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A Very Pernicious Partnership: Keynesian Money Printers And Wall Street Gamblers

Tyler Durden's picture




 

Submitted by David Stockman via Contra Corner blog,

No sooner was the January jobs report released than the Wall Street Journal posted a succinct headline: “Hiring, Wages Pick Up as Job Market Nears Full Health”.

Whether the job market is actually as red hot as the BLS’ headline numbers is a debatable topic, but it is absolutely clear that the “emergency” the Fed cited 73 months ago when its pegged the money market rate a zero has long since vanished. Indeed, by the standards of all prior history, ZIRP was a death bed remedy. Prior to December 2008, the Fed had never, ever pegged the funds rate at zero—not even during the Great Depression.

So if the US economy did generate new jobs at the 4 million annual rate implicit in the November-January average, how is it that not only is the money market still pinned to the zero bound, but that the Fed continues to energetically waffle over how many more months it will remain there? Don’t these people know what the words “emergency” and “extraordinary measures” mean in plain English?

Not that it really matters. The truth is, the stubborn and unaccountable continuance of a crisis era monetary policy in the face of a purportedly booming labor market reflects something altogether different than economic common sense. Namely, it is the product of a pernicious partnership of convenience between the Keynesian money printers who dominate the Fed and the gamblers who inhabit the Wall Street casino. Together they virtually smoother any recognition that the current juxtaposition is just plain nuts.

As it happened, not more than 60 minutes after the WSJ headline appeared the usual suspects were at work explaining a condition that seemed anomalous even to the cheerleaders on CNBC.

First, the Fed’s PR man at the WSJ posted a “Hilsenramp”, reminding the gamblers that the “whopping increases in payroll employment in recent months” don’t necessarily mean that the party will end any time soon.  You need to understand the code words, he explained:

Fed officials will decide at their March meeting whether to change or drop the language in their policy statement pledging to “be patient” in deciding when to raise their benchmark short-term interest rate from zero. That phrase means they won’t move for at least two more meetings. After the March gathering, the Fed has meetings scheduled for April and June. If the policy makers keep the “patient” language in the statement, that would indicate they don’t think they’ll raise rates at those meetings.

Having thus teed-up the basis for still another delay, Wall Street then got the word seconds latter from Goldman’s chief economists and stock peddler.  Said Jan Hatzius to his skeptical bubble vision host,

“The case for ‘patience’ is still quite strong.”

So the worrisome anomaly embedded in the morning’s jobs report was quickly and cleanly dispatched. Goldman ordered no deletion of the “patience” word from the March statement, and, ipso facto, the casino was assured of free carry trade money until Labor Day, at least.

To be sure, Hatzius had his reason for his ZIRP for longer ukase, but it was a whopper. He noted with a straight face that Yellen would not be impressed with the 2.2% y/y growth in hourly wages, also reported this morning, and that her signal that the blessed hour of “full employment” was approaching and that interest rates need to get off the zero bound would be gains in the 3-4% range.

Really? There has not been one month of 3-4% y/y hourly wage gains for almost a decade. And the prospects that this will occur any time soon, say during the next decade, are remote to none.

And whether Yellen actually expects this or not is beside the point. Unlike in the 45-years ago time warp from the Yale economics department where our Fed head became indoctrinated in James Tobin’s bathtub theory of economics, the US labor market does not operate in a closed system internationally, and it is not remotely close to full employment of the potential labor hours available at home.

In fact, the next round of downward labor pressures is just getting started owing to the crack-up boom that has been engineered by the world’s central banks. Due to worldwide financial repression and the scramble for yield caused by ZIRP, there has been a massive over-investment in capacity to produce energy and raw materials, transportation, shipping and distribution services, industrial intermediates and finished  consumer products, including luxury items and BMWs, among numerous others.

So this two-decade long spree of planetary malinvestment is already causing commodity prices to tumble, and manufactured products will not be far behind. Thus, iron ore is nearing $60 per ton compared to a peak of $200 in 2011, and according to one astute observer of the China scene, as we posted this morning, is heading for under $40 per ton soon.

And that is just the first leg. The reason for this collapse is not only the massive over-investment in iron ore mines in Australia and Brazil owing to cheap capital, but that as the China debt Ponzi has reached its limits, its steel production has stagnated. During 2014 it grew by less than 2% compared to double digit rates for the prior two decades—and that plain and simply means bone-busting “dumping” of steel products and fabrications into the export markets in the years ahead.

In fact, China’s steel product exports already doubled during 2014 to nearly 100 million tons, but China actually has excess capacity that is upwards of 500 million tons. Couple that massive overhang with the collapse of global demand for plate steel, owing to the shutdown of new shipping construction, and structural steel and rebar, due to the rapid cooling of the China and EM construction boom, and you have a global steel price war that will crush not only profits, but wages, too.

Needless to say, the iron ore/steel products food chain is only a leading but typical example. As we posted elsewhere this morning, the currency war and race to the bottom is now on among central banks all over the world. The People’s Bank of China is surely next in line as it desperately tries to cool down its internal construction binge and make up the resulting growth deficit with a revivals of export growth via cheaper RMB exchange rates.

