Transcript The General Economic Meltdown: How do we get out of here?

THE NATIONAL ECONOMY:
COMING OUT OF THE SWAMP
Larry D. Sanders
February-March 2010
THE “MICROWAVE” BRIEFING ON THE ECONOMY…
1.
2.
3.
4.
5.
6.
Recession is technically
over, but…
Inflation, deflation and
unemployment fears…
Some cautious optimism,
but it won’t be back to
“normal” for a long time.
Oklahoma’s economy may
get worse, but not as bad
as the US
OK: Oil, Natural Gas, Ag
key roles in improvement,
especially for rural OK.
Watch for double-dip
2
AGRICULTURE & THE MACROECONOMY
1.
2.
3.
4.
5.
Nominal interest rates & loanable funds matter:
Commercial ag is capital-intensive
Value of the $: agriculture is trade-dependent
Nonfarm employment: most farm family income
comes from off-farm
Macroeconomic uncertainty: increased need for
effective risk management tools in agriculture
Macroeconomic policy impact on Federal budget:
much of primary crop agriculture relies on federal
support
SO, THE ECONOMY’S IN THE TANK.
WHAT’S THE SOLUTION?

Output = Consumption
+ Investment + Govt.
spending + Net exports
 Consumption is
down, but…
 Investment is down
 Net exports down,
but…
 Government
spending is propping
up the economy
4
US ECONOMIC ACTIVITY, GDP, 1980-2010
http://www.economagic.com/em-cgi/charter.exe/var/rgdp-qtrchg
5
THE ECONOMY, POLITICS AND PERCEPTION
US Budget Surplus/Deficit
($b.)
500
0
-50
-151
-225-177
-330
70 124
232 268
-157.8
-162
-374-413-331-314
-455
-500
-1000
-1400
-1500
-1800
2010p
2009p
2008e
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
-2000
Source: US Bureau of Economic Analysis,
2009 (www.bea.gov)
http://zfacts.com/p/318.html
6
http://www.usgovernmentspending.com/federal_deficit_chart.html
7
US UNEMPLOYMENT RATE, MONTHLY,
1980-2010
9.7%
[OK:
6.8 %]
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet
Note: US—Feb 2010
OK—Dec 2009
8
http://www.economagic.com/blslf.htm
9
U.S. JOB GAINS & LOSSES, ALL EMPLOYEES,
THOUSANDS, 1-MO. NET CHANGE
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet
10
TOTAL COMPENSATION, US, 12-MO. CHANGE,
ALL WORKERS
A cartoon about demand-side economics. From "'Right to
Work' Laws--Low Wage Scheme," Economic Outlook,
January 1955, CIO Education Department.
http://www.flickr.com/photos/higbie/2554254376/
11
http://www.census.gov/cgi-bin/briefroom/BriefRm
12
ECONOMY IN PROCESS OF SHIFTING FROM DEFLATION
TO INFLATION IN US PRODUCTION & CONSUMPTION
SECTORS
Producers are beginning
to clear inventories &
excess capacity.
Consumer buying is picking up,
but still below prior times; may be
saving more, & may be waiting
for “better deals” on big ticket
items.
http://www.economagic.com/
13
14
TRADE & TRADE DEFICIT: US TRADE BALANCE,
1990-2010 ($ MILLION)
Trade Balance
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-200000
1991: -$31 bil.
-400000
-600000
Trade Balance
NOTE:
1991: $31.1 b.
-800000
2009: -$651.3 b.
(China: 35%)
-1000000
-1200000
US BANKING HEALTH, MARKET CAPITALIZATION,
1/07-9/09



2007: $1.87 trillion
Top 10: 72% of total
Top 10: lost average of
46% market cap.

1.
2.
3.
4.
5.
Range of change: -100% to +4%
Citigroup
Bank of America
JP Morgan Chase
Wells Fargo
*Goldman Sachs


2009: $947 billion (-50%)
Top 10: 86% of total
5.
JP Morgan Chase (+4%)
Bank of America (-37%)
Wells Fargo (+3%)
Citigroup (-56%)
Goldman Sachs (-11%)

Govt take-over
1.
2.
3.
4.



AIG
Fannie Mae
Freddie Mac
16
OK, WE’RE HERE. HOW LONG BEFORE IT GETS BETTER,
OR BACK TO “NORMAL”?
1-6 years
 OK likely sooner than US
 Next 2-6 months critical
 “New Normal”


Sanders is
Short term pessimist
 Long term optimist
 General dismal economist

17
ECONOMIC MELTDOWN FALLOUT: WHERE ARE WE
HEADED?

US economy is vulnerable
to the following forces in
2010-2012:
 Deflationary trend:
Falling wages, retail
prices & spending,
leading to both lower
local government tax
revenue and fewer
employment
opportunities
 Potential inflation
 Persistent
unemployment
 Increase in oil prices
18
SO, WHERE’S THE ASPIRIN???


