Market Talk

QE2 can create money out of thin air, apparently, but it can’t create jobs of out thin air, evidently, and that is the crux of the limitations of and problems with continuing central-bank tinkering at this state of the game.

ADP, the big check-processing outfit, gave its take on the September jobs picture, and it wasn’t pretty. The firm estimated the economy shed 39,000 jobs in September, below the Street view that it would report a gain of 20,000. Among a work force of 150 million some-odd workers, that’s not a big number either way, although psychologically it hurts more to see a negative number than a positive one. Now, ADP’s methodologies don’t exactly align with the BLS, which reports the “official” numbers on Friday, but they’re not that far off, so you can expect another weak report Friday.

This is the entire problem, Mousketeers. Jobs aren’t being created, not anywhere on the level needed. Jobs are not being created because demand is not there. Maybe, in a world where the 10-year yield is at 7% or 8%, and mortgage rates are running even higher, the Fed can have success in goosing demand by lowering rates. But with the 10-year currently, right now, this morning, at 2.42% — close and getting closer to its all-time low of 2.40% 2% hit at the depths of the crisis — with mortgage rates already at all-time lows, what are lower rates going to do? Not much.

It will have some effect on the margins; I’ve noticed a lot of home-improvement projects in my town lately, and I figure some of those folks who are refinancing are also taking on a little more debt to finance the projects.

But the American body politic suffered a body blow not seen in 80 years. Millions of peoples’ lives were ruined. Some lost a level of earnings and security they will never get back. Some will struggle for years just to get back where they were years ago. Millionaires filed for unemployment. Even those of us who thankfully avoided the pink slips saw their wages frozen, or cut, or their benefits cut. Home values will take years to recover, maybe decades. The psychological damage will last longer than the financial damage, too. It’s going to be a very long time, before the next captain of industry gets the Jonas Brothers treatment from an adoring public.

None of this can be papered over with lower interest rates. None of it. You want to know when the economy is healthy? When wages are outpacing inflation. When the unemployment comes down because enough jobs are being created not only to absorb the growth in the work force but to absorb the millions of people who lost their jobs in the recession.

With a lot of patience, and some even half-way competent representatives down in Capitol City, we will get there. It’s going to take a lot longer than the Street wants, hell, than anybody wants, but we will get there. The sooner we all realize it’s bootstrap time, the better off we’ll be. But this notion from the central bank, that it can reflate asset prices, which will make people “feel” wealthier, which will make them spend freer, which will boost demand, which will spur hiring, which will heal the nation, well, it’s dangerous.

Addendum: Joseph Stiglitz summarized it thusly: “There is lots of instability caused in part by the flood of liquidity from the Fed and the ECB. The irony is that the Fed is creating all this liquidity with the hope that it will revive the U.S. economy. It is doing nothing for the U.S. economy and causing chaos for the rest of the world.”