Columnist Bruce Stokes Discusses U.S. Economic Turmoil

U.S. DEPARTMENT OF STATE Bureau of International Information Programs Ask America Webchat Transcript

Financial Crisis

Guest: Bruce Stokes Date: December 2, 2008 Time: 8 a.m. EST (13:00 GMT)

Webchat Moderator: Please join us on December 2 at 8:00 a.m. EST [13:00 GMT] to discuss the results of the G-20 Summit with Bruce Stokes, international economics columnist for The National Journal.

Webchat Moderator: We are now accepting your questions on the current financial crisis. We look forward to seeing you on December 2!

Webchat Moderator [Kristin]: Hello and welcome! We will begin answering your questions in about 5 minutes. Our speaker today is Bruce Stokes of the National Journal.

Bruce Stokes is the international economics columnist for National Journal, a weekly public policy magazine published in Washington DC. He has covered international economics for the National Journal for a quarter century, reporting from nearly three dozen countries. He is coauthor of the 2006 book America Against the World: How We Are Different and Why We Are Disliked [Times Books].

A former senior fellow at the Council on Foreign Relations, Mr. Stokes is currently a transatlantic fellow at the German Marshall Fund and a member of the Pew Global Attitudes research team. In 1987 and again in 1989, Mr. Stokes was a Japan Society Fellow, living in and reporting from Japan.

In 2006, Mr. Stokes was honored by the Coalition of Service Industries for his reporting on services issues. In 2004, he was chosen by International Economy magazine as one of the most influential China watchers in the American press. In 1995, he was picked by Washingtonian Magazine as one of the "Best on Business" reporters in Washington.

In 1989, Stokes won the coveted John Hancock award for excellence in business and economics reporting for his series on the impact of the rising yen on the Japanese economy. Stokes graduated from the School of Foreign Service at Georgetown University and has a master's degree from the School for Advanced International Studies at Johns Hopkins University.

Webchat Moderator [Kristin]: Thanks for being with us today! We are going to go ahead and get started.

Question [Czeslaw]: Hello Sir! One only needs to see how this crisis was fueled by US housing downturn to confirm other importance of the US economy to the world economy...however, after this crisis ends, will the new world economic order place the US in a more level place along with the other main economies?

Answer [brucestokes]: This is a very good question. Clearly the lack of regulation in the United States is one of the causes of this problem and discussion just a year ago that other economies were somehow immune from the U.S. economy was wrong. We are all in this together. The global recession will definitely shrink the U.S. economy, and others. The relative strength of the U.S. economy will diminish compared with other economies. But at the end of the day I expect the U.S. economy will still be the world's biggest and strongest economy. Just a bit less strong than before. However, our ability to set the tone for the economic discussion in the world will be eroded. I expect few countries will take U.S. advice at face value in the future. We will have to live with the cost of our hubris for many years to come.

Webchat Moderator [Kristin]: To all that have just joined us - welcome! Bruce Stokes of the National Journal is with us today answering your financial questions. Please continue to submit your questions!

Q [Eli]: How does fall of oil prices change balance of power for oil powers: Russia, Venezuela, Saudi?

A [brucestokes]: Another good question. With oil now trading at a third its price just a few months ago the wealth of oil producing nations has taken a hit and their influence on the world stage is diminished. But these nations still have immense foreign exchange reserves so we should not underestimate their continuing influence. The real cost they pay is in future development. Nation's made economic development plans based on estimates of oil prices that no longer apply. So their ambitions must be curtailed. It also underscores the shortsightedness of nations such as Russia not diversifying their economies when they could. The Gulf states, with their small populations, have few options for their economies, Russia has more and in the future should try to develop its manufacturing and service sector.

Q [Dato]: Do you have any prediction about the US Dollar rate?

A [brucestokes]: I wish I did, I could be rich. Seriously the dollar rate is very difficult to predict. In many but not all past recessions the dollar fell in value. This time it is rising, as people seek safety in the U.S., despite our shrinking economy. I expect that will continue for a while, but at some time given our debt and the new opportunities that will emerge in other countries I expect the dollar to weaken again, something UN economists predicted yesterday.

Q [Czeslaw]: How about emerging ecomoies such as east european countries like Poland. What advice you have for these economies to make it through the storm?

A [brucestokes]: I think your question underscores one of the real challenges in this downturn. Eastern Europe looks to suffer a great deal. Some of the countries in the region are trying to get inside the Euro sooner to shield themselves from currency depreciation. That has advantages but it also forces adjustment onto other parts of the economy, such as employment so there are no easy answers. My guess is that in the long term eastern Europe may benefit from all this in the sense that when economic activity picks up again some German and other manufacturers will first reopen production in eastern Europe where costs will be lower.

Q [Eli]: What is the main accomplishment of G20 meetings?

