 Thanks very much. Thanks, Trevor. All right. Delighted to be with you all today. Thanks so much for coming out to have a conversation about the economy in the beginning of spring. What a wonderful time. We do have to stop sometimes and look at the redbud as they are coming out so we have a lot to celebrate. Each morning when we wake up, we wake up to a new economy and sometimes rush to see what the projections are going to be for the market that day and look at other news to make decisions about our lives and people who are making decisions about investments and so forth are trying to sort out the day and what it's going to bring. What it's going to bring is usually determined by forces that have been playing through the economy for some time. While there are new developments, the old ones are still there roaring away. And so while a new economy is being formed, an old economy is operating. And it's the forces of the old economy that I think we want to focus on today and interpret. If in your mind you could go back one year from now, and if we had been in this room talking about the economic outlook for 2015, we would have been filled with optimism. We would have just seen some GDP growth on a quarterly basis of greater than 4 percent, two quarters, hand running in the latter part of 2014 that gave us numbers like things we had not seen before. If we had reviewed a year ago the forecasts for 2015 for GDP growth, if we had looked at maybe six or seven of the major banks, the Congressional Budget Office, OMB, the World Bank, if you looked real hard you would have found one forecast that called for GDP growth of less than 3 percent for 2015. That was Wells Fargo. They forecasted 2.8 percent GDP growth for 2015, and as best I can tell that was the low man forecast. So there was optimism. As 2015 began to crank and roll, several things began to happen that gave us the economy we have today. The European Central Bank turned on the printing presses and moved the button to high speed. In an effort to get the European Union up on its legs and walking a little faster, they started printing money faster than we print money, and you have to be really fast to print money faster than the United States. So they put in a high speed gear in their printing press and they started printing euros at a faster pace than we print dollars, and when that happens the slow printing press wins in terms of the value of the currency. And so as euros were being printed faster than dollars, dollars begin to strengthen against euros and our dollar gets strong and stronger and stronger against euros and then other currencies of the world. When that happens, as consumers we can buy foreign goods at a much faster clip than we could have before with our strong dollars. But for exporting industries that sell their goods to the rest of the world that have to be paid for with dollars, they begin to suffer. And so that's one force. And by the way, last week the Central Bank of the European Union announced that they were going to turn the press on even faster, even faster than they have been printing. And so the dollar is soaring, exports are weakening, imports are rising. Now let's think about the second thing. The second thing, the old force that is playing through the economy still, China slowing down. The Chinese economy has been slowing down for better than a year now. And when we say slowing down, slowing down from a 10 percent annual rate of growth to seven, keep in mind we're at 2.4, but when they slow down from 10 to 7 percent growth it is a dramatic drop for a huge consumer of raw materials, all kinds of metals. They are the number one consumer of all crude materials other than petroleum in the world. And so that's copper, that's tin, that's iron. And so as Russia's economy slows, the producers of commodities, highly specialized countries in many cases, really begin to get knocked in the head. Commodity prices begin to plummet and they're still falling with a few exceptions. It appears that maybe we're seeing some bottoms. And so that's the second force. The third force, petroleum prices. The revolution that has taken place in the United States in producing energy. And so petroleum prices, all forms of energy, the prices begin to fall. They have fallen enough now so that for the average American household or consumer there's a saving of $750 a year, as if someone wrote a check and said here's $750 additional dollars. And the fourth force that's a fresher one than the first three, it's crazy season. It's crazy season. In my years in Washington I learned that crazy season was any time there was a presidential campaign. That you had people going out and saying crazy things in order to catch attention and maybe to get nominated or maybe get elected. And so when politicians who are running for office with credibility in terms of whether they might get nominated or not begin to say crazy things, particularly with respect to rules, particularly with respect to regulation, particularly with respect to tariffs and so on, private decision makers say well I think I better wait this one out. There's a tendency to move to the sidelines and wait. And sometimes we might say I just hope they don't keep their promises or either you might say I hope they keep every last one of them. The point is we get uncertainty. And so those are four forces that are playing through our economy as we think about it today. And so in a sense I just spoke to the question why slow gear? Why slow gear? Why did our economy shift into a slow gear in terms of its rate of growth? I mentioned the forecast that we would have looked at a year ago. When GDP forecast, when GDP for 2015 was calculated, it came in at 2.4%. Remember I said most of the forecasts call for greater than three, other than Wells Fargo that call for 2.8? Well the real number came in at 2.4 for 2015, which turns out to be exactly the same growth rate as 2014. And so now if we want to stop for a minute and say well what's the forecast for 2016? You get one guess and I think you'll get it right, 2.4. And what's the forecast for 2017? 