Wall Street's Selective Attention on Quantitative Easing Buzz

You've got to be kidding me. We have a strong case of what people say, what dogs hear. Federal Reserve Chairman Ben Bernanke gave a speech today on the labor market. Surprise, surprise, the jobs market still sucks. Yet Wall Street didn't hear about the plight of working America. Nope, they only heard what they want to hear, the possibility of QE3, otherwise known as quantitative easing.
what people say what dogs hear
Ben Bernanke's speech acknowledged the pain and suffering endured by the United States worker. One would think the below quote would bring tears to Wall Street's eyes:

Those who have experienced unemployment know the burdens that it creates, and a growing academic literature documents some dimensions of those burdens. For example, research has shown that workers who lose previously stable jobs experience sharp declines in earnings that may last for many years, even after they find new work. Surveys indicate that more than one-half of the households experiencing long unemployment spells since the onset of the recent recession withdrew money from savings and retirement accounts to cover expenses, one-half borrowed money from family and friends, and one-third struggled to meet housing expenses. Unemployment also takes a toll on people's health and may have long-term consequences for the families of the unemployed as well. For example, studies suggest that unemployed people suffer from a higher incidence of stress-related health problems such as depression, stroke, and heart disease, and they may have a lower life expectancy. The children of the unemployed achieve less in school and appear to have reduced long-term earnings prospects

Did Wall Street hear any of that? Nope. Only the possibility of more easy profits through quantitative easing. Here's the money shot which caused Wall Street to go hog wild:

Consequently, the Federal Reserve's accommodative monetary policies, by providing support for demand and for the recovery, should help, over time, to reduce long-term unemployment as well.

Really Ben? Accomodative policies have worked so well already...for corporations, commodities traders and banks. More on that later.

First off, we know the labor market really sucks. See here, here and more generally here. Bernanke states the obvious, except to lobbyists and pundits, the current problem with jobs is plain, good old-fashioned demand. Employers are not hiring enough. Anyone in statistical reality knows unemployment is cyclical and due to employers not hiring. We do not have a skills shortage in America, or a skills mismatch, that's just corporate lobbyist rhetoric to flood the U.S. labor market. Corporations want more foreign guest workers, to offshore outsource ad nauseum and to generally continue the disposable American worker syndrome already in play.

Nope, there is no skills shortage. Bernanke knows the labor market situation is cyclical, i.e. demand. There just isn't enough demand for U.S. workers.

I will argue today that, while both cyclical and structural forces have doubtless contributed to the increase in long-term unemployment, the continued weakness in aggregate demand is likely the predominant factor.

Beyond what we point out every month, what did Bernanke amplify in his speech that's new? Bernanke is connecting the dots between the disposable American worker syndrome and overall economic growth. He says:

Long-term unemployment may ultimately reduce the productive capacity of our economy.

One of the things that bothers us down here on the real world, working America ground are Academics' refusals to acknowledge offshore outsourcing, use of foreign guest workers, age discrimination, sex discrimination and all of the other disposable worker syndrome characteristics which amount to treating the U.S. worker like shit. Those facts, along with our trade deficit, are almost never acknowledged.

Bernanke gives a wink and a nod to these factors when discussing long term unemployment.

Factors such as globalization, technological change, and the loss of lower-skill manufacturing jobs have likely reduced the employability and earnings potential of some groups of workers.

wastebasketThe question then becomes why aren't policy makers looking at these factors to get people back to work? We have an entire generation of highly skilled and experienced workers being shunted to the labor trash can simply because they are over the age of 50. That's obscene and discriminatory. We even have laws on the books to stop age discrimination. Yet discrimination against older workers is institutionalized, so common no one even blinks an eye when brazen age discrimination occurs right in front of them.

While the Fed doesn't have jurisdiction over policy such as stopping age discrimination, labor arbitrage, and other absurd, worker malaise creating practices, by golly, the Fed can influence policy makers to pull their heads out of their @@#&*! denial cavities.

