Noted economist (and St. Johnsbury native) David Hale is back in Vermont for a high school reunion; on Thursday, he gave a wide-ranging lecture on all things globally-economic in South Burlington.
Some excerpts that caught my attention below the fold....
o The present contraction started in the United States, but the GDP contractions are now much worse elsewhere; since their economies are dominated by exports, both Germany and Japan are suffering particularly badly. (I was in Frankfurt last year during the first few days of October when the contagion was just jumping the Atlantic; the most recent issue of the German news magazine Der Spiegel sitting in newsstands had a rather gloating cover story "celebrating" the sudden American economic woes.... however, the issue was a week old and was already out of date as Germany was already finding itself in even deeper trouble.) As a consequence of the recession, world trade will drop about 9% this year.
o Ben Bernanke told him that by the end of this year, the Fed balance sheet
will have reached $3 trillion; since it's already ballooned to $2.1 trillion, this seems likely and easy.
o There have only been five prior years in U.S. history where the federal
budget exceeded 25% of GDP - 1864, 1865, 1943, 1944, 1945; note what was going
on in those years; we have a wartime budget in peacetime now, and that's a
first.
o The banking system seems to have stabilized and is no longer out-of-control; what is out of control is the federal budget deficit.
o The banking system seems to have stabilized and is no longer out-of-control; what is out of control is the federal budget deficit.
o The only source to finance the massive federal deficits will be domestic
resources; the "China pool" only has $300 billion in it (that number, if I heard it
correctly, surprised me - but some causal cross-checking today confirmed it); as a comparison, total U.S. mutual fund assets now
amount to "only" $1.5 trillion. The spending plans being bruited in Washington seem to be far beyond any ability to sell the debt instruments to pay for them.
o Ben Bernanke has drawn a line in the sand of "monetizing" no more than
$300B of the debt; it remains to be seen if he'll be re-upped next year, or if
he'll be replaced with someone who would be more "accommodating" to President Obama's
possible wishes to increase that to a couple trillion dollars - someone such as a hard-core
Keynesian like Larry Somers. His opinion is that BB will be re-upped, since an
immediate consequence of his replacement (particularly by someone like Larry
Somers) would be a financial panic of general anticipation of serious inflation;
he made a semi-snide comment that a Larry Somers stint at the Fed would require that the
next appointment be a reappointment of Paul Volcker since he's done
serious-inflation clean-up successfully before.
o He and I have clashed (publicly but politely) in the past about China,
which he continues to like much more than I do; I've always been chilly about China because of (in my view) nearly non-existent intellectual property protections, the very large majority of the population that lives in poverty, the absence of the rule of law, and the tolerance for questionable management practices (among other things). But he is coming around to my view
that India has potential of at least that stated about China. We didn't get a
chance to discuss the little-discussed issue of the consequences of China's
impending demographic implosion.
There was quite a bit more, but those were the highlights from my perspective. As usual, a wide-ranging and interesting presentation from Mr. Hale.
There was quite a bit more, but those were the highlights from my perspective. As usual, a wide-ranging and interesting presentation from Mr. Hale.
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