- US economic data seemed too good to be true, and it was!
- Bank of England fails at money printing
- Taliban and ISIS reported to be making tentative peace in afghanistan
If you thought the recent US economic data was too good to be true, it turns out you were right!
That’s because the Bureau of Labor Statistics (BLS) released revised figures on US wage growth for the past several quarters–and the results weren’t pretty. For example, in first quarter of this year, the BLS had reported year-over-year real wage growth of 4.2%; today, they revised that figure to a real wage decline of 0.4%.
That is a massive change, and many others were similarly disastrous. From this, there are a few things to take away:
- Government estimates of macroeconomic data get revised all the time–usually downward–although most aren’t as dramatic as this latest one.
- As a result, and given all the assumptions that go into many key statistics, each individual data point should be viewed with skepticism and considered in the broader context. No single estimate can tell us exactly how the economy is doing. And, most important of all,
- The simplest explanation is often the right one. In the primary season, the American people were so dissatisfied with the status quo that millions voted for the extreme alternatives that Donald Trump and Bernie Sanders represented. That wouldn’t happen if everything was awesome. Today, one more data point has fallen in line with the reality these voters already knew–that something is deeply wrong in the US and in its economy.
Unfortunately, neither Donald Trump nor Bernie Sanders support the ideas needed to fix it, and Hillary doesn’t either.
When money printing fails…
We mentioned last week that the Bank of England announced a new monetary stimulus plan. The plan involved a cut in interest rates, and a new round of quantitative easing–the fancy economic term for conjuring money into existence.
While quantitative easing is a bad idea, it is generally a straightforward one to implement. The central bank, in this case the BoE, just buys government bonds, paying for it with new money. And because they create the money, they really don’t care what price they pay for the bonds. The goal isn’t to make a profit for the bank; the goal is to stabilize an economy that is constantly in need of ever more support.
Anyway, this is why it was odd that yesterday, the BoE tried to do this exercise and failed. Literally, they were offering to buy millions of pounds of long-term UK debt, and they could not find enough sellers to fully satisfy their order, even though they were paying a premium on them.
If this sounds bizarre, it should. It basically never happens. The fact that it did is one more sign of how unprepared central banks will be when the next economic crisis fully hits. Simply put, the central banks have already begun to run out of room on one of their favorite “stimulus” tools. As this continues to occur, they are left to pursue ever more unconventional and more dangerous measures as each previous idea fails.
Taliban and ISIS reported to be making tentative peace in Afghanistan
It is the latest example of unintended consequences from the longest war in American history. ISIS is expanding its foothold in Afghanistan making peace with the Taliban. Instead of exhausting resources fighting each other, both sides are appearing more interested fighting what remains of the official Afghan government and Western troops still in country to defend it.
In Libya and Syria, the US has largely spurned the old strategic dictate that “the enemy of my enemy is my friend,” over the past several years. In its place, we chose a much more controversial theory, “the enemy (Qadaffi, Assad) of my enemy (Al Qaeda et al) is my target” with dismal results. To everyone else, however, the old rules still seem to apply.
It remains to be seen whether an outright alliance will emerge between the two groups. But it must be must be noted that none of this would be happening in the absence of continued Western intervention. Yes, without US-backing, the current Afghan government would have long since been replaced by the Taliban–and this is likely to occur shortly after we leave even now.
But while the Taliban may subscribe a fundamentalist version of Islam, it must be remembered that the Taliban are not ISIS. And the differences matter. The Taliban arose with regional ambitions and concerns, while ISIS sought to play up an internationalist war against the West almost as soon as they had an opportunity. One of these groups represents virtually no danger at all to American and Western civilians, while the other is a legitimate threat (though one that is often exaggerated). A sane foreign policy would obviously prefer to see that regional group in power over the alternative. The foreign policy we have exists solely to prevent the Taliban from the regaining control–in the process ensuring the constant chaos that ISIS needs to gain a foothold.