BALTIMORE – We were not surprised by the big news last week. We saw it coming.
Figures from the Conference Board research group revealed productivity sinking for the first time in three decades.
We promised to explain why it was such a big deal…
On Friday, Fed chief Janet Yellen appeared at a function organized by Radcliffe (which later merged with Harvard).
Bloomberg was on the scene:
“It’s appropriate – and I’ve said this in the past – for the Fed to gradually and cautiously increase our overnight interest rate over time,” Yellen said Friday during remarks at Harvard University in Cambridge, Massachusetts. “Probably in the coming months such a move would be appropriate.”
Yellen will host her colleagues on the Federal Open Market Committee in Washington June 14-15, when they will contemplate a second interest-rate increase following seven years of near-zero borrowing costs that ended when they hiked in December. A series of speeches by Fed officials and the release of the minutes to their April policy meeting have heightened investor expectations for another tightening move either next month or in July.
“The economy is continuing to improve,” she said…
The economy has been “improving” for seven years. We’re beginning to wonder how much better it can get!
And yet, the federal funds rate – controlled by the Deep State through its intermediary, the Fed – is still at an emergency level. It sits at a mere half percentage point above zero.
The Fed upped it by a quarter point in December. At this pace, assuming the economy continues to improve without a hiccup or arrière-pensée, we’ll get a quarter of a point every six months… until 2024… when the key rate will be at a more normal 4%.
If everything goes according to plan. And nothing goes wrong. And there is no crash or bear market on Wall Street. And no recession in the economy. And no blow-up or serious mishaps in China… or elsewhere. And no political surprises either.
No big hurricanes… volcanic explosions… particularly severe winters… or especially hot summers… no big increase in the price of oil… and no big drop in oil either… and no teenager gets drunk and smashes up his dad’s car… and no one stubs his toe or catches a cold.
In other words, the geniuses at the Fed (we know they are geniuses, because they said so) will guide us back to a healthy, prosperous economy sometime after 2020…
…unless something comes up.
What a relief!
Meanwhile, there is that natty problem: a lack of productivity gains, which seems to have been caused by the same geniuses who have everything so perfectly under control.
The thing that separates rich societies from poor societies is productivity. It measures how much output you can get from each unit of input – mainly labor and capital.
In the richer societies, a workman’s time is more valuable because he can produce more from each hour of labor. Since time is limited, the only hope of making material progress is to increase productivity.
So, it is no small matter when productivity growth comes to an end. Not to be alarmist about it, but if this trend persists, as we pointed out on Friday, it means the end of our civilization as we know it. And maybe even before the Fed completes its rate hikes!
Most economists (and politicians) have blamed world trade for stagnant U.S. wages. The median wage in China is only $8 a day. No wonder U.S. factory hands can’t catch a break; who can compete with that?
But Germans compete with the Chinese, too. And their wages have gone up! In real terms, after adjusting for inflation, wages in France and Germany have been going up at a 0.7% rate for the past 15-20 years.
Throughout most of the emerging market economies, wages went up… even though they all had to compete with the Chinese.
We explained it in the recent issue of our monthly publication, The Bill Bonner Letter. [Paid-up subscribers can catch up here.]
In short, the U.S. is the center of the world money system. It has gained the most in some ways. And lost the most in others. It was first in line when the new credit was handed out; it was like getting free money.
But there’s no more expensive money than free money. You can quote us on that.
More to come…
Further Reading: The ultimate cost of all that free money is yet to be tallied. But when the bill comes due, it’ll be more than the U.S. can pay… and the result will be an epic collapse of the entire financial system.
Banks… stock markets… even your local stores will be caught in the whirlwind. And if you aren’t prepared, you could be ruined.
That’s why Bill is warning everyone just what they need to do to protect themselves – and possibly even profit – from the worst of what’s coming. Watch Bill break it all down in this recent interview.
BY CHRIS LOWE, EDITOR AT LARGE
It’s not just Janet Yellen who has been telegraphing another U.S. rate hike.
A chorus of Fed officials has been saying the same thing.
And Mr. Market has gotten the message.
Today’s chart is of the U.S. Dollar Index. It measures the strength of the buck against a basket of major trading-partner currencies.
After falling 4.4% between the start of the year and the end of April, it’s rallied 2.7%.
All else being equal, higher interest rates attract investors into a currency, as they seek to profit from the higher interest income available.
Fed’s Bullard: Markets “Well Prepared” for Rate Hike
St. Louis Fed governor James Bullard has joined the chorus of Fed officials signaling another U.S. rate hike. He said global markets appear to be “well prepared” for rising rates.
Clear Evidence Saudi Government Was Involved in 9/11
A Republican member of the 9/11 commission says there is clear evidence that Saudi government employees were part of a support network for the 9/11 hijackers.
Next Biggest Bull Market of All Time?
Bill discusses a disorganized, corrupt, and dangerous country that might just be poised for a bull market rivaling the one we’ve enjoyed in the U.S. the last seven years.
Today, readers weigh in on Bill’s Diary issue about the rise of Donald Trump and Bernie Sanders…
It’s funny how you lump Bernie Sanders in with Trump as a product of the Deep State.
For the last 45 years, Sanders has been railing against the corporate elite that has enriched the 1% at the expense of the rest of us. The growing inequality is more than a campaign theme; it’s a fact.
I know you realize Trump is a fraud, but your antipathy towards Sanders has no basis in reality. I agree the power our elected officials hold is illusory, but Sanders’ policy proposals are far more reasonable than Trump’s or Clinton’s, and attempt to address national priorities that are gravely out of whack.– Barry S.
Another amazingly perceptive column. Isn’t it amazing that the leaders of our major political parties don’t believe in democracy and our bankers don’t believe in economics?– Tom F.
Why doesn’t Mr. Bonner call the Deep State by who they really are: The Council on Foreign Relations?– Roger L.
Readers have also responded to Bill’s latest update on the family ranch in Argentina…
I really hope things are getting better at the ranch. All my best wishes. The paradox of it crosses my mind, like the old woman saying: “If you want to make God laugh just make a plan!”– Russ P.
Sorry to read about your problems with the originarios. I’ll leave the decisions up to you, since you know local politics and decision makers far better than I.
But I wonder: Can you turn this into “an investment”? Can you work with the group to open a casino or even a pool hall on the property they claim?
You could build the hall for them, and either let them pay you directly or lease it to them. Then, when their income dries up, you could take legal possession of it again. A management fee for the facility could also be a revenue stream.
You could sponsor classes on high-altitude farming, dry farming, mining quicksand, etc. and take a small portion of the fees for your efforts. I’d hate to see the land just sit idle. Perhaps $24 worth of beads and cloth could buy the property rights from this group.
Worth a try.– Louis M.
In Case You Missed It…
Tomorrow, Chris Mayer – one of the top stock pickers around and the Chief Investment Strategist of Bonner Private Portfolio – will reveal his newest stock pick.
To hear Bill explain what sets Chris apart – and why he’s investing $5 million of his family trust in Chris’ recommendations – watch here now.