🔴 Economic Data Confirms Entrenched Inflation- Ep 893

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Non-Farm Payroll Report for April

This section discusses the non-farm payroll report for April, which is considered the granddaddy of monthly reports. Despite its significance, it's unreliable due to how completely unreliable these numbers are.

Significance of Non-Farm Payroll Report

• The non-farm payroll report for April was released on Friday.

• It's considered the granddaddy of monthly reports.

• It's pretty insignificant given how completely unreliable these numbers are.

Skepticism about Strong Jobs Reports

• Everybody looks for a strong jobs report as evidence that the economy is good.

• The government has manufactured 13 consecutive strong jobs reports where the number of jobs created exceeded what Wall Street expected.

• It seems more likely that the government knows what the number is and they just want to beat it.

Layoffs in Companies

• Tech companies and banks are laying off workers because their businesses are collapsing due to rising costs, interest rates, struggling consumers, etc.

• Companies have run out of money so they're having to cut their workforce just to reduce their cash burn.

Government Report for April

• Expectation was 178k jobs but came out with 253k jobs (a solid beat).

• Unemployment rate fell from 3.6% to 3.4%.

• Private payrolls also beat but subject to a similar downward revision.

• Manufacturing jobs created exceeded expectations but last month's loss was revised.

Wrapping Up

This section concludes the podcast by summarizing the non-farm payroll report for April and discussing its significance.

Summary of Non-Farm Payroll Report

• The non-farm payroll report for April was released on Friday.

• It's considered the granddaddy of monthly reports despite being unreliable.

• The government reported 253k jobs, a solid beat from the expectation of 178k jobs.

• Unemployment rate fell from 3.6% to 3.4% and private payrolls also beat but subject to a similar downward revision.

• Manufacturing jobs created exceeded expectations but last month's loss was revised.

Significance of Non-Farm Payroll Report

• Wall Street puts more stock in this number than they should due to its unreliability.

• The strong jobs reports are manufactured by the government who knows what the number is and wants to beat it.

• Companies are laying off workers due to rising costs, interest rates, struggling consumers, etc., so it would make sense that we wouldn't have a lot of jobs.

Reaction of Markets to Stronger Economic Data and Inflation

The bond market reacted negatively to stronger economic data and inflation, causing bond prices to sell off and yields to rise. Gold initially dropped by $40 when the stronger than expected number came out, but still closed well above $2,000. Despite this drop in gold prices, gold stocks remained flat.

• Gold sold off by $40 as soon as the number came out.

• Gold is currently trading at around $2020.

• Gold stocks were broadly unchanged despite the drop in gold prices.

• This shows that traders recognize that $2,000 is a strong support level for gold.

Stock Market's Response to Strong Economic Data

Despite strong economic data indicating higher inflation, the stock market rallied with the Dow Jones up 546 points and NASDAQ up 2%. However, Peter Schiff expects more downside in the stock market due to Powell's statements about fighting inflation.

• Good news is supposed to be bad news for stocks and bad news is good news. However, Wall Street took this jobs report as good news.

• Peter Schiff expects more downside in the stock market due to Powell's statements about fighting inflation.

Jobs Report Analysis

The jobs report showed an increase in jobs added but most of these new jobs represent people working second or third jobs rather than new participants entering the labor force. Additionally, the household survey showed only 139k jobs added which was the lowest since November of last year.

• The household survey is probably more accurate on people working.

• Most of the new jobs represent people working second or third jobs.

• The birth death model was used to estimate the number of jobs created or lost based on new businesses that were established.

Bias in the Birth-Death Model

In this section, Peter Schiff discusses how the government's assumption of new businesses being formed is biased and inaccurate. He explains that existing businesses are more likely to be dying off than new ones being created.

The Birth-Death Model

• The birth-death model assumes that new businesses are being born, but it is more likely that existing businesses are dying off.

• In April, 378,000 jobs were added according to the birth-death model, which is the second-highest ever.

• If those so-called new businesses added 378,000 jobs, then all other jobs would have been lost. This means that 125,000 jobs were lost by companies that existed.

Inaccurate Data

• All these numbers are pulled out of a hat and are very likely to be massively revised because they know how inaccurate it really is.

