Q&A: CNBC's Steve Liesman on the U.S. Economy

Steve:

You know, when we keyed our economy to aggregate demand for forty years or so, median household income rose consistently. Thirty years of supply-side orientation has left median income stagnant.

I understand that YOU are richer along with your fellow citizens in the top 10%. But I'm not. And I really don't care about you. I care about me.

Why does your network and the entire business/financial media cheerlead Supply-side nostrums so shamelessly?

My fellow Steve,
Thanks for doing this. I'm pretty much a know-nothing when it comes to economics, so I'll be tracking this thread closely. I think my main beef is this:
Gas starts to increase, slowly at first. Then it starts to pick up speed. Right at the base of that price increase, the speculators and prognosticators come out of the wooodwork, spouting worst-case scenarios. This season, it's $4 gas, and I've started hearing a double-digit number thrown around as being in our future. After they make their predictions, those predictions usually come to pass. But when no such predictions are made and prices increase, we consumers tend to get more vocally upset about it. So my question is this: Well first, are my premises way off-target, and secondly, how much of a role do speculators play in the fluctuation of gas prices?

Simply put, energy is the key to everything in a viable economy. The cost of energy is factored into everything, from gasoline to food.

It is inevitable that traditional sources of cheap energy will be gradually depleted, leading to price increases.

Energy is a natural resource. In time, society itself, including our lifestyles, will have to be restructured to accommodate the demands on natural resources, which are limited.

I propose that society be restructured toward smaller cities and local self-sufficiency in order to minimize the shocks when resources become increasingly scarce.

With the economy driving itself toward the negative at every turn and the Fed working (seemingly) to reduce the interest rate to induce a turn around, I ask this. Having studied economic theory throughout college, at what point does the Fed finally realize that reducing the interest rate has to reach a point of diminishing returns in which it will have an adverse effect and will drive the economy more quickly into recession??

Thanks for taking our questions, Steve. With the rise in inflation, and a more stagnant economy, do you feel this nation is heading into a period of stagflation? It happened once already in the 70's, driven by the same rising oil and food prices.

Steve, it seems the Fed is trying to walk the fine line of strengthening the economy to avoid recession, while running the very real risk of driving up inflation with a weakened dollar. Though few of us can remember the serious impact of a recession or of high inflation we know both can greatly hurt us in the wallet in different ways. There is some concern that Fed's cure can sometimes be worse than the disease.

In practical terms what do you suggest are the best ways for individuals to minimize their personal risk in this uncertain and volatile economy? Are there steps we can take to better protect us from recession and inflation at the same time?

Should we buy food in bulk? Pay off debt faster? Buy more things now at lower prices? Buy gold? Try to get paid in Euros? :-) Refinance debt / mortgages quickly at fixed rates now?

Thanks!

Steve what is your view of such dire predictions from books like The Trillion Dollar Meltdown?

I have not read the book, but some are saying:

It's been a long time coming, this reckless financial environment of subprime mortgages, the worst foreclosure crisis in decades, massive job losses, talk by Barack Obama and Hillary Clinton alike about opting out of NAFTA or modifying it, high energy prices -- the whole Perfect Storm, to use a cliche, that afflicts the American economy.

Add to this war in Iraq and Afghanistan that costs billions of dollars with no end game in sight -- a war that already has cost more than World War II -- and Morris's view that the restructuring needed will be at least as painful as the "difficult period of 1979-1983." huntington news

Add to that the seemingly endless stream of Billion $$$ writedowns from Citigroup, UBS, Bank of America, Deutsche Bank, RBC, Merrill Lynch to name a few...

Do you think things will get worse? much worse? before they get better? How can we best measure an economic "light at the end of the tunnel?"

Thanks.

Traditionally the Federal Reserve has cut interest rates to stimulate the economy, flushing money out of investments and into the economy at large. It has also traditionally raised interest rates to curb inflation, pulling money out of the economy at large and putting it into investments.

With the dollar plummeting in value, prices are inflating but we've also got an economy that's stagnating. It's like the 1970s all over again. But in the 1970s the Fed had some wiggle room with respect to the interest rate. Today it's so low that further cuts are unrealistic.

So my question is this: given the very real possibility of Stagflation, but with no where to drop the interest rate to, what options are left for the Fed in terms of monetary policies that can address the stagnation of the economy?

