Sunday, April 5, 2009

Economist hypothesizes the “deflationary meltdown has past.”

The Governor’s 3rd Annual Utah Economic Summit was held in Salt Lake City on Monday, March 30, 2009. The Summit featured some amazing speakers including Governor John Huntsman, Wells Fargo Executive Vice President/Economist Dr. Kelly Matthews, and Pixar/Disney Animation Studios President Dr. Ed Catmull. While all had great speeches, Matthews’ message was particularly impressive and it was reassuring hearing good news about the economy as he put forth his hypothesis that the “deflationary meltdown has past.”  Matthews went on to make a compelling argument to support his hypothesis.  


Matthews proceeded to ask what has changed in the economy that would account for the approximate 20% growth in the S&P in recent weeks?  He then answered his own question by stating that the growth in the S&P could be explained with three events.

The first significant difference he offered was the fact several major financial institutions (i.e. Citigroup and Bank of America) operated at a profit during the first two months of 2009 (4 & 7).  This dramatic turnaround came after both institutions had received an infusion of federal bailout money in late 2008. Citigroup received $25 billion in October and $20 billion in November (3).  While Bank of America was the recipient of $15 billion (6).  Matthews contends the positive news of profits posted by Citigroup and Bank of America is creating some expectation among investors and the public in general; that the worst has past.  Please note, Matthews was not implying that the bailout funds were responsible for the institutions posting a profit.  He was simply stating the fact that by generating a profit for the first two months of 2009, the positive impact on the morale of investors has been significant.


The second point Matthews offered in support of his hypothesis is that consumer spending has leveled off in the first two months in 2009.  Matthews was careful to say that consumer spending had not increased; rather he indicated that it was no longer continuing to decrease (2 & 8).  While Matthews said that he expects more job losses in coming months, he also stated he expected the job losses would end as soon as consumer demand and the existing supply reaches equilibrium.


The third significant event Matthews offered was the action of the Federal Reserve on March 18, 2009.  By purchasing $1 Trillion dollars in Treasure Bonds and Mortgage Securities, the Fed’s action reduced the cost of long-term debt (1).  According to Matthews, these actions had directly aided in the edging down of long-term interest rates as evidenced by drops in the 30-Year mortgage rate to 4.85% and 10-Year Treasury note yield to 2.72% (as of March 27, 2009).  The 30–Year mortgage rate is now at the lowest rate in approximately 50 years (5).


Many in attendance commented that Matthews’ message was both uplifting and well thought out.  After returning to the office after the Summit, this author and Lean Sigma Champion set out on a mission to independently verify the items Matthews put forward as fact.  The references and citations included in this post are the sources located which collaborate facts set forth in Matthews’ hypothesis.


So is Matthews’ hypothesis correct when he proclaims the “deflationary meltdown has past”?  Only time will tell, but after researching the facts offered in support of his hypothesis I agree with him and believe that the “deflationary meltdown has past.”






1.     Andrews, Edmund L. (2009, March 18). Fed plans to inject another $1 trillion to aid the economy. Retrieved April 3, 2009, from The New York Times Web site:


2.     Jake (2009, March 27). Personal consumption holding steady. Retrieved April 3, 2009, from Economopicdata Web site:


3.     Lagorio, Juan (2008, November 26). Citigroup bailout slammed by New Yorkers. Retrieved April 3, 2009, from Reuters Web site:


4.     Lepro, Sara (2009, March 10). Dow ends up nearly 380 on Citigroup profit news. Retrieved April 3, 2009, from The Huffington Post Web site:


5.     Lewis, Holden (2009, March 26). Mortgage rates drop to lowest since the '50s. Retrieved April 4, 2009, from Web site:


6.     Snow, Mary (2008, December 23). Where's the bank bailout money. Retrieved April 3, 2009, from CNN.Com US Web site:


7.     Unknown, (2009, March 13). Bank of America expects 2009 profit - Lewis. Retrieved April 3, 2009, from Ub News Web site:


8.     Unknown, (2009, March 27). Savings rate continues to be high. Retrieved April 3, 2009, from The Wall Street Journal Web site:






Post Author: Royce Williard

copyright 2009, The Williard Group


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