A question of fundamentals

Unemployment in the U.S. plateaued at 9.1 percent in August, with the jobless rate seeing no change on-month for the first time in 66 years. Whereas employers added 54,000 new jobs in May, 18,000 in June and 114,000 in July, not enough new hires were recruited last month to cause a blip on the radar.

As the U.S. economy needs to generate 150,000 new positions each month to absorb new job seekers, this is clearly a concern. Such bleak labor prospects can further dampen consumer confidence, pushing the economy that much closer to a double-dip recession.

Urgent times call for urgent measures, but Washington has few maneuvering options left. Its ultra-loose monetary policy, quantitative easing and aggressive fiscal spending over the last three years have failed to turn the economy around and stabilize the job market.

Authorities simply exhausted their bag of tricks without seeing any positive tangible results. In return for its hard-won Congressional endorsement to raise the ceiling for federal debt, the U.S. government promised more austerity and tightening measures. It more or less yielded fiscal action to stimulate the economy. The U.S. benchmark interest rate is already close to zero and more quantitative easing is out of the question, given that the Consumer Price Index is already hovering around 3.6 percent.

In the longer term, the U.S. economy is undergoing a period of restructuring after excessive policy movement to give it a boost. But it has become far too used to bailouts and stop-gap measures and has now been shaken as these wind down. Even cash-rich companies are scaling back investment and hiring plans. The pinch is likely to worsen until the economy hits rock bottom, although at least the U.S. can enjoy better prices of raw materials from overseas after two rounds of quantitative easing.

Now the effects of the problems plaguing the U.S. and European economies are being felt in Korea, which saw its trade surplus shrink dramatically from $6.32 billion in July to $821 million in August. Economic growth forecasts for this year has already been downwardly revised from around 4.5 percent to 4 percent, and overseas jitters are affecting Korea’s export-driven economy.

If the restructuring of the global economy is prolonged, we also must brace ourselves for a protracted battle. Authorities need to strengthen Korea’s economic fundamentals, deregulate the service sector and invest in future growth industries, not just move to rein in inflation.