Steve,

Since almost everybody feels that the Fed is basically done (despite debatable language in their statement) do you see the dollar continuing to strengthen, and, if so, do you think this will materially impact the earnings of Ag stocks [POT, AGU, MOS, etc] and steel stocks [X, NUE, AKS, etc.]?

Jim Cramer seems to believe that the recent sell-off in these names is overdone and that worldwide demand for fertilizer and steel outweighs any downside risk to earnings from a strengthening dollar.

Thank you for your time,
Mike

I've noticed a trend in the past few recessions, 2000-2001, 1991-1992, 1980-1981 in that they seem to overlap Presidential Elections that saw the incumbent party ousted by the challenging party.

This could be because the bad economy saw Americans looking for a change of direction, so they voted for change. However, it seems that these recessions could also be self inflicted. The challenging party has to go negative on the economy in order to win. No one is going to want to change direction if everything is roses. So the challenging party needs to play up that a recession is looming and only they can stop it. Since economic activity in its basic form is just human behavior, having our leaders tell us that a recession is looming could be a self-fulfilling prophecy. People are told that a recession is coming, so they start acting as if one is coming, spending less, businesses start layoffs, investors take less risk in their investments, and thus those actions actually cause the recession.

Is this causation theory possible, or is the correlation between elections and recessions just coincidence?

To say anyone is shocked about the Economy is a joke, Paul O'Neill said this would happen before Bush fired him. Now Brian explained the effect of gas/food/travel/ as everything effects the other. Paulson is so far our of his league in his job it sad. Now Iran and Opec have stopped using the US dollar what effect will that make? As Asia might start doing the same. Yes I know China has given CitI Bank a loan of billions but with the World Economy now if the US dollar isn't used it drops lower. It's like you have a dollar that's only worth 45 cents. We see Russia, China and other countries continuing to do deals with the Middle East yet when Bush and Cheney asked their friend the Saudi King for help he said no. Dubai has grown during the Bush term to become rich. Bush said when we invaded Iraq we would have oil at a lower price, then he said his friend the Saudi King would help yet nothing is done. Immigrants are moving to Canada for work and I hope the GOP doesn't think they can bring back slavery to pick those crops. It doesn't take a genius to figure out you have to now work with the World as each country has something the other needs. While the White House and the Media are pushing propaganda and stealing from the US Treasury the other countries have moved on. Listening to McCain with his stay the course would put the US in a Depression. Obama is clueless and relies on Senior Democrats to tell him what to do which is stupid. Hillary has the plan and the backing to solve the problems quick. The United States is so corrupt within all Department of Government, Courts and DOJ all the way to the White House. First the country needs an enema to clean the bad stuff out then move forward. Notice how the Media has lost viewers while ABC, CBS and FOX News report what the White House tells them yes some at MSNBC too like Tweety Matthews/Tim Russert/Andrea Mitchell the GOP insiders.

Steve. Having listened to you this morning at the time of the employment numbers and from what I have read in the comments above here is my question(s). So if the Fed does stop cutting rates(1) The problem that I see it is that even though banking/financial has gotten large amounts of help from the Fed what happens if things do not pick up? I worked in the auto industry for a long time and see one thing that has always stood out. Trucks drive the economy. Like within the last month or so large amounts of layoffs have been announced for truck production. Warning sign. Where does the Fed go when unemployment does start to really increase as I see it coming. What tools does it have as it has basically dropped rates so much in the last year? Added onto this also is the housing issue which is still a overhang for those still with possible defaults/bankruptcies coming. The only bright spot might be and I say might be commodities coming down but even so there is a point especially with oil that world consumption will equalize this.
One last point. Enjoy your comments on CNBC. Keep up the great work.

Steve, I heard a rumor that in a Southern state there is an oil refinery that is sitting on many millions of gallons of oil that was purchased last year at lower crude prices, then the company had a lay off of about 2000 employees to run at about 30% production; In addition, we the tax payers pay for this layoff, and are paying higher gas prices due to the very same reduction of production or false increase in demand. Any answers?

Also, why does the US export/sell Alaskan oill to other countries when we could use it here?

Thanks, Bob

The government won't, can't, and really shouldn't fix the banking/housing/ credit mess. the Oil mess, the healthcare mess. And business and each industry are networked so that they dictate to the consumers and there customers.

I believe there are some relative simple solutions that probably will only happen if people get involved together and say No. IN MASS, Boycotts, protests, letters to Congress, letters to CEO's may eventually be the only way.

