Caleb Lawrence – KPIG-KPYG Radio – Share the Wealth – March 10, 2017
The major averages opened higher following one of the better jobs reports in quite some time, slipped late and enter the final hour with small gains looking to finish the week about where they began
The February employment report marked a second solid release with the 1st quarter off to a strong start following the anemic job creation seen in the 4th quarter of 2016. February’s 235,000 new jobs beat expectations and pushed the 3-month average to 206,000 its first +200,000 figure since September of 2016. Averages wages gained .2% while the average workweek was unchanged at 34.4 hours. The official unemployment rate dropped to 4.7%, revisions to previous months were negligible with January revised up by 11,000.
Despite all the continued mainstream media cheerleading next week will prove a busy if not pivotal one. In addition to the Fed’s expected decision to raise rates on the 15th, the debt ceiling limit is also estimated to be reached that day and absent a new limit the Treasury is projected to run out of cash by September. This as Trump talks about spending a Trillion Dollars on infrastructure, building a wall on the Mexican boarder, ramping up military spending and cutting taxes. Other notable events occurring that week include a number of Eurozone votes including an official British exit, and others likely to set the tone for its future and we could well see the beginning of the end of the European Union. Most of the developed countries predicaments stem from too much debt as the dominant economic paradigm of the last 40-years or so has been that deficits don’t matter and we can borrow and inflate our way to prosperity. The 2007-2009 financial crisis was our first shot across the bow and it follows the record debt to Gross Domestic Product or GDP ratio of the Japanese and nearly 3 lost decades of failed Keynesian debt based economic policies. In the post crisis period since 2007 the Federal official debt ballooned from 5.6 trillion to nearly 20 trillion at the end of 2016 or an average gain of 1.44 trillion per year. When debt is compared to GDP to get an idea of how much new debt is required for each Dollar increase in economic growth we find using data from the Federal Flow of funds report that 2016 nominal GDP was 18.86 trillion. Total Credit hit a new record high of 66.1 trillion last year, heralded as a sign of great success, a gain of 2.51 trillion so it took some $4 in new debt public and private to create just $1 in GDP growth. Following this relationship back to its beginning circa about 1975 and it becomes quite clear that: A. The era of debt based growth is over and that the 2007-2009 crisis was simply a practice run. B. You can’t borrow your way to prosperity. C. Deficits and debt do indeed matter a great deal. When debt grows at 4 times the rate of the economy it is clearly unsustainable as a quick glance at the charts and data shows. This is common sense, a PhD in economics isn’t required to understand the math and I suspect that your average middle school student could grasp the principles in question if pressed.