Connecting Facts to Forecast 2010


Anyone can figure out the State of the Union by taking a good look around. I mean, I was born in the afternoon – but not yesterday afternoon – I don’t need four days of press coverage and a long speech by the President to tell me that Americans are suffering.

This time of year, though, everyone is looking for some hint of what is to come. Even the most rational among us are tempted to seek out some prediction of the future. Economists often rate high on the list of seers sought out by most Americans – right up there with stock brokers, Dionne Warwick’s Psychic Friends Network, and Joan Quigley (White House astrologer to the Reagans).

In this article, I’ll give you a few of my own predictions and then invite you to tell me the subject areas you want predicted. When pressed for my vision of the future, I like to add up what I already know to arrive at what I think will happen. Here’s an example:

1. Consumer debt is about $2.5 trillion + The Federal Government Bailout commitment topped out at $12.8 trillion = American consumers, no matter how voracious their appetite for debt and foreign goods, are not the problem and cannot be the solution.

See how it works? I confess I learned to do this while working with Mike Milken on the Global Conferences at his Milken Institute in Santa Monica, California. He called it taking the “view from 35,000 feet.” It entails taking two or more pieces of information that most people don’t hold in their heads at one time and trying to see how the ideas are connected. Here’s another one:

2. The eight largest bank holding companies decreased lending year-over-year in the first and second quarters of 2009 + Domestic deposits are growing at double digit rates = Too Big to Fail has created monster institutions that do not have to respond to market forces or consumer demands.

The largest bank holding companies in order of commercial banking assets are JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, PNC Financial Services Group, US Bancorp, Bank of New York Mellon, and Suntrust. That you may not have a “Suntrust” branch on the corner in your town tells you something about how big the first seven are. These banks are so big that they aren’t even using the excess reserves that the Federal Reserve Bank is making available to them – they just let it sit in the Federal Reserve accounts earning zero interest. They are no longer simply U.S. banks, subject to controls by the Fed’s monetary policy actions. They can reach out for funding across the world – including funding from sovereign wealth funds controlled by governments from China to Kuwait.

Here’s one more, just to get the ball rolling. Then, I’ll turn to your questions and see if we can manage a few more predictions for 2010 and beyond, just using the facts as we know them today.

3. The Federal Reserve System more than doubled the money in the banking system virtually overnight (from $984 billion on September 17, 2008) and kept it at that level ever since ($2,249 billion as of last week) + the third quarter 2009 increase in economic activity (output or gross domestic product) only got us back to where we were at the same period in 2007 = There’s enough money building up in the banking system to meet the definition of “inflation”: too much money chasing too few goods.

The rise in GDP, while it may signal the technical end of the recession, does not put an end to the financial stress we are suffering. In the seven years before the technical beginning of the recession, the U.S. economy was growing at more than five percent each year. Basically, that means the recent recession put us about $1 trillion in the hole to economic prosperity. The much-touted improvement in the economy in the third quarter of 2009 was about $90 billion. At this rate, it will take 11 quarters (nearly 3 years) to catch up. That’s why so many economists are more pessimistic than many politicians.

For the rest of 2010, I invite you to submit comments below or drop me an email with two or three facts that you would like to see connected. I’ll take on the challenge of finding the connections, the relationships and interpreting the signals for what those facts might mean for you and the economy in the coming months.

Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Her training in finance and economics began with editing briefing documents for the Economic Research Department of the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC; formerly, she was a Senior Research Economist studying capital markets at the Milken Institute. Her PhD in economics is from New York University. In addition to teaching economics and finance at New York University and University of Southern California (Marshall School of Business), Trimbath is co-author of Beyond Junk Bonds: Expanding High Yield Markets.

Photo: Vermin Inc

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.


Do you agree that we will see a double dip recession? When do you think it will start?

RE: Double Dip

Hi, Thorn111,

I think that government intervention in the economy can postpone but not prevent the consequences of their actions. There was a lot of artificial stimulation to make it appear that the economy is recovering. It won't last forever.

When will the second dip occur? It will happen sometime between May 23 and August 16, 2010; although we may not admit it until the data comes out a month or so later.

Thanks for writing,

Follow me on Twitter: SusanneTrimbath

Response to Request for Predictions

1. Your predictions on when, and how bad, we will experinece inflation would be interesting, as there are a number of economists watching this carefully.

2. Your predictions on when capital investment will return would also be interesting. Will these coincide - pentup demand for new investment will be spurred by inflation-beating pressures? Or are they two separate things?

Richard Reep
Poolside Studios
Winter Park, FL

RE: Inflation

Hi, Richard,
1. On inflation, see #3 above for "how bad". Treasury put up about $1 trillion to the banks and another $1 trillion to households; Federal Reserve added about $3 trillion on top of that to the banks. We're talking about one-third of GDP, so that's pretty bad. "When" is harder to predict because there are hundreds of guys in D.C. who don't want to see it in a mid-term election year. I thought the financial collapse would hold off till after the Presidential election and it popped in September. So, it's not impossible to imagine inflation hitting ahead of the election, too.

2. Banks are sitting on an unprecedented quantity of "excess reserves", many times worse than the "dry powder" that everyone was talking about in 2004-2005. I'm thinking the inflationary pressures will come from the goods markets -- not the capital markets. Capital markets only have bubbles to offer until the real goods markets recover. If real goods surge -- that is, if we start making stuff with all that money floating around the capital markets -- then inflation is avoided. Else, the money flows out from the capital markets without producing goods and -- voila -- the definition of inflation.

Thanks for writing,

Follow me on Twitter: SusanneTrimbath