2.4 or less. And so we're in a slow gear in terms of our economy and we'll look at the economic imprint of all of this, talk about money, why does money matter? Is there something that can be done with all these printing presses or otherwise that'll get the economy going? And then what about regulatory uncertainty? Now what you're looking at here is a plot of the growth rate on an annual year-over-year basis for GDP. And if you look at those last observations out there for 2011, 2012, 13, 14, 15, that's the wiggly line that is humming around 2.4, 2.5%. You have to go back to 2005 to see numbers exceeding 3%. In other words it's been 10 years since our economy was running at a rate that is the long-term average, the long-term average is 3.17%. And we have to go back 10 years. We have to go back to 2000 to get to 4%. So we have to go back 15 years to find growth rates on an annual basis that are above the long-term average. And so here we are with an economy that is churning along slowly but positive. Now here are the forecasts, some forecasts for this year and the year ahead, Meryl Lynch didn't have a 2017 forecast, but this just gives you an idea of what some of the experts are calling for, which says in a sense the world is flat in terms of U.S. GDP growth. Now one of the reasons it's flat, there are basically two ingredients that go into GDP, making stuff. There are two ingredients. One, the number of people who are work age, the number of people in the economy, counted by the Bureau of Labor Statistics who are older than 16 and up to age 64. That's the so-called working population. If the working population is growing at a slow rate, then other things equal, you're going to have a slow rate of GDP production, but there's one other ingredient and that's productivity gains. The same number of people can be working just as hard but working smarter and they will produce more. But what we have right now is a 0.4% growth in the work age population, 0.4. Wow, how can you get more GDP growth with just a 0.4 growth in the work age population? Well, you can get it because productivity is increasing, but our productivity increase is 1.1% for the last 10 years. So there's the ingredients. Now that doesn't mean it's all carved in stone that we cannot have more productivity increase, but it's pretty hard to get a large increase in the work age population suddenly, particularly when we are tending to close our borders and discourage immigration at a time when our economy is slowing. And so the ingredients that would give us a faster pace or pale, that suggests then that we're going to be living with this slow growth. Now for those who are interested as I am in getting GDP growth estimates often, the Atlanta Fed turns out GDP now. Just go in and type GDP now into your computer and you'll see that figure. They generate one of these about every two weeks. The Department of Commerce turns out an estimate of GDP growth every quarter. So this is every two weeks. The guys there at the Atlanta Fed, you can look at his picture, who builds this thing, uses the same methodology as the Department of Commerce only he's grabbing the data more frequently. And so now you can see what the Fed's forecast is. Right there 2.2% and that forecast is for the quarter we're in right now to give you an idea of what the picture is. And notice that was for the 8th of March, so there will be another one of those charts and you can see it wiggles around a good bit, but it does give you an estimate of an economy with pale growth. At times like this, we often wish there were a wizard. If we could just get a wizard, you know the wonderful story, the Wizard of Oz. If we could just pull back the curtain and get the wizard and say please pull some of those levers, would you turn it up high speed for a while, Mr. Wizard? And other people say, well, that's my idea of a wizard. You know, maybe this wizard would come in and help us. Maybe seems to have a lot of ideas or what about this wizard? There are a lot of wizards who are showing up out there on the scenery, but there's a tendency for human beings like you and me to look for someone on a white horse who is gonna come in and make things really better for us. And sometimes people who sometimes may pay less attention to the politically elected leadership would say, wow, maybe that would be my wizard. Maybe we could get the chairwoman of the Federal Reserve to do what the Europeans did. But unfortunately, what the Europeans did has not done anything in terms of speeding up their economy. But there is a tendency to want to have a wizard. There is no wizard. It's impossible for any one person to even comprehend the complexities of the world economy, I would suggest. There's no one who has a mind with that capability to comprehend all of the forces that are playing through the world economy, which might lead them to say, all you got to do is. So in a sense, we should beware of anyone who says, I've got the solution for all of our economic problems. And of course, no one is saying that. But it's a time for caution. And during times of uncertainty, it's a time to try to get answers instead of questions about economic policy as we go forward. Now what I've just described to you, in terms of that background, was hitting one sector of our economy very hard. Think back about the export diminution. The diminution in export shipments to the rest of the world, that's manufacturing. You're looking here at a plot of growth. This is an index that is maintained by the Institute of Supply Chain Management. 