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Meh. And I Say That With Feeling
A belated reaction to today’s employment report (I’ve been closeted in a room with a bunch of men in suits, myself included, talking about the depressed and depressing world.) In a word: meh.
It could have been worse, but the basic story remains the same as it has been for 2 1/2 years: an economy that’s growing, but not enough to feel anything like a real recovery. The measured unemployment rate has trended down for a while, but it’s all basically reduced numbers of people actively searching.
My favorite measure these days is the employment-population ratio for prime-age workers, which isn’t affected by changing demography. Here it is for the past decade; see the trend since the recession officially ended? Neither do I.
Of course, my meh corresponds to enormous and continuing waste, vast hardship, and millions of ruined lives. Maybe someone should do something.
RJ at Global Glass Onion tells us what the recent data were and why:
. . . let's start with the news Wednesday that the Fed coordinated with 5 other central banks (BofJ, BofE, Swiss, Canadian & ECB) to lower the price of dollar-denominated currency swaps in order to ease worldwide bank funding strains that had developed in light of the euro mess, because that's been widely misunderstood as meaning "the Fed just bailed out Europe"...so we should start by noting that this isnt costing the taxpayers anything, and the action the Fed has taken is actually closer to a temporary loan rather than anything close to a gratis bailout...and the Fed doesnt really give a damn about the euro or the governments of europe, either; the Fed is only interested in saving the banking system, everything & everyone else is secondary.
...lets start by explaining what they're doing; ie, lowering the cost of swaps from 1% + the overnight index swap rate to a half percent; for any given swap, a central bank sells a given amount of its currency to the Fed in exchange for dollars; the swap agreement specifies that the swap will be reversed at a specified future date at the same exchange rate, so essentially the entire action is unwound at that time, and there is no risk in dealing with other central banks
...this is not unprecedented, the same thing was done after the Lehman collapse, & after 9-11....so why did they need to do this now? well, by virtue of the current high interest rates on sovereign debt issued by the peripheral european states, bonds in those countries that were purchased earlier by european banks have gone down in value considerably; hence, most of the european banks had grown suspicious of the solvency of the others, and they either stopped lending to each other, or charged ever higher premiums for their interbank loans; the same became true of their transactions with banks in the US & elsewhere around the world.
...as suspicion & apprehension mounted, their only alternative became to borrow from the ECB & deposit funds overnight at the ECB; normal interbank transactions started freezing up...by temporarily providing safe dollars cheaply to the ECB which they could lend to the euro-zone banks, the Fed is delaying their day of reckoning, when those banks, unable to rollover their funds, would be forced to sell their bonds in the peripheral countries at loss, likely causing cascading bank failures
...but most of those who've followed the European situation closely think its still far from being out of the woods, because of continued intransigence by the Germans & the ECB...if the ECB would announce a commitment to buy as much spanish & italian debt as would be necessary to drive their interest rates to say 3%, the crisis would be over tomorrow; but they wont "print money"; their bond purchases have been sterilized because the germans still have their historical, deep seated fear of inflation, even though the underlying trends in europe are now contractionary.
...more details about the Fed's involvement in the bailout of the banking system during the crisis in 2008 were also revealed this week as a result of a bloomberg FOIA lawsuit & ongoing investigation, and compared to the $700 billion treasury TARP bailout that we knew about, the Fed bailout at $7.7 trillion was over 10 times as large, including $1.2 trillion on one day alone; and what did the banks do with this money? Nothing for us; they sat on it & collected $13 billion in interest from the Fed before paying it back
...former Treasury economist Brad Delong took a look at the details & opined that "without the Fed and the Treasury, the shareholders of every single money-center bank and shadow bank in the United States would have gone bust"...a few links to this story and the coordinated central banks action described above are included below, but links to around 2 dozen on these Fed related stories are included right at the beginning of this week's blog post, if you want more details, opinions & analysis
. . . we havent seen much progress from Congress this week on the extension of unemployment rations and the payroll tax cut which expire at year end; for the unemployment extension, most of the news was was that the parties were far apart & still debating how long, what size, and what strings should be attached to an extension; both parties have introduced bills to extend them; the Democrats continue most of the provisions currently in effect; while the Republicans would tie the extension to repealing some "job killing" regulations, possibly even taking away the Presidents authority to rule on projects such as the Keystone XL pipeline
...the news on the payroll tax cut was on again, off again all week until Friday when two bills, one introduced by each party, both failed to pass in the Senate; the Democrat(ic) plan proposed to "pay for" the tax cuts by a surtax on those making over a million; the republicans planned to "pay for" the tax cut with a federal staff reduction & a pay freeze for federal workers; surprisingly, more even republicans voted against the republican plan than voted for it, which suggests it will be hard to get them on board on any compromise
Who says economists aren't thinking all the time?...economist Karl Smith suggested an interesting way to "pay for" it; issue 10 year TIPS at their current 0.2% percent real interest rate; after 10 years the $119 billion cost would have risen to $120.4 billion, but that could be paid for then off what should be a much bigger tax base; & if the economy hadnt grown by that time, TIPS rates would likely be negative reflecting deflation, so the can could be kicked further down the road by issuing more TIPS at a profit...
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