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Annual ReporT 2011

Federal Reserve Bank of St. Louis | stlouisfed.org 1

Federal Reserve Bank of St. Louis

Annual ReporT
for the year 2011

Published May 2012
2010

2009

2005

2001

2000

1996

Many Moving Parts:
A Look Inside the
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Independence +
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Why the Fed
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How the U.S. economy
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Revolutions in Productivity
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Will Social Security
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President’s Message

European Sovereign Debt Crisis:
A Wake-up Call for the U.S.

Table of Contents
President’s Message .......................................................................................3
Sovereign Debt: A Modern Greek Tragedy .......................................4
Our Work. Our People. ...........................................................................18
Chairman’s Message ...................................................................................22
Boards of Directors, Advisory Councils, Bank Officers ............23

Read our financial statements on our web site at stlouisfed.org/
publications/ar There, you can also find this entire report, along
with a 10-minute video featuring key points in the essay and a
Spanish version of the essay.

2 Federal Reserve Bank of St. Louis | Annual Report 2011

n recent years, many countries’ deficit-to-GDP (gross
domestic product) and debt-to-GDP ratios rose as
governments increased their borrowing on international
credit markets to finance spending. For some European
countries in particular, the ratios reached far beyond those
considered sustainable. Consequently, these countries—
including Greece, Ireland and Portugal—saw their borrowing costs rise dramatically as markets began questioning
the countries’ ability and willingness to repay their debt.
Although the U.S. continues to have low borrowing
costs, the U.S. deficit-to-GDP and debt-to-GDP ratios
are nearly as high as those of some of the countries that
have had difficulty borrowing. The current European
sovereign debt crisis serves as a wake-up call for the
U.S. fiscal situation.
Borrowing in international markets is a delicate matter. A country cannot accumulate unlimited amounts
of debt; there is such a thing as too much debt, and it
occurs at the point where the country is indifferent
between the temporary benefit of defaulting and the
cost of not having continued access to international
credit markets. Markets understand that at some high
level of debt a country has a disincentive to repay it,
and, therefore, markets will not lend beyond this point.
Interest rates alone are not the best way to determine
whether a nation is borrowing too much or to evaluate
the probability of a debt crisis. Witness Greece and Portugal—two of the latest countries to face this borrowing
limit: Interest rates tend to stay low until a crisis occurs,
at which time they rise rapidly. Today, the U.S. has low
borrowing rates, but these low rates should not be comforting regarding the likelihood of hitting the debt limit.
So, what is the limit for debt accumulation? While
it can be difficult to evaluate, research has found that
once a country’s gross debt-to-GDP ratio surpasses
roughly 90 percent, the debt starts to be a drag on economic growth.1 In general, the European countries that
continue to have poor economic performances are the
ones that borrowed too much and are beyond this ratio.
Over the past couple of years, they have tended to have
relatively high (and frequently increasing) unemployment rates and low or negative GDP growth. Of course,

slower growth tends to exacerbate a country’s debt
problems. In contrast, countries that have not carried
too much debt—in particular, Germany and some of its
immediate neighbors—have tended to have relatively
low (and frequently decreasing) unemployment rates
and positive GDP growth.
The U.S. gross debt-to-GDP ratio is higher than 90
percent, and projections indicate that it will rise further.
Now is the time for fiscal discipline in order to maintain
the credibility in international financial markets that
the U.S. built up over many years. Failure to create a
credible deficit-reduction plan could be detrimental to
economic prospects. Furthermore, as the European
sovereign debt crisis has shown, by the time a country
reaches the crisis situation, fiscal austerity might be the
best of many unappealing alternatives. Returning to
more normal debt levels will take many years, but the
economy would likely benefit if the U.S. were to get
on a sustainable fiscal path over the medium term.
Some people say that the U.S. cannot reduce the
deficit and debt because the economy remains in dire
straits, but the experience of the 1990s suggests otherwise. During the 1990s, the U.S. had substantial deficit
reduction, and the debt-to-GDP ratio declined. The
economy boomed during the second half of the decade,
which helped to reduce the debt more quickly. While
reviving economic growth would also help now, temporary fiscal policies and monetary policy are not the best
way to do that. Having a credible deficit- and debtreduction plan in place would likely spur investment in
the economy, as it did during the 1990s.

James Bullard
President and CEO

For example, see Cecchetti, Stephen G.; Mohanty, M.S.; and Zampolli, Frabrizio.
“The Real Effects of Debt,” in Achieving Maximum Long-Run Growth. Presented at
the 2011 Economic Policy Symposium, Jackson Hole, Wyo., Aug. 25-27, 2011.

http://research.stlouisfed.org/econ/bullard 3

Sovereign Debt:
A Modern
Greek Tragedy
by Fernando M. Martin and Christopher J. Waller

Fernando M. Martin
is a senior economist at
the Federal Reserve Bank
of St. Louis. His areas
of interest are macroeconomics, monetary
theory, public finance
and dynamic contracts.

4 Federal Reserve Bank of St. Louis | Annual Report 2011

Christopher J. Waller
is a senior vice president and
the director of research at the
Federal Reserve Bank of
St. Louis. An economist, his
areas of interest are monetary
theory, political economy and
macroeconomic theory.

or the second time in ﬁve years,
the world faces a ﬁnancial crisis
that threatens the health of the
global economy. The first crisis, in
2007-08, was driven by excessive
mortgage debt owed by households.
The current crisis is driven by
excessive government debt owed
by entire countries. The common
factor driving both of these crises
is the fear that debts will not be
repaid. While this is a constant
concern with individual households, it is almost unimaginable
that highly developed economies
with democratic governments
would default on their debt. Yet
that is the harsh reality we face as
Portugal, Ireland, Italy, Greece and
Spain—the so-called PIIGS coun-

tries—struggle to get their debt
under control. And it is not only
the southern European countries
that are in trouble—the U.S. and
France had their credit ratings
downgraded in 2011 due to fears
of long-run insolvency.
At moments like these, the public
begins to ask questions about
national debt:
Why do nations borrow? When does
the level of debt become a burden?
What happens if a nation defaults on
its debt? How did Europe get itself
into this situation, and how can it get
out? Is the U.S. in equally serious
trouble because of its debt?
This essay addresses these questions and provides some insight as
to what may happen in the future.
For data, see http://research.stlouisfed.org/fred2/ 5

Why Is It Called
“Sovereign Debt”?
Since the U.S. is a democracy that chooses
its government representatives from its
own citizenry, we refer to the debt
accumulated by the government as the
“national debt” or “the debt of the nation.”
In the past, when monarchies were the
main form of government, the debt was
referred to as “sovereign debt” since it was
debt accumulated by the monarchy as
opposed to the nation’s citizens. Today, the
terms “national debt,” “government debt”
and “sovereign debt” are all conceptually
the same and are used interchangeably.

6 Federal Reserve Bank of St. Louis | Annual Report 2011

The Function of National Debt

Rolling Over Debt and Default

When governments spend more than they receive in
tax revenue during a given period, they must ﬁnance
the shortfall by borrowing. The current shortfall is called
the deﬁcit. If a country generates more tax revenue
than the government spends, it runs a surplus, which
pays off existing debt. Thus, the national debt is the
sum of the current and all past deﬁcits/surpluses. For
example, the 2011 U.S. federal deﬁcit was $1.3 trillion,
while the national debt was about $10 trillion.1 This
$10 trillion debt is the net accumulation of all spending
shortfalls back to the founding of the country.2
But why would a country choose to spend more than
it earns in tax revenue? For many of the same reasons
individuals borrow: to consume more goods today at the
cost of consuming less tomorrow.
Why would a government choose to have more
consumption today? Historically, the answer has been
wars. Wars are expensive and require the government
to acquire large quantities of goods and services immediately. Governments could ﬁnance this by dramatically
raising taxes temporarily. However, it is actually better to borrow the resources and slowly repay the debt
over time with permanently higher future taxes. This is
referred to as “tax smoothing,” a concept articulated by
Robert Barro, an economist at Harvard University, in an
influential 1979 paper.3 The idea is similar to a mortgage—borrow a lot of money to buy a house now and
slowly pay it off over time.
In addition to wars, government borrowing has been
used to ﬁnance civil works, such as the interstate highway system. Modern governments have also borrowed
to ﬁnance less tangible items, such as education, pensions and medical care.
By borrowing today, governments are implying that
they will raise future taxes to pay off their debts. A key
issue is how burdensome these future taxes will be. As
a rough rule of thumb, economists look at the ratio of
the national debt to national income as a measure of the
debt burden. The idea is to see how hard it would be to
pay off all of the nation’s debt with one year of national
income (i.e., GDP). Note that this is a very conservative
measure of a debt burden; it only considers using one
year’s income rather than a stream of future income to
repay the debt, and it ignores the wealth of the nation.
Notice that by this measure, the debt burden can be
reduced by paying off debt or by the economy growing
faster than debt.

