With the FOMC meeting coming up and Operation Twist winding down, there’s a lot of speculation going around about whether we’ll soon see more QE. It won’t make the slightest difference in the long run, but it does serve to illuminate the delusion behind the debate.
A recent article in Seeking Alpha warns stock investors, “Don’t hold your breath for more Fed stimulus.” The gist is that while the numbers are disappointing, they prove we are moving forward and therefore there is no need for the Fed to take drastic action.
“The U.S. economy ADDED +69,000 jobs in May,” the article proclaims. The emphasis is the author’s, who sees that as progress. In fact it is taking a giant step backwards taking the growth of the labor pool into account.
According to the National Center for Education Statistics (NCES), 1.78 million students will receive their bachelor’s degree in 2012. Most of them joined the labor pool last month.
Now add to that all of those dropping out of college and those leaving high schools, community colleges, and grad schools – all of whom will be looking for work. And don’t forget the millions who are currently unemployed and underemployed. After subtracting a few million for those who will retire this year it is safe to say that a meager 69,000 new jobs isn’t even close to what is needed just to tread water.
Furthermore, most of the new jobs that have been created recently are low-skill positions. According to the AP, “A weak labor market already has left half of young college graduates either jobless or underemployed in positions that don’t fully use their skills and knowledge.”
None-the-less, I find the author’s third reason to be the most interesting. “What conditions might warrant [the Fed] to finally relent with another round of QE or Twist down the road? The best reading to monitor in this regard may be the U.S. stock market.”
Perhaps the Fed will continue to exercise prudence for a while, but it is pure fantasy to think that the economy might somehow rescue Wall Street. Left alone, the markets will simply come into balance with real economic conditions.
That can mean just one thing: stocks will fall while gold and silver rise.