Then and only then will Corporate America get the message that People come first. Profit second.

And it will work.

I believe there are some relative simple, ground level solutions that can be found. I respect the expertise and economic intelligence of experts. Unfortantly Profit takes first place over people, and that needs to change. OK, Here is my naive question. Is it possible for one industry to be Supply side and another industry to be demand side, rather than the whole economy? Example: Healhcare. Could it be demand side, while say automobiles supply side?

Great site! Thanks.

I have read that having so much press coverage of the perceived failing economy, painted across most families TV's each night, could be artificially pushing inflation up. Not you guys of course! You seem more like the kind that will be able to sort through this mess for the rest of us.

I realize there are some very serious situations going on here, and abroad, driving inflation even higher. However, from a spectators position, the constant barrage of bad economy news seems to be causing a frenzy, warranted or not.

Can this be having a real effect on the economy and demand? or just speculation?

Thanks for helping me navigate - I am such a newbie.

The comments coming directly from the economics reporter shows me the difficult place these guys are in. Maybe a balance is called for. For example, to balance the harsh news, perhaps some good ideas for recovery can be added in as well? I know space is always limited, but actually seeing what can be done to correct the trend, can prove to be so valuable to the common man, or woman. Possibly sparking hope, and more importantly, sparking the great ideas we Americans always seem to find.

As a reporter, describe what we can do - or what others are successfully doing - daily to help the situation, or at least start the conversation for a solution. Some people will need some very specific directions as to how to survive these times. In fact, there may be several solutions that work equally well, and could be tailored to fit the range of lifestyles we see here.

The US economy is in a recession. What is going to make the difference? Stop the war, bring the men and women home. Cut your ties with Irag. And watch fuel prices come down. There is still going to be a war, this one is going to do with food shortages and medicine shortages around the world , yes Steve supply plays the big part. Bush's War has caused fuel shortages world wide along with food shortages.

Stop the war, bring the men and women home. Cut your ties with Irag. And watch fuel prices come down. There is still going to be a war, this one is going to do with food shortages and medicine shortages around the world , yes Steve supply plays the big part. Bush's War has caused fuel shortages world wide along with food shortages

You guys, or the economy rather, is going to be in for a rude shock when the war comes to an end and government spending begins to wind down. You want to talk stagflation, wait until we discover how much of those govt. dollars have been feeding back into our economy right here in the USA. Unemployment is going to rise, not only because of returning soldiers, but because of the support and supply structure that will have to be dismantled. You talk about taxes going up, yes they will have to, as they always must every time a liberal government gets into power to take care of the enormous deficit the supply-siders inevitably leave with their "Read my lips! No new taxes approach!" This time the deficit is really going to be almost incomprehensibly huge, and the Democrats are going to get the blame, unfortunately. You see there is supply, and then there's value adding and the multiplier effect, misdirected or unfocussed tax-cuts to the suppliers do not always succeed in adding value to the economy, not when the product does not feed back into the resource chain of the nation. During wartime much of the manufactured goods either go overseas with no return, or exchange, or no build up of markets overseas. A significant part of the wages paid to soldiers overseas are also spent right there, overseas. So when the fiscal and monetary bounties paid to the suppliers do not result in value added right here in this country, because of an ongoing war for example, then the resulting imbalance even though it gives the appearance of being a healthy economy for a while is ultimately unsustainable. The bust usually follows after the war is winding down, as it did after WW1, WW2, and the VietNam War. The solution may well be to continue spending at war time level for some time after the war, this time at home, but politics usually gets in the way. The outlook for the coming years is not good therefore, and the Democrats, if they get elected are going to take the blame. How ironic!

Steve,

You mentioned high-speed rail in a conversation today.  One of my favorite gripes is that we in the US don't have a clue except at Disney World.  At the Olympics it was remarked that China has high speed from Shangai to their airport.  Japan has (and has had) the Bullet train.  There is high-speed all over Europe.  And here sits the USA.  Few passenger trains and they are all slow.  Freight trains mainly carrying coal. Lots of trucks but on a deteriorating road system.  I am surpised that we aren't returniong to the old "puffer-bellys".  So please, talk it up on "your bully-pulpit" and see if you can't get someone's attention.  PS I enjoy your reporting and insight and especially when you and Ric help me to see differing views on a subject.  Thanks, Stew