Today Wall Street went nuts over the prospect their little quantitative easing financial circle jerk will continue. Yet the premise, the reason for the remedy is supposedly job creation. The question then becomes does quantitative easing help get people jobs? In a word, no. Just last year we had analysis that quantitative easing did little for labor markets. Nope, instead, corporations are sitting on a buttload of cash, some of which was made from quantitative easing effects.

Is Bernanke using the plight of the U.S. worker as a pawn in the great quantitative easing gambling casino promotional game? Who knows, but the conflicts within the Federal Reserve over more quantitative easing are known. Below is an interview with Dallas Federal Reserve Bank President, Richard Fisher, where he calls quantitative easing monetary morphine.



Bottom line, while Bernanke's speech is a great overview on the state of U.S. labor markets, full of statistical details, Wall Street plain doesn't care. All they want to hear about is quantitative easing when the reality is we need not only jobs, but a complete paradigm shift towards the U.S. worker and American labor market. We need to put American workers first and foremost in almost all policy. Right now U.S. labor comes in dead last in almost every policy consideration.



St. Louis Fed Pres - no QE3

We have the St. Louis Federal Reserve President,James Bullard on the record about QE3 possibilities:

"I think QE3 would require the economy to deteriorate somewhat from where it is right now," Bullard said. "The basic story on the U.S. economy is that we've had good news over the last six months or so, especially compared to the recession scenario that was being painted in the August-September time period of last year."

Injecting too much liquidity into the system will also have the effect of driving commodity prices higher and reducing real spending power, Bullard said.

I am one of the few contrarians of the financial sites, I don't believe they will do QE3, mainly due to inflation/commodities, very specifically oil. We wrote no QE3 for you earlier.

Europe is "at bay" for now, there is nothing to imply a sudden collapse in commodity demand here, so I just don't think it will happen.....unless....of course....it's some sort of hidden contraption to once again inflate MBSes.

I skipped overviewing JOLTS, mainly because we had no Internet for 4 days so I let it go, but considering Bernanke's speech and the desire to put the focus on jobs, labor markets I'm going to try to overview that BLS report, over a week late.

AAA+++ blog

Great blog and great comment, including the scary part about "unless ... to once again inflate MBSes."

There are still a few out there talking up that the way to "restart" the economy is some kind of residential construction boom, and that's what more MBS "rescue" could produce -- or accelerate, supposing that a nascent boom exists (?).

It isn't completely inconceivable that such a scheme has the support of some on the FOMC, those persons theorizing that there will need to be the final great clearing of the books in 2012 in order to set the stage for a recovery based on broad and basic economic reforms presumed possible or inevitable in 2013-14, reversal of unemployment trends, etc.. But it just seems that there won't be any consensus on the FOMC for the foreseeable future. It's too late into the election cycle to think of any such thing before November ... and after November? ... that's a fantasy land of unknowable unknowns.

Of course, the election cycle is irrelevant since the Fed is "apolitical" wink

anything but the obvious

If you have research, but I don't think MBSes, at least the toxic ones the Fed was buying, Treasury (Maiden Lane as an ex. ) have much to do with construction.

What bothers me is "anything but the obvious", i.e. infrastucture, tax the hell out of HTF, Wall street, offshore outsourcing, give a 0% tax rate for anything in the production economy that hires U.S. citizen workers. Unfortunately politicians are the ones who could do something so that explains what we see (assuming the Fed are actually someone honest about what they are trying to do), Rube Goldberg QE and such "stimulus", but I'm not one of these "monetary policy cures all things" person.

I have no research, and I agree

I have no research, and I agree that the buying up of MBSes hasn't sparked residential construction.

