Pointers on Economics
Recently I had the opportunity to sit in on Dr. Ed Seifried’s class at the LSU Graduate School of Banking. This man does an amazing job of taking a dull subject like macroeconomics and making it come to life. He shared many interesting points about our economy and international economics.
Dr. Seifried said the ideal inflation rate is approximately 2 percent. To achieve this rate, short-term interest rates, i.e. 90-day T-bills, should be 4 percent and the prime rate will generally be 3 percent above T-bills, logging in at 7 percent.
He indicated that to obtain economic growth, the U.S. must either increase productivity or trade with other countries. He is a believer in free trade, with the exception of the agricultural and defense industries, which are vital to the strength of our country.
The professor indicated that the hot topic among global economists is a concept called zero bound. That is, if short-term rates go to zero percent, then the Federal Reserve loses one of its weapons used to stimulate the economy. For example, Japan’s rates are near zero, which hurts its banking sector because the net margin between savings and loan rates is so small that there is no profit in banking. There have been large layoffs of Japanese bankers.
Finally, he indicated that the economy is at the extremes. That is, seven of 12 months last year, the consumer price index declined, illustrating deflation. This condition has never been seen since statistics have been recorded. One year later, the current CPI shows a 4.4 percent inflation rate. All you folks who are receiving 1 percent interest, your real rate of return is negative 3.4 percent! Oh, the joys of economics!
- If any of you get the opportunity to come to Baton Rouge to visit the LSU campus, go over by the football stadium of the “National Champs” and see their real mascot, “Mike the Tiger. “
- The room down the hall from mine was the Shaquille O’Neal suite with a 10-foot by 10-foot bed. If only I played for the Lakers!
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Editors' note: Dave Kohl, The Corn and Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups.
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