Category Archives: Employment

Things Can’t Get Any Worse

The title summarizes the line being put out by Wall Street and amplified by the financial press. The logic is that it is then time to buy stocks. And it is working, stock indexes are rallying strongly as retail inflows into mutual funds and individual stocks have resumed. In turn, hedge funds and CTAs must follow, to say nothing of the resumption of buybacks as earnings season comes to an end.

Of course, things can and will get worse. The impact of input costs and other supply constraints such as war, drought and ill-advised climate change politics have hardly been felt yet in retail prices, even though they have risen substantially. Energy prices continue to be driven higher by the same bad science and emotional political campaigning. Then of course there is the labor shortage, caused by more bad government decisions partly around the pandemic, but mostly about socialist “progressive” politics.

vac minus ui

The excess demand for labor demonstrated by the chart above means that the economy will have to slow considerably before pressure on labor costs is eased. But while rising labor costs impact inflation, they don’t mean that personal income is keeping up with inflation as food and energy prices accelerate away.

Donald Swain, CFA CPI Adj Personal Income

All of the above mean that the current recession will have a long way to go before inflation is reduced. Once the genie is out of the bottle, she doesn’t go back in willingly, as Paul Volcker’s efforts to contain her in the 1980s show.

Supposedly the Fed will “pivot” back to easy money (well, even easier, money is still easy with deeply negative real rates) as soon as this third quarter. Well, maybe it will – the Fed’s politically driven monetization of government debt is what has brought us here, after all. But that will bring about true hyperinflation and I doubt that Powell wants to go down in history as the Fed chairman who put politics before sound economics to complete his ruination of the world economy. I say the world economy because central bankers move in unison to avoid individual criticism.

Labor chart thanks to zero hedge, Personal Income chart thanks to Donald Swain, CFI CPA.


From ECRI’s Lakshman Achuthan:

WH saying no recession & Sec Yellen saying it’s a “transition” reminds us of Carter admin economist Alfred Kahn who, when forbidden to mention “recession,” used the word “banana” instead. Banana growers protested, so he switched to “kumquat.” What’s the fruit for recession today?


In my view, it is highly likely that the US economy has already entered a recession. I’m using ECRI’s definition of recession:

A recession is a self-reinforcing downturn in economic activity, when a drop in spending leads to cutbacks in production and thus jobs, triggering a loss of income that spreads across the country and from industry to industry, hurting sales and in turn feeding back into a further drop in production – in effect a vicious cycle.

The big question is what happens to inflation. And that largely depends on the Fed. The government will continue on its path of reckless spending, that is a given. Anything that might buy votes from the naive and foolish. The question is whether or not the Fed will return to its habit of monetizing the spending or not. Since the Fed does not understand the reasons for its inability to control inflation or employment, it could do anything. One can only wait and see,

Thanks A Lot


But we do have much, much more government surveillance and intrusion into our lives. And of course much more debt and government spending. Soon we won’t need a private sector at all.

The Return Of Goldilocks

Everywhere I look in the financial press, I see predictions of a Fed “pivot”, by which is meant the abandonment of inflation-fighting and the return to the lowering of interest rates and printing of money.

This pivot is to occur sometime in the fall, apparently. The economy will be in recession, which will cause the Fed to panic and return to bubble-blowing. Inflation will have magically disappeared, because recession. The result will be the return of the bull market, “To infinity and beyond”, I guess. Biden will be carried on Powell’s shoulders to the mid-terms, supermarket shelves will be overflowing with foods, gas will be back to the $2s, unemployment will have taught the working classes the folly of asking for higher wages….

Too good to be true, I fear. But we’ll see.

Dr. Copper

It is generally held that the price of copper, otherwise known as Dr. Copper, has a PhD in economics. It is interesting to note that unlike, say, energy, the price of copper is slipping.

Historically this has implied a slowdown in economic activity.

Wishful Thinking

Financial advisers are falling over themselves to roll out the bullish case for the stock market. Perhaps the Fed will get scared and resume pumping the stock market. Perhaps the Fed will engineer a “soft landing”. Perhaps the economy will grow fast enough to avoid a recession. Perhaps a recession will abolish inflation. The first is possible. The others are not.

Perhaps the reality is that we are facing a perfect storm. I’ve written about some of the issues here and specifically about energy policy here. 

Perhaps most important but unmentioned is the impact of the Biden administration’s spendthrift and socialist policies. This is an administration that is completely dominated by wishful thinking. That it can print and spend money without concern for the effects of excessive debt on growth, or the impact of inflation on households with little margin for error. That it can grow an economy already short of labor by spending money. That the US can support a level of military spending which exceeds the total military spend of the rest of the world. That pandering to racial and transgender political correctness is more important than taking care of basic necessities such as food and energy. That opening the borders to crowds of uneducated and unskilled refugees fleeing socialist regimes will not overload the US social safety net.  That the US can afford to export democracy when there is precious little left at home.

Deadly Embrace

In a computer system where multiple programs are running at the same time, updating shared data can be a serious problem. A program can lock a chunk of data while it is modifying it so that no other program can inadvertently update it at the same time, which would lead to bad data. But then the situation can arise where program A locks chunk 1 and then needs to lock chunk 2 to proceed, except that program B holds the lock on chunk 2 and needs chunk 1 to proceed. Clearly neither A nor B can proceed. This situation is called a deadly embrace.

The escalating sanctions remind me of this. Both sides are trying to hurt the other but it seems that there is no way that either side can emerge victorious. Mutually Assured Destruction (MAD) may be achievable without any nuclear missiles leaving their silos.

Typically in a computer system the supervisory software will step in and pick a winner, forcing the other program to start over. Unfortunately there doesn’t seem to be a candidate for that task in the geopolitical system.

How To Stop Inflation

It’s not complicated. To stop inflation, you need to stop feeding it. It is fed by adding credit, that is, increasing debt. Doesn’t matter whether in the private or public sectors. The usual ways to discourage additional debt are to increase its price, i.e. interest rates, and reduce or eliminate public deficit spending.

If you don’t do any of these things, inflation spirals and eventually becomes hyperinflation when the public realizes that the government is unable to control its spending. The economy and the currency collapse.

If you do both these things, the economy shrinks. Recession. Inflation eventually responds and interest rates can be reduced. Economic growth is resumed.

If the government doesn’t do its part, then the private sector must do more, usually by massive defaults. Depression. Long and painful, usually ending in war.

The so-called soft landing where inflation falls without recession only occurs when the inflation was exogenous. This is not the case today. This inflation is the result of years of bad policy and over-spending. There will be exogenous effects from the Russia sanctions, but so far they have had little or no impact.

Happy Times Are Here Again (Not)

The last time inflation was this high was in February of 1982. Paul Volcker had already turned off the free money and the Fed Funds rate was 15%. I remember that when we moved to the US in 1983, I had a CD at 15%. We were fortunate to get a mortgage at 9.75%.

Volcker stuck to his commitment to bring down inflation and kept rates high, even though the economy had gone into recession. I keep reading pieces that claim the Fed will be making a “policy error” by tightening into a recession. That’s a joke as far as I am concerned. The policy error was made years ago. We shouldn’t be here and the only survivable way out is through recession or depression. The other exit is hyperinflation and that’s a horror show.