Surprising revelation: Janet Yellen reveals why the Fed is raising rates!

Summary: Usually we can only guess at the motives of our senior officials. But on rare occasions they give us clues to their real priorities and objectives. The Fed is especially opaque, so we speculate about their odd rate increases during a slow and slowing economy. Yesterday Janet Yellen explained why. The answer is shocking (to those who do not know the Fed’s history).

Seal of the United States Federal Reserve Board


From TIME’s transcript of Janet Yellen’s press conference, where she explains why the Fed raised rates in a slow economy. Bloomberg reporter Kathleen Hays asks why. The answer should be read by every citizen. Yellen confirms the suspicion long held by many of us: the Fed serves our corporate rulers. Among other things, they fight “wage inflation” — aka workers sharing benefits of America’s rising productivity.

This transcript has been lightly edited for clarity.

Kathleen Hays


Hays: I’m going to take the opposite side of this, because — and this question about market expectations, and how the markets got things wrong, and then how you say the Fed suddenly clarified what it already said. But if you look at the Atlanta Fed’s latest GDP tracker for the first quarter, it’s down to 0.9 percent. We had a retail sales report that was mixed. …the consumer does not appear to be roaring in the first quarter …

If you look at measured of labor compensation, you note in the statement that they’re not moving up. …And you yourself said …that is perhaps an indication there’s still slack in the labor market.

…What happened between December and March? GDP is tracking very low. Measures of labor compensation are not threatening to boost inflation any time fast. The consumer is not picking up very much. Fiscal policy, we don’t know what’s going to happen with Donald Trump. And yet, you have to raise rates now. So what is the motivation here? The economy is so far from your forecast in terms of GDP, why does the Fed have to move now? What does this signal, then, about the rest of the year?

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So many open jobs for truck drivers! It’s another bogus skills shortage story.

Summary: Today we learn about all those open jobs for truck drivers, waiting for lazy Americans (or more immigrants) to fill them. It is another bogus “skills shortage” story, revealing much about how America is changing.

The road to larger trucking industry profits.

Trucking Industry Profits

The plutocrat revolution against America has many fronts. One of the most important is their ongoing program to hammer down wages and boost profits. One aspect of that is their propaganda campaign to convince the public that there is a labor shortage. Today’s example: “Truck Driver Shortage Analysis 2015” by Bob Costello and Rod Suarez (Chief Economist, Economic Analyst), American Trucking Associations — Opening…

“Over the past 15 years, the trucking industry has periodically struggled with a shortage of truck drivers. The first shortage during this period was documented in a 2005 report. At that time, the shortage was roughly 20,000. During the last recession starting in 2008, the driver shortage was eliminated as industry volumes plummeted, resulting in fewer drivers needed. However, as industry volumes began to recover in 2011, the shortage slowly returned. The driver market continued to tighten and the shortage skyrocketed to 38,000 by 2014.

“There are many reasons for the current driver shortage, but one of the largest factors is the relatively high average age of the existing workforce. The current average driver age in the OTR (Over-the-Road) TL (Truckload) industry is 49.

“…If the current trend holds, the shortage may balloon to almost 175,000 by 2024.

The ATA lists five causes of the “shortage”: aging workforce, gender (too few women drivers), drivers have a difficult lifestyle, better jobs available, and too many regulations. The ATA has recommendations, which include government action to boost truckers’ profits. Given the high accident rate of 18-20 year-old young adults, this is quite mad. But profits matter more than lives to our owners.

“Lower Driving Age: Interstate driving currently has an age minimum of 21. The 18-20 year old segment has the highest rate of unemployment of any age group, yet this is an entire segment that the industry cannot access (with the exception of local routes, which is generally reserved for seniority). Additionally, potential drivers are likely to have found another career path (that they are already 3 years into) by the time they reach 21.”

