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  • [ MUSIC ]

  • >> HELLO AND WELCOME TO TALKING POINTS.

  • I'M DAVE KELLY, DIRECTOR OF ADVANCED MEDIA PRODUCTION

  • AT CAL STATE LONG BEACH.

  • TODAY WE'RE GOING TO BE TALKING ABOUT RECENT ECONOMIC TRENDS

  • AND HOW THEY AFFECT US GLOBALLY, NATIONALLY

  • AND HERE IN CALIFORNIA.

  • MY GUEST TODAY IS DR. ROBERT KLEINHENZ.

  • DR. KLEINHENZ IS THE CHIEF ECONOMIST

  • FOR THE LOS ANGELES COUNTY ECONOMIC

  • DEVELOPMENT CORPORATION.

  • WELCOME, ROBERT AND THANK YOU

  • FOR JOINING US ON TALKING POINTS.

  • >> THANK YOU, MY PLEASURE.

  • >> WELL, LET'S START WITH THE BIG PICTURE

  • BECAUSE EVERYONE HAS BEEN HEARING ABOUT CHINA

  • AND THE SLOWDOWN IN CHINA.

  • WE KNOW THEY HAD OVER THE SUMMER ABOUT A 30% COLLAPSE,

  • IF YOU WANT TO USE THAT WORD, IN THEIR STOCK MARKET.

  • THEY'VE ALSO RECENTLY SUGGESTED THAT THEIR GROWTH RATE IS GOING

  • TO BE ABOUT 6.9% FOR THIS YEAR, WHICH IS BELOW THE TARGET

  • OF 7%, JUST A LITTLE BIT.

  • BUT IT'S DEFINITELY DOWN FROM PREVIOUS YEARS.

  • AND I KNOW THAT THAT'S CAUSED SOME CONCERN.

  • WE'VE HEARD A LOT ABOUT IT IN THE ECONOMIC PRESS.

  • I'VE GOT A QUOTE HERE FROM THE WASHINGTON POST

  • FROM JUST A FEW DAYS AGO.

  • AND THIS IS THE QUOTE FROM THE POST.

  • IT SAYS, "IT STARTS WITH THE SLOWDOWN IN CHINA,

  • WHICH IS ALREADY STRAINING THE GLOBAL RECOVERY."

  • "THE WORLD'S SECOND LARGEST ECONOMY HAS LOST ITS APPETITE

  • FOR THE RAW MATERIALS THAT FUELED ITS INDUSTRIAL BOOM."

  • "LEAVING THE SMALLER COUNTRIES THAT SUPPLIED IT WITH RESOURCES,

  • STUMBLING IN ITS WAKE."

  • "SLOWER GROWTH ABROAD,

  • TRANSLATES INTO WEAKER FOREIGN CURRENCIES

  • AND A STRONGER U.S. DOLLAR,

  • WHICH MAKES AMERICAN GOODS HARDER TO SELL

  • IN THE GLOBAL MARKETPLACE."

  • WHAT ABOUT THAT?

  • >> YEAH, SO, YOU KNOW, CHINA IS THE SECOND LARGEST ECONOMY HERE

  • ON THE GLOBE.

  • IT HAD ASTOUNDING RATES OF GROWTH FOR DECADES,

  • AS IT WAS GOING THROUGH THE INDUSTRIALIZATION PROCESS.

  • A BIG PART OF THAT INDUSTRIALIZATION PROCESS WAS AN

  • EXPORT ORIENTED STRATEGY.

  • AND IN RECENT YEARS, THE COUNTRY OF CHINA HAS GONE THROUGH

  • OR BEGUN TO GO THROUGH A TRANSITION

  • FROM THIS EXPORT ORIENTED INDUSTRIALIZATION STRATEGY,

  • TO ONE THAT IS MORE CONSUMER SPENDING DRIVEN.

  • AND THAT MEANS THEY'LL BE LESS RELIANT ON ALL SORTS OF THINGS,

  • INCLUDING RAW MATERIALS.

