TRANSCRIPT

HARI SREENIVASAN. After a long climb the stock market suffered its biggest losses this past week in 2 and a half years. The DOW dropped 2.7 percent, the SNP fell 3.1 percent and the NASDAQ was down 4.5 percent. To help us understand the forces behind the sudden drop, we are now joined via Skype from Richmond, Virginia, by Roben Farzad. He’s the host of the radio program ‘Full Disclosure.’ Let’s talk first about what happened in Europe this week. What happened, and why does it matter to the U.S. stock market?

ROBEN FARZAD. A couple of things, the big pillars in Europe, mainly Germany and France. We got some worrying news. One in the case of France, you have their credit outlook downgraded by Standard & Poor’s, the big credit rating company here in the United States. They’re worried about sluggish growth and they’re worried about lackluster pace of reforms. This is a country that has significant structural problems with labor and wages, and has a significant debt overhang. It’s hugely indebted and is trying to come out of the hangover of the great European economic crisis of 2009 and 2010. And similarly that’s connected to Germany. Germany is the giant player of the continent today. It has a hugely export-driven economy and you’ve got some weak numbers out of Germany. So, their new concern is that the entire continent and sub-continent of Western Europe can come unhinged at a time when we need all the growth globally that we can get.

HARI SREENIVASAN. And this is happening at a time when the U.S. dollar is getting stronger. So, how does that work?

ROBEN FARZAD. Right. It’s actually very few people, you know men on the streets – that a weak currency is actually in the interest of your exporters. They can sell their wares? For a more compelling price. For example, if you’re getting more bang for your Euro than the Dollar, the more European countries and consumers are going to be amenable to buying American exports. It’s the same with Japan and its Yen, the same thing with China and its Yuan. The United States is now looking comparatively more hale and healthy than some of these struggling economies in Europe. And that’s a currency that’s uniting more than a dozen economies. It’s really important for these guys to be able to hold their own against the Dollar, but not become so strong they crowd out their own exporters.

HARI SREENIVASAN. And finally, oil prices going lower is usually good news for consumers here, but there’s also this concern about what China does in terms of buying or not buying much oil.

ROBEN FARZAD. That’s right. China is a fifteen-ton elephant in the room. Ten, twelve years ago people would worry what oil would break $20 or $30 a barrel. Then China suddenly sends and buys this stuff voraciously. Now we’re talking about worries about triple digit oil. When you get weakness out of China, the big emerging players like Brazil, suddenly its economy is lackluster. People are worried about Russia. People are worried about the kind of secondary emerging economies. And obviously Europe, which drinks a ton of oil. Suddenly the price is going to fall. And we have new things in play here in the United States. North Dakota is suddenly producing more than the smallest member of OPEC, which is Ecuador. Production is coming up at a time when prices are falling and that stands to reason that prices could fall even more.

HARI SREENIVASAN. Roben Farzad, the host of the radio program ‘Full Disclosure’ joining us from Virginia. Thanks so much.

ROBEN FARZAD. My pleasure.

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