#1: GE's Employment Review System Has Left to Pursue Other Interests

Okay, that's not really what happened, but that's the phrase that has always amused me when someone is asked to leave. GE's ranking system did that regularly for those who were considered their lower rung employees. So now there's news that General Electric is overhauling its legendary employee review system. Details are in an article at Quartz. An employment consultant commented that one of the reasons the prior system worked at GE and not at others was its “culture that emphasizes constant improvement and helping other people succeed.” The one thing I always heard about it was that GE would encourage its lowest ranked employees to leave. Some felt that this approach could create a toxic competitive work environment, which seemed to be the case elsewhere. This same expert believes that GE's transition to the new systems will go well because of their culture. “They’ve clearly defined a star employee as someone who does great work and who helps others succeed as well.” How do you define your best employees?

#2: Our Toolbox is Empty: Maybe Hitting it With a Rock Will Work

If there's a new recession, what tools are available for the government and agencies to fight it? That's what an article in the Wall Street Journal asks. Many believe that the Federal government can take on more debt and not have a problem. Even though the deficit has been shrinking as a percentage of GDP, the debt is now greater than GDP, and the debt based on GAAP accounting methods (you know, the kind of accounting that businesses have to use) is at $100 trillion. If interest rates rise just +1% on Treasury obligations, that adds $180 billion to the annual deficit. The political pressure on the Fed to keep interest rates near zero, though the Fed is technically a non-political organization, will be tremendous if a recession begins anew. Look for interest rates to stay low.

The other concern is whether expanded deficit spending will cause inflation. We seem to at a phase where deficits cause slow growth and declines in real incomes. So inflation looks tame but households have less to spend. That's been the story for quite a while, and what would play out if another recession arrives. As noted last week, there are many important data that indicate the economy still has not recovered from the last recession, despite what GDP has done. 

#3: There's Nothing to See Here in Venezuela... Please Move On...

The economy in Venezuela is so bad that the government has stopped releasing many economic statistics. The upcoming election is believed to be one of the reasons for the suppressive action. Libertarian economists are always concerned that governments use mandated statistical data collection to exert invasive control over economies, violate privacy, and to limit freedom. Here we have a case of a government not publishing data, to perhaps have the same effect. China's been accused of publishing inaccurate, inflated, and sometimes bogus data. If I had to choose, I think I prefer that rather than the latest Venezuelan approach. And a publishing trade association has discontinued some of its own data because they were too depressing, so it can happen here, too.

Last week, five-year government bonds issued by Venezuela were paying 37%. Before you think that is a great deal, one of the people interviewed in the WSJ article believes that inflation is running about 60% there. 

#4: Quantitative Zero Results

A St. Louis Federal Reserve official says that their quantitative easing (QE) efforts did not do much. Despite the 5x size of the Fed's balance sheet (see the chart of the St. Louis Adjusted Monetary Base) all we have to show for it is a 2%ish real GDP growth for the last six years. The idea was that the Fed would buy many kinds of securities (Treasurys, government-guaranteed mortgages, etc.) and get them off the balance sheets of the banks. The actions would also lower interest rates by increasing the demand for those

The Fed claims that QE is over, but that would actually mean that they were allowing their holdings to mature or they would be selling their holdings in the open market. The Fed is replacing securities in their portfolio as they mature.

Earlier this year I wrote about the effect of the Fed's actions on stock market valuation, summarized in this chart that appeared there.

This is now all the more complicated by the recent goings-on with the devaluation of China's currency. Will the Fed raise rates in September? They really want to just to get the monkey off their back, but word on the street is that they won't or can't – choose the word you like.

Could they do something crazy? They're already in uncharted waters. They could raise the quarter point and start another round of QE. Adding some more craziness seems normal by now.