Economists At Annual Retreat Weigh In On Wall St.
STEVE INSKEEP, Host:
One group of experts has been watching this week's stock dive from, well, outside - Wall Street. Some of the country's most prominent economists are on the edge of a remote lake in Maine. They're attending an annual retreat in the woods near the Canadian border and so is NPR's Chris Arnold.
CHRIS ARNOLD: This retreat is usually a time for some very successful investors and economists to get away from the day to day pressures of the market. Take a step back from it all and ponder life and economics. But as the Dow started plunging, people set down their fishing rods and picked up their BlackBerries.
(SOUNDBITE OF CROWD CHATTERING)
ARNOLD: At dinnertime, everybody was talking about why the markets were tanking. Nobody was panicking, but few were very optimistic, especially one economist named Nouriel Roubini.
NOURIEL ROUBINI: Well, I think at this point given the latest data coming from the economy and the market correction I fear that there is more than a two-thirds probability of another recession. If it does occur, it's going to be a severe one.
ARNOLD: Roubini won respect around the world for predicting this past financial crisis and recession when most other economists didn't see it coming. So his continued pessimism isn't terribly encouraging. And Roubini says if the economy does slide back into recession, the federal government is in a weaker position now to try to help it recover. He says that could mean much higher unemployment.
ROUBINI: If the unemployment rate goes towards 12 - 13 percent that's going to be a massive social and political instability for the United States. It would be very severe damage. We have not had this unemployment rate for decades.
ARNOLD: And you think there is a two-thirds probability of that happening?
ROUBINI: Well, during a recession, it becomes a vicious circle of falling demand, falling employment, falling production and supply, and this time around we don't have the policy tools to stop it. That's the risk; we are running out of the policy bullets compared to the last few years.
ARNOLD: Other economists here though were at least in good spirits, even if they couldn't find much to be that hopeful about.
MARTIN BARNES: We're doomed. We're doomed.
ARNOLD: Martin Barnes is the Chief Economist of BCA Research. He was debating with Jim Bianco with Bianco Research about what had sent the stock market down this week. So, actually, even these super-smart money managers and economists are casting around looking for explanations.
JIM BIANCO: What changed this week? Something changed this week, and there's only one thing that did change this week.
BARNES: Well the world doesn't change in a week, sentiment changes.
BIANCO: Yeah, but the sentiment changed off of the debt deal. That was the only piece of new information we had.
BARNES: Ah, it was the ISM index.
ARNOLD: Barnes thinks the selloff had a lot to do with a disappointing report on manufacturing that showed growth grinding to a halt. Bianco though thinks the market decided that the debt deal didn't go far enough. Whatever the cause, investors have been fleeing stocks. And many Americans are wondering what all this means for their retirement accounts.
DAVID KOTOK: There's very serious stuff going on and people should be concerned. That's different than panic.
ARNOLD: David Kotok is chief economist and the top investment officer at Cumberland Advisors. He helps some big pension funds and other organizations invest their money. And he says people shouldn't get so scared and dump their stocks when the market has already fallen by so much.
KOTOCK: Markets make bottoms when all the bad news is known. We have forecasts of slowing economy, we have a political fight and a mess in Washington, we know about Europe. I mean, when you think about the list of everything wrong, the shoeshine boy - and we don't shine shoes anymore - can list what's wrong. That's usually near the end of the selloff, not at the beginning.
ARNOLD: Chris Arnold, NPR News, Grand Lake Stream, Maine.
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