Banking on the Minnesota Economy

>> Eric: THIS WEEK THE FEDERAL RESERVE AGAIN HIKED INTEREST RATES SIGNALING THAT THE FED BELIEVES FURTHER BANKING TROUBLES ARE UNLIKELY.

CLOSER TO HOME THIS WEEK MINNESOTA REPORTED STRONG JOB GAINS IN FEBRUARY, THAT MEANS OUR STATE HAS FINALLY RECOVERED ALL THE PRIVATE SECTOR JOBS THAT WERE LOST IN THE PANDEMIC.

HOW CONFIDENT SHOULD MINNESOTANS BE ABOUT THEIR JOBS AND THEIR BANKS?

LET'S ASK LOUIS JOHNSTON, TEACHES ECONOMICS AT THE COLLEGE OF ST. BENEDICT'S AND ST. JOHN'S UNIVERSITY.

ARE OUR DEPOSITS AFE UP $250,000?

>> YES, SAFE UP TO THAT BUT THE FED IS PRETTY CLEAR IF YOU'VE GOT MORE THAN THAT, YOU'RE PROBABLY GOING TO BE BACKED UP AS WELL >> Eric: IS THAT A NEW DEAL?

>> YEAH, TWO WEEKS AGO WHEN SVP STARTED TO GO UNDER WHEN THE FEDERAL DEPOSIT INSURANCE CORPORATION TOOK THEM OVER IT WAS $250,000 BUT IT WAS PRETTY CLEAR THERE WERE A LOT OF DEPOSITORS WITH A LOT MORE MONEY THAN THAT.

THE FEDERAL RESERVE AND TREASURY DEPARTMENT STEPPED IN AND SAID IF YOU HAVE DEPOSITS ABOVE THAT WE'RE GOING TO BACK THOSE AS WELL AND MAKE IT POSSIBLE OF THE BANK TO DISPOSE OF ASSET IT NEEDS TO MAKE SURE YOU GET PAID.

>> Cathy: OKAY, THAT SOUNDS GOOD.

[ LAUGHTER ] >> SOUNDS GOOD.

>> Cathy: ARE BANKS TRULY HEALTHY IN THIS COUNTRY?

>> I THINK IN GENERAL THEY ARE.

THERE'S A NUMBER OF PROBLEMS, THOUGH.

ONE OF THEM IS MANAGING RISK, AND YOU THINK THAT'S WHAT A BANK IS SUPPOSED TO DO BUT WHAT THE FEDERAL RESERVE HAS DONE LATELY IS RAISE INTEREST RATES VERY RAPIDLY, ASTER THAN THEY EVER HAVE IN THE POST-WAR PERIOD.

A LOT OF BANK RISK MANAGEMENT IS BASED ON HISTORY.

IT'S LIKE, OKAY, THIS IS WHAT WE CAN EXPECT SO WE'RE GOING TO PLAN AHEAD LOOKING AT THAT.

WELL, THE FED RAISED INTEREST RATES MUCH FASTER THAN ANYBODY EXPECTED AND SO THE VALUE OF THEIR ASSETS HAS ACTUALLY FALLEN FASTER THAN THEY EXPECTED.

>> Eric: LESSONS FROM THE 2008 FINANCIAL CRISIS >> IN A WAY IT'S A RESULT OF THAT, THE DODD FRANK LEGISLATION AND PUT IN PLACE CERTAIN THINGS ABOUT MANAGING RISK AND SO THEY'VE PUT THOSE THINGS IN PLACE.

SOMETIMES THEY HAVEN'T LISTENED, SO FOR EXAMPLE ONE OF THE THINGS SVB HAD, THEY'RE SUPPOSED TO HAVE A HIEF RISK OFFICER.

THAT POSITION'S BEEN VACANT FOR EIGHT MONTHS, SO THAT'S A LESSON WE LEARNED BUT HAVEN'T SEEMED TO FOLLOW.

>> Cathy: SO THE FED IS LOOKING LIKE WE'RE GOING INTO A SIXTH STRAIGHT RATE HIKE VERSUS FOCUSING ON THE HEALTH OF BANKS.

>> CORRECT.

>> Cathy: IN THE MOST RECENT SITUATION.

