Vermont Commercial Real Estate

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					                                           The State Of
                                            Our Nation

“Arguably, the biggest threat facing the U.S. today
is our own Fiscal Irresponsibility…

Continuing on this unsustainable path will
gradually erode, if not suddenly damage, our
economy, our standard of living, and ultimately
our domestic tranquility and national security.”
- David Walker, former Comptroller General of the U.S; President, Peter G. Peterson Foundation




                                             www.vteh.org                                        1
             Who Are Vermonters
            For Economic Health?



         VEH is a grassroots,
         citizen-led organization
         Our Mission is simple:
        To Promote Economic Health
                     and
            Fiscal Responsibility
                 in Vermont
                   www.vteh.org      2
12/09                                2
             This Presentation Will Cover:

• An Overview of our Recession
• Employment Outlook
• Our Budget: Its Deficits and Debt
• A Primer on our Monetary System



                    www.vteh.org             3
                  An Overview: Why This
                  Recession Is Different

• “Balance-sheet recession”: Deleveraging of historic
  levels of public (government) and private debt
• Long-term structural U.S. fiscal deficits (entitlements)
• Disrepair of Municipal and State finances
• Historic Housing & Commercial real estate losses
• Uncertainty: Taxes, regulations and credit
• Monetary crisis and competitive currency devaluations
• Global competition for capital, trade, productivity & mfg.
• Geo-political risk; social unrest; & long-term unemployed
                           www.vteh.org                        4
Employment Outlook
                                  1981 vs. 2007 Recessions: U.S.
                                  Monthly Employment Declines


120
                                                                After 28 months, employment
                                                                back to pre- recession levels
100
                                                                      1981 Recession
 80

 60

 40
                                       Approaching 28 months &             2007 Recession
 20                                    we haven‟t even turned
                                       upward on employment
   0
              1               4        8      12           16         20       24           28
          -                             Months into Recession                           -
Source: NBC Meet the Press, 12/13/09        www.vteh.org                                         6
                                       A Different U.S. Recession;
                                    A Different Employment Recovery


14.00%

                                             2011                   Projected U.S. unemployment rates
12.00%
                10/09
10.00%
                           2009                                            2015

8.00%                      8M jobs lost to date;                                                        2020
                           1M discouraged workers;
6.00%                      125,000 jobs per month needed
                           just for population growth
4.00%

2.00%

0.00%

 Source: John Mauldin, The Mother of All Jobless Recoveries, 12/14/09
                                                          www.vteh.org                                         7
Vermont‟s Private vs.
Public Sector Dilemma




       www.vteh.org     8
                                         Innovation; Change; &
                                        „Controlled Stagnation‟

 35.00%

 30.00%
                                                                      U.S Manufacturing Employment
 25.00%                                                               (as a % of U.S. work force)
 20.00%

 15.00%
                         U.S. Manufacturing Output
 10.00%
                         (as a % of GDP)
   5.00%

   0.00%
                  1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007
Source: Bureau of Economic Analysis; Bureau of Labor Statistics.
                                                            www.vteh.org                             9
                            Student Enrollment
                            Down - Employment
                               and Costs Up
            Student s = -9.1%; Teacher and Staff Growth = +20.8%
 108,000                                                               20,000

                 106,341                                    18,876
 106,000
                                                                       19,000

 104,000

                                                           Students
                                                                       18,000
 102,000
                                                           Teachers
                                                           And Staff
 100,000
                                                                       17,000

   98,000
                                                                                Source:
                                                                       16,000   Summary of
                   15,783                               94,116                  the Annual
   96,000
                                                                                Statistical
                                                                                Report of
                                                                                Schools
   94,000                                                              15,000   (SASR) FY
                                                                                1997 - 2008

                                  www.vteh.org                                     10
12/09                                                                              10
                  Vermont Private Sector Jobs


                 No Private Sector Job Growth Since 2000
(In thousands)


        270
                                                           Total VT
        250                                                Private
                                                           Sector Jobs

        230

        210

        190

        170

        150
           90

           92

           94

           96

           98

           00

           02

           04

           06

           08
                                                      Source: Vt Dept of Labor
        19

        19

        19

        19

        19

        20

        20

        20

        20

        20

                              www.vteh.org                                   11
12/08                                                                        11
     Our Budget:
Its Deficits and Debts
                            Composition of
                           Federal Spending
                            Medicare
                            &
                            Medicaid
      1968                                           2008
                            Social
           4%
                SS          Security                      Med.
                13%                            All Else   21%
All Else
                      6%    Net                29%
31%
                            Interest                           SS
      Defense                                  Defense         21%
         46%                Defense             21%
                                                          8%



                            All Else


                                www.vteh.org                         13
                        Mandatory vs.
                    Discretionary Spending


             1965                                    2008



   Mandatory
     34%                                               Discretionary
              Discretionary                  Mandatory      38%
                   66%                          62%




Mandatory spending is authorized by law rather than annual appropriations.

