The only employment chart that matters. The 2007 recession gap will not be filled before 2015 and it's probable that there will be an intervening recession.You actually believe in the household survey population controls that magically created 550000 jobs last January, do you? I don't. The labor force participation rate is back to 1984 levels.And you can back out 90000 jobs in the payroll survey due to the benchmark revision.On balance the October payroll survey was an A but the household survey was a D.
"The only conclusion we can reach is that Bernanke, like his Princeton University colleague Paul Krugman, suffers from "apoplithorismosphobia," a term I coined (with the help of a Greek translator) to label the psychological and irrational fear of deflation."
The employment to population ratio is also worth considering -- more at:http://wjmc.blogspot.com/2010/11/us-employment-to-population-ratio.html
Public: I like that word!
Lol. There is more than a grain of truth in the application of the term when describing Bernanke too. The more I read about sound money policy the more distant it seems the Federal Reserve is from a sustainable reality.It is a no-brainer that economic growth comes from savings and investment. This means reward savers and get out of the way of investors investments.To the contrary, we have a Fed that believes if you can trick people into felling wealthy, they will spend and eventually this results in growth and investment. Each successive hiccup simply requires a little more trickery and spiked koolaid and away we all go.Bernanke believes 100% in bailing out banks forever and at whatever cost. This will prove most foolhardy of all.
The economy will heal slowly if left alone. The economy will heal a little bit faster if Obama's policy initiatives are thwarted. The economy will heal faster still if the policy initiatives of the last two years are reversed. There is nothing that the government can do to create a rapid recovery.$10T in wealth was wiped out in the housing crash. Consumption cannot grow because people need to save. Construction will not recover because there is a glut of houses. Investment to expand capacity for consumption goods will not grow until consumption grows again. The way forward is investment to cut costs, for export and for import substitution. This will occur as the rest of the world recovers. The best the government can do now is to create an environment hospitable to investment and address public sector factors that make our economy less competitive.
A million jobs has a nice ring, but jeez, compared to the total number of US jobs--well more than 100 million-- it is a small increase. Less than one percent.Since when does a less than one percent increase in the number of jobs in the US threaten inflation? And unemployment is still near 10 percent. Bernanke is doing the right thibng, just not hard enough. There is an irrational, now obsolete fear of inflation in central banker circles. I wonder if anybody in Japan in 1990 predicted they would see 20 years of deflation, and 75 percent collapses of equity and property values.That is the future we do not want to have.
BTW, Paul Krugman, who is not always wrong, has a great post 11/6 re commodity prices and inflation, especially his chart. Basically, commodity prices have been in a secular uptrend for a long time, probably due to strong demand globally. I have a theory: You should worry about inflation when there is some inflation.
Benjamin: How do you define inflation? How, when calculating the rate of inflation, can you ignore rising commodity prices, rising gold prices, rising energy prices, and rising prices (in dollar terms) in almost every country in the world?
Scott-I go by the CPI--and remember, Boskin of Stanford (very conservative fellow) thinks the CPI overstates inflation by about one percent. A recent AER peer-reviewed paper came to the same conclusion.If Boskin and the AER paper are roughly accurate. we are about at zero inflation now. I think we can not worry about inflation for a while, and try to get business going again, and revive real estate markets (which will really help our banks too). I want inflation, in moderation. See Japan. So yes, I favor heavy QE2. Bring on some inflation. It would also help deleverage our economy.You and I disagree about gold. I think it is demand-driven speculation and consumption (jewelry), from China and India (where they do have inflation) that is driving gold prices up. US monetary policy has little impact. I guess we just disagree, and I can't prove I am right. But given that most gold output is consumed for jewelry in India and China, I think I make a strong argument. Let me pose a question: If a gold-buying mania in China and India (2.5 billion people) is the reason gold prices go up, what should the US do about it? Should we not be cautious about snuffing out a US economy based on a false signal from gold prices? Sheesh, they have had deflation in Japan for 20 years, and commodity prices have zoomed, crashed and zoomed. Thus, a mature major economy can have deflation even while global commodity prices go up. Global commodity inflation did nothing for Japan. If you look at the chart on Krugman's blog, you see long-term (decades) secular increases in commodity prices. It is old-fashioned demand-pull inflation, from growing global markets. China and India are really coming on. We may also see corrections as new supplies are brought on line, or demand withers in the face of higher prices. Long-long term, I predict lower commodity prices.We could suffocate our economy, put a monetary noose around our necks, and maybe dent commodity prices. To what end? Oil is a special case, what with OPEC, thug states and the NYMEX involved. Oil can trade anywhere from $50 to $150 for a few months, regardless of US monetary policy, or aggregate global monetary policies. I am an amateur, but I studied the oil markets closely for three years, invested heavily in futures (unsuccessfully). My take-away is that prices are erratic, irrational, cartelized, speculative, but cannot be sustained above $125 a barrel for long, or even $100 a barrel in the long-term. I was right when I speculated in oil, but ran out of innings. Here is a question: Suppose Iraq in fact stabilizes, and oil production there rises to 12 million barrels a day, as some say it can, or about 15 percent of current world production. Iraq would rival Saudi Arabia then. Let's say oil prices sink after that. US monetary policy? It has an influence, but so do the actions of oil-exporting thug states globally, including Venezuela, Iraq, Iran, Russia, Mexico, Libya...boy, it is an ugly roll-call of non-free market thug states. Anyway, Scott, I enjoy your posts very much, and when I pipe up, it is just my take on things. I am very much in the pro-growth camp, I worry little about inflation until we see it above 4 percent.Interestingly, when inflation was at 4 percent in the 1980s the Wall Street Journal editorialized that Volcker ought to ease up on the money supply. Now we are at one percent, and people say Bernanke is being wild.Times change. I saw pour on the money spigot.
Benjamin,It is the fear of deflation that will cost us our country, not inflation.
Benji is directionally correct. Grannis doesn't understand the supply chain.At the producer level, crude materials (commodities) prices rose 20.3%, intermediate prices rose 5.6% and finished goods rose 4.0%, all year over year. At the wholesale level, prices rose 3.1% year on year.At the retail level, core PCE and CPI rose less than 1.5% year over year.Commodity prices are not feeding consumer goods or capital goods prices. As this is the worst of the 11 post-WW11 recoveries when it comes to aggregate demand, business cannot cost-push inflation in the supply chain. Period. It's called gross margin compression.
Public Library:Okay, tell us your policy recommendations for Japan, and why has Japan been in a 20 year-deflationary trend, and now in their 17th straight month of outright deflation.Please explain why equity and real estate prices are down 75 percent in Japan in the last 20 years, and still falling.Address the issue of when bondholders become so influential, they demand the economy be flatlined so they do not take losses. A monetary noose around the neck of property and equity holders. I see no upside for tight money, as practiced in Japan. It has been a telling and monumental failure. That is exactly the wrong path for us to take.
Benj,Bernanke & Co. appear to be in your camp. The financials, represented by the SPDR sector ETF (XLF) have broken above their 200 day moving average on high volume. This is an indication of higher prices for financial equities and IMO is very good news for the economy. Breakout points are usually tested, so for those so inclined, a correction should offer another opportunity to get long. This is just my cheap opinion but I believe the banks are beginning a multiyear bull cycle similar to the one that occured in the ninties. The Fed is reliquifying the banks in very similar fashion. Share prices will, over time, move much higher....again, just my cheap opinion. Do your own homework if and before you invest.
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