Archive for May 4th, 2012
Nonfarm payroll employment rose by 115,000 in April, and the unemployment rate was little changed at 8.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services, retail trade, and health care, but declined in transportation and warehousing.
Meh. Let’s look at the internals and the household numbers, because that’s actual numbers instead of political crap. Incidentally, my guess was +100k +/- 50, so 115k is pretty close.
In summary for those who don’t want to read the entire thing – this is a weak report.
The annualized improvement is curling over and the monthly number is not going anywhere good. What’s worse is that the not-in-labor-force number continues to go the wrong way and was up nearly 600,000 last month.
The employment rate moved upward a touch, but it’s still sitting in the ditch and this is the key number for everyone to focus on, as I’ve pointed out for years – without this problem being repaired the governmentmust downsize dramatically or we will hit the wall.
And finally, in terms of being screwed, we still are.
This chart is simply the annualized (now .vs. 12 months ago) difference between employment and population. That is, in this case, 242,784 (in thousands) less 239,146 = 3.638 million more people (according to the BLS) in the country compared to 12 months ago, but there are 141,995 – 139,661 or 2.334 million more people employed. That is, on a working age non-institutionalized population-change-subtracted basis we have lost 1,304,000 jobs compared to the same point one year ago.
The last positive number we printed on this series, and that was only 480,000 jobs net of population growth, was in December of 2006. There is no way to sustain the size of the government, say much less its growth given the six-year unbroken record of losses.
Over the past several years, people have dropped out of the labor force at an astounding, unbelievable rate and because this is not included in the government figures, it holds the official ‘unemployment rate’ low. In essence, these government figures are intentional fiction designed to keep the American people from realizing just how horrifying our government’s monetary policy and our monetary system is.
The biggest economy in the world just reached a new peak with their unemployment rate. We are not talking about the United States but the massive block in the Eurozone. The unemployment rate in the 17 country block reached a new all-time high at 10.9 percent as austerity measures are being used to combat massive levels of debt. There is no single rule of thumb as to how much debt is too much. A few respected economists from the 1800s once stated that too much debt is reached when the market suddenly acknowledges that too much debt has been reached. In Europe it appears that this apex of debt has been reached and certainly in a handful of economies too much debt has been reached. The trouble of course is that Europe is a massive trading partner to the US but also the world. It is naïve to think that issues in the European zone will not trickle over to our already fragile economy. The working and middle class are likely to have another tough challenge put ahead of them as countries overseas begin redefining what life is like with too much debt.
The economic impacts of contagion
Two economies that are deep into severe recessions, practically depressions are Greece and Spain. Their unemployment rates are reaching levels that are likely to produce political instability:
These are unsupportable levels for any industrialized nation. The middle classes across the world are dealing with central banks that have produced too much debt to cater to large financial interests. Europe has taken severe austerity measures and so far, it has not had a beneficial impact to the EU. The unemployment rate in the Eurozone is now at an all-time high:
This trajectory is not healthy. It is interesting that while much of the attention is guided towards Europe we here in the US keep on printing digital money like it was going out of fashion. We have a perfect case example of too much debt being misallocated to support the bailout of banks and here we go printing more and more digital currency and to what effect?
Read the rest at My Budget 360
Some day we will stop this crap. For now, there’s this.
Bank of America Corp., the lender that has bought back debt to strengthen its balance sheet, said credit downgrades in a hypothetical scenario may trigger demands for about $6.2 billion in collateral.
A two-level downgrade of long-term senior debt ratingswould have prompted the bank to post about $5.1 billion of collateral tied to derivatives contracts and other trading agreements as of March 31, the Charlotte, North Carolina-based firm said yesterday in a regulatory filing. It would have had to post an additional $1.1 billion of collateral if trading partners opted to tear up contracts in a two-level cut.
Moody’s Investors Service, which is reviewing banks and securities firms with global capital markets operations, has said it’s considering downgrades of lenders including Bank of America, ranked second by assets in the U.S. While ratings cuts typically raise borrowing costs and force banks to increase collateral, analysts have said the change was expected.
Give me a break.
There should be zero impact from this because you shouldn’t be able to take on a position you cannot clear, in full with cash, at any point in time.
The only way you can do that is to be able to issue credit to someone unbacked by anything.
Functionally that is identical to counterfeiting $100 bills on your office copier.
Think about it folks. The VISA card in your pocket spends exactly the same way as does the roll of quarters. They’re identical in commerce; indistinguishable in fact. Yet one of them is your past production; you obtained it by performing some sort of service for someone. The other is a naked promise, unbacked by anything, to get up tomorrow and go to work.
There is only one way you should be able to do the second – someone should have to put actual capital at risk if you fail to perform, and lock up that capital until you do perform, at which point it is released back to them.
Anything other than that is nothing more than counterfeiting the currency of the nation!
This is where the “gold bugs” get it all wrong. A hard metallic monetary standard does exactly nothing to prevent this from happening. Nor does “redeemability.”
There is only one way to prevent the economic dislocations that come from intentionally issuing credit unbacked by anything, and that is to prohibit the practice in the official currency of a nation.