• Given how wildly inaccurate these numbers actually are when they get reported, it makes no sense that Wall Street should put so much stock in this data point.

Other Economic Indicators

In this section, Peter Schiff talks about three other economic indicators that he believes are more important than the non-farm payroll number.

Productivity and Cost Numbers

• The productivity and cost numbers came out on Thursday and might have sparked the near-new record high in the price of gold.

• This number shows an economic report card on the health of the U.S economy.

Trade Deficit

• The trade deficit is a more important indicator than the non-farm payroll number because it shows how much money is leaving the country.

• The trade deficit has been increasing, which means that more money is leaving the country.

National Debt

• The national debt is another important indicator because it shows how much money the government owes.

• The national debt has been increasing rapidly, and this will eventually lead to a crisis.

Reasons for Low Productivity Growth

The speaker discusses the reasons behind low productivity growth and how it affects labor costs and workers' wages.

Unit Labor Costs Spike

• In the previous quarter, unit labor costs were supposed to rise by 3.9%, but instead spiked by 6.3%.

• Rising unit labor costs are bad for inflation because they make prices go up.

• If productivity increases, costs come down, which allows the government to create some inflation that doesn't show up in the CPI.

Impact on Workers

• Labor costs involve more than just wages; they also include benefits.

• If benefits get more expensive for employers, that may not necessarily be a positive for workers.

• Falling productivity means real wages can't go up; in fact, they have to go down in order for people to maintain their jobs.

Impact of Rising Labor Costs on Employers

The speaker explains how rising labor costs affect employers and why increasing productivity is crucial.

Squeezing Workers

• If labor costs are really going up, employers might try to squeeze workers to earn less or get a smaller raise because other costs are going up.

• All of an employer's hiring expenses need to be covered by worker productivity.

Importance of Productivity

• Rising unit labor costs like that are bad if you're hoping that inflation is going to come down because one way the official measures of inflation keep from going up is through growing productivity.

• Falling productivity makes these inflation numbers look worse.

• Real wages can only go up if workers deliver greater productivity to their employer.

Consumer Credit Number

In this section, the speaker discusses the recent consumer credit number and its implications for inflation.

Implications of Consumer Credit Number

• The expectation was for a jump of 17 billion for Consumer Credit.

• The actual increase in consumer credit was 26 and a half billion, which is a huge number.

• This big jump in consumer credit shows that the FED is losing the inflation war.

• Rising interest rates are supposed to fight inflation by making it more expensive for consumers to borrow money. However, if they can still borrow at lower rates than inflation, they will continue to spend.

• If people continue to use their credit cards, it drives up prices and expands credit. We need credit to contract to bring down prices.

Fighting Inflation

In this section, the speaker discusses how the FED can fight inflation effectively.

How to Fight Inflation

• The FED needs people who are working to stop spending and start saving instead.

• Savings represent money that can be loaned to businesses to invest in capital and produce even more.

• People need to work and save so we can make capital investments and grow the economy with more production.

Inflation and the Fed

Peter Schiff discusses how there is no progress being made on inflation, and that the idea of getting back to a 2% inflation rate is a fantasy. He explains that low interest rates paradoxically kept prices low, but this was due to temporary factors such as companies borrowing money at zero interest rates and passing on those savings to customers. The Fed did not do a good job in keeping inflation below 2%, they just got lucky with a combination of luck and lies.

Factors Contributing to Low Inflation

• Low interest rates allowed companies to borrow money at zero interest rates, which they passed on to their customers.

• Companies were able to price their products really low or give them away because credit was so plentiful.

• The Fed did not do a good job in keeping inflation below 2%, they just got lucky with a combination of luck and lies.

De-Dollarization and Its Impact on Inflation

• De-dollarization is happening, which means that countries are moving away from using the US dollar as their reserve currency.

• This will lead to higher inflation because one way the Fed got lucky with low inflation numbers was due to the dollar's reserve status. Many dollars created by the Fed were exported and hoarded by trading partners in financial assets instead of consumer goods.

• As de-dollarization occurs, countries will not need dollars to buy financial assets, causing prices for these assets to come down. However, prices for goods will go up.

