Download Fiscal State of US

Economic Update
Daryl Montgomery
February 17, 2011
Copyright 2011, All Rights Reserved
The contents of this presentation are not intended as a recommendation to buy or sell any security.
Fiscal State of U.S.
• National Debt: $14.1 trillion
State and Local Debt $2.9 trillion
Unfunded liabilities $112 trillion
• Debt to GDP ratio 97%.
• 2010 Budget Deficit $1.29 trillion. GAO refused
to certify audit.
• Obama Admin’s Budget Deficit projections:
$1.65 trillion in 2011(CBO $1.5 trillion)
$1.10 trillion in 2012
$7.21 trillion in next decade (will be higher)
• 2010 Trade Deficit was $498 billion.
Budget Deficit
U.S. was on some type of Gold Standard left of Red Line
Total Federal Outlays: 1900-2010
Right of Green Line Era of Keynesian Economics
Economic ‘Growth’
• Current GDP estimates:
- up 3.2% in Q4 2010
- up 2.6% in Q3 2010
• GDP by year:
- up 2.9% in 2010
- down 2.6% in 2009
- flat 0.0% in 2008 (was 3.3% before 3 revisions)
• Fiscal year 2010, GDP was up $635 billion after
$1290 billion in federal deficit spending.
• 16% of U.S. GDP is government spending from
borrowed/printed money
Employment Picture
• February Employment Report:
- 36,000 jobs created, yet number of unemployed
decreased by 600,000
- this reduced unemployment by 0.4% to 9.0%
- 2.8 million unemployed not counted (marginally
attached), increase of 300,000.
• Alternative unemployment figure was 16.1%
• Benchmark changes revised total employment
down by 483,000 (seasonally adj.) for December
• Weekly claims 383,000 (438,000 unadjusted).
These are self correcting.
Unemployment Post-War Recessions
Long-Term Unemployment 1949-2010
Weekly Claims
Fed Policy
• Fed maintains ZIRP policy since Dec 2008.
• Fed on 2nd round of Quantitative Easing (QE) –
a form of money printing (buying treasuries).
• UK, EU and Japan also engaging in QE.
• U.S. QE 1 was from Nov 2008 (announced date)
to March 2010.
• Fed was recycling QE1purchases last summer.
• Fed announced QE2 in November - $600 billion
in new bonds, $300 billion matured bonds. QE2
supposed to end in June.
Fed Balance Sheet
ADJUSTED MONETARY BASE –
Measure of Future Inflation
Non-Borrowed Reserves
Adjusted Total Reserves
MZM Money Supply
Currency in Circulation
Commercial Bank Loans: 1974-2010
Inflation is Here
• Global food prices hit an all-time high in
January.
• ISM Prices Paid was 81.5 in January, highest
number in report by far (50 is neutral).
Similar in UK.
• U.S. clothing prices to rise 10% in spring.
Cotton just hit a 150 year high.
• Gold hit all-time high of $1422 in December.
• Copper just hit all-time high of $4.60.
Consumers More Confident?
• There are 2 surveys – Conference Board, Michigan
• Conference Board number reaches an almost 3-year
high of 65.6 in January after TV ratings service
Nielsen takes over the survey. Nielsen seems to be
producing much higher numbers.
• Bloomberg reports confidence “Surges” based on
Michigan survey rising to 75.1 from 74.2. Change is
well within error rate of survey.
• Consumer Credit fell 1.6% in 2010, 4.4% in 2009.
Revolving debt rose in Dec. first since August 2008.
Global Risks
• Currency crisis in Europe
- Greece received more money when
Ireland was bailed out.
- Ireland’s $120 billion bailout enough?
- Portugal and Spain are next
• Middle East unrest can spread and affect oil
• U.S. Debt Ceiling of $14.3 trillion needs to
be raised soon.
• China raising interest rates.