Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Beta alpha 2010


Published on

Published in: Economy & Finance, Business
  • Be the first to comment

  • Be the first to like this

Beta alpha 2010

  1. 1. Current Economic Update Ryan Herzog, Ph.D. Assistant Professor of Economics Gonzaga University 04/10/2010 Prepared for Beta Alpha Psi
  2. 2. Current Economic Update
  3. 3. Current Economic Update <ul><li>Fiscal Policy </li></ul><ul><ul><li>Are we digging too large of a hole? </li></ul></ul><ul><ul><li>Is the ARRA working? </li></ul></ul><ul><ul><li>Where are the jobs? </li></ul></ul><ul><li>Monetary Policy </li></ul><ul><ul><li>Where do we stand with TARP? </li></ul></ul><ul><ul><li>Was it bad policy, bad regulations, or something else? </li></ul></ul><ul><ul><li>Is high inflation around the corner? </li></ul></ul><ul><li>International Issues </li></ul><ul><ul><li>What about our large external deficits? </li></ul></ul>
  4. 4. Key Variable - Projections
  5. 5. Fiscal Debt - Projections
  6. 6. Government – Interest Payments
  7. 7. ARRA Effectiveness
  8. 8. Overview of Fiscal Policy <ul><li>Should we be concerned about added spending? </li></ul><ul><ul><li>We need to return deficits to manageable levels. </li></ul></ul><ul><ul><li>The current path of government spending will crowd out private investment through sharp increases in interest rates. </li></ul></ul><ul><li>Where will the money come from and at what cost? </li></ul><ul><ul><li>How dependent will we be on external funding? </li></ul></ul>
  9. 9. Job Creation <ul><li>Have recent stimulus packages been sufficient at creating jobs? </li></ul><ul><ul><li>Extensions of unemployment insurance have helped but have not been enough. </li></ul></ul><ul><ul><li>Are will missing the root of the problem? </li></ul></ul>
  10. 10. Unemployment
  11. 11. Construction and Manufacturing
  12. 12. Structural Concerns
  13. 13. Jobs <ul><li>The recession has simply magnified and sped up job losses in the manufacturing sectors. </li></ul><ul><ul><li>The construction industry provided alternative employment. </li></ul></ul><ul><li>We need to focus on retraining 5 million workers. </li></ul><ul><li>Extending unemployment compensation does not address the structural problems in the manufacturing industry. </li></ul><ul><ul><li>Workers are searching for jobs that do not exist or will not exist in the near future. </li></ul></ul>
  14. 14. Monetary Policy <ul><li>What caused the separation between short-term and long-term interest rates? </li></ul><ul><li>Are we setting ourselves up for a period of high inflation (is stagflation possible)? </li></ul><ul><li>Where do we stand with TARP? </li></ul><ul><li>Should we try and pop bubbles? </li></ul>
  15. 15. Short-term and Long-term Rates
  16. 16. Nonresidential Investment
  17. 17. Capital Inflows
  18. 18. Money Supply
  19. 19. Quantitative Easing
  20. 20. TARP <ul><li>Where do we stand? </li></ul><ul><li>Did it really cost $700 billion like some claim? </li></ul>
  21. 22. Monetary Policy - Overview <ul><li>Large inflows of foreign capital made it difficult for the Fed to control long-term interest rates </li></ul><ul><li>We don’t have good mechanisms in place for determine asset bubbles </li></ul><ul><ul><li>The early euphoria phase is well liked </li></ul></ul><ul><li>Will the Fed be able to unwind their balance sheet before inflation risks mount? </li></ul><ul><ul><li>The Fed is paying interest on reserve holdings which will allow them the time to take reserves out of the system </li></ul></ul>
  22. 23. International Issues <ul><li>Prior to the crisis we were concerned over the growing external deficits. </li></ul><ul><ul><li>What is happening today? </li></ul></ul><ul><li>Should we be worried about a declining dollar? </li></ul><ul><ul><li>Will it help the manufacturing sector? </li></ul></ul><ul><li>What about China? </li></ul>
  23. 24. Balance of Payments
  24. 25. Foreign Investment <ul><li>Foreign inflows have been into U.S. treasury securities </li></ul><ul><ul><li>China: $889 billion </li></ul></ul><ul><ul><li>Japan: $764 billion </li></ul></ul><ul><ul><li>Oil Exporters: $218 billion </li></ul></ul><ul><ul><li>United Kingdom: $206 billion </li></ul></ul>
  25. 26. Overview <ul><li>Prior to the crisis </li></ul><ul><ul><li>The current account balance had many economists predicting a hard landing, a complete loss of external financing. </li></ul></ul><ul><li>Post crisis </li></ul><ul><ul><li>The depreciation of the dollar has caused exports to decrease less than imports. </li></ul></ul>
  26. 27. Concerns Going Forward <ul><li>Financing the Government Deficit </li></ul><ul><ul><li>In 2001, $1 trillion was financed by foreigners </li></ul></ul><ul><ul><ul><li>$378 billion by Japan, $78 billion by China </li></ul></ul></ul><ul><ul><li>In 2009, $3.6 trillion was financed by foreigners </li></ul></ul><ul><ul><ul><li>$889 billion by China, $764 billion by Japan </li></ul></ul></ul><ul><li>Can the Fed wind down their balance sheet? </li></ul><ul><ul><li>In 2007, they had $850 billion in liabilities </li></ul></ul><ul><ul><li>Today they have $2.3 trillion in liabilities </li></ul></ul><ul><li>How long will the flight to quality last? </li></ul><ul><ul><li>Low interest rates and cheap financing! </li></ul></ul>
  27. 28. Disclaimer