Tuesday, April 26, 2005

Federal Reserve and Monetary Policy: Healthcare and Social Security

I was looking at Remarks by Governor Edward M. GramlichAt the Spring 2005 Banking and Finance Lecture, Widener University, Chester, Pennsylvania April 21, 2005
A First Step in Dealing with Growing Retirement Costs


and I got an epiphany. Non of these analysis takes into account the income distribution due to off-shoring. The US is NOT the only country going through this off-shoring of its labor force. Western Europe is off-shoring to Eastern Europe. Just take a look at Germany's unemployment rate. It is inevitable that the cost of the pills and technology will come down due to shear “bulk”. In general, the cost of goods and services have come down. We do not know what the future holds.

Health care, in the US , is going through a transition. Health care cost was broken down into tiny payments to the companies that provided it as a benefit. US consumers who have to provide out of pocket expenses for health care have no way of passing that cost on. This is due to off-shoring and its income distribution. The US went from tiny to big payments.

It is possible, if nothing is done, that the US health care system will become dysfunctional due to lack of critical mass. The only way to save the US health care system is to “Fissure It”. Remove the basic, low risk part of the system from the high cost, high risk sections. If the clinic is a low risk, basic health care provider then they pay a low insurance cost. As long as there is no “criminal activity” the state will guarantee the balance of any increase of insurance premium. The state finds a re- insurer.

Never mind, this is too simple for the powers on Capital Hill.

Saturday, April 23, 2005

Federal Reserve and Monetary Policy: “Nuclear Winter”

Republican Senators electing to use the “nuclear option” to pass Bush's Federal judge nomination will, at the very least, be a Constitutional crises. However, there will be a financial cost also. The Democrats has stated that they will shut down Captial Hill. Shutting down Captial will, in effect, start a classic “tug 'o' war” in the global financial system.

The equities side of the rope will probability take it as a positive sign. There is nothing better for equities than the same old policies. Equities love grid lock.

It will be hard to pin down the effects of a dysfunctional Captial Hill on the US Treasuries and the dollar. On one side of the rope will be those who will take it a positive sign. No new spending increases will result in a smaller US government deficit. Those on the other side of the rope will probability conclude that the “Full Faith and Value of the US Government” is too much of a risk.

The ultimate, worst case scenario would be massive social unrest to the point were Bush declares marshal law and sets himself up as the “Fuhrer” of the US Nazi party, formally known as the Republican party.

Wednesday, April 20, 2005

Federal Reserve and Monetary Policy: “You don't say. Is that right”.

Three Federal Reserve officials saying the same thing: “inflation is contained”.
“It is difficult to explain what has happened to rates. I think the credibility of monetary policy is an aspect," said Pianalto.

Here something to mull over, the 2 year note is lower. Some bond traders think that the Federal Reserve is going to “STOP” raising the fed funds rate. Are they worry about the removal of the carry trade? Is this a flight to quality?

The currency wars continue. The dollar strengthen against the Euro one day because Germany's investment survey came out with a number very far below consistence (“it fell off a cliff”). This raised expectations that EU central bank will lower interest rate.

The next day, the dollar weakens because the PPI data shows that inflation is contained. This information lowers the expectations that the Federal Reserve will not increase the fed funds rate at a faster pace.

It comes down to whether the US can control the ever widening trade and US government deficit.

Friday, April 15, 2005

Federal Reserve and Monetary Policy: Global Trade an oxymoron?

Bernake has the opinion that the US current account deficit and high government debt is the result of developing countries not borrowing, but saving too much. See: Remarks by Governor Ben S. Bernanke At the Homer Jones Lecture, St. Louis, Missouri
Updates speech given on March 10, 2005, at the Sandridge Lecture, Virginia Association of Economists, Richmond, Virginia
April 14, 2005
The Global Saving Glut and the U.S. Current Account Deficit


However, he relies on accounting principles to defend his view. The biggest problem with this tactic is the following: “It can not explain why there is a global savings glut”.