Trade Deficit

Peter Schiff talks about how Americans are continuing to spend despite trade deficits. The trade deficit for March was worse than expected, with a $64.2 billion deficit instead of the expected $63.7 billion.

Trade Deficit

• The trade deficit for March was $64.2 billion, which is worse than the expected $63.7 billion.

• Americans are continuing to spend, driving these trade deficits because they are spending money on imports.

Trade Deficits and Government Spending

In this section, Peter Schiff discusses the impact of government spending on trade deficits. He explains how budget deficits lead to additional spending and how this affects the trade deficit.

Impact of Government Spending on Trade Deficits

• Trade deficits would be lower if the government was making progress in reducing them.

• Budget deficits represent additional spending because people who receive money from the government spend it on imported products.

• As long as everyone is spending, there will not be a reduction in consumer price index (CPI), and prices will continue to rise.

The Debt Ceiling and Default Risk

In this section, Peter Schiff talks about Janet Yellen's comments on the debt ceiling and default risk. He questions whether Yellen's statements are reassuring for bondholders.

Janet Yellen's Comments on Debt Ceiling

• Janet Yellen's job should be to reassure bondholders that America is good for its debts.

• However, Yellen says that it is Congress' job to raise the debt ceiling, and if they fail to do so, there will be an economic catastrophe.

• There is no action that President Biden or the US Treasury can take to prevent this catastrophe.

• If we have enough tax revenue to pay our debts, why aren't we using it instead of borrowing more money?

Default Risk

• The catastrophe that Yellen is talking about is default on the debt, which would be catastrophic.

• If we can't borrow more money to pay our debts, then we won't pay anything. This is an admission of a Ponzi scheme.

• The only people who will get screwed are the people who own US treasuries.

Using the 14th Amendment

• They are trying to use the 14th Amendment to get around the debt ceiling, but this is irrelevant to whether or not we have the money to pay.

The Debt Ceiling and Government Spending Cuts

In this section, the speaker discusses the need for a plan to address the debt ceiling and suggests either raising it or cutting government spending.

Plan B for Debt Ceiling

• A plan is needed to address the debt ceiling.

• Plan B options include raising the debt ceiling or cutting government spending.

• If defaulting on the debt, a plan should be in place to determine who gets paid first.

Prioritizing Payments

• The government must prioritize payments if they don't raise the debt ceiling.

• Bondholders are currently low on the hierarchy of who gets paid first.

Risks of Holding U.S. Treasuries

In this section, the speaker discusses why holding U.S. treasuries may not be a good investment due to various risks.

Risks of Holding U.S. Treasuries

• There are many reasons why holders of U.S. treasuries may want to get rid of them.

• The possibility of inflation wiping out their value is one risk.

• Another risk is that bondholders are low on the hierarchy of who gets paid first in case of default.

• The US could also weaponize owning treasuries against investors and seize them.

Trillion Dollar Coin Proposal

In this section, the speaker discusses a proposal to mint a trillion-dollar coin as an alternative solution to raising the debt ceiling.

Trillion Dollar Coin Proposal

• A proposal has been made to mint a trillion-dollar coin as an alternative solution to raising the debt ceiling.

• The Federal Reserve would have no real asset on its books if they accept an ounce of platinum as collateral for a trillion dollars.

• The FED's balance sheet would have a massive hole in it, making it impossible to shrink the balance sheet.

• If the government ever decided to coinback, it would mean permanent inflation and a permanent increase in the money supply.

The Importance of Raising the Debt Ceiling

In this section, the speaker emphasizes the importance of raising the debt ceiling and suggests that the media should focus on this issue rather than discussing the potential catastrophe if it is not raised.

The Consequences of Not Raising the Debt Ceiling

• The US needs to raise its debt ceiling to get its fiscal house in order.

• Failure to raise the debt ceiling will result in a massive catastrophe.

• The speaker will miss his Sunday podcast due to attending a conference in Orlando.

Conference in Orlando

• The speaker mentions an upcoming conference in Orlando.

• His son Spencer and entire family will also be attending.

• He will miss his Sunday podcast due to attending this conference.

Conclusion

• The speaker concludes by thanking his audience.