Current Events > ''Stock market swings tell you all you need to know about our economy''

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https://theintercept.com/2018/02/08/stock-market-crash-jobs-report-wages/

...Market watchers have said flat-out that the crash was triggered by a new jobs report released Friday that showed that wages, nearly a decade into the recovery, might finally be starting to rise.

Now, when analysts say that the Dow Jones industrial average went up or down for this or that reason, they are often just guessing. What specifically moves a body as complex as the stock market is in some ways unknowable, but it is useful to explore the cause being ascribed to last weeks crash rising wages apart from its implications for the market. What it says about the way our economy is structured is much more profound.

Start with the suggestion, which seems odd on its face, that the market crashed because wages were seen to be rising. Anybody outside the financial system would immediately see wages going up as a good thing. After all, its what every politician in every party says they want to see happen. But for market analysts, its a bad thing, because it is said to be a signal that inflation is around the corner.

Concern about inflation was most glaring on Friday, when stocks tanked after the January jobs report revealed the strongest wage gains since 2009, reported CNN Money. The immediate catalyst was the jobs report, which showed the strong United States economy might finally be translating into rising wages for American workers a sign that higher inflation could be around the corner, offered The New York Times.

And if inflation is coming, then the Federal Reserve is likely to raise interest rates to slow down the economy and cool off the inflation. When the Fed raises interest rates, bonds become more attractive, so people move money from stocks to bonds and the stock market dives. It becomes harder to borrow, so businesses and homeowners have less capital to throw around. Profits get squeezed by high-interest payments. And as interest rates rise, the value of older bonds, which pay out a lower interest rate, goes down. So people are losing money all over the place. All because wages started to go up.

Everything in the structure of the economy, then, is geared toward making sure that wages never rise. And for nearly half a century, this task has been accomplished. Wages havent budged since the 1970s.

Capitalisms reserve army has its ranks bolstered by a mechanism known as the inflation target or the inflation objective. The Fed currently sets the target at 2 percent, meaning that it doesnt want to see inflation higher or lower than that. What it really means is that it doesnt want to see inflation higher than that, as the economy hasnt hit the 2 percent target in years.

But the target itself has meaning, since any little sign of wage growth is taken to mean that inflation is around the bend, so the Fed taps the brakes to keep everything under that target. When the Fed hits the brakes, people lose their jobs. Thats not an unfortunate side effect of tighter monetary policy it is the intended effect. But the 2 percent target, argue people who want to see real full employment, is too low. The Fed is throwing people out of work unnecessarily or, at least, for no sound economic reason.
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In plain English, Yellen said that the decision the Fed made in 2012 before she was Fed chair may have been the right one at the time, but evidence since then suggests the rate could be set higher. Wage growth since the recession has been anemic and labor share of corporate income is still nowhere where it needs to be, Jordan Haedtler, campaign manager of Fed Up, told The Intercept. If the Fed announced that it was willing to tolerate a higher inflation target or even adopt a wage target, maybe investors would treat the recent modest uptick in wages as the good news that it is, rather than panicking.

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Antifar posted...

Market watchers have said flat-out that the crash was triggered by a new jobs report released Friday that showed that wages, nearly a decade into the recovery, might finally be starting to rise.

How dare we pay workers more money!
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Apparently someone at the intercept thinks that these "market watchers" are like all-knowing sages who only speak truth and wisdom about the markets (often times they are actually just clueless fools)
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The stock market falling doesn't mean the economy is falling. It's exactly what the article says, other investments become more attractive; so money gets reallocated.

Most macro economic indicators continue to be strong, which is why no one is crying recession yet.
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sounds like a marxist took econ 101 and is trying to apply it to things they dont understand

Shmashed posted...

The stock market falling doesn't mean the economy is falling.

Correct; the stock market is not the economy.

Sativa_Rose posted...

Apparently someone at the intercept thinks that these "market watchers" are like all-knowing sages who only speak truth and wisdom about the markets (often times they are actually just clueless fools)

Congratulations on not getting to the second sentence

Now, when analysts say that the Dow Jones industrial average went up or down for this or that reason, they are often just guessing.

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lesidesi posted...

sounds like a marxist took econ 101 and is trying to apply it to things they dont understand

Bingo.

Tmaster148 posted...

Antifar posted...

Market watchers have said flat-out that the crash was triggered by a new jobs report released Friday that showed that wages, nearly a decade into the recovery, might finally be starting to rise.

How dare we pay workers more money!

I too feel an overwhelming compulsion to respond to explanations as if they were dogmatic statements of right and wrong
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Panthera posted...

Tmaster148 posted...

Antifar posted...

Market watchers have said flat-out that the crash was triggered by a new jobs report released Friday that showed that wages, nearly a decade into the recovery, might finally be starting to rise.

How dare we pay workers more money!

I too feel an overwhelming compulsion to respond to explanations as if they were dogmatic statements of right and wrong

Except that it's not actually an explanation considering that immediately in the article:

Now, when analysts say that the Dow Jones industrial average went up or down for this or that reason, they are often just guessing.

I was more commenting on how dumb that thought is.
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"These people whose careers are dedicated to the stock market are just guessing. I know because I'm a maybe-trained glorified opinion writer for a third rate publication. Treat their opinion as nonsense but mine as fact."
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If you actually read the article you'd know it's not about wages going up, it's about the inflation that wages going up brings.
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The recent Dow Jones fluctuations have very little to do with a legitimate fear of inflation. The stock market panicked largely because CEOs and shareholders fear that theyre losing their upper hand over a workforce thats cutting increasingly into their record profits. The Feds response to that may well be worse for the average American than anything that happens on the floor of the New York Stock Exchange: It may throw workers who are already hurting under the bus in the name of a stopping something inflation thats nowhere to be found. Theres an outsized chance it could even trigger another recession, as more dramatic rate hikes have been known to do in the past.

Like most economic policymaking, the job of the Fed is to adjudicate who gets to hold power in the economy and society writ large, ostensibly in the public interest. If the Fed raises interest rates in the coming weeks and months, its answer will be clear.

Yikes at this conclusion
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SK8T3R215 posted...

The recent Dow Jones fluctuations have very little to do with a legitimate fear of inflation. The stock market panicked largely because CEOs and shareholders fear that theyre losing their upper hand over a workforce thats cutting increasingly into their record profits. The Feds response to that may well be worse for the average American than anything that happens on the floor of the New York Stock Exchange: It may throw workers who are already hurting under the bus in the name of a stopping something inflation thats nowhere to be found. Theres an outsized chance it could even trigger another recession, as more dramatic rate hikes have been known to do in the past.

Like most economic policymaking, the job of the Fed is to adjudicate who gets to hold power in the economy and society writ large, ostensibly in the public interest. If the Fed raises interest rates in the coming weeks and months, its answer will be clear.

Yikes at this conclusion

I mean the first 2 words of the article, conveniently cut out by the TC, are "Karl Marx" so we shouldn't be surprised.
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shockthemonkey posted...

Annihilated posted...

lesidesi posted...

sounds like a marxist took econ 101 and is trying to apply it to things they dont understand

Bingo.

I cant argue with this, so lets yell about those damn commies!

Maybe you're just lazy.