On Wednesday, Federal Reserve Bank Chairwoman Janet Yellen warned a House of Representatives committee about ″growing risks″ to the American economy. Today she will appear before a US Senate committee to further elaborate on these risks. Meanwhile, markets worldwide declined sharply. Yellen cited a global economic slowdown, primarily driven by slow growth in China and other nations, which in turn are depressing the oil market. Under normal conditions, cheap oil is a good thing, as it spurs consumers to have more disposable income, which then leads us to increased production and more hiring by employers. But things have not been normal since 2008. The ′New Normal′ in the Age of Obama is to get used to being poor, unemployed and miserable all the time!
Yellen also is concerned about currency valuations. As China and other countries devalue their currency, the US dollar gains strength in comparison. But this makes our export goods much more expensive. While employers are hiring, most of the jobs created now are part-time jobs with low-pay. Currency devaluation is also impacting the bond market. Japan is now entering ′negative return′ territory, not a good sign at all! While our own National Debt exceeds $19 Trillion dollars, and we approach sovereign debt issues like Greece has, Japan is on the brink of total, economic implosion. The rest of the world, including China and us, are not that far behind.
During his victory speech after winning the New Hampshire primary, Donald Trump talked about the phony unemployment rates being pitched by the Barack Obama administration. I′ve been railing about this since August of 2010, when the Bureau of Labor Statistics began modifying its formula for calculating unemployment rates. When the economy crashed in 2008, by the summer of 2010, so many jobs had been lost in the United States that for the labor market to fully recover, some 300,000 new jobs would have to be created each month for at least three consecutive years. That would be enough to restore the unemployment rate to pre-crash levels including increases in population. Since Obama has been in the White House, only a handful of months saw such job creation.
The Labor Participation Rate is at its lowest levels since the dark days of the Jimmy Carter ′Malaise′ of the late 1970s. Trump is quite correct about the actual unemployment rate being much higher than the ′U-3′ rate of 4.9% reported last week Friday. Even the Bureau of Labor Statistics U-6 rate is low at 9.9%. Nearly 25% of adult, work-age Americans consider themselves to be either unemployed or under-employed, meaning that they either have no job or are working one or more part-time jobs. In some categories the news is even worse. For example, among African-American younger workers, the unemployment rate is about 42% nationwide.
So the world economy is as shaky as ever, perhaps even more so than in 2008 before the crash. There never was a real recovery. The big banks consolidated but are still holding a ton of ′bad paper′. The same derivatives and mortgage-backed securities that caused the Crash of 2008 are still with us. In the United States, we now have an equally worsening condition of student loan debts. Janet Yellen told members of Congress on Wednesday that the Federal Reserve Bank may not increase interest rates as planned. They currently are still at rock-bottom levels as they have been for the past 8 years. If, or when, another crisis emerges, the toolbox is empty. There will be little room to act or maneuver. We may find ourselves quickly in Japan′s shoes having negative-return bonds. If you thought the stock markets went through hell last time, you ain′t seen nothing yet!