STATESBORO — Synovus Bank’s Dan Morgan prefaced his economic forecast by quoting an Ancient Roman politician.
Marcus Tullius Cicero is credited with saying, “The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.”
Given what happened to Rome, Morgan wondered aloud during his presentation if history weren’t on the verge of repeating itself.
“If you look at the Roman Empire and when it collapsed, there are similarities to what is going on here right now,” Morgan, a portfolio manager and economic analyst, told local Sea Island Bank customers Thursday as part of the bank’s “Invest in You” lecture series.
Morgan stopped short of predicting the fall of the United States. But the rising federal deficit under the last two presidents, from approximately $6 trillion to $17 trillion, leaves the U.S. economy with a deficit-to-gross-domestic-product ratio that historically limits growth.
“Both parties have been insane since 2000,” Morgan said. “It doesn’t feel like things are getting better in our economy because of the slow pace of expansion.”
The deficit-to-GDP ratio is around 100 percent, the highest since the years immediately following World War II. Compounding the situation, according to Morgan, is the Federal Reserve’s debt purchasing activity. The Fed bought 70 percent of U.S. debt issued in 2012.
The Federal Reserve’s actions were meant to hold down interest rates and promote recovery. But corporate profit margins are “higher than they’ve ever been” because those companies are cutting costs and not investing. Commercial and industrial loan activity that had been growing since the recession’s end is now dropping, Morgan said.
The hoarding limits job growth. The economy needs to add 125,000 jobs a month just to keep up with the increase in new job seekers, such as college grads. The average increase over the last 12 months was 169,000 jobs — not enough to put a significant dent in the 3.3 million Americans who lost their jobs during the recession and are still looking for work.
“We need to be adding 200,000 to 225,000 jobs a month,” Morgan said. “We’re simply not getting enough jobs.”
Morgan is encouraged — but not surprised — by the stock market’s performance. Inflation, interest rates and earnings growth “drive” the stock market, and with inflation and interest rates remaining low and earnings skyrocketing, a bull market is a natural byproduct. He predicts the market will continue to perform well for another “year to a year-and-a-half.”
But Morgan fears the Federal Reserve’s actions in artificially suppressing interest rates and inflation may result in another bubble, like the tech bubble of 2000 and the housing bubble of 2007.
“Are we going to say this was a true bull market or was this driven by the Federal Reserve and its manipulation of the market?” Morgan said. “Time will tell if this is another bubble or whether we will punch through it.”
Morgan balanced his doomsday dialogue by expressing historically-backed optimism in the American economy. He sees the ongoing technology boom and its reshaping of the economy as reasons why America won’t go the way of Ancient Rome.
“I still believe in this country,” Morgan said.