The Sky Isn’t Falling – The Economy Will Recover
Reporting from the NIRI conference – it’s been incredibly busy since we arrived so finding time to write has been impossible. Attendance is down about 30 – 40% but delegates seem very engaged so I’m glad we’re here!
The conference kicked off yesterday with a lively presentation by Todd Buchholz, renowned economist and best-selling author of “New Ideas from Dead CEO’s: Lasting Lessons from the Corner Office”. His presentation was entertaining and his stories were a lesson in the value of common sense. (Some great stories regarding A.P. Giannini, the founder of The Bank of Italy – which is now The Bank of America. Too much to cover here but you might want to buy the book.)
In the first part of the session (for the benefit of anyone who spent the last several months in a coma) he brought us up to speed on some of the conditions that sent the economy into a downward spiral. Most of it you’ve heard by now such as 90% of the foreclosures in the U.S. housing bust occurred in California, Florida, Las Vegas and Scottsdale, Arizona. And the fact that the insurance policies that local banks drafted to protect themselves against mortgage defaults expired faster than the yogurt in your fridge (90 day period for a 15-25 year mortgage).
But what you’d likely more interested in are the signs that the economy will recover and faster than you think. Here’s why Todd believes that the economy is already rebounding:
- Best thing we have going for us in getting out of the recession is the fall of commodity prices
- Risk of inflation is very low
- Unions do not have the same power (read strangle hold) on the economy
- Unemployment is not as bad as the media indicate because they have not taken into consideration the huge increase in our workforce in comparing today’s unemployment numbers with those of the 1980s – sure there are more people out of work but there are also significantly more people.
- Real disposable income is up
- The Housing Affordability Index indicates that mid-income families can afford a mid-price house at today’s interest rates
- The Federal Reserve has increased the money supply to induce greater consumer spending
- The seduction of retail discounts is starting to dissipate consumer fears and they are starting to spend
As a parting message Todd said that what the US really needs to work on is the education of it’s labor market. That we shouldn’t be so focused on ‘Peak Oil’ but rather ‘Peak People’ by investing in education in fields like petroleum engineers, agricultural engineers, medical science, technologies etc. These skills are needed to compete in the future and are sorely lacking in the US now.
Todd’s presentation was fast-paced and keeping notes was a challenge so for more details, buy the book.
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