Fed brings economic insights to Boerne

Investors in the Boerne Kendall County Economic Development Corporation convened for a semi-annual meeting two weeks ago. On the heels of the Federal Reserve’s third short-term rate hike in less than a year, the event’s guest speaker was timely.

Blake Hastings, de facto leader of the San Antonio branch of the Federal Reserve Bank of Dallas, addressed the meeting of about a hundred Boerne, Texas, business leaders.

Hastings started with macroeconomic data about the national economy. He specifically addressed the Federal Reserve’s balance sheet which ballooned from less than a trillion dollars in assets before the financial crisis to more than $4 trillion afterward.

Of course, Fed leaders didn’t call its balance sheet ballooning “money printing.” They called it “quantitative easing,” which sounds more like a gastroenterological process than an economic term.

During multiple rounds of “QE,” the Fed bought trillions of dollars of bonds (Treasurys and mortgage-backs). As Mr. Hastings admitted, it was an experiment of historic proportions.

Early on (ca. 2011), the Wall Street banks that sold bonds to the Fed took most of the cash proceeds and deposited them back at the Fed itself. There was simply not enough loan demand at the time to lend the money out in the marketplace. Plus, the Fed paid a quarter of a point on the deposits!

Since then, the economy has improved and the big banks are making more loans. The Fed’s balance sheet shows bank deposits have decreased by $500 billion in the last five years. Conversely, currency in circulation has increased by $500 billion.

It appears we have two problems on our hands: (1) an increasing number of dollars floating in the economy brings inflation risk; and (2) the Fed still has more than $4 trillion in bonds on its balance sheet.

A friend smarter than I summarized three possible solutions to the latter problem, a quandary  inexorably linked to our $19 trillion federal government debt. You can either grow your way out, inflate your way out, or default your way out.

Mr. Hastings and his Fed colleagues are clearly hoping for years of steady economic prosperity in order to grow our way out. This proposition seems too good to come true.

What’s not too good to be true is San Antonio’s recent economic performance. Hastings rattled off a number of encouraging performance indicators for our area.

San Antonio’s four per cent unemployment rate is below that of Texas and the nation. Military City’s job growth increased by three per cent in 2016 despite a lackluster oil price. We have seen similar employment gains thus far in 2017.

Stock prices of San Antonio-based companies trend above the S&P 500, though the margin is narrowing. Overall, San Antonio’s economy continues to track above its long-term growth average and has since 2011.

Hastings noted that Austin’s job growth has stalled for want of skilled labor. He issued a word to the wise: educated human capital is the single best predictor of an area’s economic prospects. He encouraged listeners to prioritize workforce training.

A diversified employment base saved Texas and San Antonio when oil dropped seventy per cent three years ago. Will it be there to save us at the next bust, oil or otherwise?

 

Follow Kevin Thompson at www.kwt.info.

 

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