50 is the zero point in the index. Let's see if I, there. The red line marks zero. Anything above the red line, you've got positive growing. Anything below the red line, it's negative. Notice the tail end of the red jiggly line in the chart is below 50. That's manufacturing. We've had now about six months of negative growth in manufacturing. If any of you are from states that have a large manufacturing sector, with some exceptions, you know this. There are shifts being laid off in manufacturing. There is a slowdown in hiring in manufacturing. Now, fortunately for the nation, manufacturing represents about 16% of value added in the economy. And so when manufacturing slows down, it's 16% of the economy that is slowing down. The rest of the economy is what you see in the blue line. That's the rest of the economy. Call it the non-manufacturing as they do in this chart or the services economy. Notice there's some weakness in that line, but it's well above 50. And so now it depends on where you are. Quite often when people ask me, what do you think is going to happen to the economy? I say, what is your zip code? There's huge variation across space, across states, within states. In my little state of South Carolina, and as you know, it's a very small piece of geography. They're 46 counties. They're 22 counties that have negative growth in employment over the last couple of years. In other words, there are 24 counties that are sort of carrying the growth. So it depends on where you are in that small state, whether you are in a large manufacturing region of the state or less so. And so some people now look at this chart and they say we're having a manufacturing recession in the United States now, but it doesn't matter a lot unless that's you for the nation. It's not going to generate a recession for the nation. The difference between those two lines will preclude that from happening, but it will mean that we have 2.4 or 2.5% growth in something larger. Now the thing that's carrying us looks like this. Those are people who are shopping in case you don't get the image. For the average household in America, the balance sheet is looking a lot better. There has been a complete recovery for the average household in the value of their home if they own a home or a condo. Prices were falling, now they are rising and they have recovered to the pre-collapse level. So that's wealth in the balance sheet. The second thing in that balance sheet for the average household is their 401k or their stock portfolio. And now aside from the last three or four weeks, they have seen a recovery of their investments. And so now there is a wealth effect that is pushing consumption higher and we are outspending. So there's real personal consumption expenditures. What is happening? Well above zero and you can see it is rising. So even though we've got the manufacturing slowdown and manufacturing recession, we've got wealth effects that are propelling consumers to get out there and shop and shopping is increasing. And so retail sales are better, restaurant sales are better, particularly restaurant sales as we look at how the economy is doing. Well does money matter in all of this? Is there anything that central banks can do that can lift the economy to even higher level of performance? You know real well that the central bank has certain tools and they've been using all of them. There's one tool that has been talked about that they have not used, been Bernanke talked about it and who knows whether they ever will, but it's called the helicopter effect. The helicopter effect says, well if you really want to get money into the pockets of American consumers so that they will get out and spend it, load it up in helicopters and fly out and drop money. In other words, just go directly to the juggler vein. You say well they really wouldn't do that would they? I know not with helicopters. What they would probably do would be to increase the level of demand deposits on some kind of basis. So that all of a sudden you'd get a statement from your bank saying I'm glad to tell you that you've got an extra $1,000 in your account. That would be the helicopter effect and that has been discussed but I don't think it would ever be used. Instead there are all kinds of indirect mechanisms. Those mechanisms, if they are to be effective, have to increase the amount of money moving through the economy. There are different definitions of money. The one that I'm using in this example is called M1 by the Fed. M1 is all demand deposits and hand to hand currency. All currency and demand deposits in the economy. That dark line is M1. That's the amount of money circulating in the economy and notice long about 2008, remember that's when the big recession started. Long about 2008, somebody turned on a lot of switches over at the Fed and they call back to the press and said print more money. And as they printed more money look at it. Woo, look at all the money that got printed. But money by itself will not generate economic activity. You have to spend the stuff. The other line is called velocity. That's the rate at which that money is moving through the economy. And so wouldn't you know, just as they were