OUR 'NON-RECESSION' MAY BE BAD NEWS
By TERRY KEENAN
--------------------------------------------------------------------------------
ALL'S PEACHY:
Federal Reserve Chairman Alan Greenspan downplayed the country's recession recently before
Congress - but was our recent downturn too shallow to purge the economy of its excesses?
March 10, 2002 -- RECESSION? What recession?
That's what headlines have insisted in recent weeks - and with good reason. Improbably, it looks
as if the longest peacetime expansion in U.S. history has been followed by the most mellow
recession since World War II. Some argue there was no recession at all.
Alan Greenspan, engineer of this apparent soft landing, could hardly contain himself before
Congress last week, calling the nascent recovery a "truly remarkable performance by the U.S.
economy."
But before we get carried away by all this exuberance, consider this potential cloud in the silver
lining: Was this recession too shallow to purge the excesses of the bubble economy? And if so,
are we being set up for a real bust down the road?
It's not a frivolous question. Recessions are not all bad. In fact, U.S. financial history is marked by
a pattern of booms and busts - the latter being the painful pauses in output that have set the stage
for a new round of growth.
But since the early 1980s, two major changes in consumer behavior have evened out the lumps
and bumps in the economy - creating an illusion of perpetual prosperity. A dangerous illusion at
that.
First, the huge push toward auto leasing has put auto spending on a predictable timetable - one
that can be speeded up with zero-percent financing when necessary.
Second, the liberal use of mortgage re-financing and home-equity loans now makes American
homes a convenient piggy-bank when times get tough.
What's wrong with that, you ask? On the face of it, there's nothing at all wrong. Without these
trends, consumers would never have spent at a 6 percent annual rate late last year, and the
recession would have gone from mild to miserable.
But by counter-intuitively spending more as the economy slipped, we exit this recession with more
debt than any time since the mid-'80s, and less home equity than anytime since the Depression.
By living from loan-to-loan, shoppers have kept the economy humming. But all this spending has
also deprived U.S. households of the opportunity to rebuild their finances for the next rainy day.
Emboldened by recent experience, we will no doubt save less, spend more and count on a resilient
stock market to make up the difference.
As interest-rate guru Jim Grant noted, "the only thing worse than a bad recession is none at all."
TERRY KEENAN is senior business correspondent and anchor of Cashin' In, an investing program
that appears on the Fox News Channel on Saturday mornings at 11:30. E-mail
terry.keenan@foxnews.com. |
