107 Barron's - The Economy Money Can't Fix

Overview

• When you have a hammer, everything is a nail
• With Central Bankers, their tool is money and it’s becoming apparent their trillions can’t fix everything; but that doesn’t stop them from trying
• Fed Chair Janet Yellen suggested recently that creating a “high pressure economy” could help with the sluggish recovery, most notably the unprecedented number of Americans who not only aren’t working, but aren’t even in the labor force
• In a speech at the Boston Fed, Yellen said that pushing economic growth could counter the lingering effects of the great recession
• The backdrop is the widely anticipated .25% Fed rate hike in Dec of this year
• Yellen offered a defense for going slow with the rate hikes saying it has been in order to keep the pressure on the economy
• This stronger economic growth would motivate businesses to invest more in expansion, especially if they could be more confident in the future
• This could spur more R&D and faster growing start-ups
• If you’re not in the labor market (aka looking for a job), then you’re not officially unemployed
• The participation rate is currently at 62.4% of the adult population, lowest since 1978 (before women were fully integrated in workforce)
• Alan Krueger from Princeton has found that there has been little improvement in the labor force participation rate, even as the jobless rate has declined to 5%
• • In other words: the idea that many labor force dropouts are returning to the labor force is unsupported by the data
• The reasons for this seem unrelated to economics
• Among younger men (21-30) the labor force participation rate fell 7.6% from 89.9 to 82.3% from 2004-2014

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