Reality Check

The Fed seems not to understand why there is so little inflation with the economy doing so well that a rate rise in December is probable and two or three more increases in 2018 are possible….


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Dr. Walter Snyder –

Wally’s Newsletter n°190

There are various pundits that claim the US is doing well on many fronts with the unemployment percentage employed as an argument to prove that the Wall Street rally is thoroughly justified.

The BLS (Bureau of Labor Statistics) has come up with a figure for unemployment that is used by the Fed in determining policy, namely, 4.3%. This number is the result of statistical juggling, and one must credit the people at the BLS with a certain gift for creativity and number twisting. If the US debt clock is in any way reliable, unemployment is not at 4.3% but much higher, and the economy is not doing well at all.

An examination of some key numbers quickly shows that not all is well in the land of the free and the brave. President Trump is surely right when he claims that American jobs have gone abroad. The number of people employed in manufacturing in 2000 was 17.1 million (numbers rounded off) while there were only12.5 million in 2017, a loss of 4.6 million jobs. That cannot be considered to be a positive factor.

The official number of unemployed is 6.8 million while the real number is 13.3, practically double the official number. So unemployment should really be around 8.5%. But that is not all. The number of people in the work force in 2000 was 156.19 million, but there are only 154.43 million now, about 1.76 million fewer after seventeen years. The number of people not in the work force was 79.68 million in 2000 while now it is 94.42 million, an increase of 14 .74 million. The US labor force participation rate is around 63.1%, but it was about 67% in 2000. The labor force participation rate is currently lower than what it has been for the last thirty years and is closer to what it was in the 1950s and 1960s.

Given these numbers the enthusiasm of the Fed for the optimistic figures churned out by the BLS seems rather suspicious. The Fed is trying to give the impression that the economy is doing well and that the Fed is achieving its goal of maintaining full employment and stability. It has been widely accepted that the current recovery is a weak one and there has been growth albeit slow. However, when the great increase in debt is considered, and it is now 105% of GDP, along with ZIRP and NIRP since 2008, the huge bull rally on Wall Street has to be explained by all the liquidity injected into the market by QE. What will happen with QT?