The U.S. just had the most Q1 layoffs in a decade
axios.com
axios.com
I sometimes wonder if these sorts of economic projections end up being self-fulfilling prophecies. If everyone tightens up spending because they expect a recession, that essentially guarantees there will be one.
a few interesting reports: https://www.reddit.com/r/StockMarket/comments/aydpbu/first_h... https://twitter.com/paulkrugman/status/1110161228507348992
I get that the real world more complicated than this, as forecasting can be done for months out, but businesses can't magically fix the economy by continuing to spend the way they have been because it isn't sustainable.
It's when they "physically" can't spend that it starts to slow down (slowing income, access to credit).
I feel awful for those people whose lives have just been disrupted so. I’m particularly empathetic because, as a foster parent, I know very well what may happen to some of those families.
So I sometimes wonder, how do these managers who lay off people sleep at night? I mean they are just doing their job so that THEY themselves don't get laid off. And next I wonder, who are these rich rich people who want more money so that they hire people to lay off other people?
But I guess that's life.
That is part of the reason I took those jobs. Someone was going to do it, and I felt that I could do it in a way that kept the business healthy and was as respectful and careful about the humans impacted as possible (ensuring severance, having 1-1 conversations with every impacted person on my team, etc).
For context I was an executive brought in to restructure software companies after they were purchased or tucked in by the LBO side of a PE firm.
https://www.econlib.org/archives/2013/09/why_dont_wages.html
And it's about how the lower than usual rates it's currently at matter for what it says, which makes sense.
Then I noticed it was Paul Krugman making the observations.
Any prior points I had no longer seem worth adding now. ;)
And the government stepped in, becoming a lender of last resort. And it worked (not well, maybe, but it worked).
Saying "the economy is powered by belief" isn't quite right. Finance is powered by belief and trust. But at the end of the day the "economy" is all the people out there able to work, and they aren't susceptible to bank runs.
Everyone when there is an issue, the Federal Reserves stepped in, printed money and bailed them out.
The end result, the financial sector gets bigger and bigger over the last few decades. Privatize the reward, socialize the risk.
It arises out of a recognition that the basis of prior financial obligations on expected return was false.
Options are debt repudiation, inflation, debasement, or collapse.
Obviously we don't have the alternative universe where President McCain opted to do nothing for comparison. But looking at the economic boom we're living in 10 years out, it's difficult to make an argument that the government's handling of the housing crisis was poor. I have a hard time coming up with an outcome more ideal than what we got.
2008->2018 was a much nicer decade than 1928->1938.
The effect of 2009's QE was to couple the full faith & credit of the financial system with the full faith & credit of the government, effectively backstopping the financial industry with the trust that the government had built up over 230 years. This worked, but it was not free. The cost was an erosion of that trust in government, which you see in movements like Occupy Wall Street, the Tea Party, Black Lives Matter, the alt-right, Trump, sovereign citizens, and Democratic Socialism.
As long as things are good, the government (and the financial system) can continue to build up that trust that they spent down in the financial crisis, and we'll have weathered the storm with no problems. Things are still not good for many people. And so the risk is that if there is another crisis in the next few years, while that trust is depleted, the whole society will come crashing down, like Syria or Venezuela. Not just a financial crisis, but a political crisis as well, because the two of them are now coupled in peoples' minds.
Especially if a certain foreign power and its allies act accordingly to Nietzsche's "That which is falling, deserves to be pushed"
That's why the government stepped in and bought the mortgages from the banks - if the banks had had to account for the losses on those loans it would have brought down the entire system.
The banks are secured by the govt which happens to be the biggest debtor to the banks.
Problem being the govt is really the people and when it comes down to it the people are on the hook for their own debts regardless of how it gets paid.
AND we bail out the corporations who spend too much.
I suppose inflation is paying for it, but I get the feelings that the semantics around whether inflation is "paying" for things have changed recently (or maybe I've been hearing too many ardent MMT evangelists).
When we "borrow" money from the Fed it is at interest. We have created a debt based system where everything is a borrow.
Fiat currencies are based on the value of the peoples ability to create value. When the people owe the banks more value than they can generate they are bankrupt. When the people and the govt ( the people ) owe money to the banks to the point they cannot generate enough value to cover the debts what will happen ?
I think we will see soon :)
It's still a part is the government, just one with extra layers of separation from the executive. Like the FBI.