  • AND INDEED, THAT DOES CAUSE RIPPLE EFFECTS THROUGHOUT THE

  • GLOBAL ECONOMY.

  • MANY OTHER SMALLER ECONOMIES AROUND THE GLOBE ARE RELIANT

  • ON THOSE -- THE CHINESE MARKET

  • FOR THEIR COMMODITIES AND OTHER PRODUCTS.

  • SO, THERE WILL BE SOME ADJUSTMENT TO TAKE PLACE

  • OF OVER SEVERAL YEARS' TIME, I WOULD EXPECT.

  • >> PEOPLE HAVE USED THE WORD CONTAGION TO DESCRIBE THE FEAR

  • OF WHAT MAY HAPPEN WITH THE CHINESE ECONOMY AFFECTING THE

  • U.S. ECONOMY.

  • IS THERE ANY REAL THREAT OF CONTAGION?

  • >> SO, AS THIS STORY POINTED OUT, WE'RE ALL LINKED.

  • SO, IF THE CHINESE ECONOMY SLOWS AND THAT CAUSES A RIPPLE EFFECT

  • WITH ALL THESE OTHER ECONOMIES AROUND THE GLOBE,

  • OUR MARKETS FOR OUR PRODUCTS

  • THAT WE SELL ABROAD ARE GOING TO BE WEAKER.

  • CHINESE EXPORTS FROM THE U.S.,

  • ONLY MAKE UP ABOUT 1% OF OUR GDP.

  • AND MORE GENERALLY, THE TRADE COMPONENT

  • OF THE U.S. ECONOMY IS AMONG THE SMALLER COMPONENTS

  • OF THE U.S. ECONOMY.

  • SO, WE SHOULD BE FAIRLY INSULATED

  • FROM THE DIRECT DOWNSIDE EFFECTS.

  • BUT THESE REVERBERATIONS THAT YOU MENTIONED,

  • WE HAVE TO BE MINDFUL OF.

  • >> AND THERE'S ANOTHER INTERNATIONAL ISSUE INVOLVING

  • WHAT'S REFERRED TO AS THE BRICS COUNTRIES.

  • BRICS IS THE ACRONYM FOR BRAZIL, RUSSIA, INDIA,

  • CHINA AND SOUTH AFRICA.

  • AND THERE'S CONCERN THAT THEY MAY BE A DEVELOPING AN

  • ALTERNATIVE BASKET OF CURRENCIES,

  • THAT'S THE PHRASE THEY USE, TO REPLACE THE U.S. DOLLAR

  • AS THE WORLD'S RESERVE CURRENCY.

  • FIRST OF ALL, MAYBE EXPLAIN TO OUR VIEWERS WHAT WE MEAN

  • BY WORLDS RESERVE CURRENCY.

  • AND IF THERE IS ANY REAL THREAT

  • THAT THE DOLLAR WILL BE REPLACED.

  • >> THIS SITUATION HAPPENS FROM TIME TO TIME.

  • SO, THE U.S. DOLLAR IS KNOWN

  • AS THE RESERVE CURRENCY AROUND THE GLOBE.

  • AND WHAT THAT MEANS IS THAT MANY FOREIGN TRANSACTIONS ARE

  • DENOMINATED IN U.S. DOLLARS.

  • IT'S ALSO A CURRENCY THAT CENTRAL BANKS KEEP --

  • LITERALLY KEEP IN THEIR VAULTS,

  • AS A PART OF THEIR HARD RESERVES AGAINST DEPOSITS.

  • SO, FOR DECADES, THE U.S. DOLLAR HAS BEEN THE RESERVE CURRENCY.

  • WELL, WHY IS THAT?

  • IT'S BECAUSE IT IS BACKED BY A STABLE COUNTRY.

  • AND THE VALUE OF THAT CURRENCY ITSELF IS STABLE.

  • AND THOSE ARE 2 THINGS, THAT TAKEN TOGETHER,

  • OFTEN TIMES ARE THE DETERMINANTS OF WHETHER

  • OR NOT A RESERVE CURRENCY WILL CONTINUE TO BE REGARDED AS SUCH

  • OR IF IT WILL LOSE CREDIBILITY.

