Fed Gets New Excuse to Keep Tightening Rates

Short version: A group of Fed researchers presented a paper that rebuts the slack in the labor market argument. The Fed, therefore, is likely to continue its rate hikes beyond the expected 5% funds rate.

Long version: Keep reading . . .


In 2004 Katharine Bradbury, a Senior Economist at the Federal Reserve Bank of Boston, published research suggesting that "labor force participation rates post recession have not recovered as
much as usual."

This was an early explanation for what has been one of the weakest post-recession labor recoveries in the post-war period. (We’ve detailed this many times in the past).

Last week, a different group of Federal Reserve researchers came to the opposite conclusion. This group determined "U.S. unemployment really is low and the jobless rate hasn’t been
artificially depressed by a failure of many discouraged workers to be
counted as unemployed."

The heart of the study wades looks at the "failure of more people
to seek work since the recession ended in 2001. The "participation
rate" — the proportion of working-age people working or looking for
work — peaked at 67.3% in 2000, fell to 65.8% in March 2005, and has
since recovered to 66.1%, below where it stood for most of the 1990s. (WSJ)"

Amongst other factors, the research group noted that the hot job market of the 1990s pulled many more people into the labor pool than normal. They also blamed the "aging of the baby boom cohort" and other structural changes.

While the group’s conclusions are arguable, the more important aspect of this is that it — incorrectly or not — gives the Federal Reserve the ammo it needs for continuing their tightening campaign. The Fed is now fighting a ghost: a tight labor market that doesn’t exist, wage inflation that actually fails to keep up with price increases, and full employment that is hardly anything of the sort.   

This adds to the liklihood that the Fed will do what Feds typically do: tighten rates beyond what’s necessary to merely cool inflation. After all, an economy with full employment, a tight labor market and rampant wage increases are the perfect growing conditons for blossoming inflation.

If only those conditions actually existed . . .

The WSJ notes that some analysts (present company included) believe "the low participation rate means many people aren’t seeking work because they believe no desirable work is available and aren’t counted as unemployed. The economists believe the unemployment rate — which at 4.8% in February was low enough to qualify as "full employment" in many conventional views — may mask underlying labor-market weakness. A staff study by the Federal Reserve Bank of Boston a year ago argued the unemployment rate, then about 5.4%, might understate the actual degree of unemployment by one to three percentage points."

As the chart nearby makes clear, the participation rate has fallen dramtically since the recession.

The employment rate is a fraction: the numerator (top number) are those people working, and the denominator (bottom number) are those in the labor force. Total employment goes up — and  unemployment goes down — when EITHER the top number rises (more people working) — OR the bottom number falls (less people in the labor force) — or a combination of the two.

A drop of more than 2 percent of the labor force — 140 million people strong — means that nearly 3 million former workers are neither  working nor looking for work. Their departure from the pool makes the unemployment measure go down. 

During most recoveries, the participation rate typically rises as these "discouraged workers" return to work.


While I find the group’s research conclusions suspect, I would point interested readers towards the report, pages 67 forward. A rich collection of charts tell provide lots of fodder for more discussion on the subject . . .


click for larger charts

Participation rate rolling over


Classic Economist Error: Projecting a cyclical trend — to infinity


Decreasing hours bely the "tight labor market" thesis

Various Labor Pool Participation Rates, Demographics



Fed Analysts Say Low Jobless Rate Doesn’t Mask Labor Market Woes
WSJ, March 31, 2006; Page A2

Brookings Panel on Economic Activity
March 30 and 31, 2006

The Recent Decline in Labor Force Participation and its Implications for Potential Labor Supply
Preliminary Draft (PDF)
by Stephanie Aaronson, Bruce Fallick, Andrew Figura, Jonathan Pingle, and William Wascher
Division of Research and Statistics, Board of Governors of the Federal Reserve System, March 2006
(Download 200603bpea_aaronson.pdf)

U.S. jobless rate misses "hidden" unemployed
By Reuters  |  June 14, 2004

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What's been said:

Discussions found on the web:
  1. me commented on Apr 3

    Great job!

    When I get a job that offers more than intern wages and no benefits, then we can discuss “full employment”. I think Fool Employment would be the appropriate term today.

    I was talking to one person and he told me his company had sent all the tech writing jobs to India.

