The Fed’s heir apparent will be faced with helping alleviate restoring American confidence, employment and spending
As Janet Yellen prepares to take over the Fed, the US economy and consumers need more help than ever. Consumers are not able to contribute to the economy, many are struggling to pay their bills on time, and American confidence in the economy is falling fast.
Yellen acknowledged that the economy is painful for many people, including the roughly 12 million unemployed, about 40% of whom having been so for more than 6 months.
“While I think we will agree that more needs to be done to help those hardest hit by the recession, we have made progress,” Yellen said today, adding that “many Americans still can’t find a job and worry that they can’t pay their bills.”
When Ben Bernanke, the current chairman of the Fed, announced earlier this fall that the Fed will continue its stimulus, one of the reasons he gave was “a downward trend in participation in our economy.” “Participation” is the economic term for the ability of consumers to put money in play by earning it, borrowing it, and spending it. Now, as the Fed continues to wait for “more evidence that the recovery’s pace will be sustained,” things aren’t looking any better for US consumers.
In fact, US consumers self-reported that they had cut their daily spending from $95 in August to $84 in September.
The $11 decrease in spending is drastic for this time of the year, which has previously seen decreases between $3 to $4. By cutting back on their spending, consumer have also refrained from running up their credit card bills. Over the past three months, revolving credit balances, which reflect credit card debt, declined by more than $6bn.
Yet, even as consumers have become more cautious, spending less and paying down their credit card debt, more of them are struggling to make ends meet. The delinquency rate on bank credit cards went up from 2.41% to 2.42% in the second quarter of 2013, found the American Bankers Association. Overall, delinquency ratio based on eight types of debt increased from 1.7% to 1.76%.
The economy is definitely nothing like in 2006, when US homeowners gained $90bn by refinancing their homes, collecting some cash, and then putting that money to work in the economy, often at stores like Best Buy or Home Depot. Two economists with Bloomberg LP, Joseph Brusuelas and Kristin Benz, found that homeowners are not refinancing in large numbers because their homes are underwater, or worth less than the mortgage on them. Fewer refinancings mean less cash for consumers, and as a result, less spending.
Considering all of these factors as well as the looming debt ceiling, it should come as no surprise that economic confidence is falling fast.
It’s been a while since the US has seen such drop in its economic confidence – five years, to be exact. The week after Lehman Brothers filed for bankruptcy, the decline in US economic confidence came in at 15 percentage points. Last week, as US government proceeded to shut down, it brought about the second-largest decline in economic confidence.
Restoring that confidence will be part of Yellen’s job. As chairman of the Fed, it is among her specific responsibilities to bring the unemployment rate lower and aid the housing recovery in any way she can. Then, perhaps, consumers will feel comfortable enough to spend, and companies will hire. Yellen, however, faces the same problem that Bernanke has: Congress and the White House are unlikely to pitch in. Janet Yellen will find that helping Americans pay their bills is an uphill battle.
Link to article: feeds.theguardian.com/c/34708/f/663908/s/3242ddbb/sc/25/l/0L0Stheguardian0N0Cmoney0Cus0Emoney0Eblog0C20A130Coct0C0A90Cjanet0Eyellen0Eaffects0Emiddle0Eclass0Eamericans/story01.htm