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5 Things To Ponder: Under The Surface

Tyler Durden's picture




 

Submitted by Lance Roberts of STA Wealth Management,

Alas, all good things must come to an end. As the kids summer vacation trip comes sadly to an end, it is only fitting that the final edition of "Thoughts From The Beach (TFTB)" would be this weekend's "5 Things To Ponder."

This week was very busy with economic data.  For the most part, the majority of the data came basically inline with expectations.  However, the internals of the various reports were much less encouraging. The most noteworthy report, and the least important from an investment standpoint, was the monthly employment report which came in at 288,000 jobs for the month. 

As with the bulk of other reports, the more important details were lost to the headlines.  The average number of hours worked made no gains, and hourly earnings growth remains muted. The bulk of the job creation remained focused in the lower wage paying areas of the economy such as retail and transportation.  Most importantly, full-time jobs fell by roughly 500k.

As I discussed in "Jobless Claims And The Issue Of Full Employment," there is only one analysis of employment that matters.  That is full-time jobs relative to the population. Full-time employment is what fosters household formation and long-term economic growth. As shown in the chart below, full-time employment relative to the working age population has remained primarily stagnant since the financial crisis and actually fell in the latest month. This is a key reason why economic growth continues to struggle.

Employment-FullTime-JoblessClaims-070414

However, I digress, and our plane is getting ready to board as we make our way back to reality.  Come Monday it is back to a dimly lit desk, stale coffee and the daily grind.  In the meantime, here is what I will be reading on the trip home.

1) The Next Financial Crisis Is Brewing Right Now by David Dayen via The Fiscal Times

"The Office of the Comptroller of the Currency (OCC), not typically seen as a strident regulator, is warning about risky lending as low interest rates drive a reach for higher yields. Both the OCC and the Federal Reserve have decried the slippage in underwriting standards on particular loan products. Fed Chair Janet Yellen cited 'pockets of increased risk-taking' in a speech yesterday. And the Bank for International Settlements (BIS), a consortium of the world’s central banks, cautioned this week about asset bubbles forming throughout the global economy."

2) BIS Warns Of Destabilizing Low Interest Rates by Yves Smith via Naked Capitalism

"Frameworks that fail to get the financial cycle on the radar screen may inadvertently overreact to short-term developments in output and inflation, generating bigger problems down the road. More generally, asymmetrical policies over successive business and financial cycles can impart a serious bias over time and run the risk of entrenching instability in the economy. Policy does not lean against the booms but eases aggressively and persistently during busts. This induces a downward bias in interest rates and an upward bias in debt levels, which in turn makes it hard to raise rates without damaging the economy – a debt trap. Systemic financial crises do not become less frequent or intense, private and public debts continue to grow, the economy fails to climb onto a stronger sustainable path, and monetary and fiscal policies run out of ammunition. Over time, policies lose their effectiveness and may end up fostering the very conditions they seek to prevent. In this context, economists speak of "time inconsistency": taken in isolation, policy steps may look compelling but, as a sequence, they lead policymakers astray."

Also Read:  Yellen To The BIS by Sigmund Holmes

3) It's Time To End "Crapitalism" by John Stossel via Reason

"But it's crapitalism when politicians give your tax money and other special privileges to businesses that are 'most deserving of help.' Often those businesses turn out to be run by politicians' cronies.

 

Many government agencies feed this crony capitalism. When there is scandal, such as when the Energy Department lost $500 million on Solyndra, we sometimes hear about it. But often we don't. You probably didn't know about the department's other fat losses on businesses like Solar One, the Triad ethanol plant, FutureGen, the Clinch River Breeder Reactor, and so on.

The biggest funder of this crony capitalism is the Export-Import Bank."

4) Is The IMF Looking To Expropriate Funds? By Martin Armstrong Via Zero Hedge

"Now the June 2014 report has a new, far-reaching proposal. This shows how lawyers think in technical definitions of words. There is no actual default if they extend the maturity. You could buy 30-day paper in the middle of a crisis and suddenly find under the IMF that 30 day note is converted to 30 year bond at the same rate.

