>> HELLO AND WELCOME TO TALKING POINTS.

I'M DAVE KELLY, DIRECTOR OF ADVANCED MEDIA PRODUCTION

AT CAL STATE LONG BEACH.

TODAY WE'RE GOING TO BE TALKING ABOUT RECENT ECONOMIC TRENDS

AND HOW THEY AFFECT US GLOBALLY, NATIONALLY

AND HERE IN CALIFORNIA.

MY GUEST TODAY IS DR. ROBERT KLEINHENZ.

DR. KLEINHENZ IS THE CHIEF ECONOMIST

FOR THE LOS ANGELES COUNTY ECONOMIC

DEVELOPMENT CORPORATION.

WELCOME, ROBERT AND THANK YOU

FOR JOINING US ON TALKING POINTS.

>> THANK YOU, MY PLEASURE.

>> WELL, LET'S START WITH THE BIG PICTURE

BECAUSE EVERYONE HAS BEEN HEARING ABOUT CHINA

AND THE SLOWDOWN IN CHINA.

WE KNOW THEY HAD OVER THE SUMMER ABOUT A 30% COLLAPSE,

IF YOU WANT TO USE THAT WORD, IN THEIR STOCK MARKET.

THEY'VE ALSO RECENTLY SUGGESTED THAT THEIR GROWTH RATE IS GOING

TO BE ABOUT 6.9% FOR THIS YEAR, WHICH IS BELOW THE TARGET

OF 7%, JUST A LITTLE BIT.

BUT IT'S DEFINITELY DOWN FROM PREVIOUS YEARS.

AND I KNOW THAT THAT'S CAUSED SOME CONCERN.

WE'VE HEARD A LOT ABOUT IT IN THE ECONOMIC PRESS.

I'VE GOT A QUOTE HERE FROM THE WASHINGTON POST

FROM JUST A FEW DAYS AGO.

AND THIS IS THE QUOTE FROM THE POST.

IT SAYS, "IT STARTS WITH THE SLOWDOWN IN CHINA,

WHICH IS ALREADY STRAINING THE GLOBAL RECOVERY."

"THE WORLD'S SECOND LARGEST ECONOMY HAS LOST ITS APPETITE

FOR THE RAW MATERIALS THAT FUELED ITS INDUSTRIAL BOOM."

"LEAVING THE SMALLER COUNTRIES THAT SUPPLIED IT WITH RESOURCES,

STUMBLING IN ITS WAKE."

"SLOWER GROWTH ABROAD,

TRANSLATES INTO WEAKER FOREIGN CURRENCIES

AND A STRONGER U.S. DOLLAR,

WHICH MAKES AMERICAN GOODS HARDER TO SELL

IN THE GLOBAL MARKETPLACE."

WHAT ABOUT THAT?

>> YEAH, SO, YOU KNOW, CHINA IS THE SECOND LARGEST ECONOMY HERE

ON THE GLOBE.

IT HAD ASTOUNDING RATES OF GROWTH FOR DECADES,

AS IT WAS GOING THROUGH THE INDUSTRIALIZATION PROCESS.

A BIG PART OF THAT INDUSTRIALIZATION PROCESS WAS AN

EXPORT ORIENTED STRATEGY.

AND IN RECENT YEARS, THE COUNTRY OF CHINA HAS GONE THROUGH

OR BEGUN TO GO THROUGH A TRANSITION

FROM THIS EXPORT ORIENTED INDUSTRIALIZATION STRATEGY,

TO ONE THAT IS MORE CONSUMER SPENDING DRIVEN.

AND THAT MEANS THEY'LL BE LESS RELIANT ON ALL SORTS OF THINGS,

INCLUDING RAW MATERIALS.

AND INDEED, THAT DOES CAUSE RIPPLE EFFECTS THROUGHOUT THE

GLOBAL ECONOMY.

MANY OTHER SMALLER ECONOMIES AROUND THE GLOBE ARE RELIANT

ON THOSE -- THE CHINESE MARKET

FOR THEIR COMMODITIES AND OTHER PRODUCTS.

SO, THERE WILL BE SOME ADJUSTMENT TO TAKE PLACE

OF OVER SEVERAL YEARS' TIME, I WOULD EXPECT.

>> PEOPLE HAVE USED THE WORD CONTAGION TO DESCRIBE THE FEAR

OF WHAT MAY HAPPEN WITH THE CHINESE ECONOMY AFFECTING THE

U.S. ECONOMY.

IS THERE ANY REAL THREAT OF CONTAGION?

>> SO, AS THIS STORY POINTED OUT, WE'RE ALL LINKED.

