Saturday, September 8, 2012

On the Fed and WFP

The most disappointing element of Friday’s NFP report was the drop in Work Force Participation (WFP). This important measure of the labor force fell to a 31 year low. A look at the details shows that things are even worse than the headline report. Consider this chart of WFP for two groups; workers 22-55 (white) and those 55+ (brown). The lines crossed in 2002. The negative gap has widened every year. It’s fallen off the chart the past three years.



This chart describes a real crisis for America. The long term consequences to the economic health of the country are tied up in this chart. All long-term macro economic analysis of the USA assumes that the current crop of younger workers will evolve to be a productive group for the rest of their lives. 

The hope belief is that the younger members of the sub 55 group will have babies and buy houses. As they prosper, GDP will grow, tax revenues will rise. The younger workers of today have a very big burden on them. In future years they must generate tax revenue for Washington as D.C. has made very big promises on Social Security and Medicare that can’t be met unless this crop of workers succeeds.

There is not a chance in hell that younger workers are going to prosper looking at this chart. As a result, future tax revenues will be less than planned. The economy will lag well below potential. Ultimately, the lines will cross; major cutbacks in entitlement spending will have to follow. This outcome is written in stone unless the trajectory of younger employment changes.

What to do about this problem? I don’t think there is an easy answer.

One solution to the lack of upward mobility for those 55 and under would be to get more of the 55+ folks out of the workforce. The exact opposite is happening. Older workers are putting off retirement in droves. They have to. Their primary nest egg, their home, has turned into a liability. They are too old to invest all of their money in stocks, and there is no income to be had in a world of perpetual ZIRP. So they continue to work.

Lowering the minimum retirement age from 62 to 60 would change the direction of the lines. I advocate this, but the problem is that early retirement means lower Social Security monthly checks. I doubt that many could afford to retire on the meager income that SS would pay at age 60.

As a policy matter, the country is going in exactly the opposite direction. Republicans, Democrats, the Fiscal Commission and even the AARP have all been pushing for an increase in the retirement age. This may be necessary to “Save SS as We Know It”, but more older workers means less opportunity for younger ones.

The only real solution is to magically make the economy grow. The rising tide would lift all the boats. But the country has been pushing the string on efforts to stimulate the economy for the past decade. Those efforts have not worked.

This takes us to Ben Bernanke and what he and his cohorts will decide to do next week. The betting is that Ben is going to act. One thing that Ben is likely to do is extend the ZIRP language for another year or two. Bernanke believes that a promise to keep interest rates pegged at zero until the latter part of the decade is what’s needed.

Over the next four years over 10Mn people (and their spouses) will reach retirement age. Many of those people will have this conversation:

Honey, we’ve saved some money for this day, but sadly we can’t get any return on what we saved, so we have to put off retirement, and work for another two years or more. Sorry.

How many people will say this and act accordingly? 20% sound about right? That’s two million jobs that the sub 55 group will not get. The lines on the chart will get wider and wider and the future will get dimmer and dimmer.

One could not find an economist (of any stripe) who would not agree that the trends represented in the chart constitute a serious long-term threat.

Over the past few months Bernanke has made comments regarding the risks of sustained ultra-low interest rates. He has done a poor good job of informing us as to what those risks are, and what are their consequences. I’ve attempted to describe one of those risk here. I’m convinced that the +/- 55 WFP chart will deteriorate further in the next few years. Perpetual ZIRP will contribute to this very negative trend.

Bernanke knows this. I wish he would admit to it.







  1. He knows it. But he dare not admit it. After all, he does have a “dual mandate”. Moreover, Bernanke is impotent – in the economic sense. All he knows how to do is “stimulate.” How to print. How to meddle in markets. How to jawbone. But everything he does simply skews markets even more.

    He knows all this. But he can’t say it, because to admit any of this would destroy his academic credibility and the entire myth of the efficacy of central planning…

  2. Bernanke will leave office a broken man and confirmed fraud. If there is justice, Bernanke, his predecessor and the most recent 2 Treasury Chiefs should see long prison sentences.

  3. Jim,MtnViewCa, USA says:

    Time to let the losers lose and winners win with no gov’t intervention.
    Then the economy can grow again.

  4. It pains me to say this, but this is not entirely the criminal Bernanke’s fault. I agree with Westie that Bernanke (and Paulson, Geithner, Greenspan) are all criminals stealing from taxpayers.

    But in the interest of fairness, most baby boomers did not save for retirement. The national savings rate has been well below what would be needed to retire at 65 (with a 87 year expected lifespan)… even assuming the criminal Bernanke wasn’t stealing everyone’s savings with artificial interest rates.

