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Economic Update April 2011 Daryl Montgomery April 7, 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: $14.27 trillion State and Local Debt $2.9 trillion Unfunded liabilities $113 trillion • Debt to GDP ratio 97%. • Debt Ceiling has to be raised from $14.3 trillion this week to avoid government shutdown. • Budget Deficit for 2011: $1.400 to $1.650 trillion - Cuts being sought to raise ceiling $0.033 trillion - $1.10 trillion projected deficit in 2012 • 2010 Trade Deficit was $498 billion (most dependent on price of oil). Total Federal Outlays: 1900-2010 Right of Green Line Era of Keynesian Economics, Right of Red no Gold Standard Economic Growth? • U.S.GDP up 3.1% in Q4 2010, 2.9% for 2010 • Compare to 2008 (year of severe recession) - GDP grew 3.3% from 2007 in original figures - After 3 yearly revisions, is now flat at 0%. • UK Q4 down 0.4% (some spending restraint there) • 70% of U.S. GDP from consumer spending, but consumers lack credit and jobs. • Housing market (source of crisis) not recovering. • Deficit spending supported by money printing is holding up GDP. GDP overstated for other reasons. Consumer Credit Consumer Credit by Type Existing Home Sales Green Arrows Government tax credit programs New Home Sales 1963 to Present Employment – Review • February Employment Report: - 36,000 jobs created (revised to 63,000) , yet number of unemployed decreased by 600,000 - reduced unemployment by 0.4% to 9.0% (not possible) - 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 • 192,000 jobs gained in February, 8.9% unemployment (15.9%) • March 31st Weekly claims: 388,000, 4-week MA 394,000 April Employment – AP April 1st • Unemployment 8.8% or15.7%. • Jobs added: 216,000 (1st time since 2006, PE>200,000) Professional & Business Services: 78,000 Education & Health Services: 45,000 • Sectors eliminating jobs: construction, transportation and warehousing, and information services, • “A big factor in the lower unemployment rate is that the proportion of people who either have a job or are looking for one is surprisingly low for this stage of the recovery.” – • “Workers' paychecks were flat in March. Average hourly earnings held steady at $22.87, unchanged from February. Over the past 12 months, wages have lagged behind [officially reported] inflation.” • “The number of unemployed people dipped to 13.5 million in March, still almost double since before the recession began in December 2007.” Unemployment Post-War Recessions Unemployment and Labor Force Participation Forced Part-Time Workers Long-Term Unemployment 1949-2010 Weekly Claims Fed Policy • Fed zero interest rate policy (and no taxes) are supporting corporate earnings. • Fed on 2nd round of Quantitative Easing (QE) – a form of money printing should end in June. • QE2 used for buying treasuries, financing 70% of deficit for H1 2011. • Governments do NOT print money to finance their operations if they can borrow. • BOJ released most funds ever into financial system after earthquake. ECB raised interest rates today from 1.0% to 1.25% (inflation 2.6%). ADJUSTED MONETARY BASE – Measure of Future Inflation MZM Money Supply Inflation is Here • Global food prices hit an all-time high in January. Oil back above $100 a barrel. • ISM ‘Prices Paid’ was 85.0 in March, highest number in report by far (50 is neutral). Up 21 months in a row. Recovery is inflationary. • Chinese Inflation is rising (has raised key rate 3 times since last October). • UK Inflation is rising at 4.4% (BOE rate 0.5%). • Gold hit all-time high of $1465 today, Silver at 31 year high. Chinese Inflation UK Inflation Official U.S. CPI Shadowstats.com and Reported U.S. CPI