SO, IF THE CHINESE ECONOMY SLOWS AND THAT CAUSES A RIPPLE EFFECT

WITH ALL THESE OTHER ECONOMIES AROUND THE GLOBE,

OUR MARKETS FOR OUR PRODUCTS

THAT WE SELL ABROAD ARE GOING TO BE WEAKER.

CHINESE EXPORTS FROM THE U.S.,

ONLY MAKE UP ABOUT 1% OF OUR GDP.

AND MORE GENERALLY, THE TRADE COMPONENT

OF THE U.S. ECONOMY IS AMONG THE SMALLER COMPONENTS

OF THE U.S. ECONOMY.

SO, WE SHOULD BE FAIRLY INSULATED

FROM THE DIRECT DOWNSIDE EFFECTS.

BUT THESE REVERBERATIONS THAT YOU MENTIONED,

WE HAVE TO BE MINDFUL OF.

>> AND THERE'S ANOTHER INTERNATIONAL ISSUE INVOLVING

WHAT'S REFERRED TO AS THE BRICS COUNTRIES.

BRICS IS THE ACRONYM FOR BRAZIL, RUSSIA, INDIA,

CHINA AND SOUTH AFRICA.

AND THERE'S CONCERN THAT THEY MAY BE A DEVELOPING AN

ALTERNATIVE BASKET OF CURRENCIES,

THAT'S THE PHRASE THEY USE, TO REPLACE THE U.S. DOLLAR

AS THE WORLD'S RESERVE CURRENCY.

FIRST OF ALL, MAYBE EXPLAIN TO OUR VIEWERS WHAT WE MEAN

BY WORLDS RESERVE CURRENCY.

AND IF THERE IS ANY REAL THREAT

THAT THE DOLLAR WILL BE REPLACED.

>> THIS SITUATION HAPPENS FROM TIME TO TIME.

SO, THE U.S. DOLLAR IS KNOWN

AS THE RESERVE CURRENCY AROUND THE GLOBE.

AND WHAT THAT MEANS IS THAT MANY FOREIGN TRANSACTIONS ARE

DENOMINATED IN U.S. DOLLARS.

IT'S ALSO A CURRENCY THAT CENTRAL BANKS KEEP --

LITERALLY KEEP IN THEIR VAULTS,

AS A PART OF THEIR HARD RESERVES AGAINST DEPOSITS.

SO, FOR DECADES, THE U.S. DOLLAR HAS BEEN THE RESERVE CURRENCY.

WELL, WHY IS THAT?

IT'S BECAUSE IT IS BACKED BY A STABLE COUNTRY.

AND THE VALUE OF THAT CURRENCY ITSELF IS STABLE.

AND THOSE ARE 2 THINGS, THAT TAKEN TOGETHER,

OFTEN TIMES ARE THE DETERMINANTS OF WHETHER

OR NOT A RESERVE CURRENCY WILL CONTINUE TO BE REGARDED AS SUCH

OR IF IT WILL LOSE CREDIBILITY.

IT'S ALL ABOUT THE CREDIBILITY OF THE CURRENCY

AND WHO'S BACKING IT, WHICH IS THE GOVERNMENT

OF THE UNITED STATES.

>> AND WHAT ABOUT THIS IDEA OF A BASKET

OF ALTERNATIVE CURRENCIES?

IS THAT GOING TO HAPPEN?

ARE WE GOING TO SEE THAT HAPPENING?

>> WELL, IT COULD BE THAT SOMETHING

LIKE THAT WILL HAPPEN IN THE FUTURE.

BUT DO KEEP IN MIND YOU'VE GOT TO GENERALLY LOOK

FOR SOME BACKING BEHIND A RESERVE CURRENCY.

WITH A BASKET OF CURRENCIES, I MEAN, I COULD IMAGINE

FOR EXAMPLE, THAT MAYBE THE EURO AND THE POUND AND THE DOLLAR,

COULD BECOME A BASKET BASED RESERVE CURRENCY.

I JUST DON'T KNOW THAT IT WOULD NECESSARILY TRANSPIRE.

SO, AT LEAST AT THIS TIME, I DON'T THINK THIS IS SOMETHING

THAT WE NECESSARILY NEED TO CONTEMPLATE AS BEING INEVITABLE.

>> OKAY AND IF WE TALK ABOUT THE DOLLAR BECOMING THE WORLD'S

RESERVE CURRENCY, WHICH IT CERTAINLY DID

OVER THE LAST 50, 60 YEARS OR SO.

A LOT OF THAT WAS ALSO TIED TO THE FACT

THAT OIL WAS BASED ON THE DOLLAR.

SO, WE CALL IT PETRO DOLLARS.