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Warning: the income gap between races is widening in America

Summary: We begin the Trump years with generations of progress unraveling in the healing of America’s racial divide, with the likelihood of further deterioration quite high. We should understand what’s happening to better prepare for what’s next. A new study looks at the causes of the widening income gap between black and white Americans. It makes for enlightening but depressing reading.

"Nevermore" says the Raven.

Divergent Paths:
Structural Change, Economic Rank, and the Evolution of Black-White Earnings Differences, 1940-2014

By Patrick Bayer and Kerwin Kofi Charles.
National Bureau of Economic Research (NBER), November 2016.

“The economic fortunes of black Americans relative to those of whites have improved greatly since the end of the Civil War, but convergence has been both glacial and imperfect. Substantial racial differences in wealth, income, and numerous other economic markers remain and there are signs that the closing of some of these gaps has significantly slowed or even reversed in recent decades. In this paper, we study the evolution of black-white earnings differences among prime-aged men from 1940 through the Great Recession.”

Their findings are disturbing. Many Americans considered the progress of black Americans since WWII, and especially since the 1960’s Civil Rights bills to be among our finest accomplishments — belated recovery from the eras of slavery and Jim Crow. This adds to the research showing that progress has stalled. More specifically, the racial income gap for upper income black Americans has narrowed while the gap for those in lower income brackets has widened.

The reasons for this have been obscure. The racial gap in educational attainment and school quality have narrowed since WWII. Why have black men in the middle and lower income groups done so poorly? Their analysis concludes that the gains went to black men that managed to gain the education credentials that our society uses as the gateway to prosperity.

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A Harvard Professor explains the populist revolt against immigration & globalization

Summary: I try to bring readers useful and interesting expert opinion. Here’s a mother lode of insight about immigration — articles by Harvard professor George Borjas. His work is essential reading to understand the rise of populism in the US and Europe (it’s not just racism and xenophobia, as our elites would like you to believe), providing both insights and data-based analysis.

“…low growth, rising inequality, and a lack of jobs have combined with social and geopolitical concerns to fuel the rise of populism and inward-looking forces. The greatest challenge we face today is the risk of the world turning its back on global cooperation – the cooperation which has served us all well.”
— IMF managing director Christine Lagarde speech “Redoubling Our Resolve For Global Development“, 14 July 2016. What does she mean by “us”?


Two articles by George Borjas
(Professor of economics, Harvard). Excerpts from his website.

(1) From “Brexit, Immigration, and the Experts“, 25 June 2016

“Having hung around the expert class my entire adult lifetime, there’s one little secret I have learned that I wish was more widely known. The experts pretend they know a lot–their income and reputation depends on getting others to buy into their pretention. Many of them, in fact, are  so articulate that they can make hour-long speeches about things they know absolutely nothing about. (I will never forget a meeting where a leading older luminary haughtily dismissed all of popular music by claiming that composing and producing a hit song was a trivial exercise that anyone with half a brain could replicate).

“But, in fact, practically all so-called experts know almost nothing outside their very narrow field of expertise. And much of what they know within that narrow field is colored by both self-interest and by the ideological lens through which they view the world. If the experts gain from living in a globalized world (which they do!), then expert evidence will tend to confirm that a globalized world is good.

“Experts know and have told us many times that immigrants do not make anyone worse off. And how do they know that? By buying lock, stock, and barrel into any evidence that points in that direction. By nit-picking apart any evidence that lies outside the narrative. And, as David Frum himself pointed out a few months ago, by engaging in ‘data dredging on an industrial scale’ when an unpleasant result needs to be utterly destroyed.

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You need to know 2 things about the June jobs report (neither is often mentioned)

Summary: The jobs report is a monthly gift for journalists and economists. Packed with numbers — mostly noise, with large error bars, subject to big revisions — it generates a flood of clickbait headlines and confident analysis. Lost in this are the important trends we need to know (aka “old news”, because they change slowly). Here are two of the big ones.

The experts will explain that this news is life-changingly significant, every month.

