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  • Is The American Economy In Doldrums? 0 comments
    Feb 18, 2013 7:05 AM

    America- A super power once upon a time is facing rough waters today!

    Blame it on the Federal Reserve who has unsuccessfully tried to provide monetary stimulus to the frail economy by continuously keeping its printing presses working overtime through the farce that is called 'Quantitative Easing.'

    Blame it on the politicians who have spent enough to contribute to the already- deteriorating economy by inflating the bloating balloon of the country's national debt; presently to the tune of $16.49 trillions.

    With the rate of unemployment reclining at 7.9% in the month of January (it was 7.8% a month prior to that), it is no surprise that the consumer confidence level has been outright miserable. As per the Consumer Confidence Survey, the Conference Board Consumer Confidence Index®, which had weakened in December, further deteriorated in January 2013. Standing presently at 58.6, it was 66.7 in December. The Expectations Index too dropped from 68.1 to 59.5, while the Present Situation Index fell to 57.3 from 64.6 last month.

    The credit crisis deeply affected the small and medium enterprises. The small businesses are sources of hope for job seekers as they have generated around 65% of new jobs in the last seventeen years. In addition, they are responsible for the creation of more than half of the non-farm private- sector contributions to the country's Gross Domestic Product. Further, forty three percent of high- tech workers like scientists, computer programmers, engineers, etc. are employed by these small companies. In comparison to firms holding large patents, the small business firms of America yield thirteen times more patents.

    While it must be admitted that when President Obama first took office, he faced a big economical and financial challenge. But over his term, the banks and large corporations were the ones benefited by the monetary easing to clear their bad debts. The jobs sector was badly affected with new appointments facing a deep crunch.

    America indeed has become a pale ghost of its former self!

    The situation is so critical that many people are facing difficulties for the maintenance of their households and homes. With one in four American workers earning less than $22,000 a year- which is the poverty line for a family of four, it is agonizing to note that there are 20.5 million Americans with incomes of less than $9,500 per year. Six million Americans depend upon the food stamps for income. More depressing is the fact that many farmers have abandoned their inherited farms.

    Could America have to struggle through 2013?

    Market observers like Jim Rogers have said that the year 2013 will not be quite good. "God knows what will happen in 2014!" These are his words, as told to Fox Business Network. Sam Zell believes that we could well be on the point of falling back into recession.

    Four years back, the Federal Reserve had cut the interest rate down to almost zero. In order to keep low the interest rates for the short- as well as for the long- term, it launched its first and then its second round of quantitative easing. Those people who had till then accrued money in order to build up their savings could not make profits from their investments owing to the historical low rates of interest.

    Let us do a flashback to the day- September 13th, 2012.

    It was the day when the Federal Reserve churned out money through its quantitative easing round number 3.

    It was the day of the launch of a buying program of mortgage-backed securities. The price to pay was $40-billion per month.

    No sooner was the QE3 announced than Egan Jones downgraded America's credit rating. Naturally, the U.S. dollar had to suffer a further devaluation with respect to other major currencies of the world. This lead to a rise in the inflation, owing to which, the consumer- spending was deeply affected.

    When the consumer tends to spend less, the number of small businesses that will be adversely affected increases and this will contribute to a rise in the number of unemployed Americans. With more people jobless, we are again brought to the situation wherein the consumer spending will be curtailed further.

    The consumer spending in the U.S. constitutes about 70% of its economy and when the former is so deeply affected, it speaks volumes about the dire condition of its economy. So the small businesses will again suffer; the unemployment rate will escalate; the U.S. will devalue further; the inflation will continue to bloat and the whole vicious cycle will again repeat itself.

    It is for one and all to understand how a country which was once a super power can be reduced to such a hapless situation through money printing strategies leading to colossal debts!

    This is the present America!

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