This inflation is transitory

 

LOL: Donald Trump's crackpot 35% unemployment in February 2016 is 37% today

Jeffrey Snider:

In February of 2016, then-candidate Trump deployed his typical grandiose, exaggerated style after his win in the New Hampshire primary.

“Don't believe those phony numbers when you hear 4.9 and 5 percent unemployment. The number's probably 28, 29, as high as 35. In fact, I even heard recently 42 percent.

[T]he once fake unemployment rate has become his primary campaign symbol.

Big Fat Idiot Rush Limbaugh 2/5/2016:

We have an audio sound bite here from Obama ... He was heralding first-time unemployment rate as being under 5% for the first time in seven years ... Well, there’s a reason he said it. It’s because it’s the only way you can ignore the 94 million Americans not working, not in the labor force ... This is an abject joke. It’s a total joke.

Hello, maybe bank reserves are the problem, not the solution?

I don't think I've ever seen Jeff Snider shake his damn head: Tbills are the very best collateral in repo and the Fed has decided to lock them up

This is going to be highly . . . educational, but the Fed will still flunk out in the end.

When aiming your gun at the ground, make sure your foot is not in the way when you pull the trigger.

Jeffrey Snider explains the decline in bond yields to The Wall Street Journal's Andy Kessler, tells a clueless Fed what must be done

The Fed Can’t See Its Own Shadow 

Its asset purchases are squeezing nonbank lending and sinking long-term bond rates. ...

Shortages of long bonds—good collateral—are causing “relentless” demand and therefore lower yields. That’s why German long bonds have negative interest rates: not because losing money is a great investment, but because negative interest is the cost of doing business to get “pristine collateral” to use in repos.

This is how the global credit system—what Mr. Snider labels the Eurodollar market—now works. The Fed has become the lender of last resort for the global market, including banks and shadow banks. It’s about time its governors figure that out.

So what should they do? Encourage the Treasury to issue more of the long bonds the market is demanding: 30- or even 100-year. Feed the beast. Then stop quantitative easing: It doesn’t work and soaks up collateral. Next, stop paying interest on reserves. Maybe even create a nontradable “Treasury-R” to act as reserve currency elsewhere, freeing up more bonds. If history repeats, there are about 90 days until China repos roll over again.

Foreign holdings of US Treasury securities hit $6.636 trillion in June 2019, driving down yields

Nobody asks why US debt securities are so popular.

People like Jeffrey Snider of Alhambra know why, but nobody listens to him.

Jeffrey Snider: The whole global economy is in trouble, and it isn't because of a few billion in US tariffs on Chinese goods

Rather it is because hundreds of billions of dollars worth of liquidity keep disappearing since the Great Financial Crisis.

Economic shrinkage illustrated: Average consumption post-Great Recession has collapsed by 42%

Average 4.3% PCE up to year 2000, 2.5% post-Great Recession:

Jeffrey Snider: The last 11 years of real GDP worse overall than the Great Depression

 Told ya.

Are the Great Depression and the Last 11 Years Comparable?

In terms of modern calculation of real Gross Domestic Product, the last eleven years in the United States have been worse overall than the Great Depression. 

 

If this is an economic boom how come new home sales are at 1982 recession levels for a year and a half?

(h/t Jeffrey Snider)

Martin Wolf for The Financial Times likes business historian Adam Tooze's important new book CRASHED: HOW A DECADE OF FINANCIAL CRISES CHANGED THE WORLD

See Martin Wolf, What really went wrong in the 2008 financial crisis?

Tooze has been making the rounds at places like Bloomberg (and especially here) and CNBC promoting the theses of the new book, and was notably interviewed yesterday on Bob Brinker's radio program "Money Talk" (the dismissive summary of the interview provided here is notably blind to Tooze's importance, weakly observing how Tooze maintains that "money has no tangible underpinning", which is about all that grabs the attention of libertarian fundamentalists).

Those more popular presentations give only a tantalizing hint of the narrative power this trained historian brings to the story of the 2008 panic.

To see that in action there is an important lecture available here which Tooze gave at the American Academy in Berlin earlier this year, on March 13th.

"Conservatives" will doubtlessly recoil at Tooze's characterizations of the role played by them during the financial crisis. That those conservatives are really the GOP's libertarians is a distinction the significance of which seems lost on Tooze.

That said, the value of Tooze's perspective goes far beyond the subject of the warring factions of libertarian fundamentalism and neoliberalism, however important those are for understanding our times.

For one thing, Tooze is almost unique in describing in such vivid detail the dominating role now played by the "dollar" in the global economy (American analyst Jeffrey Snider being the notable but obscure exception). It takes an historian. This is, of course, the eurodollar, the proper understanding of which permits Tooze to show how the financial crisis in the United States centered in the mortgage market was globalized via international banking through London and Frankfurt independently of the wishes of the state actors. It also reveals to him that the most important global economic relationship has not been the US with China but the US with London.

Same as it ever was. The king and his colonies still rule the world, with a little help from the Bank of England.

For another, Tooze's work shows the degree to which the global economy has been captured by the bankers in providing these eurodollars, who acted unilaterally behind the scenes, first in the US (Ben Bernanke) and regrettably only later in Europe (Mario "whatever it takes" Draghi), to provide liquidity swaps in the trillions of dollars during the financial crisis while politicians argued about how states should deploy mere billions.

