Presentation on theme: "The Economy 2010 and How We Got Here Steven L. Cobb, Ph.D. UNT Center for Economic Education."— Presentation transcript:
The Economy 2010 and How We Got Here Steven L. Cobb, Ph.D. UNT Center for Economic Education
The U.S. Economy is on a Trajectory of Slow, but Improving Growth for 2010
Guitar-string theory: Deeper recessions are followed by stronger, more rapid recoveries. -Milton Friedman
The aftermath of deep financial crises shows deep and lasting effects on asset prices, output and employment. Unemployment and house price declines extend out for five and six years. Output declines last two years on average. Even recessions sparked by financial crises do eventually end, albeit almost invariably accompanied by massive increases in government debt. -Reinhart and Rogoff(Dec. 08)
The Current Situation GDP: 2-3%, more likely close to 3% Absent the financial crisis: 5-6% Headline inflation: 3.0% Core inflation: 1.5% Unemployment: 10.4% peak in 2010 Q2 Sustained employment growth to begin after Feb. 2010
What have we experienced? High unemployment Actual deflation Negative wealth shock Bursting of multiple bubbles Near-demise of banking/financial system
The Trend Was Similar In Established and Rising Stars
The US Experiences a Rise in the Value of the Dollar
But the Stronger Dollar Is Very Hard On Exporters
The Result of All This Is the Near Demise of the Financial System
What have we experienced? This Recession is the most painful since the Great Depression Longest, Deep, and Wide It followed 25 years of growth interrupted by two short, mild recessions Bottom Line: Relative to a generation of experience, this was a truly traumatic event.
Headwinds Credit to households and small businesses Banking system –Capital, Commercial Real Estate losses Anticipated taxes Policy uncertainty Higher energy prices
Year-end inflation? Given fears of deflation at year-end 2008, economists thought a 1% deflation over 2009 was the most likely outcome. Federal Reserve Policy averted that outcome, and thats a prediction were very happy to have been wrong about. Credit Chairman Bernanke and the FOMC
Consumer Behavior After a number of years where the U.S. saving rate was negative, there is an indication that Americans are beginning to save again. This has the potential to be one of the more positive impacts of the recession.
Unemployment May not have peaked – some expect it to hit 10.4% in the second quarter of this year. Doesnt measure discouraged workers and part-time workers that want full time jobs (may currently be as high as 16.3%) Some economists still fear a jobless recovery
Budget Deficits The spending measures may have been critical to avoiding a much larger crisis, but our national debt is rising rapidly. It is now over $12 Trillion (more than $40,000 per citizen) Current deficits are adding to this number at record rates
Long-term concerns have been put on the back burner Social Security Medicare
Lessons Learned Only traumatic events, not hiccups, produce behavior modification.
What is the Bottom Line? The circulation of confidence is better than the circulation of money. -James Madison