NABE Silicon Valley RoundTable

NABE Silicon Valley RoundTable

Expansion Path for 2005

Speaker(s):  Gary Zimmerman, Economist, Federal Reserve Bank of San Francisco
Meeting date:  February 8, 2005

Gary Zimmerman joined the Federal Reserve Bank of San Francisco in 1973. As an economist, his research and analysis supports both the Economic Research and Public Information Departments. From 1996 to 1999, Gary served as the FDIC’s San Francisco Regional Economist.

Gary’s analysis has focused on economic and banking topics in the Twelfth District, including the high technology slowdown, the effects of the Asian crises, and the cyclical behavior of the high-tech, aerospace, and construction industries. Other research has covered community bank performance, banking industry competition, and Japanese banking activities in California. Many of his research papers are available on the Bank’s website (

It's Different This Time

When a lot of people keep murmuring the subject phrase, you know you are in trouble. It falls into the category of Famous Last Words, like "I'm from the Government and I'm here to help you," inter alia. "Guns or Butter" was a slogan that I heard during WWII and the Korean War to exemplify the sacrifices that consumers needed to make to support the troops overseas. It resurfaced during the Viet Nam Conflict as “Guns and Butter,” to highlight the policies of not raising taxes to support a war. The administration is pursuing a policy of Guns and Butter, but Its Different This Time. On top of the deficit left over from the ‘Guns and Butter’ of the late ’60’s and early ‘70’s, there was a run up in the price of oil. These were two factors in the runaway inflation of the late ‘70’s. In 2005 we see a building deficit and an escalation in the price of oil, But It’s Different This Time. Usually a falling currency is an open invitation to inflation. But It’s Different This Time. In the heat of the “Dot Com” boom, a lot of companies began a practice of “pro forma” reporting, describing what would have happened had not some unfortunate circumstance prevailed. The ‘pro forma’ results often obscured what really happened. I can’t help thinking about all the guys they are trying to send to jail for doing this—especially while the administration and the Fed chose to exclude food and energy from their inflation considerations. As I said in my remarks at the end of the meeting, “Anyone who had been to a grocery recently will argue inflation is not under control. Further, food prices have a habit of not going back down, once they are raised, the farmers and the merchants discover that consumers will pay more, so they charge more. However, It’s Different This Time. The Fed attributes some of its sanguinity to observations that labor costs are rising slowly. However, the labor costs they are looking at are a lot smaller fraction of the total than they were 20 years ago. It’s Different This Time. The final ingredient in the recipe for the runaway inflation of the late ‘70’s was a colossal case of mismanagement by government. Let’s all hope It’s Different This Time.

-- Al Moon, February 17, 2005  Reply
It's Not Different this Time

Al, I fully agree with you. The problems out there look far more problematic than the government, the Fed or Greenspan's speech yesterday let on. The important problems that I pick from a very big list are: 1. Budget deficit, will get worse with War, to expand to Iran and demographics of aging and tax cuts that are not matched by spending cuts. That will drive inflation and rates higher as the government prints money to cover the deficit. 2. Trade deficit that was supported by the Reserve Status of the dollar and foreign central bank intervention that bought our Treasury debt, is coming to a limit as foreigners holding 40% of our government public debt, and last year taking 80% of the new issue, come to their limit. The result is too many dollar’s in foreign hands leading to further decline in the dollar. (Which, despite our governments protestation, is not good, but bad for US dollar holders. 3. Oil, the most basic of world economic underpinnings that has allowed population to expand by taking the burden off the backs of people and humans, is running out while we go to war over what's left. 4 China as the world's cheap manufacturer will become the world's competitor for this world oil.

And more.

But with this confining text box, that is all I can squint into this little unformatted, unspell checked un grammer checked and no links or graph or pictures or....

I'm expecting very slow growth going forward as the housing bubble will implode with higher interest rates, and the consumer is already burdened with debt, but will have to stop spending when rates rise.

Argument expected and welcome Bud Conrad

-- Al Moon, February 18, 2005  Reply
Formatting Comments

When you want to compose a comment or reply in Microsoft Word or some other word processor, you may check the box "preserve text format,"below, then paste a copy of your word document in the square. A problem arises because there are no line breaks in the copied text. To correct this problem when using MS Word 2000, you need to insert a "text wrapping break" at the end of each line. I.e. click on "insert" then "break," then select "text wrapping break." Do it once, then copy the break to the end of all subsequent lines that are not end of paragraph.

-- Al Moon, February 18, 2005  Reply
Re: Formatting Comments

If you DO NOT check the preserve spaces check box you don't have to do anything special. Press Enter twice if you want a blank line between paragraphs.

-- Chuck Ehrlich, February 26, 2005  Reply
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