By Pam Martens: October 23, 2013
Yesterday, the Bureau of Labor Statistics reported a very weak jobs number: just 148,000 new nonfarm jobs had been added by employers in September. To the rational mind, an appropriate reaction in the stock market would have been to sell off on the basis that the economy remains weak. Instead, the Standard and Poor’s 500 hit a new record, closing at an all time high of 1,754.67.
The general thesis to explain this reaction is that today’s Wall Street is running a racket similar to Lance Armstrong. It’s on a heavy doping regimen in the form of the $85 billion a month that the Federal Reserve is funneling into the markets through the purchase from Wall Street of U.S. Treasurys and mortgage-backed securities. When the Fed buys those instruments, it forces $85 billion of cash each month into the hands of traders to deploy into higher risk assets – stocks, exchange-traded funds (ETFs), stock futures and what have you, artificially forcing the market higher.
A weak job creation number means the Fed’s dope pushers will keep the money flowing to Wall Street rather than risk a stock market crash that could create even worse job numbers.
The other doping regimen that you’ve likely never heard discussed unless you’ve read Wall Street’s Collapse and the Ownership Society, is the money fueled into the stock market through regular deductions from workers’ paychecks, into their 401(k) plans, and then out the back door where Wall Street over time gobbles up as much as 25 percent of your retirement savings.
The 401(k) is the mechanism that created the subliminal mindset that what’s good for Wall Street is good for Main Street. The hard reality is that the top 5 percent of the wealthiest Americans own 60 percent of stocks.
This dubious 401(k) link between the huddled masses and the Wall Street mindset is effectively causing millions of workers to join Wall Street in cheering a tepid jobs number in hopes their 401(k) will bail them out of their stagnating wages. Good luck with that one.
Simmering just below the surface is one more intellectual battle: who creates jobs in America? The Republicans, assorted Tea Party factions and Ayn Randians of various stripes will forcefully assert it is the private employers that are the engines of job growth. Robert Reich, the former Labor Secretary, in his new film, “Inequality for All,” guts this unsupported propaganda with charts and graphs reminding us that 70 percent of U.S. Gross Domestic Product is consumption. When workers are stripped of an adequate share of the nation’s income, they are unable to function as consumers. Lower consumption means lower corporate earnings, resulting in layoffs, more corporate earnings weakness and more layoffs. The downward spiral feeds on itself.
One more threat is being carefully gauged by The Hamilton Project at the Brookings Institution, the jobs gap. The jobs gap means the number of new jobs being created each month measured against the number of new entrants into the job market plus the longer-term unemployed job seekers.
According to The Hamilton Project, at the end of August 2013, the U.S. faced a jobs gap of 8.3 million jobs. Their data shows that if “the economy adds about 208,000 jobs per month, which was the average monthly rate for the best year of job creation in the 2000s, then it will take until August 2018 to close the jobs gap.” I used the Hamilton Project’s jobs gap calculator to calculate how long it would take to close the jobs gap if we continued to add jobs at the tepid rate of 148,000 per month that was registered for September. The unsettling news is that it would take until 2022 to close the gap. That does not factor in another recession between now and 2022 when jobs could start shrinking again, pushing the gap-closing date out even further.
The bottom line is this: irrational bullish reactions on Wall Street have, without exception, ended badly.
