US earnings Nov10.pngThe US Fed’s move to launch its QE2 Lifeboat continues its policy of focusing on measures to boost liquidity. Yet as the blog has long argued, today’s problems are based on a lack of solvency not liquidity. Therefore it worries that the Fed’s efforts are likely to miss the mark, again.

The above slide, based on US government data, highlights this key issue. It shows that ‘real’ median US wages* (eg after adjusting for inflation), have hardly increased over the past 10 years. In fact, they are at almost the same level as at the end of 1979, when the data starts.

This confirms that the consumption binge of the Boom years between 2003 – 7 was based on borrowed money, rather than income growth. It also highlights that the continuing aftermath of this binge, the 35% drop in average US house prices, is a solvency problem. And it suggests that the current total of over 2 million homes in foreclosure is more likely to rise than fall.

One would have hoped that the Fed would have learnt from its previous mistakes, particularly after inflating the housing bubble with low interest rates in the early 2000s. This was done to counter the dot-com crash, but provided only temporary support for the economy.

Injecting $600bn of extra liquidity into the US economy will not change real incomes, and so it will not create new demand. Equally, by raising inflation concerns, it has already succeeded in raising long-term mortgage rates, the last thing that was required.

* Median wages give a clearer picture than average wages. These are distorted by the dramatic rise in incomes of the richest 1% of the population, from $800k to $1.8m between 1990 – 2007 in real US$, meaning that their share of total income rose from 12% to nearly 20%. Chemical demand depends on trends amongst the 99%, not the 1%.

PREVIOUS POST

US Fed launches its $600bn QE2 Lifeboat

06/11/2010

So now its official. This week, the US Federal Reserve confirmed it was launchin...

Learn more
NEXT POST

Chemicals set for "strong" year-end as oil jumps 7%

09/11/2010

Last week, the blog repeated its warning that crude oil was preparing for a big ...

Learn more
More posts
ACS Chemistry & the Economy webinar on Thursday
10/12/2019

Please join me for the next ACS Chemicals & Economy webinar on Thursday, at 2pm Eastern Standard...

Read
Polyethylene’s crisis will create Winners and Losers
08/12/2019

Polyethylene markets (PE) are moving into a crisis, with margins in NE Asia already negative, as I h...

Read
What’s next for Brexit and chemicals?
04/12/2019

The UK is about to go to the polls again to try and decide the Brexit issue.  Chemicals will be one...

Read
Global economy hits stall speed, whilst US S&P 500 sets new records
01/12/2019

Whisper it not to your friends in financial markets, but the global economy is moving into recession...

Read
Portugal shows the way to climate neutrality by 2050
24/11/2019

“If you don’t know where you are going, any road will do”. The Irish proverb’...

Read
Oil markets hold their ‘flag shape’ for the moment, as recession risks mount
17/11/2019

Oil markets can’t quite make up their mind as to what they want to do, as the chart confirms. ...

Read
The next billion phone users will be buying $10 smart feature phones, not $1000 iPhones
10/11/2019

Smartphone sales plateaued in Q3, down 9% since Q3 2017’s peak of 1.55bn, as the chart shows....

Read
Budgeting for paradigm shifts and a debt crisis
27/10/2019

It is now 8 years since John Richardson and I published our 10-year forecast for 2021 in Boom, Gloom...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more