Economy Is Growing But Momentum Has Slowed
RENEE MONTAGNE, Host:
DAVID WESSEL: Good morning, Renee.
MONTAGNE: So expand on that for us. What is exactly happening in the markets?
WESSEL: Well, the stock market has been sinking. It lost 10 percent in the second quarter. Oil prices have been coming down, which is a sign of waning demand and some concerns that China's economy is slowing down. Global investors are anxious about having money in other currencies, so they're putting a lot of money in the dollar. That pushes the dollar up, which sounds good, but it actually hurts our exports because it makes them more expensive overseas. But the fact that everybody seems to want to hold their money in dollars has pushed down the interest rates that the U.S. government has to pay when it borrows money - and it's borrowing a lot. And it's pushed mortgage rates down to the lowest levels since the early '70s.
MONTAGNE: So taken together, that all - what? Would account for this new sense of gloom?
WESSEL: Europe, everybody's trying to figure out: Are they going to be a drag on the world economy, because they're having so many problems, debt problems and banking problems. And basically, there was this bet that if the governments of the world put enough juice into the economy, when that juice started to wear off, the private sector would pick up the slack. And that hasn't been happening as much as people had hoped.
MONTAGNE: David, are the financial markets reflecting the economy, or are they adding to the trouble?
WESSEL: Well, Renee, the answer's really both. On one hand, the markets are a kind of gauge, like a dashboard that tells you what a whole lot of investors with a lot of money are thinking about the economy, but they can also be a constraint. So what's happening now, this combination of falling stock prices, the rising dollar, banks reluctant to lend, companies - some companies having trouble borrowing, that's - it's as if the financial markets are putting their foot on the break of the economy before the Federal Reserve thinks that's actually indicated. So they are actually making things worse.
MONTAGNE: So there isn't a political appetite for throwing money at this, at this point in time. What actually could the government do?
WESSEL: You're absolutely right. The economic physicians of the Keynesian School would prescribe tax cuts and spending increases, but Congress won't do that because the public seems to be getting this deficit reduction religion at just the time when some economists think it's the wrong strategy. So there's a kind of attempt to, well, if everybody would feel better about the economy, if confidence would return, that would be a cheap stimulus and maybe businesses would begin to spend and hire, and consumers would begin to spend more readily.
WESSEL: the Fed, fiscal policy and confidence. The first two seem off the list at the moment, so you're going to hear a lot of the third.
MONTAGNE: Thanks for joining us again, David.
WESSEL: You're welcome, Renee.
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