printing more money and it got pushed out into the economy, demand deposits in cash, people stopped spending it. And so ultimately the Fed does not determine what's going to happen to the money supply people do or what money supply is going to do for the economy. And so we've had a sharp decline in velocity. That means that average balances have gone up. There's a lot of money sitting on the sidelines. And then you might ask, why is that? Why is that? What's the opportunity cost of holding money? Now, how much do you get paid? Does anybody know what you get paid on a CD? Six month CD? Half of a percent or something like that. Half of a percent, close to nothing. So we have a zero interest rate. That's your earning. That's what you're earning. And so there's a tendency then to just rest. What am I chasing after? What would I invest in? I'll just leave the cash balances so we have a huge cash balance economy. A big part of these cash balances are in a way earning interest. This is demand deposits and currency. Banks place their excess reserves, all of their reserves, with the Fed. And so this big stack of money that got printed, most of it, is over in an account at the Federal Reserve, an account owned by the bank with the Fed. That's the bank's bank. So there's been a huge increase. Right now, the Fed pays a half of a percentage point on those balances to the banks. 50 basis points, 100% sure thing, Mr. Banker. Well, I say the Fed pays it. You and I pay it. Taxpayers pay it to the tune of $16 billion a year. They just raise that from 25 basis points. It was $8 billion a year that we taxpayers were infusing money into banks. And so the banks kind of love having 100% sure thing at the Fed, and then there's an incentive that says, if we can get 100% sure thing, 50 basis points from the Fed, why should we be out chasing risky loans? We will lend less because we've got such a good deal with the Fed. And now we've got a bootlegger Baptist story here. The banks of the bootleggers calling for support from the central banks to help them tidy up their balance sheets. And there is a Baptist chorus that says, we want to make sure that these banks do not fail again. We want to have a policy that makes our banking system strong. All of that sounds like a good Baptist chorus or a Methodist chorus to me. And so there are people saying the right thing for us to do to avoid the collapse of 2008 is to make sure the balance sheets of the bank strong. Let's have this deal. Let's even double it, which was done about six weeks ago. Let's even double it. And then the banks are saying, oh boy, I can laugh all the way because we're getting a shot in the arm. So you can try monetary policy. It doesn't always work. But now what I'm showing you here is what the rate of loan growth looks like for our economy. This is the quarterly growth rate of what is called commercial and industrial loans for the entire banking system. And it looks kind of flat. It looks kind of flat. In other words, the growth rate of loans looks a lot like the GDP pace of the economy. And they should because economic activity picks up when lending picks up. But right now, banks have a disincentive to increase that rate because of Fed policy. There are some loans being approved, however. But we have to go back here, 2005, 2006 to see something healthier than what we are experiencing now. The geographic imprint. When you look at this, this is a November photograph, NASA photograph. Everybody recognizes that, of course, but I want you to look at these magnitude where the lights are brightest and the clusters are largest. Let your eyes scan that beautiful sight where the lights are brightest and the clusters largest is where human flourishing is greatest as we normally measure it. The largest clustering and the brightest clustering is the New York Boston region. That's a $3 trillion economy you're looking at there. To find the second largest, let your eyes go over towards Chicago. Chicago-Pittsburgh is the second largest regional economy in the United States. It's a $2.1 trillion economy. And now I challenge you to find the third. It's not going to be Houston. It's not going to be Dallas. It's not going to be South Florida. That's about the sixth one. Go over to the West Coast. That looks pretty bright. But if you focus on Atlanta, can you see Atlanta, the big bright light there in Georgia? The next thing that's big up above Atlanta is Charlotte. That region is called Charlotte. Charlotte ties with Southern California for the third largest economy in America. If you go a little larger, if you go up to Raleigh and then let your eyes go over to Birmingham, you really have a big economy. And so looking at the economic imprint, the geographic imprint of economic activity can be revealed to us partly by this clustering where human beings choose to live when they vote with their feet. And some of those lights are getting brighter, more people coming. And some of them are getting dimmer as our economy chugs along. Here's the unemployment rate by state. This data, we just got this data Monday. This is the state level of unemployment. The darker the map, the higher the unemployment rate. And as you look down in the Southeast there, that's a big manufacturing region. Keep that in mind as you look at it. That's a big manufacturing region for the United States. And then you can see the brighter low unemployment regions which are primarily energy producing states. The Dakotas, you can let your eyes run on down through Colorado, go to Texas. And there you have the energy producing states that are still having a net impulse