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Larry D. Sanders February-March 2010. 1. Recession is technically over, but… 2. Inflation, deflation and unemployment fears… 3. Some cautious optimism,

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Presentation on theme: "Larry D. Sanders February-March 2010. 1. Recession is technically over, but… 2. Inflation, deflation and unemployment fears… 3. Some cautious optimism,"— Presentation transcript:

1 Larry D. Sanders February-March 2010

2 1. Recession is technically over, but… 2. Inflation, deflation and unemployment fears… 3. Some cautious optimism, but it won’t be back to “normal” for a long time. 4. Oklahoma’s economy may get worse, but not as bad as the US 5. OK: Oil, Natural Gas, Ag key roles in improvement, especially for rural OK. 6. Watch for double-dip 2

3 1. Nominal interest rates & loanable funds matter: Commercial ag is capital-intensive 2. Value of the $: agriculture is trade-dependent 3. Nonfarm employment: most farm family income comes from off-farm 4. Macroeconomic uncertainty: increased need for effective risk management tools in agriculture 5. Macroeconomic policy impact on Federal budget: much of primary crop agriculture relies on federal support

4  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 4

5 5 http://www.economagic.com/em-cgi/charter.exe/var/rgdp-qtrchg

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

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

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

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

10 10 http://data.bls.gov/PDQ/servlet/SurveyOutputServlet

11 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/ 11

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

13 13 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/

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15 1991: -$31 bil. NOTE: 1991: $31.1 b. 2009: -$651.3 b. (China: 35%)

16  2007: $1.87 trillion  Top 10: 72% of total  Top 10: lost average of 46% market cap.  Range of change: -100% to +4% 1. Citigroup 2. Bank of America 3. JP Morgan Chase 4. Wells Fargo 5. *Goldman Sachs  2009: $947 billion (-50%)  Top 10: 86% of total 1. JP Morgan Chase (+4%) 2. Bank of America (-37%) 3. Wells Fargo (+3%) 4. Citigroup (-56%) 5. Goldman Sachs (-11%)  Govt take-over  AIG  Fannie Mae  Freddie Mac 16

17  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 17

18  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

19  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

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23  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/Inflati on/DecadeInflation.asp 23

24  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. 24

25 25 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/

26 26 http://www.ritholtz.com/blog/wp-content/uploads/2009/06/case-shiller-updated.png

27 27 http://www2.fdic.gov/hsob/ http://network.nationalpost.com/np/blogs/fpposted/archive/2009/0 8/29/challenge-for-the-fdic-bank-insurance-fund.aspx

28 28 http://chartingtheeconomy.com/?page_id=27 1.Older groups typically have greater share of wealth. 2.Wealth loss likely greater among older pop. 3.Suggests recovery will be incomplete & generational transfer will be less. 4.Suggests long time recovery.

29  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.) 29

30  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 30

31 Who own US debt (2008)? Foreign owners of US Treasury Securities (July 2008) Nationbillions of dollarspercentage Japan593.422.17% Mainland China518.719.38% United Kingdom290.810.87% Oil exporters173.96.50% Grand Total 2676.4 Total debt: $10,000 (foreign 26%) (other public 22%) (Fed, intragovt 52%) 31

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33 33 http://www.washingtonpost.com/wp-dyn/content/graphic/2009/09/04/GR2009090400764.html?sid=ST2009090401455

34  For more on banking/financial sector see: http://baselinescenario.files.wordpress.com/2 009/09/recovery-and-crisis-presentation-for- glab-sept-14-2009.pdf  Jobs:  http://tipstrategies.com/archive/geography-of- jobs/ http://tipstrategies.com/archive/geography-of- jobs/  http://cohort11.americanobserver.net/latoyaegwu ekwe/multimediafinal.html http://cohort11.americanobserver.net/latoyaegwu ekwe/multimediafinal.html 34


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