The Falling Buck and the jobs report
Not on its knees. Rather, on its belly.
- EUR\USD: 00.727
- GBP\USD: 00.494
- CHF\USD: 01.187
- CAD\USD: 01.057
Yes, these are all downward trending values, meaning that the dollar's value is falling across this board.
The main reasons for the falling buck is, directly, the Trade Deficit and the Budget Deficit. However, as Chinese wages go up, the prices of Chinese goods has to go up to match, unless they can spread amortized cost of goods sold (COGs) over a larger volume of sales. Regardless, it is still inflationary and China's headed to a potential inflation crisis, long-term.
On the home front. this liquidity crisis is a long way from being over and most predictions give a 60% chance that there is a recession in the works.The reason is that there are two factors that resulted in houses being over-valued and both factors are now gone. One, interest rates were at all-time lows during the jobless recovery while, two, appreciated values were rising at unprecedented levels, between 1999 and 2007. By itself, this wouldn't have been too bad but we lost 12.5M jobs in that same period and never recovered them, during the jobless recovery. Interest rates couldn't possibly stay so low with the falling USD. They had to go up or the US faces potential default on its foreign debt. That reason and not inflation fears is what is driving recent interest rate hikes. That coupled with a massive hidden block of unemployed/under-employed workers and you have a potential disaster in the works. This is what the Bush administration has been ignoring all this time.
Yes, I'm saying that recent market corrections were inevitable. However, a recession isn't, If the current administration starts doing the right stuff. The underpinnings of this entire disaster is almost entirely those missing 12.5M jobs. They need to be recovered. Failing that, related issues of Health coverage and retirement coverage, compensatory to those 12.5M lost jobs, need to be dealt with positively and aggressively. This is a first-time ever recovery that didn't also recover jobs. Recovering those jobs is an issue that has been callously ignored. The US is about to pay the price for that callousness. Like it as not, those 12.5M lost jobs might become the albatross that sinks the US economy.
Breaking news is the us jobs report. Yes, it sucks and it sux for the second month in a row.
Consider that; We had a long jobless recovery after 12 million people lost their jobs. Put that together with the fact that we didn't have massive bankruptcies during 2002-2004. Why not? The unemployment numbers are not going to give you the real answer because they simply drop everyone after their 13 week benefits run out. What's been happening is that many of those folks refinanced their homes and the sky-rocketing appreciation rates, pumped up by the super-low interest rates, have been allowing those to continue sucking equity out of their homes in order to stay afloat.
This was basically written about at http://slamlander.livejournal.com/tag/econ
Last months employment numbers for new non-farm jobs was slightly less than 100,000. Those are NOT NET figures, thay are GROSS figures, absent jobs losses. Normal jobs losses are around 110,000 to 120,000 jobs per month. That means that in the best case, the US LOST over 10,000 jobs last month!
Those are the fundimentals that everyone should be watching. If the recovery had not been jobless then this wouldn't have been happening. Cheap and sub-prime mortgage loans are what has been keeping the consumer afloat and the housing prices ever increasing. Both of those have now stopped.
But, why does the Fed have to increase the rates? It is because of the falling buck. Just before this crash the US dollar had dropped to almost 2.10 against the British Pound. Yet, the Trade deficit is at an all time high and the Iraq war has pushed the Federal Budget Deficit to extreme levels. All of this has to be borrowed from the Treasury and this means that they have to sell Government Bonds (T-Bills), which are tied to the Fed rate as well. No one will buy those bonds if the rate of return isn't competitive, which is closely related to the value of the US Dollar. If the US Dollar drops then they have to raise the rates to compensate. Regardless of what they say about inflation, that will be the real reasons that they raise Fed rates. Without those two huge deficit elephants, they might have been able to carry on this scam a while longer.