Setting Up for Failure?

I’ve been telling you that thanks to Globalism and the Internet, wages are now falling faster than anyone would have imagined.  I also refer often to the “Mexification of America.” 

No such emotionally hot language in it, but the report out from the US Conference of Mayors about the Great Recession’s hangover Income and Wage Gaps across the US is pretty damning:

In 2008 and 2009 the US economy lost 8.7 million jobs (Figure 1). By examining the sectors from which the jobs were lost,
most notably manufacturing and construction (Figure 2), we find that the average annual wage in sectors (current wages weighted by number of jobs) where jobs were lost in the downturn was $61,637. A similar accounting of the jobs gains through 2014q2 shows average wages of $47,171 per year. This wage gap, at 23%, is significantly larger than that of the earlier recession and recovery, and implies $93 billion in lower wage income.

Long read, but meaty and worth it over here.

In other words:  Some of the jobs came back, but the wages didn’t.

The longwave economic cycle is coming up to one of its critical levels.  If the S&P doesn’t move through the 2,000 level in short order (a month or three) then there’s a chance that we could since into a “larger 4” as the Elliotticians would call it.

The short-term outlook isn’t exactly bad, and as we move on toward the calendar period when the market usually hits annual highs, there’s almost a hush as people try to grapple with “what’s next.”

Future’s earlier this morning pointed to a modestly higher open and then fell back.  The S&P could reverse to the downside any old time now that the 1,940 level has been hit with yesterday’s 1,944.90.

Fake-outs run rampant, when the bulls and the bears are battling and I still expect higher levels to come but this week’s numbers will be key.  Producer prices Friday.  Consumer prices next Tuesday.

I especially don’t like it when Federal Reserve Officials start to sound…well…almost like our view of things.  You see, Stanley Fisher did a talk Monday on “The Great Recession: Moving Ahead” which will reward you with some keen insights into how solid economic thinking works in times like we’re in…

Totally out of context:

The recession that began in the United States in December 2007 ended in June 2009. But the Great Recession is a near-worldwide phenomenon, with the consequences of which many advanced economies–among them Sweden–continue to struggle. Its depth and breadth appear to have changed the economic environment in many ways and to have left the road ahead unclear.

This pattern of disappointment and downward revision sets up the first, and the basic, challenge on the list of issues policymakers face in moving ahead: restoring growth, if that is possible. In some respects, we should not have been surprised at the prolonged hit to output growth following the global financial crisis. As Cerra and Saxena and Reinhart and Rogoff, among others, have documented, it takes a long time for output in the wake of banking and financial crises to return to pre-crisis levels.5 Possibly we are simply seeing a prolonged Reinhart-Rogoff cyclical episode, typical of the aftermath of deep financial crises, and compounded by other temporary headwinds. But it is also possible that the underperformance reflects a more structural, longer-term, shift in the global economy, with less growth in underlying supply factors.

…productivity growth in recent years has been disappointing. Over the past decade, U.S. total factor productivity growth declined to 1percent, which some argue may represent the real norm for the U.S. economy.9 In this view, the long period of rapid productivity growth spurred by the technological innovations of the first and second Industrial Revolutions ended in the 1970s and the economy has continued at a lower productivity growth rate since then, except for a brief burst in the mid-1990s.

I had some experience with these issues while at the Bank of Israel. In Israel, three separate regulators deal with different aspects of macroprudential policy, but there is no formal financial stability committee. The Bank of Israel is also the supervisor of banks, so has considerable power over housing finance, which essentially is available only from the banks. Starting in 2010, the Bank of Israel adopted several macroprudential measures to address rapidly rising house prices, including higher capital requirements and provisioning against mortgages; limits to the share of any housing financing package indexed to the short-term (central bank) interest rate to one-third of the total loan, with the remainder of the package having to be linked to either the five-year real or five-year nominal interest rate; and, on different occasions, limits to the loan-to-value (LTV) and payment-to-income (PTI) ratios. Additional precautionary measures were also implemented in the supervision of banks.

The success of these policies was mixed. The limit of one-third on the share of any housing loan indexed to the short rate substantially raised the cost of housing finance and was the most successful of the measures. Increases in both the LTV and PTI ratios were moderately successful. Increasing capital charges and risk weights appeared to have little impact in practice.

