How Sky-High Stock and Bitcoin Prices Distort the World (Labor Force Participation)

Bitcoin Millionaires Retiring

I personally know several men under 50 who have “retired” or left the labor force because their Bitcoin and crypto holdings have made them feel wealthy enough to do so. These guys of course are not unique as there are thousands (maybe millions) of other people who have done the same.

Stock Investors Retiring

During the peak of the dotcom boom in the late 1990s, there was a guy in his 40s at the Peet’s coffee I used to go to who would sit with the Wall Street Journal open every day – staring at stock prices. This is because he had invested in some dotcoms and then “retired” when they appreciated because he knew he was an investing genius, and that regular work was for suckers. 😊

I stopped going to Peet’s long ago (because I bought a VirtuoLine Espresso machine), but I know for a fact that there are hundreds of thousands of guys just like that guy right now who are also out of the workforce and riding the current asset wave (which also includes real estate).

Labor Force Participation Rates

The above stories illustrate how and why people drop out of the labor force – which significantly impacts Fed Policy, inflation, and interest rates!

I should add that people also drop out of the labor force if they just get discouraged looking for jobs and/or they are sitting on a lot of cash (from stimulus for example) and just want to take a break.

But – the bigger point is that Labor Force Participation Rates have been plummeting over the last 20 years from about 67% of eligible workers in the workforce in 2021 to about 62% today (an ENORMOUS drop). This excellent chart from FRED shows the trend since 1948.

The reason this is so interesting is because the Fed only looks at workers participating in the labor force when looking at unemployment rates. So, when the Fed is cheering about our very low 4% unemployment rate and saying that is why our economy is healthy enough to “raise rates,” it is misleading.

This is because if we had a normal labor participation rate right now, unemployment rates would be FAR HIGHER – indicating that the economy may be much weaker than the Fed might lead us to believe.

And, finally, if stock and crypto prices come down significantly, we can expect to see a lot of people return to the labor force – and thus see unemployment shoot up and labor rates plummet (like we saw after 2008). And that will of course impact inflation rates, Fed policy and interest rates.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167

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