Is the US Headed for

Another Economic Crisis?

Specific Topics

1) Is the Banking Sector Stable?

2) Are State and Local Governments Solvent?

3) How Serious is the Federal Debt Problem?

4) Will the Real Estate Market Recover?

5) What About Consumer Spending?

6) What Should we Expect Over the

Next 12 Months

1) Is the Banking Sector Stable?

FDIC Bank Closures1990 to 2011

0

100

200

300

400

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

FDIC Problem Banks1990 to 2011

0

200

400

600

800

1000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Total Assets for all FDIC Insured Banks:

Approximately $14 Trillion

Total Assets for the 865 Banks on

the FDIC Problem List:

Approximately $400 Billion

(Less Than 3% of the $14 Trillion)

Overall Grade for the

US Banking Sector

Overall Grade for the

US Banking Sector

C

US Banks are Flush with Cash

2) Are State and Local

Governments Solvent?

State and Local Government Revenue and Expenses

Overall Grade for the

Financial Condition of the

Typical State or Local Government

Overall Grade for the

Financial Condition of the

Typical State or Local Government

B -

3) How Serious is the

Federal Debt Problem?

Total Federal Debt

How Big of a Threat is the

Federal Debt Problem for the

General Health of the US Economy?

Analogy to Debt Capacity for a Family

There is a “Tipping Point” Beyond Which

Lenders are Unwilling to Extend Credit

The Level of Interest Expense and the Ability

to Service the Debt are of Greater Concern

Than the Level of Debt per se.

Additional Factor in the Case of US Treasury Debt

The International Transactions Demand for

US Dollars and US Treasury Debt

What the Implication of International Demand for the Tipping Point?

International Demand Clearly Adds to theCapacity for US Debt Relative to the

Level of Debt Capacity for Other Nations.

However, the Full Extent of the IncreaseIn Debt Capacity Had Yet to Be Tested

In Addition, it is too Early to Assess the PotentialEffect of a Nasty Political Debate Over US Debt

US Debt Held by Foreigners

Overall Grade for the

Financial Condition of the

Federal Government

Overall Grade for the

Financial Condition of the

Federal Government

D

4) Will the Real Estate

Market Recover?

Housing Starts

Overall Grade for the

Residential Real Estate Market

Overall Grade for the

Residential Real Estate Market

E

5) What About

Consumer Spending?

Consumer Spending

Overall Grade for the

Consumer Sector

Overall Grade for the

Consumer Sector

A -

6) What Should we Expect

Over the Next 12 Months?

How Strong is (was) the

Economic Recovery?

Real GDP from 2002 to 2011

Real GDP From 1950 to 2011

Inventory to Sales Ratio

New Factory Orders

Average Weekly Overtime

If the Economy was Recovering

Then Why Has

The Unemployment RateRemained So High?

Unemployment Rate

Unemployment 101

Unemployment 101

Okun’s Law

Unemployment 101

Okun’s Law

Effects of Recession Severity on Critical Economic Linkages

Unemployment 101

Okun’s Law

Effects of Recession Severity on Critical Economic Linkages

Growth in Labor Productivity

Unemployment 101

Okun’s Law

Effects of Recession Severity on Critical Economic Linkages

Growth in Labor Productivity

Growth in Work Force

Unemployment 101

Okun’s Law

Effects of Recession Severity on Critical Economic Linkages

Growth in Labor Productivity

Growth in Work Force

Mechanics of the Unemployment Measure

An Additional Observation

The Absolute Decrease in Real GDP and the Absolute Increase in Real GDP Might not be the Best Way to Measure the Beginning and End of an Economic Recession.

Most Economists Agree that a Better Measure is the Increase or Decrease in Real GDP Relative to the Long Term Trend in Productive Capacity

Real GDP from 2002 to 2011

The Recession of 1990-91

The Recession of 2001

What Has Been Driving

This Economic Recovery?

Is the Recovery Due toMonetary Stimulus?

Interest Rate on a Conventional30 Year Mortgage

What AboutFiscal Stimulus Programs?

What AboutFiscal Stimulus Programs?

TARP Program in Late 2008: $700 Billion for Investments in Financial Institutions

What AboutFiscal Stimulus Programs?

TARP Program in Late 2008: $700 Billion for Investments in Financial Institutions

ARRA Programs in Late 2009: $300 Billion in Tax Cuts and $500 Billion in Additional Spending

Private Sector Employment

Is There Another Factor

Contributing to

Economic Recovery?

Trade-Weighted Valueof the US Dollar

Trade-Weighted Valueof the US Dollar – A Longer View

Yuan Per Dollar

Canadian Dollar vs US Dollar

What Effect Does a Decline in theValue of the US Dollar

Have on the US Economy?

The Dual Pricing Effect

Foreign goods and services become more expensive for US consumers

US goods and services become less expensive for non US consumers

By Virtue of a Substantially Lower Value of the US Dollar, You Can Even Expect to

See a Decline in the Rate of International Outsourcing for Parts and Services

Economic Forecastfor the Next 12 Months

Economic Forecastfor the Next 12 Months

Despite Continuing Issues for Many Parts of the US Economy, I Expect to See Modest Growth in

Real GDP at an Annual Rate of 1% or 2%.

Economic Forecastfor the Next 12 Months

Despite Continuing Issues for Many Parts of the US Economy, I Expect to See Modest Growth in

Real GDP at an Annual Rate of 1% or 2%.

I also Think There is a Roughly Equal Chance of Either Modest Decline or Enhanced Growth in

Real GDP During any Given Quarter

And Most Important of All

And Most Important of All

If Any of These Predictions

Turn Out to Be Incorrect,

Please Remember

That my Name is:

And Most Important of All

If Any of These Predictions

Turn Out to Be Incorrect,

Please Remember

That my Name is:

Ben Bernanke