Since the national debt is the accumulation of all past
deﬁcits, does this mean that debt issued to ﬁnance, say,
the Civil War, has never been repaid? No. That speciﬁc
debt was repaid by running a surplus and rolling over
the debt. Rolling over the debt means paying off old
debt by issuing new debt (akin to paying off your Visa
card with your MasterCard). Nearly all nations in the
world have outstanding sovereign debt, and they typically roll over the debt when it comes due.
Government debt is issued at different maturities,
which determines when the debt is to be repaid. Governments typically borrow funds with maturity dates
as short as three months and as long as 30 years. The
interest rate the government pays depends on the term
to maturity when the debt is issued. The relationship
between the interest rate paid and the maturity of the
debt is called the term structure of interest rates—or,
more succinctly, the yield curve. Figure 1 plots the yield
curve for U.S. debt.
The yield curve in Figure 1 has the typical shape:
upward sloping, meaning that the longer the time to
repayment, the higher is the interest rate. Simply put,
it is much cheaper to borrow for a short period of time
than to borrow for a long period of time. Consequently,
governments have an incentive to issue debt with a
short maturity. However, this requires them to roll over
their debt more often. As a result, governments face a
trade-off—borrow more cheaply but run the risk that the
debt will not be rolled over. Thus, governments typically
issue debt at a variety of maturities.
Creditors are willing to roll over the debt if they
believe they will be repaid in the future. If they fear
this will not happen, then they will ask for immediate
repayment of the debt or they will demand a very high
interest rate to compensate them for the risk of default.
In either case, the government would need to increase
tax revenue or reduce spending in order to obtain the
resources needed to repay the debt and the interest.
But the government cannot be forced to repay its debt
—it may choose to simply default.4
While the idea that an advanced country such as the
U.S. would default on its debt seems crazy, historically
it has been quite common for sovereigns to default on
their debts. Economists Carmen Reinhart at the Peterson Institute for International Economics and Kenneth
Rogoff at Harvard University document the history of
sovereign debt in their 2009 book This Time Is Different.5

Figure 1

U.S. Treasury Security Yield Curve
Percent, Continuously Compounded Zero Coupon
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0

Years to Maturity
SOURCE: Federal Reserve Board/Haver Analytics.
Bond yields are as of the end of December 2011.

FIGURE 1
Governments usually sell debt (bonds) with maturity dates
ranging from three months to 30 years. The shorter the
time period for repayment, the lower the interest rate that
the government has to pay. The relationship between the
rate and the maturity of the debt is called the term structure
of interest rates—or, more succinctly, the yield curve. The
figure shows the yield curve for all types of bonds that make
up the U.S. debt.

stlouisfed.org/followthefed

Between 1300 and 1799, now-rich European countries
such as Austria, England, France, Germany (Prussia),
Portugal and Spain all defaulted at least once on their
sovereign debt. France and Spain led the pack, with
eight and six default episodes each. The 19th century
witnessed a surge of sovereign debt defaults and rescheduling in Africa, Europe and Latin America; Spain alone
defaulted eight times.
Sometimes, countries default on their external creditors. Other times, governments default on their own
citizens. In today’s complex and interconnected world
economy, which traits make us classify debt as internal
or external? Consider the following relevant criteria.
First, a government may issue debt in its own currency
or debt denominated/indexed in some foreign currency.
Second, debt may be held by residents or nonresidents.
Third, debt may be adjudicated by local authorities or
international institutions. Due to the degree of integration of today’s capital markets, a country’s debt likely
will have both internal and external components.
Governments typically favor issuing debt in their own
currency since this allows them to print money to repay
it, if necessary. Generating revenue from newly printed
money (a process known as seigniorage) to repay debt
has been a recurrent practice for centuries and typically
generates high inﬂation rates for a period of time. The
ﬁnancing of debt through inﬂation constitutes a form
of (partial) default because the currency that is used
to repay the debt decreases in value as prices increase.

8 Federal Reserve Bank of St. Louis | Annual Report 2011

For example, in World War II’s aftermath (1946-48),
the U.S. federal government implemented a policy of
high inﬂation—10 percent annually on average—to
reduce the burden of accumulated debt. Lee Ohanian,
an economist at UCLA, estimated that the reduction of
the real value of debt due to the increase in prices was
equivalent to a repudiation of debt worth 40 percent of
gross national product.6
However, printing money to repay debt carries a cost—
inflation. A country can overuse seigniorage and create
very high inflation rates, even hyperinflation. Some of
the most notorious episodes in the 20th century include
Germany and Hungary in the early 1920s, Bolivia in
1984-85, Argentina in 1989-90 and Zimbabwe in 2008.
Governments may alternatively issue debt denominated
in foreign currency. This helps governments with a
record of high inflation to increase their credibility with
creditors, as the option to use seigniorage to repay the
debt is no longer available. In fact, a country’s credibility
may be so low that it has no option but to issue debt in
a more-stable foreign currency. However, a government
may reach a point where it is no longer willing to tax
its citizens to acquire the foreign currency necessary to
meet its obligations, choosing instead to default. A good
example is the Argentine sovereign debt default and
restructuring in 2002.
Who holds the debt—residents or nonresidents—has
an impact on the incentives to default. Clearly, it is
politically more difficult for elected officials to default
on residents because they can oust those representatives
from office. However, defaulting on external creditors is
not a “free lunch.” Countries can be barred from international capital markets until a satisfactory debt restructuring agreement has been reached. As with individuals,
a bad credit history implies higher financing rates and
lower borrowing ceilings.
Finally, where payment disputes are resolved is of
paramount importance. A defaulting government is
likely to have much more inﬂuence over local courts
than foreign courts. Reinhart and Rogoff argue that the
only absolute criterion when classifying debt as internal
is that it be adjudicated by domestic authorities.
So, why and when do countries default? Often,
default is driven by the markets’ unwillingness to roll
over existing debt or their willingness to do so only at a
prohibitively high cost. This may occur because creditors believe the debt of a nation is high enough that the
government may be unable to levy enough resources to
repay its debt.

Thus, the higher the debt burden, the more likely
a country is to default on its debt. However, the debt
burden is not always a good predictor of default. For
example, Brazil and Mexico defaulted in the early 1980s
when their debt-to-GDP ratio was only 50 percent,
whereas Japan has not defaulted in the postwar period,
even though its debt burden has been over 100 percent
since the mid-1990s and is currently 200 percent.
What this suggests is that creditors often refuse to roll
over debt because they believe governments are unwilling—instead of unable—to tax citizens enough to meet
debt obligations. In other words, creditors fear a country does not have the political will to raise taxes or cut
spending in order to get its ﬁscal house in order.7
The sheer magnitude of the debt burden is, therefore,
insufficient to predict default; other complementary
indicators, such as sovereign ratings by international
credit-rating agencies (S&P, Moody’s, etc.) and the debtto-exports ratio, need to be taken into account.
Although defaulting on sovereign debt is an age-old
phenomenon, we have not seen an outright default by
a developed nation since 1946. It is for this reason that
the current financial crisis in Europe has caused such
a stir. But European countries have been in debt for
decades and with relatively high debt-to-GDP ratios.
So why has this crisis surfaced now?

The European Union and the Euro
Having fought two world wars on its own soil within
a generation, Europe embarked on a strategy to ensure
that war would never come to Europe again. A key
element of that strategy was an integrated European
economy and potentially a single currency. The belief
was that the greater the economic integration of Europe,
the less likely countries would go to war again. Thus,
with the signing of the Treaty of Rome in 1957, the
European Union (EU) was created, and Europe began
the process of creating—if not politically, at least economically—the United States of Europe. Over the
decades since, tariffs and capital controls were eliminated,
free mobility of labor across borders was allowed and
substantial fiscal transfers flowed from the north to the
south for economic development. Then, in 1992, the
Maastricht treaty was signed, which paved the way for
the Economic and Monetary Union (EMU) and a single
currency—the euro. The euro would be managed by a
pan-European institution known as the European
Central Bank (ECB).

Figure 2a

Long-Term Interest Rates for the Original Eurozone
Members except Portugal, Ireland, Italy and Spain
Rolling 12-Month Average Percent
15
13
11
9
7
5
3
1990

1991

Austria

1992

1993

Belgium

1994

Finland

France

1995

1996

Germany

1997

1998

Luxembourg

1999

2000

Netherlands

Figure 2b

Long-Term Interest Rates for Portugal, Ireland, Italy,
Greece and Spain (PIIGS)
Rolling 12-Month Average Percent
30
25
20
15
10
5
0
1990
Greece

1991

1992

Ireland

1993
Italy

1994
Portugal

1995

1996

1997

1998

1999

2000

Spain

SOURCE: DG II/Statistical Office European Communities/Haver Analytics.

Ireland

Portugal
Spain

Italy

Greece

FIGURES 2A and 2B
In 1992, the Maastricht treaty was signed, paving the way for the
Economic and Monetary Union and a single currency—the euro. At
the time, economic performance of countries that wanted to belong to
the EMU varied greatly. Membership required many countries to lower
their long-term interest rates, inflation rates and other key indicators.
As the figures show, progress was made on long-term interest rates
by both groups of countries—the relatively fiscally healthy ones and
those not-so-healthy ones, namely Portugal, Ireland, Italy, Greece
and Spain, commonly called the PIIGS. Note, however, that the
percentages in the vertical axes of the two figures vary considerably.
For econ ed and personal finance, see stlouisfed.org/education_resources/ 9

Figure 3a

Figure 3b

Annual Inflation

Annual Inflation (PIIGS)

Percent

0
1990

1991

Austria

1992

Belgium

1993
Finland

1994

1995

France

1996

Germany

1997

1998

Luxembourg

1999

2000

Netherlands

0
1990

1991

Greece

1992

Ireland

1993
Italy

1994

1995

Portugal

Figure 4b

Government Deficit/GDP

Government Deficit/GDP (PIIGS)
Percent of GDP

12
10
8
6
4
2
0
–2
–4
–6
–8
1990

Maximum set by the
Stability and Growth
Pact of 1997

–5

1991

1992

Belgium

1993
Finland

1994

1995

France

1996

Germany

1997

1998

Luxembourg

1999

2000

Netherlands

–10
1990

1991

Greece

1992

Ireland

1993
Italy

1994
Portugal

1995

1996

1998

1999

2000

<< FIGURES 3A-5B

Gross Government Debt/GDP (PIIGS)

Percent of GDP

160

140

1997

Spain

Gross Government Debt/GDP

Not only did many of the countries that wanted to join the Economic
and Monetary Union have to lower their long-term interest rates (see
Figures 2A and 2B), but these countries had to lower their inflation
rates to a level closer to those of the fiscally stronger countries in
Europe. Figures 3A and 3B show there was quite a bit of success in
reaching this goal. (Note, however, the differences in the percentages
in the vertical axes.) In addition, all countries were required to stay
below thresholds for debt/GDP and deficit/GDP ratios, as set out in
the Stability and Growth Pact of 1997. As Figures 4 and 5 show, the
countries had mixed success in hitting these targets.

