The Smallest Bit Of Empathy For The Swollen Herd

Why isn’t the inflation monster right upon us? Well, for one, central banks only pretend to do money. But setting that aside, it’s worth asking how even if they did do money, could inflation result given the current conditions?

Hard no.

It’s a combination of enormous macro slack joining destructive forces with the underside of the permanent income hypothesis. The point of unemployment insurance is to reduce the negative effects for those who face a loss of income. While it won’t be the same coming from Uncle Sam (and his state nieces and nephews), it’s at least a steady payment.

Unemployment aid isn’t supposed to be permanent, however, since recoveries are believed to just happen; organic and symmetrical. An end to a recession necessarily produces an end to the macro slack limiting employment. On the way back up, unemployed persons naturally regain meaningful employment and roll off government assistance.

This is why the regular form of state insurance is limited to (in most states) 26 weeks. You get half a year because that’s all it takes for recovery, right?

Yes, for a real recovery.

If you remember back a dozen years ago, it didn’t work out. Payments had to be extended because, for one big reason, the job-cutting didn’t actually end until almost a year after the Great “Recession” was “officially” declared ended. The NBER said the contraction stopped in June 2009 while the unemployment deluge kept on going well into 2010.

And then the recovery never really kicked in; at most, the bloodletting stopped and some minimal rebound took shape. Consequently, the labor force continued to shrink for several more years as workers realized what central bankers would never publicly admit: QE wasn’t working and inflationary acceleration never once close to materializing.

Even over the years following 2012, the economy was only notable for its slack.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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