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REMA Meeting Minnesota

2. Who Got It Right?. MY FORECAST IS A SEVER DEPRESSION AT THE END OF THIS DECADE" WE ARE DANCING ON THE DECK OF THE TITANIC"Fred Foldvary PhD Economics Santa Clara University04/13/2004Real estate and commodity cycle (18 years) fueled by money expansion drives increasing prices that cannot be

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REMA Meeting Minnesota

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    1. REMA Meeting Minnesota/Wisconsin April 15,16 2010

    2. 2 Who Got It Right? “MY FORECAST IS A SEVER DEPRESSION AT THE END OF THIS DECADE” “WE ARE DANCING ON THE DECK OF THE TITANIC” Fred Foldvary PhD Economics Santa Clara University 04/13/2004 Real estate and commodity cycle (18 years) fueled by money expansion drives increasing prices that cannot be sustained, chokes investment, recession follows. Colossal trade/fiscal deficit financed by US debt will do long term damage, drains resources. Baby boomer retirements will slow economy, drive higher taxes, less investment.

    3. 3 What does Fred think today? The recession is over due to the Federal Reserve action. The recovery will take 7-10 years to return the economy to its “pre-recession” status. Government stimulus is a drug which will damage long term health resulting in much higher debt, inflation, and interest rates. Forget cap and trade and universal heath care- both unaffordable. The real estate and business cycles will continue and the government cannot “bail out” next time. Too big to fail should mean too big to exist Fundamental changes in government revenue sources is necessary, tax land/value added tax. Standard of living will decline, taxes must go up, interest rates are normal at roughly 8%-10% (home mortgage) and so must go up.

    4. 4 Interest Rate Forecasts 2010 Factors Keeping Rates Low: Depth of the recession and excess manufacturing capacity (65% utilization) will keep inflation risk low. Bank lending continues to lag and will hinder economic recovery Huge Federal deficit will require higher taxes/lower spending, depressing growth and keeping interest rates low. Deflationary/simulative fiscal policy will continue. Continued high level of unemployment is depressing wages, spending, and inflation. Consumers and banks still paying down a decade of debt, keeping spending and GDP low. Low GDP growth= low inflation=low interest rates.

    5. 5 Interest Rate Forecasts 2010 Factors Raising Rates: Combination of stabilizing housing prices, increased consumer spending, depreciation of the dollar, and quantitative easing of the money supply. Recessions always end and zero interest rates are relatively rare in Western economies. Federal Reserve Bank policy- maintaining low (zero) rates with a double digit increase in money supply will be inflationary and drive rates up.

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