^Morgan and cherzeca, thank you for the discussion about various government-sponsored enterprises and the sunset option. Entitlement spending is bound to remain a hot topic.
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The opening poster suggested pockets of labor tightness, a very unusual topic given the very large pool of ‘non-participants’ in comparison to the much smaller ‘unemployed’ group. As the US is about to enter an era of net negative labor force growth (Japan is the leading the way), this may be an area worthy of some soul searching. When Keynes came up with his expectations of a leisure society, he assumed the Beggars in Spain story line would apply ie the ‘productives’ would more than compensate for the ‘non-productives’. He did not envision an entitled and unproductive rentier elite with a bunch of ‘disableds’, financed with debt.
The monetary tools, for the employment mandate, are mostly geared to the headline unemployment number and, like the consensus view, the Fed expects inflation on that front in the short to mid-term (Waiting for Godot style). The monetary minds have looked at the declining labor participation and have concluded that it was, essentially, a secular trend (i agree), not a cyclical one, so out of their control or purview. So the Feds won’t interfere with secular trends here, at least not directly.
Central bankers are very bright people but often come to interesting conclusions when out of public office. For example, in 2016, Mr. Alan “The Maestro” Greenspan suggested the following:
• Entitlements now probably require a three to four percent growth rate in the United States.
• Rate cuts, negative interest rates, buying corporate debt is no part of the solution.
• Gross domestic savings as a percent of GDP has been declining over the years largely because entitlements have dug into them.
• You just can’t print money and buy the infrastructure. Productivity will only increase if there is savings behind the investment.
• We should be more concerned about inflation than we appear to be.
• The issue is how long can we maintain long-term interest rates by continuously pushing money into the system, at rates which I would say, human psychology doesn’t “continence”.
The fiscal tools used to deal with the growing disability problem has been to fund the payments with growing debt (Mr. Greenspan is more politically correct by saying that increasing entitlement spending has been funded by decreasing national savings) and, with present trends firmly entrenched (and incredibly bipartisan), it’s hard to see how this will change. But it will, somehow, when restructuring becomes possible.
Japan is an interesting example in relation to this ‘labor shortage’ question. Since 1990, Japan has been a champion of reform delay and lately has been able to delay the eventual day of reckoning by adapting their labor profile. Older Japanese citizens, including the much older ones, have shown impressive resilience with a growing ability (as documented by rising teeth count and walking speed per individual, age-controlled) to participate in the labor force. Japan also has come up with an unusual degree of innovation to make care of the poorly functional elderlies more productive (helping slightly with the overall declining productivity trends (since the 80s, Japan total productivity has been a story of ‘productive’ sectors more than compensating the ‘non-productive’ ones, at least until recently and in spades)).
i’m not sure what this means about the stock market today but interesting and real business opportunities (one related to continence or the absence thereof) are shaping up in my local area in this respect.
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For those getting excited by rising rates, yesterday the US Treasury did something for the very first time. It sold ($60 billion of them) two-year notes at a yield of 0.119%. Because Treasury notes and bonds by regulation have a minimum coupon rate of 0.125%, the yield below that level means the notes were sold at a premium (!) above 100 cents on the dollar -- 100.011965, to be precise, a record. A weird world, we live. Somebody putting a million into the stuff would get about 3$ per day and they say inflation is coming. My bet is ‘we’ can’t have interest rates rise meaningfully and/or for any length of time. Famous last words.