    How much longer are we going to keep up the lie that Treasury debt is “risk free”? The baby boomer generation has essentially defaulted on the debt already — there is zero talk of balancing spending, never mind paying “debt” back before their expected lifespan ends. The boomers are already in default. Younger generations are starting with massive student debts to pay for Paul Krugman’s retirement — and they don’t have the career path to pay student loans never mind their deadbeat parent’s “treasury” debts.

    All us stupid yuppies are hoping to sell our McMansions to whom? Younger people buried under thousands of dollars in Krugman debt? How are younger generations going to afford to buy our McMansions at 50% off, never mind our cost basis?

    Final question: when are we going to start building the guillotine for Misters Bernanke, Paulson, Geithner, and Greenspan?

  5. Bruce – Any thoughts now about your comments in this post that you made 2 years ago. I’m interested in your current thoughts on the topic.

  6. Oooops . . . I meant thoughts on this link:


    • Two years ago I was writing about the prospects of forced negative interest rates. The stock market is up 40%, the economy has stabilized, yet I’m still writing about the prospects for negative interest rates.

      The Fed is addicted to ZIRP. Even worse, the have infected the policy makers in DC. The Fed has made the exponential growth of debt cost free.

      I ended that piece with: (Referring to negative rates)

      This bit of lunacy comes from one of our best and brightest economists.

      I still think it is lunacy.

      • the economy has stabilized

        Please define what you mean by this. Really, it’s kind of like GDP, isn’t it? Since government spending is part of GDP, we could ‘grow’ the economy by going further into debt, right?

        So it is not clear what you mean by “stabilized”.

        • There must be a cost sometime, somewhere. Do we have to wait until banks start lending again? (DO banks have to start lending again at all…?) There is a perpetual motion machine which works: “continuing US consumer spending—foreign sales to US—accumulate dollars—buy bonds”. This needn’t stop and it needn’t result in US price inflation.
          Bond buyers are captive: because of the USD reserve currency status and because of their dependence on sales to US consumers. Ergo, no more bond vigilantes, ever. And government and personal debt levels don’t matter.

          Perhaps all we can hope for is that another OPEC-like cartel develops somewhere, in some needed resource?

          • Wow. I’ve had the same sad thoughts. I think the improvements in Information Technology over the past 30 years will increase the persistence of a fiat currency like the dollar. The cartel worry is solved by US military capability (take our dollars or else). And a fiat currency is a powerful tool for creating and maintaining oligarchic rule.

          • You answered your own question :)
            The USA is in the process of losing its reserve currency status right now. All the BRICS countries have trade agreements in place to use their own national currencies in trade. Bernanke’s QE4ever announcement confirmed that this was the right course for them to take. We won’t be able to fight (AfPak, Iraq, Iran, China, Brazil, Japan, and India) everywhere all at once. Not enough volunteers, and not enough manufacturing or mining going on here. So they will stop using dollars. They will all rush here, and there will be a run on wheelbarrows.

  7. Unfortunately, the mistake has already been made by those in or near retirement years- they didn’t save enough, and now must work past retirement to satisfy their consumption needs. I really don’t see any other solution, Bruce. These people can either continue to produce what it is they need to consume, cut back to the bone on their consumption so what they have saved along with SS satisfies their requirements, or we can make the younger workers pay even more in taxes in return for buying the older workers out of the labor force on an increasing scale. The last of these is basically counter productive since it just raises the price of the younger workers labor in the first place, but not for their benefit.

  8. Mr Krasting,

    Please do a bit of research and then a post about how many legal immigrants have entered the US since, say, 01 Jan 2009 (by which time the ‘financial crisis’, and its attendant job loss, was in full motion). Fairly accurate data on this should not be too difficult to find.

    For example: August Jobs: Immigrant Displacement Of American Workers Near All-Time High

    Absolute insanity. And absolute proof that when speaking of the Federal Government, the lunatics are in charge of the asylum, and are the enemies of working Americans, and that goes double for Americans who would like to be working, but are not because they cannot find jobs.

  9. The charts you have produced bring to light one of the heretofore unseen costs of the lunacy of what the gov’t is doing.
    Really excellent article.

  10. Central Banks all over the world are willing to provide QE and ZIRP for those countries willing to hand over sovereignty and implement austerity measures. This is the NEW World Order. Real Estate is falling out of favor as a store of value and gold is taking its place. Paul Ryan just recently said that he would not condone the act of replacing the US$ currency.

