Kurt Brouwer February 19th, 2008
Because so much of the economic news we hear and see and read is negative, we want to focus once a month on good economic news to help balance things out. We are not suggesting that all economic news is positive. Instead, we are just pointing out that there is plenty of good news too. Here goes [emphasis added occasionally]:
Economic Growth In The U.S.
Last 25 Years: Most Stable In U.S. History (Carpe Diem, February 12, 2008, Mark J. Perry)
“Over the last 25 years, the U.S. economy has been in recession only 5.3% of the time, compared to the much higher frequencies of recession in previous periods of comparable length (see graph above).”
The next link comes from the Congressional Budget Office, which just updated its economic forecast and it is calling for moderate economic growth in 2008 and 2009. A recession is still possible, but they think moderate growth is more likely:
Updated Economic Projections (Congressional Budget Office Director’s Blog, February 15, 2008, Peter R. Orzag)
“…CBO’s projections are similar to the most recent Blue Chip consensus forecast, an average of the estimates of about 50 private-sector forecasters. Although CBO’s projections do not show the slowdown in economic growth becoming severe enough to meet the economic definition of recession, the risk of a recession remains elevated, and economic activity will remain subdued for some period as the economy continues to work through the effects of problems in the housing and financial markets and the high price of oil. More specifically, CBO now forecasts that real GDP will grow by 1.9 percent in calendar year 2008 and 2.3 percent in 2009. The previous projections had been 1.7 percent and 2.8 percent respectively for 2008 and 2009…”
Via: Real Time Economics Blog
More interest rate cuts are likely as Fed Chairman Ben Bernanke announced in testimony before the Senate last week:
Bernanke: Fed Has Been Aggressive, Ready To Do More (MarketWatch, February 14, 2008, Greg Robb)
“Federal Reserve Chairman Ben Bernanke said Thursday the central bank was ready to cut interest rates further if fresh signs of a weaker-than-expected U.S. economy emerge.
The Federal Open Market Committee, which sets Fed monetary policy, “will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,” Bernanke told the Senate Banking Committee in prepared testimony. The Fed has done a lot to stave off a recession but stands ready to do more if the outlook darkens, he said…”
Fed’s Poole Says U.S. Likely To Avoid Recession (Reuters, February 11, 2008, Joanne Morrison):
The U.S. appears likely to avoid an economic slowdown but the chances of a recession have risen, St. Louis Federal Reserve Bank President William Poole said on Monday.
“I think the best bet is that we will not have a recession,” he said in response to questions after a speech to the St. Louis chapter of the National Association for Business Economics.
This next item is certainly controversial, at least among economists. In my view, the most positive aspect of this is that it was done quickly and with — by political standards — relatively little rancor or political posturing.
Bushs Signs Economic Stimulus Package (MarketWatch, February 13, 2008, Robert Schroeder)
“President Bush signed a $168 billion economic stimulus package on Wednesday that will extend rebates to U.S. taxpayers, give tax breaks to businesses and make more-expensive mortgages available through the government and government-sponsored mortgage-finance companies.
“We have come together on a single mission and that is to put the peoples’ interests first,” Bush said at a White House signing ceremony. He was flanked by members of Congress and his cabinet.
Bush said the U.S. economy has clearly slowed but that the package is “a booster shot for our economy.” Approved by lawmakers last week, the package provides a tax rebate of up to $1,200 per working couple, plus $300 per child. Businesses get tax breaks to invest in capital equipment as part of the stimulus plan.
There are also provisions to make more-expensive mortgages available through the Federal Housing Administration and government-sponsored enterprises Fannie Mae and Freddie Mac…”
Economic Growth Around The Globe
Somewhere Over The Rainbow (Economist, January 24, 2008)
“In a week of financial uncertainty we look behind the headlines to a world that is unexpectedly prosperous and peaceful…
(Source: Economist; Nature PL)
…Last year the global economy entered its fifth year of over 4% annual growth—the longest period of such strong expansion since the early 1970s. Despite financial turmoil and soaring oil and commodity prices, world growth barely dipped in 2007 and trade grew at 9%, even though trade talks fell apart. Unlike previous expansions, inflation remained more or less under control.
Moreover, growth was spread around fairly evenly. According to the World Bank, national income in the European Union rose slightly more than in America for the first time in a decade. Growth in East Asia was 10%, in South Asia over 8%, in eastern Europe almost 7% and in Africa, thanks to the commodity boom, over 6%. This was unprecedented. In earlier booms, fast growth seemed to have been the preserve of a few miracle countries, such as the Asian tigers. No longer. Almost half of humanity, spread over more than 40 nations, lives in countries growing at 7% a year or more, a rate that doubles the size of an economy in a decade. This is twice the number of fast growers that existed in the years between 1980 and 2000.
As a result, the world’s economic balance is tilting from rich industrialised countries to emerging markets. Their share of world output in 2006 was just below half, and rising. The International Monetary Fund reckons that in 2008 China and India will be the largest contributors to worldwide growth for the first time…”
U.S. Government Debt & Government Assets
You mean the Federal government also has assets in addition to the debt we hear about so much?
Our Children Will Be Lucky To Inherit Federal Debt & Federal Assets (Fundmasteryblog, February 9, 2008, Kurt Brouwer)
“No doubt you have read and heard many complaints about our enormous Federal government debt and how we are saddling our children with this debt (see National Debt At $9 Trillion). This line of reasoning gets lots of attention, but it conveniently ignores the most important part of the story. It ignores the fact that our children will also inherit assets worth more than the debt.
