Notes From Underground

Set your way back machines to and visit the philosophy of the Young Marx in his famous musings, The Economic and Philosophic Manuscripts of 1844. Read the concerns that Marx raises about the ALIENATION of LABOR. In the book edited by Dirk J.Struik, I am citing pieces from the chapter, “Wages of Labor.”

1. “Wages are determined through the antagonistic struggle between capitalist and worker.”
2. “The demand for men necessarily governs the production of men,as of every other commodity. Should supply greatly exceed demand, a section of the workers sinks into beggary or starvation.”
3. “The worker need not necessarily gain when the capitalist does,but he necessarily loses when the latter loses.”

This, of course, is abstracted out form a much greater discussion but it is the issue that Bernanke spoke to in his speech Monday in Sintra, Portugal. Titled, “When Growth Is Not Enough,” Bernanke talked about the rise of antipathy to the existing political elites: “If the populist surge we are seeing today has an upside, it is to refocus attention on both the moral necessity and practical benefits of helping people cope with the economic disruptions that accompany growth.” Bernanke lays out four symptoms he believes are responsible for the growing alienation in the developed economies, especially in the U.S. The one I will address is what he calls STAGNANT EARNINGS.

In adopting the role of moral philosopher, Bernanke raised the issues of  “… disaffection and alienation, which our political systems are currently grappling.” (I have no issue with the moral philosopher role as I am sympathetic to the issue of wage stagnation but I will seek to put it in context of the current FOMC policies.) Bernanke said:

“Since 1979, real output per capita in the United States has expanded by a cumulative 80 percent, and yet during that time, median weekly earnings of full-time workers have grown by only 7 percent in real terms. Moreover, what gains have occurred are attributable to higher wages and working hours for women. For male workers, real median weekly earnings have actually declined since 1979. In short, despite economic growth, the middle class is struggling to maintain its standard of living.”

This is critical for the FOMC because the source of this statement is not Senator Bernie Sanders and/or President Donald Trump but the previous Fed chairman. If Bernanke is correct, how does this square with the recent concerns of Yellen/Williams/Rosengren and others about the beloved NAIRU/Phillips Curve? Yellen has used her position as Fed chair to discuss stagnant wages but now she is concerned about the sudden desire to squash an incipient rise in wages? Maybe American workers are realizing that too much debt without an increase in wages portends trouble in the near future. The recent flattening may in reality be the market warning the FOMC about raising rates in an effort to halt a beneficial rise in wages, which would help reduce what Bernanke refers to as the “SOUR MOOD” of the developed economies’ electorates. Bernanke’s speech creates a major dilemma for the FED, which has backed itself into a corner by adhering to the antiquated model of NAIRU.

Bernanke pointed out increased global competition from the re-emergence of Japan and Europe in the mid-60s coupled with the rise of China as a global trading power “… was disruptive, with adverse effects on the wages and employment opportunities of many American workers of moderate or lower skills.” Capital has been absorbing the bounty of Bernanke’s portfolio balance channel powered by QE2 and QE3 in which asset prices have soared while stagnant wages have persisted. Chair Yellen has long been a labor economist concerned about the disequilibrium between wages and capital accumulation (see her dissertation).

In his speech Bernanke suggests various policies for ameliorating stagnant wages, but they would all take time to enact. After reading his remarks, I wonder if the former Fed Chair is warning against raising rates too early. Maybe the YIELD CURVES are sending a similar warning. Maybe the GOLD and DOLLAR are sending a similar signal to the FOMC.

***The bail-out of two Italian banks will be discussed tomorrow. The effect of the weekend decision was a rally in Italian assets but there are some in Germany and other places very concerned about the violation of the Brussels agreement on state intervention into failing banks. Also, at 3:00 a.m. this morning GOLD had a $20 sell-off on a ONE-MINUTE BAR as 18,000 contracts were sold [h/t NORB].

The market struggled to rally the remainder of the day, indicating that this was no fat finger error. The question is: What algo would set a sale at Asian closing time to sell that amount of GOLD? Either an absolute MORON or someone who had a desire to be as disruptive as possible. We are coming into MONTH END/QUARTER END when portfolio managers are extra concerned. BE PATIENT and wait for value opportunities to arise. These are very dangerous waters because of the increased use of algos to drive market decisions.

Tags: Ben Bernanke, Fed, FOMC, Gold, Janet Yelle, Marx, NAIRU, Phillips Curve, U.S. Dollar, wages

This entry was posted on June 26, 2017 at 7:59 pm and is filed under Fed. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.