Notes From Underground: May the Circle Be Unbroken

So Jamie Dimon is being considered for Secretary of Treasury as the theme of Wall Street Insiders being the only “Stuarts” of the financial system remains on the front burner. What is interesting is that the rumors persist even as JPMORGAN is fined more than $280 million for providing jobs for the offspring of the Chinese elites in order to secure an inside track to the China power center. Hey, why not put Dimon in charge of the Treasury? That way he can hire the New York elite’s Ivy League kids for internships and other such jobs. It would really secure the fidelity to JPMorgan wealth management teams even more than being a bank recognized as too big to fail. Again, the most competent person to be the Secretary of Treasury is Sheila Bair for her wisdom, regulatory experience and strength in combating the Wall Street “wizard,” Tim Geithner. Jamie Dimon for Treasury  ought to be a non-starter and he would be crazy to take the job for the intense scrutiny he would undergo. Enough of this rumor. Let’s get back to the Fed.

Today, Chair Yellen testified before the Congressional Joint Economic Committee. Senators and Representatives had the chance to bury or praise Yellen as most of the inquisitors read questions prepared by their favorite think tank. There were no political bombs were tossed because if you hadn’t heard, this election cycle is over. I want to remind readers that Janet Yellen is a labor economist and as I have written for four years, she will err on the side of “running hotter longer” if it means WAGES are rising and garnering a greater share of corporate profits. To reiterate the point, Chair Yellen did answer a Democratic Senator’s question about low wage growth in these words: “More recently, we’ve seen an increase in the share of the pie going to capital, and that’s consistent with wages not keeping with up productivity. We’re not certain what the cause of that is.”

The answer to at was all the rage in Thomas Piketty’s book published in 2013, Capital in the Twenty-First Century, where Piketty researched the growing inequality in wealth on a global scale. The summary was R>G, which implied that as long as the rate of return was greater than growth capitalists would be garnering a greater share of the economic pie. So wages running at a higher rate of return than profits would result in rages rising at the expense of capital. Why would Yellen want to impinge on the wage rises that have been stagnant for the last 25 years? Yellen is evidently not alone as the entire FED Board of Governors has voted en-block to keep rates steady even as some regional presidents have cast dissenting votes to current Fed policy. It is interesting that those within the Washington Beltway have voted to hold rates while the Fed Presidents from the hinterland have been pushing for rate increases.

Anyway, global headwinds to growth are building as political uncertainty is causing a rise in the DOLLAR, putting pressure on the balance sheets of many emerging market corporations and countries that have DOLLAR-denominated debt. Lael Brainard will be sure to argue at the December meeting that the dollar strength is acting as a headwind to U.S. growth. The Mexican peso has been the repository of emerging market angst as the peso has declined more than 10% since the night of the U.S. election. Today the Mexican Central Bank raised interest rates by 0.5% to 5.25% from 4.75% in an effort to bolster the besieged currency and at the close the peso has actually weakened. The Yellen Fed will certainly be cognizant of the dangers of an appreciating currency.

The Bernanke Fed unleashed a torrent of cheap money on the world, which resulted in cheap loans to global concerns. The negative side of the Fed’s QE program is just beginning to reverberate around the globe and that is may well give the Fed reason to pause.

Also, in Yellen’s prepared testimony she noted: “The stability  of the unemployment rate, combined with above-trend job growth, suggests the U.S. economy has had a bit more “room to run” than anticipated earlier. This favorable outcome has been reflected in the labor participation rate, which has been about unchanged this year, on net, despite an underlying downward trend stemming from the ageing of the U.S. population. While above-trend growth of the labor force and employment cannot continue indefinitely, there nonetheless appears to be scope for some further improvement in the labor market.”
This reasoning by Yellen is suspect for she fails to mention that the amount of people more than 55 years old is greater than it has been in many decades. The financial repression resulting from the Fed’s zero interest rate policy has forced many potential retirees to remain in the work force. Older workers with years of attained wisdom and ability, now qualifying for medicare, are not an easy group to replace. The Fed does not want to consider this aspect for it is a flaw in its model and ruins the narrative of its beloved counterfactual. Volatility is a BAD MOON ON THE RISE.


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5 Responses to “Notes From Underground: May the Circle Be Unbroken”

  1. Muad'Grumps Says:

    Bill Still thinks the Dimon story is just a trial balloon.

  2. AZRondo Says:

    Nothing to see here; move along… Actually, the sense of security I had in voting for Mr. Trump (vs write-in for Vlad P. who was my choice over HRC), was and still is his ties to the same NYC elites. Never for a minute did I believe his rhetoric was going to remove the entrenched rich-o-cracy. Them that’s got, gets. Some who don’t, get some, sometimes, either by bending over and kissing rings or grabbing ankles, or through shrewdness and persistence. I choose the latter, but would have gained much more using one or both of the former. As Olaf said “there is some shit I will not eat”. and so I took the path less traveled by. Been a ride brothers and sisters. Have to look at this with rage, but with a sense of humor since surely we can’t take this seriously – We found the clowns – someone call Judy Collins!

  3. pgrommit Says:

    I guess we shouldn’t be surprised that stagnant wage growth almost never gets mentioned in the corporate-owned media as a reason for the slow growth economy. But if (please correct me if I’m wrong) almost 3/4 of the U.S. economy (70%) is consumer spending, then lack of wage growth is a much bigger reason than corp. tax rates or regulation. ESPECIALLY so since profits-both nominal and as a % of GDP- have gotten higher than ever in this expansion.

    • Yra Says:

      pgrommit—now factor in the growth in personal debt .The argument that correctly laid out the long duration of the Great Financial Crisis[hate this term] was Richard Koo’s Balance Sheet Recession.The deleveraging of household balance sheets was what was going to keep demand stagnant.But as you certainly bring to the fore—if wages are stagnant and consumers are forced to borrow to consume then the day of repaying is always at hand—in economic terms the bringing forward of demand keeps capital investment tepid as entrepreneurs are fearful of extending capital when the next crisis is around the corner.This is what Bernard Connolly and others have written about for years—intertemporal dislocation.But your point is well taken and in my opinion weighs on Yellen for running hotter longer.Nothing eases debt burdens like a good bout of inflation.Recently I noted the FT article about the rapid increase in auto repossessions even as we remain at full-employment

    • Yra G Harris Says:

      I tried to answer this in a complete thought process but I will discuss this further in the Blog

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