It's just a theory -- that when Daniel Tarullo said last October that buying more MBS would have a good result for employment, he was implying increased employment in construction. But I don't know for sure what Tarullo intended since he, like all the Fed types, tends to speak around the issues rather than directly to them. I suppose that's to be expected, given the nature of the Fed and monetary policy.

What Tarullo mentioned specifically, I believe, was "aggregate demand" implying a good result for aggregate employment. Since Tarullo was targeting the housing sector, and since he "talks the talk" about unemployment, I supposed that he was saying that increased demand for housing would result in increased construction employment. But maybe he just meant it would result in increased fees for banks and commissions for real estate brokers and so forth. (Employment for paper-shufflers but not necessarily for nail-benders.) Or maybe he just thought the scheme would work somehow, even though he had no idea about what the specifics might be.

I wondered how does an increase in demand for goods imported from China improve the USA unemployment situation? By comparison, if it's demand for housing, then most of that has to come from domestic production, almost by definition -- but that's only after the backlog of existing homes (foreclosures, etc.) has been bought up. And, I suppose, the idea is that you have to try to get market values to approximate costs of new construction (that condition would be, like, a target).

There was a popular theory back around 2008 that the key to recovery was to get residential construction up and going again, since that's supposedly what drove the economy in the 2000s, before 2008. But I guess that idea is pretty much gone away.

Bloomberg (20 October 2011): 'Tarullo Says Fed Should Consider New Purchases of Mortgage Debt"


I don't know

This looks like a research project. I have a hard time believing MBSes trump good old fashioned stable job, income for residential anything. If you find someone who has done some analysis on derivatives pimping vs. actual real demand, please post up a link or something. I'll keep this in mind to see what I can number crunch up but getting to classes of MBSes, I'm not sure where to go digging for that to be honest.

Raskin video from FMN last July

"This looks like a research project. I have a hard time believing MBSes trump good old fashioned stable job, income for residential anything. If you find someone who has done some analysis on derivatives pimping vs. actual real demand, please post up a link or something. I'll keep this in mind to see what I can number crunch up but getting to classes of MBSes, I'm not sure where to go digging for that to be honest." -- Robert Oak

Gorsh! Me come up with research? I've just been trying to read the minds of Fed governors -- like Tarullo, when he talks about increasing aggregate demand. Sure, "aggregate demand" is a great rationale for some Fed actions, but it's looking more and more like the concept is based on pre-globalization economic theory and experience. Yeah, that's a research project, alright!

I suppose that, based on Numerian's observation about 'vulture funds', somebody out there is being paid the big bucks to sort our asset classes of MBSes. Like Numerian says, the TBTF banks don't have enough experts to figure it out!

All I can come up with is the Sarah Bloom Rankin video linked here at EP back last July (FMN, 1 July 2011) -- Friday Movie Night - Income Inequality Negatively Impacts Economic Growth

I give up on trying to figure out how derivative pimping results in a construction boom or even in an increase in aggregate demand ... instead, I would say that I agree with Rankin that aggregate demand can do little without consideration of the need for redistribution of income across economic groups. But, of course, that's a taboo subject in today's oxygen-starved political environment.


JOLTS, Bernanke's speech

Bernanke's speech takes a lot of statistics from JOLTS, BLS report. We usually overview JOLTS, here.

I couldn't get to the report for January data but the next release is April 10th. Not much changed from December 2011 and the Beveridge curve the BLS creates is located on this page. It shows, as it has every month, slight improvement but completely "out of whack" still in comparison to 2007.

Another thing Bernanke mentioned is Okum's law. We showed it "broke" in 2009, but this needs original graphs created, some number crunching to see where it is today, although that's another thing never mentioned in GDP to employment and Okun's ratio, offshore outsourcing, labor arbitrage. Anywho to really examine Okun is a lot of work, so hopefully I can get to number crunching up some graphs with regression analysis.

This is just like the housing market, it's just shocking what even the slightest better news creates in the press, as if "everything is ok now". It absolutely is not ok, that's how severe the damage is.