For unemployment,
retirement accounts, and
general economic
stagnation, it may be
years before we see
much recovery
Couple that with the
likelihood of a “doubledip” economic cycle in
the next 1-3 years
19
APPENDIX
20
GUESS WHAT? VELOCITY HAS BEEN DECLINING…
21
22
AN UNPLEASANT DOSE OF DEFLATION . . .






So, is Deflation real?
No increases in Social
Security
With Medicare payments
going up, result is net
reduction in retirement
checks.
Other benefits tied to CPI
(union wages? Others?)
The Fed has no tools to fight
deflation.
What is/will happen to real
interest rates:

http://www.inflationdata.com/inflation/Inflati
on/DecadeInflation.asp
real i = nominal i – inflation.
23
WHAT’S NEXT—MORE DEFLATION OR RAMPANT
INFLATION?

One view:
 “For
inflation to supplant deflation as the principal
threat to price stability, we believe excess capacity
would need to be removed.”
 Dan
Nevins, “SEI Economic Outlook, SEI Investment
Management Corp, 2009.
24
US HOUSING MARKET: PRICES UP &
FORECLOSURES UP
http://www.dailymarkets.com/economy/2009/08/25/case-shillerhome-price-index-rises-for-second-straight-month-first-time-inalmost-3-years/
http://blogs.reuters.com/felixsalmon/2009/07/29/foreclosure-chart-of-the-day/
25
CASE-SHILLER HOUSING INDEX, 1890-2015 PROJECTED
http://www.ritholtz.com/blog/wp-content/uploads/2009/06/case-shiller-updated.png
26
US BANKING SECTOR BLUES TEMPERED BY
FDIC; OK MOSTLY SPARED ( SO FAR) . . .
http://network.nationalpost.com/np/blogs/fpposted/archive/2009/0
8/29/challenge-for-the-fdic-bank-insurance-fund.aspx
http://www2.fdic.gov/hsob/
27
CONSIDER POPULATION CHANGES, WHO HAS
WEALTH & WHO’S LOST WEALTH IN DOWNTURN
1. Older groups typically have
greater share of wealth.
2. Wealth loss likely greater among
older pop.
3. Suggests recovery will be
incomplete & generational
transfer will be less.
4. Suggests long time recovery.
http://chartingtheeconomy.com/?page_id=27
28
OTHER ISSUES LIKELY TO AFFECT THE ECONOMY
IN LONG RUN…









Growing economic power of China & India
Climate/weather (OK, US, Global)
Energy supply & demand
Changing OK demographics (out & in-migration)
Crumbling infrastructure
Technological change
TBTF still w/us & likely even more so . . .
Structural issues in Banking/Finance sector unlikely to
be resolved; suggests another crisis in the future (see
S. Johnson)
29
Wild cards (wars, pandemics, etc.)
SO, WHAT WILL THE FUTURE US ECONOMY LOOK
LIKE?







US will be less dominant on world market
China may be the world’s largest economy
US labor market will be more ethnically diverse and
older
US tax burden will be greater to fix infrastructure,
support seniors, invest in education & technology
Global/mass domestic markets will shift to the web
Niche local markets will thrive for Locavores
Regional wars/conflicts, especially over water and
arable land will increase, reducing economic benefits
30
Who own US debt (2008)?
Total debt: $10,000
(foreign 26%)
(other public 22%)
(Fed, intragovt 52%)
Grand Total 2676.4
Foreign owners of US Treasury Securities (July 2008)
Nation
billions of dollars
percentage
Japan
593.4
22.17%
Mainland China
518.7
19.38%
United Kingdom
290.8
10.87%
Oil exporters
173.9
6.50%
31
Foreign Holdings of US Treasury Securities
$764
China
$502
$686
Japan
$589
$205
Carib
$117
April 2009
April 2008
$190
$154
Oil Exporters
$153
UK
$247
$137
Russia
$60
$126
$150
Brazil
$1002
Other
$768
$0
$200
$400
$600
-Billion DollarsUS T reasury/Federal Reserve Board
$800
$1000
$1200
STIMULUS STATUS
SELECTED MEASUREMENTS OF HOW THE STIMULUS PLAN IS HAVING AN
EFFECT, THROUGH SATURDAY 5 SEP 09.
http://www.washingtonpost.com/wp-dyn/content/graphic/2009/09/04/GR2009090400764.html?sid=ST2009090401455
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REFERENCES
For more on banking/financial sector see:
http://baselinescenario.files.wordpress.com/2
009/09/recovery-and-crisis-presentation-forglab-sept-14-2009.pdf
 Jobs:

 http://tipstrategies.com/archive/geography-of-
jobs/
 http://cohort11.americanobserver.net/latoyaegwu
ekwe/multimediafinal.html
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