Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : Greenspan, Rubin & Co - the Most Irresponsible Team Ever?? -- Ignore unavailable to you. Want to Upgrade?

To: Cynic 2005 who wrote (184)	6/29/1999 6:09:00 PM
From: Mama Bear	Respond to of 309

To: Cynic 2005 who wrote (184)	6/29/1999 9:36:00 PM
From: Dr. Jeff	Read Replies (1) \| Respond to 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.'' >>>

To: Cynic 2005 who wrote (184)	7/22/1999 8:14:00 AM
From: Giordano Bruno	Read Replies (1) \| Respond to of 309

This mornings new era view... Repeal Humphrey-Hawkins By Brian S. Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson in Chicago. Today Federal Reserve Chairman Alan Greenspan visits Capitol Hill to give his semiannual Humphrey-Hawkins report. The 1978 Humphrey-Hawkins Act requires this report and empowers the Fed to target any economic or market indicator that it wishes in order to justify its monetary-policy stance. <Picture: [Alan Greenspan]> Lately the Fed has argued that rising stock prices are causing an overheating economy, so it has tightened monetary policy. But by doing so the Fed has caused a large decline in commodity prices. Farmers are getting prices for their products more than 30% below year-ago levels. Scrap steel prices are down 23% from last year. This would not happen if the Fed followed a price rule for money. If the Fed targeted gold, a basket of commodities or other current real-time price indices, it would be lowering interest rates now. It is time to change the Fed's operating law before more damage is done. Wrong Models As in the past, Mr. Greenspan will tell Congress today that the Fed's models have been wrong. They have predicted that the economy could not grow as fast as it has without creating inflation. Despite this admission, the Fed refuses to change its models or strategies. The Fed pays lip service to "new era" high-tech productivity growth, but underestimates its power. Thus it argues that there are too many jobs, that higher wages will cause inflation, and that rising stock prices are bad for the economy. Yet the best thermometers of inflation--commodity prices and gold--are telling us exactly the opposite. The New Era is creating wealth at an unprecedented pace. Manufacturing productivity has grown at a 4% annual rate during the eight years of this recovery--the strongest sustained productivity growth in U.S history. The result of this strong growth is lower inflation. More real goods soak up excess liquidity and drive prices down, not up. Durable-good prices in the Consumer Price Index--computers, autos and household appliances--have fallen for three years in a row and are down 2.3% at an annual rate so far in 1999. Even service-price inflation, which the data horribly overstates, rose at just 2.47% during the second quarter, a 34-year low. While there is nothing wrong with slight deflation caused by rising productivity, deflation induced by monetary policy can be very dangerous, as the Great Depression showed. The signs of tight money are everywhere. Every country that pegs its currency to the U.S. dollar but does not have a currency board has had problems holding its peg. Moreover, since June 30 gold prices are down 2.8%, soybean prices 0.5%, wheat 4%, corn 5% and lean hogs 7.8%. Oil and copper prices are up, but because of OPEC production cuts and mine closures, not inflationary pressures. In the late 1920s, the Fed ignored falling commodity prices and continually raised rates to pop what it perceived as a bubble in financial markets. Eventually, falling commodity prices forced the passage of the Smoot-Hawley Tariff Act. The combination of tight money and protectionism caused the Great Depression. Today falling farm prices are creating pressures for trade protection, restored subsidies and a government bailout for farmers. The only way to avoid such measures is to stop focusing monetary policy on stock prices. The Fed should listen to commodity prices and let the economy run rather than assume that failed models will begin to work again. Congress should pass Sen. Connie Mack's legislation to repeal Humphrey-Hawkins and mandate the Fed to target prices. Let's hope it does before misguided monetary policy brings the new era to an end.