One on One with Mark Zandi, Chief Economist of moodyseconomy.com
Friday, July 17, 2009
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SUSIE GHARIB: A major part of the administration`s agenda could pose new economic challenges: healthcare reform. Late today, President Obama said his healthcare overhaul cannot add to the Federal deficit and he means it. Joining us now for how that could affect what`s ahead for the economy, Mark Zandi, chief economist of moodyseconomy.com. Nice to see you again, Mark.
MARK ZANDI, CHIEF ECONOMIST, MOODY`S ECONOMY.COM: Good evening.
GHARIB: All right, President Obama is really pushing now for health care reform, but do you think that this could derail the economic recovery which is so fragile?
ZANDI: It could if health care reform is not paid for. I think it`s important to insure the uninsured, very important to insure the uninsured. But we have to credibly pay for it. If we don`t pay for it, then that will lead to larger deficits, more debt and ultimately much higher interest rates in a much weaker economy and that will happen sooner rather than later. So that has to be part of a reform. We have to pay for it.
GHARIB: There are many people saying let`s postpone healthcare reform for now. Let`s get the economy fully recovered and then we can deal with that. What is your view in that debate?
ZANDI: Well, you know, that ship has sailed. I think if we were at the beginning of the year, I might have argued that as well. We have got a lot on our plate and it would be nice just to get a win, get something done and get it done right. Healthcare reform is a big project but we`re now down the path and we got to make it work.
GHARIB: Wall Street was encouraged this week by a whole batch of positive earnings reports, whether you were talking about Intel from the tech sector or Goldman Sachs and JPMorgan from the banking sector, Johnson & Johnson. Is the economy really doing better because a few big companies reported strong earnings?
ZANDI: Yes. I mean, just think about the counterfactual, the opposite. If earnings were falling because these big companies, that would signal the economy is really heading in the wrong direction. The fact that they are making money and that in some cases profits are rising is an indication that the recession is coming to an end and that we`ll be out of recession, I think, by late this year.
GHARIB: But when you dig into some of the numbers like JPMorgan for example, you see that the consumer loans are still in bad shape. They have credit card losses, all a sign that the consumer is still struggling financially. So what kind of recovery are we talking about if the consumer is not on board?
ZANDI: You`re right, Susie. I think the economy will get out of this recession and into recovery by early next year but it will be a very muted recovery. The secretary or advisor Summers said that unemployment would rise into next year and he`s absolutely right. It`s not going to really feel very good for most people until unemployment begins to decline and that won`t happen until late next year.
GHARIB: It might even go later according to a former Fed governor, Larry Meyer, today saying that the U.S. won`t reach full employment and by that, he means 5 percent unemployment until maybe the year 2015.
ZANDI: Yeah, you know, that`s a reasonable forecast. The unemployment rate is 9.5 percent today. It will rise into the double digits, probably peak next spring. It will start to decline after that, but it will take a number of years to get it down to a level that we consider full employment, a level where most people think that if they go out and want to find a job that they can get one. That probably really won`t be until mid in the next decade.
GHARIB: Every economic report that comes out Mark, there`s a positive side to it and there`s a negative side. Today`s housing starts were very strong, but then others are saying look at the foreclosure rate, how much that`s going up. So do you think that the government programs that are supposed to prevent these foreclosures and other housing issues, are they working?
ZANDI: Not well enough. In fact, if I were to put my finger on the one thing that could derail the end of this recession and recovery early next year, it would be the foreclosure crisis. Foreclosures continue to mount and the president`s loan modification plan, an effort to stop the foreclosure crisis is not working very well, at least not yet. Now, the president is working really hard making changes to the plan and he`s calling mortgage servicers, the folks that actually modify the loans, to gather in Washington in a couple, three weeks to try to get them moving. I`m hopeful that this will work and by end of the year we`ll get more mod`s and the foreclosure crisis will abate because that`s absolutely necessary to the more optimistic view that the recession will end soon.
GHARIB: We just have a few seconds left, a lot of people calling for a second stimulus or maybe a second stimulus for small businesses. In a few words, what`s your view on that?
ZANDI: I think we should wait until the end of the year, see how the stimulus is working. If it`s not working well enough and we think the economy needs more help then, yes, another round of stimulus for the economy would be helpful and something directed toward small business would be great.
GHARIB: All right, we`re going to have to leave it there. Mark, thanks a lot, have a great weekend.
ZANDI: Thank you.
GHARIB: My guest tonight, Mark Zandi, chief economist of moodyseconomy.com.
