By staff reporter Li Xin

Leading economist Martin Feldstein, president of America’s National Bureau of Economic Research (NBER), said March 22 that the United States has “probably” entered a recession, and predicted that a high U.S. trade deficit would contribute to continued depreciation of the dollar.

“My personal opinion is that there probably is a recession,” Feldstein told Caijing during an exclusive interview at a Beijing forum. “The NBER won’t decide (whether to officially declare a recession) for several months, but I’m giving you my personal view.”

NBER is a private, non-profit research organization that regularly publishes reports on economic cycles. Its upcoming research could set an official start date for a U.S. recession, which is generally defined as a period marked by negative GDP growth for two months or longer.

Feldstein’s view was shared by many experts at the China 2008 Development Forum on March 23 and 24, where economists and international business executives met with China’s newly appointed cabinet members.

“(We) are only about half through the situation in the United States,” William Rhodes, chairman and CEO of Citibank, told Caijing. “I think we are in recession or will be in recession, and there will be virtually no growth for the next three quarters.”

Joseph Stiglitz, a Columbia University professor who won the 2001 Nobel Prize in economics, said during a forum speech that the U.S. downturn would mainly affect China in two ways: causing a slowdown in exports to America; and creating an inflow of capital as it escaping the slumping, low-interest U.S. market with its lackluster returns. 

The impact on trade was proven by recent Ministry of Commerce statistics, which showed China’s export surplus in February, US＄ 8.6 billion, was 64 percent less than a year ago.
 
Feldstein also commented on the weak dollar and its impact on oil prices, saying the U.S. currency will continue sinking in the near term.

“The dollar has to continue coming down to shrink our trade deficit,” said Feldstein. “And although the dollar has come down significantly recently, when you compare where it is now to where it was 10 years ago, on a real trade-weighted basis, it is only down about 6 or 7 percent. It hasn’t fallen that much, given how large our trade deficit is.”

The falling dollar has also helped pump up oil prices, according to the NBER president. Despite a much-publicized rise in oil prices in terms of dollars, the cost of a barrel of crude actually fell 15 percent in terms of euros and yen in 2007.

But Feldstein said exchange rates alone cannot be used to explain changes in oil and food prices. The U.S. dollar’s value on March 24, for example, was down 14 percent from a year earlier to 0.65 euro.

Feldstein has observed economic cycles for decades, having served as chairman of the Council of Economic Advisers during the administration of former president Ronald Reagan. More recently, he was on a short list of possible candidates to succeed Alan Greenspan as chairman of the Federal Reserve.