120

100

Maximum set by the
Stability and Growth
Pact of 1997

Austria

2000

5
Maximum set by the
Stability and Growth
Pact of 1997

Figure 5b

0
1990

1999

Figure 5a

1998

Austria

100

1997

Spain

Figure 4a

Percent of GDP

1996

1991

1992

Belgium

1993
Finland

1994
France

1995

1996

Germany

1997

1998

Luxembourg

1999

2000

Netherlands

20
1990
Greece

1991

1992

Ireland

1993
Italy

1994
Portugal

SOURCE: International Monetary Fund, World Economic Outlook database, April 2012.

10 Federal Reserve Bank of St. Louis | Annual Report 2011

Economic performance of countries in the EU varied
greatly. In order to ensure a smooth transition to a
single currency, these differences had to be reduced. To
speed the convergence of economic performance across
EU members, three criteria were established to join the
monetary union. First, a country’s long-term nominal
interest rate had to be within 2 percentage points of the
average rate of the three EU members with the lowest
rates. Second, the inﬂation rate had to be within 1.5
percentage points of the average of the three EU members
with the lowest inﬂation rates. Finally, a country had
to join the exchange rate mechanism, which required
maintaining the currency exchange rate within a narrow
band for two consecutive years without a signiﬁcant
devaluation.
These criteria imposed economic discipline at the central banks of prospective members of the EMU. There
was great success in meeting these measures by most
of the countries that adopted the euro, as shown in
Figures 2 and 3.
Nevertheless, there was great concern that if governments did not get their ﬁscal houses in order, there
would be pressure on the new ECB to print money to
ﬁnance spending by those governments.
Having experienced hyperinﬂation from seigniorage
creation, Germany was adamant that certain ﬁscal criteria had to be met to avoid this fate for all of Europe.
Consequently, in 1997, the Stability and Growth Pact
was signed. This pact added two criteria for prospective

1995
Spain

1996

1997

1998

1999

2000

members of the EMU. First, they were required to
keep the ratio of their deﬁcits as a fraction of GDP to
3 percent or less. Second, they were required to keep
the ratio of their gross government debt to GDP at or
below 60 percent. The idea was that the Stability and
Growth Pact would impose economic discipline on governments of prospective euro members. This goal had
varying degrees of success, as shown in Figures 4 and 5.
All told, there were five economic criteria that had
to be met to join the EMU. Unfortunately, all of these
criteria were to be met only prior to joining the EMU—
once a country joined, ﬁscal discipline vanished.
A constant concern in the 1990s for those studying the
EU process was how to handle a secession or ouster of
a country from the EMU or EU. Many argued that the
Maastricht treaty needed to lay out contingency plans
for such an event. However, for political reasons, this
was not to be discussed. The idea of making plans for
the breakup of a union before it even started seemed
ludicrous. In short, you can’t talk about divorce on your
wedding night! Alas, as often happens in marriage, this
lack of planning would come back to haunt the EU.

The Start of the EMU and Greece’s Shaky Entry
The euro was officially launched in 1999 as a unit
of account, with actual notes and coins being issued
in 2002. There were 11 initial members of the EMU;
member countries form the euro area, which is more
commonly referred to as the eurozone. Greece was not
a member, even though it wanted entry. It was initially
denied entry to the EMU in 1998 but won entry in 2000
and joined the eurozone in 2001.
Greece was denied entry in 1998 because it had met
none of the economic criteria laid out in the Maastricht
treaty or the Stability and Growth Pact. In 1997, Greece
had high inﬂation (5.4 percent), very high long-term
interest rates (9.9 percent), it did not participate in the
exchange rate mechanism, its deﬁcit-to-GDP ratio was
6 percent and its debt-to-GDP ratio was a whopping
98.7 percent.8 However, many of the initial eurozone
members did not meet the ﬁscal criteria either, as shown
in Figures 4 and 5.
Nevertheless, several of the potential eurozone members were moving in the right direction. Italy, for example, had lowered its deﬁcit-to-GDP ratio from 11 percent
in 1990 to only about 1 percent in 2000, while lowering
its debt-to-GDP ratio from a peak of 121 percent in 1994
to under 110 percent in 2000. Belgium, despite having
For data, see http://research.stlouisfed.org/fred2/ 11

Figure 6a

Figure 6b

Government Deficit/GDP

Government Deficit/GDP (PIIGS)

Percent of GDP

–2

–4

–6

–5

–8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

–10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Austria

Belgium

Finland

Germany

France

Luxembourg

Netherlands

Greece

Ireland

Italy

Portugal

2011

Spain

Figure 7a

Figure 7b

Gross Government Debt/GDP

Gross Government Debt/GDP (PIIGS)
Percent of GDP

Percent of GDP

180

120

160

100

140
120

100

60
40

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Austria

Belgium

Finland

Germany

France

Luxembourg

2011

Netherlands

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Greece

Ireland

Italy

Portugal

2011

Spain

SOURCE: International Monetary Fund, World Economic Outlook database, April 2012.
NOTE: 2011 data for Greece, Portugal, Finland and France are estimated.

<< FIGURES 6A-7B

Figure 8

Figure 9

Yield Spreads between PIIGS’
and Germany’s 10-Year Bonds

Credit Default Swap Prices
on Germany’s and PIIGS’ 10-Year Bonds
Basis Points

4000

5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0

3500
3000
2500
2000
1500
1000
500
0
Jan. 07
April 07
July 07
Oct. 07
Jan. 08
April 08
July 08
Oct. 08
Jan. 09
April 09
July 09
Oct. 09
Jan. 10
April 10
July 10
Oct. 10
Jan. 11
April 11
July 11
Oct. 11
Jan. 12

–500

Greece

Ireland

Italy

Portugal

Spain

SOURCE: Reuters/Haver Analytics.

12 Federal Reserve Bank of St. Louis | Annual Report 2011

Germany

After the financial crisis gained steam in 2008, the financial situation in
many eurozone countries deteriorated significantly, as can be seen in
their deficit/GDP and debt/GDP ratios.
<< FIGURES 8 and 9

Jan. 07
April 07
July 07
Oct. 07
Jan. 08
April 08
July 08
Oct. 08
Jan. 09
April 09
July 09
Oct. 09
Jan. 10
April 10
July 10
Oct. 10
Jan. 11
April 11
July 11
Oct. 11
Jan. 12

Basis Points

the highest debt-to-GDP ratio in Europe, had lowered it
from 126 percent in 1990 to 108 percent in 2000. Most
surprising, the “Celtic tiger,” Ireland, had lowered its
debt-to-GDP ratio from 94 percent to 38 percent over
the same period. Thus, the general assessment was that,
despite failing to meet the criteria in the Stability and
Growth Pact, these countries were doing the right thing
and would eventually meet the criteria.
What about Greece? As the data show in Figure 5B,
Greece was moving in the wrong direction. Its debtto-GDP ratio increased from 73 percent in 1990 to 103
percent in 2000. But the euphoria of creating a single
currency to compete with the U.S. dollar led to the decision to let Greece into the eurozone.
Upon joining the EMU, Greece saw its inﬂation rate
converge to that of the rest of Europe, which is not
surprising in a currency union. Somewhat more surprising is that the interest rate on long-term Greek debt
converged to the rate paid by Germany and France. The
same held for the debt of Spain, Italy, Ireland and Portugal.
Thus, ﬁnancial markets came to view the sovereign
debt of eurozone members as being perfect substitutes
despite the absence of a fiscal union and dramatically
different ﬁscal positions of euro members. If the probability of default was the same for each country, then
the convergence of inﬂation rates would justify having
equivalent interest rates on long-term debt. But given
the disparity in fiscal positions, the probability of default
was not the same for all countries, and interest rates
should have reﬂected this. The ability to borrow at the

Greece

SOURCE: Bloomberg.

Ireland

Italy

Portugal

Spain

Until late 2008, financial markets treated the debt of all eurozone members the same, no matter that some countries had their fiscal houses in
order (Germany, for example) and others didn’t (Greece and the other
so-called PIIGS countries). Once the deteriorating fiscal condition of
Greece and Ireland became well-known, the markets began to incorporate
default risk into the interest rates charged to governments to roll over
their debt. Hence, the spreads between what Germany paid on 10-year
bonds, for example, widened greatly over what the less frugal countries
had to pay. The same happened with credit default swap prices.

same rate of interest as Germany induced some European
countries to borrow substantially in international ﬁnancial
markets, notably Portugal, whose debt-to-GDP ratio went
from 48 percent in 2000 to 72 percent in 2008.
Again, if investors have conﬁdence that a country
will repay its debt, then the rollover problem becomes
irrelevant. However, if some type of “shock” occurs that
shakes investor conﬁdence, the rollover problem can
rear its ugly head and create havoc for governments.

