Economic Letter

After 15 years of federal budget deficits that overwhelmed every discussion of fiscal policy, the United States now faces the prospect of huge budget surpluses for the foreseeable future–that is, if recent projections by the Clinton administration and the Congressional Budget Office can be believed. But can they?

The California economy is stronger than it has been in a number of years. Employment growth is solid, unemployment is low, and consumer confidence is rising.

Over the past decade, the banking industry has undergone rapid consolidation. Before the 1990s, most bank mergers involved banks with less than $1 billion in assets; more recently, even the very largest banks have merged with other banks and with nonbank financial firms.

The San Francisco Bay Area has had a “hot” real estate market for the past four years. The median single family house price in the Bay Area has appreciated by 30 percent to $330,000 since 1995.

In 1988, the Basel Committee on Banking Supervision, an international organization of bank supervisory agencies, adopted a capital adequacy framework for internationally active commercial banks based in the G-10 countries. However, after ten years, the limitations of that framework have become increasingly apparent.

In recent years an increasing number of observers have argued that changes in the operation of the U.S. labor market have led to rising job instability and job insecurity for American workers. The manifestations of this include an apparent rise in layoffs and a corresponding deterioration in workers’ attitudes about the prospects for staying in their current jobs.

The U.S. economy has performed remarkably well over the last few years. Real output has grown at a pace that is noticeably above average, while inflation has declined somewhat.

A recent poll indicated that there is considerable confusion about the state and the fate of the Social Security system (NPR 1999). While most Americans are aware of Social Security’s impending financial crisis, confusion over the dimensions of the program’s problems appears to be undermining support for the measures required to resolve them.

Bank supervisory agencies are responsible for monitoring the financial conditions of commercial banks and enforcing related legislation and regulatory policy. Although much of the information needed to do so can be gathered from regulatory reports, on-site examinations are needed to verify report accuracy and to gather further supervisory information.

While economists generally accept that monetary policy can influence nominal variables such as the price level and inflation, they continue to debate the relationship between monetary policy and real variables such as the unemployment rate and real GDP. During the early 1960s, many economists and policymakers believed that policy could exploit a stable trade-off between inflation and real economic activity.