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U.S. Economy and Agriculture Where is This Train Headed? National Farm Business Management Conference June 15, 2009 S

U.S. Economy and Agriculture Where is This Train Headed? National Farm Business Management Conference June 15, 2009 St Louis. Ron Plain, Ph.D. D. Howard Doane Professor Dept of Agricultural Economics University of Missouri-Columbia http://web.missouri.edu/~rplain. Change is inevitable…..

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U.S. Economy and Agriculture Where is This Train Headed? National Farm Business Management Conference June 15, 2009 S

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  1. U.S. Economy and Agriculture Where is This Train Headed?National Farm Business Management Conference June 15, 2009 St Louis Ron Plain, Ph.D. D. Howard Doane Professor Dept of Agricultural Economics University of Missouri-Columbia http://web.missouri.edu/~rplain

  2. Change is inevitable….. Except from a vending machine.

  3. The Big Picture New technology and the fall of communism led to a prolonged period of economic growth, which led to a run-up in energy prices, which led to a weak dollar and biofuels, which led to high corn prices, which led to more crop acres and higher input prices (especially land) leaving livestock producers in a bind and crop farmers at risk.

  4. The Big Picture II High energy prices eventually led to a slow down in economic growth. In the U.S. this slowdown was delayed by government spending and a real estate bubble sustained by asinine lending. U.S. wealth has been disappearing at a fast rate (homes and equity investments).

  5. Our Current Recession

  6. U.S. Recessions, 1890-2009

  7. U.S. Recessions, 1890-2009 Recessions are self-correcting, if the government doesn’t screw up.

  8. First, high energy prices created an economic slowdown, then subprime lending created a crisis Why a Recession Now?

  9. Crude Oil Prices 1946-2008Annual Average Price, Illinois Recent U.S. recessions were preceded by a jump in energy prices Source: Illinois Oil & Gas Association

  10. Subprime Lending? Greed FraudMortgage backed securities Good intentionsCommunity Reinvestment Act Stupidity

  11. The Two Key Lessons from Enron 1. You can build a huge business with high share values and lots of well paid employees through creative, opaque accounting 2. Competitive markets can handle deregulation or even no regulation, but have trouble dealing with bad government regulation

  12. Housing Units Completed 1968-2008New Privately Owned, Single Family Source: U.S. Census Bureau

  13. Housing Units Completed 1968-2008New Privately Owned, Single Family Source: U.S. Census Bureau

  14. Monthly Housing Starts 2006-09Seasonally Adjusted Annual Rate, Privately Owned Source: U.S. Census Bureau 2009 should be lowest since before 1959

  15. Housing Units Completed 1968-2008New Privately Owned, Single Family During 1999-06 we built 1.8 million too many homes In 2008 we under built by 0.4 million In 2009 we’ll under build by 0.6 million Source: U.S. Census Bureau

  16. Median House Price Index,Quarterly Data, 1975-2008; 1980 Q1=100 Source: Federal Housing Finance Agency

  17. Key Macro Economic Indicators • GDP • Unemployment • Inflation • Interest rates • Stock market • Federal budget deficit • Exchange rates

  18. U.S. Gross Domestic Product, 1947-2009

  19. Growth in Real GDP Source: U.S. Commerce Department

  20. Key Macro Economic Indicators • GDP • Unemployment • Inflation • Interest rates • Stock market • Federal budget deficit • Exchange rates

  21. U.S. Unemployment Rate,Seasonally Adjusted, 1996-2009 Source: Bureau of Labor Statistics

  22. Source: St Louis Federal Reserve Bank

  23. Key Macro Economic Indicators • GDP • Unemployment • Inflation • Interest rates • Stock market • Federal budget deficit • Exchange rates

  24. Annual Rate of Consumer Inflation Source: U.S. Bureau of Labor Statistics

  25. Falling Prices From early July to late December… Crude oil prices have declined 74% Copper prices have declined 65% Lumber prices have declined 38% Corn prices have declined 55% Soybean prices have declined 50% Fed cattle prices have declined 22% Hog prices have declined 30% Gold prices have declined 10%

  26. Falling Prices From September to October… The CPI declined by 1%, the biggest drop in 60 years The core CPI (ex food & energy) dropped for first time in 25 years From October to November the CPI declined 1.9% From November to December the CPI declined 1%

  27. Consumer Price Index,1982-84=100, Seasonally Adjusted Source: U.S. Bureau of Labor Statistics

  28. Change in CPI from Year Ago,Seasonally Adjusted, monthly, 1996-2009 Source: U.S. Bureau of Labor Statistics

  29. Key Macro Economic Indicators • GDP • Unemployment • Inflation • Interest rates • Stock market • Federal budget deficit • Exchange rates

  30. Federal Funds Rate,monthly average, 1996-2009 Source: Board of Governors, Federal Reserve System

  31. Federal Funds Rate,monthly average, 1996-2009 2001 recession Source: Board of Governors, Federal Reserve System

  32. Federal Funds Rate, 1955-2009

  33. Bank Prime Loan Rate,monthly average, 1996-2009 Source: Board of Governors, Federal Reserve System

  34. Bank Prime Loan Rate, 1949-2009

  35. 30 Year Mortgage Rate, 1971-2009

  36. Key Macro Economic Indicators • GDP • Unemployment • Inflation • Interest rates • Stock market • Federal budget deficit • Exchange rates

  37. Dow Jones Industrial Average

  38. Key Macro Economic Indicators • GDP • Unemployment • Inflation • Interest rates • Stock market • Federal budget deficit • Exchange rates

  39. Source: St Louis Federal Reserve Bank

  40. Federal Surplus/Deficit,1960-2014 Source: White House, Office of Management and Budget

  41. Average Adult’s Share of Tax Bill • More than $21,000 per year

  42. Average Household Debt • $ 89,514 – mortgage • $ 22,231 – consumer debt • $ 10,208 – other • $121,953 - total Source: USA Today 5/29/09

  43. Unfunded Federal Obligations • $ 6.36 trillion – public debt • $18.69 trillion – Social Security • $33.18 trillion - Medicare • $ 3.47 trillion – military retirement • $ 1.85 trillion – civil service retirement • $ 0.25 trillion - other • $63.8 trillion - total Equals $546,668 per household Source: USA Today 5/29/09

  44. Debt & Unfunded ObligationsWhat is needed to keep it from growing? • Personal: $121,953@6%=$7,317 • Federal: $546,668@3%=$16,400 • State/local: $10,000@4%=$400 • Total: $678,621@3.55%=$24,117

  45. Debt & Unfunded ObligationsWhat is needed to eliminate in 30 years? • Personal: $121,953@6%=$8,860 • Federal: $546,668@3%=$27,891 • State/local: $10,000@4%=$578 • Total: $678,621@3.55%=$37,329

  46. In Democracy in America, Alexis de Tocqueville said, “Democracy in America is doomed when the people learn to vote themselves money from the public trough.”

  47. Key Macro Economic Indicators • GDP • Unemployment • Inflation • Interest rates • Stock market • Federal budget deficit • Exchange rates

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