Overloaded with Debt and No Jobs to Be Had

Overloaded with Debt and No Jobs to Be HadThe Federal Open Market Committee met on Tuesday and Wednesday.  The masses waited with anticipation.  What did they talk about?

Generally, they talked about price controls.  More exactly, they talked about controlling the price of the economy’s most important and fundamental element…its money.  By controlling the price of money they can influence the price of every single good and service there is.

Some believe this is for the good of the people.  That it will somehow boost consumption and stimulate demand.  That it will create a new hiring boom.  We have our reservations.

When it comes to the Fed, they believe – or at least pretend to believe – that with just the right policy mix the economy will be restored to glory.  But what’s the right mix…and how can a handful of bureaucrats with a handful of charts ever know what it is?

After several days of belaboring they concluded they’d continue loaning out federal funds for practically free.  On top of that, they concluded they’d continue to borrow money into existence – roughly $85 billion a month – and use it to buy Treasuries and mortgage bonds until unemployment falls to 6.5 percent.  This second activity, known as quantitative easing, artificially suppresses interest rates so the federal government and home buyers can borrow money at record low prices.  In other words, it encourages more public and private debt.

Where are the Jobs?

Nowhere in the Fed’s utterings did we pick up any recognition that there’s no such thing as a free lunch.  In fact, a perusal of the gobbledygook leaves the impression that Fed money can actually improve the economy, lower the unemployment rate, and bring prosperity for the hoi polloi.  Somehow, by pushing and pulling on money prices, we will all enjoy fresh fruits without having to labor for them.

But the reality of it all is far different.  There are consequences for controlling prices like there are consequences for engaging in road rage.  At the same time, whatever positive effect the Fed’s designs were supposed to produce has been a grand disappointment.  Here’s it is, part way through the second quarter and, once again, the economy’s flagging.

“Private-sector job growth slowed more than expected last month, with employers adding just 119,000 net new workers in a harbinger of a stalling labor market, payroll processing firm ADP said Wednesday,” as reported by the Los Angeles Times.

“It was the second straight decline in the widely watched reading, and marked the poorest pace of growth since September.  ADP also lowered its March figure to 131,000 from the initial estimate of 158,000.”

What’s going on?  With all the money – nearly $2.5 trillion – that’s been added to the money base over the last four years, shouldn’t we be experiencing a rip roaring boom?

Overloaded With Debt and No Jobs to Be Had

Ben Bernanke and the Fed have been pushing and pulling with everything they’ve got.  Yet, to their chagrin, Washington’s been busy doing everything they can to trip things up.  After several months with no apparent impact, the double whammy of increased payroll taxes and federal spending cuts has now come down on the economy like the blunt edge of a meat cleaver.

Later today we’ll learn if the Labor Department’s April jobs counts are much different than ADP’s. Likewise, in addition to the quantity of jobs, there’s the quality of jobs to consider…which have been a fantastic disappointment…

Professional jobs are still out of reach for many recent college graduates.  That’s the finding from a recent survey we came across on Spectrem’s Millionaire Corner.

“Four-in-ten working Millennials who graduated from college in the past two years give their career paths low marks, according to new research by Accenture.

“Forty-one percent of the more than 2,050 Millennial respondents to Accenture’s 2013 College Graduate Employment Survey said they are underemployed and working in jobs that do not require their college degrees.”

What’s more, according to the New York Fed the average student loan balances among 25-year-olds with student debt grew by 91 percent over the last nine years from $10,646 in 2003 to $20,326 in 2012. Something ain’t right here…and rising stock prices won’t fix it.


MN Gordon
for Economic Prism

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