MUSCATINE, Iowa — Every time he buys a tank of gasoline, Edmond Seifried sees a threat to the U.S. economy that he says is equal to terrorism.

“Inflation is an issue ... Oil prices are an issue,” Seifried, an economics and business professor at Lafayette College in Easton, Pa., said Wednesday in Muscatine.

He spoke to about 150 business leaders at the fourth annual Business Forum breakfast sponsored by Central State Bank of Muscatine at Geneva Golf & Country Club.

Unlike the oil companies, airlines, Congress and OPEC, Seifried does not blame market speculation for the bubble in the crude oil market. The price for a barrel of crude oil flirted in July with $150, but has since dropped to end Wednesday at around $119.

Markets rise and fall that quickly because of imbalances between supply and demand, Seifried said.

Seifried, who said he favors increased U.S. drilling for oil, said there might be another solution to rising oil prices: Raising interest rates.

He cited a concept promoted by Richard W. Fisher, president and chief executive of the Federal Reserve Bank of Dallas. When the Federal Reserve cuts interest rates, Seifried said Fisher believes that:

* Many investors, seeking better returns, put more of their money into euros, the common currency in Europe.

* Money invested in euros instead of dollars weakens the dollar.

* Oil prices rise because a weakened dollar means the U.S. has to spend more money to buy oil from the Organization of Petroleum Exporting Countries.

* Higher oil prices means consumers have less money to spend on everything from restaurant meals to home electronics, which hurts consumer spending.

“It affects the real economy,” Seifried said.

He said there is a 50 percent chance the U.S. will experience a recession in the months ahead, largely because of the nation’s housing market, which has been hurt by questionable mortgage lending and has not yet recovered.

In many parts of the country, borrowers have defaulted on home loans they could not afford, which has helped create a surplus inventory of houses for sale and hurt demand for housing.

“We just need to get through this sub-prime (mortgage) crisis ... I think the economy will really improve quickly,” Seifried said. “At the end of the day, we’re on a teeter-totter and it could go either way.”

Reporter contact information:

Chris Steinbach, 563-262-0535

chris.steinbach@muscatinejournal.com

Details

Economist Edmond Seifried cited factors for and against a recession happening in the U.S., including:

For

 Soft housing market — 1 million new homes being built, down nearly 60 percent from this time last year.

 Falling housing prices.

 Unemployment, which was 5.7 percent nationally at the end of July compared to a recent low of 4 percent in 2000.

 Inflation, which was 5.6 percent in July and has hurt consumer spending.

 Loans on which borrowers have fallen behind on payments.

Against

 The Great Moderation Theory, which Seifried said is how some economists think that size and diversity has helped the U.S. economy avoid a recession for 18 years.

The Fed will continue to cut interest rates to avoid a recession.

 The tax rebate stimulus package, which Seifried called the one thing Congress did right this year.

 Financial markets have stabilized.

Prices for oil and other commodities could soon peak and then begin to come down.