FLORIDA ASSOCIATION OF
MORTGAGE PROFESSIONALS
Ruminations on Macroeconomic Issues
by
Paul M. Mason, Ph.D.
Richard de Raismes Kip Professor of Economics
The COGGIN College of Business
University of North Florida
2/10/2016
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The FED and its persistence at doing the
wrong thing!
Falling Oil and Gasoline Prices: Driver or
Diver?
Other Macroeconomic Issues
Do You Recognize this Equation?
MV=PY
Can you do the Math?
If MV=PY, then:
V=PY/M, and
V= Y/(M/P), or velocity is the
ratio of Real GDP to the Real
Money Supply
Average Quarterly Average Quarterly
real M2 money growth velocity
2002-2007
90.40
2.19
2008-2009.2
-88.98
1.85
88.65
1.52
2009.3-2015.4
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As long as the FED keeps pumping money into the system
(to maintain low interest rates), and the impact causes no,
or little increase in RGDP growth, velocity will not recover,
IMPLYING WEAK SPENDING.
As long as interest rates are at unprecedentedly low
levels, banks will not lend, firms will hold excess cash,
and baby boomers will not be able to retire and get out of
the way of younger workers.
Contrary to traditional Keynesian theory, interest rates
need to rise to return the economy to normal and the FED
is already years late!
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While low interest rates help the cost of financing the Federal
Debt, it also stimulates Obama and the 535 congressional elves
(with their 9% approval rating) to spend our money…
LIKE IT IS SAND!
Traditionally, economists were wary of escalating interest rates
because of crowding out in private sector financial markets -- but
how do you crowd out when there are enough loanable funds
throughout the world to pile to Mars…
(MAYBE PLUTO)!
There is a long and variable lag in monetary policy effectiveness
(especially for expansionary policy) that the FED cannot predict or
rush.
There have only been two time periods in U.S. history with interest
rates this low, during and after WWII (when war financing justified
the monetary escalation) and now.
JUST ASK THE
FED!
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Big government begets big business.
Big business means power and wealth in the hands of few at the expense
of many.
◦ A recent Levy Report article reveals that 90% of growth in wealth since the
Great Recession is in the hands of the top 1%, and 32% in the hands of the top
0.1%.
◦ More industry concentration means less efficient allocations of resources with
too little output sold at excessive prices.
◦ The Catch 22 is that middle class consumers cannot spend what their bosses
keep and save, and businesses cannot sell what consumers do not have the
money to buy!
WHAT ABOUT OIL AND GAS?
Pre-recession, the
correlations between RGDP
and real oil and gas prices
were negative:
-0.05 for oil and -0.16 for
gasoline.
Lower gas and oil prices
means positive growth
During the recession, the
correlations between RGDP
and real oil and gas prices
were nearly one, 0.93 for oil
and 0.97 for gasoline.
Both oil prices and growth
were in the toilet!
Post-recession, the correlations
between RGDP and real oil and gas
prices are 0.15 for oil and 0.03 for
gasoline.
In the 2010’s, oil and
gasoline prices are not as
largely affected by
anticompetitive forces, so
the causality that used to
be from fuel to RGDP may
have reversed.
The Most Obvious of Current
Macroeconomic Issues
Unemployment
has fallen to
4.9% but in large part due to
departures from the
workforce. We need a return
to growth that creates jobs,
not discourages work!
Other Macroeconomic Issues
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Output growth is much stronger than seven years ago, but well
below what we need to generate full employment with a workforce
at the size that is optimal.
Interest rates are way too low to promote corporate investment.
Inflation is very low, because consumers are wary of major
spending activities and firm are unwilling to produce more, given
their uncertainty regarding who is going to buy.
The trade deficit is still too wide, now motivated by declining
exports because of EU weakness and the dollar’s strength.
The Federal debt is approaching $19.1 trillion or 106% of one
year’s GDP.
 Why
is all of this happening?
HOW ABOUT WE
GENERATE 100%
UNEMPLOYMENT
AMONGST CURRENT
FEDERAL POLITICAL
LEADERS!
One Comment on Real Estate:
What do the numbers 8.7, 24.2, and
37.2 suggest?
These are the percentage growth rates
from the combination of rents, and rentals,
housing prices, and sales, for the last three
years in the Jacksonville MSA!
For national data go to:
www.bea.gov for output data,
www.bls.gov for employment
and inflation data,
and www.federalreserve.gov for
monetary and interest rate
data.
For information on specific industries or
counties locally and statewide go to:
http://fred.labormarketinfo.com/
For local data on inflation, leading indicators,
seasonally-adjusted unemployment rates,
and a local stock price index, see
www.leipjax.org
QUESTIONS?