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On a seasonally adjusted basis, weekly unemployment claims have been falling for the past two months, and are now down by one-third from last year's recession high. The only reason claims are falling, however, is that firms are not laying off as many people in the runup to the holiday season as they normally would be: actual claims rose by 70K last week. We can only hope that this means firms are being run leaner and meaner than usual (which would help explain why profits have been so strong), and that this may give way to more hiring if and when the economy picks up next year.
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With such a huge number of people looking for work, and with all commercial rents generally soft or down, I see mild deflation in the picture, unless this economy picks up. The core CPI has been trending down for months, and the Cleveland median CPI is just about is at 0.5 percent annual.
No one expected a perma-recession-deflation in Japan in 1990. Yet they got it: 20 years of declining prices and asset values. Property and equities down 75 percent. And still going down. Japan's central bankers have pettifogged about inflation and price stability during the whole 20 years. Pathetic.
Unfortunately, the classical "solution" to this USA pickle doesn't work: A downward shift in wages, and equities and property values.
Such a shift would crush the banks, and depress consumer spending--a downward spiral. Who would lend on property--meaning property values go down more. And we would enter this downward path now, after the worst recession since the Great Depression.
The Fed is on the right track, but needs to get far more aggressive. The central banks of India and China are running hot on their money supplies, boosting up 10 percent his year. Their economies are growing, and causing a rise in global commodities prices (some mistakenly connect this rise to US policies, but we are a minor figure now in commodities markets, and such markets have become highly speculative to boot).
If the Fed can gather confidence, and help the country turn this corner, I see a long secular bull market ahead.
Man, oh, man, I would rather live through an inflationary boom than a long recessionary deflation.
this post is very weak
I was a little early on saying the CRB RIND index had hit new highs a few days ago--but now it has. It's either a breakout or gigantic short--I'll take the former.
10yr rates now up almost 100bps from the announcement of QE2 whose stated goal was to lower 10yr rates.
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