Don’t You Believe It – The Melt-Up Madness

Don’t you believe it!

The melt-up madness now underway marks the most dangerous, unstable and combustible financial bubble in human history. It was fostered by Keynesian central bankers who were making it up as they went along.

So doing, they had no central banking playbook or theory—just a dog-earned revival of Phillips Curve macroeconomics. Yet the latter was discredited 40 years ago at the national economy level; and is a complete intellectual joke in the context of massive, fluid, integrated global markets for labor, goods, capital and finance.

For crying out loud, how much money printing at the Eccles Building does it really take to drain the rice paddies of East Asia and the fecund villages of India of their last increments of cheap labor?

And given the trillions of worldwide trade in goods and internet enabled services how can it be denied that there is a steeply inclined global labor cost curve with the US near the top?

That is, an economic dynamic in which the China Price for goods and the India Price for technology-based services causes downward pressures to ripple through the world’s labor value chain—-even as it causes production on the margin to be shifted to the lowest cost regions of the planet.

Yet Janet Yellen and her brain dead posse are constantly squinting through the in-coming data with a magnifying glass hoping to find a second decimal place acceleration in the rate of domestic hourly wage gain. Thus, the most recent three month rolling gain for non-supervisory and production workers was 2.44% versus prior year (August-October 2016) .

That was actually a slight deterioration from the 2.53% Y/Y during the same period in 2016; and it compares to Y/Y gains of 2.32%, 2.36% and 2.34% during the same three month period in 2015, 2014 and 2103, respectively. S0 squint very had and you might possibly detect the difference.

Stated differently, these foolish monetary central planners are maniacally focused on what are actually random fluctuations of a few basis points in the rate of domestic wage gains. If after 107 months of ZIRP or near ZIRP and $3.5 trillion of balance sheet expansion, the needle has not moved at all—-then it’s never going to move on account of central bank machinations in the Wall Street money and debt markets.

Yet the Fed continues to embrace Einstein’s definition of insanity—-doing the same thing over and over and expecting a different result. So doing, it has essentially destroyed financial market price discovery in the process of a futile effort to pump the nation’s bathtub of labor demand full to the brim, thereby validating their Phillips Curve excuse for endless monetary accommodation.

To the contrary, domestic wage gain fluctuations of the type posted since 2010 are just plain noise in the context of a dynamic global labor markets roiled by huge waves of currency and monetary distortion. The latter, in turn, stem from the machinations of Keynesian central bankers elsewhere on the planet and the mercantilist policies (e.g. export subsidies and import barriers) of almost every major trading partner that even the Donald can’t manage to lay a glove on.