1. Applications for membership by State banks -- Any bank incorporated by special law of any State, operating under the Code of Law for the District of Columbia, or organized under the general laws of any State or of the United States, including Morris Plan banks and other incorporated banking institutions engaged in similar business, desiring to become a member of the Federal Reserve System, may make application to the Board of Governors of the Federal Reserve System, under such rules and regulations as it may prescribe, for the right to subscribe to the stock of the Federal reserve bank organized within the district in which the applying bank is located.
[edited for formatting]
The same website you linked to has an FAQ page dedicated to clearing up this misconception: https://www.federalreserve.gov/faqs/about_14986.htm
> The Federal Reserve System is not "owned" by anyone. Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was established to serve the public interest.
> Some observers mistakenly consider the Federal Reserve to be a private entity because the Reserve Banks are organized similarly to private corporations. For instance, each of the 12 Reserve Banks operates within its own particular geographic area, or District, of the United States, and each is separately incorporated and has its own board of directors. Commercial banks that are members of the Federal Reserve System hold stock in their District's Reserve Bank. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. In fact, the Reserve Banks are required by law to transfer net earnings to the U.S. Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund.
That is like saying any corporation publicly traded yet regulated by the govt is now part of the govt.
Any bank can apply to become a member and buy shares of the federal reserve. They simply are regulated by the govt.
Why does it have to be publicly traded? Corporations are exercises of government power by which people (who may themselves be corporations) are revocably delegated special powers created by government. They are, in a very real sense, aspects of the chartering government.
To the extent that they are permitted to serve basically unconstrained private purposes, that's not because they aren't part of the government, but because of what the hosting society believes about the proper application of government power.
Publicly traded companies area still owned by private people and organizations. The publicly traded nature subjects them to additional oversight, but they're still private enterprises.
Where can I buy stake in the Federal reserve? What was it's stock price history?
We can't because nobody "owns" the federal reserve, just like nobody "owns" the FBI or the Navy.
A corporation with employees becomes a member of the Federal Reserve. The job is to generate money from nothing, and get paid for it.
So as a federal reserve bank you create money, charge for doing so and then you change hats from federal reserve to local private bank and loan that money to the private sector charging profits for doing so.
You charge fees coming and going get salaries for both jobs and have no exposure for doing so.
Bonus if your bank fails you are insured by the people who are borrowing money from you.
And you think they are part of the govt
Here's yet another page from the federal reserve website that explicitly says that it's part of the government: https://www.federalreserve.gov/faqs/about_12799.htm
> The Federal Reserve, like many other central banks, is an independent government agency but also one that is ultimately accountable to the public and the Congress.
It says right there that it is a government agency. Independent, yes, but ultimately accountable to the government. It's leadership is appointed by the government.
we are getting closer.
Now... lets say a company was allowed to buy shares in the govt and be able to act as a govt agency while remaining a private company.
So they contract themselves to do some work, pay themselves for setting up the contract, switch hats then do the work. Bonus if they don't do the job right they simply aren't liable.
They don't "buy shares in the government". I'm not even sure what that even means. Nobody can buy shares in the government because the government isn't a company. I guess you might be referring to government bonds. But those aren't shares, they're contracts to get paid a greater amount when the bond reaches maturity. The whole concept of "shares of the government" is just not valid because nobody owns the government. At least not in the US, there are some monarchies where all government assets are owned by the royal family.
Bonuses and salaries of bankers are quite expensive
This is how the federal government made money off the bailouts. Well this and basically looting Fannie Mae and Freddie Mac.
First, too many people don't have a lot of 'cash' savings. Second, as long as most people's debit and credit cards continued to work, they probably would not notice bank receivership.
Most folks: don't have savings, have a chunk of money tied up in their retirement savings, and another chunk tied up in property/residence.
Organisationally, the FDIC might be challenged by massive bank collapses, though it's addresed this in recent past through forced bank mergers.
https://www.fdic.gov/deposit/insurance/assessments/mergers.h...
https://en.wikipedia.org/wiki/List_of_banks_acquired_or_bank...
Inflation begins (IMHO) when there's a lot of money in circulation: too much cash chasing too few resources, bidding up prices.
In a bank run, people are taking home bills because they want them to be "safe" in case the bank goes under (never mind FDIC, which most people probably do not understand).
Money sitting under the proverbial or literal mattress is not in circulation, and not going to cause the bidding-up of prices.
the thing that changes if the money is under mattresses is that the banks stop having money to lend and invest. I don't know if that creates inflation or not?
In the long run, the injection would need to be unwound when things are back to normal though, or else there might be inflationary phenomena in one form or the other.