    Another woman interviewed for a job with a GE division. They sent all their “instructional design” work to India. Now they need a project manager that is an instructional designer to redo their story boards because India doesn’t have an instructional design degree so they don’t know what they are doing. But, the manager said, they are cheap.

    Thank you corporate America. Thank you fed.

    I have to think that if we had Kennedy’s space race or Nixon’s war on cancer today, we would just outsource it to India.

    There is no skills shortage here and true unemployement is much higher than 4.8%.

  2. royce commented on Apr 3

    Isn’t the fed at a barely neutral rate? You’ve argued in the past that inflation is much higher than reported. If so, how can you be so sure that the fed is overtightening now?

  3. D. commented on Apr 3

    I’m still convinced this low participation rate is related to the housing boom. Why work when your house increases by 20,000 per year? Most people have trouble saving 0.1% of their salary. Obviously it has been much cheaper to stay home and invest in real estate!

    Within the next couple of years, you’re probably going to get a few more people looking for work when they realize their homes aren’t appreciating anymore and their mortgage payments reset.

    As for the Fed, you’ll never see them stand up and scream “Run for the hills!”. With Japan obviously curbing its carry trade and with 2 trillion of short term debt in need of refinancing, I think I’d be looking to keep the US dollar stable for a while.

    I don’t think economic growth and strong employment has much to do with rate increases right now. The Fed is using smoke and mirrors.

  4. scorpio commented on Apr 3

    FRB will blame anyone but themselves. they cut rates to 1% and left them there for years, they goosed the money supply +8% pa for years, they decided the explosion in derivatives required no regulatory oversight. now they see the results in housing, equities, commodities, real (non-adjusted) inflation and are slowly beginning to freak. too late, boys

  5. MAS commented on Apr 3

    I agree with “D.”. When your house value becomes the primary household wage earner, go to the beach instead of the office.

  6. Barry Ritholtz commented on Apr 3

    1) I said the Fed WILL overtighten — not that they already have;

    2) There’s plenty of inflation –just not in wages;

    3) Much of Wall Street thinks the Fed is almost done (I am providing the counter-balance)

    4) The Participation drop off began long before the housing boom began

  7. GRL commented on Apr 3

    . . . 6% by the end of ’06!

  8. cm commented on Apr 3

    There must be a psychiatric term for first redefining and reinterpreting your concepts and your reality, and later taking your own bullcrap seriously.

    Usually that’s done to rationalize something which would otherwise cause too much (internal) cognitive dissonance or emotional suffering. In this case with the Fed I’m not sure. There is more than one actor involved, and somebody else redefines the indicators that the Fed is using. But in a larger context the argument still applies.

  9. algernon commented on Apr 3

    The effect of aging baby boomers is not trivial. Notice that only 40% of those over 55 are labor force participants(chart). That group is getting a lot bigger by the day.

    Don’t forget that there are 3.4 million more millionaires in ’05 than ’02. Facillitates earlier retirement.

  10. B commented on Apr 3

    I’m on a “Be nice to the Fed” kick instead of “Kicking the Fed” kick. Regardless of what is leaked, we really don’t know what the Fed is basing their decisions on. That is, until they publish the minutes in 5 years or what ever it is. And, since they keep raising rates even though government statistics tell us they shouldn’t be, they are likely thinking more along the lines of the cynical types who berate them.

    That said, we know what Greenspan was thinking in 1999 and 2000 when he made the public statements that we seemed to be in some type of Pax Americana and he saw no reason for it to abate. I guess one thing they don’t teach in economics is historical precedence and behavioral cycles. So, Greenspan recently made the statement that history hasn’t treated significant asset appreciation kindly or whatever it was. So, at the ripe old age of 99, did he learn his lesson or do we take the counter trade as the successful investor did in 2000?