Fisher then concludes with the almost obligatory “…we have much to learn about both the effectiveness of different macroprudential measures…”

To me, that sounds a lot like “We think we know how policy will work here, but we’re not too sure on how everything ripples about…”  But he didn’t say that, of course.  Fed officials must never sound sketchy.

But he doesn’t sound terribly optimistic, either.  It’s not a Hail Mary, it’s not an on-side kick, not a punt…just a “We’re out here on the field playing football report….” with no indication about how soon our team will score.

Sometimes, the Fed should just be quiet.

This is likely what’s rippling in markets right now.  It’s why the Dow gained just 16 points yesterday instead of holding to the intraday gain of 70 points.

The Baltic Dry Index is back into the 800’s (836 this morning) so a break to the upside is possible.  But holding your breath is risky business.  The Dow’s back to about flat.

More after this…


Passings:  Robin Williams

Of apparent suicide, possibly due to depression, at his home in California.

The mark of a great comic is being able to make us laugh while making us look at who we really are.

First thing I’m gonna do when I get to heaven (a long-shot, but go with me on this) is I’m gonna catch Robin Williams, George Carlin, and Mark Twain.

And I can almost hear the opening line:  “Next time you stupid people…..

Nanu, nanu, Mork.


A Spanish priest has died of Ebola at a hospital in Madrid.  We’ve set a tickler on this to check in in a month to see who has come down with symptoms in Spain.

Meantime, look at the picture in that story linked above:  “Stop Immigration Checkpoint: Ebola is Real…”

Apparently, the Washington Cartel doesn’t like Texas, New Mexico, Arizona, or California, that’s about all I can figure…

And just to make the point how lax/stupid our border enforcement is (no diss to the front line, they have to do what they’re told, no matter how redickingfuculous):  A filmmaker crossed the border dressed as Osama bin Laden…

But this kind of thing wouldn’t happen if we had a Congress, now, would it?

You see where China is bringing emergency supplies to Sierra Leone?  Wonder if this means we’ll see a humanitarian resource bidding war?

Government At Work

Gotta love this:  “DEA improperly paid $854,k460 for passenger lists.” 

Thing is, they could have gotten the passenger lists for free.  Your tax dollars at work.

Post Riot Tensions

Up in Ferguson, Missouri in the St. Louis area the FBI is looking into the killing of a black teenager while the mom is urging non-violence.

And the mayor is reportedly blaming out of towners for some of the looting

Middle East:  Strategic Outlook

From our wargamer friend, “warhammer” a belated not about big picture/Middle East:

Happy Monday, George,

Israel seems to be back-channeling diplomatic support from key Arab autocracies in its ongoing conflict against Hamas.


Could reason and calmer heads actually be gaining an advantage external to the Israeli-Gaza conflict? As the old Arab saying goes, “the enemy of my enemy is my friend. The Saudis, Egypt and others see Hamas as extremist and contrary to regional peace. In this regard, they are quietly but informally in league with Israel

Those Arab and Islamic forces not cow towing to the Saudi centrist leadership role, chiefly Iran and an Assad led Syria, backed by Turkey, can fully be expected to continue cooking flambé style in the the conflict kitchen for the foreseeable future.

This witches brew of Middle East conflict now pits Jew versus Shi’ite, Sunni and Shi’ite versus Christian, and Sunni versus Shi’ite. Add the hubris of various leaders, vitriol, religion and politics to the equation and the main course becomes chaos. Each side by itself is incapable of achieving total victory. Alliances, some totally unexpected, will eventually materialize.

The Saudi’s will likely never formally ally with Israel. To do so would serve as a defacto recognition of the Jewish state. But that certain fact would not preclude the Saudis from participating in an armed conflict against one or more opponents shared with Israel.

One thing is certain – with the animus state between Israel and the U.S., the U.S. likely will not be stepping into the mix anytime soon. Without U.S. mediation, Murphy’s Law is in full effect – “anything that can happen, will happen.”

Oh, should mention that ISIS is working the capitalism angle in Iraq: They will likely to able to work the supply and demand for water as an effective policy tool.