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Multiple Economic Factors Driving Fears of Global Recession

U.S. and global markets endured another tough day Friday as fears intensified of a global recession. Financial experts examine the factors driving the recession speculation and possible solutions to the crisis.

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    Another huge hit on global markets, another volatile day on Wall Street, more nations looking for help, and new steps taken by the U.S. Treasury.

    We catch up on all this at week's end now with Simon Johnson, former chief economist at the International Monetary Fund, he's now a professor at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics.

    Jim Ellis, assistant managing editor of BusinessWeek magazine.

    And Binyamin Appelbaum, a financial reporter at the Washington Post who covers the Treasury Department.

    Well, Simon Johnson, the story overseas just gets worse. What jumps out at you today?

    SIMON JOHNSON, MIT Sloan School of Management: Well, today, I think it's three things. Increasing pressure on Eurozone countries, so rich industrialized countries, Greece, Ireland, even Italy under question, according to the market.

    Oil prices continue to fall, despite OPEC's actions.

    And, of course, currencies have moved in a very big way. The dollar is appreciating, which has some good sides, but also some really difficult sides.


    Well, explain that to us. The dollar — this is after years of the dollar dropping. It suddenly — and this has been creeping up over the last few days — is quite strong. Now, why? What does that tell us?


    Well, it tells us that things are becoming even more turbulent. The dollar has been declining, roughly speaking, since 2002. All of a sudden, people are seeing it as the ultimate, perhaps the only safe haven, partly because the Eurozone, the European countries that share the euro, looks increasingly shaky.

    So there's a flight into dollars. And that is really potentially destabilizing the situation further.


    Wait a minute. But it's a good sign in the sense that it shows confidence in the U.S. markets, but destabilizing for other countries.


    It shows confidence in the U.S. government. They're coming into U.S. treasuries. It doesn't prevent the U.S. stock market from falling, obviously.

    And it absolutely shows a lack of confidence elsewhere in the world. No one believes in anything right now apart from U.S. treasuries. That's a big change; that's a big problem for everyone else in the world.


    And particularly for emerging markets.


    Emerging markets have a lot of debt denominated in dollars, particularly the private sectors. They borrow to do productive things with it, but they owe money in dollars.

    Now their currencies are depreciating against the dollar, it gets harder and harder to pay that back. Their governments have reserves — quite a lot of reserves — but nowhere near enough to deal with the current situation.