Courtesy of Karl Denninger, The Market Ticker
This morning our Dear President intends to try to press his luck.
President Barack Obama will challenge American business leaders today to move their cash from the sidelines to invest in the U.S. as part of what he will call a shared burden to boost the nation’s economy.
Obama will make a case in a speech to the U.S. Chamber of Commerce, which has been among his strongest critics, that he is doing his part to improve the business climate after a free- trade agreement with South Korea, a deal to extend Bush-era tax cuts, and a State of the Union address that proposed more government support for infrastructure and “innovation.”
Uh huh. Shared burden eh?
There’s a reason that businesses aren’t hiring Mr. President. You should have paid attention to people like myself and the handful of others who told you that this was going to happen.
Here’s the problem: Commodity price cost-push which is a direct result of your fiscal policy, which has in turn dictated monetary policy, has led companies to suffer insane input cost increases. They can either absorb them or pass them through to customers. There are no other choices; every dollar in cost has to gosomewhere.
But with high unemployment, they cannot pass through those costs. The customer will not buy. Yet that inability to pass them through means they also cannot hire, because the other alternative, "eat them", hits profits.
The paradox is that without actual improvement in the employment rate there is no tax base with which to try to pay for the deficit. The employment rate has been falling since July of last year, and it now stands at the lowest level since the recession began, erasing the small upward movement from January to July of last year.
By essentially demanding that The Fed bail out the profligate spending of the government, and getting that, commodity price ramps have destroyed the ability of businesses to hire. If they take the hit on profits then the stock market will collapse as negative earnings are not conducive to high stock prices. If they don’t take the hit on profits then eventually the cost-push will kill them anyway, since the entire "hopium" game has been predicated on people going back to work and the government being able to withdraw the stimulus measures. There is no evidence that the latter is going to work either.
You’re caught in a trap of your own making Mr. President. Back in 2008 I predicted exactly this outcome, and pointed out that there was no escape from the deflation of all this bad debt, despite the protests of Paulson and Geithner. The path that you chose wouldn’t work not because of bad luck or similar, but because it couldn’t work on a mathematical basis, any more than you can "solve" your own personal financial problem if you lose your job by whipping out the credit cards and charging them up to pretend you still have your former income.
The bad debt in the system has to be forced into the open and defaulted.
This morning, incidentally, there are a whole host of people who are claiming that the employment report was "light" due to the weather. This is a lie. The Household Survey, which is what I use (and always have) on an unadjusted basis is the only reasonable way to look at this report because it is not subject to these games. If you work for one hour during the month the household survey counts you as "employed." The idea that the weather would stop anyone from working for the entire month is abject nonsense, and while no survey is perfect, unadjusted numbers annualized remain the best option, as the "seasonality" is then automatically part of what you’re looking at (since January a year ago is still January!)
