Subject:    KEYNOTES ARTICLE RELEASE

Topic:       News from ORANGE COUNTY LAMBDA ALPHA

Meeting:   January 23, 2012,  The Pacific Club, Newport Beach, CA

“An Update on the Economy and Financial Crisis ” 

Our chapter’s first meeting of the year rewarded attendees with a very informative professional presentation by Dennis Uyemura, Vice President, California Bank and Trust.  A packed house at the Pacific Club lead by our new President, Karen Davidson, MAI,CRE, listened as Mr. Uyemura presented a clear picture of the challenges facing our nation in an objective, unbiased program with historic data graphically supported with slides and handouts.

Topics covered included “GDP and Employment”, “How Bad was this Recession?”, ”Unemployment”, “Real GDP”, “Industrial Production”, “Employment” and “Personal Income”,(each compared as a percent of prior recession peaks). He then presented a “Comparison of Job Losses in Recessions” that have occurred back to 1948 showing the recent 2008 recession produced a higher loss of jobs than any previous one during the listed time span. Of particular note was the duration of the 2001 and current recession. Job loss recovery times far exceed previous recessions that occurred prior to 2000. In the past, job recovery occurred within ten to thirty months whereas job losses were not recovered by employment growth for forty seven months in 2001 and the 2008 recession has passed forty eight months and is still far from recovery. More than 6.5 million workers have been unemployed for more than 27 weeks exceeding the 1981-83 recession with 3.5 million workers.

“Stay in School” was the message delivered in a slide comparing the “Unemployment Rate by Level of Education” dating back to 1992. Historical unemployment rates have always been less among those with more education but the gap has widened extensively since 2009. In summary, Employers are demanding higher skills and better education.

Turning to the real estate market, Uyemura noted that home prices continue to trend downward and mortgage delinquencies and foreclosures continued above 12% through 2011 according to Mortgage Bankers Association statistics.

Another graph of the results of a state by state study by CoreLogic in the second quarter of 2011 revealed the disturbing percentage of homeowners with negative mortgage equity. Nevada, Arizona, Florida, Michigan, Georgia and California all reported more than thirty percent of homeowners were underwater on their mortgages, Nevada and Arizona’s numbers exceed 50%!  Little wonder that many borrowers have simply stopped paying on their mortgages.

Mr. Uyemura then turned the focus of his presentation to “Debt and Leverage” with a brief “History of Debt in the Economy”. U.S. Non-Financial Debt as a Percent of GDP from post war 1945 through 1984 remained stable at just under 150% of GDP.  Thereafter, it grew rapidly to approximately 200% in 1984-1997. In 2002 the debt to GDP ratio started rising again, passing through 250% in 2011 and is still growing. Prolonged cumulative years of federal deficit spending did not occur until the 1960’s. According to Congressional Budget Office statistics, debt accumulated every year from 1970 to 1995 without a single year of surplus and since 1998 annual deficits have increased due primarily to increasing Medicare and Medicaid expense.

Mr. Uyemura presented Bureau of Labor Statistics data reporting Real Median Household Income in the U.S. (inflation adjusted) has been declining since 2007 with a slightly steeper decline in California since 2006 and is now below 1997-98 levels.

An international GDP comparison by Mr. Uyemura pointed out that the U.S. is still the largest economy by a lot but the European Union 27 countries combined are larger than the U.S. China’s GDP is growing but is only a third of that in the U.S. at the present time.

A comparison of world Health Care Spending per Capita in 2009 revealed that U.S. per citizen spending is almost 50% higher than second place Norway.

Perhaps the highest value point raised in the presentation for this writer was to learn that job growth correlates to capital investment in GDP. Government spending (stimulus) can slow GDP decline temporarily but cannot create lasting growth in GDP. Long term GDP growth requires investment. From 1990 through 2010 there is a direct correlation between the Investment to GDP ratio and the Unemployment Rate (according to John Taylor’s Economics One Blog). Residential investment has been the driver of every recovery except the current one according to Mr. Uyemura.

Mr. Uyemura concluded by offering “The Necessary Fixes”

• Needed Fixes are all long term in nature
• Lower Government spending (entitlements)
• Reform entitlements and pensions
• Reform health care system/costs
• Reform financial regulations and markets
• Increase savings and investment
• Warning: Europe is a prelude for U.S. issues

“Lessons for our Children”

• Learn how to save at least 10% of income
• Get an education (to at least a Bachelor’s degree)
• Do not buy a house as a long term investment (Generally it will cover inflation but may not provide any return higher than that).
• Be ready to seek employment outside the U.S.