Greece, Ireland and Portugal
The ﬁscal situation in several eurozone countries has
deteriorated signiﬁcantly since 2008. Figures 6 and 7
show deﬁcit-to-GDP and debt-to-GDP ratios for selected
countries.
In the summer of 2009, a new Greek government
took power. At the time, Greece was believed to have
a deﬁcit-to-GDP ratio of just under 4 percent while its
debt-to-GDP ratio was about 125 percent. After inspecting the tax and spending data, the new government realized that the statistics were flawed. The deﬁcit-to-GDP
ratio was not just under 4 percent but rather just under
16 percent! Although everyone suspected the Greeks
were misleading the markets with their fiscal numbers,
no one thought it was this severe.
At the same time, Ireland was beginning to incur the
true cost of bailing out its banking system during the
2007-08 ﬁnancial crisis. In 2007, Ireland’s debt-to-GDP
ratio was just 25 percent, and its deﬁcit was zero. By
2010, Ireland’s debt-to-GDP ratio was 93 percent, and its
deﬁcit-to-GDP ratio was over 30 percent.
The ﬁscal shocks hitting these two small countries
woke up the ﬁnancial markets to the risk of default on
sovereign debt. No longer did ﬁnancial markets view
European debt as perfect substitutes for one another.
Markets began incorporating default risk into the interest rates charged to governments to roll over their debt.
This is shown in Figure 8. Between January 2008 and
January 2012, the spreads between Greek and German
debt increased about 3,300 basis points, while the spread
between Irish and German debt jumped to about 550
basis points (peaking at 1,164 basis points in July 2011).
In addition, the change in default risk was reﬂected
in the prices of credit default swaps (CDS) on sovereign
debt—essentially an insurance policy against default. If
the government defaults on its debt, whoever sells the
credit default swap is responsible for covering the government’s debt obligation to the buyer of the CDS. The
stlouisfed.org/followthefed

Austerity
In response to increasing interest rates,
the Greek and Irish governments began
discussing or implementing unpopular
austerity measures to get their ﬁscal houses
in order. ... Although this sounds like good
news from the markets’ point of view, the
severity of the measures also suggested
that voters in Greece or Ireland might revolt
and decide to default rather than bear the
costs of austerity. Alas, there is no magic
elixir to deal with the burden of debt that
is accumulated over decades.

price demanded by a CDS seller reﬂects the probability
of default—the higher the probability of default, the
higher the price charged to acquire the insurance. The
CDS prices for various European countries are shown
in Figure 9. As the data show, CDS prices skyrocketed
for Greece and Ireland (and Portugal, as we shall discuss
below), reﬂecting an increased fear of default.
In response to increasing interest rates, the Greek and
Irish governments began discussing or implementing
unpopular austerity measures to get their ﬁscal houses
in order. Through a combination of tax increases and
reductions in spending, Greece’s deﬁcit-to-GDP ratio
fell from 16 percent in 2009 to a projected 8 percent
for 2011; Ireland’s fell from a peak 31 percent in 2010
to 10 percent in 2011.
Although this sounds like good news from the markets’
point of view, the severity of the measures also suggested
that voters in Greece or Ireland might revolt and decide
to default rather than bear the costs of austerity. Alas,
there is no magic elixir to deal with the burden of debt
that is accumulated over decades.
Portugal is often thrown in when Greece and Ireland
are discussed. Although the recent crisis has deteriorated Portugal’s economic conditions, its issues are
long-standing. For example, the unemployment rate has
been rising since 2002, going from about 4 percent on
average in 2000-01 to 8 percent in 2007. On the fiscal
side, debt-to-GDP increased from 48 percent in 2000 to
68 percent in 2007, with a deﬁcit that averaged about
3 percent of GDP. The financial crisis only made matters
worse. In 2009-10, the deﬁcit averaged 10 percent of
GDP and debt-to-GDP had climbed to 93 percent. The
unemployment rate continued to increase, reaching
12.5 percent in 2011:Q3. GDP contracted in late 2008
and throughout 2009, although growth resumed in 2010,
as in most other developed countries. However, output
again contracted in the ﬁrst three quarters of 2011. As
with Greece and Ireland, Portugal’s government bond
yields and CDS prices have increased substantially since
early 2010. (See Figures 8 and 9.) Between January
2008 and January 2012, the spreads between Portuguese
and German debt increased about 1,150 basis points.

The EU Response to the Crisis
Greek banks hold about 20 percent of Greek sovereign
debt ( 60 billion), and a Greek default would dramatically weaken the balance sheets of these banks. Thus,
markets stopped rolling over these banks’ debt due to

14 Federal Reserve Bank of St. Louis | Annual Report 2011

fears that they would no longer be able to honor their
obligations. This, in turn, meant that Greek banks could
not roll over funding of Greek government debt.
EU leaders, seeing the gravity of the situation, decided
in May 2010 to provide 500 billion in ﬁnancing to the
member countries facing difficulties rolling over their
debt. The biggest contributors to the fund were Germany
( 120 billion) and France ( 90 billion).
Why would Germany and France be willing to transfer
tax revenue from their citizens to Greece and Ireland?
One reason is that other European banks also hold a
signiﬁcant amount of Greek and Irish debt. German
banks hold 8 percent (about 24 billion) of Greek debt,
and French banks hold about 5 percent ( 15 billion) of
Greek debt. EU leaders feared that a default on Greek
and Irish debt would cause a serious deterioration in their
own banks’ values and that a bank run would ensue.
However, Greece and Ireland are very small economies
—Greece’s GDP (measured in U.S. dollars) was about
$300 billion in 2010, while Ireland’s was approximately
$200 billion. Their combined GDP is less than the GDP
of Pennsylvania. It seems hard to believe that a concern over Pennsylvania’s state debt would roil world
ﬁnancial markets and frighten U.S. leaders. How is it
that the debt problems of two small countries could create so much havoc that the entire EU would intervene?
Wouldn’t it be easier and cheaper for the German and
French governments to just buy the Greek and Irish debt
held by their banks?
Greece and Ireland (and Portugal) were not really the
problem. They were merely a wake-up call to the very
large debt burdens of large European economies, such
as Italy and Spain.
Italy has about 1.9 trillion of debt outstanding, of
which 50 percent is held externally. Furthermore, Italy
needs to roll over more than 300 billion of debt in
2012, an amount greater than the entire Greek debt!
Complicating matters is the fact that Italy has had essentially zero economic growth over the past decade; thus,
it has not been able to reduce its debt burden through
income growth. Consequently, Italian debt per capita is
the second-highest in the world. The debt is particularly
burdensome: Italy spends about 5 percent of GDP on
interest payments, 2 percentage points more than the
euro area average and what the U.S. pays. Combine
this with an aging population and a birth replacement
rate of 1.4, and it is clear why ﬁnancial markets became
alarmed about the possibility of a default on Italian government debt.9 As a result, the interest rates on Italian

debt soared to 7 percent in late 2011 in order to induce
investors to roll over their holdings of Italian government debt.
Similarly, Spain’s public debt has reached about 735
billion. Roughly a quarter of these obligations are shortterm (i.e., mature in less than a year). Spain enjoyed
an auspicious run in the ﬁrst half of the 2000s. Government debt decreased steadily, the product of a growing
primary surplus. GDP was growing at an annual rate
of 3.6 percent on average before the 2008 crisis hit. Its
troubled labor market showed continuous improvement,
with the unemployment rate reaching 8 percent in mid2007, down from 15 percent at the beginning of 2000.
Since late 2008, Spain’s economic conditions have
deteriorated substantially. Debt and deﬁcits grew
enormously: The deﬁcit averaged 10 percent of GDP in
2009-10, and debt surpassed its 2000 levels, undoing
about a decade of steady decline. Output growth has
remained tepid, below an annual rate of 1 percent. Most
discouraging, the unemployment rate has soared back to
a level we have not seen since the mid-1990s. As of the
third quarter of 2011, the unemployment rate was about
22 percent. As with Italy, interest rates on debt have
been increasing steadily since early 2008.
It became clear in 2011 that the initial round of
assistance from the EU for sovereign debt funding
would not be enough if the markets stopped
rolling over the debt of Italy and Spain.
Therefore, an additional 340 billion of
funding was provided.
In December of 2011, the ECB poured
liquidity into the banking system to try to
stem the crisis. It did so by committing to
provide up to 1 trillion of funding to banks
for up to three years. The hope was this
action would calm financial markets and ease
short-term funding problems for the governments facing rollover pressure. These actions
have been very successful to date, as shortterm interest rates have declined substantially. However, interest rates beyond three
years have not declined much. This suggests
the ECB has given European governments
three years of breathing room to make the
appropriate fiscal adjustments. Nevertheless, the adjustments must be made.
Only time will tell whether these actions
will be sufficient to ﬁnally end the sovereign debt crisis in Europe.
For econ ed and personal finance, see stlouisfed.org/education_resources/ 15

Figure 10

U.S. Federal Deficit
Percent of GDP
35
30
25
20
15

Alternative Fiscal Scenario

On March 9, 2012, four-fifths of Greece’s private
creditors agreed to a bond swap. This debt restructuring
will reduce obligations by 100 billion, about half the
face value of eligible bonds. Given that some creditors
will be forced to exchange their bond holdings, this
event has triggered the payment of credit default swaps
on Greek debt. The default will impose severe losses
on domestic banks, which, as mentioned above, hold a
substantial fraction of Greek debt.

5
0

Baseline Projection

1940
1944
1948
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
2016
2020

–5

SOURCE: Congressional Budget Office.

FIGURE 10
The U.S. federal deficit is higher than it’s been since the
end of World War II. The two projections are from the
Congressional Budget Office. The baseline projection
assumes current tax cuts will be allowed to expire. The
alternative mostly assumes the extension of these tax
provisions. The projections are as of March 2012. The
years are fiscal years.

