Transcript 2011.08 State of the Economy

State of the Economy
Robert P. Murphy
Mises Academy
August 12, 2011
I. Monetary Policy
A. The Bubbly Stock Market
B. The Stock Market & the Fed
C. Interest Rate Signals?!
D. Fed & Housing Bubble
E. Unprecedented
II. Puzzling Price Inflation?
A. Has “Money Supply” Exploded?
B. Reserves Sitting At Fed
C. “Official” Consumer Price Inflation
12-month Price Change, June 2011
Source: Bureau of Labor Statistics
Finished Goods
7.0%
Intermediate Goods
11.0%
Crude Goods
26.2%
D. But Producer Prices…
E. Dollar Resumes Free Fall
VS.
F. Dangers of Aggregation
If lent out all excess reserves,
commercial banks could create
~$16 trillion in money held by the
public, about a 9-fold increase.
Even if this didn’t affect demand to
hold USD, would mean gas prices in
ballpark of $30/gallon.
G. Time Bomb?
H. Fed’s Exit Strategy?
III. The Fiscal Mess
A. Digging In Fast
Present-value of long-run
shortfall in total government
obligations (Social Security,
Medicare, etc.) versus
projected receipts runs
anywhere from $60 - $100
trillion.
B. Accrual Versus Cash Acc’ting
C. CBO Baseline Projections
D1. What About Tea party Deal?!
D2. Tea Party Deal (Cont’d)
IV. The Future
Expect sluggish “real” growth
(high unemployment), with
sharply rising consumer prices
eventually.
Stock market may crash again,
but in long run (after Eurozone
implodes) U.S. bonds leave
holder vulnerable to price
A. Batten inflation.
Down the Hatches
B. Don’t Despair!