Transcript Slide 1

After the Elections:
Big Changes Ahead
Jim Wiesemeyer
Informa Economics
A New Beginning in Washington?
Top of the Agenda
• Fiscal stimulus and financial regulation
• Democrats expect to employ the Reconciliation process
to pass a major tax/health care bill
– Requires only 51 votes in the Senate
• Energy Policy and Global Climate Change (regulatory)
• Health care
– SCHIP may be down payment on broader reform to come later.
– Consensus on broader reform may be elusive / timing may slip.
• Shifting course in Iraq and Afghanistan
• Taxes
– Middle class tax cut. Repealing upper income Bush tax cuts
– Estate taxes will remain in place
• Deficits in FY 09 & FY 10 will be well over $1.0 trillion
– May impose ceiling on creation of new programs
2008 Electoral Map
AK-3
Electoral Votes
McCain ..…... 173
Obama …..… 365
WA-11
MT-3
ND-3
MN-10
OR-7
ID-4
SD-3
MI-17
NE-3
UT-5
PA-21
IA-7
1
IL-21
CO 9
NY
-31
WI-10
WY-3
NV-5
NH-4
VT-3
KS-6
CA-55
MO-11
IN
11
OH
20
NM-5
OK-7
WV
5
KY-8
TN-11
AR-6
SC-8
HI-4
MS-6
AL-9
GA-15
TX-34
LA-9
McCain
Obama
MA-12
RI-4
CT-7
NJ-15
VA
13
NC-15
AZ-10
ME
4
FL
27
DE-3
MD-10
DC-3
Presidential Voting Patterns


Popular vote: 53%, highest since Johnson in 1964
Latino vote: 66%
-- Helped win Nevada, N.M., Colo., Va., Fla.
-- Registered Latinos up 20% since 2004
-- 76% of young Latinos backed Obama
-- Impact on immigration reform

Rural vote: McCain 51% to 47% for Obama
Democratic Party gaining in rural sector

Black vote: 95% (Kerry 88% in 2004)

