The Fed Won't Save Us From The Growing Jobs Recession

To understand why the Fed’s actions are so significant, keep in mind that when the Fed buys assets, it creates high-powered “base money” to do so. (Jay Powell didn’t have $3.2 trillion in his piggy bank when the Fed made the above-noted purchases this year.) Besides the potential for price inflation, Austrians recognize central bank monetary inflation as a crucial ingredient in modern business cycles. For more on these ideas, see my forthcoming book (which is being serially released by chapter) on Understanding Money Mechanics.

Just for fun, I took the above chart and overlaid the S&P 500 index:

fed assets and s&p500

In the chart above, the fit between the Fed’s assets and the height of the US stock market isn’t perfect—it truly had been hand-in-glove during the initial rounds of QE, but for some reason, they changed the data availability on the site and now the S&P index doesn’t go back that far—but it still suggests that the record-high stock prices we saw this year are due to Fed money printing rather than the fantastic prospects for US economic growth.

US Employment

Amid the breathtaking issuance of federal debt and base money, the US labor market is in terrible shape. Here’s the official civilian unemployment rate that they report in the news:

unemployment rate

The massive spike in the spring underscores just how disruptive the initial lockdown was. However, note that even now, with the headline unemployment rate (for November) at “only” 6.7 percent, we are still worse off than during the depths of the recession in the early 2000s.

Yet as most readers of probably know, the official unemployment rate has been very misleading since the economic fallout from the 2008 financial crisis. Specifically, the Bureau of Labor Statistics (BLS) only counts you as unemployed if you are actively seeking work. Incidentally, this isn’t an entirely crazy procedure; my parents live in a retirement community and play golf several times a week. They aren’t working, but that’s not who we mean when we talk of “the unemployed.”

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