A few days ago, one of the winners of the 2013 Nobel prize for economics, Robert Shiller, warned that stocks are in a bubble, voicing what most people, except for conflicted asset managers for whom spinning the truth and increasing their AUM means a greater paycheck, and the monetary misfits in the Marriner Eccles building of course, know: that stocks are in a bubble. Today, it was the turn of the other Nobel prize winner, Eugene Fama, whose expertise in markets may be a tad more questionable (he still believes in efficient markets in a world in which the Fed exists), to warn about something else – the risk of global recession.
“There may come a point where the financial markets say none of their debt is credible anymore and they can’t finance themselves,” he told Reuters in the snow-covered Swedish capital, where he will receive his prize on Tuesday.
“If there is another recession, it is going to be worldwide.”
Fama, who has been called the father of modern finance and shared the economics prize for research into market prices and asset bubbles, played down this week’s strong U.S. labor market data.
“I am not reassured at all,” he said.
The U.S. jobless rate fell to a five-year low of 7.0 percent in November, and employers hired more workers than expected.
“The jobs recovery has been awful. The only reason the unemployment rate is 7 percent, which is high by historical standards in the U.S., is that people gave up looking for jobs,” he said.
“I just don’t think we have come out of (recession) very well,” he said.
But we sure have stayed in the depression quite well. And to illustrate just what Fama means, here is a chart showing the US labor force “change” between November of 2012, when the unemployment rate was 7.8%, and the just released November 2013 numbers, according to which unemployment fell to just 7.0%.
As today’s chart of the day shows, while the civilian noninstitutional population (i.e. employable Americans over the age of 16) grew by 2.4 million in the past year (from 244.2 million to 246.6 million), the US labor force somehow, very mysteriously, declined.
It means that if the labor force participation rate was realistic, the US unemployment rate right now would be 11.5% instead of an artificially lower one.