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Paul Craig Roberts
Institute for Political Economy
Dave Kranzler Asks: Is 2008 unfolding All Over Again?
Dave Kranzler Asks: Is 2008 unfolding All Over Again?
The Federal Reserve’s high interest rate policy is destabilizing the banking system. The Fed deceived by manipulated economic reports is raising interest rates to fight inflation. The higher interest rates are causing withdrawals from banks where interest rates on deposits are still about zero and very negative in real terms. To meet the withdrawals, banks have to sell depreciated assets or the Fed has to cover the cash withdrawals. In other words, the high interest rate policy is causing serious bank problems.
Kranzler reports:
The economy is in much worse shape than indicated by some of the economic reports – particularly the major reports conjured up by the Government. A prime example is the employment report, which is statistically manipulated to show a much higher rate of employment than reality. As an example, the report for January purported the economy added 517k jobs, comprised of 894k new jobs less 377k jobs lost. However, 810k jobs were created using a statistical gimmick the BLS refers to as “population control effect:”
The “population controls” are statistical hocus pocus that uses the latest decennial population survey and adds an estimate of births and deaths and estimates of net international migration. It’s basically a statistical sausage grinder fed with dubious statistical ingredients to produce a highly unreliable statistical estimate of new jobs created. Per the graphic above, the “population control effect” manufactured 810k new jobs. We already know (as detailed in a prior issue of SSJ) that most of the jobs created since March have been part-time and most of those part-time jobs are people working multiple part-time jobs. I literally cringe when I hear “experts” like Jerome Powell say that the labor market is strong.
Nevertheless, not only is the economy much weaker than is reflected by some economic reports like the employment report but it is starting to look like the rate of inflation is heating up again, as some of the price measurement metrics are trending higher again and energy prices are starting to rekindle, led by the price of gasoline futures which are up 32% since mid-December. Additionally, Wall Street 2023 corporate earnings estimates have been trending lower and are expected to be cut further in the coming months. While P/E ratios on stocks have fallen over the last year, if earnings head south, P/E ratios will head south, which means stock prices head south.
In another indication of economic stress and soaring costs, General Motors is offering voluntary buyouts to a majority of its 58,000 salaried workers in an effort to cut $2 billion in structural costs over the next two years. It is encouraging as many as possible to take it. I would bet those who don’t will be forced to “retire” at some point in the future. This to me is a “realignment” of costs in response to the expectations of higher manufacturing costs and lower sales volume over the next couple of years.
Finally, the collapse of Silicon Valley Bank (SIVB – $0.00) may be a signal that a financial system melt-down is beginning. But SIVB is not the first indicator. Credit Suisse has been on death watch for several months. FTX blew up and appears to have taken down Silvergate Capital with it. And now SIVB has been taken into receivership by the FDIC. How does anything go bankrupt? Slowly then suddenly.
One section of the government produces fake news job reports. The Fed looks at the bogus numbers and sees a booming economy and announces more interest rate hikes which are more punishment for a troubled banking system. This is how government works.