  • IT'S ALL ABOUT THE CREDIBILITY OF THE CURRENCY

  • AND WHO'S BACKING IT, WHICH IS THE GOVERNMENT

  • OF THE UNITED STATES.

  • >> AND WHAT ABOUT THIS IDEA OF A BASKET

  • OF ALTERNATIVE CURRENCIES?

  • IS THAT GOING TO HAPPEN?

  • ARE WE GOING TO SEE THAT HAPPENING?

  • >> WELL, IT COULD BE THAT SOMETHING

  • LIKE THAT WILL HAPPEN IN THE FUTURE.

  • BUT DO KEEP IN MIND YOU'VE GOT TO GENERALLY LOOK

  • FOR SOME BACKING BEHIND A RESERVE CURRENCY.

  • WITH A BASKET OF CURRENCIES, I MEAN, I COULD IMAGINE

  • FOR EXAMPLE, THAT MAYBE THE EURO AND THE POUND AND THE DOLLAR,

  • COULD BECOME A BASKET BASED RESERVE CURRENCY.

  • I JUST DON'T KNOW THAT IT WOULD NECESSARILY TRANSPIRE.

  • SO, AT LEAST AT THIS TIME, I DON'T THINK THIS IS SOMETHING

  • THAT WE NECESSARILY NEED TO CONTEMPLATE AS BEING INEVITABLE.

  • >> OKAY AND IF WE TALK ABOUT THE DOLLAR BECOMING THE WORLD'S

  • RESERVE CURRENCY, WHICH IT CERTAINLY DID

  • OVER THE LAST 50, 60 YEARS OR SO.

  • A LOT OF THAT WAS ALSO TIED TO THE FACT

  • THAT OIL WAS BASED ON THE DOLLAR.

  • SO, WE CALL IT PETRO DOLLARS.

  • SO, IF THE WORLD IS STILL RUNNING PRIMARILY ON OIL,

  • DOESN'T THAT SECURE THE DOLLAR'S PLACE

  • AS THE WORLD'S RESERVE CURRENCY?

  • >> SURE. I GUESS IT'S A GOOD IDEA FOR US TO THINK

  • ABOUT THE BENEFITS THAT ACCRUE TO THE U.S.,

  • BY VIRTUE OF BEING THE COUNTRY

  • THAT HAS THE RESERVE CURRENCY ON THE GLOBE.

  • IT DOES ALLOW US TO ENGAGE IN THINGS LIKE DEFICIT SPENDING,

  • MORE SO THAN WE'D HAVE TO.

  • IT DOES ALLOW US TO RUN A TRADE DEFICIT.

  • AND THESE ARE 2 THINGS THAT HAVE BEEN A PART

  • OF THE ECONOMIC LANDSCAPE IN THE U.S. FOR DECADES.

  • SO, THE RESERVE CURRENCY, IN AND OF ITSELF,

  • THAT'S AN IMPORTANT ROLE FOR THE U.S. TO PLAY.

  • BUT IT ALSO GIVES US SOME BENEFITS, VIS-À-VIS THE REST

  • OF THE WORLD, THAT WE'VE TAKEN ADVANTAGE OF, I WOULD SAY,

  • OVER THE LAST FEW DECADES.

  • >> WELL, LET'S TALK

  • ABOUT COMMODITY PRICES, PARTICULARLY OIL.

  • BECAUSE THAT'S THE COMMODITY THAT MOST PEOPLE ARE AWARE OF,

  • ALTHOUGH THERE ARE MANY OTHERS.

  • CERTAINLY AGRICULTURAL COMMODITIES AND PRECIOUS METALS

  • AND THAT SORT OF THING.

  • BUT IN TERMS OF OIL, LONG BEACH HAS ALWAYS BEEN A VERY BIG OIL

  • TOWN AND HAS BEEN SINCE 1921 WHEN WE DISCOVERED OIL HERE.

