Tag Archives: Wage inflation

Here’s Why America’s Labor-Shortage Will Drive Inflation Higher, by Charles Hugh Smith

There’s not a labor shortage, there’s a shortage of a set of important skills, and it will take time and higher relative wages to remedy the situation. From Charles Hugh Smith at oftwominds.com:

Great swaths of the American workforce are already on strike or slipping away from the dead-end treadmill.

America’s labor shortage is complex and doesn’t lend itself to the simplistic expectations favored by media talking heads. The Wall Street cheerleaders extol the virtues of “getting America back to work” which is Wall-Street-speak for getting back to exploiting workers to maximize corporate profits.

Long-term demographics have combined with cultural changes and Covid-Lockdown epiphanies to completely re-order America’s labor force beneath the superficial surface of “re-opening.” No one post can do justice to such a complex topic, so I’ll touch on a few of the many inter-connected (and often mutually reinforcing) dynamics.

1. Boomers are leaving the workforce in droves. The statistics are incomplete but we know that a larger percentage of Boomers have been working longer than previous generations. A Pew Research 2018 study documents this: Baby Boomers are staying in the labor force at rates not seen in generations for people their age.

Now Boomers are leaving the workforce. Some are retiring, i.e. qualifying for pensions and/or Social Security benefits, while many others who have been drawing retirement benefits while they continued working are quitting the workforce. A November 2020 report discusses this reversal:

The pace of Boomer retirements has accelerated in the past year: (pewresearch.org)
This is 3.2 million more Boomers than the 25.4 million who were retired in the same quarter of 2019.

According to the Social Security Administration, around 3.2 million workers signed on for their Social Security retirement benefits in 2019, and around 2.7 million more people qualified for disability benefits or as dependents of retirees or disabled workers. Fast Facts & Figures About Social Security, 2020

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“This Is All About Stagflation… The U.S. Is Walking Into The Early Stages Of The Fourth Turning”, by Larry McDonald

Inflation and a shrinking economy are certainly not mutually exclusive possibilities. From Larry McDonald at The Bear Traps Report via zerohedge.com:

We believe the U.S. is walking into the early stages of the Fourth Turning, a subject entertained below. In this note we break down the ideal 2020-2030 portfolio and why it is so different from the 2010-2020 vintage. Above all, by now it should be clear to a five year old; Global Central Banks are working together in a dollar containment regime. With conviction, we laid out this thesis a year ago (April 2020) in our “Lessons from Omahaand it became the foundation under our overweight positioning in commodities, global large cap value, and emerging markets.

The good news is, the commodity cycle is still in the early innings.

There are trillions of U.S. dollars married to deflation bets (fixed income bonds and tech stocks) and the lawyers are writing up the divorce papers as we speak. Unintended consequences are popping up weekly, the latest variety points to a significant labor shortage developing in the U.S. with colossal side effects moving our way.

It’s going to be hilarious. Just when the last economist threw in the Phillips Curve towel, wrote the long winded obituary it will come roaring back to life. Wage inflation is about to explode, and this sword is swinging in the direction of profit margins.

Above all, the Fed is staring down the barrel of  runaway inequality, inequality that the Fed itself has created. The American Dream just isn’t the 1950s-2000s bright blue, a touch of grey has moved in forging left wing populism. If you listen carefully to U.S. Treasury Secretary Janet Yellen and Fed Chair Jay Powell, they are focused on U 6 unemployment near 11% and the 9 million Americans who have left the Non Farm Payrolls since January 2020.

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