Finance – Brown Pundits

How US Unemployment Numbers are Created

Many of us take numbers like Unemployment as Gods Truth.

First the last paragraphs of a CNN piece on Unemployment numbers
https://edition.cnn.com/2025/08/01/business/trump-job-report-number-fire

For example, the BLS posted a notice in June stating it stopped collecting data for its Consumer Price Index in three cities (Lincoln, Nebraska; Buffalo, New York; and Provo, Utah) and increased “imputations” for certain items (a statistical technique that, when boiled down to very rough terms, essentially means more educated guesses).

That worried Federal Reserve Chair Jerome Powell. In testimony before Congress in June, Powell said he believed the BLS data to be accurate, but he was upset about what could become a trend.

“I wouldn’t say that I’m concerned about the data today, although there has been a very mild degradation of the scope of the surveys,” Powell said at the time, in response to a question about survey data quality. “But I would say the direction of travel is something I’m concerned about.”

How many actually know that these numbers are model generated. At BLS (US Bureau of Labor Statistics) they use a version of the Birth and Death model. This is a model initially built to model Population Dynamics and other related Biological Processes (i). It is also used in Finance to Build Credit Curves which are used to Price Credit Default Swaps (CDS)

As I have worked a little bit on Credit Curves and CDS 15-20 years ago ((2005-2010) can add a little more detail. One samples the number of companies created, credit rating down grades, out of business etc. Then the Birth and Death model is used to get a broader picture and the Credit Curves created by numerical and statistical models.

There are other methods too, such as using the Prices of CDS at different maturities (end date). Then using numerical models to generate the forward curve (i.e. the credit regime in the next few years)

So now we realize that what we think is an absolute value of a Unemployment or Bond Price is really a kind of guesstimate laundered through numerical models. What about the Bond Price or a Stock Price someone pays. Is that an absolute VALUE. Again the issue is that what was the mental or other analysis that went into that Price offer. Could it have been erroneous. eg. A dear friend and classmate participated in the Sri Lankan mob protests (Aragalaya) in 2022. One of his reasons was that the economy fell because of “unprecedented reductions of taxes resulting loss of revenue of 30%”. Erroneous thinking as it was 7% reduction in VAT taxes on transactions for goods and servicing. The reduction excluded VAT on Financial Services. It is an arithmetic impossibility to have 7% reduction in taxes to cause loss of revenue by 30%.

Anyway back to US Unemployment Model and excerpts from description

Difficulty in capturing information from business birth and death units is not unique to the CES program; virtually all current business surveys face these limitations. CES adjusts for these limitations explicitly, using a statistical modeling technique in conjunction with the sample for estimating employment for private-sector industries. Without the net birth–death model-based adjustment, the CES nonfarm payroll employment estimates would be considerably less accurate.

You can read the steps in using data and creating the Unemployment figures here.
https://www.bls.gov/opub/hom/ces/calculation.htm#business-births-and-deaths

The BIG TAKE home, be it Unemployment Numbers or Bond Price, these are GUESSTIMATES laundered thru numerical and statistical models. Worse these are not indicative at inflexion times of economic change. i.e. Economic growth in the process of change to Economic Downturn or vice versa

Reference
(i) Novozhilov, A 2006: Biological applications of the theory of birth-and-death processes
In this review, we discuss applications of the theory of birth-and-death processes to problems in biology, primarily, those of evolutionary genomics. The mathematical principles of the theory of these processes are briefly described. Birth-and-death processes, with some straightforward additions such as innovation, are a simple, natural and formal framework for modeling a vast variety of biological processes such as population dynamics, speciation, genome evolution, including growth of paralogous gene families and horizontal gene transfer and somatic evolution of cancers

Fannie Freddie and the Chinese: The IOU Laws

Wrote this around 2008 to explain the financial crisis and the implications for US China relations.
Hope you see some relevance to current chaos, or at the very least understand the cynical humor.

