One on One with Robert Brusca, Chief Economist of Fact & Opinion Economics
Monday, September 22, 2008
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SUSIE GHARIB: Joining us now to analyze the impact of the financial crisis and the government's rescue plan on the U.S. economy, Robert Brusca, chief economist of Fact & Opinion Economics. Hi, Bob.
ROBERT BRUSCA, CHIEF ECONOMIST, FACT & OPINION ECONOMICS: Hi, Susie.
GHARIB: Bob, as you know, even before all of this financial turmoil, the U.S. economy was pretty weak. What's your diagnosis now and are you changing your forecast?
BRUSCA: Well, I don't think this really changes very much. We're not sure this plan is going to be accepted. If we assume it is accepted, it is some help for the banks but it doesn't help homeowners and it doesn't help consumers and it doesn't change the fact that the unemployment rate is rising and industrial production is falling. So it's nice to patch up the financial intermediaries, but that's not a full solution.
GHARIB: So I take it that you mean that banks will not be more willing to lend. It will be just as difficult for consumers and businesses to get loans.
BRUSCA: Well, you know, I think that if you were to take some of these mortgages off their balance sheets and give them cash and make them more whole, they might be a little bit more eager to lend but not much. The housing market is still weak. And so they're going to be cautious about lending into a market that has been such a disaster, even if you reduce their exposure there.
GHARIB: And the overlay on all of this is today this big jump in oil prices, that can't be good for the economy and it can't be good for consumer spending. What do you think?
BRUSCA: No, you're exactly right. We're making some progress on that ground. We thought that maybe we were going to put some money into the consumer's pocket. And now there's a big backtrack on that. And we're sort of left shaking our head and wondering if the true trend is still lower, if it's higher. It's very confusing and it certainly isn't good for the consumer.
GHARIB: Tell me a little bit more about housing, the ripple effect of all of these bailouts and rescue plans and everything out of Washington. And what's the ripple effect of all of this for homeowners?
BRUSCA: Well, the homeowners aren't helped at all. They continue to have whatever problems they had before. If you make banks whole, homeowners still now have the government owning that mortgage and have to figure out something to do. I think the big problem is going to come when you put this front of the Banking Committee as you try to decide what of the Treasury proposal is going to be approved and what the Democrats want to introduce. Because they definitely want to do something to help the homeowners out, and that wasn't in Paulson's plan. Paulson's plan was just to give money to the banks and require nothing of them. He was going to give the money for free.
GHARIB: And what about Ben Bernanke's plans? Is there anything that he can do, whether it's cutting interest rates or any other action that can help the economy out of this situation?
BRUSCA: Well, you know, the Fed has room to cut rates some more if it wants to. I just don't think you get a big bang out of that. The problem now isn't the height of interest rates. It's liquidity problems, it's the debt problems, it's the financial situation people are in. And right now I think that, you know, the treasury secretary has taken up the front row. When Bernanke was the chief man, you know, he was putting - - getting capital positions in weakened firms, and he was firing the CEOs. And Paulson's inclination is not to fire anybody and not to get a capital position and just give them money. So it will be interesting to see when we get the two of them testifying how they -- to what extent they're on the same page.
GHARIB: And on the bigger picture, the United States has been the biggest economic power of the world. Does this financial turmoil change that potentially? And I need a quick answer because we're running out of time.
BRUSCA: Yes, it changes it a lot. It's going to hurt the growth in the U.S. And it also hurts us as a leader. Capitalism, this was our model. We're spreading it around the world. It's not clear that people are going to want to follow our lead anymore after the way we've behaved.
GHARIB: All right. We'll get you back another time and talk more on that. Thanks a lot, Bob, for coming on the program.
BRUSCA: Thank you.
GHARIB: My guest tonight: Robert Brusca, chief economist of Fact & Opinion Economics.