16 Federal Reserve Bank of St. Louis | Annual Report 2011

The Situation in the U.S.
As the economic situation in Europe has deteriorated,
the U.S. has been going down its own rocky path. In
response to the recession following the recent ﬁnancial
crisis, the U.S. government has been running deﬁcits
of a magnitude not seen since World War II. (See
Figure 10.) These deﬁcits are the result of both lower
revenue and higher expenditure, the latter mostly due
to increases in income security programs (e.g., unemployment benefits) and Social Security, Medicare and
Medicaid payments. As a consequence, total debt from
all levels of government went from 53 percent of GDP
in 2007 to 84 percent in 2011.
Despite the large increase in debt, U.S. bond yields
have remained low (about zero for 3-month and 1-year
bonds) throughout this episode. In part, the reason is
“ﬂight to quality.” As investors have reduced their
exposure to troubled private asset markets (e.g., mortgages) and risky sovereign debt (e.g., Greece, Ireland
and Portugal, but also Italy and Spain), the demand for
U.S. Treasuries has soared. Germany, Japan and the
U.K. have also experienced a decline in government
bond yields due to increased demand.
Regardless of how the European situation gets
resolved, the U.S. faces its own challenges. According
to the latest baseline projections from the Congressional
Budget Office (CBO), federal debt held by the public
will go from 68 percent of GDP in 2011 to 71 percent
of GDP in 2016, reaching a peak of 76 percent of GDP
in 2013. Interest payments on the debt will go from
1.5 percent to 1.8 percent of GDP over the same period.
Under an alternative fiscal scenario—which mostly
assumes the extension of expiring tax provisions—the
CBO projects that debt held by the public would rise to
83 percent of GDP by 2016.
No matter which budget outlook prevails, the U.S.
will have to decide whether it is comfortable maintaining a larger stock of debt, with its associated higher

financial burden, or prefers to return to levels that are
more normal by historic standards. Either way, there
will be a need for higher taxation and stronger incentives for inﬂation. The CBO currently estimates that
federal tax revenue will increase by about 5 percentage
points of GDP between 2011 and 2016 if current tax
legislation is carried out.10 Under the alternative fiscal
scenario, this increase would be cut in half.
Compounding this situation is the outlook for expenditures. Since the 1950s, transfers—Social Security,
Medicare, Medicaid, etc.—have been steadily growing
as a share of federal outlays. Currently, transfers represent about two-thirds of expenditures net of interest
payments. As a comparison, defense spending is about
a ﬁfth of all expenditures. By 2016, transfers are projected to be at 14 percent of GDP, and total outlays
before interest payments will reach 23 percent of GDP.
In summary, the U.S. faces difficult ﬁscal choices.
Taxes have to be raised and/or spending must be cut.
The pain associated with these actions will fall on different groups, and that leads to political conﬂict. Political
conﬂict means delay in getting the U.S. ﬁscal situation
on ﬁrmer ground. Whether this conﬂict will scare
ﬁnancial markets and lead to a rollover crisis for the
U.S. remains to be seen.

Conclusion
So what is the moral of this modern debt tragedy? As
is the case with any form of debt, the ability to borrow
from the future to ﬁnance current consumption can be
tremendously beneﬁcial. For example, the U.S. debt
incurred to ﬁnance World War II helped free the world
from fascism and Nazism, thereby setting the stage for
the spread of democracy around the world. Most would
agree that borrowing in this instance generated large
beneﬁts for the entire world. Therefore, public debt can
be used to achieve good outcomes for society.
However, the tragedy of this story is that borrowing,
by its very nature, is seductive—the rewards are felt
immediately and the pain is postponed to the future.
Thus, it is very tempting for government leaders, much
like individuals and households, to push the envelope of
borrowing to obtain current pleasure while downplaying
the pain that will come. As a result, debt burdens can
rise to levels that eventually become unsustainable, leading to crisis and periods of severe austerity. The world
has moved into such an era now, and the final act of this
modern tragedy is yet to come.

ENDNOTES
This figure corresponds to what is known as “debt held by the public.”
The U.S. “gross debt,” which includes holdings by federal agencies—
i.e., money that the government owes to itself—was about $15 trillion
by the end of fiscal year 2011.
2
Since the U.S. is a democracy that chooses its government representatives from its own citizenry, we refer to the debt accumulated by the
government as the “national debt” or “the debt of the nation.” In the
past, when monarchies were the main form of government, the debt
was referred to as “sovereign debt” since it was debt accumulated by
the monarchy as opposed to the nation’s citizens. Today, the terms
“national debt,” “government debt” and “sovereign debt” are all conceptually the same and are used interchangeably.
3
Barro, Robert J. “On the Determination of the Public Debt,” Journal of
Political Economy, October 1979, 87(5), pp. 940-971.
4
Note that default on sovereign debt is hardly ever full and absolute.
Most of the time, payments are suspended for a while (it can be a
very long while), and restructuring takes place. This process typically
involves both a reduction in total commitments and a rescheduling
of payments.
5
Reinhart, Carmen M.; Rogoff, Kenneth S. This Time Is Different.
Princeton University Press, 2009.
6
Ohanian, Lee. The Macroeconomic Effects of War Finance in the United
States: Taxes, Inflation, and Deficit Finance. New York, Garland Press, 1998.
7
This was the reason given by Standard & Poor’s for downgrading
U.S. debt in August 2011.
8
We use deﬁnitions consistent with the Maastricht treaty. Thus, fiscal
accounts cover all levels of government, i.e., central, local and social
security. “Debt” is deﬁned as “gross debt,” which includes currency
and deposits, securities (i.e., bonds) and loans.
9
The replacement rate is the number of children born to each woman in
a country. Ignoring immigration, a country’s population will shrink if
the replacement rate is less than 2 for an extended period of time. A
shrinking population means a smaller future pool of workers to tax.
10
This is mainly due to the expiration of tax provisions enacted in 2001,
2003 and 2009 and extended in 2010.
1

Sovereign Debt:
A Modern
Greek Tragedy
You’ve read the essay.
Now, watch the video.

Go online to watch a 10-minute
video of the authors of this essay as
they discuss their key points. See
stlouisfed.org/publications/ar

For data, see http://research.stlouisfed.org/fred2/ 17

Our Work. Our People.
O

Besides speaking at meetings and conferences inside
and outside the Bank, President James Bullard
participates often in media interviews in order to
share his views with a wide audience.

ur nation’s central bank, the Federal Reserve, has three main components: the Board of
Governors, the Federal Open Market Committee and the 12 Reserve banks around the
country, including the Federal Reserve Bank of St. Louis. This decentralized structure helps
to ensure that the diverse views and economic conditions of all regions of the country are
represented in monetary policymaking.

The St. Louis Fed was established in 1914. It oversees
the Eighth Federal Reserve District, which is made up
of Arkansas and parts of Illinois, Indiana, Kentucky,
Mississippi, Missouri and Tennessee. At the St. Louis
Fed, economists support the Bank president and
constituents by conducting regional, national and
international economic research. Other staff members
supervise financial institutions to help ensure their
safety and soundness. Financial services are provided to
District banks and the U.S. Treasury to keep the nation’s
payments system running efficiently. The Bank produces

financial and economic education for primary and high
school students and teachers, as well as workshops and
conferences for college professors, business people and
the general public. The St. Louis Fed also works within
communities to foster innovation and partnerships in
community development. The District’s board of directors provides governance oversight of management and
approves management’s allocation of resources to the
Bank’s major activities.
The numbers that follow provide a glimpse of our
work and our people in 2011.

956 employees,
the majority of whom
work at the District’s
headquarters in St. Louis,
with staff also located at
the branches in Little Rock,
Louisville and Memphis.
Turnover for the year was
4.8 percent.

our supervision, up seven from 2010 and up 33 from
a decade ago. No state member bank has failed since
the onset of the financial crisis in 2007. (In fact, no
member bank has failed since the early 1990s.)

196 meetings held with bank CEOs
to discuss local economic conditions and monetary
policy developments impacting markets.

9,100 business and industry leaders, as well as members
of the general public, attended 146 speeches
given outside the Bank by Bank executives.
18 Federal Reserve Bank of St. Louis | Annual Report 2011

hours were devoted to
turning innovation into
action in Community
Development’s 10,000-Hour Challenge. The challenge
encouraged community development professionals to
collectively dedicate themselves to 10,000 hours of
innovation. For example, a Montana-based housing
developer contributed 4,300 hours during construction
of a sustainable, affordable housing development
registered for LEED gold certification.

17.7 million page views to all online sites
of our Research division. These sites include that of our
signature economic database, FRED® (Federal Reserve
Economic Data), as well as those sites for our publications.

IT employees Karthik Nachiappan
and Shawn Brown in a server room.

112 state-chartered banks were under

Kathy Cowan of the Community Development office in the Memphis Branch
of the Bank and Glenda Wilson (foreground), the Community Affairs Officer
for the St. Louis Fed, work to ensure that underserved communities have fair
access to credit.

Cash and canned goods equal to
131,925 cans of food were
donated by employees to a local food
bank during the St. Louis Fed’s annual
food drive, bringing the total to over
1 million since this event began
at the St. Louis Fed in 1994.

Above, Kathy Cosgrove (left) and Deon Anderson of the Bank’s library
clean up at a downtown St. Louis church after helping to serve a meal to
the homeless.

Many employees volunteer
their free time to serve
those in need throughout
the community. Many of
these efforts are organized
by a Bank group called Fed
Employee Volunteer
Resources (FEVR).
To the right, Chris Gelsinger of the
Banking Supervision and Regulation
division helps to build a house for
Habitat for Humanity.

Among our Research economists: Luciana Juvenal, Michael Owyang,
Maria Canon, Daniel Thornton and Subhayu Bandyopadhyay.

41 working papers and 41 articles published or accepted for publication in peer-reviewed
journals by our 27 economists in the Research
In addition, there were more than 15 million
hits to the RePEc (Research Papers in Economics)
database, which the St. Louis Fed started hosting in 2011.

division and Office of the President. These economists’
works were cited more than 700 times by other
authors in peer-reviewed articles published in 2010
(the most recent year for which this number is available).
stlouisfed.org/followthefed

16,632 guests

507 people attended or watched
via webcast three Dialogue with the Fed
events, a new program that offers the
general public an opportunity to discuss
current financial topics with Fed experts.

attended 724 meetings or conferences in our
Gateway Conference Center.

One of our speakers, William R. Emmons, an economist in Banking Supervision and Regulation.

121,455 page views for our Regulatory Reform
Rules web site, where people can track the Dodd-Frank
Act rulemaking process.
Fred the Frugal Eagle makes appearances periodically in area classrooms
to encourage children to save and to learn about personal finance.

