What Ben Bernanke Should Have Learned in History 101

1. What Ben Bernanke Should Have Learned in History 101 Rick Davis President & CEO Consumer Metrics Institute, Inc. Consumer Metrics Institute, Inc. www.consumerindexes.com

2. Why do we have to study History? You’ve gotta be kidding me! I hated History! Consumer Metrics Institute, Inc. www.consumerindexes.com

3. Luckily, this presentation is mostly about: a radical new technology to capture economic data. Consumer Metrics Institute, Inc. www.consumerindexes.com

4. But most of the people in this room will be unsure ... about if or how they should use it in their practice. Consumer Metrics Institute, Inc. www.consumerindexes.com

5. In fact, the most common question after new technology presentations: Wow, it may be neat ... but how can I actually use it? Consumer Metrics Institute, Inc. www.consumerindexes.com

6. History can show us why it is critically important to accept new technologies and radical ideas. Consumer Metrics Institute, Inc. www.consumerindexes.com

7. Agenda (But How Do I Use It?) • 10:30am – 11:00am • What Ben Bernanke Should Have Learned in History 101 • A Perspective on Assimilating Change • 11:00am – 11:30am • A New Technology in Macro-Economic Measurements • The Consumer Metrics Institute’s Leading Indicators • 11:30am – 11:45am • Questions & Answers (Wow! That’s Neat!) (Stump the Speaker!) Consumer Metrics Institute, Inc. www.consumerindexes.com

8. History 101 Consumer Metrics Institute, Inc. www.consumerindexes.com

9. That Queasy Feeling How many of you have never, ever driven on icy roads? How many of you have never felt that queasy feeling when the car starts to move sideways? When you suddenly realize that you’re on “black ice” and you envision ... Consumer Metrics Institute, Inc. www.consumerindexes.com

10. That Queasy Feeling … when all of the controls available to you no longer seem to work. Consumer Metrics Institute, Inc. www.consumerindexes.com

11. That’s Exactly What … the Chairman of the Federal Reserve felt when he tried to stimulate the economy by dropping interest rates and increasing the money supply. Consumer Metrics Institute, Inc. www.consumerindexes.com

12. … In 1929. Roy Archibald Young Chairman of the Federal Reserve 1927-1930 Consumer Metrics Institute, Inc. www.consumerindexes.com

13. … In 1929. Roy Young Herbert Hoover They could not find solutions that were “outside the box.” They could not imagine the “inconceivable”. Roy Archibald Young and Herbert Clark Hoover were exactly the wrong people to be “at the helm” when the economy began to contract in 1929. Consumer Metrics Institute, Inc. www.consumerindexes.com

14. People are “Wired” Differently Some Thrive in Chaos Some Seek Change Some Abhor Chaos Some Avoid Change Consumer Metrics Institute, Inc. www.consumerindexes.com

15. People are “Wired” Differently • Change Avoiders: “Wedding Planners” • Change Embracers: “Rat Catchers” New Nomenclature Time ... Consumer Metrics Institute, Inc. www.consumerindexes.com

16. People are “Wired” Differently • US Civil War Military Leaders: • Wedding Planners: • George B. McClellan • George G. Meade • Joseph E. Johnston • P. G. T. Beauregard Consumer Metrics Institute, Inc. www.consumerindexes.com

17. People are “Wired” Differently • US Civil War Military Leaders : • Rat Catchers: • Ulysses S. Grant • William T. Sherman • Robert E. Lee • "Stonewall" Jackson Consumer Metrics Institute, Inc. www.consumerindexes.com

18. A Field Guide for Indentifying: Rat Catcher Wedding Planner Consumer Metrics Institute, Inc. www.consumerindexes.com

19. The Bottom Line: Wedding Planners are Always Planning for the Last War Rat Catchers Extemporize and Deal with This One In Times of War ... Consumer Metrics Institute, Inc. www.consumerindexes.com

20. The Bottom Line: Wedding Planners Excel at Ceremony and Tradition Rat Catchers are Awkward to Have Around In Times of Peace and Prosperity ... Consumer Metrics Institute, Inc. www.consumerindexes.com

21. The Bottom Line: Wedding Planners Muddle Around Until They Get Fired Rat Catchers Take the Initiative and Win In Times of Calamity ... Consumer Metrics Institute, Inc. www.consumerindexes.com

22. The Bottom Line: Rat Catchers Think “Outside the Box" Consumer Metrics Institute, Inc. www.consumerindexes.com

23. The Bottom Line: To Succeed in Uncertain times, Become a Rat Catcher! Consumer Metrics Institute, Inc. www.consumerindexes.com

24. How Hard is That? Harder Than You Think, Especially for Those at the Helm. Consumer Metrics Institute, Inc. www.consumerindexes.com

25. History 201 Consumer Metrics Institute, Inc. www.consumerindexes.com

26. Early Evening, May 31st, 1916 … The two largest fleets of battleships ever assembled were steaming towards a horrific collision … Consumer Metrics Institute, Inc. www.consumerindexes.com

27. By Dawn the Next Day … … 14 British Ships and 6,000 British Sailors lay at the bottom of the North Sea off the coast of Jutland. 2.5 Times the U.S. Losses at Pearl Harbor! Consumer Metrics Institute, Inc. www.consumerindexes.com

