2015 Taita Speech-The U.S. and Global Economic outlook
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Transcript of 2015 Taita Speech-The U.S. and Global Economic outlook
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The U.S. and World Economic Outlook
Robert Heller
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The World Economy Will Grow Slowly
Overall Growth 3 ½ %Positive: Monetary Stimulus Lower Oil PricesNegative: Exchange Rate Swings Increased Regulation Military Conflicts in Middle East, Africa, and Eastern Europe
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Oil Prices Drop By Half
• U.S.: Very Little Net Impact
• Europe: As Oil Importer Grows Faster By ½ %
• China, India: Potential Growth Impact: + 2 % But 1 % Accrues to Government
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Exchange Rate Changes
Appreciating Currencies• U.S.: Exports Fall, Imports Up:
GDP Drops - 1 %• China: Net Exports Fall:
GDP Drops - 2 %Depreciating Currencies• Europe: Net Exports Increase:
GDP Up by 2 %• Japan: Net Export Up:
GDP Increases by 1 %Net Expansion of World GDP as US and China Drop Offset Partly by Stimulative Monetary Policy
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Europe Regains Its Footing
• Growth Returns to 2 %• Low Oil Prices Stimulate
Expansion• Quantitative Easing
Supports Stock Market• Labor Markets Need More
Flexibility • Low Productivity Growth • Italy, Spain, Portugal Begin
to Recover• Greece Does Not Cooperate
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Asia: The Global Growth Leader Benefits from Lower Commodity and Oil Prices But: Lower Export Growth and Higher Debt Levels
China• Growth Slows to 6 ½ %• Housing Slowdown• Investment Decrease• But Consumer Sector
Enjoys Expansion • Lower Productivity Growth
Taiwan• GDP Growth Picks Up
From 3.8 % to 4 %• Low Inflation: 4 %• Strong Current Account
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Other Asia: Japan and India
Japan• From Stagnation to
Low Growth of 1 %• No Population Growth• High Retirement Burden• Consumption Tax Increase• But: QE Helps Stock Mkt.• Lower Yen Spurs Exports• Soft Oil and Commodity
Prices
India
• Strong Growth Increases From 7 % to 7 ½ %
• Lower Oil Prices Help the Poor
• Policy Reforms Lead to More Entrepreneurship
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The Rest of the World
Latin America
• Stagnation Dominates• Brazil and Argentina Negative
Growth Due to Bad Policies• Venezuela is Political Disaster
Amplified by Oil Price Drop 100 % Inflation and 10 % Unemployment
• Chile, Peru, Colombia Etc. Grow Comparably Well at 3 %
Middle East• Major Conflicts Rage in Syria, Iraq
and Yemen• Oil Prices Drop• But 3 % Overall Growth
Africa• Unrest in Many Countries: Libya,
Somalia, Kenya, Nigeria• Ebola in Western Africa• Most Countries at Poverty Level• But 5 % Growth From Very Low
Levels
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Global Growth OverviewBlue is Strong; Red is Weak
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U.S. Slow and Tepid Recovery
• Slowest Recovery Since World War II
• Strong Fiscal Stimulus• Unprecedented Easy
Monetary Policy• BUT: Higher Tax Rates
And New Regulatory Burdens Retard Growth
• RESULT: Secular Stagnation
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Record Deficits Lead to Record Debt
Fiscal Stimulus Since Recession…Leads to Sharp Increase in Federal Debt (Over 100% of GDP)
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Expansionary Monetary PolicyRecord Low Fed Funds Interest Rates
Federal Reserves Holds Record Level of Assets
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Federal Reserve Goals
Fed Wants to Achieve:1. 5 % Unemployment2. 2 % Inflation
Higher Wage Growth Would Make Both Possible and Janet Yellen Would be Very Happy
But Paul Volcker Would Frown:“Once the tooth paste is out of the tube -- It is hard to get it back in again!”
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Recent Government Actions Retard Growth
• Tax Rate Increases• Sarbanes Oxley Act• Dodd Frank Act• ObamaCare• New Regulatory
Agencies: PCAOB, CFPA
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Higher Tax Rates Slowed Growth
Average Taxes Actually Paid• Marginal Income Tax Rates: UP 24 %
• Capital Gains Tax Rates: UP 59 %
• Estate Tax Rate: UP 14 %
• Highest Corporate Tax Rate in the World: 35 %
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Sarbanes Oxley Act
• “The Most Far-Reaching Reforms of American Business Practices Since the Time of FDR.”
President George W. Bush
• Established the Public Company Accounting Oversight Board
• They Audit the Auditors• Mandates Controls for
All Major Cost Items• Average Compliance
Costs: $3 Million / Year Per Company
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Dodd Frank Act
“The most sweeping overhaul of the U.S. Financial Regulatory System, a Transformation on a Scale not seen since the Reforms that Followed the Great Depression” President Obama
• Established the Financial Oversight Council
• Established the Consumer Financial Protection Bureau
• Mandates 243 New Regulations – Many of which have not yet been written
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Costly New Regulatory Agencies
Consumer Financial Protection Bureau -- CFPB• Established by Dodd
Frank Act• Oversight over Banks,
Credit Unions, Mortgage Servicers, Securities Firms, Debt Collectors, etc.
• Funded Off-Budget by the Federal Reserve
Public Company Accounting Oversight Board – PCAOB• Established by Sarbanes
Oxley Act• Oversight over Audit
Firms that Audit Public Companies
• SEC Has Oversight • Funded by Fees on
Accounting Firms
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The Patient Protection and Affordable Care Act“ObamaCare”
• Increases Medicare Taxes by
.9 %• Imposes New 3.8 % Tax on
Unearned Income• New 40 % Tax on High
Health Insurance Premiums• New 2.3 % Tax on Medical
Devices• $ 60 Billion Annual Fee on
Health Insurance Providers• $ 27 Billion Annual Fee on
Drug Manufacturers
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The Health Care Cost Problem Remains Unsolved
• ObamaCare Does Little to Reign In Costs
• More People Are Covered
• Longevity Is Increasing
• Modern Medical Technology Is Expensive
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What Needs To Be Done?The German Policy Actions in 2003
• Social Democrat Schroeder Passed “Agenda 2010”• Maximum 12 month Unemployment Benefits• After 12 months, You Go On Welfare With Euro
345 Maximum Benefit per Month• Pension Age Increased From 65 to 67• Cut Maximum Tax Rate From 48.5% to 42%• Increased Health Co-Payments and
Eliminated Dental Coverage• More Open Labor Market: Easier Hire/Fire• RESULT: The Unemployment Rate Dropped From 10.6 % in 2006 to 4.7 % Now – Best in Europe
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What the U.S. Should Do
• Rationalize Tax System• Reform Social Security• Lower Health Care Cost• Reduce Welfare Costs• Reduce Debt Growth• Regularize Monetary
Policy
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