by Stephen Lendman
Headlines cheered America's June report. Bloomberg said "US Employers Added More Workers in June Than Forecast."
"Employment roared ahead in June." America's "economy is poised for faster growth as it shakes off the impact of tax increases and budget cuts."
The Wall Street Journal headlined "Job Gains Show Staying Power," saying:
June showed "solid promise." Doing so suggests "the economy might be strong enough to grow with less help from the Federal Reserve." More on that below.
Bond investors "rush(ed) to sell." Ten-year Treasuries spiked above 2.7%. In May, yields were about 1.6%. Friday's level was the highest since August 2011.
According to ED&F Man Capital Markets fixed income analyst Tom di Galoma:
"A huge bond bubble was created, and that will take some time to resolve itself."
Thirty-year Treasury yields jumped from 3.45% in April to 4% in June. Junk bonds spiked from 5.79% in April to 7.72% in June.
Vanguard Group bond manager Gregory Nassour expects trouble. "The market is saying (it) think(s) tapering is going to happen much faster than anticipated and that cash flows are going to get very negative."
Fixed income analyst Mike Larson compared what's happening to the dot.com bust.
He calls the bond bubble bigger than late 1990s tech mania. Follow the money, he says. The more speculative investment in asset classes, the greater the risk.
Values skyrocket to irrational levels. "(W)hen everyone (piles in), you can be sure valuations will get ridiculous, and that the groundwork will be laid for a painful bust."
From 2009 through April 2013, investors poured $1.15 trillion into bonds. Doing so excludes ETF investments. They include around another $300 billion.
Last month, another $80 billion overall was added. Bond bubble mania awaits unwinding. It'll likely come incrementally. Expect many months south ahead. Forewarned is forearmed.
Irrational exuberance affects equity investors. Momentum profits don't last forever. Analyst Graham Summers understands. He knows bubbles when he sees them.
He warns about ugly times ahead. He expects worse trouble than 2008. Perhaps it already began, he suggests. No one rings a bell and says so. Markets fluctuate.
Ordinary investors stick with what works. They're mindless of huge risks. Most don't know they've been had until too late. Current problems are too important to ignore.
China faces a potential liquidity crisis. It's slowing its economy to avoid greater trouble later on. Despite unprecedented QE, Japan's economy shows weakness.
Multiple indicators flash America's economy heading south. Corporate profits are down. Europe's back in crisis mode.
Disruptive protests rage in Egypt and Turkey. Others do intermittently in Spain, Portugal, Greece, Italy, and elsewhere across Europe.
Washington's war on Syria rages. It spilled cross border to Lebanon. It threatens regional stability.
QE may slow sooner than expected. Economist David Rosenberg expects it.
It's no longer justifiable, he said. He's not alone saying so. More on that below.
Paul Craig Roberts commented on Friday's job report. "No Hope on The Jobs Front: Rising Unemployment in America," he headlined.
"For the umpteenth consecutive month and year," he said, June's report was less than meets the eye. High-paying/good benefit jobs weren't created. They haven't been for years. America's being thirdworldized.
June added 195,000 jobs. Hold the cheers. A Bureau of Labor Statistics (BLS) report explained, saying:
Leisure and hospitality: +75,000
Professional and business services: +37,000
Healthcare (mostly ambulatory services): +20,000
Financial activities: +17,000
Federal government: -5,000 (down 65,000 year-over-year)
"Employment in most other major industries, including mining and
logging, construction, manufacturing, and transportation and
warehousing, showed little change in June."
In other words, except for modest financial services gains and some highly sought skill areas, virtually zero high-quality jobs were created.
The average workweek and overtime hours were unchanged. Year-over-year hourly earnings rose 2.2%. At around 9% based on 1980s calculations, inflation is multiple times higher than official numbers.
According to economist John Williams, full-time June employment plunged by 240,000. "Economic issues accounted for 75% of" part-time jobs. "Payroll gains were warped heavily by inconsistent seasonal factors."
Discouraged workers rose by 197,000. Involuntary part-time ones spiked by 322,000. Real unemployment's 23.4%. The headline 7.6% figure is fake.
According to Roberts:
"This deplorable report provided the cover for the market riggers to take the stock market up and the gold market down."
"Remember that economic theory about 'rational markets?' Another deception."
For weeks, Fed officials suggested slowing QE ahead. Only its timing remains uncertain. According to Graham Summers, investors hoping for continuity "are in for a rough surprise."
