Thursday, August 15, 2013

US QE WILL NEVER UNWIND

US economy have been making a turn around, is what being heard on the streets of the global financial market. In order to prove the same employment numbers and seasonal consumer behavior patterns were tweaked diplomatically so that the present government position remains intact with steroids of conviction.$85 billion bond purchase mechanisms followed with zero interest rates and married with 2008 QE1 has tripled its balance sheet to about $3.3 trillion.

Now just imagine that with so much QE it has been able to reduce its unemployment from 9% to just 7.6% and that’s too with no fixed job pattern and with half pay cheques. Over the last six months, of the net job creation, 97 percent of that is part-time work,” said Keith Hall, a senior researcher at George Mason University’s Mercatus Center quoted by McClatchy Washington Bureau. Consumers over the last decade lived a life of borrow more and spend more theory suddenly cannot be turned towards live within one’s means. It’s a altogether 360 degree revolution which is being desired by the US Federal system which is hard to be achieved. Even if the entire QE is withdrawn then US economy would get into coma like phase of the Japanese economy. Hence rule out completely that QE will be withdrawn any time. Economies which lived with borrowed capital over a decade cannot be kept in rehabilitation centre for some time and ask the same to get back and live a normal life.

According to some research institutes there 11.2 million people are now considered officially unemployed, A more realistic number is around 18 million. According to a report from the University of Hew Hampshire’s Carsey Institute, the largest increase in involuntary part-time employment since the 1970s occurred between 2007 and 2012.  Involuntary part-time employment rate doubled between 2007 and 2012. For women it rose from 3.6 percent to 7.8 percent, and for men it increased from 2.4 percent to 5.9 percent. Further in my research I find that over the past four months, the US economy has added 791,000 new part-time jobs, but only 187,000 full-time jobs. 

Sixty-one percent of the jobs created so far this year have been in low-paying industries, even though employment in these sectors constitutes less than 40 percent of total jobs in the US, according to an analysis by Moody’s Analytics. The fastest job growth has been in retail sales, food preparation, freight and warehouse work, wait staff, and home health care—positions that pay less than $12 an hour. Moreover  average hourly earnings fell by two cents last month, to $23.98. This is on top of an enormous erosion of wages over the past five years. Between 2007 and 2011, the US median household income plunged by 11.6 percent, from $57,143 (in 2011 dollars) to $50,502, according to Census Bureau figures. A 2012 report by the National Employment Law Project found that low-wage jobs, paying between $7.69 and $13.83, constituted the majority of jobs created in the US since the 2008 Wall Street crash. The number of temporary jobs has increased by more than 50 percent since 2009, according to Labor Department figures.
Moreover I find more QE would come up since aging population of US is growing which is creating a huge burden for the US economy to grow. The report notes that the collective retirement savings gap among working households aged 25-64 is staggering, ranging from $6.8 trillion to $14 trillion depending on which measure is used. When all households are included, not just those with retirement accounts, the median retirement account balance are $3,000 for all working-age households and $12,000 for near-retirement households. Hence retirement benefits are now the biggest burden for the US economy. 

I find in my research that the problem is just broadening up in the coming years mainly due to tow factors 1)Lack of access to retirement plans in and out of the workplace particularly among low-income workers and families ­­and 2) low retirement savings. Hence in any way US cannot withdraw its QE. It has to replace the same with another form of mechanisms of injecting liquidity within the system.US manufacturing is also not performing consistently after 2008. Prime reason is that US has outsourced majority of its works to emerging economies at low cost wage facility.


On the other side I find that poor payouts and imbalance in job market has spooked up social distress segment of the society. Mental pressure of living life is just smell in the US citizen’s life now. Then why did QE withdrawn story was told and later on it came with a different verdict. Well the best reply for this lies with the hedge fund managers and top broking houses of US who got their fund stuck in emerging economies and needed a roll out from them and needed a pull out followed with a short sell in the same markets. 

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