  11. @ Greg,
    To add to your comments:
    Regarding baby boomers not saving for retirement … the baby boomers who did save for retirement had to be very independent minded, contrary, and stubborn to overcome the psychological pressures to take part in unbridled borrowing and spending which led up to the Financial Crisis of 2007. Government and the finance industry pushed borrowing and spending for twenty years, the last ten with an insane gleam in their eyes. Plus, the boomers were not getting truthful economic data; the Government numbers on CPI, inflation, and unemployment have painted a rosier than real picture of the economy beginning with the Clinton administration and even worse since.

    Myself, I worked hard to protect myself from the mistakes of my generation’s financial sector and Government, plus warn others, but the propaganda spewing from Wall Street, banks, and Government was just too mind numbing. Most people my age are still clueless concerning the causes; they still seem to think that recessions and depressions come and go like bad weather. So, it is hard for me to call them “deadbeats”, ignorant yes, stupid in some cases, but not deadbeats. It was not intentional in most cases. Mostly, my generation was simply misled and misinformed.

    That being said, I don’t see much difference between the baby boomers who still refuse to acknowledge the roots of the Financial Crisis and those in the younger generation who refuse to acknowledge that Internet surfing, video game, and cell phone texting skills are no replacement for marketable job skills, an entreprenurial attitude, and hard work. The national debt spun out of control on the baby boomers watch, that is true, but it was the work of a relative few who were responsible, not a whole age group. The baby boomers aren’t lazy, they have skills, and they were not afraid to go back to work. Unfortunately, that displaced way too many younger workers.

    What can we do? Well, as we may be the lucky few who recognize the roots of the financial problems plaguing our country, we must simply re-double our efforts to educate people and our political efforts to bring about change. Removing the barriers which hinder our youth, to create opportunities for them such as we had when we were younger is the most important thing we can do. We must become less apathetic in general and less tolerant specifically of those who would obfuscate the issues to protect themselves from the changes financial, banking, and monetary system reform would bring. We must continue to support our children while they look for meaningful full time work, knowing the current economic problems were not of their making.

    In the meantime, we must be careful not to blame our children too much for not finding full time work, and at the same time, not give them any excuses for wasting their time in trivial pursuits unrelated to making an independent life for themselves. Parents who lack the willpower to demand contributions from able-bodied adult sons and daughters are not doing them any favors. My son worked three to four part time jobs for two years and my daughter basically job-shared my job for two years before finding full time work. Any adult child who lives at home and does not work outside the home must contribute to his/her family in other ways: cooking, cleaning, shopping, etc.

    • I think if you look at the data, the national debt (outside of wartime) was negligible until LBJ decided to piss away money on both guns and butter. And it may be coincidence, but pretty sure this spendthrift-ism, the Woodstock drug festival, and baby boomers “coming of age” all happened together. The national debt grew faster than GDP starting around 1965, not a recent event.

      Generations X, Y, Millennial and whatever came next were not even born — much less voters — when baby boomers started playing the role of most selfish generation ever. Bill Clinton’s “surplus” was mostly accounting smoke and mirrors, with an unhealthy dose of stock market irrational exuberance / capital gains taxes. Clinton did not make any significant spending cuts; mostly his stupidity and Newt Gingrich’s stupidity canceled each other out.

      Despite numerous other failings, the other presidents since 1968 did not commit accounting fraud and claim to be running surpluses. (LBJ “balanced” his spending by sort-of, but not really, privatizing FNMA and FHLMC). Nixon defaulted on US debt for the second time in US history (FDR was the first). The rest just ran up the national credit card balance.

      Obama is the first idiot to max out every national credit card he could find, and he appointed a tax cheat to tell the stupid citizens to pay higher taxes.

      I suspect that Generation X, Y, … will make plenty of unforced errors as they reach “governing” age … but the baby boomers are responsible for $16 trillion in theft from future generations (its not debt if you have zero intention of ever paying it back).

      Boomers have been living beyond their means since Woodstock (if not sooner). You can’t blame that on younger generations — who were too young to vote. Blame Gen X, Y, … for helping to elect Deadbeat Obama in 2008 — that was the first opportunity to screw up; the young are 0 for 1 so far. Unlike the baby boomers, younger generations are going to get the bill for our mistake, and will never see Social Security even though the young are expected to pay SS taxes (age discrimination laws do not apply here?)

      Baby boomers have already defaulted on their national debt (which they did not inherit). Boomers promised, but did not fund, pensions for public and private workers — another default. And boomers have run numerous world class companies (Bethlehem Steel to GE to Kodak to Govt Motors to big banks) into bankruptcy … without creating replacements. Apple’s Steve Jobs being the exception that proves the rule.

