BarroMetrics Views: What Will End QE?
The FED has gotten itself into a loop: on the one hand, one of its reasons for ending QE (tapering) is the decline in unemployment; on the other, the majority of funds from QE are re-deposited in to the St Louis Fed Reserve. (Figure 1). This is probably due to the fact that the FED is paying interest on the excess reserves (http://www.frbsf.org/education/publications/doctor-econ/2013/march/federal-reserve-interest-balances-reserves).
The Unemployment Problem is the issue that will most likely cause the FED to stop paying interest. In fact, this problem is worse than it seems.
Even the main stream has recognized the problem (See US Gained 142,000 Jobs in September).
Figure 2 shows that the unemployment rate if the short-term ‘missing workers’ are included: the number jumps from 7.2% to 10.2%. But Figure 3 is the one that produces the greater insight.
What the 10.2% rate (Figure 2) does not reflect are those that have moved from full-time to part-time employment. Figure 3 shows that when added, the numbers increase to a rate of about 23%!
The problem is US banks are not lending to Small and Medium size enterprises, the foundation of employment. At the same time, FED policies are favouring those with the financial capacity to invest, especially in the stock market. So not only are the middle class, and below, unable to find jobs, they are seeing the ‘rich get richer’. This is a situation that will eventually lead the FED to take some measure to release the deposits at the St Louis Fed Reserve.
Of course, once it does that, then inflation will be an exponential threat.
As I said the FED has gotten itself into a loop.
FIGURE 1 FRED AMB
FIGURE 2 EPI Unemployment Rate
(Chart through the courtesy of EPI)
FIGURE 3 Shadow Stats Unemployment Rates
(Chart through the courtesy of ShadowStats)