It’s perfectly ok (and in fact desireable) to remove legal tender laws while you’re at it, since that serves as a check and balance on the above behavior. If I can negotiate debt in whatever I’d like (oranges of a given grade and type, if I so prefer) then I have options available to me if the policing of the monetary function is corrupted.
But the fact of the matter is that until and unless the national currency — defined as whatever taxes are denominated in — is rendered stable in economic terms, which can only be the case if nobody cancounterfeit it – there is no economic or currency stability.
This outright and outrageous fraud is the root of all economic bubbles and their ultimate collapse. The lending of money that does not exist against nothing but hot air always is inflationary in the monetary sense,always leads to malinvestment, always leads to price appreciation unbacked by actual future prospects for business and always ends in the same way, with collapse of the bubble in question.
There is exactly one way to stop it. I dubbed it “One Dollar of Capital” a number of years ago. You can call it anything you want. But the fact is that until we solve this problem there will be no economic stability and there will be no actual growth in real terms.
We spent close to a literal decade covering up outrageous debasement of purchasing power in real terms – from 2002-2009 – during which there was not one quarter where you had less than a 5% annualized loss of purchasing power against your income in real terms, with the arithemetic average close to 10%!
A 10% annualized decline in real purchasing power over eight years is enough to literally reduce the majority of the population to destitution and starvation!
Thus the housing bubble, the stock bubble of the 2000s and the government bubble on the back of Greenspan’s bubble of the 1990s. All of the actors involved, including especially Ben Bernanke, know good and damn well that my math is right on this and that if the general population understood what they had done to them they would all be run out of town on a rail.
The worst part of it is that in their outrageously puerile attempt to obfuscate what they did and prevent its recognition in the market they continue to transfer the damage from the private sector, where people took this on and deserve to take the hit from it, to the government where the risk is not one of collapse of a business but rather the collapse of civil society.
It isn’t going to work.
The essence of debt serfdom is debt rises to compensate for stagnant wages.
I often speak of debt serfdom; here it is, captured in a single chart. The basic dynamics are all here, if you read between the lines:
1. Financialization of the U.S. and global economies diverts income to capital and those benefitting from globalization/ “financial innovation;” income for the top 5% rises spectacularly in real terms even as wages stagnate or decline for the bottom 80%.
2. Previously middle class households (or those who perceive themselves as middle class) compensate for stagnating incomes and rising costs by borrowing money: credit cards, auto loans, student loans, etc. In effect, debt is substituted for income.
3. The dot-com/Internet boom boosted incomes across the board, enabling the bottom 95% to deleverage some of the debt.
4. When the investment/speculation bubble popped, incomes again declined, and households borrowed heavily against their primary asset, the home, via home equity lines of credit (HELOCs), second mortgages, etc.
5. The incomes of the top 5% rose enough that these households could actually reduce their debt (deleverage) even before the housing bubble popped.
Here is a chart of real (inflation-adjusted) incomes, courtesy of analyst Doug Short: note that the incomes of the bottom 80% have been flatlined for decades, while the top 20% saw modest growth that vanished once the housing bubble popped. Only the top 5% experienced significant expansion of income. Notice that incomes of the top 20% and top 5% really took off in 1982, once financialization became the dominant force in the economy.
Interestingly, we can see the double-bubble (dot-com and housing) clearly in the top income brackets, as these speculative bubbles boosted capital gains and speculation-based income. Since the bottom 80% had little capital to play with, the twin bubbles barely registered in their incomes.
Bottom line: financialization and substituting debt for income have run their course. They’re not coming back, no matter how hard the Federal Reserve pushes on the string. Both of these interwined trends have traced S-curves and are now in terminal decline:
Those hoping the economy is “recovering” on the backs of financial speculation/ legerdemain and ramped up borrowing by the lower 95% will be profoundly disappointed when reality trumps fantasy.
Charles Hugh Smith – Of Two Minds
A trip down memory lane folks….
How long did you have when that warning was given to you?
About 2 weeks.
And how many warnings have you had recently?
Three…. (yeah, I know, that one might be “special”)
There’s plenty more that are in “slower” declines toward zero. FSLR anyone?
Oh sure, you’re welcome to believe “that won’t happen again.” Just like you did in 2008, when the warnings came in 2007 and early in the 08 time frame — Bear Stearns (twice!) anyone?
In 2000 the market sauntered higher for a couple of weeks, then broke.
In 2008 there were a few months before it all came apart.
But we’re seeing an increasing number of firms that either miss a little or just don’t beat like they “should”, or worse someone raises an “accounting question” and boom — down they go.
MSTR back in the day did exactly that. It was a take-over target one day, and had an “accounting issue” the next.
Two weeks later the entire market blew up.
I remember it well — I was sitting in the Sandestin Hilton with my kid, down here in Niceville home shopping, when the roll really got started at the end of March. And I remember well the “miraculous” recovery on April 2nd after the NDX had been down some 600 handles.
If you bought that “oh it’s ok” move you were satiated for exactly three days — until the end of the week.
The following Monday was an outside reversal and from there nine hundred NDX points came off during that week.
But don’t worry folks, that rumbling isn’t a volcano.
The smoke is nothing to worry about.