It's a tricky maneuver to execute because you're doing it on the broad economy, not specific sections.
But while people are waiting for their cash, if they can still use digital banking, then they will probably stop worrying about it before their cash is actually delivered.
Has anyone seen this happen in practice? Any HNer who is management have to lay people off because their executives say “we have no problem getting capital right now but we think it might become more difficult in the future.”
I never quite understood that one. Feels like the churn would be more costly than keeping those contractors onboard for a month.
I've seen full-time employees laid off at one point, given severance, told not to look "too hard" for a new job, companies reported numbers, and hired back the same people in the same roles a few months later.
When the beliefs are overwhelmingly pessimistic, stock prices drop. Why should companies behave any differently with respect to layoffs?
10-20 years ago, maybe. It's now driven largely by semi-autonomous algorithms monitoring swings/trends. I'd argue that it finds a 'simulated' price rather than a 'correct' price. The stock market is much less susceptible to emotional speculation than it used to be, for better or for worse.
A quick google yields multiple articles claiming various percentages for algorithmic vs meatspace trading. Investopedia claims that as early as 2010, upwards of 60 percent of all trading was done by algorithm. That number has risen since as computation has become cheaper. Source: https://www.investopedia.com/terms/a/algorithmictrading.asp
Also, I didn't say it was better. IMO it's probably just as volatile/dangerous. It's just harder to predict as it's not as rooted in actual emotion/speculation.
You don't need to be the smartest person in the room to be good at trading, you just need to know what everyone else in the room is thinking. Algorithms are part of the room now, so they try to predict what other algorithms are thinking.
overwhelmingly as accounted for by head count or size of portfolios?
[1] https://www.usgovernmentdebt.us/federal_deficit_percent_gdp
[2] https://www.reuters.com/article/us-usa-economy/u-s-economic-...
Where does this come from? the 10-year bond rate was closer to 3% for most of 2018 [1].
==So that's a 4x ROI correct==
You can't calculate ROI with an I. In this case, that is the 3.9% of GDP mentioned. Going forward, we may gain more tax revenue than we would pay in debt servicing each year, but that ignores the initial investment we made.
In reality, you would need to show that the present value of your annual tax revenues (0.29% of GDP - 0.076% of GDP) is larger than the 3.9% of GDP invested initially.
[1] https://www.thebalance.com/interest-on-the-national-debt-411...
"3.9% of GDP invested initially" How is this investing 3.9% of GDP? It costs 0$ in investment for the government to issue new bonds. The only way federal debt costs the country is in the interest spent on servicing it. As long as the tax base increases faster than the interest spent on servicing debt (and also accounting for population growth) there is no economic problem with increasing the federal debt.
And again, I am not arguing that the things we are spending the government money on are rational. I think we could do a lot better by cutting military spending and increasing funding for non-military research and infrastructure without deficit spending (which is certainly possible). But technically the current deficit spending is not unsustainable
What if the increase in GDP happened only because you borrowed money and spent it? What if you don't spend an equivalent amount next year, and that increase in GDP went away?
In this case, you want the money borrowed to be paid off completely by the taxation on increased gdp.
Which would be 1.03 * 3.8%=3.914% of gdp (deficit to be paid back next year) to equal 0.19 * 2.9%=0.551% (tax collection on increased GDP) of gdp, which it is very far from. Add the fact that the increased GDP is normally as welfare/income of poor people, which is taxed less.
This of course leads to main question. Is the growth sustainable? If the govt borrowing+spending go away tomorrow, would the GDP not contract? If yes, Then this growth was unsustainable and was debt fueled.
Interest is basically the adjustment made to value having money now vs having money in the future (how much would I have to pay you next year in order for you to not ask me to pay you now). An interest rate of 0% means $100 now vs some arbitrary point in the future are of equal use to you, which is irrational. Obviously getting $100 now is better than getting $100 in 5 years.
In fairness, interest rates aren't that low. I'm not sure if interest rates equal to inflation would be the same thing as interest of 0% in a 0 inflation world. I'm not an economist.
Job market bounces back in March with 196,000 gain in payrolls
https://www.cnbc.com/2019/04/05/nonfarm-payrolls-march-2019....
Everyone just kinda shuffled around it seems.
Highest since 2015 is less surprising than “ highest in a decade”
Article:> The U.S. saw its highest level of layoffs in a first quarter since 2009
This seems like a reasonable headline for the article.
"The worst performing Friday the 13th in a non leap year ever."
