Tag Archives: Wage price spiral

Wall Street smells the wage price spiral

8/1/2014 Portland, Oregon – Pop in your mints…

Yesterday, the US stock market finally experienced mild selloff.  Finally, we say, because it had continued to rise even as the most recent series of crises in the Middle East flared up in conjunction with the downing of Malaysia Air flight 17 in the Ukraine conflict, which has become a flashpoint for deteriorating relations between Russia and the West.

Did investors just wake up to these crises and begin to fly to safety?

Don’t kid yourself, fellow taxpayer, the events above were actually bullish for the market.  In the altered universe that the use of debt as money for the past 43 years has created, destruction and war  = GDP growth + a population submitted by fear, afraid to ask for too much while others experience sacrifice.

When debt is money and destruction is growth, war is the ultimate boondoggle.

What truly has investors spooked at the moment, albeit mildly (despite what the headlines imply) is the continued march of evidence that the proletariat is now stepping up and demanding wage increases at an alarming rate.

Employment Cost IndexTake the Employment Cost Indicator above and add it to the  number of unemployed workers per job opening below and you come to one inescapable conclusion:  The Wage price spiral is upon us.

Unemployed workers per job opening US 2014The wage price spiral, that scourge of corporate profit margins which has been accelerating since March of this year (according to our unscientific calculations here at The Mint), has finally caught the attention of Investors, who in turn are selling on the off chance that the Federal Reserve will;

1)   Take notice and,

2)   Take action by increasing interest rates

To those who have been spooked by the selloff we offer a word of comfort:  The likelihood that the Federal Reserve takes action to raise rates in a meaningful way is slim.  Assuming they were to raise rates, any action at this point would take at least 39 months to matter, crucify fixed income in the short term, and trigger large scale bankruptcies the likes of which they have spent the past 5 years trying to mop up.

However, even if the Fed had the desire to raise rates they would be unable to do so.  They have lost any meaningful control of the traditional rate mechanisms through an incomprehensible mix of monetary policy (think Quantitative Easing) and regulatory action (chiefly Dodd-Frank) some time ago.  All they have left us rhetoric, which is increasingly falling on deaf ears.

Reality is far removed from Washington DC and Wall Street.  There are very large piles of money that are on the fence between seeking safety and return, and that pile is growing faster by the minute.  The bigger it grows, the greater the likelihood that it will be deployed at a lower risk adjusted return.  The decrease in returns = increased wages to the proletariat as the pendulum swings the other way in world’s socialist monetary system.

The wage price spiral is here, and it is about to make a hot mess of markets everywhere.  Ask for a substantial raise or find another job, especially if you are in an industry with ultra-tight demand for labor.  You are likely to be pleasantly surprised.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Key Indicators for August 1, 2014

Copper Price per Lb: $3.22
Oil Price per Barrel:  $97.39

Corn Price per Bushel:  $3.55
10 Yr US Treasury Bond:  2.52%
Bitcoin price in US:  $598.00
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,293

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.2%
Inflation Rate (CPI):   0.3%Dow Jones Industrial Average:  16,498
M1 Monetary Base:  $2,825,900,000,000

M2 Monetary Base:  $11,348,900,000,000

More Evidence of the Impending Wage/Price Spiral Appears

4/2/2014 Portland, Oregon – Pop in your mints…

The wage/price spiral.  It is a nasty economic phenomenon where the labor market suddenly tightens, causing a chain reaction of relative scarcity of output, which leads to higher prices for goods, which leads workers to demand higher wages, which employers pay for by raising prices and attempting to increase output, which finds itself back staring back at the tight labor market, where each available worker now knows he or she is worth much more.

The wage/price spiral, which is generally only possible on a broad scale in times like our own, when credit passes as money, appears to be accelerating.

Graphic courtesy of Deutsche Bank Research
Graphic courtesy of Deutsche Bank Research

The tightness in the US labor market has been happening in near stealth mode.  While the Unemployment rate remains above 6.5%, the line drawn in the sand by the FED for consideration of tighter monetary policy, what is lost in the data is that Baby Boomers are retiring.  While it is true that their overall consumption will likely decrease, it is also true that their staggering output as a generation is falling even faster, leaving fewer workers to fill the gaps, especially in highly skilled positions.

