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2024-11-01 09:07 by Karl Denninger
in Employment , 207 references
[Comments enabled]  

Uhhhhhh....

Total nonfarm payroll employment was essentially unchanged in October (+12,000), following an average monthly gain of 194,000 over the prior 12 months. In October, employment continued to trend up in health care and government. Temporary help services lost jobs. Employment declined in manufacturing due to strike activity. (See table B-1.)

Well now that is a miss.

But this is not-so-good:

Health care added 52,000 jobs in October, in line with the average monthly gain of 58,000 over the prior 12 months. Over the month, employment rose in ambulatory health care services (+36,000) and nursing and residential care facilities (+9,000).

That's close to a double from the averages over quite some time, but its the "new normal" and yet our health care is, when you look at objective metrics, both ridiculously more-expensive and not as effective.  So this says that cost has gone up but output, measured by both quality and quantity of life per-person, hasn't.  This is just about math with no adjustment for how someone feels (which does matter, but in economic terms... not so much.)

Within professional and business services, employment in temporary help services declined by 49,000 in October. Temporary help services employment has decreased by 577,000 since reaching a peak in March 2022.

"Layoffs" start here.  There is no severance required.  When companies find themselves with what they perceive as "too much" labor the first people who get cut are temporary workers.  Here we go.

I've been tracking for 20+ years the 12 month adjusted employment number (for working-age population) and it has been in the dumps; not having a positive month since last November.  The particularly-troubling shift in that number has stubbornly refused to show up in the headline or other metrics, including employment/population ratio or weekly paychecks -- until now.

The market's immediate reaction was not to collapse; the best read on that is futures players think The Fed will add more gasoline to the liquidity fire.  We'll see on that; I have maintained their original 50bips was a large policy mistake, still believe it was, and that inflation is coming roaring back in the early part of next year no matter who wins Tuesday.  The bigger question here, particularly with the revisions in this report (August, specifically, was revised down from +159 to +78, so by half) leads one to ask lots of questions; sampling error, of course, is always real but when you miss by 50% and all the misses are in one direction it's hard to believe that's the explanation.

This time, however, all the internal data sets -- weekly checks .vs. hourly rate, employment rates among all four educational attainment groups and more tracked the headline number, so I see nothing in this specific report that flags as being wrong, whether from sampling error or otherwise.

IMHO something wicked this way comes, and softening employment into an inflationary spike in another 2-3 months is exactly the sort of 1970s outcome that occurred from what, from my analysis, looks like the same policy error that was made then.

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2024-10-28 14:36 by Karl Denninger
in POTD , 123 references
 

 

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2024-10-20 07:00 by Karl Denninger
in Federal Government , 5883 references
[Comments enabled]  

Let's do the MTS, since its now out for the entire fiscal year.

First, on gross spending: Federal total spending was $6,751,552 million, a 10.6% increase from last year.  Those who claim that "spending has been held to the previous level" are lying; the previous year was $6,134,526.  It not only was higher it skyrocketed and this is a direct 10.6% increase that either comes from inflation or taxes.

So how about taxes?

Well, this year they totaled $4,918,736 million, a 10.8% increase from last year.  So guess what -- you were taxed ridiculously more too, and thus yeah, it came straight out of your pocket.

Surprised?  Guess who sets the amount of every single tax?  Congress.  Your congressperson, to be specific, and your two Senators.  All of them decided and executed on screwing you blind to the tune of a 10.8% increase.  Now some got more of it and some less, but that's the number across everyone.

Incidentally taxes assessed on "corporations" are actually paid by the customers, and that's you so spare me the "fair share" nonsense as the larger and richer the corporation (e.g. WalMart) the more-likely it came straight out of your wallet.

The total deficit (that is, spending minus revenue) was $1,833,816 million, an increase of about 7.5% from last year.  Note that this is directly inflationary; every dollar the government spends must either be borrowed or taxed and the rate of change from last year to this year was about 7.5%.  Thus anyone trying to claim that "inflation was 2%" is full of it; the government is in fact deliberately imposing a roughly 7.5% inflation rate on you and again Congress is the source of every single dollar of it and thus personally and individually responsible.

Politicians love to claim that Social Security is "bankrupting" things or will be "protected" at all costs, especially when in a political campaign.  But in point of fact FICA, the tax in question, though it has two parts if you look at it carefully enough funds both Social Security and CMS -- Medicare and Medicaid.  Medicaid is not funded at all technically but is in the same department and thus it is only fair to count it as part of that which is not paid for since that too is a voluntary matter on the part of Congress.

