Hi Judy,
So happy to hear from you.
Always welcome, my friend.
Isn't the tech roller coaster fun?
Did you see the video version of Greenspan's speech? Full text below.
washingtonpost.com
Take care.
always,
di
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washingtonpost.com
>>> Greenspan Keeping an Eye on Oil Prices
By John M. Berry
Washington Post Staff Writer
Thursday , October 19, 2000
Federal Reserve Chairman Alan Greenspan said this morning that world oil prices are likely to fall from their recent highs and that the oil price spike has done little damage to the U.S. economy.
In an upbeat speech at The Cato Institute's annual monetary conference here, Greenspan also said there is no "credible evidence" that the acceleration of productivity growth, which has been spurred by technological advances in recent years, has come to an end.
The continuing gain in productivity – the amount of goods and services produced for each hour worked – has allowed firms to pay higher wages without passing those costs on to their customers and "has been essential to containing price increases," the Fed chairman said.
Touching on a key issue in the current presidential campaign, Greenspan said the big swing in the federal budget from large deficits in the early 1990's to growing surpluses most recently "has helped fill the pool of saving that has fed productivity-enhancing and cost-reducing capital formation." The earlier "outsized federal budget deficit . . . was absorbing an inordinate share of our national saving," he said.
Vice President Gore, the Democratic presidential nominee, frequently makes this same point about federal finances in his campaign appearances while attacking his opponent, Republican Gov. George W. Bush of Texas, for proposing a broad tax cut that would reduce future budget surpluses by $1.6 trillion over the next decade.
However, Gore has also proposed a series of smaller tax cuts that would reduce the surpluses by about $500 billion over the same period and has urged spending increases for a variety of programs that also would eat into the surplus.
"The mounting fiscal surpluses have been an important source of national saving, muting upward pressures on interest rates at a time of strong demand for private credit," Greenspan explained. "By keeping the cost of capital lower than it otherwise would have been, the surpluses have contributed to [greater capital investments] and faster growth of productivity."
Then with a nod to the campaign promises and the large increase in the fiscal 2001 budget now pending in Congress, he added, "But I believe most of us harbor doubts about whether the dynamics of the political process, some of which have been on display in the current budgetary deliberations, will allow the surpluses to continue to grow."
Greenspan's comments on the outlook for oil prices and how their increase has affected the economy were the most detailed he has ever given.
After noting that the U.S. economy uses oil much less intensively than it did in the 1970s when oil price spikes did great damage, the Fed chairman said it "still has the potential to alter the forces governing economic growth in the United States."
"To date, the spillover from the surge in oil prices has been modest," he said. "Any effect on inflation expectations . . . has been virtually nil. Moreover, despite some slowing that likely has been related in part to the bite from the so-called 'oil tax' on household incomes, the growth of consumer spending has remained firm. But policymakers will need to be on the alert for oil-driven, indeed energy-driven, risks to our expansion."
Greenspan said oil prices likely will fall because they currently are far above the cost of producing crude oil even from the most expensive oil fields in operation. New technological advances have "more than doubled the drilling success rate for new field wildcat wells during the past decade . . . [and] newer recovery techniques reportedly have raised the proportion of oil reserves eventually brought to the surface from a third to nearly a half in recent decades," he said.
While prices for oil currently available to refiners "have soared and plunged," the price per barrel in futures contracts calling for oil to be delivered six years down the road "generally moved lower over the past decade," Greenspan said. That six-year time span is long enough for companies "to seek, discover, drill and lift oil," he said.
"The most distant futures prices fell from a bit more than $20 per barrel just before the Gulf War [in 1990] to $17 to $18 a barrel a year ago. The current six-year contract has risen over the past year to about $21 per barrel. Arguably, however, this rise is related less to technology and the structure of underlying marginal costs and more to concerns about how quickly new practices will be exploited to expand the Organization of Petroleum Exporting Countries' productivity capacity," Greenspan said.
In the short run, prices soared because of very low worldwide oil inventories. But OPEC has raised production and it now is running nearly 1.5 million barrels a day higher than seasonally adjusted consumption, the Fed chairman said. That means inventories are being rebuilt but "are not yet back to normal levels." When they are, "it would certainly seem that . . . spot prices would shortly be under significant downward pressure," he said.
However, he cautioned, recent events in the Middle East, including new violence in Israel and the terrorist attack on a U.S. destroyer in Yemen, have raised additional uncertainties in oil buyers' minds about the future availability of supplies. That has caused some to try to build up their inventories even more, "which has helped keep prices high," he said.
Analysts said the speech, taken as a whole, suggested that Greenspan will not be seeking any change in interest rates when Fed policymakers meet Nov. 15. On the other hand, given some of the concerns he did mention, it is likely that he still regards the risk that inflation will get worse as outweighing the risk that economic growth will slow too much, the analysts said.
© 2000 The Washington Post <<< |