What does it mean?  If you are a worker feeling squeezed by higher prices, ask your boss for a raise.  If they won’t comply, start looking for another employer.  Chances are, by the time you have found a better offer, your current employer will realize what is happening, and make you an even better offer to stay.  This is a hypothetical situation, of course, and each person must carefully consider their own situation.  However, when this spiral takes off, you will want to be well ahead of the curve.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for April 2, 2014

Copper Price per Lb: $3.04
Oil Price per Barrel:  $99.20
Corn Price per Bushel:  $5.05
10 Yr US Treasury Bond:  2.80%
Bitcoin price in US:  $469.48
FED Target Rate:  0.06%
Gold Price Per Ounce:  $1,292
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.7%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  16,541
M1 Monetary Base:  $2,694,800,000,000
M2 Monetary Base:  $11,229,900,000,000

Don’t be Fooled! June Unemployment Numbers cooked to keep interest rates and wages down

7/8/2011 Portland, Oregon – Pop in your mints…

Sound the alarms!  The today the BLS took the pulse of the labor market today and market observers jumped back, aghast that the patient, the US labor market, should be so weak.  According to the charts, he was well on his way to recovery.  After being in a coma for the past three years, it appeared that he would be back to his old self and dancing in the halls in a matter of months.

Now, the prognosis has taken a turn, albeit a small one, for the worse.

Here at the Mint, we take numbers with a grain of salt.  We have nothing against numbers; on the contrary, we are rather fond of them.  They give one the ability to appear to make sense of extremely complex phenomena.  They make mankind appear intelligent, cunning, even clairvoyant at times.

It should come as no surprise, then, that mankind, specifically those bent on “improving the world,” should place so much faith in them.  To understand and interpret numbers and then act on the data gives man a power rush that is exhilarating.

It is a fatal conceit.

It is illogical, perhaps insane, to think that something as complex as creation and the countless phenomena that occur every nanosecond can be adequately expressed (much less understood) in numbers.

On a small scale, such as a family farm, a small town, or even a remote island, numbers can prove very useful.  They can provide accurate, timely information about productivity and relative scarcity.  In these instances, numbers can be invaluable.

Begin to aggregate theses numbers and try to use them to understand phenomena on a large scale and they become not only devoid of meaning but dangerous.

Why does this happen?  Simply because the farther removed that the decision maker reviewing the number is from the processes on the ground, both in space and time, the less able he or she is to react in a coherent manner.  This, in a nutshell, is why Socialism, Communism, and any other form of Centralized planning or “world improvement” does not work on a large scale.

With this in mind, we will interpret today’s BLS unemployment numbers for you.  Economic observers have been trained to understand that 9.2% unemployment is bad for the economy.  Why it is bad, few stop to wonder, but that is a rant for another day.

It is simply understood to be bad, and since the economy needs to be “good,” the world improvers must do something.  What will they do?  First, they will use this as an excuse for the FED to keep the short term rates insanely low for a longer period of time.  This will not create employment but will create hyperinflation.

Second, the US Congress will raise the debt ceiling and resort to the Bush era style of stimulus, they type where every taxpayer gets a check in the mail from the Treasury.

Third, and most importantly, this announcement is a desperate attempt to keep domestic inflation in check.  Inflation, and then hyperinflation, will begin once wages increase.  The rise in unemployment sends the subliminal message to the working classes that they cannot demand raises because they are just “lucky to have a job.”

Are you really lucky to have a job?  The not so subliminal truth is that YOU ARE IRREPLACEABLE AND ARE WORTH MUCH MORE THAN YOU ARE CURRENTLY MAKING!

Lives and economies were never meant to be measured in numbers.  Numbers used to make large scale policies generally do more harm than good.  Numbers produced by a central authority often are done so either with the intent to deceive or are so untimely and incompetently compiled that they become deceptive as they do not accurately reflect present circumstances.

“Fear not, therefore; you are of more value than many sparrows!”

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

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Key Indicators for July 8, 2011

Copper Price per Lb: $4.36
Oil Price per Barrel:  $96.20

Corn Price per Bushel:  $6.72
10 Yr US Treasury Bond:  3.02%
FED Target Rate:  0.07% JAPAN HERE WE COME!

Gold Price Per Ounce:  $1,544 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.2%
Inflation Rate (CPI):  0.2%
Dow Jones Industrial Average:  12,657 TO THE MOON!!!
M1 Monetary Base:  $2,020,000,000,000 RED ALERT!!!
M2 Monetary Base:  $9,112,300,000,000 YIKES!!!!!!!

*See the MINT Perceived target Rate Chart.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.