 

The huge national debts could be reduced also according to the IMF by just expropriating all private pension funds."

5) The Failure Of Macro Economics by John Cochrane via The Wall Street Journal

"When models don't yield the spending policies they want, some Keynesians abandon models—but not the spending.

 

Sclerotic growth trumps every other economic problem. Without strong growth, our children and grandchildren will not see the great rise in health and living standards...Without growth, our government's already questionable ability to pay for health care, retirement and its debt evaporate... Without growth, U.S. military strength and our influence abroad must fade...

 

The 'demand' side initially cited New Keynesian macroeconomic models. In this view, the economy requires a sharply negative real (after inflation) rate of interest. But inflation is only 2%, and the Federal Reserve cannot lower interest rates below zero. Thus the current negative 2% real rate is too high, inducing people to save too much and spend too little...If you look hard at New-Keynesian models, however, this diagnosis and these policy predictions are fragile...

 

Where, instead, are the problems? John Taylor, Stanford's Nick Bloom and Chicago Booth's Steve Davis see the uncertainty induced by seat-of-the-pants policy at fault. Who wants to hire, lend or invest when the next stroke of the presidential pen or Justice Department witch hunt can undo all the hard work? Ed Prescott emphasizes large distorting taxes and intrusive regulations. The University of Chicago's Casey Mulligan deconstructs the unintended disincentives of social programs."


 

 

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Fri, 07/04/2014 - 17:47 | 4925528 ShrNfr
ShrNfr's picture

"But it's crapitalism when politicians give your tax money and other special privileges to businesses that are 'most deserving of help.' Actually, they give it to the serfs who will vote for them and the businesses that will donate campaign money to them or which they will be employed at after they leave office. It has always been thus.

Fri, 07/04/2014 - 17:48 | 4925538 International Jew
International Jew's picture

it capitalism when you use a central bank and monopolization of money.

Fri, 07/04/2014 - 18:04 | 4925548 International Jew
International Jew's picture

I would like to note however, that if I tell you that Scientology is a legit organization with a talmudic, fuck anyone who messes with us mentality, and it promotes dianetics, or corrective thinking...

YOU ALL HAVE A SHIT FLIPPING FIT.  Like you've never come upon a world view flipping piece of information.

 

I would remind you, that democracy is also a failure, b/c it places people like you in power.  Hate the zionists all you want, at least they're are smarter and more open minded.  As I always say, fuck the zionists and the goyim.

Fri, 07/04/2014 - 18:10 | 4925589 International Jew
International Jew's picture

& while we are at it, lets face it, least 1/3 of the regulars on here are prob gov or jew trolls.

Fri, 07/04/2014 - 20:47 | 4925837 luckylogger
luckylogger's picture

Or part of the "Putin pussy's Brigrade".

Fri, 07/04/2014 - 18:06 | 4925532 International Jew
International Jew's picture

Fuckers created record CLOs, CDOs and other leveraged derivatives with stock as collateral.  Fucking cunt bankers, and fucking stupid goyim muppets.

Fri, 07/04/2014 - 18:09 | 4925578 International Jew
International Jew's picture

You know the commenters on zerohedge are useless morons and jew trolls when an accurate and truthful statement, literally a statement, gets 2 votes down.  LOL, u wil muppets still mad?

Fri, 07/04/2014 - 19:44 | 4925742 headhunt
headhunt's picture

Here you go ... Fuck you.

Fri, 07/04/2014 - 23:18 | 4925999 Plato's Law
Plato's Law's picture

Maybe they down voted your friendly, approachable nature? 

Fri, 07/04/2014 - 18:14 | 4925595 starman
starman's picture

Part time working renter nation! Nough said! Rip USA!

Sat, 07/05/2014 - 00:35 | 4926053 SF beatnik
SF beatnik's picture

This is how our economic competitors play the game. 