  • WHEN WE LOOK AT OIL PRICES, WHEN WE GO TO THE PUMP

  • AND WE SEE THE PRICE GOING UP OR DOWN,

  • DO WE REALLY PUT TOO MUCH EMPHASIS ON THAT?

  • AND ISN'T OIL AND OIL PRICING MUCH MORE STABLE

  • AND LESS CAUSING OF DISRUPTION THAN WE MAYBE HEAR

  • ABOUT ON THE NEWS MEDIA?

  • >> WELL, IT'S SOMETHING THAT CERTAINLY CATCHES THE EYE

  • OF CONSUMERS AND BUSINESS ALIKE

  • AND ESPECIALLY HERE IN CALIFORNIA.

  • SO, A COUPLE OF THINGS ON THIS TOPIC, YOU KNOW,

  • YOU DON'T HAVE MUCH ELSE TO DO WHEN YOU'RE WATCHING

  • THAT GAS METER RUN WHEN YOU'RE PUTTING GAS IN YOUR TANK.

  • SO, SOME PEOPLE, I THINK, ARE PAYING ATTENTION

  • AND THEY'RE SEEING THAT ONE WEEK THEIR PUTTING GAS IN THE TANK

  • AT $3 A GALLON, NEXT WEEK IT'S $3.50.

  • HERE IN CALIFORNIA, ONE OF THE REASONS FOR THAT IS

  • THAT WE HAVE CONSTRAINT SUPPLY.

  • WE HAVE A LIMITED NUMBER OF REFINERIES AND A LIMITED NUMBER

  • OF FIRMS THAT ARE RUNNING THOSE REFINERIES.

  • SO, THAT ADDS A LITTLE MORE VOLATILITY TO OUR MARKET.

  • OF COURSE, WE HAVE SPECIAL GAS HERE.

  • ALL OF THESE THINGS MAKE FOR A MORE VOLATILE SET OF PRICES HERE

  • IN CALIFORNIA, THEN ELSEWHERE AROUND THE COUNTRY.

  • AND THEN ON TOP OF THAT, WE HAVE HEAVIER TAXES ON OUR ENERGY.

  • SO, IT DOES CATCH THE EYE OF THE CONSUMER IN THE BUSINESS.

  • THERE'S NOT A LOT THAT WE CAN REALLY DO

  • ABOUT IT AT THE PRESENT TIME.

  • THERE'S A STUDY THAT JUST CAME OUT THAT SHOWED

  • THAT THE OIL PRODUCERS IN CALIFORNIA MAY BE COLLUDING,

  • BUT IT'S VERY DIFFICULT TO VERIFY.

  • >> IT'S ALWAYS HARD TO PROVE THOSE THINGS.

  • >> RIGHT.

  • >> WELL, LET'S TALK ABOUT THE U.S ECONOMY IN GENERAL.

  • WE KNOW THAT THE UNEMPLOYMENT RATE HAS BEEN COMING DOWN.

  • WE'RE NOW LISTING THE OFFICIAL, WHAT THEY REFER

  • TO AS THE U-3 UNEMPLOYMENT RATE AT 5.1%.

  • BUT THE U-6, WHICH IS PERHAPS A BETTER MEASUREMENT

  • OF THE UNCOMFORTABLE NATURE OF EMPLOYMENT IN THE COUNTRY,

  • IS CLOSER TO 10% OR ACTUALLY IS AT 10%.

  • THAT MEANS, PEOPLE THAT ARE WORKING PART-TIME JOBS,

  • BUT WOULD REALLY PREFER TO HAVE FULLTIME WORK, BUT CAN'T FIND IT

  • AND THOSE THAT ARE FULLY UNEMPLOYED.

  • SO, WHAT ABOUT UNEMPLOYMENT?

  • WE'VE SEEN IT DROP.

  • IT'S NOW AT ABOUT 7% HERE IN L.A. COUNTY.

  • ARE WE SEEING UNEMPLOYMENT STARTING TO LEVEL

  • OUT WITH THE DEMAND OF JOBS?

  • AND ALSO, WE'RE GOING TO TALK ABOUT LABOR PARTICIPATION.