                              www.vteh.org                             14
                                  The State of U.S.
                                   Indebtedness
($Trillions)
               60
                                  Medicare, Medicaid, & Social Security
               50                 (Excludes State & Local Gov‟t Liabilities)

               40

               30

               20                    $12 trillion         $12 trillion   $10 trillion

               10

               0
                     Federal          U.S. Debt        Guarantees        Projected
                    Unfunded                           & Bailouts         10 year
                    Liabilities                                           deficits
         *Medicare becomes insolvent in approx. 6 years
         Source: Bloomberg, 9/25/09, Peter G. Peterson Foundation
                                              www.vteh.org                              15
                                     Enormous Overhangs & Risks

($Trillions)
  1400                    $1.25 trillion in monetized Fannie Mae/Freddie Mac
                          home mortgage debt by the Federal Reserve Bank
 1200                     (printing of money to purchase debt)

 1000

   800
                                Proj. Fan/Fred
   600                          Losses:                                Monetized
                                   $400B       Realized      Proj.     Treasury debt:
   400                                         Fan/Fred      FDIC          $300B
                                               Losses:       Losses:
   200                                          $112B        $100B

     0


         Source: WSJ 12/24/09              www.vteh.org                                 16
                              The State of Vermont‟s
                                  Indebtedness

              $70M ($40M to stimulus)

                                                        Unfunded medical
                      $300M                             liabilities 6/30/08
                                                        Unfunded pension
              $400M                                     liabilities 6/30/08
                              $1.6B
                              (teacher &                General fund shortfall
                              state employees)          2011-2014
(Net of       $470M                                     Unemployment fund
Stimulus $)                                             shortfall by 2013
                                                        Unemployment fund
                      $466M
                                                        reserve shortfall
                                                        Education fund
                                                        shortfall FY2011
          (Champlain Bridge & VT State Hosp. costs not included)
                                     www.vteh.org                           17
                                                                             17
                                    Federal Spending &
                                   Revenue as a % of GDP
     (% of GDP)
     45.00%
                          WW II
     40.00%
                                                                                              Spending
     35.00%
     30.00%
                                                                            2010                 - Deficit -
     25.00%
     20.00%
                                                                                               Revenue
     15.00%
     10.00%
                      2010 Public; Total Debt to GDP = 55%; 85%
       5.00%          2020 = 90%; 120% (Historic Avg. +/- 40%)
       0.00%
              40

                       50

                                 60

                                          70

                                                   80

                                                            90

                                                                     00

                                                                             10

                                                                                         20

                                                                                                 30

                                                                                                         38
           19

                    19

                              19

                                       19

                                                19

                                                         19

                                                                  20

                                                                          20

                                                                                      20

                                                                                              20

                                                                                                      20
Source: Office of Mgt & Budget, May 2009; Peterson-Pew Commission, 2009           -       Projected            -
                                                   www.vteh.org                                                    18
         Vermont’s Dangerous Reliance
        On An Ailing Federal Government



                                          $ in Billions




                                     Source: VT CAFR -2009



                  www.vteh.org                           19
01/10                                                        19
                              U.S. Interest Rate Risk

    ($Billions)
    2000                                                                                     (5)
                (1) Increase in borrowing costs with removal of Fed. purchases
    1800            of mortgages; equal to one-half percentage point
    1600
                (2) Combined budgets of the Dept. of Education & Energy
    1400
    1200        (3) Est. add‟l cost of this year‟s debt service with last years int. rates

    1000        (4) Est. debt service cost in 2019; WSJ 12/16               (4)
     800
                (5) U.S. debt payments due within a year;
     600            currently financed at a rate of 1% or less
     400                                                 (3)
     200        (1)                   (2)

         0
             $40B                   $80B              $221B               $774B              $1.9T
Source: NYT, E.L Andrews 11/23/09              www.vteh.org                                          20
A Primer on our Monetary System
             Foreign Holdings of
            U.S. Debt to the Public



 1990                                  2009

      19%
             Foreign                                Foreign
             Domestic
                                      50%     50%
                                                    Domestic
81%




                       www.vteh.org                      22
                                          An Explosion of
                                         World Debt vs. GDP
       ($Trillions)
       250
                                                              2007
                                                       $195
       200
                                                                       Assets include:
                                                                        Gov't debt
       150
                                                                        Private debt
                                                                        Equities
       100
                      1980                                              Bank Dep./GDP
                                                                 $55
         50
                 $12          $10

          0
                Assets        GDP                     Assets GDP
% of GDP          119%                                  356%
                                              www.vteh.org                           23
Source: Harvard Business Review, Sept. 2008
                               Triffin‟s Dilemma
($ Trillions)
   2.5                                                               $2.3 Trillion


     2          China‟s Foreign Exchange Reserve Growth;
                approx. 75% dollar-denominated
  1.5


     1
            $400
            Billion
  0.5


     0
              '03           '04     '05         '06      '07   '08        '09
         Source: People’s Bank of
         China, WSJ 12/5/09
                                          www.vteh.org                               24
“Blood, Toil, Tears and Sweat”
             - Winston Chruchill, 1940




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          Please contact
     tomlicata2@comcast.net

				
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