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U.S., Global Economies Chug On, Despite Woes


So we have more of a housing slump to look forward to, a slower economic growth for a few months, not to mention high oil prices and a weak dollar. Adam Posen, the deputy director of the Peterson Institute for International Economics, joins us now from a meeting of European central bankers outside Frankfurt, Germany. Good to hear from you again, Adam.

Mr. ADAM POSEN (Deputy Director and Senior Fellow, Peterson Institute for International Economics): Thanks for having me, Robert.

SIEGEL: And do you share Chairman - well, for that matter, do the people you're rubbing shoulders with this week share Ben Bernanke's confidence in the resilience of the U.S. economy as opposed to in likelihood of a recession?

Mr. POSEN: Yes, I think nobody's going to put a number on it. I mean, I'm not an authority. But everybody's putting it well below 50 percent. And even if there was something that looked like a recession, it probably would be very short. I think most people, including us at our institute, are confident. We're looking at a small growth, slowdown growth, staying above one percent, and back to trend by the second half of '08. And trend means growing pretty solidly at two and a half percent or more.

SIEGEL: But to what degree does the prospect of a housing slump, meaning that lots of people who have felt buoyant about their position in the economy because they expected there has to appreciate in value every year, are feeling a lot less buoyant and unable to borrow against it as much?

Mr. POSEN: There's certainly that lack of buoyancy, but that difference between lack of buoyancy and sinking all the way to the bottom. I mean, it's kind of like what happened with the tech stock boom in the late '90s. There are a lot of people who felt rich for a while once Cisco or Yahoo or whatever was worth 10 times as much as it was really worth. And they were spending more as a result of that. But people weren't stupid. They were spending roughly five cents on the dollar of every dollar of gain they thought they had.

For housing, it's been sort of similar. They spend a little bit more, roughly six, six and a half cents on the dollar. But even if they cut that back, that's not enough to throw the economy into recession. And so you see these reports about confidence, and certainly, if you get people talking about this, they're not gonna say anything good. But that's a far cry, as Chairman Bernanke pointed out, from actually seeing spending significantly slow.

SIEGEL: What about the weak dollar, which I assume is putting a crimp in your style this week, being in Germany. Is it…

Mr. POSEN: You got that right.

SIEGEL: Is it an unmitigated bad for the U.S. or is there some silver lining to the weak dollar?

Mr. POSEN: There's a silver lining. The dollar is a mixed bag, just as it was on the way - go up strengthening against under currencies. On the one hand, we have the good news, which is one of the props to the U.S. economy over the last year, and will continue to be so for the next year, is exports. As the dollar goes down, our goods become cheaper relative to other goods. And certain industries, particularly in manufacturing, like autos and steel, become more competitive as a result. And so we create jobs, we create money, we create profits as the dollar goes down.

The mixed bag part, of course, is that, not just for me sitting here in Germany, but everybody in the U.S. who's buying imported goods - be it Chinese T-shirts or Arab oil - is having to pay more for that. So on the whole, it's not terrible and there's going to be an obvious growth benefit. But people are going to feel the pinch from the dollar going down.

SIEGEL: And is - and do you share any of the concern which Chairman Bernanke evidently doesn't, that if the dollar weakens too much, say China, which holds our debt, might decide to diversify a bit more and, say, hold more Euros?

Mr. POSEN: I think the Chinese are less of a problem than private markets in general. The Chinese have over a trillion dollars sitting there of U.S. denominated security, securities denominating dollars. And if they start selling those off, they'll take a huge capital loss. So putting it very crudely, it's not in their own interest.

But there are trillions of dollars sloshing around the world, as we talk about - be it London, New York or Tokyo markets. And there, it was an issue of people switching out of the dollar permanently, but how fast they do it. There's always a risk in asset markets. Exchange rates are an asset just like a stock or real estate. They can get out of control, that if there's a panic and you start selling very quickly, other people feel they have to sell. And that's the one thing, if I'm watching the central bankers, that they are watching, is that that doesn't accelerate out of hand.

SIEGEL: Well, Adam Posen, thanks a lot for talking with us once again.

Mr. POSEN: Thank you.

SIEGEL: Adam Posen of the Peterson Institute for International Economics spoke to us from outside Frankfurt, Germany, where he's attending a meeting of European central bankers. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

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