Unemployment Rate Drops

Oh, there are fewer jobs available... it's just that workers are leaving the state so the unemployment goes elsewhere.

Meanwhile, Ford Motor Company is exporting more jobs.

If enough employers close up shop and enough people leave the state, Michigan will become a full employment state and a shining example for the rest of the country... at least statistically.

What did Disraeli say?

Irwin Keller Says

Inflation is not the worst thing.

Federal Reserve - Function, Form or What?

In its own words:

As you can see, money is created in our economy in two ways that are different but related. The Federal Reserve begins the process by creating "raw money" when it buys a Treasury security on the open market. The banking system can then expand this amount of money by lending it.

On the other hand, if the Federal Reserve sees the nation is threatened with inflation, it may sell some of the securities in its portfolio. Buyers pay the Fed for these securities out of their bank accounts. At this point, places like Trustworthy Bank and Reliable Savings and Loan have less money to lend. In this way, the Federal Reserve removes money from the economy since the money paid to the Fed does not go back into any sort of bank account.

A second way in which the Federal Reserve can influence the economy is by raising or lowering the discount rate, the interest rate charged financial institutions when they borrow reserves from the Fed. Although seldom used, discount rate changes can be powerful signals of the direction of monetary policy.

The Federal Reserve can also have a powerful impact on the flow of money and credit by either raising or lowering reserve requirements, the percentage of their deposits that financial institutions must keep on reserve. If the Fed lowers reserve requirements, this can lead to more money being injected into the economy since it frees up funds that were previously set aside. On the other hand, if the Fed raises reserve requirements, it reduces the amount of money that institutions are free to loan out or invest. However, the Fed is cautious about changing reserve requirements and has done so only occasionally because of the dramatic impact it can have on both financial institutions and the economy.

Two points when you look at the chart below for the past 20 years:

1. you have to go back 15 years to find rates as high as they are today (except for 2001 when the Fed precipitated a recession)
   
2. during the 15 years from 3/86 to 3/01, the rate was change 28 times; during the 5 years from 3/01 to today, the rate also has changed 28 times - three times the frequency of the previous 15 years - the Federal Reserve has completely changed its role and become an activist organization trying to control the economy.
   

HISTORICAL DISCOUNT RATE*

Period in Effect	Percent Per Annum	Percent Surcharge**

04/21/86 to 07/10/86	6.50	0
07/11/86 to 08/20/86	6	0
08/21/86 to 09/07/87	5.50	0
09/08/87 to 08/08/88	6	0
08/09/88 to 02/23/89	6.50	0
02/24/89 to 12/18/90	7	0
12/19/90 to 01/31/91	6.50	0
02/01/91 to 04/29/91	6	0
04/30/91 to 09/12/91	5.50	0
09/13/91 to 11/05/91	5	0
11/06/91 to 12/22/91	4.50	0
12/23/91 to 07/01/92	3.50	0
07/02/92 to 05/16/94	3	0
05/17/94 to 08/17/94	3.50	0
08/18/94 to 11/15/94	4	0
11/16/94 to 02/01/95	4.75	0
02/02/95 to 01/30/96	5.25	0
01/31/96 to 10/14/98	5	0
10/15/98 to 11/18/98	4.75	0
11/19/98 to 08/24/99	4.50	0
08/25/99 to 11/17/99	4.75	0
11/18/99 to 02/02/00	5	0
02/03/00 to 03/20/00	5.25	0
03/21/00 to 05/17/00	5.50	0
05/18/00 to 01/03/01	6	0
01/04/01 to 01/30/01	5.50	0
01/31/01 to 03/19/01	5	0
03/20/01 to 04/17/01	4.50	0
04/18/01 to 05/16/01	4	0
05/17/01 to 06/27/01	3.50	0
06/28/01 to 08/21/01	3.25	0
08/22/01 to 09/16/01	3	0
09/17/01 to 10/02/01	2.50	0
10/03/01 to 11/06/01	2	0
11/07/01 to 12/12/01	1.50	0
12/13/01 to 11/06/02	1.25	0
11/07/02 to 01/08/03	.75	0
01/09/03 to 06/25/03	2.25	0
06/26/03 to 06/29/04	2.0	0
06/30/04 to 08/09/04	2.25	0
08/10/04 to 09/20/04	2.50	0
09/21/04 to 11/09/04	2.75	0
11/10/04 to 12/13/04	3.00	0
12/14/04 to 02/01/05	3.25	0
02/02/05 to 03/21/05	3.50	0
03/22/05 to 05/02/05	3.75	0
05/03/05 to 06/29/05	4.00	0
06/30/05 to 08/08/05	4.25	0
08/09/05 to 09/19/05	4.50	0
09/20/05 to 10/31/05	4.75	0
11/01/05 to 12/12/05	5.00	0
12/13/05 to 02/01/06	5.25	0
02/02/06 to 03/27/06	5.50	0
03/28/06 to 05/09/06	5.75	0
05/10/06 to present	6.00	0