Fannie Freddie and the Chinese: The IOU Laws
Hu’s your daddy now
or is it Yu is the Patsy

Those statements are going to make sense once you read this email. This is an attempt to explain what happening in world of high finance and world politics right now. This is Long, and you are ADD jump to the end and read the Law and the consequences.

There has been a lot of brouhaha on the Freddie and Fannie and their preferred shares.

As usual thats smoke and mirrors.
The bigger problem are Mortgage Backed Securities (MBS) issued by Fannie and Freddie and the Chinese who own a large chunk of them

For the uninitiated:
Somebody got a loan for a house. They promised to pay that back and make monthly interest payments well.The bank took that IOU note (and a lot of others) and sold it to Freddie and Fannie. Fannie and Freddie in turn collected all those IOU’s and bundled them into a Big Ole IOU. Then gave it a fancy name called Mortgage Backed Security (MBS) and that Big Ole IOU was now an Asset. If one wants to know more about MBS, and Ubernerd called Tanta has written more than you ever want to know at a place called Calculated Risk. For our purposes all you need to know is that MBS is name for big IOU which is made up of little IOU’s

See, now when I was growing up, an Asset was something you could wrap your hands around. Or you get someone else to wrap their hands around it. First a story
Right out of school, I started working in a audit firm as an articled clerk. It was a job a that paid a very much less than indentured servant (125 Rs, USD 12 per month !) and tasks not much better. One of the first on site audits I did was for Mercantile Investments, who financed cars on Hire Purchase. This type of business is called, Leasing these days; same stuff different name. So as I am checking receipts/invoices and I come across this whole pile that just says Payment to xxx. And its a lot of money (remember I was getting only 125 Rs) 3,000 Rs each month. This definitely warranted an investigation, so I asked Philip who headed the audit and was never around what I should do. Phillip (Babapulles) say “Send the guy a post card (this was before cellphone days) and ask him what it is all about”. Couple of days later, the receptionist tells me some one has come over to answer the audit questions. Now I had heard of the de Goon family of Sri Lanka but had never met one. The gentleman seated at the reception didnt need an introduction. This was an honest to God, de Goon. I didnt need no introduction to recognize a member of the de Goon family. The instinct self preservation kicked in, I apologetically said all I needed to verify if Company had actually paid de Goon. See, I had the best interests of Mr. de Goon in mind. End of conversation. Note to self: No more postcards to Mr Gune de Goon in Goontown. (Gune means good in Sinhalese).

So you ask what the hell has my job got to do with MBS and Fannie and Freddie. Please bear with me: there was a moral to that story. Continue reading Fannie Freddie and the Chinese: The IOU Laws

Debt Cancellation, the Bible and Jesus

An interesting article, very pertinent for the current economic mess in the world. Maybe Zachary can weigh in.

Excerpts
Michael about his Forthcoming book Forgive Them Their Debts: Credit and Redemption that comes with an astounding re-reading of the Bible and the true meaning of the life and persecution of Jesus. Based on scholarly breakthroughs in decoding ancient languages, it places a debt cancellation message inherited from Babylonian times at the center of Mosaic law and the Jewish Bible. And when it comes to Jesus, his message is revealed to be a social justice message. Through the lens of this reinterpretation, Jesus was actually an activist advocating for debt cancellation. He died not for the sins of the people but for their debts.

In Sumer, and Babylonia, around 2500 B.C., and every new ruler, when they would take the throne, would start his reign by canceling the debts. In Sumer, the word for that was amargi, in Babylonian the word during Hammurabi’s dynasty was andurarum.

Hebrew deror, is a cognate to Babylonian andurarum, and the Jubilee year was word-for-word exactly the same debt cancellation and freeing of the bond servants and restoration of land that you had occured for 1,000 years in the Near East, and was still occurring in the first millennium BC.

