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Ffw 2009
The document discusses the future economic environment in the United States following the recent financial crisis and recession. It analyzes key factors like fiscal policy, monetary policy, government spending and debt levels, and projections for GDP, inflation, and unemployment. The large increase in government spending and debt in response to the crisis is not sustainable long-term and interest payments on the debt will grow substantially if rates rise modestly. Overall fiscal policy may be exacerbating the government's long-term budget problems.
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Ffw 2009
- 1. The Future ofOur Economic Environment Ryan Herzog, Ph.D. Assistant Professor of Economics Gonzaga University 10/24/2009 Prepared for Fall Family Weekend
- 3. Washington Mutual GM Moral Hazard Main Street CDOs $787 ARM ARRA Speculation Housing Bubble Chrysler billionContained Negative Am Default Depression Fannie 777 $1.4 Flip Frozen Freddie TALF MBS Country Wide trillion Nationalize Subprime Foreclosure AIG Lehman Wall Street $12 trillion $700 billion Bear Stearns Credit Default Swaps Bankruptcy TARP Systemic Risk Bailout Quantitative $168 Billion Easing
- 4. Going Forward • Wecan’t change the past • Fiscal Policy – Are we digging too large of a hole? • Monetary Policy – Was it bad policy, bad regulations, or something else? • International Issues – What about our large external deficits?
- 5. Change in GDP(2007-2009) 2007-III 2007-IV 2008-I 2008-II 2008-III 2008-IV 2009-I 2009-II Percent change in gross domestic product 3.6 2.1 -0.7 1.5 -2.7 -5.4 -6.4 -0.7 Personal consumption expenditures 1.35 0.86 -0.39 0.06 -2.49 -2.15 0.44 -0.62 Gross private domestic investment 0.14 -1.29 -1.2 -1.66 -1.04 -3.91 -8.98 -3.1 Net exports of goods and services 1.36 2.24 0.36 2.35 -0.1 0.45 2.64 1.65 Government spending 0.75 0.31 0.51 0.71 0.95 0.24 -0.52 1.33
- 6. Key Variable -Projections CBO's Projection of Key Economic Variables 12.0% 10.0% 8.0% 6.0% Real GDP (Percentage Change) 4.0% CPI (Percentage Change) Unemployment Rate 2.0% 0.0% 1992 2004 1990 1991 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 -2.0% -4.0%
- 7. Exploding Government Spending Government Expenditure and Receipts 4000.0 3500.0 3000.0 2500.0 Billions of Dollars 2000.0 Federal Government Expenditures 1500.0 Federal Government Receipts 1000.0 500.0 0.0 Nov-00 May-06 May-94 Mar-92 Mar-04 Sep-98 Feb-91 Jul-96 Feb-03 Jul-08 Apr-93 Jun-95 Aug-97 Oct-99 Apr-05 Jun-07 Jan-90 Jan-02
- 8. Fiscal Debt -Projections 20,000,000 140 18,000,000 120 16,000,000 14,000,000 100 Millions of Dollars 12,000,000 80 Gross Federal Debt (Millions of 10,000,000 Dollars) 60 Gross Federal Debt (% GDP - right 8,000,000 scale) 6,000,000 40 4,000,000 20 2,000,000 0 0 1975 1940 1945 1950 1955 1960 1965 1970 1980 1985 1990 1995 2000 2005 2010 2015
- 9. Government Spending 6000 5000 4000 Billions 3000 Current Expenditure Transfer Payment Interest Payments 2000 1000 0
- 10. Government – InterestPayments Projected Interest Payments 1,200,000 1,000,000 800,000 Millions Payments (4%) 600,000 Payments (5%) Payments (6%) Actual (through 2008) 400,000 200,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
- 11. Overview of FiscalPolicy • Should we be concerned about added spending? • Where will the money come from and at what cost? • Is an 88% (of GDP) debt loan high? – Japan currently has a debt loan of 170% • A new tax system that centers around a value added tax, a broad tax base with low tax rates, taxing consumption, and taxing bads.
- 12. TOP 10 REASONSTO STUDY ECONOMICS 1. Economists are armed and dangerous: "Watch out for our invisible hands.“ 2. Economists can supply it on demand. 3. You can talk about money without every having to make any. 4. You get to say "trickle down" with a straight face. 5. Mick Jagger and Arnold Schwarzenegger both studied economics and look how they turned out. 6. When you are in the unemployment line, at least you will know why you are there. 7. If you rearrange the letters in "ECONOMICS", you get "COMIC NOSE". 8. Although ethics teaches that virtue is its own reward, in economics we get taught that reward is its own virtue. 9. When you get drunk, you can tell everyone that you are just researching the law of diminishing marginal utility. 10. When you call 1-900-LUV-ECON and get Kandi Keynes, you will have something to talk about.
- 13. Monetary Policy • Whatis it? • Is the Federal Reserve to blame for the housing bubble? • Should the Federal Reserve respond to changes in asset prices? • Are we setting ourselves up for a period of high inflation (is stagflation possible)
- 14. Policy Rules andInflation Targeting
- 15. Was Policy tooLoose?
- 16. Did Low InterestRates Create the Bubble?
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- 19. Monetary Policy Today Federal Reserve – Select Liabilities 2000.000 1800.000 1600.000 1400.000 1200.000 Billions Monetary Base 1000.000 M1 800.000 Excess Reserves 600.000 Currency 400.000 200.000 0.000 Nov-91 Nov-02 May-97 May-08 Mar-99 Dec-90 Sep-93 Dec-01 Sep-04 Jul-95 Feb-00 Jul-06 Oct-03 Oct-92 Aug-94 Jun-96 Apr-98 Aug-05 Jun-07 Apr-09 Jan-90 Jan-01
- 20. Monetary Policy Today Federal Reserve - Select Assets 1800.000 1600.000 1400.000 1200.000 1000.000 Billions 800.000 Total Borrowings Securities Held Outright 600.000 400.000 200.000 0.000
- 21. Monetary Policy -Overview • The Fed was unable to control long-term interest rates – Large inflows of foreign capital kept interest rates extremely low • We have to be careful when we try to pop bubbles – The early euphoria phase is well liked – Price setting does not work • Will the Fed be able to unwind their balance sheet?
- 22. International Issues • Priorto the crisis we were concerned over the growing external deficits. – What is happening today? • Should we be worried about a declining dollar?
- 23. Billions of U.S.Dollars -50.000 50.000 -250.000 -100.000 -200.000 -150.000 0.000 Jan-90 Dec-90 Nov-91 Oct-92 Sep-93 Aug-94 Jul-95 Jun-96 May-97 Apr-98 Mar-99 Feb-00 Jan-01 Dec-01 Nov-02 Oct-03 Sep-04 Aug-05 Jul-06 Jun-07 May-08 Apr-09 Current Account Imbalance Current Account
- 24. Overview • Prior tothe crisis – The current account balance had many economists predicting a hard landing, a complete loss of external financing. • Post crisis – The depreciation of the dollar (thanks Fed) has caused exports to decrease less than imports.
- 25. Concerns Going Forward •Financing the Government Deficit – In 2001, $1 trillion was financed by foreigners • $378 billion by Japan, $78 billion by China – In 2008, $3 trillion was financed by foreigners • $727 billion by China, $626 by Japan • Can the Fed wind down their balance sheet? – In 2007, they had $850 billion in liabilities – Today they have $2.1 trillion in liabilities • How long will the flight to quality last? – Low interest rates and cheap financing!
- 26. Thank You • GoDUCKS!
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