Thursday's lunchtime speaker was Gregory L. Miller, Chief
Economist for SunTrust Banks, Inc. His presentation was not too gloomy but a
bit disturbing. He began Saturday Night Live style saying, "I'm the economist
and you're not."
Miller predicted that "there is not going to be a double
dip recession." He said that his "subjective prospect that the economy will
fall into recession is not significant." He estimated the prospect of recession
at 25% which he said was not great because at any given time, there is a 15%
prospect of recession.
On the other hand, Mr. Miller said that the rest of the
world has a 60% chance of recession, noting that at least three countries in
the Euro Zone were already in recession and that others were at risk."
Nevertheless, he said that, "whether or not the rest of the world goes into
recession, we will not." Mr. Miller suggested that a global recession could
even help the United States, since it would make foreign goods less expensive.
He said this would be good for lovers of French wine. He noted that despite the
weak economy elsewhere in the world U.S. exports were still increasing.
Miller noted that the private sector in the United States
was "fine under the circumstances" but that the "public sector is not pulling
its weight at a time when it should be doing it." He added that "Pulling the
economy deeper when it's already in the soup is not a government function but
that's what it's doing." Miller said that the private sector was growing at a
rate of 3.6% while the overall economy was growing at a rate of 2.8% indicating
that the public sector was a net drain of 0.8% on the economy.
Mr. Miller said that in the U.S. economy, the housing,
government and credit sectors were weak. He said that the housing sector was at
the bottom but that condos were "a virtual black hole." He said that housing
and credit are usually leading sectors, but that the rules are different now
and the standards are higher. He said that two trillion dollars has been dumped
into bank balance sheets where it is stuck in capital accounts of regulated
banks who aren't sure what their capital requirements are. He said that banks
were reluctant to put loans on the books when they don't know whether they will
With regard to the labor market, he pointed out that the
Obama administration's current jobs bill consists largely of former Republican
proposals. However, "the opposition is obliged to hate the dominant party's
policy even if it is the right thing."
Mr. Miller noted that the current $450 billion proposal
would have more effect than the previous $800 billion stimulus bill because it
funneled money to the private sector where the multiplier is higher rather than
the prior stimulus which went through state and local governments.
However, he said, "It's not the jobs. Nine percent
unemployment is not what's wrong with the economy." He said that the natural
unemployment rate is 6% and that when we had 4% unemployment, there was too much
employment in the economy. He said that 30% of the newly unemployed came from
the construction and mortgage finance sectors. He said there is a mismatch
between those who want jobs and those who are looking to employ. He said that
two-thirds of the unemployed would likely remain unemployed and "we don't want
Miller said that interest rates will remain painfully low
until at least the middle of 2012. Nevertheless, banks are finding it more
profitable to park their cash at the Fed where they can earn 0.25% interest. He
pointed out that reserves have increased from $500 billion to $3 trillion. He
said that to get banks lending, the Fed would need to lower the rate it pays to
zero or even charge banks to keep their cash parked at the Fed.
He said that the Euro sovereign debt crisis was a crisis
of banking and culture, not an economic crisis. He said that U.S. banks held
only 0.10% of their assets in European sovereign debt and that this was
concentrated in banks that could afford to absorb the loss.
In summary, the U.S. economy is not going into recession,
the prospect for the rest of the world looks bleak, unemployment is not going
back to where it once was, banks are not lending and the U.S. government is
dysfunctional. That's about as rosy of a view as you can get from an economist.
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