Qualitative easing and the Obama recovery

SPX-10-yr-yield-and-fed-intervention

The Federal Reserve Board’s policy of qualitative easing has helped the stock market recover.  But Americans who work in the real economy are still struggling.

Qualitative easing is the Federal Reserve Board’s policy of creating new money to buy Treasury bonds in order to keep interest rates low.  The greater the demand for bonds, the lower the interest rates, and the interest rate on Treasury bonds is generally the benchmark on all Treasury bonds.

The Fed’s Operation Twist was a sale  of medium-term Treasury bonds and purchase of 10-year bonds.  The Federal Funds rate is the interest rate for overnight loans among banks so they can meet the Federal Reserve’s requirement for reserves.

The chart above shows how QE correlated with the ups and downs of the stock market.  But, as I indicated in a previous post, American corporations did not advantage of low interest rates to invest in their businesses.  Instead they have transferred the gains to stockholders in the form of stock buybacks.

An economic recovery has taken place.  Most Americans are better off than they were at the depths of the crash.  But as economic recoveries go, this one has been weak.

2.household-income-monthly-median-growth-since-2000

The chart shows how important is it to always adjust for inflation.  A dollar in the year 2000 is not the same thing as a dollar in the year 2016.

Although corporate executives did not take advantage of Qualitative Easing to invest in America, there was nothing besides politics holding back the federal government from investing in public works.  There is a lot of urgent work that needs to be done in maintaining and upgrading American’s physical infrastructure, such as upgrading public water systems to get the lead out.

With a lot of public work that needs to be done, a lot of people who need work and financing costs at historic lows, why not put the unemployed and under-employed to work doing what needs to be done?  Fiddling with interest rates and the money supply is not enough.

∞∞∞

Here are some more charts indicating the state of the economy.

GDPRecoveryScreen-Shot-2016-03-22-at-5.55.11-PM

Recessions and recoveries are measured by charges in the output of the U.S. economy – GDP, or the gross domestic product.  A recession is two or more fiscal quarters in a row of falling GDP; a recovery is two or more quarters in a row of rising GDP.  By this measure, the current recovery is the weakest since the end of World War Two.

UnemployFeb2016

The unemployment rate is based on a survey, which compares the percentage of people in the work force who say they are out of work and looking for work. Unemployment rose to levels not seen since the 1980s during the current recession, but the unemployment rate is now back to normal.

Unemploy26Feb2016

Long-term employment—people unemployed for six months or longer—took a huge hit during the current recession.  The long-term unemployment rate is not back to normal.

PartTimeFeb2016

There still is an unusually large number of people working part-time who’d like to work full-time.

EmployPopFeb2016

And there are still an unusually large number of working-age people who, for one reason or the other, are not in the work force.

∞∞∞

Economic cycles of recession and recovery are an inherent part of a free enterprise capitalist economy.  Government policies can only moderate the cycle or make it worse.

I think the reason the recent crash was so much worse than the previous ones, and the recovery in many ways was weaker, is due to the financialization of the economy and the tolerance of reckless speculation and financial fraud by executives of major banks and investment firms.

By failing to rein in Wall Street, President Obama and his Republican opponents in Congress have set the stage for a worse recession than before.

LINKS

Can You Figure Out What This Chart Means? by Mike Whitney for Counterpunch.

Is the middle class really worse off? by peteybee for Spread an Idea.

GDP Growth: U.S. Economy Post-Recession Is Worse Than We Thought by Chris Matthews for Fortune.

February Employment Report by Bill McBride for Calculated Risk.

January Real Median Household Income at Another Post-Recession High by Doug Short for Advisor Perspectives.

Treasury Snapshot: 10-Year Note at 1.88% by Jill Mislinksi for Advisor Perspectives.

Why Voters Will Stay Angry by Andre Tartar, Mira Rajanaskakul, Jeremy Diamond and John Fraher for Bloomberg News.

 

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