What a Rattled Economy Means to You As the market continues to get crushed, Kelly Evans of the Wall Street Journal takes questions on what the economic slowdown means for daily life and why it's happening in the first place.
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What a Rattled Economy Means to You

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What a Rattled Economy Means to You

What a Rattled Economy Means to You

What a Rattled Economy Means to You

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  • Transcript

As the market continues to get crushed, Kelly Evans of the Wall Street Journal takes questions on what the economic slowdown means for daily life and why it's happening in the first place.


Thanks, Rachel.

So guys, yesterday, I was on the plane coming back from the big D, Dallas. I had a layover. And behind me, these guys, their thumbs were just flying across their BlackBerry keyboards as these suit-and-tie guys, they were hunched over their seats, messaging madly, muttering under their breaths, Fed rate cut, Asian markets, sell-off, bare markets. It's this whole swirl of information. The Federal Reserve slashing interest rates in its first emergency move since the 9/11 terror attacks. That's enough to make you sit up and pay attention. The $145 billion stimulus package, yeah, that'll make you pay attention as well.

So now, all this news and information - if it's making you feel at all anxious or you have this feeling that you should be anxious but you aren't and you're not really sure why you aren't, listen up. The BPP fielded questions all day long on our blog and our BPP diner feed on Twitter about the economy, and we've invited here this morning Kelly Evans, who writes about the economy for the Wall Street Journal. She might be able to provide some guidance, or at least some glimmer of understanding.

Hi, Kelly.

Ms. KELLY EVANS (Writer, The Wall Street Journal): I will try to help. Hello. Thanks for having me.

STEWART: Let's start with the base level. Let's recap a little bit. What started this whole economic roller coaster that led up to yesterday's rate cut? What caused the initial panic?

Ms. EVANS: Yeah. At this point, we really started to see things deteriorate in August. That was when, you know, all of the talk we had been hearing about the housing market and these subprime mortgages that had been made just, you know, all the sudden, everything came to a head. You know, the Fed came in and cut the discount rate a couple times, which is the rate that banks are able to lend directly from the Fed.

So they were trying to stimulate economic activity that way. But, really, when people talk about the credit crunch, they mean that moment, you know, during the summer when what we had been worrying about with the housing market, all of the sudden sort of, you know, choked Wall Street through this credit crunch.

STEWART: And so what happened at all of this huge sell-off happened in the past few days, if August was sort of the time when everything got rolling?

Ms. EVANS: Yeah. Well, you know, in August, a lot of people were saying, okay, you know, there may be this credit problem. We need this - the housing market to work itself out. But - and over the last couple of months, the data has really been back and forth. We would get some signals that, you know, things were headed for trouble.

I think the first time that we really talked seriously about recession is when the government initially reported that the economy lost 4,000 jobs in August. That report was later advised to show a gain of 89,000. And the payroll report can be notoriously volatile, but still, to have such a big swing, went from - meant people went from talking about recession to saying, okay, well, maybe growth is just going to be subdued.

So what's happened in the last couple of months is we've gone from saying, you know, is recession going to happen? Is it a reality? If so, when? To all of the sudden seeing it play out in the markets, which have really seized up across, you know, across the country.

TOURE, host:

How much should a normal person be worried?

Ms. EVANS: Well, it's - that's kind of an interesting question, because the main thing economists are worried about is consumer spending. Consumer spending fuels about 70 percent of economic growth in the U.S. That's huge. It's by far the biggest piece.

So economists are saying, look, if consumers are, you know, in debt up to their eyeballs, they can no longer pull money out of their homes, through home equity lines of credit, refinancing, that kind of thing because the standards have tightened up so much. So how are they going to keep spending? If they can't spend, the economy will have a very difficult time continuing to grow.

So in terms of what people should be worried about, it's more a question of - I think the reason why some people are confused is for many Americans right now, things may still be okay.

STEWART: Mm-hmm.

Ms. EVANS: You know, the job market has not fallen apart. We've seen a jump in the unemployment rate. We've seen, you know, a slow down in hiring. But there are a lot of people right now who are kind of business as usual and wondering why - what's going on? Why am I hearing all these terrible things, all this talk about recession? And really, that's because of what we've seen in the economic data over the last couple of months, and now what we're seeing in the stock market, too.

STEWART: Well, that's what some of our bloggers, folks who listen to the show and make comments, have questions about the recession. Danny wrote to us:

(Reading) "My husband and I want to buy a house in the next few months. Will a recession affect the purchase? We were at the grocery store over the weekend and noticed that prices have definitely gone up. Won't prices go down during a recession? I'm not sure what the direct impact of recession will have on our household, and I'd really like to know."

Ms. EVANS: Okay. Those were some great some questions, and the price question is especially interesting. I might come back to that in a minute.


Ms. EVANS: In terms of buying a house, it's great if people want to buy a house right now. What the housing market needs to turn around are more buyers. You know, certainly, that's the only way we're going to move through some of this excess inventory and start bringing things back to normal. Unfortunately, there are signs that people are now saying, wait a second. If prices are going to continue falling, I'm going to wait.