I also feel like the scale of this graph makes this look a lot worse than the numbers indicate.
For the record, my honest opinion is that both of these (and other, yet, previous) administrations share fault.
This sort of headline writing is for cowards and weasels.
> Hiring rebounds as US employers add a solid 196,000 jobs
Don’t think that would be a liquidity trap, but this type of recession always makes me think of Krugmans Baby-Sitting COOP model: https://en.m.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-...
"Unemployment Rate Reached a Record Low in 19 States Last Year"[1]
[0] https://www.usnews.com/news/business/articles/2019-04-04/app...
[1] https://www.bloomberg.com/news/articles/2019-01-23/unemploym...
https://www.census.gov/newsroom/blogs/random-samplings/2016/...
I would expect percentage of employed over age of 18 to be declining simply because the number of people retiring (or unable to work due to age) is greater than # of entering labor force.
For example, Georgia is the second youngest state with only 9.6% of the population over 65 years-old, but they have a below average laborforce participation rate of 62.8% [1]. Pennsylvania, with 15.6% of the population over 65 is the second oldest, but has a 62.9% participation rate.
Iowa is the 4th oldest state and has the 6th highest participation rate (68.8). North Dakota is 5th oldest and 3rd highest rate (69.3%). South Dakota is 8th oldest and 7th in LFPR (68.7%).
Because they don't need to work. They're not applying for unemployment and they're not taking jobs. So, logically, they're using their time on non-work-related activity. They're having fun, or otherwise doing stuff that they would rather do than work.
The media has this terrible tendency to promote work as the primary marker of life success, which is a valid opinion, for sure, but it's not a universal one. Some people step out of the workforce because they can, and good for them. I expect the wealthier our society becomes, the more people will have this opportunity.
Say that to the workers that got laid off, lost earnings and perhaps even the health insurance their family depends on.
EDIT: I know earnings are high, but much of our growth over the last 20 years has been during 2-4% GDP deficit. I don't think that's been priced into the markets. Markets may be assuming that the deficit party will continue.
Per capita or velocity are much more useful metrics.
There's been a huge move into passively managed index funds over the last 10 years, with many smart investors touting them as a better long term bet than actively managed funds.
Passively managed funds don't look at what's coming down the road, they invest to fixed formula.
So where an active fund might predict a fall and get out of equities, all the passively managed money stays put.
Self-fulfilling prophesy as markets are fundamentally about confidence, this shows confidence in the equities markets, despite issues like those in the article.
So the markets continue to rise.
How do you identify an active fund manager that will outperform the market over a long time period?
Do they still outperform the market when you also price in their fees?
what will be interesting is, say there's a genuine market rout (e.g. what happened with Lehmans), which should depress stocks definitely in the sector, but also in the wider market.
If all the money from the passively managed funds just stays put, will the stocks basically not take much of a hit?
Of course if it gets bad enough for companies to go broke, that could go wrong for the passively managed crowd as they'll stay in there till the end, most likely.
The stocks will still take a hit, as we saw in the case of 2008 almost everyone loses money in a market-wide drop. Many active traders went bankrupt as well, the S&P500 lost 50% of its value but didn't go to 0.
> Of course if it gets bad enough for companies to go broke, that could go wrong for the passively managed crowd as they'll stay in there till the end, most likely.
It depends on how quickly the drop happens. S&P500 index funds will sell stocks as they exit the top 500 (this is a simplification of the actual mechanism), so if the drop is gradual then it's not so bad. If the drop is sudden then there is a bigger problem, but the sudden drop is a problem for everyone, active or passive unless you're doing HFT.
One example of this "stock markets not reacting to external events" that seems to fit the trend is, to me , the robustness of the FTSE100 since the Brexit vote.
It's clear that companies are taking a financial hit in several places and will continue to do so (perhaps precipitously if it ends in no deal) however the FTSE100 is current around 1000 points higher than it was a year ago.
That could be because a large percentage of the funds in those stocks are passively managed and therefore don't react particularly to those external events.
Luckily I was able to find an excellent resource that dives into the exact questions we're discussing: https://www.bis.org/publ/qtrpdf/r_qt1803j.htm
It also makes a note that a lot of active investors allocate funds into a weighted index basket to better match index returns, so it could be that both active and passive funds are contributing to the same price insensitivity.
As a final supplemental to the paper given above I also looked at the PE ratio of the S&P500 per year: https://www.multpl.com/s-p-500-pe-ratio/table/by-year
One thing I would also expect is that as passive investing becomes a larger and larger part of the market we should also see the PE ratio rise.