    As if anyone could give a sh*t what I think, other than my mother no one listens to me, I am now starting to enter the extreme fear territory. All of a sudden Ted Kacyzinski types are making sense to me. I am feeling extremely paranoid. Anyone see metals this AM? JC! I think copper itself is up 20% this year. It is up 4% today. Global demand for copper is down 10% and a supply glut is on the way. Citigroup missed the entire bull in metals and just finally issued a buy on Phelps Dodge at 7,000 times 2006 earnings. Oil reserves are higher than anytime in the last five years and we have the blow hards telling us about Peak Oil as it retests all time highs. The CRB is heading for fresh highs as the Fed has raised rates three hundred thousand times. We are blowing upward and not downward off of more bubbles than we had in 2000. If this is not the action of a bubble, we are heading for a catastrophe of unknown proportions somewhere. What’s that web site name for bomb shelters? BUBBLES in Oil, GOLD, GOLD, all metals, GOLD, SILVER, OIL, etc. There’s no friggin gold standard. Gold collapses with every recession. This ain’t 1929 when the Feds had a contract to buy gold and keep a price underneath it. Not to mention this housing mess. Not to mention the freaking absurd valuations on the small caps due to PE EXPANSION into rising rates more than earnings growth. WTF. I’m about ready to piss my pants here. For Christ’s sake would someone get me my f*cking Xanax and a cigarette!

    OK, I’M KIDDING! Just get me a Valium.

  11. JoshK commented on Apr 3

    I think there is some truth to the idea that labor participation is dropping, and I think a lot of it is women who are leaving to get their last chance to have children. Many women have deffered the oportunity and are now, in their late 30’s/early 40’s going for it.

    My wife just left her job to take care of our first baby and she’s the youngest in her firm to do so (30) everyone else who is doing so is a “last chance” mommy. While this won’t explain for all of it, it must be a contributor. Also, how many older people were working part time and then stopped once the drug benefit went into action?

  12. Bynocerus commented on Apr 3

    I’m with ya B.

    Frankly, the bear camp looks totally defeated. Mark Hulbert’s Newsletter Sentiment Index Bullish Percent jumped by 25% last week to 60% – very close to an all time high. Permabears such as Bill Fleckenstein, Ned Davis and Bob Prechter are nearly silent. Even Barry looks resigned to the market heading higher.

    Today is a perfect example of why things are so confusing. Decliners are nearly 400 higher than advancers, but the Naz is up 12 points. On the flip side, breadth is good (but slipping a little), and the number of new highs is expanding.

    It’s not quite accurate to say that EVERYONE is bullish, but the only way the news could get any better would be for the Fed to stop raising rates and for oil to go down. My concern is that the longer the market goes up from here, the uglier the ensuing correction will be.
    Like you, the spectre of a global recession looms large in my brain.

  13. David Silb commented on Apr 3

    Good analysis. I think all of the above are represented here.

    I normally try to crack a joke but I think htis really scares me and therefore not appropiate.

  14. Mark commented on Apr 3

    We are just paying the price for the unbelievable amount of liquidity pumped into the system post 9/11. This is what we get. Overbought, overvalued markets in just about every asset class. How do we get out of this? Well, higher inflation will erode each of them slowly but surely, if we can only manage INFLATION EXPECTATIONS long enough. Not inflation per se mind you, but the expectation of inflation. That cheats the bond market and stock market out of their correcting information and keeps the game going. If we stretch it out long enough, perhaps we can get past this. We don’t have a solution so the solution is to keep the game going as long as we can.

  15. just_observing commented on Apr 3

    B –

    Dude, take a deep, deep breath…we hear ya. (May I suggest listening to Groove Armada’s “I See You Baby”…you might not be “shakin’ that ass”, but you sure as hell shakin’ somethin’ boy…)

    Observe the madness, and think of this as some sort of cosmic joke (and wow, what a joke!).

    That’s all I can do: observe and be amazed, very amazed.


  16. just_observing commented on Apr 3

    “We don’t have a solution so the solution is to keep the game going as long as we can.”

    …and pray!

    To whatever God you subscribe to: markets, the American Dream, Jesus, Allah, Buddha, the Barry, etc.

  17. B commented on Apr 3

    You know, I read somewhere that something like 60% of emails are misinterpreted in tone. Blogging is no different. I WAS JOKING! Well, sort of joking. I am quite uneasy about how this will shake out. Only because the dufus’s keep pushing extended assets even higher. I know why it’s happening and I’m quite confident of the outcome because I’ve studied those outcomes that have been repeated time and again. My concern is that I’m just not confident of how the big picture will shake out. Unlike the perma bears who get some type of gratification from pain and destruction, I prefer to see global growth and prosperity…..including my own.