28. The Horrific British Losses … Were largely because they had no idea where the German High Seas Fleet actually was ... until the German guns opened fire. Consumer Metrics Institute, Inc. www.consumerindexes.com

29. A Critical New Technology … ... was there at Jutland and could have turned the tide. … but it was deployed 1 hour after the battle commenced. Consumer Metrics Institute, Inc. www.consumerindexes.com

30. The Commander in Chief … Simply failed to utilize a New Technology that would have allowed him to see over the horizon... because nobody had ever done it before. Admiral John Jellicoe Consumer Metrics Institute, Inc. www.consumerindexes.com

31. Why Was John Jellico at the Helm? • “Wedding Planners” rise to the top during extended periods of peace. • “Rat Catchers” are simply uncomfortable to keep around. Consumer Metrics Institute, Inc. www.consumerindexes.com

32. The Problem: • Wedding planners are prepared to fight the last war: • They have identified who the last enemy was • They have studied how to win the previous battles • They have developed perfect weapons for the last war Consumer Metrics Institute, Inc. www.consumerindexes.com

33. The Problem: • But they cannot think 'outside the box‘ when: • The wrong enemy or problem shows up • The old tactics don’t work • The perfect weapons misfire • New weapons need to be implemented Consumer Metrics Institute, Inc. www.consumerindexes.com

34. Wedding Planners … Don’t Know How To See Over The Horizon ... Because The Other Side of the Horizon Is Outside of Their Current “Box”. Consumer Metrics Institute, Inc. www.consumerindexes.com

35. History 301 Consumer Metrics Institute, Inc. www.consumerindexes.com

36. Flash Forward: 1929 … • Perceived Economic Enemies: • Deficit Spending Induced Bubbles (1917-1918) Leading To Major Contractions (1919-1921) • Hyperinflation from Uncontrolled Expansion of the Money Supply (Weimar Republic 1921-1923) • They Had the Perfect Weapons: • A Fiscally Conservative Administration Committed to a Balanced Budget • A Money Supply Tightly Coupled To Bullion Reserves Consumer Metrics Institute, Inc. www.consumerindexes.com

37. Roy Archibald Young … Couldn’t See Over The Horizon ... To Realize That the Real Enemies were: • A Crippling Contraction of Credit • A Devastating Deflationary Spiral • Demographically Driven Slowdowns in Growth Consumer Metrics Institute, Inc. www.consumerindexes.com

38. It Took a Rat Catcher … With Utter Disdain for 6,000 Years of Economic Tradition to Attack the Problems. Consumer Metrics Institute, Inc. www.consumerindexes.com

39. It Took a Rat Catcher … • To have the unmitigated gall to do the unthinkable: • Executive Order 6102 & the Gold Reserve Act • Emergency Banking Act & Federal Deposit Insurance Corporation • Glass-Steagall Acts of 1932 & 1933 • Securities Act of 1933 & Securities Exchange Act of 1934 • National Industrial Recovery Act & Works Progress Administration • Social Security Act of 1935 Consumer Metrics Institute, Inc. www.consumerindexes.com

40. Flash Forward: 2007-2010 … • Perceived Enemies: • Banking System Capital & Liquidity Challenges • Institutions “Too Big To Fail” • Toxic Assets Hampering Credit Creation • They Had the Perfect Weapons: • Unlimited Ability to Create Credit • Unlimited Ability to Transform Toxic Assets into Sovereign Debt Consumer Metrics Institute, Inc. www.consumerindexes.com

41. But What If … The Wedding Planners at the Current Fed Can’t See Over The Horizon ... to Realize that the Real Enemies are ... Consumer Metrics Institute, Inc. www.consumerindexes.com

42. The Real Problems? • Sovereign Debt passing a “Tipping Point”? • The Moral Hazard Implicit in “Too Big To Fail”? • Supercritical Markets &Quant Programs? • Derivatives Supplying Unrestrained Leverage? • Higher Risks Forced on Investors by 0% Rates? • Demographics Altering Economic Growth? Consumer Metrics Institute, Inc. www.consumerindexes.com

43. And What If … The Real Scenario Isn’t the U. S. in 1929,1980 or even 2000 ... But Japan in 1990? Consumer Metrics Institute, Inc. www.consumerindexes.com

44. The Problem … • Wedding Planners Fail to • Think Outside the “Box” • Look Over the Horizon Consumer Metrics Institute, Inc. www.consumerindexes.com

45. Most Common Comment: Wow, that’s neat. But how do I use it? Consumer Metrics Institute, Inc. www.consumerindexes.com

46. The Answer: Be a Rat Catcher Think “Outside the Box" Consumer Metrics Institute, Inc. www.consumerindexes.com

47. And ... Look Over the Horizon Consumer Metrics Institute, Inc. www.consumerindexes.com

48. Economic History 401 Consumer Metrics Institute, Inc. www.consumerindexes.com

49. History of U.S. Economic Data 1937-1938: Consumer Metrics Institute, Inc. www.consumerindexes.com

50. History of U.S. Economic Data Recession nested within the Great Depression saw total GDP drop by 6%, comparable to “Great Recession” 2007-2009 1937-1938: Consumer Metrics Institute, Inc. www.consumerindexes.com