1. The Economy: View from February 2009
Recap of where we are, How we got here,
And where we’re likely to go

2. Predicting the Future is Hard!
"But a destabilizing contraction in nationwide house prices does not seem the most probable outcome. Indeed, nominal house prices in the aggregate have rarely fallen and certainly not by very much."
Alan Greenspan, May 6, 2004

3. Leading Economic Indicators—Selected Countries
Country
November
December
YOY% Change
USA
-8.7
-9.5
Japan
-5.5
-7.3
France
-5.7
-5.9
Germany
-10.7
-11.8
Italy
-5.0
-5.6 UK
-6.7
-6.8
Korea
-4.4
Czech Republic
-10.4
-12.5
Poland
-7.2
-7.7
Spain
-7.4
Turkey
-10.5
-13.4
Brazil
-2.9
-5.4
China
-12.9
-14.0
India
-7.5
Russia
-13.8
-17.7

4. Where We’re At—Newest Data

5. Imports & Exports Follow Production

6. More Data

7. How Does this Compare Historically?

8. Employment—Historical Comparison

9. States Feeling the Pinch

10. Effect on Budgets?

11. Consumers are Saving

12. Does Detroit Need a Bailout?

13. Estimated Impact of Spending a Dollar by Sector of the Economy
Economic multipliers—by economic sector
Highest:
Motor vehicle manufacturing
2.87
Food and tobacco manufacturing
2.61
Farms
2.33
Residential construction
2.27
Local government enterprises
2.22
Lowest:
Legal services and real estate
1.49
Warehousing and storage
1.43
Fed banks, credit intermediation, etc.
1.39
Rankings estimated based on 2006 data

14. Deflation?

15. The Banks

16. Evolution of a Crisis—Financial “Innovation”
The S&L collapse of the 1980s
Diversification of risk
Consolidation of institutions (Glass Steagall)
Mortgage backed securities
Selling an interest in a pool of mortgages rather than selling the mortgages themselves
If profitable, where do you get more mortgages?
Diversification vs. multiplication of risk—did the bankers understand this tradeoff?
Credit default swaps (CDSs)
Who regulated this market?
What are the incentives to “work out” problem loans?
What assets can the government buy?
The goal of helping borrowers
Fear factor—it appears to be much worse in Europe

17. Taxes and Deficits

18. Predicting the Future Deflation or inflation?
Where will growth come from?
Social Security—can we afford it?
Medicare and the health care system
Taxes
The role of government
International relations
Trade
Conflict