Greenspan:
<Moreover, it is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress. Developments overseas have contributed to holding down prices and aggregate demand in the United States in the face of strong domestic spending. As dislocations abroad mount, feeding back on our financial markets, restraint is likely to intensify>
<The American economic stability of the past five years has helped engender increasing confidence of future stability. This, in turn, has dramatically upgraded the stock market's valuation of our economy's existing productive infrastructure, adding about $6 trillion of capital gains to household net worth from early 1995 through the second quarter of this year.
While the vast majority of these gains augmented retirement and other savings programs, enough spilled over into consumer spending to significantly lower the proportion of household income that consumers, especially upper income consumers, believed it necessary to save. In addition, the longer the elevated level of stock prices was sustained, the more consumers likely viewed their capital gains as permanent increments to their net worth, and, hence, as spendable. The recent windfall financed not only higher personal consumption expenditures but home purchases as well. It is difficult to explain the recent record level of home sales without reference to earlier stock market gains.> |
