QE Does Not Create Jobs. It Never Did. It Never Will.

October 16, 2013

I continue to read pieces in the media claiming the QE should not be stopped because it will hurt the recovery. I don’t understand this claim because there is literally no historical evidence that QE creates jobs in the first place.

The UK has announced QE efforts equal to an amount greater than 20% of its GDP and has not seen any meaningful job growth. Similarly, Japan has announced nine rounds of QE for a combined effort equal to 20% of its GDP over the last 20 years and job growth remains dismal there.

Now let’s look at the US today.

The official unemployment rate is highly charged politically as it is used by the media to gauge how well a particular administration is doing at generating job growth.

As such the unemployment numbers are routinely massaged to the point of no longer reflecting the true number of unemployed Americans. For this reason, I prefer to use the labor participation rate when gauging the health of the US jobs markets: this metric represents the number of Americans who are currently employed as a percentage of the total number of Americans of working age.

As you can see, the number of employed Americans of working age peaked in the late ‘90s. It has since fallen to levels not seen since the early ‘80s. Moreover, looking at this chart it is clear that job creation has failed to keep up with population growth.

This negates any claims of “recovery” in the jobs market.

In particular, I want to draw your attention to the last five years of this chart below. The US Federal Reserve began its first QE program, called QE 1, in November 2008. Since that time it has launched three other such programs, spending over $2 trillion in the process.

During this period, the labor participation rate has not once experience a sustained uptrend. Put another way, job creation has never outpaced population growth to the point of creating a significant turnaround in the jobs market. This has happened despite the recession officially “ending” in mid-2009.

The evidence here is clear. QE does not generate jobs in the broad economy. It failed for the UK, it failed for Japan. It’s failing here.

End of story.


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Graham Summers is Chief Market Strategist for Phoenix Capital Research, an independent investment research firm based in the Washington DC-metro area with clients in 56 countries around the world.

Graham’s clients include over 20,000 retail investors as well as strategists at some of the largest financial institutions in the world (Morgan Stanley, Merrill Lynch, Royal Bank of Scotland, UBS, and Raymond James to name a few). His views on business and investing has been featured in RollingStone magazine, The New York Post, CNN Money, Crain’s New York Business, the National Review, Thomson Reuters, the Glenn Beck Show and more.

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