Bush: Economy can deal with market volatility

WASHINGTON (Reuters) - President George W. Bush said on Wednesday that the U.S. economy was solid and well-positioned to deal with the stress from continuing financial market volatility.

"There is a lot of liquidity in our system and liquidity will provide the capacity for our system to adjust," Bush told a small group of reporters invited to a 45-minute session with him at the Treasury Department.

Bush earlier met with his top economic advisors, including Treasury Secretary Henry Paulson, at the Treasury. He was asked what he would say to reassure Americans worried about fluctuating prices for stocks and other market securities.

"I would say that the underpinnings of our economy are strong ... strong employment numbers, low inflation, real wages are on the rise," he said. "There's a strong global economy, which means it's more likely somebody will buy our goods."

Bush was asked whether he was concerned that record deficits in trade with China year after year were putting the United States into a position of vulnerability as Chinese reserves of U.S. dollars have swelled into the trillions.

"It is not in China's interest to create a trade war with the United States," Bush said, adding that the best way to shrink the trade deficit was to boost U.S. exports to China.

In a later interview on Fox News Channel, Bush played down the suggestion that Beijing could threaten to drive the dollar's value down by selling its reserves or by curtailing its huge purchases of U.S. debt securities that are effectively loans to the United States.

"It would be foolhardy for them to do this," Bush said in the interview when asked about a European news report that said China was threatening such an option.

In his session at Treasury with reporters, Bush said Paulson and his other economic advisers were "paying close attention as the market begins to readjust its assessment of risks" and were watchful for any downturn.

Bush acknowledged the economy had encountered "an issue with housing" as defaults on subprime mortgage loans to less creditworthy borrowers rose. But he said "a soft landing is kind of what it's looking like so far."

He told the Fox News Channel that current laws were adequate for dealing with problems in the mortgage lending market and said firmly that any help that was offered should be to homebuyers facing potential foreclosure rather than to lenders.

"I think we ought to crack down on predatory lending. I don't think we need new law, we ought to enforce the law on the books," Bush said. "And then I think we ought to let the market work."

(Additional reporting by Emily Kaiser and Tabassum Zakaria)

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