Albers School of Business and Economics
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  • The Economy

     

    On August 8th I made a presentation here in Seattle to the Credit Union National Association (CUNA) Economics and Investment Conference, attended by credit union board members and CEOs from around the country.  The theme was, “Where Do We Stand Now? An Overview of the Current Economic Climate.”  Here are some of the things I said:

    • First, Seattle is a great place to have a conference this time of year!  No heat, humidity, or mosquitoes!
    • The “Great Recession” that lasted from December, 2007 to June, 2009 was the deepest and longest since the Great Depression. 
    • It has also been the weakest recovery.  Over two years later, we have restored less than 25% of the jobs lost and output has still not recovered to its pre-recession level.
    • Looking at the components of output – consumption, investment, government expenditures, and net exports – it is investment spending that has not recovered.  But it is not business investment in machinery and equipment, it is business and residential construction that continue to lag.
    • The Fed moved aggressively to address the stress in financial markets and the economic slowdown.  The Fed is out of bullets.  It has done everything it can do.
    • The Fed has moved so aggressively that there is a risk of inflation.  I admit to having a hard time figuring out exactly what that risk is.
    • The federal government moved modestly to stimulate the economy.  Much of the deficit has to do with fighting two wars (without raising taxes for them), tax cuts, and the cyclical impact on the budget, not specific steps to enlarge the government sector.
    • The current discussions on the budget deficit are not well informed because they fail to differentiate between cyclical and structural deficits.  We need to focus on the latter, and that is best addressed by medium to longer term cuts in spending (especially entitlement spending), not short term cuts that make it more difficult to put the recession behind us.
    • There are a number of factors weighing down the recovery – the housing market, Federal budget uncertainty, energy prices (although that could be changing), government downsizing, weak income and job growth, consumer deleveraging, and struggles in Europe.
    • There are few sources of strength – exports (especially to Asia), business ready to invest when they are convinced that consumers will be there, low interest rates, and maybe energy prices are starting to drop.
    • That all adds up to continued modest growth of 2-3%, not good for an economic recovery.  I don’t see the double-dip that other people see.  When a recession is caused by a financial crisis that impacts lower and middle income households, history shows a long, slow recovery.
    • If Standard and Poors wants to downgrade Treasury debt, that is fine, but that means they need to do some other downgrading, like for France.  Treasuries are definitely lower risk than OATs!

     

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