The good, bad, and ugly: Developing news on jobs, currency, and austerity

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Longtime readers know that one of the goals of Barataria is to report on news stories that haven’t made the mainstream nooze yet. Today we have three that are developing into what may yet be the most important economic and political stories of 2013 – the good, the bad, and of course the ugly.

There has been a lot of good news lately on the economy, even as the rest of the world flounders a bit. It’s that weakness that makes the potential bad news, especially as the world looks to us as a stable and safe place to park money. But the ugly story comes out of the place we’re used to being a dim spot, the US Congress, supposedly working on an actual budget for the first time in four years. Think their inaction could screw things up? Oh, no – it’s what they are doing that is actually much, much worse. So here are tomorrow’s stories as the develop today.

First, the good news. The Bureau of Labor Statistics jobs report for February came out showing an even larger gain in jobs than the ADP report we all love. Nevermind that – it cancels out their lower January report and shows once again how noisy the official data is. But a drop in the headline unemployment rate to 7.7% was not bad – especially since the unemployment rate among 20-24 year olds dropped much further, from 14.2% to 13.1%. The gap between the two is a much more reasonable 5.4%, the lowest it’s been since 2006.

This was one of our signs to watch in 2013. One month does not make a trend in this noisy data, but at least it went the right way.

Given that the economy is so strong, what is the bad news still developing? Before we get to the real source of trouble, always Congress, it’s important to point out that the currency war we have been tracking for a few years is heating up in a big way. So far this year the US Dollar has gained 10% against the Japanese Yen and nearly 4% against the Euro, making their products appear cheaper and likely stalling the recent improvement in US manufacturing jobs. This is moving very fast and will get uglier as the year goes on.

This means that inflation is almost certainly at bay for the time being, but it puts pressure on the Federal Reserve to match artillery with the other central banks that are busy trashing their own currency. Look for a big barrage to be launched this year – a shelling done by printing more US Dollars in another round of quantitative easing. It is beginning to seem even more likely even though our economy is strengthened.

But what about the slouch towards austerity in Congress – isn’t that the biggest thing to worry about? Aren’t we all in peril from their inability to do their job? No, Congress is, as always, far worse than simply useless. And that takes us to the ugly story that is, so far, flying under the radar.

As we’ve reported many times, the total value of derivatives traded around the world is at least $600T, or about 12 years of the total product of the planet (and may be $100T higher, no one is sure). These are a kind of insurance that pays off in the event of a financial event, the most common being a default on corporate or national bonds called a Credit Default Swap (CDS). Most of those who hold these CDSs are unable to afford a real default, either – they only bought them for the premium paid at the start. The market for these financial instruments is lightly regulated at best, and only recently were US holders required to start reporting their holdings.

What did the big playahs do about this? They found a friendly place to introduce a series of bills to repeal all of the important requirements – the US House Agriculture Committee. Yes, the Ag Committee – chaired by Frank Lucas (R-OK). I’ll bet they thought no one would be looking (and so far they are nearly right).

A series of bills was voted onto the House floor by all the Republicans and 6 Democrats that would essentially gut the meager regulation that has started to reign in the small measures of control placed on derivatives. They’ve even voted to strip the recent reporting requirements – as well as allow international banks to move these derivatives from one branch to the other across international boundaries with no barriers at all. It’s breathtaking in its bold ridiculousness – and has yet to be picked up by a major nooze outlet. Read about the details in the links provided, as they are scary as all Hell. No major nooze outlet has even tried to cover this yet, either.

While the economy is humming towards a solid restructuring thanks to the good work of millions of Americans, the rest of the world could threaten it – and Congress is making itself busy looking out for the very, very rich. That is tomorrow’s news today – the good, the bad, and the ugly.