Is the worst yet to come?

Scott Jagow Mar 2, 2007

TEXT OF INTERVIEW

SCOTT JAGOW: All this selling started in the foreign markets. So we wanted to get an overseas perspective on the week. Ambrose Evans-Pritchard is a business correspondent with the Daily Telegraph in London. Ambrose, what do you see here?

AMBROSE EVANS-PRITCHARD: Well clearly, this great sell-off, although it was sort of triggered by an event in China, is really not about China. It’s about America and the really dire data that’s been coming out of the United States for the last sort of month or two, the collapse of the sub-prime sector, the fears that it could extend to the whole credit sector in the United States. And where the initial reaction was to sell Turkey, sell Poland, you know all these peripheral markets got hit really hard.

JAGOW: Yeah

EVANS-PRITCHARD: I think the debate going on in London is, ‘hmm, well if this gets worse, actually this could turn around and it could start hitting at us in the United States much harder, and the dollar much harder.’

JAGOW: OK but the U.S. has always been the epicenter, if you will, of the financial world in many ways, what’s different this time?

EVANS-PRITCHARD: Well, much greater levels of debt accumulated in the United States. The U.S. has gone from being the world’s biggest creditor nation in the 1908s to it’s by far the biggest debtor nation. Personal debt levels have reached historic highs and we’ve had Americans living beyond their means, driving down the savings rate to lows since the Great Depression, they’ve been drawing money out of their homes and at some point the economy’s going to have to come back into alignment.

JAGOW: How do these problems in the U.S. economy affect the choices that investors are making overseas?

EVANS-PRITCHARD: The debate going on here in London is y’know, is this going to be the first sort of global sell-off in which America takes a bigger hit than the rest of the world? It all previous cases basically, all the peripheral countries suffered a big sell-off and money came home to mama so to speak, came home to America and the dollar strengthened and you had America holding up reasonably well. This time could be the first occasion when the opposite happens.

JAGOW: Well that’s certainly an unsettling thought on this side of the pond. Ambrose, thank you.

EVANS-PRITCHARD: Thank you very much.

JAGOW: Ambrose Evans-Pritchard is a business reporter with the Daily Telegraph in London.

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