Dave ShidelerLarry D. SandersCODACounty Officers &Deputies AssociationBiltmore Hotel, OKC17 Sep 2009Session 1: 840-950 amSession 2: 1010-1120 am

1. Likely bottoming out, but…

2. Inflation, deflation and unemployment fears…

3. Not sure if it will get worse, but it won’t be back to “normal” for a long time.

4. Oklahoma’s economy may get worse, but not as bad as the US, and it will likely get better sooner.

5. OK: Oil, Natural Gas, Ag key roles in improvement, especially for rural OK.

2

Output = Consumption + Investment + Govt. spending + Net exports Consumption is down,

but… Investment is down Net exports is down,

but… Government spending

is propping the economy up; until it multiplies, Output will remain down 3

12-24 months OK likely sooner

than US Next 3 months

critical

Sanders is Short term pessimist Long term optimist General dismal

economist

4

US Budget Surplus/Deficit ($b.)

-330-225-177-151-5070 124232268

-157.8-374-413-331-314

-162

-455

-1800

-1400

-2000

-1500

-1000

-500

0

500

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

e

2009

p

2010

p

Source: US Bureau of Economic Analysis, 2009 (www.bea.gov)

http://zfacts.com/p/318.html5

6

Producers are waiting to clear inventories & excess capacity.

Consumers are buying less,Saving more, & maybe waiting for “betterdeals”.

-1000000

-500000

0

Trade Balance

NOTE: 1991: $31.1 b.

2007: -$882 b. (China: 29%)

http://www.nabe.com/graphweek/2008/gw080413.html

US Agricultural Trade Balance, 1991-2009f ; 2012 projection ($mil/FY; agricultural product only)

7

A cartoon about demand-side economics. From "'Right to Work' Laws--Low Wage Scheme," Economic Outlook, January 1955, CIO Education Department. http://www.flickr.com/photos/higbie/2554254376/

8

US JOB CHANGE, HUNDRED THOUSAND, 1980-2009, MONTHLY CHANGE

BUREAU OF LABOR STATISTICS HORIZONTAL AXIS SHOWS MONTHS. VERTICAL AXIS SHOWS THE RATIO OF THAT MONTH’S NONFARM PAYROLLS TO THE NONFARM PAYROLLS AT THE START OF RECESSION. NOTE: BECAUSE EMPLOYMENT IS A LAGGING INDICATOR, THE DATES FOR THESE EMPLOYMENT TRENDS ARE NOT EXACTLY SYNCHRONIZED WITH THE AGENCY’S OFFICIAL BUSINESS CYCLE DATES.

9

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=CES0000000001&output_view=net_1mth

http://economix.blogs.nytimes.com/2009/07/02/comparing-this-recession-to-previous-ones/

10http://data.bls.gov/PDQ/servlet/SurveyOutputServlet

9.7%10.8%

3.9%

11

1. Fed receiptsare consistent withNational Income

2. National Incomeis at 50-yearlow.

12

1. Federal grantsare increasingto State/Local,but distribution is uneven.

2. State/Local salestax revenue isdown, & thedecline is greaterthan the increaseIn grants

13

US economy is vulnerable to the following forces in 2009: Deflationary trend:

Falling wages, retail prices & spending, leading to both lower local government tax revenue and fewer employment opportunities

Potential inflation Rising/persistent

unemployment Increase in oil prices 14

US 1950, age 0-4 bottom to 80+ top, M left, F right

US 2010

US 2050

http://www.nationmaster.com/country/us/Age_distribution

What does “flattening” of pyramid meanfor:--jobs/incomes--public services/infrastructure --tax structure & base--wealth accumulation --housing needs--consumption patterns--public policy

15

16

The “triple threat”* Inflation Unemployment/Recession Deflation

The global economy & trade How long and how deep will the

recession be? Will protectionism take hold? Will anti-American sentiment grow?

*Thanks to D. Schweikhardt for this background 17

18

http://economicedge.blogspot.com/2009/08/week-in-charts-buckle-heck-up.html 19

So, is Deflation real? No increases in Social

Security With Medicare payments

going up, result is net reduction in retirement checks. 

Other benefits tied to CPI (union wages?  Others?)

The Fed has no tools to fight deflation. 

What is/will happen to real interest rates:  real i = nominal i –

 inflation.  http://www.inflationdata.com/inflation/Inflation/DecadeInflation.asp 20

http://prudentinvestor.blogspot.com/2005/07/chart-of-day-deflation-cycle.html 21

One view: “For inflation to supplant deflation as the

principal threat to price stability, we believe excess capacity would need to be removed.”

Dan Nevins, “SEI Economic Outlook, SEI Investment Management Corp, 2009.

22

23

http://www.eia.doe.gov/oil_gas/natural_gas/info_glance/natural_gas.html 24

25

http://www.dailymarkets.com/economy/2009/08/25/case-shiller-home-price-index-rises-for-second-straight-month-first-time-in-almost-3-years/

http://blogs.reuters.com/felix-salmon/2009/07/29/foreclosure-chart-of-the-day/

26http://www.ritholtz.com/blog/wp-content/uploads/2009/06/case-shiller-updated.png

27http://www2.fdic.gov/hsob/

http://network.nationalpost.com/np/blogs/fpposted/archive/2009/08/29/challenge-for-the-fdic-bank-insurance-fund.aspx

28http://chartingtheeconomy.com/?page_id=27

1. Older groups typically have greater share of wealth.2. Wealth loss likely greater among

older pop.3. Suggests recovery will be incomplete & generational

transfer will be less.4. Suggests long time recovery.

Growing economic power of China & India Climate/weather (OK, US, Global) Energy supply & demand Changing OK demographics (out & in-

migration) Crumbling infrastructure Technological change TBTF still w/us & likely even more so . . . Wild cards (wars, pandemics, etc.)

29

US will be less dominant on world market China may be the world’s largest economy US labor market will be more ethnically diverse and

older US tax burden will be greater to fix infrastructure,

support seniors, invest in education & technology Global/mass domestic markets will shift to the web Niche local markets will thrive for Locavores Regional wars/conflicts, especially over water and

arable land will increase, reducing economic benefits

30

Who own US debt (2008)?

Foreign owners of US Treasury Securities (July 2008)

Nation billions of dollars percentage

Japan 593.4 22.17%

Mainland China 518.7 19.38%

United Kingdom 290.8 10.87%

Oil exporters 173.9 6.50%

Grand Total 2676.4

Total debt: $10,000(foreign 26%)(other public 22%)(Fed, intragovt 52%)

31

32http://www.washingtonpost.com/wp-dyn/content/graphic/2009/09/04/GR2009090400764.html?sid=ST2009090401455