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Fed won’t save us from growing jobs recession – Dateway

This year has been an idling train wreck on many levels.

Americans have understandably been so preoccupied with elections and unprecedented violations of personal freedoms in the name of fighting covid-19, that there has not been much attention left for what the Federal Reserve and the US Treasury did. Additionally, battles over “public health” policy have obscured just how terrible the US economy still is. This article provides graphics from the Federal Reserve itself (St. Louis branch) to document our alarming situation.

US federal debt

We all vaguely know that tax revenues must be drastically reduced and that federal spending has skyrocketed, but most Americans probably have no idea. how much new debt was added last year only:

federal debt

Specifically, at the end of the third quarter of 2020, federal debt “publicly held” (meaning this figure excludes intragovernment assets such as the so-called Social Security trust fund) stood at 21 trillions of dollars and change. That same figure for Q3 2019 was $ 16.8 trillion, meaning that outstanding treasury debt increased by some $ 4.2 trillion in just twelve months. To repeat, this is how much more Uncle Sam spent more than income in just one year.

The Fed’s incredible buying spree

It was no coincidence that as the U.S. Treasury was issuing tons of new debt, the Federal Reserve, for its part, was creating new dollars with which to absorb disproportionate amounts of Treasury (and mortgage-backed) debt. Here is the chart showing the total financial assets held by the Federal Reserve:

active ingredients

In the graph above, as of mid-December 2020, the Fed had some $ 7.3 trillion in assets. A year earlier, it held just $ 4.1 trillion, a year-on-year growth of $ 3.2 trillion. Note that the Fed’s inflated balance sheet this year far exceeded what happened even in the aftermath of the 2008 financial crisis.

To understand why the Fed’s actions are so important, keep in mind that when the Fed buys assets, it creates a very powerful “base currency” to do so. (Jay Powell did not have $ 3.2 trillion in his piggy bank when the Fed made the aforementioned purchases this year.) Besides the potential for price inflation, Austrians recognize central bank money inflation as a crucial ingredient in modern economic cycles. For more on these ideas, check out my next book (which will be published in series by chapter) on Understanding the mechanics of moneyFor fun, I took the chart above and layered the S&P 500 index:

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assets fed and s & p500

In the chart above, the match between the Fed’s assets and the height of the US stock market isn’t perfect – it’s really had been hand in hand in the early rounds of QE, but for some reason they changed the availability of data on the site and now the S&P index doesn’t go back that far – but that still suggests record prices for stocks that we have seen this year are due to the printing of money from the Fed rather than the fantastic prospects for US economic growth.

Employment in the United States

Amid the mind-boggling federal debt and base currency issuance, the US job market is in dire straits. Here’s the official civilian unemployment rate they report in the news:

unemployment rate

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

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

However, the unemployment figure can be very misleading when there are millions of Americans who desperately want to work but have given up hope of finding a job. Since they are no longer actively looking for work, poof! They are no longer counted among the unemployed.

One way to avoid this problem is to ask: what percentage of the civilian workforce Is have a job? Yet even here cultural trends can influence the meaning of such a figure. For example, more women entered the formal labor market in the 1970s and beyond, which tended to increase labor force participation rates. In addition, people are living longer while the birth rate has fallen, and therefore the “aging” of the population could also affect these statistics. In an attempt to isolate what we really want to know, in the following graph, I’m just focusing on men aged 25 to 54. Of this demographic, what percentage has held a job over time? The table below gives us the alarming result:

male job

(Note that the y-axis starts at 75, not 0.) As this last graph shows, among men aged 25 to 54, the employment rate is hardly above the trough that ‘it hit after the financial crisis. More generally, we see that with each recession (gray bars) dating back to the 1980s, prime-age male employment has never returned to its previous level.

Conclusion

The year 2020 saw the Keynesian policy solutions – getting the authorities to print and borrow money – applied in an unprecedented way. To be sure, as bleak as the economy is, Keynesians can always say, “It would have been worse without us.” Yet those who are steeped in the Austrian economy understand the importance of a sound currency and (if we want a government) fiscal prudence. On top of outrageous business lockdowns and even residential gatherings, what the Treasury and the Fed have done this year is outrageous.



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