>> AND THAT'S THE DILEMMA THAT THE UNITED STATES HAS.

THE FEDERAL RESERVE HAS WHAT'S CALLED A DUAL MANDATE.

IT'S SUPPOSED TO WATCH OUT FOR INFLATION BUT ALSO PROMOTE ECONOMIC GROWTH.

AND THAT MEANS THEY ALSO HAVE TO WATCH THE DISABILITY OF THE BANKS.

NO OTHER CENTRAL BANK IN THE WORLD HAS TO DO THIS.

ALL THE OTHER CENTRAL BANKS THEY CAN JUST FOCUS ON INFLATION AND LET SOMEBODY ELSE TAKE CARE OF IT.

WELL, NOW HE FED HAS TO DO THIS BALANCING ACT.

IF THEY RAISE INTEREST RATES TO MODERATE INFLATION THAT'S GOING TO MAKE THE BANKING PROBLEM WORSE.

>> Eric: FIVE-DIGIT EMPLOYMENT INCREASE IN MINNESOTA IN FEBRUARY.

WHAT'S GOING ON?

>> EYE-POPPING.

I THINK A LOT OF PEOPLE ARE COMING BACK INTO THE LABOR MARKET WHO WERE OUT OF THE LABOR MARKET BEFORE.

AND THE CONTINUED DEMAND FOR GOODS AND SERVICES IS LEADING BUSINESSES TO JUST KEEP ON ADDING ON EMPLOYMENT.

>> Eric: WAGES ARE NOT KEEPING UP WITH INFLATION.

>> NO.

BECAUSE THEY'RE GROWING IN NOMINAL TERMS, THAT IS THE DOLLAR AMOUNT IS GROWING BUT INFLATION IS JUST THAT MUCH FASTER.

>> Cathy: SO PEOPLE YOU THINK ARE GOING BACK INTO THE JOB MARKET WHICH IS A GOOD THING, BUT AREN'T WE ON THE CUSP OF A POTENTIAL RECESSION?

I MEAN, THERE ARE SOME PRETTY BIG LAYOFFS OUT THERE.

>> WELL, WE KEEP THINKING WE'RE ON THE EDGE OF A RECESSION BUT IT DOESN'T HAPPEN.

IT'S LIKE WE'RE WAITING FOR GADOT, IT JUST NEVER COMES.

JOB NUMBERS ARE GOOD, INCOMES SEEM TO BE GROWING, THINGS LIKE THAT.

I THINK WHAT WE'RE SEEING IN A LOT OF WAYS IS REORGANIZATION.

WE'VE GOT LAYOFFS IN SOME SECTORS BUT OTHERS THAT NEED WORKERS SO THEY'RE MOVING SIDEWAYS.

>> Eric: WHERE ARE YOU ON THE SO-CALLED WALZ CHECKS IF THEY HAPPEN IN TERMS OF INFLATION?

>> CONTRIBUTING TO INFLATION I DON'T THINK IT WILL MAKE THAT MUCH DIFFERENCE.

MINNESOTA ECONOMY IS NOT THAT BIG.

THE NATIONAL INFLATION RATE IS PRETTY MUCH DETERMINED BY OTHER THINGS.

I'M A LITTLE DISAPPOINTED THEY'RE TAKING THE ENTIRE SURPLUS AND SPENDING IT OR SENDING IT BACK AS TAXES.

I WOULD HAVE LIKE TO HAVE SEEN A LITTLE BIT MORE IN RESERVES, MY PET IDEA IS A SOVEREIGN WEALTH FUND FOR MINNESOTA THAT WE HAVE SOMETHING THAT COULD BE USED TO FUND THINGS KIND OF LIKE NORWAY HAS WITH OIL REVENUES.

WE COULD HAVE DONE THAT AND WE'VE BASICALLY DECIDED, NOPE, WE'RE GOING TO DIVVY IT LL UP.

>> Eric: YOU OT A BILL AUTHOR?

THAT'S AN INTERESTING IDEA.

>> I NEED A COSPONSOR.

>> Eric: OUTLOOK SHORT-TERM FOR THE ECONOMY, REST OF THE YEAR, WHAT DO WE GOT >> RIGHT NOW I THINK THINGS ARE LOOKING