  • BUT FIRST, WHAT ABOUT THE RATE ITSELF?

  • >> SO, THE RATE YOU REFER TO, THE U-3 RATE,

  • I CALL THE HEADLINE RATE OF UNEMPLOYMENT

  • BECAUSE THAT'S WHAT WE HEAR ABOUT IN THE NEWS, AS A RULE.

  • SO, AT 5.1%, ITS COME DOWN, IT'S ABOUT HALF

  • OF WHAT IT WAS DURING THE WORST DAYS OF THE RECESSION.

  • TYPICALLY, THE U-6 RATE, WHICH ADDS IN DISTRESSED WORKERS,

  • PEOPLE WHO WOULD LIKE TO WORK FULLTIME,

  • BUT ARE WORKING PART-TIME AND SO ON, THAT RATE IS USUALLY

  • ABOUT DOUBLE THE HEADLINE RATE.

  • SO, WHEN THE UNEMPLOYMENT RATE WAS ALMOST 10%,

  • THE HEADLINE RATE, THE U-6 RATE, WAS ABOUT 20%.

  • IT'S COME DOWN QUITE A BIT, ARGUABLY.

  • IT'S STILL A LITTLE BIT ON THE HIGH SIDE.

  • AND MAYBE SOME PEOPLE WOULD SAY THAT IT'S MORE THAN A LITTLE BIT

  • ON THE HIGH SIDE, BUT IT HAS IMPROVED OVER TIME.

  • AND OTHER ASPECTS OF THE LABOR MARKET,

  • BEHIND THAT HEADLINE RATE, HAVE ALSO IMPROVED.

  • >> WHAT ABOUT THIS LABOR PARTICIPATION RATE

  • THAT WE ARE HEARING ABOUT A LOT THESE DAYS?

  • WE NOW HAVE 94 MILLION PEOPLE NATIONALLY

  • THAT ARE NOT PARTICIPATING IN THE LABOR FORCE.

  • THAT'S A PRETTY BIG NUMBER.

  • >> ABSOLUTELY.

  • >> WHAT DOES THAT MEAN, I KNOW THERE'S SOME TRENDS,

  • SUCH AS BABY BOOMERS, ARE TURNING 65 AT THE RATE

  • OF 10,000 PER DAY NOW.

  • SO, ONE WOULD THINK THEY WOULD BE EASING INTO RETIREMENT?

  • IS THAT WHAT'S HAPPENING?

  • >> SO, YES, THE LABOR FORCE PARTICIPATION RATES BEEN

  • DECLINING FOR SEVERAL YEARS.

  • IN THE IMMEDIATE AFTERMATH OF THE RECESSION, THE CONCERN WAS

  • THAT THIS WAS SYMPTOMATIC OF SOMETHING STRUCTURALLY WRONG

  • WITH OUR LABOR MARKET.

  • AS TIME HAS PASSED, WE HAVE TAKEN THE STANCE,

  • I MEAN ANALYSTS HAVE SORT OF SURMISED

  • THAT IT'S MORE AN ARTIFACT OF THE DEMOGRAPHICS.

  • AND SO, YOU'RE RIGHT, THE BABY BOOMERS ARE LEAVING THE LABOR

  • FORCE, AS THEY HIT RETIREMENT AGE.

  • THE INTERESTING THINK ABOUT THAT IS IT'S NOT QUITE WHAT YOU SEE

  • ON THE SURFACE.

  • THE LABOR FORCE PARTICIPATION RATE

  • OF OLDER AMERICANS IS ACTUALLY ON THE RISE,

  • RELATIVE TO HISTORIC STANDARDS.

  • AND AT THE SAME TIME AND THIS IS WHAT SHOULD BE MOST CONCERNING,

  • YOUNG ADULT LABOR FORCE PARTICIPATION RATE IS LOW

  • AND HAS BEEN FALLING FOR THE LAST FEW YEARS.

  • AND I THINK THAT'S PARTLY STILL SYMPTOMATIC OF THE LONG SHADOW