Wall Street/ Fed/ White House Triumvirate Is Beginning to Crumble

The Obama administration, as it pursues re-election in 2012, is doing all it can to claim that the US economy is in fact not quite as bad as previously thought. One of the tactics is to massage GDP and jobs data. True, this practice has been in place for over a decade, but the recent January jobs report from the BLS has set, shall we say, a new high-water mark for “adjustments.”

According to the BLS, we ADDED 243,00 jobs that month. That’s an odd claim given that the BLS admits, in the very same report, that without adjustments, the US actually LOST 2.69 MILLION jobs in January

This is roughly a discrepancy of 3 MILLION jobs. And this 243,000 jobs number for January also comes along with revisions that saw roughly 50,000 jobs added in both October and November.

So according to the BLS, the US is on the upswing again, maybe not in a HUGE way, but overall things are improving: we’re adding jobs and unemployment is falling (from 8.5% to 8.3%).

These numbers make the Obama administration look good, at least relative to how it’s looked in the previous 12 months. However, they’re not reflecting as positively on two of Obama’s primary support groups: Wall Street and the US Federal Reserve.
As a brief refresher, let’s take a look at Obama’s top campaign contributors in 2008:

Altogether, the finance industry ponied up $24 million for Obama in 2008. And Wall Street has not only been cutting their growth forecasts but has actually been firing people based on the fact the economy is so rough.

  (From January 2012)

"The Federal Reserve cut its US growth forecast Wednesday and said that with business investment and the housing sector depressed, it expected to keep interest rates near zero for another three years

Despite an upturn late last year, the Fed said ongoing economic weaknesses and strains in global financial markets mandated continued easy-money policies…

...I don’t think we’re ready to declare that we have entered a strong phase at this point. "

So add the Fed to the group of people Obama’s jobs report leaves looking less than on top of things. On a side note, it also makes the likelihood of more QE or monetary easing from the Fed more remote (if the economy is improving, they have no reason to announce more policies… which is not positive for asset prices… or Wall Street).

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This all returns to two primary themes I’ve been expounding on for months now: that the political environment has changed dramatically in the US and that we are going to see escalating tension between Wall Street, the Fed, and the White House.

The reason for this is simple: the public is growing more outraged by the minute. That anger will have to be directed somewhere. And when push comes to shove, it’s likely we’re going to see some actual real litigation relating to what happened in 2008-2009.

When this happens, the whole Fed/ Wall Street/ Politician triumvirate will begin to change dramatically. Some of these groups will try to portray themselves as “men of the people” (Obama is doing this, and so is the Fed with its recent town-hall meetings and Bernanke’s efforts to appear like a average joe who reads his kindle). Others will prepare for battle (Goldman Sachs’ CEO has hired a defense attorney).

How this will all play out remains to be seen. But the debt markets are going to speed this process up dramatically as Europe implodes and the great debt implosion comes to the US. With 48% of US citizens living in a house in which at least one person receives Government aid, you can imagine the impact that the sort of large cuts in social welfare programs that a debt restructuring in the US would have on the political process in here.

My assessment, this January jobs report is the tip of the iceberg. Tensions will be rising in the US over the next 12 months. How exactly this will play out remains to be seen (there are too many factors), but changes are coming to the political arena as well as the monetary balance between Wall Street and the Fed (remember, the Fed actually sued Goldman Sachs last year).  These changes will be dramatic.