STEWART: Mm-hmm.

Ms. EVANS: You know, I'm not going to buy until they come down a little bit further. And so you get into sort of a psychological game there that can be tricky, because how do you know when people start expecting prices to go up instead of down, which is usually when they would buy.

However, you know, there are lot of great deals right now in housing. I mean, you know, with the new housing market, we've seen homebuyers offering incentives, slashing prices from months now. I mean, this has been happening for months and months. And now, with existing homes, sellers who have to sell right away, you know, they've got to really slash those prices in order to (unintelligible)…

STEWART: So it's a buyers' market.

Ms. EVANS: It absolutely is.


Ms. EVANS: But, you know, I would caution that because of the tightening in credit standards, it might be a lot more difficult for someone to get a mortgage right now. And that's kind of…

STEWART: But that might be a good thing.

Ms. EVANS: Yeah, right. Right.

STEWART: (unintelligible) they were getting mortgages away in, like, Cracker Jack boxes is how we got…

(Soundbite of laughter)

STEWART: …to this problem in the first place.

Ms. EVANS: That is a great point.

TOURE: Do you think that people should maybe be investing overseas? Is that going to help the problem or make it worse?

Ms. EVANS: Well, investing overseas has really been something that market managers have been pushing and telling people, look, the U.S. - even over the last year. I mean, this is not a new thing. This is something that they've been saying for a couple of years. Look, look at the growth in China. Look at the growth in India, and why don't we divest ourselves and hedge against what could happen with the U.S. slowdown by investing, you know, abroad? And the strength of global demand versus the kind of softness in the U.S. economy has been referred to by economists up to this point as decoupling.

But now here's the linchpin. It looks like the decoupling thesis is not necessarily holding up the way that some people were expecting it to. There's only so long that the entire global economy can continue to fuel this rapid, rapid growth, if the U.S. market, the huge influence on the global economy, is slowing down as it's heading for recession.

STEWART: Let me shoot one quick question to you before we go to break. It's from our Twitter feed. Gubilla(ph) says:

(Reading) "This may sound silly, but what exactly is a recession?"

(Soundbite of laughter)

STEWART: Why not ask it?

Ms. EVANS: It's typically referred to as two consecutive quarters of negative economic - of a contraction in economic growth.

STEWART: Oh, what does that mean in real people speak?

(Soundbite of laughter)

Ms. EVANS: Which means that - in real people speak, it means that it's an - it's not a tangible thing. You know, it means that everyone may be facing a rough time because there's - you know, consumer spending is slowing down, businesses aren't investing. There may be layoffs in the labor market. But the actual definition is by the National Bureau of Economic Research, and they determine when it is.

TOURE: Can you stick around a little bit more?

Ms. EVANS: I can do that.

TOURE: All right. This is fascinating. Stay with us. More with economic QA with Kelly Evans coming up on the BPP.

(Soundbite of music)

STEWART: Hey, welcome back to THE BRYANT PARK PROJECT from NPR News. And we're talking with economics reporter Kelly Evans from the Wall Street Journal, who's helping us decipher all of this - what's pretty scary economic news on the surface. And we brought our staff in, because the BPP staff kind of represents a slice of our audience. We have parents and newly weds, those who've saved up a little bit of money. They all have questions, and they've lined up on the mic.

(Soundbite of laughter)

STEWART: First up, producer Dan Pashman. I'll give you a little - a newly wed living in a city borough. Dan, what's your question for Kelly?

(Soundbite of laughter)

DAN PASHMAN: Hey, Kelly.

Ms. EVANS: Hi.

PASHMAN: My question basically, it seems like this thing has kind been a long time in the works. I mean, this - the problems that have led to us being in this situation right now didn't happen overnight. It's been a couple of years, really. Is there really any magic solution between what the Fed is talking about and the people at - either party in Washington are talking about?

STEWART: And the president and this huge stimulus package?

Ms. EVANS: Right, right.

PASHMAN: Is there anything that can be done at this point that's going to flip a switch and make it better? Or is it all just sort of a bunch of political hot air, and is the die already cast?

Ms. EVANS: Well, there are a couple ways that the government can intervene to try to help the economy. There's monetary policy, which is the Federal Reserve, the way it handles interest rates, and a lot of that helps encourage businesses to lend to one another, encourages banks to borrow at a low rate to finance economic activity. And there's also fiscal policy, which is, you know, oftentimes you hear about it when people are talking about taxes. But in this case, what the president and the treasury secretary and others are talking about is - in the latest figures I've seen are $145 billion fiscal stimulus plan.

And what they mean by stimulus is how are we going to get Americans to spend? You know, if people are pulling back because they have too much credit card debt or because they have overspent and are generally looking now to save that money if they're a little uncertain about the economic environment -unfortunately, while that's good for some Americans, it's not good for the economy. Because like I said, it's 70 percent of the economy is consumer spending.

PASHMAN: Have there been times when this - these things you're talking about have actually worked?

