Rabobank: We Officially Have Central Planning With No Plan

By Michael Every of Rabobank

Nothing Ad(d)s Up

Good morning and Happy Friday – except to those hoping to read any parts of this Daily quoted in the news via Facebook in Australia. Sorry Aussies: you are on the front line against yet another economic behemoth of the early 21st century, and once again there is a very short queue of countries behind you offering public support. A new law about to be introduced Down Under means social media giants either pay up for the news they carry to compensate for ad revenue lost to the actual media (“What, us pay for content?!”)…or they don’t carry news at all. Google struck a deal, and Facebook struck Australia off. Australians –and then who next?– will have to go back to using Facebook for pretending that their lives are infinitely better than they really are, and for sharing the really important stuff like selfies, and pictures of cakes, and silly cats. Of course, given a video of a US lawyer who looked like a cat was one of the only unifying things to have happened on social media in a long time, perhaps this might be depolarizing – unless there are people out there with really strong views on frosting vs. no frosting, etc.

So it’s nothing/ads up: and it’s more broadly that ‘nothing adds up’. Indeed, just as US weekly jobless claims spike back to 816K again, we heard US Treasury Secretary Yellen reiterate that “full employment” is achievable in 2022 despite a real unemployment rate of 10%.

• First, that means US payrolls growth of 500K every month until the end of 2022. What is going to prompt that? Yes, dealing with Covid – but that won’t stop the post-Covid structural changes that are inevitably going to have an impact on lots of jobs. Yes, fiscal stimulus – but the one Yellen offers creates no jobs directly, just a short-term sugar rush that some will save, not spend. For markets to believe that will achieve *genuine* full employment where wages then rise is to believe that if you eat enough cake, you will get enough energy to run fast enough to burn off more calories than you took in – and to look so good in your next selfie you don’t need to Photoshop yourself to the point where you almost resemble a cat.

• Second, Yellen stressed that jobs-creating infrastructure fiscal spending will be rolled out over “many years”. Does this administration, with the slimmest of Congressional majorities, have many years to realistically plan such stimulus over? What Congressional appetite will there be for another huge stimulus package focused on infrastructure when unemployment is already back at zero in 2022, as planned? The same ‘’many years” timeline is true for tax increases, says Yellen: does that mean she doesn’t back the bill to remove the carried-interest loophole here and now?

• Third, the Fed –whom Yellen knows well!– have just pledged to keep rates on hold for many years too. So assuming we got full employment via 500K payrolls every month this year and next, the Fed apparently still wouldn’t raise rates for some years afterwards anyway(?) Presumably they are thinking that this is how one gets wages up within a “free market system”. And presumably this is why markets are thinking about wage inflation.

Yet this is **CENTRAL PLANNING WITH NO PLAN**. One does not have to be an advocate of MMT to see its promise to directly employ people to do something society wants is more logical than pouring trillions into markets –like candy scattered above ADHD kids, or chum into a school of sharks– and then expecting anything that creates long-lasting, high-paying employment to result (outside Wall Street).

The only part of the plan that seems clear is wild asset-price speculation, which is already ludicrous. Are we really going to have ‘many years’ of this ahead, with what we see today as just the starting base? The GameStop investigation underway in Congress seems to suggest some regulation at the retail level might be needed; but where are all the sensible adults as ADHD sharks let rip? Solemnly talking about ‘full employment’ and holding rates and ‘building back better’!

To repeat: for markets, the key issue is whether this snorting M&Ms strategy is going to be inflationary or not. Near term we can all see it is: longer term, it still seems far more asset than wages based – yet again.

Of course, even this does not add up alongside the Fed’s pledge to resolve deep-seated inequality in the US: how do more expensive food and homes do that, most so for the poorest families? Are they supposed to be renting out properties, rather than renting them, and living off their stock holdings, as Yellen suggested when she ran the Fed? (Based on the Bloomberg/Morning Consult survey, the government is indeed going to give money to some people to speculate with.)

None of this adds up either in that even IF this central planning with no plan were to work, we already see that markets are terrified of rising real yields at the longer end: “Give us reflation! But not inflation!” seems to be the cry. They don’t WANT things to actually normalise – just the liquidity.

And even that does not add up in that *if* yields do move higher, the Fed will very likely just step in and flatten the curve via YCC – and then the plan-free central planning is clear: keep eating the sugar until you get slimmer.

Equally, don’t read the news: just look at the cakes and silly cats, and taking those pouty selfies.