Other:
-- 66% aged 18-29
-- 68% of first-time voters
Keys to Obama Administration
 Which Obama? Populist or pragmatic?
 Cabinet: How diverse?
 Early agenda: Stimulus, taxes, health care, energy, educ.
 Long-term agenda: Iraq, Afghanistan, global warming/cap
& trade, Soc. Sec., budget deficit, immigration reform
 Congressional Dems: Can he control pent-up liberals?
-- Pelosi: “The country must be governed from the middle.”
 Labor unions: Payback time, but how much?
 Change: How much, how and when?
USDA Secretary Pick: Vilsack
 Former Iowa Gov. Tom Vilsack: Third governor in a row.
 Activist or loose cannon? Push for single food agency; Big
changes ahead for USDA and farm policy… direct payments
 How many folks work here? Says Ag Dept. can tell how many
checks they write, but don’t know how many work at USDA.
 The next layer: Sub-Cabinet positions will now be the key
focus and how much say Vilsack will have in who ends up where.
Impact on Agriculture
 Personnel: USDA, EPA, OMB, Energy, USTR, Justice
 Farm bill implementation, policy issues
-- Dairy: After a few very good years….HELP
-- Sugar: A farm bill success, now for implementation…
Impact on Agriculture
 Congress: Issues ahead
-- Futures trading/credit default swaps
-- USDA reorganization
-- Farm bill implementation oversight
-- Ag Committee ratios: More Democrats
House: 28 Dems, 17 GOP (from 25-21)
Senate: 12 Dems, 9 GOP (from 11-10)
What’s Next for U.S. Economy?
14,000
13,000
12,000
11,000
10,000
9,000
Change in Net Worth
2002-2007*
2008
Trillion dollars
Change in Net Worth ............. +20.5
Change in tangible assets ..... +9.0
(88% real estate)
Change in financial assets ..... +16.9
Change in liabilities ................ +4.6
-10.0
-2.0
-7.5
+0.5
Three Facets to Economic Challenges
 Global liquidity trap: banks can’t write-off bad
assets without more capital, yet need more
capital to keep uncertain exposure on balance sheet.
Risk aversion increasing as economy weakens. No
lending - no growth.
 Traumatized consumer: net worth in financial
assets and real estate has declined by $10
trillion, job losses are growing and credit is more
restricted even at lower rates. Largest contributor to
global growth is retrenching.
 Stagnating emerging markets: export dependent
economies are unable to offset lost demand from
advanced economies. Internal political unrest is
growing, realignments on horizon!
What Are The Determining Catalysts?
1. Global financial market infusions to restore liquidity.
• $700 billion in U.S. (Troubled Asset Relief Program,TARP), $150
billion in Britain, etc. (A Resolution Trust Entity is on horizon)
• Access to capital markets is first indicator of the turn!
2. Global fiscal stimulus to restore consumer confidence.
• $1 trillion in U.S. (7% of GDP); EU spending $350 bil. (4% of GDP)
• In 18-24 months be prepared for inflation cycle.
3. Political Transitions: U.S., Europe, etc.
• Optimism in U.S.; challenges in Europe / Russia, Middle East
4. Rising tide of protectionism? (U.S., Europe, Russia, etc.)
• Food & agriculture is always high on list. (EU, China)
5. Strong farm balance sheets & cash flows.
• Agriculture is one of stronger sectors in U.S. economy.
6. Low, but building grain & oilseed inventories.
• Supply vulnerability is critical market factor (weather/acreage).
7. Global recession constrains livestock, poultry and dairy.
Farm Financial Conditions
Billion dollars
100
80
Net Cash income
60
40
Record
levels!
20
Percent
20
Debt-to-asset ratio
15
10
08
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
74
72
70
5
Signs of Economic Recovery
 Stock market: Turns up 6 months before employment gains.
 Spring: Inventory liquidation. Focus on current fundamentals.
 Watch for: Improved credit market conditions, stabilization of labor
markets. LIBOR is dropping; some corporate bond markets thawing.
Narrowing of rate differentials between Treasuries & other credit
instruments positive signal -- would encourage banks to lend more.
 Housing aid: Second tranche of TARP will focus on housing sector
aid. Treasury and Fed want mortgage rates below 5%.
 Energy stimulus: In 2008, oil price averaged about $100/barrel. If
average is $50 in 2009, economy would receive $100 billion stimulus.
Positive for households & businesses using energy; negative because
drilling activity being reduced domestically, & OPEC cutting back.
Signs of Economic Recovery
 Housing: Rate of new residential construction well below
replacement. Home buying activity could begin to improve in spring.
Caveat: consumer confidence is as important as affordability in home
purchase decision.
 Consumer spending: Falling at fastest pace in post WW II period.
Once savings rate gets to 4% or 5%, consumption could start to grow in
line with income. But if saving rate is over 5%…drag on economy.
 Economic stimulus: Important is size, scope and composition.
 House-Senate conference this week
 Rural sector aid: Health, food stamps, alternative energy
 Dairy aid?
Major Issues Ahead
Trade Policy
-- Protectionist Washington
Big Issues
- Cuba
- Energy, Renewable fuels
- Global warming
- Health care reform
- Food safety reform
- Social Security reform
- Taxes
- Infrastructure
Economy
- Credit crunch
- Another stimulus package
- Immigration reform
- World economy: China
Top Issues
Deficits
- Budget deficit
- Total U.S. federal debt
- Entitlements
- Interest payments on debt:
over $441 billion in FY08
Money
- FY09 appropriations
- FY10 budget resolution
Post-Rescue Impact
- A changed Congress
- Regulations
- Cost-cutting
- Election promises
Farm Bill vs. Total Federal Spending
Total Federal
Spending
18
2002 vs. 2008 Farm Bill Spending
19