FacebookTwitterGoogle+RedditEmail

Down With the Ship?

Was Friday’s job’s report the final nail in the coffin for QE2?

It should be. After all, how is Fed chairman Ben Bernanke going to convince people that his bond purchasing program is working when payrolls rose by a measly 54,000 and the unemployment rate climbed back to 9.1 percent? It’ll take a lot more than fast-talk to sell that load of horse-manure. The truth is, QE2 has been a total bust and the BLS’s report is just the icing on the cake. Just look at the data; it’s as grim as anything we’ve seen in the last two years. Here’s a clip from an article titled “Disastrous US jobs report points to deepening slump” that will give the reader some idea of how bad things really are:

“The Economic Policy Institute (EPI), a liberal Washington think tank, explained Friday that the official unemployment figure masked an even grimmer reality. It pointed out that the labor force participation rate remained at its lowest point of the recession and that the labor force in May was smaller than it was a year ago, by about 500,000 workers, even though the working-age population grew by 1.9 million in that period.

“Consequently,” it noted, “the proportion of the population that is in the labor force is now 0.7 percentage points below where it was a year ago. If the labor force participation rate had held steady over the last year, there would be roughly 1.8 million more workers in the labor force right now. Instead, they are on the sideline. If these workers were in the labor force and were counted among the unemployed, the unemployment rate would be 10.1 percent right now instead of 9.1 percent. In other words, the improvement in the unemployment rate over the last year (from 9.6 percent to 9.1 percent) is due to would-be workers deciding to sit out the economic storm”. (“Disastrous US jobs report points to deepening slump”, World Socialist Website)

So, the only reason the stats look as good as they do (which isn’t very good at all) is because people are throwing in the towel and calling it “quits” altogether. So much for the American dream, eh?

And there’s an interesting twist to the BLS report that readers may not have noticed. The reason the jobs picture is so bleak, is because the “austerity crazed” government has been laying people off while the economy is still struggling which is making things even worse. This is from the Streetlight blog:

“The government sector of the economy continued to make the jobs picture worse. May was the seventh month in a row during which government layoffs undid some of the work of the private sector in creating jobs. Since January 2009, government employment has shrunk in 21 of 29 months — and without temporary hiring for the Census, it would probably have shrunk in 25 of the last 29 months.

This steady reduction in government employment is a form of contractionary fiscal policy…..If government employment were simply keeping up with population growth in the US, we would expect to see about 17 to 18 thousand more state and local government jobs each month. Instead employment has shrunk by an average of 15 thousand jobs per month since the start of 2009….

In other words, in the absence of the sharp cutbacks in government spending that have been prevalent in the US over the past year or two, about 1.3 million additional people would be working now compared to 8 months ago, rather than the actual job growth we’ve experienced over that time of about 1 million – a 30% difference. That’s a pretty tough headwind to fight, especially for an economy that’s already struggling.” (“Contractionary Fiscal Policy and the US Job Market”, The Streetlight blog)

So, if the government hadn’t been foolishly slashing jobs in the middle of a Depression, 1.3 million more people would still be working today. How’s that for shooting yourself in the foot? Remember, the easiest way to prime the pump is to make sure that people aren’t fired during a slump. That’s Rule #1. But, of course, the deficit hawks have already won that scrimmage, so it’s probably pointless to even talk about it.

And this isn’t just about employment either; it’s about distribution, too. As economist David Rosenberg points out in a recent post at Zero Hedge “the labor share of national income has fallen to its lowest level in modern history – down to 57.5% in the first quarter from 57.6% in the fourth quarter of last year, 57.8% a year ago, and 59.8% when the recovery began.”

What does that mean? It means all the gains in productivity are going to the fatcats in the front office while workers are scraping by on fewer and fewer crumbs. It means working people are getting reamed again bigtime.

But, then, Bernanke promises to level the playing field with QE2, right? Everyone who wants a job will be able to find one and it’ll be Happytime in America again. At least, that’s what he intimated in his op-ed in the Washington Post before the program kicked off in November. Here’s an excerpt:

“The Federal Reserve’s objectives —- are to promote a high level of employment and low, stable inflation…..Low and falling inflation indicate that the economy has considerable spare capacity, implying that there is scope for monetary policy to support further gains in employment without risking economic overheating…..the Federal Reserve has a particular obligation to help promote increased employment….. Steps taken this week should help us fulfill that obligation.” (“What the Fed did and why: supporting the recovery and sustaining price stability”, Ben Bernanke, Washington Post)

So, has QE2 lowered unemployment?

Nope.

Reduced spare capacity?

Not much.

Increased inflation?

Slightly.

So, it was all baloney; QE2 didn’t really do anything except send gas and food prices skyrocketing. (which has further crimped consumption)

But that’s not how Bernanke sees it. According to him the program has worked spectacularly. Here’s the Fed chief crowing about the miraculous effects of QE2:

“Equity prices have risen significantly, volatility in the equity market has fallen, corporate bond spreads have narrowed, and inflation compensation …has risen to historically more normal levels.” (Bloomberg)

Yipee. Another freebie for the investor class! And we’re supposed to be grateful for that? What about the jobs you promised? What about stimulating the economy and putting people back to work? Wasn’t that how you sold QE2 to the American people in your op-ed, Mr. Bernanke?

