Recent developments suggest a positive turn for the workforce. After enduring years of limited job opportunities and stagnant salaries, an unusual shift may finally be happening. The unemployed may be on the brink of new opportunities.
The Labor Department’s latest Job Openings and Labor Turnover Survey reveals an encouraging statistic: the number of unemployed individuals per job opening dropped to a six-year low in June. “The number of unemployed job seekers per open job fell to 2.02 in June,” reported Reuters. This marks the lowest ratio since April 2008, a decrease from 2.14 in May and now below the average rate observed between 2002 and 2006.
In addition, job openings have reached their highest levels in over 13 years, and hiring rates have improved significantly, reflecting the healthiest job market in over six years. If this trend continues, we can expect wage growth to accelerate as well.
“Dallas Fed analyst Alan Armen, in a research article published Friday, predicts a half-percentage-point rise in wage growth,” explaining that a survey from the National Federation of Independent Businesses indicates small businesses are increasingly likely to raise salaries in the coming year. The NFIB’s compensation index even held at a six-year high in July,” he noted.
Finally, after enduring numerous challenges, the working class might have reason to be optimistic. What possible obstacles could arise?
Financial Disarray
However, the prospect of rising wages faces significant challenges, as the financial system is ill-equipped to handle such changes. Years of unconventional monetary policies have created disarray; lending errors have compounded, and asset prices have been artificially inflated.
In recent years, corporate leaders have increasingly taken on low-interest debt to repurchase their own shares. This situation raises questions about our economic landscape. In a flourishing economy, businesses should be borrowing funds for expansion and production, not merely buying back stocks.
The resulting financial tactics have crafted an illusion of prosperity, evidenced by an inflated stock market, all while the actual economy struggles to keep pace. Should real economic improvement occur, we must consider the ramifications.
Interest rate trends can extend over several decades, typically lasting between 25 and 35 years. U.S. Treasury yields peaked in 1920, then gradually declined until the mid-1940s, before beginning to rise again with inflation. At this time, Franz Pick famously remarked that “bonds are certificates of guaranteed confiscation.”
What Pick did not foresee was the arrival of a critical turning point, occurring in early 1982 when yields surged once more before reaching historic lows in December 2008. Since then, yields have hovered at the bottom, prompting aggressive actions from the Federal Reserve to maintain this status.
The Whirlwind of Economics
While the Fed might sustain the 10-Year note yields around 2 percent during an economic slump, growth will eventually return, tightening the job market and driving up wages. When this shift occurs, inflation is likely to follow.
Over the last six years, the Federal Reserve’s balance sheet has expanded by more than $3 trillion. The money multiplier effect, combined with the intricacies of fractional reserve banking, suggests that each $1 trillion could ultimately translate to over $5 trillion circulating in the economy.
This influx of money will inevitably raise prices, drive down stock values, and elevate bond yields, thus diminishing the dollar’s worth.
Countries like China and Japan, holding considerable Treasury assets, will seek greater compensation for these diminishing investments. Likewise, corporate bondholders will expect higher yields. Consequently, interest rates will escalate, making the repayment of government and corporate debts increasingly untenable.
While any boost to GDP and tax revenues may offer short-term relief, it will quickly be overshadowed by rising interest costs associated with government and corporate debt. The very gas that has inflated the stock market is poised to dissipate, revealing the chaos engineered by the Fed.
In a perplexing twist, a strengthening economy could ultimately lead to severe imbalances for corporations and government treasuries alike. The economic growth that sparks this turmoil will likely be consumed by the ensuing financial whirlwind.
Sincerely,
MN Gordon
for Economic Prism
