Sarah Raskin‘s words strongly reminded of earlier warnings from renowned banking analyst Meredith Whitney. Whitney already forecast more than a year ago that a large number of US citizens would completely drop out of the system, since many people did not meet lending or regulatory qualifications anymore. More than 14 million Americans were currently out of a job and another 8.5 million were underemployed, since their hours had been reduced or they were not able to find a full time job. This is what the latest official employment report from the US Labor Department stated. According to Raskin, the report had been gloomy and very disappointing. Furthermore she said that the official unemployment rate of 9.1% did not reflect the real extent of the US job market’s problems.
Thousands of unemployed Americans have completely given up on looking for jobs in the last couple of weeks, although most of them were willing to work. Due to their difficult individual situation they had to face the double challenge not to have access to affordable financial services on the one hand and not to be able to build up personal savings on the other, as Raskin explained during an economic conference in Washington.
Even many citizens who have a job had problems getting loans, after the US authorities tightened lending standards in the wake of the financial crisis. Over a third of potential house buyers were no longer granted mortgages by banks. Many small businesses have also been frustrated for months, since tighter lending rules cut off their access to new loans. This development is heavily weighing on their businesses. Raskin, who formerly worked for the state of Maryland´s regulating authority, added that both unemployed and underemployed persons hardly had any access to the simplest financial services anymore. This included opening a bank account, or owning a debit or credit card. Those who only had a low or moderate income did not have enough assets to qualify for the high lending standards of the banking system. Raskin did not comment whether the Federal Reserve planned another bond purchasing programme but stated that hurdles would be very high.
The White House recently warned of potential default of outstanding US sovereign debt if a political agreement between Republicans and Democrats could not be reached by August 2nd. As The Christian Science Monitor website reported that Congress members were only given nine more days to reach an agreement to raise the country´s debt ceiling. These calculations considered holidays, recesses, and diverging sessions from the House of Representatives and Senate. Moreover, the ratings agency Standard & Poor´s (S&P) announced this week their intention to drastically downgrade the US credit rating if no political agreement was reached on the debt ceiling. Financial markets would face Armageddon if this happened, much worse than the collapse of investment bank Lehman Brothers in 2008. However, the gold price has not profited from this announcement, since the Greek parliament´s passage of extensive budget cuts provided relief for financial markets, especially stock markets. Nevertheless, gold will likely remain one of the best investment alternatives in the wake of globally deteriorating debt problems. Even if it seems that a Greek tragedy could be avoided for now, there are too many other ticking timebombs around the globe. Perceived as safe havens and growingly seen as monetary assets again, gold and silver will likely benefit from this situation in the future.
Source : Goldmoney
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