It was all lies. Every word of it. Here’s how Cullen Roche sums it up over at Pragmatic Capitalism:

“QE2 didn’t monetize anything. It didn’t cause the money supply to explode. It didn’t really do anything except cause a great deal of confusion and generate an enormous amount of speculation in financial markets that now appears to be contributing to turmoil and strife around the globe……

Where we saw a real impact was in commodity prices, general price speculation and the financing pyramid…..Rates have meandered up and down and up and down without a care in the world for the Fed’s $600B purchase program. In other words, the program had no impact on rates.” (“The QE3 conundrum”, Pragmatic Capitalism)

QE2 has been a total flop. The rise in stock prices was a reaction to the temporary increase in corporate earnings which fueled investor optimism. That was a one-time deal caused by trimming expenses and laying off workers. Now production costs are rising at the worst possible time, when all the other economic indicators are beginning to sag. Current data shows weakness throughout the economy, which is why stocks are falling. Expect the worst.

Bad ideas have a way of outlasting their shelf-life. (Especially when people in positions of power have ulterior motives.) Quantitative easing should be put to rest once and for all. It hasn’t lowered interest rates, increased GDP, boosted employment, or sparked another credit expansion. The plan has failed. Time to move on.

Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com

 

 

 

 

More articles by:

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

September 18, 2018
Conn Hallinan
Britain: the Anti-Semitism Debate
Tamara Pearson
Why Mexico’s Next President is No Friend of Migrants
Richard Moser
Both the Commune and Revolution
Nick Pemberton
Serena 15, Tennis Love
Binoy Kampmark
Inconvenient Realities: Climate Change and the South Pacific
Martin Billheimer
La Grand’Route: Waiting for the Bus
John Kendall Hawkins
Seymour Hersh: a Life of Adversarial Democracy at Work
Faisal Khan
Is Israel a Democracy?
John Feffer
The GOP Wants Trumpism…Without Trump
Kim Ives
The Roots of Haiti’s Movement for PetroCaribe Transparency
Dave Lindorff
We Already Have a Fake Billionaire President; Why Would We want a Real One Running in 2020?
Gerry Brown
Is China Springing Debt Traps or Throwing a Lifeline to Countries in Distress?
Pete Tucker
The Washington Post Really Wants to Stop Ben Jealous
Dean Baker
Getting It Wrong Again: Consumer Spending and the Great Recession
September 17, 2018
Melvin Goodman
What is to be Done?
Rob Urie
American Fascism
Patrick Cockburn
The Adults in the White House Trying to Save the US From Trump Are Just as Dangerous as He Is
Jeffrey St. Clair - Alexander Cockburn
The Long Fall of Bob Woodward: From Nixon’s Nemesis to Cheney’s Savior
Mairead Maguire
Demonization of Russia in a New Cold War Era
Dean Baker
The Bank Bailout of 2008 was Unnecessary
Wim Laven
Hurricane Trump, Season 2
Yves Engler
Smearing Dimitri Lascaris
Ron Jacobs
From ROTC to Revolution and Beyond
Clark T. Scott
The Cannibals of Horsepower
Binoy Kampmark
A Traditional Right: Jimmie Åkesson and the Sweden Democrats
Laura Flanders
History Markers
Weekend Edition
September 14, 2018
Friday - Sunday
Carl Boggs
Obama’s Imperial Presidency
Joshua Frank
From CO2 to Methane, Trump’s Hurricane of Destruction
Jeffrey St. Clair
Maria’s Missing Dead
Andrew Levine
A Bulwark Against the Idiocy of Conservatives Like Brett Kavanaugh
T.J. Coles
Neil deGrasse Tyson: A Celebrity Salesman for the Military-Industrial-Complex
Jeff Ballinger
Nike and Colin Kaepernick: Fronting the Bigots’ Team
David Rosen
Why Stop at Roe? How “Settled Law” Can be Overturned
Gary Olson
Pope Francis and the Battle Over Cultural Terrain
Nick Pemberton
Donald The Victim: A Product of Post-9/11 America
Ramzy Baroud
The Veiled Danger of the ‘Dead’ Oslo Accords
Kevin Martin
U.S. Support for the Bombing of Yemen to Continue
Robert Fisk
A Murder in Aleppo
Robert Hunziker
The Elite World Order in Jitters
Ben Dangl
After 9/11: The Staggering Economic and Human Cost of the War on Terror
Charles Pierson
Invade The Hague! Bolton vs. the ICC
Robert Fantina
Trump and Palestine
Daniel Warner
Hubris on and Off the Court
John Kendall Hawkins
Boning Up on Eternal Recurrence, Kubrick-style: “2001,” Revisited
Haydar Khan
Set Theory of the Left
FacebookTwitterGoogle+RedditEmail