EC This Time Is The Same: Like The Housing Bubble, The Fed Is Ignoring The Shale Bubble In Plain Sight

We are now far advanced into the third central bank generated bubble of the last two decades, but our monetary politburo has taken no notice whatsoever of its self-evident leading wave. Namely, the massive malinvestments and debt mania in the shale patch.

Call them monetary Bourbons. It is no exaggeration to say that inhabitants of the Eccles Building deserve every single word of Talleyrand’s famous epithet: “They learned nothing and forgot nothing.”

To wit, during the last cycle they claimed to be fostering the Great Moderation and permanent full employment prosperity. It didn’t work. When the housing and credit bubble blew-up, it washed out all the phony gains from the Greenspan/Bernanke printing spree. By the time the liquidation was finished in early 2010, there were 2 million fewer payroll jobs than there had been at the turn of the century.

Never mind. The Fed simply doubled-down. Instead of expanding its balance sheet by 50%, as happened during the eight years between 2000 and 2008, it went into monetary warp drive, ballooning its made-from-thin-air liabilities by 5X in only six years. Yet even after Friday’s ballyhooed jobs report there were three million fewer full-time breadwinner jobs in November 2014 than there were in the early 2000s.

Breadwinner Economy – Click to enlarge

That’s right. Two cycles of lunatic monetary expansion and what they have to show for it is two short-lived bursts of part-time job creation that vanish when the underlying financial bubble bursts.

Part Time Economy – Click to enlarge

So, yes, our monetary central planners forget nothing. It doesn’t matter what the actual results have been. Like the original Bourbons, the  small posse of unelected academics and policy apparatchiks who control the nation’s all-powerful central bank most surely believe they have a divine right to run the printing presses as they see fit—even if it accomplishes nothing for the 99% of Americans who don’t have family offices or tickets to the hedge fund casino.

Still, you would think that the purported “labor economist” who is now chairperson of the joint would be at least troubled by the chart below. Even liberals like Yellen usually do acknowledge that that the chief virtue of the state is that it purportedly generates  “public goods” that contribute to societal welfare—-not that it is a fount of productivity and new wealth generation. For that you need private enterprise and business driven efficiency.

Well, then. How do our monetary Bourbons explain that the gain in labor hours utilized by the non-farm business sector has been zero since the third quarter of 1999?  That is, nada, nichts, nothing, zip for the last 15 years!

The Fed forgets nothing because it’s involved in ritual incantation — that is to say, the execution of religious doctrine. That’s why its pompous devotion to the “incoming data” is such a farce. There is nothing empirical and factually rigorous about what it does; it just changes the doctrinal spin as the bubble expands and the economic data grind-out transient noise one month or quarter at a time.

Even now that the official unemployment rate has occupied the 5-6% zone for several months, the FOMC simultaneously brags about its success in rejuvenating the economy while keeping its foot on the accelerator of “extraordinary” monetary stimulus.

As to the “success” part of the incantation, surely anyone who spends even a few hours with the BLS’ U-3 unemployment rate knows it is not worth the paper it is printed on owing to the huge dislocation of the labor force participation rate. That is, the denominator is cooked and the resulting ratio is phony.

And forget about the baby boom retirement excuse. The chart below shows the employment rate for the civilian population 16-54 years old. It has crashed during the last two decades of egregious money printing. Specifically, the 16-54 age population has grown by 37 million since 2000, but the number of non-farm employees in that same working age bracket has grown by just 4 million. Yes, the Fed’s hyper-stimulated economy has generated jobs for just 10% of the prime age workers who have been added to the labor force.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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