One on One with Robert Hormats, Vice Chairman of Goldman Sachs
Thursday, March 13, 2008
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SUSIE GHARIB: More analysis now on our top story, those new records for the dollar, oil and gold. Joining us now, Robert Hormats, vice chairman of Goldman Sachs. Hi, Bob.
ROBERT HORMATS, VICE CHMN., GOLDMAN SACHS INTERNATIONAL: Hi Susie.
GHARIB: Let's first talk about the dollar. As you saw in our report, President Bush told me yesterday that he's in favor of a stronger dollar. Treasury Secretary Hank Paulson said today that he also wants a strong dollar, but the dollar keeps falling. Do you think that Bush administration really wants to strengthen the dollar? If so, what can they do?
HORMATS: Well, I think they are concerned that the dollar has dropped quite precipitously. They're concerned in part because it's inflationary and in part because it undermines prospectively the reserve currency role of the greenback, so that you will find central banks and indeed corporate treasurers in the future buying fewer dollars and diversifying their holdings to lots of other currencies. On the other hand, a lower dollar has helped along with growth abroad to improve the U.S. trade balance rather considerably. But I do think they're concerned that the dollar perhaps is going down too sharply.
GHARIB: That's what I wanted to ask you. Is there a point where the dollar is just too low because it's been on a steady decline for the last almost seven years?
HORMATS: There is a point. Whether we're there or we're close to it, there is a growing danger that if the drop continues at this rate it will, as I say, endanger the reserve currency role of the dollar. That's a very valuable thing for the United States to have. If foreign central banks lose confidence in the dollar and start diversifying out of dollars or add a lot more euros and pound sterling and Swiss franks and Australian dollars to the currency, it further undermines the global role of the dollar.
GHARIB: Let's move on to talk a little bit about oil. It hit a new high $110. Your firm Goldman Sachs is forecasting $200 a barrel over the next few years. What are the risks and dangers of these ever-high oil prices?
HORMATS: Well, of course, the major risk is that it takes a lot of money out of the pocketbooks of American consumers. American consumers at this point, if they have to pay more for gasoline at the pump and more for home heating oil, that means they have less money to spend on a lot of other things. We just saw, for instance, consumer purchases drop dramatically. That's in part because of a slower economy and in part because consumers simply don't have as much money to spend because oil and we should also add, food prices have taken a lot of money that they might have been spending on other things and forced them to devote it to those two essentials.
GHARIB: So you put the package together, high oil, high gold. You know, hitting $1,000 today and the weak dollar. What is the impact of this on the markets?
HORMATS: Well, the impact on the market is, first of all, that it pushes prices up, particularly the price of oil and food and other raw materials. That causes additional inflationary pressures. It sucks money out of the wallets of American consumers. I think this is the bad thing about it at this point.
GHARIB: Just to wrap it up. As you know, President Bush will be in New York speaking to Wall Street and business leaders including yourself. What does Wall Street need to hear from the president tomorrow?
HORMATS: I think Wall Street would like to hear from the president that the administration is going to continue to be proactive in addressing the problems that face the financial markets, not that they'll bail the markets out. I don't think Wall Street expects that. But I do think that Wall Street is concerned that if these, the housing market continues to drop dramatically without some degree or some additional degree of government support, that could push the economy into a much sharper downturn than is expected. I think they also want to hear support for some of these trade agreements. Wall Street basically likes open trade, so there are a number of things that Wall Street would like the president to take a lead on.
GHARIB: We'll see what he says. I'll see you there tomorrow.
HORMATS: I'll look forward to that. Thanks.
GHARIB: My guest tonight, Robert Hormats, chairman of Goldman Sachs International.