Labor arbitrage can explain it. See Neoclassical Theory of Production.

Thursday, April 14, 2005

Federal Reserve and Monetary Policy: “Abra-Ka-Da-Bra, Presto-Change-O, Inflation- Go-Away-O”.

It is amazing what a day can bring in the every changing world of the financial markets. One day Wall Street is up because inflation is contained(?). FOMC minutes was not as hawkish as expected and a the larger than expected trade gap means more cheaply made goods and services-> higher profit margins for all. The next day Wall Street is down because inflation is contained(?). A weaker increase in retail growth, 0.3% instead of 0.7% and a lousy 5 year not auction was just too much negative news fir Wall Street to Stomach. Wall Street has its wish. Inflation and inflationary expectations are in fact contained. Richard Fisher, Dallas's Fed President, made it clear that he is “comfortable” with current pace of monetary policy. BushCo's (lack of enforcment) trade policy, “off-shoring is good for America” and GE's tax breaks should have been enough to blow the lid off of Wall Street.

Is it possible that that “wall of worry” Wall Street is climbing has in fact been made by themselves? Has Wal Street come to the conclusion that their high expectations has be met by slashing the domestic US workforce to the point were real output has been severely eroded? Nah, Wall Street will fall back on their usual excuses. You know; “geo-political risk”, high worker productivity, high energy cost, high commodity prices and of course health care cost and blame every thing on (a Republican control) Washington DC.

“Maybe I ought to get another hat”.

Wall Street shouldn't be surprised that both trade and government deficit are large. They pushed for the supply-side economic recovery package. The reason why the Employment Situation Report is not a good indicator of current economic slack is because off-shoring has thrown this report off. Using the Keynes community view:
"The traditional theory maintains, in short, that the wage bargains between the entrepreneurs and the workers determine the real wage; so that, assuming free competition amongst employers and no restrictive combination amongst workers, the latter can, if they wish, bring their real wages into conformity with the marginal disutility of the amount of employment offered by the employers at that wage. If this is not true, then there is no longer any reason to expect a tendency towards equality between the real wage and the marginal disutility of labour."

Off-shoring has removed the equality between real wages and the marginal disutility of labor. In fact, so has the large influx of illegal aliens and employers willing to hire them.

Is “Globalization and Trade” an oxymoron? The end result of trade is specialization and the end result of off-shoring is income redistribution. With regard to trade, one can ask what are the factors making one country more productive (in a single sector) than another. Neoclassical models are used to answer this question. However, no one has looked into the off-shoring/illegal alien influx effects on US economy. There is the “wave of the hand” type argument that it is good for the economy because it lowers the final price consumers pay.


I'm going to use my blog as a spring board and try to cast the off-shoring/illegal alien effects using Neoclassical model and create some sort of controversy in the economic universe.

Wednesday, April 13, 2005

Federal Reserve and Monetary Policy: Did You Get A Raise?

Minutes of the Federal Open Market Committee March 22, 2005

The key phrases are “disposable income”, “resource and labor market slack” and “energy prices”. I personal think the consumer spending part is masked by tax refund season and is therefore currently an unreliable indicator for future spending. The income number comes from the Bureau of Labor Statistics. This number is “marginal”, but I consider it useless. See:
Greenspan's Testimony. Highest gasoline prices at the pump before “driving season”, enough said.

Long term inflation and inflation expectation boils down to the labor market. Here is the definition of “economic slack”: defined as the difference between the current level of output and the level of output the economy could produce if all available resources were fully utilized. From Remarks by Vice Chairman Roger W. Ferguson, Jr.
To the Andrew Brimmer Policy Forum: National Economic and Financial Policies for Growth, Employment, and the Improvement of Equity, at the 2005 Annual Convention, Allied Social Science Associations, Philadelphia, Pennsylvania
January 7, 2005
Interpreting Labor Market Statistics in the Context of Monetary Policy


The paper indicates that the Employment Situation Report is currently not a very good indicator of “economic slack”.

