Janet Yellen and the Labor Market

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Podcast Summary

Ryan and Louis speculate on what Janet Yellen’s plan to boost jobs might be. The discussion starts at 17:14.

The discussion of why the IRS Bitcoin ruling is a Bitcoin killer starts at 42:35

0:00-6:15 Introduction

6:15-11:08 Discussion of the incessant positive spin the media places on economic data (home sales are poised to surge in the spring!) Interest rates are discussed in the context of the Fed buying U.S. Treasuries to keep them low. With the Fed supposedly exiting the bond market as a purchaser who will buy the bonds when the Fed stops?

Janet Yellen and the Labor Market

Janet Yellen recently announced that she is committed to helping the labor market. We had noted when Ms. Yellen was appointed that the job market would be a focus during her time as Chair of the Federal Reserve. Discussion of the removal by the Fed of the 6.5% unemployment rate as a target rate before they begin to raise rates and St. Louis Fed President James Bullard’s prediction that the unemployment rate will go down to 6% by the end of the year. Yellen will want to stop QE but rates will rise as they taper. Perhaps the Fed will use weakness in the labor market to continue with Fed intervention.

Stops and Starts and Tapers of QE

11:08-1500 Quantitative Easing (QE) has been ended a few times since it began in 2009. The Fed is on its fifth iteration. The Ukraine situation is not resolved and will play out again in the future. Russia making deals with Iran that don’t involve using the U.S. Dollar. The situation in Russia can create an excuse for the Fed to print more money.

Small Business Survey

15:00-17:14 Ryan discusses a recent small business survey that shows a majority of small businesses are planning on giving their employees raises. Wages have been flat for five years and there have been many staff reductions so it’s not surprising that employers may be contemplating giving their employees raises. U.S. corporate taxes are among the highest in the world.

Yellen’s Plan to Create Jobs- Forced Loans to Small Businesses?

17:14-19:15 Ryan and Louis discuss a potential Yellen scheme whereby the Fed continues to funnel dollars to the banks on the condition that part of the money is used to make loans to small businesses to create jobs and predict that under any such scheme there will be favored companies that will receive these types of loans. Putting more dollars into circulation will help the Fed meet its target inflation rate but probably won’t create many jobs.

Home Equity Loans

19:15-21:10 Home equity loans are discussed.

Home Affordability

21:10-31:19 Discussion of rising home prices and their impact on home affordability. Characteristics of the housing market are discussed: rising interest rates, lack of inventory, cash buyers constituting 35% of all home purchases in February and the impact of cash buyers on home prices.

QE has created higher home prices and its called a “recovery” even thought many people can’t afford to buy homes. The Fed defends QE as creating a wealth effect that helps everyone. Former Fed Chairman Ben Bernanke noted that many people own homes and therefore rising home prices help them. Ryan notes the recovery is just for the rich. Janet Yellen disagrees! Higher home prices lead to higher property prices and the most recent run up in home prices is not congruent with economic growth.

QE and Savers

31:19-32:50 QE forces retirees in to the stock market and labor market.

When Will the Stock Market/Economy Crash?

32:50-37:45 Ryan notes that the economy will not crash during Obama’s term. Louis notes that unless Russia/China stop buying U.S. Treasuries, dump Treasuries and/or don’t use the dollar the Fed will remain in control. If, however, the Fed does any of the above, there is nothing the Fed can do. Now the Fed can continue to funnel money to the banks, keep interest rates low and convince everyone that the economy is growing. Discussion of market manipulation by the Fed and Janet Yellen’s qualifications.

The Fed doesn’t read market signals, they send market signals. They remove price discovery through their policies and push people towards home and stock purchases. The Fed believes they can print $4 trillion, fix things and just stop.

Do Banks Have Your Money? Will They Let You Have it?

37:45-39:35 More than half of U.S. cash is outside the United States. Banks give you a hard time when you try to take money out. Or put it in! J.P Morgan Chase is now requiring ID to deposit money.

The Reason Bitcoin Is Popular

39:36-42:35 People value privacy and desire a lack of a bank intermediary asking questions and charging fees.
If banks were normal competitive entities with quality services there would be no need for bitcoin. Instead, banks are monopolies that do not compete and rather act as if the money depositors loan them is theirs! Banking as a control mechanism.

The Bitcoin IRS Ruling

42:35-47:52

The IRS did not recognize bitcoin as a currency as it would be competition for the U.S. dollar and the banks. The IRS labelled Bitcoin property and deemed each use of Bitcoin in transactions to be a sale of Bitcoin that needs to be taxed by calculating the Bitcoin’s cost basis at acquisition and the price of the Bitcoin when used and taxed on the difference.

The IRS made Bitcoin inconvenient to use and thereby lowered the value of Bitcoin as property. The ruling, however is convenient for the IRS as they can collect tax on all the massive gains enjoyed by Bitcoin uses over the past few years.

Bitcoin Regulation

Discussion how the IRS, Justice Department, The CFTC, the SEC can all act individually or in conjunction to squash threats to the dollar and the banking system. Gold is a threat, silver is a threat and those threats are neutralized. They don’t have to actually ban Bitcoin to undercut the value of Bitcoin. The IRS ruling will result in the collection of taxes from Bitcoin sales and uses during the past few years.

The IRS can ask merchants that accept Bitcoin for names of customers and match them up against their tax returns and trigger an audit. This will slow Bitcoin adoption -people won’t go out now and get Bitcoin if it will subject them to IRS reporting and drops in price. Why hold Bitcoin and be subject to reporting? The IRA has undermined Bitcoin without banning it. The harm done to Bitcoin by the IRS ruling will gradually be realized- adoption will be slowed or reversed on the consumer side and merchants will be reluctant to accept Bitcoin if it means onerous reporting requirements and Bitcoin accounting.

US Companies with Money and Operations Abroad

47:52-49:19 Bringing U.S. corporate money and the troops home might help the economy.

The Best Small Companies are Those That Don’t Make Money

49:19-50:52 In today’s QE bubble economy the only businesses that makes sense to start are ones that won’t make money like an Internet or social media company that can be sold to Facebook or Google for hundreds of millions of dollars, like What’s App? or billions of dollars, like Oculus. Fed policy is encouraging entrepreneurs not to run a business for profit but for speculation.

The Free Food Business Model!

50:52-52:45 For start ups today it’s more important to see how many people the company can get to use their product. Wall Street rewards non financial metrics today as they did during the dot com bubble of the late 1990’s. Earnings seem to be unimportant.

A free food business model is discussed.

52:45- credit tip of the week

IRS Tax Treatment of Bitcoin Will Squash Bitcoin Adoption & Its Price