Feb 12. Goodbye Yellow Brick Road

When are you gonna come down
When are you going to land
I should have stayed on the farm
I should have listened to my old man, Elton John

Feb 12. Today’s news includes NFIB Small business optimism survey, which is near historic lows as Obama dusts off tired economic proposals in this evening’s State of the Union address.  Three year auction as well, and the newest “hawk” on the FOMC voter panel, Esther George, is scheduled to speak at 11:30 EST.
–I know that Janet Yellen is well respected at the Fed, but her speech yesterday regarding employment is notable for lack of critical and creative thinking.  For example: “More recently, the aging of the population has put downward pressure on labor force participation, so employment hasn’t had to grow as quickly to keep pace with the potential workforce.”  Really?  Due to economic stress the participation rate of workers over 55 is the highest since the early 1960s. (St Louis Fed data). Look at the DATA!! http://research.stlouisfed.org/fred2/series/LNS11324230
–Then she launches into a discussion of whether unemployment is structural or cyclical, concludes it’s mostly cyclical, and therefore makes the leap that QE is probably the best response, “even though the efficacy of these [unconventional QE] tools was uncertain and it was recognized that their use might carry some potential costs.”  I applaud her empathy for the plight of the unemployed, but her speech actually erodes credibility of the Fed in my opinion. *See text below.
–Turning from domestic to global policy:  (Reuters) – “The Group of Seven nations are considering a statement this week reaffirming their commitment to ‘market-determined’ exchange rates in response to heating rhetoric about a currency war, G20 officials said on Monday.”  You know what that means?  That we’re in a global currency devaluation war that’s anything but “market determined”.
–And now moving eastward, on to China.  From the Guardian: “China tightens concert rules after Elton John’s ‘disrespectful’ Beijing show.”  http://www.guardian.co.uk/world/2013/feb/10/china-tightens-concerts-rules  This is the new economic superpower.  Afraid of Elton John because they have no confidence that they can control their own populace.  So goodbye yellow brick road/ Where the dogs of society howl /You can’t plant me in your penthouse /I’m going back to my plough.

* (from Yellen’s speech) For the Federal Reserve, the answer to this question has important implications for monetary policy. If the current, elevated rate of unemployment is largely cyclical, then the straightforward solution is to take action to raise aggregate demand. If unemployment is instead substantially structural, some worry that attempts to raise aggregate demand will have little effect on unemployment and serve only to stoke inflation.

This question is frequently discussed by the FOMC.12 I cannot speak for the Committee or my colleagues, some of whom have publicly related their own conclusions on this topic. However, I see the evidence as consistent with the view that the increase in unemployment since the onset of the Great Recession has been largely cyclical and not structural.

Posted on February 11, 2013 at 6:15 pm by alexmanzara · Permalink
In: Eurodollar Options

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