Greenspan, Rubin & Co - the Most Irresponsible Team Ever?? Message Board

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Non-Tech : Greenspan, Rubin & Co - the Most Irresponsible Team Ever??

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To: Cynic 2005 who wrote (184)	6/29/1999 9:36:00 PM
From: Dr. Jeff	Read Replies (1) of 309

There are some serious error's in Mr. Wesbury's New Era Thesis! << The "wealth effect" does not exist. As most accountants--but too few economists--know, it is impossible for the economy as a whole to spend the wealth created by the stock market.>> THAT IS SIMPLY NOT TRUE!!! People believe they are richer as their portfolio's swell and thus they go out and spend more freely with CREDIT! Why else would there be a massive proliferation of credit card debt, 2nd mortgages (125% equity - no less), Thus the NEGATIVE SAVINGS RATE! People are counting on gains that could ( and will ) evaporate in a heartbeat on one fateful day making the debt much more likely to be unserviceable. That's why it's a bubble! Here is an EXCERPT from GREENSPAN himself in a speech on July 22nd, 1998; <<REP. KENNEDY, D-MASS.: ''When they look at these reports from their money market managers that tell them every month that their portfolios have increased by another five or 10 or 15 percent every month ... I just wonder whether or not you feel that this notion that somehow this economy can never in fact adjust will create perhaps even greater problems when there is an adjustment - if people see losses and how they see those losses.'' GREENSPAN: ''We view the current growth rate of the last few years as unsustainable. I have argued elsewhere and indeed this morning that productivity as best I can judge is still accelerating. But the broader question you are raising is the issue of the emergence of a really quite extensive expansion of holdings of equities amongst households, which have risen almost to half depending on how you measure it. It does turn out to be that the very substantial amount of capital gains is in the upper and middle-income groups and above. And the danger that you have is you count on these types of expansions ... largely whether or not you took out debt against it. In other words, the only way you can spend your capital gains is either sell your stock and get the cash or somehow borrow, not necessarily against the stock, but feeling that you have this huge block of new assets, you feel as though borrowing is not a particular problem because your net worth is so much better. The real danger is there is an awful lot of debt which in the event of a significant stock market correction, then all of a sudden becomes unserviceable.'' >>>

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