Students from nine universities in four states
gathered for a “Day at the Fed” held at the Bank.
They learned about the Fed, including about job
opportunities.

The Treasury Relations and Support Office at the
St. Louis Fed monitors 33 business lines and
12 support functions provided by various
Federal Reserve banks to the U.S. Treasury. These services all relate to the management of the government’s
money, including making all payments (like Social Security) and collecting of taxes and fees. Much of the work
these days is aimed at eliminating paper—paper checks
for Social Security recipients, for example, and paper
contracts and bills for suppliers.

1,381,899 page views
of our econ ed web site, where podcasts, videos, online
courses and other lessons on basic economics and personal
finance are tailored for a variety of audiences: teachers at
all levels, students at all levels and the general public.

8 suspect counterfeit notes per day
are identified, all of which are turned over to the
Secret Service.

the Bank’s online economic education courses.

destroyed because it’s worn out.

A Quarterly Review
of Business and
Economic Conditions
Vol. 20, No. 2
April 2012

Oil Prices

Calculating the Role
Played by Speculators

The ABCs of CDS
and Their Impact in Europe

Bank oF sT. louis
The Federal reserve
®
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eCoNomy

Central

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ict BaN
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for eigh
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Best Practices
this issue: ALLL
Feature d in

$233,515 raised by employees during the annual
United Way campaign.

64,899

Credit Default Swaps

| Bank Performa

nce Continues on

Meandering Path

Figure 1

By Gary Corner

historical Pretax return

the St. Louis Fed on Twitter at the
end of the year.

A Look Inside the U.S. Labor Market
By DaVID aNDolFaTTo aND MaRCela M. WIllIaMS

almost 8 million jobs were lost in the Great Recession of 2007-09 when the
average unemployment rate peaked at over 9 percent. Roughly 1 million jobs have been regained since early 2010, but the unemployment rate
remains persistently high. Some policymakers fear a prolonged “jobless
recovery”—a period of rising average income, measured by gross domestic
product (GDP)—with little or no employment growth.

College Degrees

on equity
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is more than
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What’s Your
Question?
Unemployment

Economic
Snapshot
Duration of
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Bulletin Board
aP economics
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Resources
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20 Federal Reserve Bank of St. Louis | Annual Report 2011

Many Moving Parts:

12/31/2002

8,502 people were following

www.stlouisfed.org/education_resources

otherwise) to our publications.

A n E c o n o m i c E d u c At i o n n E w s l E t t E r f r o m t h E f E d E r A l r E s E r v E B A n k o f s t. l o u i s

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Why aren’t More Peo
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Total number of
subscribers (print and

Volume 17
Issue 1
Spring 2012

k Returns on
Will Community Bancrisis Levels?
Equity Return to Pre

12/31/2011

37,969 students around the country enrolled in

(counted, sorted, culled and authenticated)

12/31/2010

Scott Wolla of the economic education department stars in many videos
that help explain basic economic concepts.

13 percent of all currency handled by the Fed is

Spring 2012

$105 billion: the dollar value of all currency
deposited by financial institutions into the
St. Louis Fed’s vaults plus the dollar value of all
currency ordered by financial institutions from
the St. Louis Fed.

3.8 billion total notes processed

Fed.org
sTlouis

What, if anything, monetary and fiscal
policymakers can or should do to stimulate
the labor market is widely debated. Disagreements stem, in part, from the complicated
nature of the problem: The labor market has
many moving parts, policies may have unintended consequences, and ups and downs in
the labor market can be difficult to interpret.
Contrary to common belief, unemployment is not technically a measure
of joblessness. It is, instead, a measure of
job-search activity among the jobless. Millions of unemployed people find jobs every
month, even in a deep recession. Millions
of workers either lose or leave their jobs
every month, even in a robust expansion.
This flow of workers into and out of employment suggests that the labor market plays
an important role in reallocating human
resources to their most productive uses
through good times and bad. Furthermore,
unemployment rates, like most measures
of labor market activity, often vary significantly across economic and demographic
characteristics, such as income, age, sex, and
education.

In the labor market, the job-search activity
of unemployed workers coincides with the
recruiting efforts of firms with job openings.
The combination of jobs seekers and open
jobs suggests the presence of “frictions” in
the process of matching workers to jobs.
Vacancy rates (job openings) and unemployment rates tend to move in opposite
directions over the business cycle. Normally,
good times induce firms to create job openings, making it easier for unemployed workers
to find jobs. However, this is not always the
case. Since the end of the Great Recession, for
example, job openings in the United States
appear to have increased, yet unemployment
is still high. Some economists interpret this as
evidence of a “structural” change that will take
years to work through.
In everyday language, a “job” or “employment” is commonly associated with an
activity that generates a monetary reward.
Standard labor force surveys classify a
person as employed in a given month if
the person reports having performed any
continued on Page 2

T h e f e d e r a l r e s e r v e b a n k o f s T. l o u i s : C e n t r a l t o a m e r i C a’ s e C o n o m y ®

For econ ed and personal finance, see stlouisfed.org/education_resources/ 21

chairman’s message

erving on the board of directors of the
Federal Reserve Bank of St. Louis has
been a tremendous learning experience
these past 31/2 years. To be chairman of the
board is both a great honor and responsibility.

My journey with the Fed began at my first board
meeting in September of 2008 when Chairman Ben
Bernanke was coincidentally visiting the St. Louis Fed.
The weekend following this board meeting was when
Lehman Brothers went bankrupt, and by the time I
attended my second Fed board meeting, 30 days later,
the System-wide balance sheet had grown by over
$1.5 trillion.
I have learned quite a bit about our Bank since then.
First is understanding the critical impact the Federal
Reserve System has on our nation and the world, as
well as understanding the St. Louis Fed’s role in that
System. The dramatic easing of monetary policy in the
fall of 2008 averted, in my opinion, an economic
depression. This courageous and effective response to
the financial crisis was due to the independence of the
Fed and the wisdom of its leadership. The St. Louis Fed
plays a key role in both. By representing “Main Street,”
the St. Louis Fed, along with its peer banks, provides
the Board of Governors of the Federal Reserve System a
local voice and legitimacy to counter tendencies to centralize and, hence, politicize monetary decision-making
out of Washington, D.C. There is broad consensus that
monetary policy needs to be independent from political
pressures if it is to be effective and credible. The district
banks, such as the St. Louis Fed, play a key role in
ensuring this independence.
22 Federal Reserve Bank of St. Louis | Annual Report 2011

Beyond preserving independence, the 12 regional
banks provide economic input from the local level—
real-time, contextual information—from which the
Federal Open Market Committee (FOMC) can wisely
judge the state and mood of the economy, a perspective
that is critical for effective monetary policy.
It is important to note the additional broad range of
critical services the St. Louis Fed provides:
• As a world leader in economic research, the
Bank makes possible vital understanding of the
economy, knowledge that frames and illuminates
decision-making on monetary policy;
• The Bank is a key service provider to the U.S.
Treasury, coordinating a number of programs at the
Treasury Department on behalf of the entire Federal
Reserve System;
• The St. Louis Fed is a primary regulator of banking
institutions in our geography, providing professional
independent oversight to more than 100 banking
entities in seven states; and
• Finally, the St. Louis Fed plays a contributing role in
educating various local constituencies on the workings of the U.S. financial system, an understanding that
has become increasingly important and sought after by
our citizens during these stressful economic times.
The board of directors’ responsibility is to provide
objective and experienced operational oversight over all
of the above activities, as well as to provide input on local economic conditions. It is from that perspective that
the board acknowledges the tremendous talent of all of
those who work for the St. Louis Fed. The Bank runs
like a well-managed business. It is a performance-based
culture with a well-trained and well-educated workforce
and with clear objectives and metrics to measure results.
On behalf of the board, thank you to all St. Louis Fed
employees for serving our citizens so well.

Boards of Directors
Advisory Councils
Bank Officers
We bid farewell and express our gratitude
to those members of the boards of
directors and of our advisory councils
who retired recently.
From the Boards of Directors

From the Industry Councils

St. Louis
Steven H. Lipstein
J. Thomas May

Health Care
Sister Mary Jean Ryan

Little Rock
Phillip N. Baldwin
Robert A. Young III
Louisville
John C. Schroeder

Real Estate
John J. Miranda
David W. Price
Transportation
Roger Reynolds
The Eighth Federal Reserve District is composed of four zones,
each of which is centered around one of the four main cities:
Little Rock, Louisville, Memphis and St. Louis.

On the following pages are board members
from each of the four offices: St. Louis,
Little Rock, Louisville and Memphis.
On each page are photos of a sampling
of industries that are important to those
particular areas of the District.
All those listed on the following pages are
current officeholders.

Sincerely,

Ward M. Klein
Chairman of the Board of Directors

For data, see http://research.stlouisfed.org/fred2/ 23

Chairman

St. Louis Board

Little Rock Board

Sonja Yates Hubbard

Chairman

CEO
E-Z Mart Stores Inc.
Texarkana, Texas

Ray C. Dillon

Deputy Chairman

William E. Chappel

Gregory M. Duckett

Ward M. Klein

Sharon D. Fiehler

CEO
Energizer Holdings Inc.
St. Louis

Executive Vice President
and Chief Administrative Officer
Peabody Energy
St. Louis

President and CEO
The First National Bank
Vandalia, Ill.

Senior Vice President
and Corporate Counsel
Baptist Memorial Health Care Corp.
Memphis, Tenn.

Robert G. Jones

Cal McCastlain

George Paz

Susan S. Stephenson

Mark D. Ross

William C. Scholl

C. Sam Walls

President and CEO
Old National Bancorp
Evansville, Ind.

Partner
Dover Dixon Horne PLLC
Little Rock, Ark.