    Mark, the answer is an ugly answer but it likely goes something like this. The Fed has two problems and they know it. Both problems require different answers so they create a paradox and actions that are incongruent. They sure as hell aren’t going to tell us and frighten the markets so they say it with a pretty smile. I suspect they have a plan that they are executing. If they are successful is the $64 question.

    The first problem is the American economy. Yes, there is a liquidity bubble. Yes, the Fed may have gone too far going to 1%. But, maybe the deflationary pressures were so intense they needed to go to 1%. Economy didn’t respond at 1%. The economy finally responded with rates at 1% AND a tax cut where that easy money found a purpose. So, moving bubbles around was likely the purpose so as not to repeat the 1930s Great Depression. Fed haters might ponder that question. So now how do we save the American economy with somewhat of a soft landing? Well, give lip service by tightening but continue to pump up the money supply. Rationalizes the M3 readings before they cut it. Also a rational reason for doing so. Do the people really want to know the real answer or do we keep smiling and hope we can find a way out of this with minimal pain? They have to pump up the money supply beyond normal because this time around they need to raise the Fed Funds rate beyond what they normally would. The reason for that is likely the second problem. (Although not entirely as a result of the second problem because the CRB won’t abate.)

    The second problem is our financial mess. While our mess is not really different than any other country’s financial mess, it is inconsistent with the dollar being the, excuse the pun, gold standard as defined by Bretton Woods I & II setting the dollar as the world’s reserve currency. So, given the dollar has not appreciated off of the historically low range after raising rates fifteen times, a stoppage might cause the dollar to collapse outside of it’s historical range and create a dollar crisis. Where would the world be without the dollar as the world’s reserve currency? Would the dollar remain the world’s reserve currency? Do we need a world’s reserve currency? What would the new range of the dollar be? This is all unprecedented territory. So, while they raise rates to keep the dollar afloat, they need to pump up our money supply to keep from totally cratering the US economy. Is it different this time? Well, if those actions are indeed what the Fed is doing and the implications are somewhat accurate, then yes it might be. The implications for the financial markets are enormous and well beyond my understanding. Likely beyond theirs as well. No one really knows what happens when a dislocation so severe takes place. There is no one smart enough to program all of the variables into the what-if models to predict the outcome.

    I don’t know this to be true. I’m just a schmoe. But it is the only sense I can draw from incongruent Fed behavior.

  18. JoshK commented on Apr 3

    I don’t think the Fed is so dumb. They have the ability to create and to destroy money. I think only a very naive observer thinks that the Open Market Desk is only working the short end. They are slowly selling the entire curve. The probably started with the short end in order to guage the response and have now moved into the long end. They’ll take the money off the table and bonds will go down.

    Now, considering that the Fed doesn’t trade stocks or real-estate, the next step is the real guess.

  19. Bynocerus commented on Apr 3

    Check that. Breadth is slipping a lot.

  20. just_observing commented on Apr 3

    “I WAS JOKING! Well, sort of joking.”

    I know. ;-)

    Sometimes I get the impression you’re part of that 10% of us who are awake, and you’d like to shake the other 90% by the shoulders…and shake hard (and most of the people reading this blog are the 10% who are awake).

    Yeah, this “is all unprecedented territory” and there’s “no one smart enough to program all of the variables.”


    So, B, the only thing I can suggest is to let go and go along for the ride. Please, I don’t mean to be patronising. I think you know what I’m trying to say anyway, but some of your more opinionated emails lead me to believe that you get caught up in all this just a bit too much at times.

    Take care.

    David Silb –

    Maybe it’s inappropriate to joke about what may happen, but what else is there to do? I guess we’ve got to avoid being malicious about it, but otherwise…?

  21. B commented on Apr 3

    There are times I am bored. My posts will end in about a month when I’m off to something new. Then you won’t have the luxury of my psychotic rants. LOL!

  22. me commented on Apr 3

    “I don’t think the Fed is so dumb.”

    Dumb, no. As influential as they wish? I think not. Just like with the rest of globalization, no one knows what to expect. I mean, we were sold NAFTA and I don’t think anyone would argue labor is better off for it. Perot was right, listen to the sucking sound of Delphi jobs racing offshore, airline maintenance rushing offshore.

