We recently discussed the ‘dead-weight’ problem of youth unemployment in developed economies. The Economist estimates thatthe world’s population of NEETs (not in employment, education, or training) is a stunning 290 million – or around one-quarter of the world’s youth.
Sadly, many of the ‘employed’ young have only informal and intermittent jobs. In rich countries more than a third, on average, are on temporary contracts which make it hard to gain skills. Young people have long had a raw deal in the labour market.
Power Shift: First in a series on the rise of the central bankers and the global imposition of cheap credit
But there are two big concerns with what this new central banker elite has done.
One is that no one really understands the consequences of pumping such vast amounts of money into the world economy. It’s already distorted the prices of certain assets, and some fear hyperinflation or market crashes are inevitable (the subject of tomorrow’s column).
The other is that it’s caused a massive shift in wealth, from savers to borrowers, and is taking money out of the pockets of almost everyone approaching or at retirement age.
A war on savings
Probably the most painful of the consequences of quantitative easing has been borne by the elderly.
Most of that generation grew up believing that if you save and exercise prudence that you will earn at least a modest return on your hard-earned money to keep you comfortable in your old age, perhaps along with a pension.
But the money-printing orgy of the last five years looks to have shot that notion to smithereens.
Very deliberately, the central bankers have punished savers, pushing interest rates so low that any truly safe investment — and older people are always advised to play it safe — yields a negative return when inflation is factored in.
In a mere two years, the proportion of teenagers who expect to be financially dependent on their parents until their mid-20s has doubled. That gives us all another reason to feel sympathy for parents who have teenagers right now.
A new survey conducted by Junior Achievement, a group that teaches kids about money and jobs, found that 25% of teens think they won’t be able to support themselves until their mid-20s. Two years ago, just 12% of teens surveyed said that they’d have to reach the 25-to 27-year-old age bracket before being able to pay all of their own bills. Correspondingly, the proportion of teens who expect to achieve financial independence by the ages of 18 to 24 has plummeted, from 75% in 2011 to 59% today.
Are these kids just unmotivated? Maybe some of them are, but many more are facing escalating college costs and poor job prospects. An alarming number have a poor understanding of budgeting and basic finance as well.
Plus, the old stigmas attached to relying on one’s parents well into adulthood, and even moving back home after college, seem to have faded. To make ends meet, Generation X crowded in with roommates, ate Ramen and slept on futons. Post-college millennials still have roommates, but they increasingly call them “mom” and “dad.” The number of young adults living with their parents spiked during the Great Recession era. Today’s teens apparently don’t mind the idea of moving back in with the ‘rents, or they at least understand the necessity of making such a move given the state of the economy and the likelihood of large student loans down the road.
U.S. employers posted fewer job openings in March compared with February and slowed overall hiring, underscoring a weak month of job growth.
According to new data from the Federal Reserve, consumer credit balances grew by just $7.96 billion in March, which was much lower than the $15.60 billion expected. There was a big jump in nonrevolving debt (e.g. auto loans, student loans, mortgages). Of that, federal government lending to consumers, almost all of which is for student loans, surged by $3.9 billion.