Chairman, President and CEO
Express Scripts
St. Louis

Co-chairman and President
Independent Bank
Memphis, Tenn.

Vice Chairman
and Chief Operating Officer
Bank of the Ozarks
Little Rock, Ark.

President
First Security Bancorp
Searcy, Ark.

CEO
Arkansas Capital Corp.
Little Rock, Ark.

President and CEO
Deltic Timber Corp.
El Dorado, Ark.

Michael A. Cook

Mary Ann Greenwood

Kaleybra Mitchell Morehead

Vice President
and Assistant Treasurer
Wal-Mart Stores Inc.
Bentonville, Ark.

President and Investment Adviser
Greenwood Gearhart Inc.
Fayetteville, Ark.

Vice President for College Affairs/
Advancement
Southeast Arkansas College
Pine Bluff, Ark.

Robert Hopkins
© corbis

Among the key industries in the St. Louis Zone of the Eighth District are transportation
(particularly on the rivers), agriculture (and related specialties, such as bio-ag and bio-tech),
financial services, defense and health care.

Regional Executive
Little Rock Branch
Federal Reserve Bank of St. Louis

Major industries in the Little Rock Zone include agriculture
(particularly rice), discount retail, energy (including the
extraction of natural gas from shale) and aviation/aerospace.

24 Federal Reserve Bank of St. Louis | Annual Report 2011

stlouisfed.org/followthefed

Louisville Board

Chairman

Malcolm Bryant

David P. Heintzman

Jon A. Lawson

Barbara Ann Popp

President
The Malcolm Bryant Corp.
Owensboro, Ky.

Chairman and CEO
Stock Yards Bank & Trust Co.
Louisville, Ky.

President, CEO and Chairman
Bank of Ohio County
Beaver Dam, Ky.

Gerald R. Martin

Gary A. Ransdell

Vice President
River Hill Capital LLC
Louisville, Ky.

President
Western Kentucky University
Bowling Green, Ky.

President
Schuler Bauer
Real Estate Services
New Albany, Ind.

Allegra C. Brigham

Roy Molitor Ford Jr.

Mark P. Fowler

Managing Member
Blatteis Law Firm PLLC
Memphis, Tenn.

President of the Mississippi University
for Women Foundation
and Vice President for University
Relations and Advancement at MUW
Columbus, Miss.

Vice Chairman and CEO
Commercial Bank and Trust Co.
Memphis, Tenn.

Vice Chairman
Liberty Bank of Arkansas
Jonesboro, Ark.

Kevin Shurn

Lawrence C. Long

Clyde Warren Nunn

Charlie E. Thomas III

President and Owner
Superior Maintenance Co.
Elizabethtown, Ky.

Partner
St. Rest Planting Co.
Indianola, Miss.

Chairman and President
Security Bancorp of Tennessee Inc.
Halls, Tenn.

Regional Director
of External and Legislative Affairs
AT&T Tennessee
Memphis, Tenn.

Maria G. Hampton
© 2011 truckcampermagazine.com

In the Louisville Zone, auto
assembly plants and parts suppliers
make up a critical industry. Health
care (including pharmaceuticals) is
also a major contributor, as are the
appliance industry and coal mining.

Memphis Board

Regional Executive
Louisville Branch
Federal Reserve Bank of St. Louis

Chairman
Charles S. Blatteis

Martha Perine Beard
Regional Executive
Memphis Branch
Federal Reserve Bank of St. Louis

The auto industry is growing
in the Memphis Zone, right
alongside such traditional drivers
of the economy as cotton, paper
and shipping.

26 Federal Reserve Bank of St. Louis | Annual Report 2011

For econ ed and personal finance, see stlouisfed.org/education_resources/ 27

Industry councils
Council members represent a wide range of Eighth District industries and businesses and
periodically report on economic conditions to help inform monetary policy deliberations.
Agribusiness

Health Care

Jan C. Vest

Mary R. Singer

Based in Little Rock, Ark.

Based in Louisville, Ky.

Sam J. Fiorello

Calvin Anderson

CEO
Signature Health Services Inc.
St. Louis

Chief Operating Officer
and Senior Vice President
Donald Danforth Plant
Science Center
St. Louis

Chief of Staff and Senior Vice President
of Corporate Affairs
Blue Cross Blue Shield of Tennessee
Memphis

President
CresaPartners Commercial
Realty Group
Memphis

Timothy J. Gallagher
Executive Vice President
Bunge North America Inc.
St. Louis

Stephen A. Williams

President and CEO
Producers Rice Mill Inc.
Stuttgart, Ark.

Professor of Agricultural Economics
Arkansas State University
State University, Ark.

The members of this council, formed in 2011, meet twice a year to advise the
Bank’s president on the credit, banking and economic conditions facing their
institutions and communities. The council’s chairman also meets twice a year
in Washington, D.C., with his counterparts from the 11 other Fed districts and
with the Federal Reserve chairman.

Joe W. Barker

Sara Oliver
Vice President of Housing
Arkansas Development Finance Authority
Little Rock, Ark.

Executive Director
Alt.Consulting Inc.
Pine Bluff, Ark.

Based in Memphis, Tenn.

President and Executive Director
Memphis Bioworks Foundation
Memphis

Bob Blocker

The Rev. Adrian Brooks

Real Estate
Based in St. Louis

President and CEO
MedVenture Technology Corp.
Jeffersonville, Ind.

President of Kentucky Market
Humana-Kentucky Inc.
Louisville

Robert S. Gordon
Leonard J. Guarraia

The council keeps the Bank’s president and staff informed about
community development issues in the Eighth District and suggests
ways for the Bank to support local development efforts.

Steven J. Bares

Jeffrey B. Bringardner
Bert Greenwalt

Community Depository
Institutions Advisory Council

Executive Director
Southwest Tennessee
Development District
Jackson, Tenn.

President and CEO
Norton Healthcare
Louisville

Kevin Bramer
Keith Glover

Community Development
Advisory Council

Chairman
World Agricultural Forum
St. Louis

Executive Vice President
and Chief Administration Officer
Baptist Memorial Health Care
Memphis

Ted C. Huber

Paul Halverson, M.D.

Owner
Huber’s Orchard & Winery
Starlight, Ind.

Director, State Health Officer
Arkansas Department of Health
Little Rock

Richard M. Jameson

Russell D. Harrington Jr.

Owner
Jameson Family Farms Partnership
Brownsville, Tenn.

President and CEO
Baptist Health
Little Rock

John C. King III

Susan L. Lang

Owner
King Farms
Helena, Ark.

Health Care Executive,
Strategist and Entrepreneur
St. Louis

Steven M. Turner

Richard A. Lechleiter

CEO
Turner Dairies LLC
Memphis

Chief Financial Officer
Kindred Healthcare Inc.
Louisville

Lyle B. Waller II

Dick Pierson

Owner
L.B. Waller and Co.
Morganfield, Ky.

Vice Chancellor for Clinical Programs
University of Arkansas for Medical Sciences
Little Rock

David Williams

Dixie L. Platt

Founder and Co-owner
Burkmann Feeds
Danville, Ky.

Senior Vice President
Mission and External Relations
SSM Health Care
St. Louis

28 Federal Reserve Bank of St. Louis | Annual Report 2011

Joseph D. Hegger
Director
Jeffrey E. Smith Institute of Real Estate
University of Missouri-Columbia
Columbia, Mo.

Transportation

Senior Vice President of Sales
and Customer Service
American Commercial Lines
Jeffersonville, Ind.

Charles L. Ewing Sr.
President
Ewing Moving Service and Storage Inc.
Memphis

J. Scott Jagoe
Owner
Jagoe Homes Inc.
Owensboro, Ky.

Rhonda Hamm-Niebruegge

E. Phillip Scherer III

Royce A. Sutton

Kirk P. Bailey
Chairman, President and CEO
Magna Bank
Memphis, Tenn.

Glenn D. Barks
President and CEO
First Community Credit Union
Chesterfield, Mo.

H. David Hale

Emily Trenholm

D. Keith Hefner

Executive Director
Community Development Council
of Greater Memphis
Memphis, Tenn.

President and CEO
Citizens Bank & Trust Co.
Van Buren, Ark.

Richard McClure

Edgardo Mansilla

Sherece Y. West

President
UniGroup Inc.
St. Louis

Executive Director
Americana Community Center
Louisville, Ky.

President and CEO
Winthrop Rockefeller Foundation
Little Rock, Ark.

Dennis B. Oakley

Paulette Meikle

President
Bruce Oakley Inc.
North Little Rock, Ark.

President and CEO
First Clover Leaf Bank FSB
Edwardsville, Ill.

Vice President
and Community Development Manager
Fifth Third Bank
St. Louis

President and CEO
IFF (formerly Illinois Facilities Fund)
Chicago

Chairman, President and CEO
First Capital Bank of Kentucky
Louisville, Ky.

Gary E. Metzger
Chairman, President and CEO
Liberty Bank
Springfield, Mo.

William J. Rissel
President and CEO
Fort Knox Federal Credit Union
Radcliff, Ky.

Mark A. Schroeder
Chairman and CEO
German American Bancorp
Jasper, Ind.

Gordon Waller
President and CEO
First State Bank & Trust
Caruthersville, Mo.

Larry T. Wilson
Chairman, President and CEO
First Arkansas Bank & Trust
Jacksonville, Ark.

Vance Witt
CEO and Chairman
BNA Bank
New Albany, Miss.

Larry Ziglar
President and CEO
First National Bank in Staunton
Staunton, Ill.

Assistant Professor
Sociology and Community Development
Delta State University
Cleveland, Miss.

John F. Pickering
Chief Operations Officer
Cass Information Systems Inc.
Bridgeton, Mo.

David L. Summitt
President
Summitt Trucking LLC
Clarksville, Ind.

Lynn B. Schenck
Executive Vice President
and Director of Leasing and Sales
Jones Lang LaSalle
St. Louis

Kevin Smith
President and CEO
Community Ventures Corp.
Lexington, Ky.