One inescapable conclusion ten years after the financial crisis is that citizens of states are in larger measure no longer masters of their own destinies, and haven't been for a very long time. They are today really ruled by technocrats in charge of central banks who work now more, now less in concert with their host governments to manage economic flows. The danger of this global state capitalism is that it might one day slip back into the outright fascism it so closely resembles.

To the millions of unemployed who were not bailed out in the crisis and who lost their homes and their hope in the United States and in the PIIGS, or to the hundreds of thousands of Muslims now in Chinese reeducation camps, it already has.

The crisis for neoliberalism does not come from capitalist fundamentalism. It comes from its growing list of victims.

Atheist George Will conflates economy and stock market, remains oddly superstitious about deficits

George Will forgets we've had trillion dollar deficits quite recently but without a stock market crash. 

The trillion dollar deficits recently were in:

2009 $1.41 trillion

2010 $1.29 trillion

2011 $1.29 trillion

2012 $1.08 trillion.

These deficits triggered nothing in particular except fevers among Republicans, but are associated with the misallocation of capital which produces L-shaped instead of V-shaped economic recoveries. Meanwhile that it's an L-shaped recovery is a concept which eludes George Will, eyes fixed as they are on his towering S&P 500 idol. But we do agree the economy isn't the best it's ever been as the president insists. The gap is now about $5 trillion and rising.

Here:

When He, or something, decides that today’s expansion, currently in its 111th month (approaching twice the 58-month average length of post-1945 expansions), has gone on long enough, the contraction probably will begin with the annual budget deficit exceeding $1 trillion.

If it's an economic boom why aren't inventories surging?

h/t Jeffrey Snider

The boom goes bust: "Investment activity is grinding to a full stop for the first time in China's modern history"

Also, "weakest consumer spending since 2003".

And, 46 consecutive months of industrial production at or below 8%, "unprecedented for modern China".

Jeffrey Snider, here.

Jeffrey Snider: Fix the suffering in the labor force or next time you might actually get socialism

Here:

The American labor force is suffering like it hasn’t since the 1930’s, but nobody seems willing to challenge Economists’ easily disproved claims.

Into that vacuum had swept Mr. Trump himself, but also Mr. Sanders. The mere election of the former didn’t immediately fix the problem; rather, things have gotten worse since the campaign ended (to be clear, it had nothing to do with Trump . . .). May Day is still only trending toward becoming an official holiday.

The face of the declining middle class in 2016 was concealed as 15 million more lived in doubled-up households than in 2005

Zillow reported (here) in December that working age adults in 2016 were living in doubled-up households at a rate of 30% compared with 21% in 2005.

That works out to roughly 32 million in 2005 at the 21% rate vs. 50 million in 2016 at the 30% rate, using the Working Age Population data from FRED.

Had the rate remained 21% in 2016, just 35 million would be living doubled-up instead of 50 million. 

That's 15 million more adults who can't afford to buy, and can't even afford to rent, thanks to the feckless performances of George W. Bush and Barack H. Obama.

h/t Jeffrey Snider, Alhambra Investments

Opioid epidemic is far more likely an effect of this depression economy than one of its causes

Jeffrey Snider, here:

What the cash flow and profit series tell us is that Economists once again have it backward. The opioid epidemic is far more likely an effect of this depression economy than one of its causes. If businesses are forced to utilize so much less labor, it is because there is no cash nor expectation for growth in profit by which to put more of it to productive use. ...

The problem is the erosion of the national basis for income, the jobs that the Trump administration has correctly focused upon in at least its economic rhetoric. The means to correct the deficiency so far proposed, however, will, in all likelihood, do little or nothing toward alleviating it. For as much as the Federal Reserve in 2017 will claim that this is now a purely fiscal problem, it is instead still a monetary one just as it has been all along.

GDP "anomalies" have been showing since 2011 that "the US economy is in serious, long-term trouble"

Jeffrey Snider, here:

The US economy is in serious, long-term trouble. We knew that very well by the volatile nature of GDP almost from the start (the big negative in Q1 2011, for example). Because orthodox economics is entirely obsessed with the economy that “should be”, it favors smoothing out what is truly pertinent texture because it isn’t directly cyclical by implication. What the mainstream needs is not to try to turn statistics into “ideal” numbers, but to actually see them for what they represent especially when they stray into unexpected ranges. From that perspective, weak quarters were not “anomalies” to be dismissed in a fit of confirmation bias, but rather warnings that actually explain how we got here and why everything from economists, especially“overheating”, was unlikely from the start.

Thirty-five years ago the economy mattered more than actual power

"[Economists] never offer anything but the same command approach to the obvious exception of everything else that used to be easily and conventionally embraced. The willingness of political figures across the spectrum to allow it and even strengthen it defies democracy. Thus Donald Trump".

Jeffrey Snider here.

Minus 2.9% GDP has never occurred outside of a recession: They're ignoring it like 2008

Jeffrey Snider, here:

The most recent example of this, in a larger scale setting, was the first quarter's GDP estimate. Rather than embrace the information that might be relevant to what is actually taking place, the entire orthodox economics profession is busy trying to convince everyone that there was nothing useful in that result. It was, as has been repeated over and over, an aberration of no significant value; an error term to be denied a full place in the analysis of where the economy might actually be headed.

A GDP figure of nearly minus three percent is decidedly rare, however, so unusual that it has never taken place outside of a recession. But that is precisely what we are supposed to ignore when being counselled to take no notice of it. Actually, counsel is too slight and too soft of a word, as what is really occurring is nothing short of a demand. The surety at which the orthodox profession, especially those of monetary disposition, exercises such confidence about forecasting is very much descriptive of ideology rather than science.