from energy. But to appreciate what this looks like, that's what it looked like in 2010. In 2010, notice all of those Southeastern states were very dark, the manufacturing recession was brutal. And then you can get up there, you can look at Illinois, Indiana, those states right there, manufacturing states, it was brutal, Michigan turns purple. Now let's go back. And in a sense there's something wonderful about looking at those two maps to me. Because we were all alive in 2010. Probably each one of us knows personally. A family member or a neighbor who truly suffered during that great recession. And now, even though our economy is slow in terms of its growth pace, it's kind of odd, it's strong. We've got a strong economy, it has strength, but it doesn't run very well. But it doesn't run very fast, but it's strong. Now, a while back Gallup had an interesting poll they called, if I remember right, the number of people they call 99 adults in every state and ask them a question, would you like to live somewhere else? Or would you prefer to stay where you are or are you kind of indifferent? The darker the color, the greater the desire to pack up and move. Illinois turned out to be the number one state for I would like to live somewhere else. And their response was 50%. 50% of those who were polled said, I would like to live somewhere else. And as you can see, Georgia got pretty dark down in there as well. You can see the states. And you can see the states where people said, we are really happy here. Texas being one of the happiest states in the survey. And so when we take this kind of, you say, well, that's kind of interesting. That was a poll December 13th. You know, polls are kind of interested, but economists have a bad habit of wanting to look at what people do as opposed to what they say they might do. Sometimes those two things converge. Oh, here, let me give you this data, a little bit more data there at the bottom so that you can see you're 41% of the people in New Jersey said, I'd like to move out. 41% in Massachusetts, so on and so forth. You know, those people out in Wyoming seem to be happy in Colorado. But you can see what people are saying. But now let's look at, well, what did people do? United Van Lines gathered data on moving and when Americans move, where do they go and where do they leave? The number one destination for household movers was Texas. Which sort of goes back to that of the chart where all the happy people were. Number two is Florida. Four, South Carolina, sort of tickled me. Maybe the value of my house will go up, who knows. But you can see by the color of the chart the blue or high inbound states, the yellow or high outbound states. And if you were to take the time to go back and look at that unemployment map, or if you were to look at growth in income across states, you would begin to see some convergence of these numbers. So as our economy is operating along, sort of strong, but not running very fast, it's generating income that varies a lot across states, generating opportunities that vary a lot across states, and people are moving and voting with their feet. Now something that when I saw this data it was surprising to me, this state data speaks to the question of which states receive the greatest support from the federal government? Where greatest support is measured by the percentage of the general fund revenue of each state accounted for by intergovernmental transfers. That's a mouthful. So somebody adds up all of the intergovernmental transfers from the federal government to a state, and they say what percentage of that state's general fund is accounted for? Well, the number one state in terms of receiving the largest amount is Mississippi. Number two is Louisiana. Number three is Tennessee. But now let's see if you can find number four. Missouri is number five. Montana is number six. Does anybody see four? South Carolina is number 30. North Dakota? South Dakota, isn't it? Now here's the thing, most people, if you had been blindfolded and I had said here's a map, hasn't been marked, I want you to mark the states which are receiving the most of their revenue from the federal government. I would have gotten it wrong. Most anybody I've shown this to would have gotten it wrong. Most everybody I know would have said Montana's in a lot better shape than South Carolina, yet they are big on the receiving end relative to South Carolina. Just to take an example, and you can see Florida is number 28. North Carolina is number 25. Kentucky, number 12. High up on the list. Illinois, number 40. Sort of an interesting piece of data. About one huge difference, isn't it? In North Dakota, I don't know what the answer is as to why one has so much more, but I would expect it would have to do with military establishments. The extent to which there is an exceptional amount of impact caused by federal facilities, which then brings additional revenues into a state. And that can be from military, as well as federal employment in that location. But it's a curiosity to me because you've got them right there next to each other, so you have a kind of natural experiment that makes you wonder, makes you wonder why. But there's North Dakota, which is the booming state in America. Indian reservations are an important element that would be added in. And that would be true in Montana as well. So these are some of the things that we would want to fold in as we look at, again, as sort of what is your zip code when we ask how is the economy doing? A powerful sign of strength right now in our economy is revealed in this data. What you're seeing here is the