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Is the US Headed for
Another Economic Crisis?
Specific Topics
1)
2)
3)
4)
5)
6)
Is the Banking Sector Stable?
Are State and Local Governments Solvent?
How Serious is the Federal Debt Problem?
Will the Real Estate Market Recover?
What About Consumer Spending?
What Should we Expect Over the
Next 12 Months
1) Is the Banking Sector Stable?
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
FDIC Bank Closures
1990 to 2011
400
300
200
100
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
FDIC Problem Banks
1990 to 2011
1000
800
600
400
200
0
Total Assets for all FDIC Insured Banks:
Approximately $14 Trillion
Total Assets for the 865 Banks on
the FDIC Problem List:
Approximately $400 Billion
(Less Than 3% of the $14 Trillion)
Overall Grade for the
US Banking Sector
Overall Grade for the
US Banking Sector
C
US Banks are Flush with Cash
2) Are State and Local
Governments Solvent?
State and Local Government
Revenue and Expenses
Overall Grade for the
Financial Condition of the
Typical State or Local Government
Overall Grade for the
Financial Condition of the
Typical State or Local Government
B-
3) How Serious is the
Federal Debt Problem?
Total Federal Debt
How Big of a Threat is the
Federal Debt Problem for the
General Health of the US Economy?
Analogy to Debt Capacity for a Family
There is a “Tipping Point” Beyond Which
Lenders are Unwilling to Extend Credit
The Level of Interest Expense and the Ability
to Service the Debt are of Greater Concern
Than the Level of Debt per se.
Additional Factor in the Case of US
Treasury Debt
The International Transactions Demand for
US Dollars and US Treasury Debt
What the Implication of International
Demand for the Tipping Point?
International Demand Clearly Adds to the
Capacity for US Debt Relative to the
Level of Debt Capacity for Other Nations.
However, the Full Extent of the Increase
In Debt Capacity Had Yet to Be Tested
In Addition, it is too Early to Assess the Potential
Effect of a Nasty Political Debate Over US Debt
US Debt Held by Foreigners
Overall Grade for the
Financial Condition of the
Federal Government
Overall Grade for the
Financial Condition of the
Federal Government
D
4) Will the Real Estate
Market Recover?
Housing Starts
Overall Grade for the
Residential Real Estate Market
Overall Grade for the
Residential Real Estate Market
E
5) What About
Consumer Spending?
Consumer Spending
Overall Grade for the
Consumer Sector
Overall Grade for the
Consumer Sector
A-
6) What Should we Expect
Over the Next 12 Months?
How Strong is (was) the
Economic Recovery?
Real GDP from 2002 to 2011
Real GDP From 1950 to 2011
Inventory to Sales Ratio
New Factory Orders
Average Weekly Overtime
If the Economy was Recovering
Then Why Has
The Unemployment Rate
Remained So High?
Unemployment Rate
Unemployment 101
Unemployment 101
Okun’s Law
Unemployment 101
Okun’s Law
Effects of Recession Severity on Critical
Economic Linkages
Unemployment 101
Okun’s Law
Effects of Recession Severity on Critical
Economic Linkages
Growth in Labor Productivity
Unemployment 101
Okun’s Law
Effects of Recession Severity on Critical
Economic Linkages
Growth in Labor Productivity
Growth in Work Force
Unemployment 101
Okun’s Law
Effects of Recession Severity on Critical
Economic Linkages
Growth in Labor Productivity
Growth in Work Force
Mechanics of the Unemployment Measure
An Additional Observation
The Absolute Decrease in Real GDP and the
Absolute Increase in Real GDP Might not be
the Best Way to Measure the Beginning and
End of an Economic Recession.
Most Economists Agree that a Better Measure
is the Increase or Decrease in Real GDP
Relative to the Long Term Trend in Productive
Capacity
Real GDP from 2002 to 2011
The Recession of 1990-91
The Recession of 2001
What Has Been Driving
This Economic Recovery?
Is the Recovery Due to
Monetary Stimulus?
Interest Rate on a Conventional
30 Year Mortgage
What About
Fiscal Stimulus Programs?
What About
Fiscal Stimulus Programs?
TARP Program in Late 2008: $700 Billion for
Investments in Financial Institutions
What About
Fiscal Stimulus Programs?
TARP Program in Late 2008: $700 Billion for
Investments in Financial Institutions
ARRA Programs in Late 2009: $300 Billion
in Tax Cuts and $500 Billion in Additional
Spending
Private Sector Employment
Is There Another Factor
Contributing to
Economic Recovery?
Trade-Weighted Value
of the US Dollar
Trade-Weighted Value
of the US Dollar – A Longer View
Yuan Per Dollar
Canadian Dollar vs US Dollar
What Effect Does a Decline in the
Value of the US Dollar
Have on the US Economy?
The Dual Pricing Effect
Foreign goods and services become
more expensive for US consumers
US goods and services become less
expensive for non US consumers
By Virtue of a Substantially Lower Value of
the US Dollar, You Can Even Expect to
See a Decline in the Rate of International
Outsourcing for Parts and Services
Economic Forecast
for the Next 12 Months
Economic Forecast
for the Next 12 Months
Despite Continuing Issues for Many Parts of the
US Economy, I Expect to See Modest Growth in
Real GDP at an Annual Rate of 1% or 2%.
Economic Forecast
for the Next 12 Months
Despite Continuing Issues for Many Parts of the
US Economy, I Expect to See Modest Growth in
Real GDP at an Annual Rate of 1% or 2%.
I also Think There is a Roughly Equal Chance of
Either Modest Decline or Enhanced Growth in
Real GDP During any Given Quarter
And Most Important of All
And Most Important of All
If Any of These Predictions
Turn Out to Be Incorrect,
Please Remember
That my Name is:
And Most Important of All
If Any of These Predictions
Turn Out to Be Incorrect,
Please Remember
That my Name is:
Ben Bernanke