TV noise

June’s job growth was big and important!

No, the June strong headline number is not important. Like May’s horrific slow growth, it’s probably just noise. More important are the 16 months of slowing job growth (i.e., job growth decelerating from the slow grow characteristic of this recovery). In February 2015 YoY growth in non-farm payrolls was 2.3%. In June it was 1.8%. This drop erased the acceleration of Feb 2014 – Feb 2015 that got economists excited about the big Fed rate increases coming really soon. Normal days were coming again! But they’ve been delayed, again.

Employment growth in June 2016 - NSA YoY

Job growth is slow, but it’s still growth!

The number of jobs is not the best metric in the New America, with its growth in part-time, un-unionizable, no benefits, no training, disposable employees. A better (albeit, like all economic data, imperfect) measure is the total number of hours worked per month. For the full recovery it tells the same story as jobs:  slow growth since the crash (jobs are up a total of only 4.4% over nine years, hours are up 5.3%).

But total hours have been flat for the past six months. (total hours for production and non-supervisory workers has been flat for seven months). That’s a red flag. Gaps like this between similar metrics deserve attention, since they signal that something is happening.

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A UK engineer explains: elites oppose Brexit because they import cheap workers

Summary: Why did UK elites have a hysterical reaction to the vote for Brexit? There is not one answer.  Andrew Fentem (engineer, inventor) explains one logical answer: it threatens their supply of cheap workers. Also, I recommend putting The Register on your reading list if you are interested in the IT industry (changing times requires new sources of info).

Fear and Brexit in Tech City:
Digital ‘elite’ are having a nervous breakdown

By Andrew Fentem at The Register (“Biting the hand that feeds IT”).
See the money paragraph in red.

…While some sections of the British press celebrate the Brexit vote in the UK, in the technology press there has been much gnashing of teeth and rending of garments.

Forbes interviewed a clearly traumatised Brent Hoberman – of fame – who seems to be in need of a reassuring cuddle: “People feeling rejection. I think this is what the Leave campaign underestimated: the psychology of rejecting openness.” Sensitive Brent’s words will no doubt remind “Peep Show” fans of this classic scene {a UK show about 2 omega men.}…

Preening international elitists like Hoberman are exactly what Brexit voters so dislike. While the self-styled “digital elite” talk in therapy-speak about European peace, love, and understanding, they are masking their true motivation – which is the freedom to exploit low-cost mobile tech labour. Cheap labour was the top reason cited by Tech City startups for voting Remain.

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Why the Fed is excited about US growth. Why they’re wrong.

Summary: After years of disappointment, a happy few retain their optimism about the US economy’s growth — including many of the Fed’s governors, hence their enthusiasm about raising interest rates. Here you’ll see one reason they’re excited, the sad reality behind it, and the logical but dark conclusion.Job Growth


Business Insider said “Job openings rise to a record high“. Even more exciting is CNBC, who produces a truly meaningless headline: “JOLTS: 5.8 million job openings in April vs 5.7 million expected” (as if the number “expected” means anything, or the 1.7% difference is significant).

Josh Zumbrun at the WSJ wrote a more accurate analysis: “A Hiring Decline in April Points to Broader Labor Market Woes“, “Fewer people are getting hired despite a high number of job openings and few layoffs.” He describes the puzzle.

“A persistent puzzle in the data: employers report having a record number of job openings available but the hiring rate shows people are not actually being hired into those jobs. That puzzle remained in today’s report. The pace of hiring declined, while the number of jobs available at the end of April climbed to 5.8 million from 5.7 million.”

There is a simple explanation to this important puzzle. But first, see why the optimists are excited: the number of job openings has risen — and now exceeds job hires (from the JOLTS report)! Perhaps this means that the economy is starting to over-heat!  We have labor shortages, so wages must be rising at an accelerating rate — a terrible thing called “wage inflation” (economists’ never speak of “profits inflation”).

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