Those of us who live in the Washington D.C.,/Northern Virginia/Suburban Maryland region have always had some economic benefits. The benefits stem from all of the federal spending that occurs. I was in a meeting with John McClain from George Mason University this week, and he shared some of the latest data on the region. Mr. McClain and his team have over 25 years of experience in analyzing this region’s economy. The team focuses on housing and transportation, among other factors. One thing that our guest reminded our National Economic Club is just how dependent the region is on Federal spending, and that has never been more threatened. This has been the worst recession since World War II, and the so-called “recovery” hasn’t been as good past recoveries. A big part of a recovery, some 10%-15%+, following a recession (like the last big one we had in the early 1990′s), comes from housing. Obviously, we haven’t had that luxury this go around. The question that I have is if the region’s strength comes, in large part, from federal spending and mandated cuts across the board are to occur in 2013 (thanks to the failure of the Super Committee); what is going to happen to all of the government workers, contractors, vendors, etc.? I mean, when you have 39% of the Greater Washington economy dependent on Federal spending, and that’s drastically cut, how bad will the fallout be? Things aren’t so bad right now for the government employees right now (Obama has added 30,000 government jobs according to Mr. McClain’s data), but the coming years could be very difficult. In our modern day economy, if we ever needed a very strong economy with common sense policies in place to provide for those who are or will be looking for work, it’s now.
Posts Tagged ‘recovery’
I’m a member of the National Economists Club , and Dr. Douglas Elmendorf, Director of the Congressional Budget Office attended our meeting this week. I found this very interesting considering the former Budget Director of the CBO, Peter Orszag, attended a meeting of our NYABE club in Manhattan last year.
It’s amazing to hear how differently things are presented from a current cabinet member of the administration than from a former cabinet member. Dr. Orszag (now Vice Chair of Global Banking at Citigroup), was much more relaxed and frank.
That was not quite the case for Dr. Elmendorf this week. The Director was kind enough to walk us through about 17 slides of the past, current and future budget and economic data. However, when it was all said and done, one theme (or disclaimer) dominated the hour long discussion; The differences between baseline projections (based on current law), and the alternative forecast were at times like night and day. It’s almost like looking at things how they really are (baseline), and what you hope they turn out to be.
Of course, most of that divide lies (no pun intended)with politicians. Let’s face it, if discretionary spending is not brought under control, we’re going to spend ourselves into chaos.
Some other comments by Director Elmendorf that caught my attention included: “We are only halfway through the downturn, we haven’t had such a high unemployment rate for so long since the Depression, economic recovery is quite weak and will continue to be so, and America’s problems can be solved if lawmakers take drastic action”.
No disrespect intended, and I mean that, but how ’bout we start with paring down the Congressional Budget Office that has 250 government employees, and a $45,000,000.00 annual budget!
That’s right, not a one time payment of $45,000,000.00…but every year!!!
Let me set the room for you:
The room holds about 150 people I’d say, give or take. There was a noticeable difference since Mr. Bernanke was our guest – there were about 20 cameras in the room. All of the national media was there, both foreign and domestic. It was a lot like it was a few years ago when we had Richmond Federal Reserve Bank President Jeffrey Lacker at our economic symposium at Frederick Community College. Of course the chairman draws a serious crowd because he is the top-dog, so not only were the cameras there, but also many of the talking heads you see on t.v. Along with the Chairman, there were about 10 other people at the head table. They were from the government and the private sector.
Before I get into what happened at the luncheon and where I think the Chairman is making a big mistake, let me first say that he has a great success story. Mr. Bernanke was born and raised in Dillon, South Carolina. One of few Jewish families in the area, his father was a pharmacist and his mother was an elementary school teacher. He worked in his father and uncle’s drug store, as well as waiting tables the famous South of the Border landmark. From South Carolina he journeyed to Harvard where he received his B.A. in economics and then received his PhD from M.I.T. He was a professor at Stanford, NYU, and Princeton. President George W. Bush named him as a member of the Federal Reserve Board of Governors, and he was subsequently named Chairman of President Bush’s Council of Economic Advisers. After Alan Greenspan’s departure in 2006, Mr. Bernanke was chosen to take the helm at the Federal Reserve.
Mr. Bernanke was well received at our luncheon. What I did appreciate was that at the very beginning of his talk, he emphasized the importance of the media delivering accurate economic information to the American public, and citizens around the world for that matter, who don’t have the time to truly understand what is going on in the world of finance. In my opinion, in a way he took a shot at the talking heads who sensationalize the news to get ratings and sell advertising. It was a good start to his speech.
