The state of global markets

MW �so PC, it’s Friday, let’s look back at the week quickly. There’s been so much fear and anxiety about where all this is heading. How would you assess the situation today?� PC �investors are recovering their nerves because we’ve had so much thrown at them. We’ve had an interest rate cut from the Federal Reserve, we’ve had this stimulus package from the President and Congress, we’ve had plans to rescue bond insurance companies, we’ve had this scandal at the French bank Societe Generale, which may have explained one of the reasons why things were so bad on Monday. So after all that investors are starting to think authorities are taking so much effort to try and revive the economy so maybe that’s an encouraging sign.� MW �well let’s talk about one of those things you mentioned, the economic stimulus package here in the US. we’re joined by GS. GS, explain how something meant to stimulate the US economy, namely a tax rebate for families in the US, how that will actually help in Europe for example?� GS �well let me say that the big help is not so much for Europe but for Asia, but how it’ll help is this: the American consumer has for the last couple of years been the spender of last resort in the world economy and therefore if American households, when they get their tax rebates if they go out and spend them, the goodly part of what they spend will be on goods exported from the rest of the world. So that will obviously help exporters in Japan or China or Germany or Britain or wherever, and of course another part will be spent on goods made in the United States which is good for American producers.� MW �PC, explain how the stimulus package would actually help somebody working on a factory line in China or Mexico.� PC �it would help because as GS was saying, they make the goods that American consumers buy and later this year when Americans do get those checks, they’ll be able to buy more goods. And of course it also is important that the Fed has cut rates because that in itself should stimulate economic activity. The big question for both European and Asian factory workers are what will other banks do. And of course the European Central Bank this week has suggested it won’t be as keen as the Fed to cut rates. So while the American authorities seem to be doing everything in their power to try and revive their economy it may not get such a big response from the rest of the world.� GS �the US economy made already be in a recession, it may experience a recession this year. But for the Euro Zone, the now 15 countries that share the Euro in continental Europe, they are by no means in a similar situation, they have had growth. And the latest numbers we have seen of business and consumer confidence in the biggest countries like Germany and France don’t point to any severe weakening of economic activity and so I would say that there is really no reason for the European Central Bank to cut interest rates.� MW �just speaking with people around my office and what they do with a tax rebate check, most of them said they’ll just try and bring down their personal debt. Personally, I’d rather buy a flat screen TV, but I have to service some debt that I can’t deny. Some critics have said that the stimulus package is kind of a waste of money, that the government is just throwing money at the problem, almost saying let them eat cake. Are there any unintended consequences for the global market?� PC �Well you could see it as just people replacing their debts to credit card companies with the US government taking out a debt on their behalf, so the overall situation of the US economy wouldn’t change. But the good news is, to the extent that people have bad debt problem in the States, it will be marginally improved if they do use this money to pay down their debts.� MW �And what about the average consumer on the street today? will they go out and buy a dozen eggs instead of half a dozen eggs?� GS �That is the big question, I don’t know what PC thinks, but the great worry of course is that they won’t. and if they don’t do that and the effects of the tax rebate and lower interest rates will be very limited indeed.� PC �I think the big question for consumers is whether they’ll still have a job in a few months time, and if the rise in unemployment we saw in the last period, if that continues over the next couple of months then obviously consumers are going to be very, very cautious.� MW �the housing market we know is still doing very badly with little hope in sight for any up turn, we saw the sales of existing homes plummet in September and the sales for new houses is also poor, house numbers are falling. That does make people feel very, very bad.� MW �so if those numbers coming out on Monday are as you predict, are we looking at another jittery week ahead?� GS �quite possibly, also given that later in the week we get the first estimate at how the US economy performed in the fourth quarter and that’s not going to be a strong number either.� PC �And there’s a meeting on Wednesday in which the Fed could cut rates again and a lot of people in the market expect them to do so by another half a percentage point.