DAVID GREENE, HOST:
Global markets, for the moment, seem to be tanking, and we have David Wessel on the line. He's director at the Hutchins Center at the Brookings Institution and a contributing correspondent to the Wall Street Journal. Hey, David.
DAVID WESSEL: Good morning.
GREENE: Morning. So I gather when financial markets really take a fall, it shows a deepening pessimism among investors. What has so many people so gloomy right now?
WESSEL: Well, I think it started with China - a slowdown there, and the government's ham-fisted response - and with a surprisingly sharp and persistent drop in oil prices, both because there's more oil production, but also signs that there's less demand, which is a symptom of less demand for everything in the world economy. But what's interesting is the overall stock market has now fallen more than the energy sector, and bank stocks have fallen even more than that, partly because they lent so much money to the energy industry and partly because interest rates are so low they're finding it hard to make money. It's a vicious cycle, you know. China buys less commodities, that hurts the countries that export them, that hurts the big companies that sell to consumers in those countries. There's a real whiff of panic here. I think sometimes investors move in herds, and that surely seems to be what's going on now. Everything is just bad news, and that leads people to sell.
GREENE: And just to clarify, when you say overall stock market, we're talking about markets around the world - the United States and others.
WESSEL: Yes, the U.S., Asia and the U.S. - and Europe.
GREENE: Well, let me ask you this. I mean, this pessimism - and you talk about it kind of beginning with China and the economic troubles there - I mean, is this reflecting actual signs of weakness in economies or is it more of a perception of them?
WESSEL: Maybe.
GREENE: Could be either way.
WESSEL: The rest of the world looks pretty lousy, particularly the big emerging markets. You know, there was this acronym for the fast-growing countries of Brazil, Russia, India, China, South Africa - it was called the BRICS. Larry Summers, the former treasury secretary, joked yesterday that BRIC now stands for Bloody Ridiculous Investment Concept.
GREENE: (Laughter) Man, I don't like that as much as the old way of using BRIC.
WESSEL: But basically, what's interesting is the U.S. so far, particularly the job market, has actually been looking stronger, despite some weakness in manufacturing. The official unemployment rate is down to 4.9 percent. Broader measures are down. Hiring has been brisk. There was data out this week that shows that more workers are confident enough about the job market to voluntarily quit their jobs than at any time since 2007. Olivier Blanchard, who used to be the economist at the International Monetary Fund put it to me this way. He said, I think the U.S. economy's OK. I think markets are overreacting. But the markets make me re-examine my forecast, and I know that when stock prices, oil prices and all that fall a lot, that can spill over and cause problems for the rest of the economy.
GREENE: So it really can be a vicious cycle.
WESSEL: Yeah.
GREENE: Even if there's not actual weakness, sort of the perception of weakness can actually lead to weakness itself in one big cycle. Well, let me ask you this. I mean, if things do turn really badly - you know, if we look back to 2008 when the world plunged into recession, governments around the world really came to the rescue with tax cuts and spending increases and interest rate cuts. Could all that happen again?
WESSEL: Well, I think that's the problem. You know, the fed has started to raise interest rates. Janet Yellin in testimony yesterday on Capitol Hill exuded caution. But interest rates here and around the world are very low. It's hard to get them lower. The textbook answer is more government spending and more tax cuts, but a lot of governments have so much debt, and there's so much political resistance here in the U.S. to bigger deficits, it's not clear that government spending can march in here either.
GREENE: All right, David, thanks as always.
WESSEL: You're welcome.
GREENE: That's David Wessel. He's director at the Hutchins Center at the Brookings Institution and a contributing correspondent to the Wall Street Journal. Transcript provided by NPR, Copyright NPR.