In a word, virtually every central bank in Asia and Europe is involved in a deliberate policy of exchange rate  depreciation and therefore export of deflation–including enormous downward wage pressures— into the world economy.

At the same time, the phony 5.7% domestic unemployment rate reported yesterday has nothing to do with full employment. The relevant number in the report is that there are still 101 million working age Americans who do not have jobs, and only 45 million of them are on OASI retirement benefits. And that says nothing about the tens of millions of job holders who are employed far less than a full 40 hour work week.

In short, there is a surfeit of available labor at home and abroad, meaning 3-4% wage gains are not coming down the pike any time soon or ever.

So if that’s what the Fed is waiting for - then the so-called “lift-off” may not be coming even this year. And in any event, the trivial 25 bps increases in the funds rate that may eventually come have nothing to do with interest rate “normalization” or the return of honest price discovery in the casino.

And that suits the needs of the Wall Street gamblers just fine.

 

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Sat, 02/07/2015 - 15:55 | 5756139 HonkyShogun
HonkyShogun's picture

<-- What they think it be like

<-- How it do

Sat, 02/07/2015 - 16:20 | 5756229 dimwitted economist
dimwitted economist's picture

everything is fine... just ask obama.

Sat, 02/07/2015 - 17:11 | 5756392 Stuck on Zero
Stuck on Zero's picture

Can Obama explain why it's good to have a surplus of workers and not have a surplus of banks?  Shouldn't we break the banks up into 500,000 little highly competitive banking institutions? Competition is competition.

Sat, 02/07/2015 - 17:46 | 5756516 strannick
strannick's picture

Ivory tower academics have ever been the useful idiots to corrupt elites.

Janet Yellen couldn't profitably manage a Burger King, but she's given the keys to the Keynsian kingdom, cause she's that doe eyed.

Sat, 02/07/2015 - 16:00 | 5756169 falak pema
falak pema's picture

the wall street gamblers are the Masters and the Keynesian shamans with false noses are their slaves...

We are in an Ottoman Empire.

Sat, 02/07/2015 - 16:01 | 5756178 Unix
Unix's picture

Ahh the casino, let's roll the dice and see what happens! CB's are all full of shit and are in a box, of their making, that they will never get out of. Gonna be a lotta pain to go around for all...

Sat, 02/07/2015 - 16:01 | 5756179 davey
davey's picture

Well said David. David I'm happy that you speak out.

Sat, 02/07/2015 - 16:22 | 5756225 Silversinner
Silversinner's picture

The counterfeit money has to be laundered through the wallstreet casino

to give it value.The illicit funds have to commingling with real capital ans savings.

What a fucking scam.

 

Sat, 02/07/2015 - 16:31 | 5756259 yogibear
yogibear's picture

The Federal Reserve prints the money and the gamblers utilize it. 

More and more polker chips for more gamblers.

Sat, 02/07/2015 - 16:31 | 5756261 wmbz
wmbz's picture

Banksters Inc. Makes Murder Inc. look like the lollipop kids!

Sat, 02/07/2015 - 19:26 | 5756848 disabledvet
disabledvet's picture

David Stockman's "contra-band corner."

 

That'll get 'er moving!

Sat, 02/07/2015 - 16:47 | 5756310 atlasRocked
atlasRocked's picture

There is a reason Obama didn't prosecute the bankers - now he has corrupt bankers at his whim to prosecute or not.  

Now everyone is guilty of corruption, so no one is guilty of corruption.  

Sat, 02/07/2015 - 16:47 | 5756312 Bemused Observer
Bemused Observer's picture

You say, " there are still 101 million working age Americans who do not have jobs, and only 45 million of them are on OASI retirement benefits. And that says nothing about the tens of millions of job holders who are employed far less than a full 40 hour work week."

It shouldn't be assumed that these folks SHOULD have jobs, or full-time hours. It's the logical and inevitable result of an ever-shrinking job market, through automation. What amazes me is that this has been KNOWN for decades, that automating would eliminate jobs. People were just hoping something else would come along.
Which it did. But it was Tech...an industry where a billion-dollar company can be run by a dozen people. Not exactly the job-creating engine that manufacturing was.

Anyone who comments on this, and does NOT begin their comment with something like, "We KNEW this was coming, but..." should be ignored completely.

It's ok in the end though...we're just reverting to the norm. The norm where women stayed home, and the whole family depended on one breadwinner. Funny how that was the case during some of our most prosperous times...oh, but then we didn't have a huge global FINANCE industry to support, did we? For THAT we had to send Mom to work, and we DID in the mid-70's. We HAD to to keep up with the revved-up economy they were creating. When Mom's salary no longer cut it, we had to go to credit cards. When THEY were exhausted, it was the 'home equity loan' that stepped in. It didn't matter that one thing failed, as long as something else could be found to put in its place.

