Welcome to the first installment of Stay in the Loop! Thank you for reading, but I am going to jump right into it. You have might have heard about what the Federal Reserve is doing with quantitative easing (QE). But if you haven’t, here is how it goes: the Fed has been buying 85 billion dollars’ worth of mortgages and treasury bonds a month in order to jump start the economy. However, the economy has not started swiftly but is has been sluggish. So, I have done extensive research on this significant topic, and have applied my knowledge of economics and finance from school and working at UBS Financial Services to come up with a conclusion for why the economy is still sluggish.
The government has spent trillions of dollars on QE and it has had some effect but not very substantial. In my opinion, the economy is stagnant because there is too much involvement by the government. As it has been seen over the past few days with the Fed’s announcement of maintaining QE that what the government says actually has a significant impact on the economy. The numbers show that precisely after the Fed announced it was going to continue QE, the market went up .95% in response. But the market went dropped 1.45% over the next two days as the market settled back down to what it should be. That is precisely the reason why people are not spending the money that the Fed is creating. People are not involved in the market because they are too smart. They see that the market is too unpredictable as a result of government involvement. The government should focus less on how to fix the economy and start thinking about how to have us, the American people, trust the market and it. They should do that in order for us to begin spending and invest and doing things that create sustainable growth. Once that begins to occur, the real unemployment rate will be lower than 14% (check out graph #2) which everyone wants.
http://www.theatlantic.com/business/archive/2010/04/80-percent-of-americans-dont-trust-the-government-heres-why/39148/ Thank you The Atlantic for the graph.
The over involvement by the government is hurting us because there is no stability in the market or in the dollar. It is only setting us up for a future of inflation and few jobs. This is a hard time for all college students – whether you are looking for an internship or a career – since the economic slump has drastically lowered the employment opportunities. That leads us to pay for more schooling in order to be smarter but mostly to have a fantastic resume. That extra schooling also brings along more student loans that cannot be paid off if there are no jobs available. For us and the US to have the brightest future, the government needs to step off and let businesses and consumers find some stability so that investment occurs and jobs open up.
http://catosdomain.com/?attachment_id=17166 Thank you floatingpath.com and Cato’s Domain for the graph.
I look at the real unemployment rate because of all of the underemployed and the people who have stopped looking for a job are included in the percentages.
Now that all of that is covered, it is time for some questions for all of you to ponder and hopefully comment on so that we can try and find the answers.
– How will the government build our trust in the market and in it?
– What are the possible results if we do not start trusting the market and the government keeps printing money?
– How have you been affected by the recession?