subject: Economic Recovery: Us Economy Still Fragile? [print this page] The US economy made some gains, when its GDP took a positive growth turn last quarter of 2009. However, the chairman of the US Fed feels that it was too early to assume that the recovery will last. His prime concern appears to be elevated unemployment, which is yet to end the negative cycle.
Though, the rate of job loss has been falling continuously, it's the ability of the US economy to churn out new jobs, which seems to be a matter of concern. Unemployment did fall in November as also in July, but the interim months of August through October were unfavorable for job creation and unemployment rose in these months.
The Organization for Economic Cooperation and Development (OECD) has projected that unemployment if the US will be at its peak in early 2010 and will not recede below 9% until the end of 2011.
Employment is still falling in the core sectors of manufacturing and construction, though some employment growth is taking place in health care and temporary health services. It is important to note that US economic recovery is hinged on employment growth as its main economic driver is consumption expenditure as opposed to export led growth. For consumption expenditure to make gains, increase in employment is a given must.
This is evident from the fact that the recession has hit US employment hard and it stands at the third most hit economy amongst OECD economies. While the Spanish economy was hit the most in terms of increase in unemployment, which hit 11.4% at its peak, the figure for the Irish economy was 8.4% and for the US the damage caused by the recession was a 5.8% increase in unemployment.
In response to the continuing adverse conditions of employment generation in the US economy, the US treasury secretary has announced that the government is extending the Troubled Asset Relief Program (TARP) to October. This implies that the Obama government has virtually extended the bailout program to October of 2010 to help stabilize financial markets and provide an external booster to the economy.
The treasury secretary also announced that further booster dosages of financial help will be directed towards the housing market and capital for small banks to energize lending to small businesses. While, the earlier dosages of the TARP had helped stabilize big financial firms like Citi and AIG, home foreclosures still remained a problem.
The Obama government seems to have taken cognizance of this and is now planning to reach out to the people by helping them with capital to prevent their foreclosures. While, all this may appear as good efforts by the government to bolster the economy, an aggregate of nearly $2 trillion has been spent by governments around the world as bailout money and is also accompanied by near zero interest or very low rates in key economies.
While, the chairman of the US Fed has ruled out inflationary pressures in the near future, the excess liquidity pumped into the global economic system is likely to raise its ugly head in the form of inflation.
When this happens, currencies of nations that have pumped in more are likely to lose value faster than currencies of nations that have received smaller booster programs. Quite clearly, the more the liquidity pumped in, the lower should be the value of the currency. It is quite likely that this may emerge as the 'bail out bubble' in the near future!