SO, IF THE WORLD IS STILL RUNNING PRIMARILY ON OIL,

DOESN'T THAT SECURE THE DOLLAR'S PLACE

AS THE WORLD'S RESERVE CURRENCY?

>> SURE. I GUESS IT'S A GOOD IDEA FOR US TO THINK

ABOUT THE BENEFITS THAT ACCRUE TO THE U.S.,

BY VIRTUE OF BEING THE COUNTRY

THAT HAS THE RESERVE CURRENCY ON THE GLOBE.

IT DOES ALLOW US TO ENGAGE IN THINGS LIKE DEFICIT SPENDING,

MORE SO THAN WE'D HAVE TO.

IT DOES ALLOW US TO RUN A TRADE DEFICIT.

AND THESE ARE 2 THINGS THAT HAVE BEEN A PART

OF THE ECONOMIC LANDSCAPE IN THE U.S. FOR DECADES.

SO, THE RESERVE CURRENCY, IN AND OF ITSELF,

THAT'S AN IMPORTANT ROLE FOR THE U.S. TO PLAY.

BUT IT ALSO GIVES US SOME BENEFITS, VIS-À-VIS THE REST

OF THE WORLD, THAT WE'VE TAKEN ADVANTAGE OF, I WOULD SAY,

OVER THE LAST FEW DECADES.

>> WELL, LET'S TALK

ABOUT COMMODITY PRICES, PARTICULARLY OIL.

BECAUSE THAT'S THE COMMODITY THAT MOST PEOPLE ARE AWARE OF,

ALTHOUGH THERE ARE MANY OTHERS.

CERTAINLY AGRICULTURAL COMMODITIES AND PRECIOUS METALS

AND THAT SORT OF THING.

BUT IN TERMS OF OIL, LONG BEACH HAS ALWAYS BEEN A VERY BIG OIL

TOWN AND HAS BEEN SINCE 1921 WHEN WE DISCOVERED OIL HERE.

WHEN WE LOOK AT OIL PRICES, WHEN WE GO TO THE PUMP

AND WE SEE THE PRICE GOING UP OR DOWN,

DO WE REALLY PUT TOO MUCH EMPHASIS ON THAT?

AND ISN'T OIL AND OIL PRICING MUCH MORE STABLE

AND LESS CAUSING OF DISRUPTION THAN WE MAYBE HEAR

ABOUT ON THE NEWS MEDIA?

>> WELL, IT'S SOMETHING THAT CERTAINLY CATCHES THE EYE

OF CONSUMERS AND BUSINESS ALIKE

AND ESPECIALLY HERE IN CALIFORNIA.

SO, A COUPLE OF THINGS ON THIS TOPIC, YOU KNOW,

YOU DON'T HAVE MUCH ELSE TO DO WHEN YOU'RE WATCHING

THAT GAS METER RUN WHEN YOU'RE PUTTING GAS IN YOUR TANK.

SO, SOME PEOPLE, I THINK, ARE PAYING ATTENTION

AND THEY'RE SEEING THAT ONE WEEK THEIR PUTTING GAS IN THE TANK

AT $3 A GALLON, NEXT WEEK IT'S $3.50.

HERE IN CALIFORNIA, ONE OF THE REASONS FOR THAT IS

THAT WE HAVE CONSTRAINT SUPPLY.

WE HAVE A LIMITED NUMBER OF REFINERIES AND A LIMITED NUMBER

OF FIRMS THAT ARE RUNNING THOSE REFINERIES.

SO, THAT ADDS A LITTLE MORE VOLATILITY TO OUR MARKET.

OF COURSE, WE HAVE SPECIAL GAS HERE.

ALL OF THESE THINGS MAKE FOR A MORE VOLATILE SET OF PRICES HERE

IN CALIFORNIA, THEN ELSEWHERE AROUND THE COUNTRY.

AND THEN ON TOP OF THAT, WE HAVE HEAVIER TAXES ON OUR ENERGY.

SO, IT DOES CATCH THE EYE OF THE CONSUMER IN THE BUSINESS.

THERE'S NOT A LOT THAT WE CAN REALLY DO

ABOUT IT AT THE PRESENT TIME.

THERE'S A STUDY THAT JUST CAME OUT THAT SHOWED

THAT THE OIL PRODUCERS IN CALIFORNIA MAY BE COLLUDING,

BUT IT'S VERY DIFFICULT TO VERIFY.

>> IT'S ALWAYS HARD TO PROVE THOSE THINGS.

>> RIGHT.

>> WELL, LET'S TALK ABOUT THE U.S ECONOMY IN GENERAL.

WE KNOW THAT THE UNEMPLOYMENT RATE HAS BEEN COMING DOWN.

