Download Presentation 04.2017

The Political Economy
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The interplay of Political and Economic Theory in the pursuit of financial interests and power to
influence policy.
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The Role of Government – The size of Government – how, when and how much – market intervention.
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The choice of Policy Transfer Mechanisms
- Fiscal – taxes and programs – tax reform – rates, deductions, deregulations / trade,
infrastructure spending
- Monetary – interest rates/money supply – data dependent – fiscal stimulus – higher rates
– Fed Balance Sheet
- Weighted combination
In the absence of fiscal stimulus monetary policy exhausted - negative interest rates - reversing
Transfer mechanisms influence the economy and markets with varying costs, benefits and consequences.
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The Fed response to financial crisis and recession – cheapens borrowing
– hurts fixed income investors.
Financial Repression - The Ultimate Imbalance
Savers are forced to subsidize inflated asset prices through policy engineered low interest
rates.
One man’s borrowing cost is another man’s interest income.
Pushes investment from safe to risk assets to finance growth – increasing risk in both.
Very tight credit spreads – 2008 and 2017
Harming valid business models – insurance, pension funds, local governments
-Zombie companies, obsolete business models survive.
Financial Repression – makes federal, state, local debt more affordable. Pushes risk assets up –
“Captive Investors” – pushed out maturity curve , pushed down in credit quality.
Great deal of uncertainty for Policy Makers – new members will be joining in 2017-2018
– composition – more hawkish?
Bond Market Basics – mechanical relationship between price, rates.
Focus – all Government Bonds guaranteed – P & I –
- Bonds mature at par – return 100 cents on the dollar.
- Will fluctuate - Purchase to Maturity.
The return to rate normalization following financial repression created greater risk of
price loss to “Captive Investors” – pensions, insurance companies, local governments.
* Cash Flow Analysis – higher timely liquidity and increased safety, reduced market risk.
Focus – increase income – budget – lesser degree – market price fluctuations.
“An optimist’s guide to thriving in the age of accelerations.”
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Something Big is going on
Moore’s Law – technology
Globalization – markets
Climate Change and Biodiversity
The Supernova
Dynamic Stability vs Active Inertia
The New Geography of Jobs
“The Great Divergence”
• 30 – 40 Year Trend
• Bifurcation of American Economy
• Innovation Clusters Attract Innovators
Economic Growth and Sustainability of Revenue
Local Government as Facilitator
Labor
Employers
Local Government
Technology
Trends
Educators
Finance
• Diversification of
Revenue Streams
• Evolution of
Local Economy