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CNN Saturday Morning News

Interview With Noam Neusner

Aired November 17, 2001 - 09:45   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MARTIN SAVIDGE, CNN ANCHOR: That incident at Hartsfield International Airport did little to settle the raw nerves of air travelers, and it's adding to the fuel of airlines as they appeal for federal help.

But CNN's Tim O'Brien tells us the airlines are just one of many industries that are trying to get on the federal bailout bandwagon.

(BEGIN VIDEOTAPE)

TIM O'BRIEN, CNN CORRESPONDENT (voice-over): In the aftermath of September 11, there was widespread agreement that the airlines needed help, $15 billion. It was the government, after all, that grounded the planes.

Then came the insurance industry, worried about next time, wanting taxpayers to become the insurer of last resort.

Next in line, the Postal Service, left reeling from the anthrax scare.

JOHN POTTER, POSTMASTER GENERAL: We estimate the cost, the entire cost for terrorism and dealing with homeland security to be $3 to $4 billion.

O'BRIEN: Will the government help? The hotel and restaurant industry, which also took a body blow, would like Congress to revive some old tax breaks.

JOSEPH MCINERNEY, AMERICAN HOTEL AND LODGING ASSOCIATION: We're looking for travel incentives, for the 100 percent deductibility of meals and business entertainment and spousal travel.

O'BRIEN: The car rental industry also wants help, $1.5 billion in loan guarantees. Senator John Kyl of Arizona has another idea, give every taxpayer a $500 credit for personal travel through the end of the year.

The special interest bandwagon is even creeping its way into the stimulus package, or so say the Democrats.

REP. ED MARKEY (D), MASSACHUSETTS: The Republican bill today says, Ask not what you can do for your country, ask what you can do for their country club pals. O'BRIEN: The GOP had a field day retaliating on the Democrats' bill.

SEN. TRENT LOTT (R-MS), MINORITY LEADER: We're talking about spending money on apples and apricots, bell peppers, bison meat, blueberries, eggplants, lemons, pumpkins, and watermelons.

O'BRIEN: And chicken. Democrats found themselves in the awkward position of defending the United States from the threat posed by chicken droppings.

(on camera): What has poultry waste got to do with homeland security?

SEN. TOM DASCHLE (D-SD), MAJORITY LEADER: Well, poultry waste and waste of all agricultural products is something that continues to threaten our country.

O'BRIEN: The idea was that animal waste might be converted from pollution to some form of energy. Unfortunately for Senator Daschle, it's now being used to highlight what some see as another kind of waste, wasting the taxpayer's dollars.

Tim O'Brien, CNN Financial News, Capitol Hill.

(END VIDEOTAPE)

KYRA PHILLIPS, CNN ANCHOR: The September 11 attacks caught the U.S. economy in a slump, and it sent the airlines into a tailspin. Other segments of the economy also weakened.

But is the economy really that bad, or is there a recovery on the horizon?

Noam Neusner joins us now to help sort that out. He's certainly a familiar -- or this is a familiar subject for him. He's "U.S. News and World Report"'s chief economic correspondent. Boy, that's hard to get all out, Noam, and I was worried about saying your name properly.

NOAM NEUSNER, "U.S. NEWS AND WORLD REPORT": Well, you did a great job.

PHILLIPS: Right. Good to see you this morning.

All right, I -- so tell me what you -- when you talk about too many bleeders, will you explain this to me?

NEUSNER: Yes, when -- in the retail industry -- you know, shopping malls, that sort of thing -- if there's a bleeder, that means a store that is losing money. And for a lot of reasons, retailers have been willing to live with some of these bleeders for quite some time. You know, we had an economic boom that lasted about 10 years.

Now, however, the retailers are shutting down the bleeders. And we talked to people who are in that industry and who say that that business of shutting down stores is picking up. PHILLIPS: So Christmas sales, could this make a difference? And how much will be needed to make an impact?