The Federal Reserve Monetary Policy is to achieve price stability and full employment. Trillions of dollars in the global market place, Bush's failed trade policies and “off-shoring is good for America” has made the Fed's monetary policy a joke.

Worker productivity and “geo-political risk” are always the fall back terms. I personal think that there is enough evidence that the removal of the “carry trade” is going to cause market volatility. I think the Fed is aware of this. It is my opinion that the Fed is really indicating that they are going to increase short term rates a quarter of a point until the financial markets become dis-functional. Then they will quite.

Tuesday, April 12, 2005

Federal Reserve and Monetary Policy: The Twin Deficits

See: Remarks by Governor Edward M. GramlichAt the Isenberg School of Management Seminar Series, Amherst, Massachusetts May 14, 2004
Presented at the Los Angeles Chapter of the National Association for Business Economics Luncheon, Los Angeles, California March 31, 2004
Presented at the Euromoney Bond Investors Congress, London, EnglandFebruary 25, 2004
Budget and Trade Deficits: Linked, Both Worrisome in the Long Run, but not Twins

I'm not going to go to much into this. It is a complex subject, however I'm going to apply Keynes implied expanded community to this simple equation (See Federal Reserve and Monetary Policy: Greenspan's speech on Capital Hill was as I feared.) :

Original: NS = S - BD = I – TD

The expanded community the is no Trade Deficit (TD), but there can be a Government Budget Deficit (BD). This means that the National Savings (NS) is the combination of the US community and the off-shored (expanded) community. This same combination argument can be applied to Savings (S) and Investments (I).

I'm going to add a simple production function F(i(1), i(2), ..., i(m)) and use the concave rule: if f(x) > f(x'), then f(yx + (1 – y)x') > yf(x) + (1 – y)f(x') for any y E (0, 1).

In words; The output (GDP) of the US community [f(x)] is greater than the output (GDP) of the off-shored (expanded) community[f(x')]. Therefore the weighted combination of the two “communities” is inside the isoquant of the production function. This is economically inefficient. To bring it back onto the isoquant (technology efficient) and therefore make it economic efficient, one needs to add a condition of throwing away the extra input. I'm going to say that this thrown away part is the US output, hence it is the US's community's “trade gap”. See figure 1.


Figure 1 Posted by Hello



I'm giving the US community and the off-shored (expanded) community a progressive tax system. There is no tax revenue sharing between the two communities implies that a part of the off-shored (expanded) community's tax is paid by the US community without a reciprocal payment. This implies that the thrown away input is not counted. Therefore, the US trade deficit and the US government debt are in fact twins.

Monday, April 11, 2005

Federal Reserve and Monetary Policy: Price Stability.

It is my opinion that price stability was not achieved by monetary policy, but by off-shoring. I think this is the reason why there is a difference of opinion at the Fed and within the economic universe about inflation. Price stability controlled by monetary policy means that the Fed can control inflation. Price stability controlled by off-shoring means that the Fed has limited control. They can only control US consumers.

Greenspan has made comments that inflation was “contained”. 5 key indicators point to this conclusion; Employment level (measly 2.6 million(?) and a lousy 110, 000 in March), wage increase (2.5% year over year(?), PCE deflater (~0.3%) and Capacity Utilization (79.4%) and the average participation in the food stamp program continue to climb (see: ). Of course, there is the missing $1 trillion dollars (see: Case of the Missing Trillion).

Has the Federal Reserve missed the obvious? Let's take a look at some of the past speeches.
Remarks by Governor Ben S. Bernanke At the Global Economic and Investment Outlook Conference, Carnegie Mellon University, Pittsburgh, PennsylvaniaNovember 6, 2003
The Jobless Recovery

Remarks by Vice Chairman Roger W. Ferguson, Jr. At The Exchequer Club of Washington Luncheon, Washington, D.C.July 21, 2004

A Retrospective on Business-Cycle Recoveries: Are "Jobless" Recoveries the New Norm?
Remarks by Governor Ben S. Bernanke At the Distinguished Speaker Series, Fuqua School of Business, Duke University, Durham, North Carolina March 30, 2004
Trade and Jobs

All of these speeches missed the redistribution of income and investments that Keynes put forth. See:
Federal Reserve and Monetary Policy: Greenspan's speech on Capital Hill was as I feared.