A [brucestokes]: As you know the G-20 brought together the leaders of 20 major countries, both industrial and emerging market nations. The accomplishments included the fact that the meeting took place at all. Never before had the heads of state of these nations met. They met despite the reluctance of the Bush administration thanks to leadership by the UK and France. At times it is good if other nations lead the U.S. follows. The meeting set out a good set of principles for financial sector reform-more transparency and accountability, a pledge to not turn protectionist, Japan came up with $100 billion in new money for the IMF, nearly doubling the IMF resources. So it was a good start. But, neither the US nor the EU would agree to major reform of the governance of the IMF, to give other countries more say. The reforms promised on financial matters may violate some WTO commitments, they are going to be very hard to coordinate, no country is yet willing to submit to internation al oversight of their financial regulation and so pr

A [brucestokes]: and so prospects are slim for substantial and timely reform before the G-20 meets in London in April.

Q [HJ]: Dear Bruce Stokes: Thank you for time. Are you concerned about too much regulation of market forces? In other words now a swing too far away from the free market of past?

A [brucestokes]: that is a fair question and reflects how pervasive and deeply held is our current belief in free markets. We are all Reaganites and Thatcherites today, whether we like it or not. That said I am not concerned about too much regulation. The problems we face are a direct result of too little regulation. we will now go through a period, maybe a generation, of re-regulation. I am sure we will overstep at some point and go too far. But I think we are a long way from that. Economics is not a science, despite what economists claim, its an art. And we will constantly be repainting this picture. I think our energies should not be directed at worrying about overregulation but about how to get the re-regulation right.

Q [Eli]: US confirms now a recession since December 2007. What does this mean for global ecomoy?

A [brucestokes] I fear this news that the US has been in recession all year spells a deeper and longer recession for the world than we had hoped.

Q [HJ]: With your experience in China, how do you see the Chinese bailout. And beyond that, what does China bring to the world table to deal with this situation of finace crisis? You said before US rolle is diminshed. Does China's role gain?

A [brucestokes]: The trillion dollar Chinese stimulus package is a sign of their concern about their own welfare and a sign that they realize the world needs them to act. That said most of the money, maybe two-thirds, is old money, already on the books to be spent and not new money, which is what is true stimulus. Its a start but we probably need them to do more. In addition, what they spend it on matters. It is well and good if they stimulate their domestic economy, but keep an eye on imports. If their imports go down, it means the benefit of their stimulus for the world is limited. Moreover, watch their exports. One benefit of a stimulus package would be to boost domestic chinese consumption. If that doesn't happen then Chinese producers will be tempted to dump product abroad, harming others and leading to trade tensions.

Q [HJ]: One final question if I may. To US economies what is more important AND which sector would be less damaging to the economy if it is to fail: Motorcars or houses?

A [brucestokes]: that is a tough question. both are important. But, housing is probably the most important in terms of jobs created and because of the importance of home ownership to community stability and the role that home ownership plays in the American dream of a middle class existence. Also, if the housing industry flounders, there is no way for foreign producers to provide Americans with an alternative product. In automaking, as bad as it would be if the Big Three went bankrupt, consumers would still have access to cars. But, in the end, the U.S. government has little choice but to try to save both industries. Together they are among the biggest sources of jobs and, at least for autoworkers, good incomes.

Q [Joesph]: Should one of the U.S. automakers fail? Will they merge?

A [brucestokes]: I think we have to assume that at least one automaker, probably Chrysler, will fail. But, as you suggest, failure may be defined as merger. If GM is forced into bankruptcy then all sorts of opportunities may emerge. Could it merge with Ford or one of the Japanese automakers? Doubtful but once things start unraveling anything could be possible. We live in interesting times.

Q [Joesph]: Do you personally trust world leaders to fix the problems? Thanks

A [brucestokes]: No I don't trust leaders to fix problems. I trust them to try to fix them and in the process solutions may emerge or time will fix the problems. This is not a reason not to try but I think the ability is limited of any person or group of persons to come up with a magic solution to this overwhelmingly complex set of economic challenges.

Q [P.D.]: What the most urgent steps the new president can take regarding the economy?

Webchat Moderator [Kristin]: Welcome to those who have just joined us! Please submit your questions now.

A [brucestokes]: The biggest challenge facing Obama is getting the economy growing again. Its the recovery stupid, to paraphrase Clinton's old line. To do that I think his biggest advantage is the hope and sense of change he embodies. That will discipate over time so he needs to move quickly. I think they need a huge stimulus package, probably a trillion dollars over two years, at least. If he can do this I think the U.S. can help lead the world economy back. It will take several years to accomplish and during that time the U.S. needs to work with others set the new framework for regulation in a global economy.

Q [marija petrovic]: how about small countries like Serbia? Do you thing the impact of the financial crisis will be great? Serbian Government keeps reassuring the entire public that bank savings are safe and that people do not need to withdraw their money from banks. Perhaps this may be a little too distant for you but still perhaps you have any answers for me

A [brucestokes]: I don't know anything about the Serbian situation so please do not make any personal financial decisions based on my advice. I do think that the experience with this crisis to date is that no country seems immune. Serbia may have special circumstances but I think its best to assume that in a global financial market all financial institutions will be somewhat affected by the turbulence.

Webchat Moderator [Kristin]: We wish to thank Bruce Stokes for joining us today and to thank you for your participation.

The webchat is now closed. Please visit our website for more information on upcoming events and a transcript of today's discussion. http://www.america.gov/multimedia/askamerica.html

Guests are chosen for their expertise. The views expressed by guests are their own and do not necessarily reflect those of the U.S. Department of State.
Source: U.S. Department of State