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DAVID KRUSE

Congrats to the Fed

May 18, 2017
Farm News

The March unemployment rate was 4.4 percent. That is very good, the lowest rate of unemployment in a decade. While some twist the numbers to point out strengths and weaknesses, the employment picture appears to be quite stable in this country right now. There are varying performances by employment sectors but overall people can get jobs if they want one. One local company official says that the job market has tightened to where he is now interviewing people that he would have never considered a couple years ago. In other words, labor standards are dropping which is another means by which costs go up.

There are people on unemployment that should be working but not as many as the ideologues think. Most on welfare are kids and elderly. The remaining pool is not desirable workers. If they wanted a job they would have one so they lack motivation. To get these people to work is often not worth the draconian effort that it takes to squeeze productivity out of them.

Conservatives want to force work for welfare but what they are really doing is punishing employers who have to deal with these people. That is one reason why many employers would rather hire an illegal immigrant who doesn't speak English over one of the Americans in the unemployed pool. Some people with "No Amnesty" bumper stickers on their cars have never had to hire anyone in their lives. Most who oppose legalizing immigrant labor don't hire anybody so really are only voicing their ideology.

The myth that illegals drain our welfare system misses the fact that their access is limited while Americans who do not want a job do that. The Ag sector has had a lot of experience with labor and they will take all the Mexicans that they can get. They had the motivation to overcome barriers to get here, work harder, are more family oriented and follow laws better than many Americans do because they know they are not entitled and are at risk. The Ag sector is on track for a labor crisis as the Trumpites push their delusion that these are bad people that we can get along without.

Who is responsible for the jobs recovery that is being seen? Personally I give little credit to any president or congressional politicians. The economy did not recover due to any wizardry of fiscal policy. Congress didn't cause this. They were gridlocked most of time fearful to help with stimulus and fiscal policy not wanting to make Obama look good or get any credit for the economic recovery. The lack of fiscal policy kept the recovery and GDP growth slow so they could spin that into a political liability calling it a terrible economic recovery. The economy responds to both monetary and fiscal policy and the Fed lamented the lack of help from fiscal policy which meant that monetary policy had to be heavily relied upon. They had to go to extremes such as Quantitative Easing and free use of money for banks in order to get the economy to find traction and recover. While refusing to contribute with fiscal policy Congress instead spent most of its time jeering at and belittling the efforts and actions of the Fed.

The Fed pulled the U.S. economy back from the brink of disaster while some in Congress were quite frankly, allowing it to roll over. I cannot believe that we elect members of Congress who are either illiterately stupid about fiscal policy or else wish the country harm by opposing the Fed. They even spin it that it was the Fed monetary policy responsible for the slow recovery when that is amazingly nuts. Congress is a dysfunctional institution threatening the integrity of the Fed which performed competently.

Fed Chairman Janet Yellen is now overseeing what was an extremely creative disciplined successful exercise in monetary policy and is now looking to disengage from easy money in belief that the economic recovery is now stable. President Trump is promising to engage with fiscal policy, tax cuts and new spending, tools that were denied his predecessor for political reasons. This timing of fiscal stimulus (tax cuts) would confound most economists.

Fiscal stimulus is typically reserved for economic recessions. The Fed would have loved such help from Congress several years ago. Had we had it then the economic recovery seen would have been more dynamic. Today ironically, if Trump's tax cut boosted growth the Fed would tighten monetary policy further with higher interest rates., or at least an independent Fed would. Trump is not going to appoint central bankers to the Fed.

His first appointment is a hedge fund manager, Randal Quarles, as Fed vice-chairman who has been a Fed critic and therefore an idiot. Once he appoints several idiots to the Fed it will cease to function as it has been putting the U.S. economy at much greater risk. Trump will oppose Fed independence because he is unable to tolerate things that he cannot control. He's talked about reappointing Yellen as Fed Chairman but I will believe that when he does it. He throws curves like that out there to divert eyes from what he doesn't want seen.

As to the strong employment numbers, congrats to the Fed. Those numbers should keep them on track for another incremental rate hike in June unless something surprising intervenes. We could be at war with either North Korea or with the Vatican by then.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

 
 

 

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