Chief Economist
FedEx Corp.
Memphis

William M. Mitchell
Vice President and Principal Broker
Crye-Leike Realtors
Memphis

George Hartsfield

Trinita Logue

Jack McCray
Business Development Officer
VCC
Little Rock

President and CEO
Rural Policy Research Institute
University of Missouri
Columbia, Mo.

Gene Huang

Steven P. Lane
Principal
Colliers International
Bentonville, Ark.

Brian Dabson

Community Volunteer
Jefferson City, Mo.

Gregory J. Kozicz
President and CEO
Alberici Corp.
St. Louis

Senior Pastor, Memorial Baptist Church
Founder, Memorial Community
Development Corp.
Evansville, Ind.

Director of Airports
Lambert International Airport
St. Louis

Larry K. Jensen
President and CEO
Commercial Advisors LLC
Memphis

Ines Polonius

Chairman

Dennis M. Terry

Paul Wellhausen
President
Lewis and Clark Marine
Granite City, Ill.

Federal Advisory
Council Member
The council is composed of one representative from each of the 12 Federal
Reserve districts. Members confer with the Fed’s Board of Governors at
least four times a year on economic and banking developments and make
recommendations on Fed System activities.
Bryan Jordan
President and CEO
First Horizon National Corp.
Memphis, Tenn.

President
Commercial Kentucky Inc.
Louisville

For data, see http://research.stlouisfed.org/fred2/ 29

BANK OFFICERS

Management Committee

ST. LOUIS

Roy A. Hendin

Paul M. Helmich

Heidi L. Beyer

Assistant Vice President

Research Officer

James Bullard

Vice President, Deputy General Counsel
and Assistant Corporate Secretary

Cathryn L. Hohl

Ray Boshara

James L. Huang

Assistant Vice President

Community Affairs Policy Officer

Joel H. James

James W. Fuchs

Assistant Vice President

Supervisory Officer

President and CEO

David A. Sapenaro

Vice President

First Vice President and COO

Vicki L. Kosydor
Karl W. Ashman

Vice President

Senior Vice President

Cletus C. Coughlin

Mary H. Karr

David A. Sapenaro

Karl W. Ashman

Senior Vice President
and Policy Adviser to the President

Senior Vice President,
General Counsel and Secretary
Legal

First Vice President and COO

Senior Vice President
Administration and Payments

Jean M. Lovati
Karen L. Branding

Debra E. Johnson

Carlos Garriga

Assistant Vice President

Research Officer

Vice President

Senior Vice President

Michael J. Mueller
Cletus C. Coughlin

Vice President

Senior Vice President
and Policy Adviser to the President

Arthur A. North II

Visweswara R. Kaza

Patricia M. Goessling

Assistant Vice President

Operations Officer

Catherine A. Kusmer

Timothy R. Heckler

Assistant Vice President

Operations Officer

Vice President

Mary H. Karr
Senior Vice President,
General Counsel and Secretary

James A. Price
Vice President, Director of Office
of Minority and Women Inclusion

Kathleen O’Neill Paese
Senior Vice President

Vice President

John W. Mitchell

Jackie S. Martin

Assistant Vice President

Support Services Officer

Christopher J. Neely

Michael W. McCracken

Assistant Vice President

Research Officer

Glen M. Owens

Michael Thomas Owyang

Assistant Vice President

Research Officer

Kathy A. Schildknecht

Abby L. Schafers

Assistant Vice President

Human Resources Officer

Matthew W. Torbett
Vice President

Christopher J. Waller
Senior Vice President
and Director of Research

Operations Officer

Daniel L. Thornton

Julie L. Stackhouse
Senior Vice President

Michael Z. Markiewicz

Assistant Vice President

B. Ravikumar

Michael D. Renfro
Senior Vice President and General Auditor

Raymond McIntyre

David C. Wheelock
Vice President
and Deputy Research Director

Philip G. Schlueter

James L. Warren

Assistant Vice President

Supervisory Officer

Jane Anne Batjer

Harriet Siering

Marcela M. Williams

Assistant Vice President

Public Affairs Officer

Richard G. Anderson
Vice President

David Andolfatto
Vice President

Diane E. Berry

Scott B. Smith

Assistant Vice President

Dennis W. Blase

Katrina L. Stierholz

Assistant Vice President

Jonathan C. Basden
Vice President

LITTLE ROCK

Timothy A. Bosch
Kathleen O’Neill Paese

Christopher J. Waller

James Bullard

Julie L. Stackhouse

Senior Vice President
Treasury Services

Senior Vice President
and Director of Research

President and CEO

Senior Vice President
Banking Supervision, Credit,
Community Development
and Learning Innovation

Karen L. Branding
Senior Vice President
Public Affairs

Vice President

Winchell S. Carroll

Kristina L.C. Stierholz

Assistant Vice President

Hillary B. Debenport

Scott M. Trilling

Assistant Vice President

William R. Emmons

Yi Wen

Assistant Vice President

William M. Francis

Carl D. White II

Assistant Vice President

Mary C. Francone

Glenda Joyce Wilson

Assistant Vice President

Timothy C. Brown
Vice President

LOUISVILLE

Marilyn K. Corona
Vice President

MEMPHIS

Susan F. Gerker
Vice President

30 Federal Reserve Bank of St. Louis | Annual Report 2011

Martha L. Perine Beard
Regional Executive

Kathy A. Freeman

Christian M. Zimmermann

Assistant Vice President

Anna M. Helmering Hart
Vice President

Ronald L. Byrne
Vice President

William T. Gavin
Vice President

Maria G. Hampton
Regional Executive

Susan K. Curry
Vice President

Robert A. Hopkins
Regional Executive

Ranada Y. Williams
Assistant Vice President

Thomas A. Garrett

Subhayu Bandyopadhyay

Assistant Vice President

Research Officer

stlouisfed.org/followthefed

The St. Louis Fed on the Web
A sample of what you’ll find when you go to www.stlouisfed.org
1 Banking. See the St. Louis Fed’s

role in promoting a safe, sound,
competitive and accessible banking system. Learn also how the
Fed helps ensure a stable financial
system.

2
3

2 Community Development. Keep

up with our conferences, workshops, research and other
resources, all of which address
community and economic
development challenges facing
underserved communities.
Learn about the Community
Reinvestment Act and one of
our key focuses: access to credit.

The Federal Reserve Bank of
St. Louis is one of 12 regional Reserve
banks that, together with the Board of
Governors, make up the nation’s
central bank. The St. Louis Fed serves
the Eighth Federal Reserve District,
which includes all of Arkansas, eastern
Missouri, southern Illinois and Indiana,
western Kentucky and Tennessee, and
northern Mississippi. The Eighth
District offices are in Little Rock,
Louisville, Memphis and St. Louis.

3 Research. See what our econo-

CREDITS

mists are working on—their
writings range from short,
easy-to-read essays to full-length
academic papers. This is also the
place to start for economic data.
Our main economic database is
FRED® (Federal Reserve Economic
Data). Also check out GeoFRED®
(geographical data), ALFRED®
(vintage data), FRASER® (economic library and archives) and
CASSIDI® (data related to banking
competition analysis).
4 Current Issues. We have special

web sites and pages devoted to
issues that are on the minds of
many people today. Is the Fed
audited? What’s inflation targeting?
What are the key developments in
the implementation of the DoddFrank Act? What are the public
comments being made by all
participants in the Federal Open
Market Committee?
32 Federal Reserve Bank of St. Louis | Annual Report 2011

6
Al Stamborski
Editor and Project Manager

Steve Smith
Joni Williams

Federal Reserve Bank of St. Louis

of our conferences, of television reporters’ interviews with
our president and of economics
lessons created for all sorts of
audiences.

interviews with the president and
other officers of the Bank are also
available, as are recordings of
selected conferences.

Photographer

Anthony Freda
Illustrator

One Federal Reserve Bank Plaza
Broadway and Locust Street
St. Louis, MO 63102
314-444-8444

Kristie M. Engemann
Lowell Ricketts

Little Rock Branch

For additional copies, contact:
Public Affairs
Federal Reserve Bank of St. Louis
Post Office Box 442
St. Louis, MO 63166

Stephens Building
111 Center St., Suite 1000
Little Rock, AR 72201
501-324-8205

5 Videos. You can watch videos

Designer

Research Assistance

Louisville Branch
National City Tower
101 S. Fifth St., Suite 1920
Louisville, KY 40202
502-568-9200

Or e-mail pubtracking@stls.frb.org
This report is also available online at:
www.stlouisfed.org/publications/ar

Memphis Branch
FRED, GeoFRED, FRASER, ALFRED and CASSIDI are registered
trademarks of the Federal Reserve Bank of St. Louis.

200 N. Main St.
Memphis, TN 38103
901-579-2404

6 Audio. Listen to our economists

as they discuss the latest Beige
Book or Burgundy Book (in English
or Spanish). Radio reporters’

printed on recycled paper using 10% postconsumer waste

PA1201 5/12

For econ ed and personal finance, see stlouisfed.org/education_resources/ 33

The St. Louis Fed’s FRED®—Federal Reserve Economic Data—is known around the world.
This is our main economic database, containing more than
45,000 data series. The topics range from something as simple
as the value of exports to something as specific as “the charge-off
rate on commercial real estate loans (excluding farmland), booked
in domestic offices, top 100 banks ranked by assets.” You can
change the timelines on the graphs, aggregate data from daily

to monthly or monthly to annual observations, and even transform
data from levels to percent change. And now you can grab FRED data
anywhere your brain desires, from your Android device to Excel to
advanced statistical packages, such as EViews. If you want to access
data, you want FRED. Start at http://research.stlouisfed.org/fred2/
FRED® is a registered trademark of the Federal Reserve Bank of St. Louis.