Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Not As Much Labor Force Slack as Yellen Believes

Economics / Employment Aug 12, 2014 - 08:24 PM GMT

By: EconMatters


Fed Moving Targets

The Fed keeps moving their targets when they originally thought it was a good idea to provide forward guidance for markets, then when that guidance was met, they started moving the targets in order to justify pumpingmore liquidity and stimulus into the financial system for the benefit of the Big Banks.

Labor Slack Argument

So the Fed came up with this ‘slack in the labor force’ argument helped of course by Wall Street or should I say the big banks in thiscountry that are benefitting immensely from maintaining the status quo of easymoney from the Federal Reserve. After all it is the banks who came up with this idea of ‘slack in the labor force’ to push the Fed to continue more stimulus, they run the show, yes you got it the bankers run the Federal Reserve. They cry and wine for easy monetary policy, tell the Fed what to focus their attention on regarding pseudo economic issues, and the Fed does their beck and call, the Federal Reserve is about as independent as the drug testing authority presiding over Lance Armstrong's Tour de France reign.

Read More >>> Housing Market Setting Up for Another Crash

The Tail Wags the Dog

It is so bad that basically the Federal Reserve has become the lapdog of the big banks in this country so when the employment target starts to get hit, when the inflation target gets hit, when the economic targets get hit, go to the ole undefinable, mystical, hard to quantify ‘slack in the labor force’ card to justify not raising rates when we are producing more jobs in the country than at any time in the last 17 years. And mind you this included the robust tech explosion, the housing boom, and the credit booms of the last 17 years, and we never created this many jobs on an annual basis, and the Fed Funds Rate wasn`t zero, or 1, or 2% but 5.5%. What the hell is going on at the Fed, they cannot seriously believe policy is anywhere near where the economy is actually performing when compared to any other time in the entire history of the economy and the Federal Reserve Monetary Oversight Function!

Slack in Labor Force - What does it really constitute?

So let`s talk about this mercurial ‘slack in the labor force’ participation rate, what it really signifies, and how it relates to the actual real time job market. The idea is that the economy has been so bad that a bunch of workers became so discouraged that they stopped looking for work, left the workforce entirely for six years mind you, and once the labor market gets significantly tight, employers will be forced to raise salaries, lower hiring standards, change the requirements of the positions, or retrain workers which will bring these people back to the land of ‘Documented Employed Workers’.

Tons of Unfilled Jobs

But there are tons of unfilled jobs [Job openings hit 4.7 million in June, vs. 4.6 million in May]
all over the country right now for many skilled positions, in fact employers are saying that they cannot fill many of these positions because the market is ‘fully employed’ for these types of jobs, and that there is a large gap between the skills required by the position, and the skillset of the applicants. So large is this gap, like for example a financial analyst position with accounting experience and job applicants with an art or psychology degree and no accounting experience on their resume. These companies don`t loosen their hiring standards, the position just goes unfilled, and resources are shifted internally to make it work at the company, often meaning other growth projects are dropped to cover the basic reporting needs of the company.

Six Years is a long time to go to Grad School or Re-Training Program

Another aspect is what does the Fed think these ‘slacking workers’ have been doing for the last six years, how have they been surviving, what have they been doing for money to live, how have they managed to remain healthy enough to be counted as ‘employable’ and maintain a source of income for six years to sustain themselves? Does the Fed believe all these people are on some form of government support? And that this level of government support is incentive enough not to work in the multitude of skilled, high paying jobs that go unfilled at companies all over the country? That once wages go up even further, then these people will jump off of government support, and take these higher paying jobs? Remember they are on government support, how much does that pay per month versus jobs at the current rate of wages?

Read More >>> The Politics of the Election Cycle and Policy Spin

Structural Changes in US Culture

Maybe these individuals in part have gone from two income households to one income, and take care of household responsibilities; maybe these people have made lifestyle changes where they no longer need to work, maybe these workers have actually retired altogether from the workforce, in essence taken early retirement or alternative sources of income that are cash based, underground and not documented in the system. Something is sure happening for six long years, and these people either shouldn`t be counted in the system, as they have left the workforce pool forever or they are just fine with their level of compensation for not being in the labor participation pool for 6 long years.

Six Months: Risk & Reward Calculus

The point is that another six months of Fed stimulus isn`t going to magically change anything, these people are not magically going to be employed after 6 years of not participating because the Fed keeps the Fed Funds Rate at 25 basis points versus 100 basis points.

Who does Cheap Money Really Benefit?

