NYTimes:Greenspan moves, with memories of Japan's bubble close at hand.
T2, I think Greenie learned from his mistakes in 1990,
( too slow ) and from Japan's slow reaction to their
burst bubble, as the NYTimes maintains.
This is why I am optimistic about a quick recovery:
-Rapid Fed rate cuts
-plus IT effect
-plus a Prez with an MBA from Harvard that understands
better how to grow an economy than the moron ( my opinion ) that just
left the White House that gave us the biggest tax increase
which phlebotomized (to suck blood out of, ) the economy
and helped to get us closer to the recession we are bordering now:
Finally we need to cure the psychological paralysis
that has befallen the Democrats who think that the
impeached moron ( my opinion ) walked on water which is why the economy
did well for 8 years.Now they feel like their father
has died and they will all die too because there is
nobody except Bill and Hillary ( and of course the defunct
Gore ) that can help them.
Continued evidence by GWBush of forceful handling of
issues will address this daily.
As always I like to post a link to support an opinion,
TA
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nytimes.com
Greenspan moves, with memories of Japan's bubble close at hand
Jonathan Fuerbringer
New York Times
Monday, February 5, 2001
Alan Greenspan the gradualist is now Alan Greenspan the quick.
With the Federal Reserve Board's half-point cut in its benchmark short-term interest rate to 5.5 percent last Wednesday, Greenspan has engineered a reduction of a full percentage point in less than a month.
Never before has the nation's central bank chairman moved this fast to rescue the economy from a slide.
In 1990, when the country was slipping into its last recession, the Fed took three months, with cautious quarter-point reductions, to get the federal funds rate down a percentage point. Even in 1998, amid a worldwide, financial crisis after Russia defaulted on its debt, the Fed cut short-term rates only three-quarters of a point in just less than two months.
What has made Greenspan more aggressive is a virtual collapse in economic growth, from about a 7 percent annual rate in the last half of 1999 to a 1.8 percent annual rate in the last six months of 2000. In the fourth quarter, the rate slowed to a meager 1.4 percent, the lowest since the second quarter of 1995, the government reported Wednesday.
But Greenspan's haste also might be traced to his own criticism of how the Japanese handled their economy after their stock market crash of 1990.
In testimony before Congress in June 1999, Greenspan said: "The bursting of the Japanese bubble a decade ago did not lead immediately to sharp contractions in output or a significant rise in unemployment. Arguably, it was the subsequent failure to address the damage to the financial system in a timely manner that caused Japan's current economic problems."
More analysts are referring to last year's plunge in technology and Internet stocks in the United States as a bubble that burst.
Richard Berner, chief U.S. economist at Morgan Stanley Dean Witter, said: "Alan Greenspan tailors monetary policy to fit the circumstances. The question is if he can do it in a way that always produces a Goldilocks outcome. The jury is still out on this one."
The widely expected rate cut Wednesday at the regular meeting of Fed policymakers came after a surprise cut of the same size Jan. 3 between scheduled meetings. And it clearly is positive for the stock market, although the major indexes fell after the Fed made its announcement that day.
"The market is looking over the trough in the economy and in profits and forward to the recovery that will be engineered by the Fed," said Jeffrey Applegate, chief U.S. strategist at Lehman Brothers. "But in the near term, the stock market is saying the Fed is not going fast enough." Applegate also said some of the disappointment Wednesday might have come from speculation in the day or two before the announcement that Fed policy-makers might approve a cut of three-quarters of a point.
Investors and analysts do not expect the Fed to cut rates as quickly in the months ahead. Based on the federal funds futures contract for July, many investors anticipate the central bank cutting the federal funds rate on overnight loans between banks, the Fed's benchmark, by three-quarters of a point more by summer. Berner forecasts a move of a full percentage point, reducing the Fed funds rate to 4.5 percent. But he said he believes the economy is in a recession, still a minority view among economists.
Even with further cuts, it is not necessarily time for equities to return to their performances in the last five years of the 1990s, when annual returns of 20 percent or more were taken for granted.
Bonds, which have sold off since the beginning of the year, with rates moving higher, probably got too far ahead of the Fed at the end of last year. To rally more, that means they will need more negative economic news.
Rate cuts, like rate increases, take time to work, meaning the economy still could stumble into a recession. The sharp drop in consumer confidence reported last week is just the kind of change in outlook that Greenspan said could push the economy from slowing growth into a decline. And the growing number of corporate layoffs will not help consumer confidence.
A recession would hurt worker productivity and cut into corporate profits, giving investors little reason to rush back onto the equity bandwagon.
Not targeting a bubble
Greenspan has said he was not targeting the stock market or a stock market bubble when the Fed raised interest rates in 1999 and early 2000. Many analysts have pointed to his repeated references to the links between high stock prices, the wealth effect, consumer spending and the Fed's difficulty in slowing growth in late 1999 and early 2000 as evidence that Fed officials indirectly were targeting the stock market.
Greenspan has said he is not averse to pricking a market bubble, as long as it is done in the context of an anti-inflationary policy. "While bubbles that burst are scarcely benign, the consequences need not be catastrophic for the economy," he said in June 1999 testimony.
So now he is acting quickly. Whether he can keep the economy from falling into a recession is unclear. And if there is a recession, Fed critics will say the central bank acted too slowly in cutting rates, even with the quick action taken in January.
Robert Barbera, chief economist at Hoenig & Co., who also believes the economy is in a recession, said, "It remains to be seen whether it will be as easy for the Fed to counter the effects of a bursting stock market bubble as Greenspan suggested in 1999." |
