There Was Never Going To Be A ‘V’ Because The Bowl Was Always Empty
What was stupidest about the past few months was how it was these guys who everyone was depending upon to make it all go just perfectly moving forward. Worse, those geniuses being held up as competent economic stewards practically reran the 2008 playbook line by line. What that said, more than anything, was that they had come up with zero new ideas. Nada. Zip. A full decade to think about it and just more of the same.
Of course, Janet Yellen said this could never happen again. Not in our lifetimes.
But, some will protest, this wasn’t just a novel disease mutation it was more so a novel exogenous shock no one could’ve seen coming. While that’s true, and central bankers are milking this to the fullest possible extent, the world is full of potential shocks. If not this one, admittedly a bad one, then it would’ve been another one. This was bound to happen.
What should not have happened, had Janet Yellen been correct, was the shocking fragility by which it has all fallen apart. This was Yellen’s whole point, if inadvertently making it by being exactly wrong.
No one is downplaying the severity of the situation, even the worst offenders deserve some limited credit here. Where they’ve offended is in overplaying both the starting position and then their ability to limit the downside and pick everything back up on the other side. In between is not really the issue.
We’re only getting data on the first part of it, and already it’s enough to make you sick. They bungled 2008, badly. They botched everything about the last two years. And now the first steps into the current crisis couldn’t have gone worse.
Deflation, true deflation, is the result of money supply issues – illiquidity, if you prefer. One need only (honestly) review March 2020 for a crash course. Jay Powell says “we saw it coming” when global markets only saw his conspicuous absence thereby in some places a total shutdown in badly needed monetary spaces.
What happens when you can’t depend upon funding and credit for the absolute basics? I’m not talking about high grade corporate bonds funding stock repurchase programs amped up by “tax” reform. I mean working capital, commercial paper and the like. The funds every single business requires, including service businesses, that get the day-to-day activities done. Net income is only a part of the cash flow equation.
If you can’t depend upon access to monetary forms, the net result is what John Maynard Keynes, and thereby all his intellectual descendants sprinkled throughout global officialdom, feared the most. The labor market suffers greatest by deflation.
Jay Powell in response says he flooded the world with dollars – using that specific word, flood. The labor market shows otherwise. Therefore, he’s on TV all the time trying to sell you his lemon.
The number of involuntarily separated former American workers initially filing a jobless claim, for example, totaled 1.54 million during the week of June 6 (last week). Some are heralding this as a definitive sign of the reopening, the recovery. It sure pales in comparison to the peak when 6.8 million filed during the single last week in March.
But this is the first week in June and jobless claims are still more than double what had been the previous record before GFC2. More than double the record, twelve weeks (and a massive purported liquidity flood) into this thing.
This is about ongoing economic destruction, not the non-economic shutting down of the majority of areas. The reopening and surge of people back to work was the payroll numbers last Friday, a separate and distinct (or should be, if the BLS was equipped to survey the difference) category from this uninterrupted labor market decimation.
And even with that in mind the latest numbers are grim; continued claims had initially improved in the early part of May, leading to that massive gain in payrolls, but haven’t really budged since. Given the ongoing rise in initial claims, even the headline payroll report is in danger of being turned back to real ugly again.
You can see this disparity in so many labor statistics, including the labor turnover surveys (better known as JOLTS). Estimating job openings and the turnover through hires, both of which collapsed in April (the JOLTS data is one month further behind payrolls, or CES) to no one’s surprise.
More to the point, layoffs and discharges. These do not count those on furlough or who may have been forced into part-time rather than full-time. Or any other noisiness in the labor data. Companies that have outright let people go, separation, with many perhaps most only hoping that they might be brought back the sooner the better.
That was a mistaken assumption by those who in 2008 and especially the first half of 2009 were separated. By 2010, it was clear that business behavior so far as managing labor costs (a distinct liquidity preference) was concerned had become very different. Thus had been born the participation problem Economists have tried in vain to blame on drugs and laziness rather than properly understanding how the Fed isn’t a central bank, and monetary policy contains no money in it.
In terms of JOLTS, you can see above how Layoffs & Discharges surged to around 2.5 to 2.6 million for about five months beginning with December 2008. And this, the monetary difficulties presented by GFC1, was the biggest labor market disaster the country had witnessed since the Great Depression.
Fast forward to GFC2 and…
Almost 11.5 million in March followed by 7.7 million in April. A typical month sees only around 1.7 or 1.8 million; an excess number of almost entirely layoffs somewhere around 15.7 million. Layoffs.
Again, many – maybe even most – will go back to work as the economy is reopened. But as we are seeing, even that won’t happen straight away and will take time.
The far bigger problem is that it didn’t take that many millions who didn’t get to back to work in 2009 and after to represent a major break in the entire economic condition. Of that 15.7 million “excess” laid off, what if a third, more than 5 million, have no work to go back to? That would be an even greater disaster than the Great “Recession” (an outcome by which even the optimistic mainstream models have already modeled).
Even more frightening, these JOLTS numbers are only updated through April; which means that in May the level of layoffs may have “improved” in absolute terms, but what if another “excess” of several million more (as initial claims indicate) have already been let go? The tally continues to grow substantially, less and less related to the shutdowns.
In short, what’s indicated throughout the labor data (including, believe it or not, last month’s wildly “awesome” payroll report) is unimaginable labor market destruction. Companies shut down, but more so in liquidity survival mode. We’ve already seen it leaking through to consumer prices.
The Big D.
And to think so many people had been led to believe Jay f-ing Powell was the guy to beat back the biggest deflation risk since the early thirties. Ben Bernanke was ten times the scholar this guy is, with extra helpings of the arrogance. And he got his ass handed to him by GFC1. Though, tellingly, he left the rest of us to pick up the costs for it.
Look, I get it. Survivor’s euphoria combined with deep ignorance; it’s not like many people have ever taken the time to evaluate GFC1 beyond hearing someone in position of authority say “subprime mortgages.” For all most people know, the Fed prints money and just gives it directly to the stock market for proof of concept (flood), Ben Bernanke was a hero (the jackass even wrote that about himself), and Janet Yellen some wise observer.
People don’t pay much attention to these details, not when monetary policy and all its unnecessarily complicated programs come into play. Leave it to the technocrats! Not only should they pay close attention, over the coming months they’ll be forced to whether they want to or not.
The bowl was always empty. There was never going to be a “V.”