Need 5 million jobs??

"Foreman says these jobs are going boys and they ain’t coming back..."

The USA has lost 5 million good manufacturing jobs since 2000.  Services now account for about 85% of the jobs in the USA.  This includes great jobs that are the essence of America's new economy, like those stemming from Research and Development (academic, engineering, high tech), and management/administration services (lawyers, business and investment professionals). It also includes very low-paying restaurant and retail jobs that are the only ones many people can get absent an advanced education.

There are 14 million people working in restaurants in the USA today. Another 4.5 million work in retail sales. The average minimum wage in the USA is $7.25 an hour. That means there are almost 20 million working poor  in the services industries. In decades past, many of these people would have been working in great jobs such as those in auto plants that closed years ago. Add 45 million people living on food stamps, and this is a n American national tragedy.

Given that the good manufacturing jobs aren't coming back, the challenge is simple - i) recognize that service jobs will be the only jobs that millions of people will ever get in their lives - this is their career; ii) make sure that these people can live off the wages they earn at these jobs; and iii) spread these jobs around to dramatically lower the number of people living on food stamps.

California is going to raise the minimum wage to $15 an hour. This will represent a living wage for a family of 2. This should be a national policy. Unlike manufacturing jobs, service jobs cannot be exported. If the wages of almost 20 million people were to be doubled overnight, the positive effect on the demand side of the economy would dwarf anything the US Government or US Fed have done since 2009, simply because millions of poor people would now have twice as much money to spend.  The effect on businesses???...see below.

Spreading these jobs around would require a delicate policy balance. The policy could aim at limiting the length of the work weeks of those in these positions, thereby making room for more people to enter the workforce. This could be done through a combination of incentives to business to hire people in these industries, disincentives to staying on food stamps, and taxing people who work above a certain number of hours a week in these industries. The goal should be to open up 5 million new positions as soon as possible, which could reduce the number of people living on food stamps by perhaps 15 million, given that many people living on food stamps are dependents of people who are out of work.

But wouldn't the economy collapse as a result of doubling the minimum wage for the service industry? Wouldn't unemployment increase?  Wouldn't all service industry companies disappear?

The service industry will raise prices. This will cause the very inflation the US Fed has been praying for in order to have a relevant policy suite again. And the service industries will have millions more customers who can actually afford to buy - money will start moving again.

But isn't this socialism!!??

This is really about a managed economy. Every single banker in America has been managed for generations now. Every business benefits from some form of government largess, whether in the form of subsidies tax credits. Every single person has their hand in the public cookie jar, whether in the form of tax deductions for mortgage interest payments or Social Security or Medicaide, you name it...everyone in America is benefiting from an economy that is managed in almost every respect.

So why not manage the economy for the benefit of poor people? The state saved the banks and bankers took millions in bonuses during and after 2009. Mortgage interest deductions means the state is helping people to buy their homes! Why not structure a system that already exists - minimum wages and taxes - to maximize employment in an economy, and to make a massive dent in the number of people living on food stamps?

The alternative is what, exactly? More tax breaks for billionaires? 5 million new good paying jobs are just a few realizations away.

Panama II

The truth is starting to bubble...

http://www.zerohedge.com/news/2016-04-07/yes-panama-papers-could-really-end-hillary-clintons-campaign

The only place I could find a possible connection to the Clintons was on Zero Hedge, and Observer.  Stay tuned!

Jump back, what's that sound? Panama!!

Hmmmm....Panama Papers released by a German paper that had them for a year, implicating hundreds of powerful people ("It's good to be Putin's friend!")  Why now...in the middle of a hotly contested US presidential election?!

And why was Slick Willy Clinton in Panama as late as this past November?  Promoting "wind farms", as news reports would have you believe???

Is this a coincidence, or are the two related??  Was he there to put out a potential fire that could consume his wife's candidacy??

Do I now qualify as a conspiracy theorist?

Near Term Prospects for World Markets

Investors, please read this....

http://www.marketviews.com/rmg/time-to-be-bearish-again-as-the-reflation-trade-is-topping/

Here is the conclusion.

"So to conclude, we do not think the recent reflation trade is anything more than a very flashy rally that is now pretty much over. We remain of the view that the US and World economies are stuck just above stall speed at best, and are vulnerable to a new recession that would be triggered by falling asset prices. The bear market is likely to happen alongside a decline in corporate buybacks as profits continue to decline and the market pushes back on funding bond issuance purely to buy back shares resulting in higher and higher leverage."

I noted this same source on December 10, 2015, just before markets went into a nose dive, dropping in excess of at least 10% within 6 weeks.

US Economy

The markets have recovered!!  Is this a blip, or are things really going well? As always, the focus is on the USA.

The Good.

Banks:  Only 1 US bank has gone under so far this year. After about 500 bank failures from January, 2008 to the middle of last year, this is excellent news.