The redistribution effect can explain why incomes are flat, the slack in the labor market, the twin deficits and the continuing problems with GM and now Ford. GM and Ford are going through a lack of output in the US. This lack of output is going to spread into other sectors of the US economy. An example is South West, they are having problems with the high cost of fuel, despite the fact that they have low labor cost.

Sunday, April 10, 2005

Federal Reserve and Monetary Policy: Federal Reserve's Challenge

The greatest challenge faced by the Fed is the carry trade. A negative real interest rates (fed funds target – inflation rate) means that the carry trade can effect prices (speculation). It is a certainty that the removal of the carry trade will result in volatility of both US bonds and dollar index. The new financial instruments are going to be stress tested in the coming months.

The 2 financial instruments I'm going to discuss are the credit issued to the sub-prime market through both the consumer loan institutions and through the secondary mortgage market as represented by the GSE's Fannie Mae and Freddie Mac. I will point out the mechanisms that I feel will cause these markets to fail and in turn, affect the entire US and the global market to the status of becoming non-functional.

The credit issuer use credit derivatives and the secondary mortgage institutions uses a form of risk management call dynamic hedging. Both of these risk management strategy requires that both the bond and currency market remain stable and predictable. The removal of the carry trade has always been a dramatic event in the international financial markets. Russia's default, Long Term Capital Management's collapse and Orange County, Cal default are just some of the well know failures.

The major issues that will determine if there is a collapse of the US financial markets can be enumerated:

Friday, April 08, 2005

Federal Reserve and Monetary Policy: "Hawkish" Commnets and the "Carry Trade"

The US economy is going into a recession. It is inevitable. CNBC had guests who are misinterpreting the “Hawkish” comments from some of the Fed's people. It is not that interest rates are rising, but how fast the “carry” trade is removed. This recovery is based on the “carry” trade. See:
Remarks by Governor Ben S. Bernanke At the Sandridge Lecture, Virginia Association of Economics, Richmond, Virginia March 10, 2005
also see:

Remarks by Chairman Alan Greenspan Consumer Finance At the Federal Reserve System’s Fourth Annual Community Affairs Research Conference, Washington, D.C. April 8, 2005

Oil is going to be propel upwards. Remember, China has a command economy. The government has placed ceilings on prices its citizens pay on final goods and services. This will show up in the US current account deficit as US companies slash domestic jobs to meet Wall Street's expectations.

The removal of the carry trade and higher prices at the gas pump is going to blow thru this economy. The unlikely candidate as a conduit, is going to be the sub-prime financial system. The biggest ones are the GSE's Fannie Mae and Freddie Mac. See:
Testimony of Chairman Alan Greenspan Regulatory reform of the government-sponsored enterprises Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate April 6, 2005

Thursday, April 07, 2005

Federal Reserve and Monetary Policy: Does CNBC really “Mind America's Business”?

Does CNBC really “Mind America's Business”? Was the comment “Toyota ... is an example of in-sourcing...” made by Tyler Mathisen a reasonable and responsible statement? Bush's job creation, as exemplified by Bureau of Labor Statistics Employment Situation Report, is no help.
Let's look at the US Chamber of Commerce's April 2004 Job.... release. It makes a lot of references to marginal data and opinions. No real, verifiable data on the amount of foreign direct investments into the US. Well, how can one take serious a report that has this to say about goods and services;
From US Chamber of Commerce's release page 8. “... we sell more goods and services abroad than any other nation.”
I guess they haven't looked at the 2004 trade deficit.

It is my opinion that there is a data set that can be used to determine if the US is still going through a “jobless recovery” phase. If one is not working and is still alive then one must be getting the necessary resources to obtain food (legally).

