The latest news from Washington is that 200,000 more jobs were created in December. The Obama Administration and media are estatic, the Republicans morose. They shouldn't be.
No trained macroeconomist with real world experience in business or banking would agree with this rosy description or think it portends a recovering economy.
In the real world, an examination of labor force participation rates when jobs are plentiful suggests the actual rate of enemployment is just over 20 percent and that the US economy's $20tr capacity is only producing $16tr of goods and services.
Only the most naive analyst or investor would be heartened by the news that the US has added 200,000 jobs in December. Historically, and to this day, the month of December is the traditional time for temporary full time hires to meet the needs of the holiday season. Every one knows this, except it seems, a handful of naive politicians and journalists. Experienced Investors understand - they did not respond to the announcement by rushing out to buy stocks to participate in the "recovery."
To the contrary, 200,000 new jobs in December is below the usual increase for the holiday season. It means the number of permanent jobs in the economy continued to fall and that the economy is continuing to recede further and further below its capacity to produce.
Moreover, almost 200,000 jobs need to be created each month to take up new arrivals to the labor force. Taken at its most optimistic that all 200,000 of the new jobs are actually permanent, it means there is no recovery.
Until customer spending of one type of another increases, America's employers will not hire more workers and produce more goods and services. The major customer classes are foreigners, consumers, businesses buying plant, equipment and inventory, and governments buying roads, education, tanks, etc etc.
No economist sees any reason for the spending of any of these customer classes to increase in 2012 - so employment won't rise and unemployment won't fall. That means tax collections will not rise to eliminate the deficits and welfare spending to help the distressed won't fall.
In our economy the only institution capable of getting more customer spending to our employers is the Federal Reserve. (sorry White House and Congress - you only get to make speeches and token fiscal changes.) Its the Federal Reserve and only the Federal Reserve that has the power to create liquidity and flow it to potential customers either indirectly via the commercial banks or directly to potential spenders such as Social Security recipients.
Unfortunately, the Fed, instead, has concentrated on creating liquidity and channeling it to a handful of financial giants here and abroad in the naive belief that their prosperity and ability to engage in complex financial transactions would somehow trickle down to consumers, businesses, and commercial banks. It hasn't yet and it won't.
The Fed has also made much of changing the one interest rate it actually sets - the overnight rate between banks - in the similarly naive belief that a commercial bank will somehow loan out money it has to repay within 24 hours. And that it will do so to consumers who have lost their savings and can't buy houses and to businesses who the Fed apparently thinks will buy more plant and equipment to sit idle with that they already have idle due to the lack of customers.
In the real world outside the Fed and the Beltway, until the President appoints, and the senate confirms, competent Federal Reserve appointees with appropriate macroeconomic educations and knowledge, and real world experience in business and commercial banking, the economy will continue to stagnate. The current bunch of Federal Reserve Governors and the latest two nominees appear far removed from meeting the minimum criteria required for policy-making competency, so its more likely we will see the same old people doing the same old thing, and getting the same old results - economic distress, foreclosures, deficits, and no bull market.
On the other hand, when and if the Fed finally does act we are going to have a massive ($4tr) increase in output and employment and the major increases in profits, stock prices, and tax collections that will accompany it.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
