Paulson: Financial Turmoil Will End In "Months"
U.S. Treasury Secretary Henry Paulson had on his conomic cheerleader costume when he said it would only take “months” before turmoil in the financial markets ends. “We're talking about months and there will continue to be bumps in the road,” Paulson said during Q&A after giving a speech in Abu Dhabi, as reported by John Brinsley on Bloomberg.com on June 2.
Paulson responded to heightened concern about the weakness of the dollar, which has fallen 14 percent against the Euro. “Markets respond to economic fundamentals,” Paulson said. “Every economy is going to have its ups and downs and the U.S. is going through a tough period. I believe the long-term economic fundamentals will be reflected in our currency,” Paulson advised.
The collapse of America’s subprime mortgage market and subsequent financial mayhem has led to more than $386 billion in asset write downs and credit losses worldwide forcing financial services companies to raise billions of dollars in fresh capital. As a result of record oil prices, Middle Eastern countries have accumulated $4 trillion to invest.
According to a May 26 report released by A.T. Kearney, the Middle East accounts for about half of the $3.3 trillion of the assets in the world's sovereign wealth funds. The largest of such funds, Abu Dhabi Investment Authority, invested $7.5 billion in Citigroup last November. Morgan Stanley and Merrill Lynch & Co. have also received capital from Gulf State sovereign wealth funds.
“There are no simple or quick remedies for this, and let me be clear in stating that the Gulf region alone cannot alleviate the pressures in global oil markets,” Paulson said. During his speech, Paulson called for more investment in production technology and alternative energy sources. “We are urging all oil-producing countries to open markets to foreign investment, which would support faster and more efficient growth.”
The Treasury secretary anticipates that growth will occur at a faster pace in the second half as the U.S. economy deals with the collapse of housing prices, turmoil in financial markets and record oil prices. “Although I believe we are on the right path, a number of our important credit markets are still not functioning as normal,” Paulson advised.
Secretary Paulson appears to be one of the few who is optimistic about a quick end to the market turmoil caused by the credit crisis. The rest of us prefer a more realistic view – and that is that no one knows when the crisis will end.