Food Stamp Data
YEARAverage Participation (in Thousands)Rate of Change (AP2 – AP1) / (Y2 – Y1)
19692878-
197043401462
197193685028
1972111091741
1973121661057
197412862696
1975170645202
1976185491485
197717077-1472
197816001-1076
1979176531652
1980210823429
1981224301358
198221717-713
198321625-92
198420854-771
198519899-955
198619429-470
198719113-316
198818645-458
198918806161
1990200491243
1991226252576
1992254072782
1993269871580
199427474487
199526619 -855
199625543-1076
199722858-2685
199819791-3067
199918183-1608
200017194-989
200117316122
2002190951779
2003212592164
2004238582599



Food Stamps: Avg and Rate of Change Posted by Hello


The 'average participation' is not a good number to use because of changes in the program and its requirements. However, one can use the rate of change to gain some useful information. Plot the above data using your favorite spreadsheet application. The rate of change data does point out that after every recession prior to the 2001 recession, the rate of change has always went negative. Bush is the only President whose rate of change data has not gone negative. This indicates that the US is still going through a “jobless recovery”. The rate of change has always gone positive before a recession. Technically the US is still in recession. The Employment Situation Report indicates that this is true.

The US economic recovery is being financed by the “carry trade”. Once the dust settles after the complete collapse of the US economy and people ask “How did this happen?” Will history record CNBC, under the direction of GE, was like the “Nazi Propaganda Ministry, under the direction of Dr. Joseph Goebbels”? Shouldn't CNBC change its slogan to “Justifying GE's Tax Breaks”?


They, meaning the National Bureau of Economic Research, declared that based on GDP the recession was over in 2001. The NEBR, is made up of Wall Street and Washington DC. elites whom all support tax cuts and off-shoring. Reality has no place in their biased views. Wall Street doesn't make any money on the truth. Look at what is happening to AIG.

This is the chain of events that will unfold in the coming months that will “shatter the mirror and clear the smoke” from BushCo's “smoke and mirror” economy. The cause and effect of events can be explained by an “effective global investor's strategy”. This investor's strategy is to invest in China without the risk of investing in China. The best way to achieve this investment strategy is to put money into the US, specifically, to put money into those companies' equities that are currently in China and instruments that are currently risk free. The risk free instruments are US Treasuries and the perceived risk free instruments are the GSEs Fannie Mae and Freddie Mac. See: Testimony of Chairman Alan Greenspan Regulatory reform of the government-sponsored enterprises Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate April 6, 2005
The money for the global investor is courtesy of the Federal Reserve. The money is due to the “carry” trade.

This strategy is currently making the global investor money, however, the Federal Reserve is increasing the short term interest rate. The global investor is in the same mine set as somebody who is deciding to take out a mortgage as he/she watches interest rates increase, they all pile in. That same mentality is at work now reflected in the inflow data, investors are piling into the US before the free US dollar is no longer free. This is the reason why inflow data is all of a sudden strong. Its not because global investors have changed their collective mines about the US economy, but because the free money is about to run out.

There is another risk that the global investor has to maintain a vigil; China has a Communist government and they pegged their currency to the US dollar. China has placed a ceiling on commodity prices its consumers pay. This implies that the expectation of yield of the global investor is being eroded by a command economy. This implies that the marginal efficiency of the global investor's capital is decreasing.

These two events will combine to unravel Bush's Fiscal policy. This will happen once short term interest rate is above the rate of inflation and/or China clamps down on inflation by adding more and lower already existing ceilings its citizens pay. BANG!!! Orange County, California default type meltdown on a national scale. The global investor will look else where to make money, EU?, now that they have agree to destabilize their currency.

