Mid-America and the Global Economy: Short and Long Term Challenges & Opportunities

Ernie Goss Ph.D.

Professor of Economics

MacAllister Chairholder

Creighton UniversityWeb: www.ernestgoss.com

Twitter.com/erniegoss

Web: www.outlook-economic.com

Minnesota Manufacturers Summit

2008-12Never has so much been done to achieve so little?

• Two stimulus bills ($1 trillion)

• Bailouts—GM, Bear Stearns, AIG, Fannie Mae, Freddie Mac, Chrysler, 19 Large Banks

• Interest rates: QE1, QE2, QE3,Operation Twist, Funds Rate = 0% - ¼%

• Cash for clunkers, appliances, caulking, windows, Green vehicles,

• Tax credit for first time home buyers

• Mortgage forgiveness & writedowns

Threats

Opportunities

• Opportunities–Record low interest rates (bond

market looking for quality issues)– International opportunities–Great bargains in real estate market –Cash is king–How can you take advantage of

uncertainty?

Housing/Construction

Source: Lodmell & Lodmell http://www.lodmell.com/protect-wealth/strategic-defaults-mortgages

Price changes, 2007-12

Why Build New?

New construction costs = 4 x existing

Case-Shiller home price index 2001- July 2012

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Year over year price change

E

End of federal tax credit

Debt

Federal spending as % of GDP, 1947-2012

Public debt as % of GDPThe 25% problem?

Agriculture

Monthly Survey of Rural Bank CEOs

• 10 states, 210 bank executives

• Released 3rd Thursday of each month

• Average community size = 1,300

• CO, IA, IL, KS, MN, MO, ND, NE, SD, WY

Rural Mainstreet Economy Jan. ‘08 – Oct. ‘12

Bullish on Agriculture/food: Long term

• Fast growth for emerging economies (China, India): Food & energy demand income elastic (e.g. income up 8%, food demand up 12%)

• Cheap value of dollar (makes U.S. food & energy more competitive abroad): U.S. trade deficit, budget deficit, higher inflation.

• Biofuels & alternative fuel production: wind farms, ethanol, solar.

ManufacturingThe Regional Economy:

Survey of Purchasing Managers

A Partnership Among Creighton and State Supply Managers Associations

U.S. & Mid-America PMI’s, 2007 – September 2012

Minnesota’ exports, 1999 vs 2011

1999 2011

Indicators to Watch (next month)

• Case-Shiller home index for August• Trade weighted value of dollar• Sovereign bond default (PIIGS)• Yield on the 10-Year U.S. Treasury

Bond• Retail sales (Nov. 14) • GDP (Oct. 26)• PMIs (Nov. 1)• Employment report (Nov. 2)

Economic Medicine

• Look internationally for sales & investment• Need fundamental tax reform—flatter & fairer• Simpson/Bowles tax/spending plan• Shorten period of UI benefits• Commitment to reducing federal spending• Keep 2001 & 2003 tax cuts for all until

spending cuts• Reduce barriers to trade• Must convert pensions to defined contribution

plans for public employees• Encourage repatriation of U.S. earnings