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Did Washington Save the Economy? Part 1


A "jobful" rebound is unlikely to goose the recovery.

These examples are merely indicative of the headwinds militating against the notion of a jobful recover that's strong enough to rapidly replenish the current $500 billion hole in private incomes -- and thereby fuel a business-cycle expansion sufficiently robust to justify Wall Street's current giddy earnings outlook. The fact is, the kind of muscular jobs recovery expected by Wall Street' re-born (again) bulls would take a three-fold combination of developments including: (a) vigorous compensatory hiring to make up for the alleged post-Lehman firing spree; (b) a resumption of strong trend growth in hiring across a broad swath of the jobs market; and (c) the steady recall of the purely cyclical layoffs that occurred during the two-year Slump. But as will now be further documented, there's virtually no evidence for the Main Street overreaction theory, while the evidence with respect to a resumption of meaningful trend growth in hiring is overwhelmingly negative.

Consequently, job gains from purely cyclical recalls are likely to be modest in scale, slow in coming, and generally not at all commensurate with the jobful recovery scenario. The problem is one of pure math. With government-funded income growth now likely to slow sharply (if not cease), consumer credit still contracting (and not likely to rebound) and private income growth tepid, there's simply little prospect of sufficient strength in final demand to trigger a rapid or extensive recall of the cyclically unemployed. It will be a slow slog.

At the end of the day, the central missing ingredient is the absence of any apparent prospect for significant secular growth in most job categories across the US economy. Moreover, that ingredient has been missing for more than a decade now, even if temporarily obscured by the past headlong expansion of the HES Complex. Here, the underlying reality is that the American consumers' great spending spree during the Boom years didn't fund a corresponding cornucopia of jobs on Main Street. Instead, these dollars flowed to the factories of East Asia and to windfall rents captured by speculators in domestic land, resale properties, and financial products. Stated more graphically, the boom-time spending that didn't end up abroad flowed in the main, not horizontally to the job market multitudes throughout the American hinterlands but vertically into the towering incomes of the Wall Street few.

Not coincidentally, the recent frantic money-printing by Bubbles Ben and his posse hasn't changed this condition. In the present case, nearly all of the $1.7 trillion monetization of government and agency paper undertaken by the Fed over the past year has literally been sequestered within the canyons of Wall Street. The freshly minted money so beneficently bestowed either sits idle as book entry excess bank reserves at the New York Fed or has flooded the Fed-controlled repo market where it provides zero-cost funding for Wall Street's manic trading bots and a fresh installment of the bountiful rents they extract.

This is Part 1 in a 5-part series. Click here to read Part 2. Click here to read Part 3. Click here to read Part 4.

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