Tuesday, April 05, 2005

Federal Reserve and Monetary Policy: Oil and Another Manufacture Crises

Oil price will go higher, not lower. The historic data, as a guest on CNBC's Closing Bell (April 5, 2005) pointed out, has oil prices higher than expectation. This is due to the lack of “trade”, on the part of the US, in the “new – tradable” sectors of the economy. See John Maynard Keynes'
The General Theory of Employment, Interest, and Money

India has become the “back – office”, software developer, call center, computer network administrator and the future overseas US's telecommunication switch board operator (once the sell of Tyco's underwater fiber optic cable is sold to India). China has now become the factory floor of the US. The root view of these actions are predicted in Keynes paper. These countries, as well as other “cheap” labor countries, are now part of the US community. The effective tax system of the newly expanded US community is a progressive tax system. The “original” US citizen have a heavy tax burden, not a lite one as BushCo points out. A progressive tax system is one in which lower income wage earners pay little to no income tax. US citizens, on average, have a higher income than either China or India high wage earners. This implies that the US citizen is in fact picking up the tax bill of other low labor cost countries.

Oil prices will continue increase, because of the increase in demand, as long as US's income is redistribute to these newly expanded communities. High oil, as well as high commodity prices and a weak dollar is the price the US pays for “price” (in)stability.

Another guest on CNBC's Closing Bell stated that this month's job number was not inflationary. That means that if one wants to calculate the number of months it will take to employ the new entries into the US labor market then one would have to make some assumptions. It take 150, 000 new jobs to absorb the new entries.

150, 000 x 51 = 7, 650, 000 new entries from Bush's first term to March 2005.

Number of jobs needed to employ Bush's first term job entries is;
650, 000 – 2, 600, 000 = 5, 050, 000

Number of job needed to employ Bush's remaining term new entries;
45 x 150, 000 = 6, 750, 000

Average job creation just to absorb new entries is;
(5, 050, 000 + 6, 750, 000) / 45 = 262, 222

Another guest on CNBC's Closing Bell (April 5, 2005) stated that in his opinion, Heath-care equipment makers are the place to park your money. {CNBC is a good source of information. It is the only network one can watch Wall Street and Washington DC. elites stick their foot in their mouths.} Notice , he said the equipment makers, not the service providers. Manufacturers can off – shore the manufacturing of the equipment (higher profit margin). This implies that a new crises is being manufacture by Wall Street's elites. Here is the form they need to fill out and send to Capital Hill:

There is a crises in the (insert economic sector here) Heath-care sector. Our numbers indicate that there is a shortage of (insert job(s) description here) Nurses and other skilled health-care providers. We are asking Congress to allow (insert number here) 200, 000 new visas to be issue in order to avert this crises.
Thank You


(insert front group here) _________________________________
(insert scape goat here) _________________________________

---------------------------- CUT ALLONG THIS LINE ---------------------------------

Delete all e-mails and throw out all letters on this matter. Here is the name of the Law Firm that will be representing your front group before a Congressional Hearing:
(insert Law Firm here) ______________________________

Here is the list of key officials that will block any criminal proceeding into this matter.
(insert Key Officials here) ____________________________
____________________________
____________________________

Greenspan's speech was not really about oil prices, but on the technology of oil and gas drilling, recovery and its usage. Here is the link: Remarks by Chairman Alan Greenspan Energy Before the National Petrochemical and Refiners Association Conference, San Antonio, Texas(via satellite) April 5, 2005
The drop in oil prices is only a short term knee jerk reaction. Oil traders will take their profit for now, however, the long term problem of China's demand for oil and Abu Musab al-Zarqawi and the increase attacks in Iraq will once again propel oil prices higher. The lack of Green-speak in having a lasting impression on currency and bond traders will also show up in the oil pits.

Monday, April 04, 2005

Federal Reserve and Monetary Policy: “Please, Do Not Feed The Animals.”

$100.00 oil. YIKES!!!!!
$3.00 per gallon gas. OUCH!!!!
The survey says only a measly 110, 000 new jobs in the month of March, yet the unemployment rate fell to 5.2%.
THE SKY IS FALLING, THE SKY IS FALLING!!!! Fed's Poole screams.

