1. FLORIDA ASSOCIATION OF MORTGAGE PROFESSIONALS Ruminations on Macroeconomic Issues by Paul M. Mason, Ph.D. Richard de Raismes Kip Professor of Economics The COGGIN College of Business University of North Florida 2/10/2016

2.  The FED and its persistence at doing the wrong thing!  Falling Oil and Gasoline Prices: Driver or Diver?  Other Macroeconomic Issues  What Does the Future Hold?

3. MV=PY Do You Recognize this Equation?

4. If MV=PY, then: V=PY/M, and V= Y/(M/P), or velocity is the ratio of Real GDP to the Real Money Supply Can you do the Math?

5. Average Quarterly Average Quarterly real M2 money growth velocity 2002-2007 90.40 2.19 2008-2009.2-88.98 1.85 2009.3-2015.4 88.65 1.52

6.  As long as the FED keeps pumping money into the system (to maintain low interest rates), and the impact causes no, or little increase in RGDP growth, velocity will not recover, IMPLYING WEAK SPENDING.  As long as interest rates are at unprecedentedly low levels, banks will not lend, firms will hold excess cash, and baby boomers will not be able to retire and get out of the way of younger workers.  Contrary to traditional Keynesian theory, interest rates need to rise to return the economy to normal and the FED is already years late!

8.  While low interest rates help the cost of financing the Federal Debt, it also stimulates Obama and the 535 congressional elves (with their 9% approval rating) to spend our money… LIKE IT IS SAND!  Traditionally, economists were wary of escalating interest rates because of crowding out in private sector financial markets -- but how do you crowd out when there are enough loanable funds throughout the world to pile to Mars… (MAYBE PLUTO)!  There is a long and variable lag in monetary policy effectiveness (especially for expansionary policy) that the FED cannot predict or rush.  There have only been two time periods in U.S. history with interest rates this low, during and after WWII (when war financing justified the monetary escalation) and now.

11. JUST ASK THE FED!

13.  Big government begets big business.  Big business means power and wealth in the hands of few at the expense of many. ◦ A recent Levy Report article reveals that 90% of growth in wealth since the Great Recession is in the hands of the top 1%, and 32% in the hands of the top 0.1%. ◦ More industry concentration means less efficient allocations of resources with too little output sold at excessive prices. ◦ The Catch 22 is that middle class consumers cannot spend what their bosses keep and save, and businesses cannot sell what consumers do not have the money to buy!

16. Pre-recession, the correlations between RGDP and real oil and gas prices were negative: -0.05 for oil and -0.16 for gasoline. Lower gas and oil prices means positive growth WHAT ABOUT OIL AND GAS?

17. During the recession, the correlations between RGDP and real oil and gas prices were nearly one, 0.93 for oil and 0.97 for gasoline. Both oil prices and growth were in the toilet!

18. Post-recession, the correlations between RGDP and real oil and gas prices are 0.15 for oil and 0.03 for gasoline.

19. In the 2010’s, oil and gasoline prices are not as largely affected by anticompetitive forces, so the causality that used to be from fuel to RGDP may have reversed.

20.  Unemployment has fallen to 4.9% but in large part due to departures from the workforce. We need a return to growth that creates jobs, not discourages work! The Most Obvious of Current Macroeconomic Issues

23.  Output growth is much stronger than seven years ago, but well below what we need to generate full employment with a workforce at the size that is optimal.  Interest rates are way too low to promote corporate investment.  Inflation is very low, because consumers are wary of major spending activities and firm are unwilling to produce more, given their uncertainty regarding who is going to buy.  The trade deficit is still too wide, now motivated by declining exports because of EU weakness and the dollar’s strength.  The Federal debt is approaching $19.1 trillion or 106% of one year’s GDP.  Why is all of this happening? Other Macroeconomic Issues

25. HOW ABOUT WE GENERATE 100% UNEMPLOYMENT AMONGST CURRENT FEDERAL POLITICAL LEADERS!

26. One Comment on Real Estate: What do the numbers 8.7, 24.2, and 37.2 suggest? These are the percentage growth rates from the combination of rents, and rentals, housing prices, and sales, for the last three years in the Jacksonville MSA!

27. For national data go to: www.bea.gov for output data,www.bea.gov www.bls.govwww.bls.gov for employment and inflation data, and www.federalreserve.gov for monetary and interest rate data.www.federalreserve.gov

28. For information on specific industries or counties locally and statewide go to: http://fred.labormarketinfo.com/

29. For local data on inflation, leading indicators, seasonally-adjusted unemployment rates, and a local stock price index, see www.leipjax.org

30. QUESTIONS?