The MTS does not make breaking these out part of its remit due to the split (on/off budget) nature but the data is trivially dissected, so let's do that.

The total Social Insurance and Retirement receipts less unemployment and "other retirement" (e.g. Railroads) was $1,652,998 million.  We know the FICA tax rate is 15.3%; if you are a W2 employee you have half of that deducted (the rest is paid by the employer and legally cannot be shown on your check stub, however you in fact pay it because otherwise you'd get it in cash.)  If you're self-employed you have to pay both pieces.  We also know that the Medicare rate is 2.9%.  Social Security caps off but Medicare does not, and the good news is that we can take these from the MTS and add them.

Social Security receipts were $1,265,154 million.  The rest of the $1,652,998 is Medicare tax, more or less (there is a bit of cross-year adjustment that takes place) but this means that CMS gets $386,858 million in funding.  You'll see why this matters in a minute -- yes, that's all the money taken in for CMS via taxes.

So what gets spent?  Well, Social Security retirement is $1,304,397 billion (including $5,860 million to railroaders) and disability payments were $156,511 million (including administrative costs) for a total of $1,460,908 million.

Social Security, on a cash deficit basis, was 86.6% funded.

In other words it ran a roughly 13% cash operating deficit.  If we raised the 6.2% tax to 7% that would entirely close the gap.  That's right, if we did that the program would be cash-neutral with no other changes.  We could also lift the cap somewhat and do the same thing, or some blend of the two.  Those who say we cannot protect Social Security are lying, and further, as the Boomers die the benefit payments will fall off; I'm on the tail end of it and I'm 61 so that fall-off will be beginning soon and within the next 20 or so years it will be basically complete since as an actuarial matter most Boomers will be dead.

SOCIAL SECURITY IS NOT THE PROBLEM; IT IS QUITE-TRIVIALLY ADDRESSED AND IN FACT IT IS ENTIRELY POSSIBLE THAT THE "KNEE" POINT WILL BE REACHED AND THUS SAID PAYMENTS WILL START TO DECLINE BEFORE THE EXISTING BOND PORTFOLIO IT HOLDS IS EXHAUSTED.

So why all the screaming?

Because nobody wants to take on CMS, which is where the problem is.

Centers for Medicare and Medicaid Services spent a staggering $2,222,161 million last year.  Remember, they only took in $386,858 million in offsetting tax receipts so on a cash basis they are only 17.1% funded!

In fact $1,835,303 million of the Federal Deficit came directly out of CMS.  

Wait a second.... the total deficit was $1,833,816!

In other words literally all of the deficit is in this one program.

All of it.

The entire problem resides here and its even worse than the MTS propounds because Medicaid, which is part of CMS, is a federal/state program and only part of the expense is captured in the MTS; the rest is in State spending and again there is no tax against which said spending resides at the State level either.

Plenty of people are hollering about interest expense and yes, on a gross basis that crossed $1 trillion this year.  There is an offset in that some of it is against the bonds held by Medicare and Social Security, that is equivalent to taking a $20 from one pocket and putting it in the other and thus is properly accounted for that way, since the funds are owed within the government itself.  Nonetheless the reason that interest expense keeps going up is the operating deficit which has to be financed, that financing is immediately and directly inflationary and all of it is in CMS.

I've been raising a stink about the progression of this problem all the way back to the 1990s when I first identified it while running MCSNet.  The only way to reverse it is to neuter the medical monopolies and radically drop costs.  Leverage included  an entire section on this and this article, which expands on that greatly (along with the follow-up on what implementation could look like which is a link at the bottom) would cut said expenditures by roughly 80%.

A commensurate cut in spending would occur in the private economy.  This would be very disruptive in the short term but it would also work through and resolve the budget problem and debt issues over the intermediate term.  Doing so would, after the adjustment took place (and yes, asset prices would reset downward -- by quite a lot in some cases) result in a flood back into the US of both manufacturing and service jobs because the imputed tax from both inflation and this insane cost, which every person in the US bears along with every employer, would be dramatically reduced.

Roughly a decade ago I had the opportunity to present the forward projection -- which has been nearly 100% accurate now for the last 30 years and continues to be, to Senate staffers for a few minutes.  They all knew already; I was not breaking news to them.  The implication of course was that due to the pressure groups and lobbying with no effective pushback by the citizens in the other direction they were not going to act as they feared losing their jobs in the next election.

