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Bernanke’s Parting Shot and Obama’s Next Three Years: Opportunities and Threats to the Mid-America Economy

Bernanke’s Parting Shot and Obama’s Next Three Years: Opportunities and Threats to the Mid-America Economy. Community Bankers of Iowa Algona, Iowa October 2013. Ernie Goss Ph.D. Professor of Economics MacAllister Chairholder Creighton University Web: www.ernestgoss.com

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Bernanke’s Parting Shot and Obama’s Next Three Years: Opportunities and Threats to the Mid-America Economy

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  1. Bernanke’s Parting Shot and Obama’s Next Three Years:Opportunities and Threats to the Mid-America Economy

    Community Bankers of Iowa Algona, Iowa October 2013 Ernie Goss Ph.D. Professor of Economics MacAllister Chairholder Creighton University Web: www.ernestgoss.com Twitter.com/erniegoss Web:www.outlook-economic.com

  2. Bernanke’s Parting Shot and Obama’s Next Three Years:Opportunities and Threats to the Mid-America Economy

    Community Bankers of Iowa West Desmoines, Iowa October 2013 Ernie Goss Ph.D. Professor of Economics MacAllister Chairholder Creighton University Web: www.ernestgoss.com Twitter.com/erniegoss Web:www.outlook-economic.com
  3. 2008-13: Never has so much been done to achieve so little? Actions Two stimulus bills ($1 trillion), Bailouts—GM, Bear Stearns, AIG, Fannie Mae, Freddie Mac, Chrysler, 19 Large Banks QE1,2,3 Impact on agriculture? Short-lived? Outcomes Lowest participation rate since 1978 Down 2 million jobs since recession Median household income flat, 2012-down in 35 states 47 million Americans on food stamps Fed presidents face political pressures
  4. Threats
  5. Opportunities Opportunities Almost record low interest rates (bond market looking for quality issues) International opportunities Great bargains in real estate market Repatriation of corporate earnings Weak U.S. dollar (currently) Threats - U.S. debt interest rates U.S. dollar - EU-U.S. Trade talks (where is China?) A too vigorous U.S. energy program Shutdown—1995 was 21 days no impact
  6. IA-IL-NE Export Opportunities Export growth past 7 years
  7. Value of $ versus corn & soybean prices
  8. Housing/Construction Source: Lodmell & Lodmellhttp://www.lodmell.com/protect-wealth/strategic-defaults-mortgages
  9. Case-Shiller home price index 2004- July 2013 End of federal tax credit Largest 3 month increase ever
  10. Debt
  11. Public debt as % of GDP: The 25% problem? Over Promised?
  12. # of U.S. workers to support one retiree
  13. Agriculture
  14. Monthly Survey of Rural Bank CEOs 10 states, 210 bank executives Released 3rd Thursday of each month Average community size = 1,300 CO, IA, IL, KS, MN, MO, ND, NE, SD, WY
  15. Rural Mainstreet Economy Jan. ‘09 – Sept. ‘13
  16. Bullish on Agriculture/food: Long term Fast growth for emerging economies (China, India): Food & energy demand income elastic (e.g. income up 8%, food demand up 12%) Cheap value of dollar (makes U.S. food & energy more competitive abroad): U.S. trade deficit, budget deficit, higher inflation. Biofuels & alternative fuel production: wind farms, ethanol, solar.
  17. U.S. & Mid-America Price Indices—2012- August 2013
  18. Indicators to Watch (Oct. – Nov.) Case-Shiller home index for August Trade weighted value of dollar Yield on Spanish 10-year bond Yield on the 10-Year U.S. Treasury Bond Retail sales (Oct. 13) PMIs (Nov. 1) FOMC Meetings (Dec. 17-18)
  19. Top 10 Policy Recommendations to Cure the Malaise 1. Reduce the incentives for not working. Not working = $12 per hour. 2. Pass an immigration reform bill. 3. Approve the 19 pending applications for licenses to export LNG (liquefied natural gas). 4. Approve the Keystone XL pipeline application. 5. Allow kids to escape failing schools by providing vouchers (long term). 6. Continue federal spending sequestration. This provides businesses with greater certainty. 7. Raise the debt ceiling without conditions. 8. Begin raising the Social Security retirement age. 9. Reduce the yearly cost-of-living adjustment to Social Security payments. 10. Begin unwinding the Fed’s excessive money expansion labeled QE3 this month (again provides businesses with greater certainty).
  20. Risk Factors A) Trade skirmishes (or wars) B) Federal Reserve rate hikes—push dollar higher C) Overly aggressive energy policy changes D) Another European eruption (ala Cyprus) E) Congress/Obama budget clash Opportunities A) Look internationally for sales & investment B) Commitment to reducing federal spending C) Fundamental tax reform-lower rates fewer deduction D) Fed must begin unwinding QE E) Bring foreign profits home at lower rates F) Reduction in tax on repatriated earnings
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