Expert Grades The Fundamentals Of The Economy Republican presidential candidate John McCain made some waves earlier this week when he said "the fundamentals of our economy are still strong." Economist Nancy Kimelman says with 94 percent of Americans employed, things aren't going to be that bad, but she makes a distinction between an economic crisis and the crisis within the financial sector.

Expert Grades The Fundamentals Of The Economy

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John McCain turned some heads this week when he used what's become a stock line in his stump speech.

(Soundbite of Senator McCain stump speech)

Senator JOHN MCCAIN (Republican, Arizona; Republican Presidential Nominee): The fundamentals of our economy are strong, but these are very, very difficult times.

SEABROOK: As the stock market tanked, Barack Obama jumped on that phrase, "The fundamentals of our economy are strong," calling it evidence that McCain is out of touch on the economy. In his speech later the same day, the Republican had amended his message.

(Soundbite of Senator McCain stump speech)

Senator MCCAIN: I know Americans are hurting now, and the fundamentals of our economy are at risk. They are at risk.

SEABROOK: So, strong or at risk? Just what are the fundamentals of our economy, anyway? What is it that lies beneath the Rube Goldberg world of mortgage-backed securities and derivatives and credit default swaps? For answers, we turn to economist Nancy Kimelman. She wrote the book "Common Cents: How the Economy Really Works." And she joins us from the studios of WGBH in Boston. Thanks for coming in, Nancy Kimelman.

Dr. NANCY KIMELMAN (Economist; Author, "Common Cents: How the Economy Really Works"): It's my pleasure.

SEABROOK: What exactly are the fundamentals of our economy?

Dr. KIMELMAN: I think where John McCain got into trouble is that he didn't specify what the fundamentals are. And what he means by that is that - what economists call the real sector of the economy. What I'm talking about is real activity, the transactions that you and I undertake everyday, whether it'd be at the grocery store, whether it's paying our rent or our mortgage.

SEABROOK: Now, you mentioned as one of those fundamentals, that people are paying their mortgages, and so on. But there are five million people, according to the federal government, whose mortgages are in delinquency or default, plus unemployment's at 6.1 percent. I mean, the fundamentals you just mentioned don't seem to be as strong at least as they have been.

Dr. KIMELMAN: Well, that's absolutely right. The fundamentals are not as strong as they have been. 6.1 percent unemployment is still considerably higher than we had a year ago, two years ago. But it's not 25 percent. Remember that during the Great Depression, the unemployment rate in this country was over 25 percent. Things have clearly gotten worse, but they're not at the level that we saw in the Great Depression, and I don't think we're even going to come close to those levels.

SEABROOK: What about the mortgages? What about those five million people in delinquency or default?

Dr. KIMELMAN: Well, the mortgage market is part of the financial market. It's a financial instrument, the mortgages. And a lot of people are delinquent on their mortgages. But to date, almost all the devastation has been confined to the financial markets as opposed to the real economy.

SEABROOK: What about Wall Street? This has been just a rollercoaster with no seatbelts week.

Dr. KIMELMAN: First of, let's be clear about something. The problems that we're experiencing in the financial sector now might have been created by the financial geniuses on Wall Street, thank you very much. But it really has - it's gone beyond that. The reach is onto Main Street. It's our local banks. It's our local thrifts.

SEABROOK: So, how does that translate into fundamentals are sound?

Dr. KIMELMAN: To say that the economy is fundamentally strong is not to say that our economy hasn't weakened in the last couple of years. It has. But at the end of the day, everyone is working - Congress, the Fed, the Treasury, the White House - everyone is working to bolster our economy and to try to insulate us from the devastation in the financial markets.

SEABROOK: Economist Nancy Kimelman. Her book is called, "Common Cents," that's C-E-N-T-S, "How the Economy Really Works." Thanks very much, Nancy Kimelman.

Dr. KIMELMAN: My pleasure.

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