The Economy

Next on deck. ... PacWest and Western Alliance Bank (as we approach the now ritual Friday clobbering, followed by the panicked weekend auction, and the Monday FDIC statements telling everyone there is nothing to see here). The equity of several regionals, with those two leading the way, is under severe pressure today. PacWest is actively looking for a buyer.

The additional 25 basis point hike by the Fed yesterday is not going to help. Although people will take the wrong lesson, the problem isn't that they are hiking rates right now (consumer price inflation is forcing them, and even with 500+ basis points of hikes, prices are still rising at a hot pace), it was the decade plus that they suppressed rates and set up what is happening now.

 

The Keynsian nonsense they have been brainwashed with teaches that inflation and unemployment have an inverse relationship.

They should have an inverse relationship, FWIW. ... but that relationship gets thrown way out of whack by extreme government policies, in this case by the enormous expansion of credit over the last couple of decades due to our central bank forcing interest rates very artificially low, and the massive amount of government spending that has been monetized by that policy. Those are the causes for that inflation, not just low unemployment somehow driving wages higher and overheating the economy (which is clearly not happening).

The one thing that should clue anyone into the fact that it's not fitting the Keynsian Econ 101 puzzle right is that the latest GDP number was anemic. It doesn't comport with us being beyond full employment. Plus, we have been getting announcements of thousands of layoffs (just look back on this thread) every day for the period that report was compiling.

Even U6 at 6.6 percent isn't an accurate picture. ... They simply don't count millions of people like they don't exist, and on top of it they count people who have multiple part-time jobs as multiple jobs. John Williams of Shadowstats calculates the number to include long-term discouraged workers who have permanently left the work force, but were officially defined out of existence in 1994 during the period they were perverting government statistics to create politically palatable numbers. And if you measure it that way, the unemployment rate according to his service would have been 24.6 percent in that report.

 

If you believe the BLS. .. we are beyond full employment in this country (the natural rate of unemployment -- people moving around, between jobs, etc. is 4 to 5 percent, but we are at 3.4 percent unemployment) and we have runaway inflation (depending on which price index you use, prices are still up 5, 5.5 percent year over year).

I think their numbers are absurdly meaningless -- they are at the point of telling people not to believe their lying eyes.

I also can't tell you what the actual unemployment rate is, because I am not doing the survey. But I can tell you that they treat tens of millions of people who aren't working like they don't exist in order to create what is now a meaningless number.

On inflation, it's a more subjective number, because when you put together a basket of goods to measure whether prices are rising, you can paint a million different pictures based on what you put in the basket and how you weight each of the things. It's not like an employment number which SHOULD be pretty straightforward, but in the hands of politicians has become anything but. Shadowstats calculates the CPI the same way it was being calculated in 1980 before they began making frequent changes to the basket and the weightings, and using that 1980 methodology, the last CPI report would have put year over year "inflation" at 14.1 percent. Using the 1990 methodology, it would have been 8.3 percent year over year.

Combine that with the much higher unemployment rate that under the old methodology didn't adjust (i.e. -- make disappear) for long-term discouraged workers. ... and it would paint a picture of pretty entrenched stagflation.

Anecdotally, I think that is the reality a large swath of America has been dealing with, particularly for the last 1 1/2 to 2 years.