One on One with Robert Hormats, Vice Chairman of Goldman Sachs International
Monday, July 07, 2008
|
|
|
|
SUSIE GHARIB: The dollar is just one of many issues on the agenda of world leaders meeting this week in Japan for the G-8 summit. Joining us now with more analysis, Robert Hormats, vice chairman of Goldman Sachs International. Hi, Bob.
ROBERT HORMATS, VICE CHAIRMAN, GOLDMAN SACHS INTERNATIONAL: Hi, Susie.
GHARIB: As we said all eyes are on the dollar. Do you expect the G-8 leaders the make any comment about the dollar and what can be done to strengthen it?
HORMATS: I think they will probably not make any comments about the dollar. If they do, they'll be very general. The heads of state traditionally tend not to talk about currencies. They're certainly not going to negotiate an agreement. They may echo what President Bush said and that is that a strong dollar is in the interest of stability in the global economy. But my guess is they're not going to say anything that is going to go into any detail at all.
GHARIB: Many analysts have -- are hoping that the dollar is going to strengthen now that the European central bank suggested on Friday that it won't be raising interest rates again any time soon. What do you think?
HORMATS: I think that the European central bank's comments, Trichet's comments in particular were helpful and were dollar bullish, but I don't think that we can permanently rule out another increase by the European central bank. They'll probably wait a little bit of time, perhaps several months, but they want to make sure that inflationary expectations are anchored there and they by no means have given up the opportunity to raise rates if, in fact, they see inflation picking up. Nor I think can we count on as certainty that the Fed's next move any time soon at least is going to be on the upside, which would be also dollar bullish because we have a weak employment picture, manufacturing is weak, the housing market is weak and financial markets remain weak. So for the moment, I think there's the possibility of stability. But if you look down the road, there are a number of risks after these rebates are finished in the United States, is the consumer going to be strong or is the consumer going to get weaker? Is European inflation going to pick up requiring the ECB to raise rates? Those are big question marks.
GHARIB: I want to ask you a little bit about the European economy because the weaker dollar has helped bolster U.S. exports. But now we're hearing a lot of forecasting that the European economy is slowing down. It may go into a recession. What impact would a real slowdown in the European economy have on U.S. exports and, you know, additionally on the U.S. economy?
HORMATS: It would certainly be negative for American exports because Europe is a big market for American goods. But fortunately we see a lot of other countries doing reasonably well, in fact in some cases quite well, maybe slowing down somewhat because of tightening interest rates in east Asia, for instance, but those are still good markets for American manufactured goods and, agricultural goods and services. I think one of the important elements of our current picture is that exports are giving this economy a very necessary, in fact, critically important, boost. Without big improvements in the export picture which we've seen, our economic outlook would be far worse than it is today.
GHARIB: Bob, let's talk a little bit about high oil prices and this G- 8 meeting. Do you expect the G-8 leaders to say anything about the oil crisis and what can be done to bring oil prices down?
HORMATS: Well, I hope they do. And I hope they say more than simply urging the oil producers to produce more oil. That would be a nice thing. But it's not the fundamental answer to our problem. What we need to do -- and we shouldn't forget that these summits started in the 1970s in the aftermath of the oil crisis of 1973-1974 and they did make a major effort and pressed one another to increase production and improve conservation, improve oil efficiency. Now I think what they need to do in addition to encouraging more production elsewhere is do a lot more at home to invest in alternative sources of energy in a much more aggressive basis than they have in the past. That would be very helpful.
GHARIB: Bob, just to wrap it up, next year, next summer at the next G- 8 meeting, the United States will have a new president. What will he be facing in terms of challenges, in terms of the global economy?
HORMATS: Well, several things. The United States is now a lot more dependent on imported capital from the rest of the world than it was when George W. Bush took over the presidency just because our savings rate is low. We're a lot more dependent on foreign markets and the emerging economies of the world are playing a much greater role. The bricks in particular, much greater role in commodity markets, financial markets and in the trading area. So we've got to maintain an attractive environment for foreign capital which we need. We've got to do a lot at home to improve our competitiveness so we can take advantage of growth in foreign markets. We've got to work a lot more closely with the Chinas, the Brazils, the Indias, the Russias and other emerging economies to give them a greater stake in the global system and to help them to make the kind of improvements along with us to make the global financial system work better. We need to cooperate with these countries. It's a different world from even eight years ago.
GHARIB: Huge agenda. Thank you so much for your thoughts on that subject. I really appreciate it.
HORMATS: Thank you for having me, Susie.
GHARIB: My guest tonight, Robert Hormats, vice chairman of Goldman Sachs International.
