News Flash: 5.5% Unemployment Rate Represents Full Employment

What has sort of gone under the radar recently with Ebola fear [17] mongering, Europe throwing a tizzy fit until they get their ‘stimulus fix’ and everything is miraculously all well again, profit taking in front of earning`s season here in the US, and oil on one of its customary $20 trading range moves to the downside is that last Friday the unemployment rate dropped to 5.9% due to another robust employment report and several upward revisions to prior month`s reports. Yes we are in the 5`s for unemployment, well ahead of everyone`s forecasts including the Federal Reserve. 

It is great that everyone interpreted that the Fed Minutes were dovish [18], but the mistake is that this was after a dismal employment report, these minutes were based on old and incorrect economic information, and a Data Dependent Fed has some explaining to do now that the new employment data has come out last week for the economy.

But What About…

I know this is where the doom and gloom [20] crowd who look at every glass as half full will point to the number of people who have left the workforce, or the under-utilization rate, or the quality of jobs created in the economy, or wages only being up 2% this year, or these jobs aren`t cosmic fulfilling to their ethos spirit. 

Have You Seen The Jolts Chart?

My response to that criticism is the following data set from JOLTS data released this week showing there were 4.835 million job openings out there for all those who have either not been looking very hard for a job, have left the workforce, are not satisfied with their current job, or are seeking additional training to move into the workforce. This was the highest level of job openings since January 2001. The number of job openings increased for total private and was little changed for government in August. This is good for the economy the strength that we have seen in both the Employment numbers and JOLTS data the fact that the private sector is leading the way, and not burdensome non-market related government jobs which frankly act as a negative in my book considering their performance and compensation disconnect. 

The Federal Reserve is Clueless

Thus this country has both created the most jobs this year since 1997, and has the most jobs still available since 2001, the unemployment rate is 5.9%, and by my standards full employment is the 5.5% level given historical standards in a normal, healthy economy and job market. Go back and look where the Fed Funds Rate was during times of comparable employment percentages for the last 20 years, throw in the fact the gas prices are finally coming down giving consumers extra money to spend on retail and discretionary spending during the Holiday shopping season, thus giving a boost to third and fourth quarter GDP numbers, the US economy is growing above trend, and there is no way in hell the Fed should still be stuck at recession era level of interest rates.

What Comes After a Tightening Labor Market?

The amount of off-sides in the bond markets [24] here taking advantage of ZIRP [25] to borrow at essentially nothing and juice up bonds because when it costs nothing to borrow money any yield is a good yield in their book is setting the entire financial market up for major volatility in the massive getting back on-sides with the reality of a healthy economy growing above 2.5%. 

I am sorry for the doom and gloom dovish free money for life crowd but use a little logic, the job market is tightening [26] by any standards, we are growing above trend, and we are approaching by historical standards full levels of employment, what is the next shoe to drop in a tightening labor market reaching full employment, it is wage inflation and pricing power for goods and services other than petroleum products which have been overvalued for a long time given the fundamentals of the energy market. Make no mistake don`t be fooled by lower energy prices and its effects on inflation, giving a huge tax break to US consumers is actually after a slight lag effect, highly inflationary for overall prices in other categories of the CPI bucket, we are going to experience a sharp increase in inflation once these minimum wage initiatives start pushing through the system.

Fed Dovishness Out of Control

I have never seen a more mismanaged Fed right now, Janet Yellen and the Doves snuggling up to her good graces are completely out of touch with the economic data and realities of the US economy. Furthermore, the latest ploy for those on Wall Street who want continued free money at any costs to long-term financial stability to the system are the same crowd that was buying subprime mortgages the last time interest rates were low chasing the same type of levered yield trades that time with securitized debt instruments, and this time with treasuries around the world. The can`t raise interest rates mentality because the dollar is too strong are myopic ZIRP sycophants, this is what happens when an economy is growing better than other economies, the currency appreciates against other currencies, and interest rates rise. Do any of these people have a basic understanding of economic, business and financial market theory?

Liberalism at core of Fed Cluelessness

This is how economics work, this is a good thing to have one`s economy outperforming its peers on a globally competitive basis, to be entrepreneurial, create innovative products, better ways of doing things, paying higher wages because employment levels are rising, the job market is tightening, and by any normal measure interest rates should be following suit and rising as well regardless of whether the US Dollar also strengthens. This isn`t a new concept, the US Dollar has been strong before, and the Fed Funds Rate has been much higher. I swear these doves at the Fed are from this West Coast school of ‘Feel Good Liberalism’ at the expense of throwing all their economic principles out the window. These doves at the Federal Reserve are so left wing ideologues that they are basically risking the entire financial system, creating massive bubbles in most of all the bond markets that are going to end disastrously at this pace, all because of their social welfare mentality which is at the core of all of this ZIRP Nonsense. 

But Look We Are Helping People Mentality

I finally figured out what is part of the core reason shaping this out of touch view by what are supposed to be trained economists, it all starts from academia, which is as politically correct and socialist liberal leaning as you can get stuck in the easy confines of protected walls of ‘Feelgoodism’. These people feel good about themselves if they are in their mind playing a role in giving something away, they are participating in the cause, even if it means being totally disconnected from economic reality and basic historical economic relationships that have held for decades, all along the way creating massive bubbles in financial markets that create more damage to the system over the long-term. It is the fact that in their minds they are ‘helping people’ by keeping interest rates below healthy levels, and the big banks are more than willing to accept the free money, they sure the hell don`t give a damn about the long-term. The big banks and financial institutions will never say NO to free capital.

The Federal Reserve Should Not Be a ZIRP Soup Kitchen for Financial Markets

Consequently Social Liberalism is really what has corrupted this Federal Reserve, and no I am not a conservative, in fact I have no political affiliation, other than maybe a person interested in price discovery and the beauty of free markets without Fed controlled manipulation of asset prices. But if these folks are going to let their politics interfere with basic economic reasoning and theory, then we need to start treating them like politicians and voting them in or out of office every two years.

And I would clean house with this Federal Reserve, they are incompetent, irresponsible risk takers with Monetary Policy, and with a 5.9% unemployment rate and a 25 basis point Fed Funds Rate, motivated by their ‘Feel Good Do Goodism’ liberal bearings have lost all objective economic reality! These people should have become social workers instead of objective ‘data dependent’ economists. The financial system doesn`t need any more ZIRP handouts to ‘fix’ things, or break things so that they can be ‘fixed’ again, what they need is for the Federal Reserve to get out of financial markets, return interest rates to more normalized conditions, and stay out of financial markets for good in terms of asset purchases. Enough of this Social Welfare Mentality for Financial Markets!