 

Hardball. 

 

Glimpse the future:

 

https://www.facebook.com/photo.php?v=414408184859

Sat, 07/05/2014 - 11:57 | 4926523 TheMerryPrankster
TheMerryPrankster's picture

Bitch and moan about growth and graft, but these are merely symptoms.

All economic growth is predicated on cheap oil and oil aint so cheap anymore.

More wars for resources ahead whilst all but the military industrial complex watch their standard of living collapse.

No since talking about employment and jobs if you're not going to talk about oil.

Blame the jews and the arabs and the negroes and the honkies and the democrats and the republicans and the hipsters and the boomers, but the problem is oil.

Fri, 07/04/2014 - 19:28 | 4925704 Hohum
Hohum's picture

Economic growth "continues to struggle" because no one knows how to grow without debt piling on even faster.

Fri, 07/04/2014 - 19:41 | 4925733 Aussiekiwi
Aussiekiwi's picture

Bottom Line, you dont spend on anything other than on essentials or buy houses if you are on part time or temporary work, The Fed and other powers that be do not understand this because they have never been in that situation, guaranteed jobs for life and lots of cash results in policy that only benefits themselves and their mates.

Sat, 07/05/2014 - 06:37 | 4926198 Snoopy the Economist
Snoopy the Economist's picture

Of course they understand it - they just don't give a fuck.

Sat, 07/05/2014 - 12:00 | 4926530 TheMerryPrankster
TheMerryPrankster's picture

outside of the range of variables in their models is how they say it in polite society.

Sat, 07/05/2014 - 07:37 | 4926225 AdvancingTime
AdvancingTime's picture

Not all economic growth is created equal. If you spend money but afterwards have little to show for it, you have wasted it. Sadly much of the money America "invest it itself" each year through government spending and programs falls into this category. We need the right kind of economic growth, growth that is sustainable, with a purpose, well directed, and that has long lasting benefits.

QE carries with it huge side-effects by distorting and creating a false market as well as encouraging investors to take on more risk. Possibly the biggest flaw manifest itself in the squandering of opportunities that some see a get out of "problems free" card, but in reality this money is not free. One of the biggest concerns is that the withdrawal of this program by its design in effect creates its own headwind. More on this subject in the article below.

http://brucewilds.blogspot.com/2013/08/the-wrong-kind-of-growth.html

Sat, 07/05/2014 - 13:42 | 4926814 novictim
novictim's picture

"...here is only one analysis of employment that matters.  That is full-time jobs relative to the population. Full-time employment is what fosters household formation and long-term economic growth."

Ummm...I think wages matter as much or more than the level of raw unemployment.

Shit-paying jobs are killing this country.

Sat, 07/05/2014 - 13:57 | 4926850 novictim
novictim's picture

Oh, what a bunch of bullshit this Lance Roberts is selling!

"The 'demand' side initially cited New Keynesian macroeconomic models. In this view, the economy requires a sharply negative real (after inflation) rate of interest. But inflation is only 2%, and the Federal Reserve cannot lower interest rates below zero. Thus the current negative 2% real rate is too high, inducing people to save too much and spend too little...If you look hard at New-Keynesian models, however, this diagnosis and these policy predictions are fragile..."

 ----

Keynes was a advocate of the working person.  He showed us that the economy grows from the middleclass out, not from the top down.  He opposed the useless trickle-down economics that were pervasive in the industrial and post industrial period.

 

So why would this author EVER say that the trickle-down economics coming out of Washington is "Keynesian"??  

Keynes is no where to be seen.  The policy of this Fed and this Congress is as anti-Keynesian as one can get.  Austerity in a recession and crony crapitalism is NOT Keynesian policy.  

 

What we see today is not even a macroeconomic policy per se at all.  It is just the expression of a corrupt political system.  It is theft and a ignoring of the needs of the middleclass in favor of wealthy campaign contributors.

Mystery solved.

 


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