What I realized is that when Luke 4 reports the first speech of Jesus, when he goes to the temple and gives a speech, his first sermon, he unrolls the Scroll of Isaiah, and said he has come to essentially proclaim the Jubilee year …. The word he used, and that Isaiah used, the deror, was this Babylonian, Near Eastern long tradition that was common throughout the whole Near East.

Business debts were not forgiven. The debts that were forgiven were personal debts, agrarian debts, and the idea was to liberate the bond servants so that they could be available to perform the corvée labor, which was the main kind of taxation in the Bronze Age, and serve in the army. If you were a debtor and you were a bond servant to a creditor, you wouldn’t be available for corvée labor, you’d be working (for) the creditor, you wouldn’t be available for the army.

The Romans were the first society not to cancel the debts, and there was civil war over that. A century of civil war from 133 BC, when the Gracchi Brothers were killed by supporting the population, to 29 BC when Augustus was crowned. There was a civil war where the advocates of debt cancellation were put to death. Just as Cleomenes in Sparta, in the late third century, was put to death, and Agis, his predecessor earlier in the third century BC, were put to death for advocating debt cancellation. So there was three centuries of constant civil war over this, and ultimately the creditors won, largely by political assassination of the advocates of debt cancellation, who almost all came from the upper class. They were upper class reformers, they were not lower-class particularly. They were the scholars, just as Jesus was a rabbi.

Most debts did not occur from lending money. It’s easier today to figure if you have a debt, you must have borrowed it. But three quarters of the debts in Babylonia, for instance, where we have records because they were on clay, cuneiform records that were baked and have survived, most debts were simply unpaid bills. The debts were unpaid taxes, unpaid debts, unpaid rent, and unpaid obligation for services that had been supplied.

And so Judaism took the debt cancellation out of the hand of kings, where it had been in the Near East, and put in the very center of their religion. In Leviticus 25, again and again the prophets would say, “We’ve freed you from bondage, and if you’re going to maintain Judaism, you have to respect the debt cancellation.” And the Biblical prophets warned, if you don’t cancel the debts, you’re gonna be canceled. By Assyria, by Babylonia. And they blamed the capture and destruction of Judea and Israel on the fact that they had veered away from the law of God and did not cancel the debts.

Tribes: When does the concept of a general debt cancellation disappear historically?

Michael: I guess in about the second or third century AD, that was downplayed in the Bible. And you had, after Jesus died, you had first of all St Paul taking over, and basically Christianity was created by one of the most evil men in history, the anti-Semite Cyril of Alexandria. Who decided to gain power by murdering his rivals, the Nestorians, by convening a congress of bishops and killing all of his enemies. Cyril was really the Stalin figure of Christianity, killing everybody who was an enemy, organizing pogroms against the Jews in Alexandria where he ruled.

And it was Cyril that really introduced into Christianity the whole idea of the Trinity. That’s what the whole fight was about in the third and fourth centuries AD. Was Jesus a human, was he a god? And essentially you had the Isis-Osiris, ISIS figure from Egypt, put into Christianity … The Christians were still trying to drive the Jews out of Christianity. And Cyril knew the one thing the Jewish population were not going to accept would be the Isis figure and the Mariolatry that the church became. And as soon as the Christian church became the establishment rulership church, the last thing it wanted in the West was debt cancellation.

Tribes: Has any modern society declared a Jubilee without a revolt of the creditor class?

Michael: Yes. There was a wonderful debt cancellation, the major debt cancellation of the modern era was in 1947 and 48, the German monetary reform, called the German economic miracle. The Allies canceled all German debts, except for debts owed by employers to their employees for the previous month, and except for minimum bank balances. It was easy for the Allies to cancel the debts, because in Germany most of the debts were owed to people who had been Nazis, and you were canceling the debts owed to the Nazis, the Nazis were the creditors at that time. And that freeing Germany from debt was the root of its economic miracle. So that is the prime example of a debt cancellation in modern times that worked.

More at https://www.nakedcapitalism.com/2018/04/michael-hudson-bronze-age-redux.html