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the National EconomY : coming out of the swamp

Larry D. Sanders February-March 2010. the National EconomY : coming out of the swamp. The “microwave” briefing on the economy…. 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.

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the National EconomY : coming out of the swamp

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  1. Larry D. Sanders February-March 2010 the National EconomY:coming out of the swamp

  2. The “microwave” briefing on the economy… • 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

  3. 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 Agriculture & the Macroeconomy

  4. 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

  5. Us economic activity, gdp, 1980-2010 http://www.economagic.com/em-cgi/charter.exe/var/rgdp-qtrchg

  6. The Economy, Politics and Perception Source: US Bureau of Economic Analysis, 2009 (www.bea.gov) http://zfacts.com/p/318.html

  7. http://www.usgovernmentspending.com/federal_deficit_chart.htmlhttp://www.usgovernmentspending.com/federal_deficit_chart.html

  8. US unemployment rate, monthly, 1980-2010 9.7% [OK: 6.8 %] Note: US—Feb 2010 OK—Dec 2009 http://data.bls.gov/PDQ/servlet/SurveyOutputServlet

  9. http://www.economagic.com/blslf.htm

  10. U.s. Job gains & losses, All employees, thousands, 1-mo. net change http://data.bls.gov/PDQ/servlet/SurveyOutputServlet

  11. 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/

  12. http://www.census.gov/cgi-bin/briefroom/BriefRm

  13. 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/

  14. Trade & Trade Deficit: US Trade Balance, 1990-2010 ($ million) 1991: -$31 bil. NOTE: 1991: $31.1 b. 2009: -$651.3 b. (China: 35%)

  15. 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% • Citigroup • Bank of America • JP Morgan Chase • Wells Fargo • *Goldman Sachs • 2009: $947 billion (-50%) • Top 10: 86% of total • JP Morgan Chase (+4%) • Bank of America (-37%) • Wells Fargo (+3%) • Citigroup (-56%) • Goldman Sachs (-11%) • Govt take-over • AIG • Fannie Mae • Freddie Mac

  16. 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 Ok, we’re here. How long before it gets better, or back to “normal”?

  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 “double-dip” economic cycle in the next 1-3 years

  19. Appendix

  20. Guess what? Velocity has been declining…

  21. 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

  22. 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. What’s next—more deflation or rampant inflation?

  23. Us housing market: prices up & foreclosures up 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/

  24. Case-shiller housing index, 1890-2015 projected http://www.ritholtz.com/blog/wp-content/uploads/2009/06/case-shiller-updated.png

  25. Us banking sector blues tempered by fdic; ok mostly spared ( so far) . . . http://network.nationalpost.com/np/blogs/fpposted/archive/2009/08/29/challenge-for-the-fdic-bank-insurance-fund.aspx http://www2.fdic.gov/hsob/

  26. Consider population changes, who has wealth & who’s lost wealth in downturn • Older groups typically have • greater share of wealth. • Wealth loss likely greater among • older pop. • Suggests recovery will be • incomplete & generational • transfer will be less. • 4. Suggests long time recovery. http://chartingtheeconomy.com/?page_id=27

  27. 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.) Other issues likely to affect the economy in long run…

  28. 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 So, what will the future us economy look like?

  29. Who own US debt (2008)? Total debt: $10,000 (foreign 26%) (other public 22%) (Fed, intragovt 52%) Grand Total 2676.4

  30. Stimulus StatusSelected 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

  31. 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/latoyaegwuekwe/multimediafinal.html references

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