Bear-nanke Market

Excessive Spending - It's All Related

Economists say that the Current Account deficit doesn't matter... and may be a good thing. But there is agreement that inflation is a bad thing. No connection, huh?

In a report released Thursday, William Powers, managing director of PIMCO's portfolio management and investment strategy groups, said the bond management firm has increased its currency exposure to 5 percent from 3 percent.

The fund was constrained to limit its currency exposure to 3 percent in the past because of volatility in the currency market.

"Today with the likelihood that the dollar is about to embark on its next downward leg, PIMCO's Investment Committee has increased the tolerance for currency exposures," said Powers.

PIMCO will also maintain a diversified portfolio to include the yen, euro, and emerging market currencies.

Overall, Powers has a bearish outlook on the dollar, saying the magnitude of the U.S. currency's downtrend is "as great as 20-25 percent, and perhaps greater than that."

With the Federal Reserve expected to pause its monetary tightening soon, Power said the markets would refocus on the large U.S. current account deficit, currently at 7 percent of gross domestic product. The current account is a measure of international trade, in physical goods and international transactions.

The roughly $805 billion U.S. current account gap has contributed to dollar weakness in three of the last five years.

He also cited the diminished appetite for the greenback and other U.S. assets by various central banks including oil producers whose revenues are dollar-denominated.

So, let's see, current account deficit is good and inflation is bad, but current account deficit seems to be contributing to the weakness of the dollar which makes imported items... such as oil?... more expensive which contributes to inflation which is bad.

Oh, these economists are so much smarter than the rest of us because they can see that the current account deficit is good... and that the actions of the Federal Reserve Board to raise interest rates and stifle the economy are needed because it is their job to do something about inflation which is bad... and the current account deficit is good... but the weakness of the dollar will reduce the current account deficit because U.S. products will be cheaper... and that is bad because U.S. employment will increase as we buy fewer imports... and, oh well....

Recession

Okay, others are thinking it. I'm saying it. Michigan is in a recession. Housing markets elsewhere are tanking. Just talked with my wife's brother-in-law in Virginia. The spigot just got turned off there.

Ben Bernanke et al at the Federal Reserve has just cost the U.S. taxpayers billions of dollars and he feels good about it.

That's what happens when the government tries to run the economy.

Oh, Well....

DJIA	11048.72	-199.15	(-1.77%)
NASDAQ	2169.62	-49.79	(-2.24%)
NYSE	8145.53	-159.72	(-1.92%)
S&P 500	1265.29	-22.93	(-1.78%)

Our economy has reaped ample rewards in recent years from the achievement and maintenance of price stability. Although challenges confront us, as they always do, I am confident that we will be able to preserve those hard-won benefits while promoting sustainable economic growth.

-- Federal Reserve Chairman Ben Bernanke

Uh huh, yeah, uh huh.

Excessive Spending - Too Much Equals Too Little

Having said several times that the Fed's wisdom in raising interet rates should be challenged, it seems that others are coming on board:

From CNNMoney.com

While investors were hoping for a weak number that might lead the Fed to stop raising interest rates, one analyst said the jobs number was so small that it causes concern the economy may be headed for downturn.

'I think this was a horrible number," said Briggs, "It means the economy is falling down."

Briggs said the low number overshadowed any positive effect a halt in interest rate hikes might have.

"Yippee, the Fed might pause," he said with more than a tinge of sarcasm. "I'm a growth guy."

Other analysts shared Briggs' view.

"It was like, 'Wow,'" said Hugh Johnson, chairman of the asset management company Johnson Illington Advisors. "What we're seeing today is the 'R' jitters."