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A 3 minute synopsis of Part 2 of the February 2014 interview with Jim Rickards, author Currency Wars: The Making of the Next Global Crisis and the forthcoming The Death of Money: The Coming Collapse of the International Monetary System and portfolio manager of the Westshore Funds, by Lauren Lyster from Yahoo! Finance – The Daily Ticker

Topics

Structural vs Cyclical
Labour Force Participation

Jim Rickards

Yahoo! Finance – The Daily Ticker
Lauren Lyster
Interview with Jim Rickards – Part 2
February 13, 2014

STRUCTURAL VS CYCLICAL

Jim says the debate is “Is it structural or cyclical”.

Janet Yellen paid lip service to the structural — everyone agrees with that because of demographics.

But there is a lot more to the labour force participation than demographics.

No sooner did she talk about structural than she shifted gears and started talking about the cyclical component.

The reason that this is important is that if you think it’s cyclical then you think monetary policy can help.

If you think it’s all structural then the monetary policy cannot help — you have to do other kinds of structural policy.

What is that?

Fiscal policy. Regulatory policy. Keystone pipeline. Healthcare. These are the structural things — mostly in the hands of Congress.

In Jim’s view, and he believes there’s a lot of back this up, it is almost 100% structural.

Exhibit A would be that they have been using monetary ease for five years and it hasn’t really worked.

LABOUR FORCE PARTICIPATION

The unemployment rate has come down a lot, but labour force participation has collapsed. Even the people who have jobs, these are part time jobs, these are $9 an hour jobs.

Twenty hours a week and $9 an hour — try raising a family on that.

These are the jobs we’re creating instead of much stronger jobs.

So, the productivity is weak and the labour force participation is low,

There’s a very interesting paper that came out from the Boston FED economist named Andrew Levin who is the “go to” economist for Yellen on labour issues.

He makes a point that there is a difference between being unemployed and being out of the labour force. If I’m looking for a job, but I’m unemployed, then I’m “job ready” when the economy grows. But if I’m out of the labour force, then it take a lot more inertia, a lot more ease, a lot more monetary policy to get people off the couch and into the labour force.

So if you think this has a lot to do with labour force participation, and furthermore you think it’s cyclical, then the conclussion is that you need a lot more monetary ease to move the needle.

That is what Janet Yellen is focused on.

Jim met with two Central Bankers, one FOC member and one Bank of England monetary policy committee member. They both said she is very focused on the labour participation market and she is looking at real wages as her metric.

These are the things Yellen is looking at most closely.

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