This week’s top economic stories are two processes underway, which no one understands.

The first unknown: How long can hiring continue and layoffs fall before wages rise, possibly in an inflationary spurt?

Theoretically, historically, we are already on impossible ground. In October, another 214,000 jobs, upward revisions in prior months, unemployment down to 5.8 percent, even U-6 (including “involuntary part time”) down to 11.5 percent from 15 percent, but hourly wages “grew” only $0.03, or 2 percent year over year.

How low could unemployment go before igniting wage-paying competition among employers? Five percent? Four percent? Three percent? What if the Fed acts pre-emptively but unnecessarily? The Fed is so concerned that it asked its 22 primary dealers, and five said that if the Fed hiked its overnight rate next year it would be back to zero within two years.

The steady 200,000-per-month job gains have suspicious elements. The October manufacturing ISM survey was a red-hot 59, yet manufacturing payrolls gained only 15,000 jobs. Half of the October overall gain was in bottom-wage, poor-stability retail and hospitality work. No other aspect of the economy matches the theoretical strength in hiring: Factory orders tailed 0.6 percent, CoreLogic found home prices off 0.1 percent in September, and the year-over-year gain slipped to 5.6 percent.

The second unknown itself comes in two pieces: What impact will desperate attempts at recovery by the rest of the world have on the U.S., and are the ex-U.S. central banks already past the point of no return?

The tale of woe following is not meant to depress; if anything it should make you glad you live where you do — even after two months of incessant and stupid election ads. First the overseas conditions, then the mechanisms affecting us.

Europe has cut its growth forecast for next year to 0.8 percent, and its PMI right now is a breakeven 50.6, annual “inflation” 0.4 percent. Italy is contracting, yet its national debt is growing another 5 percent.

The European Central Bank’s Mario Draghi is bluffing QE, and no one responds except Pavlovian stock markets. That noneconomic response warns that once interest rates have fallen near zero, QE washes uselessly over economies into bubbled markets — and that opinion comes from a believer in central banks and early-stage QE.

Japan. We have better numbers after last week’s adoption, by the Bank of Japan, the most extreme central-bank action anywhere in history — “anything necessary” (Draghi’s words). The Bank of Japan already has bought securities equal to 60 percent of Japan’s falling GDP — $4.8 trillion now versus $5.9 trillion in 2012 (the U.S.’s GDP is over $17 trillion).

Japan’s tax revenue covers only half its spending. Its annual deficit is $365 billion. The Bank of Japan is buying Japanese bonds at double the rate of the deficit, and now owns 20 percent of outstanding Japanese government bonds. Japanese government bonds total more than double Japan’s GDP.

To date, the Bank of Japan’s quantitative easing has caused prices to rise, but price-adjusted incomes fell 6 percent in the last year.

Japan is a painfully disciplined society, while Europe is politically fractured. But the test is underway in Japan: At what point in QE on this scale is the yen wallpaper?

To one degree or another, the whole external world is trying to devalue versus the dollar, in a panic (that’s the right word) to escape the gravity well of a deflation black hole. The threat of Fed tightening while all others run their presses makes the currency adjustments violent.

Here, the benefits: cheap oil, cheap imports, no inflation. The risks: Exports drop, and falling wages overseas via imports pull down wages here. Other nations export their deflation and unemployment. An overstrong dollar is a net drag here, but can take many months to develop.

The overseas risks: A rocketing dollar crushes dollar-borrowers, and there are a lot of them. Trillions. Their falling currencies cancel lower oil prices, lower only in dollars.

Here, all looks well out the window, even placid. To figure out what comes next, we all have to look around the curve of Earth, where the action is.

Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.

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