I think the Federal Reserve needs to be more concerned about California's having the most new home buyers with interest rate only and adjustable mortgages than to fan the flames of inflation. The Fed needs to get a grip on reality and start to drain that “Ocean” of dollars on the international markets before an “Orange County” type collapse happens in Californian and in the US. The US housing market and in a specific instance, California's housing market, is an example of the “carry trade”. Carry trade is a financial strategy which takes advantage of interest rates are below the rate of inflation. The short explaination is that the money borrowed today is worth less tomorrow because of inflation, but the cost of the money borrowed today is less than the cost of the money if it were borrowed tomorrow. This means that the money borrowed today and spent on such items as commodities and yes, housing, has more value.

The US Supreme Court says that IRA's can not be forked over to creditors, yet the House is taking up a bill that in effect negates Bankruptcy court. It is really interest to see how the House explains why it needs to interferer with a court room procedure that has done its job.
It does make one wounder if some financial companies have come to this “carry trade” and California's housing market conclusion and want US tax payer protection (the US taxpayer will be bailing out California) because of their mistakes.

Lobbyist rally around Captial Hill screaming that they need illegal aliens in order to compete. They need protection against dead beats who do not pay their credit card bills. They do not need tariffs on “VERY” cheap textiles from China because it is a tax on the US consumers. They need more tax cuts and for Washington DC. to get out of private businesses like Social Security. They also need to stop the over regulation of environmental law. That 111, 000 gallon oil/water spill in Alaska was, after all, mostly salt water. It is only poisons to the native plants. What is the big deal? Accidents do happen.

I think we need to put a fence around Washington DC. and put up signs on various buildings like the Capital and the White House with these words “Please, Do Not Feed The Animals.”

Friday, April 01, 2005

Federal Reserve and Monetary Policy: Statistics, those Dam Statistics

Somebody from TrimTabs was on CNBC's Closing Bell (April 1, 2005) and stated that he feels that the US economy is very strong. He cited the income tax collection and related it to strong incomes. Here is the link: Individual Tax Statistics - Filing Season Statistics / Taxpayer Usage Study
I'm not going to comment on this data because it is not complete. You can make up your own mind.

However, I'm going to comment on the Bureau of Economic Analysis' Personal Income numbers. I'm going to compare BEA's 2003 personal income from table 1B.
See link: GDP REVISED ESTIMATES: 2001 THROUGH FIRST QUARTER 2004
and
Adjusted Gross Income from IRS Issues Winter 2004-2005 Statistics of Income Bulletin

From IRS;
The Bulletin includes an article on preliminary data from individual income tax returns for 2003. Taxpayers filed 130.6 million U.S. individual income tax returns for 2003. Adjusted Gross Income (AGI) reported on Tax Year 2003 returns totaled $6.2 trillion for 2003, while taxable income was $4.2 trillion and total income tax was $750 billion. The largest component of AGI was salaries and wages, totaling nearly $4.7 trillion. A total of $261.4 billion in business net income was reported on 14.4 million returns.

From GDP table 1B;
Person Income Section - Wage and Salary disbursement: $5,103.6 billion

5103.6 – 4700.0 = $403.6 billion

This just shows that the Bureau of Labor Statistics wage number has a large error.

The link for historical IRS data: Articles and Data Releases


Wages and Salary Data
YearFrom BEAFrom IRSDifference
2002$4966.3$4611.4$354.9
2001$4942.8$4600.0$342.8
2000$4836.3$4456.2$380.1
1999$4470.4$4132.5$337.9



As you can see, BEA's estimates are high, in recent history.

BLS release the March 2005 Employment Situation Report. The establishment number was a disappointing 110,00. Egad!! average weekly earnings increased by 0.3%. This was the number Wall Street was focused on. This increase really stroked the inflation fears. We now know that it has no real meaning.

The number that I focus on is the number unemployed by duration. The over 27 weeks number is an indication of whether the Net Birth/Death model will be a good number. See Table A-9
That number has increased. So has the mean duration in weeks and the percent distribution for over 27 weeks. This is an indication, to me, that the Net Birth/Death model well not be representative of the actual job market. See post for details.