I found a site that gives the PE by year (https://www.multpl.com/s-p-500-pe-ratio/table/by-year) and calculated the following (2019 estimates removed).
For all the years 1871 to present: AVG. 15.7 Median. 14.775 STD Dev. 7.25
For 1980 to present: AVG. 20.72 Median. 18.15 STD Dev. 11.18
PE ratio for 2018 was 24.97, which is very high for all of history but seems reasonable for 1980 to today.
Thought experiment: If everyone put money into an index fund that guarantees returns, what is the difference between that and a Ponzi scheme?
No index fund guarantees returns, so the question is a non-sequitur.
With regard to the question of how does the fund keep value -- the fund holds the equities that are in the index. The equity prices rise and fall with the market, which is hopefully based on the fundamental discounted future value of all cash flows from the company.
Index funds don't have gains because people keep believing the price will increase. They have them because the market as a whole gains in the long run. Index funds lose value during market downturns.
Anyhow, no index fund offers guaranteed returns. These days I only see that from crypto ponzis.
https://www.google.com/search?client=firefox-b-1-d&q=2019+st...
in particular:
"This Stock Market Rally Has Everything, Except Investors" from the NYT.
LNU05026645 - Discouraged Workers - Has gone up in recent months after having been lower than its been since 2007 for most of 2018.
When unemployment goes up 0.3 points in a month, often continues at that rate for months, sometimes for up to a year. So 4 months of poor performance can undo two years of employment gains, but the poor performance can go on for a year.
[1] http://www.shadowstats.com/alternate_data/unemployment-chart...
https://fred.stlouisfed.org/series/LNS12300060
You read too many Clinton-era Arkansas lies. Clinton's racist "discouraged workers" unemployment stats - that only racists quote - says that poor people and minorities don't matter and a lack of jobs for them is their own dang fault, due to a lack of internsl motivation! signed - another Democrat.
The market was also posting all time highs in 2012, 2013, 2014...
If you want a simple proxy, looking at the S&P 500 P/E ratio is a slightly better metric[0].
It's still not the same as explaining the mechanism through which the next recession will occur, but then again if you could explain it a priori, you'd be a billionaire.
__________
https://www.marketwatch.com/story/hiring-speeds-up-as-econom...
if the workforce is always increasing in size, doesn't the number of layoffs each quarter have to go up?
https://www.marketwatch.com/story/its-official-the-trump-tax... https://www.vox.com/policy-and-politics/2019/3/12/18260271/t...
According to them, cutting taxes can create some short-term growth spurs (like what we have been seeing) but is not sustainable. In 2022-2023 we'll see what state the US economy is in and who was right. Maybe Trump is the financial genius who will finally make Reaganomics work after so many neo-liberal failed attempts. But I wouldn't bet on it.
There is no evidence the tax breaks have created (many) jobs...but there is even less evidence that it has "destroyed" jobs. If you can point me to a peer reviewed study that says that, and not a Vox article, I'll gladly read it. But I skim FRED sometimes and have never seen such claims from a legitimate economist.
In fact a lot of these jobs were reabsorbed elsewhere in other sectors, that's actually a sign of a fairly healthy economy. Which is actually pretty astonishing given the weakness in Asia at the moment; but as someone I've read (can't remember the author) pointed out the US has never imported a recession, even during the currency crisis of the early 90s and all the problems that Japan has had with growth since the early 90s.
Except YoY retail layoffs have shrunk by 20%.
And that's a very strange burden of proof to lay down for trickle down economics, considering that tax cuts for the wealthy are repeatedly claimed to generate jobs. Are you saying the job generation claim is a red herring? Would you equally defend me not paying any taxes since it "doesn't hurt anything", or do I need to be super-rich first to get the tax-cut apologizing?
In fact I'll go farther: Vox's economics coverage is as good as any you can find on the internet outside of academic sources. They're deep, wonky and very broad. Obviously that comes with some policy preferences, but if you're avoiding them because they don't match your personal politics I think you're missing out.
Well that certainly explains the clickbait and built-in opinion.
https://www.calculatedriskblog.com/2019/04/comments-on-march...
Summary:
The headline jobs number was above expectations, and the previous two months were revised up slightly. The headline unemployment rate was unchanged at 3.8%.
This was a solid jobs report, and was probably boosted by some bounce back from the poor weather in February.
What's with the HN editor's obsession with posting "bad economy" reports lately? It certainly conflicts with their boosting SV unicorn IPOs.