So, we're at the bottom of the goody-bag, and there's nothing left. Now what guys?

Yeah, they'd LIKE to imagine all those people returning to the profit generating, taxable labor market...keep dreaming guys. It's gonna be downhill from here, for quite awhile. Your economy is deflating now. Exhaling. There won't BE any more jobs for these folks, so they won't be going back to work. In fact, more will LEAVE the labor market going forward, either by choice, or because their jobs get eliminated.

Things get smaller going forward, much smaller. Big Finance, in its current form, cannot survive under those conditions. It will be satisfying to watch as it slowly strangles for lack of capital over the next few years.

Sat, 02/07/2015 - 18:45 | 5756732 Omen IV
Omen IV's picture

"Big Finance...cannot survive under those conditions. ....As it slowly strangles for lack of capital over the next few years."

 

Never happen to -  Big Finance -  doesnt require positive cash flow -for them to make money

stealing and fraud are skill sets that will always be there rain or shine - dont need more than that to make money

Sat, 02/07/2015 - 16:49 | 5756319 XRAYD
XRAYD's picture

While any job is better than none, the breathless hype in the mainstream media about rising wages is just that - hype. The "average" hourly wage was up .5%! OK. But this wage is $27+ an hour, where as the median wage in America is around $17.00.

 

One wonders how many of the nearly 1/2 million jobs created in the last quarter paid $25 and hour, or even $17?

Sat, 02/07/2015 - 16:56 | 5756348 dimwitted economist
dimwitted economist's picture

the highest wage (per hour) i have EVER earned was Under $17 an hour.. that was in the good old days.. (2006)

Sat, 02/07/2015 - 18:30 | 5756678 ebworthen
ebworthen's picture

Thank you David Stockman!

Bankster Casino!  Keep saying it!  Keep telling it like it is!

Sat, 02/07/2015 - 20:00 | 5756935 mendigo
mendigo's picture

Hardly.

JPM did not have a losing day in 2014.

Sat, 02/07/2015 - 20:10 | 5756962 ebworthen
ebworthen's picture

Right, because the FED back the banks and the Casino.

The banks and banksters are the house; we are the involuntary gamblers.

Slavery by any other name.

Sat, 02/07/2015 - 20:11 | 5756964 ebworthen
ebworthen's picture

Right, because the FED works for and funds the banks and the Casino.

The banks and banksters are the house; we are the involuntary gamblers.

Slavery by any other name.

Sat, 02/07/2015 - 18:49 | 5756746 Hohum
Hohum's picture

Keynes advocated surpluses in the good times, right?  And we're told we are now in the good times, right?  So the federal government should be running a surplus.

Sun, 02/08/2015 - 09:50 | 5758096 atlasRocked
atlasRocked's picture

Keynesian stimulus has never worked.  

 

Money printing means a currency is in critical condition - near death.   Like defibrilating a dying patient.    Massive deficits and printing is going on around the world.  The patient is dying.

 

Sat, 02/07/2015 - 18:56 | 5756760 venturen
venturen's picture

SIT DOWN AND SHUT UP!

 

Next question is from the Huffington Post, then the DailyKOS and finally the NYT won't even ask a question as they pre-wrote the answer!

Sat, 02/07/2015 - 19:35 | 5756870 techstrategy
techstrategy's picture

David:  Another good article, but I suggest you consider whether China might flip the switch.  What's its Net International Investment Position?  How much USD debt versus USD Forex and UST?  And it has imported how much gold n addition to domestic production?  If it were to stop pegging to USD, the income and wealth effect for 1.1 billion Chinese would be huge.  And the aggregate demand lift extraordinary.  It is coming and the great deformation will end.  Side note, please focus more on the true cause -- the fractional reserve banking phantom claims on real flows of value.  It's never been industrial capitalism for almost 100 years.  Its the bsnksters financialism that is a cancer upon the world.  At its core, it creates a disconnect between value creation and value capture.

 

Financial "assets" will be repriced in real terms.

Sat, 02/07/2015 - 19:56 | 5756929 mendigo
mendigo's picture

I suspect Yellen cant raise rates while dollar is so strong - basically you cant be tightening while the rest of the world is easing.

Loose money is now factored in to the fabric of the economy.

Under employment.

Excessive debt

Sun, 02/08/2015 - 09:52 | 5758101 atlasRocked
atlasRocked's picture

Keynesian Beauty Contest  

$50 gift certificate for the winning example:

Keynesian stimulus was used in the
country _____ in the years ______,
during a __ recession/__ depression,
then the economy turned around within 2
years, and then produced ___  years
of lasting growth WITHOUT A WAR after this.  
The increased tax revenue was enough to
pay off all the deficit the stimulus
had created within ______ years. 

Sun, 02/08/2015 - 15:21 | 5759029 atlasRocked
atlasRocked's picture

I've been posting this reward for 8 years - no winners yet.   And searching all of Chief Propagandist Paul Krugman's articles reveal zero success stories as well.   

Do NOT follow this link or you will be banned from the site!