WE'RE NOW LISTING THE OFFICIAL, WHAT THEY REFER

TO AS THE U-3 UNEMPLOYMENT RATE AT 5.1%.

BUT THE U-6, WHICH IS PERHAPS A BETTER MEASUREMENT

OF THE UNCOMFORTABLE NATURE OF EMPLOYMENT IN THE COUNTRY,

IS CLOSER TO 10% OR ACTUALLY IS AT 10%.

THAT MEANS, PEOPLE THAT ARE WORKING PART-TIME JOBS,

BUT WOULD REALLY PREFER TO HAVE FULLTIME WORK, BUT CAN'T FIND IT

AND THOSE THAT ARE FULLY UNEMPLOYED.

SO, WHAT ABOUT UNEMPLOYMENT?

WE'VE SEEN IT DROP.

IT'S NOW AT ABOUT 7% HERE IN L.A. COUNTY.

ARE WE SEEING UNEMPLOYMENT STARTING TO LEVEL

OUT WITH THE DEMAND OF JOBS?

AND ALSO, WE'RE GOING TO TALK ABOUT LABOR PARTICIPATION.

BUT FIRST, WHAT ABOUT THE RATE ITSELF?

>> SO, THE RATE YOU REFER TO, THE U-3 RATE,

I CALL THE HEADLINE RATE OF UNEMPLOYMENT

BECAUSE THAT'S WHAT WE HEAR ABOUT IN THE NEWS, AS A RULE.

SO, AT 5.1%, ITS COME DOWN, IT'S ABOUT HALF

OF WHAT IT WAS DURING THE WORST DAYS OF THE RECESSION.

TYPICALLY, THE U-6 RATE, WHICH ADDS IN DISTRESSED WORKERS,

PEOPLE WHO WOULD LIKE TO WORK FULLTIME,

BUT ARE WORKING PART-TIME AND SO ON, THAT RATE IS USUALLY

ABOUT DOUBLE THE HEADLINE RATE.

SO, WHEN THE UNEMPLOYMENT RATE WAS ALMOST 10%,

THE HEADLINE RATE, THE U-6 RATE, WAS ABOUT 20%.

IT'S COME DOWN QUITE A BIT, ARGUABLY.

IT'S STILL A LITTLE BIT ON THE HIGH SIDE.

AND MAYBE SOME PEOPLE WOULD SAY THAT IT'S MORE THAN A LITTLE BIT

ON THE HIGH SIDE, BUT IT HAS IMPROVED OVER TIME.

AND OTHER ASPECTS OF THE LABOR MARKET,

BEHIND THAT HEADLINE RATE, HAVE ALSO IMPROVED.

>> WHAT ABOUT THIS LABOR PARTICIPATION RATE

THAT WE ARE HEARING ABOUT A LOT THESE DAYS?

WE NOW HAVE 94 MILLION PEOPLE NATIONALLY

THAT ARE NOT PARTICIPATING IN THE LABOR FORCE.

THAT'S A PRETTY BIG NUMBER.

>> ABSOLUTELY.

>> WHAT DOES THAT MEAN, I KNOW THERE'S SOME TRENDS,

SUCH AS BABY BOOMERS, ARE TURNING 65 AT THE RATE

OF 10,000 PER DAY NOW.

SO, ONE WOULD THINK THEY WOULD BE EASING INTO RETIREMENT?

IS THAT WHAT'S HAPPENING?

>> SO, YES, THE LABOR FORCE PARTICIPATION RATES BEEN

DECLINING FOR SEVERAL YEARS.

IN THE IMMEDIATE AFTERMATH OF THE RECESSION, THE CONCERN WAS

THAT THIS WAS SYMPTOMATIC OF SOMETHING STRUCTURALLY WRONG

WITH OUR LABOR MARKET.

AS TIME HAS PASSED, WE HAVE TAKEN THE STANCE,

I MEAN ANALYSTS HAVE SORT OF SURMISED

THAT IT'S MORE AN ARTIFACT OF THE DEMOGRAPHICS.

AND SO, YOU'RE RIGHT, THE BABY BOOMERS ARE LEAVING THE LABOR

FORCE, AS THEY HIT RETIREMENT AGE.

THE INTERESTING THINK ABOUT THAT IS IT'S NOT QUITE WHAT YOU SEE

ON THE SURFACE.

THE LABOR FORCE PARTICIPATION RATE

OF OLDER AMERICANS IS ACTUALLY ON THE RISE,

RELATIVE TO HISTORIC STANDARDS.

AND AT THE SAME TIME AND THIS IS WHAT SHOULD BE MOST CONCERNING,