What I felt was important or highlights from Greenspan's speech today taken from federalreserve.gov ........
First, why he feels it is important to prop up the market....
...we have already observed significant spending restraint among the top fifth of income earners--who accounted for around 44 percent of total after-tax household income last year--presumably owing to the drop in equity prices, on net, over the past two years.
Other snippets I keyed on......
the degree of strengthening in final demand over coming quarters, an essential element in sustained economic expansion, is still uncertain..........
....the reduction in the rate of inventory liquidation has induced a rise in industrial production.
The pickup in the growth of activity, however, will be short-lived unless sustained increases in final demand kick in before the positive effects of inventory investment dissipate. We have seen encouraging signs in recent months that underlying trends in final demand are strengthening, but the dimensions of the pickup are still not clear. ........
...........because there was little retrenchment during the cyclical downturn, the potential for a significant acceleration in activity in the household sector is likely to be more limited than in past business cycles.
One important source of support to household spending late last year--energy prices--will likely be less favorable in the months ahead. ..........
Not necessarily a key point but an interesting take and area of uncertainty and worth further study for the fed...
In assessing the possible effects of higher oil prices, the inherent uncertainty about their future path is compounded by the limitations of the statistical models available to analyze such price shocks. When simulated over periods with observed oil prices spikes, these models do not show oil prices consistently having been a decisive factor in depressing economic activity. Yet, coincidence or not, all economic downturns in the United States since 1973, when oil became a prominent cost factor in business, have been preceded by sharp increases in the price of oil. This pattern leads one to suspect that the responsiveness of U.S. gross domestic product to energy prices is far more complex and may be quite different when households and businesses are confronted with abnormal price hikes. Macroeconometric models typically are specified as linear relationships, and they reflect average behavior over history. These models cannot distinguish between responses to outsized spikes and normal price fluctuations and thus may not capture the effect of sudden and sizable shifts in oil prices on the economy.
More snippets of worth.......
......Household wealth relative to income has dropped from a peak multiple of about 6.3 at the end of 1999 to around 5.3 currently. Econometric evidence suggests that wealth is an important determinant of spending, explaining about one-fifth of the total level of consumer outlays. Indeed, about nine-tenths of the decline in the personal saving rate from 1995 to 1999 can be attributed to the rise in the ratio of wealth to income, and the subsequent decline in that ratio is doubtless restraining the growth of consumption. .........
.......the aggregate household debt service burden, defined as the ratio of households' required debt payments to their disposable personal income, rose considerably in recent years, returning last year to close to its previous cyclical peak of the mid-1980s, where it has remained. .....
.......increased debt burdens appear disproportionately attributable to higher-income households......
......repayment difficulties have already increased, particularly in the subprime markets for consumer loans and mortgages........
.......the restraining effects from the net decline in wealth during the past two years presumably have not, as yet, fully played out and could exert some further damping effect on the overall growth of household spending relative to that of income. ............
And as for what to expect for future policy from the Fed....
the current accommodative stance of monetary policy is not likely to be consistent with maintaining price stability. But prospects for low inflation and inflation expectations in the period ahead mean that the Federal Reserve should have ample opportunity to adjust policy to keep inflation pressures contained once sustained, solid, economic expansion is in view.
Posted as we do our mandatory end of day ramp up to make things look pretty. It wouldn't have looked good to have J6P come home from work and see the DOW had dropped 100 points after hyping the bounce yesterday all last night -ggggg-
I bet AAPL sounds great tonight and IBM tonight will give everyone some relief points tomorrow as a DOW heavy weight. Play the game, just don't believe it is real.
Dollar better bounce soon or Gold will start getting more attention from the Mo Mo crowd. -g-
Good Luck,
Lee |