QE did wonders for equity investors. It didn't land on Main Street. When consumers have money, they spend it. Doing so stimulates growth. Jobs are created. Maybe better ones than now.
Central banks are losing control, said Summers. Big trouble ahead looms, he suggests.
Martin Feldstein's an establishment economist. He's National Bureau of Economic Research (NBER) president emeritus. On July 1, he headlined "The Fed Should Start to 'Taper' Now," saying:
It shouldn't wait. It "should emphasize that the pace of quantitative easing must adjust to the likely effectiveness of the program itself, and to the costs and risks of continuing to buy large quantities of bonds."
"Although the economy is weak, experience shows that further bond-buying will have little effect on economic growth and employment."
"Meanwhile, low interest rates are generating excessive risk-taking by banks and other financial investors."
Doing so "could have serious adverse effects on bank capital and the value of pension funds."
"In Fed Chairman Ben Bernanke's terms, the efficacy of quantitative easing is low and the costs and risks are substantial."
Where was Feldstein earlier? QE's been ongoing since late 2008. Mortgaged-backed securities (MBS) were bought. QE continued wrongly directed. It's done nothing for economic growth.
Bernanke suggested slowing it weeks earlier. He reiterated doing it in June. He made it conditional on labor market improvement. He said judgment depends on more than the (U-3) unemployment rate.
Year-over-year, there's been "no increase in the ratio of employment to population, no decline in the teenage unemployment rate, and virtually no increase in the real average weekly earnings of those who are employed," said Feldstein.
"The decline in the number of people in the labor force in the past 12 months (way) exceed(s) the decline in the number of unemployed (based on U-3 calculations)."
Real unemployment's the highest in decades. It reflects Depression levels. It's shows a troubled economy. It's getting worse, not better. Half of more of US households are impoverished or bordering on it.
Social safety net protections are eroding when increasing them is vital. Force-fed austerity assures harder than ever hard times. Growing millions are affected.
Creating money for speculation excludes it for economic growth. America's economy is weak, not strong. Conditions are bleak. Nothing ahead looks promising.
Manufacturing is slowing. Exports are down. So is personal income. Corporate profits are declining. Aggregate demand's weak. Rising interest rates spell trouble. Investors accepting significant risks do so at great peril.
"The danger of mispricing risk is that there is no way out without investors taking losses," said Feldstein. "And the longer the process continues, the bigger those losses could be."
"That's why the Fed should start tapering this summer before financial market distortions become even more damaging." He suggests ending it entirely by mid-2014.
Equitable QE works. Bernanke spurned it. He's Wall Street's man in Washington. He threw money at banks. He's doing it now. What can't go on forever, won't.
Wrongheaded policy continues. It's been that way far too long. Greenspan and Bernanke prioritized money printing/bond buying recklessness. Push eventually meets shove. A day of reckoning looms.
The longer money printing madness continues, the greater the eventual trouble. Feldstein's partly right. Money printing madness should be slowed en route to ending it altogether. It should be done as quickly as possible.
At the same time, he omitted explaining what matters most. Money printing works when done responsibly. David Stockman was Reagan's Office of Management and Budget Director.
In late 2010, he said:
QE "is injecting high grade monetary heroin into the financial system of the world, and one of these days it is going to kill the patient."
In early 2009, Michael Hudson said America "reached its debt limit and is entering its insolvency phase. We are not in a cycle but (at) the end of an era. The old world of debt pyramiding to a fraudulent degree cannot be restored."
Delaying the inevitable postpones a painful day of reckoning. QE helped wreck America's economy. It didn't have to be this way. Responsible officials would have prevented it. America's not run that way.
Monied interests alone are served. Popular needs go begging. Safety net protections are quaint and out-of-date. Speculative gains matter most.
Money printing madness reflects one of the greatest disconnects of all time. It robs poor Peter to benefit rich Paul. It prioritizes rising markets. It's done so at the expense of economic and human wreckage.
QE works when used constructively. Money injected responsibly into the economy creates growth. America once was sustainably prosperous. It can be again. It won't be with rogues making policy. Feldstein didn't explain.
Stephen Lendman lives in Chicago. He can be reached at firstname.lastname@example.org.
His new book is titled "Banker Occupation: Waging Financial War on Humanity."
Visit his blog site at sjlendman.blogspot.com.
Listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network.
It airs Fridays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.