Unemployment Benefits

Federal Reserve Chairman Ben Bernanke said this week that inflation in the United States needs to be higher. It almost seems as if Bernanke is trying to purposely hurt the middle class. But what Bernanke will never admit is that the official inflation rate is a total sham.  The way that inflation is calculated has changed more than 20 times since 1978, and each time it has been changed the goal has been to make it appear to be lower than it actually is. If the rate of inflation was still calculated the way that it was back in 1980, it would be about 8 percent right now and everyone would be screaming about the fact that inflation is way too high...

Something is way off: either the unemployment data is very much wrong and the real unemployment rate is far higher especially when normalized for the collapsing labor participation rate and the surge in part-time and temp workers, or the GDP calculation is incorrect and the economy is growing at a 4%+ rate. (It isn't). The scarier implication is that in addition to all other seasonally adjusted economic data points which have become painfully unreliable, daily Treasury tax receipts must also now be added to the docket of meaningless and corrupt data points. The question of just how the Treasury could explain a massive (and deficit boosting) cash discrepancy could only be answered if somehow the Fed is found to be parking cash directly into the Treasury's secret basement.

In the final section of this five-part series (Part 1, Part 2, Part 3, and Part 4) on the dismal reality behind the non-recovery, David Stockman explains what lies ahead. He details in his new book 'The Great Deformation', that the mainstream notion that there is a choice between fiscal austerity and fiscal stimulus is wishful thinking. It does not recognize that owing to the triumph of crony capitalism and printing-press money America has become a failed state fiscally. What lies ahead is a continuous, mad-cap cycling back and forth - virtually on an odd-even day basis - between deficit cutting and fiscal stimulus to the GDP. As Stockman notes, the proximate cause of this recession waiting to happen is the federal government’s unfolding encounter with Peak Debt. The latter is not a magical statistical point such as a federal debt ratio of 100 percent of GDP, but a condition of permanent crisis - "no viable economy can survive on chronic fiscal deficits nor can it fail to save at a sufficient rate to fund a healthy level of investment in productive capital assets. The blithe assumption to the contrary which animates current policy rests on self-serving clichés such as “deficits don’t matter” and the Chinese savings glut." So the American economy faces a long twilight of no growth, rising taxes, and brutally intensifying fiscal conflict. These are the wages of five decades of Keynesian sin - the price of abandoning financial discipline.

• As Goldman's money-printing tentacle Carney arrives, everyone else leaves: Tucker to Leave BOE (WSJ)
• So much for pent up demand: Refinancings Plunge as Bond Yields Rise (WSJ)
• Singapore Censures 20 Banks for Attempts to Rig Benchmark Rates (BBG)
• Behind the Big Profits: A Research Tax Break (WSJ)
• While working for spies, Snowden was secretly prolific online (Reuters)
• Turkey to Await Ruling on Park as Erdogan Meets Protesters (BBG)
• Iran votes for new president, Khamenei slams U.S. doubts (Reuters)
• NSA revelations, modified wheat cast a pall on U.S. trade talks with Europe (WaPo)
• Euro zone inflation subdued as employment keeps falling (Reuters)

The New Deal social insurance philosophers thus struck a Faustian bargain... To get government funded pensions and unemployment benefits for the most needy, they eschewed a means test and, instead, agreed to generous wage replacement on a universal basis. To fund the massive cost of these universal benefits they agreed to a regressive payroll tax by disguising it as an insurance premium. Yet the long run results could not have been more perverse. The payroll tax has become an anti-jobs monster, but under the banner of a universal entitlement organized labor tenaciously defends what should be its nemesis. The puzzling thing is that 75 years later - with all the terrible facts fully known - the doctrinaire conviction abides on the Left that social insurance is the New Deal’s crowning achievement. In fact, it is its costliest mistake.

When even the political elite are voicing concerns about the possible social implications of youth unemployment rates in Europe being so egregiously high, you know that there are problems. The question many have is that until now riots have been few and far between (most notably Sweden and Switzerland recently); so why are the main areas of massive unemployment not seeing the widespread chaos? The answer, perhaps unsurprisingly, is in government handouts but as Stratfor notes, time is running out for the benefit-beholden generation and perhaps the governments will finally see what so many have been fearful of.

Beneath the unemployment rate and headline jobs number is a world of labor market signals that few, if any, ever take the time to look at. ConvergEx's Nick Colas analyzes 10 under-reported signals to look for alternative clues about the direction of the job market and, in his words, the results aren’t pretty.  We’re still 2 years away from full employment at the current pace of job growth, and more people are entering the labor force for the first time since the 1980s, adding to already fierce competition for open positions.  Not to mention over 7% of those not in the labor force actually want a job right now (also intensifying competition), and the rate of job growth isn’t enough to offset the number of unemployed workers with expiring benefits.  On the plus side, the number of re-entrants to the labor force is at a 4-year low.  And for those who do have a job, average wages are higher than ever. However, the majority of the analysis shows the labor market remains stubbornly resistant to improvement - despite talking heads belief in 'taper'ing on improvements.

