After the Elections: Big Changes Ahead

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After the ElectionsBig Changes Ahead
Jim Wiesemeyer Informa Economics
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A New Beginning in Washington?
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Top of the Agenda

• Fiscal stimulus and financial regulation
• Democrats expect to employ the Reconciliation
  process to pass a major tax/health care bill
• Requires only 51 votes in the Senate
• Energy Policy and Global Climate Change
  (regulatory)
• Health care
• SCHIP may be down payment on broader reform to
  come later.
• Consensus on broader reform may be elusive /
  timing may slip.
• Shifting course in Iraq and Afghanistan
• Taxes
• Middle class tax cut. Repealing upper income Bush
  tax cuts
• Estate taxes will remain in place
• Deficits in FY 09 FY 10 will be well over 1.0
  trillion
• May impose ceiling on creation of new programs

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Electoral Votes McCain ..... 173 Obama .. 365

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Presidential Voting Patterns

• Popular vote 53, highest since Johnson in
  1964
• Latino vote 66
• -- Helped win Nevada, N.M., Colo., Va., Fla.
• -- Registered Latinos up 20 since 2004
• -- 76 of young Latinos backed Obama
• -- Impact on immigration reform
• Rural vote McCain 51 to 47 for Obama
• Democratic Party gaining in rural sector
• Black vote 95 (Kerry 88 in 2004)
• Other
• -- 66 aged 18-29-- 68 of first-time voters

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Keys to Obama Administration

• Which Obama? Populist or pragmatic?
• Cabinet How diverse?
• Early agenda Stimulus, taxes, health care,
  energy, educ.
• Long-term agenda Iraq, Afghanistan, global
  warming/cap trade, Soc. Sec., budget deficit,
  immigration reform
• Congressional Dems Can he control pent-up
  liberals?
• -- Pelosi The country must be governed from the
  middle.
• Labor unions Payback time, but how much?
• Change How much, how and when?

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USDA Secretary Pick Vilsack

• Former Iowa Gov. Tom Vilsack Third governor in
  a row.
• Activist or loose cannon? Push for single food
  agency Big changes ahead for USDA and farm
  policy direct payments
• How many folks work here? Says Ag Dept. can tell
  how many checks they write, but dont know how
  many work at USDA.
• The next layer Sub-Cabinet positions will now
  be the key focus and how much say Vilsack will
  have in who ends up where.

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Impact on Agriculture

• Personnel USDA, EPA, OMB, Energy, USTR, Justice

• Farm bill implementation, policy issues
• -- Dairy After a few very good years.HELP
• -- Sugar A farm bill success, now for
  implementation

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Impact on Agriculture

• Congress Issues ahead
• -- Futures trading/credit default swaps
• -- USDA reorganization
• -- Farm bill implementation oversight
• -- Ag Committee ratios More Democrats
• House 28 Dems, 17 GOP (from 25-21)
• Senate 12 Dems, 9 GOP (from 11-10)

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Whats Next for U.S. Economy?
14,000
13,000
12,000
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9,000
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Three Facets to Economic Challenges

• Global liquidity trap banks cant write-off bad
  assets without more capital, yet need more
  capital to keep uncertain exposure on balance
  sheet. Risk aversion increasing as economy
  weakens. No lending - no growth.
• Traumatized consumer net worth in financial
  assets and real estate has declined by 10
  trillion, job losses are growing and credit is
  more restricted even at lower rates. Largest
  contributor to global growth is retrenching.
• Stagnating emerging markets export dependent
  economies are unable to offset lost demand from
  advanced economies. Internal political unrest is
  growing, realignments on horizon!

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What Are The Determining Catalysts?

• Global financial market infusions to restore
  liquidity.
• 700 billion in U.S. (Troubled Asset Relief
  Program,TARP), 150 billion in Britain, etc. (A
  Resolution Trust Entity is on horizon)
• Access to capital markets is first indicator of
  the turn!
• Global fiscal stimulus to restore consumer
  confidence.
• 1 trillion in U.S. (7 of GDP) EU spending 350
  bil. (4 of GDP)
• In 18-24 months be prepared for inflation cycle.
• Political Transitions U.S., Europe, etc.
• Optimism in U.S. challenges in Europe / Russia,
  Middle East
• Rising tide of protectionism? (U.S., Europe,
  Russia, etc.)
• Food agriculture is always high on list. (EU,
  China)
• Strong farm balance sheets cash flows.
• Agriculture is one of stronger sectors in U.S.
  economy.
• Low, but building grain oilseed inventories.
• Supply vulnerability is critical market factor
  (weather/acreage).
• Global recession constrains livestock, poultry
  and dairy.

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Signs of Economic Recovery

• Stock market Turns up 6 months before
  employment gains.

• Spring Inventory liquidation. Focus on current
  fundamentals.
• Watch for Improved credit market conditions,
  stabilization of labor markets. LIBOR is
  dropping some corporate bond markets thawing.
  Narrowing of rate differentials between
  Treasuries other credit instruments positive
  signal -- would encourage banks to lend more.

• Housing aid Second tranche of TARP will focus
  on housing sector aid. Treasury and Fed want
  mortgage rates below 5.
• Energy stimulus In 2008, oil price averaged
  about 100/barrel. If average is 50 in 2009,
  economy would receive 100 billion stimulus.
  Positive for households businesses using
  energy negative because drilling activity being
  reduced domestically, OPEC cutting back.

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Signs of Economic Recovery

• Housing Rate of new residential construction
  well below replacement. Home buying activity
  could begin to improve in spring. Caveat
  consumer confidence is as important as
  affordability in home purchase decision.

• Consumer spending Falling at fastest pace in
  post WW II period. Once savings rate gets to 4
  or 5, consumption could start to grow in line
  with income. But if saving rate is over 5drag
  on economy.

• Economic stimulus Important is size, scope and
  composition.
• House-Senate conference this week
• Rural sector aid Health, food stamps,
  alternative energy
• Dairy aid?

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Major Issues Ahead

• Trade Policy
• - Protectionist Washington- Cuba

• Big Issues- Energy, Renewable fuels- Global
  warming- Health care reform- Food safety
  reform- Social Security reform- Taxes-
  Infrastructure

• Economy
• Credit crunch- Another stimulus package -
  Immigration reform - World economy China

Top Issues

• Deficits
• Budget deficit
• Total U.S. federal debt- Entitlements
• Interest payments on debtover 441 billion in
  FY08

Money- FY09 appropriations- FY10 budget
resolution
Post-Rescue Impact - A changed Congress-
Regulations- Cost-cutting- Election promises
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Farm Bill vs. Total Federal Spending
Total Federal Spending
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2002 vs. 2008 Farm Bill Spending
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