      All that said, I still think Bernanke must be held accountable for his crimes. Yes, stealing is a crime. Yes, taking money from the future without paying it back is theft. Yes, stealing money from every citizen’s retirement account (via artificial interest rates) is a crime.

      No, Bernanke’s stupid ZIRP policy is not fixing the economy or preventing an economic depression — its just subsidizing failed bank CEOs and preventing new banks (with new / younger CEOs) from taking their place.

      Bernanke is stealing to preserve the status quo of a failed generation of leaders. That is all he is doing. Don’t know when, but someday he will have to pay the piper for his crimes.

      • Believe me, I have looked at the data. You haven’t mentioned a single thing that is new to me. The United States is not a “grass roots” populist-led society, where the Government did the bidding of a selfish profligate baby boomer generation. It wasn’t led by the baby boomers then, and it isn’t led by Generations X and Y now.

        LBJ was an ambitious jerk. I won’t defend him. Nor will I defend Clinton, he balanced the budget by deregulating banking and allowing the banks to run up private debt. But, you are sadly mistaken if you think that LBJ decided to piss away money because “the Woodstock drug festival and baby boomers coming of age happened at the same time.” Instead of blaming a whole generation of people, you might try to figure out how the U.S. really works instead of just recounting events.

        Eisenhower warned about the military industrial complex, whose motives explain far more than Woodstock or baby boomers coming of age. Study the wealthiest

        400 families in the U.s. Then take a hard look at the ownership structure over time of the largest banks, corporations, political think tanks, and major

        media. Look at who profited from the run up of the national debt to $16 trillion in debt and who lost, right up until the music stopped in 2007 for Lehman Bros and Bear Stearns. Read “Manufacturing Consent” by Noam Chomski.

        When it appeared that the whole pyramid of debt and banking system would come crashing down, what happened? Despite the overwhelming public opposition

        including those selfish baby boomers, Bush II and the Fed bailed out the biggest financial institutions in the country. Obama sold himself to Gen X and Y the same way previous Presidents sold themselves to the boomers with a deluge of false promises. Once elected, Obama appointed the same misguided, foolish, and crooked financial advisors who worked for Bush II to “fix” our country’s financial problems, the same problems they created.

        You know he did – you recounted facts and events – you just aren’t trying hard enough to understand and explain why. If try harder, then you won’t blame a whole generation for not stopping Johnson, Clinton, Bush I, Bush II, and Obama from playing economic games with our children’s future. The same way I don’t blame Generation X and Y for not stopping Obama. I never said I did. I don’t blame any generation for anything. Individuals or a small group of individuals maybe, but blaming a whole generation is ridiculous.

        Think about your own words. If, “Bernanke is stealing to preserve the status quo of a failed generation of leaders … Don’t know when, but someday he will

        have to pay the piper for his crimes.” Well, why didn’t the punishment begin with the last Presidential election? The boomers didn’t fail because they were greedy or selfish, they failed because they were conned by Presidents Johnson, Nixon, Ford, Carter, Reagan, Bush I, Clinton, Bush II, and the powers “behind the curtain” backing them, the same way Gen X and Y were conned by Obama.

        One advantage held by Generation X and Y not enjoyed by the boomers is that they can read eighty plus years of analysis done by others (including many boomers) on the Great Depression. Fundamentally, the Financial Crisis that began in 2007 is a redux of the Great Depression. Whereas, the vast majority of boomers were successfully lied to or misled (if you prefer) concerning the causes of the Great Depression, by FDR and the relatively new Fed. My own parents, in their early eighties, although otherwise intelligent and well educated, harbor a childish, high school textbook understanding of the Great Depression.

        But not all of the boomers were successfully lied to or misled. There were boomers who saw what was really happening and put the blame in the right place. There just weren’t enough. The Occupy Movement also puts the blame generally in the right place, and the movement still holds promise, however, they lack overall intellectual discipline and focus at this time, and they face far more disciplined and focused opponents.

      • Read both of these before you decide who are the true culprits responsible for the Financial Crisis. The title of the first is “Bullets In The Back: How Boomers & Retirees Will Become Bailout, Stimulus & Currency War Casualties.”

        The second one describes the latest attack on Boomers and Seniors.

        At this time, Gen X and Y are collateral damage with respect to the main action, but as they mature and try to change/reform the banking sector and Government, watch them become the main target subject to lies, propaganda, misdirection, and evasion, the same as the boomers.