Economic Considerations

Japan, before and after

• Before– Debt over 200% GDP– But very positive balance of trade. Export

economy• After– Hundreds of factories shut down– Rolling blackouts– 25% reduction of power to even major factories– Total recovery cost > $100 billion

Japan After

• Supply Implications– Many high tech and machined parts in short supply from Japan– Toyota reduces US production on part shortages

• Major plant closings– Toyota and Nissan halt production in 20 factories– Sony suspended production in eight factories– Many others

• Long term implications– Japan will survive

• Sell off of assets may inflate its currency

– But blow to world economy as Japan is #2 or #3 economy

Middle East, Saudi Arabia

• China passes US as main buyer of Saudi oil– Sign of decreasing US influence?

• S.A. is a main buyer of US securities– Much more than China now

• S.A. is best foreign customer of US arms industry– S.A. seeks to buy US warship

• Internal protests– Bought off for now?– Saudi unrest could drive oil to $300 a barrel

Middle East, Libya

• NATO airstrike kills rebels– NATO takes sweet time apologizing

• Warships off Libyan coast• Overflights and bomb runs– Recent attacks damaged some oil fields

• Thus far insistence of know ground troops– Though there are stories of military advisers among the

rebels• Largest oil reserves in Africa and ninth largest

reserves in the world

Middle East, Pakistan

• CIA operative shoots two Pakistanis– Apparently in cold blood– Acquitted by US courts

• Massive drone strikes in Pakistani terriroty in March

• Pakistan put joint operations with US on hold• US threatens to without $1.5 billion in annual

economic aid

Middle East, Syria

• Syria is historically very anti-Israel– Obama administration has been seeking to

change that• Syria reacts very agressively to internal unrest– Opens fire on thousands of protesters killing at

least 61– Scuttles hopes of Israel peace treaty or credibility– Adminstration claims that Jordan and Saudi

Arabia are behind the protests

Middle East, Jordan

• Jordan has long had a peace treaty with Israel• Recently protest within Jordan turned violent– Between differing ideological groups rather than

from government violence.– 1 death and hundreds injured

• Jordanian king is very pro-reform– But claims switch to constitutional monarchy

would too seriously weaken the country at this time.

Eurozone

• Portugal– Scheduled for bailout

• About $120 billion

– Government collapsed over latest austerity package• Spain

– 30 of its banks just downgraded by Moody’s– Claims it does not and will not need bailouts

• So did Portugal a year ago

– Runs highest unemployment in developed world• Moody’s also threatens downgrade of British sovereign

debt

Eurozone

• Raises interest rates – 1 to 1.25– First raising of rates in west since 2008 crisis– Inflation is increasing worry has commodity, energy

and food prices are rising– Will have side effect of currency appreciation and

depreciation of dollar• Which will raise the price of dollar denominated goods

such as oil faster

– Makes overall rise in rates much more likely

World Bank/IMF Concerns

• Washington, next week• Japan quake and aftermath• Middle East unrest– Especially effect on oil supply/price– And everything that depends on it– Some signs of push for Middle East economic

integration• Debt crises• Rapid oil price spike

US Defense, FED actions

• Defense spending– Total counting “overseas contingencies” - $700 billion– More than rest of world combined– Includes over 560 bases around the world

• Likely major change in Federal Reserve policy by June– Fed buys over $100 billion of US Treasuries per month– Scheduled to end in June– May get QE3 to continue practice– Rest of world not so interested in US Treasuries

US – Housing

• Housing– Millions of empty homes• Sitting on bank books

– No longer counted against bank

• Or soaked up into FEDs portfolio

– Nearly 25% of all active non-defaulted mortgages in US are under water

– It will take years before the housing market prices really stabilize much less recover.

US Employment

• 8.8% official number is bogus– Does not count those that gave up– Or even those no longer eligible for benefits– Or those severely underemployed– Real number likely nearly double the official figure

• Many who do go back to work do so for less money and/or in lower skilled job

New Jobs, Lower Pay

US Government Shutdown?

• Failure to pass budget risked shutdown– Many services would have slowed

• Or not paid for

– Others would stop until budget resolved– 800000 fed employess would be furloughed

• Interestingly each office picked which employees were non-essential. • Good information to have when we trim the fat!

• Emergency agreement hammered out late Friday and signed Saturday– Only cuts $39 billion from the budget

• Government debt will pass its $14.3 trillion current cap by about a month from now.