It is good news because it clarifies a debate about the effect of the minimum wage which has been raging for a long time, but without much actual data. This article summarizes a clever approach by a couple of academic economists to examine the actual effects of increasing the minimum wage. The research produces solid numbers and confirms some theories about the effects of the minimum wage.
The bad news is that the effect of the minimum wage is just what theory says it should be, but liberal politicians have insisted isn’t true in practice. And that’s a net negative effect on overall welfare, albeit divided between winners and losers. However, even that ought to be good news, because this analysis also means that we can reverse the policy and reap immediate gains in consumer welfare.
Some comments by John Mauldin towards the bottom of a recent article reflect popular opinions about money that can be summarised as: “a growing economy needs a growing money supply” and “there isn’t enough gold in the world for gold to be used as money today”. These opinions reflect a basic misunderstanding about money.
Here are the Mauldin comments to which we are referring. We’ve put notes below each excerpted comment, but the main part of our response is further down the page.
“The current structure of Bitcoin carries the same inherent flaw that gold does (and to some extent the euro, too): in a world of ever-increasing abundance, gold is massively deflationary and provides unreasonable “rents” to those who hold it. Even given that inherent flaw, it has been the most stable store of value for millennia.”
Well, now that the title has hopefully gotten your attention I’d like to talk about the ‘d’ and ‘i’ words that so many financial types – myself included – throw around so often. This is due to a reader/subscriber KR’s aggravation at my use of the word deflation, which he had thought was meant sarcastically, but then came to find out I am serious when I use it.
First I want to note that I seem to have been pissing everyone off lately, gold bugs (one of which I am) and gold bears in particular. That is due to my writing style being one where if I’ve got something to say, I say it. Sometimes that’s bad for business, as I can get a little heavy handed.
I’ll try to be less heavy handed going forward but in criticizing what I view as promotion with little backing substance (whether bullish or bearish), I don’t retract any comments aimed at the type of people that I think are not being square with readers or are simply not doing the work required (i.e. promoting lazy analytical thinking).
There is an ongoing student loan debt crisis and it is simply one more manifestation of the overall bubble in credit that has created stock market wealth for asset owners. In not allowing the college tuition bubble to burst the government has created the 7 Million Dollar Woman and 35 other private college heads making over $1,000,000 per year.
We have been in a phase where uncritical people (many mainstream financial services and economists) have held sway because look… the stock market is going up… the economy is going up… outlandish compensation (what the market will bear) is justified!
It’s bullshit; you (a critical independent thinker) and I both know it. But how do you argue with the black and white fact that the economy is strong, the markets are strong and some college president deserves 7 million bucks even though more and more students have reached for their dreams on debt, with diminishing prospects for gainful employment (and debt-paydown) after graduation?
You don’t, or at least you don’t get taken seriously, until the bubble bursts and we doom and gloomers, cranks and non-conformists one day get to once again say ‘see… ?’
Fed’s policy trajectory is tied to global recovery from SoberLook. [biiwii comment: Agreed, in that there is little pressure implied on the Fed from global and ‘strong dollar’ perspectives. The pressure would come (IMO) from any desire to keep up appearances considering that ZIRP appears to the average person to be stranger and stranger given the ramping economy. Anyway, SL as usual has the grounded and sober details].
Now it gets interesting because early in the bailout process the Fed talked about achieving certain employment milestones before hiking interest rates. Here we are at the 10th consecutive month with 200,000+ job gains (321,000 in November) and the jobless rate down to 5.8% and still there is a question on when or whether ZIRP will be withdrawn?
Well I am a visual learner so I for one can never get enough pictures to inform my thinking. Pardon the redundancy in this chart’s frequent appearances in NFTRH…
The rectangular red box is zero interest rate policy (ZIRP), which is 6 years old this month. If we play it straight we would be expected to believe what the mainstream believes, that the “Great Recession” is a thing of the past and that something built of abnormal policy can proceed per normal metrics and assumptions when abnormal policy is removed. I don’t buy it.
As noted recently, like Agent Mulder “I want to believe” because frankly being a gold bug or a non-conformist in this environment flat out sucks. As I have noted previously, it is much better for my family’s situation if gold goes back to the hell it came from and the US economy really does continue onward and upward, post-policy.
NFTRH 320 deals in some ‘normal’ subject matter (global currency exchange implications), talks about how ‘normal’ economists view jobs, demand and prices as pertains to inflation and how good stocks are and how bad gold is in good times under ‘normal’ circumstances.
Then again, 320 also clearly illustrates the abormalities of the policy that built it all. A really enjoyable report to write this week. I think it aided NFTRH subscribers in their focus (it did that for me, anyway) on some fine points of where we stand in the macro markets.
Let’s begin with a brief update on the worsening travails at the Periphery. The Russian ruble sank another 6.5% this week, increasing y-t-d losses to 37.9%. Russian yields surged higher. Russian (ruble) 10-year yields jumped another 146 bps this week to 12.07%, with a nine-session jump of 188 bps. Russian yields are now up 425 bps in 2014 to the highest level since 2009.
Increasingly, EM contagion is enveloping Latin America. The Mexican peso was hit for 1.6% Friday, boosting this EM darling’s loss for the week to a notable 3.0%. This week saw the Colombian peso hit for 4.3%, the Peruvian new sol 1.1%, the Brazilian real 0.9% and the Chilean peso 0.6%. Venezuela CDS (Credit default swaps) surged 425 bps to a record 2,717 bps. Venezuela CDS traded near 1,000 in August. On the bond front, 10-year yields jumped 30 bps this week in Brazil, 24 bps in Mexico and 24 bps in Colombia. Brazilian stocks were slammed for 5% this week and Mexican equities fell 2.2%.
Eastern European currencies were also under pressure. The Ukrainian kryvnia dropped 2.9%, the Romanian leu 1.5%, the Bulgarian lev 1.3%, the Czech koruna 1.3%, the Hungarian forint 1.1% and the Polish zloty 0.7%. The Turkish lira was hit for 1.9%, as 10-year yields jumped 33 bps to 7.91%. The South African rand dropped 2.6% to a six-year low. In Asia, the Malaysian ringgit dropped 2.5%, the Singapore dollar fell 1.4% and the Indonesian rupiah declined 0.8%.
Crude oil prices had a seemingly exhaustive washout selloff following the Nov. 27 OPEC meeting. Oil bulls had been hoping for a production cutback at that meeting, but Saudi Arabia successfully led an effort to oppose such cuts.