NEUSNER: It's absolutely critical to the retail side of the economy, which is -- by the way, the consumer side of the economy is roughly two-thirds of the total output for the U.S. So Christmas -- and Christmas is, I think, around 40 percent of the shopping season, of the annual shopping season. So it is very important for the economy to pull out of this slump, which is probably most likely a recession.

If holiday season is pretty strong, then you will see probably a recovery sometime next year. If not, we could be in this for a long time.

PHILLIPS: Now, tracking the emotional state of Americans versus tracking indicators, you made a very interesting point about the economy should be analyzed by Dr. Freud instead of Mr. Greenspan. Why don't you talk a little bit more about that?

NEUSNER: Well, the conundrum that we have is that the economy is giving, although mostly negative signals, a lot of mixed signals as well. This past week we had a huge report from the Commerce Department about retail sales, up, you know, up more than 7 percent, a staggering number of auto sales going up, 26 percent.

So clearly people are not sitting on their hands and their wallets, they're out there shopping. But they're being very selective.

And now the problem that we have is that there's a fear factor that's playing a role in how people are approaching both how much they spend and how much they're willing to pay their workers, that's a big factor in companies' hiring.

So right now, while, yes, the economic fundamentals of the economy are weak, they may not be as weak as a recession would suggest. And what's pushing the economy into recession right now is the psychological aspect, the fear that people have that they won't spend, they won't invest. They're just concerned about the future, and that is a major factor in how long this recession will last, and how quickly we'll come out of it.

PHILLIPS: So let's tell those folks who are in fear right now the positive points. I mean, banks are strong, productivity is on the rise, gas prices are even falling.

NEUSNER: Yes. You know, we had a report this past week about inflation, you know, which is -- used to be such a big concern. Now it's actually -- it's falling -- you know, prices are actually falling. Now that may not necessarily be such a wonderful thing if it lasts of a long period of time. That could, in fact, be very troublesome.

But more than likely, what it's doing is, it's giving people a little bit of relief, particularly on gas prices. If people don't have to keep paying more for, you know, driving their car, heating their home, that gives them a little extra spending cash, which may help them make up for lost earning power that they -- you know, because of the job situation has weakened considerably.

PHILLIPS: Well, is this a great time too to buy a car and refinance your home?

NEUSNER: Yes, that's right.

PHILLIPS: I mean, the car deals out there are pretty amazing.

NEUSNER: Yes, with the Fed cutting rates as aggressively as they have this past year, borrowing rates are really at 40-year lows. I mean, it's virtually like the car companies are giving away the right to buy a car. I mean, sure, you have to pay for it, but you don't have to finance it, which essentially means that as time goes on, those car payments are going to be easier and easier to make.

And same with refinancing. I mean, you know, what people are doing right now, or what they have been doing, is basically cashing out the accumulated value of the equity in their homes at a rate of about $18,000 per home. That's a lot of spending cash that people can deploy if they so choose, either on spending for personal needs, or just to invest in the stock market.

PHILLIPS: Now, Noam, with all these rate cuts, though, couldn't we fall into trouble, for example, liquidity traps, and this could sort of take a reverse effect on us?

NEUSNER: Yes, that's what I was...

PHILLIPS: How do we balance it out?

NEUSNER: Sure, yes, that's what I was referring to with that negative inflation. If the Fed cuts rates in much lower, I mean, right now the Fed funds rate is 2 percent, if it goes down much lower than this, and it probably will, the key is that the consumer and the business sector have to finally start to spend. If they don't, what they're going to be doing is sitting on a lot of cash.

And if they're spending on -- if they're sitting on a lot of cash and not spending it, what happens is there's way too much cash, too much money, out in the economy, prices will keep falling, people won't spend, they won't invest. It's called a liquidity trap. It's very rarely seen. We're seeing it in Japan right now, but we don't see it in the U.S.

And there's one key reason, it's because Americans don't usually save what they have in their bank accounts.

PHILLIPS: Noam Neusner, "U.S. News and World Report"'s chief economic correspondent, thanks for the insight, appreciate it.

NEUSNER: Thank you for having me.

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