This is pure and simple an excuse to funnel more cheap money to the big banks so they can carry yield trade their way to bigger Hampton Mansions and pay ‘15 Billion Dollar shakedowns’ to the Justice Department. Is there any big bank in this country that hasn`t paid at least 8 Billion to the Justice Department over the last 12 months? Where do you think this money is coming from, in essence the Federal Reserve`s 25 basis points cheap money.

Read More >>> How Fed's Low Rate and Wall Street Yield Trade Hurt The Economy

The ‘Virtuous Circle’

This is a payola scheme that would make record companies proud in the glory days of radio, the Fed gives cheap money to the banks, the banks lever up on yield plays, push down interest rates, make tons of risk-free profits. And then the Justice department asks for a cut of the profits under the guise of mortgage misdeeds that occurred 10 years ago with companies that the same government begged these companies to take over, and mind you all caused by low interest rates and cheap money doled out by the Greenspan Federal Reserve era, and everybody lives happily ever after.

The Clean-up Phase

Of course, until the mess needs to be cleaned up all over again because the Fed kept interest rates ridiculously low relative to the normalized recovery in the economy for six long years, and probably four years too long as there are massive bubbles in many asset classes, that 15 years from now the Justice Department will be shaking down big banks again for ‘market misdeeds’ of taking unsafe leverage risk bets all because of irresponsible Fed Monetary Policy.

The Resume Void

The Labor Participation Rate…Really? Are you serious? What do you think Janet Yellen, that employers are going to just ‘overlook’ a six year void on applicant`s resumes? This isn`t how the job market works, if people haven`t participated in the work force for six years, they are for all practical purposes on the whole not coming back to the workforce, and definitely should not be the crucial determinant of Fed Monetary Policy that effects 95% of the employed population in this country.

Make a Difference

Does Janet Yellen really believe that another six months of 25 basis points interest rates mean that in this window all the companies will create jobs, in fact tailor new jobs just for these individuals who haven`t been participating in the economy for the last six years? Even if they did the participants who haven`t been in the labor force for six years wouldn`t get these jobs, the job market is too real time for this, what would happen is there would be a reallocation of existing employed labor, i.e., some professions would lose workers and others would gain.

Reallocation of Existing Employed Labor

For example, the consultant business would lose employees to fortune 500 companies, so in essence we get a tighter job market in terms not necessarily in an enormous spike in wages, but certainly some spike, but a tightening in terms of quality, i.e., all things considered such as travel and hours ‘Company Jobs’ are better than ‘Consultancy Jobs’. So in a sense, tighter job markets and a reallocation of the existing labor pool determines winners and losers in business, and overall labor sourcing strategy. Firms move away from consultants because of the need to poach talent for their own needs, less business for consultants because they lack the pool of qualified experienced labor to provide a competitive advantage for companies. But the Fed`s focus on the Labor Participation Rate with regard to an enormous slack in the labor market justifying depression level interest rates is absurd and just plain bad policy!

Empirical Evidence & Unintended Consequences of Excessively Loose Monetary Policy

This concept and methodology is so flawed on many levels that especially given the academic background of Fed members and Janet Yellen herself; it wouldn`t even stand up to peer review in an academic journal, it isn`t defensible on any rational measure of intellectual integrity. Furthermore, given that loose monetary policy caused the last several financial and economic collapses in this country, and the entire bond market is an absolute bubble right now, with stocks routinely 2 and 3 standard deviations from their normal trading ranges over the last 10 years, this is just another financial disaster waiting to happen. The empirical evidence is already in on this issue of excessively loose monetary policy and its catastrophic consequences – why would Fed officials make policy decisions on the side with no empirical evidence to support their case.

By EconMatters

The theory of quantum mechanics and Einstein’s theory of relativity (E=mc2) have taught us that matter (yin) and energy (yang) are inter-related and interdependent. This interconnectness of all things is the essense of the concept “yin-yang”, and Einstein’s fundamental equation: matter equals energy. The same theories may be applied to equities and commodity markets.

All things within the markets and macro-economy undergo constant change and transformation, and everything is interconnected. That’s why here at Economic Forecasts & Opinions, we focus on identifying the fundamental theories of cause and effect in the markets to help you achieve a great continuum of portfolio yin-yang equilibrium.

That's why, with a team of analysts, we at EconMatters focus on identifying the fundamental theories of cause and effect in the financial markets that matters to your portfolio.

© 2014 Copyright EconMatters - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

EconMatters Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules