Federal Reserve and Monetary Policy: Price Stability

There are now two big questions facing the US economy:

• Is the 10 year US Treasury yield signaling inflation and inflationary expectations are well contained or is it signaling a global slowdown?


• Is China good or bad for the US in general?

I personally think the 10 year Treasury yield is signaling a deflationary period in the near future. In other words, I do not believe the wage data coming from the Bureau of Labor Statistics. Let's look at reality;

1. GM and Ford are going through a difficult period. The US operations of Toyota, etc... pay lower salaries and benefits to their US employees. This is now forcing GM, Ford and Chrysler to do the same. This is a deflationary event.
2. The US automakers are also forcing their suppliers to use cheap labor markets (currently China). This is also a deflationary event.
3. The legacy airlines forced wage and benefit concessions from their employees. This is also a deflationary event. It is to be noted that these airlines are still losing money.

I do not think the BLS's estimate of wages from the establish survey is accurate with respect to the US as a whole. It is only good for those companies that responded to that question in the survey.

Does the Current Population Survey provide any guidance? If you read the the methodology at: Technical Paper 63RV: Current Population Survey - Design and Methodology, issued March 2002 (in PDF format)
Chapter 11 page 168;
“The separate accounting of net undocumented migration cannot be based on registration data because, by definition, it occurs without registration. Research conducted at the Census Bureau (Robinson, 1994) has produced an allowance of 225,000 net migration per year, based on observation of the late 1980s, with the universe confined (appropriately) to those counted in the 1990 census. This number is a consensus estimate, based partly on a specific derivation and partly on a review of other estimates for the same period. The derivation is based on a residual method, according to which the number of foreign-born persons enumerated in 1990 by period of arrival is compared to net legal migration measured for the same period. Currently, all Census Bureau estimates and projections of the population after 1990 incorporate this annual allowance as a constant.”

I say the methodology tells all; An illegal population migration of 1 to 3 million is substantially more than the 225, 000 net migration per year assumed in the current population estimate. The household survey is a waste of tax payers money. A side note: HR 53 is one of those damn if you do, damn if you don't type of legislation. HR 53 wants the Census Bureau to count US citizens. Unfortunately, public services are being provided to illegal aliens because they are part of the current census. If only US citizens are to be counted, then Federal monies will dry up because these monies are divided based on the Census data.

It is my opinion that the reason why the US hits a “soft patch” in the economy when oil is above $50 a barrel is due the weak income of the US consumer.

The US economy is in the hands of the global derivatives market. Unfortunately for US citizens the derivatives market is, in general, a secretive market. If any thing bad happens in the derivatives market, we will not know about until it is too late.

In my previous post (See the Neoclassic... and previous post; Federal Reserve and Monetary Policy: A Bubbling Crude, Definitely Not Texas Tea), I stated that China is a crises and that they want Californian. I stand corrected. China only wants a mine in California. What they really want is Alaska and a few miles of sea floor in the Gulf of Mexico.

I personally do not think Chine has been helping with the North Korea nuclear crises. I find it highly probable that North Korea tried to test its nuclear weapon, but it failed. Their coming back to the 6 ways talks, nay, their talking about going to the 6 ways talks is a ploy for time. Once they successfully test their nuclear weapon, they will blame the Bush administration for not agreeing to “one on one” talks.

Bush has no intention in pulling out of the Middle East. In fact, if one analysis BushCo's fiscal and foreign policies, one can get a good grasp that Bush has been telegraphing his intentions of expanding the “Holy War” in the Middle East. This is an unfortunate outcome of spending billions of US taxpayers money “wagging the dog”.