from Money News:
Government benefits have grown so generous these days that unemployed Americans lack the incentive to look for work, said Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute.
The U.S. economy added a net 146,000 nonfarm payrolls in November, well above expectations for around 80,000 new jobs.
The unemployment rate fell to 7.7 percent in November from 7.9 percent in October, the lowest since December of 2008, though a shrinking labor force continues to keep the headline rate low.
“What is troubling is that as the economy gradually improves, the labor force as a percent of the population is shrinking,” she said.
“With the population aging and a smaller share of younger workers, this trend will lead to steadily higher federal and state tax burdens on the young, even if Congress reduces taxes and modifies Social Security and Medicare benefits for future retirees.”
The Federal Reserve is paying U.S. banks not to lend, and has promised to continue doing so through at least 2014. Banks have well over a trillion dollars in reserve balances at the Fed, which wants them to keep the funds there instead of the market.
Banks are required by regulation to maintain capital minimum reserves. Above those minimums, they can loan money out, or they can put it somewhere for safe keeping. That’s where the Fed comes in. In the financial crisis of 2008, the Fed took on additional powers. The same legislation that gave us the TARP bailout also gave the Fed the power to pay interest on any funds banks wanted to store with the Fed in excess of required reserves. Within months, banks desperate for a safe haven for their assets deposited nearly $800 billion at the Fed, and the money kept rolling in. The figure peaked just above $1.6 trillion in 2011.
The Fed gives banks an interest of just .25 percent, but we can figure out, from chairman Ben Bernanke’s past statements and from the minutes of Fed meetings, that the Fed isn’t planning to cut them off anytime soon. When the economy improves enough for the central bank to tighten the money supply, the Fed will get around to reducing the rate only when it’s ready to raise interest rates on short-term debt.
The Fed has announced, however, that it is planning to keep short-term rates at the current zero percent level through 2014, as a way of assuring markets that credit will super cheap for a long time to come. Accordingly, the trillions of dollars banks have earning interest at the Fed won’t go anywhere before then, either.
Why is the Fed willing to reward banks for keeping loanable funds on the sidelines? Beacuse doing so gives them more control over the money supply, to supplement its normal tool, the federal funds rate. The federal funds rate, which is the short-term interest rate most commonly referred to in the media, is the price banks charge each other to lend loans to help settle their accounts overnight. The Fed intervenes in this market to set short-term rates.
Kucinich – Federal Reserve is paying banks NOT to loan out money
The Federal Reserve will amplify record accommodation tomorrow by announcing $45 billion in monthly Treasury buying that will push its balance sheet almost to $4 trillion, according to a Bloomberg survey of economists.
Forty-eight of 49 economists predict the Federal Open Market Committee will purchase Treasurys to bolster an existing program to buy $40 billion in mortgage bonds each month. The panel pledged in October to continue that plan until the labor market improves “substantially.”
“It’s going to be massive and open-ended in size,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York and a former New York Fed economist.
Chairman Ben S. Bernanke and his FOMC colleagues will press on with purchases at least through the first quarter of 2014, according to the median estimate in the Dec. 7-10 survey. They are expanding the balance sheet beyond $2.86 trillion in a bid to spur growth and lower an unemployment rate of 7.7 percent.
Black Swan: America’s economic future is a disaster. Next crash, bigger, longer than 2000 and 2008 combined. We are our own worst enemy. U.S. GDP on the road to zero growth by 2050.
from Paul B. Farrell:
Near zero economic growth by 2050? Yes, America’s economy is collapsing. Fast. Yes, the “most depressing forecast ever,” says InvestmentNews, trusted source for 90,000 professional financial advisers across America.
Actually it’s worse than depressing if you read the details in “On Road to Zero Growth,” the latest Quarterly Letter from Jeremy Grantham, founder and chief investment strategist for the $100 billion GMO money managers.
Yes, today’s fiscal-cliff drama is just a warm-up for what’s coming. America’s economic future is a disaster. We are going over a bigger game-changing economic cliff, into a long-term chasm. And it’s unavoidable.
Why? Because our myopic Congressional leaders and Fed chairman are focused on short-term fixes, piling on more monetary-stimulus debt, while avoiding America’s systemic long-term problems. Yes, we are our own worst enemy and nothing will keep us from driving down the road to zero growth and into painful austerity, just like the 1930s.
Listen closely: here’s Grantham’s overview of America’s economy from the late 1900s through 2050: “The trend for U.S. GDP growth up until about 1980 was remarkable: 3.4% a year for a full hundred years.” That powered the great American Dream. “But after 1980 the trend began to slip.” And unfortunately the economy is “not going back to the glory days of the U.S. GDP growth.”
Get it? A century of high-growth prosperity, then our GDP growth dropped “by over 1.5% from its peak in the 1960s and nearly 1% from the average of the last 30 years.”
Black Swan: next crash, bigger, longer than 2000 and 2008 combined
Grantham is a realist, understands human nature, personally, nationally, globally. It will probably take a global catastrophe — pandemic, famine, WWIII or a monetary system crash bigger than 2000 and 2008 combined — to awaken America: “Attitudes are sticky. We cling to the idea of the good old days with enthusiasm. When offered unpleasant ideas (or even unpleasant facts) we jump around looking for more palatable alternatives.”
Why? Americans are dreaming, in denial, trapped in a delusion: The return to 3%+ GDP growth. Politicians are even biggest dreamers: “The tech boom and bust and the following housing boom and housing and financial busts helped camouflage the recent unpleasant economic development lying below the surface: the steady and important drop in long-term U.S. growth,” warns Grantham.
Global GDP will drop, too, but far outperform America. The “bottom line for U.S. real growth,” says Grantham, “is 0.9% a year through 2030, decreasing to 0.4% from 2030 to 2050.”
Reducing U.S. long-term deficits will inevitably cause economic pain, former Federal Reserve Chairman Alan Greenspan said.
“The presumption that we’re going to have a painless solution to this, I think, is fantasy,” Greenspan said today during a “Bloomberg Surveillance” television interview withTom Keene and Sara Eisen. “There are a lot of risks out there but the one thing I can be reasonably certain of is we won’t get through this whole issue without some pain.”
The U.S. faces twin fiscal challenges with more than $600 billion of spending cuts and tax increases scheduled to hit at the beginning of next year, threatening to send the economy into an austerity-induced recession, even as rising long-run deficits may prove unsustainable.
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