Transcript Fiscal State of US

Economic Update
Daryl Montgomery
May 25, 2011
Copyright 2011, All Rights Reserved
The contents of this presentation are not intended as a recommendation to buy or sell any security.
What’s Wrong with this Picture?
• Fed funds rate around 0% since December
2008.
• Federal budget deficit estimated to be as
high as $1.65 trillion this year (11% of
GDP).
• Fed on 2nd round of quantitative easing (a
form of money printing).
• U.S. GDP figures when initially released
overstate GDP by a total of 3.0% to 6.0%.
• 2011 Q1 GDP indicates growth of 1.8%.
Fiscal State of U.S.
• National Debt: $14.3 trillion (frozen)
State and Local Debt $2.9 trillion
Unfunded liabilities $114 trillion
• Total National Assets: $79 trillion.
• U.S. Household Debt: $16.1 trillion.
• Debt to GDP ratio 98% (official figures).
• Obama Admin’s Budget Deficit projections:
$7.21 trillion in next decade (assumes annual
GDP growth > 5% and very low inflation, both
are fantasies).
Debt Ceiling Crisis
• National debt ceiling reached last week.
• Geithner says default can be prevented until
August if ceiling not raised from $14.3 trillion.
• Lawmakers have agreed to $0.15 trillion in
cuts, Obama has proposed $0.48 trillion,
Republicans say $4 trillion needed for next
decade (would still leave > $3 trillion deficit).
• Default would have serious repercussions in
the stock and bond markets and the economy
because government spending holds them up.
History of U.S. Budget Deficit
History of U.S. National Debt
Employment Picture
• May Employment Report:
- 244,000 jobs created
- unemployment rate increased by 0.2% to 9.0%
- alternative unemployment (U-6) was 15.9%.
• Why the unemployment situation looks better:
Number Unemployed
Not in Labor Force
April 2010 April 2011
Change
15,138,000 13,747,000 -2,391,000
82,809,000 85,725,000 +2,916,000
• Weekly claims 409,000 (438,000 week before).
These have been highly volatile. Claims around
400,000 or more indicate recession.
Monthly Unemployment Rate 2010 and 2011
Revisions were made to the numbers at the beginning of 2011
Weekly Claims
The Inflation Cycle Cannot be Stopped
• The U.S. had understated its inflation rate
since 1983. Inflation has not been below 5%
in the 1990s and 2000s. Fed claims there is
no inflation.
• Global food prices, copper, cotton and gold
have hit all-time highs in 2011. Gasoline is
close to record high. This is only the
beginning.
• Reported growth in retail and manufacturing
is inflation based.
Official U.S. Inflation Rates versus Realistic Ones
The blue line is the inflation rate calculated as it was in the 1970s. Red line official numbers.
Global Food Prices
Copper Prices 2000 to 2011
Cotton Commodity Prices
U.S Gasoline Prices from Credit Crisis Low
Fed Balance Sheet (money printing) and the S&P 500
Currency in Circulation
ADJUSTED MONETARY BASE –
Indication of Inflation 3 to 10 Years in the Future