Tampa Prep 2009-2010 Impact Defense File
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- Econ resilient Associated Press
- Empirically, the economy is resilient – no risk of a downturn
Ext #1 – Econ ResilientThe economy is very resilient Investors Chronicle, 9 June 15, “The indestructible US economy”, LexisNexis ECONOMICS: The US non-financial economy is doing very well in the face of disaster. Isn't it amazing how resilient the US non-financial economy is? This sounds like a silly thing to say during the worst recession since the 1930s. But it's the message that comes out of the latest flow of funds figures published by the Federal Reserve. This show that, in effect, the financial system ceased to exist in the first quarter. For the first time since records began in 1952, the financial sector became a net borrower from the rest of the economy during this time. Before the crisis, its net lending was over a third of GDP. This retrenchment, as my chart shows, is wholly unprecedented. The natural effect of the closure of the financial system has been to increase the aggregate savings of the rest of the economy. The reason for this is simple. Some households and companies that wanted to borrow have been unable to do. Whereas in normal times, their borrowing would have dragged down aggregate savings, this is no longer happening. So simple arithmetic means aggegate savings ratios have risen. However, the turnarounds here are relatively small. Households saved 4.4 per cent of their disposable income in Q1. Yes, this is well up from the minus 0.7 per cent recorded at the pow point in Q3 of 2005. But it's still quite low by historic standards; before the mid-90s, the savings ratio was typically twice this. The increase in corporate savings has been smaller. At its trough in 2007Q3, non-farm non-financial firms' net financial investment (the gap between retained funds and capital spending) was minus 1.6 per cent of GDP. In Q1 it was 2.4 per cent of GDP - though this was the highest ratio since 1953. There's a simple reason why these changes have been small. Most spending, by companies or households, has traditionally been financed internally, by income or retained profits. Equally, much of the financial system's lending was between financial firms. It was, if you want, like a casino with few links to the outside economy. With behavioural changes relatively small, another remarkable fact makes sense - that corporate profits have held up well. Fed figures show that, in Q1, non-financial firms' pre-tax profits were 5.1 per cent of their tangible assets. Though this is well down from the cyclical peak of 9 per cent reached back in 2006, it is above 2003's levels, and above mid-80s levels. Judged by the ability of non-financial firms to generate profits - which in a capitalist economy is the most important metric of all - the US economy is doing better now than it was at the height of the Reagan era, with all the triumphalism that surrounded it. None of this, of course, is to deny the reality that the US economy is in deep trouble. A big reason for the resilience of profits, of course, is that the pain of the crisis is being borne by workers; the unemployment rate, at 9.4 per cent, is at its highest since 1983. But in a capitalist economy, it's profits that matter, not people. My point is simply that non-financial corporate America is surviving one of the greatest economic disasters in history remarkably well. In this sense, capitalism is still surprisingly healthy. Econ resilient Associated Press, Wednesday, January 23, 2008 “Rice Says US Economy Resilient” http://origin2.foxnews.com/wires/2008Jan23/0,4670,WorldEconomicForumRice,00.html Her remarks came after two days of wild market swings worldwide and the surprise Federal Reserve interest rate cut on Tuesday lowered its benchmark rate to 3.5 percent from 4.25 percent in between regular policy-setting meetings."I know that many are concerned by the recent fluctuations in U.S. financial markets, and by concerns about the U.S. economy," she said. "President Bush has announced an outline of a meaningful fiscal growth package that will boost consumer spending and support business investment this year."She said U.S. Treasury Secretary Henry Paulson, who canceled his own visit to the World Economic Forum annual meeting at the last minute, was "leading our administration's efforts and working closely with the leaders of both parties in Congress to agree on a stimulus package that is swift, robust, broad-based, and temporary."The U.S. economy is "resilient, its structure sound, and its long-term economic fundamentals are healthy," Rice said. "And our economy will remain a leading engine of global economic growth," she added."So we should have confidence in the underlying strength of the global economy _ and act with confidence on the basis of the principles that lead to success in today's world." Empirically, the economy is resilient – no risk of a downturn Michael Dawson, US Treasury Deputy Secretary for Critical Infrastructure Protection and Compliance Policy, January 8, 2004 Remarks at the Conference on Protecting the Financial Sector and Cyber Security Risk Management, “Protecting the Financial Sector from Terrorism and Other Threats,” http://www.ustreas.gov/press/releases/js1091.htm Fortunately, we are starting from a very strong base. The American economy is resilient. Over the past few years, we have seen that resilience first hand, as the American economy withstood a significant fall in equity prices, an economic recession, the terrorist attacks of September 11, corporate governance scandals, and the power outage of August 14-15. There are many reasons for the resilience of the American economy. Good policies – like the President’s Jobs and Growth Initiative – played an important part. So has the resilience of the American people. One of the reasons are economy is so resilient is that our people are so tough, so determined to protect our way of life. Like the economy as a whole, the American financial system is resilient. For example, the financial system performed extraordinarily well during the power outage last August. With one exception, the bond and major equities and futures markets were open the next day at their regular trading hours. Major market participants were also well prepared, having invested in contingency plans, procedures, and equipment such as backup power generators. The U.S. financial sector withstood this historic power outage without any reported loss or corruption of any customer data. This resilience mitigates the economic risks of terrorist attacks and other disruptions, both to the financial system itself and to the American economy as a whole. 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