After the Elections:Big Changes Ahead

Jim WiesemeyerInforma Economics

A New Beginning in Washington?

• Fiscal stimulus and financial regulation

• Democrats expect to employ the Reconciliation process to pass a major tax/health care bill – Requires only 51 votes in the Senate

• Energy Policy and Global Climate Change (regulatory)

• Health care– SCHIP may be down payment on broader reform to come later.– Consensus on broader reform may be elusive / timing may slip.

• Shifting course in Iraq and Afghanistan• Taxes

– Middle class tax cut. Repealing upper income Bush tax cuts– Estate taxes will remain in place

• Deficits in FY 09 & FY 10 will be well over $1.0 trillion– May impose ceiling on creation of new programs

Top of the Agenda

IL-21IN11

OH20

PA-21

NY-31

NC-15

ND-3

SD-3

MN-10

MI-17

WI-10

VA13

SC-8

GA-15

FL27

AL-9MS-6

KY-8

TN-11

MO-11

NE-3

KS-6

MT-3

WY-3

CO 9

NM-5

TX-34

OK-7AR-6

LA-9

UT-5

AZ-10

CA-55

NV-5

OR-7

WA-11

ID-4

MD-10

VT-3NH-4

MA-12

HI-4

AK-3

RI-4

CT-7

NJ-15

DE-3

DC-3

ME4

IA-7

WV5

McCainObama

2008 Electoral Map

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Electoral VotesMcCain ..…... 173

Obama …..… 365

Presidential Voting Patterns Popular vote: 53%, highest since Johnson in 1964 Latino vote: 66%

-- Helped win Nevada, N.M., Colo., Va., Fla.

-- Registered Latinos up 20% since 2004

-- 76% of young Latinos backed Obama

-- Impact on immigration reform Rural vote: McCain 51% to 47% for Obama

Democratic Party gaining in rural sector Black vote: 95% (Kerry 88% in 2004) Other:

-- 66% aged 18-29-- 68% of first-time voters

Keys to Obama Administration

Which Obama? Populist or pragmatic? Cabinet: How diverse? Early agenda: Stimulus, taxes, health care, energy, educ. Long-term agenda: Iraq, Afghanistan, global warming/cap

& trade, Soc. Sec., budget deficit, immigration reform Congressional Dems: Can he control pent-up liberals?

-- Pelosi: “The country must be governed from the middle.” Labor unions: Payback time, but how much? Change: How much, how and when?

USDA Secretary Pick: Vilsack

Former Iowa Gov. Tom Vilsack: Third governor in a row.

Activist or loose cannon? Push for single food agency; Big changes ahead for USDA and farm policy… direct payments

How many folks work here? Says Ag Dept. can tell how many checks they write, but don’t know how many work at USDA.

The next layer: Sub-Cabinet positions will now be the key focus and how much say Vilsack will have in who ends up where.

Impact on Agriculture

Personnel: USDA, EPA, OMB, Energy, USTR, Justice

Farm bill implementation, policy issues

-- Dairy: After a few very good years….HELP

-- Sugar: A farm bill success, now for implementation…

Impact on Agriculture

Congress: Issues ahead

-- Futures trading/credit default swaps

-- USDA reorganization

-- Farm bill implementation oversight

-- Ag Committee ratios: More Democrats

House: 28 Dems, 17 GOP (from 25-21)

Senate: 12 Dems, 9 GOP (from 11-10)

What’s Next for U.S. Economy?

13,000

12,000

11,000

10,000

9,000

14,000

76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

-10

-8

-6

-4

-2

0

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6

Change in trillion dollars

Household Net Worth Falling Rapidly

Change in Net Worth 2002-2007* 2008 Trillion dollars Change in Net Worth ............. +20.5 -10.0Change in tangible assets ..... +9.0 -2.0 (88% real estate)Change in financial assets ..... +16.9 -7.5Change in liabilities ................ +4.6 +0.5

Three Facets to Economic Challenges Global liquidity trap: banks can’t write-off bad assets without more capital, yet need more capital to keep uncertain exposure on balance sheet. Risk aversion increasing as economy weakens. No lending - no growth.

Traumatized consumer: net worth in financial assets and real estate has declined by $10 trillion, job losses are growing and credit is more restricted even at lower rates. Largest contributor to global growth is retrenching.

Stagnating emerging markets: export dependent economies are unable to offset lost demand from advanced economies. Internal political unrest is growing, realignments on horizon!

What Are The Determining Catalysts?1. Global financial market infusions to restore liquidity.• $700 billion in U.S. (Troubled Asset Relief Program,TARP), $150

billion in Britain, etc. (A Resolution Trust Entity is on horizon)• Access to capital markets is first indicator of the turn!

2. Global fiscal stimulus to restore consumer confidence.• $1 trillion in U.S. (7% of GDP); EU spending $350 bil. (4% of GDP)• In 18-24 months be prepared for inflation cycle.

3. Political Transitions: U.S., Europe, etc.• Optimism in U.S.; challenges in Europe / Russia, Middle East

4. Rising tide of protectionism? (U.S., Europe, Russia, etc.)• Food & agriculture is always high on list. (EU, China)

5. Strong farm balance sheets & cash flows.• Agriculture is one of stronger sectors in U.S. economy.

6. Low, but building grain & oilseed inventories.• Supply vulnerability is critical market factor (weather/acreage).

7. Global recession constrains livestock, poultry and dairy.

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40

60

80

100

Farm Financial Conditions

Net Cash income

Debt-to-asset ratio

5

10

15

20

Billion dollars

Percent

Recordlevels!

Signs of Economic Recovery Stock market: Turns up 6 months before employment gains.

Spring: Inventory liquidation. Focus on current fundamentals.

Watch for: Improved credit market conditions, stabilization of labor markets. LIBOR is dropping; some corporate bond markets thawing. Narrowing of rate differentials between Treasuries & other credit instruments positive signal -- would encourage banks to lend more.

Housing aid: Second tranche of TARP will focus on housing sector aid. Treasury and Fed want mortgage rates below 5%.

Energy stimulus: In 2008, oil price averaged about $100/barrel. If average is $50 in 2009, economy would receive $100 billion stimulus. Positive for households & businesses using energy; negative because drilling activity being reduced domestically, & OPEC cutting back.

Signs of Economic Recovery

Housing: Rate of new residential construction well below replacement. Home buying activity could begin to improve in spring. Caveat: consumer confidence is as important as affordability in home purchase decision.

Consumer spending: Falling at fastest pace in post WW II period. Once savings rate gets to 4% or 5%, consumption could start to grow in line with income. But if saving rate is over 5%…drag on economy.

Economic stimulus: Important is size, scope and composition.

House-Senate conference this week

Rural sector aid: Health, food stamps, alternative energy

Dairy aid?

Major Issues AheadMajor Issues Ahead

Big Issues- Energy, Renewable fuels

- Global warming- Health care reform- Food safety reform

- Social Security reform- Taxes

- Infrastructure

Money- FY09 appropriations

- FY10 budget resolution

Post-Rescue Impact- A changed Congress

- Regulations- Cost-cutting

- Election promises

Deficits- Budget deficit

- Total U.S. federal debt- Entitlements

- Interest payments on debt:over $441 billion in FY08

Economy- Credit crunch

- Another stimulus package - Immigration reform

- World economy: China

Trade Policy-- Protectionist Washington

- Cuba

Top Issues

Farm Bill vs. Total Federal SpendingFarm Bill vs. Total Federal Spending

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Total Federal Total Federal SpendingSpending

2002 vs. 2008 Farm Bill Spending2002 vs. 2008 Farm Bill Spending

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