Unemployment, inflation, Federal Reserve rates

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_MeDotOrg
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Unemployment, inflation, Federal Reserve rates

Post by _MeDotOrg »

I would love to get the feedback from those who have a better background in economics than I have.

Unemployment is down to 3.9%. When this happens, competition for employees heats up, which puts an upward pressure on wages. That can be the beginning of a wage/price hike spiral, so when economy is going a little too fast, often the Fed steps in and raise interest rates, which tightens the supply of money, cooling the economy and stopping the inflationary spiral. During the go-go nineties, everyone would wait anxiously to see if Alan Greenspan would raise the rates.

When I first saw this happening back in the nineties, it made me realize that in capitalism, the deck is always slightly stacked against the worker. If the worker to a more equal position in the marketplace, the Federal Reserve dries up the money supply, which starves wage increases.

Now low unemployment is a wonderful thing, but I wonder if this is not being fed by the artificial fertilizer of the massive corporate tax break that was not covered by commensurate dropping of corporate loopholes. The result is trillion dollar deficits. The people that will suffer the most when those bills start coming due are the poorest Americans. Meanwhile corporations have been more interested in dividends and stock buybacks than wage increases.

If you ask me, if the Fed has to jump in to raise interest rates while the economy is racing towards trillion dollar deficits, the corporate tax rate is pretty much by definition out of whack.
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_cinepro
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Re: Unemployment, inflation, Federal Reserve rates

Post by _cinepro »

You might find the current situation in Argentina interesting...

http://www.bbc.com/news/business-44001450

Argentina's central bank has raised interest rates for the third time in eight days as the country's currency, the peso, continues to fall sharply.

On Friday, the bank hiked rates to 40% from 33.25%, a day after they were raised from 30.25%. A week ago, they were raised from 27.25%.

The rises are aimed at supporting the peso, which has lost a quarter of its value over the past year.
_ajax18
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Re: Unemployment, inflation, Federal Reserve rates

Post by _ajax18 »

That can be the beginning of a wage/price hike spiral


I'll admit that I'm no economist. But what is the problem with a wage/price hike spiral? I always wanted employers to be competing for workers. If workers get paid more than they should have more money to buy things right?
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_Gadianton
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Re: Unemployment, inflation, Federal Reserve rates

Post by _Gadianton »

If workers get paid more than they should have more money to buy things right?


the things they are buying are more expensive. If you've got a big mortgage though, inflation is helpful. If you're poor and on a fixed income, inflation is bad. If you're Apple and sitting on billions upon billions of cash reserves, higher interest rates are great, especially after a big tax cut.

The temptation is for a country to drive inflation in order to erase their own debt.

If you're enjoying Trumps tax cut because you see a slightly bigger paycheck, just remember it's all relative, and the rungs higher than you benefited more, and so you just got screwed, as did I.
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_honorentheos
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Re: Unemployment, inflation, Federal Reserve rates

Post by _honorentheos »

There are interesting, I'd say concerning, aspects of the current economic environment that make it difficult to view low unemployment completely favorably. I saw a statistic recently that showed around 60% of new jobs added since 2010 are lower-income service sector jobs. It used the example of Amazon opening up warehouses around the country that create needed jobs but these jobs are basically mechanical, demanding, low-paying physical labor. Wage growth has been notoriously slow even now, and one of the reasons speculated on is that the current labor market is a new breed of animal. Lower-paying, low skill jobs are in demand while the opportunities for higher paying jobs that fed many past booms are in shorter supply.

On the flip side of this, There was also a report last week I saw regarding the move of more teenagers back into the labor pool. Teen participation had shrunk during the recession as adults had been more willing to take jobs in low-skill, low pay niches typically occupied by teens. This seems to indicate wages are in fact growing enough that adults are freeing up jobs that become available for teens again. So perhaps once that reaches equilibrium there will be more pressure to see the low end of the pay scale move up. Construction jobs seem to be in high demand and wage increases there are escalating. Here in Phoenix we've seen construction bids escalate exponentially in the last year and the reason given has to do with labor shortages and the high demand for construction projects trying to get built while the housing market is continuing to climb up and demand for product is high. Adding in the effect of potential trade wars and real tariff issues on materials needed for construction, and there is a lot of uncertainty regarding what might happen which has developers and large infrastructure agencies alike breaking out crystal balls and tarot cards.

But to me this bodes ill for many people. Wage growth is uneven and it seems very likely that there will be an ever increasing gulf between jobs where demand and skill thresholds force improvements to wages while inflationary pressures on goods and associated services become less accessible to more people who are lower on the income scale. Inflation helps those with existing debt to some degree but it also means those whose pay isn't keeping pace with inflation will be left behind as their already skimpy paycheck has to be stretched just that much further. Keeping inflation in check is good for the common person more so than the wealthy who can absorb more of the effects more easily.

I say that because I don't have a jaundiced eye pointed at the Federal Reserve. I do think there is a sincere desire to see not just the overall economy function but balance the impacts of economic events so they don't crush the average American. If I think there is a problem it's that economists generally are guilty of assuming the average American understandings economics well enough to operate in ways that are in their own best interest, so they misread the movement of the markets as telling us what must be good or necessary. People aren't rational but more emotional that gets assumed, and people are largely unfamiliar with much of what economists take for granted as basic common knowledge. I think that can lead to problems that swing against people because the truly economically literate are profiting off of the system including the ignorance of the masses. I think the government has regulatory responsibilities in that arena but the Fed isn't the right one to address that problem.
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_ajax18
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Re: Unemployment, inflation, Federal Reserve rates

Post by _ajax18 »

If you're enjoying Trumps tax cut because you see a slightly bigger paycheck, just remember it's all relative, and the rungs higher than you benefited more, and so you just got screwed, as did I.


I did extremly well this year during my first year as an independent. I now have two kids now so that helped too. My accountant worked some real magic. I moved to a state with no state income tax. I can't believe I stayed with a corporate salaried job so long. It was such a ripoff but I was scared of going out on my own. I used to get bills for $8 and $10k at the end of the year even when I claimed nobody. Not this year.
And when the confederates saw Jackson standing fearless as a stone wall the army of Northern Virginia took courage and drove the federal army off their land.
_Hawkeye
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Re: Unemployment, inflation, Federal Reserve rates

Post by _Hawkeye »

ajax18 wrote:
If you're enjoying Trumps tax cut because you see a slightly bigger paycheck, just remember it's all relative, and the rungs higher than you benefited more, and so you just got screwed, as did I.


I did extremly well this year during my first year as an independent. I now have two kids now so that helped too. My accountant worked some real magic. I moved to a state with no state income tax. I can't believe I stayed with a corporate salaried job so long. It was such a ripoff but I was scared of going out on my own. I used to get bills for $8 and $10k at the end of the year even when I claimed nobody. Not this year.


So basically none of this has anything to do with Trump.
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