rate of growth of job openings, okay? You might say, I'm counting the number of won't ads and all the newspapers where there's a help wanted. Let's suppose that's what you were doing. And so the red line is showing you growth in job openings we want to hire. The blue line is showing you growth in contracts where hiring took place. The difference between those two lines is excess demand for labor. The difference between the two lines represent openings that are not being filled. And so when you hear someone say, I have not been able to find a job, it could certainly be the case. But most likely it's because they are at the wrong place for the job they would like to have, or either the jobs that are open don't suit them or they don't suit the jobs. In other words, we have a large mismatch problem in our country in terms of people and their skills and job openings that are occurring. Notice the lines how they start diverging in 2010. And if you go back to 2000 in that chart, you don't see anything that looks like what we are seeing now that is identifying a serious mismatch in terms of skills. When I'm making presentations to industry groups, the number one concern, when I say what are your concerns, number one concern I cannot find qualified entry level, entry level employees. And I ask, what do you mean by qualified? No criminal record, drug free can pass a basic math and English exam, cannot find them. At the other end, or people who tell me, I cannot find experienced college graduates that I can put into executive training slots, they're not out there. When you look at the unemployment rate for the category I just mentioned, it's 2.9%. That's for people over 25 years old with a bachelor's degree. And that's sort of what we see here. Now, when we look at this, you say, well, what's the forecast? If you have excess demand for labor, people are trying to hire and they can't find people. All right, somebody tell me, what do you predict is going to happen to the wage level? It's gonna go up. And it is going up. So when you look at wages, they are now beginning to creep up, which is a partial reflection of this. The other neat thing I think about the hiring that has taken place since the Great Recession. In other words, the hiring that has taken place is it just sort of mediocre jobs, high paying jobs, low paying jobs or what? That's what this chart speaks to. The red bars represent high wage occupations. That's where the greatest amount of growth has taken place in our country in terms of hiring. And so here I come bringing a bit more good news to you. We have a growing economy. It's strong, but it's not growing fast. Employment is challenging, but the jobs that are being created are high wage paying, but that means high skill. And then that goes back to the other chart. Did you have a hand? What would be an example of a high wage, I'm sorry, I don't have that number to tell you what it would be. But let me give you a guess on a national basis. I would guess it would be above $15 an hour that you would begin to get there and then get up to about 30 in that range. You would call that a high wage job. So the picture is sort of a healthy one and an encouraging one there. But something that's a little bit discouraging. What I'm showing you here is a back shot of the code of federal regulation. In other words, what we have stacked up there is all of the federal rules stacked up in different volumes. Any of you who work with regulations, you know that each one of those volumes represents a specialized subset. But by the way, that's Pat McLaughlin. Let me introduce you to him. He heads, Pat heads up a major regulatory research area at the Mercatus Institute. You'll get to see the front of Pat if you come to my next session. But Pat and his colleagues did something interesting. How many hours would it take you or your senator or congressman or congresswoman to read all of the code of federal regulation? If you just said, I'm gonna knock off this weekend and read those rules. If they read at the normal speed of 300 words a minute, it would take them 5,000 hours. Nobody's going to do that, obviously, to read through the entire code of federal regulation. But in a way, isn't it kind of sad that there is no person who reads all of the federal regulations that could make a comment about them after they've read all those rules? I doubt that there's anyone who reads through five volumes of the code of federal regulations. So it's an unknown category, but because of uncertainty from regulation, believe it or not, there's an organization that tracks on a monthly basis regulatory uncertainty in our economy. It's a group of economists who are at Stanford and the University of Chicago and they have an army of graduate students who read something like 55 daily newspapers every day, and they gather data looking at the occurrence of words, regulation, and uncertainty, that kind of formula, and they turn that into an index. And so what I'm showing you there is their black line. That's the regulatory uncertainty line. What I superimposed on it was the unemployment rate. The reason for showing you this is obvious. When we have high regulatory uncertainty, it squares with high unemployment. If people say I'm not sure what the rules are going to be, then there's a tendency to hesitate, which gets back to the mention of crazy season. Now, speak to that question, why so much command and control? But let me stop right here now. We've got a few minutes. Be happy to take a question, or if you want to point me in another direction with respect to a topic, be happy to try to address that.