    So while they thought our standard of living would improve, they are coming to the realization that it isn’t.

    Equally smart men, Buffet, Soros, say the dollar must go down. The fed is manipulating but is running out of tricks.

    I have said before, I lived through Nixon price controls, Carter gas lines, drafted under Johnson, lost my job to hostile takeover under Reagan, but the worst economy and times of my life have been when my job went to India under Bush. I am not a young mother who wants to babysit. I have lost my peak earning years, and I am not alone.

  23. scorpio commented on Apr 3

    of course, another way to view the Fed’s no longer publishing the M3 numbers is because they might at long last be serious about curtailing that growth…. they just dont want us to see it happening. but that may give more credit to Ben than he’s yet due.

  24. Bynocerus commented on Apr 3

    I haven’t read his book, but I get the impression from reading his work that Mr. Prechter is usually the smartest guy in the room by a nice margin. On the flip side, I think he too often falls victim to being right instead of making money.

    Any thoughts on today’s reversal Barry? My impression is just more chop but I wonder if there’s something I missed.

  25. just_observing commented on Apr 3

    “Then you won’t have the luxury of my psychotic rants.”

    Oh well, the memories will keep us going for a while…

    “…when I’m off to something new.”

    Do tell.

  26. JoshK commented on Apr 3


    I think you are generalizing from your experience. While some people suffer from globalization, on the whole, most people benefit. We have shortages of most hi-tech skills and bring people in like mad (up to the H1b limits). I know I’d be worse off if we had to fire these people.

    The notion of labor being better off before globalization is pretty limited. You are looking at unionized jobs. These jobs were getting a direct transfer from non-uninonized workers, while decreasing propductivity. So yeah, if you were in the minority of people working at GM, you did really well. Well beyond what you could get on the open global market. But, if you were anyone else, you got a worse deal (and a much worse car).

    With unionization, you’re just taking money from the guy who works at the local store and transferring it to the union guy. Besides not being fair, it has little to do with creating real, sustainable increases in wealth and prosperity.

    But the real discussion is re:what the fed can do now, and it seems to me that everyone thinks they are so much smarter than the fed. They see the same data we do (in advance) and they can buy or sell the entire curve. Now, they have to deal with other central banks who are active in dollars, but they ultimately have the biggest book of them all.

  27. Mark commented on Apr 3


    I don’t think the bulls wanted to give a hundred points back today so there was something about that runup prior to the ISM data that was false flag. Even the PMs seemed to settle down. Was it just inflows giving it a sugar high that then collapsed?

  28. emdgmd commented on Apr 3

    i noticed small caps didn’t really confirm today’s rally from the start. since they have outperformed i took this as a bearish signal but also thought there may have been some Q2 rebalancing. regardless, the close didn’t look pretty.

  29. Bynocerus commented on Apr 3


    Are you ex-military? The last time I heard the term “false flag” I was talking to a group of Army Rangers.

  30. B commented on Apr 3

    Robert Prechter is surely good at one thing. Much better than most anyone I know. That is at making money. For himself, that is.

    He may be the smartest man in the room but he’s also been the most wrong man in the room for twenty five years as it pertains to equity markets.


    He is to the perma bears what Cramer is to the perma bulls. A god of sorts. A god that has a twenty year compounded return of -18% according to Brimelow in the link above. That’s only, hold on a sec, oh well, I can’t find my financial calculator. I’m way too young to have witnessed this, but he made a call for the start of the bull around 80ish and made a name for himself. Only to shortly thereafter turn bearish and miss the biggest blowoff in equities that this world has ever seen with short term rates falling from 22% to 1% over twenty years.

    Now he doesn’t give specific investng advice because it’s always wrong. ALWAYS. And, he learned the master’s trick. Tis better to publish and make money from your cult following of gloomers and doomers. Hell, why risk your own capital when you can get tens of thousands to subscribe to your newsletter at $300-500 a pop and sell a million books, CDs, DVDs and T-Shirts. The guy has made a killing being totally wrong ALL of the time.

