More Good Deficit News Coming Medium-Term: Altman

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July 31 (Bloomberg) -- Evercore Founder and Executive Chairman Roger Altman discusses Federal Reserve monetary policy and the U.S. economy on “In The Loop.” (Source: Bloomberg)

Director of evercore partners.

You wrote an op-ed that says you are surprised the economy is not as bad as you would think.

We spoke with former fed chair alan greenspan yesterday.

We are running out of buffer in the economy.

We don't have the capability, for example -- if we run into a major conflict in the middle east or elsewhere, where it requires a major increase in our defense budget -- our defense budget is heading in the direction where it will be at the lowest level relative to gdp since before world war ii.

We don't have the physical resources.

We don't have the physical resources to respond to global warming.

We don't have, what he is saying, a big rainy day fund.

There are a lot of different ways to look at that.

The deficit is at its lowest level in years.

There is probably going to be more good news on that front over the medium term, just because the economy is strengthening, revenues are strengthening.

Probably a little surprised to the upside.

I wouldn't say over the short-term we don't have the resources to increase the defense budget if we need to.

He is right in the long-term sense.

That problem we've all talked so much about, the long-term mismatch in terms of revenues and expenditures, especially driven by entitlement has not been cured.

Over the medium term, i don't agree.

I have tremendous respect for alan.

If we had to increase our defense budget by $100 billion, for example -- where would that come from?

If we had a crisis, congress would promptly authorize it.

The recent circumstances under which we would need to do that would be a crisis.

If there is a sufficient crisis, congress would move ahead with that.

It is the defense equivalent of tarp.

When we had to do it, we did.

If we had a really serious crisis, there would be a bipartisan agreement to do that.

I know you have been beating this drum for quite a few years that the economy is a lot that are than what people are given credit for.

You wrote this article in "time" magazine.

They have agreed with you.

They say the u.s. economy gained steam and saw job gains.

The jobless rate is falling.

Economic growth, and 4% -- economic growth at 4% yesterday.

Housing is the one area that is struggling.

Why?

By the way, i have said over the past year or so that i thought the economy would be more likely to surprise on the upside than the downside.

So, a year, not a few years?

Nobody would have said a few years ago that the economy was strong.

One problem is prices.

Watch the case schiller index.

Prices have ridden -- risen steadily.

There is an issue in terms of housing prices and incomes.

Incomes are pretty stagnant.

Then you have the problem with mortgage underwriting standards.

This is a legacy of the credit market collapse of 2008. we see in markets ash you always fight the last war.

People who are mortgage lending officers these days say to themselves, the last thing i'm going to do is repeat the mistakes that brought this whole disaster on.

There is a very conservative approach to mortgage underwriting.

Do you see that easing up?

It is going to be slow.

That is a problem right now.

And then you have -- you have -- family formation.

It is rising, but not rising quite as fast as you would think from a historical point of view at this point in the cycle.

Housing is better than it was.

It starts between $900,000 and $1 million.

I think housing will slowly improve.

It is not as good as you would think it would be at this point, what i think it will slowly improve.

Some of these factors will gradually unclog.

I think three years from now we will be at 1.5 million dollars, point dollars, one one point $6

This text has been automatically generated. It may not be 100% accurate.

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