1. The U.S. in the Post-2008 World Economy Mark S. LeClair, Fairfield University April-May 2015

2. Five Meetings for this Sequence Topics: – The 2008-09 Economic Crisis and Recovery (Day 1) – The U.S. and the Changing Global Economy (Day 2) – The Global Monetary System in Flux – the Changing Role of the Dollar (Day 3) – The Rise of China and the other BRICs (now the BICs, since Russia not a particularly good place to put money right now!) (Day 4)

3. If you want copy of slides Go to: www.faculty.fairfield.edu/mleclairwww.faculty.fairfield.edu/mleclair Click on link that says: Lifelong Learning (about 1/3 of the way down the page) – Must have PowerPoint on computer to retrieve slides – There is also a link from a talk on April 14 th, so make sure you click the correct presentation

4. Begin with a Post-Mortem of 2008 Downturn Deepest recession since Great Depression – Although 1982 downturn produced similar problems with unemployment – Crises that originate on financial side tend to be longer and more intractable. – Foundations of recession: Poor government policy and poor regulation CRA and Countrywide – Housing bubble and misuse of financial instruments Problem not necessarily solved.

5. Economic Crisis Produced Some Fundamental Changes While growth returned, labor market has yet to recover – Dropping unemployment rate more a reflection of falling Labor Force Participation Rate For those who love numbers, see bls.gov – Labor demand remains weak 5 years out from the recession

7. Policy Lessons Depth of 2008 recession led to the use of both fiscal and monetary policy tools – Fiscal stimulus passed in January 2009 was too complex and the pace of spending too slow to affect economy in intended way – Christina Romer’s math: $878 billion * multiplier of 1.56 = $1.37 Trillion in new spending = 11.3 million new jobs (@$122,000 per job)….That didn’t happen! (gap was only 5 million jobs)

8. Monetary Policy Federal Reserve flooded economy with liquidity: – QE 1 -> QE 2 -> QE 3 -> The “twist” -……QE? Response of economy very slow. Typical of downturns that originate on the financial side of the economy Equivalent to printing money, so WHY no inflation (hint: what happened to velocity?) So…….was Bernanke a genius?

9. Situation Very Stressful for Economists Used both policy tools and recovery was very weak. Don’t have a third option to try. Exchange rate policy not valid for large economies Did learn a lesson that has been repeated many times…..Government policy (Keynsian policy) designed to end a recession must be “fast and furious”

10. A Picture of the 2008 Recession

11. Raised Anew the Debate Between Keynsians and their critics Does increased government spending really stop a downturn? Weak recovery suggests that it may not work that well

12. Video A little entertainment on Keynsian Economics https://www.youtube.com/watch?v=GTQnarz mTOc

13. U.S. Growth now Considered “moderate” Distressing GDP growth figure from 4 th quarter of 2014 – 2.2% growth (source BEA) Hope it is an anomaly Europe remains mired in its own crisis – 2008 recession and the PIIGS – Daily pronouncements that Greece is likely to default – U.S. should at least be pleased we do not have a common currency to fret about.

14. Bureau of Economic Analysis

15. What is Holding Back U.S. Economy? Appreciation of the dollar – Growth in export markets suppressed – Crisis in the European Union makes further appreciation of the $ likely Euro now worth roughly $1.08 – was once at $1.50 – Similarly, Japan has devalued its currency – from 88 Yen/$ to 120 Yen/$ Foreign products appear much cheaper, hurting U.S. exports

16. Also – Accumulation of Cash U.S. businesses are holding on to very large amounts of liquid assets – Instead of investing – Currently $1.64 Trillion (Bloomberg) Reflection of what appears to many to be a weak and uncertain economic picture Difficult to fix

17. End of Day One Questions and Suggestions for What is covered tomorrow when we examine the global economy