Following their presentations at the 24th Annual Economic Crystal Ball Forum last Thursday at UNC Asheville, the two economists who offered predictions on the U.S. economy fielded questions from the audience for 30 minutes.

A woman asked about the exchange and value effect of the euro on the U.S. dollar.

“It’s a really big deal if you’re going to Europe, James F. Smith of Parsec Financial replied. Domestically, “manufacturers always like to see the dollar decline because it means their earnings will go through the roof.”

Dr. David W. Berson

While there are many concerns about the economy, Smith added, “Last year, for the first time in 24 years, our trade deficit actually declined,” albeit only slightly.

Regarding the weak dollar, David W. Berson of PMI Group said, “There are winners and losers of a strong dollar and a weak dollar ... A lower dollar makes foreign goods more expensive, it adds to inflation and puts upward pressure on prices.”

He said a stronger dollar especially helps the housing market.

“On balance, most economists would prefer a strong dollar to a weaker dollar because it doesn’t increase inflation,” Berson said.

A man asked the economists about their view of energy prices.

“If we’re fortunate and there are no more refinery breakdowns,” Berson said, “energy prices will be lower at this time next year” — possibly $90 per barrel versus the current $115 per barrel.

However, he noted, “third-world countries, especially China and India, are using more and more oil,” putting further prespsure on oil supplies, resulting in higher prices.

Regarding energy prices, Smith said, “I think high prices cure high prices.”

Dr. James F. Smith

He then pointed to another energy sector that is being untapped. “We’re self-sufficient with natural gas, but Congress won’t let us drill it” because of environmental concerns.

Smith also mentioned coal gasification, but noted that that also results in much air pollution.

However, Smith said he remains optimistic about America’s energy situation because “when you have oil at (more than) $100 per barrel, people get very creative in their solutions.”

A woman noted that the Florida real-estate market has declined precipitously and wondered if “this would be an ideal time to buy.”

“If you plan to keep it (a residential property) at least a year — yes,” Berson replied. “In the long run, prices will rise — and probably steeper” than before. “If you have a longer-term time horizon,” real-estate investment now when the market is low could be a good option, he said.

A woman, who directed her question to Smith, stated that “several years ago” he spoke “very optimistically” about the situation in Iraq. “How do you feel about that now?”

As several crowd members laughed, Smith grimaced and said, “It’s a nasty situation ... Clearly, we didn’t have it planned out” in how to handle the country after toppling the administration of Saddam Hussein.

Still, he said, “It’s better (in Iraq) than depicted in the media ... We’ll be there for a long-term project.”

A man stated, “In the old days, the bank got the house in a foreclosure ... Who owns the house in a foreclosure today?”

“The servicer of the loan,” Berson replied.

Smith added, “The really good news in the current environment is that there’s more than enough global capital looking for good places to invest,” such as the U.S. “That’s yet another reason it’s not like the 1920s and ‘30s” now.

A man asked about “‘The China syndrome’ trumped up by the media,” wherein China is supposedly overtaking the world economy.

“Balderdash!” Smith replied, prompting chuckles from audience members. While China has registered the highest economic growth rate of any country in history over the past 27 years, which Smith termed “phenomenal,” it’s still a poor country with a per-capita income of $2,800.

“They’re the world’s most polluted country,” he said. “They have 1.4 billion people,” making China the world’s most populous country, but it soon will experience major problems from its 45-year-long one-child-per-family law. “With the aging process, they’ve got to cover all the relatives,” which will be difficult.

Smith also noted that when Chinese men reach age 21, they will find just 78 women available for every 100 men. “So if you’re a Chinese boy and you want to get married, you’ve got to go to Thailand — or California.”

He added, “There’s not enough food in the world to feed the Chinese ... If the Chinese can solve their food problems” and other issues facing their society, “they can be where the United States is — in 100 years.” He said that it will take India 200 years at the current pace to reach the current level of the U.S.

Berson then interjected, “But what does China have? A tremendous trade surplus” with the U.S. “If they pulled their money” from America, “we’d go into a deep, deep recession, but so would they, so that is why this probably will never happen.”

Smith added, “We want them (the Chinese) to be as crappy of investors as the Japanese were” in the U.S. economy. He gave several examples of Japanese investments in past decades, one of which involved a purchase of an asset for $2 million and turning around and reselling it for $1 million.

A man asked about the federal deficit.

“We’re on an unsustainable path,” Smith replied. “Medicare is bankrupt ... It’s a horrible predicament — Medicare.”

Also, many tax cuts expire in 2010 and the government will have to decide whether to extend them further, or risk an economic decline.

With a grin, Smith noted that the so-called death tax will drop to zero in 2010, so “if you’re plannning to die, wait till 2010 and leave everything to your family.”

More seriously, he predicted, “We’ll have our highest tax rates in 2011.”

Berson added, “It’s funny,” but based on data on similar situations in the past, “death rates will go way up in 2010 and then return to normal in 2011.”

He agreed with Smith that Medicare “is the biggest problem” now, with 5 percent of recipients accounting for 25 percent of costs.

A man asked stated “we’ve enjoyed the benefits of the computer age in the last few years — will this continue?”

“Yes,” Smith answered. “The impact of computers on productivity is comparable to the impact of railroads” on the U.S. “We stand on the shoulders of giants.” He cited the famous comment by the head of the U.S. patent office in the late 19th century, who declared, according to Smith’s paraphrase, “Everything good already has been invented.”

A man asked about the U.S. “credit crisis, shown on CNN.”

“There is no credit crisis,” Smith replied.

Agreeing, Berson said, “There’s not a credit crunch, but financial markets tend to overheat ... It is a repricing of credit that’s gone too far ... A credit crunch is when you can’t get a loan at any price.”

A man asked for “any insight on Wall Street’s response” to various news — “What’s the story on that?”

“It’s impossible to forecast Wall Street from day to day,” Berson replied. “We can predict 10 to 20 years out that the economy will grow.”

Smith added that those trying to better understand the doings of Wall Street should read — or reread — what he termed the best book on investing: the latest edition of “A Random Walk,” a 1973 classic by Burton G. Malkiel. (In short, “Random Walk” says that stocks take a random and unpredictable path. Therefore, he contends that a long-term buy-and-hold strategy is the best and that individuals should not attempt to time the markets.)