Personal Debt: Americans are paying down debt in spite of the lowest interest rates in history.  Personal debt to GDP has gone from about 98% in 2009, to about 79% today, meaning that Americans have far more financial resiliency than they had just seven years ago. Again, this is excellent news.  

Savings: From a low of 1.9% of income in 2005, Americans now save at a rate of about 5.4% of their income. Again, this turn around, in the face of relentless pressure from the US Fed to borrow and spend, is excellent.

Federal Finances: In 2012, the USA Government ran a deficit of in excess of $1.1 Trillion. Today, the projected deficit for the next fiscal year will be well under $500 Billion. This is not excellent, but it is still very significant progress.

Unemployment Rate: This rate is now 5%, but it is up a bit because more people are entering the workforce. There are jobs in the USA, and this number is encouraging some superficial confidence...more on this below.

Housing: The US Housing index is very positive, at 58, where 50 is flat.  Housing prices are also way up. While positive as this implies that Americans are accumulating equity in their homes, this would not be happening absent the most accommodative monetary policy in history. Because this probably represents another housing bubble, it could easily be in the Ugly column.

Federal Reserve Balances: Of the $4.05 Trillion provided to US banks via Quantitative Easing, about $2.33 Trillion never made it into the US economy to stimulate growth - it is still on deposit with the Federal Reserve system on behalf of US banks. While this speaks volumes for how confident US banks actually are about the US economic recovery since 2009. the fact is that they used to have in excess of $2.7 Trillion on reserve. The fact that US banks are now slowly starting to access these funds is excellent news as this money may actually be used for its intended purpose some day, namely, stimulating the US economy.  

The Bad.

Velocity of Money:  Money is moving at its slowest pace in about 30 years. The whole point of QE was to inject cash into the system so it will spark economic growth. This can't happen if the money doesn't move. The fact that it is stagnant strongly suggests very little confidence in the economy.

Food Stamps: The number of food stamp recipients in the USA has fallen over the last two years from about 48 million, to about 45 million. This is still awful compared to the 28 million who were on the program before the Great Recession, but this is getting better.

Student Debt:  While the overall debt load of Americans is dropping relative to GDP, student debt has almost doubled since the Great Recession, from about %600 Billion, to about $1.2 Trillion. This suggests that the next working generation will start out with a significant financial burden that will limit its ability to contribute to economic growth through spending for some time.

Auto Debt: Americans have borrowed $300 Billion more to buy cars over the last four years that then had previously, increasing total auto loan debt from about $700 Billion in mid-2010, to over $1 Trillion now. Americans spend about $500 Billion on new cars and trucks each year. This amount of auto loan debt represents a whopping two full years of normal buying.

Labour Force Participation: This used to be Ugly, but has improved to Bad. The Labour Force Participation Rate in the USA was 63% in March, 2016, seasonally adjusted. This is an increase from 62.8% the year before, and reflects a very slow recovery in the measure in the last year or so. The LFPR was 67% in 2007.  Some of the drop is owing to an aging workforce. Nonetheless, if even half of this drop is as a result of the continuing economic problems in the USA, this represents some 5 million people who do not have work compared to before the Great Recession - these people and their families represent the lion's share of new food stamp recipients. This is improving, but it still has a very long way to go.

Productivity Growth: This is one of the key drivers to long term economic growth. It has been essentially flat in the USA for the last 18 months, and actually fell by 2.2% in Q4 of 2015. While this measure is cyclical, the fact that there is basically no productivity growth while literally trillions of dollars are available for investment in R & D and other productivity improvements suggest that there may be an emerging imbalance in US corporate investment priorities.   

The Ugly.

Corporate Profits: Profits of major US corporations were increasing at a rate of about 5% for the three years between 2012 and 2015, but have recently started to decline significantly - down 3.6% year over year this month. This is the key bell-weather for the stock market. Simply put, declining profits means declining stock prices at some point.

Durable Goods Orders/Industrial Production: Goods orders have not posted a positive quarter in over a year.  In short, production of durable goods in the USA is in a significant recession, down a further 2.8% just last month. Industrial production was down 0.5% in February. Industrial production was only up in three of the last 15 months.

GDP:  The GDP for the last quarter of 2015 has been pegged at 1.4%.  "GDP Now" is saying that the GDP growth in the USA will be about 0.6% for the first quarter of 2016. The 6-month average is about 1% GDP growth. With slowing orders and production, the USA may be on the cusp of another mild recession.

Inflation(?):  The Consumer Price Index in the USA was negative, at minus 0.2% in February.  Import and Export prices were also negative, at minus 0.3% and 0,4% respectively. This is deflation, although no one is saying so. Deflation happens when not enough money is chasing too many goods...it is VERY bad.

Conclusion: There are some positives to the story of the US economy. Having said that, the recent stock market recovery cannot be said to be based on the fundamentals of the US economy, which include virtually no GDP growth; declining corporate profits and industrial production; deflation; flat productivity growth, and an economy where one in eight people still live on food stamps. The dead cats are bouncing...