It would have been easier and less-disruptive to deal with this 30 years ago -- then 20, and then 10.

We didn't.

Obamacare was an attempt to paper over this but it was doomed to fail because the underlying issue was not "insurance" (in quotes because medical "insurance" isn't; you can't insure a house against fire if it is already on fire) it is cost and without taking a chainsaw to that, and the only sane way to do that is to enforce 100+ year old anti-monopoly laws across the board with criminal penalties, not fines, you cannot control cost.  Small incremental changes will do nothing because of the magnitude of the problem and how long it has been permitted to continue, never mind that all the "claimed" changes by every Administration back to Obamacare and then forward have done nothing to change the trajectory no matter who is in office.  Biden and Harris' game-playing with Medicaid is making it worse but that is not the root of the issue either; it is literally everywhere within the medical system.

If this is not stopped on an immediate basis, not with empty promises to be "enacted over 10 years" as has always been the case up until now, the collapse of hospital systems and medical care generally is assured.

Time's up.

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2024-10-18 07:00 by Karl Denninger
in Technology , 314 references
[Comments enabled]  

Starlink, specifically.

I've spent the last while driving through a lot of very-rural areas.  These are places where the average home is a trailer or a rather-poor condition and older home; the people there do not have much money.

$120/mo is too much.  And on the poles out there I am seeing fiber being pulled but not yet terminated, so this opportunity will wind up being filled that way and thus to compete with it you have to be cheaper on a long-term basis.

Starlink might be able to do that if it pencils; I do not know if it does.

Consider the current $50 "roam" 50GB package.  Too expensive.  But a $30/mo offering limited to 50Mbps, with a $5/mo permitting not-while-moving roaming add-on that can be added and dropped as desired (e.g. "take it with you to the next apartment, rental or on the road in your cheap RV or even car if you get evicted, but you can't use it while moving) would sell and it would remain viable once the glass shows up.

It will never beat the glass but a lot of people in that situation find the difference between $350/year and $600/yr to be enough to make the difference between "I can afford it" and "I can't."

People in the middle class and above don't think this way but the person living off Dollar General and EBT do.  $20-30/mo is a couple of cheap 12-packs of beer, some smokes or a couple of packs of gummies or pre-rolls full of THC and yeah, at that margin it matters.

The question is whether it pencils.  You have to keep it from being attractive to the guy who has the money to pay the $120, and limiting throughput to 50mbps does that.  But -- its enough for an SD stream or two, all the web browsing and Youtube or similar on an inexpensive computer.  It will definitely not do the job for content download, gaming and similar things but those people aren't in that market and restricting it so it can't be used that way means those who can afford the better service will buy it and you won't cannibalize the higher end of the market.

This is one of the puzzlers that I have with Elon and many of his offerings.  He walks right past market opportunities like this which makes no sense unless his goods and services simply can't be sold at an operating margin that works within those price points.

If it can't then Starlink is a niche product that increasingly gets crowded out as fiber deployment expands and all the electric utilities are pulling glass along with their wires for their own telemetry.  It is faster and impervious to most damage other than physical destruction including by lightning where CATV is not, and in addition it requires repeaters at longer increments and with less power consumption.

Now this won't apply in some other nations -- but I bet it does within the EU and other industrialized nations as well -- and that's where people have higher per-capita incomes necessary to pay those higher bills.

Within the next five to ten years from what I am seeing all over the place as I travel most rural electric customers will have this option.  The places I saw on this last trip where it obviously being deployed but not yet finished were astounding to me.  We're talking about very remote rural places -- and the utilities are putting in large loops of "reserve" so when there's damage such a tree taking out electric lines in a storm they can fix it with no splices back to the next repeater or distribution block.

This of course makes sense because the actual glass itself is quite cheap while the rest is not.

Nobody's going to pay $120/mo for service when the competitor is $50-60 and symmetrical gigabit where Starlink is ~200mbps down and asymmetrical.  This is the same problem the cable operators have; as the power companies do this they're in trouble because their 200/10 or 400/10 service for $80-100/mo is uncompetitive against 1g/1g for $50-60.  Starlink can't match the price and win because of the hardware requirement and its not competitive on price/performance for the "full" service either, so it has to be somewhat cheaper and enough so that it bites into the marginal money available to lower-income people or within the next few years all that's left is marine, roaming and the few who are truly off-grid in the US, which is damn few of the general population.

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2024-10-17 09:07 by Karl Denninger
in POTD , 142 references
 

 

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