Inflation, housing, unemployment figures, personal spending and utility bills are all improving across the US.

Last week (May 11^th) there was a peak of 32, 000 new claims being made taking the US to 360, 000 new unemployed claims being filed, which is the biggest increase since March. 

Since the end of the recession businesses have been increasing their bottom line profitability by massive cost cuts rather than increased revenue.  Of course, one of the highest "costs" to any business is labor.  One way that we can measure this view is by looking at corporate profits on a per employee basis.   Currently, that ratio is at the highest level on record. The problem that businesses are beginning to face currently is that while they have slashed labor costs to the bone there is a point to where businesses simply cannot cut further.   At this point businesses have to begin to "hoard" what labor they have, maximize that labor force's productivity (increase output with minimal increases in labor costs) and hire additional labor, primarily temporary, only when demand forces expansion. The issue of "labor hoarding" also explains the sharp drop in initial weekly jobless claims. This is likely obscuring the real weakness in the underlying economy.  Without an increase in the demand part of the equation businesses are likely to continue resorting to further productivity increases to stretch the current labor force farther to protect profitability.  However, as we may currently be witnessing, businesses may be reaching the limits of what they can do.

• Korean Nuclear Worries Raised (WSJ)
• Och-Ziff, With Strategy from a 30-Year-Old Debt Specialist, Racks Up Big Score (WSJ)
• Japan's big "Abenomics" gamble: how to tell if it's paying off (Reuters)
• Kuroda walks a two-year tightrope (FT)
• China Rebound at Risk as Xi Curbs Officials’ Spending (BBG)
• BOJ Said to Consider Boosting Outlook for Inflation (BBG) - for energy prices? Absolutely: by double digits
• Cyprus May Loosen Bank Restrictions in Days (WSJ)
• Cyprus mulls early EU structural funds (Reuters)
• Russia slashes 2013 growth forecast (FT)
• Japan, U.S. Agree on Trade-Talks Entry (WSJ)
• IMF Trims U.S. Growth Outlook in Draft Report Citing Fiscal Cuts (BBG)
• Mexico Is Picking Up the Peso (WSJ)

Remember the Wal-Mart employee who sent out an intercepted email disclosing that "Wal-Mart February sales were a "total disaster", and was the worst monthly start since 2006"? Well, he won't be making that mistake ever again.

BREAKING: Wal-Mart executive who called retailer’s February sales a “total disaster” in an internal e-mail has left the company

— Bloomberg News (@BloombergNews) April 10, 2013

The jobs recovery is a complete and total myth.  The percentage of the working age population in the United States that had a job in March 2013 was exactly the same as it was all the way back in March 2010.  In addition, as you will see below, there are now more than 101 million working age Americans that do not have a job.  But even though the employment level in the United States has consistently remained very low over the past three years, the Obama administration keeps telling us that unemployment is actually going down. Anyone that tells you that "a higher percentage of Americans are working today" is telling you a complete and total lie.  The sad truth is that there has been no jobs recovery whatsoever. If things were getting better, there would not be more than 101 million working age Americans without a job.

Data are hard to deal with when your vision is on the wrong side of it. Those wanting to claim there is a recovery underway are having just this problem. These people either have no understanding of economics or they believe falsely that they can inflate “animal spirits” with their hyped reports and that will initiate a recovery. There will not be an economic recovery given the economic policies of this country. A recovery is not unlikely, I would argue it is closer to impossible if not impossible. The reasons for this position are not complicated. In short, the nation has become an out-of-control welfare state that is rapidly destroying the incentives to work or create jobs. Government policies appear designed toward this end. One doesn’t need a high IQ or  an advanced degree in economics to understand the problems. There are innumerable factors responsible for the decline of the US. These three important ones will convey why the economy is dying...

If the economy is getting better, then why does poverty in America continue to grow so rapidly?  Yes, the stock market has been hitting all-time highs recently, but also the number of Americans living in poverty has now reached a level not seen since the 1960s.  Yes, corporate profits are at levels never seen before, but so is the number of Americans on food stamps.  Yes, housing prices have started to rebound a little bit (especially in wealthy areas), but there are also more than a million public school students in America that are homeless.  That is the first time that has ever happened in U.S. history. So should we measure our economic progress by the false stock market bubble that has been inflated by Ben Bernanke's reckless money printing, or should we measure our economic progress by how the poor and the middle class are doing?  Because if we look at how average Americans are doing these days, then there is not much to be excited about. Unfortunately, that bubble of false hope is not going to last much longer.  In fact, we are already seeing signs that it is getting ready to burst.