larry d. sanders february-march 2010. 1. recession is technically over, but… 2. inflation,...
TRANSCRIPT
THE NATIONAL ECONOMY:COMING OUT OF THE SWAMP
Larry D. SandersFebruary-March 2010
THE “MICROWAVE” BRIEFING ON THE ECONOMY…
1. Recession is technically over, but…
2. Inflation, deflation and unemployment fears…
3. Some cautious optimism, but it won’t be back to “normal” for a long time.
4. Oklahoma’s economy may get worse, but not as bad as the US
5. OK: Oil, Natural Gas, Ag key roles in improvement, especially for rural OK.
6. Watch for double-dip 2
AGRICULTURE & THE MACROECONOMY
1. Nominal interest rates & loanable funds matter: Commercial ag is capital-intensive
2. Value of the $: agriculture is trade-dependent
3. Nonfarm employment: most farm family income comes from off-farm
4. Macroeconomic uncertainty: increased need for effective risk management tools in agriculture
5. Macroeconomic policy impact on Federal budget: much of primary crop agriculture relies on federal support
SO, THE ECONOMY’S IN THE TANK.WHAT’S THE SOLUTION?
Output = Consumption + Investment + Govt. spending + Net exports Consumption is
down, but… Investment is
down Net exports down,
but… Government
spending is propping up the economy
4
US ECONOMIC ACTIVITY, GDP, 1980-2010
5http://www.economagic.com/em-cgi/charter.exe/var/rgdp-qtrchg
THE ECONOMY, POLITICS AND PERCEPTION
US Budget Surplus/Deficit ($b.)
-330-225-177-151-5070 124232268
-157.8-374-413-331-314
-162
-455
-1800
-1400
-2000
-1500
-1000
-500
0
500
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
e
2009
p
2010
p
Source: US Bureau of Economic Analysis, 2009 (www.bea.gov)
http://zfacts.com/p/318.html6
7http://www.usgovernmentspending.com/federal_deficit_chart.html
US UNEMPLOYMENT RATE, MONTHLY, 1980-2010
8http://data.bls.gov/PDQ/servlet/SurveyOutputServlet
9.7%
[OK:6.8 %]
Note: US—Feb 2010OK—Dec 2009
9http://www.economagic.com/blslf.htm
U.S. JOB GAINS & LOSSES, ALL EMPLOYEES, THOUSANDS, 1-MO. NET CHANGE
10http://data.bls.gov/PDQ/servlet/SurveyOutputServlet
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
12http://www.census.gov/cgi-bin/briefroom/BriefRm
ECONOMY IN PROCESS OF SHIFTING FROM DEFLATION TO INFLATION IN US PRODUCTION & CONSUMPTION SECTORS
13
Producers are beginning to clear inventories & excess capacity.
Consumer buying is picking up, but still below prior times; may besaving more, & may be waiting for “better deals” on big ticket items.
http://www.economagic.com/
14
TRADE & TRADE DEFICIT: US TRADE BALANCE, 1990-2010 ($ MILLION)
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
-1200000
-1000000
-800000
-600000
-400000
-200000
0
Trade Balance
Trade Balance
1991: -$31 bil.
NOTE:
1991: $31.1 b.
2009: -$651.3 b.
(China: 35%)
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. Range of change: -100% to
+4%
1. Citigroup2. Bank of America3. JP Morgan Chase4. Wells Fargo5. *Goldman Sachs
2009: $947 billion (-50%)
Top 10: 86% of total1. JP Morgan Chase (+4%)2. Bank of America (-37%)3. Wells Fargo (+3%)4. Citigroup (-56%)5. Goldman Sachs (-11%) Govt take-over
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
economist17
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 “double-dip” 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: real i = nominal i –
inflation. http://www.inflationdata.com/inflation/Inflation/DecadeInflation.asp 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
25
http://www.dailymarkets.com/economy/2009/08/25/case-shiller-home-price-index-rises-for-second-straight-month-first-time-in-almost-3-years/
http://blogs.reuters.com/felix-salmon/2009/07/29/foreclosure-chart-of-the-day/
CASE-SHILLER HOUSING INDEX, 1890-2015 PROJECTED
26http://www.ritholtz.com/blog/wp-content/uploads/2009/06/case-shiller-updated.png
US BANKING SECTOR BLUES TEMPERED BY FDIC; OK MOSTLY SPARED ( SO FAR) . . .
27http://www2.fdic.gov/hsob/
http://network.nationalpost.com/np/blogs/fpposted/archive/2009/08/29/challenge-for-the-fdic-bank-insurance-fund.aspx
CONSIDER POPULATION CHANGES, WHO HAS WEALTH & WHO’S LOST WEALTH IN DOWNTURN
28http://chartingtheeconomy.com/?page_id=27
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.
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)
Wild cards (wars, pandemics, etc.)29
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)?
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%
Grand Total 2676.4
Total debt: $10,000(foreign 26%)(other public 22%)(Fed, intragovt 52%)
31
Foreign Holdings of US Treasury Securities
US Treasury/Federal Reserve Board
$764
$686
$205
$190
$153
$137
$126
$1002
$502
$589
$117
$154
$247
$60
$150
$768
China
Japan
Carib
Oil Exporters
UK
Russia
Brazil
Other
$0 $200 $400 $600 $800 $1000 $1200
April 2009
April 2008
-Billion Dollars-
STIMULUS STATUSSELECTED MEASUREMENTS OF HOW THE STIMULUS PLAN IS HAVING AN EFFECT, THROUGH SATURDAY 5 SEP 09.
33http://www.washingtonpost.com/wp-dyn/content/graphic/2009/09/04/GR2009090400764.html?sid=ST2009090401455
REFERENCES
For more on banking/financial sector see:
http://baselinescenario.files.wordpress.com/2009/09/recovery-and-crisis-presentation-for-glab-sept-14-2009.pdf
Jobs: http://tipstrategies.com/archive/geography
-of-jobs/ http://cohort11.americanobserver.net/latoy
aegwuekwe/multimediafinal.html 34