The Economy and Credit Unions

1. The Economy and Credit Unions James D. Likens Credit Union Executive Society Southern California/Arizona University of Southern California Los Angeles, California March 16, 2010

2. jlikens@pomona.edj

3. In Late 2008…

4. The world going through the most serious economic downturn since the Great Depression. Global Crisis

5. Worldwide Losses • $20 trillion of housing wealth disappeared. • $30 trillion of stock-market wealth evaporated.

6. Fear and Misery

7. House Price Cycles and Banking Crises Peak-to-trough Price Declines (left) and Years Duration of Downturn (right) Source: Reinhart and Rogoff ‘The Aftermath of Financial Crises’

8. Stock Market Cycles and Banking Crises Peak-to-trough Price Declines (left) and Years Duration of Downturn (right) Source: Reinhart and Rogoff ‘The Aftermath of Financial Crises’

9. Unemployment Cycles and Banking Crises Trough-to-Peak Increase in Unemployment Rate (left) and Years Duration of Downturn (right) Source: Reinhart and Rogoff ‘The Aftermath of Financial Crises’

10. Per Capita GDP Cycles and Banking Crises Peak-to-Trough Percent Decline in Real GDP (left) and Years Duration of Downturn (right) Source: Reinhart and Rogoff ‘The Aftermath of Financial Crises’

11. If U.S. Were to Experience the Average • Housing: 2006 2012 • Stock Market: Nov 2007 early 2011 • Unemployment: 2007 4.5% 11.5% in 2011 • Per Capita GDP: Q3 2008 in Q3 2010

12. If U.S. Were to Experience the Average • Housing: 2006 2012 • Stock Market: Nov 2007 early 2011 • Unemployment: 2007 4.5% 11.5% in 2011 • Per Capita GDP: Q3 2008 in Q3 2010 Could the U.S. do better than the average?

13. If U.S. Were to Experience the Average • Housing: 2006 2012 • Stock Market: Nov 2007 early 2011 • Unemployment: 2007 4.5% 11.5% in 2011 • Per Capita GDP: Q3 2008 in Q3 2010 Maybe.

14. If U.S. Were to Experience the Average • Housing: 2006 2012 • Stock Market: Nov 2007 early 2011 • Unemployment: 2007 4.5% 11.5% in 2011 • Per Capita GDP: Q3 2008 in Q3 2010 Maybe. But how?

15. What Needed to Be Done?

16. What Needed to Be Done? • In normal times consumer spending is two-thirds of the economy.

17. What Needed to Be Done? • In normal times consumer spending is two-thirds of the economy. • In this crisis consumers closed their wallets. They were afraid to spend and many could not get credit even if they wanted to buy things.

18. What Needed to Be Done? • In normal times consumer spending is two-thirds of the economy. • In this crisis consumers closed their wallets. They were afraid to spend and many could not get credit even if they wanted to buy things. • Government needed to increase aggregate demand temporarily to help fill the hole created by the economic crisis.

19. What Needed to Be Done? • In normal times consumer spending is two-thirds of the economy. • In this crisis consumers closed their wallets. They were afraid to spend and many could not get credit even if they wanted to buy things. • Government needed to increase aggregate demand temporarily to help fill the hole created by the economic crisis. • Fallacy of Composition

20. Fiscal Policy TARP $700 billion $787 Billion StimulusBill

21. Monetary Policy

22. U.S. Treasury Yields

23. Money Supply (M2)Checking accounts, savings and small time deposits, overnight repos at commercial banks, and non-institutional money market accounts.

24. Fed’s Balance Sheet

25. Bank Reserves at the FedDec 07 - Present

26. Is Economic Policy Working?

27. Stock Market

28. If U.S. Were to Experience the Average • Housing: 2006 2012 • Stock Market: Nov 2007 early 2011 • Unemployment: 2007 4.5% 11.5% in 2011 • Per Capita GDP: Q3 2008 in Q3 2010 The U.S. stock market has recovered much of its value. Its recovery began in February 2009.

29. S&P 500 Stock Index

30. Gross Domestic Product

31. If U.S. Were to Experience the Average • Housing: 2006 2012 • Stock Market: Nov 2007 early 2011 • Unemployment: 2007 4.5% 11.5% in 2011 • Per Capita GDP: Q3 2008 in Q3 2010 Per Capita GDP is increasing. The recovery began in March 2009.

32. GDP Growth

33. Housing Prices

34. If U.S. Were to Experience the Average • Housing: 2006 2012 • Stock Market: Nov 2007 early 2011 • Unemployment: 2007 4.5% 11.5% in 2011 • Per Capita GDP: Q3 2008 in Q3 2010 Housing prices are weak but no longer in free fall.

35. Case-Shiller Housing Price IndexChange from Dec 2008 - Dec 2009

36. Unemployment

37. If U.S. Were to Experience the Average • Housing: 2006 2012 • Stock Market: Nov 2007 early 2011 • Unemployment: 2007 4.5% 11.5% in 2011 • Per Capita GDP: Q3 2008 in Q3 2010 Unemployment is abating. It may be bottoming out right now. But it is still very high and its incidence is uneven.

38. U.S. Job LossesJanuary 2008 – December 2009 Jan 2010: -20,000 Feb 2010: -36,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Bureau of Labor Statistics

39. U.S. Unemployment RateJan 2008 – Jan 2010 Source: Bureau of Labor Statistics

40. U.S. Unemployment

41. Is Economic Policy Working?

42. Is Economic Policy Working? Without a doubt!

43. Why Aren’t We Grateful?

44. Economy Is Getting Better Half Full

45. Economy Is Still Weak Half Empty

46. Dangers remain Still lots of foreclosures Unemployment remains very high Political backlash Rage It’s Not Over Until It’s Over

47. Look over there…

48. The Federal Reserve

49. Current Monetary Policy • A near-zero interest rate policy • Liquidity programs, which are now mostly ended • A quantitative easing through asset purchase

50. Near-Zero Federal Funds Rate • Policy rates were reduced to near-zero across the Group of Seven in late 2008 and early 2009. • The FOMC says it will keep the federal funds rate target near-zero “for an extended period.” • Any upward movement of this rate will be contingent on both inflation and real economic developments.