Ms. EVANS: That's a great question. I mean…

(Soundbite of laughter)

Ms. EVANS: Every time we're facing a recessionary period or a situation where there are some uncertainly in the economy, it's every - it's different every time. It's really hard to make past comparisons. The 2001 recession was not a consumer-led recession. It was a business-led recession. So it's really been almost, you know, 20 years at this point since we've seen a big consumer pullback. So that means there's a whole new range of problems and a wide variety of solutions that they hope can be aimed at getting consumers to spend again.

TOURE: When you say spend, are you talking about small ticket items, like going to Bloomingdale's and buying yourself a scarf? Or are you talking about big things like buying a home, getting a car?

Ms. EVANS: I mean everything. Spending on goods, spending on services - you know, going, you know, going to the tanning booth. You know, anything you can think of.

STEWART: Taking a vacation.

Ms. EVANS: Exactly. Exactly. And all of it really plays into that consumer-spending category.

STEWART: Tricia McKinney, our mom in the suburbs, looking to buy a house.

TRICIA MCKINNEY: I don't know if I like the way that makes me sound.

(Soundbite of laughter)

MCKINNEY: This isn't actually about the house, because you answered that earlier. But what I want to know is when the Fed lowers interest rates, it seems to me like none of my bills get any cheaper.

(Soundbite of laughter)

MCKINNEY: Am I wrong about that?

Ms. EVANS: Yeah. When they lower interest rates, especially when they make a move like they did yesterday, a lot of it is to - is aimed at helping Wall Street and the financial institutions that are really reliant on not only a show of support by the Federal Reserves, saying, look, we know you're in trouble. We're going to help - I don't want to say bail you out, because that can be a sensitive term, but we're going to make sure that we stay on top of this problem because, you know, anything that the Fed can do to say, look, we see what's happening with the stock markets. We want to encourage businesses to spend and to invest - they're going to do.

But the reality of monetary policy is that interest rate cuts takes months or years to work their way through the economy. So the series of rate cuts we had, you know, starting back this summer - I mean, we've really yet to see the effects work their way through. And especially when you're talking about your bills, whether it's credit cards or other, you know, interest rate type of things, it's not something where you're going to see the rate drop because of Federal Reserve cut rates. It's much less sensitive in that way, unfortunately.

TOURE: You're talking about credit cards. Do you think that credit card debt, which so many Americans carry, is a big reason behind all this?

Ms. EVANS: Yeah. The savings rate, you know, hovers around negative, and has been getting a lot of attention over the last couple of years because people are saying, look. How can it be that the savings rate is negative and that, you know, we continue to spend? One part answer to that was that people could take money out of their homes. They could refinance. They had home equity lines of credit. Anyone could walk up to the door and get a loan that way. So, now that they no longer have access to that line of credit and now that the credit cards may be maxed out, or in some cases, you know, the lenders are less willing to just throw plastic at anyone on the street, this really could be a moment when we start seeing the worries that people have had for years come to a head.

STEWART: All right. We only have time for one more question. I'm thinking of a number of one to 10.

Laura, pick a number.


STEWART: Rachel.


STEWART: Okay, Rachel, you get to ask your question.

(Soundbite of laughter)

STEWART: I'm sorry, Laura.

(Soundbite of laughter)

MARTIN: Okay. My question has to do with foreign markets. This morning, we hear word that Asia is recovering. Europe is still slipping, and in large part because people view this as a panicky move by the Fed. Why is this happening? Why don't foreign markets just chill out and say, okay. We know that this is -it's not about panic. Let's just stay the course like everyone else is supposed to, and it will be fine. Why are we still seeing repercussions in foreign markets?

Ms. EVANS: Yeah. Well, in - you know, the key thing here is that a lot of people have looked at the growth in Asia and India and other emerging markets over the last couple of years and said, look, this could be the future of the global economy. The U.S. is a mature economy. It's slowing down. It can't grow that quickly. But these other economies can. And so they'll have demand for our goods and services.

The thing is the international economy is so linked in so many ways, but especially through trade. So when you see something like the Federal Reserve slashing interest rates, that may put pressure on the U.S. dollar. It may drop it a little lower, as it has over the last year or so. That, in turn, makes the U.S. dollar less valuable compared to other assets. Well, oil's priced in dollars. A lot of commodities are priced in dollars. All of our exports are priced in dollars. So the ways - the ramifications that it has on exchange rates, on its demand and supply of U.S. goods in every other market is fundamentally linked. And we've seen that in the growth of our imports, in the growth of goods we get from China in the last decade, that kind of thing.

So there's really no way to separate any one market in the globe and look at it as a product of its - only itself. So the moves that you see in Asia and Europe are because they're saying, okay, wait a second. Maybe if the U.S. falters, we're going to falter, too. And that's a huge sign that global growth may now be on the same foot. Unfortunately, that's not a great foot to be on right now.

STEWART: Kelly Evans from the Wall Street Journal.

Hey, thanks for coming by.

Ms. EVANS: Sure. Thank you so much.

STEWART: I do have one quick question. On a freak-out scale from one to 10, the average person, where should they be?

Ms. EVANS: I say don't freak out unless you have a reason to.

STEWART: All right. Kelly, thanks a lot.

Ms. EVANS: Sure. Thank you.

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