's picture

Apparently Christina Romer is now reduced to leaving inane comments on ZH and I just wasted two minutes of my life.

Sun, 07/08/2012 - 09:04 | 2596073 barliman
barliman's picture

 

Time saving made easy - if the post is by ghenny - it is just SCOAMF propaganda.

barliman

Sat, 07/07/2012 - 19:32 | 2595544 Kayman
Kayman's picture

ghenny

WRONG !  When you outsource your Middle Class jobs to countries that don't have to carry the legally mandated requirements of social overhead and environmental laws, while at the same time allowing free access to your own market of these very same goods, then and only then, is your own middle class non-competitive.

So-called developed countries have lost middle class jobs through political, corporate and banking dishonesty.

Sat, 07/07/2012 - 21:02 | 2595673 dogbreath
dogbreath's picture

read it again

Sat, 07/07/2012 - 16:49 | 2595320 tlnzz
tlnzz's picture

"The Fed will not let “deflation” happen."

 Really? That's exactly what has happened in the real estate market. The Fed will not tolerate deflation that effects Wall Street.

Sat, 07/07/2012 - 20:13 | 2595608 Bicycle Repairman
Bicycle Repairman's picture

I believe they have hit real estate deflation with just about everything they have.  The damage is so profound it cannot be rectified.

Sat, 07/07/2012 - 22:14 | 2595776 monad
monad's picture

The debt slaves get the bill for Pert

Sat, 07/07/2012 - 22:15 | 2595777 monad
monad's picture

Plus of course penalties, COL adjustments and arbitrary one time admin fees.

Sat, 07/07/2012 - 16:49 | 2595319 duo
duo's picture

There ain't no friggin deflation unless you're talking about real estate.  If inflation was computed like it was when Clinton took office, you'd see that the economy (real GDP) has shrunk 30% since 2007.

Sat, 07/07/2012 - 16:44 | 2595315 Chartist
Chartist's picture

QE on the way, once the S&P reaches 1000....

Sat, 07/07/2012 - 18:05 | 2595434 barliman
barliman's picture

 

I've got it at 950 and dropping like a rock when they step in following the EU/euro collapse in early September.

This time will be different.

This time their intervention is going to have an extremely short life span and then it will make things MUCH worse.

barliman

Sat, 07/07/2012 - 16:21 | 2595275 Snakeeyes
Snakeeyes's picture

Obama and the Democrats focused on Socialized medicine and Dodd/Frank banking regulation for two years rather than do anything about the mounting unemployment issue. Despite the drivel that flows from Obama/Biden's mouths, there are been no progress thanks to the waste stimulus bill, Look at the evidence since the "Recovery summer of 2010."

http://confoundedinterest.wordpress.com/2012/07/06/summertime-blues-u6-unemployment-rises-to-14-9-nonfarm-payrolls-grow-only-80k/

Sat, 07/07/2012 - 17:42 | 2595406 Moe Howard
Moe Howard's picture

The main point being the government is in the economy. The government should not be in the economy, there should be no counterfeiters known as the Federal Reserve, and most of the largest banks in the USA, along with two auto companies and AIG, should be long gone. Fixing interest rates? Biggest scandal in the world? What? That is the main function of the Federal Reserve. They have been "fixing" interest rates for 100 years. They gave TRILLIONS of US taxpayer debited dollars to EUROPEAN BANKSTERS. They have DESTROYED the life savings of millions of Americans, and created an environment that punishes captial formation and rewards risky lending.

The government has created this nightmare, and it cannot fix it, as it is the nightmare. The government must fall. We must kill the Republic to save the Republic.

We must remove all dual nationals from all levels of government and military.

We must destroy the media monopolies.

We must expel all non-citizens and non-immigrants.

We must restore sound money.

Sat, 07/07/2012 - 16:19 | 2595270 vmromk
vmromk's picture

The real question is when will all the SCUMBAGS at the Federal Reserve become unemployed ?

Sat, 07/07/2012 - 21:19 | 2595701 Zero Govt
Zero Govt's picture

soon as you/we stop paying our taxes and the fabricated institution, Govt, is removed from the landscape

all rotten fruit, like the Fed, hang from the rotten tree called democratic Govt

Sat, 07/07/2012 - 21:26 | 2595712 OutLookingIn
OutLookingIn's picture

Charts by E-Conned-Day

Not worth a pinch of...

Especially using the Propaganda Departments numbers from the BLSBS.

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