Just one quick example should suffice to make the point. Have you ever driven on our interstate highway system? You know, I-80, I-75 I-95, I-40, I-75 or H1 (Hawaii).
Well, this system was made possible by Federal spending beginning in 1956 and continuing on for decades. The actual cost was about $135 billion, give or take a few billion. But, the cost in current dollars would be several hundred billion dollars. Actually, it would be much more because building this today would involve buying out all the property owners along the way at today’s real estate prices.
So, we inherited the debt that was incurred for building this system, yet we also inherited the system itself, with all its benefits. That is, we inherited an asset that was worth much more than the debt associated with it.
In this map, the blue lines are all interstate highways. The red line is I-80 on which I travel on all the time. Can anyone suggest this was not a good investment? So, let’s not get carried away with the idea that we are saddling the next generation with debt, but no assets. That’s just false.
(Source: Wikipedia)
Let’s say you concede that the interstate highway system was a good thing and you are happy that President Eisenhower and other visionary leaders pushed it through, but you think most government spending was wasted. While it is true that our government wastes money frequently, the fact remains that the debt we have incurred paid for much of the infrastructure of our country and its government. And, in my opinion this infrastructure is worth much more than the debt incurred to build it…”
U.S. Trade Deficit
U.S. exports are booming, helped in part by the declining dollar. Imports are also slowing down. As a result, the trade deficit is getting smaller:
Slow Spending Narrows Trade Deficit (Wall Street Journal, February 15, 2008, Greg Robb & Kelly Evans)
“…The Commerce Department said the trade gap narrowed 6.9% in December to $58.8 billion, its largest monthly decline since October 2006. Despite higher oil prices, the trade gap for the full year narrowed 6.2% from 2006 to $711.6 billion, the first decline since 2001 and the biggest in percentage terms in 16 years.
Exports rose while imports fell. That underscores a shift in the economy as domestic consumer spending slows and foreign demand for U.S. goods remains strong, helped by the dollar’s weakness. A weaker dollar makes U.S. goods and services cheaper for those using other currencies.
The December trade figures could lead to an upward revision in the estimate of fourth-quarter gross domestic product, or the total value of goods and services produced in the nation. An initial estimate put fourth-quarter growth at a meager annual rate of 0.6%. The government will issue a revised figure at the end of this month…”
Retirement & Social Security
The Social Security system is chugging along, delivering benefits to 49 million Americans every month. That’s right, 49,000,000. In addition, there was a surplus last year of nearly $200 billion. This report from the trustees of the Social Security system makes it clear that the system is adequately financed for the next 10 years. There are legitimate concerns about Social Security and we do need to make some adjustments to the system, but we have the time to do just that. Now, as to whether or not we have the political will to do something, that is another matter, but we promised to stay positive.
Highlights — 2007 OASDI Trustees Report (Social Security Administration)
“The report’s major findings are summarized below.
In 2006
At the end of 2006, 49 million people were receiving benefits: 34 million retired workers and their dependents, 7 million survivors of deceased workers, and 9 million disabled workers and their dependents. During the year an estimated 162 million people had earnings covered by Social Security and paid payroll taxes. Total benefits paid in 2006 were $546 billion. Income was $745 billion, and assets held in special issue U.S. Treasury securities grew to $2.0 trillion.
Short-Range Results
The OASI and DI Trust Funds, individually and combined, are adequately financed over the next 10 years under the intermediate assumptions. The combined assets of the OASI and DI Trust Funds are projected to increase from $2,048 billion at the beginning of 2007, or 345 percent of annual expenditures, to $4,210 billion at the beginning of 2016, or 407 percent of annual expenditures in that year. Combined assets were projected in last year’s report to rise to 344 percent of annual expenditures at the beginning of 2007, and 407 percent at the beginning of 2016.
Long-Range Results
Under the intermediate assumptions, OASDI cost will increase more rapidly than tax income between about 2010 and 2030, due to the retirement of the large baby-boom generation. After 2030, increases in life expectancy and relatively low fertility rates will continue to increase Social Security system costs relative to tax income, but more slowly. Annual cost will exceed tax income starting in 2017 at which time the annual gap will be covered with cash from redemptions of special obligations of the Treasury that make up the trust fund assets, until these assets are exhausted in 2041. Separately, the DI fund is projected to be exhausted in 2026 and the OASI fund in 2042. For the 75-year projection period, the actuarial deficit is 1.95 percent of taxable payroll, 0.06 percentage point smaller than in last year’s report. The open group unfunded obligation for OASDI over the 75-year period is $4.7 trillion in present value, and is $0.1 trillion above the measured level of a year ago. In the absence of any changes in assumptions, methods, and starting values, the unfunded obligation would have risen to $4.8 trillion due to the change in the valuation date…”
In case you were wondering what OASDI means, it stands for Old age, survivors, and disability insurance, which is the original name for Social Security.
And that’s all folks. We hope you enjoyed this inaugural post — Good News On The Economy. We plan to post on this topic once a month.
If you have questions or suggestions or contributions, please let us know either in the comments or by email (email can be sent to kbrouwer - at - turquoise.net). If you wonder why I wrote out my email address, it is to slow down the spambots.
And, for those who have been around the blogosphere for a while, we tip our hat to Arthur Chrenkoff who first published this type of good news roundup, albeit in a different topic area.