Posts Tagged ‘NAIRU’

Notes From Underground: Ben Bernanke Channels Karl Marx

June 26, 2017

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.”

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Notes From Underground: Pour a Yamizaki, Enjoy 30 Minutes of Harris and Crudele

June 19, 2017

This morning I had the pleasure of sitting with a professional trader and discussing several themes that have coursed through NOTES FROM UNDERGROUND for the past several months, if not years. In staying with the Crudele hit I want to spend some time on offering some views on the significant flattening of the 5/30 curve during the last few weeks. More importantly, the 5/30 curve broke out to new multi-year lows, blowing through the previous low of 100.98. Today we closed at 99.5. The 2/10 curve was very stable and closed at 82.5 basis points holding above last weeks lows. Why is the more SPECULATIVE-oriented curve flattening more than the conventional investment directed curve?

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Notes From Underground: She Does It Backwards and In Heels

June 14, 2017

Commentators on dance technique always maintain the Ginger Rogers was a better dancer than Fred Astaire for she performed everything he did but “backwards and in heels.” At today’s press conference the financial markets were left with the sense that Chair Yellen wants to rollback the massive balance sheet promulgated by Ben Bernanke. The most “hawkish” piece from the day was when Yellen said it’s not unhealthy to have a gap between the FED and MARKET EXPECTATIONS.

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Notes From Underground: A Review of Nehru Versus Nairu

May 11, 2017

Yesterday, Boston Fed President Eric Rosengren filled the airwaves with talk about the FED to be more aggressive in raising rates in order to prevent wage inflation from curtailing the current expansion. The continued concern from Wall Street about the POSSIBILITY of wage inflation because of FULL EMPLOYMENT reflects on the flaws in central bank’s models. Nairu (non-accelerating inflation rate of unemployment) is so 1970s, when globalization was just beginning and private sector unions had genuine bargaining power. The end of the Cold War unleashed hundreds of millions of workers to compete with workers in the highly developed and advanced economies. The fall of the Berlin Wall pressured even the strong German unions as the fear of jobs moving to Eastern Europe resulted in Social Democrat Gerhard Schroeder initiating the Hartz IV labor reforms which resulted in stagnant wages in return for some job security.

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Notes From Underground: Will Janet Be Wearing Her High School Nehru? Or Her PHD Graduation Nairu?

April 26, 2016

Wednesday brings the results of the FOMC meeting and the official policy statement laying out Fed insights into the domestic and of recent concern the fragile state of the global economy. There will be no press conference so the “kremlinologists” of fedspeak will be busy parsing every nuanced word. I WILL BE WATCHING WHAT OUTFIT THE FED CHAIR IS WEARING. IF SHE IS WEARING A NEHRU JACKET I WILL ASSUME THE FED IS MORE CONCERNED ABOUT THE EFFECT OF GLOBAL MARKETS KEEPING DOWNWARD PRESSURE ON AMERICAN WAGES. Domestic-oriented analysts focus on the U.S. unemployment rate of 5.0% as the key factor for the need for the FED to raise rates. The flawed models of the FED fail to take into account the pressures on the U.S. economy from capital and labor situations worldwide.

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Notes From Underground: Is It a Nehru or NAIRU?

February 9, 2016

Tomorrow begins the semi-annual testimony of the Fed chair before the illustrious houses of legislature of the United States. Janet Yellen will testify before the House Financial Services Committee tomorrow and the Senate Banking Committee Thursday. Chair Yellen will read the same prepared speech before each Committee and then each member of the Committee gets a preset allotted time to ask questions. (Please note, Yellen’s testimony will be released at 7:30am CST tomorrow.) The chair will dodge predictions but will put forward the most recent DOT PLOTS and FOMC statement as the backdrop to her testimony. THE MOST INTERESTING ASPECT WILL BE WHETHER OR NOT THE FED CHAIR SOFTLY CRITICIZES CONGRESS FOR NOT DOING MORE TO PUT FORWARD SOME TYPE OF FISCAL STIMULUS. Chuck Schumer may believe the FED is the only game in town but Chair Yellen will plead that the FOMC cannot be the sole stimulant to a moribund economy, especially with the headwinds blowing around the globe.

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Notes From Underground: Why The Fed’s Forward Guidance Model is Flawed

March 17, 2014

A quick note before we enter the Fed’s two-day meeting. I am reposting a note from a few weeks ago when I conjectured that Chairman Yellen was not the keeper of the Greenspan Put. In the present realm of depressed wages, Yellen would err on the side of allowing corporate profits to soften if it meant an increase of wages for the middle level wage earner. Corporate profits as a percentage of GDP are at elevated levels because capital has been well rewarded from the effects of globalization while the massive increase in the global wage pool has kept downward pressure on wage rates in the developed world economies. Throw in the historical low borrowing rates set by the world’s central banks and the result is enhanced corporate profits. The FED has been enamored with the idea of “forward guidance” and went so far ¬†as to put in a quantitative threshold as a measure of its commitment. The Bank of England has already dispensed with its numeric-based forward guidance and seems to have accepted a more nuanced and qualitative response to its mandate.

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