    Prechter ruined EW analysis. He tryed to use it as a trading vehicle. It is not a trading vehicle. It is an anecdotal technical tool to confirm your trading tools. The problem with TA is not that it doesn’t work. It is that nary a Wall Street technician is also a trader. So, ask them when or what to buy or sell and they usually are dumbfounded. They can show you charts and graphs and indicators galore but most can’t tell you when to buy and sell. Prechter fits that bill to a T. Truly great technicians are traders who’ve developed proprietary models and capabilities to assist them in the ability to make money. I’d rather give my money to Trader Vic Sperando, who was a great trader, than to Wrong Way Prechter.

    That was Prechter’s problem. If he ever actually used his advice to trade, he would have found within the first few years it was breaking his wallet and he would have to come up with other strategies.

    Smart and making money are mutually exclusive at times. That is why many of the best floor traders are former athletes or young kids. Has squat to do with beign smart. An oversimplification but a truism. Prechter may be ten times smarter than I am but his investing advice should never be listened to.

    I’m feeling rather pissy today.

  31. B commented on Apr 3

    Want to know why the markets were up today? Short term traders love the first day of the month. Interruption of any particular trend at the moment. Hey, they need to make money too. Look at the second chart down from Birinyi.


  32. Daniel Secrest commented on Apr 3

    I’m enjoying the rants and other stuff today.

    Looks like volatility is rising a bit, as Barry predicted it would…

  33. Bynocerus commented on Apr 3

    I was trying to be gracious (in spite of my backhanded complement to Mr. Prechter), B, but I can’t exactly disagree with most of your last two posts.

    My point about him being right instead of making money is mostly about his assertions regarding the ultimate fates of debt-laden societies. Every empire has eventually collapsed under the weight of its own debt, and we will be no different. It might take another thirty or three hundred years, but, eventually, Mr. Prechter will be right. Whether the collapse will resemble the fall of Rome or the dissolution of the British Empire is an entirely different question, and while we’re sitting around waiting for the eventual doom, we could be making lots and lots of $$$.

  34. Bynocerus commented on Apr 3

    BTW, pissy I can handle.

  35. B commented on Apr 3

    Ah, I’m just being grumpy today. I’m flooding the board with moronic posts. Hey, Byno, here’s the question though. If we are promulgating our society around the world today, who will be there to become the next great power? ie, Our consumption led dynamics are abound everywhere while more and more societies adopt our style of economics. The world’s debt as a percent of GDP is staggering in nearly every country. Japan is much worse off than we are. And China, well, that will happen to as they modernize. They’ll trade in all of those nonperforming government backed loans for debts piled up for social programs all countries incur as they mature.

    ie, The mess is everywhere? I, for one, vote that we piss away everything we can and spend every nickel on excesses, gambling, ladies of the night and feasts of gluttony, then we get every country in the room and agree to forgive each other of our debts and start all over again. LOL!

  36. todd commented on Apr 3

    Anyone ever make a chart of Fed Funds overlaid on gold prices? The relationship is almost 1 to 1, with Fed Funds lagging gold prices by 6 months or so… Why? BECAUSE GOLD IS MONEY! Massive liquidity is driving gold, not “security fears” or anything else.

    The only time the overlay diverges is when Greenspan tried to fight “inflation over the horizon” in 2000 which popped the NASDAQ and tripped us into a brief recession.

    In my opinion, gold prices are signaling massive inflation and if the historical relationship between gold and interest rates continues, we could see Fed Funds at 7-8% or higher.

  37. Idaho_Spud commented on Apr 3

    B said: “I, for one, vote that we piss away everything we can and spend every nickel on excesses, gambling, ladies of the night and feasts of gluttony, then we get every country in the room and agree to forgive each other of our debts and start all over again.”

    Right on, B!

    You left out booze, raves, and drugs though. There’s no lack of self-indulgence in American society. Funny how bariatric surgery is taking off among the middle class.

  38. alan commented on Apr 3

    Japan’s debt is not external like the US. They owe it to themselves, which is not so bad. But then again, they don’t possess the “world’s currencey”. The Fed has to target not only the stock market, but a tangible thing now, the house price, which is inflationary; otherwise, it’s london bridges falling down. Barry’s right about inflation, but this time the wages for the average Joe is not part of it. The reason nobody’s got an answer for what the Fed is doing is the Fed doesn’t have an answer either. It’s a mess.

