Great Disappointment or Sustained Recovery? Economic Trends and Outlook Michael J. Parks, editor emeritus Marple's Northwest Business Letter michaeljparks.com marples.com Copyright © 2011 Michael J. Parks; please dont reproduce without permission Washington State Self Storage Association May 20, 2011

Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly. The Zurich Axioms

Key Washington plusses Boeing backlog; up part of the cycle. Export orientation/weak dollar. Strong/broad portfolio in high technology (software, biotechnology/medical, entertainment, communications, the cloud). Above-average population growth.

Perspective on the times Not so fast! Just a little off the top. Many happy returns.

Key takeaways The financial crisis changed everything. A new, vastly different, era has begun. High oil prices and the threat of inflation elevate risk of recession or stagflation. Washington, helped by technology, weak $ and Boeings backlog, should outperform.

Key takeaways (continued) Two-speed global recovery. Developing/ emerging fast, advanced economies slow. U.S. recovery has reached Wall Street, banking, corporations. Not Main Street. Policy uncertainty – health care, energy, taxes – keeps corporations hoarding cash.

Normal, old and new Globalization Laissez faire banking Debt-led consumption Shrinking role for govt Worry about deflation US GDP growth > 3% Modest tax burden Protectionism Banking reregulation Fear-based savings Larger government role High risk of inflation US GDP growth ~ 2% Higher tax burden Mohamed El-Erian, Bill Gross, PIMCO, Spring 2009

Why PIMCO dumped Treasuries Medicare, Medicaid and Social Security = 44% of federal spending; rising steadily. We have relied on the assumption that we can grow our way out of the resulting debt. Unless entitlements are reformed, the U.S. will likely default -- via inflation, currency devaluation, and/or low returns to savers. Bill Gross, Pacific Investment Management Co. April 2011

Economic and Revenue Forecast Council

Basic 2011 forecast: Partly cloudy, but fairer weather. Washington will outperform thanks to Boeing backlog, strong exports, in- migration, weak $, high-tech portfolio

What to monitor in 11: U.S.-China relations Value of the dollar Sovereign risk Interest rates Global growth rate