Congratulations to the speculators of the Wall Street. They made the US stock market to climb 11000 mark, filled the pockets of the Wall Street through the stimulus packages and the CEO of the companies made their bad assets recovered from the tax savers money. We must appreciate the game played by the speculators despite of the uneven pressure on the macro economic levels of the US economy.
US is suffering with an unemployment rate of 9.8% and clinching towards 10% level. US citizens have no money or household savings to and nor they have avenues of earning the livings. US economy grew at less than 3% after the post recession. US suffering with a very low rate of household saving rate. In the year of 1980 under the president ship of Mr. Ronald Wilson Reagan US household savings was at 12%.In the year of 2004 under the leadership of Junior bush it went to 0% and to end the story with more spices it went down to -2% in 2007.The below chart shows the Mountain of Debt of US on its household savings.
Today the US citizens are having an average 133% debt over their household savings. This means that if a person is savings $10000 then he owes to the market $13300.It relates no savings and only debt. Life at US is running on the wheels of debt. In year of 1970 their was no easy ways of availing of debts as compared to the past decade. US policies made such turn around to exploit the US citizens that they are now finally left the citizen with the burden of borrowed capital.
In 1980 under Mr. Ronald Wilson Reagan the Conservative Policy was adopted where it was mentioned that average household debts can exceed more than 50% of the household savings. Well in the year of 2007 the household debt limit went beyond 120%.
TARP and other packages declared by the US government were only bale to clear the dust over the street of Wall Street but failed very hard to generate employment. Toxic assets buyback and balance sheet of the debt burden companies were reduced but nothing went for employment generation.
We all know that the pockets of the US banks were adequately capitalized to spur up the lending process and so that demand and consumption picks up resulting manufacturing to come up. After the post recession the banks were left with more margins of funds than their specified limits. Their capital equals almost 12% of assets, up from less than 9% in 2006.This reveals loans were not disbursed as US citizens are not having anything to forsake. They have no means of paying back loans. So it clearly reveals that the policy of capitalizing the banks worked in favour of the banks doing investments in emerging markets and did not work for the benefit of unemployed US citizens.
Banks made their pockets swell form the investments returns made into emerging markets. Moody’s, a ratings agency, has estimated banks’ total loan charge-offs between 2008 and 2011 at $744 billion, of which $476 billion has already been recognized in their accounts. They have enough loan-loss reserves to cover 80% of the remaining $268 billion.Till date we all used to think that emerging countries and other nations were rated as poor countries. It might be true but sorry to disappoint that US poverty rate has gone from 12.5 % to 14.3%
According to the Peter Hooper and Torsten Slok of Deutsche Bank if the US citizens household savings rate climbs of4.5% a year then household debt will fall from 126% of disposable income now to around 85% in 2013.This speculation reveals that consumption will not find any space to pick standing on the shoulder of borrowed capital.US citizens are increasing their house hold savings by .5% and consumption is declining with a rate of .2%.What ever the US federal and the government does to inject capital in to the veins of the Wall street but their is no space of consumption picking up on borrowed capital and US citizens are not going to burn their fingers again. We discussed lots of facts about US capitalism after post recession. But what about the employment generation in US. Since if employment does not generate, US citizens and its macro economic situation will travel from bad to worse and even beyond worse.
We all know that each week thousand of jobs are being cut is US and making the US unemployment to climb towards 10% mark. But did we ever go in to the cultural change which took place for the past 20 years and now the present cultural change.
Earlier US never had any funds to go for any war. They felt the crisis of funds like any thing when they decided to go for war. Now if there is war they simply go for raising bonds and finally increasing the risk level of US economy in the long term. Bonds leads to solve all problems of US, what a great solution was discovered and still followed. In the area of unemployment we find that women’s are being recruited and at a much lower wage line as compared to the men.
US Cultural Chnages:
In 1968, 38% of married women aged 25 to 54 with children worked out of the home. That figure reached more than 70% in the early 2000s, and it has stayed in that range since then. % Another problem of US unemployment is lack of skilled manpower. Yes this is true and shocking. The ear of capitalisms and borrowed capital have eroded the minds of quality manpower and led to dearth of skilled work force. In the past two decades we don’t find any thing about educational development in US and research. In the 45 pages document released by the Republican A Pledge to America doesn’t even mention about education. No body gave any identity to the human capital.
Human capital which needs to grow along with the profit numbers of the companies. According to Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis estimates that more than 2.5% points of the current unemployment rate are attributable to a skills or education mismatch between workers and jobs. The story of the crisis of manpower began from late 1980 when jobs were given to college educated workers and hence capping further academic growth. Education and human capital are the biggest financial tools to save and come out of any crisis. The solution lies in changing the mindset of the US citizens and not exploiting them for borrowed capital living. In fact US citizens have realized this and hence consumer numbers are not improving.
During the recession, 61% of U.S. companies took at least four approaches to cost cutting and cost management, compared with 44% of firms globally. Those actions include hiring and salary freezes, layoffs, reduced bonuses and overtime restrictions. Even after post recession the bugle is still blowing. The second stimulus package being named under the tag of Quantitative Easing will only spur Dow Jones and emerging market. Since nothing flows to develop the education or human capital segment.
Speculators are now busy for making a small profit booking in US market and again spook the Dow Jones to 12000 mark in a year. Can any of my reader find out what made the US market to climb 11000 mark when unemployment climbing at 10% levels.
GOD BLESSES THE SPECULATORS.
Regard
Indraneel Sen Gupta
Financial, Economic Writer and Research Analyst.
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