Mr. Bernanke then started into his prepared remarks and touched on the recent improvements in the health of the economy. He also qualified those statements by saying that “Even though the data has improved, the recovery has not fully taken hold”. So he was basically doing two things. He was letting us know that the U.S. and global economies are still fragile and vulnerable…and that the Federal Reserve doesn’t have any near-term plans to halt the $600 billion asset purchase program to try and stabilize and unfreeze the credit markets. This, of course, comes after the Fed ballooned its balance sheet by $1.7 trillion prior to the current $600 billion campaign.
He was also forthright about the jobs market. The Chairman addressed the weakness with employment. He said that it will take several years for the labor market to return to good health. This will weigh on the economy as the unemployment remains “stubbornly” above full employment. One thing that I really enjoyed hearing from Chairman Bernanke was when he started in on the subject of the bloated federal budget. He took a swing at the administration and Congress about the fact that there is not way that we can avoid a disaster for the country if we sustain the current spending path we’re on.
He also touched on the issue of entitlements having to be addressed; Social Security costs due to our rising population age, rising health-care cost, etc. These subjects must continue to be pressed or we’re going to end up looking like a bunch of idiots rioting in the streets like Europe because our “nanny” state type plan didn’t work out. Chairman Bernanke touched on the Middle East and what is going on in Egypt. He reminded everyone that food inflation is part of the reason that some societies are rebelling. As countries transition into more middle class scenarios, one of the first things they change are their diets. The whole supply and demand thing comes into play, and hence you get the food inflation problem. This is something that will continue to pop up as emerging markets deal with food and other lifestyle issues.
So far, everything I was hearing at the luncheon was on target and I agreed with.
However, there was one thing that almost made me levitate up from my table. Mr. Bernanke said that since the asset purchase program the Fed initiated, the S&P 500 stock index had risen from around 600 to its current 1,300. Now this is the second time in less than a month that he has referenced the stock markets. A few weeks ago, I told you that he was out of the Federal Reserve’s element. Here’s why I say that:
The Federal Reserve’s mandate is “To promote sustainable growth, high levels of employment, stability of prices to help preserve the purchasing power of the dollar and moderate long-term interest rates”. So, in any of that did you hear me say the Federal Reserve should interfer or incluence the stock markets…or even comment on the equity markets?!? No – that’s because the Fed has NO business doing so!
If the Federal Reserve, and Chairman Bernanke or any of the Fed Governors or bank presidents are going to pat themselves on the back and take credit for the markets going up based on their actions, they better be ready to take the blame for the markets falling. This is not a game they want to play. The stock market should not be a main concern for the Fed – which is why I titled this blog what I did.
In summary, I felt that Chairman Bernanke’s talk was pretty accurate and on target…with the strong exception of his stock market comments.
Ben Bernanke, the chairman of the Federal Reserve, will address the National Press Club at a luncheon on February 3, 2011. The head of the Federal Reserve is often called the “second most powerful position in the country.” Bernanke has steered the economy through the greatest economic crisis since the Great Depression and will discuss the burgeoning economic recovery. Chris will be attending the luncheon and will cover Mr. Bernanke’s remarks on this week’s Your Financial Editor.
Join us this this Saturday morning at 8am on AM 930 WFMD, or listen from anywhere on your pc by logging onto www.wfmd.com and clicking the listen live button.
I’m a member of the New York Association for Business Economics and our latest meeting was January 27th at the Consulate General of Canada in Manhattan. It was our January forecasting meeting and three accomplished economists were our guest speakers: Dean Maki, Chief Economist for Barclays Capital, Dominic Wilson, Head of Global Markets Research for Goldman Sachs, and Ethan Harris, Chief Economist for Bank of America.
Here’s how their presentation highlights broke down:
Ethan Harris (Bank of America):
- The administration has done a full reversal
- The economy is experiencing a huge amount of stimulus from the Federal Reserve
- There is no exit plan for the U.S. budget spending problems
- Banks are only halfway recovered
- There is no end in site for foreclosures
- Savings rates are still below historical averages
Dean Maki (Barclays Capital):
- Feels U. S. growth will come in between 3% and 3 1/2 % in 2011. That’s above trend estimates.
- Business spending is strong and will show continued strength the rest of the years.
- Predicts unemployment rate will fall to 8.6% in 2011
- Believes the Federal Reserve is on hold until August 2012
Dominic Wilson (Goldman Sachs):
- U.S. markets will be strong in 2011 and 2012
- The acceleration point where things start to get better is here for the U.S.
- The markets for equities and commodities will be strong in 2011
- Food inflation is currently trumping energy inflation
- Greece, Ireland, and Portugal economies are weak.
So there you have it, straight from the horse’s mouth. Barclays and Goldman had a fairly upbeat assessment for this year, while Bank of America has a more guarded outlook. Hence my 2-for-3 title. As admitted by one of the economist to us – they only have to try to correctly forecast in 6 month blocks. In the real world, we realize that our goals and planning span decades.