Central Banksters Make the Best Terrorists

Richard (Rick) Mills

Ahead of the Herd

Page 1 of 3

As a general rule, the most successful man in life is the man who has the best information

From the minutes of theFederal Reserve meeting April 30th - May 1st 2013.

"Many participants indicated that continued (job market) progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases."

On May 22nd Federal Reserve Chairman Ben Bernanke told Congress that a decision could be made, at any of the next few Fed meetings, to scale back the $85 billion in bonds the Fed is buying each month if the economy looked set to maintain momentum. The S&P 500 closed 0.8% lower, the dollar hit a three year high and the bond market sold off with yields on the 10 year Treasury notes jumping above 2%.

Speaking at a Boston economic conference Bernanke backtracked saying the Fed would continue to pour stimulus into the US economy, so long as inflation stays low, below 2.5% and until unemployment improves to below 6.5%.

Bernanke made it very clear that those thresholds were merely for considering a rate hike from the Fed’s current .25%, they weren’t necessarily a trigger for tightening…

“Given that the unemployment rate understates the weakness of the labour market and given where inflation is, I would suspect that it may be well after we hit 6.5% before rates reach any significant level.”

In Bernanke’s July 17th testimony to Congress he said the economy is weak, inflation is low and that if the Fed reduces its accommodation the economy would tank. This was a complete contradiction of remarks made only a few minutes before, when he said stock markets were strong because they reflected the strength of the underlying economy.

“I was gratified to be able to answer promptly, and I did. I said I didn't know. ” Mark Twain

The economy, unemployment and inflation

U.S. retail sales rose by just 0.4% in June (the majority of the rise was in higher gasoline prices). Sales were down in several key segments – down 2.2% at home-improvement stores, by 1.2% at bars and restaurants and by 1% at department stores.

We all need to understand that to have a real, and sustainable recovery for an economy that relies on consumer spending for 70 percent of its activity we need to have a jobs recovery. At 7.6% unemployment the number of jobs being created each month is barely at the level needed for new entrants into the workforce let alone replacing the jobs lost since the Great Recession in 2008 and manufacturing continues to bleed jobs.

Okun’s Law holds that an economy, it’s GDP, must grow above its potential to reduce the unemployment rate. Year-on-year economic growth of two percent above the trend (considered to be 2–3 percent) is needed to lower unemployment by one point.

A third downgrade of U.S. economic growth for the first quarter 2013 showed the country’s GDP grew at just a 1.8 percent annualized pace.

Bloomberg and IHS Global Insight estimate the U.S. economy will grow by 1.6 percent this year. Barclays just cut its second quarter GDP forecast to 1.0% from 1.6% and J.P. Morgan Chase cut its second quarter forecast to 1% from 2%.

From marketwatch.com comes the following; “Following the releases Monday (July 15th) of tepid reports on retail sales and inventory accumulation, forecasters marked down their GDP expectations from 1.4% to 1.1%. It’s probable that U.S. GDP rose less than 2% for the third quarter in a row, and it’s possible that growth was less than 1% for the second quarter in the last three.”

Bureau of Labor Statistics, Alternative measures of labor underutilization

U-4: Total unemployed plus discouraged workers – up from 8.0 percent to 8.2 percent.

U-5: Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force – up from 8.8 percent to 9.1 percent.

U-6: Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons - up from 13.8 percent to 14.3 percent.

Long term unemployment - those unemployed over 26 weeks - in the U.S. stands at 4.357 million workers (up from 4.353 in April). Long term unemployed workers remain one of the key problems for the U.S.

The U.S. economy lost 240,000 full-time workers in June while gaining 360,000 part-time workers.

The Federal Reserve uses the Bureau of Labor Statistics (BLS) Consumer Price Index (CPI) as there guide. As you can see, this inflation indicator inflation is well within the Fed’s guidelines.