Saturday, November 9, 2013

US ECONOMY HEADING WHERE??????

US economies have made outstanding performance in its GDP growth by 2.8% but the real growth factors are diminishing. The consumer and business activity is dropping and the numbers are well clear that the US economic growth engines are skeptical about the long term movement of the US economy. In between the hedge funds and the big giants of the wall streets are more focusing on when the US will stop the bond purchase mechanisms and would find substantial growth from the US treasuries in the long term. Well that’s the prime aim for the Wall Street players and they are less inclined about the long term prospects of the US economy. Employment numbers have came down but in real terms people have stopped seeking employment and that’s why the numbers are falling.

Gross capital formation on the other side of US economy is much lower than Brazil over the last 1 year.US had an change of 0.4% where as Brazil had 0.10% change. Even Indonesia had an gross capital formation rate of 0.12% over the last 1 yr. Well for my friends gross capital formation means Gross capital formation (formerly gross domestic investment) consists of outlays on additions to the fixed assets of the economy plus net changes in the level of inventories. Fixed assets include land improvements (fences, ditches, drains, and so on); plant, machinery, and equipment purchases; and the construction of roads, railways, and the like, including schools, offices, hospitals, private residential dwellings, and commercial and industrial buildings.

U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery. Half of the nation's 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next, according to a review by The Wall Street Journal of securities filings and conference calls. In between the consumption pattern currently and next year 2014 would remain tepid since in an recent study it has been found that employers say they'll dole out raises averaging 3% in 2014, virtually matching annual increases in 2013 and 2012, according to a survey of more than 900 mid- to large-size companies by compensation consultant

In between the US bonds are being now being purchased by the US household. During April to June Quarter US households have parked around $170 billions into bonds where as foreign holdings have been around $110 billion during the same time. This clearly indicates that US households are parking more into bonds and less into equities. They are in sceptical phase and bound to react in this fashion. Asian economies like China are already the king of the US treasuries by holding around $1.28 trillion treasuries and Japan around $1.14trillion. My concern is about the long term fate of dollar and its trading capacity. I will not be surprised to find Renminbi as the trading currency in the coming days since China is aggressively looking for the same. Once this currency become an international currency it would be safe for the china to hold such huge amount of dollar denominated treasuries. Moreover china would be free from the pressure building upon its currency as an undervalued. But who will buy the bonds is the biggest question which urges US economy to stop the package. This nightmare might stop them moreover the premium charged on these bonds are too high. Its a too risky proposition but US economy have to find some alternative method to stimulate the economy.They have to run the economy on QE in any form. My fear is that they might stop the Bond purchase to prove that the US economy is stable but later on they might collapse and bring a more fearful recession for the global economy.

The only good news that is dangling in front of US economy is that it is going find independency from crude import over the next 5 years. The new production facility in Bakhen region in North Dokata is going to change the landscape of US economy. The Bakken and Eagle Ford shale formation increased U.S. crude production by almost 700,000 barrels a day over the past year. More the following six places  the Permian, Eagle Ford and Haynesville in Texas, the Bakken in North Dakota, the Niobrara in Colorado and Wyoming and the Marcellus in West Virginia and Pennsylvania are going to be the game changers for the US crude market. The regions combined to account for 90 percent of U.S. oil production growth and almost all the natural gas production growth in 2011 and 2012. Well GDP have climbed by 2.8% riding on the wheels of stock piles and not on the economic based factors.  It is quite less trustable for world economy to find the growth of the US economy to be consistent. Well for withdrawal of bond purchase US FED has less options to do so. 
Written By Indraneel Kripabindu Sen Gupta and Hardik Bhatt

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