  39. B commented on Apr 3

    So Alan,
    I’m not so sure that statement is a matter of fact. The world’s liquidity bubble has been driven by the Japanese carry trade. Borrow in Japan for nearly nothing and leverage globally. LTCM? Asian currency crisis and American money? The world is so tightly wound that I don’t think anyone really knows who owes what to whom. We are arguing over who is buying our debt. Some say government through private intermediaries and some say private buyers. The Fed says private buyers and Uncle Milty said they were very wrong in a recent FT commentary.

    But, for argument’s sake, let’s say it is so. What are the ramifications of “internalized” versus ours which is partially owed to foreigners? That’s really no different than the corporate bond market or the third world debt market which is globalized.

    Do you somehow think Fidelity or Lehman or I would be more forgiving of the Federal government screwing us out of our investments if it came to that? Uhhh.

    How about this. Send as much of our debt overseas. Then, IF we need to revalue our ruble or default or whatever, foreigners get as much of the shaft as possible. Like that one? LOL! People worried about the Chinese selling all of those dollar denominated bonds. Well, to hell with that. We’ll just default on our debts and revalue our currency. A joke of course. Uh, maybe. Keep your friends close and your enemies closer. A sham perpetrated by the military-industrial complex? We’ll get those Chinese if it’s the last thing we do. Har Har Har.

    Ok, gotta run. Got an important meeting.

  40. me commented on Apr 3

    “I think you are generalizing from your experience. While some people suffer from globalization, on the whole, most people benefit. We have shortages of most hi-tech skills”

    Sorry, you are quite wrong. I am not in any union. I am sick and tired of people like you telling people like me that 20 years of education isn’t enough and you have to bring in people or offshore my job.

    The 100,000 people fired at IBM and HP alone in the last 5 years were not in any union, so your generalizations about the benefits of globalization are misguided. You confuse labor arbitrage with some higher benefit, when all it is labor arbitrage.

    “But the real discussion is re:what the fed can do now, and it seems to me that everyone thinks they are so much smarter than the fed.”

    Look Greenspan crashed the economy with the tech bubble and now a housing bubble. That is smart? You need to remember that the hike they made this week won’t take effect for 9-18 months and I don’t think you have to be a genius to bet the economy is more likely down than up in a year from now.

    There has been little business investment in this country, so where will the growth come from?

  41. D. commented on Apr 4

    My biggest hang-up is the 1% Fed Funds rate. I still can’t get over the fact that Greenspan took it so low and kept it there for so long. Am I the only one who thinks that things must have been looking quite horrible for the Fed to go so low for so long? I feel as if this extreme situation has gone over like water off a duck’s back.

    People can give me all kinds of arguments on how the economy will keep on growing or on how everything is going to hell in a hand basket but for me the 1% Fed funds for so long is one of the most important variables in my assessment of the future.

    Greespan and the Fed might feel that Japan didn’t fight deflation properly but I can’t help think that sometimes you just have to let an illness run its course. You can take all the remedy you like, but sometimes time is the only thing you’ve got on your side.

    Greenspan participated in or focused on two big research reports. One on Japan and the other on real estate. Obviously they were making him nervous enough to pay attention to them.

    I believe we needed to go through a cleansing in 2000. Japan didn’t allow the cleansing due to rigid social and political structures and America by lowering the rates to 1%. All this increased liquididy let the living dead survive and let more marginal players eat quality players’ lunch.

    The clearest sign of this is K-Mart, a bankrupt company rising from the dead and taking over Sears. The car industry and airlines are another example of American inefficiency. The list goes on…

    Our entire system is based on trust but trust is getting harder to achieve by the day. A “me” generation attitude is eating away at the western social fabric. I think we are starting to grasp that things have been getting out of hand; that’s a good start but I’ll need to see more signs of social cohesion before I change my outlook on our economic future.

    And a little word on pessismism and optimism. Many people seem to confound optimism with thinking that everything will turn out fine when it should really be having faith in yourself and others to accept and overcome bad times. A person is optimistic when he/she can keep a positive attitude through hardship. A person who believes things will always turn out fine is deluded.

  42. The Nattering Naybob commented on Apr 6


    Recent comments from Rep. Dana Rohrabacher on Real Time with Bill Maher indicated that the number of able bodied Americans between the ages of 16 and 50 years of age who wish to work, but remain unemployed is 50 Million. Thats FIFTY MILLION. Quite a number.

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